The Chain Of Command: How Facebook’s Libra, Bank Regulators, and PayPal Built A New World Currency

Key Takeaways

• A monetary network’s success is dependent on the size and volume of its active user base.
• The former lead of Facebook’s Libra project, David Marcus, is the former President of PayPal. PayPal’s founding mission, and subsequent T-shirt motto, was to create “A New World Currency.”
• Marcus built Facebook’s stablecoin project after concluding that Bitcoin lacked the qualities to be a successful medium of exchange.
• In order to appear decentralized, Libra formed the Libra Association, but included many very inter-connected businesses and people, as noted elsewhere in The Chain series.
• Government regulators, fearing Facebook’s immense active user base, quickly called the Libra team to testify before Congress, and eventually pressed the project to fold before launching.
• Libra had previously stated in their S-1 filings that regulatory pressure and uncertainty could lead the project to never launch. Other evidence suggests the entire goal of Libra was to perfect the public-private partnership for the future implementation of the U.S. government’s preferred digital currency project.
• Jared Kushner sent an email to Steve Mnuchin in May 2019 regarding a Sam Altman post on stablecoins titled “US Digital Currency.”
• Mnuchin’s Treasury then held a March 2020 meeting after inviting many figures mentioned in The Chain series, including Wences Casares and Peter Thiel.
• Libra announced partnerships with Fireblocks, Silvergate Bank, and Paxos in order to expedite their stablecoin project, but none materialized.
• After being shutdown by regulators, Libra sold off its assets to Silvergate Bank in January 2022.
• Silvergate facilitated Bitcoin-collateralized loans with MicroStrategy and Marathon Digital, and were partially owned by Block.One, BlackRock, State Street and Citadel Securites.
• Silvergate Bank, whose SEN product serviced a substantial amount of firms mentioned in The Chain series, was then liquidated by regulators in March 2023.
• Silicon Valley Bank (SVB), which failed two days after Silvergate, banked a significant amount of the companies and venture capital in the cryptocurrency industry.
• The day before the SVB collapse, Peter Thiel’s Founders Fund pulled out funds, and advised clients to do the same, triggering deposit flight.
• 10 customers alone had $13 billion in deposits at SVB, and $42 billion left the bank in 6 hours. In other words, SVB collapsed due to an acute liquidity crisis that was spawned by very few people.
• The Trump administration’s deregulation of the banking industry in 2018 loosened capital and reporting requirements, leading to many of the issues seen in the banking crisis in 2023.
• Circle’s USDC stablecoin, which had $3.3 billion of reserves at SVB, would “depeg” to 86 cents during the crisis.
• Six months after the banking crisis, and two weeks after the U.S. House Financial Services committee advanced their first stablecoin bill, Paxos and PayPal launched PYUSD.
• The Gillibrand-Lummis Stablecoin Bill was directly influenced by the Terra-LUNA collapse, which resembles more of a controlled demolition than an organic collapse. As a result, the bill bans algorithmic alternatives in pursuit of preserving the dual banking system. Both Senator Gillibrand and Senator Lummis have significant donor ties to many of the firms mentioned in The Chain series.
• Large lobbying groups, such as Coin Center and the Digital Chamber of Commerce, were formed to help guide legislation as it relates to stablecoins and digital assets. Both of these lobbying groups have advisory ties to stablecoin issuers and many firms and people mentioned thus far in The Chain series.
• Multiple parties mentioned in this piece, from the Libra team to lobbyists, have echoed the sentiment that USD stablecoins can help retain the U.S. dollar as the world’s reserve currency.
• Many of the companies formed after the dissolving of Libra carry on the work of building a new financial system based on stablecoins and public blockchains.
• According to national security state members, Bitcoin and stablecoins can provide a “boon for surveillance” in addition to helping grow the economy.
• The Bitcoin-Dollar system, as described in The Chain series, is the actualization of PayPal’s founding intention to create a «new world currency», and it was carefully constructed to appear as an organic phenomenon when it is not.

The initial trio of pieces in The Chain series have focused on the three essential pillars for creating a new digital monetary system. The first, The Chain of Custody, examined the construction of novel custodial infrastructure to enable the secure holding of billions of dollars worth of digital assets after the proliferation of Bitcoin as a new financial class. The second, The Chain of Issuance, investigated the primordial roots of digital payments fortifying data brokers and information bankers within the global surveillance network. It also noted how stablecoin issuers are the modern day analogue to the influence that the major infrastructural titans of the Industrial Age had on the formation of The Federal Reserve in the first half of the 20^th century. The third, The Chain of Consensus, focused on the currency speculators and intelligence-connected developers behind the monetary policy and consensus infrastructure of privately-issued money and the blockchain revolution during the infancy of the Deflationary Age brought about by Bitcoin and the subsequent, dollarized iterations of its underlying database technology.

In summary, a new financial system cannot be built without the ability to custody assets, issue new assets, and uphold the settlement and monetary policy of said assets via a governing consensus. Yet, even with the successful formation of this necessary trifecta, the construction of a monetary network is simply fruitless without the acquisition of the last remaining pillar: a network of active users. This concept is well understood by both the private sector companies that have been mentioned throughout this series, in addition to the public sector that currently acts as the enabling environment for the rules and regulations of nation-state monetary systems upheld by central banks across the world. None of these public issuers of money, however, have the global impact of the U.S. Federal Reserve and the U.S. Treasury system, which provides immense privileges that come downstream from their issuance of the notes and reserves backing the world reserve currency, the U.S. dollar. With 66 countries worldwide listing the dollar as an official currency, the vast number of users utilizing these instruments makes the dollar system the largest financial network in the world.

Even within this monopoly, there is a fractured set of settlement networks, such as PayPal, and private banks, such as J.P. Morgan, issuing said dollars in users’ checking accounts. This balkanization presents a unique opportunity for further consolidation and, with that consolidation, the ability to acquire even more users. For example, PayPal acquired millions of global users via their purchases of Venmo and Xoom, while J.P. Morgan assumed the deposits of the failed First Republic Bank after the onset of the regional banking crisis in 2023.

Money itself is but a technology that enables agreeable and predictable outcomes between two bartering parties. This axiom requires money that simultaneously acts as a unit of account, a store of value, and a medium of exchange. While all of these properties can be met by a multitude of currently circulating currencies – and even commodities – their usefulness for settlement across both time and space is determined nearly entirely by the number of users within their respective networks. The dollar system is the most liquid monetary network in the world, and has held this position for nearly a century. Historically, the world’s reserve currency has held its dominant status for roughly this same duration of time. With U.S. debt levels now growing at uncontrollable and exponential rates, the formation of proposed alternatives to the dollar’s monopoly are popping up across the globe. The world economy is a finite pie consisting of finite users, and with the dollar network appearing truly weak for the first time in decades, competitors are posturing for a piece. However, with the global broadband internet dissolving some of the control that nation states have over their own citizens’ monetary choices, the world is actually dollarizing faster than ever.

As the internet age enters its third decade, the stakes for creating the internet of money have never been higher. For now, the proliferation of dollarized blockchains seemingly aims to fortify the dollar’s hold over global finance, not dissolve it. Regardless of the dollar’s domination of denomination, the upstart issuers of these tokenized assets have hemorrhaged away enough users that it now threatens many of the privileges the legacy system once enjoyed, mainly the available profits found by selling their data and leveraging their deposits.

The understanding that social networks are communication platforms, and that money itself is just a ledger upholding the communicative expression between users, led the social media giant Facebook to experiment with adding financial instruments to their vastly popular Messenger app. While Bitcoin and alternatives had been around for nearly a decade before Facebook’s Libra was proposed, this was “the shot heard ‘round the world” for central bankers and regulators to sit up straight and take a novel payments system proposed by the world’s largest social network seriously.

Yet, as Facebook soon found out, if you come at the king, you best not miss. Or at least this was the story that was told to the world: The U.S. regulatory system said “No” and that was that. However, this concluding piece to The Chain series, The Chain of Command, postulates that Libra was never intended to actually go to market as designed, but rather was meant to set the stage for clear regulation via legislation that would become the enabling environment for a decades-long attempt at creating a new world currency by the very same parties covered thus far in this series.

Libra, Diem and Facebook’s Stablecoin

Sitting on a Caribbean beach during the winter of 2017, David Marcus was struck with the idea of creating a global digital currency to run on Facebook’s Messenger. Marcus, who had sold his mobile payment provider Zong to PayPal for $240 million in 2011, and who had been introduced to Bitcoin in 2009, was certainly no spring chicken to the rapidly evolving FinTech and digital payments space. Within nine month of Zong’s acquisition by PayPal, Marcus was named PayPal’s president in April 2012. Then, in June 2014, Marcus was recruited by Facebook’s Mark Zuckerberg to run their Messenger app. By the time the idea that would become Libra began to germinate during his 2017 vacation in the Dominican Republic, the social network’s messenger app boasted over 1.3 billion active users.

Prior to his experience with PayPal and Facebook, Marcus had founded GTN Telecom, noted as being the “first to break Switzerland’s telecommunications monopoly” in 1996. GTN Telecom was backed by the UK’s 3i, a venture capital firm founded in 1945 by the Bank of England and “a syndicate of British banks,” and was later sold in 2000 to WorldCom’s World Access just two years before WorldCom would file for Chapter 11 bankruptcy after excessive accounting fraud. Marcus went on to found Echovox, a “mobile monetization company focused on monetizing web and traditional media audiences” via “transaction-enabled mobile services,” shortly after the October 2000 sale of GTN. Zong was later spun off from Echovox. Bertrand Perez and Kurt Hemecker, two executives at Zong, would become part of the founding team at Libra alongside Marcus.

“In late 2009 when I first stumbled upon Bitcoin and read the white paper, I tried to play with it, but it was so cumbersome even for a geek like me. I just couldn’t get it. So I kind of put it aside, brushed it aside, and then came back to it in 2012 when a good friend of mine who’s often referred to as a Patient Zero in Silicon Valley for Bitcoin, [Xapo’s] Wences Casares, basically started telling me more about it and telling me ‘you have to actually spend time and understand this thing.’ And so I did. And then I just couldn’t stop thinking about it. I just couldn’t stop thinking about this idea that you could actually be your own self-sovereign for digital value and you could move it around without any intermediary in between…

Then in 2013 at PayPal, that’s after Zong got acquired by PayPal and I was running it, I remember that Argentina asked us to actually stop the flow of money going out of the country from PayPal accounts located in Argentina. And I remember us having to comply because we were regulated entity, and seeing the price of Bitcoin rise the same day. And it was really clear that a lot of Argentines at the time were actually moving their funds into Bitcoin so that they would have control over their hard-earned money.”

David Marcus, The Block, June 27, 2023

According to reporting from Financial Times, Marcus, a close confidant of Zuckerberg, apparently “texted Zuckerberg to outline his ruminations” and after successfully convincing Facebook’s CEO, he was given a “blessing to explore the idea further.” Marcus quickly outlined his idea in an internal memo, highlighting that “Facebook’s more than two-billion-strong user base” empowered with crypto “could offer a convenient and cheap way to move money around the world,” in addition to providing “a treasure trove of data about what people spend their money on.”

For the social network, the “possible multi-billion-dollar commercial opportunities were clear,” including “user transaction data,” “more engagement,” “more e-commerce,” and “a slice of fees from transactions.” According to an unnamed regulatory official, this “was always their advantage.” Libra would “create tremendous opportunity and a lot of money for them. But if Facebook was going to be the reason it was very successful, they were also going to be the reason it would fail.”

During the months right after Libra’s announcement, Marcus updated his thoughts on Bitcoin, stating “For me, now, it’s clearer that Bitcoin serves a purpose of being digital gold, not a good medium of exchange.” It was this axiom that led Marcus to express that “this was the right time for us to start thinking about how we could address the very things that blockchain and cryptocurrency were meant to do” and that “we had real solutions to bring to the fore.” Marcus later explained his motivations for bringing publicly-issued money via tokenized dollars to the Libra experiment in an August 2023 conversation with Bankless:

“I don’t think that I’m in the camp of people who want to fully separate money from State. I feel like my own personal objective is to actually make the underlying rails really efficient, really open, really interoperable, and enable more people to have access to them. I think that the world where actually good governments cannot control their own monetary policy, etc., this world where it doesn’t exist, would be chaos.”

It is perhaps this affinity for State-controlled monetary policy that led Marcus to announce Libra to the world within the confines of The Old San Francisco Mint in June 2019. However, the project itself was started both in earnest and in secrecy by Facebook in early 2018, when Morgan Beller, a former partner of Andreessen Horowitz, joined Marcus in plotting to bring both payments and a novel currency construction to Facebook’s Messenger product. According to reporting from the Financial Times, the pair first worked “in a small, empty room” with “walls adorned with whiteboards” within “Facebook’s main campus in Menlo Park.” Shortly after, the duo “moved to a larger, more secluded building” positioned “on the outskirts of the company’s headquarters” that limited access to “only employees with particular passes” consisting of “the crypto experts, engineers and economists.” The project was codenamed Libra, and Beller was quoted as saying that the team was “paranoid about leaks” and operated “like a secret Swat operation.”

In addition to Beller, Marcus was quickly joined by Christian Catalini, a research scientist at MIT who had founded the MIT Cryptoeconomics Lab. While there, Catalini designed the MIT Digital Currency Research Study, which “gave access to Bitcoin to all MIT undergraduate students.” In 2013, Catalini became a member of the Technology Advisory Committee of The Commodity Futures Trading Commission (CFTC) alongside his advisory board appointments to Coinbase, Algorand, Chainlink and Hivemind Capital. Catalini became essential to the development of Libra, and is noted as being a co-creator of Libra and Chief Economist of the Diem Association after Libra rebranded to Diem, in addition to his title of Head Economist at Meta FinTech.

Catalini, alongside Jai Massari – a partner in the Financial Institutions Group of Davis Polk & Wardwell LLP and an outside counsel to Diem – wrote a piece titled “Stablecoins and the Future of Money” which proposes that “through a sensible regulatory approach, true stablecoins can fulfill their promise without introducing new risks.” Their theory on the next evolution of money, which was demonstrated throughout the multitude of iterations of Libra, is excerpted below:

“Modern money is a combination of public and private money. Public money includes central banks-issued cash and digital claims against central banks. Private money includes deposit claims against commercial banks. While the public sector protects the stability of money, up to 95% of money in developed economies is private. Stablecoins are a form of private money. This is not a new concept — the idea of separating monetary and credit functions traces back 80 years. By lowering the cost of digital verification, blockchain technology can expand the role of both the public and private sector in the provision of money. While the public sector could attempt to connect with consumers and businesses directly, the private sector is likely to be more efficient in meeting the public’s needs and increasing choice.

Succeeding in this transformation will require the right balance between the public and private sectors. Countries that overemphasize the public approach will likely end up falling short in speed to market, competition, and innovation…The public sector may also struggle with serving citizens and businesses effectively. Given the incredibly high bar in terms of resilience and security, it will likely take years for a CBDC to be developed and adopted…This is where CBDCs and stablecoins are strong complements, not substitutes. The public sector could focus on issuing digital coins and delivering on sound money, while the private sector could build rails and applications. Competition with legacy networks would further ensure a higher degree of resilience and innovation…

The question for central banks and regulators then becomes which combination of the three approaches [“true” stablecoins, deposit coins, and CBDCs] can also improve competition, lower cost, and increase access to the financial system…A much stronger combination would be the public sector focusing on regulation of stablecoins first, and then on CBDC issuance on multiple rails later to complement potential shortcomings…Public sector guidance and standard setting can be incredibly useful in promoting the right solutions in these areas…In the case of money, the public and private sectors can play to their relative strengths, solidify their public-private partnership, and improve societal outcomes in the process.”

Catalini, Massari, and Marcus would all go on to form LightSpark – an institutional payments company focused on Bitcoin and the Lightning Network – after the dissolution of the Libra project. The pivot back towards Bitcoin and specifically the Lightning Network is perhaps best exemplified by the regulatory realities within the United States. As Marcus stated to The Block: “I just want to state that I feel like it’s a shame that we’re in this current state of uncertainty from a regulatory standpoint as a country… I think you know the reason Bitcoin is so special is because, first of all, it is the only asset out there that has been clearly defined as not a security by the SEC in the U.S.” In fact, the Libra team actually met with Lightning Labs at the onset of the project while still in the process of determining the best course of action to build Facebook’s digital currency. According to Marcus during a discussion with Bankless, “In early 2018,” the Libra team “went to see Lightning Labs team in SF and we looked at Lightning as one of the ways to actually do this.” In this interview, he further articulated his position on Lightning, bringing stablecoins to Bitcoin, and even algorithmic stablecoins:

“I’m actually all for stablecoins on top of Lightning when that becomes a thing and there are a number of work streams that are out there to make that happen. I think my problem is actually if you’re dependent on one stablecoin, or one asset, to be the native core settlement asset of a payment network, then you have a problem because the algorithmic stablecoins don’t work in my opinion. I really believe that it’ll never work and so stablecoins need to have a reserve and someone controls that reserve and if someone controls that reserve, then it’s the single point of failure of your entire payment network if you’re solely dependent on it.”

Despite the team’s interest in Bitcoin, Marcus stated that “unfortunately the tech just wasn’t ready for prime time and certainly not for scaling to the type of scale that Meta had with its Messaging apps.” This realization led Marcus and his team to “actually go build new tech and that’s what we did.”

After the Libra project was announced to the world in 2019, there were a few organizational strategies employed in order to mitigate the appearance of centralization, including the establishment of the Libra Council, the Libra Association, and the board of directors. All three of these groupings were formed during the inaugural meeting held in October 2019 in Geneva, Switzerland. The first batch of organizations that signed on as members included: “Anchorage, Andreessen Horowitz, Bison Trails Co., Breakthrough Initiatives, L.P., Novi Financial [initially known as Calibra, the company responsible for building the wallet software for Libra], Coinbase, Inc., Creative Destruction Lab, Farfetch UK Limited, Iliad, Kiva Microfunds, Lyft, Inc., Mercy Corps, PayU, Ribbit Capital, Spotify AB, Thrive Capital, Uber Technologies, Inc., Union Square Ventures, Vodafone, Women’s World Banking, [and] Xapo Holdings Limited.”

Many of the companies listed here have appeared within The Chain series, including the only OCC-chartered crypto bank Anchorage Digital, Marc Andreessen’s Andreeseen Horowitz, Coinbase, the PayPal- and Omidyar -affiliated Kiva, Meyer Malka’s Ribbit Capital, Fred Wilson’s Union Square Ventures, and Wences Casares’ Xapo. Others that have not been previously discussed in this series also boast ties to this same network. For instance, Thrive Capital, the venture capital firm of Joshua Kushner (Jared Kushner’s brother), raised $40 million in 2011 from investors including Peter Thiel, the Wellcome Trust, and Princeton University, while it later took an estimated $120 million from Goldman Sachs in 2021 via their Petershill Partners affiliate. The firm is advised by Twitter founder Jack Dorsey and holds a “good percentage” of the online payment juggernaut, Stripe, which in 2023 raised nearly $6.5 billion from Andreessen Horowitz, Thiel’s Founders Fund and Goldman Sachs. In October 2024, Stripe would spend $1.1 billion to acquire stablecoin issuer Bridge, leading Stripe CEO Patrick Collison to refer to stablecoins as “room-temperature superconductors for financial services.”

Another example is Breakthrough Initiatives, which was formed by DST Global founder and Xapo investor Yuri Milner. Milner is perhaps best known for creating The Breakthrough Prize with Mark Zuckerberg and Anne Wojcicki, the ex-wife of Google’s Sergey Brin and current CEO of 23andMe. The Creative Destruction Lab is a non-profit that has partnered with XPRIZE, a foundation started by Singularity University’s Peter Diamandis with a board featuring Google’s Larry Page, Elon Musk, film director James Cameron, and Google’s Ray Kurzweil, who sponsored the Singularity Summit in 2006 alongside Thiel and the Machine Intelligence Research Institute, the latter was advised by Thiel and blockchain pioneer Jed McCaleb. McCaleb is best known for founding the first significant Bitcoin exchange, Mt.Gox, in addition to Ripple Labs and Stellar, the latter of which raised funds from “Stripe and PayPal executives” and features the PayPal Mafia’s Keith Rabois, Thiel-protégé Sam Altman, Stripe CEO Patrick Collison, and the Idealab– and Thiel–affiliated Naval Ravikant as advisors.

In addition to the Libra Association, a technical steering committee was formed in December 2019. Five members were elected including Anchorage Digital co-founder Diogo Mónica, Calibra core product lead George Cabrera III, Bison Trails founder Joe Lallouz, Union Square Ventures partner Nick Grossman, and Mercy Corps emerging technology director Ric Shreves. The Libra Council also appointed a board of directors, which included Matthew Davie of Kiva Microfunds; Patrick Ellis of PayU; Katie Haun of Andreessen Horowitz; David Marcus of Novi Financial; and Wences Casares of Xapo Holdings Limited. The Libra board, once established, voted on and appointed the initial Libra Association staff, including Bertrand Perez as Chief Operating Officer and Interim Managing Director; Dante Disparte as Head of Policy and Communications; and Kurt Hemecker as Head of Business Development. In addition to other Libra team members not mentioned in the early press releases, Laura Morgan Walsh, a 13-year veteran of PayPal, was named Head of Operations.

Katie Haun, in addition to her role at Andreessen Horowitz, is the Founder and CEO of Haun Ventures, alongside Libra steering committee member Diogo Mónica. Haun, a lifetime member of the Council of Foreign Relations (CFR), and a Coinbase board member from 2017 until 2024, began her career with a decade long stint as a federal prosecutor serving the SEC, the FBI and the Treasury, responsible for creating the U.S. government’s first cryptocurrency task force that helped lead investigations into the Mt.Gox hack and the Silk Road prosecution. Haun went to Stanford Law School, and studied with Sam Bankman-Fried’s parents, meeting the now infamous and disgraced head of FTX when he was only a child. Casares, featured in The Chain of Custody, is a long-time friend of Marcus, and joined the PayPal board in 2016, in addition to being on the board of Kiva and the executive chairman and founder of the cryptocurrency lobbying group, Coin Center.

In addition to the initial 21 companies that signed on to the Libra Association, payment stalwarts Visa, PayPal, Mastercard, Stripe and Mercado Pago all expressed interest in the project, before promptly dropping out, alongside PayPal-acquirer eBay, after pressure from U.S. regulators. Senator Brian Schatz (D-HI) and Senator Sherrod Brown (D-OH) sent letters to Visa CEO Alfred Kelly, Jr., Stripe CEO Patrick Collinson, and Mastercard CEO Ajaypal Banga “over the firms’ participation in the developing network.” “It is chilling to think what could happen if Facebook combines encrypted messaging with embedded anonymous global payments via Libra.” Schatz and Brown also suggested that participating firms “such as Visa, Stripe, and Mastercard” may see “heightened regulatory scrutiny overall” as a result of Libra Association membership when they wrote: “If you take this on, you can expect a high level of scrutiny from regulators not only on Libra-related payment activities, but on all payment activities.”

This sentiment was first initiated by Maxine Waters, the Californian congresswoman who sat as the Chair of the House Financial Services Committee during the Libra hearings, in a letter dated July 2, 2019:

“We write to request that Facebook and its partners immediately agree to a moratorium on any movement forward on Libra—its proposed cryptocurrency and Calibra—its proposed digital wallet. It appears that these products may lend themselves to an entirely new global financial system that is based out of Switzerland and intended to rival U.S. monetary policy and the dollar. This raises serious privacy, trading, national security, and monetary policy concerns for not only Facebook’s over 2 billion users, but also for investors, consumers, and the broader global economy.

On June 18, 2019, Facebook announced its plans to develop a new cryptocurrency, called Libra, and a digital wallet to store this cryptocurrency, known as Calibra…While Facebook has published a “white paper” on these projects, the scant information provided about the intent, roles, potential use, and security of the Libra and Calibra exposes the massive scale of the risks and the lack of clear regulatory protections. If products and services like these are left improperly regulated and without sufficient oversight, they could pose systemic risks that endanger U.S. and global financial stability. These vulnerabilities could be exploited and obscured by bad actors, as other cryptocurrencies, exchanges, and wallets have been in the past. Indeed, regulators around the globe have already expressed similar concerns, illustrating the need for robust oversight…

These risks are even more glaring in light of Facebook’s troubled past, where it did not always keep its users’ information safe. For example, Cambridge Analytica, a political consulting firm hired by the 2016 Trump campaign, had access to more than 50 million Facebook users’ private data which it used to influence voting behavior. As a result, Facebook expects to pay fines up to $5 billion to the Federal Trade Commission (FTC), and remains under a consent order from FTC for deceiving consumers and failing to keep consumer data private…

Because Facebook is already in the hands of a over quarter of the world’s population, it is imperative that Facebook and its partners immediately cease implementation plans until regulators and Congress have an opportunity to examine these issues and take action. During this moratorium, we intend to hold public hearings on the risks and benefits of cryptocurrency-based activities and explore legislative solutions. Failure to cease implementation before we can do so, risks a new Swiss-based financial system that is too big to fail.”

Representative Waters furthered this apprehension in a letter penned the next month, August 2019, in which she stated that her “concerns remain with allowing a large tech company to create a privately controlled, alternative global currency.” David Gerard, the author of Libra Shrugged: How Facebook Tried to Take Over the Money, made note that “The attacks were absolutely bipartisan because both sides agree: you don’t mess with the money…This is what happens when the dreams of bitcoin bros meet reality.” In agreement with Gerard’s comment, both Waters and the Trump-nominated Federal Reserve Chair Jerome Powell expressed issues regarding Libra during Powell’s testimony before the House Committee on Financial Services in July 2019. Waters reiterated her concerns at the onset of the hearing, articulating that she “believe[s] that what Facebook is planning raises serious privacy, trading, national security and monetary policy concerns for consumers, investors, the US economy, and the global economy,” and further noted that “Facebook’s foray into this field should signal to all of us that our current system of regulation lacks adequate coordination safeguards and attention to crypto.” Waters even called upon Powell to “be a leader on this issue,” and that the Fed chair “should not take a wait-and-see approach when it comes to examining a financial system involving 2.4 billion people.” Powell seemed to be in agreement that Facebook’s large active user base presented problems for regulators not yet seen in other cryptocurrency experiments:

“Due to the to the possibility of quite broad adoption, Facebook has a couple billion plus users, so you have, I think, for the first time, the possibility of a very broad adoption. And if there were problems there associated with money laundering, terrorist financing – any of the things that we’re all focused on, including the company, they would immediately arise to systemically important levels just because of the mere size of the Facebook network.”

Jerome Powell, July 10, 2019, U.S. House of Representatives

Then-Treasury Secretary Steve Mnuchin, who initially recommended Powell to President Trump for the Fed Chair position, took a slightly more optimistic approach in commenting on Facebook’s currency plans, stating that “I’m fine if Facebook wants to create a digital currency, but they need to be fully compliant,” and “in no way can this be used for terrorist financing.” While on the topic of issuing digital currency, Mnuchin revealed that “Powell and I have discussed this – we both agree that in the near future, in the next five years, we see no need for the Fed to issue a digital currency.” In addition to discussions within the Trump administration, Powell had also confirmed that his team had “met with Facebook representatives in the months ahead of the Libra announcement,” in “part of the tech company’s global tour of meetings with financial authorities.”

According to reporting from Wired, many regulators “left those meetings unsatisfied,” and that “regulators in the UK, Japan, and Singapore have called for greater scrutiny of Libra in recent weeks.” At the time, the Bank of England expressed that “Facebook has made rounds with regulators around the world to discuss its plans [Libra], including us. There are benefits…but also risks we’re watching, and echo the statement [Bank of England] Governor Carney issued.” Then-BoE governor Mark Carney said he was “open-minded about Facebook’s Libra token,” but “warned mass adoption would force it” to “be subject to the highest standards of regulation.” Mu Changchun, the deputy director of the People’s Bank of China’s payment department told Bloomberg it “won’t be sustainable without the support and supervision of central banks.” France even set up a task force within the Group of Seven (G7) nations to discuss Libra, leading France’s finance minister Bruno Le Maire to state “It is out of question” that Libra be allowed to “become a sovereign currency,” and that “it can’t and it must not happen.”

In addition to these meetings by global financial regulators, President Trump himself held a dinner with Zuckerberg and Facebook board member Peter Thiel at the White House in October 2019 after the Facebook CEO testified to Congress regarding Libra. It was the second time Zuckerberg had met with Trump that Fall after a September 2019 meeting in the Oval Office. A few months before, Trump’s son-in-law and special adviser, Jared Kushner, had emailed Mnuchin in May 2019 regarding a blog post by Peter Thiel protégé Sam Altman titled “US Digital Currency,” in which Altman expressed a novel method for the country to attempt to adopt rather than attempt to stop cryptocurrency:

“I am pretty sure cryptocurrency is here to stay in some form (at least as a store of value, which is the only use case we have seen work at scale so far). There was possibly a time when governments could have totally stopped it, but it feels like that’s in the rearview mirror.

However, I think it’s very possible that the dominant cryptocurrency hasn’t been created yet (Google was years late to the search engine party, and Facebook came long after most people assumed the social network wars were won). And from the perspective of a nation, there are real problems with current systems, especially around pseudo-anonymity, ability to function as an actual currency, and taxability.

Although I don’t think the US government can stop cryptocurrency, I do think it could create the winner–let’s call it “USDC” for US Digital Currency–and fix some challenges that governments currently face with cryptocurrency. I think the first superpower government to do something like this will have an enviable position in the future of the world, and some power over a worldwide currency. The US government could decide to treat USDC as a second legal currency, which would be hugely powerful.”

Kushner asked Mnuchin his thoughts on a U.S. Digital Currency, and even suggested putting together a focus group to discuss: “Steven – Would you be open to me bringing a small group of people to have a brainstorm about this topic?” Kushner wrote. “My sense is it could make sense… and also be something that could ultimately change the way we pay out entitlements as well saving us a ton in waste fraud and also in transaction costs.” This email was revealed in “The Mnuchin Files,” which were obtained by CoinDesk via a FOIA request at the start of 2022. Within these files was the revelation that the Treasury had held a handful of meetings with regulators and private-sector payment companies involved in blockchain. One of these meetings was a March 2, 2020 “crypto summit” that featured prominent figures from The Chain series, including; Meyer Malka of Ribbit Capital, Joey Garcia of Isolas (in addition to positions at Xapo and RSK), Jack Dorsey of Twitter, Jerry Brito of Coin Center, Brian Armstrong of Coinbase, Peter Briger of Fortress (in addition to stints at Goldman Sachs, the Council of Foreign Relations, and PayPal’s Digital Advisory Board), Michael Gronager of the CIA-funded Chainalysis, Wences Casares of Xapo, and Jeffrey Yass of Susquehanna. Thiel was invited to this meeting, but was unable to attend. In addition to these private sector stalwarts, “high-ranking government officials from the Treasury, FinCEN, the FBI and other agencies” were also present.

Coinbase’s Chief Financial Officer, Alesia Haas “has a personal friendship with Secretary Mnuchin,” according to an email sent to the Treasury department. According to commentary from CoinDesk, Haas was previously CFO at OneWest, the bank Mnuchin ran during the 2008 financial crisis, that also employed former Coinbase executive Brian Brooks, who was made Acting Comptroller of the Currency in May 2020 via Mnuchin’s designation. While only at the OCC for a year, Brooks introduced “regulatory initiatives that provided banks with the green light to offer cryptocurrency custody services and stablecoin payment systems,” before leaving to re-join the private sector, including a three-month stint as CEO of Binance.US. The same month of Brooks appointment, May 2020, Haas was present during a Treasury conference call with Coinbase CEO Armstrong. Brooks allowed Anchorage Digital, a Libra Association member advised by PayPal co-founder Max Levchin, to secure a national trust charter and become the nation’s first and only approved “digital asset bank,” just days before he stepped down from his role in January 2021.

Republican Senator Mike Rounds of South Dakota penned a favorable letter to Anchorage in October 2019, becoming the first elected official to “endorse” the Libra project, stating: “Technologies like Libra … have the potential to help unbanked and underbanked consumers right here at home… It would be unfortunate to shun a new solution that could connect more of the most vulnerable Americans to our financial services system… Given the length of time it will take for the Fed to finish FedNow, the Libra Association should not wait to see if recent conversations about a Fed-run digital currency come to fruition.” While Senator Rounds endorsed Facebook’s project, few members of the regulatory arms of the U.S. seemed to share these sentiments.

Facebook, facing social and political prosecution for their involvement in what is now known as the Cambridge Analytica data scandal, was dealing with a crisis of confidence from their users and regulators as the Libra project began. Notably, Cambridge Analytica involved not just one but two companies closely connected to Peter Thiel: Facebook and CIA contractor Palantir. In addition, two prominent figures in the Cambridge Analytica data scandal, which was key to the successful campaign of President Trump, were Steve Bannon and Brittany Nicole Kaiser, with Bannon being referred to as Tether-cofounder Brock Pierce’s “right hand man,” and Kaiser having been the campaign manager for Pierce’s failed 2020 presidential campaign. Pierce would also “pop up” in campaign finance reports as a “Trump campaign megadonor,” who once spent $100,000 for “dinner and access” to Trump and Mnuchin. Zuckerberg himself acknowledged the impact of the scandal on Facebook’s crypto prospects when he told lawmakers in 2019, “I understand we’re not the ideal messenger right now . . . I’m sure people wish it was anyone but Facebook putting this idea forward.”

This self-acknowledged affliction on Facebook’s image led the company to make choice selections while building out the second iteration of Libra’s team. In May 2020, Facebook appointed Stuart Levey – the former Under Secretary for Terrorism and Financial Intelligence at the Treasury Department under President Bush and President Obama, senior staff at the Department of Justice, Chief Legal Officer of HSBC, and a senior fellow at the Council of Foreign Relations – as the CEO of Libra. After the shuttering of Libra/Diem, Levey joined CIA-front Oracle as an Executive Vice President and Chief Legal Officer. Libra would similarly hire Steve Bunnell – former Chief of the Criminal Division at the U.S. Attorney’s office, general counsel for the Department of Homeland Security, and Fellow of the Trilateral Commission – to become its Chief Legal Officer. “The people were really extraordinary, some of the very best,” stated Ari Redbord, who was the Senior Adviser to the Treasury Deputy Secretary and the Under-Secretary for Terrorism and Financial Intelligence. “They basically put together the team that regulators would want to hear from when they are looking [at] how you’re going to build out a compliance programme.”

In an attempt to sway regulators, Libra also brought on former HSBC executive James Emmet as a managing director; Sterling Daines as Libra’s Chief Compliance Officer who previously worked at Credit Suisse, Goldman Sachs, and Deloitte in addition to consulting for the DOJ and the Financial Crimes Enforcement Network (FinCEN); Saumya Bhavsar as General Counsel after experience at Credit Suisse, UBS, Euroclear, and the OCC, in addition to the European Commission and British Parliament; and former aide to the Chairman of the U.S. Senate Banking Committee Susan Zook from Mason Street Consulting to lobby on behalf of Libra.

In addition to Mason Street, Libra spent over $7.5 million in 2019 alone on third-party lobbying firms including Sternhell Group, the Cypress Group, and the law firm Davis Polk & Wardwell, the latter of which had previously employed Fed Chair Jerome Powell and NY Senator Kirsten Gillibrand – one of the authors of the Stablecoin bill. Davis Polk & Wardwell are perhaps best known for representing the Sackler family-owned Purdue Pharma, infamous for their role in the U.S. opioid crisis, and for representing major Wall Street banks and firms during the 2008 crisis while also advising the government on the design of the bail-outs, some of which were deemed quasi-illegal even by its own lawyers. Facebook also hired the lobbying firm FS Vector, which was led by partner John Collins, the former Head of Policy at Coinbase, who had previously served as senior staff for the U.S. Senate Committee on Homeland Security and Governmental Affairs which in 2013 held “the first congressional inquiry and hearing into crypto and blockchain.”

By September 2020, Brock Pierce’s Blockchain Capital, featured in The Chain of Issuance, officially joined the Libra Association, leading Libra’s Head of Policy Dante Disparte to comment that the firm “would advise on the creation of its global payment system” and “make its network of experts and industry figures available for the Association’s use.” Bradford Stephens, a co-founder of Blockchain Capital, also joined the Diem Association board. By December 2020, Facebook had announced the rebranding of Libra to Diem, in no small part due to attempts to distance the project from the social network. “The original name is tied to an earlier iteration of the project that received a difficult reception, shall we say, from regulators and other stakeholders,” CEO Stuart Levey noted at the time.

The initial white paper and project outline for Libra described a synthetic stablecoin that would be pegged to a basket of fiat currencies and government bonds or Treasuries, referred to as the Libra Reserve. According to reporting from CoinDesk in October 2019, Marcus described some alterations to these intentions, claiming that “the new path isn’t necessarily Libra’s desired option.” However, the project must remain “agile.” Marcus further stated that Libra “could definitely approach this with having a multitude of stablecoins that represent national currencies in a tokenized digital form,” and that this is “one of the options that should be considered.” The pivot from a basket to a directly tokenized fiat currency was perhaps influenced by remarks from future SEC Chair and former CFTC Chair Gary Gensler, who argued in July 2019 that “as currently proposed, the Libra Reserve, in essence, is a pooled investment vehicle that should at a minimum, be regulated by the [SEC], with the Libra Association registering as an investment advisor.” Marcus reportedly told Reuters that Facebook still intended to launch Libra in June 2020 despite the regulatory pushback: “We’ll see. That’s still the goal.. We’ve always said that we wouldn’t go forward unless we have addressed all legitimate concerns and get proper regulatory approval. So it’s not entirely up to us.”

In April 2020, Libra announced the “offering [of] single-currency stablecoins in addition to the multi-currency coin,” in its mission to become “a complement” as opposed to “a replacement for domestic currencies” while expressing a “hope to work with regulators, central banks, and financial institutions” to “expand the number of single-currency stablecoins available on the Libra network over time.” The cover letter further explained the change from solely a Libra Reserve model:

“While our vision has always been for the Libra network to complement fiat currencies, not compete with them, a key concern that was shared was the potential for the multi-currency Libra Coin (≋LBR) to interfere with monetary sovereignty and monetary policy if the network reaches significant scale and a large volume of domestic payments are made in ≋LBR. We are therefore augmenting the Libra network by including single-currency stablecoins in addition to ≋LBR.”

In addition to the stablecoin modulation, the updated white paper removed “any mention of ever introducing permissionless participation in the Libra network” with “all counterparties operating nodes in the Libra network” remaining “known to all others.” “Regulators raised thoughtful questions about the perimeter of control for the Libra network – in particular, the need to guard against unknown participants taking control of the system and removing key compliance provisions,” the cover letter states in direct opposition to the original intentions for Libra “to become permissionless.”

By November 2020, just a month before the Diem rebrand, Libra again adjusted their plans to launch a “single dollar-pegged stablecoin next year” according to reporting from the Financial Times. Libra will “simply launch as a single coin” that is “backed 1:1 by the U.S. dollar,” assuming it receives “approval from the Swiss financial regulator FINMA.” The social network still claims that “the other currencies within the basket and the composite may still be rolled out at a later time,” whereas “the dollar-pegged coin could launch as soon as January [2021].” In February 2021, Diem announced a partnership with custodian Fireblocks and First Digital Assets Group to provide “the digital plumbing to allow financial service providers such as banks, exchanges, payment service providers (PSPs) and eWallets to plug into Diem on day one.”

According to previous reporting from Unlimited Hangout, Fireblocks has significant ties to the Israeli military and intelligence state, in addition to the U.S. regulatory regime via its advisory appointments of former SEC Chair Jay Clayton and Coinbase co-founder Fred Ehrsam:

“In 2022, Israel’s Ministry of Finance and the Tel Aviv Stock Exchange established the first digital government bond with Fireblocks (a digital assets security platform). The initiative was called Project Eden and it focused on three features: “the tokenization of fiat, the tokenization of government bonds, and instructions to prompt the exchange of assets.” Fireblock’s CEO and co-founder, Michael Shaulov, was a team leader in an elite military outfit, Unit 8200 (participating in the most demanding and mission-critical IDF projects).

In 2022, Fireblocks was the highest valued digital (tokenized) asset infrastructure provider, supporting over 800 major institutions. That same year, BNY Mellon, the world’s largest custodian bank, tapped Fireblocks to develop a financial infrastructure for managing their digital assets and, since then, Fireblocks has secured the transfer of $2 trillion in digital assets.”

Fireblocks has been funded by BNY Mellon, Silicon Valley Bank, Malka’s Ribbit Capital, Mike Novogratz’s Galaxy Digital, and DRW Venture Capital, among others. Fireblock’s employees include many former Unit 8200 and IDF members, not to mention CLO Jason Allegrante who worked at the Federal Reserve Bank of New York, Davis Polk & Wardwell and the San Juan Mercantile Bank & Trust, which was founded by Nick Varelakis, a former executive of the Tether-affiliated Noble Bank founded by Brock Pierce. In October 2024, Fireblocks announced a $1 million grant program to “boost PYUSD [PayPal’s stablecoin] developer adoption.”

This partnership ultimately yielded little benefit for Facebook, however. In May 2021, the social network again pivoted to partner with Silvergate Bank to issue their U.S. dollar-pegged stablecoin and manage its reserves. “We are committed to a payment system that is safe for consumers and businesses, makes payments faster and cheaper, and takes advantage of blockchain technology to bring the benefits of the financial system to more people around the world,” stated Diem CEO’s Levey. “We look forward to working with Silvergate to realize this shared vision.” Silvergate CEO Alan Lane added his own commentary, stating “we believe in the future of U.S. dollar backed stablecoins and their potential to transform existing payment systems. We’re inspired by Diem’s technology and commitment to building a regulatory compliant payment system.” The press release accompanying the announcement would also note that Diem would be moving its operations out of Switzerland and back to the United States.

Diem’s Levey and his executive team informed the Fed and the Treasury that they were planning on launching their stablecoin with Silvergate at the end of June 2021. In a heated phone conversation, the Fed’s general counsel Mark Van Der Weide told Levey that “the government was uncomfortable condoning any project until it had put a ‘comprehensive regulatory framework’ for stablecoins in place,” while expressing “nervousness about a coin with the potential to ‘massively scale’ as Diem might.” Levey would respond publicly, while demanding “fair and equal treatment.” “Stopping a limited, legally permissible pilot while other stablecoins grow unchecked is neither fair nor equitable.” In response to the “No” from the U.S. regulatory regime, Dante Disparte, then-Executive Vice President at Diem Association, quit in frustration only to join Circle, the issuer of USDC, in April 2021.

In August 2021, Marcus appeared on Bloomberg Technology to discuss the recent developments of Diem:

“In the early days, the idea the big idea of Libra was really one that had a stablecoin that included a number of existing currencies instead of just being aligned with a dollar, which is what is being prepared now. Also it was to be regulated in Switzerland, and since then the team at Diem brought this back to the U.S. to be regulated in the U.S. given it was a dollar stablecoin that was worked on. And so now it’s basically in the process of getting approvals to move forward, and getting the proper licensing structure to actually move forward.”

Diem co-founder Catalini subsequently made comments to CoinDesk to further articulate their plans for the Silvergate collaboration, including a commitment to phase their token out once a CBDC was issued:

“What we’re really suggesting is more of a public-private partnership. We see this almost like a temporary exercise, where issuers like Silvergate in collaboration with Diem will be issuing a diem dollar, but the moment there is a CBDC … We are the only issuer of a stablecoin, to my knowledge, that committed publicly to phasing out our own token and replacing it with a CBDC token.”

Before Diem could launch their stablecoin with Silvergate, in October 2021, Facebook announced yet another partnership with Paxos, a trust company and stablecoin issuer with numerous connections to PayPal, as profiled in The Chain of Issuance. The pilot program was set to “go live in the U.S. and Guatemala” which would allow “users to start trading the Paxos Dollar (USDP)” while “crypto exchange Coinbase will provide custody services for the program.” According to a Coinbase blog post at the time of announcement, Novi users who participated in the pilot could “acquire Pax Dollar (USDP) through their Novi account,” allowing Novi users to “be able to transfer USDP between each other instantaneously,” which “Novi will hold on deposit with Coinbase Custody.” As Paxos’ Head of Strategy Walter Hessert stated in Paxos’ blog post, “This news represents a tide shift in digital assets, as it’s the first time that stablecoins are readily available in a consumer wallet outside of the crypto ecosystem.”

The very same day, October 19, 2021, a group of U.S. Senators – Brian Schatz (D-HI), Sherrod Brown (D-OH), Richard Blumenthal (D-CT), Elizabeth Warren (D-MA) and Tina Smith (D-MI) – penned an open-letter to Facebook demanding the immediate discontinuation of the Novi pilot. According to reporting from CoinDesk, the lawmakers felt that “Facebook cannot be trusted to protect user data or manage a payments network,” in the letter published “just hours after Facebook announced it was launching a pilot program for its Novi wallet subsidiary.” Excerpts from the timely letter include the following:

«On multiple occasions, Facebook has committed not to launch a digital currency absent federal financial regulators’ approval. In prepared remarks before the House Financial Services Committee in October 2019, you said that Facebook would ‘not be a part of launching the Libra payments system anywhere in the world unless all U.S. regulators approve it.’ More recently, David Marcus, the executive overseeing Facebook’s digital currency efforts, said, ‘[w]e are definitely not going to launch without the proper regulatory framework.’

Despite these assurances, Facebook is once again pursuing digital currency plans on an aggressive timeline and has already launched a pilot for a payments infrastructure network, even though these plans are incompatible with the actual financial regulatory landscape – not only for Diem specifically, but also for stablecoins in general. The agencies that oversee the U.S. financial system are studying the risks that stablecoins pose to financial stability. Accordingly, they are considering how to address these inherent risks and clarify regulation and supervision of these products. As Federal Reserve Chair Powell said of stablecoins at a July 2021 Senate Banking and Housing Committee hearing, ‘They’re like money funds, they’re like bank deposits and they’re growing incredibly fast but without appropriate regulation.’ Acting Comptroller of the Currency Hsu recently likened stablecoins to the wholesale funding markets whose collapse precipitated the 2008 financial crisis: ‘In terms of ‘known knowns,’ a run on a large stablecoin could be highly destabilizing.’ Mr. Marcus has cited Facebook’s success in securing ‘licenses or approvals for Novi in nearly every state,’ and concluded that ‘Novi is ready to come to market.’ To be clear, your ability to secure state-issued money transmitter licenses is not equivalent to obtaining the blessing of ‘all U.S. regulators,’ as you said in your testimony two years ago.

In addition to the risks products like Diem pose to financial stability, you have not offered a satisfactory explanation for how Diem will prevent illicit financial flows and other criminal activity. The intergovernmental Financial Action Task Force warned in a report to the G-20 finance ministers that stablecoins’ ‘propensity for mass-adoption makes them more vulnerable to be used by criminals and terrorists to launder their proceeds of crime and finance their terrorist activities.’ The President’s Working Group on Financial Markets said in December 2020 that stablecoins ‘are likely to attract illicit actors and, without appropriate mitigation measures, allow evasion of key public policy objectives.’

Unfortunately, Facebook’s decision to pursue a digital currency and payments network is just one more example of the company ‘moving fast and breaking things’ (and in too many cases, misleading Congress in order to do so). Time and again, Facebook has made conscious business decisions to continue with actions that have harmed its users and the broader society. Facebook cannot be trusted to manage a payment system or digital currency when its existing ability to manage risks and keep consumers safe has proven wholly insufficient.»

The letter concluded, “We urge you to immediately discontinue your Novi pilot and to commit that you will not bring Diem to market.”

The Dismantling of Libra

Despite the pivots, despite the new partners, and despite pandering to regulators across the globe, Diem never actually made it to market. Surprisingly, Facebook and its Libra/Diem agents were quite open in their acknowledgments that this was a likely final outcome, one foreseen by some even from the start of the project. In a conversation with CNBC in November 2019, Marcus was asked by Andrew Ross Sorkin, “What did you think was gonna happen then in terms of the expectation for how [Libra] would roll out and play out in the public?” Marcus’ answer was brief and to the point: “Well, almost as it actually happened.” In line with this sentiment, Facebook itself acknowledged that regulatory issues may be an insurmountable barrier to its Libra project in their quarterly report to the SEC in June 2019:

“Libra is based on relatively new and unproven technology, and the laws and regulations surrounding digital currency are uncertain and evolving. Libra has drawn significant scrutiny from governments and regulators in multiple jurisdictions and we expect that scrutiny to continue. As a primary sponsor of the initiative, we are participating in responses to inquiries from governments and regulators, and adverse government or regulatory actions or negative publicity resulting from such participation may adversely affect our reputation and harm our business.

As this initiative evolves, we may be subject to a variety of laws and regulations in the United States and international jurisdictions, including those governing payments, financial services, and anti-money laundering. In many jurisdictions, the application or interpretation of these laws and regulations is not clear, particularly with respect to evolving laws and regulations that are applied to blockchain and digital currency. These laws and regulations, as well as any associated inquiries or investigations, may delay or impede the launch of the Libra currency as well as the development of our products and services, increase our operating costs, require significant management time and attention, or otherwise harm our business.

In addition, market acceptance of such currency is subject to significant uncertainty. As such, there can be no assurance that Libra or our associated products and services will be made available in a timely manner, or at all.”

In a conversation with Harry Stebbings of 20VC, Marcus explained how the failure to convince regulators on the merits of Diem led him to call it quits:

Marcus: “When I think about the Facebook adventure with Libra – I still call it Libra because it’s a better name than Diem – when I basically decided it it was not worth fighting for it anymore, I felt really good, like really, really good, that we had tried everything in our power and then some to convince regulators and world powers, basically, that this was something of merit and that the world needed, but it just wasn’t going to happen.”

Stebbings: “What was the core reason it wasn’t going to happen?”

Marcus: “I think it was just really hard for regulators and others to accept that Facebook would be at the center of a protocol for money for the internet. And actually that any private company would be at the center of that and that’s why we devolved so much power into this consortium that we didn’t control, that we’re just a member of, but that wasn’t enough. And I think that the political – it was very political to be clear – and I think the political pressure on regulators to not enable a company with the reach of Facebook to actually be at the helm of such a project was just insurmountable.”

In an August 2023 conversation with Bankless, Marcus furthered these sentiments while articulating that “Unfortunately, no one actually believed the power dynamics behind it,” and that the “brand association with Facebook at the time was just not palatable from a political standpoint.” Marcus even went so far as to confirm that “the project was killed or shut down by the government.”

The fact that the government would be so hostile to Facebook’s digital currency efforts is interesting in light of the fact that Facebook was one of the vehicles used to privatize controversial U.S. military surveillance projects after 9/11. Shortly after Peter Thiel and associates created Palantir with CIA funding to privatize, and thus rescue, DARPA’s then-embattled Total Information Awareness program, Thiel became Facebook’s first significant investor at the behest of Sean Parker, whose first contact with the CIA took place at age 16. What Facebook became after the involvement of Thiel and Parker bore such an uncanny resemblance to another shuttered DARPA project of the same era, known as LifeLog, that LifeLog’s architect has even noted the direct parallels. One of these parallels, though left unmentioned by former DARPA project managers, is the fact that Facebook launched the very same day that LifeLog was shut down. Facebook’s long-standing ties to the military/intelligence communities, which go far beyond its origins to revelations about its collaboration with spy agencies as part of the Snowden leaks and its role in influence operations – some of which have involved the Thiel-founded Palantir – makes one wonder if the animosity of the government toward Facebook’s digital currency ambitions was merely a smokescreen and that the real intent was in perfecting the public-private partnership of capital creation for the digital age, specifically its surveillance potential.

Despite the predicted failure to launch, Marcus recognized that Libra “served as a blueprint for a lot of projects that came after.” As Lisa Ellis of Moffet Nathanson explained to FT, Diem “forced regulators and governments to start to educate themselves on the technology and stimulated venture capital investment in other initiatives because there was such a frenzy of focus.”

These sentiments were seemingly confirmed in both the projects later headed by former Libra staff, not to mention the venture capital invested in said businesses. While Marcus’ LightSpark will be discussed later, Sui and Aptos, two “descendants” of Libra raised $300 million and $350 million respectively, both leveraging Libra’s Move programming language. Aptos was funded by Andreessen Horowitz, Multicoin Capital, 3 Arrows Capital, Tiger Global, FTX Ventures and Coinbase Ventures. Sui, the blockchain built by Mysten Labs which added native USDC availability in October 2024, was founded in September 2021 by four former members of Libra. Mysten Labs, which co-authored a troubling paper with O.N.E. Amazon’s co-founders – including the architect of BlackRock’s ETFs, Peter Knez, as described in previous reporting from Unlimited Hangout – is deeply tied to Facebook and its Libra/Diem project. Evan Cheng, Mysten’s co-founder and CEO, was previously the head of Research and Development at Novi Financial, while Sam Blackshear, another co-founder and the CTO of Mysten Labs, was previously the Chief Engineer at Novi, having contributed significantly to the creation of the Move programming language used by Libra/Diem while at Meta. The founding team at Mysten also includes Adeniyi Abiodun and George Danezis, key contributors to Diem’s stablecoin and the aforementioned Move programming language.

In January 2022, the Diem Association formally folded by announcing the sale of its intellectual property related to the Diem Payment Network to their former partner, Silvergate Capital Corporation for $182 million. In the press release, Diem’s CEO Levey eulogized Facebook’s effort, claiming that despite “a senior regulator inform[ing] us that Diem was the best-designed stablecoin project the US Government had seen,” and “despite giving us positive substantive feedback on the design of the network,” it “nevertheless became clear from our dialogue with federal regulators that the project could not move ahead.” Levey commented on the continuing intentions of Libra even after the sale, stating that “we remain confident in the potential for a stablecoin operating on a blockchain designed like Diem’s to deliver the benefits that motivated the Diem Association from the beginning.”

Unfortunately for Levey, and those behind the efforts of the social network’s crypto project, Silvergate itself would be shutdown in March 2023, by the very same regulators that had first shuttered Libra.

The Regional Banking Crisis

Silvergate Bank was founded as a savings and loan association in 1988 by Dennis Frank and Derek Eisele. In 1996, Frank, an ex-Goldman Sachs banker, reorganized the S&L into a regional bank servicing the Southern California area after recruiting investors he had met from his stint at Goldman. Frank convinced the board of Silvergate to cease its mortage operations in 2005, a few years before the subprime debacle. Thus, when the Great Financial Crisis struck in 2008, Silvergate remained solvent and ready to lend. At the onset of the crisis, Frank asked Alan Lane to join the bank as CEO, having spent time at Independence One Bank, Business Bank of California, and Southwest Community Bancorp. According to reporting from CNBC, Lane shared that Frank told him “I’m a Wall Street guy and I need a banker as a partner, would you join me?”

While the bank’s books were balanced, the standard issue of banking remained: how to garner customer deposits in order to fund loans. At the start of the 2010s, Silvergate would turn towards the oft-unbanked cryptocurrency industry to fill their coffers. In 2013, Lane purchased his first Bitcoin, partially out of interest in a new industry, and partially out of fear of how this upstart currency could disrupt the banking sector at large. “I thought ‘uh oh, what am I gonna do?'» Lane expressed upon discovering the blockchain. “I put two and two together and I thought, well it might disrupt banking long-term but in the short-term these companies need banks. They’re not doing anything wrong. They’re not doing anything illegal or immoral. If they were we wouldn’t be banking them.”

In 2013, Lane brought in the executives from a handful of “young crypto exchanges” in order to assess their areas of friction, and how Silvergate could help the blossoming blockchain industry. A year prior, Silvergate had received Federal Reserve status, and in the Summer of 2014, Lane had invited the California State Banking Department board and the Federal Reserve Bank of San Francisco to share what he had learned from the exchanges, and more specifically present the merits of Bitcoin. “That open communication with the regulators early on has proven to be really foundational,” Lane would share. “We’re very collaborative with the regulators, we ask them if they have suggestions, and what we can do better.”

Silvergate quickly added the Winklevoss twin’s Gemini exchange, Paxos, Kraken, and others to their list of crypto-clients, helping the bank source much needed deposits, while also providing an olive branch to a smattering of mostly unbanked blockchain stalwarts. As FTX’s Sam Bankman-Fried put it himself in a now-deleted testimonial on Silvergate’s website, “Life as a crypto firm can be divided up into before Silvergate and after Silvergate. It’s hard to overstate how much it revolutionized banking for blockchain companies.” In January 2014, Silvergate brought on on their first crypto customer, SecondMarket, a firm started by Barry Silbert of the not-yet-founded Digital Currency Group.

SecondMarket was built to facilitate the sale of private securities, such as shares of companies not yet publicly listed. Its investors included FirstMark, Chamath Palihapitiya’s Social Capital, Temasek Holdings, Silicon Valley Bank, and Li Ka-shing among others, the latter being the controversial father of Block.one investor, Richard Li, as noted in The Chain of Consensus. SecondMarket was also advised by Steven Bochner – a former Chairman of the board of directors at Nasdaq, a former member of the board at the SEC, and a member of the board at the Federal Reserve Bank of San Francisco – in addition to being advised by Alan Denenberg, a partner at Davis Polk & Wardwell.

SecondMarket later rebranded as Genesis Trading in April 2015 with Genesis Trading naming their new CEO, Brendan O’Connor, after Silbert resigned in July 2014 in order to form the Digital Currency Group. O’Connor told CoinDesk that Genesis Trading was “the largest over-the-counter market maker” in cryptocurrency, as well as being the “first broker-dealer in the U.S. regulated by the Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC) to actively trade bitcoin.”

Nearly a decade later, both Genesis Trading and Silvergate would find themselves caught in the middle of the Terra-LUNA and FTX controlled demolitions. Terra’s Do Kwon accused Genesis Trading, via their subsidiary Genesis Asia Pacific, of collaborating with Sam Bankman-Fried’s FTX and Alameda Research in order to attack the peg of the algorithmic stablecoin TerraUSD, known as UST. Kwon, in a series of tweets dated December 7, 2022, suggested that “the time has come for Genesis Trading to reveal if they provided the $1B USD shortly before the crash to SBF or Alameda.” The $1 billion dollar purchase was indeed brokered by Genesis Trading’s Asia Pacific, in addition to another $500 million sourced from Three Arrows Capital, with the deal being officially announced as closed on May 5, 2022. Genesis Trading’s own Twitter account explained that “the Genesis aspect of the deal represents the first of its magnitude, with Genesis Asia Pacific Pte. Ltd. taking on 1 billion UST in exchange for $1 billion worth of BTC.” By May 12, Terra’s LUNA had lost 99.7% of its value, and the $1 billion of UST stable now held by Genesis was effectively worthless.

Kwon also questioned SBF himself, specifically looking for answers as to why his trading desk Alameda had borrowed over $1 billion worth of Bitcoin from Voyager during the de-pegging, alluding to possibility that the borrowing was related to a large short position on the Terra ecosystem. Kwon would also “reveal” that Alameda was responsible for the “large currency contraction that UST went through in Feb 2021” due to Alameda selling 500 million in UST “in minutes” to “drain the Curve liquidity pools during the Magic Internet Money (MIM) crisis.” FTX would officially lose around $100 million on the failure of LUNA. However, reporting from the New York Times would back Kwon’s assertion that SBF’s firms were behind the massive sell orders of TerraUSD. As covered inThe Chain of Consensus, the fallouts of Terra-LUNA’s collapse were crucial in creating the context that later led to FTX’s insolvency. It is of note that the Bitcoin that had once backed Terra-LUNA’s stablecoin was algorithmically liquidated via Binance, which was a long time banking client of Silvergate, having reportedly moved some $50 billion for the exchange through Silvergate accounts since 2019. The CEO of FTX’s Digital Markets, Ryan Salame, asserted via a Tweet that “Silvergate advised all our banking activity.” In the aftermath of their bankruptcy filing, FTX revealed that Genesis Global Capital “turned out to be the largest unsecured creditor of FTX” to the tune of $226.3 million owed.

The SEC went on to sue Silvergate for their participation in the FTX scandal, with the July 2024 suit claiming “SCC, Lane, and [former Chief Risk Officer Kathleen] Fraher misrepresented the operational and legal risks facing the Bank by falsely stating in SEC filings and other public statements that the Bank had an effective BSA/AML compliance program tailored to the heightened risks posed by its crypto asset customers.” According to reporting from Blockworks, the Silvergate staff “were able to trace $9 billion worth of transfers from FTX-related entities,” yet the lawyers at the SEC wrote: “Most troubling to the BSA staff was the trend of funds that flowed from FTX’s custodial accounts — which held FTX customer funds — to a series of non-custodial FTX-related entities’ accounts, followed by transfers of these funds to other third parties — either through the SEN or to accounts external to the Bank.” According to reporting from NYMag, SEC filings showed that “funds intended for FTX were deposited into the Silvergate account of an Alameda subsidiary” in order to “hide the fact that they were going to Alameda.” This subsidiary, North Dimension, claimed to be “an online electronics retailer” according to “a now-defunct website that appears to have been fake since nothing could be purchased on it.”

SEN, or the Silvergate Exchange Network, had become a critical piece of infrastructure for inter-exchange settlement in addition to providing much needed settlement services for stablecoin providers. As Alan Lane explained on Bloomberg’s OddLots podcast in 2022:

“We are the regulated on-ramp from the U.S. dollar and other fiat currencies into the bitcoin and digital asset market. And then likewise, we are the off-ramp from that the digital asset market back into fiat currencies… So let’s talk about the stablecoins. The stablecoin issuers who use our platform are all of the regulated, U.S. dollar-backed stablecoin issuers… We don’t bank the algorithmic stablecoin offerings, nor these other stablecoins that are maybe collateralized by other digital assets. Those don’t need a U.S. dollar bank because they’re not backed by USD. Importantly, we also don’t bank Tether and believe it or not, we had the opportunity to work with Tether very early on but because they weren’t inside the United States. And, you know, again we are very serious about regulation, and so we looked at it and we thought you know this is an interesting idea… But they’re offshore. We can’t really get our hands around their regulatory status in the United States and so we were not able to bank them back then. This was back in 2017, nor do we bank them today. So that’s what we don’t do.

What we do is for USDC, for the Pax Dollar which is issued by Paxos, for the Gemini Dollar issued by Gemini and for TrueUSD. They use the SEN and our API for the minting and burning of their tokens. Those tokens are issued when a dollar hits their Silvergate bank account and it’s all programmatic. So if somebody wants to purchase USDC from Circle, what they would do is they would send dollars into Circle’s bank account at Silvergate. And when those dollars hit the bank account then, at that moment, there is an API call from Silvergate to Circle that says ‘we just received x amount of dollars from this customer.’ And at that point, Circle knows we have the dollars in our possession. So they turn around and they mint the USDC token and send it to the wallet address of that institution that is looking to purchase the USDC. And then the same thing happens in reverse. If someone wants to redeem their USDC and go back to U.S. dollars, they send the USDC to the wallet at Circle. Circle, at that point, once they have possession of the USDC, they then send an instruction to us via API and we then, in turn, will send the dollars back to that prior USDC token holder.”

According to a SEC filing with data as recent as October 2018, Silvergate serviced 35 digital currency exchanges, including “the 5 largest U.S. domiciled digital currency exchanges,” holding just over $792 million of deposits. The filing stressed the importance of SEN, while also highlighting the substantial growth of Silvergate’s “digital currency initiative.” In 2014, with only 8 customers, the bank held $6 million in crypto-related deposits, whereas by 2018, the bank had 483 crypto clients, with $1.6 billion in deposits on the bank’s books.

It was also in 2018 that Silbert’s Digital Currency Group invested in Silvergate Capital Corporation itself, selling 9.5 million shares for $114 million in funds to “further support the bank’s fintech deposit initiatives.” By November 2020, Bitcoin custodian and stablecoin bank Xapo – featured in The Chain of Custody – would lose their Director of Institutional Investments, the 13-year Morgan Stanley vet Jonathan Melton, after he announced he was to join Silvergate as the Director of Digital Asset Lending, in part to help expand the bank’s SEN Leverage product. In June 2021, the former CLO at Coinbase, Michael Lempres, joined Silvergate as Chairman, taking over for Dennis Frank. Prior to Coinbase, Lempres was an executive at Andreessen Horowitz and a senior attorney at Silicon Valley Bank. At SVB, Lempres was instrumental in working with regulators to expand their booming cryptocurrency clients, and even started working at SVB’s customer, Bitnet Technologies, in 2015. BitNet was formed by former Visa employees after Visa purchased payment infrastructure firm Cybersource in 2010, and was funded by Blockchain Capital, Digital Currency Group, and Stephens Investment Management. In 2016, Lempres was additionally elected the mayor of Atherton, a small town in Silicon Valley that boasts Google’s Eric Schmidt and Facebook’s Sheryl Sandberg as residents. In the same announcement, Silvergate would add Aanchal Gupta, a former risk and security manager at Microsoft, Facebook, and Yahoo!, to its board. In 2019, Antonio Martino joined Silvergate as CFO, having been a senior manager at Bank of Montreal prior to 17 years at Citigroup.

In July 2021, Silvergate announced they had garnered $4.3 billion in new deposits from “new and existing digital currency customers” in Q2 of 2021 alone. The lion’s share came from crypto exchanges, which “deposited $2.4 billion in cash during the quarter,” while institutional investor deposits “grew by $1.8 billion.” Silvergate noted that 120 new digital currency customers were added in the quarter, bringing their total to 1,224, while the bank’s SEN had “processed 137,947 transactions and transferred $239.6 billion over the network” during the quarter. In the announcement, Lane commented on the growth of deposits, while speculating that future growth might come from a venture such as Facebook’s Diem:

“In the second quarter, average deposits from digital currency customers grew by $3.5 billion to $9.9 billion. Driven by the record volume we experienced on this, we are prudently deploying these deposits into interest earning assets, including the purchase of $4.5 billion of both short and long duration securities during the quarter…We are looking at our capital needs and anticipated growth to be capital efficient and having runway to support that growth. We’re also looking at off balance sheet mechanisms to take on that growth that might come from a stablecoin project like Diem.”

Of importance in regards to the bank’s eventual failing, Silvergate’s Tier 1 leverage ratio, which “measures equity capital against risk-weighted assets,” stood “well above the regulatory threshold of 5% at 7.9% this quarter” but down from “the 9.68% level it was at in the first quarter of this year [2021].” As noted above, Diem was shut down and its assets sold to Silvergate at the end of January 2022. On March 29, 2022, Silvergate issued a $205 million Bitcoin-collateralized loan with MacroStrategy, a subsidiary of Michael Saylor’s MicroStrategy, in the Washington, DC-based software company’s now-successful attempt to become one of the largest Bitcoin holders in the world. Interestingly, one of the other largest Bitcoin holders in the world, Block.one/Bullish Global, had taken a $225 million loan itself from Silvergate just the day before, on March 28, according to an SEC filing. Silvergate was quickly becoming an indispensable pillar in the cryptocurrency industry, but before 2022 could close, the entire industry, Silvergate included, would find itself scrambling to make depositors whole.

On November 7, 2022, Tyler Pearson, the son-in-law of CEO Lane, was demoted from his position of Chief Risk Officer, in addition to other executive level shakeups. Four days later, on November 11, FTX filed for Chapter 11 bankruptcy. Less than two weeks later, on November 23, Block.one CEO Brendan Blumer purchased a 9.27% stake in Silvergate, promptly upping the investment to 9.9% the next month, making EOS’s developer Block.one the largest single investor in Silvergate. According to reporting from Protos, Citadel Securities and Cathie Wood’s ARK Invest also purchased millions of dollars worth of shares of Silvergate, while millions worth of “advances from the Federal Home Loan Bank (FHLB) were taken out by Silvergate.”

On December 5, Silvergate filed a letter with the SEC where Lane claimed “we conducted extensive due diligence on FTX and Alameda Research,” and “we have a resilient balance sheet and ample liquidity.” However, a month later, on January 5, 2023, Silvergate revealed that, due to its client FTX collapsing, a massive bank run had taken place, with $8.1 billion, over 68% of its deposits, leaving the bank in Q4 2022. This quickly “led to an acute liquidity crunch, which forced Silvergate to sell off illiquid securities for a loss of over $700 million and to borrow $4.3 billion in short-term advances from Federal Home Loan Banks.” Likely in response to the balance sheet revelation, the price of Silvergate stock “declined by $11.54 per share, or 22.6%, from a closing price of $50.96 per share on November 7, 2022, to a closing price of $39.42 per share on November 8, 2022,” on “unusually high trading volume,” as noted by Cohen Milstein’s case study. Silvergate also announced they fired about 40% of their workforce, with 200 employees receiving pink slips.

Despite the tanking stock price, and accusations of fund mismanagement, Silvergate instead saw a string of positive announcements from traditional investment stalwarts as the winter of 2023 carried on. On January 31, 2023, Larry Fink’s BlackRock– a major shareholder in FTX – reported a 7% stake in Silvergate, after a filing with the SEC revealed that the firm increased their position from the previously reported 5.9%. Two days later, on February 2, State Street reported a 9.32% stake in Silvergate, while on February 14, Citadel Securities also revealed a 5.5% stake in the California-based bank.

While the traditional asset managers were seemingly buying up the deeply-discounted shares, March 2023 would fare far worse for Silvergate’s digital currency clients. On March 2, Coinbase, Michael Novogratz’s Galaxy Digital, Paxos, Circle, CBOE’s Digital Markets, Crypto.Com, Gemini, LedgerX and Bitstamp all suspended banking partnerships with Silvergate. The next day, March 3, Silvergate announced that SEN would be shut down “effective immediately,” after making a “risk-based decision.” This was likely due in part to a bankruptcy judge ordering the bank to release nearly $10 million to their former client, BlockFi, an issue which was ordered the same day.

Signature Bank, which failed two days after Silicon Valley Bank, had its own inter-crypto exchange network, known as Signet. Signature had relationships with many cryptocurrency companies, many of which had begun in 2018, including Circle, Coinbase, Kraken and even FTX. The bank was to the New York Community Bancorp subsidiary, Flagstar Bank, one week after the FDIC assumed control of Signature. Trump’s Treasury Secretary, Steve Mnuchin, would later lead an investment package to rescue NYCB with $1 billion in March 2024, leading the firms to rename the now-merged banks into Flagstar Financial in October 2024. Joseph Otting, a “longtime banking executive and close ally of Mr. Mnuchin,” the former President of OneWest Bank and the Chief Operator at Trump’s OCC before Brian Brooks, would become its CEO.

On March 7, Block.one, by then known as Bullish Global, liquidated its Silvergate position after expressing concerns about the bank’s inability to file its 10-K and the bank’s announcement of the shut down of SEN, revealing it had “no exposure to Silvergate.” The next day, March 8, Silvergate shut down operations after a voluntary liquidation to federal regulators. Certainly, a voluntary liquidation is an unusual happening in the banking industry, and thus there has been much speculation as to why Silvergate would do such, including a well-researched piece from Pirate Wires suggesting that the Biden administration’s regulators used “an informal mandate” which limited “crypto deposits at 15 percent” to bring the bank down.

While the exact reason why the bank shuttered will likely never see the light of day, there were certainly firms that benefited from the voluntary liquidation. On March 23, MicroStrategy announced they were able to repay their loan early due to the bank’s closure “without prepayment fees” and at a “21% discount,” paying only $161 million of the $200 million owed. On March 8, the day the bank was closed, Marathon Digital, which had opened a $200 million line of credit from Silvergate, announced they had halted its credit facilities, helping remove nearly $50 million in debt and save around $5 million in annual borrowing costs.

A month before the bank liquidated, on February 14, Yahoo! reported that George Soros’ Soros Fund Management, in addition to its sizable investments in Marathon and MicroStrategy, had placed “100,000 shares worth of put options” via a short position on the soon-to-be-shutdown Silvergate. Short sellers during the regional banking crisis made over $3.5 billion in mark-to-market profits in March 2023 alone, with Silicon Valley Bank and Signature Bank – the second- and third-largest bank failures respectively in U.S. history – having been in the top 20 most-shorted regional bank stocks, according to reporting from Yahoo!.

The Silicon Valley Bankruptcy

Silicon Valley Bank was founded in October 1983 by Stanford professor Bob Medearis and Wells Fargo executive Bill Biggerstaff, after the two former Bank of America managers decided to found a bank to fund an infantile Silicon Valley. The idea for the bank first emerged during a game of poker in Pajaro Dunes, California that featured Starr Colby, who was the head of Lockheed’s “pilot-less drone program” at the time. Medearis claimed the deregulation from the Reagan administration created the environment for such a financial institution, and the lack of venture capital in the region created ample opportunity to finance the students and entrepreneurs, kickstarting the computer revolution in earnest.

According to reporting by Vox, by 2021 SVB claimed to bank “nearly half of all U.S. venture-backed startups,” not to mention being a banking partner for “a lot of the venture capital firms” that fund those startups. By the time of its failure in March 2023, SVB held more than $200 billion in assets for California’s tech industry, making it the largest bank to fail since the Great Recession. But before it failed, the bank had become an indispensable pillar in the FinTech industry of the valley. Dallas Business Journal‘s Mark Calvey reported that executives at SVB had told him that “the bank’s focus on working closely with VCs and their portfolio companies was actually a way to reduce risk.” According to Calvey, if “top-tier venture firms,” such as Sequoia or Kleiner Perkins, were “pouring millions into a promising startup,” SVB felt “more comfortable in extending venture debt.” The once Treasurer of Silicon Valley Bank, David Jaques, went on to join PayPal extremely early in the company’s history, helping the firm properly comply with banking regulations.

Unfortunately, it was some of these venture capital stalwarts that would later help trigger the run that would bring the bank down on March 10, 2023. Two days before, on March 8, SVB Financial Group, the parent company of the bank, announced it would undertake a $2.25 billion share sale after offloading $21 billion worth of securities at a $2 billion loss. Deposits at the bank had soared after unprecedented pandemic-era stimulus coincided with effectively zero-percent interest rates, leading the bank to invest in longer duration bonds in the search of yield. While the purchase of U.S. government debt is often considered risk-free, banks that get stuck holding long duration bonds during an interest rate hike – such as the fastest rate hike in U.S. banking history in 2022-2023 after the highly inflationary period during government lockdowns – often have to sell at a loss before the bonds can mature to cover fleeing deposits.

Astute venture funds that had their money in SVB – often in egregious excess of the FDIC’s insurance limit of $250,000 – such as Peter Thiel’s Founders Fund and Fred Wilson’s Union Square Ventures advised their clients to pull their deposits out of the bank before the losses tallied higher. On March 9, the top executives at Founder’s Fund decided to move the firm’s capital to an assortment of larger banks, with their CFO Neil Ruthven stating, “Thursday morning [March 9] it was clear we were in the middle of a bank run, and we reacted in line with our fiduciary duties.” Other firms, such as Sequioa Capital, Coutue, and the several unnamed founders that shared comments privately to Axios, also moved their funds out of SVB that day as well. The Information reported that Union Square Ventures directed companies in their portfolio to “only keep minimal funds in cash accounts.” According to reporting from John Titus for BestEvidence, 10 customers alone had $13 billion in deposits at SVB, while $42 billion would leave the bank in just 6 hours. By the end of the day, the bank’s shares would drop over 60%, taking out nearly $9.4 billion in the stock’s market cap.

The priming for such a bank run, however, was far from built in a day. While the match in this regional banking bonfire was these aforementioned, influential VC firms advising partners to quickly pull funds, the tinder was these “killer whale accounts” depositing billions beyond typical FDIC insurance and the kindling was the bank investing in long duration bonds during a low interest rate environment. Ultimately, the fuel wood itself was the Trump administration’s deregulation of the banking industry in 2018.

In an effort to defang the Democrat-led Dodd-Frank regulation during the Obama administration, the Republican-controlled Congress passed legislation in May 2018 that weakened certain restrictions on banks, specifically upping the “too-big-to-fail” threshold from $50 billion in total assets to $250 billion as it relates to specific reporting and capital requirements. Due to this change, all three of the banks that failed in 2023 no longer had to “undergo stress tests,” or “submit so-called living wills,” both of which are “safety valves designed to plan for financial disaster.”

The bill, signed by President Trump and known as the Economic Growth, Regulatory Relief and Consumer Protection Act, lifted this provision to $100 billion for 18 months, and eventually raised it to $250 billion in an effort to make it easier for smaller banks to lend more and save costs on reporting and stress testing. Banks with less than a quarter trillion in assets would no longer need to undergo annual stress tests conducted by the Federal Reserve, nor would they have to conduct their own semiannual tests. In addition, banks with under $10 billion in total assets would no longer have to honor the Volcker Rule, named after former Fed Chair Paul Volcker, which banned banks from proprietary trading and made it illegal for banks to “place bets with money from deposits.” Finally, the capital requirements for banks no longer deemed “systemically important financial institutions” were loosened, freeing up capital for increased lending.

Senator Elizabeth Warren of Massachusetts, a proud heel of cryptocurrency, would specifically point to these reforms as being a critical component to the bank’s failure, stating: “President Trump and congressional Republicans’ decision to roll back Dodd-Frank’s ‘too big to fail’ rules for banks like SVB – reducing both oversight and capital requirements – contributed to a costly collapse.” Of note, as reported by The Lever, SVB had spent “more than half a million dollars on lobbying” to “hike the regulatory threshold to $250 billion” in 2015. Despite the bank itself having pushed for the exact regulation that helped set up its failure, many prominent financial figures came out in defense of the customer deposits, including Bill Ackman, Larry Summers, PayPal’s David Sacks, and Sam Altman.

Even Treasury Secretary Janet Yellen stated “We are concerned about depositors and we’re focused on trying to meet their needs.” According to reporting from The Washington Post at the time of the bank’s failure, “Federal authorities are seriously considering safeguarding all uninsured deposits at Silicon Valley Bank, weighing an extraordinary intervention to prevent what they fear would be a panic in the U.S. financial system.” The Post further noted that “Although the FDIC insures bank deposits up to $250,000, a provision in federal banking law may give them the authority to protect the uninsured deposits as well if they conclude that failing to do so would pose a systemic risk to the broader financial system. In that event, uninsured deposits could be backstopped by an insurance fund, paid into regularly by U.S. banks.”

Former Treasury Secretary and former Xapo advisory board member Larry Summers called for quick action to protect deposits, stating “What is absolutely imperative is that, however this gets resolved, depositors be paid back, and paid back in full…this is not the time for moral hazard lecture.” The former COO of PayPal, David Sacks, tweeted “Where is Powell? Where is Yellen? Stop the crisis NOW. Announce that all depositors will be safe. Place SVB with a Top 4 bank. Do this before Monday open or there will be contagion and the crisis will spread.” OpenAI’s CEO Sam Altman similarly tweeted that “TL;DR: at this point, to be certain of avoiding catastrophe, the FDIC needs to temporarily guarantee all deposits. other solutions might work, but this is the best one.” On March 12, two days after the bank failed, the Treasury, the Fed and the FDIC announced “steps to ensure deposits will be paid in full,” stating:

“After receiving a recommendation from the boards of the FDIC and the Federal Reserve, and consulting with the President, Secretary [Janet] Yellen approved actions enabling the FDIC to complete its resolution of Silicon Valley Bank, Santa Clara, California, in a manner that fully protects all depositors… Depositors will have access to all of their money starting Monday, March 13. No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.”

Endeavor board member Matt Harris – a Bain Capital Venture partner and NY Fed Fintech Advisory Group member discussed in The Chain of Custody – commented on the hypocrisy of the moment, tweeting “Looking forward to the tweets from the VCs who sparked this bank run congratulating themselves on their prescience.” According to their website, Silicon Valley Bank was an official bank partner of Endeavor.

While the U.S. regulators showed up at the right time to help ensure depositors were made whole, only a few weeks before SVB went under, the bank’s CEO, Greg Becker, had already begun offloading shares of the soon-to-be-collapsed bank. According to reporting from Newsweek, Becker had sold “more than $3.5 million in stocks,” with a February 27 filing with the SEC demonstrating that precisely “$3,578,652.31 in common stock” was liquidated “two weeks before SVB was shut down by federal regulators.” These 12,451 shares sold would account “for 10 percent” of “his roughly 98,000 shares,” while another SEC filing would show that the bank’s Chief Financial Officer, Daniel Beck, had also sold “$575,180 in stocks” on “the same February day.” SVB also reportedly paid out bonuses to U.S. employees mere hours ahead of the take over by regulators.

It wasn’t just executives at the banks, or Soros’ short positions, that benefited from the regional banking crisis. According to a study from McKinsey, deposits flowed “out of midsize U.S. banks after the regional banking crisis,” while “the largest and smallest banks added deposits.” One of these “smallest banks” was a new entity known as Mercury, which was founded in 2017 and has raised over $163 million from investors such as Andreessen Horowitz, Coatue, Naval Ravikant, Ron Conway’s SV Angel, and CRV as well as “angel investors, athletes, entertainers and customers.” Mercury saw more than $2 billion in deposits in the first handful of days after SVB’s collapse, with around 8,700 new customers in March 2023 alone. “It was by far our biggest month we’ve had at Mercury, a huge inflow,” Mercury CEO and co-founder Immad Akhund told TechCrunch. “We tried to prioritize people coming from SVB and even built some tools so they could connect to SVB accounts… We were already growing and we saw an approximately 20% jump because of what happened with SVB.” By July, Mercury had seen over 26,000 new customers since March’s regional bank crisis.

While the immediate uncertainty of the bank failure surely ruffled some feathers of the various depositors at SVB, the U.S. regulatory system promised to make them whole, and thus clients such as Sequoia Capital, the Tencent-backed Kanzhun, the Bezos, Milner and Mubadala Investment Company-backed Altos Labs, among others, would all escape unscathed. SVB’s largest creditor aided by the government rescue was be the issuer of the stablecoin USDC, Circle Internet Financial, which had had $3.3 billion deposited at the bank. According to a press release from Circle, this amounted to about 8% of the USDC total reserve, with a remaining 77% of its reserve being collateralized short-dated U.S. Treasury bills held by BNY Mellon and managed by BlackRock.

In the failure of SVB, USDC would “depeg” from the USD, falling as low as 86 cents. Howard Lutnick, the CEO of Cantor Fitzgerald which custodies Tether’s Treasury holdings, took a dig at Circle during his speech at the Bitcoin2024 conference in which he stated: “Think about it: Circle had USD $3.3 billion of your reserves uninsured in the Silicon Valley Bank when it went bust.” Tether’s Paolo Ardoino also commented on the situation, saying “You might remember that I was very public about my concerns about MICA and the requirement of 60% in non-insured cash deposits, like what happened to Circle with Silicon Valley Bank in 2023. They lost $3 billion and then survived because the FDIC stepped in.”

Despite allegations of starting the bank-run himself, PayPal co-founder Peter Thiel claimed to lose $50 million personally with the failure of SVB. Thiel’s Founders Fund had been investing in Bitcoin since 2014 and realized nearly $2 billion in profits from their 8-year cryptocurrency investment in March 2022, when Bitcoin was nearly $50,000 a coin. Founders Fund would begin investing again in the digital asset industry shortly after the banking crisis, putting $100 million each in Bitcoin and Ethereum.

Six months after the crisis, in August 2023, PayPal announced their own stablecoin, PYUSD, with all eyes turning towards Congress for the legislative clarity via their oncoming regulation that would determine the winners and losers of the “Great Stablecoin War.” The House Financial Services Committee’s Republican chair, Representative Patrick McHenry, commented that the PYUSD announcement was an indication that stablecoins “hold promise as a pillar of our 21st century payments system.”

Two weeks before Paxos and PayPal launched PYUSD, the U.S. House Financial Services committee advanced the first iteration of their stablecoin bill. McHenry stressed the importance of the bill, stating: “We are currently at a crossroads to keep America at the forefront of digital asset innovation. Congress is making significant, bipartisan progress on legislation to ensure the U.S. leads the financial system of the future.”

The Consolidation: The Gillibrand-Lummis Stablecoin Bill

Since 2022, the efforts to pass legislation dealing the crypto industry have been largely spearheaded by Kirsten Gillibrand (D-NY) and Cynthia Lummis (R-WY). The two female senators, who both receive a significant amount of funding from the crypto industry, tried but failed to get their first attempt at a crypto oversight bill passed in 2022 as did their second attempt in 2023. The Gillibrand-Lummis bills have generally favored giving the CFTC more oversight over the industry than the SEC (leading to criticism from the SEC’s Gary Gensler) while the most recent iteration would ban algorithmic stablecoins and ensure that stablecoin regulations are used to maintain “the U.S. dollar’s dominance.”

Ultimately, the bill – among other things – is seen as encouraging banks to begin issuing dollar-pegged stablecoins, having them compete directly or form alliances with existing stablecoin issuers like Circle, Paxos and Tether. Over the past few years, where concern over a Central Bank Digital Currency (CBDC) has become prominent in the U.S. and elsewhere, top crypto executives – like Coinbase’s Brian Armstrong – as well as CIA veterans have stated quite plainly that dollar-pegged stablecoins were to become the U.S.’ de facto CBDC in order to give the U.S. a “first-mover advantage” in digital currency issuance, as dollar stablecoins are “already here” whereas a CBDC would take years to develop. In addition, the policy of the Federal Reserve since last year has made it clear that they favor “private stablecoin issuance rather than official CBDC issuance.” With stablecoins being just as programmable and surveillable as CBDCs, and some stablecoin issuers like Tether already allied with U.S. intelligence and security agencies, the current stablecoin bill is poised to pave the way for the U.S.’ de facto CBDC and to ensure that Wall Street and well-established titans of digital finance like PayPal have the advantage.

Given the above, Kirsten Gillibrand’s involvement in the bill makes sense. After starting her career as a law clerk in Albany, NY, Gillibrand worked at the global, white-shoe law firm Davis, Polk & Wardwell, whose alumni include current Fed chairman Jerome Powell, from 1991 to 2000. The firm, since its earliest years, has been closely connected to J.P. Morgan (now a major donor to Gillibrand’s campaigns) and Wall Street in general. One telling example of the role of the firm in Wall Street’s political machinations occurred during the 2008 financial crisis, when the firm represented the public sector, i.e. the Treasury Department and Federal Reserve Bank of New York, as well as the Wall Street banks deemed to have played a role in creating the crisis, including Citigroup. Subsequently, the firm helped develop the government response to the crisis including by helping draft the relatively toothless Dodd-Frank Act which, over a decade after its passage, has done next to nothing to rein in the “too big to fail” banks or prevent the government’s “privatize the gains, socialize the losses” policy with respect to bank failures. Davis, Polk & Wardwell continues to give heavily to Gillibrand’s political war chest as does another law firm where she used to work, Boies, Schiller & Flexner.

While Wall Street banks like J.P. Morgan and Wall Street law firms like Sullivan & Cromwell donate heavily to Gillibrand, she has more recently taken on important players in the crypto industry as donors. The biggest of these is Coinbase, while other donors include Uniswap Labs. Another important donor is Fred Wilson’s Union Square Ventures, which has backed Coinbase as well as MondoDB. Andreessen Horowitz is another significant donor to Gillibrand, which has made many investments in the crypto space, including being the bulk of the funds behind Multicoin Capital, which is also backed by Union Square Ventures. Multicoin Capital itself donates significant sums to Gillibrand and is also a major donor to Cynthia Lummis. As will be discussed shortly, Mulitcoin Capital has significant ties to the stablecoin industry, particularly the stablecoin issuers most favored by the Gillibrand-Lummis bill.

While Gillibrand may have started off as a corporate lawyer, politics was always within her sights. Indeed, Kirsten Gillibrand’s political career is largely thanks to her very politically-connected family. Gillibrand’s father, Douglas Rutnick, a career lobbyist who has represented Morgan Stanley, Lockheed Martin and even the NXIVM sex cult, was a long-time “close associate” and friend of former New York Senator Alfonse D’Amato. Rutnick has been described as a “beneficiary” of the corrupt Democratic Party-run “machine” in New York’s capital Albany, with local papers noting that Rutnick “both served as Albany County public defender and ran a private law firm representing clients with business before the city” that was later accused of engaging in “questionable deals.” Gillibrand’s grandmother, Polly Noonan, was also intimately connected to the “Albany machine” as she was the long-time mistress of former Albany mayor Erastus Corning, a Democrat, and served as vice chair of New York’s Democratic party in the 1980s. That appointment was allegedly a favor granted by former New York governor Mario Cuomo, as Noonan had raised significant campaign funds for his gubernatorial bid prior to her appointment.

Gillibrand later claimed that it was her father’s ties to D’Amato that scored her a college internship at D’Amato’s office in Albany, NY when he was a serving Senator and marked her earliest foray into politics. Though she subsequently stated that she didn’t personally meet D’Amato until years later over “one lovely dinner together,” D’Amato – a scion of New York’s Republican party – was a central figure when it was announced that Gillibrand would inherit Hillary Clinton’s Senate seat after Clinton joined the Obama administration as Secretary of State in 2009.

D’Amato later claimed to have had nothing to do with Gillibrand’s appointment and Gillibrand later claimed that D’Amato did nothing to influence her politics, instead claiming that Andrew Cuomo and Hillary Clinton (both extremely corrupt) had helped secure her political future. She specifically identifies Clinton as a mentor. However, for anyone familiar with New York politics, where the back-door deal and close-knit power networks reign supreme, the reality is likely quite different from what they publicly professed.

D’Amato is noteworthy for a few reasons. First, he was slavish to criminal banks throughout his career, many of which funded his political campaigns. For instance, he was a major supporter of the repeal of Glass-Steagall, which allowed for the mergers that produced many of the “too big to fail” banks and later helped produce the 2008 financial crisis. D’Amato, while head of the Senate Banking Committee, had tried to speed up the passage of legislation that would repeal it. D’Amato had previously been bought out by Drexel Burnham Lambert, altering his stance on junk bond legislation that could have mitigated financial crises of the late 1980s, including that which led to Drexel’s bankruptcy in 1990. Gillibrand is backed by many of the same interests as J.P. Morgan – run by former Travelers Group executive Jamie Dimon – and Apollo Global Management – created by Drexel Burnham Lambert executives led by Drexel’s former head of M&A Leon Black – are among the current top donors to Gillibrand.

D’Amato is also important for his ties to organized crime networks that have become deeply embedded in U.S. politics and the American intelligence community, as discussed in the book One Nation Under Blackmail. For example, D’Amato was closely tied to both Roy Cohn and Cohn’s long-time law partner and right-hand man Tom Bolan, who was a close aide and advisor to D’Amato. Cohn was also reported to have been a major influence on D’Amato’s (unsuccessful) efforts to reduce sentences for a convicted mafia member as well as to push to re-evaluate murder charges against Gambino mafia boss Paul Castellano, a client of Cohn and Bolan’s law firm. As noted in One Nation Under Blackmail, Cohn – also widely recognized as Donald Trump’s mentor – was intimately connected to New York power networks as well as organized crime factions that worked with intelligence to blackmail prominent figures in government by hosting “parties” where targets were encouraged to have sex with minors.

Members of this faction have ties to the so-called “Mega Group” of billionaires, which is alleged to include figures like Ronald Lauder, heir to the Estee Lauder fortune, whose failed political career was backed by D’Amato. In addition, D’Amato’s later political campaigns intimately involved the Republican strategist Arthur Finkelstein, who is also credited with securing Benjamin Netanyahu’s successful win as Israel’s Prime Minister in 1999. Finkelstein’s role in the Netanyahu campaign had been brokered by Ronald Lauder, who had also donated heavily to Netanyahu that election cycle.

Doug Rutnick, Gillibrand’s father and D’Amato’s close friend, as noted earlier, was also a lobbyist for the NXIVM sex cult, which was closely associated with the Bronfman family. The Bronfmans have a long-standing association with organization crime and Charles Bronfman co-created the aforementioned “Mega Group” with Leslie Wexner, the main patron of Jeffrey Epstein, in 1991. Both the Bronfmans and Wexner greatly influence and are major donors to the Israel lobby organization AIPAC, Gillibrand’s top donor from 2019-2024.

According to reports, Rutnick was paid $25,000 a month by NXIVM in 2004. Though the group’s sex cult aspect was still unknown at the time, it had been derided as a “cult” before he was hired. However, Gillibrand’s associations with NXIVM, unfortunately for her, appear to go far beyond just her father, with her stepmother having also been wooed by the group. The NXIVM executive who courted her stepmother, Nancy Salzman, is also alleged to have sat with Gillibrand at a Hillary Clinton fundraiser in 2006. A key figure in NXIVM, Clare Bronfman, was a major donor to Clinton and also contributed $2,400 to Gillibrand’s 2010 campaign to maintain Clinton’s old Senate seat.

The founder of NXIVM, Keith Raniere, is the son of James Raniere, a New York-based advertiser who handled his agency’s account for Seagrams and knew Edgar Bronfman Sr. professionally during the 1970s. Keith Raniere, an avid fan of Ayn Rand, reportedly considered the population to be divided into two classes – parasites and producers – which helped shape the cult’s views and even the 12 commandments of the organization. The 11^th NXIVM commandment, according to reporting from The Observer, required all members to “pledge to ethically control as much of the money, wealth and resources of the world as possible” due to being “essential for the survival of humankind for these things to be controlled by successful, ethical people.” Despite most New Age organizations’ rejection of materialism, NXIVM understood the importance of money in the modern age. As Sara Bronfman explained in 2009, the year Bitcoin was launched, “in order to survive in a Western capitalist country, one needs to be able to exchange the products of their efforts for money that’s going to allow them to live.”

Lummis, like Gillibrand, is also funded by Multicoin Capital. In Lummis’ case, Multicoin Capital was her 4^th largest donor last campaign cycle and the biggest giver to her campaign from the crypto industry. Multicoin Capital is mainly backed by Andreessen Horowitz as well as other figures linked to Peter Thiel or Thiel protégés, such as David Sacks of the so-called “PayPal Mafia.” Multicoin investors such as Chris Dixon and Elad Gil have ties to companies created by Thiel protégé Palmer Luckey, Oculus VR (acquired by Facebook) and the defense contractor Anduril. Gil is also an investor in Coinbase in addition to Multicoin. Mulitcoin, along with several of its backers (Chris Dixon, Andreessen Horowitz and Union Square Ventures), invested a significant sum alongside Peter Thiel in the Brock Pierce-founded firm behind EOS, Block.one.

Multicoin’s portfolio includes Paxos (which is also backed by Thiel’s Mithril Capital) and Worldcoin (founded by Thiel protégé Sam Altman) as well as Algorand, Ethereum and the now defunct crypto exchange FTX. Multicoin was significantly affected by FTX’s collapse in late 2022, as it had around 10% of the assets for one of its three funds at FTX and also had significant exposure to FTX’s over leveraged token FTT. Unlimited Hangout previously reported on FTX’s close ties to the stablecoin Tether as well as FTX’s own ambitions to back a different dollar-pegged stablecoin via its affiliation with the highly suspect Moonstone Bank. Sam Bankman-Fried, prior to FTX’s implosion, had spoken of a “stablecoin war” where different players in the crypto industry were fighting for dominance over whose stablecoin would dominate in a post-regulatory environment. Bankman-Fried notably had played an outsized role in efforts that preceded those of Gillibrand and Lummis to regulate digital assets in the United States.

Multicoin itself is also very interested in and has invested in stablecoins. They have a particularly interesting relationship with Circle, which issues the USDC stablecoin. Circle Ventures is an investor in Multicoin, while Sei – which is backed by Multicoin – is an investor in Circle. According to Lummis, Circle is poised to benefit significantly more than its competitors from the stablecoin legislation she recently introduced with Kirsten Gillibrand.

Multicoin also led the Series A funding round for the Mountain Protocol, which produces USDM, a yield-bearing stablecoin backed entirely by short-term U.S. treasuries. Multicoin supports USDM in part because “USDM has the strongest regulatory moat today” compared to other dollar stablecoins and is “significantly ahead” when it comes to imminent stablecoin legislation. They write that they “are optimistic that USDM will become the market leader and scale to billions of people.” Coinbase Ventures also made a major investment in the Mountain Protocol, which is partnered not only with Coinbase itself but also the CIA-funded Chainalysis and the Israeli intelligence-linked Fireblocks. Within four months from its launch, USDM had become the largest Treasury-backed dollar stablecoin in the world.

Notably, yield-bearing stablecoins are absent from the Gillibrand-Lummis bill, even though such stablecoins can come with significant risk and often misstate the yield as gains rather than simply keeping up with monetary dilution. The lack of interest in addressing this type of stablecoin may be related to the fact that players much larger than Multicoin Capital, such as BlackRock, are launching their own yield-bearing stablecoins. BlackRock’s yield-bearing BUIDL token. Circle, which has a major alliance with BlackRock, offers conversion from BUIDL to its USDC stablecoin and USDM also only currently converts into USDC. In addition, Paxos, a Multicoin Capital and Thiel-backed stablecoin issuer partnered with PayPal, has also entered the playing field with their Lift Dollar (USDL) stablecoin.

In February 2024, both Treasury Secretary Yellen and Fed Chair Powell made remarks to Congress that the U.S. needs a legislative framework for stablecoins, stressing the importance they play in global dollar hegemony. Both Gillibrand and Lummis view their legislative efforts as largely aimed at ensuring dollar dominance. Lummis’ other crypto proposals, such as a recent introduction of bitcoin strategic reserve bill, are also aimed at “supercharging” the dollar. Lummis announced the strategic reserve proposal at Bitcoin 2024 in Nashville, commenting that “Establishing a strategic Bitcoin reserve would firmly secure the dollar’s position as the world’s reserve currency into the 21st century and ensure we remain the world leader in financial innovation.”

“Passing a regulatory framework for stablecoins is absolutely critical to maintaining the U.S. dollar’s dominance, promoting responsible innovation, protecting consumers and cracking down on money laundering and illicit finance,” according to Gillibrand. She also stated that:

«The bipartisan Lummis-Gillibrand Payment Stablecoin Act preserves the dual banking system and gives both federal and state agencies roles in chartering and enforcement. It protects consumers by mandating one-to-one reserves, prohibiting algorithmic stablecoins, and requiring stablecoin issuers to comply with U.S. anti-money laundering and sanctions rules. To draft the strongest bill possible, our offices worked closely with the relevant federal and state agencies and I’m confident this legislation can earn the necessary support in the Senate and the House.»

In April, Lummis and Gillibrand introduced the Payment Stablecoin Act of 2024. Gillibrand referred to it as a “landmark bipartisan legislation that creates a clear regulatory framework for payment stablecoins that will protect consumers, enable innovation, and promote U.S. dollar dominance while preserving the dual banking system.” The bill itself would also allow stablecoins to be “issued by non-depository trust companies (nonbanks) when the nominal value of all its tokens is under $10 billion.” The text itself states that stablecoin issuers with a market cap above $10 billion would be required to be “a depository institution authorized as a national payment stablecoin issuer.”

According to reporting from Forbes, companies such as Circle or Paxos would “have two options to be able to continue to issue stablecoins” if this bill was to become law by “either a state nonbank pathway” or as “a depository institution at the federal or state level that becomes a national payment stablecoin provider.” Importantly, the bill expressly prohibits “any other form of stablecoin issuance” beyond being backed by 1:1 reserves of dollar denominated assets, including algorithmic payment stablecoins such as the failed TerraUSD, as discussed in The Chain of Consensus. The bill also contains an “extraterritorial clause” which means that, if codified into law, even companies operating outside the U.S., such as Tether, would be required to abide by the legislation simply due to dealing with U.S. dollar tokens.

“In order to meet the growing demand for our ever-evolving financial industry, we need to craft legislation that strikes the careful balance of establishing a clear and workable framework for stablecoins while protecting consumers,” explained Lummis. “Together, Senator Gillibrand and I worked to preserve our dual banking system and install guardrails that protect consumers and prevent illicit finance while ensuring we don’t derail innovation. Passing this bipartisan solution is critical to maintaining the U.S. dollar’s dominance and making certain the U.S. remains the world leader in financial innovation.”

The content of the bill was advised via “multiple rounds of technical assistance” from representatives of the Board of Governors of the Federal Reserve System, Department of the Treasury, the National Economic Council, the New York Department of Financial Services, Wyoming Division of Banking and the Federal Deposit Insurance Corporation. While developing the landmark bill, both Lummis and Gillibrand “worked closely” with “key industry lobbies and trade associations,” publishing six pages of statements from entities including the Digital Chamber of Commerce, the Association for Digital Asset Markets, the Blockchain Association, Fireblocks, Multicoin Capital, the Crypto Council for Innovation, Kraken, Coinbase, and even FTX’s SBF, among others.

Included in this collection of statements was a quote from J. Christopher Giancarlo – the former Chairman of the CFTC, current board member of Paxos and The Digital Chamber of Commerce, and co-founder of the Digital Dollar Foundation – which stated:

“The Responsible Financial Innovation Act is what our country needs at this moment – a thoughtful, comprehensive approach to regulation that recognizes the potential of digital assets to drive American competitiveness on the global stage. The bill provides a common-sense path for digital asset exchanges to register with the CFTC and balances consumer protection and innovation. I look forward to working with Sen. Lummis and Sen. Gillibrand to ensure we have legal clarity for digital assets soon.”

Preserving The Dual Banking System: The Private-Public Partnership

The preface to the 2008 edition of Who Controls The Internet? by Jack Goldsmith and Tim Wu notes the pivot within the “net neutrality” movement. They note that, during the 1990s, the core belief was that government censorship of the internet was impossible, while the 2000s were spent lobbying the government to uphold and protect free speech on the web from threats emanating from internet service providers and adversarial foreign governments. The parallels to the cryptocurrency industry are astounding, complete with the formation of entirely new lobbying groups that perpetuate the notion that the adoption of the technology once framed as “kryptonite” to the nation state must now obtain “clarity” from legislators and regulators.

Two of the largest lobbying groups in the industry, Coin Center and The Digital Chamber of Commerce, have numerous connections to the parties covered thus far in The Chain series. Coin Center was previously advised by Xapo’s Wences Casares, in addition to both DCG’s Silbert and Paxos founder Charles Cascarilla being early funders. The original iteration of Coin Center’s advisory board featured Union Square Ventures’ Fred Wilson, Marc Andreeseen, World Economic Forum and Council of Foreign Relations member John Villasenor, and Jason Thomas, the creator and director of the FBI’s Internet Crime Complaint Center (IC3) and Associate Director of the Center for Intelligence and National Security Analysis (CINSA). In addition, Lightning Lab’s Elizabeth Stark is listed as Coin Center Fellow. Notable early Bitcoiners Balaji Srinivasan and Jeff Garzik were also listed on the founding Board of Directors, with Srinivasan also being credited as a co-founder of Coin Center.

The Digital Chamber of Commerce was founded by CEO Perianne Boring, a former television anchor and “legislative analyst in the U.S. House of Representatives.” The current Board of Advisors boasts heavy U.S. regulatory stalwarts; including former SEC Chair Paul Atkins; former CFTC Chair J. Christopher Giancarlo; the godson of David Rockefeller and former Richard Nixon speech writer, George Gilder; former J.P Morgan executive and creator of the credit default swap, Blythe Masters; the DCG’s Rumi Morales; former Trump White House Chief of Staff Mick Mulvaney; and DRW and DRW Cumberland founder Don Wilson, among others.

Giancarlo, lovingly referred to by some as “CryptoDad,” has served on numerous boards related to the blockchain industry, including BlockFi, Paxos, and PolyMarket, among others. He previously had been appointed by President Obama to the CFTC in 2013, and was eventually made its chair by President Trump in 2017. Giancarlo also was appointed a Director of the Board Risk Committee for Nomura Holdings, in addition to his stint on the board at the American Financial Exchange (AFX). The AFX was founded by Dr. Richard Sandor in order to create new lending rate benchmarks in lieu of LIBOR (London Inter-Bank Offered Rate), referred to as AMERIBOR.

Richard Sandor is credited with inventing financial derivatives in the 1970s and, during the 1980s, he was an executive at the scandal-ridden bank known for its role in the junk bond scandal and S&L crisis, Drexel Burnham Lambert. Shortly after Drexel’s implosion due to its financial criminality, Sandor was tapped by the Bush administration to develop a market-based «solution» for the acid rain crisis, resulting in sulfur emissions trading that was pioneered by groups like Howard Lutnick’s Cantor Fitzgerald. Shortly after the success of the sulfur emissions trading scheme, Sandor was sought out by Maurice Strong, a Rockefeller crony who served as founding director of the UN Environmental Programme and who was later fled to China to avoid prosecution for the egregious mishandling of UN funds in what is remembered as the oil-for-food scandal. Strong tasked Sandor with developing another market-based «solution» to carbon dioxide emissions in order to help implement Agenda 21, the pre-cursor to today’s «sustainable» development goals or SDGs. Sandor, with input from Strong, spent the next few years developing what is now known as the cap and trade system and has since become an advocate for creating similar markets for access to clean water and air.

Upon his announcement of joining Sandor’s AFX, Giancarlo stated: “Dr. Richard Sandor is one of the true visionary developers of new financial products. He has done it again with AMERIBOR and AMERIBOR Futures, recognizing that LIBOR will not be replaced with a singular benchmark, but with several. AMERIBOR is aptly designed to serve the particular need of America’s regional and community banks for an unsecured lending rate that is transparent, hedge-able and IOSCO compatible.”

PolyMarket, a prediction market that has come under scrutiny recently for facilitating alleged whale manipulation of their 2024 Trump/Harris election bet, announced the addition of Giancarlo as Chair of its board in May 2022 shortly after settling with the CFTC for $1.4 million. In May 2024, PolyMarket’s Series B founding round was led by Thiel’s Founders Fund, in addition to Ethereum founder and 2014 Thiel Fellow, Vitalik Buterin, among others. Upon the raise, PolyMarket also brought on former President of Cantor Fitzgerald’s Cantor Exchange, Richard Jaycobs, as the Head of Market Expansion, with reporting from Yahoo! claiming he will work “closely” with Giancarlo.

Three months after Giancarlo was appointed to the CFTC, in November 2013, the CFTC charged Donald R. Wilson and his company DRW Investments with price manipulation of interest rate swaps futures contracts, which “allegedly affected the prices of over 1,000 futures contracts,” according to the complaint. However, in December 2018, the CFTC lost their case against Wilson, having their compliant dismissed by Manhattan Circuit Judge, Richard Sullivan. Upon the ruling, according to reporting from Reuters, Giancarlo stated that “the regulator was considering its next steps,” but would “continue pursuing market manipulation cases, including at trial.” Judge Sullivan, a former counsel for Marsh & McLennan, was nominated by President Trump to the U.S. Court of Appeals for the Second Circuit in May 2018, and was confirmed by the Senate in October 2018, just two months before the ruling. On February 27, 2019, the CFTC announced they would not appeal the dismissal from Sullivan. “[A]fter careful consideration of the issues, as well as discussions with agency staff and Commissioners, Chairman Giancarlo has decided that the agency will not appeal the district court’s decision in CFTC v. Wilson et al.,” according to CFTC Director of Public Affairs, Erica Elliott Richardson.

Exactly one week later, on March 6, the Chamber of Digital Commerce announced the addition of Wilson to its advisory board, in addition to seven new companies joining their executive committee, including Block.one, DRW’s Cumberland, MakerDao and TrustToken, the issuer of the stablecoin TrueUSD. Upon his appointment, Wilson stated that “as a member of the Chamber of Digital Commerce, we [DRW’s Cumberland] look forward to engaging the policy community around the importance and potential of these technologies and helping this emerging market mature.” Six months later, in September 2019, Giancarlo was also appointed to the Board of Advisors for the Chamber of Digital Commerce.

Giancarlo had previously been the U.S. legal counsel to Fenics Software, an online U.S. Treasury market formed by Cantor Fitzgerald subsidiary BGC after selling their eSpeed product to Nasdaq. BGC is led by CEO and Chairman of the Board, Howard Lutnick, who now co-chairs the Trump transition team. In July 2022, BGC facilitated “the first ever intermediated block trade of CME Group Bitcoin options contracts in Asia” between Wilson’s Cumberland DRW and Goldman Sachs. Upon the settlement, Paul Kremsky, the Global Head of Business Development for Cumberland, stated that “Since Cumberland DRW first established an OTC cryptocurrency desk in 2014, the goal has always been to help usher institutions into the digital assets space.” Kremsky also added that “BGC will be a key partner in opening the growing asset class to a broader group of banks, funds, and investors, and Cumberland is extremely excited to work with them as a liquidity provider.”

Cumberland’s partnership with Tether (USDT) custodian Cantor Fitzgerald should be unsurprising, given that Cumberland is the second largest Tether customer, only behind FTX’s Alameda Research arm. Cumberland was considered an “incredibly important market maker on Binance” according to reporting from Protos, with approximately 79% of all USDT issued to Cumberland being sent directly to the world’s largest crypto exchange. Cumberland had also worked with Silbert’s Genesis lender, as was noted in a Tweet from Cumberland’s social media account. Cumberland is also “a very active participant” with other stablecoin providers, including Circle’s USDC and Binance’s BUSD (issued by Paxos), in addition to sending USDT to Coinbase, FTX, BitFinex and Huobi, among others.

Cumberland also participated in the 2021 President’s Working Group in their discussions on stablecoins, providing five recommendations to the administration, including giving “oversight authority to established banking regulators.” Cumberland also made clear the surveillance potential of digital dollars on blockchains, stating “stablecoins enable funds to be transferred 24/7, in real-time, globally, and with traceability,” while explaining that “existing banking solutions are unable to offer the same capabilities.” Both Coin Center and the Digital Chamber of Commerce offered similar comments regarding the future regulation of stablecoins. Interestingly, the Google Analytics ID for the Digital Chamber of Commerce’s website is reportedly linked to two of Tether co-founder Brock Pierce’s former companies, including Noble Bank and Blockchain Capital.

In August 2023, Coin Center referred to The Clarity for Stablecoins Act as one of “three good crypto bills” which “incorporates our guidance that stablecoins comprised purely of software not be subject to covered by regulation.” Coin Center would later push back on the Stablecoins Act provision for a two year moratorium on algorithmic stablecoins, citing “First and Fourth Amendment concerns” within the clause that states it is “unlawful for any person to engage in the business of issuing, creating, or originating an algorithmic payment stablecoin.” However, they would later backpedal and call this approach “not unreasonable” due to it being “not an outright permanent ban, but a two-year moratorium.” “It only prohibits future activity and does not affect existing projects,” the group explained, and “it does not prohibit speech, only the issuance of tokens that the ‘originator has represented will be converted, redeemed, or repurchased for a fixed amount of monetary value’.”

In October 2024, the Digital Chamber of Commerce (DCC) commented on the “Senate version” of the Clarity for Payment Stablecoins Act, remarking that “the absence of a clear regulatory framework has held back its full potential.” Cody Carbone, the President of the DCC added that “Stablecoin regulation is no longer just an option – it’s a necessity that’s been overdue for too long.” Previously, in April 2023, the group had made general comments to the House Committee on Financial Services, articulating that “We believe clear, consistent legal standards for stablecoins are critical to the success of the digital asset and Web3 industries globally, preservation of U.S. primacy in development and innovation, and for U.S. national security by upholding and extending the dollar’s world reserve currency standing.”

The Digital Chamber has since expanded on this concept of dollar hegemony via stablecoins in a section titled “Stablecoins will preserve the U.S. dollar as the worlds reserve currency”:

“A federally regulated stablecoin regime that requires backing by cash and cash equivalents like U.S. treasury notes does not infringe on government’s issuing authority, it extends the use of the dollar. As digital assets pegged to a stable value, such as the U.S. dollar, stablecoins offer a unique combination of stability and accessibility, allowing for seamless cross-border transactions while minimizing the risks associated with volatility. This can help maintain global confidence in the U.S. dollar and ensure its continued dominance in international trade and finance.

Additionally, the widespread adoption of stablecoins can foster financial inclusion, bringing the benefits of digital currency to unbanked and underbanked populations around the world. By promoting the use of stablecoins, the U.S. can leverage the advantages of digital currencies to extend the reach and influence of the dollar in the rapidly evolving global financial landscape.”

This idea of stablecoins helping retain U.S. dollar hegemony was echoed by President Trump in his keynote at Bitcoin 2024. As articulated in previous reporting on Unlimited Hangout, Trump’s speech included intentions to “create a framework to enable the safe, responsible expansion of stablecoins […] allowing us to extend the dominance of the U.S. dollar to new frontiers all around the world.” Trump even went so far as to say that “those who say that Bitcoin is a threat to the dollar have the story exactly backwards” and that “Bitcoin is not threatening the dollar.” Of note is Trump’s comment that “there will never be a CBDC while I’m President of the United States,” despite his intention to use dollar-denominated stablecoins to spread the U.S.’s dominance across the globe.

This concept can also be found in a May 2024 post by Morgan Beller, the previously mentioned co-founder of the Libra project, titled “Stablecoins Are Defense Tech.” Beller’s missive states in the first paragraph that “One of my personal motivations behind Libra was national defense.” The piece also stated the following:

“Stablecoins are defense tech…The basic idea is that the future of money will be more digital than it is physical. And stablecoins – in this case, cryptocurrency pegged to a stable currency like the USD – are the best tool we have for digitizing the dollar. If we don’t digitize the dollar, we risk losing its position at the center of the financial world. If that happens, we will lose a critical pillar of US stability and leadership that most people are taking for granted right now…

If you are a stablecoin founder and you haven’t been thinking of yourself as a defense tech company, think again. And if you are a regulator who has been sleeping on stablecoins and the role they will play in the hegemony of the dollar, wake up… If we want to create stable infrastructure – for finance and even democracy (bear with me) – then we need to move quickly…

Being the world’s reserve currency is not a right. It is a privilege. It comes with some financial perks, like never having to go through an exchange process for trade, or the fact that we borrow money at lower interest rates (and, in a different light, it makes it easier for us to impose sanctions on other countries).

But the real power is security. If the dollar were to collapse it would have huge repercussions throughout the world economy. Much of the world’s monetary system is held together by the fact that the US is stable. Which means we are less likely to experience targeted attacks, financial warfare, hostile takeover…or worse…

From our American POV, the USD not as much a weapon as it is a shield…It has always confounded me that there are still US regulators that don’t see safe and secure stablecoin projects as our (benign) trojan horses for continued dominance of the US dollar. If you want to proliferate your currency through many stable assets, across many secure exchanges, what better option do you have than a stablecoin? It’s also free marketing for USD – an immediate way to give access to those dollars to millions more people around the world who want them through a decentralized network…

A diverse stablecoin ecosystem is exactly what we want to see. Not just for consumers, but for national security. Many projects pegged to the USD, means the dollar is way harder to overtake…

We have a network of stablecoin founders throughout the US who can step in to solve this problem for us, if we provide them with the resources and support they need. The crypto-obsessed out there like to focus on individual coin market caps, but come on guys: this is a team sport.

Technically and organizationally, stablecoins will allow the dollar to digitally proliferate…This is what I hope all stablecoin founders will come to realize, if you don’t know it already. Your work is a matter of national defense, and even a matter of democracy.”

This sentiment seems widely shared, with many key figures in both the public and private sectors seeing the future of the dollar in privately-issued dollar stablecoins in lieu of a U.S. issued central bank digital currency so that it perpetuates the “dual banking system,” allowing the government to service its budget and debt via the selling of Treasuries to private banks and companies, such as stablecoin issuers. It should be of little surprise that many of the companies poised to capture this trillion dollar industry via king-making regulation, including many of the firms covered thus far in The Chain series, have numerous connections to the first major player in online settlement, PayPal.

Regulatory Approval: The King’s New Market

One of Libra’s other co-founders, Christian Catalini, recently co-authored a piece for Harvard Business Review in August 2024 titled “The Race to Dominate Stablecoins.” The article opens with “Stablecoins, a novel form of interoperable and programmable money, have the potential to rewire the global financial system.” Catalini, along with his co-author Jane Wu, expresses the thesis that stablecoins are poised to displace legacy payment networks, with the “promise to change the balance of power in these industries,” and thus “the companies that control the stablecoin market will wield substantial influence over the future of money.” The piece furthers that the concept of “The Stablecoin War” has come to a head, and the winner(s) of this conflict will become dominating figures in the new global financial system, making parallels to other technology platform wars such as HD-DVD vs. Blu-Ray, VHS vs. Betamax, or even Macintosh vs. PC. Unsurprisingly, the piece, excerpted below, paints an outcome favorable to PayPal’s PYUSD issued by Paxos vs. the incumbents, Tether and Circle:

“The conclusion of a platform war is always the same: A dominant design emerges, everyone switches over, and the conflict is done…But while the blockchains war might be over, the one for stablecoin dominance is just beginning…

Stopping the consortium behind Libra only bought incumbents time, and things are heating up again… Regulation gives incumbents a chance to leverage their distribution and lobbying to slow things down to a halt while building a counteroffensive. This is what killed Libra, and others may face the same fate soon.

Stablecoins present a second chance at reforming the financial system. But whether they will be able to do so depends on the stablecoin wars — and whether regulators tip the scales in favor or against innovation…Irrespective of the unpredictable level of regulatory interference in the stablecoin wars, the most important question is whether we will end with one or two global players leading, or with a swarm of commoditized issuers.

For both Tether and Circle, we believe the strategy is simple: Adapt to tighter compliance and consumer protection standards without losing the ability to monetize the stablecoin ecosystem. This is a delicate balancing act, as stricter regulation will inevitably limit how issuers create and capture value…

Paxos is betting on a world with many stablecoins. By positioning itself as a stablecoin infrastructure provider, Paxos helps others issue branded stablecoins. This has been so effective that when PayPal decided to enter crypto, it partnered with Paxos. While PayPal’s PYUSD only has $350 million in circulation, market cap is the wrong metric if you care about payments rather than crypto trading and decentralized finance (DeFi). For stablecoins that want to compete with the card companies, total payments volume (TPV) will be a better metric, and that’s where PayPal could rapidly overtake USDC thanks to its existing merchant business…

So while Tether and Circle have dominated the crypto era, graduating from this niche, unregulated market to billions of consumers and businesses is a fundamentally different game.”

Catalini left Meta after the Libra project was shuttered, only to shortly join former PayPal President David Marcus at LightSpark. LightSpark later partnered with Xapo, Ripio, and Coinbase in order to help facilitate their Lightning Network builds, including launching their Universal Money Address standard with Xapo and Ripio. Both of which boast ties to the Endeavor Argentina network, with Endeavor itself largely funded by Pierre Omidyar, the previous owner of PayPal who remains its largest shareholder. LightSpark’s roster is chock full of former PayPal employees, including Marcus, VP of Product Nicolas Cabrera, CMO Christina Smedley, Operating Partner Tomer Barel, in addition to former Libra team members, including Catalini, Head of Engineering Vincent Durmont, CTO Kevin Hurley, CDO Geoff Teehan, and VP of Finance, Mary Kauffman. LightSpark was funded by investments from Mickey Malta’s Ribbit Capital, Paradigm, a16z crypto, Kushner’s Thrive Capital, Beller’s NFX, and Coatue, among others.

In October 2024, LightSpark announced their own Bitcon Layer 2 platform Spark, which enables native issuance of stablecoins, while also allowing the transfer of stablecoins issued by other means, including Lighting Lab’s Taproot Assets. LightSpark also announced an upgrade to their UMA product, UMA Extend, which integrates Bitcoin’s Lightning Network directly with traditional banking systems for 44 fiat currencies in over 100 countries. VP of Product Nicolas Cabrera stated that “this is the first time connecting the Lightning Network to traditional banking routes and bank systems.” Marcus himself stated that “At the end of the day, if you build a more efficient network that enables global money movements to move faster, cheaper, in real time 24/7 with no blackout dates, then that’s where money is going to flow and the financial system and the ecosystem players are just going to need to adapt to that.” Due to Diem’s previous partnership with Paxos, the issuer of PYUSD, and Marcus’ relationship with PayPal, it seems likely that LightSpark could eventually add support for PayPal’s stablecoin.

Paxos’ Head of Strategy, Walter Hessert, expressed positive sentiments on PYUSD’s adoption in a conversation with Bitcoin Magazine in October 2023, stating “PYUSD certainly has an opportunity to be one of the largest, if not the largest stablecoin in the market over the coming years.” Hessert also stated that “we’re going to be in a market that is trillions of dollars of stablecoins, which are privately issued and highly regulated,” whereas “PayPal has set the standard for regulatory oversight.” In a slight to these incumbent issuers, Hessert asserted that “the USDT or USDC models of regulation,” or “lighter forms of oversight” are not “going to be sufficient anymore, and “that PayPal has a really, really great opportunity to take a big share of this next wave of growth.”

This regulation, which Hessert claims will dictate the future of stablecoins, is set to come to a head during the imminent 2024 Presidential election. Trump’s pick for Vice President, J.D. Vance, who has numerous connections to Peter Thiel and the extended PayPal mafia, was formerly a principal at Thiel’s Mithril Capital, a major investor in Paxos. Leading Trump’s Transition Team is Howard Lutnick, the CEO of Cantor Fitzgerald which custodies Tether’s Treasuries, who has recently come under scrutiny for “improperly mixing his business interested with his duties standing up a potential administration.” According to reporting from Politico, Lutnick took meetings on Capitol Hill under the guise of transition team matters, then “allegedly us[ed] the opportunity to talk about matters impacting his investment firm, Cantor Fitzgerald,” which included “high-stakes regulatory matters involving its cryptocurrency business.” In regards to the conflict of interest, Richard Painter, a White House ethics lawyer who served in President George W. Bush’s administration, articulated “to have a guy who is in the crypto industry picking financial regulators, I think, is an invitation for trouble.”

In addition, another member of the Trump transition team, former Presidential candidate Vivek Ramaswamy, who dropped out to campaign on behalf of Trump and whose top aide joined the Trump campaign in November 2023, founded Strive Asset Management in 2022, and was promptly funded by Lutnick and Palantir’s Joe Lonsdale, after receiving seed funding from Peter Thiel.

In September 2024, Trump announced plans to launch his own cryptocurrency, known as World Liberty Financial, which pegged Rich Teo – the co-founder of Paxos, as noted in The Chain of Issuance – to serve as their stablecoin lead. World Liberty Financial’s mission, according to a Tweet, is to “make crypto and America great again by driving the mass adoption of stablecoins and decentralized finance.” Another tweet from World Liberty Financial reads, “By spreading U.S.-pegged stablecoins around the world, we ensure that the U.S. dollar’s dominance continues, securing America’s financial leadership and influence on the global stage.”

In August 2024, Anchorage Digital announced a partnership with PayPal in which they would offer stablecoin rewards for holders of PYUSD. Anchorage Digital, as noted previously in The Chain series, was the first and only digital asset bank to receive a Federal Charter charter from the OCC in January 2021, which was given to Anchorage in the final days of the Trump administration. The head of the OCC at the time, Brian Brooks, a former co-worker at OneWest Bank with Secretary Mnuchin and the former Chief Legal Officer of Coinbase, left the public sector to join Binance’s U.S. exchange for three months before joining Bitcoin miner Bitfury . Anchorage has been funded by Visa, BlackRock, Ron Conway’s SV Angel, PayPal Ventures, Blockchain Capital, Alameda Research, Goldman Sachs, Andreessen Horowitz, Khosla Ventures, Naval Ravikant and Leon Black’s Apollo. In October 2024, Anchorage investor PayPal Ventures announced the future use of PYUSD as a funding mechanism for all future investments. Anchorage’s board features Blockchain Capital co-founder, P. Bart Stephens, in addition to a16z’s Chris Dixon, and Paradigm’s Kate Biber. It is also currently advised by former U.S. Fed Governor Kevin Warsh, former Soros Fund manager Stanley Druckenmiller, and PayPal co-founder Max Levchin.

While the initial promise of Bitcoin and cryptocurrency was to minimize government control over the issuance of money, the killer use case of blockchain technology thus far has been the tokenization of dollars backed by U.S. Treasuries. This premise, albeit with the added public and immutable ledger, is shockingly similar to the current “dual banking system” referenced by Gillibrand and Lummis. Capital creation remains the ultimate public-private partnership, in which the Treasury creates bonds, the Fed sets the rate of yield over set durations, and private banks use these securities to back dollars in checking accounts.

In a stablecoin economy – at least one in which non-Treasury-backed, algorithmic alternatives are neutered by public sector regulation penned in response to private sector crimes – the premise is precisely the same. The main differences, unfortunately, are due to the nature of public blockchains, in which every and all transactions are published transparently in a novel database structure allowing total observation of financial data, including account balances, payment size and denominations, and even the account addresses of senders and receivers. This is seemingly a significant disadvantage from legacy payment rails, which solely provides financial information to the select banking institutions involved in settling the payment. Government regulation generally restricts this type of data from being sold or made available to the public en masse, outside of the case of hacks stemming from irresponsible data protections.

The financial information to be gleaned from a public blockchain economy has created a scenario in which no longer do information brokers or intelligence agencies need warrants or regulatory approval to track and trace these digital payments. As Max Levchin put it, “There is no such thing as technology that is strictly for good.” This sentiment was articulated by the former Acting Director of the CIA, Michael Morell, who called the technology behind Bitcoin a “boon for surveillance.” Morell wrote a piece titled “An Analysis of Bitcoin’s Use in Illicit Finance” in which he furthered that “blockchain technology is a powerful but underutilized forensic tool for governments to identify illicit activity and bring criminals to justice,” and that “Put simply, blockchain analysis is a highly effective crime fighting and intelligence gathering tool.”

The piece sets the premise that governments should not fight this technology, but rather embrace it as means to combat illicit finance. Within the report, a current CFTC official stated that it “is easier for law enforcement to trace illicit activity using Bitcoin than it is to trace cross-border illegal activity using traditional banking transactions, and far easier than cash transactions.” Another unnamed expert told the authors that “the chance of catching illicit actors” is “magnitudes greater” using “blockchain than in the traditional banking sector,” while another “went so far as to say” that “if all criminals used blockchain, we could wipe out illicit financial activity.” Another expert drove this point home, with the report stating that “the biggest threat involving cryptocurrencies is not illicit finance but rather that governments do not yet fully understand the power of blockchain as a tool for law enforcement and intelligence agencies.”

This sentiment was echoed by Tether founder Brock Pierce in a conversation at Idealab, the California technology incubator known for being PayPal’s first institutional investor, as covered in The Chain of Issuance:

“Bitcoin is not really anonymous. Imagine if I had a dollar bill and passed it to you and then that bill was signed that this transaction was conducted and that bill got passed around. Every transaction that occurs with a Bitcoin is permanently recorded, maybe not with my identity directly associated with it, but in the same way that you thought you would post things on the internet 5 or 10 years ago, and that might not ever be tracked back to you, at some point pretty much every Bitcoin transaction is going to be connected back to an individual. So anonymity is actually not its real use case.”

Peter Thiel himself has also perpetuated this idea, stating that “people in the FBI tell me that they’d much rather have criminals use Bitcoin than 100 dollar bills.” Thiel’s CIA-linked Palantir even announced in 2021 that they were considering adding Bitcoin to its balance sheet, and that it currently accepts Bitcoin as payment for its products and services. While banks like J.P. Morgan and Citi are widely considered to be the forefathers of information banking, PayPal’s Max Levchin insinuates that it was in fact PayPal that pioneered this data-driven behavioral analysis which, when paired with its anti-fraud algorithim “Igor” – the precursor to Thiel’s Palantir– created a formidable private-sector intelligence broker:

“At PayPal, which I co-founded many years ago and was a CTO for the first four years – right after we got acquired by eBay, I left – we sort of pioneered that concept, I would say, by capturing human behavioral data in the transactional processing, that we’ve seen millions of those per day, to gain such deep understanding of what people would do that we were able to predict their intentions sometimes before they knew their own intentions”

According to Thiel, PayPal was the first company to file in the U.S. for a public offering after the events of 9/11. The downstream effects of that day would have large implications for the world at large, and the reactionary regulations the U.S. put in place would both limit capabilities of new ventures, while king-making incumbents such as PayPal. As Thiel himself stated, “I actually do not know if a company like PayPal could have been started even two, three years later.” He would further articulate this concept in an interview with The Rubin Report:

“In the aftermath of 9/11, we got the Patriot Act in the U.S and that attached, you know, much more regulatory scrutiny to financial transactions, to payments, that know-your-customer rules became much, much trickier. And so I do think that there’s a weird way in which there was an opening to start a business like PayPal in 1999, 2000, [but] even three years later, I think it might not have been possible.”

While Thiel claims to be a libertarian – despite being a government contractor and an FBI informant, among other hypocrisies – his first real success as a business, not to mention his first major windfall of cash, was cemented in its near-monopoly in no small part due to government regulation after a major destructive event. Unfortunately, the parallels to the controlled demolition of FTX and Terra-LUNA to the mass casualty event of 9/11, at least in regards to inspiring king-making government regulation, are numerous. For starters, there were mass profits made by those equipped with insider knowledge informing their short positions, and further, the proliferation of government-endorsed technological answers to criminal activity has led to constitutional conflicts with massive impacts on the privacy of the country’s citizens, not to mention the world population at large, all under the guise of protecting people.

Thiel overtly expressed the need for redistributing the compromises between security and freedom in his essay “The Straussian Moment,” in which he wrote that “the brute facts of September 11 demand a reexamination of the foundations of modern politics,” further stating:

“The twenty-first century started with a bang on September 11, 2001. In those shocking hours, the entire political and military framework of the nineteenth and twentieth centuries, and indeed of the modern age, with its emphasis on deterrent armies, rational nation-states, public debates, and international diplomacy, was called into question.

For how could mere talking or even great force deter a handful of crazy, determined, and suicidal persons who seemingly operated outside of all the norms of the liberal West? And what needed now to be done, given that technology had advanced to a point where a tiny number of people could inflict unprecedented levels of damage and death?

The awareness of the West’s vulnerability called for a new compromise, and this new compromise inexorably demanded more security at the expense of less freedom. On the narrow level of public policy, there needed to be more x-ray machines at airports; more security guards on airplanes; more identification cards and invasions of privacy; and fewer rights for some of the accused. Overnight, the fundamentalist civil rights mania of the American Civil Liberties Union (ACLU), which spoke in the language of inviolable individual rights, was rendered an unviable anachronism.

Even as the debate over freedom and security gathered strength, whatever military force could be mustered was used to track down those responsible for the violence of September 11… On the broader level of international cooperation and development, September 11 called for wholly different arrangements. The issue of unilateralism, and of the institutions designed to provide a cover for unilateralism, could be raised publicly by serious people for the first time since 1945.”

Serious People: Satoshi Nakamoto, Max Levchin, and Peter Thiel

One of these “serious people” would be the anonymous creator of Bitcoin, Satoshi Nakamoto, who understood that “technology had advanced to a point where a tiny number of people” could fundamentally change the world. Despite once claiming that “if we knew who it was, the government would arrest him,” Thiel believed he had actually met Satoshi on a beach in Anguilla during a financial cryptography conference a year before the events of 9/11:

“My sort of theory on Satoshi’s identity was that Satoshi was on that beach in Anguilla… I met them on the beach in Anguilla in February of 2000. We were beginning the revolution against the central banks on the beach in Anguilla. We were going to make PayPal interoperable with E-Gold and blow up all the central banks… Bitcoin was the answer to E-Gold, and Satoshi learned that you had to be anonymous and you had to not have a company. Even a company, even a corporate form, was too governmentally linked.”

Thiel had previously told the story of traveling to Anguilla with PayPal’s cryptographer and CTO, Max Levchin, in a 2004 discussion with Levchin at Stanford University:

Levchin: “We were not the first company in digital payments. In fact, a decade of digital payment attempts had just been capped off with a very spectacular flame out by a company called DigiCash. And literally a couple of nights before I met Peter, I went to the shutdown party of DigiCash which was on Stanford grounds. And it was a bankruptcy and it was a CEO brought in to just, you know, dispense with the employees and dispose of the intellectual property. It was really bad news. The whole cost of digital cash has been around for about 25 years, so certainly we were not the first ones. I think we were the first ones to compromise wisely on the notion of user interface being actually useful, as opposed to complicated, or just purely secure.”

Thiel: “There’s a three-way trade-off between privacy security and convenience and if you get any two of them 100% the third one you’ll be at 0% and that would be bad. I remember Max and I went to this financial crypto conference in Anguilla. We have all these people to try and develop new payment system, they have a conference on this, and in February of 2000, we went there and we decided, you know, all these people working on this for 10-15 years, and we announced we have figured out the formula for how to do payments online and how to actually create a new digital currency, and it is hard to to understate the degree of anger and resentment that the people felt.”

Levchin: “So when Peter and I went there, I made a promise in February 1999 that I will come back and I’m gonna do something very obnoxious if PayPal is successful because I wanted to make a point that, you know, we have figured it out because people were really not very friendly… I actually gave a talk at Financial Crypto 2000 and I think Peter wasn’t in the audience because he slept through, but I forgave him later on. The talk was titled ‘No One Needs Anonymous Digital Cash’ and the whole point of the talk was really ‘Look, there’s this trade off.’ There’s privacy, security and convenience, and if you get the security perfectly and privacy perfectly, convenience is gonna go to hell, and you just have to deal with that and compromise. The talk was fairly academic, and I was really trying to make a point, and they sort of involved a lot of math. But I basically had two slides. The first slide had all of my math and all of my academic stuff in it, and a second slide, I had a dramatic pause and I said, ‘Look, if you don’t believe me, look at my slide.’ That’s a 250,000 users, which is what we had at the time. The largest number of users DigiCash has ever seen was, I think, 2000. So it was a very quiet moment in the audience, then people started to boo me offstage.”

In 1975, long before Levchin would explain how he and Thiel had “figured out the formula” for online payments and “how to actually create a new digital currency” at the same Anguilla conference Thiel speculated he had met Satoshi, Maksymilian Rafailovych Levchyn was born into a family of physicists in Soviet-era Ukraine. In 1991, Levchin and his family departed the Soviet Union under political asylum, boarding a PanAm flight in Moscow with only $700 to their name, before arriving in Chicago. As the story goes, before the wheels had touched ground in Illinois, the USSR had collapsed. “My family immigrated to the United States as refugees. I was a man without a country,” explained Levchin. “My red Soviet passport was a passport to no country. America offered us safety and opportunity.”

Levchin attended the University of Illinois at Urbana-Champaign, majoring in Computer Science alongside two future PayPal co-founders, Luke Nosek and Scott Banister. Levchin stated in 2013 that he “spent [his] entire college career reading up on distributed networking [and] distributed systems, which was all about bringing intelligence all the way to the edge.” Between his studies, Levchin also demonstrated his entrepreneurial spirit, founding SponsorNet New Media in 1994, NetMomentum Software in 1996, and NetMerdian Software in 1997. His alleged reasoning for continuing the trend of naming his companies with SN or NS as initials was simply because he wanted to retain the use of a logo featuring the letters. All of these companies would focus on early online advertising, with SponsorNet focusing on ad banners, while NetMomentum and NetMeridian would built out early “white-label classifieds for newspaper sites.” Both Nosek and Banister were involved in SponsorNet while still students, although the company was a failure.

Levchin graduated in 1997, and promptly headed to Silicon Valley – specifically a couch in Banister’s apartment in Palo Alto – where he would encounter the then-currency speculating Thiel, whose main venture at the time was Thiel Capital. Before PayPal, or X.com, or even Confinity, there was FieldLink, a 1998 technology startup founded by Levchin, Thiel and Nosek, which was focused on applying cryptography on handheld devices for enterprise use. “I was one of the first developers of the PDA… and I was like one day, everyone is gonna use these at work,” Levchin recalled telling Thiel. “What do you think they’re gonna do when the man is gonna try to read their documents, when their customers are gonna steal all their data? They’re gonna encrypt it. And I’m gonna invent all the crypto.”

But the community was small and the applications dreamed up by Levchin and his compatriots were early, leading him to describe FieldLink as “early Christians in the first century… waiting for the second coming.” In 1999, a year before the aforementioned Anguilla conference, Levchin appeared at the International Financial Cryptography Association conference to pitch the company’s – now known as Confinity – on the concept of “a cashless, all digital, PalmPilot-based money system.” The response was hardly enthusiastic, perhaps dimmed by the recent failure of DigiCash.

Despite the conference-goers sentiment of rejection, Confinity soon scrounged up significant investments from Nokia Ventures, Idealab, Deutsche Bank, and Goldman Sachs before the millennium’s close. In a widely publicized event now referred to as “Beaming At Buck’s,” the PayPal co-founders “beamed the capital [raised] for its first round between Palm Pilots,” arguably marking “the first time in history money was ever transferred electronically.”

Pete Buhl of Nokia Ventures, which had invested $4.5 million in Confinity, stood across from Thiel, both equipped with PalmPilots, and after positioning their infrared ports correctly, “beamed” the entirety of the Nokia-invested capital across the California restaurant. Levchin, who had spent many sleepless nights preparing for the 9AM event, made sure to express it was anything but a publicity stunt in a 2004 conversation with Thiel, stating: “And it was really for real…I kid you not…it was a real encrypted transaction.” Buck’s of Woodside, an aptly-named, Americana-decorated breakfast joint which sits between Stanford University and the VC breeding ground, Sand Hill Road, was owned by Jamis MacNiven, who has posed in photos that adorn the walls of Buck’s with prominent public figures like Yitzhak Rabin and George Bush. The event was both a technological and social success, leading to many features in papers, and effectively putting the-soon-to-be PayPal on the map. Or, at least, in investors’ Rolodexes:

“Three million dollars, Palm pilots, breakfast at Bucks, it was actually a technology story that sort of made sense and got written in a number of papers, number of press coverage.. And at that point on the investor side, people just started banging down the door and I remember the range from sort of the very respectable, sketchy, and the seemingly respectable but really sketchy..

I remember the classic example of the second type was about a month later, we installed this one thousand square foot office, we had about fifteen people working at the company in a thousand square foot office at University Avenue in Palo Alto and this delegation from Japan showed up, Six Japanese business suits and ties and «We would like to form a relationship with your company and we read about you in the newspaper and we like to invest.» Over the next three, four months, it was this iterative process.. We fly to Tokyo a few months later and one of our Japanese advisers told us, «Hikari Suchen, they’re a very aggressive company and many people of Japan do not like them.» And I thought, «That’s great! We want people who are aggressive and who will be able to move quickly.»

And two months later as we were ready to close another round, they called me up at midnight and said, told me, «I’ve been getting orders from Tokyo.. I must invest $20 million in your company.» And I said, «Well, I can’t really take any of your money right now but can we rest half a million…» It was just, it was really, really crazy.. Although, a few months later, we figured out that they were actually a front organization for organized crime in Japan.. And of course we’ve been warned very clearly by our Japanese adviser although the slight translation problem didn’t quite catch it…”

While the technology certainly worked, then-Confinity board member Reid Hoffman questioned its practicality outside of their PalmPilot-dense Silicon Valley bubble. According to Jimmy Soni’s The Founders, Hoffman pushed the company to utilize this technology via another medium, stating: “We are living in the heaven of PalmPilots, and we could walk into every single restaurant and go to each table and ask how many people have PalmPilots.” Allegedly, Hoffman postulated that “the answer was between zero and one per restaurant.” Leading Hoffman to determine that “your use case can only be used between zero and one times, per restaurant, per meal cycle! You’re hosed! It’s over on this idea.” And further more, what happened if a PayPal user forgot their PalmPilot at home? Levchin would quickly hack together a “backup” email service, allowing PDA-less users to still be able to send money electronically simply by using an email provider. While initially designed as a “throwaway demo” banished to the corner of PayPal.com, Levchin increasingly found himself “using the email service to test transaction functionality” due to its convenience over the hardware instance.

The future COO of PayPal, David Sacks, would later stress during his job interview that he would only join the company if they made the email service the main product offering, bringing up a few problems with the PDA approach: “One is that there are only five million Palm users, so unless you’re with somebody who also had a PalmPilot, the app is useless. And then there’s the other problem, even if you’re with somebody who’s got a PalmPilot, what would you use it for? Nobody could really come up with anything better than splitting dinner tabs.” The Primordial PayPal Mafia was, of course, directionally correct, and while PalmPilots were overtaken by smartphones by the end of the 2000s, today, email remains one of the most widely-used technologies in history.

Unfortunately for Levchin, the viral network growth of PayPal led to a plethora of fraud, as covered in The Chain of Issuance, and the majority of his time as CTO of PayPal was spent focused on anti-fraud efforts. This effort led to the creation of the Gausebeck-Levchin Test, used essentially as a reverse-Turing test – meaning the successful completion of the test would prove one is a human, and not a computer – and was the first commercial application of CAPTCHA, ultimately being instrumental in limiting fraud on their website. Within the constant fight to stop the bleeding of funds lost to fraudulent activity, Levchin collaborated heavily with government intelligence and law enforcement. He later stressed these relationships in a controversial conversation with Charlie Rose in 2013, stating “When we were working on security and anti-fraud measures at PayPal, we collaborated with every imaginable three and four-letter agency and those were some of the best, most productive relationships I’ve had as a business person.”

Levchin’s affinity for the intelligence community started far before PayPal’s founding, during his early days exploring cryptography, once stating “I was hooked [on cryptography], and even tried to apply to the NSA for an internship, but was promptly rebuffed because I was not (yet) a U.S. citizen.” A few weeks after his Charlie Rose appearance, Levchin appeared at TechCrunch’s Disrupt SF 2013 to clarify his statements, articulating:

“When I was a in college, I applied to the NSA. I couldn’t get accepted because I was not a citizen yet…I was a crypto nerd. I was very excited about applying cryptography for the good of the country that I literally just came to. [The NSA recruiter] said the one thing you should be very clear about [is that] not only will you get paid peanuts, you will also never achieve fame as a mathematician because you are not allowed to publish any result that you find as a mathematician under the employment of the NSA.”

During the 2019 SFELC Summit sponsored by Hoffman’s Greylock Partners – a firm with numerous ties to the CIA and the intelligence community, as described in The Chain of Custody – Levchin suggested that law enforcement was still reaching out to him for information regarding the aforementioned trip with Thiel to Anguilla. Levchin explained that in attendance at the Financial Cryptography conference “there were three types of people,” including “broke students like me,” “real cryptographers like the R and the S of the RSA” and “a bunch of guys in two-piece suits that spoke with really heavy Eastern European accents” asking for help with private payments. He would further reveal that “on occasion, I still get calls from investigators saying ‘Hey, did you meet this person 20 odd years ago at Anguilla?’” In the same spirit, in 2015, Levchin joined the advisory board at the Consumer Financial Protection Bureau, a “watchdog agency created by the Obama administration to police financial institutions.”

At the start of 2016, Levchin would announced the creation of Levchin Prize for Real-World Cryptography, stating in a LinkedIn post that “I hope that this prize encourages younger researchers – especially students – to think about how cryptographic principles can be applied to improve the many flawed systems of today.” The post concluded with the sentiment that “at a time when governments and corporations are scrambling to stem the rising tide of data breaches, cryptography has never been more important to the security of our economy and our personal privacy.” During the 2022 Levchin Prize Award Ceremony, the committee requested nominations for future prize winners, with the caveat that “we’re a bit bored of Satoshi getting nominated because who would we give it to?”

Levchin himself, in 2017, told CNBC that “It’s a brilliant mathematical idea, fantastic technology, interesting commodity to speculate on.” While unsure on Bitcoin itself – “I’m still trying to figure it out” – he expressed a firm belief in the underlying database structure itself, stating: “I think a form of a blockchain technology, bitcoin or otherwise will be essential and will not go away. Not only that, it will continue advancing and being used in many different industries from financial technology to medicine. But it’s not clear to me whether Bitcoin itself is the great long-term investment.” Alluding to the similar “digital gold” argument of his PayPal Mafia counterparts, Levchin claimed it was “TBD [to be determined] on whether it’s a currency or just a way to make money fast.”

Despite his public-facing ignorance on Bitcoin in 2017, in 2014, Levchin admitted to investing in a “friend’s startup that mines Bitcoin.” Presumably, this startup was Balaji Srinivasan’s 21e6, which raised $70 million in 2013 from Levchin’s compatriots, Peter Thiel and David Sacks, in addition to Marc Andreessen and Ben Horowitz. According to Nathaniel Popper’s Digital Gold, “the 21e6 investment was attractive in part because venture capital firms generally felt that they couldn’t buy Bitcoins directly. 21e6, on the other hand, offered to pay its investors back with Bitcoin dividends, allowing the firm to get Bitcoins without buying them outright.” Levchin would confirm this payment arrangement in the aforementioned 2014 interview, stating “they paid dividends in Bitcoin. I’ve never taken my dividend, but I believe they declared at least one. So, I actually have some Bitcoin to my name somewhere.”

In a 2014 conversation with Pando, Levchin expressed admiration for Bitcoin’s white paper, stating “The math behind the original paper, which I read it a many, many times before I decided I actually believed it, is beautiful.” He also added that “the fact that it’s a distributed ledger without a third-party trust system is awesome, and a fundamental breakthrough.” Levchin would also seemingly take a positive stance on the underlying database structure, if not Bitcoin a a currency itself, claiming “I am confident that there will be a form of settlement that will be a cryptocurrency. And the ledger piece, there’s no need to reinvent that. The bitcoin distributed ledger is a fundamentally sound idea and it will get used, maybe in a slightly different format.”

Thiel would take a slightly differing approach with his public views on Bitcoin, stating that, despite its lack of a payment system, it held much potential. In a 2017 interview with Fox Business, Thiel articulated this idea further:

“It’s like a reserve form of money. It’s like gold and it’s just a store of value. You don’t actually need to use it to make payment… If bitcoin ends up being the cyber equivalent of gold and it has a great potential left and it’s a very different kind of thing from what people in Silicon Valley focus on – companies, not algorithms not protocols – but this might be maybe one exception that is very underestimated.”

In a telling comparison, back in 2014, Thiel concluded that “Bitcoin is the opposite of PayPal, in the sense that it actually succeeded in creating a currency.”

PayPal: The New World Currency

In March 2014, a group of early Bitcoiners descended on Lake Tahoe to visit the vacation home of Dan Morehead, a former Goldman Sachs trader who started Pantera Capital after leading the global macro desk at Tiger Management. Morehead, a Princeton graduate, was one of the first investors of Coinbase and his Pantera firm became one of the largest cryptocurrency holders in the world. This meeting, known as Bitcoin Pacifica, attracted the likes of Mt.Gox’s Jed McCaleb, Kraken’s Jesse Powell, BitGold’s Nick Szabo, BTCC’s Bobby Lee and SatoshiDice’s Erik Voorhees, among others. Another unnamed guest was identified as a New York trader who formerly worked at the NSA. As described in the book Digital Gold, after this ex-NSA agent brought up the idea that Bitcoin likely came out of his former agency, one of the first Bitcoin evangelists, Voorhees, revealed his “pet theory” on the identity of Satoshi Nakamoto. Voorhees speculated that Satoshi was “actually a small circle of programmers at some major tech firm, who had been assigned by their company to come up with a new form of online money.” He speculated the firm’s executives deemed the project “too dangerous,” and thus its creators decided to release it anonymously.

While unbeknownst to most, and in spite of their obvious, world-changing success, the true founders’ vision for PayPal and its “new world currency” never materialized before the formative group of early PayPal-ers had moved on to other enterprises. It wasn’t until 2009, with the launch of Bitcoin, or perhaps not until the 2014 founding of Tether – the first USD stablecoin – or maybe not until the 2015 launch of Ethereum, that PayPal’s original vision was achieved. But certainly, as this series implies, it had materialized by PayPal’s 2020 integration with Paxos and the subsequent 2023 announcement of PYUSD. While Thiel’s intended expressions for “world domination” are easy to naively dismiss as enthusiastic rhetoric, his company’s goal to create a new world currency was anything but an afterthought. Brought up in board meetings, discussed in their Silicon Valley offices, and even printed across their T-shirts, PayPal’s aspirations to dismantle the legacy financial system with technology has been publicly resurrected by the emergence of the cryptocurrency industry.

As the former COO of PayPal David Sacks explained to CNBC in 2017, “Bitcoin is fulfilling PayPal’s original vision.” He stated:

“After PayPal I never thought I would get interested in payments again. But bitcoin is fulfilling PayPal’s original vision to create ‘the new world currency.’ We actually had T-shirts printed in 1999 with that mission statement. A payment is just a credit to one account and a debit to another. That’s a database entry. We believed that, if we could get enough people to participate, money would never need to leave the system. PayPal could become the database of money. We added features like interest and debit cards so you’d never have to withdraw funds to the legacy banking system. When we got acquired by eBay, that project kind of stopped. But cryptocurrencies like bitcoin are now fulfilling that original vision. They are doing it in a decentralized way (with a decentralized database called the blockchain) whereas PayPal tried to do it in a centralized way…

In its purest form, currency is confidence. It’s a network effect around an agreed-upon medium of exchange that has some promise of scarcity. Bitcoin enforces its scarcity through a combination of cryptography and economic incentives (“cryptoeconomics”). A lot of people find that more comforting than relying on the good faith of a government. In math we trust. People in the U.S. – and especially longtime participants in the U.S. financial system – have tended to underestimate bitcoin because we have long enjoyed relatively stable political and financial systems. People in parts of the world with less trusted systems have gotten it sooner because almost anything would be preferable to having their life’s work trapped in a fiat currency that could collapse or be confiscated at any moment.”

While these comments were made in 2017, they sound eerily similar to those made by Thiel before 2000 in the early PayPal offices. In The PayPal Wars, the insider account of PayPal from an early marketing hire Eric M. Jackson, an illuminating company meeting led by Thiel is depicted in which the young entrepreneur articulates an apparent altruistic good that comes downstream from the technology-driven dollarization of the developing world, and what PayPal was intending to deliver:

“We’re definitely onto something big. The need PayPal answers is monumental. Everyone in the world needs money – to get paid, to trade, to live. Paper money is an ancient technology and an inconvenient means of payment. You can run out of it. It wears out. It can get lost or stolen. In the twenty-first century, people need a form of money that’s more convenient and secure, something that can be accessed from anywhere with a PDA or an Internet connection.

Of course, what we’re calling ‘convenient’ for American users will be revolutionary for the developing world. Many of these countries’ governments play fast and loose with their currencies…They use inflation and sometimes wholesale currency devaluations, like we saw in Russia and several Southeast Asian countries last year, to take wealth away from their citizens. Most of the ordinary people there never have an opportunity to open an offshore account or to get their hands on more than a few bills of a stable currency like U.S. dollars.

Eventually PayPal will be able to change this. In the future, when we make our service available outside the U.S. and as Internet penetration continues to expand to all economic tiers of people, PayPal will give citizens worldwide more direct control over their currencies than they ever had before. It will be nearly impossible for corrupt governments to steal wealth from their people through their old means because if they try the people will switch to dollars or Pounds or Yen, in effect dumping the worthless local currency for something more secure.”

Thiel would conclude that he has “no doubt that this company has the chance to become the Microsoft of payments, the financial operating system of the world.”

While PayPal may have faltered where Bitcoin thrived, as articulated in The Chain series, their fingerprints are all over the history of Bitcoin. As an early PayPal programmer states in The PayPal Wars, “Why move atoms in order to exchange bits?” In 2009, the first year of the network’s existence, Martti Malmi, a Satoshi-collaborator and software developer from Finland, made the first ever Bitcoin transaction for dollars, selling 5,050 BTC for $5.02 to early Bitcoiner NewLibertyStandard, with the dollar-end of the transaction settled using PayPal. NewLibertyStandard then started the first ever Bitcoin exchange, New Liberty Standard (NLS), which settled it fiat needs using PayPal, allowing the first ever Bitcoin/USD exchange rate to be published on NLS on October 5, 2009. Another early Bitcoin exchange, The Bitcoin Market, went live in March 2010, using PayPal again for all dollar-denominated needs. Even Jed McCaleb’s Mt.Gox, the first prominent exchange of Bitcoin, also handled all their dollar settlements using PayPal.

PayPal itself wouldn’t publicly affiliate itself with Bitcoin until April 2013 when then-President of PayPal David Marcus told Bloomberg “I’ve been spending a lot of time looking at it and it’s truly fascinating. The way that the currency has been designed and the way inflation is built in to pay for miners and all of that is truly fascinating… I think for us at PayPal, it’s just a question of whether bitcoin will make its way … as a funding instrument or not.” Marcus concluded by stating, “We’re kind of thinking about it.” Seven months later, in November 2013, eBay President John Donahoe echoed this idea, telling the Financial Times that PayPal (then-owned by eBay) may one day accept Bitcoin natively. In September 2014, PayPal even released a short promotional video titled “PayPal Voices” that included someone saying “Our phone is our wallet. We can spend bitcoin with a tap, without a pocket.” This clip was quickly replaced by a nearly identical promo instead saying, “Our phone is our wallet. One touch to buy just about anything without sharing our credit card and banking details.” Also in September 2014, Thiel appeared on a Reddit Ask Me Anything, in which he stated “PayPal built a payment system but failed in its goal in creating a ‘new world currency’ (our slogan from back in 2000). Bitcoin seems to have created a new currency (at least on the level of speculation), but the payment system is badly lacking.”

With the 2020 partnership with Paxos, PayPal’s founding mission converged directly with Bitcoin’s novel database architecture and its internet-native asset, complete with stablecoins like their PYUSD acting as a payment medium, for a truly new global financial system. With their regulators at bay, their politicians soon to be – if not already – in office, and their technology stack built and distributed across the planet, the Bitcoin-Dollar system has been carefully constructed. Furthermore, this system has presented itself as a randomized organization of separate entities, rather than a cleverly hidden network of technologists and economists working in tandem towards a desired goal.

A disinflationary monetary reserve asset, such as Bitcoin, which is heavily custodied within the United States, complete with an internet-based, transparent payment system built on stablecoins backed by government debt, preserves the dual banking system within the country and effectively neuters the world’s nation states from fighting capital flight towards an ever-inflating, yet ever-demanded dollar. Thiel himself stated that “the ability to move money fluidly and the erosion of the nation-state are closely related.” When Bitcoin broke $60,000 in 2021, Thiel felt “it surely tells us that we are at a complete bankruptcy moment for the central banks.”

At Libertopia 2010, Thiel told the crowd of the founding intentions of PayPal, and how within technology lies the ability to circumnavigate the political system and the global order of currency:

“The initial founding vision [of PayPal] was that we were going to use technology to change the whole world and basically overturn the monetary system of the world… We could never win an election on getting certain things because we were in such a small minority, but maybe you could unilateral change the world without having to constantly convince people and beg people and plead with people who are never going to agree with you through technological means, and this is where I think technology is this incredible alternative to politics.”

With the recent embrace of Bitcoin and stablecoins by Wall Street, Senators, and presidential candidates as a means to extend the dollar’s world reserve status, the anti-state framing of the early Bitcoin ethos has withered on the vine – at least as it applies to the United States. The cryptocurrency industry at large, with a handful of dollar-denominated stablecoin issuers operating on a dozen-or-so dollarized blockchains, has become a tool of U.S. empire building, at the expense of other nation states and central banks around the world. The sales pitch of the blockchain being a mechanism for financial empowerment for the individuals of the world has been slowly and carefully replaced with one that perpetuates the hegemony of Silicon Valley oligarchs and their Washington, DC counterparts. The window for making Bitcoin a means for global freedom is quickly shutting, and with it, the realities of a financial system based on private-issuers of tokenized dollars upheld by public, transparent blockchains are made apparent. The poles of power remain deeply entrenched between the coasts of the continental United States, and those in command of The Chain – the new digital Federal Reserve – wield immense leverage over the global financial system.

Thiel would put it simply, in a fitting conclusion: “We need to take over the world, we can’t slow down now.”