Terra vs Jane Street, Circle Earnings & Robinhood’s Venture Fund | Weekly Roundup

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Nothing said on Empire is a recommendation to buy or sell any investments or products. This podcast is forformational purposes only and the views expressed by anyone on the show are solely their opinions, not financial advice or necessarily the views of Block Works. Our hosts, guests, and the Blockworks team may hold positions in the companies, funds, or projects discussed. >> Hello world. Are we live, Rob? [music] >> We're live. Let's rip it. >> You look different, man. Did you get a haircut? Is it cuz you, >> you know, I'm in Miami. I'm getting a little bit of tan. You know, got get the haircut. I'm just um trying to avoid the blizzard. So, living my best life right

now. >> There you go. What's going on this week? >> It's well, you know, for a second, yesterday the market was back uh and now it is now it is dead again. Uh unfortunately. Um otherwise it's been you know kind of an interesting week on the stable coin side right so we've got you know Facebook and Meta saying that they're going to get involved in stable coins again uh we have the Luna Jane Street drama that we should talk about that that's a little bit bit interesting and then Tether investing in [ __ ] that's pretty interesting too so like uh like most weeks it's it's stable coins and and not a lot else uh it feels like Yeah, promise you folks we're not having

an existential crisis here with lack of news. Honestly, this is where it's like gets really interesting to build. No one pays attention to the state of the news, but why don't we run through that like uh where do we want to start first? Terra Jane Street. Uh >> Jane Street stuff is probably the most interesting and that's been all over the timeline, but I don't know if you've uh you've been keeping up on it. Oh. Oh. Well, it's it reads like horror slashthriller. So, I figured you pick up on that one. So, why don't you walk us through that? I I I did read some of that. Not entirely new because there had always been, >> you know, rumors and hearsay about what had happened. But yeah, why don't you start and then I can layer in my

thoughts. >> Yeah. So for context for the listeners, there's a couple of things that that are happening here, but it started to your point with at least coming back uh to the public consciousness around the um the bankruptcy administrator for the Terraform Labs bank uh they're um that guy who uh who is doing that administration basically filed a lawsuit against Chain Street alleging that you know they improperly used inside information to frontr run some trades uh and accelerated the collapse of US US uh and that they like illegally profited off of it and so they're trying to claw back

for you know all the creditors you know some amount of of you know ill gotten gains essentially right and so that was what kind of brought it back to the public consciousness there's a I have an opinion about that but then following that there's been like all of this stuff on the timeline about how oh Well, there's like a cell wall at, you know, 10:00 a.m. every day and it's definitely Jane Street and they're artificially, you know, keeping the price of Bitcoin down. It's um which is something else entirely and uh I think as I put it to one person who asked me kind of completely misunderstands the role of uh APS and of you know how derivatives work. But uh you know I think people just want somebody to blame for you know

not making more money and Bitcoin not being higher. Um, so I have opinions on both sides of this, but um, I think that on the, you know, insider information, uh, stuff and being a and doing insider trading, there's a couple key points that I think are worth pointing out, which is one that this is not new. This has been part of some of the public record for a while. And if you actually look at the filing, which I I tweeted out, there's the vast vast majority of it was redacted actually. So there's basically I would bet maybe only 30 to 40% of it is actually able to be read right now. And if you look at what is able to be read, the main allegation is that uh at one point Terraform Labs

pulled $150 million of US out of a curve pool. And then 10 minutes later, uh Jane Street also pulled a significant amount of US, I think it was 80 million or so out of a curve pool as well. and market sold it and that um they and then I think they they also maybe like shorted it as well. And so maybe they profited from uh the short and then they also by selling the long um you know contributed to the collapse of of US and terraform and also uh I guess you know they did this before tarot went out and made like a public announcement. But it was 10 minutes after they had you know taken the capital out of the curve pool. And

so that brings to question, you know, whether or not the fact that they did this 10 minutes later on a public blockchain when anybody could see it and they were obviously sophisticated enough to have, you know, been able to have the right um notices in place when something like this was happening. Um whether or not that could be insider trading, I guess it does depend on, you know, what they were told beforehand and were they like ready for this. Uh but it, you know, based on what we know, uh that very clearly is not. The the other problem here is whether or not you know there's insider trading outside of securities laws but um you know US is pretty obviously not a security. I think there was a SEC uh lawyer in a in a through a court one of the the judges said that US with being in anchor

protocol and guaranteeing you 20% was an investment contract but but by itself uh it is not. And so, um, there's a lot to to kind of go through here, but it seems to me like it's a little bit of people looking for a boogeyman at a time when markets aren't doing what they want. >> Yeah. I mean, there's a lot to unpack. Like, I think it's not the first time that I think this administrator has gone after some people because obviously, look, it was a spectacular collapse. I think there was like a four he's he's um there's a $40 billion wreckage and a lot of that you could argue retail got hurt.

Um, so someone's going to go and and go after. So for context again, I think you mentioned it, but it's worth highlighting. It's a Terraform Labs bankruptcy administrator, guy Todd Snyder. He's saying, "Hey, what can I recover? How can I improve the recovery rate?" Um, and of course he brought in this suit against uh uh Jane Street, right? Um and I think the observation you made which is is this insider trading or not and what constitutes it is is pretty important. I don't think it I mean this is obviously a pretty interesting one because let's just play this out. What would Jane was it Jane Street or Jump?

It was Jane Street in this case, but I mean jump obviously has also been in tangle. But if if you're Jane Street, what could you say in your defense? You'd say, "Well, this happened in a public blockchain. We saw that." And then even though we were contacted, anyone out there could have seen that and done the same thing that we did. And you know, we're sophisticated because you have alerts and we're, you know, quant shops, so we're on top of it and we move fast when we saw that. Um, and and I think that's like a credible defense. I mean these are all things happening in the public um you know blockchain anyone to inspect. Where I think it gets a little bit messier is like the communication that do had directly with them.

Um I don't know what you make of that. I'm actually curious in your perspective because I can from your seat you know I you know you're in touch with the founders of these protocols and you know you also have a liquid instrument a token that you can buy and sell and um uh h how do you guys I guess handle that internally like you know for instance if you you have a huge stake in Athena or Hyperlquid and you then have a conversation with uh the team I presumably think do Do you guys have like some sort of policy around like determining what is MNPI? Do you take the position it's commodities like what I' I've seen like it all when it comes to compliance in investing firms. I'm

curious how you guys kind of think about this like and how to handle this kind of like sensitive information. >> I mean it's worth noting by the way that even in commodities or the CFTC there is insider trading right um and you know the definition is slightly different. And it depends a lot around um you know information um and how it's been disseminated and then are there things that are certainly carved out like you know like land deals of course like you know there's a there's like a set of things that you have to you have to tell everybody but then there's a bunch of things that you can technically insider trade uh and land and so there's it's a it's a lot of it is around what the agreement is and what you owe to your uh your your place of employment. Um and

then there's also so so that's the legal point but then there's also we consider a lot like okay well how do things look right like what would people think how would the what would they say if we were doing it and so for us we take a very conservative perspective which is that you know if we know of something that is going to you know happen with a protocol uh which we we do of course right because we invest in these companies and these protocols that you know are going to launch new products and theoretically the market's going to react well to those products um by once we know those things, we we put them on um you know, basically like a blacklist. Uh and we're not allowed to trade them. So, we won't trade them at the fund. Uh and then we also restrict everybody at the firm from

being able to trade those things personally. So, we're very strict about that. Uh t typically also if we own really large positions of a single token, we just don't let anybody at the firm own them anyways. So like for ENA for instance, people at the firm shouldn't be buying and selling ENA be and we you have to go through an approval process with our compliance team and all that kind of stuff. um because we don't want there to be any kind of you know um show of improprietary. I think in the Jane Street example to your point uh you know they had this they had a a chat set up on telegram with the you know the terraform labs team and one of the interns had kind of worked at uh he had worked at interned I think at Jane Street then it worked at Terraform and

so it's like very unclear based on the filing what was being said back and forth. Having the chat itself is fine, right? So, we have chats with a lot of people. Uh what what was said and how were they tipped off and what what did they know? um that could theoretically constitute some sort of you know having knowledge that they shouldn't have and then you uh there is while not set in law within commodities there is sometimes a presumption that you should wait until information is fully um you know kind of fully out there and disseminated in securities specifically that's more of a it's kind of more of a settled law and what we see for companies is they

um there's this like cooling off period for a couple days post earnings where you're like not allowed to trade whatsoever. In commodities, there is no call it two-day commonplace kind of agreement with everybody and it's really up to like common sense whether or not you think that information has been disseminated enough even if you knew it beforehand to um to not be insidered trading. I think Jane's perspective here, even if they did know that there was, you know, they were going to pull this capital out of curve and that, you know, there was a hole in the balance sheet, they might say that, listen, like this is a public blockchain. Everybody I we gave them 10 minutes before we did this. Everybody knew. Um, and then you would have to make the the argument

whether or not that was that was true or not, whether or not that was enough time. Um, but it's also clear not clear whether or not anybody they knew this going ahead. So, if they didn't know, then this is definitely obviously not a problem. I think there's a couple things like I've that could come out of this case. One obviously is this insider um definition in crypto that will could set a precedent like you know there's people that have strictly said hey this is a commodity that's not a security. So to your point, I mean, I think you and I were both in the room when Commissioner Celix said like like the CFTC, I think I think a lot of people would be surprised to hear that the CFDC also has, you know, insider trading and market manipulation rules. And >> I think it's both insider and market

manipulation here in this allegation that I think it set a pretty interesting standard. >> Um because part of the complaint from this administrator was, hey, you guys like caused the collapse of this network, which to me is also pretty interesting. I think I thought about the that guy who who exploited I think a uh I forget his name was some pretty sophisticated quant says look there's a pretty faulty piece of code here or you know risk parameter that he exploited I think it was like some sort of flash loan and I forget what the ruling was on that I think initially he was like guilty and then he got released but I think this is pretty interesting

>> I thought he was just guilty I mean And in that case, like it's different, right? So he he stole capital from people that like it didn't belong to them, right? And so he used this like flash loan mechanism to like drain the the pools, but like the the pools had other people's money in them, right? It was not his money, right? And so >> his definition of stealing was different. I I don't know. We'll have to look like as we record this if that was the case because I thought he was like ex like they reversed the ruling. Um, but we can maybe fact check that while we're live. Anyways, in this case, like I think the argument someone could make is like, hey, look, Jane Street accelerated the collapse of Terra and

that caused like 40 billion of like the DPEG and the spiraling out of control. It's actually like to me that's like really fascinating, which is like Soros as an example. He shorted the British pound. >> Yep. >> And made a killing on it. I think he made over a billion dollars. it was like a trade of a century. Uh is that any different what what happened here? Like you could argue like hey look the monetary like the the particular currency is fragile or you know they're like holding the peg or whatever and then you have an arbitrageer like Soros come in and make a profit off of that. I mean even I think there are some markets that have prohibited short sellers because they're like hey you're profiting on the

collapse of a system you shouldn't be able to do that. The argument in the US is like no like you should allow short selling because it just creates more like market efficiency and price discovery and whatnot. Um in this case like I think everyone actually my opinion is like we've all known that like stable coins like synthetic stable coins are pretty fragile and can one of the major risks is this which is like the DPEG and spiring out of control. Um, the more nuanced thing is like does retail actually understand that that's a big risk? And I think it's like if you're a platform like an exchange or a wallet that is advertising like a risk-free like yield on the stable coin. Well,

first of all, I think you shouldn't call it a stable coin. >> Yeah. >> So like like okay like I think relevant to you guys like Athena, right? Is Athena a stable coin? I think it's a token like it's a tokenized fund, right? It's basically like you know like you could take the position like it's not a U it's not USDC it maintains its stability. >> Well this is why I mean so this is why in Genius people are trying to make the point around genius act or sorry um and within the genius act they're trying to make the point around like payment stable coins and you know OC regulated stable coins or or um genius compliance stable coins versus others. uh the the um in the you and under Mika the European Union actually talks about um

three different types of stainable coins. One that are the equivalent of what we're calling payment stable coins. So fully collateralized you know uh money market funds etc. And then um they talk about uh two other types one of which are kind of like extrogenously or you know differently collateralized something by not by money market funds or um etc. And so I do think it is important that you know nomenclature matters like we can debate what you know the taxonomy should be. Uh you know clearly there's a a lot of concern around things like terra and others being called stable coins when they have different types of mechanisms underneath them that are not just fully collateralized. And we do

need to make sure that we um talk about them differently and that we put you know appropriate uh you know kind of disclaimers in place. So, I I totally agree with you what what exactly that terminology is. I think some people try to say yield coins or whatever. I'm I'm open to um but but but I'm with you. I I think there's I would make a couple of points. So, first I uh I'm going to Good on you that I didn't actually know. So, Abby Eisenberg was actually he had some he was actually convicted and then he had his conviction for his um basically for the exploit actually overturned. Uh so you were you you remember that right?

I actually I did not remember that. Um because he was convicted originally of like wire fraud and market manipulation in 2024. Uh in uh 25 like a a little over a little less than a year ago he was uh it was vacated because for two main reasons. One was that the judge said that there was a venue failure. So he was in Puerto Rico. So then SDNY didn't have a the ability to actually go and and uh try him. And then they also said that there they couldn't find uh you know kind of reason to believe that there was actually wire fraud but he's actually still in jail because uh when they went and um you know executed the war >> they found like child pornography or something.

>> Yeah, they found child pornography. So he's in jail for child pornography. So >> like yeah >> that's like so when when I talk when I again I I met Do in the early days there's reasons why I never invested in him because he was just never the kind of person that could furnish information. I would ask really basic questions and mind you I had invested in a number of synthetic like stable coins at basis um and I'd invested in synthetics or just Haven so he basically copied Haven and like I talked to Ken I was like this guy's like just copy what we're trying to do and do is like a masterful person that he would never give you like a good response to a very basic question like when chai when he was fabricating the chai numbers I was going out and talking to like folks in

South Korea and saying hey like is this actually real and I could never fine. Truth to that, I think there's like a couple things here worth pointing out. One is you know it pays to do the work um around like validating what these networks are, you know, posting. A lot of the transactions that are posted on chain cannot be fabricated. Uh in the case of Terara is like very I don't think anyone like was able to really validate that. most of the funds and even retail certainly like they just love the trade. It was paying like a pretty juicy yield and I always go back to if we don't know where the yield's coming from like you are the yield and there are likely more sophisticated players in this market like Jane Street

or like Jump that just know how to operate and play this game better and playing the arbitrage game is pretty dangerous I think. Um, I guess going back to my observation around like Soros, like he shorted the pound cuz he said, "Look, it's unsustainable. They can't they keep defending the peg. That's got to break." I think what the the administrator here of Terraform would say is like, "Yeah, but Soros didn't have like a mole inside the government that told him that like they were going to do it." And I think that's a big part of the argument here. It's just like this intern that had in communication with the Terraform team.

And >> yeah, >> um I think that's something that as an industry you can probably do a better job of information disclosures like okay like if a team is going to announce something currently they do it somewhere along like either Twitter or Discord but it's not like a unified method to communicate with your token holders and I I part of I think the token transparency initiative by blockwords I mean I I remember calling Jana talking to him in New York and said someone's got to do it like we got to like self-regulate as an industry to like improve communication And you know that I think independently of where regulation shakes out. I think we can all agree that it would be hugely beneficial for the industry if we had like a perfect world of terra would have communicated this to everyone and

everyone had like perfect information that they were withdrawing from the curve pool like a huge amount or something like that, right? >> Yeah. >> No, I I I'm with you. I think listen on the market manipulation point. I mean this is also tough, right? So we've had that a lot of this conversation in uh in crypto. I mean like in again in the mango markets thing with Avi Eisenberg like you know he was like he was putting like spoofed transactions in there right to artificially inflate the price right um and you know clearly like wash trading spoofing like you know that type of stuff like that is market manipulation if you know Jane Street was simply just selling US that they held or like shorting US right like that's clearly not in and of itself market manipulation

right even that just because they're just you know getting out of uh >> just had a big owned it's like if China dumps treasuries tomorrow well that's going to have a >> it's going to have you humongous impact right I mean we've seen you know the like the unwind of the you know Japanese carry trade right like that is not market manipulation just because people want to get out of are like you know running for the door when there's a fire >> even three like uh two or three years ago like the British pound like suffered a pretty big depreciation because like there was like thin liquidity in the what is it the guilt market or whatever. >> Yeah in the guilt market. Yeah that's right.

>> Yeah. But like the obby poison is really interesting. There there's two points here. One um the judge of to your point said we don't have jurisdiction because it happened in Puerto Rico uh over a decentralized protocol. So the SDNY does not have jurisdiction. That's like less interesting. What's really interesting is they basically said there's no fraud here even though he spoofed and he manipulated the market and used flash loans um to enrich himself. Uh but he basically exploited a fault in the protocol ma and he said mango markets had no terms of service, no prohibition against manipulation, no requirement the loans be repaid. basically like no rules governing borrowing and and that I find

that pretty interesting because you would argue that in traditional markets like this is well understood like I guess like you don't need to post like what is common knowledge that you shouldn't be doing these things but the the fact that the the ruling was pretty clear that like it was on mango markets to like explicitly have like a terms of service um it is pretty uh I I guess I I don't know if other protocols have like adapted to to this Right. Uh some protocols have you make you click through a terms of service. Uh but I think not all of them.

>> I mean most of the ones these days do especially if they eventually want to serve uh you know call it not just US but like EU and like more like you know regulated markets. Um, but I also think like listen the with with Ankor and with uh and with US there was also like do was putting out a bunch of false information the entire time, right? And he was lying to the market and they had this like guaranteed, you know, 20% return which was clearly offering an investment contract. And so it's to me it it's there's two different things happening here. one which because like ankor was clearly not a decentralized protocol in

the way that it was operated and like the things that they were doing right uh where as a mango you know I think is you know obviously um you know quite >> mango wasn't as like you could I guess the the reason why AI got away or just you know got overturned is because this is sort of like the the code is law and I think I remember like the lawyer of Aby and even Avi like publicly saying like I basically used a protocol as designed and I didn't break any rules. Like I this is the code and if code is law then I didn't do anything that was like like out of the ordinary. It was like these were the rules and it's codified. anyone could have done this and I just you know I didn't do anything that you know

wasn't you know I didn't act like I didn't break a term like there weren't terms of service but even if there were like I use the protocol as designed so therefore I should uh there's no there's no wrongdoing here which um is interesting for the code is law kind of camp of people that come into crypto and say like you know sort of if it's codified and you're working within the code then you know those are the rules of engagement then call it a which I I I candidly don't agree with. I think like there's common knowledge and ways of operating from traditional markets that should apply to crypto even though you've >> it definitely can't just be like oh code is law so if you know I steal somebody else's money but it was a bug in the

code then like you know whatever that's fine. We we very clearly see this in traditional markets where like if you hack somebody right the code is not law if you hack a you know centralized counterparty right uh and so I I don't know I that's obvious I also think this is probably not going to be a big of an issue in the future or maybe as uh you know as AI uh continues to proliferate right like you know you've seen all of these announcements with uh open AI and then you talk to all of the security companies right now they're all using AI to uh do these security audits and I think we're not that far away from security AI assisted and and maybe fully autonomously AI security audits are far

better than anything we did uh in just you know call it in the audit world before before we had um the proliferation of of these kind of you know much more powerful foundational models and so maybe this is like you know kind of a mute point pretty soon >> you would hope I think uh hypothetically what have you designed the AI to do not white hacking But like just exploit these systems. >> Yeah. I mean you're going to have both, right? Which is why you need it. >> You're gonna have both. I mean I think there was Claude I think was or anthropic was only cracked down on like uh people using their um their models for like nefarious activity and they clamped down on it. I think it was >> well they all are because they don't Yeah. And so you have to go to one of

these uh you know one of these models that are not censored uh which aren't you know not at the cutting edge uh at the moment but you know you can access them and there are people that are accessing them as I understand it there's a couple of these kind of like the centralized um there's also like a decentralized access point like um I believe uh there's there's one that in crypto that has a token uh VVV is the token where you can I think you can use either you know, censored or non-ensored models. And there's also, you know, privacy. But if you use the non-ensored models, like most people are really just using it for porn right now, I think um because like you can't use Open AI or Enthropic for porn uh at the moment. Um

but like I'm sure they're being used for other I'm certain they're being used for other nefarious activities as well. >> Yeah. All right, enough of this. It's going to be an interesting case. Uh I don't know when it's going to be resolved but nonetheless it is it is one of the more like to be resolved issues when crypto uh but on like commodities securities what's the rules of engagement uh I think it will if if if I were to guess it's really just going to come down to the nature of the information that they received not so much that they withdrew from the pool. I think the argument around it causing a spiral is is baseless, right? they were a big player and anyone could understand that it was just concentrated and um you know I don't think that has merit or

grounds but what does is if you had certain information ahead of others and you know whether you were managing you know a billion dollars in the protocol or much less than that you know I think that the law is I mean how it gets interpreted in the court of law is going to be pretty precedent setting for the rest of the industry. >> Yeah. Yeah. Absolutely. Coinbase cryptobacked loans powered by Morpho empower users to borrow up to $5 million using Bitcoin or $1 million using ETH as collateral. Loans originate in seconds with no additional credit checks and competitive [music] rates typically between 4 to 8%. Use USDC for down payments, debt refinancing,

unexpected bills, and more. Repayment anytime with no fixed deadlines. Over1 billion dollars in loans have been opened [music] through Coinbase to date. With the Coinbase app, you can manage cryptobacked loans with ease. To learn more, click the link in the show notes. As always, investments in blockchain technology involve risk terms and conditions apply. The Blockworks Digital Asset Summit is back in New York March 24th through 26th. We'll have top speakers from leading asset managers, financial institutions, DeFi protocols, crypto companies, and policy makers all under one roof. Think Black Rockck, Coinbase, Robin Hood, and more. Follow the link in today's show notes to buy tickets, and

make sure to use code Empire 200 for $200 off at checkout. What's next on the list? I mean, we had uh >> so much stable coin news. We've got we've got Meta, we've got Tether investing into [ __ ] we have Circle earnings. I think the circle stock price in the last couple of days is up from 60 bucks to almost 90 uh on that. So >> up 35%. What's a skinny? Why don't we just go to that? Uh they posted earnings per share of 43 cents in fourth quarter beating consensus estimate of 16 cents.

>> Yeah, >> shares are up 35%. >> Yeah, it's it's sort of interesting. I'd have to go back and look at some of the analyst notes. It's s what really surprised people is like obviously you can look at the amount of USDC outstanding and that is in real time like you should have a really good understanding of um the amount of in circulation but what people really missed was that they missed that there was a better mix shift for circle. a lot more of the USDC was off platform and so they were getting a higher share of the revenue because obviously when it's on Coinbase they have to give 50% of all that revenue to to Coinbase um or sorry they have to give 100% of that revenue to Coinbase when it's when it's at on on Coinbase. So it ends up being um often

quite a quite a large amount of their revenue because um it's 100% of that and it's 50% of everything uh off Coinbase. Uh so they had this better mix shift. they didn't end up having to share as much of the yield as I think people thought with the other platforms uh that they're on. Their expenses didn't kind of raise quite as high and you know they told a really awesome story again about the future of stable coins which you know you know I fully believe in. I know you fully believe in and you know what they're uh I think they also surprised a little bit on the CPN side. They're doing something like, you know, 500 million a month of of volume on CPN, which was higher than people had expected. A lot of financial inst >> uh it's the circle payment network,

which is sort of um >> they on boarded uh a ton of like a few institutions there. >> Yeah, some big financial institutions. I think Standard Chartered is on there. Um a number of others. And then a lot of the you know t the names that you would know that are like the service providers like the orchestrators the conduits and BVNKs and yellow cards of the world uh are all >> Would you say would you say that the CPN is like one of those things that is widely perhaps underappreciated or not not fully understood of what it will do to its to the business model because I'm reading here like the company said the CPN expanded with the enrollment of 55 financial institutions and another 74 going through the eligibility proc.

process as of February 20th. So presumably like that is a pretty strong signal like uh you know a lot of institutions want to get on boarded and they see as like because I guess the criticism around circle's model is that it's a thin moat uh financial institutions are going to launch your own stable coin and um you know that eats into circles you know business model um but what you're seeing now is sort of the, you know, a pretty interesting network effect, if you will, where you have these financial institutions just say, "Hey, we're going to want to use USDC and we're going to be part of their payment network."

>> Okay. Yeah. I um listen, I think my perspective here has been that there's so there's basically two sides of the network, right? there's a quoter uh somebody who like is in a receiving flow coming in and they're saying okay I'll pay you know x amount um or you have to pay x amount for that flow and then there's the person like sending the flow right and you know my general perspective this whole time has been that uh it makes a lot of sense for everyone who wants to quote right I think they have these terms like an oi and a bfi but if you if you want to quote uh of course you'd want to be there right it's a new potential you know flow source Right? It's like new

business for you, right? But if you're sending the flow, uh, you know, potentially you want to be on platform because you don't have the right connectivity to, you know, these different corridors or these different regions, but as you grow, as you get a lot bigger, uh, you might want to just have direct connectivity in those regions because you're if you're doing a lot of volume, you will probably get better pricing, right? Well, the you know the counter-argument to that is like well if it maybe they're going to give you you know better quotes through CPN because of you know call it some value added services that they put on top whether it's identity or um uh you know account reconciliation things like that things that are still really hard or uh just like we have so much flow coming through CPN will give you um will

give everybody in the CPN network better uh better pricing today as I understand it and this isn't public but as I talk to people the pricing is not better, right? And so I think for some of these people it's trust, right? Because they trust you circle as a counterparty and they know they can sue them if something happens relative to some of these, you know, call it smaller companies that they don't uh want to take the counterparty risk as much or they don't know if they can trust them. Um so the fact that they've been able to, you know, with that be able to get as much as volume as they have, I think is is pretty um a little bit surprising to me, but you know, is a really good tailwind behind that business. The question for me will be, you know, how do they

compete as it gets a lot bigger? Maybe there's network effects, but also maybe people want to come outside of outside of that. But I think it was people were pleasantly surprised by um you know, kind of the the current traction so far. They're not monetizing it today. So it doesn't really matter for you know, at least in terms of like being a payment company. Now maybe it means that there's more Circle USDC outstanding and so they monetize it indirectly through that, but we'll have to see how it how it evolves. But overall like listen it was um it was a really good quarter for them. Uh and you know we're we're you know I think the market looks at this and is you know excited about the future of stable coins and circle being kind of the only pure play way to to play that in the public

markets. >> They have 55 financial institutions up from 29 the prior quarter. These include like Santandere Deutsche Bank so general like a lot like Standard Charter uh some other like crypto companies like including yours truly conduit and they're mostly focusing on high value underserved global trade corridors where access to dollars is expensive and slow. So not like the US euro corridor or euro or US yen. It's like exotics probably. And to your point, they're only facilitating the messaging. Um but hypothetically like I'm walking through like a practical example here. So like if a fintic in the US needs to send like $1,000 to a bank in in the Philippines

through one API call like the this CPN multiple BFIs in the Philippines for FX quotes. locks in the rate the OFI the originator selects the best quote and it's more of like a compliance thing. I think they do a lot of the the compliance data is exchanged encrypted you're compliant with like travel rule information and once that's approved like the USCC's transferred and settled in minutes. So I guess this is not so much like it is a payment network but it's also more the compliance piece around it and the convenience factor of doing it.

>> Yeah. Yeah, I mean there's a so there's this thing that's happened in uh and this has really changed a lot over the last year or but you know when they announced this but a lot of the fintex more broadly this is not a crypto specific thing but there's this thing called nested flows versus non- nested flows right so like when you do you have to have some sort of receiving bank on the end um if you're going to do anything with in touching fiat and if you as part of that you have to do KYB that's rel um at least up to some bank standards and a lot of stable coin companies, but a lot of also like just traditional fintech payment companies would do um what they call nested flows, which is that they wouldn't necessarily know who the end customer is. There'd be

actually like, you know, some sort of local customer that then was facing off against another fintech who was then facing off against another fintech who was then facing off against the bank. And the bank wouldn't be able to tell who the end customer was. And the that type of like nested flow I think has gotten a lot of the banks a little bit of concerned about who they're ultimately doing business with and uh there's been this thing called the reliance model where you know essentially you're saying well I'm the bank I rely on this fintech to haven't done the work well that bank that fintech is relying on the other fintech to having done the KYB work and anti-sections work and then that fintech you know is the one ultimately facing so there's a people have different

standards And also, you know, sometimes there's bad actors, right? And so, a lot of the banks in the US and a lot of the, you know, fintexs in the US over the last year and a lot of stable coin companies over the last year have tried to do this quote unquote desting, which is, uh, basically just make people have to onboard directly so that they can pass this information about KYB around compliance, etc. And so, we've seen a lot of that happen in stable coins. And obviously, um, you know, CPN requires you to do that, uh, today. And so, you know, that's I think helpful, but again, like, you know, as bridge or BVNK or condo to these guys, D nest as well, they're going to have to be able to to do the same work. Um, so there is a bit of a still a I think a sort of a a

difference of um incentives or incentive misalignment over time. But listen, you know, kudos to Circle like they've they've done a great job so far. You're never going to ask the question, but like would you rather run circle or stripe equity? That's a good one. Stripe at 147 billion or 57 billion, whatever it is, uh is kind of insane. I mean, they're growing like tremendously, but is it worth five times that as much as Adion? Uh I I don't know. Yeah, it's a you know, different business. Listen, the the Collison brothers, like I would never bet against them. Um, you know, if

there's going to be a trillion dollar payment company, you'd sort of think that they're going to be the one clearly. Um, I do find that they are really good storytellers. Uh, and and sometimes better storytellers than they are um, you know, they're they're early to things, but but then they are, you know, enacting some of of these things. But listen, I it's hard to bet against them. And so, uh, I would probably rather own Stripe still because I think the, you know, stable coin issuer market is going to get a lot more competitive where as I think Stripe is already in a very competitive market and they're just, you know, mogging people right now. Uh, so probably, but listen, they're both doing a great job.

>> Circle market cap 20 billion. Stock is down from its all-time high of 276. I think when it hit 250, I said, I'm going to use all my newly raised funds and I'm short the stock and to which point I think you were seriously reconsidering why you funded us. But >> would have been a great trade nonetheless. Um, yeah, I'm curious. Um, >> you absolute returns are not what matters, Santi. That's why they're called hedge funds. Yeah, I guess sometimes uh I I listened, by the way, content of the week, but the D1 interview from Invest Like the Best talked about this exactly, which is sometimes your investors will punish you for actually having a better return because they'll say you've just like

gone out the far like the deep end of the risk spectrum and you were just kind of lucky and they're really worried about doing that. >> People would much rather have like a really good total return strategy. A lot of institutional investors tell a return strategy where it's a lot more um easily quantifiable and that they can more easily uh forecast it than you know do something that's like you know crazy and has a huge return but like you know feels like maybe it was lucky or maybe it was you know some maybe it's not repeatable. Yeah. >> Or in the long run we're all dead and everyone mean reverts and so just make money if you can. Don't blow I mean, I I was I was at a um like a GPL event uh in Miami this week and you know, one of the

things that we were talking about is like why can't liquid funds in crypto raise capital and why has it been so hard to make money as a liquid fund in crypto? And you know, one of the the GP or one of the LPs said, "Listen, like there's this idea right now around one is like everything's too correlated." And so there's, you know, it's hard to like really pick, you know, one, you know, uh, liquid fund from another and, you know, everything goes up and down together. But two, if everything goes down 40%. And my liquid fund manager only goes down 20%. You know, that's not great. like that's like I don't want to be in that fund either, right? I feel lucky. I don't feel like like that type of outperformance is

repeatable, right? And so it it's it talked a little bit about the sentiment with in the LP space around the liquid funds, which is like there's just too much volatility in the space generally for a lot of the institutional LPS to get excited even if you're outperforming. Yeah, I think um depends where your LP is, but what I can tell you is from our my perspective, I appreciate it. LPS really want to see through cycle performance. Of course, if you're a venture fund, you hide on the mark. You know, you don't have a liquid position.

But in crypto, I think that's the challenge is that you're you're a venture fund, 10-year fund, but you have locked vesting positions or, you know, part of it is um you know, still vesting and and you have to mark that some way. I think you still you could say, "No, we're just going to hold it at cost." But the rules don't allow you to do that because I think there's it's not as easy as saying, "Hey, it's logged. I'm just going to keep it at cost." You have to have some reasonable valuation methodology. And your LP is going to still see the volatility in his NAV report, whether they have liquidity or not. I heard it from one guy who was like, I I actually hate crypto funds because in

many ways I don't want you to send me the NAB report on a monthly or quarterly basis. I'd rather you just wake me up in five or 10 years and give me the absolute return. I don't want to understand what happened in in the interim. uh because it make he his point was like it just makes my life very complicated and difficult because I have to go to investment committee and report our holdings and one quarter I'm a you know I'm a genius and six months down the road they hate me because it's just so much volatility. It's kind of an interesting game of allocators like LPs would rather would rather get a 2x than a 5x with volatility.

>> Oh yeah. Well this this this the same event that I was at. We're talking about VC funds too and you know it's funny because if you look at the you know last x amount of years of crypto venture you know only in the last like year year and a half has like equity overtaken token investing or token project investing right and you know some of those token forward like defy funds etc you know have made a lot of money for people but I was talking to these LPs and they were like listen we would rather do a cryptofocused equityonly fund uh if it has still had decent returns because there's this volatility laundering that people talk about with venture, but like that's a feature. Like we want that

volatility laundering to the point that you just made, right? Because there's all this talk about how venture is and being private is, you know, basically just like not you it's just not reporting on the on the volatility, but the volatility still exists, right? But it's just not you don't have this mark to market all the time. And now that's a bad thing, but I think for a lot of the capital allocators, it's a good thing. And so it's there's a bit of um I think this dislocation between the way people talk about these things online and the way the LPs actually care about it because people do not like volatility like it is just a human nature. They don't like it.

>> Yep. They ascribe alter to risk which is not the same thing. Um yeah. Can we talk speaking of I was just looking at announcement by Vlad Robin Hood. We've talked about at this podcast before that they wanted to like tokenize shares in uh private companies including Stripe. That was like a terrible miscommunication. They've now come back to I think raised a billion dollars for their venture fund. Um can we just like talk about that? I think you find it pretty interesting. >> Yeah, it's interesting. Right. So they raised a billion dollars. Uh it IPOed on NYSC I think at 25 bucks a share, right?

and it owns data bricks, it owns stripe, it owns SpaceX, uh some other you know private companies and you know it's going to be this a traditional like publicly traded closed end fund. >> I thought it was I thought it was so Robin Hood Ventures Fund one it's a billion dollar closed end fund and it's publicly listed. >> Yeah, I think it's publicly they IPOed, right? So >> yeah, the fund is Yeah, you're right. The fund is being offered through an IPO structure. is gonna have positions in SpaceX, Stripe, Data Bricks.

Interesting. Yeah. So, so they went and they it's a, you know, traditional and so it's easier for them, right? So, for Robin Hood, they can do this close-end fund. They can, you know, buy these latest stage private companies, the equity and them, and then they can go and they can offer it as a traditional through their traditional brokerage product to all of their customers because it's just a public company, right? you know the so it's very easy for them to distribute it to everybody and I think they also have airwalls uh ramp and and a few others right revolute and so it's actually you know it's a a traditional you know kind of structure there's a lot of people who tried to do this right on this like you know public close-end fund um the question will be of course like how does

this thing trade relative to NAV and how do you strike NAV right and so that's always the problem again we just talked about volatility laundering in private companies right and so this thing will, you know, have to see a lot of volatility around, you know, um, any sort of reporting event, uh, etc. But, you know, they're they're also for Robin Hood, I'm sure they don't really care about this, but, you know, they are charging, uh, 2% a management fee, the same thing that I do, right? >> I would argue like I mean, I I I kind of like the structure. Uh, you know, it's kind of crazy, but we're like relative to 50 years ago, like the amount of wealth that's been created in the private markets is inaccessible to retail. And by the time company IPOs, it's like, you know, historically

companies would have IPOed way earlier. And sort of this this vehicle, if done correctly, to your point, I think will allow retail to get exposure to companies like names that they want to have access to. The question is like I I was uh you know, can they source interesting companies and and how are they marketing them to market? Uh in in good times, less of an issue. In bad times, I think you might see some like u very big disconnect between the holding value and what you're marking it. In many ways, it's it's a thing you have to deal with on the vendor like like when you're marking positions for your LPS. I mean, it's I remember spending just more time than I wanted to just with like our fund administrator like going through

like how do you mark this position? you're like, well, you know, there's a last round and there's a secondary market trade, but there's an liquidity discount and marketability discount and you kind of have to stay consistent on that. So, it's it's challenging. Well, well, this this structure is is a good structure for them and it clearly solves the problem that they had before, right? which is that you know when they did the tokenized shares of uh OpenAI and SpaceX you know nobody actually none of these companies actually want to sell an individual share or a fraction of a share to some you know call it SPV that then will then sell a fraction to a you know kind of an end consumer who can then do whatever they want with it on chain like the companies don't want that but are they happy to put it into a

combined fund that you know gives you know some distribution and access for a very small subset of their equity that is then um entirely managed by you know a sophisticated actor like Robin Hood like probably because these are good retail names right and so this solves the problem they had before with these companies because you know we talked about this uh I think over the summer but the way they had done it before there was no way that those companies were going to continue to sell equity to them they were going to have to keep going to the secondary market and trying to find employees and early investors who would sell and that was very capped like there was just not >> the way some of these companies have like roofer And so, >> correct, >> there's a lot of time >> transfer restrictions.

>> Yeah. Transfer. And then so you have these SPVS that would solicit interest in shares like Stripe. You know, you get like, you know, $150 million of interest and SpaceX and Stripe and then you'd have to go find a b a seller and then the company would have to approve it and anyone that is familiar with that 10 process, at least for Stripe, it is uh impossible. >> Yeah. But I could see them selling them to a stakeholder like, you know, Robin Hood that is, you know, it's one counterparty they're facing with them and, you know, >> Yeah. It's just the fund, right? And then the fund is, you know, publicly traded and it's fine.

>> It's much more scalable. >> Yeah. You could you see Robin Hood like raise like 10 billion against this >> over time, right? I I mean, it depends a little bit on what happens in the IPO market. I mean, people keep staying private for so long. I mean, it's interesting, but there's been a lot of talk already this year about, okay, well, we'll have our first trillion dollar IPO this year, right? We'll have SpaceX IPOed over a trillion dollars. We'll have Open AI IPOed over a trillion dollars. Anthropic probably more of a 2027 story, but, you know, maybe the same thing, right?

>> Um, and so I I think that amount of liquidity going into the public markets means there's a lot of activity in the private markets. And for those of us like you and I, we see like SPVS all the time of these things as well, right? like everybody's trying to sell to their, you know, what they consider their friends who have enough money to to to invest in these things if they have a little bit of of exposure. And so there's definitely enough right now, but if the IPO market opens back up and people start going public and more easily, then we'll see. But listen, I expect they'll keep doing this. I expect this will keep scaling. This is probably the first of many. Um, and you know, we'll have to see how infrastructure changes. So, >> so I remember meeting uh one of the

larger private equity funds came out here and met with family officers. I'm in the room and they're like this distinction between private and public is irrelevant now. And I actually agree with that in the sense of like like fast forward five 10 years from now like what we've initially thought of like private and public really historically was a liquidity difference. Like you had way more liquidity in the public markets. Now you have a ton of liquidity in the secondary markets for a a lot of companies. Um so what really is this distinction between public and private? I think it comes down to information disclosures, right? Because you know there's a as I understand it like the reason many

companies go public today is you're accessing a different buyer out there that is pretty large. uh that comes with a whole set of reporting requirements that are you know are you can satisfy and they're very clear what the rules of the road are but you have to kind of beef up your organization reporting audit I mean like crack and you know a lot of these companies like go through a preipo process of being IPO ready and that that takes a long time right um but like what is your view and like is that going to matter in 10 years from now, are we going to make the private public

distinction as much as we are making it today or will we just have like it's just a liquidity game and like you know it and you're going to have to change some regulation on on the private market disclosures. >> Yeah, it's it's possible, right? So there's been there's some data out maybe a week or two ago that shows about a third of exits for VC funds are actually now secondary transactions and just a few years ago it was like 5%. Right? And there's now a really robust secondary transaction market where you know early stage funds by the time these companies become you know unicorns are really happy to sell their liquidity and there's brokers and there's kind of this whole infrastructure that goes around that people like Stripe and we and um

some of these other companies like Kosi I think has one and Poly Market has one and some of these companies and when they get to that size they hire kind of like heads of investor relations right just like their public companies because they have you know kind of a broader broader set of um demands and a broader from you know their investor base and they have a broader set of of equity holders and so um it it's definitely happening there's more infrastructure put up around it but there's still this access question there's still the laws around you know do you have to be a QC or do you have to be an accredited investor there's still you know disclosure problems and so will you know the SEC want to wade into that market probably not. Will Congress want to wait

into it? Maybe eventually, depending on if this kind of fever pitch around, you know, kind of access. The easier thing in my mind is that you can actually just make it um less costly to go public and you can probably provide, you know, some, you know, additional sort of uh some additional like infrastructure or like programs um that, you know, incentivize going public. But we'll see. It's um either way markets correct themselves and so we're going to continue to see more infrastructure around the latest stage privates uh get get stood up. Um but I I do think that or I don't see that the the laws

changing particularly soon. >> Yeah. Want to round out the discussion. There's a couple other interesting news. You have Tether invests 200 million in Whoop. >> [ __ ] [ __ ] Whoop the health thing. [ __ ] and they I mean the thesis there is pretty clear right like [ __ ] is going to integrate Tether um so that you know users creators can hold you know transact like use USDT because further solving the demand side of the house right um I mean for context I mean we talked about circle earlier in the pod I mean tether has three four times more um you know stable coins in circulation and they kind of what dominates

75% of of the stable coins in circulation are USDT. Um, so I mean this this investment makes a whole lot of sense, right? Using their balance sheet to further entrench the usability of the stable coin um for for WAP. >> Yeah, I mean it's it's a these marketplace businesses and they call it like you know micro entrepreneur infrastructure businesses. They're growing incredibly quickly. There's a a bank that kind of focuses on a lot of these uh people as well called Slash that uh has grown incredibly quickly. also moving a lot of their business to stable coin rails. They've talked about it recently. Um I think like [ __ ] you know, they I think they announced in October they were doing likeund 50 million of annualized revenue. It's

continued to grow quickly. >> That's not GMBB. That's net. >> That's revenue. Yeah. No, GMV is a is like close to three billion today, I think. >> Yeah. Their take rate is is that right? >> Yeah. So, uh and they >> they have uh 18 million users. they're earning million users. It's very Gen Z focused. Like if you're not, you know, really plugged in, you you wouldn't necessarily um you know, know about the the business. Um I I think >> you tell me I'm not plugged in because I can't even pronounce the name of this company. >> Well, I I'll tell you a um uh somebody who used to work for Dragonfly, who I I uh I consider a friend who's incredibly smart guy, actually is like an executive at [ __ ] now. uh and uh he was one of the f he was I actually heard about the

business first from him and he's like a you know he's a he's a younger guy you know in his like mid20s um incredibly smart and he was like he's like pay attention uh and then he eventually ended up going and working there and because like you know like the content creators and like in in Gen Z like a lot of them are using W uh and it's growing incredibly quickly and so but one of the things that we've seen in these marketplace businesses so not just them but but uh a lot of them is that they have content creat creators uh in a lot of different jurisdictions who are also com much more comfortable with digital money who are much more comfortable being entirely online and who in some cases don't have like really robust you know call it uh like accounting and like you know infrastructure and a lot of

them are very very open to taking stable coins and in fact not just open but especially if they're outside the US they want to take stable coins >> I mean the I think that's where most of the demand for stable coins is going to come like you know if you if you're a content creator You get paid in stables. You pay for certain goods and services online like e-commerce runs by stables and then you offramp some amount for working capital needs of day-to-day expenses but >> or you don't even need it anymore if you have a rain card and you pay with everything on >> true credit card. So I think like this this will manifest itself certainly for younger generations but like I've always felt like part of the thesis for me coming into crypto was seeing what was

happening in Southeast Asia and and in Korea uh like you know where like finance like fintech is going like like everything apps right and people being so digitally savvy uh I think the US is like the leader in pretty much most sectors but when it comes to finance and fintech it's like super far behind, right? Uh like like like domestic payments in the US, like Fed Now kind of works, but it's pretty yanky. Like PICSS in Brazil way better. Even Mexico has way better. Europe way better. Like the US somehow is like super super antiquated when it comes to payments and um but yeah.

>> Yeah. I mean, the US has never been at the forefront of payment innovation, right? Not since the the networks. And so it's been so I say never, but not since the networks. It's been a long time and and so um you know not surprising. Congratulations to them. $200 million from Tether at I think it was a $ 1.6 billion valuation. Uh I think they're going to keep keep growing, keep doing well. And I think we're going to see a lot of these types of businesses move entirely on onto stable coins and use things like you know rain cards and things like that. >> Does this make you update your thesis around like investing in other stable coin issuers? like like Tether has for better or for worse like like 101 and they have dominated the distribution game and their monetization game and I would argue it's

going to be incredibly hard for other people to unseat their advantage. Um and they're using it effectively like really really well in a investment like this one just further entrenches their position. if you're a you know I know you've invested in other in other players but what does this mean for that type of company like you're you know it's pretty hard to go up against tether >> well I think right now I mean circle is growing quicker than tether is at the moment and so I mean that's part of the the stock out performance but I think right now >> double clicking on that they would say tether certain financial institutions and will not accept USDT because they just they just don't and there's a there there's a lot of US-based businesses and

financial institutions who are more comfortable with Circle versus Teller. So now of course the launch of USAT and the the you know trying to be genius compliant and working with Anchorage you know their focus is on um you know trying to to get into that market and with Bohines but you know it's it's the just launch is very early so um you know we'll see have to see how that plays out. All that said, I I think to your original question, it is probably hard today to launch a new general purpose issuer with no wedge. But what we're starting to see quite clearly is that uh if you have the ability to issue and then you can do other things, right? So,

Bridge obviously is very focused on this issuance uh being part of their business. That's why they're getting their trust charter. um you know that's obviously has long been the story around Paxos. There's others doing the same. Uh you can build probably a really interesting infrastructure business that um has your own stable coin or also uh you know maybe is able to white label. We saw a little bit of the OC guidance today around how white labelled issuers can share revenue with these platforms. Now you can't share the yield according to the first guidance from the OC. can't share the yield to the end customer which is a issue that we need to we need to try to figure out with um with the OC but uh there's still clearly like revenue share between the the white label platform and the company and so I

think we're going to just see a a big proliferation of people who are issuers but who are do other things around payments other things around fintech provide really interesting platforms and that's where we've seen almost all of the other challenger issuers move um over the last year and some of them have been a little bit more quiet about it but you'll see a lot of really big announcements uh about that like this year I think >> what happened I want to round out the discussion because I mean there's other news on the margin but I talk about stripe again like didn't they someone flagged me earlier around uh the OC is officially shutting down the creative loophole engineer around stablecoin interest and rewards for months issuers thought that they could

bypass a statutory provision on interest by rebranding yield as staking rewards or loyalty tokens Today the OC signaled that the game of musical chairs is over. Obviously clearly biased and whatnot, but uh you're all, you know, you were in DC earlier. I don't think it's as clear as this, but uh so what happened to be to be entirely clear is the OC put out a request for comment today, right? and in their request for comment included the initial rules that they were going to um that they think or that they're they want for discussion uh for what they would put on you know Genius and is compliant stable coins right >> and so you know so everybody knows or or just for context when Genius was passed

a big part of that law was that hey listen like there's these things that we're defining then there's a bunch of things that we're not defining and the OC has until January of 2027 7 to and with Treasury to go and define what the rules will be, right? And so the OC put out these rules uh and says, "Hey, this is we want this request for comment." And um in that was a very very tight definition around what how yield could be passed on to the end customer if at all. And they took out they basically said you can't pass on yield to the end customer. So the the issuer can pass on yo to another company but you can't if you're a white labelled issuer but you

can't pass on to the end customer um for just for holding using or retaining stable coins right now I talked about this before but that is like extremely regressive because right now there is a a lot of fintexs who are going to in some way give cash back or going to in some way give you know money back to their users and rebate ates or whatever for using their platform, right? That exists already today. This is not a stable coin point, right? When you swipe a your Chase Sapphire, you can get 2% cash back, right? So this I >> But that's a credit system though.

But you can c like there's a lot of different systems where you can get I mean >> I I hear you loud and clear but like so I've looked a lot into like what is the incentive for you like BTOC payments the the credit card networks are so entrenched because like businesses are subsidizing the rewards that you >> but this isn't a network point the issuer is the one giving those giving those rewards back right the bank is the one giving those rewards back >> yeah they're giving you those rewards uh in the way of like you know airline miles or cash 67% % of Americans prefer getting cash back to any sort of other type of of thing and most of the most of these cards are now moving to entirely cash back because that's what the consumers want.

>> Yeah, correct. I would say definitely agree with you on that. I think the reason why there's a lot of push back here is because banks feel threat around deposit. >> Yeah, that's the whole reason. >> That's the whole reason. I mean like I calculated if the so if if Americans were to earn the yield on their checking and savings accounts that the entirety of like deposit sitting in America like in in in these checking savings accounts basically earning zero 0.3%. Banks were clipping 3 to 5%. If all of that net interest income were to flow to consumers that's equivalent to a COVID stimulus check for every household in America. People can look at our wonderful insights tab in our

website virgincap.com and we we look at these things and we say yeah that's massive and not surprising you have push back on the stable coin paying out yield. Uh it's it's pretty you know my I think we touched on this in the discussion with Rebecca. I I don't remember if she said it in the pod or I remember just having a conversation with her. It seems to me like the definition is fairly broad um in the sense that like if you're a business using a stable coin and Rob I'm sending you like for instance if I'm sending you money and it's via stable coin and there's like money in transit or whatever I can earn yield on that leg

I don't think they have an issue on that as much as an issue on Coinbase paying out yield on deposits right because the end game here is Coinbase effectively could like really use this to grow their deposit base and you know who who gain who who loses there obviously like a you know a large financial institution that's not paying interest to their consumer right but my understanding is like if it's an idle stable like if it's a stable coin sitting in a wallet they have an issue with that if it's a stable coin that is being used for some like business purpose they don't have a problem with that earning yield at least that's my understanding of course >> no no so so that's that so that's no longer true in is OC guidance. So that's the problem, right? is the so there

there's a couple things that have happened which is that the banking lobby was completely out to lunch when Genius got uh got passed and so then they were started to catch up and so then they said okay well in clarity or some version of that that's coming out of the Senate we're going to write some law that is going to remake the way we think about yield and that the language in that was basically that you can't pass along yield just for holding the stable coin and you know Coinbase came out and they were against it, but some of the rest of the industry was like, "Okay, well that's fine because you can still give rewards for using it or you know, etc." Um, but you know, that became a big hot topic because, you know, Brian tweeted about it and and got everybody up in up in arms and so we've been

debating it, you know, as part of the market structure bill. Well, then this comes out today and the language is even harsher, which is that, you know, you can't uh pass along a yield for holding or using the stable coin, right? And so now all of a sudden it is extremely regressive, right? And this is basically just being done to protect the banks and to protect their, you know, their interests. >> As much as you and I love stable coins, is this a nothing burger? Like I get the yield is amazing to be able to pass through. I don't think it it's marginal, but it doesn't derail the use case and the power of using a stable coin. Like

>> I I think it does it doesn't derail a lot of the use cases. But what I do think it does is it makes it with and the banks know this, right? This is why the banks are scared shitless because with an ability to have better payment rails and to serve the customer more with better product and to pass along more, you know, economics to them. Almost every fintech in digitally native bank was going to move to stable coin. I see it every day. Everybody I talk to, there's not a fintech in the world that you could tweet at me.

There's not fintech in the world that isn't actively building for stable coins right now. Okay? And a lot of the banks are starting to build for that, right? But if you can't take full opportunity of serving that customer better, right? Then, you know, it makes it a lot harder for those fintexs to then go and decide that they're going to be entirely on stable coin rails. Like it protects the this kind of like lipstick on a pig thing that kind of exists already in banking as a service. Now, there's a question around, okay, well, it's a nothing burger because maybe what happens is, you know, you don't hold the stable coins, but then you have a tokenized money market fund and so you swap into that or something, right? Um, but, you know, these products are are

not as good today and and for a number of reasons because most of the tokenized money market funds um if they pass along are are securities, right? And so then there's a KYC point and so it's not you can't necessarily trade it non KYC um at least in the US. And so I mean clearly what is happening here is the banks are trying to figure out a way to slow down the rate of adoption because they are losing customers or they're at least worried about losing customers in the future. And so I I don't think listen >> like put put a put a no predictions or predictions but how damning is this? Does it set us back like 20 30% of the institutions that we're now exploring today are going to say, you know what, the ROI is no longer

there. Does it set us back a few years or is it just, you know, kind of curious what what the impact is? Because there's like >> I think it slows down the rate of adoption. That's what I think happens. It slows down the rate of adoption. Not >> isn't that good for a circle that is already entrenched and you know doesn't seem >> Yeah. It's good for the It's good for the incumbents and it's bad for innovation, right? It's bad for the consumer. I want I want the I I'm altruistic. I want the consumer to do better, right? Um but also of course like if the consumer does better, my portfolio companies do better. So, not maybe not that altruistic, but I I will say listen like they I mean there was a um Senate banking hearing on this this morning after this came out and there

were a number of of senators who asked about this. So, I think Bill Hagerty asked about it. uh Bernie Mareno asked about it and and you know and and um and gold did say he's like listen like this is a proposal like you know it can be approved upon and so the whole industry needs to you know kind of rally around this and if we need to I I do think that if we need to be you know more thoughtful or you know negotiate a little bit more on clarity to make sure that we um we allow for innovation in payments in the US on stable coins and we allow for issuers to be on shore because This as written, by the way, will push more issuance offshore. Again, it's actually it's probably better for Tether than it is for Circle. Uh, if

this goes through, I don't think it's what the government wants. >> For what is worth, WAP creators will be able to earn yield. Well, Tether doesn't share that anyways. >> No, that that's not true. So, what would happen the way it's written right now is that Tether could pay [ __ ] but [ __ ] would not allow to be able to pay their creators. >> Correct. Correct. Yeah, that's right. But Tether is not paying [ __ ] >> Well, no, no, they're not. They don't have a Tether business. >> That's what I'm saying. So this is this is the point that I'm trying to make. Like I get that yield is important, but let's not forget that consumers have been banking the way that they've been banking for a century plus where they have not expected they they don't expect to earn yield. Like you look at consumer

behavior like you could say rates went up and you would have assumed that a lot of those deposits go to money market accounts, but they just don't. And because people are lazy and financial literacy is low and you know maybe you could say look the system's designed to be hard to move your money and hard to open accounts and now you're moving to a world of like um accountless fintech which is just wallet based. But I I do think that you know even even Tether is a pretty clear example of an institution that has been dominating the stablecoin game. You could argue that they were first and whatnot, but they don't pay a yield and people use Tether because it's it's a in my mind I go back

to why did to round out the conversation. Why did Terara collapse as a liquidity issue and usability issue? Tether is dominant in like you go to Hong Kong, you go to Argentina, you go to Africa, like just Tether is embedded and they, you know, as as long as they continue to do that, I think for them they don't they don't care. In many ways, this is great for them because, you know, Tether's market share probably continues to, you know, they have a bigger moat if other stable coin issuers can can't pay out yield because they haven't and they don't pay out yield. So, it's great for them.

>> The the one thing I would say though, right, is Tether has this, you know, they're they're competing, right, and they've built this business and they've had a great moat. Um, the the banks are trying to protect themselves with a regulatory mode, not what they hey, just like what does the free market want, right? Tether is obviously just competing with the free market. And so, listen, we we can round this out. We we've kind of beat this to death. Uh my mind, let people compete, right? Stable coins are inevitable. I I fully agree with that. I was was texting somebody at um you know, one of the leaders uh at a call it a large GI yesterday who was we were texting about this exact thing and I I said same thing to him. stable coins are inevitable and and I think the the G-S are starting to

are starting to understand that as well. But the question is is um if they're inevitable, how quick is the rate of change and who ultimately is it, you know, are the incumbents able to, you know, put their arms around it and squeeze the innovators out or are the innovators going to win? And this is just a something this is a an attempt by the incumbents to squeeze out the innovators, right? and we should always be pushing against that and be allowing for more innovation to happen in the US. What would you say? The counterargument to this is hey maybe maybe stable coin issuers should not be paying out yield and they should not be going out on the risk spectrum of owning treasuries. They should be 100% collateralized and the

collateral should be pristine. And it should be a dollar backed one to one in a bank account and and even though they're going buying treasuries where their yield is coming from that has risk. So this is consumer deposits like what would you say to that? >> I mean the genius already does that right? You have to have really pristine collateral. It tells you how the collateral >> collateral but it's there's a there's a school of thought that says like fully one cash like no >> that is that is I mean not cash uh but you can have like money market funds and other they have other types of collateral and there is a mechanism in there for looking at or approving new types of collateral

>> the whole capital one require like banks are regulated for this reason like they're basically rehypothecating the coll >> yeah they're they're rehypocating collateral and they have and they have capital rules right now the banks are, you know, they're fighting capital rules right now, right? They're trying to get Basil uh um uh kind of um uh rolled back at this moment, right? And so like and there wasn't a big announcement, we didn't talk about it, but the um the brokerages can now use stable coins. They only have to take a 2% haircut instead of a 100% haircut, right? Which is similar to money market funds. >> Is that rule or is that proposed by K? >> No, no. I think I think that that that rule is was enacted. So they they put that out there. So, um, so you're going to start seeing like a lot of people

want to a lot of these brokerages and, um, FCMs want to use this as as collateral. And so, like, look, this is happening. And so, the the the fight right now is do we allow innovators to continue to innovate on shore or not? That is the full fight, right? And like right now, we're seeing, you know, the gas of the banks trying to make sure that they, you know, protect their FFT. And that is net bad for America. is net bad for consumers. It is net bad for all of us. >> Yes, sir. I'm telling you, it's a co stimulus check that's in there. And hopefully uh yeah, hopefully pro round out this probability of it going back to a more beneficial treatment and earn

paying yield. >> If if it's in there now, it's probably going to end up being in there. Uh, so we're going to have to, you know, really put our our apparatus together to to try to figure out a way to take it out. Uh, but I will tell you the whole industry will be focused on this and so and we've shown to be, you know, an industry that can get things done in Washington. And so hopefully we'll um be able to do that here. But so what I don't know what the poly market is today or if there is one yet, but I'd put it at, you know, 60% it stays in.

>> Yeah. Yeah. All right. All right. Well, what's content of the week? >> Can I tell you last week you I said Olympic hockey. I don't know if you watched the old the gold medal match on Sunday morning, but the US won the gold for the first time since 1980 since the miracle against the US. >> They go to overtime. >> They went to overtime. It was incredible game. They scored a gamewinner in in threeon three. The guy who scored the game winner had had his tooth knocked out. He was bleeding from his mouth while he scored. This is like a thing of like, you know, lore.

>> Movie will be made out of this. >> Yeah. It has to be, you know, like look, >> I love hockey. I think uh I watched for the first time in uh in Madison Square Garden. Uh because, you know, the time I was >> where the Rangers play. Yeah. >> Amazing. Amazing. Amazing. I think it's the most fun sport to watch live in an arena. >> So fun live. >> Especially because I was there like banging. I got comp seats and whatever. And I was like, "Wow, so much fun." I I would also say uh Olympics is I love freestyle like I love seeing it and so I >> one of my friends from college her sister does aerials and I got invited to go see her in Pyong Chang which in South Korea like 10 years ago >> and and she competed back then and I was

like randomly scrolling through like and I saw her and I saw the clip of her winning silver uh Danielle Scott and it was like Australia knew it was like kind of Australia for whatever reason has like a super strong aerials program. >> Yeah. >> Um and uh yeah, it was just amazing to see that. It's like they do like that. >> Nerve-wracking, but uh yeah, it was fun to watch the Olympics, >> you know, new content for this week because the Olympics is still on, but you know, the uh >> Well, they're they're done. The Olympics is is >> Yeah, just finished. It just finished, right? Yeah. Uh but there's a uh there's a movie uh called Sat which was nominated for the best international feature uh at the at the Oscars and uh just saw it and it's sort of um movie

about you know a father and and and a kid looking for uh his son and they kind of end up having to go and they're trying to find them at this like desert rave and I will tell you it is a movie is a trip. So, like it is uh it is >> saying that movie is a trip. I can't imagine what other people think of it. >> It's it's it's it's insane. Uh but it was insane in a way that I I liked. So, uh I if people like kind of weird, you know, kind of movies that will, you know, get your heart rate up, like I would I would recommend this.

>> Yeah. Yeah. Yeah. I I'll say two things. One, invest like the best. I was just catching up. There's two really good podcast episodes. The one of uh Jared Kushner, >> Josh Kushner. >> Josh Kushner. >> It was great. I agree with you. It >> was great. It was very good. And then and then I the D1 Dan Sunheim I think he used to be a CIO Viking started this fund. He talked about how they kind of like he got into um kind of during COVID I think GameStop phenomenon like their fund was like going through a hard time.

It just I really appreciated like his conversation around that and how he managed that. Uh, so those two podcasts were pretty good. Um, and then I mean I, uh, there's Michael Bur's Substack is amazing. Uh, it's I think he's making like 20 million bucks off of the subscriptions at this point. Uh, more than most fund managers on on management fees. Uh, pretty good, honestly. I mean, I I I subscribe to it. He had a he has some pretty good content. his one on Palunteer was uh pretty pretty eye opening. So uh uh you know I would I would strongly suggest people to go and uh subscribe to that. It's not cheap. I

think it's like 300 bucks a year or so, but it's uh it's pretty awesome content. >> All right, another uh another great week of stable coin news. >> We somehow managed to make it more interesting than us. There's a lot of times the podcast we come in here like god I don't really know there's anything to talk about but you know somehow we managed to make it on stable coins again it was pretty entertaining >> you know don't get me started on stable coins that's what the and then we go you know an hour and 20 minutes so [laughter] >> that was good man all right good place ever to end it thanks everyone for joining see you next week >> thanks everyone [music]