The Hidden Costs of USDC | Nathan McCauley & Charles Cascarilla

Transcript

the problem that they saw is that they're holding um usdc and deriving no revenue from that in fact growing the network in meaningful ways and then directly uh deriving no revenue from that um imagine if the dollar the dollar could be held by dozens or hundreds of banks but there was only one company that was earning all the interest from those dollars that were held in everybody else's Banks it would be a a Preposterous notion today's episode is sponsored by geod net they're a leading dpin protocol that's providing critical location and spatial intelligence Services needed for Aid driven robots and drones discover how the Network's

native token geod is powering the next wave of the robotics Revolution by hitting the link in the description of today's episode today's episode is brought to you by uni chain an upcoming layer 2 that's purpose built for the next generation of dii applications with up to 95% lower fees than ethereum and 250 millisecond block times coming soon after launch unich chain is designing the future of cross-chain liquidity stay ahead of the launch by visiting unich chain. org and giving unchain a follow on X hey everyone Jason here I'm excited to announce that today's sponsor Petra a top non-custodial wallet developed by

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bitwise investments.com slci memoire or make it easier on yourself by just hitting the link in the show notes of today's episode carefully consider the extreme risks associated with crypto before investing all right everybody welcome back to Empire uh two very special guests uh Chad from paos coming back on the show after a long Hiatus I think Chad you were on a couple years ago and then Nathan from Anchorage I'm pretty sure first time on Empire so Nathan Chad welcome to the show happy to be here thanks yeah likewise excited to have conversation um so this is a big stable coins conversation um that came out of a conversation that I had at a bar with Nathan in Singapore where he uh kind of

180 my views on what I think the stable coin landscape will look like so a lot of my predictions and me trying to my py thoughts and trying to sound smart they often times just come from Nathan and I just steal his ideas so I just wanted to uh bring him onto the stage but maybe actually in common we have something in common yeah exactly I would love for actually both of you guys because um maybe Anchorage and paxos people some of the listeners don't know as much about I would love for you guys to explain the business models of both of your businesses I think people know what you guys do paxos you help with stable coins Anchorage maybe you do custody but what are the business models of both of your businesses um sure thing I can I can start um so Anchorage is a digital asset

platform our biggest product and our main source of Revenue right now comes from custody fees the way that works is we uh have institutional investors hold their assets with us and uh we charge what's called basis points on custody assets under custody so they hold say u a billion in assets with us and then there's some rate they pay annually based on that this is not new to crypto this is how the traditional uh Financial C custodian like bny melon State Street Northern Trust um charge um in in addition to that we have a u a growing uh trading business where we are allowing those clients to get into and out of their positions and we charge a um uh we charge a commission on those

trades as well and so that's the basic model of revenue for us yeah and so our business model is a little bit different but in some sense maybe similar uh we have two um uh two facets of the business one is the infrastructure part of the business or the Utility side of the business where we enable firms to be able to offer crypto products to their customers and so an example of that might be PayPal being able to offer Buy sell hold uh so it's called crypto brokerage um or it might be strike being able to enable um payments in crypto and stablecoin uh specifically stable coin for their customers and so we're providing like a wallet and uh in some sense of custodial infrastructure and um but we're really

not trying to acquire the end user and fund um this is really uh an intermediary that's using us and again the customers like that PayPal venmo interactive brokers Marcato Libre uh etc those are perfect examples of that and then um we have the tokenization part of the business and that's tokenizing dollars we've tokenized equities in the past um we tokenized um uh gold um we have a bunch of different types of products we do it in different jurisdictions uh both in the us and from outside the United States and um in those cases we're usually charging it could be a basis point fee like Nathan is or it might just be a usage fee so every time someone's making a movement uh we're charging a fee off of it Chad I

would love to get your take on just the the stable coin landscape right now it feels like in everybody's 2025 predictions it's like this is the year of stable coins uh you've been at this game longer than most what is the like stable coin landscape as you as you see it today yeah well I think gone through so many innings here I don't know what's what's the right analogy here in terms of innings um I mean I remember there's an episode you did on uh invest like the best with Patrick back in 2018 or 19 where you were talking about stable coins actually and I I remember that being one of the first times I was like this Chad guy seems like he's on to something here uh you know there's plenty of examples maybe where I wasn't um in any case um I think we're at a pivotal

moment uh ining uh TBD but a pivotal moment for stable coins because we're just maybe hitting the phase shift where you're going from crypto mainly users or early adopter users to mainstream it hasn't happened yet uh but the when you get to these moments they tend to not just be linear they tend to go nonlinear um and so it's always hard to extrapolate when you're on the S curve but I think we're getting to a really critical inflection point and you're starting to see it it's leaking out into all kinds of places where people are now using uh stable coins for remittances they're using it for B2B payments and I think what's also fascinating about the market right now is that we're kind of in a stable disequilibrium uh in terms of how the

market structure is set up where you have tether you have usdc and then you have a number of other players uh including some of our stable coins that are beneath them and um I think that that shift to mainstream is going to put a lot of pressure on um that stack ranking um and it's going to really maybe expose uh business models that haven't been constructed either from a regulatory standpoint or from an economic standpoint to be able to scale to societal wide level and that's what we're constantly thinking about it that's why we're so excited about the partnership that we have together around uh the global dollar usdg is how can you scale stable coins to having a global societal impact and I think we're very close to making that happen the product

Market fit is like very clear it's cheaper it's better it's faster we can go into all those different ways of what makes it important but that's the I think the very interesting place we're at right now in the market what is the I mean the two stable coins that people know most are obviously usdc and usdt um I'd love to just hear your take on what has happened with both focusing on both of those right now and then we can I know you guys have launched usdg and Chad you guys have a lot of other ones obviously um what is your take on just what has happened in the usdc versus usdc usdt versus usdt market share and if you pull up a chart of this I like the story was that it was really just tether usdc came

to the market usdc was really kind of eating into tether's market share and then it feels like uh tether has had a massive last kind of 18 months here and usdc has not picked back up in the market share um so I would just love to see like what what is actually happening behind the scenes of this how do you explain this chart well you know lots of Articles have been written about stable coin Wars uh what you're maybe missing here on the right hand side sadly of course is B USD uh the binance stable coin right and uh so if you really thought about it there was a period in time when um uh there was really three very large scale stable coins and then as FTX um collapsed it C and of course Silicon Valley Bank and some of the

other Banks silvergate Signature Bank also collapsed or went under it created a complete shift in your ability to access stable coins and being able to uh move Dollars around and that has precipitated a lot of what happened here because usdc dep pegged um it was the largest creditor to Silicon Valley Bank if the government hadn't bailed out Silicon Valley Bank usdc um may not have survived uh or would have required a very large bailout in the orders of billions probably and uh so it been a very diff difficult position and that had it lose um its place in the Market at the same time uh BSD was wound down um and so that was $25 billion at its peak as well and so

you had market share loss of $25 billion of USD and about I think it was 15 or 20 billion out of usdc that had to go somewhere and it partly went into usdt um and uh it really uh benefited from in fact um some operational issues some regulatory issues that they weren't exposed to um and by being offshore and being um unregulated from the the banking regul ators when they decided they wanted to crack down on crypto and crack down on stable coins they ironically um were not able to go after the unregulated player and uh so in some sense kudos to them for that um Market positioning and they're able to take

advantage of the current administration's I think shortsighted attempt uh to uh put the industry in a box or even kill it uh which was not possible and you ended up hurting the regulated and um I think the uh actors that had really spent a lot of time trying to build up scalable businesses um and that's what drove the shift and tether has taken advantage of that and I think done some very smart things in terms of going out into retail users non- us users the global South people who are unbanked and tether is becoming the stable coin that they all use

because they um are really concerned about getting access to Dollars the number one thing people on in the world is US dollars that is a product everybody wants all over the world and they can't get it and guess what with usdt they can and that's been a very powerful Tailwind once we went through all of this uh kind of um uh brain damage and um unraveling that happened and they um and they were in the position to take advantage of it yeah the I mean I feel like they're used to be a lot of tether fud in the industry and then Pro probably the Wall Street Journal articles showing how much money tether is printing uh have probably squashed those but I don't know I'm just curious to get your guys's General takes

on on Tether in this market the the biggest thing and you know Chad spoke to it a little bit there the biggest thing that a stable coin must do is stay stable it needs to one to one be worth uh a dollar and we have a little bit of a Lindy effect going on with tether where despite the fud maybe even um you could even call it antifragile uh in the way that it has survived in spite of all the fud going on um it hasn't broken the buck it has has stayed pegged uh at at $1 um and so we've got a a history now of pretty significant market

displacements and um it has it has overcome those and so at at a a real base level it has um understood the assignment if you will uh to to use that uh to use that framing um and so I think that is one of the things that um over time uh increases trust Ison trust is is it good and does it persist over time um and tether has that and we all have to kind of give them credit for having done that well um and then I think on top of um you know continuing to manage to to keep that Peg they have I think been pretty shrewd in how they have um spread the popularity of

tether globally uh the the dollar is the greatest product that has ever come out of America and right now it is not available to everybody on Earth uh and so merely packaging a dollar and making it available to everybody on Earth uh has driven a huge amount of uh demand that was was previously unable uh to get access to the dollar and that Trend will continue um the I I like to say that currencies are natural monopolies uh in that uh the currencies want to be monopolies they want to grow as more people get access to them and so the the natural Trend that you will see here is more and more people will adopt um a

currency and then that currency will get more and more popular and so tether is teller is filling that need that is inherent demand for the dollar uh because there is a uh effectively a dollar Monopoly effect that is available and tether is filling that demand yeah I would love to hear about um usdc and circle and specifically the probably complaint I hear from other operators and Founders and Executives running exchanges and custodians in in in the industry and and other things are that um probably two twofold one is that usdc keeps a lot of the yield um or keeps I don't know if the the yield is the right word the fees whatever whatever word you want to use there um keeps it for

themselves and then the second is that because of the partnership with coinbase everybody in the in in the industry competes with coinbase right if you're an L1 you compete with Basse if you're a custodian you compete with coinbase custody so by holding us you are inherently funding your competitor um I would love to talk about this Dynamic and kind of pull this out and I think it's not really something that is uh folks think about too much but I would love to pull this out into the into the uh kind of conversation sure I can I can start and U Chad I think we we both have a lot of thought thoughts on this I think exactly what you're saying there is that idea is the primordial soup from which usdg was formed uh and it wasn't even it wasn't

even necessarily uh Anchorage or paack was probably the thing of this I think at least on my side I probably had six or seven crypto company CEOs come to me directly and ask me to launch a stable coin was like I don't want to launch a stable coin why why would I do that and kind of in conversation with them that was specifically the the problem that they saw is that they're holding um usdc and deriving no revenue from that in fact growing the network in meaningful ways and then directly uh deriving no revenue from that um the way the way I like to analogize it is um imagine if the dollar the dollar could be held by dozens or

hundreds of banks but there was only one company that was earning all the interest from those dollars that were held in everybody else's Banks it would be a a Preposterous notion uh and so the the industry idea that kind of a lot of people were talking about is like okay this this doesn't work this doesn't work as a uh as a revenue model for us um it can there be an alternative and it was from that uh kind of core idea that I think we got um sent down this that eventually led to Global dollar yeah I think there's the two components maybe to think about with a stable coin one is um you know kind of how uh regulated and trustworthy is it

you know how much oversight is there and you know with usdt it doesn't have oversight it's not regulated that's you know deliberate I think and um in in some ways that's actually been a benefit to a real benefit um usdc isn't regulated either it just has money trans licenses it doesn't have a primary credential regulator uh in the case of usdg the monetary K what does that what does that mean it's not regulated I I thought it was a regulated product or or not I know it's fascinating it's absolutely unregulated uh it has money transmission licenses so you have an issuer that is a Delaware C Corp there's no one who regulates the C Corp their activity in certain States and certain jurisdictions is regulated but they themselves do not have a primary

regulator so in other words I give an example we issue usdg out of Singapore the monetary authority of Singapore has licensed us to issue usdg there is no one who licenses Circle to issue usdc nobody they're not licensed to do it they are they have licenses to um give the usdc product to people say in Oklahoma and that's a form of having a regulatory oversight in a state that your product is operating in but the product itself is not regulated by a primary direct regulator got it so they have money transmitter licenses but there's not a regulator overseeing the issuance of usdc that's what you're exp okay and so we have I'll

give you an example usdg is a ring fence entity in Singapore that can do nothing except issue dollar stable coins today someone sends dollars in you stable coin out you send a stable coin in dollars go out whatever it is that's it it can't do anything else I actually think it's the safest way you could hold a dollar in the world because it's in a bankruptcy protected uh trust likee entity in Singapore follows common law so it's basic it's the same thing so so why why can you guys do this but then Circle can't like if you guys can do it they could it's just a restrict your activity um and just like tether would be restricted if they were regulated so would Circle be restricted if um you know they had a primary regulator you

know we've had a lot of restrictions we've issued out of New York and it took us years to get approval to issue on our second chain so it slows you down being regulated it slows you down it changes what you can do and certainly you can also um uh I think the audience the consumer of these products as you didn't know you're very sophisticated um I know Regulators who don't even realize that this is the case so in some sense you know you can dominate the information space in a way that doesn't make it very clear that this is the way it is do do you think people care it reminds me of um like this focus on decentralization in ethereum right now where Maybe focused too much on this one idea but maybe not enough on product or distribution or things like that like I

mean yeah yeah I mean look scale um uh creates a lot of um uh trust in in its own way um but I can tell you if the government hadn't bowed out silic Valley Bank uh everyone would have really cared that it wasn't regulated because you are a creditor of circle just like you're a creditor of tether you are not a creditor of paxos if you send us a dollar your money has held in your name if we fail you get your money back if Circle fails you're a creditor Circle it's not a problem I mean if you go look on coin bases financials you it shows a loan to Circle you are loaning money to Circle and you're loaning money to tether that is the actual accounting legal treatment for what you do when you hold a tether and usdc now we've OB stated in our own head just call it a

dollar but it's not a dollar it's actually a liability of circle and tether and that liability is only as good as their ability to pay it back and I'm not saying that they can't pay it back well but you know if you're regulate and you issue a liability that is actually not of our company but of your own just we're holding it in trust that's by de facto far safer than if I as paxos gave you a stable coin um because you be a creditor paxos uh because that's really just a dollar debt it's denominated increments of $1 uh that you hold and so when you think about a stable coin there's one component is how well can your stable coin scale because how regulated you are

can large companies use it can large companies hold on their balance sheet what would be the accounting treatment we don't think about this stuff if you're a consumer in Argentina and you want a digital dollar you don't care about that why should you but if you're a large company you absolutely will care if you're in part of the payment system if you're a bank if you're all these you care who is your counterparty and in this case your counterpart is tether or Circle um it's not Ence yourself held in a trust and that's why these things were created like we're going to the Moon here in the financial system what we're created is an awesome technology that allows us to change the distribution and the cost curves and we've be able to make things very Dynamic and programmable but you know the these underlying issues could have reared

their head with Silicon Valley Bank failing it could have reared their heads and other times when tether uh wasn't fully backed because there were uh issues that had happened you're I'm sure they're fully backed now they make a lot of money but you know that's why you want regulatory oversight and creates as accounting the second component to this is the economics so one is did I if I create a product that is like an all- weather truly like safe product and the second one is how did the economics of it get apportioned and in the case of tether they're keeping the dollar and in the case of circle they're keeping it with coinbase plus whoever else they give it to but you know if you go to the coinbase financials I think

everyone has done this it's not really you know hard to calculate they're getting about 65% of the economics and that was Nathan's point you know why should you know Charles Schwab hold a balance and pay JP Morgan the interest on it why should Nathan hold a dollar of custody for his customers and pay it toad can can you remind us of the backstory of the um the Consortium right because my understanding is like there were probably like I don't know 20 companies who came together to create usdc and then uh one by one folks dropped and it became Circle and coinbase but may maybe that's not right story so can you just remind us of how this of how kind of it came to be or maybe this is a question for for Nathan I don't know who knows might be from Nathan I'm a little murky

on the exact details of how it was and ultimately when it launched it was only coinbase in circle and they had Center and that ended up dissolving there might have been a lot of other companies that were kind of working in the background and maybe Nathan knows more of it but I think it'd be a little bit hears safe for me to get into it yeah I think the the the theory early on was to create the center Consortium um and that that would be kind of the neutral overseer um I think um there was Center as I understand it um was staffed with um a number of people either from the the coinbase side or the circle side they actually joined and ran it independently um and at least now um circle circle and coinbase have

dissolved Center uh and the it's effectively run by run by them now I think there was a um potentially a theory early on that maybe more people would be able to join that Consortium and it could look more uh like common infrastructure um but that that reality has not played out and now it's um um as Chad said uh Revenue most of the revenue is going to uh Circle and then well I should say all the revenue is going up into a circle and then the majority of that is actually getting sent to coinbase got it sorry Chad I cut you off earlier too on the on the economics do you want to keep going there well I think what's what I think interesting about doar there's so many interesting things but one of them is that and

stable coins in particular is you're democratizing access to dollars I mentioned before everyone wants a dollar this is a product everybody wants stable coins are great because they're democratizing access to Dollars that's good for the US it's good for the world because so many currencies are unstable certainly relative to the dollar um but what's even I think more interesting is being able to democratize access to the risk-free rate and you know in some ways you know know it's just a normal banking business model for someone to give you a dollar you give them no interest and they you keep the interest and like instead of investing that in like loans you invested it in t- bills which is just a loan to the US government this is the it's Bank uh right um if you do it that way um and it's not a bank if you hold

it in trust for some in someone's name and you know you give them back the interest um or even if you hold it in trust uh and you might have to keep the interest because the SEC makes you um but this is the opportunity here is can you start to return the economics on a broad basis to the users not just to the issuer there's a real tension between what should the issuer collect what should the users um and the Distributors get and I actually don't think the attention is all that complex to figure out it'll look like a money market fund or other products where you know tax is the issue or just keeps an asset management fee and in order to really grow and uh have everyone from um uh Anchorage to Robin Hood to Kraken

who have joined but you know all kinds of large companies want to come on and other institutions use it they have to be rewarded and so I think that the long-term business model has to be about having the right regulation so that you can get widespread adoption and has to have the right economic model so you can get widespread adoption and that's the concept of having usdg which is the token that we issue in the global dollar Network which anybody can come be a part of so okay so we'll get uh pause on USD usdg for a second we'll get into that there have one or two more questions on how this works so the um can you want of you guys take me into the how take me into a conversation with like Circle about the Fe split because the if I'm let's say I'm an exchange let's use an

example let's say I'm an exchange I'm sitting on like five billion of usdc I imagine how that goes is uh something like this I'm I'm the head of an exchange I call up Jeremy and I'm like hey Jeremy I'm sitting on like five billion of usdc give me some of the yield Jeremy's like uh no sorry I don't have to do that and then you're like no no no I'm sitting on like five billion of usdc give me some of the yield he's like fine I'll give you 1% of the yield um and you're like well I need more than 1% he says No like is that I'm make I'm completely making this up I have zero idea how these conversations go but like is that kind of right or how how does how does that work or or no fees get split with the exchanges and the

custodians like how does it work today so I can um I can hearen back to what I was talking about earlier where I had as I mentioned six or seven crypto CEOs come to me directly I think probably after roughly the conversation that you just laid out and say we need a new solution um and so the the consistent pattern across leaders within the industry is that that um that conversation kind of ends up in a dead end I can't speak specifically to how it goes with every uh every particular counterparty uh but the the net net uh conclusion is that something new is needed there and that that there's not a

um there's not a version of that conversation that has a uh say fulfilling outcome okay is the IDE is the dream model so I actually really like what bitgo did with usds I actually I don't really know the mechanics of it um very well but like I I really like that usds lets the exchange or the the I don't know what we're calling exchange or custodian or whatever uh the holder of the usdc um decide about the yield this feels like a good model um yeah we in this model we think of them as Distributors a distributor could be an exchange could be a custodian could be a could be a fintech um and so that's the that's the whole idea here is anybody

who within their platform is promoting and is uh kind of driving adoption of the um of the particular stable coin should be able to share in the economics there not just similar to the way Chad described the the money market funds so any of the distributor should be able to participate and that's just like a more senal model matches more with what happens in dollars and is something that's actually going to allow a stable coin to reach real scale so you think the dream stable coin model here is the stable coin takes like small bips probably on fees the distributor has the rest of the the yield or the fees and then they get to make the decision on how much gets passed to the user they could pass all 5 percent they could keep

the 5 percent um they could move it up and down based on you know marketing campaigns that that's what you think is the vision I think so Chad you wantan to add anything there yeah I mean I agree it's um in another way of describing this if you said there's 100% of uh uh of of the interest that's earned on balances um maybe some small percentage three four five% is going to the issue or 95 six s% is going to the network and it's going based on balances and activity Etc that help to grow the network and incentivize the behavior that enables the pie to grow for everybody and so the whole point is take

all of that put that into um a really transparent model so that people can come in and be able to uh benefit from growing the network together because it's very hard growing networks uh everyone understands like zero to one is very hard uh zero to one networks are hard um and uh how can you make sure that if people want to come and by the way people come to us all the time to launch White labels just like they were coming to Nathan you know we launched the PayPal's white label stable coin uh we're familiar with this it's hard to do it's not easy to launch White Label stable coins it's not easy to launch a stable coin period whether if you know you're using someone else or not um because you have a zero to one either with in your own company if you're a big

company it's like well how do we make this a big enough priority to embed it everywhere and then you have a zero to one within the broader ecosystem and the point is returning all the networks uh rewards uh to the users as opposed to the issuer is this is and everyone's interest to grow can can we double click on PayPal um like for instance like why wouldn't they like I understand like inertia within the organization but like don't you take the view that every company is going to want to launch their own stable coin as opposed to us usdc because then they can capture more value and it's like a Rewards program for them right if it's out of the box then like why wouldn't you want to have your own stable coin versus use something else I mean you may very M may very well want that uh

because you're going to be able to have a reward program yeah but on the other hand and make more money you know like you you would make more money but I think if you basically set up uh something like usdg the economics won't be materially different the way the economics really would be different is if you're able to grow it so that people off of your platform want to use it like like PayPal right like like a company like PayPal yeah like Starbucks maybe not so much right and so you have PayPal would have to basically say okay and we're going to grow this in the crypto ecosystem we're going to grow this in whatever ecosystem it's not just the uh the customers and I think of course they're committed to this that's what what they're doing um but that's what you have to do otherwise you're it's

very hard for you to earn more economics than you would in the correctly constructed uh Network model that we're describing here because really where the where is the interest coming from it's coming from the balances you have on your platform and they're coming from the balances that you have off the platform if you have no balances off the platform they're all on the platform um you know what you're really getting is control and in say a usdg model you might get all the economics everything on your platform anyways so you're not getting a difference economics are getting a difference in control and that could be useful but you're not going to really generate a lot of Economics unless off platform balances are significant and that's hard to do that's what's hard to grow if you're a big

company uh you might be able to pull it off if you're a smaller company it's pretty hard we've seen that with a lot of different U newly issued stable coins that's the tension here and what we're trying to do is resolve both of those which is you can get the benefit of having um the economics for what's on your platform but you also get the economics of everything that's off platform as well yeah I think um one of the I mean I think s the way to way to think about that one is if literally every company comes to that conclusion we all must launch our own stable coin and you end up with um Kraken USD Anchorage USD Walmart USD Robin Hood USD every single one of these over time um and then you

just kind of have this bulcan isation of all the um all the different stable coins the the winning sweet spot is can you give each one of those companies exactly the same economics as if they launched their own but in a Consortium model so they benefit from the network effect and distribution that can come from uh liquidity passing to all of them and so that's basically the the way that this plays out and anybody that we're talking to about usdg many of them come with the same starting thesis which is we want to launch our own and then it it only takes about a 15minute conversation to realize that like oh if we can get all the

economics with something that's already popular that's the right move and how do you uh manage that tension of with of Economics is it hey we're a better model than the current construct um and maybe have a bigger player like Walmart and PayPal but then you have a smaller company like working through those economics like do has there been tension do you anticipate tension detractors like Classic Game Theory um so in that case by the way those are just uh kind of examples I would would didn't mean to say there's any kind of conversations going on there but the the point is is that um the the stable equilibrium is effectively for uh distribution of the rewards as much as possible to the

Distributors and then the Distributors can then decide how to pass those back on um and you can actually get fairly close to uh idealized version of that um such that it doesn't they don't feel like they're leaving something on the table and there's not a net increase that they could have gotten from doing it themselves yeah can we touch we had run the economics on this for people uh just so you know and it's actually you get more economics from joining this than you do from launching your own white label in almost every scenario yeah Charles you read my mind I want I wanted to to discuss the cost structure right from an LTV like just from a Unity economics like if you're launching your own versus using consortion model like that that's is that what you mean chat

like like um netet more economic to go through the consortion model that's right I mean you could you know get dive deep into like these models and how it works Etc we've done this I think we've now issued like five regulated dollar stable coins um and uh we're very familiar with what it takes to issue different types of stable coins different jurisdictions different models different costs what the benefits will be and I can tell you the usdg model is the best model okay can we can we talk usdg or go go ahead s you want to well maybe that yeah that's the say I want to just like get your thoughts around usdg and then like how does a stable coin Market

really um like evolve um and how do you see it kind of materially shaping out over the next couple years let's talk usdg so there's two things here right there's the global dollar Network and then there's the stable coin itself um and the global dollar network is these it's these seven folks right so one thing so maybe I'd love to hear how this came to be because these names are all uh there's yeah I'd love to hear how like you pulled these seven names together to do this m that let Nathan take it away it's involves another bar and another drink uh so yeah I mean I think the the the general idea here was um maybe maybe something could happen the there

was General dissatisfaction with the existing options um both from a like Chad said economics sharing mechanism and from the fact that there wasn't like a solid regulated stable coin that was getting popular um and so that's basically the theory was okay let's let's get something together um there were a lot of uh brainstorms uh between the the Anchorage team and the and the paxos team um kind of convinced ourselves like okay there's there something here we're not kind of on our own with this uh and so then started socializing this idea to some of the names that you see here um and the the the idea got legs uh and so kind of

got increasing validation that this is this is a real thing uh it makes sense uh there were some folks here probably thinking about launching their own who looked at it and like oh no it's actually a better idea to join the the global dollar Network and that's where um the kind of kind of Snowball Effect uh kind of got going Geet is a first ofit kind dpin protocol that's revolutionizing satellite navigation Services they're actively generating onchain Revenue that's growing 500% year-over-year by providing Precision location services that are 100 times more accurate than standard GPS on Empire we always talk about finding how crypto can power

completely new business models and there are perfect example of this they're already trusted by over 30 Enterprise customers across Industries including Automotive agriculture construction and even robotics the network is powered by its native token GE EOD and easily mined with their satellite Miner by setting up a base station you can get involved with this uh groundbreaking web 3 ecosystem learn more by heading over to geod net.com or just by hitting the link in the description of today's episode today's episode is brought to you by uni chain an upcoming layer 2 Solution that's changing defi forever it's built with a vision to be the home for

cross-chain liquidity and defi Innovation as part of the optimism super chain uni chain brings you up to 95% cheaper transactions than ethereum's base layer as well as near instant finality with 250 millisecond block times coming shortly after main net launch to make things even better seamless cross-chain trans trans actions if you're a developer this means you can build di applications that truly push the envelope of what's possible on chain visit unich chain. org or follow unchain onx to stay updated on the launch upcoming features and getting started on building your dream applications hey everyone earlier in today's episode I

mentioned Petra a top non-custodial wallet developed by apts labs they just launched NN a new feature to access defi with just one click earn lets non- us users deposit usdt directly into Aries markets lending pools to gain interest and rewards and manage it all directly from the Petra wallet Petra earn was designed to make defi more accessible for everyone you can manage your balance claim rewards and deposit directly from the app this is of course not Financial advice participating in defi carries risks to learn more visit petra. appar or by hitting the link in the description of today's episode hey everyone Jason here earlier in today's

episode you heard me mention the weekly CIO Memo from bitwise in an industry as hectic fast and complex as ours it's incredibly hard to get an easy noons stream of what's actually moving crypto the memo comes from Matt Hogan bit wise's Chief investment officer he's been on the show before and he has this amazing ability to take the most complex topics and break them down with Clarity trust me on this one the bit wise weekly cioo memo is really worth the five minutes of your time check it out at bitwise investments.com memoire or just hit the link in the description of today's episode to get started carefully consider the extreme

risks associated with crypto before investing what is the unique thing that each of these folks brings to the table like why did you need this many names well there a couple components certainly people bring different things um you have exchanges you have Brokers you have custodians you have payment companies uh you have different types uh market makers so lots of different types of players um and that's what you need for an ecosystem that that's important uh but the fact is it's not limited to these number of players these are just the people who uh signed on initially uh we have a lot of people are joining this is an open network anybody can come join the doors are open people want to come

in please uh we want you to join uh so it's not limited in any way uh you're a company you can join this and that's a very important concept here we we haven't tried to put up something that is either opaque um or closed or a closed Garden this is open for everyone what are the fees that this network takes on the stable coin well the interest you get on the balances so let's just say the interest is 4 and a half% to make it easy we earn some uh fee as the issuer from an asset management perspective perspective the rest of it gets returned to the network so it's not like Robin Hood is making every some percentage of every usdg out in the world they so the way we

get paid so let's called like 25 basis points just to make it easy sure uh we earn 25 basis points that means there's four and a quarter percent that is what's acre on all the balances um and that's going to get paid out based on balances that someone has on their platform versus activity that the network participants are bringing and that activity would be you know essentially uh net minting growing the amount of usdg that exists and receiving being a recipient of it and using it and so we incentivize that behavior because you're growing what's on your platform and what's off the platform you're growing the utility and you're growing the uh the movement and usage that's what we want and so you can absolutely earn more interest than your

balances would earn you if you H by having you SG that's positive um and uh that's really what we want to incentivize because it should be something that's valuable for everyone to use yeah yeah why did you guys um issue this over in Singapore instead of the US and is there is there any regret now that you know we're moving into Trump's admin it's like ah crap if I just waited a couple months we could have probably done this in the United States well look you're never going to get like a perfect timing and like perfect regulatory environment we've issued in from three different milary regimes now both New York uh Singapore and Abu Dhabi I think there's a lot to be said for each one they're enabling you to do different types of things um and you

know still right now the US doesn't have a stable coin stable coin legislation or a stable coin framework that it can use um but there are really credible Regulators in the world where that exists Singapore is one of them and Singapore is one of the biggest dollar trading hubs in the world it's the home of the Asian dollar trading Market um you know dollars traded in London uh was that's why the liore existed London interbank offer rate and um the euro dollar market uh that's not Euros trading in uh against dollars that is dollars that trade in Europe trade out of London that happened for 70 years you know I mean like you can have large Financial Centers they don't have to be in the US we're us-based companies I

want the US to succeed this is great for the dollar um what we want to make sure is we have the certainty the clarity and the consistency for a regulatory standpoint to be able to build not for just the next year or the next three years but the next 5 10 20 years and there's going to be a multi-g regime that happens we already saw this with Europe where you're going to have to follow different rules in different places and that's G to make it so that there's clear transportability over time and a clear set of Standards so I don't look at it as like oh we're in Singapore we can't operate out of the US or you know if we had done the US that would somehow put us in a different position with the how we could grow the business business I look at this as all an and not an

or yeah yeah I'd say i' just add something there that's I think relevant to that conversation is um in in talking with even current Administration in Treasury Department and other parts of government and then I think uh the the new Administration that is going to come in I mean Trump in Nashville talked about this idea that uh stable coins should be treated as a strategic asset of the United States um and the kind of the core premise of treating stable coins as a strategic asset is the the core of that thesis is a us-based stable coin should get popular uh and that should be something

that the the um is is kind of in the US interest if you will and core to that is having a model that can actually scale that can actually meet meaningfully act as true infrastructure for the industry um and I think it's I think it's pretty clear um to folks in government that the a a popular stable coin does the currently popular stable coins do not have a chance to be global scale uh because of the economic model because of the lack of Regulation uh and that there is um basically a green field for creating one that has the right mix of things to actually be a strategic asset

yeah we're currently lacking a stable coin that could be a strategic asset to the United States and we're hoping that um Global dollar and usdg can become that yeah at what scale does the um does the model become profitable because you guys aren't keeping much of the much of the money right uh Chad you're muted sorry about that um when you mean profitable you're talking about paxos as the issuer or the network itself because the network doesn't have cost per say of course people AR um changing their systems so they can make them compatible with usdg or maybe want to preference USG over other stable coins so there's work to be done but you know this is just uh in

some sense found C found money for people ah okay that just clicked sorry I wasn't getting it before I get it I get it for us at Anchorage is very clear like the we encourage our clients if they if they're into it to change their usdc into usdg and then it's immediately more revenue for us and more have you already done this cents yeah yeah we've got this it's live with what's the reaction been do people what percentage of the clients want to actually do that uh it's totally obvious it's like like Chad said it's found money they like they're currently making nothing off their usdc deposits so it makes all sense in the world to translate into usdg and that's going to

be the case for every single distributor too every Global exchange every Tech every custodian uh it's going to be the obvious choice for them to um move into this what do you predict will be I mean if this keeps happening obviously usdc will lose market share this year so I mean Circle and Jeremy and stuff aren't dumb like I consider them to be very good operators um they've got to react I would assume so what do you imagine is the reaction here you want handle that it's hard to say what a reaction could be I think the um it is a in some ways a fundamentally different business model that we are saying is the stable coin

business model um and so it's it's kind of difficult uh to have a have a response if like uh if the the goal with usdg is BAS basically to give away all the economics yeah well it's it's it's a very interesting thing because it's alongside this backdrop of an of a of a circle IPO that people are talking about right so there's a it's like do you want to keep the fees high but lose Market it's kind of actually like what grayscale went through um right do you keep these fees really high but you're going to lose a lot of users uh and lose market share but you'll still make a lot more money in the short term it's a it's very interesting question yeah well in some sense they are much different

business models um because in one case you're lending money you are lending money to Circle lending money to tether you're not lending uh money uh to us from a regulatory standpoint so that's one way it's different the second way it's different is if you do call think of it all as a loan you're getting Zer dollars back on the loan that you're making zero interest does that make sense like you have more risk you because it's a you have a counterparty risk and you're not getting paid anything here you're not taking any risk or very little it's just operational risk because the assets are held in your name ultimately and you're getting all the economics back that's a radically different business model I do think that they can exist side by side um I do think that there is a lot

of value for um people in certain parts of the world to use tether and they'll keep using tether I think there's a lot of value um in being able to use a payment asset that doesn't have any yield to it um but if you thought about like the way the banking system works today and the financial system again it's always going to be different because you have a different distribution mechanism a different substrat now is possible but look at what happens there's I don't know 20 some trillion dollars of deposits in the US or I think it's more like 17 trillion um there's $6.6 trillion doll of money market funds uh what percentage of them yield zero what percentage of them yield zero basically nothing yeah let's call a

couple hundred billion a b whatever even if it's a trillion dollars it's like less than 5% of money yields zero you know definitely well less uh hard to always tell with bank money not interest bearing deposits that's not what that's not a scale like you're going to have to have uh something that can move around where you democratize essentially the risk-free rate here and that will completely transform the financial system at its base level and that is a different product and it's not an I do think that is an and but we should really think about traditional stable coins as having a natural ceiling to them when they're constructed this way it doesn't mean it's not a good business they're people who run there's lots of banks that give you zero interest and they're successful businesses yeah yeah

uh the counter is probably actually not about the product at all um it's that usdc has coinbase's distribution and tether has offshore volume and distribution that's probably it's probably not even a product question it's a distrib I think that's uh I think that is the core of one of the other aspects that I think is going to be a kind of a theme that plays out for the next uh few years uh which is one of the one of the things we do at Anchorage is we talk to a lot of the a lot of the protocol teams we work very closely with a lot of protocol teams and many of the protocol teams are catching on to this idea that usdc coming on to their chain subsidizes the development of base and so literally the the coinbase

distribution is an antifeature of usdc because any any particular chain looks at this and the base is the is the main competitor to most of these new l1s and l2s uh and so why would you as a protocol founder or a protocol Foundation that is looking to to grow um onchain activity decide to list an asset that is going to subsidize your main competitor in base uh and so more and more of the protocol Founders are looking at that and saying uh why would I do that particularly when they are being asked to pay to get the asset listed pay to get usdc brought to their chain uh and so that's I think another

Trend where um specifically that Association is going to be one of the things that um leads more leads more chains and uh more protocols to decide hey we actually don't want usdc in our ecosystem yeah I mean another way of also thinking about it is CL has done a great job of building a business that's quite expansive it's a broker uh on a retail basis institutional basis it has a prime brokerage business it has the exchange uh it has a custodian it has a self custody wallet it has a chain it has a bunch of other things too be that payments and so on um that's a lot of things that it's doing and it's a lot of people competing with and it's getting paid you know 65% of USC's revenues and so anybody who's competing

against uh coinbase in any one of those lines by using usdc is paying them and maybe that's worth it because the network effects and the Simplicity of using it is worth the fact that you're paying your competitor uh but ultimately that's I'd say something that um the consistent feedback has been that it's uh intolerable for people to do that on a long-term basis yeah what um Switching gears a little bit one thing we haven't talked about at all we've been focusing on Tether and usdc um is Athena so Athena's obviously had just a massive last 12 months right they're now the third biggest stable coin USD is um I'd love to just get your guys' take on uh on Athena as a business model and as a

stable coin I I'll go real fast it's not a stable coin it's a great uh it's a great way to do a basis trade and I think that's completely reasonable I think it's very good like you want to earn you know but it's not a dollar stable coin it's not basically buying a dollar and giving you a dollar uh holding a t- bill it's the liability on the other side is not a US Government short-term liability that matures in like you know four weeks or less it's the basis trade and that is a completely to me that's a totally fine thing to tokenize you've tokenized the basis trade but you can't call a dollar stable coin do you what are the second like how do you anticipate that evolving over time like scalability issues or just adoption issues in in the real world uh like obviously Nathan in your opening

like yeah you need to have distribution for for the state going to really scale and have stability but yeah look I think the the the incredible Trend that's happening in in Defi and crypto broadly is um what I would call Financial experimentation uh and so I think we are the the industry at large is kind of at the Forefront of doing some of the most interesting Financial Innovation even just the the idea of Perpetual Futures these autor rotated um Futures contracts is a is a really a really neat idea and I think we're just going to have a whole host of very interesting products and services built within the defi

ecosystem uh and so the there's a there's a lot of history of hedge funds and and trading strategies that are like Chad said uh intend to be um neutral in terms of their value and then kick off some income and part of that this is there's a whole group of strategies that are like this we typically put these strategies into hedge funds so like the typical way to get access to basis trade yield is through a hedge fund uh and so doing those kinds of Trades uh and putting uh like neutral strategies into uh a product and making that available uh that's cool people should know what they're that they're getting into um and yeah I think those are going to be

popular the the reason it's popular is because it is um economic sharing it is uh taking the yield that comes off the basis trade sharing those economics back with the holders of it which is one of the the core issues with the existing popular stable coins so in our view the the value of Athena or the kind of the popularity of Athena is a reason to think that a uh regulated and um economic sharing stable coin ought to be able to have some growth and so big fan of the Athena team big fan of the um experimentation that's going on there and I think it's going to be one of many experiments like that yeah yeah I think it's great to by the way token as bases

tra I just want to really clear I just don't think we should call it a stable coin I think that is like doing things that disservice because it's going to have fluctuations up and down you can generate really good yields in certain times less yields at other times it's even possible it can go negative what ever happens that's all fine um like you know I mean like there a good way to make it very easy for you to be able to get in and out of um a specific type of action that you might not want to do for any number of reasons individually yeah that makes sense um guys as we think about kind of bringing this conversation home I would love to just hear your big ideas for what you think will happen in uh in 2025 with stable coins probably the two big questions on my mind are

will we actually see stable coin Legend isation um and then the second thing is uh one of my predictions for the year was we're going to see exchanges and custodians and fintechs and tech companies and Banks all launch their own stable coins I think now after this conversation I know uh your answer to the to the latter one but um I'm curious maybe about the uh the former stable coin legislation well you know the thing with legislation is um it's very hard to predict because there are so many things that are in flux with the new Administration and you have immigration and you have have tax policy and you have the border and maybe it can all pass with one big beautiful bill so to speak um but it might not and probably doesn't but you never know and so it

could be that you clear through a backlog of things that are the top priorities and I think crypto is a very high priority but it's not like the top three um and it's bipartisan you know there are good bills that pass out of the house and house Financial Services committees on Market structure and on stable coin and things that have passed through both like SCB 121 and it's bipartisan all the way around and so I think it'll get through it's just a question of you got to get time in the calendar there's all these different mechanics that we don't necessarily think about that allows it to work operationally my understanding is like the best guess is that's the end of this year is the soonest it could actually end up being next year and by the way that's easier to get through than a crypto Market structure bill um again I

I could end up being off by a matter of quarters because you just there's so many VAR that we can't control but I would say best guess end of this year would kind of be a a relatively happy path uh no no disagreement there I think Chad's right on that and I I would just underscore this is a big reason why um we decided to go ahead and launch um Global dollar and usdg um last year because we didn't want to wait for legislation uh it's it's kind of hard to know exactly when legislation will happen it does seem like there's a a good amount of interest in this across both say newly elected folks uh existing Congress and new Congress and then also I would say um kind of career folks within treasury fed

and and other areas so I do think there's a lot of Tailwind here uh but you know bills are hard and our our system of government is kind of set up to make bills hard uh so that only stuff that really everybody agrees on comes through um so I think we got the we got the raw material to make something happen it's just going to be a question of timing and and C in priorities yeah all right let's uh let's wrap with u would love to hear your guys's craziest maybe most bullish stable coin prediction for the Year Chad your face tells me you have about seven of them so I mean I I have a bunch to think about you know how to organize those together the other thing

is you know it's a stable coin Market it's not crazy Market least it shouldn't be it should be a very stable Market um I think that um you know I think you know there's a a couple different ways to think about like what could happen crazy one is market cap and one is who has driven the adoption and um uh I think you could end up seeing something like pretty remarkable in both I think you could end up in a world where stable coins you know get over to over half a trillion dollars in market cap by the end of the year um you know just really big and I think that can be driven by some really uh

large adoption by some of the uh big um payment of wallet companies we've seen PayPal Do It um we haven't seen a lot of others do it I think everyone's taking a look and it wouldn't be surprising to me if you see big payment companies well over a billion people using stable coins and half a billion half a trillion dollars of stable coin balances now it's also possible that doesn't happen like you're trying to come with like a big crazy prediction that is possible but I would also put like you know it's hard to have more than like 25 or 30% confidence in that happening in 12 months or 11 months now yeah Nathan bring us home yeah um I think U certainly the market cap would be the easy one I think that um the the thing I would maybe analogize to it is the last

couple of years with large public companies adopting Bitcoin as a treasury strategy we will see something equivalent to that notion where it's large Maybe surprising public companies that will decide that a stable coin are in uh integral part of either the payment systems they build the Forex systems that they use and operate um or maybe even potentially the the um treasury strategy that they uh look to look to go forward um and so I think that's going to be the big one is the the the validation by large conservative public companies um adopting nice Chad Nathan appreciate you guys congrats on everything thanks so much for having us

yeah a lot of fun hey everyone just wanted to give a quick thanks to today's title sponsor Geet by setting up a base station you can get involved with this groundbreaking web3 ecosystem learn more by heading over to geod net.com or just by hitting the link in the description of today's episode [Music]