Xapo CEO Seamus Rocca Describes Xapos' Proposition, Talks US Regulation, Emerging Markets, and Stablecoins

Xapo CEO Seamus Rocca Discusses the Firm’s Journey and Current Standing: Differentiating Xapo

Jason Sheman: What differentiates you from Robin Hood? There seem to be a lot of similar applications that people can choose from. What makes Xapo different from a neobank, Robinhood, or something else that anyone can download and get?

Seamus Rocca: If you think about any of the component parts of what Xapo exactly is other people are doing that individual thing. What we’ve done is we’ve packaged it together. Now, If you think about the journey of Xapo we started as a Bitcoin wallet, a little bit like, you know, Bitcoin.com. And one of the first products we built was the custom solution, you know, doing cold storage for people investing in Bitcoin on the institutional side. So we serve both retail and institutional customers.

And what we found, you know, at that point we were quite successful as a custodian. We were the largest custodian of Bitcoin in the world. We have close to 900,000 bitcoin in our vaults. But what we learned quickly was that it was very difficult when you hold bitcoin to interact with the traditional financial space.

Back in 2013, it wasn’t easy to buy bitcoin. Wallets like Bitcoin and many others out there, and exchanges as well didn’t exist. So for your average person to get their hands on Bitcoin was really difficult. It was even more difficult to then be able to transact or do anything with it other than just hold it.

So we decided that the best way to navigate that was to build our own app. We’re going to build a bank that was sort of in the same vein as the characteristics of Bitcoin, that we liked, and we believed in.

So the bank that we built is not any bank is a bank built by Bitcoin’s orbit. And some of the things that are different about our application, to answer your original question is this ethos of investing and trading. So, for example, one of the features we’re looking to add is to allow customers to buy the S&P 500.

So this is almost like an iteration towards the bigger goal, which is to have access to banking services using bitcoin. Well, if banks don’t want to serve you, we’re a bank: you know sell some of your bitcoin and take profit, but you can keep it in a deposit-guaranteed bank account that pays interest.

If you want to diversify and have other exposure, you can do that with investments in stocks. If you want to diversify and buy an asset and forget, you can buy the S&P 500 and then have that level of diversity in your portfolio.

So we’re much more of a wealth management proposition than a day trading proposition. And that’s the massive difference between Robinhood and us.

Sheman: Do you see any banks pivoting to your business model?

Rocca: I see a future where banks will dabble in crypto and bitcoin. At the moment, they’re all looking at stablecoins and central bank-issued coins, I guess to some degree because that’s the safest place for them to start and try to leverage the technology of blockchain.

A lot of banks are still nervous about bitcoin. But if you look at Blackrock, Fidelity, and some of the big players coming into the space: the institutional appetite is there. So I do see a world where banks will come into the space. I think the difference between us and some of those banks is that they will be traditional banks that will want to dabble in Bitcoin, whereas we’re bitcoiners who built a bank for bitcoin.

Crypto in Emerging Markets

Sheman: Who do you think needs your product the most?

Rocca: if you think about Europe and the Western world in general, people who look at crypto tend to look at it as a trading asset class and a way of almost gambling into making a profit. For the emerging world, it is much more of a reserve, a store of value.

We decided we were going to build a bank that was most akin to what we love about Bitcoin, the fact that it’s sovereign, under no government control, digital, and secure. So when you think about Xapo, being a custodian and being secure is at the very core of what we do.

This idea is that it’s sovereign, so we set it up as an offshore bank, but like a Swiss bank account. That’s why we set it up in Gibraltar as a way of having an offshore bank that can serve this digital offshore asset. You want to call it that because no government can control the bitcoin itself.

If you bring those things together: the bank we built, then you go, the world currency today which acts the most like a reserve is the U.S. dollar. Even though you can argue that there’s laser printing happening and inflation, it’s still the world currency. There is no competition to it at the moment. Nothing’s even close.

That’s why we decided to build this product bringing those things together. In the banking world, offshore allows you to store your wealth in the same way that Bitcoin does, but with traditional financial products delivering bank accounts.

But you also have this ability to transact and use your card in a way that bridges crypto. So the card that we have allows us to spend the Bitcoin. And if you send me Tether, I will automatically convert it into a deposit-guaranteed bank account, a U.S. dollar account earning interest by not doing any sort of defi crazy stuff that guarantees you 1,000% like some of the options out there.

We do traditional banking. We essentially convert that tether ourselves into U.S. dollars and buy U.S. treasuries and money market funds. We earn about 5% and pay the customer 4.6%. That differential is how we make money, but the customers are happy because 4.6% is a lot more than you get in the normal bank, and it’s on-demand: there are no lockups.

US Markets and Regulations

Sheman: You don’t operate in the U.S. That’s a prime market everybody would want to get ahold of. What’s your take on the U.S.? What’s the future of it?

Rocca: I can tell you why we took it originally off the table, and that was because that was historically where we used to run our institutional business from. We sold the institutional business because we felt that the retail business and the institutional space were too different.

We were a startup trying to build this product. Challenging enough to do as it is. And we had to make a choice. Do we want to be an institutional B2B business or do we want to be in the retail space? For us in particular, but also myself, reaching out to retail space is how bitcoin is going to become not mass market but reach high levels of adoption.

Bitcoin is still in many instances, seen as part of a technical asset class: you allow people to do self-custody or trade, and it tends to be used by people who are tech-capable. But my mom can’t have access to bitcoin because she’s not technical. So how can we create a product where you would have mass adoption of Bitcoin? Because that’s ultimately what we all want. We want mass adoption of Bitcoin. You have to make it super easy for customers to use your product.

So we thought let’s go around the retail part so we can be that sort of game-changing app in the marketplace and the institutional business was sold to Coinbase. At that point, we took the view that look, the U.S., when it comes to evolution, is already complicated enough. So fractured.

Even before you look at crypto, look at MTL by state. And then you’ve got, you know, Fed wire accounts for across the board. It is a complicated space. So if you serve in the U.S., you have to focus on the U.S., you can’t do anything else. And we felt that as I said before, because you know Bitcoin is more seen as a standard of value, a gold reserve for people who own it in emerging markets, that felt more interesting to us.

We could see that regulation was going to become an issue in the US. And as you know, if you’re regulated by the U.S., you’re pretty much regulated all over the world by the U.S. at the moment you touch it. So we said: let’s focus on the rest of the world.

The world’s big enough. And then maybe one day we’ll come back to the U.S. We will need to see that there’s demand and appetite for our product. You know, a lot of customers in the U.S. already have access to dollar bank accounts. They’ve got access to Robinhood. They’ve got access to Coinbase. So they’ve got access to other solutions that are maybe not as Xapo, but in a fragmented way.

We’re not going to go head to head with those products in the U.S. and beat them at their own game. Um, and the pain that we would need to go through from a regulatory perspective to get approved, just is not worth it. But if that changed, and the demand was there for the product.

The current administration in the U.S. is not very friendly. Maybe a Republican administration might be. Never say never. So it’s not a market that I would discard forever. But right now, I think it’s been extremely challenging for us to look at the US as a market, as appealing as a market as it is. There are another 6.5 billion people in the planet outside of the U.S. We want to focus on that.

Sheman: Five years from now, is there going to be more or less clarity in the US on how to regulate?

Rocca: I started to dip a toe into the Bitcoin space in 2016, and I joined as a full time 2017. And I remember at that point when I joined, the big debate was around whether bitcoin was a security or not. And in 2024, that debate is still going on.

So based on past experience, logic would dictate that no, we’re not going to have an awful lot more clarity. But I’m optimistic. And I think if the likes of a Blackrock or a Fidelity started to dabble in this space. We all know that in the U.S. lobbying interests are very powerful, and if a financial services lobbying machine wants the U.S. to be the epicenter of bitcoin and crypto, then absolutely, I see the U.S. winning clarity.

But we would need an administration that absolutely wants to support and leave this industry.

Stablecoins in Xapo

Sheman: You were talking about how Xapo allows for stablecoin deposits. Xapo was one of the first banking institutions that allowed for stablecoin deposits. How do they fit into all of this?

Rocca: I’m going to be honest with you, it was based out of pure pragmatism. As if getting our licenses wasn’t hard enough to then be able to get correspondent banks and payment providers, like Mastercard to work with you. It’s going to be difficult.

One of the things we suffered out of all the sudden clamping down on U.S. regulation was when Silvergate, you know, Signature Bank, were shut down. We, like most people in the industry, lost our dollar SWIFT bridge. And that was a big source of deposits. That had a big impact on our business.

How can we best replace the fact that we’ve lost Silvergate as the corresponding bank for our dollar SWIFT bridge? What is our competitive advantage? We are crypto native. Our entire infrastructure, our core banking system is built from scratch because we’ve been around for so long. There are no core banking systems even today that can manage Bitcoin. We build ours back in 2014, and we’ve always been developing our own crypto-native infrastructure. So for us to be able to integrate a stablecoin as a replacement for SWIFT is not only easy to do, but it was a necessity.

You can enter into a debate as to how you use stablecoins. But for us, it’s just being able to provide services for customers. If you have your funds in an exchange and you’re worried about FTX, you worry about your money and what do you do with it?

It’s very difficult to withdraw funds from an exchange into a bank. A lot of banks won’t allow you to do it. That’s why people keep their money in the exchanges: not because they want it but because they don’t have another choice. So for us, it’s almost a way of saying: look, you do have another choice. We’ll take your Tether and you don’t have to worry about turning it into dollars and sending it to us. Just send us the Tether, we’re crypto native, we know what to do.

It was signaling to the market that we’re bitcoiners at heart and we’re also crypto native. And we had no choice because there were no other dollars available to a crypto native bank like us.

What do you think about Xapo CEO Seamus Rocca’s opinion on crypto banking, stablecoins U.S. regulations, and crypto in emerging markets? Tell us in the comments section below.