From the Federal Reserve to Circle: What Most People Are Getting Wrong About Onchain Finance

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After spending his entire career studying how money moves, Circle's Chief Economist and Head of Research, Gordon Liao, keeps arriving at the same conclusion.

"Throughout every stage of my career, whether it's at the Federal Reserve or previously in fixed income trading, I arrived at the same conclusion: the plumbing is the bottleneck," Liao said on StrataMedia’s Talking Tokens podcast.

Now at Circle, he's thinking about the ways in which money is moved, and how the company can improve it.

Liao sees three areas where conventional wisdom is falling short with regard to onchain finance. 

First, as AI agents multiply, the economic activity they generate will demand rails that are fast, cheap and human-optional, and most of the financial system isn't built for that. Second, he describes the drag of balance sheet-focused intermediary chains as capital-inefficient and economically distorting. And lastly, he thinks the convergence of programmability with fast settlement and US regulatory clarity is pushing institutions to take action.

"With [last year’s] passing of the Genius Act and the recent progress made on the Clarity Act, institutions are paying attention and actually starting to deploy capital and integrate with the infrastructure rather than just watching on the sidelines," he said.

Circle’s own stablecoin, USDC, is one of the largest in the world, processing over $21 trillion in payment value across chains in just the first quarter of this year. In the machine-to-machine payment space specifically, Liao says roughly 99.5% of x402 volume, the payment protocol developed largely by Coinbase, runs on USDC.

The x402 figure points to something Liao thinks most institutions haven't fully reckoned with: micro-transactions are not compatible with legacy payment infrastructure. An AI agent making a one-time API call worth a fraction of a cent cannot balance out a $0.30 credit card interchange fee. 

Still, the larger banks he speaks with are mostly still focused on cross-border payment efficiency, which is a more familiar pain point. But Liao thinks agentic commerce is arriving faster than that cohort realizes. As a result, Circle has been building agent wallets, nano-payment tooling, and Arc, its upcoming institutional blockchain. 

But even with all these initiatives up in the air, the adoption curve isn’t clear. "The space is moving really fast and we don't know what exactly will take shape," he said.

Underneath the payments conversation is a security argument that sounds futuristic, but operates on a tighter timeline than is apparent today. Quantum-readiness is a problem shaped by a threat model called "Harvest Now, Decrypt Later,” in which adversaries store encrypted financial data with the intention of cracking it once quantum computing is powerful enough.

Europe already requires significant financial institutions to be quantum-ready by 2030, but the U.S. is lagging. For blockchains, the coordination problem is a major one, especially because decentralized governance structures make large-scale migration hard to execute. The most illustrative example is dormant early bitcoin wallets, which have no clear migration paths. 

This is a problem Circle is trying to get ahead of with Arc, Liao said, by designing quantum-resistant signatures into the protocol. 

Zooming out, Liao frames the current market as a genuine tug of war. AI-driven productivity and robotics are acting as deflationary forces, as their progress over the past two years has been significant, and accelerating. Offsetting those positive notes are energy prices, geopolitical risk, and central bank liquidity uncertainty. "It is very balanced. But it's quite volatile because it's fluctuating sometimes between the two forces," he said. 

Over a five-to-ten year horizon, Liao leans towards deflation, but in the near term, he’s not betting on either side just yet.

“I think we're beyond the stage of looking at the foundation models and the improvements there, but we're looking at the actual adoption across the economy in various sectors,” he said.

Check out the next section for more details and the full episode.

For today’s episode, I interviewed Gordon Liao, Chief Economist and Head of Research at Circle, to talk about why traditional financial plumbing is still the biggest bottleneck in money movement globally. 

We discuss Arc, Circle's new institutional blockchain, which is being built from the ground up to handle everything from agentic nano payments to quantum-resistant encryption. Gordon believes that Arc being quantum-ready from day one isn't just a nice-to-have but a decision that could define whether the network and its users survives the next decade of security threats. Gordon also breaks down the three things he thinks the market is underestimating right now and how 99.5% of x402 payment protocol volume is already running through Circle’s USDC.

TIMESTAMPS

00:00 Introduction to Gordon and His Background

02:45 The Future of Onchain Finance

05:56 USDC and Its Market Position

08:54 Agentic Commerce and AI Integration

11:57 The Launch of Arc and Its Vision

15:00 Challenges in Blockchain Adoption

17:55 Privacy and Security in Blockchain

20:57 Quantum Computing and Its Implications

24:10 Market Perspectives and Economic Insights

30:02 Final Thoughts and Advice

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