Tokenizing Real World Assets | Robert Leshner

Can we Tokenize the World? Robert Leshner, creator of Compound and one of the forefathers of DeFi, is on a mission to do so. With his new company Superstate, new product, tokenized t-bills and new location, New York city. Robert is trying to bring $300 trillion in TradFI assets on-chain. ------ ➡️ Apply to the Cartesi Grants Program here: https://bankless.cc/Cartesi ------ 🎧 Listen On Your Favorite Podcast Player: https://bankless.cc/Podcast ------ BANKLESS SPONSOR TOOLS: 🐙KRAKEN | MOST-TRUSTED CRYPTO EXCHANGE https://k.xyz/bankless-pod-q2 ⁠ 🔗CELO | CEL2 COMING SOON https://bankless.cc/Celo 🗣️TOKU | CRYPTO EMPLOYMENT SOLUTION https://bankless.cc/toku 🛞MANTLE | MODULAR LAYER 2 NETWORK https://bankless.cc/Mantle ⚖️ARBITRUM | SCALING ETHEREUM ⁠https://bankless.cc/Arbitrum 🦄 UNISWAP | SWAP SMARTER https://bankless.cc/uniswap ------ TIMESTAMPS 00:00 Intro 4:27 Tokenization History 9:46 RWA Problem Statement 14:04 Opening the Door 26:37 Securities Laws 31:50 Tokenizing Treasuries 39:06 Superstate 46:57 Regulatory Constraints 56:01 The Future of RWAs 1:00:36 Pitching TradFi 1:05:13 2030 Prediction 1:06:57 Closing & Disclaimers ------ RESOURCES Robert Leshner https://twitter.com/rleshner Superstate https://superstate.co/ Superstate - USTB Fund https://superstate.co/ustb ------ Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here: https://www.bankless.com/disclosures

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

  So obviously like individual stocks and bonds are going to be tokenized or issued for the first time on blockchains. From there, you know, obviously every fund is going to, you know, have the ability, you know, 30 years from now to be running with an on-chain component.

• 0:16Speaker 00

  You know, we're not limited just to T-bill funds, equity funds, like an S and P 500 fund or a NASDAQ fund or, you know, a real estate, you know, REIT fund or commodity funds or any type of fund, you know, can and will be issued on chain.

• 0:34Ryan Sean Adams?

  Bankless Nation, Robert Leshner on the podcast today. He's the creator of Compound. I would say he's one of the forefathers of DeFi, one of the original protocols for sure. Now he is doing something in the traditional finance space. At least it's a cross-section of DeFi and TradFi. He's trying to bring $300 trillion in TradFi assets on-chain, not overnight, not immediately, but over some period of years to come. He's got a new company. It's called Superstate. He's got a new product, tokenized T-bills, and he's in a brand new location. So from Silicon Valley over to New York City, a lot of new things for Robert Leshner on the episode today.

• 1:13David Hoffman?

  Yeah, he ended the episode with a prediction of 10 trillion real-world assets on-chain by the end of this decade in the next six years. So in this episode, you'll hear how he gets to that prediction. But first we have to talk to our friends and sponsors over at Cartezzi, who's building the first modular execution layer that runs Linux. It is an alt virtual machine in the modular landscape for all the layer three app chains out there that want to boot a full operating system that goes on-chain with you. Wow, I did not even know that that was possible.

• 1:45Ryan Sean Adams?

  Super nerdy of you. Linux, huh David?

• 1:47David Hoffman?

  Super nerdy, yeah. So you can build apps that leverages like the decades of traditional open source libraries and tooling around the Linux ecosystem. But now you can build your app chain all with that infrastructure. Cartezzi's $1 million ecosystems grants initiative is now live with our first wave and there's a link in the show notes to apply for that grants program.

• 2:08Ryan Sean Adams?

  David, the entire world is built on Linux, so why not blockchains, huh?

• 2:11David Hoffman?

  Yeah, that just makes so much sense.

• 2:13Ryan Sean Adams?

  What were your thoughts going into this episode?

• 2:16David Hoffman?

  I always really enjoy the real world tokenization conversations. This is actually the world I was in right before that I left to start Bankless. And one of the reasons why I left is because I thought it was super cool. It makes a ton of sense. There's all of this value that's not on-chain. And let's take the value that's not on-chain and put it on-chain. But the crypto-native, move-fast, rebellious nature in me was like, oh, wait. This isn't really on-chain innovation. This is legal lawyer system innovation. I had been talking to too many lawyers, too many regulators too often, and I just want to go play on-chain.

• 3:00David Hoffman?

  And so the on-chain digital world moves very, very fast. The real tokenization, real-world assets world moves very, very slow. Because it's actually like on-chain minimalism, but like legal system maximalism.

• 3:13Ryan Sean Adams?

  Yeah.

• 3:13David Hoffman?

  And like personally, not my vibe. And so I had to go and leave that whole world.

• 3:19Ryan Sean Adams?

  Bankless and serious. When I first met David, he was in the business of tokenizing houses, like literal houses.

• 3:25David Hoffman?

  Actual real estate, yeah. So I know a thing or two. So this is where I got my, like, sharpened my teeth in the securities laws, which I know like a little bit more than typical about. And it always kind of like sparks joy with me just because like.

• 3:39Ryan Sean Adams?

  Securities laws spark joy with you?

• 3:40David Hoffman?

  There's like lessons and this is why when we remember we did our sparkly securities episode. God, that was a throwback. It was really, really exciting just because there's like lessons about decentralization and principal agent problems and a lot of the things that we honest, we run into in the crypto space. Anyways, we're getting off topic. And Robert is taking this brand new world head-on with his new project called Superstate. Tokenized T-bills is just the tip of the iceberg. It is the thing closest to dollars, which we know is a very successful on-chain real-world asset. And then he plans on going down the long tail, tokenizing more and more and more things. So we start with a little bit of history. We talked, we talked to him a little bit about like, why now of all times?

• 4:25David Hoffman?

  We've tried this before. Many people have tried to do this. Why Robert is going after it now? And then we get into some of the more fundamental conversations about like, why is this inevitable?

• 4:35Ryan Sean Adams?

  All right, well, let's go down the long tail with Robert and talk about tokenizing real-world assets, securities, T-bills, and the like. But before we do, we want to thank the sponsors that made this possible, including our number one recommended exchange to go buy your crypto this bull market. That is Kraken. Go check them out.

• 4:52David Hoffman?

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• 5:35David Hoffman?

  and powerful way for everyone to trade crypto, whether you're a complete beginner or a seasoned pro. Go to kraken.com/banklist to see what crypto can be. Not investment advice. Crypto trading involves risk of loss. Cello is the mobile-first, EVM-compatible, carbon-negative blockchain built for the real world, driving real-world use cases like mobile payments and mobile DeFi. And with Opera MiniPay as one of the fastest-growing Web3 wallets, Cello is seeing a meteoric rise with over 300 million transactions and 1.5 million monthly active addresses. And now, Cello is looking to come home to Ethereum as a Layer 2. Optimism, Polygon, Matter Labs, and Arbitrum have all thrown their hats in the ring for the Cello Layer 2 to build upon their stacks. Why the competition? The Cello Layer 2 will bring huge advantages like a decentralized sequencer, off-chain data availability secured by Ethereum validators,

• 6:20David Hoffman?

  and one-block finality. What does that all mean for you? With Cello Layer 2, gas fees will stay low, and you can even pay for gas natively using ERC20 tokens, sending crypto to phone numbers across wallets using social connect. But Cello is a community-governed protocol. This means that Cello needs you to weigh in and make your voice heard. Join the conversation in the Cello forums. Follow Cello on Twitter and visit cello.org to shape the future of Ethereum. Are you launching a token? Already live, how are you managing the legal and tax obligations for providing token grants to your team? It's no secret that token management gets complicated. Between learning all the legal language and tax obligations in every country that your team is in, token grant management can feel like an obstacle course. But it doesn't have to. That's where Toku steps in. Toku provides practical tools to handle token grants,

• 7:05David Hoffman?

  allowing for effective oversight of token distributions and payroll tax compliance for employees, contractors, advisors, and investors. They also handle tax withholdings through their real-time tax calculations that can be done by Toku or integrated into any payroll EOR providers in any jurisdiction. Toku is a trusted provider of Protocol Labs, DYDX Foundation, Mina Protocol, and many more. Get started for free and make token compensation simple at toku.com/bankless. Bankless Nation, Robert Leschner is the founder of Compound Finance, one of the very first functional DeFi apps on Ethereum that also kickstarted DeFi Summer 2020. He's also a partner at Robot Ventures, where he invests in early-stage crypto startups. And now, lately, Robert is re-entering the game of being a startup founder,

• 7:48David Hoffman?

  this time in the arena of the tokenization of real-world assets. Many have tried, few have succeeded, but Robert thinks that he's got what it takes to bring off-chain assets on-chain. Robert, welcome back to Bankless.

• 8:01Speaker 00

  Glad to be back on Bankless.

• 8:03David Hoffman?

  So, Robert, the asset tokenization, the asset securitization world was actually one of my first entrants into the world of crypto back in 2017 and 2018. The security token year that was 2018 and 2019 got me through the bear market and kept me going. But ultimately, that whole era of crypto flopped. Why? Why didn't we have what it takes to actually take real-world assets and put it on-chain back then? What didn't happen? And then eventually, we'll get into why you think now is the time. But first, like, give us a little bit of history of like the off-chain securitization, tokenization of assets on-chain.

• 8:42Speaker 00

  Yeah, so, you know, a lot of work has occurred over, probably, I would say, the past six years to bring off-chain assets, which, in my opinion, are just assets that are originally recorded, not on the blockchain. They're assets that are recorded in some other type of ledger, whether it's a spreadsheet, or legal contracts, or, you know, pieces of paper. And the goal is to bring them on-chain, where they are in a superior function over the way they used to reside, you know? When assets are on-chain, as you know, most of the listeners here know, they're more useful. You can move them around pretty much instantly. You can see

• 9:24Speaker 00

  a huge level of transparency into who owns an asset, what they're doing with it, how it works, what the rules of the asset are, and they're programmable. So people can build new things with those assets. And, you know, this began to capture people's attention, you know, in my opinion, probably going back to about 2017 or so, when smart contracts on Ethereum really began to take off. When people said, oh, it's easy enough to make a token, you know, there were starting to be lots of tokens, you know, being created around that era. People said, well, either this can be a token that's created on-chain for the first time, or maybe we can somehow make a token that represents or takes its properties or value from an asset that's not held on the blockchain yet.

• 10:04Speaker 00

  And we start to see lots of experiments going all the way back. You know, many different teams were trying to either tokenize securities, or tokenize real estate, or tokenize commodities. None of them really came to fruition. The one asset that got tokenized incredibly successfully were dollars. You know, really starting in about 2018, we started to see the rise of stablecoins. And stablecoins are the first, you know, whether you want to call them off-chain assets, or RWAs, or tokenized assets, stablecoins are the first assets where there was an asset held off-chain, and through a process, the value of the asset was moved on-chain. So there's many different

• 10:45Speaker 00

  approaches to creating stablecoins. Some are, you know, very different, but USDC and Tether, I think, are the best example of tokenized assets, where the asset is held, a US dollar, $1, is held in a bank account somewhere, and somebody is able to mint a token that captures or represents the value of that dollar. For those stablecoins like USDC, the value comes from the fact that the stablecoin can be redeemed for the dollar in the bank account. And there's this interaction where you can mint and burn. The stablecoin and there's a very true association to the underlying value of the asset held off chain because of this ability to mint and redeem a token associated with it.

• 11:27Speaker 00

  Stablecoins, as most people are aware, have had incredible product market fit. It is without a doubt, one of the first true killer use cases of blockchains. You know, you can see it in the value of stablecoins, you know, there's $140 billion of stablecoins. People want them and they want them because the format, the file format, so to speak, of that dollar is just better on a blockchain than it is in a bank account. You know, a dollar in a bank account really can't do anything besides sit in that bank account until you spend it. The value of a dollar on a blockchain, it's far more open. You can use it in so many different applications.

• 12:09Speaker 00

  You can, you know, program it, you can, you know, send it around the world, you know? It's just so much different than a dollar that sits in a bank account. And so, you know, I view stablecoins as the first really clear example of an off-chain asset being tokenized correctly. And that's sort of where the, in a lot of ways, the narrative stops. After stablecoins, we really haven't seen any breakout success stories yet when it comes to tokenized assets. But I think that's going to change. And I think where we're now as a society is really at the beginning part of the next chapter beyond the first stablecoins. And, you know, when you ask like, why hasn't it worked yet? Well, the world hasn't really been ready for it yet.

• 12:50Speaker 00

  You know, we're at a very early point of like infrastructure existing on chain for assets. We're at a very early point of investors, you know, wanting a upgraded file format for their assets. We're at a very early point of support for these assets, whether it comes from custodians or intermediaries. And, you know, I think it hasn't happened yet because, you know, the world hasn't been ready for it yet. But really, you know, this is the beginning of what I see as the next chapter for digital assets.

• 13:22David Hoffman?

  I think illustrating the properties of dollars and why dollars so easily became on-chain assets, tokenized assets, will actually do a very good job kind of defining the problem statement that all other assets will also have. Like, dollars, both on-chain and in the real world, are highly fungible, right? The form factor of a dollar, it's liquid in the real world, it's fungible in the real world, it can move very fast in the real world, and that it matches its properties on-chain as well, especially the fungibility part. As soon as we get beyond dollars, the less liquid assets, the less fungible assets, like real estate definitely, for example, becomes, and even bonds, less fungible,

• 14:07David Hoffman?

  less liquid than true dollars, start to have some frictions when we are trying to make a digital manifestation of them on-chain. And this is where some of the properties of tokenization starts to break down, and why there's a lot more friction than just pure dollars, especially when we're talking about, like, we have two ledgers, for example, we have some sort of securitization in the real world, we have some sort of asset that exists in the real world, and we're trying to make a mirror of that in the digital world in an on-chain fashion, but now there's two versions of the truth. And squaring these two versions of the truth, and making them be like as one-to-one compatible with each

• 14:48David Hoffman?

  other, is one of like, is the hurdle that we are trying to get over, and that's probably the hurdle that most real-world assets have not gotten over. This is kind of how I will like to find the problem statement, and could you like, continue with that and just maybe even provide more clarity and color there?

• 15:03Speaker 00

  Yeah, well, that's a great summary of the problem statement. You know, in some ways, the approach right now for the problem statement hasn't been a problem when you look at stablecoins, like, it hasn't been a problem that there's separated liquidity between traditional markets, whether it's, you know, walking down the street to a deli, or, you know, sending money to someone online. And crypto markets, you know, crypto formed its own liquidity for dollars incredibly quickly. You know, dollars on-chain and dollars on exchanges are...

• 15:35Speaker 00

  Unbelievably liquid, you know, the ability to convert between dollars and another currency like Bitcoin has more liquidity than the ability in a lot of ways to convert between dollars and euros or dollars and yen. And so, you know, we have seen alternate liquidity beyond just the original markets form for this OG RWA. And I think a similar process will play out where, you know, a tokenized, you know, bond fund will have its own liquidity over time that's different than the liquidity in traditional markets. And if there's enough demand, then eventually there will be enough liquidity. And I think the problem statement can be rephrased as like, well, what's there actually

• 16:16Speaker 00

  demand for? What do people actually want to own in significant size in a upgraded file format? And if that's true, then of course, there's going to be incredibly robust markets for those assets. And if that's not true, then it's going to suffer from this problem of just because you tokenize it, doesn't mean anyone wants it. You know, if you take an extremely esoteric asset, like a building in Alaska, you know, a multifamily residential building in Alaska, there's like 10 people that probably want to own that specifically. Just because you put it on chain doesn't create liquidity for it. You know, if there's only 10 people that could want to own it, very few people are going to be willing to trade it or to buy it or to hold it or to speculate

• 16:56Speaker 00

  on it. And so there's never going to be, no matter how you, you know, structure much liquidity for a residential multifamily building in Alaska, no matter how well it's tokenized, how beautiful the ERC20 or token spec for it is, etc. Doesn't matter how many, you know, protocols exist that can interact with it, you know, an extremely esoteric asset won't have liquidity. And so the real challenge is finding the assets in between dollars and esoteric assets and finding the sweet spot in there where there's demand for tokenized assets. That is significant and not just like going to suffer from this esoteric asset problem.

• 17:38David Hoffman?

  Hmm. I want to just dive a little bit more into like the opening the door of the tokenization world, like why, why we are ready now. You talked about improved infrastructure, improved custodians. I think there's like, one part of this is just like, kind of the background of crypto, which are some like basal level properties, as in like, there are just more users now. There's more liquidity now. There's more public acceptance now of crypto. All these are kind of like the background properties of crypto that are definitely helping put tailwinds behind the tokenization movement. But is there any way we can make this more specific and more narrow? Is like any specific like service providers or legal innovations? Or anything like more specific to the world of tokenization that is unique and new that

• 18:22David Hoffman?

  has come in the last like one or two years or so, or something that is near term in the future?

• 18:27Speaker 00

  Yeah, so there's definitely, you know, I would say the biggest change has been the amount of brainpower and people and talent and energy being devoted to making all this work. I think we're finally at a point where there's enough of our industry and of the builders in the space focused on this, that like, we're going to be making breakthroughs. There was very few people, frankly, that were focused on tokenization five years ago. You know, there was a couple. But at this point, you know, it is a massive conversation inside almost every institution in the space, almost every business in crypto, and of most of the founders that I interact with. And so I think right now, the sort of like zeitgeist around it is enough to will it into existence, so to speak. And it doesn't mean it's going to

• 19:11Speaker 00

  happen next week, right? It doesn't mean it's going to happen next month. It doesn't mean it's going to happen next year that we start to see, you know, significant, you know, traction and critical mass around tokenized assets. But, you know, we're at the point now where it looks completely different. There's a huge amount of energy and effort being put into this from so many different angles that I think we're going to see traction soon.

• 19:33Ryan Sean Adams?

  Okay, so I have maybe a different angle on the question, which is at some level, it's cool that we've made a ton of progress on stablecoins in particular. What's it like 130 billion, something like this? Tether just crossed 100 billion. We actually had Paolo on the podcast not too long ago, the CEO of Tether. He talked about one of the main use cases for Tether right now is actually not on the institutional side, that some of that, you know, trading with exchanges, that kind of thing. It's for people in emerging countries that just want access to the dollar because their local banking system sucks and their local fiat currency has failed them. And so, wow, you get a crypto wallet and you get a dollar, maybe you have a custodial service. This is a zero to one moment for

• 20:16Ryan Sean Adams?

  them. So there's a lot of demand coming from that angle. So I kind of have a question, like it's not a surprise, I guess, given that context, in terms of why stablecoins have been successful in emerging countries. And also, they're certainly a lubricant, they're certainly very successful for crypto natives in kind of the DeFi economy, right? Aside from crypto native assets, which are volatile like Bitcoin and Ether, well, you have a stablecoin and like we use it in the real world and so we just put it on-chain. It's great for that. There's a question in my mind, though, Robert, is like, why haven't we come further with respect to tokenization, right? So we have dollars, 130 billion. Why

• 20:57Ryan Sean Adams?

  don't we have euros? Why don't we have yen? Why aren't there other like currencies? That's weird to me. Another thing that's weird is when I hear about the Tether business model, and Paolo is saying, literally, this is fully transparent, they made like $4 billion last year, $5 billion. What? On the spread, on the spread between a dollar and the yield for, they buy T-bills, they buy treasuries essentially, and they get to keep the spread on the treasuries, the 5% yield, and you get the, you know, the stablecoin essentially. And so that's all of their profit margin. That's an insane profit margin. $5 billion, they have 80 people. So I'm like, well, you know what's better? You know what's better than an ERC20 version of a dollar? An ERC20 version

• 21:43Ryan Sean Adams?

  Of a dollar that gives me a 5% yield and has that kind of baked in. Paulo's comment is like, yeah, but emerging markets don't care about that because 5% over a year like doesn't make any difference to them. Because they're comparing that to some fiat currency that is like, you know, 80%, 90% inflation. Right? So, but anyway, that's one perspective. So I guess the general question here is. Cool that we have some tokenized assets, but if tokenized tokenization was really a thing, why don't we have more already? Like, what's stopping us from your vantage point?

• 22:14Speaker 00

  Yeah, well, there's two points here. So one is when it comes to just simple currencies, I think there's competition between. Dollars and euros and yen for the mindshare of the holders. And you know, to Paulo's point. A lot of people around the world would rather hold a tokenized dollar than a tokenized euro. And, you know, the existence of the tokenized dollar competes with the tokenized euro for liquidity, for capital, for. Adoption and support amongst intermediaries like exchanges. And once there's like such a dominant critical mass of. Dollar tokenization, it's really hard for other currencies to make inroads into that.

• 22:53Ryan Sean Adams?

  So it really is the dollar is the apex predator. It just like just slaughter bots everything that tries to compete against it.

• 22:59David Hoffman?

  Well, this is what happens when we take away all the borders from our financial systems, right?

• 23:03Speaker 00

  Exactly. And like, it's a good thing. Like there's massive liquidity for tokenized dollars, like massive liquidity. Like you can convert it into other assets like ether or bitcoin with like unbelievable liquidity. And so, you know, in that world, there's going to be less liquidity for a tokenized euro, like no matter what. There's going to be less liquidity for a tokenized yen, no matter what. And so even if you were equally willing. To hold a dollar versus euro versus yen, if there's more liquidity from this, like call it a first mover advantage in a lot of ways of the tokenized dollar. It's going to be a superior product to the tokenized euro or the tokenized yen. And so it's just so hard for new entrants to make.

• 23:44Speaker 00

  Progress against it. And, you know, if the first asset we had happened to be a. Tokenized yen and then like it gained critical mass, I think eventually a tokenized dollar. Might have to battle against it, but like, that's not how it played out. It played out where dollars were first. They built up a huge liquidity advantage. And now there's very little opportunity for a competitive tokenized currency. Now. I think to your other point. There's a huge opportunity, which is a tokenized currency that doesn't go up is worse than a tokenized currency that does go up. And if you can have a different format of dollars

• 24:23Speaker 00

  themselves that go up, where instead of all of the value accruing to Paolo and Tether, the value accrues to the holders, instead of it being 5.3% for him and 0% for you, it's, you know, something closer to 0.2% for him and 5.1% for you, or something like that. There's a huge opportunity for a different format of dollar-based assets. And that's one of the major opportunities we see at Superstate and that many other companies building in the space also see is that that business model is the opportunity for new competitors to emerge. You know, Jeff Bezos has a famous quote, which is, "Your margin is my opportunity." And, you know, he used to say this to retailers and manufacturers

• 25:05Speaker 00

  all the time. They said, "Oh, we have a great business. We have huge margins and Amazon has no margin." And he said, "Well, that's what the long-term tailwind to Amazon's success is, is that, you know, you have a big margin." And the fact that Tether's margins are so unathemably good, it's great for Tether in the short term. No question about that. It's absolutely an unbelievable business, one of the best that's ever been built. But long-term, that's a disadvantage to them. And it creates an opportunity for better products to emerge in a way that you couldn't see a better product emerge versus a tokenized dollar originally. A tokenized yen is not going to be better, but a tokenized dollar-based financial asset is better. And I think a lot of people realize that, and a lot of people are working towards introducing that on a global scale.

• 25:49Ryan Sean Adams?

  Okay, so let's talk about that for a minute and like why that's, again, I'm still with the question of why that hasn't happened yet. And what's really interesting about Tether is like, so, you know, 6 billion a year, something like this, right, at $100 billion, which Tether just recently hit, I believe, a couple of days ago, crossed the threshold of, there's $100 billion worth of Tether now issued. Imagine if that was a trillion, that'd be 60 billion a year, right? And of course, like, same amount of people, you don't even have to add any staff, probably. And, and so that- That's a massive margin. So like, in your mind, how does this kind of work? Is it, basically, there would be some competitive pressure to like, require stablecoin,

• 26:33Ryan Sean Adams?

  not require, but competitive market pressure to push stablecoin issuers to return some of that yield back to holders in some form? Is that like, so you could imagine if, you know, the Fed rates are 5%, and you own like $1 worth of Tether, then you're getting some portion of that 5%, maybe getting a 3% or 4%, something like that? Like, that's one model, at least conceptually in my head, that seems like it could work. Again, regulatory, all of the other things aside. Another model that feels like it could work is you just have, you just hold T-bills, you just hold Treasuries in some way. Like, if I could hold just Treasuries in my like, wallet, you know, I could hold

• 27:14Ryan Sean Adams?

  physical cash, I can hold $100 bill, I'd kind of rather have like, $100 worth of Treasury, because it gives me $100, plus that 5% boost. I have to imagine, the Fed and the Treasury have kind of like, thought about that. They don't actually want to issue that form of debt to be kind of like, a fungible currency. And so that's the reason for dollars, and the reason why we can't just hold T-bills in some form or fashion. But that could be tokenized, and that, to me, would be like, a marvelous, like, because it's a ERC20, either way. And so, why don't we have that? Why can't we have that? Are there some impediments on the regulatory side? Like, this is, again, let's just remember, and you know more this than anyone, I'm just reminding the Bankless listeners, that this

• 27:58Ryan Sean Adams?

  is a brand of the United States government. The dollar itself is a projection of the US Empire's power. They get to make the rules, okay? We can do whatever we want with our own little ETH, you know, like, unit of account, and we have governance and jurisdiction there. But like, when it comes to the dollar, the regulators and the government is going to have something to say about it. So, yeah, how can you imagine this actually working? How do you take that $6 billion margin and give that back to holders in some form?

• 28:31Speaker 00

  Yeah, well, the answer is, it's complicated, right? So, you touch on a couple of things. One is, you know, just from a purely mechanical and technology perspective, it's hard, you know? An asset that doesn't change, that's completely fungible, is a really simple asset. Tether or USDC are great tokens, because...

• 28:49Speaker 00

  They're so easy to hold. The accounting of them is very simple. It's always one. If you have 100 tokens in a year, you have 100 tokens. You know, to your first example, if you had like an actually like tokenized T-bill, T-bills have maturities. They expire, right? So all of these like on-chain operations get really complicated. If you have a token that represents a T-bill and then it matures, does it become a different token? You know, does it become a dollar token again? Does it become a mature T-bill token? If there's, you know, fundamentally, there's thousands of actual pieces of debt issued by the US government. They all have different maturities. Are there 10,000 T-bill tokens, right? So it just gets mechanically

• 29:28Speaker 00

  very complex to represent a financial asset that's more nuanced than just it's a dollar, right? If it's it's a dollar forever, it's very simple. And I think one of the reasons why, you know, we're at a point where Tether and USDC have been so successful is because they're so simple. So the first challenge is technological. You touched on the second one, which is the legal and regulatory structure surrounding this. Every single country on earth has different approaches towards securities. And, you know, a tokenized asset that goes up with the expectation that you're buying it because it goes up is very different from an asset that does not go up and really can't go up.

• 30:13Ryan Sean Adams?

  Okay, can we can we just pause on that for a minute and make sure people know you introduced the idea of a security here, right? So treasury is a security, but a stable coin is not. I hope, fingers crossed, right? Like Gary Gensler, if you're listening, like it shouldn't be a security because it's more like a currency. What makes something a security in this world? And why is a T-bill treasury a security? And why not a stable coin or the dollar itself?

• 30:40Speaker 00

  Yeah. So in general, and this is like, you know, I will disclose, you know, first and foremost, that I'm not a securities lawyer or a lawyer of any kind. And so, you know, I would say consult, you know, true experts in the space of which there's many. A security is something in which there's an issuer, whether it's the US government or a corporation, that issues an investment directly to a purchaser. And, you know, that purchaser either makes or loses money. And it's uncertain whether they're going to make or lose money. And it comes down to, you know, them making an investment.

• 31:14Speaker 00

  Into some entity. If you had take a stablecoin, you could basically, you know, take the opinion that there's really not that relationship at all, where it's a receipt, so to speak, for an asset held off chain, and that it's not a security, because there's not really the prospect of it going up or down. There's obviously secondary markets for stablecoins. And, you know, there's secondary markets for all of these things, but doesn't necessarily make them a security, you know. USDC trades for above and below a dollar every day. Tether trades for above and below a dollar all the time, right? These things have markets for them, just like there's markets for gold, and there's markets for corn, and there's markets for all sorts of different currencies, whether

• 31:59Speaker 00

  it's the euro or the yen or, you know, the dollar. But there's not this relationship between, hey, there's an issuer and the investor. And so I, I think it's highly likely that very few people view a stablecoin like USDC or Tether as a security, just because it doesn't really have the properties of them. And so it exists in a very unencumbered, you know, regulatory and legal domain. You know, people view these as currencies. You know, there's obviously regulations around currencies. In the US, there's a lot of rules around money transmission and running a business that exchanges money for, you know, customers. And there's lots of rules specific to a non-security that like you have to be aware of if you're

• 32:43Speaker 00

  a stablecoin business of some kind. But they're not securities. And so when you start to get into the domain of assets that aren't flat, that go up and down, you know, fundamentally based on some, you know, underlying, you know, investment, then, you know, you start to get into a very different legal and regulatory domain than stablecoins currently exist in. And so, you know, you could have a similar asset that is viewed completely differently. You know, you could make a stablecoin, instead of it being backed by dollar, it's backed by gold. It would still probably not be considered a security. It'd still probably be a commodity of some kind. But if you have a stablecoin, stablecoin, I should say, backed by Nike stock.

• 33:28Speaker 00

  Right? Suddenly, that asset is going up and down based on, you know, a very different set of conditions. And it's highly likely that that asset itself, the Nike stock token would be a security because Nike stock is very clearly a security issued by the Nike Corporation, right? And so you just wind up having the asset treated and viewed differently with very different responsibilities on the part of the issuers. And so, you know, that's what makes non-dollar based assets that are tokenized just so much more complex.

• 34:00David Hoffman?

  I think we're doing a pretty good job at illustrating some of those hurdles that I was talking about, that real world assets have to get over, that dollars, dollars have this same kind of hurdle, but this much lower, right? Like, all of a sudden, when we talk about securities, the hurdles to get becoming a token on-chain are much larger. I really think the crypto industry really needs to study the history of securitization and securities law a lot more than the typical person has. It's really, really interesting because there's like lessons to be learned in like principal agent problems, as well as concepts of centralization and decentralization. One of the reasons why securities laws are so complex are why they

• 34:43David Hoffman?

  are, is because there's information asymmetry between the issuer and the market. The issuer can have plans or intents, intentions that the rest of the market do not know about. And so this is why we have securities laws to kind of regulate the securities market and make sure that no one with dubious intentions comes to create securities. And so like when there are trends towards less of an information asymmetry between the public market and the inception of a financial asset, things tend to have less of security-like properties. And then when there's more information asymmetry, then these things tend to be highly, highly regulated. Robert, this kind of gets into the question that I want to ask next. We

• 35:28David Hoffman?

  have currencies on-chain, Tether, USDC are the big ones. And there's like a very simple...

• 35:36David Hoffman?

  Input, output, right? Dollars in bank, token on Ethereum, token on Tron, or whatever. And as soon as we get into the world of yield-bearing treasuries on one side, and then token on the other side, things become a lot more opinionated. We have now entered the world of securities law. And it's a lot... The question I have for you is like, isn't there a lot more room for different types of constructions, different types of opinions being built in the constructions? And therefore, less kind of like credible neutrality or social scalability in the yield-bearing tokenized treasury space?

• 36:17David Hoffman?

  For people paying attention to Bankless's arc in the liquid restaking world, it's the same kind of pattern between liquid restaking tokens around Eigenlayer and LSTs, whereas you have complete Lido dominance, because it's so liquid. It's so close to natively staked ETH. And then LRTs are so much more opinionated. And I kind of see that same pattern playing out in the tokenized treasuries market, where you would have more reach, more scale, if you were just purely tokenized dollars than you would tokenized treasuries. What would you say to this?

• 36:50Speaker 00

  I would say, yes, but. So, the, you know, I think at a high level, that's completely correct. I think there's a much larger space to design products. That being said, going all the way back to stablecoins, the design space for stablecoins, for dollar-based stablecoins, is also extremely large. So, you know, there's obviously one format that so far has won, based on market capital, which is the tether USDC model of there's an off-chain dollar in a box, and we make a token that is redeemable for in some way. But we cannot forget that there was multiple other, many other approaches to designing dollar-based stablecoins, both collateralized stablecoins.

• 37:33Speaker 00

  MakerDow is a great example, and MakerDow has evolved significantly over the last couple of years. But it's fundamentally a system where you could manufacture a dollar-based stablecoin that was backed by a basket of crypto collateral. Totally different approach from the one that has gotten the most market share. There was algorithmic stablecoins, which were not backed by anything. You know, obviously those got a bad rap. Yeah, we don't talk about those anymore. Yeah, we don't talk about those anymore, but they were the least successful of the different approaches. You know, the dollar-based stablecoin world had a huge spectrum of approaches. And so while I agree with you that there's many different approaches to create like a tokenized financial asset.

• 38:16Speaker 00

  So far amongst the early experiments, we're seeing far less divergence of approaches than we saw with dollar-based stablecoins. You know, a lot of the approaches so far look pretty similar where it's like you have some type of legal structure and it holds an asset and it issues a token. They all look pretty much the same and I think there's less difference than the world of like USDC versus DAI versus, you know, Terra UST. Like that world had so much more grand experimentation than we're seeing right now in, you know, tokenized financial products.

• 38:51Ryan Sean Adams?

  You know, like that, that, the comment of a, you know, a dollar in a box and a dollar comes out as an ERC20 or, you know, David, you're, the, the comment you're describing this of just kind of like cash in a bank is what backs this thing. Uh, one, one thing I've, I've learned recently as I've looked into like what kind of composes a tether or what composes a USDC is that there's actually very little cash in the bank. Like, you know, if, if you go to the tether transparency page, what you actually see is tether itself is about over 80% T-bills, essentially. That's what it's composed of.

• 39:23Speaker 00

  They're already treasuries.

• 39:24Ryan Sean Adams?

  Yeah. And then, and then, you know, Paulo's comment was the whole thing is actually over collateralized as well because they, you know, put some of their profits back into backing this thing. But also has like a 2.9% Bitcoin that back, um, a, one unit of USDC. There's a 3.6% of precious metals of gold, but the bulk of it is actually treasuries, right? In some form of another overnight reverse repos, that's 10%, uh, you know, a 10% is money market, uh, funds, but then 76% uh, is a straight up treasuries. I guess I just want to ask this. Simple question, why doesn't, if Tether was forced to, I can see why they're just keeping the 5%, right? It's a great profit, great business.

• 40:05Ryan Sean Adams?

  But if they were through competitive pressures, just forced, if Tether holders said, "We're no longer going to hold Tether, because you're not giving us any of this yield," would Tether have the ability to just like send a few percent? Or create some sort of staking mechanism where if you have Tether and you have your Tether and if it's staked or something, then that's an ERC 20 and you're a recipient of a few percentage points of yield or something like this? Or can they just like not do that, Robert? Is that like against the law in some kind of a jurisdiction? Because it seems like mechanically, it could be kind of simple.

• 40:41Speaker 00

  Yeah, I mean, to my earlier point, mechanically, it's not that simple, right? They could create a new mechanism, like a staking mechanism of some kind. You know, it starts to transform what the asset is. But at some point, yes, they could respond, you know, based on competitive pressures to turning it into a even more bank-like, you know, shadow bank-like structure where it's, you know, "Oh, keep your Tethers with us." And you, you know, they go up based on some other process entirely. It transforms the character of, you know, what is USDC or what is Tether? But we've seen similar experimentation already. So Coinbase, you know, had a program where if you parked USDC at Coinbase, I believe they still do,

• 41:25Speaker 00

  you get rewards, you know, they call it rewards and not interest. But you get USDC rewards at Coinbase that are like 5%, which they're doing that right now to sort of transform, you know, the nature of the stablecoin itself. And you're right, like they, all of them have gotten more complex over time. They did start off very simple, where it was a dollar in a bank account. And over time, they've become portfolios of assets that back them. And they look less like, you know, a single dollar backing a single stablecoin than they do a bunch of stuff worth more than a dollar backing $1 of a stablecoin.

• 42:00Ryan Sean Adams?

  Yeah, in fact, Paulo actually made the comment that that's part of the reason this is, according to him, that USDC got in trouble is we could have had too much cash reserves in some of the banks that were on shaky ground. Silicon Valley Bank, you know, what's the other one? You guys know the big crypto bank? Silvergate. Silvergate. And, right, so that those funds in the bank account are not FDIC insured. At some level, you're better off, it's more secure to kind of back this thing by some form of a treasury, which is kind of a security than actually cash in a bank account, which is counterintuitive, but like, cash is more risky? How weird is that? Anyway, Robert,

• 42:43Ryan Sean Adams?

  tell us about what you are doing over at Superstate. Can you kind of give us the story of what you're building? Because I know you've launched, what is it? This is a financial TradFi sounding name, a Superstate Short Duration US Government Securities Fund, has about $38 billion assets under management. This is tokenized as an ERC20. Is this the, you know, the tokenized T-bill that we've been waiting for? Like, what is this? And what are you building over that Superstate?

• 43:14Speaker 00

  Yeah, it's a great question. So at Superstate, our first live product is, as you mentioned, the Superstate Short Duration Government Securities Fund. It's a T-bill fund. And the T-bill fund is tokenized. You know, the way it interacts with securities regulation is that, you know, the fund is only offered to qualified purchasers, which really is a short way of saying institutions with lots of money. And, you know, that's due to just the complexities of building a tokenized-

• 43:43Ryan Sean Adams?

  It's not individuals, even if you're like-

• 43:45Speaker 00

  It can be individuals. At this point, I don't believe there's any individuals. You know, the client base is institutional in nature, but it could be individuals at some point. And it's a, for us, it's an opportunity to test a lot of technology that we're building at Superstate. You know, our goal is to create tokenized products that have the advantages that everyone's used to in crypto, that you can have assets that interact with, you know, DeFi protocols, or they're programmable, or, you know, they're highly portable, or they're, you know, extremely useful. And we're really excited about what tokens can do. And we're really starting off in like a very sandbox type way,

• 44:29Speaker 00

  where there's one very basic product and it's only offered to a very limited type of extremely, you know, financially, you know, capable institution. And we're using this as like the sandbox to test, you know, the technology that we're building. And over time, you know, our goal is to build, you know, tokenized products that anybody can hold, that actually go through, you know, the regulatory registration process, that, you know, get a prospectus and like are available for any investor to be able to purchase. Once we've like battle tested a lot of the technology and the processes around them. And, you know, our goal is, you know, to have tokenized securities that are useful and, you know, really interesting, you know, investments that people want to own.

• 45:12Speaker 00

  Because going all the way back to the beginning, if there's no demand, then you're not going to see any traction. And so you have to create products that people want to own. And that's really our focus. And the first product, it's a T-bill fund. It's offered to qualified purchasers. It's designed to mimic the federal funds rate. So really, you know, T-bills, you know, that are extremely short duration in nature, you know, are pretty close to the Fed target rate. And, you know, we're not trying to innovate at the fund level, you know, in terms of like what investments does it make? You know, holds, you know, extremely short duration government debt.

• 45:50Speaker 00

  Cause, you know, by that nature, very little credit risk. It's not meant to be an interesting financial asset. It's meant to be interesting through the process of actually tokenizing it. And again, we're at a very early point there where, you know, it's not even transferable yet, but it's at like the jumping off point of like, what is a tokenized product? How does it work? You know, what can you do with it? And we're going to use it as really the proving ground for a lot of the sort of technology that we want to build in Superstate.

• 46:19David Hoffman?

  One of the best things that I think stablecoins has shown the world is that simply when you put dollars on chain, they become more useful, evidenced by the fact that there's like 140 billion of them on chain. Like, why would they be on chain if they simply weren't more useful over there? And with such a pure experiment being played out, like, why are they useful? Oh, smart contracts. And so this is kind of how I see Superstate leveraging itself. It's just like, hey, we have assets that aren't on smart contract rails, but they could be, and we're going to facilitate that. And so like, the value of Superstate is actually going to be like a pretty clear acid test as to the value of smart contracts.

• 47:00David Hoffman?

  If smart contracts and tokenization wasn't useful, Superstate wouldn't exist. And so, kind of like what I see your strategy is you're taking the next most proximate real-world asset to dollars, because we already have tokenized dollars. You're doing the next most proximate asset, you're tokenizing it, and trying to give it life inside of, inside of smart contracts, inside of blockchain rails. And then like, as soon as this short-term treasuries fund takes off, Robert Leshner's feeling good and confident, he's ready to be a little bit more bold, they'll go down into the further frontier and start to be a little bit further away from dollars and more down into like the long tail of non-on-chain assets and putting them on-chain.

• 47:43David Hoffman?

  And the cool model with this is like where Tether and USDC are kind of like monoliths. They do one thing and they just have a pretty high margins on that one thing. I see yours, your strategy, the Superstate strategy, is a more volume play where you're taking smaller margins on what you're tokenizing, and that's like your opportunity, right? Like, Tether, Circle, very high margins, Robert Leshner's tokenized treasuries fund, smaller margins, but then you're trying to tokenize much more than just a few things. You're trying to like, you know, to name the meme, tokenize the world and take a very small margin on, on many, many, many things. Is that how, is that how you see the future of Superstate? Is that, did I just kind of articulate the strategy?

• 48:24Speaker 00

  Yeah, I feel like you guessed slash articulated the strategy, you know, quite succinctly. That's how we see the world, is that, you know, we're going to start with, you know, the most adjacent asset to stablecoins, which we know work. It's going to be a little bit slow to start because the number of people that can hold, you know, the tokenized securities is much smaller. You know, obviously, there's other firms out there that are willing to take a lot more risk. In their approach, but like we're taking like a very, you know, buttoned up approach to this. And, you know, over time, as, you know, the usability of our tokens increases, you know, going into additional asset classes, you know, my hope is that, you know, over

• 49:05Speaker 00

  time, investors are able to hold every single asset they want on chain in the wallets that they like to use and the formats that they like to use, that you don't need, you know, a brokerage account, or you don't need like TradFi systems. Like if you want to, you know, hold all of your assets in one place, you'll be able to do that, whether it's a bond fund or a stock fund, or, you know, Ether, or a token that's purely blockchain native. And eventually, all of these assets will be on-chain. They'll all be programmable and composable. And it'll, they'll exist in a format that not all people will prefer. You know, mostly people listening to a podcast like Bankless will prefer. You know, I think

• 49:47Speaker 00

  most people listening are quite familiar with wallets. They're quite familiar with using DeFi protocols. There's a lot of the world that isn't here yet that is only comfortable with, you know, their brokerage account. Eventually, you know, more and more people are going to migrate from the world of brokerage accounts to being comfortable with on-chain wallets and tools and systems, and will prefer to have their assets in this file format. But right now, you know, it's a, you know, small but growing ecosystem. So the vision really is bring all of the assets, all of the asset classes, bring them all on-chain in a way that the people who happen to be crypto-native prefer. And, you know, my expectation is the number of crypto-native, you know, people is going to be increasing every single year for the next 100 years. And it's, you know, the right market to build for.

• 50:32David Hoffman?

  Mantle, formerly known as BitDAO, is the first DAO-led Web3 ecosystem, all built on top of Mantle's first core product, the Mantle Network, a brand-new, high-performance Ethereum Layer 2 built using the OP stack, but uses Eigenlayer's data availability solution instead of the expensive Ethereum Layer 1. Not only does this reduce Mantle Network's gas fees by 80%, but it also reduces gas fee volatility, providing a more stable foundation for Mantle's applications. The Mantle Treasury is One of the biggest DAO-owned treasuries, which is seeding an ecosystem of projects from all around the Web3 space for Mantle. Mantle already has sub-communities from around Web3 on-boarded, like Game7 for Web3 gaming, and Bybit for TVL and liquidity and on-ramps. So if you want to build on the Mantle network, Mantle is offering a grants program that provides milestone-based funding

• 51:18David Hoffman?

  to promising projects that help expand, secure, and decentralize Mantle. If you want to get started working with the first DAO-led Layer 2 ecosystem, check out Mantle at mantel.xyz and follow them on Twitter at @zeroxmantle. Arbitrum is accelerating the Web3 landscape with a suite of secure Ethereum scaling solutions. Hundreds of projects have already deployed onto Arbitrum 1. With a flourishing DeFi and NFT ecosystem, Arbitrum Nova is quickly becoming a Web3 gaming hub, and social dApps like Reddit are also calling Arbitrum home. And now, Arbitrum Orbit allows you to use Arbitrum's secure scaling technology to build your own Layer 3, giving you access to interoperable, customizable permissions with dedicated throughput. All of these technologies leverage the security and decentralization of Ethereum and provide a builder experience

• 52:01David Hoffman?

  that's intuitive, familiar, and fully EVM-compatible. Faster transaction speeds and significantly lower gas fees. Are you a dev, but you don't know Solidity? With Stylus, Arbitrum's upcoming proposal for a programming environment upgrade, developers can write smart contracts in Rust, C, C++ and many more coding languages. Arbitrum empowers you to explore and build without compromise. Visit arbitrum.io, where you can join the community, dive into the developer docs, bridge your assets, and start building your first app on Arbitrum. Uniswap is revolutionizing the DeFi space, not just by enabling swaps, but by empowering you to swap smarter with a comprehensive suite of products for faster, safer, and more informed swapping. Say goodbye to pop-up wallet extensions. The Uniswap extension is coming soon, and this extension is not a pop-up. It is a sidebar in your browser

• 52:46David Hoffman?

  that persists no matter where you are on the web. This means you can swap, sign, or send, and receive crypto anytime, anywhere, without obstructing your browser window. But that's not all. The Uniswap web app now features limit orders, so you can buy and sell any token at your price, on your terms, without having to watch the market. And the best part? Limit orders are built on Uniswap X, which means no gas fees. Also new to the web app is the data and insights page. With realtime candlestick charts, price data, transaction logs, and detailed pool data, all integrated into the Uniswap web app. All of these new releases come together to create one platform to help you swap smarter every time, no matter where you are, on web, mobile, or on the extension. Click the link in the show notes to sign up for the extension waitlist and download the mobile app. Start swapping smarter with Uniswap.

• 53:28Ryan Sean Adams?

  Okay, so can I just, I just want to understand how this, how this works a little bit. And so you guessed rightly, I think many of the people listening to Bankless are more familiar with like buying a token than they would be like buying a mutual fund or something like this. So when I see the potential for some sort of like tokenized asset to give me the yield that I want, and the other place I can get kind of like this, this yield is maybe by buying some sort of a mutual fund or a money market or something like this out in the real world, I really like this. And so this Superstate short duration US government securities fund, it is an ERC 20. I could see something on EtherScan, right?

• 54:10Ryan Sean Adams?

  But it is gated. So I basically, like, if I'm a qualified purchaser, then that's probably an institution or somebody who's like a whale, incredibly wealthy, then right now I manually have to kind of reach out to Superstate and go purchase it. And then I get issued this ERC 20. That represents basically the Fed funds rate of, right now, the seven day yield is 5.36%. You are taking, or Superstate is taking a management fee of 0.15%, which is a much smaller margin spread than we're looking at from the, this stablecoin examples of Tether and USDC. And is the hope right now that this is for qualified purchasers,

• 54:53Ryan Sean Adams?

  and it's gated, so you can't transfer, you can't really do any crypto native things? The hope is that in the future, once you go through the like gauntlets of, you know, like you mentioned, kind of like technology improvements, it seems to me this is like legal technology. This is just like, you have to get the right approvals in place in order to get to a place where, what I'm trying to get to, Robert, is how do we get to a place where we can democratize this? And how can It be such that any listener to Bankless, right, can go purchase this in their wallet in a kind of like a crypto native way. Maybe there needs to be some identification AML KYC. So maybe it's kind of like a little hybrid.

• 55:33Ryan Sean Adams?

  But how do we democratize this? What sort of things, gates do you have to step through to make that a possible world?

• 55:41Speaker 00

  Yeah, it's a great question. And like the bitter reality is that, you know, really, right now, there's very few options, especially for US listeners. That are appealing. Um, you know, the process fundamentally is to navigate, you know, the legal and regulatory world. You know, it's not as much on the technology side, right? The technology of making a token is relatively straightforward. The technology of making a token that, you know, handles, you know, KYC or composability with a DeFi protocol with KYC is more complex. You know, the technology of doing that with a system that has a lot of off-chain mechanical interactions is a little bit more complex than that.

• 56:24Speaker 00

  But the biggest burden is not technology. Like we've at this point built the technology for tokenized products. The biggest hurdle is the legal and regulatory side. And, you know, the disappointing news is that, you know, superstate and other players in the market have to go through an incredibly cumbersome process before, you know, these products can be brought to the masses. And that process is not being done any favors so far. You know, I think legislation could, you know, accelerate, you know, the pathways for tokenized products. But right now, you know, it's a slow process to go through the regulatory steps. And so.

• 57:07Ryan Sean Adams?

  What's, what's like a comparable product? So if I have a Fidelity account or Charles Schwab account, right? I can buy something, some sort of ETF or fund, you know, asset, you know, in the TradFi world that gives me the, the 5.3% Fed Fund rate, right? I can buy that right now. Would that be some form of a money market?

• 57:25Speaker 00

  Yeah, you could buy a money market. Mutual fund, you could buy, you know, a short-term yield-bearing ETF. You could buy any one of these products.

• 57:33Ryan Sean Adams?

  And so why can I buy that without being a qualified purchaser? But I can't right now buy this when it's tokenized.

• 57:41Speaker 00

  Yeah, that's a great question. So those assets, you know, have all gone through the securities registration process. And, you know, basically you file, you know, a prospectus and you get approval by the SEC to, you know, go live with those assets. It's pretty off the shelf if you want to launch a new mutual fund or launch a new ETF. It's a very well-worn path that a lot of people understand very well. When it comes to, you know, tokens going through that registration process, it's a much murkier path and it's much newer. And even though, you know, all of it seems like pretty open and shut, like, okay, it's the same thing, but it's a token. There's a lot more questions naturally on like, how does it work?

• 58:26Speaker 00

  You know, how, how does the token function? What are the risks, you know? And even for a similar product, just the introduction of a blockchain complicates that registration process.

• 58:38Ryan Sean Adams?

  Why can't we, why can't we take one of those things that have gone through the registration process, like an existing money market? And just like they've, they've done through it. They're filing everything. They've got the SEC approval. We'll just take that and we'll tokenize that. Why, why don't the traditional, like, finance companies just go do that?

• 58:54Speaker 00

  Some of them are doing that. So like, there are examples of, you know, TradFi issuers making a quasi-tokenized product right now. So both Franklin Templeton and Wisdom Tree have basically launched, you know, tokenized products, but it's tokenized in air quotes in that you can't actually take the token and hold it in your Ethereum wallet. They hold the token for you. And it's basically, you know,

• 59:20Speaker 00

  A very traditional investment with very little token usability or functionality yet. Because once you start to introduce the functionality, it complicates the sort of like disclosure process of like, how does it work and what are the risks? And it complicates it enough that it makes the registration process longer. Because you have to ask and answer all of those questions with a regulator. And so so far, you know, you've seen TreadFi issuers start that process. But with very little new, it's mostly extremely traditional investments that are starting to have a token component. And so, you know, there's a lot of interest from a lot of different corners to do this.

• 1:00:02Speaker 00

  You know, we just don't exist in a market where there's been a lot of, you know, step functions, zero to one changes or success in the registered product space.

• 1:00:12Ryan Sean Adams?

  So the regulatory side of things is the thing that's really slowing us down here. Surprise.

• 1:00:19Ryan Sean Adams?

  What do you think of attempts to do this kind of, you know, like outside of the US banking system apparatus? We had a founder a few months ago on talking about tokenized treasuries from like mountain protocol. And there are many such projects like this that's happening outside of the US. Do you have any takes on those?

• 1:00:39Speaker 00

  Well, outside the US, there's an extremely receptive set of regulators that are encouraging of tokenization of financial products. You know, it should come as no surprise that the US is probably without question the most hostile, you know, regulatory environment on earth for the most part.

• 1:00:58Ryan Sean Adams?

  For crypto specifically.

• 1:00:59Speaker 00

  For crypto, yes, yes, yes, for crypto. A lot of teams are focused on ex-US markets for good reason, because it's actually quite easy. And, you know, my view has always been that I think, you know, the US is the largest market. You know, just because there's not a welcoming. Regulatory environment today, that's not always going to be the case. And I want to build, you know, products for the US market where, you know, I operate where I live, where my friends are, where, you know, I think US investors want these products. And so, you know, it'd be trivial to just cut off the US and focus only on global markets. A lot of teams are doing it.

• 1:01:43David Hoffman?

  You're taking the Brian Armstrong long game here, where it's basically like, hey, at some point, the US is going to wake up and support their hometown boys. But like, right now, they're just not for whatever reason. You're going to play that long game in order to, you know, see that to fruition.

• 1:01:58Speaker 00

  That's right. And, you know, I think there's, you know, I think US investors are like wanting and deserving of, you know, the best technologically created products that exist. It's disappointing that we don't see more of a market in the US yet, but I think that's going to change. I think, you know, history is on the side of builders in the US, you know, builders in the US that want to create high-quality products that benefit from the advantages of blockchains. Obviously, in 10 years, this is going to exist. And obviously, people are going to come to their senses.

• 1:02:32David Hoffman?

  I think it's very appropriate, Robert, that I'm pretty sure I'm seeing Manhattan out of that window in the back. Seems like the right place to take that take. Robert, what's on your wish list? So after treasuries, I'm sure, I mean, like, Robert, I know you own a few CryptoPunks, like, you want to think larger than just treasuries. Like, what's on your more exotic wishlist of what you could tokenize and put on chain? Like, daydream with us a little bit. Let's go a few decades into the future.

• 1:03:00Speaker 00

  Yeah, well, a few decades into the future. I mean, obviously, there's going to be, you know, really, okay, there's a lot that's going to exist in a couple of decades that doesn't exist now. One is that, you know, individual financial assets like stocks and bonds will be originally issued on a blockchain, whereas right now, they're not. So you might see, you know, a corporation of the future, not like, you know, one of the current S and P 500, but, you know, someone that's going to be in the S and P 500 in 30 years. You know, natively issues their stock as a token on chain. You know, in a 30 year timeframe, you know, I don't think people are going to use these extremely technologically outdated record keeping and back office systems to issue the equity of their companies that they found.

• 1:03:44Speaker 00

  Right. I think in 30 years.

• 1:03:45David Hoffman?

  In order to get there, won't we need actual like legislation or like regulation innovation? Cause if we want to put, if we want to like have a public company, go public via an on-chain token, doesn't that need? That's just a complete revamping of our regulatory structure, correct?

• 1:04:03Speaker 00

  Well, this isn't, I mean, there's no easy answer because no one really knows. You get different opinions like, you know, the current SEC would say no. Most legislators would say yes. Most, you know, builders and founders would say, I have no idea, like the whole thing is a landmine. And so, you know, there's no correct, there's no objectively correct answer here, unfortunately. So 30 years, though, all of this will be solved and there will absolutely be, you know, crypto native stock and bond issuance. There's been trial bond issuance on a number of blockchains by a number of different issuers in the past. Like, there's no question that in 30 years, you know, blockchains are used for natively issuing, you know, the equity of a company. Why not? Like, why?

• 1:04:48Speaker 00

  It's so like obvious that it's just a better record keeping system. And like, of course you're going to use it instead of what I will tell you is a horrible back office mess that things currently work on, right? So obviously like individual stocks and bonds are going to be tokenized or issued for the first time on blockchains. From there, you know, obviously every fund is going to, you know, have the ability, you know, 30 years from now to be running with an on-chain component. You know, we're not limited just to T-bow funds. Equity funds like an S and P 500 fund or a NASDAQ fund or, you know, a real estate, you know, REIT fund or commodity funds or any type of fund, you know, can and will be issued on-chain. And then you get to.

• 1:05:33David Hoffman?

  Is that something you can do at Superstate? Is that on your like, um, long-term view, long-term plan?

• 1:05:39Speaker 00

  It is. I mean, you know, very transparently, yes, like we would like to offer. Funds way beyond just a T-bill fund over time, right? It would be great to offer all of the above. You know, anything that Vanguard can host, you know, we can over time have a token for as well. Like, you know, every asset should and will be on chain. So funds are all going to come on chain. And then the last piece of like, what's on chain is like, things that are not, you know, a native issuance. But like, you know, I think we're going to have a lot better tokenization of commodities. I think we're going to have a lot better tokenization of, you know, off-chain assets that the ownership of them will be on chain.

• 1:06:23Speaker 00

  Like, I think most commodities will be on chain, I think, you know, eventually, you know? And so we're going to get to a point where, you know, we sort of look back and we're like, why do we think this was like such a big chasm? There's no reason why all of this couldn't be tracked, managed, and issued on a blockchain instead of on spreadsheets, paper, and contracts. Like, spreadsheets, contracts, and, you know, paper is just an old outdated file format that people know works. And blockchains are a better file format. And most of us, most of the people on this podcast, know that it works, right? There's just a lot of skepticism from people that don't know that it works yet, and it sounds new and therefore scary.

• 1:07:07Ryan Sean Adams?

  Robert, when we first met on Bankless, and this was, I think you came on in one of the original Bankless episodes, you were pioneering DeFi. I consider you sort of a, you know, like a founding father of the original DeFi protocols with Compound, this lending and borrowing protocol. And it's interesting to me, yeah, David's right, I do notice the New York City buildings in kind of your background. It's interesting to me that you've gone from Silicon Valley, San Fran with Compound, and now you're putting on the suit, and you're in New York City now, and you are- First he went west- Yeah. And then he went back east. I see you as an ambassador.

• 1:07:47Ryan Sean Adams?

  I see you as kind of an evangelist, and you are somebody who is needed, I would say. Kind of like to wear the suit and to speak TradFi, but also to speak DeFi. And you like know how both worlds work. And maybe this is the next era for Robert Leshner and this is the era of superstate. I'm wondering if you kind of zoom out, it feels like at some level, the technology problems are easier than like the regulatory and like the, I don't know, the getting traditional finance to kind of understand, although we are making progress there. It felt to me like the approval of the Bitcoin ETF was just like a watershed moment.

• 1:08:29Ryan Sean Adams?

  I don't know if you feel like that, but a lot of pent up energy in the space. Now, BlackRock, Franklin Templeton, like all of these traditional finance folks are talking about this and they're all, Larry, think, talking about tokenization. Can you imagine? I mean, that was a recent interview.

• 1:08:45Ryan Sean Adams?

  I'm wondering from your vantage point, how are we doing on the TradFi side of things? So you are now DeFi ambassador and kind of in enemy lands, New York City here, doing this like hybrid type of apparatus. How are we doing? Are we convincing enough folks in TradFi? How long is this going to take?

• 1:09:05Speaker 00

  Well, the honest answer is I think that we're at a good starting point. And I think, you know, amongst everybody, whether it's, you know, people working for very traditional institutions, whether it's legislators, whether it's regulators, I think people are like starting to come around to accept the fact that all of this stuff is, doesn't have to be scary. Like all of it has advantages over the traditional system and that, you know, it can be used in business, it can be used in finance, it can be used in the real world. And that's exciting. I mean, I'd say the skeptics still outnumber the believers, but over time skeptics are

• 1:09:49Speaker 00

  being converted into believers, right? And it's kind of like a one directional march. I think it can only improve over time. And like, you're right, like this is in some ways hostile territory, you know, where a lot of people are default skeptical and default like tied to, you know, what they don't understand. And I think we're on the right side of history. I think, you know, that's one of the things that motivates me is knowing that like, You can build really cool stuff with a blockchain that's just fundamentally better than the way it used to work. You know, pioneering DeFi, for me, it was all about like, how do we use this new technology to do things people have been doing for 30 years, but in a way

• 1:10:32Speaker 00

  that's more transparent, it's more predictable, it's more fair, it's more open, it's more composable, it's just better fundamentally. And like, for me, I've spent the last almost seven years, which it sounds crazy to even say that out loud, seven years focused on what can this technology do that wasn't possible before. And instead of trying to apply that to a DeFi protocol, it's trying to apply it to global financial and capital markets at whole. And, you know, the reason why I'm here in, you know, somewhat hostile territories, because this is where there's, you know, $300 trillion of assets that haven't made it onto a blockchain yet. And it's a lot of assets. And there's a lot of people that

• 1:11:17Speaker 00

  have to, you know, hear from an evangelist that have to learn why blockchains are so exciting in the first place. And like, why Ethereum is awesome. And like, what you can do with a smart contract. And, you know, I think as people learn, they understand and they become enthusiastic and excited as well. But, you know, it takes, you know, a zero to one moment for most people to understand why tokens are great.

• 1:11:43David Hoffman?

  So, Robert, it's we're at the very beginning of 2024. We've got six years left in this decade. Give us a prediction for 2030, excluding stablecoins. So, stablecoin market cap does not count. How much value will come on chain by the end of this decade? New value?

• 1:12:02Speaker 00

  You know, I've messed up this, these like macro predictions so many times. You know, I like to say that, you know, when I, you know, first started working on Compound in 2017, You know, I believed that by 2022, five years in, most assets would be on chain. And like, one of the reasons why I was so excited about, you know, building it was that I was like, well, this is a tool that's going to start off, you know, being used for like Ether and Chainlink Token. And in five years, it's going to be used for stocks and bonds. I was like, of course. And five years later, there was almost none of that. So I've gotten this prediction wrong before, you know, by being a little bit like, you know, over expectations of like, you know, societal change.

• 1:12:45Speaker 00

  So with that experience in mind, I would say, you know, six years from now, you know, I would like it to be a mass migration of assets on chain. I think behavior is hard to change. So I think, you know, outside of the assets that exist today, you know, I would guess maybe, you know, five trillion of assets.

• 1:13:08David Hoffman?

  Five trillion on chain? Nice.

• 1:13:11Speaker 00

  Yeah.

• 1:13:12David Hoffman?

  Oh, yeah. In our $2 trillion market cap economy, let's go.

• 1:13:16Ryan Sean Adams?

  No, it won't be $2 trillion by that time, David. Don't curse us.

• 1:13:20Speaker 00

  No, I mean, by that time, I think, you know, just the existing crypto assets will probably be 5, 10, something trillion, you know?

• 1:13:27David Hoffman?

  Amazing.

• 1:13:28Ryan Sean Adams?

  Robert, thank you so much. Good to see you on this new project. First year we're out pioneering the West and now you're going back east. And go get us that 300 trillion, man. The ambassador. We appreciate you coming on Bankless and telling us about the project and tokenized treasuries and real world assets. It's been great.

• 1:13:48Speaker 00

  Thanks, Ryan. Thanks, everyone.

• 1:13:49Ryan Sean Adams?

  Bankless Nation will include some links in the show notes to some of the materials. We were talking around superstate as well. Gotta let you know, of course, crypto is risky. You could lose what you put in, but we are headed west. This is the frontier. It's not for everyone, but we're glad you're with us on the Bankless journey. Thanks a lot.