Superstate CEO: How Stablecoins Are Setting Up The Biggest Tokenization Boom Yet (Here's Why)

Transcript

Everyone is throwing irons in the fire. You know, trying to put some fuel on it and trying to see where the actual product market fit is. But right that goes from the startup to the largest bank in America. >> Welcome to the Rollup. My name's Robbie and everyday we speak to the biggest and brightest minds in digital finance so that you can outperform the market. Take a moment, please, to subscribe, like, and leave a comment if you enjoy the content. We greatly appreciate it. Tabled Up episode 47 here on the Rollup. We are here live with Robert Leshner, true OG in the space. And Robert, we've had your co-founder on the show several times.

We were we've been here since the old compound days. And so I I don't know how we haven't made this happen before now, but it's a pleasure to have you man. >> Thanks. I'm the bashful one, I guess, you know. >> [laughter] >> It's all good, man. I'm glad I'm glad we made it happen. Superstate is absolutely crushing. We chatted with Jim when I believe it was Invesco kind of took over the last fund and you know, you guys were able to make a smooth handoff. It's very very cool. And so on today, I know this is stablecoin segment. You guys are powering this fund OS, Coinbase stablecoin yield fund. So there's plenty to talk about in this world. Generally, you guys are leaders and frontrunners and pioneers in the tokenization space. So just speaking about tokenization broadly here,

I'll tell you this thesis. I think it's a good place to start cuz it kind of opens up a lot of what we're seeing play out these days, which is that we're in this tokenization super cycle. We saw industry leaders shaking hands with the president of the United States up there with the leaders, the CFTC, leaders of regulation here. And ultimately, this is legitimizing the industry. We're seeing the biggest financial institutions now have FOMO coming into the space and doing it at record speeds. And then all of these tokenized assets end up propagating across all of these blockchains and end up in the DeFi protocols that have been here building, making these resilient systems from the very beginning. Now they're doing that for the largest asset classes in the world.

And so that's kind of what we're seeing play out. I'd love your your take on this, your perspective and just, you know, a little bit as far as what your mental model is for how the tokenization thesis is progressing. >> Yeah, so first off, good thesis. I generally agree with everything you said. We are at the beginning of the maturation of tokenized assets. What does that mean? You know, beyond all of the industry leaders being on stage shaking Trump's hand and talking about crypto and tokenization. We have, you know, the leaders of every bank and every asset management firm on TV talking about tokenization.

You know, this is the chapter one and a half moment, I think, for this. There's a lot of pilots out there. There's a lot of proof of concepts out there. Everybody is building products, some of which are starting to get traction, but it's still incredibly early, right? Almost every single bank has announced they're doing tokenized deposits. Like, literally pick any name out of the largest banks, they're all doing tokenized deposits, right? >> Yeah. >> They all want to use that as a stepping stone to do tokenized securities, right? Tokenized more complex products than a deposit. You have every asset management firm out there, right? From BlackRock and Vanguard and Fidelity all the way down, all of them are interested in this, right? So the question is not like, who [snorts] is interested, it's

who's not interested. And anyone on that list is a dinosaur and they're going to be out-competed and they're going to go to zero, fundamentally, right? Almost everybody that matters in all of finance is interested. And it's because over the last eight years we've proven out, you know, hey, tokens on a blockchain that are programmable are amazing. They can do interesting things. They can settle instantly. They're super transferable. They're programmable. You can put them inside DeFi protocols. You can open up access around the world. You know, there's a lot of like edge case things to figure out, which the SEC and the CFTC are totally on top of to iron out the last like gray areas of this, but we're very quickly coming to the point where it's all proven. And now it's just

the time to go, go, go, go, go, and everybody is lining up on the starting line to go. >> Yeah, absolutely. And I And we'll get into Superstate's product stack, how you're working with some of these financial institutions, and how you had the foresight to ultimately recognize this and build for that future. But I just want to give some color to the point that you made about the levels of adoption that we're seeing here. And And at the bank level, the the progression from tokenized deposits to tokenized equities. And today, literally this morning, we had Bank of America, Wells Fargo, Santander, and over a dozen major banks move forward with plans to launch a stablecoin.

And so, I'm curious just, you know, because I feel like you might have insight where, you know, uh some of us don't, how do you foresee these bank-sponsored stablecoins moving and and partnering and working their way through the market compared to what we've seen up until this point, which has been a a complex sort of experimentation process of algorithmic stablecoins and decentralized stablecoins, and then ultimately to the duopoly of, you know, Circle and Tether today. How do you see these bank-sponsored stablecoins entering the stablecoin market?

>> Yeah, it's a great question, and I don't have all of the answers, but I do have analogies to work with with like, you know, historical patterns. So, if you zoom way out, right? Like back in the '90s when the internet and the World Wide Web were pretty novel things, and every single bank offered its services not on the internet, right? They were 0% online. You know, as the internet and as the web came out, everybody was interested. There wasn't a single bank CEO who was like, you know, going on their earnings call and bashing the idea of the internet. In fact, they all said like, "Hey, we want to figure out how to leverage this." Right? The ways in which they leverage this over time, you know, it started off where they're like, "Hey, we're going to have an internet portal for you." And like, "Hey, eventually

it's going to lead to like a Zelle and like all of these things." But at this point, we have 100% adoption. There's not a single bank out there that's not completely scaled entirely into we use the internet to deliver banking cuz it's faster cheaper better 24/7-ish you know, and just fundamentally better. Crypto rails are just the next evolution, right? And it's just as transformative, especially for any money services, security services, any like transfer of value, crypto is equally as transformative. And so, you know, what does the end state look like in 20 years, right? Well, probably every bank, probably every asset manager, probably everybody on Wall Street, probably every investment advisor, probably every portfolio,

probably every user on their phone, probably everybody everywhere somewhere is using tokenized assets right? What are the killer apps, right? You know, there've been a There was a lot of different ideas about how to build a web portal for people to use internet plus money, right? And there's still experimentation. It's still not figured out, right? Every year there's like something that's slightly better than before. I can't tell you with the, you know, crystal ball exactly what it's going to look like when tokenization has scaled, right? Do I think the end state is that there's 30 successful tokenized deposits like Bank of America does tokenized deposits and JP Morgan does

and Wells Fargo does and they all are successful while they're all competing with each other? Probably not. I don't think that's a viable end state. I think there's probably going to be, you know, a federated deposit stablecoin where like 15 banks all get together and like have one that sort of wins. I could see a single bank on their own succeeding at scale like a Bank of America or JP Morgan potentially. I could see, you know, a hundred different approaches to tokenized securities. That's a really big umbrella, you know, scanning, you know, everything from like tokenized equities to tokenized private securities to tokenized real estate to tokenized alternative assets that their clients use to like everything in between.

The things that take off and are sticky and like really work has not been proven yet. Everyone is throwing irons in the fire, you know, trying to put some fuel on it and trying to see where the actual product market fit is. Right? That goes from a startup to the largest bank in America. >> Yeah. Yeah. Um I I mean, I think it's extraordinarily well said because we've still it it it also reminds us that we're still early. Like we all sort of have this general directional thesis that this is going to be the end uh the end game. This is where we're headed, but how we get there and which things ultimately are kind of the thrust, the gasoline, the acceleration that do get

us there, that is still very much up for grabs. Um and there's, you know, uh uh several different facets in which, you know, there are players that can fit into this market, ultimately provide the infrastructure to build out this on-chain economy, this tokenized world, but it's still very much fair game as far as, you know, what are the major pieces and which ones are maybe the minor pieces. The total addressable market is massive when we think about this thing at scale, but we aren't really sure which ones are going to be the bigger wedges. And I think that's where I want to get into Superstate's product stack because you've, you know, kind of, you know, laid your your flag in the ground, but, you know, uh claimed your stake in this tokenized fund world,

a little bit in the stablecoin world, but, you know, you've spent plenty of time thinking about this thesis and what this landscape is looking like and have to thrown some irons into the fire yourself. And so I'd I'd love, you know, your experience and and and so what are the irons that Superstate has thrown into the fire and what has your experience been with the adoption curve of of those things? >> Yeah, so first off I'll say there's some unannounced things that I can't talk about yet, but over the coming weeks and months, you know, hopefully there's new products that we can talk about. But as of today the big bet really is on a platform called Fund OS, right? Fund OS is an operating system for super modern tokenized funds to operate, right? Funds that could be a

private fund like, you know, a hedge fund or a venture fund or something that holds assets only for qualified purchasers. It could be a public fund like a mutual fund or an ETF. And the very first prospectuses by some of our partners have been filed with the SEC to bring public funds onto Fund OS. And it can be novel structures. Eventually, you know, we're going to start to see things that don't look like ETFs or don't look like traditional mutual funds be tokenized as a security on a blockchain that people can buy, sell, subscribe to, redeem from.

Totally composable with DeFi, right? And so this is an area that we've seen, you know, a lot of demand. We have, you know, a number of the world's best asset managers working with us right now to tokenize their products. We have a huge pipeline that we're working through of other absolutely incredible asset managers that want to build tokenized products themselves. And we've built built out the platform to do this at scale, right? And so, you know, if you boil down like what is this type of security under the hood? If you go into like the archaeology of like how the traditional finance side of this works, there's like a lot of pieces there. What we've done is basically built a software technology [snorts] system around the way funds work under the hood to make them tokenized, to

enable them to just be a token that works on a blockchain. It still has like compliance, it still has record keeping, it and does tax, it still does all of these really annoying things. >> Mhm. >> And the end user just says, I have a token, I can put it into like Ave Horizon and and it's awesome. Like it works the way I think it works. >> Yeah. And And so, I take it that there's a lot of complexity underneath the hood uh when it comes to building out this this tokenization infrastructure and the smart contract infrastructure. And I want to actually ask you about how gener- how you made this system so generalizable because security, you know, these tokens, these funds are so complex.

First, I actually want to ask you what I think might be even more complex, which is the regulation part of this, which the SEC is, you know, now helping to accelerate and make a little bit more clear. But, you know, how have you, you know, been able to navigate, you know, building out what are, you know, colloquially, you know, our securities, like building that out on chain? Have How close and important has the SEC been as a partner in building out this ecosystem? >> Yeah, it's a great question. Um everyone has their own approach to this. We've historically, and maybe it's because, you know, everybody in the industry is so battle-scarred from the Gary Gensler era, right? Some people have taken that lesson and gone totally wild west. Some people have taken that lesson and gone, you know, relatively conservative. The

Superstate approach has always been conservative because it's always been with the world's largest institutions in mind, who we wanted to sort of be our partners. And so, you know, we've done the hardest thing, which is how do you take a fund and still adhere to all of the compliance and regulatory and like stuff that nobody wants to deal with. How do we make it where you're still compliant with everything? And yet, it's a token that can do really cool things. It can go into smart contracts. It can be programmed. It can do all of that. And, you know, the way we've gone about this is by being conservative, by saying like, hey, you know, the funds on our platform have to either be exempt. And we're going to enforce that, so it has to be only like

accredited investors and qualified purchasers. We have to check all the docs, and we have to do this like song and dance that is pretty annoying. Or it has to be registered, which is what the SEC wants. They want everyone to like register new funds. They want people to try to bring the market entirely new products that don't look like things people have seen before. You know, they're not saying everything has to be a mutual fund that looks like things we've seen, or everything has to be an ETF. I think there's going to be registered vaults. There's going to be registered DeFi native securities. There's going to be registered tokens. There's going to be all sorts of stuff over the coming 2 years that we haven't seen before. But, our approach is like it has to be fully legal right?

>> Yeah. >> What that is can get weirder and weirder and weirder. We'll get weirder over time in a good way. But, we're maximally conservative there. Now, what we've done is built the system to enable all of that hard work under the hood, and yet the token is still awesome. And so, you know, the really complex thing that we've solved from a technology process that most people don't even understand is sort of like what happens under the hood. You know, when we have a tokenized product that we've issued, right? So, what happens under the hood is when we're creating a tokenized fund, let's just call it like USCC, which is like a high yield basis fund that's on our platform. Uh at this point it's

managed by Bitwise. It's a really cool token. It's integrated into DeFi protocols like Ave, Horizon, and Morpheus. We record the owner of everyone who holds this fund, right? This is like what some people call an allow list or a white list. We call it an allow list. You know, everyone's wallet is on an allow list, and behind the scenes, you know, compliance has mapped out, you know, here's who you are, here's Robbie, and here's Robbie's three wallets, right? And so, anytime there's a balance in those wallets, we know, hey, it's Robbie's, right? We know it for tax reasons, we know it for compliance reasons, we know it for all this stuff, and it's integrated with like the fund's back office, right? This really boring world of like, you know, back office things. Like, the fund admin

knows it, the custodian knows it. It just all works, you know, in harmony. Now, normally, that's where things stop. It's like, oh, well, you know, you know, we can't lose track of it. How do you put it into a DeFi protocol? How do you put it into a pool? How do you let it leave Robby's wallet, right? And do more interesting things. And that's where we built out some really, really, really fascinating technology where we actually allow it to leave your wallet enter a DeFi protocol if we have the ability to sort of see through the DeFi protocol, understand how it works under the hood, and continue to track everybody's ownership and balances in that protocol even as things happen. So, with a, you know, a lending protocol, you know, we can like

add support for lending protocols like Morpho, like Aave, etc. And the way we enable that is cuz we've reverse engineered it from an accounting perspective. So, like, when you like supply it as collateral, we're like, "Hey, it's still Robby's. It's just being used as collateral." If you get liquidated, we say, "Hey, it's no longer Robby's. Now it's Joe the liquidator." So, we track every log and every event in order to keep these like records fully synchronized. And so, anything that happens, even like in a pool that holds a thousand investors' tokens all together and it looks like one address, we don't view it as one address. We view it as every individual beneficial owner of the tokenized So, every event that happens flows through the accounting and the record

keeping and the compliance and like the tax and all of that nonsense, right? And you know, when you have an AMM, it's the same way. It's like, it's all pooled together, but we look inside, you know, every LP position. We say, "Oh, well, this is exactly how much each LP has." And every time there's a trade, it's modified just a little bit. So, there's this, you know, incredible harmony between like a DeFi protocol and a tokenized security that lets us take this really complex thing, which is how do you have compliance plus DeFi and do it without making others up?

>> And you know, I I was going to ask you a question about going from, you know, the old compound permissionless DeFi days where it felt like everything was wild west running gun to, you know, what feels a lot more buttoned up, you know, like regulated compliance accounting world, but I take it what what drives you is making these things digestible and and understandable, making the complexity not so complex. And you've actually been able to find something that's really exciting and and by opening access to a world that was previously closed, just doing it actually for a more fundamentally sound asset class.

>> Yeah, and like my philosophy is, you know, I have seen the way all DeFi protocols are built, right? Like I actually hate the idea of permissioned DeFi protocols. I actually hate the idea of like let's just make a compound or an Aave or a Uniswap but worse, right? Like that's going to fragment liquidity and do all these like lame things. I actually hate that idea, right? I think, you know, the north star that I have is how do we let protocol developers continue to have totally open protocols running on totally open blockchains. And inside those totally open protocols and totally out open blockchains, you can use permissionless assets and you can use permissioned securities where the

permission's at the asset level, right? It's not >> That was my next question is is that it's at it's at the asset level? >> Yeah, exactly. >> You enforce these compliance and accounting standards. >> Yeah, I don't want to have to call one of these DeFi founders and be like, "Hey, can you make like a really lame fork of your protocol?" Right? That like your >> People have made those calls. >> Agreed. Agreed, right? And like that has been a school of thought about how to accomplish all of this. Like the the really hard thing we're doing at Superstate is like how do we allow people to design the protocol they want without any changes and when a Superstate asset integrates with it, all of that stuff is handled and the DeFi protocol doesn't have to make itself worse.

>> Yeah. Um Robert, I I I I could keep this going all day. I want to I want to get into maybe just a couple case studies to round this out so that people can really rationalize what you're saying because sometimes I find that it's difficult for people to really comprehend when a protocol is so generalizable until we get some case studies. This is the Stable Up segment sponsored by our friends at Frax. And so I I understand that you you and Frax are working together on a couple of these funds like the the short duration US government fund. Frax uses Superstate's Treasury fund as actual reserve backing asset. Also working together on some of these crypto carry funds and whatnot.

And so maybe you could explain the case study between Superstate and Frax as one example of how these protocol functions. And then we'll get into a couple more case studies here. >> Yeah, absolutely. I'll start with you know explaining the simplest way I can. You know, the first product that Superstate ever tokenized was a token called USTB. You know, when we first launched it it was the Superstate short duration government securities fund. It held T-bills. Eventually it became the Invesco, you know, short duration fund, you know, that holds T-bills. But it's a fund that holds T-bills that is a token on the blockchain. And this bucket of T-bills, this fund, investors

can create new shares of using stablecoins and redeem for stablecoins. When they do that, you know, behind the scenes and this is the magic of tokenized funds and all the back office and all the things I was trying to gloss over before, you know, when someone buys shares of this fund, the stablecoins become dollars. The dollars buy actual T-bills, you know, from the government or from a bank or from the open market. And when they redeem those actual T-bills are sold, it becomes dollars, it becomes stablecoins, it goes back to the investor. >> And that process of buying and selling shares of this T-bill fund happens it can happen off-chain. It can also happen on-chain. We've built out these really cool, you know, smart contract-based

you know, systems for even a DeFi protocol to buy and sell to subscribe and redeem from this product, right? So, a DeFi protocol doesn't have to like click on a website, they don't have to do any of this stuff. They just say, "Hey, I want to create new shares of this fund or I want to redeem shares of this fund in stablecoins." And it all happens at DeFi speed. You know, these subscriptions are instantaneous, these redemptions are instantaneous. It's essentially one Ethereum block, right? Um and so Frax is able to use this building blocks, this building block of like a T-bill fund that's tokenized as a core part of their stablecoin product, right? And it's fully

programmable, you know, Frax is able to build a smart contract that interact with this. Behind the scenes it's this full like USDC to actual T-bill flow that's happening, but they just see a smart contract, you know, solidity interface to it where they're like, you know, subscribe, redeem, you know, there's like oracles and price feeds and all of these things. And it all it's just composable with their stablecoin and their contracts themselves. And so, you know, we've basically abstracted away this process of like buying actual T-bills, putting them into a fund and made it just a smart contract call for someone like Frax. And that enables them as they want to scale the supply of, you know, Frax

USD, it's incredibly elastic, right? They can go up and down instantaneously and all of the hard part is just handled through, you know, the fund infrastructure itself. >> Yeah, very, very cool. I mean, cuz this this ultimately can apply to stablecoins, it It apply to money market funds as they come on chain. There's all sorts of different functionalities here and different vectors in which institutions at large are going to view this and ultimately leverage the technology. And so I'm curious as more of these assets come on chain, you know, sort of referencing the original thesis that, you know, we we shared at the beginning of this segment, which is that there's kind of this onslaught, this wave of tokenized assets that are entering that can be tokenized deposits or equities or money markets or

treasuries. All of these things end up on chain, what happens to DeFi protocols? Like, do you think that, you know, it's just it's just a pure re-rate? These TAMs are an order of magnitude higher, activity's higher, fees are higher, earnings are higher, token prices are higher, or is it like we're going to have to adapt our monetization strategies to compensate for the increase of assets on chain because someone else is going to come in and provide the same services for a more competitive rate? How do you think this will evolve?

>> Yeah, it's actually a great question. Um and it's one of the initial, you know, shower thoughts and, you know, thought experiments that I had that led me to start Superstate, right? Like, I was a DeFi founder, you know, I worked at Compound, I worked at Compound Labs, like, you know, I was there for a number of years and, you know, at a certain point, it was like 2022, it's post-FTX blow-up, you know, the market had just gone sideways. It like when I looked at the market as a DeFi founder, I said, "The ceiling is too low, right? The only assets that are currently usable in borrow-lend protocols, in AMMs, in any of the things that people are building, and most people are not building that much cuz it

was the worst of the bear market in a lot of ways, the ceiling is too low. All we have are these crypto-native assets. Yet, the addressable list of assets that we could use in DeFi protocols is like 10,000 X is large, right? And so, for me as a DeFi founder, I said like, why does there need to be incremental work on DeFi when we're like still like chipping away at this extremely small like tip of the iceberg, like really, really, really small, right? And like it was too small to even worry about in some cases. And so, the the mission that that I have at Superstate is to like indirectly grow that total addressable market of DeFi by 10,000 X, right? It's

like there literally can't be not just a re-rating of DeFi protocols, that's like down the road, but like a re-rating of like what are the assets out there and like can they talk to a smart contracts and blockchains in the first place? And you know, we're trying to break down that wall and make all of these traditional assets able to communicate with a smart contract. When every asset can communicate with a smart contract the total addressable market is massive. That like leads to more, you know, smart contract growth, it leads to like the application layer, this is the L1 layer.

>> [snorts] >> You know, I'm just focused on like the biggest possible inflection point, which is like how do we just get trillions of dollars of stuff able to talk to smart contracts so that we can program it, so it can go into DeFi protocols, and just like chipping away at it one piece at a time. And it's going to scale really quickly once it does start to scale, right? Like >> Yeah. >> we're still in the proof of concept phase. We're over a billion, but it's still like proof of concept, right? Like >> Yeah. >> things that work can apply not just to like a piece of traditional finance, but to the whole thing. Like to my earlier point, it's not like, "Oh, the internet like took 10% of like the banking business." No, 100% of banking is like internet-based now, right?

>> Yeah. >> Like no one is like using the phone anymore. And so, I think eventually close to 100% of finance switches to tokenization under the hood. It might not be like in everyone's wallet directly clicking buttons and all of that, but like we're headed towards 100% market share. I >> Robert, this is going to sound weird, but I think we're headed even higher than that. >> 500% market share. >> I think I think there's non-skeuomorphic elements of of asset classes that are out there that don't currently really fit into the current financial system because we haven't had technology that have made them liquid or made them compatible or exchangeable with the rest of finance. So, they've been kind of siloed and we don't really think of them as finance, but with tokenization and

with DeFi and with chains, I think they all we you know, we end up increasing the the size of the pie and you know, the TAM we can think of all the assets that are out there now, but there's also even more assets that are available to us even outside of this thing that we currently think of as finance. >> Great. I was a wimp by saying 100% market share. I am now going to start saying 500% market share. >> [snorts] >> 500% is fud, Robert. Uh man, Robert, you're the man. Uh really appreciate it. Would love to have you would love to have you back and uh I know you're busy out there bringing uh uh finance and beyond on chain. So, we'll let you get back to it, but thank you so much for spending some time today.

>> Thanks for having me on. >> We'll see you again soon. Thanks, Robert.