How Sky earns revenue and where it goes next

Transcript

I think private credit for stable coins is kind of that's often referred to as the holy grail for stable coins to if somebody can like crack the code on that GM. Good morning. Welcome to the Milk Road Show, the daily crypto show that refreshes faster than you can panic refresh your portfolio. Yikes. I'm your host Jay Hamilton. It's Monday, April 7th, and wow, markets. Uh-oh. There's two questions on my mind right now and two questions on everybody's mind. I know. First question is what the heck is going on with macro? What's going on with tariffs? What's going with the US economy? What is Trump going to do next and how does that lead to price action and short-term what we expect to see as a result of the macro setup? That is not today's episode. That is going to be

tomorrow's episode. Uh we got Kyle and Capital Flows coming on the episode to talk all about macro tariffs and everything there. Today's episode answers the second question on my mind which is when macro lines back up and we do re-enter the bull cycle, which I remain bullish that we will this year. When that happens, which sector in crypto is going to rally first? Of course, Bitcoin will run first. We all know that. But after Bitcoin, where are we going to see a run? Now, obviously when I think about that, I think about two things. What I think about there's a narrative shift happening right now from pumpamentals to fundamentals. There's a narrative shift happening as a result of institutions entering the space more

institutional dollars. So that leaves one natural place to look which is which projects in crypto are making the most revenue. The ones making the most revenue they have the best fundamentals. They are the most attractive to institutions and corporations as they come into the space. And the other question that comes up in my mind is which narrative is the narrative that's the hottest and going to be the hottest in crypto and right now it's stable coins. So today's guest is one of the top 10 revenue generating crypto projects in the world. They're also all in on stable coins. I'm talking about Sky, formerly Maker. They're the third biggest stable coin behind Tether and Circle, but they're very different than

Tether and Circle. Today we're joined by Run Christensen, founder and CEO of Sky to talk about Skye's path to being generating $1 billion in profit in the future. Now, if you guys want to talk to me every day before we get to Rune, you can talk to me every day in our Telegram group. Hit the link in the show notes. Join our Telegram group. Today's episode is brought to you by Moonay. Trade crypto fee free, fast, and on your terms. Also brought to you by Coin Shift, powering top crypto treasuries with their yield bearing stable coin CSUSDL. Without further ado, Run welcome to the Milk Road Show. Thanks for inviting me. Absolute pleasure to have you, my man. So, right now estimated annual revenue, annual net revenue for Sky of $84 million. Total

revenue around $350 million. And then expenses obviously. Uh let's jump into these numbers. Run, at a high basic level, can you explain these numbers to us and get us an idea of how you guys are so profitable and generating so much revenue? It's incredible to see. Sure. I mean, the most important to look at is of course the stability fee income which is like the general revenue of Sky. And that is really the basically the return generated on the collateral portfolio behind the around 8 billion or so stable coins in circulation. So yeah what we call USDS and really it's USDS plus D as you were saying like nowadays

we consider D to be backed by USDS. So it's really all USDS in in in terms of like the internal workings of the system and it's backed by a portfolio of actually mostly USDC and so around 50% is USDC and then another quarter of that like a quarter is uh cryptocolateralized loans and then a quarter is treasuries. That's an oversimplification like it's a it's a little bit more complicated than that but that's just like to put it very broadly and on this uh collateral the total that's being generated well the estimate is then this what you know the number being shown here that's actually like there it's actually quite low uh when you consider that it's it's 8 billion and the reason for that is the large amount that's sitting in USDC that

is not currently deployed and it's a part of like the whole sort of launch roll out of Sky that the Sky is really like switching into a new mode of operation where it can deploy the collateral much more effectively through these agents called stars that basically sort of deploy the collateral on behalf of Sky. But right now that process is still underway. So a lot of the collateral is just not very efficiently deployed and it's just sitting as USDC earning the like the institutional uh reward through Coinbase custody. But then the big the the reason why the profit is so high when you look at the when you look at the I mean the stability fee which is earned on the collateral portfolio then you look at

the the savings rate which is basically what Sky is paying out on USDS right so Sky both generates a return on the collateral from basically other protocols and other counterparties providing a return to Sky and then Sky also provides a return to the holders of USDS through the Sky savings rate and actually like the difference in what Sky is is generating. I mean, how do we call that? So, the marginal return is actually negative in a sense in that Sky is actually paying a higher like it's paying out more to the people who get the Sky savings rate than it is earning on the USDC that it has sitting in in this like in the portfolio right now.

Yet, the savings rate expense is well about half of the uh of the stability fee income. And the reason for this is actually like what I think is like this is what I tell people about the most important thing stable coins the thing that make it such an attractive business model and I think the most attractive in crypto and that's what we call breakage even though it's not it's not entirely correct use of the term but but uh we just use that to describe stable coins that are sort of irrationally choosing not to generate a return right so there's a huge amount of the USGS in circulation that is not earning the sky savings rate And then what happens is Sky gets the full Sky savings rate on those stable coins. And that's kind of

like the reason behind uh the massive profit. What is the what is the number of how much Sky gets the ST savings rate and how much doesn't go go to the user but goes back to Sky and why why is there that difference? Yeah. So so the numbers are like it's roughly that of the the die. So there's about four billion I mean okay very rough numbers right there's like four there's about four billion die in circulation and only one billion of that gets the savings rate so that leaves three billion in breakage like three billion in like sort of um yeah unrewarded dieh and of the USDS I believe the unrewarded number is around 500 million which that's the thing to me that is like totally uh

surprising and that I was really surprised to see that even with like a brand new stable coin that has a lot of like sophisticated like institutional users somehow there's still like it's it's by far like the you know that's the thing that makes USDS itself like a huge success is that there's already like a huge amount of the stable coins that are not earning the reward and this is really like the driver of like all the kind of the surplus that a stable coin can generate is that there are these these uh stable coins that are that are choosing to not to forfeit the the the return basically and I mean one explanation for why this is happening is that it's like it's that it's Like I mean it's like human behavior first of all, right? So it's like irrational sort of like uh humans kind of uh sort of

taking the time to do stuff instead of like uh obsessively optimizing everything they can, right? But it could be something like it's being used as a it's been used for payments and then as a result it's sort of sitting around in an account for like a couple weeks and then you send it or it's like somebody acquired the USDS and then they intend to put it in the savings rate but they also like waiting a bit with that because that's another transaction or something like that. But it's actually like hard to to explain exactly why it is and why the number is so high. It's just something that is practically observed. And I think like in general it's considered a sign of health for a stable coin to have this because you know it's very easy to just like create like provide a very high rate of return

and then get like a huge like a huge number of like circulating supply. But if it's like mercenary capital, it will go away as soon as there as soon as the supply goes down, right? And obviously if you look at something like Tether right? Like this sort of the golden goose of stable coins, right? Like that's a that's a stable coin that literally never ever has paid anything to anyone yet people love it to use it right? And that's really because it has that like it's just like a product. It's just has like a really good user experience. And the fact that you're seeing this with USS as well means that it like it's already gaining some level of this kind of like product characteristic to it. quite a lot of the line item that that is called expenses here is actually also a savings rate

related expenses. So in reality like the sort of like the contributor expenses and like the budgets are actually not at 100 million while the savings rate expenses are actually higher and this is because some of the savings rate expenses are paid through a different mechanism called integration boost which that's like which is like a a return a sky savings rate integrated into like a and chamino and drift and salana and some other platforms like this. So yeah I just wanted to point that out. But then I mean but yeah, like you put it all together and you get basically the net revenue which is uh yeah like I mean which is all made possible because of the breakage, right? Like if you didn't have that breakage like if you didn't have that like several billion USDs that is unrewarded and as a result the reward

goes to Sky, you know that like there would be almost there would be not really any room to pay contributors at all. I don't actually know the exact number. I think I would guess it's like couple of like tens of millions lower in terms of what are the actual contributor expenses which is a massive budget right but that's also what has allowed the transformation in the sky and what's going to then like set up the ecosystem for the next wave of really starting to get efficient with generating return on the collateral portfolio. Okay, I want to go to my my main next question is who's going to win the stable coin race?

And so we have 234 billion in stable coin market cap right now. We have Tether around 144 billion. We have Circle which just announced recently that they filed for their IPO. They're at 60 billion. And then we have Sky combined if you combine Sky and Die around 8.5 billion. And then Athena and the rest down the list. Uh it's still early. Tether definitely has a lead, a significant lead that will be hard to catch up on, but it is certainly still early in the stable coin game. uh when we look at the future of stable coins what's the difference between Tether Circle, and Sky and what's going to set

up one of these to ultimately win the stable coin race? So, first of all, I think I mean the most obvious kind of distinction to make is really to categorize like USDC and USDT, they are like classic centralized stable coins while USDS is is like a classic decentralized stable coin. the and the thing that I mean that sets them apart is that USDC and USDT they're like heavily focused on regulatory integration and kind of like in the trenches kind of adoption and growth uh work done by like their their issuing companies. While a decentralized stable coin is typically about delivering a savings rate and uh kind of building

this sort of robust uh and and transparent backend that allows for like I mean that allows you to actually deliver a savings rate effectively and run the kind of infrastructure more effectively. So again like a like a scalable and and um sustainable savings rate can be delivered to the users. What is the savings rate right now just quickly while we're talking about it? So right now uh it's 4.5% on USDS. Yeah. And as I mentioned earlier, it's actually higher than what you can get with on the USDC in the portfolio. So it's sort of it's it's currently being subsidized a bit by Sky, but that is entirely because in this like transformative period where Sky is preparing to more effectively deploy the collateral portfolio, it's worth it to

keep the rate attractive because you know the system will be able to actually generate this type of return organically in the long run. And that's what sets it apart from USDC and USDT, right? Because with USDC, you can also get a return on USDC on on Coinbase for instance, but it's ultimately restricted to be what you can get with T bills. And this is fundamentally like this has like it is like the approach of like circle and of the centralized stable coins has been to kind of you know not really compete on like the collateral or like on the kind of what what's actually like what the currency itself what the stable coin itself is kind of made of but instead really compete on the distribution and how it's sort of how it's used. And a

decentralized stable coin is more the other way around where it's it's like the it's more about what is it made of? You know what what is actually sort of the source of stability and the source of the return for this stable coin and then making that really easy to access without having the capability to put as much effort into actually getting that like adoption. And in in particular where this like matters the most is when it comes to regulatory capture, right? because you have I mean you basically have these like centralized stable coin biased bills coming out in western countries at least and that's really I mean that's not just I don't I'm not going to say that that's like entirely because the centralized stable coins like lobbyed for this it's also because this is naturally what western

governments want because they really want financial control right that's how I would would sort of uh compare them to each other the question is really whether like having a sort of like is it better to have sort of lots of like this sort early edge of being having very broad adoption and and lots of liquidity and lots of like usage by what I would say by people effectively. While if you look at a decentralized stable coin in some ways it's sort of more optimized for machines. And that's that's really how I see that like it's not it doesn't like conform to like regulations created by a bunch of human politicians.

Instead, it's like well how can I generate the best possible return and how can I represent that as like a higher savings rate that ultimately is sort of hyperrational actors will respond to. So like well like institutions that can that that are able to deploy into something like st like decentralized stable coins but then like AI agents and companies that are using AI tools of the future and so on. And also like the developing world where there's also more like freedom around like I'm going to do what's best not what some rule or some like paperwork tells me is what I should be doing. So it depends on which one of those you're you're betting on. I obviously think that in the long term things will be incredibly driven by AI and also the developing world and also like that there's this general western decline. So

even though Tether and USDC have a massive head start and just an incredibly really hard to overstate how valuable it is to have as much liquidity as those stable coins have. They're sort of like constrained ultimately by what I would call like a human constraint that a decentralized stable coin doesn't have. And that potentially lets it be more suitable as like a as a currency for for machines and for AI agents of the future. Let's be honest, everything in crypto comes with fees. But here's a nice surprise. Moon Balance doesn't take a cut. You heard that right. No Moonay fees when you buy or sell crypto with your Moonay balance. Top up with dollars, pounds, or euros. Then you're ready to trade instantly whenever the market moves. And if you change your

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manage over 1 billion in business treasuries on chain including a Gitcoin and hundreds of leading institutions. see why CSUSDL is gaining traction at milkroad.comshift. Uh so so much to unpack there. I want to touch on machines and AI agents, but I'm going to put that to the side for a second. We'll come back to that. Uh the one thing in the end people are going to a certain sector of people are going to go with stable coins to wherever the best yield is, the best risk adjusted yield is. Doesn't mean everybody's going to go to the newest stable coin that's promising a 40% APY. Uh it's going to be

the best risk adjusted yield where everyone goes. We hold uh in our treasury a good portion of our treasury is in USDS because we believe that it is the best risk adjusted yield in the space. Uh when we look at capital efficiency, I think this is an important thing. And so I'm going to bring up this tweet from Sam McFerson who's the founder of one of Sky Stars, Spark, and he came on the show previously and he made this great point. When Circle put out their IPO filing, they had to release a bunch of their their revenue documents and they showed that they made 155 million in net income on a on 33 billion of supply of their stable coin in 2024. Sky was at 95 million in net income on 8 billion. So that's two and a

half times improvement on capital efficiency well-paying a well-paying yield. Like the Circle wasn't even paying yields and they're less efficient. How this is a big question so um you can hopefully summarize it or take keep it high level but how is sky able to be so much more capital efficient than circle in this case? I mean it like it comes down to that despite the fact that Sky and like Maker are historically as is sort of known as having extremely huge budgets and which it does I mean it does feel like you know so let's say it's 80 million or whatever it is in in uh in expenses per year currently that is a I mean that is

actually a massive budget to me and it's kind of uh crazy huge but considering how much income is being generated because there is that 8 billion then it's actually not that much and ultimately like I mean and this comes back to the the the breakage I was talking about earlier and and by the way actually fun fact is that so circle does actually it doesn't pay yield right but it does it pay like sort of rewards mainly through Coinbase and I actually I think so I I just heard that from the from the filing you could actually see that it appears that their breakage rate is around the same as skies actually that it's about half so about half of the I mean it's I'm I'm oversimplifying so but it but at least it's sort of in

the same kind of ballpark right which I think is kind of interesting that that happens to be the case because that that seems sort of I don't know what would explain it because clearly UCC is so much more focused on that super broad distribution right to sort of to humans while right while while Sky is actually trying to be ultra efficient and eventually be able to kind of like be the I mean and that's kind of funny that that well the way to I think of this is that Sky needs to be so efficient that our target market like our ideal customer is mercenary capital. That's how I see it, right? that like it should actually be possible. Sky and Sky should be sort of the only system that is capable of like handling unlimited amounts of mercenary capital and always actually profitably deploy that

somewhere and then charge just an tiny tiny tiny profit margin on that right and that come I mean and that efficiency comes from I mean it comes with blockchain it's decentralization it's transparent systems and then it comes from the stars right so from the system that basically is like the kind of the driving force behind the transformation to sky is splitting up Maker from like a monolithic DAO into this like competitive ecosystem of independent agents that just are able to like operate as kind of like a swarm or like a flat structure without requiring top- down control but but but using incentives instead to sort of align and and uh collaborate without having to directly cooperate and interact and

organize and and politic and that kind of stuff that ended up happening in the large dows. And then the last layer on top of this is then applying AI. So you have this like competitive environment of like many different innovative stars that are all able to sort of move in different direction and exploit different opportunities and they have total transparency strong and resilient and efficient infrastructure and then lots of data and then they apply AI tooling open-source AI systems I mean closed source proprietary stuff pretty much anything to get a competitive edge which then rewards the stars individually right so everybody's just like chasing their own self-interest in trying to deploy the the collateral as effectively as possible. But in doing

that, I mean, basically they also like drive out of the efficiency of the system as a whole, right? Because they sort of con like constantly compete on like finding new alpha, finding new advantages and that then like erodess the old ones and sort of I don't know what to call it like socializes or sort of like yeah like generalizes the the old alpha that sort of becomes just like base returns for the whole ecosystem. Yeah. Not not to overly overly simplify stars be because it is a truly a uh an an incredible structure that has been set up that is is really revolutionary in leading the formation of how Dows can be formed and the future of decentralized permissionless governments and operations at this scale. But to overly simplify it, you have this model

where you can provide collateral to a founder and they can go out and figure out ways to get stronger yield on that collateral and feed feed it back into Sky. And if it works, then they will be rewarded and they will win and they will have a a successful business that operates within the Sky ecosystem. If it doesn't work, then they will lose and they won't stick around. And so it is it is an incredible model that is is really just in the I mean the first inning maybe like it's so early for your roll out of the star system and the star ecosystem. I mean really there's there's spark and that's really the only fully formed star right now. There's many more

stars to come and so it's going to be very exciting to see that. One question I want to come back to is so you mentioned that um that Circle and USDT are very focused on the achieving more liquidity and more distribution and more adoption as really is a focus on the traditional markets and regulation. How does how does Sky increase its money supply? What does it need to do in order to achieve adoption? So the kind of base strategy is actually also simply entirely um just incubate a lot of stars and let them figure it out basically. So I mean I have had a lot of ideas over the years and I think there's some like

general sort of broad thesis of I mean one thing is just have a good have a very effective savings rate. That's obviously the most important one. But there's also I mean and and in the past there's been these like targeted things of like focus on Latin America, focus on remittance, try to integrate with payment processes and so on. The thing is that what like maker as like this monolithic DAO was always very bad at executing on this stuff. So the idea is with the stars what uh is instead being used is something called the accessibility reward which uh so just like the so the allocation system which you just discussed which is this mechanism where a star can basically put up collateral and then use that to to generate USDS out of sky and then

acquire more collateral and and kind of take the first loss on all this exposure they have and ultimately uh what they get is cheap leverage but in return they are constrained to like ensuring they're providing a very good risk adjusted return back to Sky. So then like if they're successful they get the upside and if they fail they like they're wiped out first before Sky take any losses right and the accessibility reward is sort of a similar type of you know creating an incentive that makes staff founders you know selfishly chase upside and just have them try to make money by growing USDS demand but then in return for growing USDS demand they get this uh what works kind of like a referral system which is called accessibility

reward that basically gives them like a part of the like of the spread of basically the profit that Sky uh would earn uh if it if there wasn't a star kind of being the the funnel for the user now. I mean, so there's not really there's not too much of that that is that has been like that's that's live just yet. I mean there's obviously Spark that has has I mean has done a lot of like campaigning and and attract a lot of users to its front end and I think it's like a part of like the the growth there's been this like pretty major growth of USDS from around like so so D was sort of stagnant around four to five billion for many years then with USDS now it's at 8 billion so that's actually been a huge success story because it's been like a big like a pivotal sort of

turnaround of like proving that okay it's actually possible for Sky to keep growing the supply and we're not sort of stuck just like living off the past glory of of the original like growth explosion that that that happened uh way back in in like uh the early uh 2020 and and around that that early age of of DeFi. But yeah, like so what's going to come next are stars that are focused on each of these different thesis, right? So there could be a star that aims at growing adoption in Latin America and then that's just like the sole focus is like produce like Spanish content and produce websites that are optimized for for Latin American users integrate with on-ramps in Latin America and and

someone something different could focus on on like I don't know use in like remittance in Southeast Asia or savings in Africa or something right so this is kind of like this is like the really classic thing that the community in the early days of Maker was totally obsessed with this kind of like get boots on the ground last mile type of stuff. In reality, I'm not sure that's necessarily going to be a big driver of USGS, but it's like but the but the great thing is it's not up to me. Like it's not up to anyone designing the core system. It's entirely up to the stars, right? They get to decide what do they want to bet on. They have to put up their own capital uh ultimately, right?

They have to raise capital somehow. they have to put up their own capital, invest into creating a star, creating a marketing strategy, a marketing campaign. Then if they get a lot of users, they're going to be set up with some really nice sort of sustainable cash flows because if they own the user they they just as long as they have the user, uh the user doesn't feel any difference. Like it doesn't make any difference. The user will get the same savings rate whether they're going through a star or not. So most of them will just go through the stars because they'll invest a lot in getting those users, right? Um but then the star gets like very reliable uh scalable and sustainable accessibility reward which currently it is at 20 basis points. So that means if a star can attract uh like

a 100 million in uh USDS that'll give them 200,000 in like sort of free profits uh per year, right? And that's like once you've attracted that if they're just sitting there 100 million in savings is just sitting there earning the savings rate and getting you know like the best the best risk adjusted return you can get basically then they start like they're just getting like they're not taking any risk at that point. They're just going to get their accessibility award. So it's like a really nice building up a user base as a star I think is like a very attractive value proposition for somebody who's like interested in the stable coin business model and sees it like a sort of like you know this is a having a piece of the stable coin business model is a variable like as a valuable long-term asset. The star vehicle is

supposed to be like a a sort of easy to get started with approach to like okay if you just want to get go out there get some users deliver some uh some high quality uh savings product this is the right way to do that and just get your fair share for the for kind of like setting that up. Mhm. You you mentioned that one of the most important parts of the success of Sky long term will be its ability to offer a strong a strong savings rate to offer great yield that is you know a a yield that attracts people in and obviously that yield has been very effective so far. You know, if we look at the chart since here's the chart of money supply, uh it was, you know, pretty steady steady for DI around

this 4 billion number until you guys launched uh you launched Sky in was it in the fall, I believe. Is that correct? Yeah, in the fall. I think it's around just around there. Yeah, around here. September 18, if I remember correctly. Right. Right. And so since that launch and particularly since uh the new administration in the US came into power, there's been much more of a an attention and an increase in stable coins, much more belief, and also with everything that's happening in the economy, people are looking for yield in new places. But we've seen this incredible rise of basically doubling your money supply from 4 billion to 8 billion. And you've been able to do that

because, you know, like I said corporations like Milk Road, like us we're taking our treasury and we're putting it in USDS because it's we trust it. It's great riskadjusted yield. Um one of the big things that I've heard you talk about and the team talk about is um the next stage of yield is bringing private credit on trade. And this is an RWA trend that we've heard a lot of talk about. What is happening with Sky looking into investing in private credit and then using that yield which would be a a higher yield than a typical treasury yield would be a little bit further down the risk curve. Talk talk to us about what you're doing there and how you're thinking that through. I mean so first of all I think private credit for stable coins is kind of

that's uh often referred to as the holy grail for stable coins to if somebody can like crack the code on that. I mean the reality is that this is probably the end stage of like so this sort of hyper financialized super intelligent AI powered you know blockchain finance rails that are coming sometime in the future but I mean it's it's still a while off because I mean obviously the immediate problem with private credit is it's uh like I mean a currency has to be liquid that's the most important thing with it and private Reddit is like pretty much the least liquid thing you can find, right? So, it's like I mean

but then but then the point is that it should still be like it should be possible in theory to make private credit credit liquid if you can access enough data and you can tokenize it and you have enough, you know, blockchain powered AIs and and traders and funds and institutions and so on actually able to price it and trade it. If we can get to that point then, you know, then uh it'll just be like the best way to to make a currency is to directly have like I mean to basically like cut out a lot of the middlemen uh that are sort of running the financial system today and adding a lot of friction to it, right?

If you instead have a currency that just like directly sort of it's just directly backed by the real economy that it exists in that's that's I mean that's just like really cool and desirable obviously and and should create a lot of efficiency and a lot of value for everybody involved right and that is definitely I mean that is I think a system like sky and the stars and like all the kind of the layers of of like protection and also mechanisms that help create liquidity it will enable that eventually but in the short run. I don't like I don't see that as the right thing to like focus on immediately. Uh there's a lot of like lowhanging fruit of stuff that can be done to just I mean like when right now if you look at at USDS

like I said earlier right it's like 50% backed by USDC. So rather than try to do sort of small private credit deals for a very small amount of the total circulating supply which is the only thing that that I think would be possible currently given like sort of the I mean just because it would in any case if you want to start getting into that it's going to you know it's very difficult to get started with right you have to gather a lot of data and experience to to to start building up that capability but what's much more like what makes much more sense to do is to figure out something where a lot of that like several billions of USDC see that is earning a subpar yield putting that into something that gives a higher return. That is like the big opportunity in the short run. And then as that's

happening like so it's kind of like a step-by-step thing, right? Then you can add like you do a lot of like several billions of more better returns. Then perhaps that allows USDs to provide an even more competitive sky savings rate and and then also it builds up more lendy effect. It builds up more like brand equity. So actually it sees even more inflows and even more USDs in circulation. And then there, you know the challenge might become more like as the USGS is growing, just maintaining that like decent return as it keeps growing and and not having it sort of fall apart because you run out of opportunities that that's probably like I mean that could be the challenge for the foreseeable future. But then from there like bit by bit eventually it you

know again with enough like AI with enough like futuristic imagination eventually you you you should work towards a point where a currency really is backed by the real economy it exists in and the stars could kind of do that bit by bit right some of them might try it and then blow up because they end up with like for liquidity like they you know duration risks and that kind of stuff but eventually some might start actually cracking the code on that and of course it's not also that It's not like it's not just like the stars try it and then eventually it works. A lot of this also relates to the sky core having to regulate this properly. And that's like a big part of the the kind of the bottleneck of of how uh how fast the sky can grow is like the quality of the

regulation when the core of sky sort of um regulates how the stars can actually generate USDs and what they can use as collateral and kind of like their safety boundaries that they're not allowed to step outside. Very interesting. It's interesting to to think about I like that line of a stable coin could be backed by the real economy and the businesses in that economy as opposed to being backed solely by the treasuries issued by the government in that economy as is currently really the business model. Super interesting when you think about the the the future of stable coins. Um, right now obviously one of

the big questions that is, you know really everybody around the world is asking is like where does this where does this trade war go? Where do tariffs go? And I don't expect you to have the answer to that by any means. Uh, but it brings into question US dollar dominance. That's one of the things that is being brought into question. There's a lot of people that are saying, "Hey we might not trust the US anymore. We want to move out of the US dollar." you know, stable coins really rely on the US dollar right now. What are your thoughts when you think about the future of US dollar dominance versus other currencies and how stable coins play a part in that? Yeah, I mean, it's a it's a it's a crazy moment for someone who has wor I mean, I've worked with stable coins for

more than 10 years, right? And it's always been it's pretty much like a wrapper around the US dollar and it's like the US dollar that's the real thing that people care so much about. uh and now potentially there's going to be all this like devaluation and just like trade barriers and and and um I mean I think there's a it's obviously very hard to predict anything but there's definitely a real possibility that that the US simply doesn't like does not want to have this reserve currency status anymore because of what it does to industry and so on depending on your your economic ideology I guess and so in any case there's a real possibility ility that stable coins and other currencies might actually become popular

in the future because of up until now that has just not been a possibility. Like there's not no example of any other stable coin than US dollar stable coins having any kind of success. But that might actually change. And in the past a lot of stable coin systems including Maker were looking at how could you like I mean if you already built this decentralized infrastructure for a US USD stable coin, can you just like copy paste that and then do a lot of stable coins in parallel and and have that actually make sense? It turns out it's not that easy and then it also turns out that there has not been any demand for that historically. But now it's like an interesting moment for Sky because first of all with the star model uh that allows again like individual founders and innovators to kind of put some skin

in the game and and and basically take the lead on you know I believe there's a business case for like this thing and so I'm willing to like sort of do the groundwork and so on if I then like get a proportional upside to the amount of risk and the amount of work I put in right and so that approach could actually be used to create like USDS clones of in in in other currencies. Uh like to sort of operationalize that practically without requiring a bunch of top- down bureaucracy at the sky core level and having Sky Core Governance sit and and sort of try to make decisions around what uh what currencies are going to be popular and which ones aren't and how to bootstrap them and all of that.

So the capability is there because of the the fundamental uh characteristics of the stars and now the uh I mean the demand might actually be there some point in the future and and then sort of in parallel just because it basically dawned on me and and others in ecosystem that the stars do enable relatively easy like um a relative easy process for actually having multiple stable coins in parallel pecked to different currencies. Uh there is like an effort to actually design yeah like design the ability for stars to actually uh launch like a sky stable coin peg to the euro or to the CNY or Singapore dollar or whatever is going to be popular. And again what's really

cool is it doesn't have to be Sky that has to make that sort of top down decision. it it's it's a star that actually has to drive it and that has to kind of um ultimately uh put like would have to put a lot of capital but then also get a lot of the upside for doing this and so that system is is sort of uh coming coming along nicely in time for all of this craziness that we're now seeing which I still don't think I don't think we there's going to be any kind of immediate impact but if you look at like historically at like how world reserve currencies have changed in the past what kind of happens is you have sort of the moment where like the empire sort of um you know the empire ceases to exist right and you just have a like it

just becomes the the core country which I think might be what's sort of happening now with the the the change in the world order and then it takes like a couple of decades and then after over the next couple of decades the world reserve currency changes. So, it's not something that would happen overnight but it could be a, you know, an extremely bold uh bet to make, right? And it could be something that would have a lot of upside if like somebody that manages to like bootstrap a new category of stable coins, that that's going to be very valuable, right? And then by because with Sky, it's possible to sort of like offer up that opportunity to somebody and be like here's the Sky infrastructure. it sort of handles the whole thing, but the question of like what's what's the

market case and how to do it and how to execute it and so on, like that's sort of up for grabs and whoever does it they also get the majority of the upside of of pulling that off, right? And uh and that's what I really think is so I mean that's what's so nice about this this new paradigm that Sky is introducing that it's like it's leaving a lot of money on the table for like the top founders in the industry to come and do real stuff, right? in the past is like you have to go and launch a shitcoin or do some scam or try to build like you know 200 new blockchains or something if you wanted to actually if you were someone with a lot of drive and you wanted to actually get funding and and do something because it's so hard to

like break through in like the real business models like stable coins but with star suddenly that's like the barrier to entry actually becomes very low and I mean compared to like I don't know raising like $200 million for a new L1 right it would be a lot easier to raise a couple of million dollars for a star and then actually being profitable right out the gate, right? And having sort of decentralization right out of the box and all of these things that are available with the star agent framework. Mhm. Okay. I want to touch on two more things before we let you go. Uh tough to keep this uh interview short. So, thanks everybody sticking with us today. I want to talk about AI agents and machines using stable coins because I think that you mentioned that a few times. And then

I also want to talk about makers buyback program, Skye's buyback program. There you go. I called it Maker. I said I I was trying so hard to call it Sky all episode. Uh I want to talk about the buyback program and what's happening there. Uh first let's talk about AI agents and machines using stable coins. Can you paint the picture for what you see as the future here? So I think for like um I mean just in general the way that humans interact with stuff incre increasingly will be intermediated by AI and that's fundamentally because humans are pretty irrational uh and uh you know with AI you can give everybody sort of like a hyperrational agent that can sort of help them like make better deals when they buy stuff and you know pick the right you know

pick the the better interest rate when you put money in the bank or something like that right like that's it seems like over time that the fact that everybody has a super intelligence in their phone will make them make very rational decisions and suddenly so when that comes with stable coins I think suddenly the strategies that worked in the past which was very much like in like this kind of like network effect entrenchment sort of a brand awareness amongst humans that suddenly I think it's going to shift much from like sort of being out with the humans and in the brains of the humans and being much more like the facts around what is actually the return You're providing what is actually stability, what is actually the risk profile, not based on what some government says or what some authority

says or what you know the advertisements are saying, but just like the hard core data, the hardcore facts, right? So that's like how you know so that's what I think is a very good niche to optimize for because there's I would imagine it's going to grow a lot and just generally it seems like you know it's hard to it's kind of like a no-brainer to to focus on on on something like that because it already today like I said earlier like it covers already today this segment that's called mercenary capital right so if you can like be profit like if you can be the top destination for mercenary capital today and you can actually turn that into a business then you're going to be well set to handle all of the trillions of AI agents that are going to manage everybody's money in the future.

But then the question is like how do you make a currency and a savings a savings rate that is optimized for an AI that is hyperrational and likes to look at data and so on. And the answer is well you have to use AI for that right you have to yourself deploy as many hyperrational agents as possible and go through all the data and find the best possible assets and just purely looking at the facts and you know sort of not compromising in any way other than actually trying to model and understand the real risk and the real return and get have proper diversification with as few like bells and whistles as possible and as much like facts and raw data fundamentally like I mean blockchain

enables this really well. DeFi enables this really well. So that's why I think like DeFi will naturally win and you will see it adopt everywhere. And my my thesis is like the banks and the institutions they will adopt blockchain, crypto, defi and AI simultaneously basically. So it'll sort of like fit together. And that's like how you do it is like blockchain is like the ideal way for these like purely digital systems like AI software agents to kind of like touch the real world and get things done in the real world and also get the data out of what they're doing. And so Sky and the stars are like an entire economic framework that is like natively built around this paradigm, right? That the whole thing is

like digitally native. The whole thing is structured to be optimally transparent for AI systems that in turn also have mechanisms to sort of interact with it and to help optimize it and in doing so generating value for themselves, right? And and again and then the most basic unit of this is the star itself that like the most basic thing is you come you set up a star you capitalize it then you have better ideas around how to allocate capital than the others and that lets you generate alpha and and and profits that goes to yourself. Most of it goes to yourself, a little bit goes to like the collector right? But then like then that becomes a competition of who's the best at then actually using AI and then it like back, right? So then

the AI agents that are that are the users are using to make the decisions it looks like, okay, well this system over here, I mean, look at that. It's all rational. It's all the the data is all there. There's no like offuscation and and bells and whistles that's made to look good for humans. It's just like pure raw data. It's just the facts. That's what they'll prefer, right? And if you look at like banking systems and and kind of traditional finance, so much of it is like theater and stability and you know like central bankers like making strong statements and that kind of stuff. Uh but that's not going to that's not going to fly in the future right? The future is going to be more about the real world.

It's it's a great point that an AI agent is not going to make decisions the same way a human makes decisions, right? A human makes decisions very much based upon uh their own biases and their own judgment. And a lot of that does not have to do with fact. It has to do with marketing and their recognition of a brand and their trust of a brand. Whereas an AI agent is going to make their decisions not on the look of a logo or the most recent ad they saw or what they heard most recently about that company. They're going to make that decision based upon the facts of the underlying infrastructure of the company and the underlying infrastructure of the product and what the product offers and if it's the best deal yield that they can get and this in the safest way then

that's what they're going to decide to do. It it's a really really good point. How far do you think we are away from this future? That's the one thing I it's so difficult to predict right now is you know are we talking months or a few years or are we talking decades? Years to decades I think. So I mean of course already now I mean a lot of the stars um both something like Spark but also like the the ones that are still being incubated and will will uh launch uh soon. I mean they're obviously using like chatgbt for all sorts of like daily tasks because that's already how most no I don't not most humans but that's already a how a lot of humans work right they use like chatgbt to automate like the sort of tedious tasks and there's

stuff like you know you have to report things like what are you doing you have to kind of like structure a bunch of data to be like this is I did this thing and it complied with the regulations so that's why I'm allowed to deploy your money here and there and so on right so that some amount of that type of of work is already being automated with AI right? But it's like not nearly as fleshy as like what you would expect. And like the kind of fleshy part of it is um I don't think that will ever be well I well I don't know but like I think it will creep up on us. So it will never really feel like some kind of magic the way it's used in reality because it'll come slower than you expect right like chatb is so cool and

can do so many things but it's going to take a long time before it like fully like uh you know controls uh real time allocation of of collateral. And by the time that happens, we're just going to be so used to like machines doing stuff that it won't really necessarily feel that like that much of like a game changer. So the way to think of this, I think is like this sort of steady continuous like step by step like whole front progress right? So I think that's kind of actually what's really important and the way to look at this and to determine who is like taking the right approach in AI is some are going to be like sort of pick a kind of one point and be like oh this is I can do some really fleshy

stuff with AI here and then it's like sort of one particular like potent like showcase thing of like look at this thing it's all AI when I think in reality a much more measured and and and ultimately more effective way to do it is this sort of like you can actually apply it everywhere like literally everywhere but it's still quite limited where it actually doesn't get in the way. So there's almost any topic if you sort of look in long enough you can find a way to do some AI in a way that's actually going to save you time but it's not really that easy just yet. So uh you should not be you know yeah it's like you have to look across the whole space of possibilities but then be like sort of careful around where do you actually do it and when do you focus on just

getting things done. Yeah. And I think as so many people fall in this trap of like doing AI for AI sake, right? And we just had a whole like cycle in crypto of like AI coins and AI this, AI that right? And it was like it was all like none of it did anything, right? It was all like AI for marketing sake. And it's it's amazing how crypto could do this that it like made AI lame. And now like AI sort of this like toxic thing, right? That like now it's like oh my god is AI. Well, that's like that's a really bad sign in because because they all went to zero, right? And that's so like that's so typical crypto. You could thank the crypto casino for that. Uh, okay. Final final thing I want to touch on, uh before we wrap here, uh

is one thing we talk a lot about on the show is when we're talking about investing and tokens you can invest in we talk a lot about buyers and where who's the next buyer of that token. And one thing that's very interesting when we look at uh Sky Maker is one of the biggest buyers is the buyback program that you guys have set up. And that is a very buybacks have kind of gotten a um I don't know that they've gotten the best reputation in crypto. Everyone's mainly because I think a lot of people haven't been able to do efficient buybacks yet.

We still don't really have a model that works well for it. still experimental but Sky is really leading the way with your new buyback program that you announced. Just walk us through how much are you guys buying back right now and walk us through what this the plan is. So, right now, uh I think uh the system is buying Sky tokens at a rate of 500K per day and I think that just got increased to 700K. So, that'll go into effect soon. But it's also like it's the yeah the governance around how the buybacks happen uh is set up so that this can change rapidly depending on market conditions. So now we'll see you know given uh what's happening you know we'll see how uh how it sort of uh how

it will change cuz cuz one thing's for sure is like the 700k rate is not sustainable as in the system is not earning enough uh net revenue to actually keep that up indefinitely. So it's kind of moving back and forth. One like the thing that's guaranteed is that the buybacks will continue permanently. So, originally, Maker was designed to have these like buybacks that would never stop, but they were like stopped many times and for long periods of time over the years. Now, they're like they're back for good and they will never stop. And it's like the whole the whole sort of financial model of Sky is designed around that there simply cannot be uh situations where buybacks don't occur. Like it can happen that there are these like insolveny events where a

bunch of tokens have to be printed to recapitalize a system because something went very very bad. But as long as the system has like any kind of scale basically it's it's designed to always do buybacks uh as a sort of derived from the scale. Well, oh sorry actually let me clarify that because that's actually another point is like so the problem with buybacks is and this is something Maker did in the this is also a big reason why it didn't it sort of stopped with the buybacks for a long time is that maker has done a lot of really stupid buybacks at very high valuations where it basically just like wasted money getting nothing done. So that's the kind of the reason for the the sort of the comeback of buybacks is that there's now a system called the smart burn engine which is meant to eventually

when it's like fully operational to always be buying and uh burning Sky tokens whenever it sort of makes economic sense to do so. And that's then based on the economic metrics of the protocol. And it's up to Sky Governance to sort of continuously refine basically an equation that determines should buybacks happen and at what rate should they happen. And the idea is that what should be happening is if the price suddenly crashes, but the fundamentals haven't changed, then it should just like turbocharge massive buybacks right, to buy the dip basically. But if the price is really high and it's sort of irrationally high potentially, then instead the right move is to just gather dry powder, right? just accumulate USDS just accumulate lots of cash and uh

build up a huge buffer so that you're really ready with like just massive amounts of dry powder to buy if there's a crash in a token price and there's a and the kind of the equation for for what is the right uh price point price points to buy at and how much should you buy given different price points, you know? So that's so so um so it's sort of ready to really take advantage of that. Yeah, it really shows the power of this buyback program in terms of its flexibility, its adaptability, its governance, and its ability to create a sustained buyer for Sky tokens, which obviously has an impact on those looking to invest. The other thing that really stands out to me is we previously had

Dan Tapiro on the show, uh, who's one of the the larger growth investors in crypto. there's not a lot of growth investors in the space and he talked about how one of his focuses is on the fundamental thesis which really points to hey which are which are the crypto projects that are making strong revenues that a liquid fund can go invest in right now and that's another big buyer is these these large growth funds that we're going to see I think a lot more come into the space we did an episode a few weeks ago uh with Coinbase about their institutional investor report and how they were talking about their all their funds are looking to get more invested into DeFi projects as well. So a lot of a lot of really strong

tailwinds for the DeFi sector and the stable coin sector of crypto right now. Run, absolute pleasure to get you on the show today. Thank you so much for sharing all your thoughts and for breaking it all down with us. Yeah, glad to be here. Thanks for having me. Before I let you guys go, I wanted to tell you about Avalanche Summit coming up in London. This is May 20th to 22nd. It's going to take place at the stunning Hatfield House. This is a gathering of builders, investors, founders, all focused on the Avalanche ecosystem. It's going to be a one-of-a-kind experience.

Real direct access to a lot of the top founders and top builders in the space. Don't miss your chance to be part of Avalanche Summit. If you're in London or around Europe, you should want to check this one out. Grab your ticket today. Link in the show notes if you want to sign up. Thanks so much for listening in again everybody. you have yourselves a great day. As always, if you liked today's episode, please hit subscribe and make sure you follow us so you don't miss out on the next one. There's also a link in the description to our free 5minute daily newsletter where we simplify crypto for you while making you laugh. And if you're willing to step up your crypto investing game, we're going to also leave a link for Milk Road Pro.

You get access to our portfolio where you can see exactly what we are buying. This is your number one resource to help you invest successfully in crypto. One final note, this show is for educational purposes only and nothing we say is financial advice. Investing in crypto or any asset is risky and you should never invest more than you can afford to lose. Thanks so much for listening in my friends. Have a wicked awesome