Institutional Stablecoins with Sam Kazemian

Transcript

I'm going to give my my own spicy take or contrarian views people don't have to agree which metrics of these are the most important to look at that ultimately have the most impact on the volatility that we see in the markets there is no real danger of like of debt um at least for the next decade at least welcome back to the rollup your home for technical talks and open conversations that shape the modular future nothing on today's show is to be construed as Financial advice you can see our full disclosures list at the roll up.co Ventures sit back relax and enjoy today's episode after a quick word from some of our awesome Partners Redstone is def's modular

Oracle supporting over 100 clients on over 50 chains offering 1,000 assets Redstone is the leader for Bitcoin staking and yield bearing assets they offer the most robust cust customizable price feeds available in any model join the Redstone exhibition [Music] today GM GM GM it's another beautiful day in the rollup Universe we have our good friend Sam from fra here today we're gonna be talking a little bit a little bit in general and then diving deep into fraxel and all the exciting things in the D5 World happening on

fraxel before we get into it uh I love I love conversations with Sam because it tends to uh start pretty high level in general and then and then we always find a way to connect the dots so first I'm G to be talking about macro a little bit because crypto is becoming ever so more intertwined into macro with kind of like the new Administration we'll hit on uh recent developments and pivots at the E EF uh and ethereum world and ultimately get into all the exciting things happening at fraxel Sam it's not your first rodeo welcome back to the show good to be back man yeah good to see you again um yeah man I mean you know we talked just briefly before before we hit the button here about macro the rate

environment fed is holding steady Trump is in a tariff trade war and um you know begging or or yelling at the at uh the FED to lower rates so as you know Trump took office and this kind of regime change took place um we're seeing more and more acceptance of crypto into a uh a friendly regulatory uh schematic for better or worse like you know we're seeing regulation but like we're really not seeing a whole lot of you know regulation can be can be kind of thought of both ways right depending on how friendly it is and then also This Global liquidity environment is kind of

fragmented and all over the place with tariffs so could you just kind of like paint the picture for us how you're seeing things and and generally try to connect the dots and and try to make sense of the way crypto is connecting to macro these days yeah for sure I mean the the first thing actually is that you know most recently for everyone all the all the Tariff stuff right uh basically dumped crypto especially altcoins for for some reason and then I was like expecting to see like the stock market or something on open uh like this Monday like dump massively or something and then uh it it it didn't as much right but then everything sold off this week and you you know it it seems kind of weird because almost seems like tariffs

affected crypto like more than uh you other than BTC it's been like hanging out at like 100k right um one of the craziest things I I guess is like you know the the crypto Market since it like trades over the weekend right that's when like the like the the main dump so to speak like happen right it almost it feels like it's like a h a Futures market for Monday trading because like stocks don't really trade as much um but I don't know like right now it it seems pretty crazy because alss have been uh kind of you know bludgeoned and and uh beaten but overall I think like it's a weird time because everything is objectively bullish but there's just

volatility and so like I you know I just I tell the team at FR like when we work on on stuff and and everything that uh for for the long term of this year and crypto long-term like year is longterm and then five years is eternity right but so like when we have uh things that we do in frax like yearly like road maps and then really long term I think fra is one of the few like with like ethereum and a bunch of other things uh like Unis Swap and stuff that multi-year uh views but this year objectively it should be bullish unless there's like some kind of global conflict uh or or something um which I I don't know doesn't seem like it but overall I think the most important thing to consider is

everything is coming back to the US um in terms of like how uh the the new Administration thinks of the world right like the whole point is bring manufacturing back to the US bring like crypto back to the US bring AI back to the US you know what whatever you you name it bring steel you know American Steel back to the the the US right um and the interesting thing is frax has always been um us-based even when like during the prior four years when everyone was like getting out um people were like what why don't you go to Singapore Dubai like leave everyone's leaving you're G to get like basically disappeared you know in the Night by some uh gendler like official or something and um we never left and the

thing is now I think everyone is that's stayed has been able to benefit immediately like the most but also everyone coming back as well um um we we look pretty good at fracks at you know other us-based you know Robert Lesar superstate they're in uh New York I think I think Ando is also in in New York the Unis swap everyone that basically has a bunch of us uh based presence has been um eating well so to speak right and I think that's going to be the main theme here but in terms of price action yeah it it's it's been it's been weird the past couple of weeks the volatility he's just been through the

roof it almost feels like Al coins are like uh are like pump pump mem coins the amount that they've gone up and down yeah it is it is wild and I think you know that was com coming into this new Administration that was kind of the thesis was like you know if Biden got in it was a nothing burger or Biden or camalo was a nothing Burger it was just there was going to be no change and you know Trump came in and his whole Mantra is he's going to shake things up uh again for better or worse so you know he's also surrounded himself in the administration with um experts people that are not just political figureheads but people that are actually on like boots on the ground making change and I

think part of that is leading to the volatility but maybe it's just some Growing Pains so you know Sam you were uh you dawned a suit pretty pretty good-looking tux out there in DC uh up there with the political Elite I saw rousi from movement was also out there and then uh you know quite a quite a cool crowd um that was in DC for the inauguration so you were face to face with these people maybe you could kind of talk through what conversation you guys were having what did you end up learning and and just overall the vibe in the room and what were you hearing from the people that are going to be enacting some of these changes going forward yeah yeah for sure that was actually probably one of the coolest uh crypto events I've I've ever been to because of just the sheer like like you

were saying scale of everyone like a who's who of um everyone the optimism kind of in in the room right uh I couldn't ever imagine four years like ago um right they're being like Oh the new president will like celebrate like crypto uh in inauguration week like a like a giant ball in in DC so it was great I talked to ton of people Robert Lesner from superstate who were doing a big uh fra USD partnership with bunch of other uh people Sergey nazarov chain link long long list Brian Armstrong from coin everyone was there right and actually so many people were there unfortunately didn't have as much time like uh time to talk to a lot of them

like Michael sailor was there right but like only four hours uh so it was really interesting because I think everyone knows there's three big things um in uh crypto this year and and those three big things are like strategic Reserve I would I don't know what it really means like us-based only Bitcoin whatever like that it's just the concept of the Strategic Reserve right um potential like tax and Regulatory benefits for us-based crypto currencies or you know however you define that again none of those are in any way like concretely defined like there's talks of like us made Bitcoin what does that mean it's

like mining uh you know in like in the US or something right or US based cryptocurrencies like fra or like you know fra USD or something Ripple I don't know right um and then the last thing which I think everyone that's like dabbles in uh this is is on on the um radar about is actual regulatory Clarity and legislation either a stable coin Bill Market structure bill um actual guidance from the SEC and those are the three big things right three big things is like strategic reserve of like the government um basically tax or made in America right like benefits um and then regulatory Clarity so the these three prong things honestly people uh thought that you know just getting one of them

right like probably the most important one's regulatory Clarity but it really does seem like all three is going to happen just like what um that that's what I learned when I when I was there and then since then which is actually was like um a few weeks ago um a lot of the executive order on the Strategic Reserve working group uh has been like signed right and uh and then there's um obviously the CC has been um properly structured with I think Hester Pur is is like leading the working group of of like deciding how things are going to go forward there um in terms of like no longer doing like regulation by enforcement actually um having some uh I don't know if it's going to be

legislation focused or the SEC is actually going to do their own um just guidance but it all sounds much more proactive rather than um you know in in bad faith so every single thing is extremely positive uh especially for the us-based cryptocurrencies and stuff uh Ripple fracks uh compound you know Ono um Unis swap uni and and stuff like that um but it's just crazy because of the volatility that uh yeah exactly exactly I think that's what the market is tangling with right now it's like okay we're getting all of this like very positive sentiment that's coming from like the top of the power structure and

and all of it is kind of like bringing in more positive more positivity around crypto starting businesses in the US and just overall you know the idea that it's okay to be in this industry and it's now going to finally be you know it's not going to have some some oppression to towards it it's going to be almost like un Unearthed in the in the way and Unchained in the way that it can grow and so I you know we have all of that but then in parallel we have these Global liquidity condition I that seem to be tightening and I think that is kind of the dichy that we're faced with here and so I I want to kind of walk through like what this liquidity situation could look like because it seems like after we figure that after we

figure out this liquidity part then it's like cats out of the bag then we can really then we're really Off to the Races because we already have this whole framework in the works and so I mentioned to before beforehand like been reading a lot of Arthur Hayes and kind of like the way that he these things out and so you know we've got kind of like these liquid this liquidity situation in in the sense that um you know we we had like high rates and this is this is not just something that's you know key for crypto but it's key for the entire the entire like stock market bond market the entire Global uh macroeconomic landscape is kind of hinging on one the results of this

tariff War Two the result of you know are we able to get the national debt under control because right now we're paying so much interest on this debt and that is kind of the the the the rationale for for bringing the rates down but we can't bring the rates down too quickly or else the bond market is is going to be way out of whack and so you know as you're kind of like looking at these these liquidity conditions and the idea that is that it doesn't really really affect the builders in the room but it's kind of it's kind of key for the sentiment so you know as you're looking at things like kind of the bond market right now 10year treasuries are at you know approaching 5% someone like

Arthur thinks this is going to go higher because we have to feel pain before we can really bring the rate down um you know if if we do get caught off sides we could end up in like this deflationary cycle because they're trying to make the dollar stronger so you know what you know we have we have the WR dollar we have the FED interest rates and then we have the 10-year treasury interest rate out there could you kind of like prioritize these things which which ones are the most important to look at when we're thinking about like what is h how is which ones which metrics of these are the most important to look at that ultimately have the most impact on the

volatility that we see in the market yeah so okay uh I'm gonna give my my own spicy take or contrarian views people don't have to agree um I I love Arthur's writing he's super cool at fra I think a lot about this stuff stable coins defi right and and like our our on line motto is decentralized central bank right so it's like this is literally exactly um what I'm thinking about every day first of all um I think the national debt is very bad but and this is not popular in in crypto circles but I don't think it's as big of a deal as people think it is and I know most people don't agree with

me at all and and I'm just going to give a explain it like M5 uh view like literally as you were talking I I pulled up the the Fred and M1 money supply and national debt chart like right here and like uh for people that don't know M1 money suppli is like the base monetary uh Supply m0 is like monetary stock literally physical or digital cash M2 is like the dollars that are uh reh hypothecated once by Banks Bank deposits all this stuff so if you look at the M1 money supply uh it's about 18.5 billion that means that's how much essentially like raw cash dollars like slight

different definitions but let's just go with it explain like and five raw dollars there are there's about 30 trillion it uh of debt right if you just for a second just for one second give me this funny hypothetical of if you just paid off the entire national debt by printing 30 trillion okay uh and and we're just doing this very simply just as an average you would get $48 trillion dollars in circulation remember the US can print dollars literally right like it C it can't default willingly uh unwillingly it only defaults willingly right and so um if you if you essentially

tripled the money supply and paid off every single cent of of national debt that this government has ever created since 1776 yes most of it in the past decade right and numerically um everything would like triple in price right because you triple the money supply again we're keeping it super simple super like explain like M5 some things would like 10x right some things probably wouldn't budge in price right but but on average right standard pricing Theory right things would on average triple because there's three times as much money supply and and like no debt obviously this would destroy bunch of stuff we're just hypothetically thinking you know th things need debt you need to save in treasuries right but just showing that the fact is if you

actually repay every single dollar of the actual national debt the worst case thing that would literally happen is the price of everything would triple and then there would be no more national debt yes of course you'd have to start you know spending again and yeah that's bad and and stuff like that so I actually don't think um everyone's like oh hyperinflation is around the corner hyperinflation is around the corner uh I I don't I don't see it and and like look at the prices like altcoins and crypto and stocks and stuff I don't see it right if things dump right if things are bearish for those assets it's just saying uh it's bullish the US dollar right like a bare Market is just a bull

market for for USD right and so my my personal view now like you know I know most people aren't going to agree with this right is that there is no real danger of like of debt um at least for the next decade at least in terms of like the debt bomb yes it is increasing yes like I everyone everyone knows some people's going to reply to this and be like oh we're spending every 30 days like you know we're adding like half a trillion or or whatever it is right it's like yeah if you pay off all of the debt so that you're not adding interest rates at all you just triple the price of everything it's very very very very far from wayar Germany or or like not you know whatever it is Zimbabwe all these

like you know crazy like historical examples or something it's very far now coming back to everything right um I actually think that it is kind of interesting with all these tariffs and everything there's half of the people saying oh my God it's going to increase inflation right cuz cuz like the the price of like Necessities CPI index items are going to uh go up because it's tariff right like if if you have like steel coming in from Canada or something and it's like 30% more expensive uh what's going to happen right unless us manufacturing takes the place of it right but uh I actually think the opposite will happen and this is actually goes to show you like um all of

these economic things my my philosophical view is they're all like Voodoo because like they're not deterministic Sciences just because they're so many inputs that like it's not like um you know I studied philosophy and Neuroscience in college so like everything I did like modal logic like you know set theory and stuff where it's like everything is very logically structured uh economics is great like that's what I do at fra we designed stable coins all this stuff but it's not a very precise science so like some people are saying oh this going to increase inflation um so the you're going to have to increase the interest rates and that's really bad for the national debt right because you know and borrowing costs increased I think it actually um makes the the dollar so

strong that like you were saying the strong dollar that they might have to cut interest if they actually go through with these tariffs it's not like a negotiating tactic or something like that um so far kind of seems to be right because they all got on the phone and like oh we'll you know defend the Border you know Trump's agreed to you know hold off on all this stuff um and I think that the opposite will happen um if they actually go into effect which means the FED will have to lower rates and Trump likes that because obviously he's always wanted po to lower rates and so when you have this interesting thing in E economics where there's this unknown variable right tariffs and stuff right and literally both sides of the conclusion sound

possible at least I'm not saying they they both will happen but like it seems intuitively valid where you know inflation will rise so they'll have to R rise rates uh raise rates to keep you know infl from from skyrocketing right or the other side is things will get people will hoard dollars so much right like the value of like crypto stocks other uh Industries all this stuff these indexes will like dump so much like covid right that they'll have to lower rates right like otherwise uh the the economy will grind to a halt right like people won't won't actually like build stuff because they'll just be hoarding dollars right because because they need to buy the necessities and and like pay people and all this stuff so when you can go both ways it's kind of funny to

me because that shows always in economics that like there's a bunch of hidden variables and like you have no idea you know what what the gonna happen um same thing with like the the tariffs where it's like tariffs have always been controversial because some tariffs do work that that that's what like the the research shows and then some tariffs uh depending on what they are has shown that it just gets price down to the consumer right like the the classic thing of when people are like against tariffs they like look all you're doing is just destroy economic wealth for both sides the Tariff side and the side getting the Tariff because it increases the cost the cost goes down one layer and then down one layer and then the consumer always ends up paying for the cost that's very very true but it's not always true for example oil

tariffs they don't necessarily get paid down to the consumer because the the production capacity is decided usually by uh state level actors that actually always um like OPEC figuring out how much they actually want to enter and put into the market so like all this stuff is just always interesting to me but most of it is like it could go literally intuitively both ways and and it sounds valid and so whenever that happens in these situations I always just like just get back to work at FR I just like build something because I'm like until there's more uh you know independent variables that you can isolate and and stuff and then measure like a single dependent variable it's all just funny like you

know it's like it's like astrology for like you know men or like people who think they're smart or something I saw this this meme before where it was like uh um everything is like like Bitcoin holders like retards who think other people are retards right eth is like uh broke retards did you see that one and then it was like uh I forget what it was for like Solana like um it was like retards the trade thing I don't know but it was just like really funny because I I was like okay well this is this is actually kind of the the truth people just like doing this without knowing but one of them is right I just there's just evidence for both of them being possible and then one side will think they're genius once the Event

Horizon passes that's always how i' how I've seen this stuff and that's why I like Arthur's writing it's funny like when you when you read it you you get like entertainment out of it as much as you you know consider new things like how the interest rates might like you know increase demand to like uh you know you know increase demand for t- bills making hard to borrow etc etc yeah I mean you make a great Point like as a as a builder and an entrepreneur you can't spend all day thinking about these things um you know there's kind of a couple approaches you either see the forest through the trees and you're like and and these are connected because you know you essentially look at the scenarios that are out there okay maybe all of these are plausible right and as whatever happens it's important to be

prepared and think like okay well this situation could go this way this situation could go that way but irregardless of which situation occurs you know there still like the effect that happens afterwards and being prepared for that no matter what happens is important so that you put your your business and yourself in a position of success irregardless of which path is taken um and then it it allows us to kind of like forego what is outside of our control and just focus on what comes next um and I I think you're absolutely right I mean it like no matter what happens here we either it's like you know we tariffs I tariff you you tariff me back I tariff you harder we end up in the place where like okay everything has a bajillion percent tariffs and so

ultimately you know that that could that cost gets P passed down inflation goes up fed raises rates Market grants to a halt nothing happen so we have to cut rates these things are like not sustain these games are not sustainable so ultimately I think we end up falling back on some kind of free market economics it's just a matter of how long long that takes and what path we take to get there because ultimately these things are path dependent we don't want to we don't want to crush the economy and doing so if we're just going to end up at that that checkpoint anyway and so I I I think you know it is important to stay aware of these things but not get too caught up in them uh ultimately the

things that I think Bitcoin cryptocurrency and decentralization stand for are going to be important irregardless of what happens in in this immediate term because we're playing the games you know whether you know you think Bitcoin is the global Reserve currency and you think these things are going to get devalued against Bitcoin or you think they're going to get devalued against the dollar and then you know we're going to cut rates and and go from there a lot of this is still extremely applicable um and I think uh we like you said we can just kind of hunker down keep building and and see the forest through the trees um how we deal with that uh isn't so much important in the short term it's more important in the long in the long run so you've been able

to navigate this and I do like the idea of kind of looking at okay you know these are some Global macro liquidity uh Landscapes and then we kind of mirror that when it comes to onchain centralized not centralized but the onchain decentralized central bank right so um you also have a monetary policy at fra where you guys are kind of you know h how much maybe it's programmatic maybe it's decentralized but how much do you guys take into account the monetary policy of issuance and reserves how how are you thinking about that when it comes to uh the stablecoin monetary policy at fra imagine if the world's GDP

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doing actually because I think by the time this airs um we'll probably have launched FRX USD which is our Flagship product frax originally came out as like a decentralized stable coin the the frax dollar you know and um we're launching a totally new stable coin F FRX USD um it is actually pretty unique in design although it's subtle it sounds kind of the the same as like a a Fiat coin rwa but the main thing with it is it separates issuance uh from custody and so basically uh F FRX USD is issued by fra and then we have strategic partners that it's called in Shrine custodians which is uh so far Black Rock um and

superstate um and what happens is anyone can Mint or redeem F FRX USD and then the funds are held uh by either black rock or superstate and t- bills right just like risk-free bankruptcy remote short data t- bills and you can Mint or redeem from them or on chain from the representation of their token right black rock is Bid right by securitize superstate has usdb um and then there is an sfrx USD uh which is the yielding uh token and it's a high yielding stable coin and that um we can also do the carry trade um like theena and uh also have a base T Bill rate so that you know whenever no matter what Market condition

if you hold uh FRX USD you're getting the the best risk adjusted rates right there's always you could always step up the ladder and like crypto and like uh implode or something but the the best risk adjusted rates possible on chain for a savings account actually the the macro for stable coins I've totally changed my view originally from uh what I've had frax was originally founded in like uh 20120 as this completely decentralized you know the the fra dollar um totally there's there's no there's no Black Rock rwa Partners all this stuff but what we designed originally with fraxis tech was protocol own liquidity um you know minting the

decentralized you know Frack stable coin in lending places like a um our own you know fra L we we basically invented that and and like the if you think of what that is that is separating uh issuance from custody right except like the protocol different Protocols are the different custodians people just don't call curve or a or something custodians of stable coins right but we actually invented that on a decentralized level but now because uh things have really changed right like four years ago I could never imagine being invited to a crypto ball to celebrate the election of the president of the United States because he really likes crypto right um I think that the main thing that we're considering with FRX USD and just stable

coins in general is what does a stable coin have to look like to be one of the few trillion dollar stable coins in the next decade right in the next 10 years we there's almost certainly going to be two three uh stable coins that are over a trillion dollars most likely it seems like tether's going to be one of them um their farthest toward that uh Direction probably um probably usdc um and who knows maybe one or two and so our idea is what does f FRX USD have to look like and what in what design to for it to be like that and what we came with is the same principle of separating issuance in in custody but the custody is in tier one institutions uh we have other announcements as well um of of partners

that are uh coming and um the idea is they all have an incentive to increase F FRX USD uh usage right because they get to custody the funds right like like not us uh right and so it's very different than um like tether or Circle for example where the entire stack is fused in in like one right like they they custody their funds just through caner Fitzgerald like tether right and so like that's just they're just one product right whereas with us if you have an account at Black Rock uh secuti superstate right all of the other things that are coming um you can mint redeem from there and obviously you don't have to just like most people don't redeem

usdc it's uh pretty decentralized custody and issuance and the custody is very very transparent tier one Institution and there's obviously Ying High yelding stable coin and everything works in um parallel to actually get the currency integrated everywhere and so this is totally different in fact like we've had conversations with a lot of other um big institutions you know rwas people wanting to come on chain and say hey like we we see that you're about to launch FRX USD can we actually service this can we actually um be like a custodian for it and we will get like um our subscriptions for other you know uh products in FRX USD um rather than or

usually in addition to usdc right everyone accepts usdc in and out and but like we haven't even launched yet and so people are like what we're going to start uh working on integrating because they they are part of the custodial layer of of the funds and it's in their interest that uh F FRX USD WIS out over usdc because I don't think they they custody uh anything for for Circle right or at least no one other than like um their like the T bill fund or something that Circle has set up um I think with black rock maybe um but like it's just one entity right everyone else doesn't doesn't custody anything for Circle and so um that's the really interesting thing and from a stablecoin perspective

like uh the thing we're thinking about at at fra is like we I think are probably one of the most uh stable coins a sector one of the most important for the dollar we're just talking about dollars and and like the um the the strength of the dollar borrowing and all this stuff is like if we can get um1 trillion dollars worth of uh t- Bill Demand right because like tether's basically created $140 billion doar of t- Bill Demand right if we can for example at fra create a trillion dollars of t- Bild demand in the next 10 uh 10 12 years or something right then we've done a pretty patri itic duty if you think about it right like the amount of economic uh value we've created for the

US that that's that's how I think about it in our framework the amount of uh additional borrowing capacity for the government that we've created um hopefully it's put to good use thanks to elon's Doge and and stuff and and like less like wasteful or whatever but um that amount is immense right and that wouldn't honestly be possible people some people are like oh well someone else is just going to buy the t bills if like stable coins didn't exist not true not true literally like the the stable coin technology the ability to settle quickly 365 7 days a week anywhere that's Internet connected that actually literally creates value out of out of

thin air for for the dollar that didn't exist before the efficiency the liquidity that is the value and so um I think St coin is probably the most patriotic thing uh you can build if you're you know if you're into that like you know serving your country through through crypto um and the the other thing that I I was just thinking about yesterday is as you um as you guys know well um we have our fra still L2 uh rollup and um we have actually huge token on exchange for the fxs token that's like gonna going to be coming and I'm I'm super excited for it and and so it's kind of going to become an L1 token actually um but probably podcast for another day um but um the thing I was

thinking of is if if like fra USD gets to like a trillion market cap in like 10 10 years or something or like a thought experiment instead forget that imagine if tether launches tether chain right and then they they actually tokenize the T bills that back uh usdt on Tether chain right and this tether chain would already have 140 billion of of like TBL if you think about it right some people would be like oh well it's not like real it's just you know rwa tokens but I think it it's it's substantive in a way that it'll get you know other people to issue assets build on Tether chain now there I I don't know have any you know

plans for tether to launch his own Shane but one of the things that made me realize with like thinking about it like that is um stable coins are probably the best uh gateway drug so to speak or Gateway uh you know uh technology to actually onboard people to blockchains both both developers also normal people um just literally everyone on average like if you think about it um maybe developers are more excited about like oh how fast is this thing or like is it you know this or that but actually a lot of the a lot of the things today are like is there a Fiat on offramp can I actually get as many users as base or like you know uh C can I actually have

AIT credit card with you know uh this direct mint deposit from your your blockchain right like fraxel uh base which is yes right and and stuff um and and for us it's yes after FRX USD right which is the whole point of all this and so yeah that's basically My overall view of the stable coin and and defi space I love it and I love the the thought experiment about reaching a trillion in issuance um and I I have a question on the back end of this which is that well first you know just to kind of trace this through you know the treasury is is essentially it auctions off these bonds and and it it has a white list of actors that can come and purchase these

bonds and so people come in and they basically buy these bonds off the market from the treasury they play they Place bids and they they buy them and then the the treasury ends up uh getting dollars that they can use to finance the government for all these programs again hopefully that's like put to good use after you know we kind of clean out the waste and then and then the people who buy that that's normally you know other foreign central banks or other nation states or you know very big Banks uh take custody of these treasuries now you know they are kind of like the centralized group of buyers of these bonds and and the largest holders of these bonds however what you're talking about is democratizing this this auction you're talking about putting Bonds in

the hands of people that just any one person like think about like you know South America and Africa and underbanked communities that currently don't have access to banks that was a I mean I remember you're part of this like early 2017 crew about banking the unbanked um and those are currently the regions that are there and so stable coins are purpose-built for those communities and and if we can Bank them through a decentralized alternative now they can use stable coins to go purchase things and to go transact and trade and you know what are they using they're using treasuries as the reserve for those stable coins right and so not only are

you um doing a patriotic Duty by sourcing liquidity you're also doing it in a more sticky decentralized way because now you have a more distributed set of Treasury holders and I think that is extremely important for those who are financing the government they're not people in banks that are you know putting on carry trades and then going to go dump a whole onslaught of treasuries you're actually putting treasury into liquidity into the holders of people uh that are ultimately going to be using this on a day-to-day basis and that creates a much more distributed network of holders just like token holders you want a distributed set um putting treasuries into the hands of people you know they can use stable coins that ultimately help them transact

but you're you're Distributing treasuries into a larger more distributed set of holders which I think does a service to to the the government and makes it stickier liquidity so you know that that I think is extremely important and is a patriotic Duty Sam thank you for your service um and uh and I think it is ultimately better for the bond market as you decentralize and distribute the holders of these Bonds in a more geographically and socio uh uh distributed way um and so I I think that is is is a global positive I want to ask just kind of one more about the mechanism here you know the idea is that you know we issue these treasuries um

and we custody those at at you know these tier one custody partners and then we mint stable coins that are backed by these treasuries um and you can basically you know you can cash in your stable coins and you can take take custody of the treasury or the dollar um you know I I think it's intuitive that you know once you have a treasury you can borrow against that you can essentially collateralize it and then someone will someone will issue issue you against that do we end up in a scenario where we have like you know an offchain let's let's take the one trillion dollar number you know for instance we have1 trillion dollar of treasuries in a in a vault somewhere call it Black Rock a custody partner we

issue another trillion dollars of stable coins against that against those bonds once we issue that that trillion on chain can we then borrow against it again can we then just re reh hypothecate but like collateralize this debt further and further and essentially create more wealth as a result of this collateralization and and if so like does that increase M2 to an extent where there is more dollars in circulation could you kind of walk through like the economic theory of of the issuance in this yeah that that's a really great question and actually a point um I I wanted to make before uh which is that

like actually Brian Armstrong had a really good tweet the other day um let me see if I um Let me let me see if I can find it here which is like um if you send it to me I can I can pop it up on the screen yeah oh yeah it's it's it's actually right here um and and so the the the way that he said is there's a lot of reasons things are separated and the old um Global like like Financial uh like system some of them not uh not good some of them are good so like actually here it is I think um anyway um but I think the most important thing is that like essentially what you want is you

want to actually bring value and credit out to the the new so you want to bring actual liquidity and credit to things in the traditional Financial space that were just sit in a little uh bank account right and so um or a brokerage account and so like one of the things Brian says like you know wh why does your why does your uh bank account not give you t- Bill interest right they just you know that the way that banks are structured is they take most of the interest and hope you just need Banks because they're forced to actually uh you're you're basically forced to deposit in Banks to live right to to live a life make pay your bills and all this stuff um some of the reasons things are separate in the global Financial space is for good reason conflicts of interest you know historically you can't

have like both uh someone that custodies your fins and trade against you FTX right all all that kind of stuff right um but a lot of these things they're not they're not there's no good reason for them to actually be uh separate right like you know why does the money you spend lose value right instead of growing in value um you know why does your checking count not earn yield right what why can't you just uh actually get a loan for like the the T bills that you have like while you're spending them why can't you just spend the T bills right and so stable coins uh allow you to essentially like you said really well tokenize things that would have just been stuck in a uh brokerage account otherwise and give them essentially superpowers liquidity settlement value whereas before in theory you could uh do

a lot of these things in practice no you can't you it sounds like you know you could but no if if you could you you would have already done it right it wouldn't have been a a like Niche kind of thing uh of like spending your retirement thing from a credit card special account or blah blah blah there's nothing that can beat stable points literally there if objectively I think that that ship is sail is no longer anything to even uh talk about and it's an interesting point that you said well if you tokenize all of these things as essentially cash which is what stable coins are does that essentially increase uh the M2 money supply um sort of depends on what your again all M1 M2 M3 they they have pretty strict

definitions right like they're you know uh M2 is Certificate of Deposits in Banks which means they're reh hypothecated once most likely for like mortgages like like uh business loans high rated businesses right um M3 a little bit more uh dgen as as we like to say right um M1 is literally just you know monetary stock you know deposits M1 m zero basically the same thing um if a stable coin like f FRX USD simply just is tokenized representation of a t- bill that's in a bankruptcy remote professional custody in Black Rock uh and it's not hypothe hypothecate again uh at least not when until the user you

know has it and stuff I think that that actually I think that actually deserves like a like a new like m1.5 or something like like a definition and um obviously like you said then they can you know use it as collateral on a or you know fra L all this places because it's a very very pristine you know safe asset and then you know borrow against it then it's M2 right then it's definitely you know that that's like the the definition and that's a really good point in terms of like what effect that has on inflation um I think like uh I'm a pretty big believer of uh je jeevan's Paradox um or however you said which is like anything that increases uh you know

um if the price goes down it increases demand rather than the other way all all of Economics right it's like it's like with oil like if the price of oil goes down the demand for it actually goes up uh rather than you know the price going down and everyone's like oh we don't need oil anymore right or like oil is bad and so like coming back to the thing I was saying orig e economics is just all about just this astrology of like price going down is that bad or good maybe it's good maybe it's bad tariffs does that cause inflation or deflation and it's like intuitively it could be both directions but um I'm I'm a big believer of like when when these T bills are essentially transformed into Cash uh not only is it not going to lead to inflation it's going to be like uh uh

jeevan's Paradox of like the increase in liquidity and and and cash into the market uh is actually going to lead to a massive amount of growth and and Credit Opportunity um because the t- bills were already there um they just were not able to actually you know be settled easily and and actually be transfer people like you said were already buying them right um but there's now net new Demand on on treasuries because they have this additional function you know stapled on top of each t- bill certificate that allows you to use them in cyberspace and so um I think that that's actually going to increase wealth prosperity and increase the actual ability for people

to uh fund their businesses the government to fund its functions and that that's that's my view of it but you're right in the sense that you know stable coins are essentially unlocking the things in traditional finance that actually were not possible in in the old classical system especially like Brian said reasons that these things are separated some of them not good at all they're just historically they were like that because of technology and now we're completely stripping away the the ones that are that should have never been separated right I yeah and and I realize we're tight on time so I'll make this real quick but I think you really hit on the nail and the head as you as you're talking about stable coins leading to

basically opening channels to more Prosperity because it's not so much the idea of you know more more dollar supply and more liquidity in the ecosystem yeah that's great you know essentially if there's you know the same amount of stuff and there's more liquidity it means things are more more valuable okay great but what really provides value is is the velocity of money and and utility is what opens these channels and so if we just you know print a bunch of money like we were talking about in the beginning that's great maybe we'll increase M2 or M1 or M3 but what really builds value is the idea that we can turn these treasuries into a productive asset if we can increase the utility that people can do with these treasuries or these dollars by tokenizing them and

now people can borrow against them or trade them or stake them and it opens up these New Primitives it means that we can do all these all we can do so many more things and and the velocity of money Changing Hands buying things selling things that's what breeds a healthy economy and I think that is only possible through stable coins in the active tokenization so absolutely you know the idea that we can actually make these things like more productive and more liquid by opening these channels through tokenization is I believe what is really the true power of stable coins it's not just adding more money to the supply but it's opening doors and channels for these this money to move in ways that it

it wasn't POS that wasn't possible before yeah I mean I I think you said it really well and I I want I I wanted to talk about eth Solana and stuff but sounds like it's a different episode because this is so good and like what I want to just add to that is exactly as you said imagine uh you know people are always like oh why why does why does frax have a fraxel chain and and stuff and and I now I can can say it clearly is imagine if our Flagship uh FRX USD has a trillion dollars in in uh market cap in 10 years right 2035 I can guarantee you uh fraxel chain will also be uh at least a trillion in tvl and one

of the largest uh blockchains to ever exist right and and like now people kind of understand how and that's a credible you know thing to to say because thought experiment like the tether chain right thought experiment of bring all of these these Primitives rwas onto the actual chain so that the actual banking the collateralization the minting and Redemption and this ecosystem of Builders around all of this stuff this utility that comes out of all of these classical Financial units right treasuries you know uh debt all of these things um is built programmatically on on the Chain right with with agents other things that can manipulate them bring value out of them automate them in

ways that literally have never existed until very recently um and so like that's our theory that that's why there is a fractal chain right uh if if uh FRX USD and uh fractal chain continue to grow they're actually very very very symbiotic rather than oh it's just a separate product in fact that's the way I've started to think about uh fra when people ask about it to explain it to them is like think of if tether had tether chain um and then it would it would be at like 140 billion right now wouldn't that be pretty interesting right and so that that obviously goes down the the segue of like L1 tokens and and like how these things should be valued or like how uh important are the

fees or if it's like a commodity and you you always know I love talking about those things but they're different than um stable coins but stable coins are uh what I'm a personal maximalist in the self self-proclaimed stable coin Maxi I love it I love it I mean I I think I think I am uh I'm becoming convinced because this whole entire conversation has reshaped the way I'm thinking about money um I'm realizing money is essentially credit because when the do when the the US prints money out of thin air what are they doing they're essentially you know they're they're saying like here is this piece of paper I will make good on this piece of paper it's you know that IOU and uh that let me actually ask let me let me ask you

when you say I will make good on this piece of paper right right yeah uh what will they make good of that that that's always something I always try to uh drill home in people is like the thing that they will make good of is the CPI PEC the dollar itself is a stable coin right and and like uh sorry to interrupt you with it but that's an very very very very astute thing that you said that's so correct but people forget to add what is it that you'll make good on when you issue a dollar uh if if if like the Fed was like I'm going to flip a coin every day and if it's heads I'm GNA like print double or if it's Tails I'm gonna buy a

third yeah no one would hold dollars until they're about to be forced to pay taxes so then you just buy the amount that you're owed right at the moment of like paying taxes right similar to like gas account abstraction on blockchains like you only buy the amount of eth right in line with like uh and and no one would want to hold it the same way it would be so volatile right yeah the main thing is that the dollar is a stable coin uh and the peg is CPI and the only entity in the entire world that has the most credibility to keep a peg is the United States government sometimes even they screw up right like the Federal Reserve in

particular yeah yeah because they're they're the ones that are that are keeping uh the dollar in line with the 2% inflation Mark right right and so that the full the you know when we say full faith in in the US government it's the federal the faith in the Federal Reserve to maintain the peg to the 2% inflation Mark and then and then we hypothecate from there right so then okay you know we have this IOU that the government the Federal Reserve the and the government is goingon to make good on well all right we're gonna we're gonna give that and then we're gonna uh you know the the these entities big Banks nation state uh other central banks are going to buy those bonds they're going to then give them to custody partners then we're going to go mint them on chain this is all extending

credit and I think the credit extensibility is what is is leveraged by onchain stable coins because then we can extend credit further and we do so in a productive way that increases velocity and it means that we can open up more credit faster and more frequently than any other technology is able to do and Progress credit in such a way uh the blockchain does it best so I I I just I I love I love when these things just really strike at a very deep uh you know fundamental level on the way that we that we think about money technology and and ultimately how we value things yeah yeah I mean it think think of the the

economic value and coordination that's created when all of stable coins Banks everything coordinates around the the US dollar none of us are talking to each other right I I don't have meetings with the tether uh you know CEO Paulo or something I don't talk to Jeremy air I don't you know talk to um you know sometimes but we're not meeting about like oh how do we you know keep all this stuff we Outsource we essentially coordinate at there the shelling point of the dollar unit is what we've all essentially agreed to uh create our debt right the stable coins are IOU for the entities right FRX USD is technically you guys are extending that that credit to the fra holders exactly and and so

like this unit being the same across everyone literally has extremely deep liquidity have place like curve all of these liquid sources that can have deep direct liquidity and that's why people like you know can see dollars are so deep in liquidity but volatile assets there's wide spreads and there's all of these things and literally by coordinating on a single unit uh even globally like not even on chain just globally the amount of wealth created because of how liquid and useful like human like Society coordinating around a single unit is it's very powerful and and so um people kind of miss that like like Miss the forest for the trees there

um and obviously it's good for the US that they're they're the ones that are able to Mint this unit there's a lot of people that are like uh well it should be Bitcoin or something right which is an interesting uh thought but it's obviously very good if you can mint the unit that the entire human like species is uh coordinating deep liquidity around uh denominating their debts around and and savings around um and that's actually an invention right people people say money is is like an invention yes money is a social construct right but actually coordinating around a single unit for debt denomination and savings is a secondary invention after money that is I think equally profound

people people miss it because like a higher order like like abstraction uh invention but um it and you see it on chain too on a a on a micro level right like the fact that stable coins have much much much much deeper liquidity than you know volatile assets they're they're much more uh useful in debt denomination and and savings than uh you know yielding assets compared to them right so yeah yeah I mean that that's absolutely true and and you know there's there's further inventions further extend credit and and further uh Elevate the order of abstraction um here as well in onchain and then and then you know further extend from there so um that you

know these are absolutely equally profound inventions as we continue to to move you know further uh and further progress the monetary base into more the hands of more people and extend this even further uh down the supply chain so yeah I I love it uh Sam you're doing great work um sering serving the country well thank you very much for your service and uh yeah I I love these conversations always always walk away learn something so thanks thanks man always happy to be on