How stablecoins are reshaping the dollar, business and the Fed

Transcript

It's important to note that a lot of pension funds, endowments, allocators make decisions uh not on a daily basis like most of crypto investors, but more on a multi-year time frame. And seeing someone like JP Morgan step into the space in a very meaningful way, it definitely computes and factors into the decision of how much you allocate into crypto funds, into strategies like ours. And those decisions get made year end. And that deployment cycle begins Q1, Q2 of next year.

>> The Federal Reserve is getting crypto curious. The Federal Government shutdown is getting close to the record. And trade war worries are still wreaking havoc on the markets. Hello and welcome to Milk Road Macro, the podcast that here to remind you that the best thing to do when you're $ 38 trillion in debt is to stop going to work. I'm your host, John Gill, and today is Friday, October 24th, and this episode is scheduled to be released on Tuesday the 28th. We are joined today by one of the young wizards of Web 3, Santiago Santos. Santi is a prominent digital asset investor and the founder and CEO of Inversion Capital where he focuses on building digital asset infrastructure in emerging markets like Latin America. Previously, Santi served as a partner at Parafi Capital, one of the largest DeFi focused funds.

Uh he has backed over 150 startups. He brings experience from traditional finance into the world of web 3. Santia is going to break down the Fed's recent payment innovation conference, stable coin adoption, and a whole lot more than that, what it all means for macro. So, if that sounds good to you, make sure you like and subscribe. Share this episode with someone who needs to hear it. Uh, and as a reminder, this market moves fast. Milk Road Macro is here to help. Twice a week, our macro newsletter team breaks down what's driving Bitcoin, tech, and the economy all in plain English that's easy to understand. So, subscribe to our free newsletter to get in on all the alpha there. The link is below in the show notes. And without further ado, welcome to Milk Road Macro.

Santi, how are you, sir? >> John, thanks for having me. It's great to be here. >> I'm really excited for this conversation. I've been trying to get you on for a long time to talk to you. Um, so got a lot of questions. Uh, and I thought a good place to start was with this payments innovation conference that the Federal Reserve held last this week. Um, this is a huge shift in in policy and in tone from the Federal Reserve, much more positive towards crypto from them. What are some of your thoughts on this? What are some key takeaways? I know you weren't personally there, but um what do investors need to know coming out of this conference? >> Well, I mean, let's set the stage, right? You have a very different administration regulatory environment as it relates to just broadly innovation.

Certainly uh in crypto and AI were the two uh important topics on the agenda. You know, the Fed just signals uh more willingness to explore and adopt and leverage this new technology. So it really I think it sets a tone that is a total 180 to what you had in the prior administration. There's a couple of key things that were top of mind and discussed. One of course digital assets, stable coins and tokenization. Uh the other one is just AI and agentic payments and just broad financial infrastructure. And so and the last point was just access to the Fed payment system, Fed now and master accounts from non-bank institutions. And and all that really ties into stable coins. It ties

into um obviously AI and Agentic payments. And so look, there's a lot of folks in the room. Uh there's Black Rockck Coinbase Stripe Google Franklin, Templeton, uh a lot of folks in the room. And so it was a really good a really good conference that sets the stage for, you know, what what potentially might come from a regulatory standpoint. You know, we probably will talk about the Genius Act. And so overall, very positive for the space and uh yeah, we'll just see what comes out of that. Yeah, I I want to kind of break these things down kind of one at a time and get your thoughts on this because I know some of this relates a lot to the work you do. Um, but I wanted to start with that announcement from Governor Waller. He's proposing giving payment accounts or what they called skinny

master accounts um to stable coin issuers which would allow them to get direct access to the Fed's payment infrastructure without having to partner with the bank. Uh, I wanted to kind of get your thoughts on this. How important of a shift would this be? Does this have a big impact on the banks? Would they fight this kind of a proposal? And how much would this help stable coin issuers? >> Well, who wins here? Stable coins. Stablecoin issuers and neo banks. Folks like Robin Hood, uh Revolute, New Bank, uh these these uh you know bank light regulatory light uh financial uh institutions, right? Because they now have access to really leverage uh stable coins and get access to the to the Fed Fed rails directly. Why is that

important? because you bypass traditional intermediaries. Who are those? And which folks actually lose are banks particularly medium-sized banks, smallsiz banks. You just it just as will make it harder for these banks to maintain their position in a in a world where you can circumvent them. So, so that's the first point. The second point is it's important because as we know with stable coins, you just lower the settlement risk and cost in digital transactions. You know, as much as stable coins are just a better global borderless financial rails, you still had to interact with payment uh traditional intermediaries to do on and

off ramping and primarily. And so bypassing them collapses furthermore the the flow and the cost to move move a lot of the payments flow over to stablecoin rails, right? Overall, I mean, it just increases competition in payments. And so the ultimate beneficiary here is the consumer. You're going to get your or businesses. You're you're just get your money faster. There's less fees. And that is just uh a very very step. I mean it might be one of those things we look back in a couple years and this skinny master account proposal might be one of the more important things that not many people are paying attention to just yet

in crypto. >> Yeah, I I really appreciate that insight on that. That's exactly how I felt hearing this proposal because it does seem like an enormous like a tectonic shift in um just how the government is thinking about these businesses and treating them. Um, I think that, you know, something I'm curious about is the banks are obviously in some capacity going to try to fight and resist this. I think one of the the battlefields we're seeing that play out on, um, is this Clarity Act proposal that's in Congress. If the shutdown ever ends, um, the Senate is likely to resume that. Um, do you have any thoughts on this fight that we've seen uh, between the banks and stable coin issuers about offering yield generating products? How does that play out in the likelihood of the Clarity Act

passing? like just like how is that fight going to unfold or do you have thoughts on that? >> Well, um I think banks will fight it. It's it's normal because they stand to lose as it relates to passing regulation. Look, the government shutdown is probably the most important thing there just because government is going to be just slower. Um there's been probably a subdued pace in new regulations passing which which makes me a little bit nervous. I think, you know, earlier this year, we just saw way more traction in the Trump administration coming in and and and the Genius Act passing. And so, you know, I think it's a part government shutdown, part just a little bit of of of lost momentum on some of these bills that are going to be important. But, you know, nonetheless, I

mean, the Fed days like, you know, these proposals by the Fed, I think are signal just a lot of strength, right? Going back to again before November in this new administration, a lot of people ask themselves now, it's like, hey, what happens in three years? What happens in four years when you might have a different regime, different administration? Are we going to peel all of this back and go to a state where crypto is back in square one? And the reality is the cat's out of the back. Like you just open, we're not going back. And so from a regulatory risk perspective, I think this industry continues to be massively derisked. But policy takes time. Um it is it is um again, I can't underscore how important this direct access to central bank money is for stable coin and tokenization issuers. It's it's

It's always been this tension where integrating the traditional analog world to the digital world and stable coins, there's always friction in that interaction. This this exact this proposal, it's a sort of I would describe it as a missing link to really create more efficiency, more fluidity, um remove some of the friction for NEO banks and uh just stable coin issuers to um you know, USDC, PYUSD, all these guy. I mean it just will will create much more uh efficiencies in that flow, >> right? Yeah. And this is one of the reasons why I it stood out to me the most. Uh like you said, there was a lot of things that they talked about at this conference, but that was one of the

biggest things that came out of it for me, too. I'm really interested to see the downstream impacts of that policy change. Um I want to kind of zoom out a little bit more broadly around stable coins. I I want to bring in inversion capital in a minute and and talk about the work you're doing there. Um, but you know, you mentioned the Genius Act. The United States has very much made it clear that stable coins are part of their plan to continue to fund the US government and the Genius Act has kind of made that possible. But I'm interested in your thoughts on how, you know, we talked about the the banks kind of fighting some of this stuff internally in America. I'm curious your thoughts on other countries reaction to this because um, for other countries with weaker currencies, there's a risk of a lot of capital flight into the

dollar as stable coins start making dollars more accessible. What are the responses going to be from other central banks? What are you expecting to see there? What's that going to look like? >> Uh, excellent question. We spend a lot of time looking at companies in places like, you know, in Latin America, uh, in Asia. Why? Because that's where most of the stable coin adoption has happened on the consumer side, uh, on the retail side, right? And so the common question that we get asked is will central banks, will governments, local governments resist that? Will they clamp down on dollar denominated stable coins because there is capital flight right and we've seen time and time again you know like China for instance has banned Bitcoin a couple times India has at certain times you know try to clamp down uh for the

same reason right you know Bitcoin no different than a stable coin is allows you to move your money from a trapped capital market you know local economy um and and and and that's that's problematic I think certain governments might have an issue. I'll tell you, I've been interacting with regulators outside the US. I think most of them just appreciate that they don't have a choice. Um it it is it's just a nature of the beast. It is a new regime. They can do certain things to clamp down a bit on it. They can set certain uh you know this idea that people can save and earn yield in dollars and have a dollar denominated bank account while they live in that

country of choice uh is a new is is a very very new paradigm. Um why would governments not like it? of course is for, you know, it just destabilizes the demand for local currency. But the reality is, John, I mean, people still need to pay. If you're a business, if you're a retail person, you might want to save in dollars, but you still need to pay in local currency, unless you're like very few countries will be like El Salvador that are dollar denominated. Place like Mexico is still going to have their local currency and is going to need, you know, and so and so it just increases maybe the FX pair, dollar, peso. You're already seeing a lot of remittance flows go from, you know, through stable coin rails. People are in

my conversations with folks like Bridge, right? They're seeing a lot of consumers not offramp to local currency because you have now a digital wallet that acts like a bank account, especially now perhaps with this new regulation, right, from the from the Fed and, you know, is is regulated. Uh, it is a a dollar, a digital dollar. Governments like it for this reason. Most of these countries are cashbased economies. If you're a cashbased economy, the government doesn't have an understanding and can't tax that economic activity. I I'm going to people going to hate me for it, but you see right there in the back, brave new world. You're just governments love surveillance. And they when money is digital, you can tax it.

You understand economic activity. You can and so and so you gain that, right? you know certain places like Mexico it's a you know heavily heavily cashbased economy Brazil on the other hand has introduced digital payments called uh Pix that has transitioned a lot of the flow from cash to dig digitized Brazilian realale. So again, these are some of the trade-offs and some of the considerations, but net, I mean, it's one of those things where it's not going to change, but you want to have more visibility into what's happening, transactions, and as soon as stuff is digital, governments like it because they can clamp down on organized crime and the ferris activity and tax avoidance and all of these things, they

get the benefit once money is digital, >> right? Yeah, there's a lot of benefits to a lot of stakeholders. And I I totally agree with what you're saying. I think that governments will recognize that there's an opportunity for increased surveillance control. Um, so I'm kind of interested to see what some of those, you know, capital control policies look like. Um, but I do expect more of that to be coming. Um, so we we'll monitor that situation. I want to pivot now to inversion capital and stable coins more broadly. But I thought it would be good for for you just to kind of lay out for our audience a bit of what you're doing because I think a lot of people are not really seeing exactly where the rubber meets the road on stable coin adoption. Um, so could you just walk us through Inversion Capital's strategy, the telecom

companies you've been working with, how you're driving crypto adoption in Latin America and what are some of the results that you've seen from this with early on adoption with stablecoin integration? >> Yeah, just zooming out like what is capital? What do we do? Why why do we exist? Uh, I see a huge opportunity in introducing and making businesses more efficient with this technology and it is a private equity strategy. we're looking to buy controlling stakes and businesses and replacing antiquated infrastructure and technology with this new technology like stable coins, right?

Because it changes the game. It allows you to serve customers better, faster, and cheaper. And it changes the ability for a business to go borderless finance, right? And so that's like the opportunity that I see. It really started from this frustration that I've had since I've been in crypto since 2012, which is why don't we have more users, right? We talk about the benefits of this technology. People are appreciating it more, but we have, you know, 40 million users, active users in crypto today. To put it in perspective, Chad GPT has 800 million users.

So, we're a $3.4 trillion asset class with 40 million active users. something is not translating into why this technology hasn't been adopted. But in summary, we see the over the next 20 years, 20 plus years, every business is going to interact and use this technology. We want to accelerate that. We think that we can deliver very interesting returns for our investors by doing that. Uh not by relying on financial engineering that most private equity funds, you just put a bunch of debt on a business, hope that rates come down. No, we we use technology to drive value. And so it's not just telco, it's consumer finance, it's trade finance, it is, you

know, um and the interesting thing is there's already businesses that are doing this. He like figure technologies just went public. They've been doing some interesting stuff in the HELOC market. Why? Because they can underwrite and then they can extend loans faster, better, cheaper for their consumer. Um you know, they're issuing 15 billion of HELOCs. You know, that's that's that's not a small amount, right? And so that's the opportunity that I see at immersion, which is everyone in crypto is trying to export this technology from the inside out. Well, good luck trying to convince people to download a digital wallet and figure out security. And furthermore, we are not going to onboard a billion users to this industry through an exchange.

It's just a very limited audience that wants to go to an exchange and gamble their, you know, paycheck to paycheck. It's a big industry, but it's not a it's not worth 3.4 trillion. I'll tell you that. But what gets lost when everyone just talks about price and speculation is underneath it all is a very powerful technology like stable coins that every business will be using and we want to be there first because we think that we can unlock a ton of value. >> Really helpful insights on that. I think that's a a a great change in the way of thinking about what adoption means. Um I'd like to hear about some of the challenges and I guess some of the wins um that you've unlocked here when when you're doing this because like you said you've unboarded a lot of people uh into

digital assets. Um how how has that gone? What's that learning process been like? What's surprised you there? And then you know beyond Latin America, how do you see this adoption scaling more globally? Mhm. >> Look, I mean it it starts with uh I've been obsessed with just looking at a a company uh you know income statement, cash flow statement, balance sheet and understand like why is it that the business has like a 5% EBITL margin. Why is it that accounts receivable or you know is is is such um and and really understanding where friction points are in in the business operation. um key learnings that I've had since I started Inversion u you know almost a year ago was way more reception to this technology and I started inversion when

the new you know Trump administration got elected because you know it does matter you know I couldn't have started inversion four years ago when I left pify simply because the regulatory environment was not there and we didn't have enough the technology was not there either and now you have high throughput blockchains where you see a path towards this technology serving billions millions of users, right? So, I'll tell you a process. We were looking to buy one of the largest telos uh in Latin America. That process was being run by a big investment bank, the largest one of the largest banks that has historically been against crypto. And we went to them and said, "Listen, we we want to buy this company. This is our value creation story. This is what we want to do with this business. Go pitch it to your client." And I candidly thought that it

would have never it would have been DOA, right? they would have said, you know, our client's not interested in your crypto story. Um, they are very traditional. Um, and this bank is also very traditional. But they came back to us said, you know, the client's interested actually. And and so we got in the door, we spoke with them about our value creation story that relied on decentralized physical infrastructure networks like Helium and relied on using stable coins to create a that telco into financial, you know, a fi, you know, a bank essentially and offer financial services to that user base and that it stuck with them. Not only that, but they were interested, right? And so I think that is really a reflection of the state of this industry where we're no longer being

discounted too much. It's I'm very intentionally building in the open. You'll hear me say time and time again, I want to I think every business is going to use this technology. We have more inbound of businesses that come to us and say, "Hey, I hear you're looking to buy or partner with businesses. We'd love to uh pitch to you how you interested in this technology, just don't know how to implement it." And that's really at the you always as an investor get ask yourself like what's my edge? My edge is I've been investing this technology since gosh 2012, but I've done private equity before. I've done growth equity before. I I I worked at JP Morgan. I worked at some of the, you know, best uh growth equity funds.

Uh and so from that standpoint, I think it it sort of is overlaying these converging worlds. And you know, I'm less interested in making the incremental venture investment because more value will be unlocked by deploying this technology than building denovo like from scratch. There's already really good technology that's been built now is the real opportunity that I see is deploying it at scale. >> Yeah. And I'm I'm really interested to see what deploying at a scale turns out to look like, how that evolves from here. Um, but this is one of the reasons why I wanted to have you on this show, right? It's called Mac Milkroad Macro.

Um, and a lot of times, you know, the Fed has a conference, big whoop, what's the deal? But you're actually seeing where this meets the road, where companies are actually using these things and what that adoption looks like. Um, I wanted to get your thoughts on this. What do you see as being the core value proposition here? Is it a better user experience? Is it cheaper, faster? Is it all those things? And what in your mind does a moat around this business look like? I mean, like, are you worried about, you know, just endless new competitors coming out with faster, cheaper solutions? Um, how do you protect this business in a world that is rapidly innovating towards better and faster payment solutions?

>> Well, we always say we lead with business logic, not ideology. And again uh user aggregation theory is very real which is in the internet right there are few companies that have a very strong relationship with the end user Facebook, Google, Amazon they've captured immense trillions of value because you know they capture attention and they provide a service and then they expand on that and so that will be true with crypto and it will be true with AI. Um and so again I think the the point around this technology it is open source right so if you're a stablecoin issuer difficult business to be in because everyone will want to issue a stable coin uh if you're

a blockchain a layer one selling block space difficult business to be in because blockspace is a commodity what is rare is finding the user and the activity economic activity that wants to be settling and using this technology whether it's stable coins or decentralized physical infrastructure networks. No one in crypto has solved that. Perhaps the few people that have created the most amount of value in crypto are exchanges because they again maintain and have created a strong relationship with the end user. Binance, largest financial institution in the world, right? Fintech, uh, Coinbase, Kraken, all of these companies have one thing in common, which is they are they aggregate

and they capture and have developed a strong relationship with the end user. At Inversion, we see a similar opportunity and and Moes around buying businesses that have that connectivity and distribution with the end user, right? Because because the end state of this technology is users should never focus on infrastructure. They don't care how things work. They want a service and you, John, don't care when you click um your email and send an email. You don't care how that email gets to the other person. Uh you don't care how when you get on a plane if it's a Royals Royce engine or whatever wiring happens in if it's a Boing aircraft or a you know a Bombardier, like you just don't care,

right? As long as you get from point A to point B in time, you don't care. And the price is competitive. You don't care. >> [snorts] >> And and I think that's where this technology will eventually go. That's the end state. And so at Inversion, we're very focused on, you know, we're going to consumer behavior doesn't change. As much as technology comes and improves your life, consumer behavior will not change. So our thesis is for instance, a lot of the apps in your phone in 5 years time probably don't change. You're still going to have a banking institution. You're still going to have an e-commerce provider. You're still going to have a streaming provider. Um you're still going to have an email client.

question is what of which of those businesses can we buy at a good price, interesting price that we can make vastly more efficient on the back end and so that you John might still have that same app in 5 years but all of a sudden that service is better like think about the evolution of the first generation second generation third generation iPhone it was a good product the form factor was great like Steve Jobs I mean this is why Apple was so valuable but internet was terrible the app store not but but it captured your attention and the form factor they just nailed that that it created an entire new category car smartphones and rendered Blackberry, Nokia and a number of other companies bankrupt. Now this is

where crypto is. You have a interesting form factor called um decentralized finance called blockchain trustless execution environments that allow for use cases like stable coins where the end customer definitely sees it definitely feels the impact because they get access to credit. I mean, my god, in in places like Mexico, we see the opportunity to buy a telco business and offer that end user a bank account. With one click, you have a digital wallet. With one click, they can receive remittances faster, better, cheaper. With one click, they can earn yield. With one click, they can now invest in the US stock market through tokenized stocks. You totally

transformed that business. The end user doesn't care about blockchain. They care about preserving wealth and earning more and getting at the end of the day served a a core service right in a competitive way. And so, you know, that's what we're very motivated. It will happen. Like again, there is no version of this world where the world wants access to dollars. Stable coins fill that that need, that demand in a very real way. The challenge and the opportunity is how do you do it in a way that puts it in the hands of the consumer in the fastest and easiest uh frictionless way? Because right now the crypto industry is requiring your grandmother to set up an account in

Coinbase and the first thing your grandmother sees is a 50x perpetual long product on a shitcoin called Dogecoin. Well, you know, that's probably probably not the best form factor for this technology. Uh, I think that's uh a really helpful and uh maybe obvious but really really helpful insight to illuminate that. But I really like that reframing, right? You know, it's like like you said, there's going to be a lot of stable coins, a lot of stable coin issuers and block space itself is a commodity that that other people can compete for, but what they can't replace is users is repeated economic activity is that reliable return repeat business. And that might be the key and most valuable piece going forward. Uh really really helpful

perspective on that. I I want to ask you about something else. You touched on it briefly, but um the Fed at their payments conference talked about the intersection of AI and and payments systems. Um and I'd love to know your thoughts on this because you know like you talked about the end user and and so forth. Um there's a world in the future where there's a lot of agentic AI operators that are going to be users of of stable coins and payment solutions. And I'm curious to know what your thoughts are on that or if you're already in some way thinking about how to involve AI in the work that you're doing at Inversion Capital and just what does the future look like there?

>> The answer is absolutely. I mean AI's transformed our workflow. I mean we're a small team of 10 uh with big ambitions. We've been incredibly efficient with AI in our workflow. So I I I keep telling folks that we hire is you'll likely don't get fired or replaced by AI. you'll get fired and replaced um by someone that actually knows how to use AI. And uh your question around aentic payments, look, huge topic. Everyone's paying attention to it. Um stable coins fit squarely into unlocking that possibility, right? Because if you want to empower an AI to do stuff to, you know, uh pay for subscription or, you know, run a portfolio management strategy, u the natural choice here is stable coins. Why? because you can't KYC

uh a bot, right? Um and so stable coins allow you to do that, right? And it's just um from a settlement standpoint, from a execution and speed standpoint, just stable coins will be the preferred choice for AI agents and agentic uh payments or workflows. Um and so that's really how these two worlds converge in a very meaningful way. I recently invested in um in a company that a couple folks from Stripe left and saw the opportunity of both worlds, right, of stable coins fitting squarely into agentic payments. The analogy here is people may have forgotten, but Timberly the inventor of the internet said, you know, we were very good at solving the information layer for the internet

stack, moving information at the speed of light as as you send an email. They never solved the moving the money aspect because it was very hard. It takes trust and coordination and intermediaries. Stable coins do that, right? Blockchains are very good systems that don't rely on trust and trustless execution environments, right? uh that are reliable, are predictable, and and this other component of programmability of the money because you want to stable coins allow you to actually introduce a lot of flow more natively into whatever it is that you want that agent to do so that it doesn't go berserk, right? You need to have certain guarantees that

it's like, hey, look, I want you to do XYZ within a certain parameters. Uh the seventh wonder of the world is programmable money allow you to sweep interest. I'll give you I'll give you a very simple example. You know how much money your rates have been now at four or 5%. Right? You John sophisticated as you are don't keep that much money in your bank account. You go and sweep it to a money market account to to or you know buy treasuries to earn four or 5%. You know how much money was sitting in checking accounts over the last four years where rates have been elevated?

>> No, I don't. >> A staggering amount. Most people don't have financial literacy, right? And and so who wins and who loses in this new world where payments and AI agents can, you know, optimize and make money work for you, >> right? I think you're going to see a lot of financial institutions primarily neo banks and and com you know and and startups trying to disrupt and take market share away from large banks that have been you know for better or for worse have just been clipping all that 5% on that flow in a world where you have programmable money as opposed to you having dollars

in your checking account you have a stable coin and what does that stable coin do it says John I recognize your work your cash burn you typically spend X amount per month. I'm going to leave that in a checking account in real time. I'm going to sweep it so that you're earning 3 4% of your money without questions asked. It will just do it for you. It will, again, this this skinny master account proposal just facilitates that in and out of of a money market account. And John, you don't even think about it. You don't need to have to, you know, uh, figure it out. you just have certain guarantees that your money is going to behave in a way that works for you without you having to, you know, really get your your your bearings on it. And that's really it. I mean, the

the there are certain things that technology comes and improves your life in a very meaningful way. It does it because it doesn't assume that it you're going to change and require people to do anything different in their day-to-day. And the reality is the educational system teaches you about calculus and World War II, but it doesn't teach you how to use money, >> you know? And so that's we can sit here and pontificate that that should change, but it will never change. Like people just don't have financial literacy. This is why programmable money and stable coins >> with AI will transform consumer finance. >> That's really Yeah, I think I hadn't even thought of that. I thought I was thinking more in terms of like Shopify and Chat GPT, you know, cutting out Amazon, but in terms of like how it affects people's personal savings and

checking accounts, um, makes a lot of sense. And you're right, that is I I only keep the the money in my checking that I have to spend immediately, you know. So that that is how I use that. >> On that point, you're totally right, too. I mean, checkout is one of those experiences that you still have live in a world where your bank, your credit card can get denied like uh you know, uh you have chargebacks, you have payment processing fees are high. But this idea of like failed checkout is billions if not trillions of dollars left abandoned cart because your credit card doesn't work and gets uh rejected for no good reason.

Uh that does not happen in a world where you are settling on a blockchain and you have atomic transactions. The business gets paid faster. You John can pay. So let's imagine Thanksgiving's coming up, right? Black what is it? Uh Thursday the the the >> Black Friday. >> Black Friday. Yeah. Black Friday. We talk about Black Fridays here, but it's not as as a pleasant experience as [laughter] Black Friday. You want to buy a TV because it's or PlayStation because it goes on sale. God forbid you don't want to sit outside of Macy's or Target or Best Buy because you can get there's a stampede, right? You want to be sitting in the comfort of your home and be sleeping. So, you instruct the agent to buy this online.

um your credit card might fail because for whatever reason typically sometimes it fails but with with this programmable money you can instruct it to buy within certain parameters. If the price of the TV is less than $3.99 go buy it and by the way that transaction gets immediately executed. You have the certainty that it will go through and and the business on the other side sees that receives the money faster sends you the TV. There's still some flow that needs to be figured out. escrow. Say you, John, receive it, it's broken, you want to return it. So, how do you fix that in a world where like the settlement's like there uh and and irreversible, but we'll get there. I mean, it's just the the faster, better, cheaper is there, right? Businesses love it, you know, because they don't have to

figure out match. Going back to why inversion capital, a lot of what you focus on is is um in inversion [clears throat] is what is the working capital of that business? Do they get paid in 30 days? Can we compress that to two days? because then that releases so much cash and then so you don't have to have that much credit. So there's all these economic impacts when you when you start using stable coins that are very material for many businesses. >> Uh this is uh really helpful and I think kind of really illuminates for a lot of people some of the depth that goes into stable coin adoption, what the opportunities are there. Um we don't have a ton of time, but I want to get a few more questions in for you uh about tokenization and institutional adoption.

Um one of the things that Fed talked about that the Fed talked about was tokenization. you were at the Block Works Digital Asset Summit in London. Um, and I wanted to to kind of get your thoughts on that. One of the big focuses at that conference was tokenization as well. Tell me what were some key takeaways from there? What were some surprises for you? And what is what is happening with this big push towards tokenization? Is this really taking place or is it still really early stages? Because you know, the stable coin is just a tokenized dollar, but where else are we seeing tokenization progress and get adoption? >> Great question. Yeah, most of the tokenization efforts right now have been stable coins. Um, it's easy, right?

You're tokenizing a digital dollar. It is now regulated. Um, it is represents a dollar in a bank account for the most part. And and so it's easy to transfer, right? And and there are now been there's another area of tokenization focused on real world assets. Uh the vast majority of those have been still fairly simple liquid instruments like tokenized treasuries. And then you have a sort of a increasing interest in tokenizing um you know helocks for instance figure uh uh is is now a public company. They've been focusing on on you know the the home equity lines of credit. They are uh probably the largest RWA issuer uh X stable coins and

tokenized treasuries. I think they've you know under they've issued over 15 16 billion of RWAs. I think there's a big push in the industry to explore other um you know other types of real world assets. I would say still in its infancy. I think there's still elements uh that we and workflows that we need to figure out. I've been cautiously optimistic uh primarily because market structure is not there. you need to figure out um you know when you when you look at two Fridays ago the real Black Friday when you have a total failure of centralized exchanges um APIs uh it it poses the real question of hey what happens like are we actually are we ready to start tokenizing more illquid

you know bespoke um uh niche I would say instruments and I'm not sure we're there yet. I think we still that's that's a gap in the industry that that I think we still need to figure out. I think it's much easier to tokenize treasuries, dollars, less tokenizing, less liquid, more um niche products, but we'll get there. I think a lot of what crypto is really good at is price discovery in secondary markets and um you know um a concert like AMM, right? it's been very good to to allow us to get price discovery on a on a on a very tail end of risk assets.

And so I think you can see that similar flow uh for tokenizing just random stuff. Um but the oracles how you stitch together this real world versus digital world and if you're bringing real world assets, the reconciliation, the settlement, uh the unwrapping wrapping, those are some of the things that I think just are are in its infancy. But you can see a world where in you know 5 10 years a lot of stuff is going to get tokenized. >> Yeah. And I think that it's uh that was a big focus of the the Fed's conference right is like regulatory compliant DeFi regulatory compliant tokenized equities bonds. Um so that that is being worked out and I think you know we talked about the Clarity Act I think is a big piece

of that. Um so we'll we'll see the progression there. I think that there's a lot of of uh real attention and and force behind the movement though. So, I'm interested to see how that changes and where that goes from here. Uh, I wanted to get your thoughts on something else. Um, Vanguard and JP Morgan recently announced that they're going to start offering access to crypto products to their clients after both of them spending years saying they would never do so and saying it was, you know, rat poison squared, things like this. Uh, this again, it seems to be another huge symbolic turning point from major institutions similar to the Fed's pivot and tone that we saw. What happens from here? How much capital is this going to bring into the asset class? And yeah, just what are your thoughts on this huge shift and pivot we've seen from from

industry titans like Vanguard and JP Morgan? >> I used to work with JP Morgan in the investment bank back in 2012 and I started buying Bitcoin back then and very different state of the world. Uh a bit surreal to see. I mean look the real the reality is JP Morgan has been exploring blockchain for a while. It has a very big team. They have Kexus. Um so not a surprise from that front. I think most people hadn't appreciated that. But certainly allowing their customers, their banking customers to custody, get exposure to Bitcoin uh was uh is a big unlock, right? Most of the ETF flows and this is the metric just monitor ETF flows because most of

the demand for ETFs has been from RAAS not from large institutions which you know JP Morgan is the largest financial institution in the US and you know Vanguard's not small either and so it unlocks a lot more capital into the space uh it signals more legitimacy again to this point we're not going to go back to a state of all crypto is deemed rat poison And I mean the sort of that that era is over. Now I think you're going to see more and more clients get exposure and get off of zero. So we've been talking about tokenization. We've been talking about stable coins. But the reality is most people can't even pronounce Salana or Ethereum. They're just they're just

no Bitcoin. And but that's a good step forward. You know, it's a Trojan horse and and now they can custody it within the convenience of their banking provider and relationship. and that that brings so much trust to this space and that is very positive. >> Yeah, I I agree with that. I think it's just something I wanted to kind of get your perspective on. Uh it's clearly a huge positive shift. Um okay, so we've talked about a lot of things, right? We've talked about the Federal Reserve's pivot, Vanguard and JP Morgan's pivot. We talked about stable coin adoption, what that kind of looks like, and touched a little bit on tokenization. uh as far as the the macro picture, the macro backdrop, what what is the next step that you're watching for on this

path towards tokenization? Is it the Clarity Act? Is it something else? What what's the next thing to watch for in Q4 here? >> I don't know if in Q4, but certainly the Clarity Act, I think, is very important. Um that might take a long longer time. Um but, you know, I think yeah, that that would be really it from a regulatory perspective. I think, you know, we're going into Q, you know, we're going into the year end. It's important to note that a lot of pension funds, endowments, allocators make decisions uh not on a daily basis like most of crypto investors, but more on a multi-year time frame. And seeing someone like JP Morgan step into the space in a very meaningful way, it definitely computes and factors into the decision of how much you

allocate into crypto funds into strategies like ours and those decisions get made year end and that deployment cycle begins Q1 Q2 of next year. So from that standpoint, I think, you know, we we now I wouldn't necessarily say that the Clarity Act is essential to bring much much more interest, liquidity from sources that haven't existed in crypto. The things that I worry about obviously is, you know, we're in a world where Jensen Huang is equally as important as Jerome Powell. I think there's a lot of AI hype.

how that hype cycle uh unwinds or continues to evolve and that music continues to persist. Uh you know I think AI is very real I think but at the same time there's a lot of expectations baked into how quickly and how that translates into making businesses more efficient given this huge spend in capex. So these are sort of things that I'm monitoring. You know, I think you know the reality is as much as we love this technology, crypto is and will continue to be a very volatile um you know NASDAQ beta uh asset class and you know the correlation between M2 and Bitcoin prices is very strong has been strong will continue to be strong. Uh so things I'm monitoring just ETF inflows outflows uh DATs I think micro strategy

aside there's been just a lot of DATs coming out in the space not all are created equal. I think there's going to be quite a unraveling there for many. Um, you know, I think people are just going to realize that if you put, you know, doshit into a new rapper, it's still dog and >> it's pronounced fartcoin. [laughter] >> Yeah, it's like it's like CDS square. You know, I think, you know, we we continue to make the same mistakes, but you know, DATs have have done interesting stuff in a world where you don't have ETFs or certain, you know, certain crypto products. Oh, yeah. People can express a view. Again, it goes back to the convenience of expressing a view, right? As opposed to you creating an account on Coinbase, you now can buy a DAT that gives you exposure to perhaps a crypto asset that

you might not be able to buy through your bank or um and so I get that, but at the same time, we need to focus on the fundamentals of this industry. Again, I'll say it again. We have 40 million active users is a 3.4 trillion industry. That equates to 74,000 per active user. Chad, GPT is worth 500 billion and has 800 million customers. That's 625 per customer. Do we really think and can we justify valuations? We talk about AI and crypto, both really important technological revolutions. I don't think that the crypto user should be worth 100 100x more than the AI user.

We need to figure out how to bring more active users to crypto. That's the reason why I started inversion. I mean, I'm not I'm not going to sit here and pontificate of why this technology hasn't gone adoption. I'd rather just go buy a real business and bring real GDP on chain that is not people buying Fartcoin >> 50 times perpetual product. >> Santi, look, I I think this has been a really helpful and illuminating uh conversation. And I think it's it's shed a lot of light on not only the adoption and growth of this industry and sort of some of your thoughts on the path forward, but it's really changed a lot of I think people's presumptions and and perspectives on on things. Um, and so I think that that's just been really great

and I'm glad we got to have you on to share this with the audience. Um, so appreciate you coming on today. Where can we send people to find more of you and your work online? >> Definitely. So I'm on Twitter, Santiago Royale. Uh you can visit our website inversioncap.com. We are hiring uh I'm hiring uh sharp investing folks with private equity experience that like crypto hiring engineers that want to deploy this technology in real companies not just build the incremental you know decentralized exchange for memecoins. So we have a lot of great folks on the team. So if you're interested uh if you want to you know if you love this technology but are frustrated that it hasn't been really adopted at scale this is the company for you. So I'm very

motivated to continue to build the team because we're going to I want to build the next KKR doesn't look like KKR or the next Blackstone doesn't look like Blackstone. It the best private equity fund of the future will start using this technology and we're we're going to do that. >> Well I look wish you the best of luck with that. I'm rooting for you and I'm looking forward to seeing what you build for the future. Santi, thanks so much for being on Milk Road Macro. >> Yeah, thanks John. Great to be here. >> Absolutely. And thank you all for joining us. Uh if you got value out of today's episode, make sure you like and subscribe and share this episode with someone who needs to see it. Uh and until next time, stay bullish, stay safe, stay educated, and we will see you all on the next episode of Milk Road

Macro. Thanks so [music] much everyone. Bye. Want insights on what's really moving markets and how we're trading each event? Subscribe to our channel, then join the Milk Road Macro and Macro Pro newsletters. This show is for educational purposes only. Nothing we say is financial advice. Investing is risky. Never invest more than you can afford to lose.