Dollarization 2.0: How Stablecoins Unlock Emerging Markets | Nic Carter & Martin Carrica

Transcript

all right everyone I want to introduce you to Bumper a new dii protocol that is here to redefine how you protect your crypto assets obviously Market volatility can be big concern for us crypto holders go check out bumper It's bumper. take a step towards smarter crypto Asset Risk Management this episode is brought to you by toku if you are planning to launch a token already have a live token are granting employees or contractors investing token Awards or are just trying to figure out how to take care of taxable token events for your team from easy to use token Grant award templates through tracking vesting to managing tax withholdings make it simple today with toku all right everyone welcome to uh

the world's greatest stable coin episode coming here live on uh on Empire we have Santi we have Nick Carter and we have Martin First Time guest but sounds like longtime listener so Martin Nick good to have you guys thank you thank you for having me yeah pump to have you guys so there's um it's funny Santi and I wanted to do a stable coin episode for a while there are kind of two ways to approach a stable coin episode there are uh there's like why are stable coins set up to be be this colossal success right there's us is issuing more debt than ever China selling down as treasuries there's the probably the pitch that you would give to a US politician like we need stable coins to further US dollar demand across the world uh then there's the Nick I heard you talk about this in in your

token 249 and Main that talk about I think it's token 2049 like Euro dollars stable coins are kind of almost just doing what Euro dollars did 50 years ago um so that's one way to approach this the other way to approach this is look stable coins are just a better product they're just they're more they're they're easier to access US Dollars and they're more efficient and what we're going to try to do here in this episode is accomplish both of those so Nick I'm gonna pick on you first can you almost just give us like the setup for stable coins as you see it today and you can either approach that from like Euro dollars perspective or or just demand for dollars I guess they're kind of one and the same but yeah give us the setup for uh stable coins right now yeah I

mean not my perspective is you can't uh start with the ways that stable coins are potentially creative to us interest that has to be the second part the first thing has to be okay what are stable coins good for why do people want them why are they growing or frankly they're shrinking right now but why are they generally growing and then from that okay given that stable coins are a thing now and they're not going away how is that supportive of us interests how could it be supportive of us interest so that was kind of the subject my main net talk so I think the my preferred lens is sort of why are stable coins even a thing um because I have this notion of sort of the crypto critic in my head

just denying the usefulness of stable coins and so I'm always trying to sell the industry to Outsiders right and so that kind of motivated in my talk at Main neck and I think for that that's why I wanted to go back into the Euro dollars history sort of the early history of Euro dollars kind of 60s and 70s uh to draw those parallels explain well it's actually not that uncommon for sort of Alternative forms of money to emerge especially if the sort of local monetary banking system is restrictive in some way so it's kind of a natural thing that happens to Market driven phenomenon and the to push that analogy further sometimes even if this is sort of an outside money not in the sort of uh not

in sort of like the literal sense but a money that's outside the US banking sector sometimes it ends up being folded in to the kind of formal govern sector in some sense and that could be the natural progression we saw it with Euro dollars obviously with the FED ultimately embracing the euro dollar system and supporting it we may well one day see that with stable coins too so the thrust of my argument on stable coins is it's a market driven phenomenon it's emerging in response to real need it's not an artificial thing like there's a genuine use for this thing worldwide that we're seeing which is also disconnected from sort of crypto speculative Dynamics in in a large sense and potentially this thing could be

something that the US ends up embracing as opposed to being hostile towards yeah so Euro dollars were were created as this I think it was Russia maybe creating them in a French or UK bank account basically as a your the way I understand it is Euro dollars are almost like stable coins that were created as a solution to settle dollar transactions without relying on the traditional banking system and um I yeah I think it was Russia who created them in the 50s or 60s you mentioned to transact in dollars while avoiding asset seizures um and then you know you fast forward 60 years and stable coins were created because bitfinex had trouble banking Nick what are the simil like can you just double click on Euro dollars for sec to kind of share the similarities here yeah there's a bunch so there's also some disanalogies like Euro dollars

aren't typically like that those are just kind of banking system dollars that are issued out of foreign Banks so not US Banks so they're not strictly uh backed as the convention is with stable coins by you know all short-term treasuries or anything or cash like that right so those are kind of more ordinary Bank liabilities which are backed by whatever the portfolio of assets it is that that bank has so that's kind of a big disanalogy that I would emphasize at the start and they may not even strictly be backed by Dollar assets which is another complication uh but yeah I mean the you know I think the motive for them was okay people wanted to transact with

dollars globally especially as we emerged from World War II the us became the dominant trading partner for everybody and uh the the British pound lost its standing in the 50s as a the global reserve and um at the same time you know there were foreign Nations that weren't necessarily aligned with us wanted to transact with dollars but were concerned that the US would be weaponizing the dollar system which of course they love to do so yeah I think the one of the first examples was Russia creating these dollar deposits in France and later London in Banks there um so that they could be more remote from the from the US banking system with time it just became more convenient to do this uh also the US banking system had a

whole bunch of restrictions there was a thing called reg Q I believe which capped the amount of interest that US Banks could pay out and so there's kind of um you know certain Banks realized they could attract dollar deposits again foreign Banks they could attract deposits if they offered a higher rate of interest than what the um sort of regulatorily defined rate was in the US and so that's another big reason the euro dollar market grew with time throughout the 60s uh as dollar trade became more widespread globally this Market continued to grow and then in the 70s uh we had kind of the oil shock and the emergence of the quote unquote Petro dollar which was the you know basically the fact that the dollar became this

important Reserve currency for the trade of oil you know the Saudis agreed to sell their oil for dollars and it became essential to have these offshore dollars to facilitate Global oil trade especially after the oil shock in 73 um so at that point the US um they'd initially been pretty skeptical of the euro dollar market it was growing without their supervision they were worried that they would have a loss of monetary control we're talking about dollar deposits potentially which did ultimately eclipse the size of the local domestic banking market and uh so they were worried about it and kind of puzzled over what to do with it and

ultimately they created sort of dollar liquidity uh facilities with a lot of foreign central banks especially the Allied ones so that the dollar deposits in those local banking systems would ultimately by be back stopped by the FED in a time of Crisis um so that was kind of like a the uh institutionalization of the EUR dollar market which happened kind of late 60s early 70s as the FED went from being fearful of this thing to kind of embracing it so the the parallels side draw would be one a desire to transact with dollars outside of the AIS of the Federal Reserve clearly also the case with um crypto dollars stable coins um exchanges

worldwide have had difficulty settling with their clients for years and years bitfinex has been kind of hounded they were the ones behind tether that meant that they could maintain one or two banking relationships and have dollar liquidity with their clients so that say you know was a huge unlock for them uh another one is um the market was an opportunity for these independent uh offshore regulators and you know regulatory domiciles to distinguish themselves which certainly happened with London with Euro dollars London became the Hub of this and it we see kind of happening with stable coins and crypto you see certain jurisdictions really embracing it as the US moves away from it you see it in Singapore Bermuda

will discuss today Hong Kong you know potentially Dubai like you see a lot of you know these Regulators playing the the game to attract these kinds of deposits track this activity you saw that with Euro dollars you see that with crypto dollars um it variable interest rates so interest rates being zero or low in the US um you know that facilitated the growth of the euro dollar market as well as Euro dollars offered higher rates you saw sort of crypto dollars paying higher rates than trafi in 2122 that was like a huge thunderstorm here um and then the last parallel which hasn't happened yet hasn't played out yet is even though the US was initially

skeptical of this offshore Market they ultimately found it uh supportive of their interests and so that hasn't happened with crypto dollars Stables right now The Stance is still pretty hostile but you could expect that ultimately they would kind of see the light and change their mind there yeah there's this um now let's let's approach this from the other angle right which is like stable coins as the product right better efficiency better access and there's this um I don't know if you guys ever listened to Wes kasaris who started zapo which ended up becoming coinbase custody but he has this quote about he says it's I he says I think the US is the hardest place in the world to explain Bitcoin why because the money works and the government works and he goes Argentina is one of the easiest and I think Martin

you are from Argentina or spend that's correct yeah yeah I was looking at um at this publication in Argentina which I heard you mention on a podcast and I can share the screen right here it's a lon.com for SL or dot here I'll share it right here just just the homepage that's the biggest newspaper in the country biggest newspaper in the country there are $ four doll amounts here there are four different uh basically rates for dollars there's the CCL dollar the tourist dollar the blue dollar and the official dollar so what I'd love to like hear from you is basically why are there four rates and like take us on the ground in Argentina to help us understand why is there why is there this demand internationally for both the

US dollar and stable coins yeah so the the demand for dollars is the inflation in Argentina right now is like about 100% so I I was in Argentina back in May 1st and the blue dollar was around $400 400 pesos so the number that you see there at 800 now was half of what that is um so that there is there is a real inflation problem um very like the the the causes are traditional right the causes of inflation uh deficit uh over printing of money um but then like what argentinians have learned and the inflation has been over 40% per year since at least 2008 so like argentinians

have learned to like inflation is a reality how do I hedge against inflation so everyone's a CFO and the most obvious way in which you hedge against like a 40% inflation you go to a harder currency and that currency the default has been the dollar so even before stable coins were a thing you have a market like official market for dollars that is highly restricted unless you are connected to the government in some sort of way or you're doing some of the Exempted Industries where you have access to this dollar you cannot access it so then a secondary market for dollar gets created um that's the dollar blue and then as a secondary Market you have like all sorts of ways to Arbitrage this market right so you

have you can buy stocks in New York and then transfer them to Argentina that's an impli dollar that's a CCL you have a dollar where you can buy casino chips in a casino in Uruguay that has a that has a um like a like a a location in Buenos Ires so you can Arbitrage those too you can travel to Chile if you're close and you can swap your card and then whatever your C does it's another dollar so like all these like numbers of dollars starts to to explode and then the government starts to control them so they will put specific taxes to each of these so you have the dollar Netflix which is a tax to make sure that the Netflix purchase amounts are very close to what the blue dollar is so that that creates that explosion in numbers what you see in

Lanas is a summary of the most important ones um there's other sites that have like there's like 15 of of these dollars there's also the dollar crypto right which is based on what P2P markets dollar crypto is all the P2P markets and all the exchanges so you have like that one if you double that's an average of like a bunch of markets and the dollar crypto is probably the best predictor of what's going to happen with the dollar BL because it's 247 right so all of these exchanges there's people who Arbitrage all these dollars and stable coins came in and they offered a better way to access dollars so what what was the way in which we used to save dollars before is you would go and buy dollars in person and you would get a piece of

paper is that dollar fake or not right you don't know and sometimes they will put fake dollars uh in that transaction and then you try to put them in an ATM in the US and they fail so you you have that risk you have custody risk of paper money right where you put it in a save in the bank 2001 there was a coralito in Argentina they opened the saves so like the safe in the bank is not safe so you put it in your home but you someone can break in so you have a lot of custody problems with with accessing dollars stable coins solve a lot of that problem so stable coin is a very easy to access you access it with a with a local payment Network you buy your dollars the custody is simpler and then you can pay other people internationally with it

it's just a better product out there and that's why you're seeing the explosion of stable coins uh in Argentina you still have Skeptics right like anywhere but the penetration of stable coins are like everyone will know what they are and it's just a matter of do I think I'm sophistic get enough to manage the technology or not and that's the big question is the ux it's not the do I think this is better than having a dollar in my bank how do you get dollars how do you get dollar I've heard you share the story about like someone on on a a bike showing up and used Tron like how do you actually get dollars today yeah so when we were discussing the analysis that Nick presented we were like why is tether growing and usdc

going down and the the I think there's two different markets you have usdc is more defi it's more um like economic activity in ethereum and then usdt is more people accessing dollars in emerging markets and that market in Tron is continuing to in tther is continuing to grow and Tron is a network that Emerging Markets are are willing to pay for for gas just because it's cheaper so usdt in Tron is the winner and all of the network effects in Argentina but also in Turkey in all these countries it um these guys are winning in terms of how you access is it there's there's multiple ways what most of the let's say you're a developer in

Argentina you work for a company from Silicon Valley you get your salary paid in in crypto and you need to pay rent what you'll do is you'll probably you have a contact you message them through WhatsApp and say I want to sell $1,000 the company like it's a small shop will send someone on a scooter with a bag with like their backpack with a a paper bag full of like pesos and like imagine the pesos they're like super bu you have people like tourists that go there like they take their pictures because it's like so much money like um so they have their backpack full of pesos and then they give you like a bag you don't even count them because it's so many you just count like how many stacks you have and

you give them like 10 bills of of 100 or you'll give them a transaction with a usdt Tron settled in person immediately and then the person just goes and you have your your pesos for your rent for whatever expenses you need to do and then the opposite is also true how much Merchant adoption is there Merchant adoption there like whoever you want to pay and say hey do you take stable coins they will probably take them in terms of them pushing for that um you're not going to see signs everywhere about this because of course the government doesn't want this Market to materialize so uh usually if you ask you're going to be able to pay for um

for for your expenses on on usdt there's also like we have a ton of Tourism from neighboring countries Brazil in particular a lot of the Brazilians that come they pay with with usdt because it's easier than bringing their uh their own currency and they also save on their own uh taxes uh from uh from consuming foreign currencies and and this happens on Tron because it's cheaper than it's cheaper than E I think Tron the timing in Tron was really good they understood that Emerging Markets needed something cheaper and none of the l2s today are are going after this Market I feel like you need to actually be on the ground and and try to break that Network

effect today there's cheaper versions than Tron but Tron just like scaled so quickly uh and they were the only ones at that point in time what is the so I know in some Emerging Markets I don't know how it works in Argentina you can you you can actually have dollar in your bank account so what is the difference between dollars in a bank account in an Emerging Market versus a claim on a dollar which is which is in the bank account that's basically a claim on the dollar versus a claim on the dollar with something like stable coins how do you think about the difference there so let's talk about Argentina but then I think this translates to a lot of emerging countries so if you have a claim on a dollar on a bank in Argentina you have a claim on $1 collateralized by

whatever that bank has which usually is not a lot of dollars if they have dollars usually they get swapped against notes from the central bank until the Central Bank of Argentina cannot support those loan those notes they default and then your dollars get converted into Pesos uh and that happened in the 80s it happened in 2001 probably it will happen again soon uh because the Argentinian like if you look at the reserves of the Central Bank uh they are like almost going to zero so you have that claim when things are good you you feel like you have a dollar until something happens and you don't have a dollar anymore when you have a stable coin you are Translating that like you're still

trusting someone to hold an asset the question is you're trusting someone that's regulated in in our case for instance Bermuda versus Argentina and you're trusting a regulator that is telling you hey you need to disclose what you have collateralizing these assets and that collateral is like shortterm uh US treasuries versus in Argentina would be a portfol of credit cards mortgages car loans Etc right so the collateral quality is way better on a stable on a well constructed stable coin and also the legal framework or or the regulator who you're trusting in the end you're trusting a centralized party but who that party is is is a higher bar uh than holding deposits locally so I think those are the two main advantages

from a claim perspective the other Advantage is just stable coins being programmatic internet money um but in terms of the claim I think those are the two differences do you have a sense of like penetration within Argentina and Nick I want to go back to something you said earlier which is the the aggregate demand of stable coins has actually been shrinking um it's still you know if you look over five six seven year period it's grown tremendously but in the near term it has sort of stagnated or just gone down but Martin maybe if you can give us a on the ground like um kind of adoption within Argentina within kind of these markets where inflation's ramping people prefer to hold versus just Traders using it because rates you know are better in trafi than defi kind of

thing I I think what you said is is exactly that right like usdc is going down because the opportunity cost of holding usdc is 5% you cannot make that with a level of risk that makes sense in in in defi so people are just exiting and uh I would say whoever could exit has already exited the the the system on the usdt side as a proxy to Emerging Market use case of stable coins that continues to grow nick uh invested and sees a lot of deals of like centralized exchanges that operate locally in this emerging market and uh we also serve them as customers they are continuing to grow right like the demand for dollars as stable coins from local people but also businesses

continues to to scale up and the use cases of stable coins continue to build so it it's like A Tale of Two Worlds on the speculation side or like very uh like Roi focused uh side of things you see a very a very big decline I think that will come back pretty soon but then on the kind like real I I Need a Dollar use case that continues continues to scale yeah it's also like it really depends what variable you're looking at I mean uh yeah the you know it depends if we're counting us at all not usdt but us I mean that was what 20 30 billion uh in US uh at Peak that was I think that was a losery for the most

part so if you count that the supply of stables cap would reach 180 billion I believe if you don't count it was less and now it's drawn down to around 125 billion and uh I think a lot of that draw down reflects rate Sensitivity I mean vast majority of stable coins don't pass along any interest at all if you're usdc holder you presumably have pretty easy access to just get into treasuries so it would make sense said as the U you know trafi rate exceeded the crypto rate um you know the supply of stables decrease I think that will turn um I think most folks that are rate sensitive have have exited um especially as opportunities get better in the crypto

Market uh and the sort of the crypto rate you know starts rivaling the trifly rate again I think you'll see that turn the other metrics look at are you know the transactional value of stable coins is you know it's down slightly not not that much uh over the last two years but it's on uh it's kind of flat on a decreasing monetary base which implies higher velocity so you see that in the numbers so kind of each unit of your sort of generic unit of stable coin is turning over more frequently and if you look at monthly active users on chain that's growing that's at an all-time high so a lot of the usage me metrics are actually up or at alltime highs historically even though the kind of

monetary base of stable coins is down and anecdotally Santi um you're seeing more people like that you that wouldn't use stable coins in the US right like I've have on boarded people that are 60 70 year old that use stable coins because they they they just trust stable coins better than they trust the local banking system because they use them for uh payments um so you're seeing that adoption continuing to to kind of scale up um so I think that that it's still like not like I think the banking system at least rgta is still bigger than than the stable coin Market but this is like stable coins didn't exist like practically about like three four

years ago that tvl was almost like close to zero and now it is continuing to scale so I think that that flip will happen uh at some point pretty soon yeah like um uh I believe the there's one presidential candidate for Argentino you know very knowledgeable in crypto very Pro crypto and says at some point we should have all the Argentinian peso I think I heard him say that is this is this m the Javier Mila yeah yeah um like I'm just curious to understand how you see like stable coin growth continuing to continuing in a place like Argentina like what is the what is a five 10 year Horizon for like hey do you a one point C all transactions just why wouldn't

they be denominated in stable coins obviously you know the government come and en force your hand I'm kind of curious how you but I think we're nowhere near there um you know I think that seems like what are the biggest challenges it hey the the wallet kind of infrastructure sucks people are still skeptical of crypto people are not very tech-savvy or hey just Merchants don't want it or the government just hates it so I'm curious how you think about the limiting factors to I think a a good tale story there is Venezuela Venezuela has had higher inflation and longer than Argentina and there if you go to Merchant you do see uh payment networks uh like like blockchain payment networks uh that Merchants advertise and I I

think that comes to the fact that like the dollarization there is an even stronger case than it is in Argentina I I think there's of course a ux problem that I think we need to solve right uh like a payment in crypto is still takes longer and it's more complex than a credit card and it's more complex than cash like we still need to solve uh that problem but then the the the other problem is which is the actual tension that Merchants have is what happens with the government when they come to inforce right like how do I what happens when the tax collection agency comes in and sees this right so how do how do I solve this and the tension there is that that pressure versus like continuing to us

using the peso I think Venezuela has broken that and like like the the Bol so loses value so much and it's so hard to use like like the stacks of money are just like so big that like they went they went full in uh in argentin I think before you see Merchants can like actually advertise this as a payment product you still need a little bit more uh inflation to kick in and and and and some of those problems if melee wins I think that could be I think the transition is easier said than done but let's imagine that happens I think that could be massive for stable coins um because because then you you turn this into an official uh product M I think there you could see like a good size chunk of the

economy moving into stable coins because everyone in Argentina that's using Stables is breaking the law so to speak still exactly do so do they self cut like let's say they're transacting in tether what what are they actually where are they actually keeping that tether are they self- customing it is it just in is it like the D5 mullet just like sitting in a fintech app like what does that look like when you when you pull up your phone I would say uh in terms of individuals it's 8020 80% use a fintech app in terms of volume like actual like stable coin volume I would say 5050 right like people who hold more tend to self custody and uh especially after Luna happened and all of that like

people that that have significant balances and by significant I mean 20 $30,000 right like it's not like Millions those people are like okay I want to selfcast it because they've seen uh Luna happen then FDX collabs and they're like uh I want to and they saw the Coral in 2001 so they've seen what happens when Banks collabs right it's not it's not a foreign thing for an Argentinian to see that so I think self- custody is like I would say about 50% but then kind of the more retail smaller users still use the the the def mulet and then all of the like the 50% of self custard is usually store of value most of the transactions I would say it's like 95% happen on the CI side of things so is that is that also because of privacy like you wouldn't want to you

wouldn't want to send like a small transaction because people can you know inspect the wallet and say oh this guy actually has you know a ton of money and then you're a Target because crime in Argentina as there is in in these emerging countries is a big problem too and so you the Privacy side of things I don't know how how if people are truly aware of it but for that reason you want to use like a a centralized exchange to send out I've never heard that like I think in the crypto circle like we know this you like the reason they use C more is the experience is easier right like you can pay with a QR code you're connected to the local payment system you can pay with a card so like it's more convenience around the usage of crypto like for instance myself I hold

dollars on a CI app I like I don't hold all of my Holdings there but I hold enough that that is paying me a portion of yield and then whenever I spend I spend with my credit card and they get autoc converted at the current rate so that way I don't have to hold any pesos not exposed to to the peso but I can still spend locally without uh like I'm never doing a like like a transaction to swap I never have to estimate how much I going to spend or anything like that so I I I think it's that quality of experience that that brings uh users to CI anecdotally I'm seeing an explosion in these defi molet apps uh basically mobile money apps um neobank style apps that are just powered by Stables on the

back end both Legacy players Nick are these like like monzo and n26 kind of like the Legacy fintech players who just get excited about Stables or these new startups we're seeing both we're seeing both um I mean you're seeing traditional remitters like money Graham getting into it you're seeing uh Martin fil mean there's there's one particularly big one in latam that's that's a legacy player that's getting into Stables as well there's well Mal right that's what I was thinking yeah they're like the they were covered by eBay but today they work more like an Amazon and they have one of the biggest like today they're mostly a payments company and they were working with paxos and recently they signed a

deal with usdc with circle they're starting in Chile but they're going to allow Chile and peso to usdc conversion and transactions so essentially you're bringing the dollar to uh the biggest payment Network in the country right so um it is so prevalent that in Argentina they're thinking that they're passing a law so that they open their apis for other people to use because like they're they're like the the biggest winners in the category so you're talking about like it's not even venmo or or zel it's like even more prevalent than that it's like your Visa if you will in terms of like how prevalent that is and those guys are bringing uh stable coins in there's a big deal with grab which is like the

super app for Southeast Asia like when I was in Singapore was grab for everything and they just signed a stable coin deal I think just two weeks ago do you know who that who that was with that's a good question I think it was paxos but I'm to double check there's also something weird with them where the stable coins are not USC 20s in grab they're something else nfts oh interesting non fun stable coins uh I want to ask you Nick as an investor and how you think about like these Network effects obviously you know uh Tron I mean like it's interesting that Tron has gone Traction in these local markets because they just understood the local market they understood the the the

gasless component you know people are really sensitive to that but what's really stopping any of these Neo Banks saying hey we can do exactly what tether is doing and maybe in a better way without the Checker background or whatever and then um like it just feels like there's a ton of opportunity to launch maybe even other denominated major currency denominations like Euro stable coin we haven't seen really a large Euro denominated stable coins like circles come out but like I would think that there's a lot of appetite and a huge opportunity to even maybe take advantage in undercutting someone like tether and saying hey we're going to actually pass through some of the yield half of it or whatnot to the End customer and that's huge like now you're giving people access to a more stable

currency and yield like you know for folks like the appendix here is like the amount of profitability like tether is hugely profitable maker is hugely profitable um but they're not passing that yield over like Traditional Bank bank so I'm kind of curious Nick how you think about like is this an investable opportunity or do local rules regulations really like give you pause yeah no it's a great question I mean I think the status quo whereby some entity that has a float some Financial intermediary they're leaving it all on the table and every all of the underlying yields are going to the issuer that's not going to be the case on a go forward basis of course I mean tether earns I don't know 8 $6 billion

market cap rates are 5% aren't they like the top five largest holder of us treasuries like more than like some of the like emirati countries I I think I did the numbers recently I think all the fiia back stable coins collectively would be the considered the 16th largest holder of treasuries of The Sovereign level very big um but yeah tether is larger than some Sovereign Nations for sure than many um and they have 60 employees so I believe they're the most profitable business per employee on the planet which is remarkable we're seeing seeing a shift where exchanges really anyone with a float will either partner with an interest bearing stable coin or partner with a non-interest bearing stable coin but receive some of that yield or roll their own stable coin so

we're seeing both things happening I'm seeing um like stablecoin is a service startups uh getting traction going to some of these Neo Banks remitters anyone with a float and helping them launch and list their own stable coins because rates are so high anybody that has a float is a bank now and for a stable coin if you choose not to pay into the yield it's you know massively acreative so the whole terrain is changing and the big stable coin issuers tether might be a special case because they feel like they've such an advantage in network effect that they can not change anything about the business model the usdc the number two

like they now realize they need to react Pax his whole business model is white label stable coins uh you know like B USD for instance they had a REV share with binance uh we're seeing this the you not tether but the other top stable coins realize they need to start passing along some of the yield whether through Partnerships or they'll be disrupted by kind of the interest bearing stable coins uh like mountain and and there's many others as well all right everyone I want to introduce you to Bumper a new di protocol that is here to redefine how you protect your crypto assets obviously Market volatility can be big concern for us crypto holders bumper alleviates this

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with tokens not to mention the payroll tax obligations tax reporting in every country that you employ someone it is difficult timec consuming manual and costly and it is drawing more and more attention from regulators and governments toku makes this simple for leading teams across the space protocol Labs dydx Foundation Mina Foundation hadera nois safe getcoin and a lot more reach out to toku at tok.com ire or click the link in the description Nick what do you think you you mentioned this one thing about regulation you said a lot of the folks in Argentina who are still using tether in this way or I think it's kind of illegal how they're doing it the

government could inevitably come after them if they really wanted to crack down on this what do you think of uh cryp crypto collateralized staes and I think roughly where at five or six% of the market today where does that market go if you kind of fast forward two three four five years yeah and it's it's interesting how you count it because like d started as a fully I was trying to figure bed and I think if you look at it today it's like maybe less than 20% of the supply of D actually eth there are newer ones like raft Libra Finance Athena's launching that will be I think solely staked eth based based on staked e derivatives D is like a funny story

because of course they started as this like pure thing where they were just backed by eth and then over time they became usdc interface and now they're rwa interface um so I think if you if you did the full accounting it' be less than 2% of the stable coin Supply which is truly crypto collateralized which I think is a shame I think we need an array of different options we need you know the sort of like quite regulated Fiat back in a a variety of different jurisdictions but also I think there's an unmet need for more decentralized maybe even completely smart contract based stable coins that are issued based on crypto collateral the fact that eth pays a yield now uh is I think really ACC creative I think that that segment

will now become economical it wasn't really before D had these issues where they couldn't make they couldn't keep the Peg and so they had to introduce usdc into the mix uh the fact that eth now has this yield uh yeah this is the the fact that he says this yield means that this is not possible I think uh so I see this growing um people maybe have some like PTSD from uh Tera Luna but it was a very different situation I mean Tera just was not reserved I mean it was it was very partially collateralized all these models have different collateralization approaches but um they're all fully collateralized at

least in theory uh so I think like people you know they they still kind of struggle a little bit with the us thing and and they uh because usd's whole narrative was this has to be a crypto native stable coin that's the only way to have it be decentralized and so if you're using that same language to sell people on your new stable coin people might be suspicious yeah I think this will be a very meaningful segment uh some people will always want the most Crypton native most decentralized solution and so I think you'll see winners here I think you could see north of 10% of uh stable coin market cap be sort of Crypto Crypt based Stables if you were to designed a protocol today like obviously there's

been countless like algorithmic stable coins and and experiments it's a hugely like fascinating field like from game theoretical perspective and I think we we haven't stopped with like there there will continue to be experiments like how would you design it there have been like uh people talking about like linking it to inflation or purchasing power locally but then that's huge fragmentation um do you base it off of something off of the dollar or like some sort of commodity um if you were to like wave a wand and design something like how would you do it yeah curious I wouldn't want it to I wouldn't want to link it to a unit of account

that's not the dollar actually because you run into troubles when you have something that's appreciating relative to the dollar um and also we've there are gold back stable coins they haven't they're not really that popular like paos has one yeah paxos tether has one too um and I know Brian Armstrong talked about flat coins I think those run to be inflation indexed um I don't even know how you'd accomplish that frankly um you need you need a better CPI first well yeah moving Target that is definition of inflation tips right inflation is a is a geographically contingent thing so um to

me like inventing a new unit of account is a huge mental hurdle for people and I think that is why stable coins are so dollarized is people don't want to do accounting and all kinds of like Arcane currencies like Bitcoin started off as a crypto unit account like on exchanges remember all these prices were quoted in units of Bitcoin that was like this massive mental friction I mean even you s eth was the unit of account for accounts is e it is eth still yeah it is e still but then you have to like do this additional transformation it's like well you know did I win on this trade or lose on the trade I have to you know incorporate the eth exchange rate it's like this whole that's assuming you're cashing out right but because if you

conceptually think of the economy is denominated e and then and you're NE never cashing out the real world like in the metaverse and you know presumably you could always think about an e terms but at some point you got to feed yourself and that is still dollar yeah that's an optimistic uh approach I think I'm not not I'm not like that I'm just you should really be think of it in units of like avocados and steak and you know gonald the index or whatever yeah like ultimately it's all about purchasing power it's it's ultim about your real purchasing power so I just from I think from what we've seen like trying to devise a new unit of account is difficult and we saw was it the Rye guys they had their stable coin which was

in initially launching units of P dollars as in like $3.14 not like the food um and that really confused people it was like flat in dollar terms but it was a different unit of account which was endlessly confusing so I would do it in dollars you know I would just do it in plain old dollars I the market we we thought a lot about this right whether you want to be money or whether you want to be an investment and I think I think there's there's two different uh categories there and if you want to be money it has to be very simple for people to think how much money they're sending you without any math so for lios example they did stake te which begs to

eth which makes it very easy for you to know how much money you're you have when you whenever you acquire this asset and they decided to be kind of like eoa first or kind of like consumer first and then defi second and they had to do rap stake d and a lot of the complications that came with that but I think that was the the right choice despite all the work that happened with uh Integrations I think for stable coins you're going to see the same thing you're going to have stable coins that are worth always $1 we took that route and then uh stable coins that will appreciating value we have the W usdm and the question is do you want to be defi first right so prioritize Integrations or do you want to be money first and make it easy for people to do

payments in your in your currency and to me of course dollars is the biggest Market but in general the the the take has to be you have to be one of whatever people think right so it's $1 one real one Euro that that needs to be the the unit and then I think inflation coins or flat coins or energy based coins and so on they're going to end up being Investments but I don't see like someone like my mom TR like sending a payment on a flat coin right like how is she gonna do the math right so too much mental overhead it's a question of like do you want to be money or do you want to be an investor and I think that's the key I mean what you could do is you have and what I want to ask you guys is obviously

you're doing sounds like the same model of fully collateralized or or largely collateralized go out and buy treasuries uh or or a basket of you know highgrade stuff whatever it is um and then you clip some yield uh and then you can wrap you can have versions of the of said you know whatever coin you you know you have and then you could people can can trade IL liquidity for some yield through a WRA version of the underlying thing that is always kind of resembles one to one to a dollar uh and shouldn't lose it spec unless people have have concerns around your credit so the the the way we think about the peg is the most stable coins are bagged by trfi assets or at

least all the fiia stable coins are so you always have this question of reserves are there but like if everyone wants to redeem on a Saturday like there's no way to access it right because the Monday the The Market opens on Monday and then you have t plus1 settlement and so on so there's always the liquidity concept like uh arrangement of the stable coin but if your collateral is good which I think the consensus today is short-term us treasuries no commercial paper no long-term assets uh those should always be good as long as your setup is is is correct the the the second point is okay now that you have this asset how do you make it yield bearing from a stable perspective and also allow for the yield the the appreciating asset so I I think

stake D was was the is the right formula right so you get air dropped in a very efficient way which is the rebasing so if you have your EA you just see money coming in every day without having to do anything and then if you wanted to use it in defi as a collateral as anything else you wrap it and that becomes a kind like constant balance cc20 that most of defi knows how to work with um so yeah I think that's the model that at least we we we talk a lot with uh several issuers right transfer in Brazil weal with uh num Finance they are issuing coins in several countries everyone is going with the same model right like pegged the like plain asset and then wrapped appreciating asset yeah I want to double click on something you

said earlier which is what happens on the weekends which there's some limitations right like we saw this with circle uh a few months back I think it was six months where because of this lack of infrastructure like certain big players have started have stopped operating during the weekend that yeah the US government destroyed facilities in Signet like that was why ex that was their usefulness as that went away that following like that weekend or the following weekend there was huge concerns around being able to actually settle these things and so you saw the the usdc dpeg for any rational investor you looked at that that that's like that's in efficiency like it should go back to

the peg but those moments of deviation from the peg I think really hurt consumer confidence in using something like usdc so the question to you guys is like again going back to this idea like how do you see like that as a challenge and and overcoming those moments where you know the dollar never deviates because you know at the end of the day you're trusting the you know fighter planes and the the the the muscle of the United States to be the dominant let me let me let me caveat that the dollar does deviate if you go to Argentina with a dollar the old dollar that has a small face versus the big yeah yeah there's

like those deviate in hang on a second you got to explain this so this is an insane there's some dollar bills that people like in other countries do not like they're like there non fundability exactly so even the dollar is non fungible so this is not only a crypto thing we can get to the crypto weekend liquidity have lots of opinions there but like the this story is funny so if you go to an ATM in the US and you insert I think it's a small phas the one that's the newest and the big phas we're talking about benjam $100 okay um you put a big face I think the big phas will be returned more often than than the small phase right so the ATM will not take it because it it had I think lower security um kind like for for counter fight counter fate so if you

go to Argentina with the big F base they will discount that uh like one or two% from the traditional uh like the the newer version of the dollar yeah there you go so even the dollar is not completely some of them don't even take them they're like no come back with a real one this actually happened to me in Singapore I gave I was paying in physical US dollars for some reason for an Uber the driver is like yeah I can't take those they're crinkled they're too crinkled the money Chang is not going to take them and so I fanned out every dollar in my wallet I'm like you pick like a deck of cards you pick the ones you want and he's like going through and like there's non fungibility with even how wrinkled the dollars are the further you get it from the

US nice and crispy yeah so that that is with the fungibility of the dollar uh not every dollar looks the same I think if we go to the private money eras uh the private bank notes were do like were taking differently like depending on the distance and how how hard it was to actually redeem that value so I think this kind of like the the note that is redeemable at $1 for a certain number of parties being valued at a different price than the redeemability price is something that is constant in the economy right like now we're seeing it with stable coins but we've seen it with other Assets in the past in terms of the weekend that I think the circle weekend is a very good Learning lesson because we had two things at the same time we

had a liquidity question right like you couldn't access um Redemption of usdc coinbase stop the onet toone conversion on Prime but there was also a solvency question on the reserves right there was a the the estimates were 3% hold in the reserves and the thing about a hold in the reserves is the last man standing will eat 100% of the loss so you have like a game theory problem where if you redeem early you might collect something but if 97% of the people redeem and you go you get zero yeah because it's a first and first out basis it's not your pro r a share of the reserves exactly until they go for bankruptcy but like you cannot declare bankruptcy on the weekend and if you do then the question is like what is the cut of time that the

bankruptcy cord is going to take so you have once you get into solvency questions the I think the fear is a lot more rational than it is when it is a liquidity question so I I think that's the learning from the the the circle weekend is you have a liquidity problem but you also have a big solvency question and the the big thing there I think is like the in the Pyramid of money you have you used to have gold now you don't have that anymore you have fed reserves you cannot access that as any stable coin isur so those are not accessible so the next thing is T bills but then you have Bank deposits and Bank deposits are an insured loan to a hedge fund that happens to be licensed as a bank but like if that hedge fund goes

under you lose your you lose your assets above whatever the insurance level is during the regional banking crisis I think a lot of people realize that that discrepancy and then move directly into t- bills because yeah if in a situation of bankruptcy you you know it's quite different treatment uh and and the the question is as a stable coish what do you do now right so you know that banks are are risky no matter what bank you have you still have a a percentage RIS that it goes under unless it's ad Jive ad Jive won't Bank uh stable coin issures for several reasons so the question is how do you build your reserve structure and how do you ensure liquidity by by doing that so everyone is innovating and and trying new things

uh for instance what what we do of course BSA for every stable coin isure is D plus2 but no one wants to go D Plus+ two because that affects your secondary market price if market makers cannot redeem so what we are building is a network of partners that allow us to do crypto repo transactions so that sounds like a very complex way of saying take a usdm which is a claim on a t plus2 basis and give me a usdc or usdt now and then I'll pay a fee and then you use big balance sheets so people that are actively working in crypto to access this liquidity on a kind of like as needed basis I think the market is going to go more towards that type of solution to solving liquidity rather than Bank deposits or or or other

forms of of liquidity so well I think you'll see other experiments but that's that's kind of the direction we are going one of the big tragedies of staes in this country one of the things that's holding the sector back is the fact that there were two Networks which allowed Fiat to move at the speed of crypto for the sake of we un settlement for stable coins which was son and signat and in the in the process of the banks failing or being murdered whatever your opinion is in this country my view they were assassinated it wasn't they didn't just suicide themselves you know who is the sniper the uh the nydfs in the case of uh signature um you know like sign

signature I think in particular was was one of the big casualties here uh apparently solvent when they were shuttered signat which was their Fiat clearing Network which allowed dollars to move at the speed of crypto uh that one was not sold in the FDIC acquisition process where they were divesting all the signature assets they just let that Wither on the vine which is crazy and no other bank has been able to build anything like that because they're terrified of the signature treatment happening to them so so that's one something people don't talk about stable coin infrastructure in this country was degraded because we lost these Fiat clearing networks and you need Fiat to move at the speed of crypto otherwise

you get these discrepancies when we're not in banking hours yeah and can you just briefly explain how Signet worked oh man Martin I might have to draft you in for this one it sounds like just basically what you're talking about like this repo Mark but yeah yeah Signet was a I think they even used a a private blockchain internally so essentially what they did is they extended the the like you had to be a customer of signal to participate so every participant was a KYB so imagine this is a fully KYB private blockchain and then your wallet which was your account balance could be transferred 247 so what they did is they opened this window from kind of like the

traditional Monday through Friday uh banking hours timeline to 24/7 for internal transfers if you wanted to do a wire or access any other type of payment Network you had to go outside but if you were dealing with circle and another exchange on your Market maker and everyone was in the same ecosystem you could do you could do all those settlements as long as you had balances in the account 247 so amazing product yeah I mean the the beauty of it and this is why it can't be rebuilt today was that most of the relevant crypto entities in the US were banked by either silvergate or signature in particular signature the problem was after FTX the FED went to all the banks and they said yeah you can't have more than 15% of

your deposits be pertaining to crypto and so this meant that none of the banks could get a critical mass of crypto firms all on their own kind of internal Network so it was kind of a nice point in time that we had like two years of like sort of like functioning Fiat infrastructure on the crypto side and ever since the FED created that edict now the banks can't get that Network effect so nobody's able to do it today and if you go offshore you still need a a correspondent bank in the US to access like for money to come in and out from your ecosystem right so you still need access to to uh Swift or wire infrastructure with a corresponding bank

so in the end even though this bank is offshore the the the US establishment pushing the correspondent bank means it's very very hard to actually build and advertise and all of that even if you're if you're outside of the United States so that's also what's making it very hard for like this network effect to build in banks in in other jurisdictions so that so exactly so that's what I wanted to go back to which is this repo kind of Market that you're talking about I mean ultimately wouldn't you face the same constraints or challenges if you try to access like the Swift Network or or you're kind of not even touching that so the good thing about a a crypto repo Market is um you do that fully on chain so let's say I you have usdm fully backed by treasuries

I send it to you on a Saturday you send me usdc I send it to my customer so then the customer feels immediate redemptions and then I repurchase that usdm on a Tuesday from you so essentially what I need is Traditional Bank access I don't need a bank that that Banks everyone else because I will settle that transaction via traditional fed wire um and onramp without needing that bank to bank all of my other partners so it's kind of like a a good in like a good solution for now of course the previous solution was way better but this solution allows you to to provide that immediately you're swapping like for like stable coins so you're never actually interacting with the

traditional rails it's just all within assuming that the corresponding parties agree to that and are okay with it need a counterparty with usdc reserves that's they're willing to part with it on the weekend in exchange for fee right yeah and and usually if you're a market maker right you have a ton of res like a ton of uh you're making market so you have this usdc in several places and these balance sheets tend to be like you can go from hundreds of millions to billions of dollars right so this scales to like that level you are not going to be able to settle transactions on the tens of billions uh but at at like that level you can if you pay a like the question is what apy are you paying them yeah it's just sort of a market clearing rate

to yeah yeah and where are you in terms of developing that so there's an announcement that's going to come up pretty soon so uh you can make it now if you want I mean we love announcements yeah the there there but yeah we're gonna make that this announcement with a with a partnership uh pretty soon and then that will allow anyone who holds uh our token to swap into like other types of staes uh even on the weekends at like a very large rate um instead of having to wait for that plus two and this repo Market do you envision it being mostly or exclusively institutional or do you have like you know like a construct like amm has basically allowed anyone to be a

market maker so would presumably like retail be able to kind of play in this market and and earn a yield I think the retail market participates so the the the flow of funds is you generate an asymmetry in the amm which triggers the market maker to try to buy balance that out and that requests money from us right so in the end our customer would be in this case most likely the market maker or it would be a large centralized exchange what we were going back earlier doing their own stable having large redemptions over the weekend so they would sell into us a lot of usdm so those would probably be the two biggest customers and then for you as a consumer the benefit of this repo Market existing

is the secondary market price is very tight to one on the weekends which if you don't have it on the weekends you should see a higher spread because the for the opportunity to be worthwhile usually for for you to take longer term um like exposure the opportunity is to be better than an Arbitrage right so yeah right so that's the benefit for you when we've seen some inefficiencies between centralized exchanges and and defi that RB usually goes away fairly quickly and that's the beauty of like the interaction of these two ecosystems is that these arbitrages get arbed out fairly quickly because because sophisticated players just and so it it keeps the system presumably IM balance unless there's of course a fundamental

like going concern of degradation and Trust exactly the power of the Arbitrage is it's delta neutral so you're not taking any directional risk on anything so if you're going to make $7 and gas is five the bot will make that transaction and will capture those $ two doll whereas taking a liquid a liquidity Arbitrage where you're waiting for Tuesday you're going long on a specific asset so that number needs to be better and it's probably on the thousands for someone to come in and make that deal yeah yeah uh Nick I want to I mean obviously the we're recording this episode and over the weekend we were talking about yet another government shutdown in the US and uh of course we keep talking about the unsustainability of you know the growing debt and

interest expense and and the long we we keep going back this and I don't want to make this a like a political and because you know an economic like podcast but I I I i' would be remiss not to bring it up and I want to get your takes on just how you think about again the collateral here is treasuries sounds like everyone's like gravitating to that like what are your thoughts around just generally the fiscal irresponsibility and state of of not just the US government but other governments and what is the most pristine collateral and how do you see that evolving if it were changing at all yeah good question it is kind of ironic that we're talking about bring treasuries on chain and stable coins of course are all back by treasuries and then the treasury is something that us

crypto people have been kind of trashing for the better part of a decade now um but uh you know it's interesting I mean treasury yields were deeply negative for a while in real terms and now they're actually positive which is pretty cool so everyone like Luke groman likes to talk about um you know Financial repression which means you run inflation hot and you pay uh a lower nominal yield so then the Delta means the government can re set their debt position bring down the debt in real terms which actually they were able to do a certain amount with the negative real yields that we saw right now today yields are positive in real terms so it's pretty remarkable um so that's good for Savers

of course that's bad for the government right so we we're looking at the debt charts here I mean these are official US these are CBO projections this is government's own projections where you just see the debt to GDP level just going parabolic and yeah I mean it it is nonlinear um interest expense is over a trillion dollars now um for any if this country if this slides if you if you slap away you just look at that and you say if it was Greece or turkey or Argentina or any other country that's running jet debt to GDP levels of this nature like there would be a huge huge degradation trust and then you'd see like a deep like yeah and the other feature is I mean foreign

holders of of treasuries are divesting so um Japan is divesting for kind of mechanical reasons to defend the Yen and China is divesting I would say for more political reasons which is they fear the Russia treatment even though it would be kind of mutually ass destruction if we seize China's reserves um I think they you know no one had ever seen the US sanction a G20 Nation before like we've sanctioned small Nations many times and sees their reserves Venezuela Afghanistan uh Libya I think we did it too like the US has done this actually a number of times they've seized official reserves and dollars of these uh smaller more paria Nations Russia was a huge incremental change there so I think

China is wary of having too much exposure treasuries they also may think it's a bad store value Asset fundamentally the math for the math to work inflation has to return and yields have to be negative in real terms and that of course means that treasury holders will lose uh so over the coming decades even though things are nice and positive in real terms right now over the coming decades it's going to have to happen unless there's a demographic change or productivity unlock and we can kind of grow our way out of trouble I mean if if GDP growth picks up then we can bail ourselves out basically so that's kind of the big asterisk on everything saying the only way to get out of this chart Nick is

either inflation to basically eat away at the debt or some colossal prot ity unlock which you know maybe could be AI or something like that or we could default right that's also well there's two options three options really inflation uh which I think is most likely one default which the US is I don't think we intend to do that um or um yeah demographics could change but that doesn't look likely um or we could also raise taxes massively I don't think we're going to do that um so good luck trying to get elected yeah exactly so in democracies there's like one way these things go which is you do the kind of covert deleveraging uh through inflation and capping yields and with the long yields

Rising just in the last week or so like we're starting to see Central bankers get a little nervous they like oh we don't know why the 30 year is rising so much uh so that I think you would expect to see more conversations about doing yield curve control uh you know in the coming weeks actually so look out for that but yeah the the one way out here that's sort of like the good case would be productivity unlock and I actually for I do think AI can be that I think AI can add two to three points of GDP growth for a decade or so like I think of it as as consequential as the am menion of nuclear power um so I do think it is a massive productivity unlock which could potentially help us out of our very unfortunate uh fiscal position

uh without requiring a ton of inflation I think it'll also be very disruptive at the same time uh so maybe you know they'll like it won't be good for Society little you know increase inequality uh but yeah I'm actually kind of weirdly optimistic about this even though on their face the numbers look really bad I mean yeah I I tend to agree with you the only real nice scenario here is productivity growth and yeah AI adoption nuclear I mean yeah we might have nuclear fusion might become a thing like there might be some space I just saw the issue though I just saw a chart over the weekend of like how many new like reactors being built not not all these are like the huge reactors like small module reactors like China is building like 20 or 30 Russia turkey basically

all developing countries are building a ton of these and then like France is building one but they already get like 75% of the energy from nuclear no other kind of country in the European Union is building any or is serious about it the UK is building one but I think it's like a massive operation it's going to go way above budget and then the US is building one or two which is like laughable so yeah I mean I think yeah I mean ultimately growth is our ability to Marshall our resources and energy is the discount rate so if energy is expensive you're not going to have good growth which is what the EU is dealing with I mean they made their own bed because they in my opinion have this kind of suicidal energy policy the US is in a much better position like we are the

ones shipping LG to Europe and ripping their faces off with the spread there we are an energy rich Nation it's just a matter finding the political will to exploit it if we and like you know if you look at European growth over the last decade like a lot of that was because they had cheap Russian gas you look at our growth our disinflation over the last decades because we had the Shale Revolution so it a lot of this is Downstream of energy yeah so part you know the question is like will we find the will to unlock that and and you know use more nuclear whatever it is nice I love episodes when we go back to nuclear because this is something that we've had like Josh Wolf andle when you think about the two most

non-consensus things in the world right now it is probably crypto and nuclear like talk about like two things that we know can you know offer a lot of benefits but the world just has a very negative view towards them like over yeah I mean we basically I think what we need is like for Germany to acknowledge hey we screwed up by turning off all the nuclear reactors just woke policies where like they were shutting down their only remaining nuclear reactor months after the the war started and you're like well yeah I after Fukushima I think Merkel shut down seven reactors and I was baffled by that because you don't have tsunamis in uh Germany um you don't have earthquakes either for that matter

also the German reactors would have been able to withstand Fukushima because they were newer reactors yeah have France nearby so you're still taking the risk anyways France in the mean meanwhile is you know they have a ton of strikes but they're not related because of the energy prices keep going up theyve but yeah just shocking um guys I I I have one more question for you here like kind of playing this out so you uh Martin you guys got registered in Bermuda I think you said um what happens when Singapore so Singapore just had some like very positive stable coin regulation I think it was so Bermuda there's UAE is becoming like pretty Pro stable coin as well Hong Kong becoming Pro stable coin what happens when like

the major USD denom denominated stable coins are all getting issued out of like the UAE and Hong Kong what like what does that do for is that a good thing a bad thing it does like you know nothing to really look into there what do you mean for the US yeah for the US I think it's a very good thing that despite you trying to kill it you're generating forced buyers of treasuries because in the end we don't participate in the auction we buy at whatever price right so um you're a price taker so you're generating in the in the demand curve you're generating a bunch of demand that is like you would take it at whatever price and this is some some people that

argue against this is like okay you're changing a dollar for a stable coin it's still a dollar right I think the argument is stable coins penetrating are changing other currencies to the dollar right like you can see whole economy start to move in the dollar so it's like net new dollar demand that is purchasing treasuries so I think that's the disruptive thing that I think is very hard to feel in the US because like stable coins are not like most people here don't understand why you need them but um of sure it's like of course I I would Swap and store my value and transact here and I think that net new purchaser of of your dollars and and treasuries is the biggest benefit in the country I put

it I just think it's good for for the average American in that it makes our debt more manageable in theory if crypto becomes and stable coins become a huge asset class at say trillion dollars it's not good for the quotequote deep deep State like it's not necessarily good for Washington's ability to project power indiscriminately through dollar rails because there's more transactions dollar transactions happening elsewhere the issuers are going to be domiciled elsewhere they're going to be less accountable to the US government so good for ordinary amans not necessarily good for like the political Ambitions of Washington and let me caveat there Nick which is I think the thing that is going to be prevented with stable coins is the

cted government enforcement because all of the stable coin issues are going to support whatever a court requires right like I don't see a stable coin issue that's going to be oh we're gonna we're not going to support a US judge saying that we need to block this asset what you are or the FBI or like an actual enforcement what you don't have is kind of like the behind the scenes power that gets inflicted via intermediaries just because stable coins are so transparent so I think that behind the scenes power is is what Nick is referring to yeah I mean ultimately like if if you're talking to regular you're like well why wouldn't you like it's it's just overwhelming either net like neutral or overwhelmingly positive like growing demand for US Dollars and greater transparency like think about the shadow

economy like how many transactions being done in cash well if you're the IRS or the tax authority of India or whatever country you have no visibility into that now all of a sudden you you do if if all of these transactions are happening in a public blockchain and that's hugely beneficial I mean at the end of the day Martin Martin I sort of agree with your view which is you know you either like accept that and then and then you're you're very much Pro that irrespective of who you are like I just maybe the more important question is like how far off or how far away do you think we are to get to that state where we just like 10x the stable coin um you know volume and adoption and

like what I guess as we think about wrapping up the episode like what are the major catalysts you see in the Horizon uh both Nick from an investing standpoint like things that you may be thinking about like wallets or yeah things like Mountain protocol and Martin from a developer kind of entrepreneurial standpoint what are some of the Catalyst that you see I'll I'll start I I would say the crypto rate has to go back above the fat rate for the stable coin Supply to start growing again um the adoption of stables and it's mainly happening through these intermediaries like fintech apps def mullet right that is 100% happening in fact we've been inundated with these kinds of pitches over the last couple months um mainly em focused but

virtually every country you can think of it's like we be the stable coin wallet for X we're seeing that so that's just happening anyway I don't think think that's going to go away it's not like the you know Fiat currencies of the world are going to start becoming credible again so I think you're going to see episodes of this sort of crypto dollarization occur and I've been predicting this for years and it hasn't happened outside of maybe Venezuela so I'll just keep predicting it and eventually I'll be right and then at that point I'll you know celebrate that uh but yeah I mean I don't see any specific Catalyst I mean dollarization Argentina could be one for instance uh but that is sort of happening on ongoing basis yeah for me the number one thing is actually crypto yields coming back above trifi yields so I think that'll

probably happen the next 12 months I I have a more positive view than than Nick I think you're going to see growth in in dollar in stable coins because now you have a better dollar that you can sell with a stable coin than not having a stable coin right so if you think about the euro dollar banking system in most countries you're going to get a dollar interest bearing account if you're a very large corporate but your average kind like and consumer doesn't have access to that product so these kind like def mullets uh capturing that demand I think you're going to see a lot of that so high old checking accounts for uh individuals for smmes the side I'm very excited because it was

a a a segment that didn't have a business model before and now you have one uh because the business model has always been swaps smes don't swap but now that if you can get a interest margin you can you can serve them so I think that that's one in terms of the rate of of crypto going above trfi I think the the way that happens is if you start bringing in the risk- free rate into all of your blue chip protocols so you start to stack the risk free rate plus whatever fees are generated let's say on on an amm so I think we're going to see uh usdm take teeth pools so uh instead of usdc e so instead of paying usdc and getting deflated out in e

you're going to get your stake de uh rewards and then you're going to get your RIS free rate on dollars so that is a pool that will pay more than the than the RIS rate you're GNA get a usdm Stak Brazilian rail pool so now you have a Forex uh like clearing house that can pay more that is more efficient than what you have so I think those are going to be the places where you deposit money and you're going to be able to with a very limited additional risk which is the Smart contract risk that you're taking but that most have been very Val that uh you're able to generate above kind of RIS free rate returns and I think that's what's going to bring institutions back in I mean of course the first condition you mentioned requires that there is no choke point

operation uh in these places which you would think that there is some opportunity these countries as we seen you know Singapore Hong Kong Dubai really appreciate that hey this is an opportunity for us to step up and become more relevant in the financial Hub and develop that and so you could see you know but but you know importantly if governments really want to make this impossible they can't yeah I mean we're seeing the opposite of choke point we're seeing uh outside the US yeah yeah so it's like a direct reaction I mean Hong Kong said they have a stable coin regulation coming next year Singapore already passed one you'll see it in the UAE as well Bermuda I'll be in Bermuda next week they love stable coins they love crypto so we we're seeing the

reaction abroad to the basically the failure in the US yeah yeah it's so fascinating like just as you described an open Nick like the euro dollar market coming to being in the 60s 70s we're seeing the same with stable coin the parallels are very much there um but guys this has been a fascinating episode we we haven't even tou I think there's so many other topics that we can delve into like insurance and all different kind of like securitization of like you know staking yields and all this stuff that could be embedded into these products it just feels like it's very nent category but it is kind of the Trojan Horse of crypto and um you know really appreciate you guys guys perspective and coming on and talking about that as as anything else you guys want to end with or you know perhaps like you know parting thoughts and

places where people can follow your work look watch my talks my token 2049 one I think is the key one so it's uh you know lot of the fexs I'm talking about like I put all their names on a slide so if you want to dig in further um yeah it's we can link that we we'll link that in the show notes and then for us it's Mountain usdm that's our Twitter handle and then my person is @ m so uh you can follow my thoughts there too cool Nick Martin thanks for coming on the podcast Martin it's pleasure to have you Nick good to have you back as always thanks guys thank very much guys appreciate it take [Music] care