speaker
stringclasses 3
values | text
stringlengths 4
2.49k
|
|---|---|
A | If you look at, like, last seven days, ethereum versus run rate for circle, it's the same amount of money is equivalent to circle. Exactly. Exactly. Holy shit. Printing money every time you pay gas, like that amount of gas, that's the same amount of money that circle is making. Tether is three times that. Tether alone is making more money than the whole rest of the crypto ecosystem outside centralized exchanges. |
B | Oh, that's your margin. That's your margin is my opportunity. |
A | Exactly. |
B | Is that what you're saying, Martin? |
A | Exactly. |
C | Welcome to bankless, where we explore the frontier of Internet money and Internet finance. This is how to get started, how to get better, and how to front run the opportunity. This is Ryan, Sean Adams, and I'm here with David Hoffman. And we're here to help you become more bankless. This is certainly a money opportunity to front run on chain t bills is the topic today. The overnight fed funds rate is 5.3% right now, and that's some pretty good yield. But how much are you getting in your bank account? Probably not very much of that. How much are you getting from your stablecoin is maybe a better question for crypto natives. And if it's an instrument like USDC in your Ethereum address, the answer is probably nothing. You're not getting any of that yield. But what if we could tokenize treasuries instead of just dollars? What if we could create a USDT and the t is for treasury, and that tokenized treasury yielded 5% just for holding a new ETH address? That is the promise of tokenized t bills, and it's gearing up to be a major theme over the next twelve months. And I think another force for democratization worldwide. We have Martin Karika here. He's the founder of a tokenized t bill company, and he's here to get us up to speed. A few takeaways for you on the episode today. Number one, why don't we already have tokenized treasuries? Why doesn't that product already exist? Number two, we talk about why on chain treasuries are a force for democratization worldwide, especially in emerging countries. Number three, we talk about why the us government actually wants this, even though they may not admit it. Number four, in this weird paradox, we talk about why us citizens will probably have a hard time getting tokenized t bills as well. David, you're laughing right now because, man, it is hard being a us citizen in crypto these days, isn't it? |
B | Yeah. Really. The irony of us citizens being the people that are going to be the hardest population people to access the yield from their own government money printing. And in fact, no, we're going to just export it straight to the foreign countries of the world. Bankless listeners, you'll just have to listen to the episode to understand. Understand the punchline there. But Martin, the guests on the show does a really good job laying it out for us. I think Ryan presented this as the promise of tokenized t bills. Tokenized treasuries on chain t bills, whatever you want to call these things. I'll also, I'll add that there's an economic weight here. It's kind of destiny. Maybe we don't get there for some reason that I can't understand, but incentives will produce this outcome. Eventually, stablecoins will be replaced by tokenized treasuries. It's kind of in the same. If you accept that eventually all vanilla ETH will be replaced by some liquid staking token alternative. Eventually. Like, why? Why would you just hold vanilla eth and aave when you, when you can do our Eth and aave instead? If you accept that, then it's kind of the same thing. Eventually, all vanilla stable coins will just be replaced by tokenized treasuries, and you will get the yield natively. |
C | There's a gravitational pull, right? It's like water goes downhill and liquidity finds a way. And it'll find it. Yield will find its way in a tokenized form on chain. |
B | Yeah. So there's been just growing demand, growing an interest about this topic of on chain treasuries and real world assets. So, bank listeners, you can consider this the first of a few steps into the world of real world assets on chain that we want to explore here on bankless, starting with tokenized treasuries. |
C | Yeah, I'm looking forward to discussing this with you. A lot of interesting implications here, and David and I are going to discuss that in the debrief. Of course, if you're a bankless citizen, you already have access to that on the bankless premium feed. So go check that out. Ad free. |
B | Bankless premium feed. |
C | Ad free. It's a beautiful thing, but before we get into this episode, first we disclose. And the disclosures are. There's nothing really to disclose here. Of course, we hold crypto. |
B | Didn't even talk about eth. |
C | No, we didn't. Crypto assets that we do hold stand to benefit from tokenized t bill transactions. But of course you know that. And we are long term investors. We're not journalists. We don't do paid content. There's always a link to all bankless disclosures in the show notes. You can access [email protected]. disclosures all right, we're going to get right to the conversation with Martin on tokenized t bills, but before we do, we want to thank the sponsors that made this episode possible. |
B | Bankless nation, I would love to introduce you to Martin Karika, the founder of Mountain Protocol Protocol, a native yield bearing stablecoin project. And Martin himself is alleged to be extremely knowledgeable about stables, especially from a regulatory perspective. At least that's how he was introduced to us by our friend Nick Carter, who is also extremely knowledgeable about stablecoins. Lately in the crypto world, the conversation around real world assets and on chain t bills has been growing in interest. So we're hoping Martin here can help us, help guide us in our understanding about what is next in this new evolution of stablecoins from on chain dollars to on chain t bills. Martin, welcome to Bankless. |
A | Thank you, guys. Thank you for having me. |
B | Well, Martin, this is your first time on Banklist. Tell us a little bit about yourself, your background, and why this story of stablecoins is so important to you. |
A | Awesome. So I'm originally from Argentina. Lived through high inflation for a long time, started in crypto, got my first salary like a traffic company, oil pipe company, purchased bitcoin, going to a miner in a McDonald's and exchanging cash for bitcoin and having to wait for the two blocks. So we had lunch together. |
C | A miner in a McDonald's. That's how you got your first bitcoin. |
A | Correct. |
C | That is cool. How did you find this person? |
A | There were groups. I don't remember exactly what app it was, because this was early on. This was before Mount Cox. We would pull all of my friends money, and, like, someone would go and we would rotate who it was. |
B | Wow. |
C | It was, like, a little bit true. P. Two p I think. Very cool. All right, continue. So, yeah, I mean, I hope you enjoyed the meal at McDonald's as well. |
A | Yeah, it was, like, two blocks. So it was enough to, like, do everything you needed to do. You had time to count the money, and then it was, like, super cheap. We would, like, distribute the bitcoin afterwards, just to give you a sense. That was, like, our internship salary, like, $150 each. Right? Like, it was, like, minor purchases. So that got me interested in bitcoin. Initially, I thought bitcoin was an emerging market thing in Argentina. Makes sense. In China. Makes sense. In Turkey, it might make sense. I studied engineering. I got into traditional banking work I did a lot of work with failed banks, launching new products for banks. I did a high yield checking account with banks, and that is relevant to this story. When stablecoins came in, I was like, okay, this is exciting. Now you have a product that my mom uses. She actually uses stablecoin today. And in Argentina, if you go now, people will purchase a stablecoin when they get their salary, use our stablecoin, and then they will swap it out, two pesos to pay for their last week or two weeks of expenses, and they will hedge against inflation doing stuff like that. The applications of this in Argentina are massive. Basically back to the high yield checking account side. I did that the prior cycle after Goldman Sachs did Marcus. And when Luna exploded, and appetite for leverage and therefore interest in Defi went to zero. I was like, how is it possible that the risk free rate is higher than what we're getting in defi? Someone has to have built a product that bridges these two things, and that allows everyone in the world to access dollars. And now with the native yield of the dollar, turns out it was hard. Yeah. |
C | When you say risk free rate, can you just define that for people? |
A | Yeah. So if you lend money to the us government, the us government can print money, and they do that every day. So therefore, it is assumed that the us government is not going to default. If default were to happen, usually they will print more money. So you're going to see it via inflation rather than an actual default. So that means if you lend money to the government, you're guaranteed to get that money back. And then that time value of money is the risk free rate by the. |
B | Full faith, power and credit of the money printer is because there's a money printer, there's no risk. We'll just print the answer. |
A | Exactly. |
C | This is basically the fed rate that we talk about so often. The whole economy is like, what, five point something percent right now? |
A | 5.5.25. .3% it varies a little bit every day. Usually you take the secured overnight funding rate. So a bank will leave a treasury bill, they will take cash in exchange, and then they will do a repurchase agreement on the other side the next day. So that's usually what's considered the risk free rate. You still have risk free rates in other currencies. So for ETH, that is the liquid staking yield. That would be the risk free rate for ETH, because you know you're not going to get defaulted on that ETH in Argentina. You also have the risk free rate in the Argentina peso. That's 100%. You know, the government is going to pay you, but they're going to pay you in pesos, right? So each currency has their own risk free rate. I would say most assets have their own risk free rate. Bitcoin doesn't. Bitcoin doesn't have any native source of yield, but most of these assets do have some kind of risk free rate, and it's independent prices. |
C | So. I'm sorry, I interrupted you, Martin. You're talking about the risk free rate. You saw that creeping up, and you were talking about the fed risk free rate. You saw that creeping up, and then what happened? |
A | So it was about 1.5%. I was presenting to a bank. They wanted to learn about crypto, and I was like, if I were a bank, what would I do? And I was like, this is an amazing deposit strategy. And I calculated the revenue of a couple other stablecoin providers, and the number was massive. I presented it to them and they were like, yes, but it's very, very hard for us to do. There is no framework for us to issue this and so on. |
B | Is it borrowing stablecoins in defi? Because you said they were at a lower yield than the risk free rate. So what you're saying, it's hard for us to do it. It is borrowing stable coins in defi at the very low post terra, post FTX rates of 0.3%. I think, if I remember correctly, while you're saying the risk free rate was 1.5%, so you're saying, hey, there's this free arbitrage, people are leaving money on the table, and banks were saying to you, sure, we see that free arbitrage, but it's hard, so we won't. That's what you're saying? Correct? |
A | Yeah. So the arbitrage that I was proposing then is go acquire deposits in this market. So if you go and acquire deposits in traffic markets, you open a branch and people start depositing, and you give them an IOU in stablecoins. That IOU is the stablecoin. So you can issue a bank stablecoin. Imagine a Wells Fargo stablecoin, and you could start acquiring assets basically at a very, very low rate, and you wouldn't have to pay much. And then you can lend that on the other side to the us government, and there's an infinite amount that you can lend to the us government in the order of trillions. |
B | Take us further in this story. You see Defi yields at zero, while the risk free rate is 1.5%. What do you do about that, I. |
A | Started looking like someone has to have built something that solves this problem and no one had. The big challenge here is how do you bridge these two worlds, giving clarity on the real world asset side. So someone has to hold a treasury, a treasury bill, and that person who's buying those treasury bills at small scale, you can buy. But if you're starting to buy anything at meaningful scale, you have to show where the money came from and that where the money came from. The compliance AML KYC component was hard to do. So we said, okay, if we want to offer this, you have to be regulated to do this at scale. If you are not regulated, you're never going to have a framework to bring this pipe and have it be wide enough to bring money and show where the money is coming from and still have sustainable banking brokerage custody relationships in the traffic world. And that is the biggest challenge that everyone in this industry faces. It's how do you answer that regulatory or legal structuring question? |
B | It sounds like what you're trying to build is the largest pipe possible between the government, United States government, risk free rate and defi. And right now you're saying that this pipe is actually constrained by our current stablecoin paradigm or the current meta stable coins, because you go through it vanilla dollars first, when really you can just go more, get right to the punchline of this whole thing, which is like, let's take the yield of the risk free rate and get it into Defi. |
A | Exactly. Exactly what you're buying today. When you buy a stable coin on the backend, it's cash and cash equivalents. That's accounting term to say treasuries, repos, and some cash in banks. So if you look at the disclosures of all major stablecoin holders, most of it is treasuries already. So we are already doing this. The thing that is not like flowing through is the yield component. So you're getting a 0% yield on your stable bins today. |
B | So, Martin, this is. We actually don't usually ask people about their background and their story about how they came to build what they are building in crypto. But in this particular moment especially, we just did the weekly roll up last week, recorded it went out yesterday. And we talked about how increasing inflation in Turkey has led to 12% of population of the turkish population adopting crypto in the last year and a half. And you come from Argentina. Argentina is very familiar with inflation. We've had plenty of Argentines. Previously on the show, Mariano Conti. Just talk about the role that inflation played in their lives and just the happenstance of Argentina also being a very Internet connected country, you mixed and inflation and Internet connectivity, and all of a sudden, you have an entire country that is pushing forward crypto adoption. And this is the story I see playing out with you, right? Like, born in the world of inflation, tech enabled. Now you live in the United States and want to build in the world of crypto, because that is your genesis, that is your upbringing. I wanted to take this moment to tell this story of showing how inflation leads to people, builders, building stuff in crypto to help progress forward this new financial revolution. And so I just wanted to do the thing we don't usually do, which is have people explain their background, because that is how you've gotten to be where you are today. Any comments or reflections on that I. |
A | Would add to that. Capital controls, that's the other big thing that has made Argentina so strong in crypto. I couldn't buy a dollar even if I wanted to. Right? So the experience of buying a crypto asset, like my mom, she's 60 years old. She buys stable coins because she cannot access them through the traditional financial system. Her alternative is to have someone bring her, like, we call it the blue market. It's called the black market in practice. Someone comes on a scooter, brings pesos or brings dollars, and you exchange everything in a very informal way. That's the alternative today. |
C | I want to put this through the lens of something you were saying when we were going through your background. You said that at first you discovered bitcoin and that McDonald's transaction, and then later you discovered stablecoins. And you said you were very excited about stablecoins. And I think a lot of our listeners today, and people in crypto, maybe in the west, they look at stablecoins and they don't get very excited. You know what I mean? Like, they're more excited about the speculation, they're more excited about the gambling. But you see in stable coins, probably as a result of kind of growing up in Argentina in a high inflation environment, and you see a killer app in a killer use case. And you wrote this fantastic article I really liked back in December of last year called stablecoins are crypto's hidden money printers. And you talk about how great USDC is, the stablecoin, how that is the definition of product market fit. And you brought the receipts into this post where you saw the charts. And, hey, this is crypto's killer app. It's called stablecoins. I want to get to more of that story. But before we do, let's talk about this t bill thing. I have a simple, maybe crypto native type question for you that we've sort of gotten to the edges around, but it's like, more directly. I tweeted this out, USDC and tokenized dollars are fine, but with rates over 5%, I want tokenized treasuries. Where's our USDT? I'm not talking about tether here. I'm talking about the t, as in t for t bills. Okay, so the simple idea, and it feels like we should be able to do this, I think you were kind of like, you know, hinting about this is rather than have an ERC 20 fungible, um, you know, stable coin that is just one to one backed by a dollar, why not have an ERc 20, a tokenized form of a T bill, call it USDT. I guess we've tried that one USD treasury. Right? And, like, make that the same thing. Except it gets me that 5% yield, or wherever the fed rates goes next. Maybe it's down to 4%, maybe it's up to 6%. Maybe it's up to 8%. Who knows? Wherever. Wherever it ends up, I still get that yield. To me, that would be, like, the perfect instrument and completely ripe for crypto. So let me ask the really dumb, simple question. It's like, why don't we have that already? I mean, kibbutz, it's not just the three of us making this connection. I'm sure the people at Coinbase, we're not geniuses here. Yeah, this is a pretty simple instrument. Why don't we have it yet? |
A | The answer is, the regulation is not easy to. There's no regulation where you can plug this in and it's ready to go. There's various. We're not the only company doing this. There's at least ten that I know of, and most of them have gone through the path of. Let's literally tokenize the treasury bill. The treasury bill is a security, and then the claim that you have is a share, like it's the t bill or a share of a fund or something like that. The issue with that path is you run through securities laws and it kills the compulsability. I cannot transfer it to you unless you also whitelist, unless you are also an accredited investor. How do you whitelist uniswap or a curve pool? So you start getting into those issues down the securities path just to re. |
B | Articulate why that's such a big issue. So you're saying, like, the token, the ERC 20 token on Ethereum would come with a whitelist. And so by default, every other address on Ethereum is not allowed to touch that contract address until their specific ethereum address is approved on the whitelist. Which is like, what's the effing point at that point? Right. Like one by one by one, automatic. Yeah. There, there is no composability there. There's no permissionlessness there. There's plenty of risk there. Yes, that, that's a huge barrier. |
A | So, so that's the. Ryan, you have a. Yeah, yeah, I. |
C | Just want to back up. So is what you're saying that the dollar, right. A dollar is in an account, and so therefore, USDC, that is not a security, despite what Gary Gensler might want it to be. Right. That's not a security. As of now, it's just like a currency. It's something different. Okay. But a treasury, our treasurys securities, then in all of their forms and flavors, like I'm talking in the tradfi market, they're all securities. And so they come attached with securities laws. What are those securities laws? Is that. I, I mean, I'm more familiar with kind of securities laws as they pertain to, like, stocks. But what is there specifically for, like, treasuries? |
A | So treasuries are considered debt, right? They're us government debt. And by that, they are a security. The thing that you're going to is USDC is a wrapper on those securities today. So USDC is a wrapper on a bunch of t bills. You can, they have a fund in Blackrock, I forgot the ticker, but you can go and check and it has a bunch of securities and repos and so on. So you're already wrapping that and creating a non security, a payment token. So there is a gap that the US still needs to address for this law. This is a gap that Bermuda, where we've gone, Switzerland, Singapore, is soon to address the UK. Every other jurisdiction is starting to address this gap. So this question that you have is very us centric in that that model doesn't work. There are other models, which is one that we went down with, but we'll get to that in a second. Let's finish this. |
C | So what you're saying is right now, USDC is sort of effectively a middleman, kind of a go between all the dollars that back USDC, it's not actually dollars. We use that in short form. We say there's $1 here, there's $1 in the bank. These are actually treasuries. And that is why you can go to Coinbase and you can press a button, or I don't even know if you have to press a button anymore, but there's some sort of setting inside of Coinbase where you park your USDC there and you get, I think it's like 4.75% yield. The reason they're able to give you that yield when the USDC is sitting in Coinbase is because there's actually treasuries behind this. And so I think, am I right here? Where does the yield come from? Martin? |
A | Yeah. So Coinbase and circle are different entities where the yield for Coinbase specifically comes from. I don't think it's disclosed. They own a portion of circle. They might have a commercial agreement. Some centralized exchanges that don't have direct commercial agreements with stablecoin issuers will also pay you so that you have money for swaps and they make money in the swap. So it could also be a marketing expense. So Coinbase, I think, is probably not the best example in this yield because it could be a marketing component rather than them passing through the yield. |
C | Okay. But regardless of the tiVo, the US sort of inserts this middle middleman type function. I suppose that's kind of in between the treasury and the retail market. And you're saying other jurisdictions do not. |
A | Have this other jurisdiction. So we talked about the traditional securities law model, where you build a fund and the tokenist bill is a share of the fund, and that is today the market cap of treasury, tokenized treasury is 600 million. Most of that follows that path. There's a second path, which is the Suez DLT law path, where the Suez DLT has said a stock. Before we had electronic systems, stocks were bare assets. I could change a piece of paper with you and you would be the owner of that stock. So why don't we do that with securities again? So there's a company out of Switzerland that did a prospectus and they have a tokenized security, but that's permissionless. So essential is very similar to like an ETF, like a gold ETF. They put a bar of gold in a safe, they give you a piece of paper. That piece of paper moves around, and if you want to claim it back, you have to do KYC and you take the bar of gold. This is the same, but for that treasury bill or that fund. And they were the first ones to be able to do permissionless treasuries. |
C | Well, I was going to ask a question about whether the US actually wants this. So one thing that's notable about a treasury is that it's a kind of a product of the us government. Right. And so is the system that you're describing in kind of Switzerland. And our scheme here to like, you just create a tokenized version of treasuries and call it USDT or something and get the 5% yield. Is that contrary to what actually, like us monetary policy and kind of treasury department the feds actually want? Is there a reason that that product doesn't exist? And so what I'm wondering is like, whether these regulatory kind of arbitrage opportunities in, say, Switzerland or elsewhere, whether they might be closed at some point in time, because like maybe this is counter to what us monetary and financial policy actually wants, and so they'll try to put the kibosh on it in another way. Do you have any insight into that? |
A | I have to. I think if I were the us government, I would do a 180 on this. If I could have all Argentinians transacting us dollars, it means I have four buyers of my treasuries. That means I could sell my treasuries at a lower rate, I lower my interest expense, so therefore my budget closes nicely. And if you dealt with Argentina and Turkey and all other emerging markets, you can export dollars globally. And those dollars are going to be stable coins that are holding treasuries. That is like forced buyers. They cannot take more risk. So when you're doing those auctions, the interest rates that you're going to have to pay are going to be lower. So I think it's against us interest to stop this market. |
B | Against us interest to stop this market. One of the things that we say on bankless is like DeFi is just exporting the power and the brand of the United States dollar. And I think that's what you're saying in agreement, too, right? Actually, we are just, again, we're just connecting bigger, shorter pipes between aave and the United States treasury. And so aave is just a reseller of United States treasuries. And that is like the United. If you're the dollar, that makes you happy. |
A | Correct, correct, correct. And I think going a step further, going on top of treasuries, if you can bring any stock that's trading in the US and put it in crypto, now, you have you expanded Nasdaq or the New York Stock Exchange globally, you should have an interest to do that too, and have Robinhood be in 180 countries. So I think there's an interest to export the US financial system. If your objective is capital market capital formation. |
C | So your argument here is to answer the question of, but won't the US try to kill this? Your answer as well. If they're rational and they actually want to export the dollar, what better way to do that than to have a tokenized version of a dollar plus yield plus risk free rate and have that be kind of the ultimate dollar stablecoin. And the ultimate form of that is clearly a treasury rather than just the dollar because you get the yield embedded in that. In a world where, let's imagine this world might be closed too, the US runs out of countries or banks or pension funds, buyers in general of its treasuries. It's going to need to find new markets for this. And you're saying, hey, emerging markets like Argentina, like Turkey, maybe as we're alluding to global emerging markets, for them, the dollar is still a pretty strong product and you'll have net demand from these markets in these countries. And hey, isn't that in the us interest? That's what you're saying. |
A | Exactly. Exactly. And if you think about it today, that demand exists. It's called the eurodollar complex. So without the US promoting it, this euro dollar complex formed and it continues to expand despite it being outside of the purview of the us government. We now have swap lines and so on, so it's starting to connect. But this euro dollar, if you add stable coins on top, you can grow it a lot more. |
B | Yeah, we call them stable coins, but really we should call them crypto dollars. Like you have euro dollars, you have now you have crypto dollars. But we're stuck in the stable coin terminology. Martin, one thing I want to ask is, like, intuitively, yeah, like, we get we dollars produce yield. Let's get the yield into defi. But like, kind of, don't we already have the value of yield from the United States treasury markets in Defi? Not in a direct way, but in a roundabout way, just like, because overall, like slowly over time, the efficient market hypothesis does play out. And then all of a sudden, whatever yield that is being offered by the United States treasury is through the market being offered by AAVE, and then AavE turns dai into a dai or USDC into a USDC. And then the power of the yield of the treasury market does actually become expressed in an ERC 20 token, albeit in a roundabout way. But eventually for the end user, they don't care what happens in the background so long as they get their yield. So don't we already have on chain treasuries at least implicitly. And how does actual on chain treasuries differ as a product? |
A | Yeah, so there's a couple of things there. The first one is it requires not only holding a stable coin, but also participating in a DeFi protocol. If you look at the percentage of stable coins that participate in these protocols, it's always about 20%. Even in the bull market, most stable coins sit in the sidelines. And the reason for that is it's either experience, because getting into these protocols can be risky, it's complex, it requires management, it could be technical risk, and adding counterparty risk to your holding it. |
B | Really kind of neuters the whole risk free rate thing, doesn't it? |
A | Exactly, exactly. We saw curve get hacked recently, so even blue chip protocols are not totally risk free. So you're adding additional layers of risk that you're taking. It might be worth it if you, if they're paying you an interesting, an additional interest on top of the risk free rate, but for the risk free rate, you wouldn't want to add counterparty risk. |
C | So taking another example of this, in Defi, Martin is maker MKR token. So they have DAi, of course, David was just talking about the stablecoin, and they have this function in their contract called the DSRDH. And that is if you park your die inside of the DSR, then you get yield effectively. And I'm not sure what the yield rates are lately, but I recall recently they were like 8%, for instance, that was above the risk free rate, and then kind of governance changes them. They go up or down. I guess my point about that particular product is there's not really the certainty of like, you don't know whether it's going to be above the treasury risk free rate or if it's going to be below. It's kind of dependent on governance. It would be nice, I think, for a product that just very clearly tracks whatever Jerome Powell's doing. Kind of like the one to one, instantly, if the rates change, then you get that kind of inside of the token. So I feel like that's another plus one need. It also seems kind of cleaner. Right? Because again, with something like the DSR, or Aave, as David was talking about, you still have this middleman market that doesn't quite track one to one with what the treasury is, so it's a less clean instrument. Are these valid points as well? |
A | Super valid point. And in fact, the DSR today is the same as the risk free rate. So they're both at 5%. |
B | The DSR today is 5%. |
A | 5%, correct. And the risk free rate is at five point something. But if you take out the expenses that would be allocated to actually bring it on chain, it's going to be 5%. So it's five to five. The difference is, on one hand, you have maker, which has DAi, which is integrated everywhere. So it has a bunch of advantages, right. It's also decentralized for some people and some daos companies. That's very important. On the other hand, maker is, it has its own governance. It's a centralized. You don't know what maker holders are going to vote for. You have smart contract risk that is more complex than an ERC 20. So those are the trade offs that some of our clients are doing. And anyone thinking about buying a tokenized treasury versus putting money into DSR should think, and there's pros and cons to each of those. |
C | Yeah. Right. Let's be clear. Any tokenized treasury instrument would be very centralized. Like completely centralized. Right? We're talking about just like USDC kind of instrument. |
A | And in the back end, you can know, like you're holding reserves. Those reserves are physical assets that can be seized. Right? They see it at the Fed. So even there are some protocols that have said, we're going to go with t bill collateral without any centralization. In the end, the centralization happens elsewhere in the chain. Right. If you cannot blacklist Ofac, you're going to have the treasury come and knock your door. Right? And in the end, the reserves are going to be the point of centralization. |
B | So to understand on chain treasuries, like you said, I asked the question, why is an a dai out of Aave? Just kind of the same thing in a more roundabout way, your answer was, well, there's also smart contract risk, and so that's a difference. And then on the flip side of things, and the tradfi side of the equation, circle and USDC, even though that could in theory become yield bearing, it's not as directly connected to being a treasury as an actual treasury. And so you have like the metaphorical middleman of Makerdao or Ave on the defi side, and then you have the unknown black box that is the yield in circle, USDC on the tradfi side of things. And so I think what you're saying is, like, with this on chain t bill, it's the most direct pipe possible on the tradfi side. And then on the defi side, there's no smart contract risk. And so it's like, it's not like a race to the bottom, but it's like a race to the logical conclusion of the shortest, fattest pipe between defi and treasuries with zero counterparty smart contract risk on the defi side. And that's probably why there's, like you said, like there's over like, ten companies on in a race. It reminds me of the stablecoin wars of 2017 that have been ongoing to this day. But now there's like, the on chain t bills race, the race to be the liquid t bill. So this kind of feels like an evolution of stable coins, right? We have us, we have tethered to the Wild west, unregulated stablecoin. Then you have the teacher's pet stablecoin, which is USDC. And now we have this next evolution in the war of stablecoins, which is on chain t bills, which is where we are in crypto history today. Is that right? |
A | Exactly. Exactly. I would say in terms of counterparty risk that you're taking with any t bo issuer, you don't have the Lindy that USDC has, so you're taking a bet on how the specific issuer is set up, their legal structure, and so on. But essentially, the layers that you have in the middle are the same. You have the Fed, you have DTCC, you have your custodian, you have your broker, your bank that you have to go through your on ramp and off ramp, and your issuer, and that's kind of the cleanest chain that you can do anything less than that. You cannot move money in and out. And that's the same for USDT, USDC, and any other TPU issuer. |
B | I'm inspired by this. Not inspired, but I'm reminded of the conversation around the staked ether space in Defi where Lido and kind of everyone, I think, has accepted that all vanilla ether as collateral in DeFi, all vanilla ether and maker vanilla ether and aave, any collateral that accepts ether will eventually become steak ether. And this is more or less playing out, like, slowly but surely everything, all collateral and defi is being replaced by staked ether in Defi. Because why wouldn't you, like, why wouldn't you trade your non yield bearing ether for yield bearing ether? Is this. Is this the same, is this the same conversation with on chain T bills? Like, well, why would you hold vanilla stables crypto dollars in DeFi when you could just hold on chain T bills in Defi? Let's just get. Let's just cut to the chase here and get to the. To the logical conclusion of this thing. This is the same fight that's going on. |
A | Exactly. So for degens or crypto natives, we explain tokenized treasuries as like stake deed for dollars. So you have the bitcoin chain is the US treasury, right. That's the source of yield and where the ultimate asset sits. Then you have a wrapper on top of that that makes it liquid. And that wrapper is an ERC 20. That is yield bearing. In our case, rebasing some other will do price appreciating, like rocket pool and stake teeth. Right. You have those two flavors, and that is an ERC 20 that you can move anywhere. So it's very much the same system. |
B | How big is this fight? You said there's over ten companies trying to produce the same outcome. How much value is there to be gathered? How big is this pie? What's the value of this pie? |
A | So if we dream big, there's $20 trillion, right? |
B | I love dreaming biggest. |
A | The market is massive, just like the stablecoin market cap is 120 something billion. It was 200 billion. And a lot of that has died because there's a huge opportunity cost. By being on chain, you're taking more risk because you're taking Ethereum risk, which is not negligible. You're taking your ERC 20 risk from your issuer, wherever your caster risk, and you're getting paid zero, whereas you could go to a treasury and get 5%. Why would you do that? So we saw this decline from 200 billion to 125. I think by adding yield again, now, you have a very compelling argument to tell my mom, hey, take those dollars that you have under your mattress, turn them into a yield bearing stablecoin, and you're earning 5% of your money, whereas you were earning zero. You can go to a small and medium business and say, you know this high yield check, you have dollars, right? Or you're interested in paying dollars when you're holding those dollars instead of holding them at your local bank, which, by the way, is not FDIC insured because it's offshore, hold them in USDM, you're taking Bermuda structural risk, or sue structural risk, or Singapore structural risk, all major jurisdictions, instead of argentinian structural risk, and you're earning the 5%. So it becomes a way more compelling argument to bring new money on chain. I'm going to throw a number here. I think we're going to get to a trillion in stable coins in the next two years. There's so much money that is sitting in the side. |
C | How long, Martin? |
A | I'm going to say three years for 1 trillion. |
C | A trillion in stablecoins. When you say stable coins, you mean the token ISD bills that we're talking about slash. |
A | Correct. |
C | Both that. |
A | Anything that follows the value of $1 or some like tokenized us treasury studies. USDC. USDT. That could be us. It could be an ETF, TB, ETF, anything that follows the core, like us government debt. |
C | I can totally see the market demand for something like this. I want it. There's nothing available like it in tradfi. And yet I'm still kind of wondering if we're missing something here, like an alignment perspective, what you said earlier, Washington. Yeah. Why wouldn't the us government want to export its dollars? Of course it would want to do that. And export its treasuries more specifically. Export its debt more specifically. But I'm wondering if we're missing an actually important stakeholder. I put important in air quotes called the banks. This is bankless. We are no friend of the banks, but it seems like they could be cut out of the mix here. |
B | Yeah, wait a second. |
C | In some way, Martin, let me just ask you how this works. I go to my bank account and. Yes, full confession, bankless, listeners. I have a bank account, all right, because I need to pay taxes. And, you know, it's literally Wells Fargo. And my bank account pays me a whopping 0.15% in my savings account. Or actually, maybe that's a checking account rate, okay. There's some arbitrage there because that's a lot lower. Then what I see is the risk free rate. Okay? |
A | Correct. |
C | So that tells me somebody's making some money, and I think it's the bank. And Wells Fargo is making that money on the account. And so there's this kind of arbitrage here. And of course I could, if I wasn't, if I was more motivated, I could take that money out of Wells Fargo and I could go find a place to park it and good old tradfi and get that, you know, those sweet t bills. I'd rather actually just move it into crypto and buy the tokenized t bills that you have. That would be great. But it strikes me that if I did that, there would be this sucking sound from the us banking system, the kind of sucking sound that may have been the downfall of Silicon Valley bank, only maybe not quickly, but just slow sucking train crash where kind of liquidity leaves the banking system. And I'm just thinking, Martin, the banks might have something to say about that. And the banks have some influence, not just the banks? Yeah. Not just the banks. Right. So is this a piece we haven't covered yet? Tell me how this conspiracy theory fits in here. |
A | So, if you talk to people at Congress, and you bring lots of people to the show, they will tell you there's out of 20 trillion, there's 5 trillion that are sitting in money markets. So one in $4 are making that decision that you just said. Right. |
C | And a money market is effectively what we just said, only it's in traffic, is that right? |
A | Correct. Correct. So you will buy. |
B | For defi enthusiasts, that's compound or aave. But in their tradfi forms, we gotta interpret. |
A | Technically, ave and compound are margin loan automation, smart contracts. So you put it. You put an asset and you take a marginal. Money market funds is more similar to USDC would be a money market fund or USDM, or a tokenized tivo would be more of a money market fund. But going back to the banks, the banks are actually. You have the top banks in the United States, the GCIPs, those are paying you 0.15%. Like you said, they are actually growing. They're not going down. The people who are paying that price are the small banks, all the regional banks, your sbvs of life, which are the ones that people are going out of. They're going either to money market funds or they're going to G sips, because that's where they are flying to safety, or trying to get closer to the Fed. What are the banks telling the government? And why this is getting stopped is if the banks don't have 0% deposits that they can acquire, then they cannot give you a mortgage at 3%. If they have to go and finance at the risk free rate, which is 5%, call it, then your mortgage has to be seven, 8%, and your SME loan has to be 10%. And that's what people like, people in the us government are nervous about, is what happens to the economy once the rational actor decides to go to a money market fund. And what happens to all those loans that were issued for mortgages, for SME's and so on. And that's the tension that's happening, in my opinion, that stopping this, this is like water, right? Like, you can put dams on it. It will inevitably happen, because rational actors, people think they are the best at managing their own money, and self interested people will go where things are best. But that's the tension. Why? It's not that obvious. |
B | So just to enjoy this image that keeps on popping up in my brain, which is like you have the United States treasury on one side, the archetypal bank with columns to allow for bankless listeners imaginations to go. So then you have a pipe from the big bank with the columns, the United States treasury going into crossing the dimension between Tradfi and Defi. And that is where these on chain t bill companies, like your company, Martin, and the many other competitors out there, your company spans between these two planes. And so it goes into your company, and then it goes out into the world of Defi, into the world of makerdao aave, wherever. Again, we have the shortest possible pipe between the treasury and crypto, mediated by some sort of centralized company, because that's part of the deal. That's how it goes. And then it's into Defi. We are cutting out the entire commercial banking layer between the Federal Reserve and Defi. And so, like, while, like in bankless philosophy, we would actually call your company, Martin, a bank. But I like it because it cuts out hundreds of other banks before it spits out its product into DeFi. |
C | It does, except there is one banking party, if I'm understanding this correctly, Martin, which is like some bank, let's say, or I don't know if you call it a bank, but in Switzerland, for example. So it's not a us domestic bank. It's somebody with kind of in a more, I guess, treasury tokenized, Treasury friendly jurisdiction that is set up there. So that would be the bank that would be involved, is that right? |
A | Correct. So that would be the custodian. So there would be holding that security. |
B | And then we call custodians banks. We call a lot of things banks. |
A | Perfect. And then we would fall under the typical denomination of a narrow bank. Right. So narrow banks issue deposits. Right. Like a stable coin is a deposit. And we turn around and instead of issuing mortgages, car loans, credit cards, we just lend to the us government. And because you're learning. |
B | I like narrow banks. |
A | Exactly. So narrow banks is very, very hard for you to fail. Like, if you have access to the Fed, it's literally impossible if you have very short duration treasuries, which is what every player out there does. Like, the us government needs to default for you to fail. That's the level of certainty that you have. So we would be a narrow bank, essentially. |
C | So, Martin, that is a product that you are rolling out, the product that we just described. Tell us what you're building in that product. And then I'm really curious about how big can you actually grow this thing? USDC is under 100 billion right now. |
A | I believe, like 25 billion? Yeah. |