192 - Cryptodollars Are the New Eurodollars with Nic Carter

Cryptodollars are the new Eurodollars. What are Eurodollars, though? Well, we get into that in today’s episode with 8-time repeat Bankless guest, Nic Carter. Nic is a partner at Castle Island Ventures, Fidelity alumni, co-founder and board member of Coin Metrics, and a prolific writer of editorials and academic articles alike, Nic is also a believer that the halvening is always priced in, he’s a stablecoin connoisseur, an onchain wizard, and an unlicensed vespa driver. ------ ✨ DEBRIEF | Ryan & David unpacking the episode: https://www.bankless.com/debrief-nic-carter-stablecoins There’s over $10 trillion dollars worth of Cryptodollars out there and Nic believes that number could grow even bigger. Stablecoins are often called crypto’s killer app, however, Nic thinks we aint seen nothing yet! ----- 🏹 Airdrop Hunter is HERE, join your first HUNT today https://bankless.cc/JoinYourFirstHUNT ------ 📣 a16z Startup School | Apply Before Oct. 20th https://bankless.cc/a16z-startup-school ------ BANKLESS SPONSOR TOOLS: 🐙KRAKEN | MOST-TRUSTED CRYPTO EXCHANGE https://k.xyz/bankless-pod-q4 🦊METAMASK PORTFOLIO | MANAGE YOUR WEB3 EVERYTHING ⁠https://bankless.cc/MetaMask ⚖️ ARBITRUM | SCALING ETHEREUM ⁠https://bankless.cc/Arbitrum https://feeds.flightcast.com/%E2%81%A0https:/bankless.cc/Arbitrum ⁠ 🗣️TOKU | CRYPTO EMPLOYMENT SOLUTION https://bankless.cc/Toku 🦄UNISWAP | ON-CHAIN MARKETPLACE ⁠https://bankless.cc/uniswap https://feeds.flightcast.com/%E2%81%A0https:/bankless.cc/uniswap 🔗 CELO | CEL2 COMING SOON https://bankless.cc/Celo ------ TIMESTAMPS 0:00 Intro 8:25 Stablecoin Tribe 10:20 The State of Stablecoins in 2023 13:40 Stablecoin’s Product Market Fit 17:16 Stabelcoin Haters 19:00 Growth of the Euro-Dollar Market 21:04 Euro vs. Crypto Dollars 24:30 Federal Reserve History 34:45 Stablecoin Incentives 37:00 Euro-Dollar vs. U. S.-Dollar Backing 43:00 Circle 45:40 PYUSD 46:56 Crypto-Dollars vs. Euro-Dollars 51:15 Why the Rise of Stablecoins? 55:57 Democratic Inclusion of Crypto-Dollarization 59:19 Chart 1:03:05 Tokenized Treasury 1:07:16 Regulatory Idea Maze 1:15:00 Big Banks 1:19:30 Stablecoin Roadmap 1:24:57 Crypto Bullishness 1:28:52 Stablecoin Predictions 1:32:12 Closing & Disclaimers ----- RESOURCES Nic Carter https://twitter.com/nic__carter ----- Not financial or tax advice. 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.

• 0:00Ryan Sean Adams?

  Give us some of your predictions, right? And over the next three to five years, what's going to happen, do you think, in the world of stablecoins?

• 0:11Ryan Sean Adams?

  Welcome to Bankless, where we explore the frontier of internet money and internet finance. This is how to get started, how to get better, how to front run the opportunity. This is Ryan Chon Adams, and I'm here with David Hoffman, and we're here to help you become more bankless. Crypto dollars are the new euro dollars. Okay, but what are your dollars? We get into that in today's episode with Nic Carter. There's over $10 trillion of euro dollars out there, and our guest today, Nick, says crypto dollars are going to be even bigger. While stablecoins are often called crypto's killer app, our guest Nic says you ain't seen nothing yet. A few takeaways in today's episode. Number one, why crypto dollars are growing even in the bear market. Number two, how crypto dollars are playing back the history and evolution of euro dollars

• 0:55Ryan Sean Adams?

  and what we can learn from all that. Number three, how the US government policies are actually pushing crypto dollars offshore. Number four, the roadmap for stablecoins, what's going to happen next? And number five, we conclude with Nic Carter's top predictions for the next five years of crypto dollars, including his take on whether crypto dollar adoption is going to be good or bad for Ethereum and Bitcoin. That's a question we had to end with, David. Is this good or bad for our bags? Why was this episode significant to you?

• 1:22David Hoffman?

  Why this episode is significant is the same as asking, well, why are crypto dollars significant? And of course, using crypto dollars as interchangeable with what we know as stablecoins. Euro dollars, therefore crypto dollars, I think is what we talk about, the semantics behind this conversation with Nick. Stablecoins, crypto dollars, are an immense pillar of this industry. If there's one thing that crypto has exported, it's crypto dollars. That's one of the biggest innovations that we have. And this is something that we are going to rise in parallel with, this technology that puts crypto one foot in TradFi and one foot in crypto, crypto finance. And so I think this is going to be a massive pillar of innovation that we should definitely be tapping into, because this is the way

• 2:07David Hoffman?

  that all financial networks Bank networks inside of a nation state, all commercial banking layers inside of nation states, get woven together by global blockchain infrastructure through crypto dollars, through stable coins. So this is one of the big stories of crypto is we're all coming together as a population, one global population under the same financial fabric. And this is the story of crypto dollars starting to weave that fabric together first and foremost. And so, understanding the growth of this parallel industry that we are creating, we are supporting, I think is very valuable to understanding just overall where crypto is going as a whole.

• 2:43Ryan Sean Adams?

  Yeah, they're gonna be a big deal. And it's kind of ironic in that crypto was here to kill FIA. No, actually, it's here to export to the world and also kill at the same time. How do we, how do we square these realities? So we talk about that with Nick. Fantastic episode for you. But before we get into this episode, first we disclose, David and I have nothing material to disclose in today's episode. There's always a link to our disclosures in the show notes. I own some stable coins, but you know.

• 3:07David Hoffman?

  If we owned a large supply of stable coins, would we have to disclose that?

• 3:10Ryan Sean Adams?

  I don't think so. Do they go up? We own some stable coins. Anyway, you can see all the disclosures at all times, bankless.com/disclosures. We're getting right to this episode. But before we do, we want to thank the sponsors that made this possible, including our number one recommended exchange and our favorite place to exchange crypto dollars for crypto, Kraken. Go check them out.

• 3:29David Hoffman?

  Kraken Pro has easily become the best crypto trading platform in the industry. The place I use to check the charts and the crypto prices, even when I'm not looking to place a trade. On Kraken Pro, you'll have access to advanced charting tools, real-time market data, and lightning-fast trade execution, all inside their spiffy new modular interface. Kraken's new customizable modular layout lets you tailor your trading experience to suit your needs. Pick and choose your favorite modules and place them anywhere you want in your screen. With Kraken Pro, you have that power. Whether you are a seasoned pro or just starting out, join thousands of traders who trust Kraken Pro for their crypto trading needs. Visit pro.kraken.com to get started today. MetaMask Portfolio is your one-stop-shop to navigate the world of DeFi. And now, bridging seamlessly across networks doesn't have to be so daunting anymore.

• 4:13David Hoffman?

  With competitive rates and convenient routes, MetaMask Portfolio's bridge feature lets you easily move your tokens from chain to chain using popular Layer 1 and Layer 2 networks. And all you have to do is select the network you want to bridge from and where you want your tokens to go. From there, MetaMask vets and curates the different bridging platforms to find the most decentralized, accessible, and reliable bridges for you. To tap into the hottest opportunities in crypto, you need to be able to plug into a variety of networks, and nobody makes that easier than MetaMask Portfolio. Instead of searching endlessly through the world of bridge options, click the Bridge button on your MetaMask extension, or head over to metamask.io/pot portfolio to get started. Bankless Nation, Nic Carter is a partner at Castle Island Ventures, a Fidelity alumni,

• 4:54David Hoffman?

  co-founder and board member of CoinMetrix, a prolific writer of editorials and academic articles alike. Nick is also a believer that the halving is always priced in. He's a stablecoin connoisseur, an on-chain wizard, an unlicensed Vespa driver, and the greatest achievement of all, and eight times repeat guest of the Bankless Podcast. Nick, welcome back. Wow.

• 5:15Speaker 02

  Thank you, thank you. I'm trying, so I'm the number, I think, two guest on What Bitcoin Did. Also, apparently, number two on Bankless, so.

• 5:22David Hoffman?

  This is correct, yeah.

• 5:23Speaker 02

  We want to go for more appearances on Bankless than Peter McCormack, so that's the goal, guys.

• 5:30Ryan Sean Adams?

  Wait, so you're number two on What Bitcoin Did? Who's number one on What Bitcoin Did?

• 5:34Speaker 02

  I think Len Alden, I think, is number one.

• 5:36Ryan Sean Adams?

  Oh, well, well deserved.

• 5:37David Hoffman?

  Valid, valid.

• 5:38Ryan Sean Adams?

  Alden's correct. You are only succeeded on Bankless by Vitalik Peterin.

• 5:42David Hoffman?

  He's at 14, so you have some work to do.

• 5:45Speaker 02

  You guys did once point-blank ask me if I was an Ethereum.

• 5:49David Hoffman?

  That was episode number two. Oh, no, one. That was the first episode.

• 5:54Speaker 02

  I squirmed, I squirmed under that question.

• 5:56David Hoffman?

  Yeah, you did, you really did.

• 5:57Speaker 02

  Yeah, I think my answer probably changed over time.

• 5:59David Hoffman?

  Yeah, actually, Nick, are you an Ethereum?

• 6:02Speaker 02

  In all meaningful senses of that term, for sure, yeah.

• 6:07Ryan Sean Adams?

  Wow, that's amazing. Let's clip all Nick's answers together across the eight episodes. Let's always ask that question at the beginning of every Nic Carter episode.

• 6:15Speaker 02

  My most infamous podcast moment ever was on this show.

• 6:19David Hoffman?

  Yes.

• 6:19Speaker 02

  You guys really screwed me with that one.

• 6:24Speaker 02

  Corners, they wrote songs about it.

• 6:27David Hoffman?

  No way.

• 6:28Speaker 02

  They wrote all, there was someone wrote a song about it. I didn't listen to it.

• 6:33Ryan Sean Adams?

  I miss this part of us.

• 6:35Speaker 02

  They love to go in my, but my reply guys love to talk about stars rising.

• 6:41David Hoffman?

  It was a cheesy line that has absolutely stood the test of time.

• 6:46Speaker 02

  It was a regrettable line. Now I have this burden where I have to keep like, I don't know, crushing it, whatever it is, whatever a star.

• 6:54David Hoffman?

  Yeah, your star has to always be rising.

• 6:56Speaker 02

  It has to linearly perpetually rise.

• 7:00Ryan Sean Adams?

  A fully star.

• 7:01Speaker 02

  That's what I have to do now.

• 7:03Ryan Sean Adams?

  Well, you know what? This episode will be another example of Nic Carter's star rising. And we're not talking about, what are we talking about today? Not Bitcoin maximalism, we're talking about stable coins.

• 7:13David Hoffman?

  Yeah, of your, your long introduction of many, many titles, we're going to pull apart one particular tribe, the Stablecoin Connoisseur. This is, this is the, the title that the, the version of Nick that we're bringing on to the show today.

• 7:25Speaker 02

  All right. I was actually making a list of, of these people, like stablecoin people I really like. There's like a half dozen, but we're, our numbers are growing, like people that just love stable coins.

• 7:36David Hoffman?

  Right. Who are the stablecoin tribe? Yeah.

• 7:38Ryan Sean Adams?

  Do you want to give some shout outs?

• 7:39Speaker 02

  Yeah, yeah, yeah. Okay. These are people I really respect on stable coins. Peter Johnson, of course, my fellow stablecoin loving VC, has vocal, if not more vocal than me on stable coins historically. Amin Salamani, who has been an innovator in stable coins. I should definitely shout out the kind of make or die people, just like as a general category. And then as far as thinkers are concerned, Anthony Lewis, he used to write a great blog, cover, had some great insights on stable coins. Luca Prosperi has a great Substack, he's also builder in stable coins. JB Coning, I'm sure you guys are familiar with his work. He's sort of on the outside looking in.

• 8:22Speaker 02

  So I would say more of a crypto critic, but also really stellar work on stables. Manny Rincon Cruz also excellent writing on stables. Austin Campbell, who I think you guys are familiar with. Who's like my stablecoin guru. So those are like my stablecoin thinkers where I get all my ideas from, basically.

• 8:39David Hoffman?

  Yeah, yeah. And the stablecoin tribe has definitely grown in strength. It's interesting to call it a tribe because usually tribes are reserved for like native layer one assets and some layer two assets, but the stablecoin cohort is definitely growing in strength. And like I said, this is going to be the focus of this episode today. Stablecoins have always been in the limelight ever since inception. It's always been a fascinating topic of discussion, especially as they've gone from just like something new to something core to crypto. But even lately and throughout 2023, it seems to be a particularly shining bright star, if you will, lately. Rising star. Right. Rising star. Yeah, the star of stablecoins continues to rise. So Nick, maybe you could provide us with a little bit of a snapshot of

• 9:23David Hoffman?

  just your perception as to the state of stablecoins in 2023 as it relates to our industry and just global, global concerns.

• 9:31Speaker 02

  Yeah, I mean, from the perspective of VC, I think I could just do stablecoins for the next year, stablecoin deals. And there would be enough there. So on the kind of entrepreneur capital raising allocation side, I see enough there to just feast on. So that's very exciting. But from the outside looking in, you might be thinking, well, hang on, the stablecoin market cap is shrinking. The stablecoin sector is beleaguered. You know, it went from, depending on whether you count U S T, I don't know if I would count U S T. But if you do, it went from 185 bill to 125 bill. So it lost a full 50 bill in market cap. So you might be thinking, okay, well, stablecoins are over. It's all about Fed Now, you know, stablecoins are in the past.

• 10:15Speaker 02

  But the actual underlying metrics actually look really good. So like you like actual usage, whether that's transaction count, monthly actives, or dollar value transmitted on chain. And importantly, it's also decoupled from sort of exchange volumes from the proxies for speculation that we see. I mean, I don't really like that word speculation, but whatever. For all the data-driven proxies that we see reflecting sort of attention in crypto, whatever that is, those are declining. Stablecoin usage appears to be basically growing. Stablecoin volumes themselves, like dollar value settled, is roughly flat over the last

• 10:56Speaker 02

  two years, which obviously contrasted with sort of like aggregate prices in crypto is good. Monthly actives are up. And also, more importantly, we see this decoupling from stables just being used to settle with exchanges, you know, just being this liquidity for exchanges or liquidity for DeFi. We see it as now an independent global settlement rail, where a lot of the usage of stables has very little to do with crypto itself. This kind of like broader, like, you know, hot ball of money crypto economy. And depending on your perspective, I mean, you know, some people might say, may not like that, but I think as far as selling crypto to the outside audience, that's a very powerful and important thing.

• 11:40Speaker 02

  Because we've never really been able to plausibly claim, hey, there's some actual utility for making blockchain-based transactions that is in some way decoupled from the broader speculative casino in crypto. We're starting to see it, like, we're really meaningfully seeing remitters embracing it, global payment systems embracing stables, you know, mobile money apps embracing them. This we see very earnestly, it's very real, it's happening globally in virtually every jurisdiction. And to me, that's a very exciting thing.

• 12:17Speaker 02

  We can dig into kind of the numbers a little bit, but yeah, I think we're like, it's a really key moment to kind of sell the value proposition of public blockchain-based transactions to the broader public.

• 12:28Ryan Sean Adams?

  Yeah, so I guess, yeah, a couple of thoughts on that, Nick. So you say stablecoin in terms of total value or, you know, number of billions in stablecoins is actually down, but other usage metrics are up, which is interesting. I want to ask what kind of usage metrics are most important, but maybe, I guess, I'll kind of ask a question about what, do you think that stablecoins are crypto's?

• 12:55Ryan Sean Adams?

  One of crypto's killer apps, like one of its use cases where it has found product market fit, I was actually just interacting with somebody in traditional finance and we were going on a kind of a little bit of a road trip. I was driving one of my kids to a sports event and he was asking about crypto. You have a crypto podcast, like tell me about it. I don't know very much about it. What are the use cases? And I found myself talking a little bit about store of value, right? Kind of like, think about gold, right? Where did gold's value come from? Memetic value and what is actually money anyway? And all of these things, right? So that's the common store of value type case. But the most persuasive use case that popped into my mind and the one that was most compelling was actually

• 13:39Ryan Sean Adams?

  the stablecoin use case. It's think of you are an Argentinian and your bank system is failing you, both from an inflationary perspective. So the fiat, local fiat currency is failing you and then the banking system in general has capital controls. So it sets a limit on how much you can actually withdraw and you know, how much commerce you can, you can do and who you can do commerce with and that sort of thing. And so, stablecoins in parallel to a store of value are a killer use case for someone in an environment like that. Or take Turkey, or take all sorts of emerging economies with less, less robust banking sectors than, than, than we have here in the West. And I found myself relying

• 14:22Ryan Sean Adams?

  on that as kind of, this is an example of crypto's killer use cases. This, this is why we are still here. Do you think that is overselling it? Or do you think that apart from store of value, the kind of, it's the second product market fit that we can honestly point to and say, hey, this is something that works and is good for the world and is useful?

• 14:43Speaker 02

  I mean, I think it's the first thing that we've done that has real product market fit, frankly. In 2020, I think I, I called it, I wrote this white paper, I called them crypto dollars. And I called it a killer app of crypto. And I mean, the difference is that I think it's very easy unless someone is strongly ideologically.

• 15:08Speaker 02

  Dispose against non-bank transactions occurring and these people exist and they generally stablecoin haters unless that is their ideological framework, virtually anyone can be made to see the value proposition of stablecoins, which is final settlement digitally, instantly, cross-border, natively interoperable, natively composable, public ledger, read-write access, everybody has access to. I think that is a very clear and compelling story for almost anyone on the planet. The kind of store value, digital gold, Bitcoin, Ether story, that's something that a large fraction of the world's population, I think, will never acknowledge or understand

• 15:51Speaker 02

  or truly internalize. That's a much more difficult story. That's one that'll play out over decades. The utility of stablecoins is apparent today to anybody that's, you know, had to sign a bank wire internationally or anything like that.

• 16:04Ryan Sean Adams?

  I have a hard time, Nick, imagining there are stablecoin haters. What like what does a, why would someone hate a stablecoin? And does the same individual who hates a stablecoin also not use fiat dollars in their bank account? Do they not pay utility bills or pay taxes? Or what's the, what's the take from a stablecoin hater? Is this a group that's more exclusive to crypto and not found outside of crypto circles?

• 16:29Speaker 02

  No, I mean, these people exist in Washington. There, there's a cohort of people that think that all transactions should be the purview of the state and thus they should be mediated by banks, which are basically, banks are public-private partnerships, so they're effectively an arm of the state. And we see this very clearly this year with the, what I call Operation Choke Point 2.0, where the banks are very clearly deputized for political purposes. And so if you think, if you basically reject the notion of financial privacy, or you think only the state itself can create financial privacy, some people do believe that. So

• 17:10Speaker 02

  if you think transacting financially should be solely a kind of a public concern and not a private concern, you may really disdain stablecoins. These, these kinds of people tend to also be against fintech broadly. And they call stablecoins like counterfeiting. Or, you know, they'll point to the sketchiness of Tether, like, say that it's a vehicle for money laundering. But yeah, there's like a cohort of people out there that really, really dislike the notion of stable coins, because these are typically private, non-bank entities. They're effectively fintechs that are opening up this brand-new transactional space. And so for some people, that's totally against their worldview, as people making sort of unencumbered transactions.

• 17:53David Hoffman?

  One of the things that we say about Bitcoin, Ethereum, DeFi, crypto at large, is that they're largely misunderstood by the outside world. And we say the most bullish thing about crypto is to be understood. And I think that can extend to stable coins. Even though stable coins kind of straddle Old World and New World, OldFi and DeFi, there's still something that like, you know, raises the heckles of people coming from the Old World. It's like, oh, that's the new Wild West. I don't like those kinds of stable coins. It's fake. Fake money printing, et cetera. But I think that comes from a place of lack of understanding of just simple global economics and dollar demand, and also history lessons that we've seen play out over time. And Nick, you gave this talk at Token 2049, which is a bit of the inspiration for some of the focus here on this episode.

• 18:38David Hoffman?

  I'm wondering if you can kind of run through the parallels of the growth of the Euro-dollar market? Because I think that is just a logical, history-as-rhyming continuation of what we see with the rise of the crypto-dollar market. I think understanding this would allow people to, I think, understand that crypto dollars are pretty inevitable and we should embrace them.

• 18:57Speaker 02

  Yeah, and this is why I called them crypto dollars, as a direct callback to Euro dollars. So that was a really clear attempt to make the analogy.

• 19:06David Hoffman?

  We tried to join you with Bankless for a while, but we raised the right flag.

• 19:10Speaker 02

  I appreciate that. No, because stablecoin is, I call it a skewomorphic term, because we only have the term "stablecoin" because we were starting from sort of native crypto. And so then we called the thing a coin, and we called it "stable" as a contrast to sort of like unstable crypto. But I totally hate the term. I think it scares people. And putting "stable" in the name is also...

• 19:33Speaker 02

  I think mistake because like occasionally these things will try to discount for like, you know, genuine market driven reasons. And so then people assume that means the whole system has failed, when really it's just the market playing, doing what the market does. Like a deep pegs for a second. Does that mean the system's a failure because the name presupposes one thing and then it's, you know, so.

• 19:53David Hoffman?

  If we're gonna go down this one little rabbit hole, I've always appreciated Rye as a stablecoin. Rye, the thing that fluctuates around a dollar, but is free to fluctuate around a dollar and can sometimes be plus 30%, negative 30%. That's a stablecoin. And if it's a tokenized dollar, then it's a crypto dollar.

• 20:12Speaker 02

  Yeah, totally. It's all about expectations management. And it's funny that like central bankers just hate unstable. So like, oh, these things aren't really stable. It's like, well, that's not even strictly what we're trying to achieve. We're trying to tokenize a dollar liability held by some issuer and facilitate trade globally. Like, that's what we're trying to do. You know, we don't need this thing religiously pegged to one. They're not even really pegged to a dollar. I mean, Tether, for instance, there's a redemption fee, you know, so that implies that it's not actually pegged to a dollar, if that makes sense. But so.

• 20:46David Hoffman?

  Anyway, yeah, to dive down into the history, the semantics aside.

• 20:50Speaker 02

  Yeah, yeah. So, okay, Eurodollars. Stablecoins are tokenized Eurodollars for the most part, right? 75%. And a couple percent are crypto backed. And then mostly they're issued by offshore issuers. Of course, the element in the room is Tether. I don't know what percentage that is, like, it's in the 60s, I think. It's very meaningful. The biggest onshore one is Circle. But Circle is still issued by non-bank entity. Banks in the US are banned really from touching stablecoins, which is a huge tragedy and a big scandal, I think. But so.

• 21:24David Hoffman?

  Wait, stablecoins? Or do you mean crypto dollars?

• 21:27Speaker 02

  Crypto dollars, yeah. So, stablecoins themselves are mostly tokenized Eurodollars. They're also very much like Eurodollars. And.

• 21:37Speaker 02

  Okay, so what's a euro dollar? It's very simple. Euro dollar is a bank liability that's issued by a bank that is not based in the US. That's really it. And this kind of emerged after World War II, when people wanted to make dollar transactions internationally. And for whatever reason, they didn't want to do that in the US. One reason was they were concerned that the US would arbitrarily freeze the assets for political reasons. So this is why Russia was actually initially one of the entities that was creating euro dollars. Because there was the Cold War. And so they started creating dollar deposits, dollar liabilities in French banks.

• 22:20Speaker 02

  And I think Josh Younger mentioned this on the Odd Lots podcast. I think one of the first things they did was pay striking workers with those euro dollars. So they look and feel just like dollars. It's just they are issued by an offshore bank and they may not actually be backed by dollar collateral, which will become problematic later in the story. Later on, more euro dollars were created because banks saw an opportunity to pay higher interest rates on those deposits and depositors liked that. Whereas in the US, interest rates were actually capped for a while. So there's this market-driven reason the euro dollar market expanded.

• 23:04Speaker 02

  London became the center of this throughout the 50s and 60s. In the 70s, the oil shock occurred and the pound sterling stopped being the global reserve in the 50s, actually. And the oil trade began to take place in dollars. And so I'm really accelerating through history here, but. What happened was the US started to worry a little bit because they'd been monitoring the euro-dollar space. Initially, they didn't know what it was. Then they started to kind of, you know, go to Europe and try and figure out what was going on there. And they began to worry that all these dollar liabilities were being created without corresponding dollar

• 23:45Speaker 02

  assets and without the central banks themselves having access to dollar liquidity. And so the Fed ultimately decided to reconcile that by creating swap lines with these foreign central banks. So then the hierarchy was like, local bank issues dollars, they would be able to get emergency dollar liquidity from their central bank. Their central bank would have a relationship with the Fed itself. And

• 24:08David Hoffman?

  Was that kind of a formalization of the relationship between the United States economy and euro dollars?

• 24:14Speaker 02

  Yeah, I mean, the Fed made the, and really sort of the major Western central banks made the deliberate decision to kind of defend the euro-dollar market because they saw that it was kind of getting off sides.

• 24:26David Hoffman?

  Right. And one thing I want to just put a pin in about the existence of the euro-dollar market was that it's a quote unquote permissionless technology, as in there's no gatekeepers around who can issue a euro dollar. It is just simply an invention of the free market banks to issue dollar liabilities. And because they're outside of the purview of the United States, there's no gatekeeper to say that. And so it's kind of a natural market demanded phenomenon that occurred throughout many banks across Europe. Is this correct? It's like a gray market, almost.

• 24:56Speaker 02

  Yeah, precisely. So that's exactly it. It was a market derived phenomenon in response to real market need, which was dollar transactions globally.

• 25:06David Hoffman?

  And then that eventually forced the hand of the Federal Reserve to like, okay, this is a real market force. We're going to have to align with it rather than compete with it.

• 25:15Speaker 02

  Yeah. I mean, what they could have done was just deny the importance of the market and not create this dollar liquidity, which would have caused a financial crisis abroad. You know, so what they did do over the 60s progressively and then increasingly in the 70s was realize the importance of this market and the value of the market for the US, accept that they would have a loss of control, but trade that for dollar stability globally and for the fact that all these entities transaction, transacting with dollars were buyers of the US debt. They're buyers of the treasuries. And so they basically formalized these relationships, created swap lines, opened up

• 25:58Speaker 02

  dollar liquidity. I mean, the swap lines today are still a politicized thing, like not everyone has that access. It's kind of, if you're an ally of the US, you have, you know, pretty good dollar liquidity. If you're a competitor, you don't. But so with their sort of partner nations, they created these swap lines and came to realize the value of the euro-dollar market. And today, there's more euro dollars than there are dollar dollars.

• 26:23David Hoffman?

  How much are we talking about, Nick?

• 26:24Speaker 02

  I mean, trill, tens, over 10 trillion euro dollars, for sure. We don't know the exact number. And that's another thing that kind of cracks me up. We know the quantity of stable coins to the nearest cent. But we, you know, we, we stopped counting the euro dollars.

• 26:39David Hoffman?

  Importantly, just to double down on something you just said, there's more euro dollars in existence than actual dollars.

• 26:47Speaker 02

  Yeah, I mean, because there's more money in the world outside the US than there is money in the US. And the dollar is the global reserve. It's 60% of official FX reserves. I think it's like 48% of international trade is booked in dollars. You know, something like 80% of all FX transactions have the dollar as at least one leg. So by virtue of the fact that the dollar is a global reserve and the world is much bigger than just the US, there's more euro dollars than there are dollars.

• 27:15David Hoffman?

  Is it, is it the euro dollar nomenclature even in correction, just be called global dollars or non-US dollars?

• 27:21Speaker 02

  Yeah, I mean, so obviously, the creation of the euro dollars preceded the creation of the euro. So it's something to do with Visa. I don't know. There's some like nomenclature reason, but it does have the funny conclusion that the euro prefix in euro dollars just means issued, a currency issued outside of the sort of domicile of that currency. So a euro issued abroad would be called a euro euro, which is like, pretty amusing.

• 27:48David Hoffman?

  Okay. So, so when we talk about like euro dollars and crypto dollars, we're actually kind of talking about the same exact thing, except for the fact that crypto dollars just happens on blockchains.

• 27:57Speaker 02

  Yeah, pretty much. I mean, some crypto dollars are issued in the US, in which case I wouldn't call them, you know, your dollar. But in the parallel, the obvious parallel is people are creating these things and using them because they want, because the original system is restricted in some way. Like, obviously, you can't do a smart contract transaction using a bank wire, right? Maybe one day you'll be able to. But so you can't get access to this transactional space, which is like lucrative, important, growing market with the legacy fiat system.

• 28:35Speaker 02

  You had to join the crypto dollar system to engage in crypto type transactions. And also, the creation of crypto dollars was a direct reaction to the sort of like inherent politicization of the legacy financial infrastructure. Like, the exact, precise reason the first crypto dollars were created, which was really Tether, which is the first major one, was because Bitfinex had trouble banking. And so all they had to do was find one bank that would do business with them, you know, persuade that bank to custody some dollar assets that they could issue dollar liabilities out of, and then the dollar liabilities would freely trade so they could settle up with their clients, as opposed to maintaining bank relationships in every single country where

• 29:20Speaker 02

  every single one of their clients was domiciled. And if you guys remember back in the day, like, Bitfinex was banked in Taiwan, and they're getting chased out of there. And then there's a network of banks that are always trying to use. Crypto dollars change the calculus where you just have to persuade a single bank to hold your dollar assets in reserve and create the liabilities based on those. So it vastly simplifies the, you know, the ability to transact in crypto. So, you know, the creation of these things was a direct reaction to the kind of very controlled nature of the existing financial system, which is very analogous to your dollars.

• 29:58David Hoffman?

  Right, yeah, very analogous to Eurodollars, except for the crux of the fact that eventually, the Fed, the government, the United States, accepted Eurodollars and enshrined them formally. We haven't had that moment happen yet in crypto, but this is kind of what we are hoping for and predicting, right?

• 30:16Speaker 02

  Yeah, so this is the speculative part of my analogy, which is, on a go-forward basis, I expect this will eventually occur, and the US will realize they've lost control over the crypto-dollar market, which they have. That's been deliberate. They've wanted to lose control. They've wanted to push them abroad. So, the reason why this sort of like key catalytic moment hasn't occurred yet is because crypto dollars are not yet systemically useful to the US. So, the analysis I would do is, if you look at where we are, if you pretend that crypto dollars have a growth trajectory like Eurodollars, we're in the equivalent of 1967. So if you take the Eurodollar supply in 67, you inflation-adjust it to today,

• 31:00Speaker 02

  unless my math is wrong, you get to 130 billion, roughly. That's the supply of the stable coins of the crypto dollars. So, in 67, it wasn't yet fully apparent that Eurodollars needed to be backstopped by the US directly. So they were still kind of on the out-and-out. It was still in the skepticism phase. So, basically, the crypto-dollar supply needs to grow, continue to grow, and then make the case to the US that, hey, you should actually embrace this thing, as opposed to kind of harassing it. But maybe we don't need that. Maybe we don't need that. It just, for me selfishly, as a kind of a US firm, US individual, it would be nice if the US did do that. But meanwhile, like, these things are happily growing

• 31:45Speaker 02

  and thriving abroad.

• 31:47David Hoffman?

  Why did the Federal Reserve, US government, come to the conclusion that they needed to backstop the Eurodollar? What was that conclusion?

• 31:54Speaker 02

  Because the Nixon shock occurred and there this question emerged as to who was going to buy our debt post gold standard, then the oil shock happened, I think in 73. And there is this huge, huge market all of a sudden for Euro dollars. And there is a worry that the oil market, that we wouldn't be able to get sufficient oil if we didn't support the Euro dollar market. So a lot of it had to do with kind of like the petrodollar.

• 32:21Ryan Sean Adams?

  So I guess a few housekeeping items here because a lot of this is kind of new information to me or just, you know, it's paths I haven't gone down very deeply. So you're telling me that there are tens of trillions of Euro dollars out there and would probably be more accurate to call these like global dollars because they're not all necessarily in Europe. And maybe there's some banker out there who's really angry about the Euro dollar meme and just like us wants to change it to Globo dollar. But that's kind of the reality, right? There are tens of trillions of dollars out there. And by the way, we don't actually have a precise number, like we don't actually know how much, which coming from crypto, I mean, that feels very weird, right? Shouldn't the central bank be able to run a full node and calculate the supply of their

• 33:06Ryan Sean Adams?

  dollars outstanding?

• 33:08Speaker 02

  Crypto, great. That's why we like crypto. Yeah, it's not just Euro dollars, it's also physical cash.

• 33:13Ryan Sean Adams?

  He's also, they don't know how much physical cash is out there, obviously. How could they?

• 33:17Speaker 02

  There's more dollar cash outside the US than there is in the US also.

• 33:22Ryan Sean Adams?

  And it's an unknown amount as well because of course it's not on a global permissionless blockchain. So we got you on the technology side, central bank. But let me just ask a few housekeeping items here. So as bizarre and crazy as that sounds, I want to get into kind of the incentives at play for the creation of this market. So we're calling this kind of a gray market and kind of, you know, it's increasing in legitimacy as the US starts to recognize it and it's like, okay, Euro dollars are here and we can't quell them. Maybe we don't want to, it's not in our interest. Let's talk about the demand side, though. Why are dollars so demanded? Why does everyone want dollars? Why is the dollar kind of the?

• 34:07Ryan Sean Adams?

  Better than the Euro. I mean, why aren't they using Euros instead? Do you have some sense of that? Because that also informs why crypto dollars might be demanded in the future.

• 34:17Speaker 02

  Yeah, and this is a good question that I think about a lot because crypto dollars are very unique in that 99% of them reference the dollar, which is just remarkable, which is a much higher percentage penetration than we see dollars in any other domain, especially because crypto is a fully global market. I mean, a very global market. So I always wonder about that. Like, what is it about crypto that causes the dollar to have these tremendous network effects? It's just squashed any other.

• 34:47Ryan Sean Adams?

  What you mean is there's no like Euro stablecoin. There's no Canadian dollar stablecoin really that has.

• 34:52Speaker 02

  They exist, but nobody wants them.

• 34:54Ryan Sean Adams?

  Yeah.

• 34:54Speaker 02

  I mean, I think this will change to a certain degree. Like, probably people will start, if you're a European and you're using crypto and you're using crypto fiat, you're probably using dollars, which is remarkable to me. I think, you know, there's like a few reasons why people want dollars. One is it has, you know, use a dollar to extinguish a tax liability in the US. Obviously, that's not that salient in the Euro dollar conversation. You also need dollars to purchase US securities, so treasuries, for instance. But the other one would just be kind of the network effects of trade. I mean, you need some currency to denominate trade in,

• 35:37Speaker 02

  to denominate contracts in. And as the US became the global exporter, and just the trade partner for the entire world post-World War II, that was all occurring with dollars. So I think it's just really the network effect and, you know, the liquidity benefits that caused the dollar to be so demanded globally.

• 36:00Ryan Sean Adams?

  And what a powerful network effect it's turned out to be, it seems like. And I guess the question remains over the decades to come, how durable that is. Of course, that phases into the crypto story, but I just want to understand Euro dollars a little bit more. So what you were saying, is it basically the case, so I have dollars in my US bank account, my Wells Fargo account, right? And that is a US dollar, that's not a Euro dollar. I have FDIC insurance on that account up to 250K. If I have dollars in a bank account in Europe. Is that automatically a Eurodollar? And then what is it backed by? Like, what composes that specific Eurodollar?

• 36:43Ryan Sean Adams?

  I think you referenced earlier in this conversation that it's not normally or not necessarily, you know, kind of, there's one dollar for every dollar that I have in a European bank account. So maybe it's backed by something else. What is the actual structure of that dollar that I might have in a bank account in Europe? Is that a true Eurodollar? And how is it different than the dollar I might have in my American Wells Fargo account?

• 37:07Speaker 02

  Yeah, so initially, they like weren't fungible, you know? So you wouldn't have had FDIC insurance if those dollars were at an offshore bank. But as time went on, the connectivity grew greater. As the US realized they couldn't suffer these deflationary shocks when people thought they'd have dollar liabilities in these banks and they weren't supported by dollar assets. But yeah, initially, the banks kind of were offside in the sense that they had non-dollar assets that were backing the dollar liabilities. So what I would say they're backed by now is the relationship that ultimately the local central bank has with the Federal Reserve. That's sort of the ultimate backing.

• 37:50Speaker 02

  When you think about your dollars in your bank, what they're ultimately backed by is like the Federal Reserve's willingness to create liquidity if there's a crisis. You know, so like the FDIC thing is kind of like, it's kind of symbolic, I would say. The FDIC insurance and like we saw this year with the banking crisis, FDIC was kind of irrelevant in a sense, right? Because it didn't support all the unsecured deposits in the banks. So what was, what were your dollar deposits in banks actually supported by? It was like the Fed's willingness to create liquidity in a crisis, which of course manifested potentially in inflation. But yeah, it's like your dollars in the US are ultimately supported by the fact that

• 38:32Speaker 02

  there's a central bank that's willing to create dollars and shore up the banks if necessary. And then it's more diffuse offshore, but I would say it's still the strength of that bank's relationship with their central bank and then the central bank's relationship with the Fed, which is kind of a geopolitical question. So are the allies of the US have a tight linkage and the foes of the US or the non-affiliated countries, they have a less tight linkage. So

• 39:03Ryan Sean Adams?

  Anyone in the US wants to maybe screw or just not bail out. And what you're saying is that example was very pressing this year. And I feel like we all learned that with Silicon Valley Bank, right? Where depositors were, they would have gotten screwed. And there's of course, an FDIC limited 250K per account. And of course, that was bailed out. And all depositors' money was basically guaranteed by the US banking, central bank apparatus, right? And so you're saying that that relationship would also exist, maybe in a foreign bank, dependent on the US's desire, political will, monetary will to go, you know, commit to a bailout should some sort of event happen. So it's, I guess, it's, it sounds like it's

• 39:48Ryan Sean Adams?

  very different. It's more similar to the dollar I would have in a Wells Fargo account in that it's backed by, I guess, you know, some full faith and credit of the US banking system type of relationship. It's a little different than like a USDC or a tether, which actually you can kind of like audit. Yeah, I don't know what the latest of tether is. But in the case of USDC, you get whatever, monthly audits. You can actually see, oh, this is backed by 70% treasuries and you know, X percent, whatever else, 30, you know, 20% dollars. It's kind of composed by a grouping of assets in the, in the case of a crypto dollar or stablecoin. And that's, that's a little bit different than a euro dollar. Is that the case?

• 40:29Speaker 02

  Well, I mean, the bank's asset, their like portfolio of mortgages and loans to small business, et cetera, that like, that's like the actual asset that supports it. But that is not necessarily dollar denominated. So the sort of like liquidity provider of last resort would still be the Fed. But the Fed will rather, the US may not feel that they owe anything to the foreign holders of euro dollars. So I think this is actually something people talk about a little bit, like, well, there's all these dollars overseas, like in particular in countries that we're not friendly with, right? And there may be in kind of the near future, a situation where which emerges where we have a global financial crisis again, and the Fed ends up being at odds with the kind of

• 41:14Speaker 02

  national security apparatus of the US, because the Fed's motive will be to shore up the dollar system and provide that liquidity, even if it helps our adversaries, right? So like, you're not talking about American savers who are potentially dealing with loss or something, you're talking about total foreigners that we may not feel like we owe anything to. So the kind of NatSec portion of the government might be like, well, why on earth would we bail out like people abroad that, you know, like, what do we owe them? Whereas the Fed, their motive is, well, actually, our job is just to like, ensure the sanctity of the dollar globally, even if the dollar was created in a foreign bank. And so this is actually like a debate that will be had in the coming years, is to what extent should we support the global Eurodollar system?

• 41:58Ryan Sean Adams?

  That's a very interesting question, right? Because when you look at it through that political lens, you sort of wonder, what's, what's the safer asset? A Eurodollar in a European bank account? Or a USDC, denomination of USDC, which is basically a US bank account at the end of the day? It almost feels like under a certain lens, you could easily say USDC is the safer asset relative to a Eurodollar. What do you think of that?

• 42:26Speaker 02

  Well, it's also, well, so with USDC specifically, I'd feel really good about it, because, well, it's kind of an interesting thing. That's maybe not the best example, because you, no offense to my friends at Circle, you're, as a USDC holder, my analysis is, you're an unsecured creditor of Circle. So it's kind of like-

• 42:46Ryan Sean Adams?

  You're an unsecured creditor of Circle.

• 42:47Speaker 02

  It's like you bought a bond that they issued, and you get zero coupon for that. So, you know, what would you have to be paid to be a unsecured creditor of Circle? For me, it's probably more than zero. But that's what, that's a USDC holder, is they're getting paid. Well, take a better example, would be like PayPal's PYUSD. So that's issued under the New York Trust License, and I don't want to be mean to any given stablecoin here, I love them all equally, they're all my children, but PYUSD is a good example, because it's issued in New York, New York Trust License, bankruptcy remote. The regulator is very clear about that and they do monthly attestations.

• 43:31Speaker 02

  They're very clear about what the assets backing that are. Treasuries, reverse repos, some cash probably. And they're very clear about what your assurances are as a holder of that. You compare that to, let's say, the users of the ordinary PayPal product. And JP Koenig wrote a growth blog making this exact clear contrast. The holders of the dollar liabilities issued by PayPal in their conventional product have none of those assurances. In fact, there's a higher maturity. It's not just short dated treasuries or cash. There's some exotic stuff in there. They're not as transparent with the disclosures because they don't have to be. And you don't have priority in a bankruptcy or liquidation situation.

• 44:15Speaker 02

  So because of the way that crypto stablecoin regulation is being treated, in the US at least, the crypto dollar holders of PYUSD are in a far better position than the dollar holders of ordinary PayPal issuance.

• 44:31Ryan Sean Adams?

  And by the way, Nick, for people who haven't kept up with this, PYUSD is a new PayPal stablecoin that just started being issued, I believe, this summer. It doesn't have a lot of traction yet, but you're saying actually the settlement guarantees, let's call them, of PYUSD are actually pretty strong.

• 44:49Speaker 02

  Yeah, the overall assurances you have from being a user in that system. I mean, look, there's a freeze and seize function as most fiat backed stables have.

• 44:58Ryan Sean Adams?

  Stable takes.

• 44:59Speaker 02

  Yeah, and we can dig into why you probably should have that. But yeah, the assurances in the system, because of the weird contingency that it's a crypto dollar, are far, far greater than the assurances you have being an ordinary user of PayPal. And not all stablecoins are like that. They're not all issued on New York with New York Trust license. Obviously, the biggest stablecoins, big questions around them. Other stablecoins in the US, there's an array of strategies, issuing strategies. Some are state by state MTLs, some are issued out of trusts. But on kind of a go forward basis, my general statement would be I'd be far more comfortable being a stablecoin holder than I would be a citizen of some foreign nation with a dollar account in their bank account.

• 45:44Ryan Sean Adams?

  So I have one last question about the Euro dollar. So and that's with respect to.

• 45:51David Hoffman?

  How it grows and how it's issued, is it basically just a function of demand? So I'm very familiar with how stablecoins grow and stablecoins grow when the market demands for stablecoins, right? So if there's more demand for USDC, then it can just, you know, more, there's more USDC liabilities in the account and they can issue more USDC and it just kind of ratchets up with, with demand. Do, do Eurodollars work the same way? Are they just kind of like, they could mint infinite, I suppose, to the extent that the demand is there?

• 46:21Speaker 02

  Well, I mean, the bank solvency is ultimately the question. So if they're over issuing dollars and then there's a run on the bank, you know, the bank itself runs into trouble and could potentially go bust. So it's the same constraint applies, it would be a capital ratio, liquidity ratio. So they'll be able to issue dollars commensurate with like whatever the local regulatory requirements are, but ultimately it would be a function of the demand to hold dollars in that bank.

• 46:47David Hoffman?

  And then, so do you think crypto dollars could be a competitor to Eurodollars in the future and start to take some of that market share?

• 46:53Speaker 02

  Well, I think they are a force for Eurodollar creation, basically. But also crypto dollars don't have to be issued by a bank. I mean, we see non-bank issuance of crypto dollars. So it could well be the case that the banks are kind of cut out of this process whereby you have a crypto dollar issuer, you have some custodian that holds treasuries for them and some intermediary that helps with liquidity and there's no bank involved at all. So basically, I think crypto dollars are the new Eurodollars. They could also be accretive to the Eurodollar sector generally, but yeah, I see them as basically the new Eurodollars.

• 47:32David Hoffman?

  I want to talk about some of the drivers behind the rising star of crypto dollars. Like, why, why is it gaining momentum? Not few things in 2023 have actually rose in popularity, rose in utility, rose in interest. Stablecoins is definitely one of them, but why? Because you mentioned, you alluded to earlier, Nick, that it's, it's actually decoupled from exchange volumes. So there are new, net new buyers of stablecoins, there are net new transactors in stablecoins. Who are these people? What are the sectors of the world, the sectors of industry in parts of the globe that are like leaning into the crypto dollar world?

• 48:12Speaker 02

  Yeah, and I'll caveat this by saying that we see monthly active and weekly active users increasing for stables. The volumes, as far as I can tell, are flat, but obviously relative to crypto. That's good.

• 48:25David Hoffman?

  Flat is up in this day and age.

• 48:27Speaker 02

  Flat's up. And the total supply of stables is contracting, but so that means velocity is increasing. So we're doing more with less in terms of monetary base. I would love to know, you know, who all these people are, and it's very circumstantial. You have to put the puzzle together. So based on all the pieces, you know, I'll identify a few kind of categories. So one is cross-border payments remittances, right? And I think, so we see the legacy remittance providers getting into the stablecoin space. So that's the thing that's happening, like MoneyGram is getting into it.

• 49:10Speaker 02

  But you also see new crypto native remitters engaging in stablecoin transactions to satisfy the kind of cross-border leg. And these are just new names that are emerging. A lot of these remitters will be using crypto dollars without their users knowing about it. So this is kind of like utility scale B2B2C type mechanics. So that's certainly a category. They may not be holding a big float because this is more kind of like for payments, but we certainly see that. Another cohort is stablecoin or, you know, like fintechs, banking as a service companies, e-money, mobile money companies that are giving their users access to the dollar,

• 49:55Speaker 02

  whether it's for transactional access or just to hold the dollar and maybe an interest-bearing mechanic, like a tokenized treasury type thing. This we see mostly outside the US, right? Like, obviously, we're very well-served from a fintech neo-bank perspective in the US. But in EMs, you see this. And there's a bunch of new names emerging there. And I think within a year or two, we'll see, you know, massive, massive companies built here. And a lot of these, we've talked to like at Castle Island, we've talked to like two dozen of these firms in the last couple of months. A lot of them, their metrics are just skyrocketing as users become more comfortable with this, or as users become more attuned to the risk

• 50:37Speaker 02

  of their local fiats, you know, like we've seen banking crisis around the world. The hotspots I see, everybody knows Latam is a hotspot for this. That's probably the number one place. The, you know, there's a combination of like latent amounts of wealth there. There's a, you know, obviously a flow of remittance in and out. And there's, depending on the country, there might be very unstable or weak fiat system. You've even seen dollarization episodes in Latam. And there's also a very tech savvy, like, you know, mobile first user base. So I think that's why you see such high penetration in Latam. The other

• 51:17Speaker 02

  hotspots we see are Eastern Europe. Again, like very technically savvy populations and history of kind of like unstable currencies, unstable governance. We see this in Africa. We're invested in I think the largest crypto brokerage in Africa, Yellow Card. The main thing people do with them is make cross-border stablecoin transactions. And of course, the dirty secret of all this is that it's, a lot of it is on Tether, on Tron specifically. So, you know, we, we joke about it, but Tether Tron is like the number one crypto application that anyone has ever come up with, which is pretty amusing. And then you see a lot of usage in Southeast Asia as well. So it's kind of like you really have to put the picture

• 52:02Speaker 02

  together. I'd love to know, just from like at the on-chain data, what's going on. But of course, there's only so much you can piece out of that. So we have to go kind of bottom up.

• 52:13David Hoffman?

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• 53:42David Hoffman?

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• 54:23David Hoffman?

  Is it accurate to say that crypto dollars, stablecoins, are a democratizing force for access to what we call Euro dollars? That blockchains have helped like the, the non-Europe, non-United States parts of the world actually penetrate into the crypto dollar market? Is this a democratizing force that's being brought to play here?

• 54:43Speaker 02

  Yeah, and people talk about like financial inclusion and talked about it for years in crypto. And like, sometimes it's just total red herring facade, like a justification for what we're trying to doing. But like, it's very real. And so like, my prediction here is actually, if you actually look at it, the Euro is becoming less and less influential because Europe is fading in many ways. My prediction is the dollar actually kind of re-entrenches their dominance in the, in the coming years. And I think crypto is a big part of that. I think you'll see this kind of spontaneous crypto dollarization occur. And I thought this would happen back in 2020. I started talking about it in a podcast mini-series. I wrote my little white paper about it. I thought you would see crypto dollarization episodes.

• 55:28Speaker 02

  And like in certain hotspots, you have seen this definitely, like in Venezuela. It's absolutely the case that crypto dollarization has occurred with a certain portion of, of the population. But I basically think there's going to be many fewer fiats in the next kind of 20 years or so. And I, it's not that I think like Bitcoin is going to kill them or anything. It's the dollar will kill them, right? Like the dollar will be forcibly imported into these countries and the local government authority will not have the tools to stop this. And if these countries are democracies, it will be politically unpopular to try and inhibit this, right? It won't make sense at a certain point.

• 56:11Speaker 02

  So I think you'll see a lot more countries kind of submit to dollarization. If their local population becomes too fed up with the kind of fiat mismanagement. But you know, as far as taking, giving people access to dollars that they never had before, like in a lot of these countries, it's just elites have access to dollar accounts. And the way that they get that is they literally fly to the US with cash. They deposit the cash in Bank of America. For some reason, Bank of America is very common with like Venezuelans, for instance. And so that's like, obviously not something that ordinary people can do. But now the fiat liquidity, whether it's P to P basis, like Binance P to P, or with these exchanges that are pretty well established in basically every country on the planet.

• 56:54Speaker 02

  All the tools are there and you know, high quality wallets, crypto wallets that work or fintechs that can kind of intermediate this. If you don't want to bother with key management, all the pieces are there for this to occur. So as the world gets smaller, as blockchains tear down these kind of geographic barriers, you will see, I'm certain, episodes of crypto dollarization. And basically, we're going to see the dollar be this kind of apex predator that predates on all of these weaker fiat currencies. So I might've been early in this prediction, but I kind of stand by it. I still think it's going to happen.

• 57:29David Hoffman?

  Sure. Yeah. And I'm going to put something up on on screen here. This is a slide from your recent talk at Mizzari, which is just, it's got three lines on it, two that we're going to focus on. One is the supply of USDT tether, of course, and one is the supply of USDC circle. And these lines largely move in parallel with each other with UST in the lead. Right up until recently, right up until a few months into 2023, when they just massively diverge and USDT grows to basically new highs that it's never seen before in the crypto world, and then USDC from about almost 50 billion down to below 30 billion. Just with the context that we just that we just had in this conversation, Nick,

• 58:11David Hoffman?

  and the the demand for crypto dollars outside the United States. What is the signal that we get from this slide? Why is this slide significant?

• 58:19Speaker 02

  Yeah, I think it's one of the most important charts that I've put together. I tweeted that and people were like, this isn't interesting. This is not an interesting chart. I'm like, I found it interesting. I found it interesting. So this shows the disparate rate sensitivity of the two major stable coins. And this tells us so much. This tells us so much. It tells us that USDC holders are rate sensitive, of course. USDC holders are, a lot of them are US-based firms that wanted to make crypto transactions. If you were to plot the crypto yields, the kind of native crypto yield, that there's not one, but there is a collection of crypto yields

• 59:03Speaker 02

  against the TradFi yields, the crossover would have happened in late 22, early 23. And that's kind of the moment when USDC supply started to draw down. This is just like how sovereign currencies work, by the way. If there are two similar nations, two similar currencies, and one of them pays a very high yield, and one of them pays a low yield, capital will flow into the high-yielding one. It sucks it in and out of the low-yielding one. So it's the exact same thing happening here. Like Crypto Land stopped paying a high yield. I mean, we can talk about the yields in crypto. Some of them were illusory, whatever. Fiat Land started paying a high yield. In fact, it's gone up since this. It's astronomically high, right, in the US. So USDC holders all of

• 59:48Speaker 02

  a sudden had this massive opportunity cost where they're getting paid zero to hold the stable. And crypto opportunities weren't as good. And it wasn't difficult for them to move back into Fiat and put their money in treasuries, right, and earn the now 535 basis points. Okay, so this is kind of what is, this is the main thing that's responsible for the sell-off in stable coins, is the fact that stable coins pay zero yield. It's like a savings account in the bank that pays you nothing. You're not going to keep your funds in that bank. Actually, this happened to me just last week. I pulled all my funds out of my credit union because they're paying 20 basis points on my cash, which is ridiculous. So meanwhile, Tether is rallying. It's an all-time high. Tether also pays zero yield.

• 1:00:33Speaker 02

  So what's going on? Like, there's something substantively different between Tether and USDC, or at least as a perception. And I think it's that Tether holders are more remote from the US, and they don't necessarily have the ability to go from crypto dollars to fiat dollars, because that's more difficult for them, because they're either unable to or unwilling, they're able to tolerate the opportunity cost much better than a USDC holder was. So I find it fascinating. I think it tells us a lot about the different user bases. I think it tells us the USDT holders are holding it because they want to be as far away from the US as possible. Whereas USDC holders, we know, are like, they're much more proximate to the US.

• 1:01:16Ryan Sean Adams?

  That's, it's actually much more fascinating when you explain it that way. On first glimpse, I looked at it and said, okay, so Tether up, USDC down, right? Maybe that's because of regulatory crackdown or something, or, you know, maybe, maybe that's because Tether is just winning some sort of a narrative war. But, you know, the way you explain it, I should think sheds a lot more light into it. And I also wonder about kind of a product that this, this seems to imply that would be highly demanded by the entire global market, including US users of USDC. And that is the idea of tokenized treasuries. Because then you could actually get that Fed fund rate on top of your, your stablecoin and have kind of the benefit there.

• 1:02:00Ryan Sean Adams?

  Does this chart also imply that that demand could be sucked up by an ERC20 or some sort of form of a tokenized treasury where you're getting that Fed fund rate yield on top of your dollar?

• 1:02:13Speaker 02

  Yeah, I mean, that's one of my big hypotheses for this year. You know, you look at the ETH to staked ETH transition in DeFi, where staked ETH derivatives became a very dominant form of collateral. I think the exact same will happen with stables. It won't be a full replacement. We won't go from all of the tethers, 86 billion of tethers, to 86 billion of interest-bearing stablecoins. But I think it'll be a very meaningful share. Because 550 basis points or 500 basis points of opportunity cost is very real. So we're seeing dozens of these emerge, all kind of different approaches. The commonality is a lot of them are issued offshore. So they're finding jurisdictions that are willing to have a interest-bearing stablecoin

• 1:02:55Speaker 02

  or tokenized treasury list in foreign jurisdictions. Because of course it'd be very hard to do it, if not impossible, in the US. So technologically, there's no reason we can't do this. It's just not that difficult to, you know, pass on some of the yield. And I think users are a little bit fed up of these firms, the stablecoin issuers, internalizing all of their yield. I mean, that's kind of ridiculous. You know, people at this point know that Tether, they have, what, 50 employees? They make $4 billion a year roughly from the treasury and asset portfolio they're sitting on. They pass along none of that.

• 1:03:38Ryan Sean Adams?

  Are you saying 50 employees generate, did you say 4 billion a year?

• 1:03:42Speaker 02

  Yeah, so I think Tether is the most profitable per employee business on the planet at this point. And I mean,

• 1:03:48Ryan Sean Adams?

  Stupid.

• 1:03:49Speaker 02

  Look, they have the golden goose, they have the liquidity everywhere. That's fine. Some percentage of their clients will be fed up with that and they'll move to, unless Tether themselves turns on the yield spigot. You'll see this competitive dynamic emerge, just the same way that banks are now competing with money market mutual funds or certain banks that are now passing on a lot more interest as interest rates have risen. You'll see this competitive dynamic emerge where newer issuers, some newer issuers that are willing to pass on a good portion of that yield will, will do very well at the expense of the incumbents. The difficult thing for USDC is they probably can't do this in the US, at least not on-chain.

• 1:04:31Speaker 02

  They're trying to get around this by passing on, they're not calling it a yield, they're calling it a reward. They're passing on some of the underlying yield from USDC via Coinbase and things like that.

• 1:04:43Ryan Sean Adams?

  It's the security regulations that prevent them.

• 1:04:46Speaker 02

  Yeah, and for sure, like the SEC even thinks BUSD, which is a non-interest-bearing stable, is a security under their very strange reading of the Reeves test.

• 1:04:55Ryan Sean Adams?

  They might think Pokemon cards are security here lately, Nick. So, you know, who knows? If it's tokenized, it's gotta be a security, right?

• 1:05:03Speaker 02

  They think everything's a security, but it certainly doesn't help your case if you're paying an explicit yield to the holder. So US, and look, we talked to a lot of startups that were trying to do this in the US. But US issuers will basically not be able to do this. This will be another force. I've been talking about the offshoring of balance sheet from the US to other places and to other ex-US issued stables. This will be another force that accelerates that, too.

• 1:05:28Ryan Sean Adams?

  This is fascinating. I mean, you've got, you know, maybe near the end of this episode, we can kind of lay out Nic Carter's crypto dollar predictions. But, you know, one of your predictions earlier in this episode seemed to be that crypto dollars will maybe surpass at some point Euro dollars, right? Which would be quite the feat. And his second prediction of, you know, the coming of a tokenized treasury would be maybe another prediction that I'm hearing you make. But a lot of this depends, as we start to talk about kind of what the US wants and on actual US banking regulatory apparatus and what's in kind of the best interest of the United States. And it feels like they're kind of split brain on this, a little, you know, maybe schizophrenic,

• 1:06:09Ryan Sean Adams?

  or they have different, there's different factions that want different things. And I'm wondering if you could walk us through the regulatory idea maze here and kind of the incentives at play? And maybe we can pull in parallels from the Euro dollar market. It seems like probably, maybe you would know much more, but probably in the 50s and 60s with the emergence of the Euro dollar, the US regulatory apparatus would have squashed it maybe if they could. They didn't like, they don't necessarily like things that are outside of their jurisdiction and control, but they were content to kind of let it grow. And then it became so big and they found some wins there with petrodollar and other things exporting, you know, US monetary might and monetary supremacy that eventually they just brought it into the fold, right?

• 1:06:53Ryan Sean Adams?

  Maybe begrudgingly at first, but they saw enough benefits, saw enough wins to kind of bring it into the fold. What is the current US posture towards crypto dollars right now, AKA stable coins? As we, they've been interchangeable through this episode, but crypto dollars? And how do you think it'll play out? Like, what are the wins for the US? And what are the things that they might not like about crypto dollars?

• 1:07:20Speaker 02

  Yeah, and this was kind of my subject to my talk at Main, which is basically the conclusion of all that was it's kind of up to them. It can be really good for the US American interests, or it can be kind of less good. And it really depends on whether they want to fold them in, embrace the sector, or whether they want to push it away. So it could well be more hostile to US interests if they push stables away. If a few things happen, like if stables start to be issued against crypto collateral as opposed to dollars, then that wouldn't be good as far as the crypto dollar sector being a buyer of the US debt. Because instead crypto dollars will be buying ether and potential bitcoin.

• 1:08:05David Hoffman?

  And that's what the US wants. That's one thing the US wants is they want buyers of treasuries, basically.

• 1:08:09Speaker 02

  In theory, yes. They don't seem to care very much. The stat that I have is crypto dollars is overall would be the 16th largest sovereign holder of US debt.

• 1:08:18David Hoffman?

  Already?

• 1:08:19Speaker 02

  Already, 16th, yeah. So more than Mexico, more than Saudi Arabia, more than Germany.

• 1:08:24David Hoffman?

  You say that like, quote, the government, they don't, they don't care, but they're naive, right?

• 1:08:29Speaker 02

  I naive, or there's some overriding concern. So one concern is the loss of control, similar to Eurodollars. And I think what they don't understand is if they were to cultivate a network of issuers here in the US, they would still be able to exert meaningful control. I mean, it's not like your ability to project power, you know, through sanctions enforcement or to pursue law enforcement objectives, that doesn't go away with the stablecoin. You can still ask the issuer to carry out your will. And the stablecoins themselves listen to law enforcement. I mean, even Tether does, right? They, Tether has frozen more addresses than USDC, I believe. So what they should want is accountable issuers

• 1:09:10Speaker 02

  that are willing to listen to courts and listen to treasury if they want to pursue some kind of political objective. But of course, stablecoins are less accountable than ordinary transactions that are happening fully within the banking sector, because they're cash-like transactions. These are P2P. So I think that's one thing they don't like. You know, I'd say a lot, often, if cash was invented today, it would be illegal. This is like the reinvention of cash and so it's not surprising they don't like it, even if it can be frozen at distance unlike cash. The other thing they're worried about is quote unquote financial stability. So it's very ironic. US regulators think stablecoins and crypto like helped to bring down some of the banks

• 1:09:54Speaker 02

  that failed earlier this year. I don't buy that. In fact, I think the banks were pretty much taken out behind the woodshed and shot. And that's being pinned on crypto. So I think it's pretty much the opposite. But what they worry about is like, oh, what if, you know, Tether redeemed all of their outstanding liabilities in one day and they had to sell off their entire treasury portfolio? Wouldn't this cause yields to spike? The obvious point there is like stablecoins or crypto dollars is still very small relative to like treasury liquidity. Austin Campbell wrote a good blog post on this. I don't see a scenario today where that's a threat.

• 1:10:35Speaker 02

  Also, I don't think it's very likely that all of the tethers will be redeemed all at once. In fact, everything we've seen about Tether is that it's incredibly sticky. Like people don't want to redeem their tethers. They want to keep holding them and they may not be able to redeem them frankly. So that's the other worry they have. So it's a loss of control they're concerned about. And then I think this pretextual concern about financial stability. So with all that in mind, like what we've actually seen this year is every tool in the toolbox the US has to kind of suppress and quash the stablecoin sector they've used. So in January, they denied the custodia application, the Federal Reserve did to get access to the master account, which is basically the core of the Fed.

• 1:11:18Speaker 02

  That meant the custodia couldn't issue their own stablecoin, which they were trying to do with a bank charter. That sent a signal to anybody else who was trying to get a bank charter to issue a stablecoin, which in my opinion would be the best way to do it through a chartered bank, not just with a state by state money transmission license. In March, you know, we had this crisis with the banks. Silvergate and Signature. Silvergate chose to voluntarily liquidate. Signature were shuttered unfairly, in my opinion. They both ran this fiat clearing infrastructure, which was very useful for a stablecoin liquidity. Sun and Signet respectively.

• 1:11:57Speaker 02

  What they allowed was 24/7 liquidity for the creation and redemption of stablecoins. The process of winding down those banks and having their assets sold off in that process, Sentin SigNet were not included in the sales, which violates the FDIC's mandate to maximize the value of those sales. So this is a huge scandal, in my opinion. It's really a huge, huge deal. This is like key infrastructure that should have been sold to someone to keep these networks running, and the government didn't allow that to happen. So they basically selectively destroyed a key piece of crypto infrastructure, which was very useful for

• 1:12:35Speaker 02

  stablecoins. That's a huge deal. Also, in January, all of the major federal bank regulators wrote a letter saying, "Yeah, we think stablecoins are risky. Don't touch them." In August, they wrote another letter, the Fed did, saying, "Yeah, look, if you want to do a stablecoin itself as a bank, you can do it, but you have to ask us permission, get a letter." So basically, they were saying you can't do it. So everything they've done to date has been an effort to kind of discourage stablecoin activity in the US, specifically with banks. And that's, I think, a big part of the reason why we see the stablecoins going offshore.

• 1:13:13Ryan Sean Adams?

  It's frankly, Nick, been kind of bizarre behavior, because what they are in effect doing is they're trying to slow it down in the US, but they are, in effect, as long as the demand is there. We saw this play out with Eurodollars. They're just actually just driving it offshore. And they might even be driving it towards a different asset, as you said. Well, if they're not going to allow dollar-backed stablecoins, then how about an ETH-backed stablecoin, or another crypto asset-backed stablecoin? So it's frankly been kind of bizarre behavior. And I'm wondering what you think about this kind of, not a conspiracy theory take, but just sort of an influence-type take, which is, how about the big banks? It seems like they might have a lot of sway in Washington, in DC, and are tied up at

• 1:13:58Ryan Sean Adams?

  some level with the kind of the central banking apparatus. What about when they get a product to sell? Maybe the approach makes some logical sense if some of the... Larger banks are just trying to slow down, almost like these neo proto banks, like called Coinbase or Circle, like proto banks, slow them down until they have a product that they can sell. It was very interesting to me that JP Morgan, for instance, they have a private blockchain. Like, not a lot of people are aware of this, called, it was formerly called Quorum, it's called something else now. And they're doing things, yeah, Onyx. And they're doing things on their private network and there's an actual JP Morgan chain. I could imagine that they would want to issue that as an ERC 20 on public networks and take some of this global market that you're talking about.

• 1:14:44Ryan Sean Adams?

  And they haven't been able to yet. And I'm wondering if it's just because, well, I'm wondering if the tide could change if there are enough winds for traditional Wall Street or the big banks to kind of push this, you know, down the throats of regulators who might be resistant. What do you think of that theory?

• 1:14:59Speaker 02

  Yeah, it's a great question. I think generally, open interoperable networks probably are not not good for the banks. And banks as an industry, especially now that rates are high, so in theory, banking is more profitable. They probably wouldn't like the competitive dynamic where a bunch of quasi-banks were able to emerge all of a sudden very quickly. The banks certainly benefit from the status quo whereby it's very expensive to charter a new bank, if not impossible. Like, post-financial crisis Dodd-Frank made it very, very hard to create a new bank. So the rate of bank chartering became effectively nil after that.

• 1:15:41Ryan Sean Adams?

  A form of regulatory capture.

• 1:15:43Speaker 02

  It's a very unfortunate situation. And it reduced the competitiveness of the banking sector, in my opinion. So the banks themselves, I think some newer, like, smaller banks would want to hitch their horse towards the crypto space and become stablecoin issuers and compete. That's what Silvergate and Signature were trying to do, was to Be like crypto focused banks. That's what Custodia was trying to do. You know, so the states want to charter these things. There's newer banks that want to do this. They want to distinguish themselves by doing crypto. The big banks, I think the status quo works for them. However, there's also the asset managers like BNY Mellon has clearly had crypto ambitions for some time.

• 1:16:28Speaker 02

  BlackRock is active. They work with Circle. You know, they actually administer some of these assets. They would like to issue an ETF. There's a whole laundry list of asset managers that seek to benefit from crypto. We know Fidelity is active there. Franklin Templeton has a tokenized treasury product. Right? So from the asset manager side, I think there's certainly the will there. One problem is this obscure accounting rule, SAB 121, which means that if you are a bank, you have to take a capital charge against any crypto asset that you're holding, even if it's on behalf of your customers, which is a kind of a ridiculous interpretation of how it works.

• 1:17:12Speaker 02

  So that holds any bank back from sort of like touching crypto meaningfully. So I think you kind of have to disaggregate the institutional environment a little bit. I think it's heterogeneous. Basically, I think the large banks don't have a lot to gain from public blockchains. I think certain asset managers have something to gain from it. And I think smaller banks that want to win market share certainly have a lot to gain from it. And it's them that have been really harshly stymied here.

• 1:17:41David Hoffman?

  The conversation of stablecoins is always in my mind, an innovation on two fronts. One is the trad world innovation, and this is just like legal work, making sure you're buttoned up, making sure you're accepted, and then maybe some like BD stuff, some trad stuff. And then there's actual like raw stablecoin innovation on the crypto side of things. And that's where I want to ask you about next, Nick, about like the new frontiers of stablecoin innovation. There's topics here like on-chain T-bills, which again kind of straddles both. But then there's new form factors for stablecoins, which are a little bit more crypto native. But overall, if we Talk about just like stable coins and a roadmap, if you will, like Ethereum has got a roadmap.

• 1:18:23David Hoffman?

  Solana has got a roadmap. If there's a perceived stablecoin roadmap about like, you know, things to squeeze juice out of, what do you focus on? What's there left to squeeze here?

• 1:18:33Speaker 02

  Wow, there's so much juice to squeeze, man. It's very exciting. Like, we'll see L2s that are stablecoin focused, L1s that are stablecoin focused. We will see like aggregators for stablecoins to emerge, especially as stablecoin liquidity becomes very fragmented. So you see like the one inch for stablecoins, the cow swap for stablecoins. On the stablecoin issuance side, you'll see interest-bearing stables, you'll see crypto-backed stables, especially now the ETH has this positive carry. Now, kind of for the first time in some ways, it's possible to have a robust ETH-backed stablecoin, a synthetic USD. That's all very exciting. Then, on the sort of like financial rails, you'll see more efficient ways to stitch together fiat rails and stable

• 1:19:17Speaker 02

  rails to create an alternative to the correspondent banking system, which is highly, highly efficient at moving money. So you see like global Venmos, global PayPals emerge, when they just weren't able to do that before. So, yeah, and then you'll see like more sophisticated, especially offshore, like fintechs that are fully powered by stables on the backend, custodial, semi-custodial. So, I mean, total Cambrian explosion is what we're seeing. And the amount of, like, the quality of entrepreneurs here and the number of startups I'm seeing is very, very significant. As I said, I could just do stablecoin-related deals for the next year, probably, and that would be it.

• 1:19:56David Hoffman?

  Yeah, so we started off this conversation saying like, oh yeah, stablecoins is kind of crypto's killer app, right? I think what you're calling for is like, yes, and we're just getting started, you ain't seen nothing yet. That kind of seems like what you're saying.

• 1:20:08Speaker 02

  Yeah, I mean, it's remarkable, actually, like how, in some ways, like, poor the stablecoin experience has been. Like, the stablecoins that exist don't give us great assurances. Like, I'd love to see better transparency also in the accounting. Like, I would like to see real-time proof of assets, as opposed to monthly attestations, which I don't like. So, I would like to see much more concrete property rights carved out. So I would like all issuers to find a way to make the assets bankruptcy remote held for the benefit of holders as opposed to being an unsecured creditor. That's a bad thing. So there's a lot of legal and contractual innovations to occur there.

• 1:20:51Speaker 02

  And then stablecoins are still pretty siloed. They are not fully integrated into the financial system in the US or abroad. One interesting thing that it's making them more proximate is the emergence of rapidly settling payments on the fiat side. So if you want to go from fiat to crypto to fiat for, let's say, an end to end remittance that you want to send, you know, from the US to whatever, the Philippines, the historical issue was that there was a settling risk on the fiat side. So it was always the fiat leg of the transaction that was a problem. But as these newer payment systems emerge that settle very quickly on the fiat side,

• 1:21:36Speaker 02

  now you can do that whole transaction and maybe in seconds as opposed to having the issuer trying to take on some risk where like ACH might be reversible after some number of days, a credit card payment might be reversible, like this chargeback risk. So one interesting thing that's going to make stablecoins better and more useful is fiat transactions getting better and more useful. So as fiat transactions approach the settlement speed of stables, that makes the whole system more functional, if that makes sense.

• 1:22:08David Hoffman?

  Right. Yeah. So the properties, the underlying strengths of one fiat network impacts how strong the stablecoin network can be.

• 1:22:15Speaker 02

  If you want to go end to end from fiat via crypto to fiat, the fiat leg on the ingress side needs to be fast settling. Otherwise, the entity that's intermediating the transaction is taking on a whole lot of risk. And it's one of the weird ironies. We think the US financial system is really good, actually relative to Many, many others, including developing world financial systems. It's very, very bad because there's a lot of settlement risk in the US financial system typically. And actually, as we see more real time payment systems emerge, even Fed Now potentially, believe it or not, that will actually make the experience of going from fiat to staples back to fiat much, much better.

• 1:22:58Speaker 02

  So that's a weird thing that's been holding us back is actually the fiat side that sucks.

• 1:23:02Ryan Sean Adams?

  Fed Now is bullish for crypto. Very interesting.

• 1:23:06Speaker 02

  That's one interpretation, yeah.

• 1:23:07Ryan Sean Adams?

  So I want to ask you, for the crypto natives who've been hanging out this entire episode, who are excited about crypto dollars and the potential, but they might have the question, okay, so how about our crypto native assets? What does this do for our bags, Nick? Is the adoption of, there's always, since we've been talking about stable coins and crypto dollars, there's always been kind of two sides of the coin here. Some have made the argument that crypto dollars are actually parasitic to the value of ether and bitcoin because they represent sort of a monetary demand that's expressed in dollars rather than in a crypto native asset. And others have said, no, adoption is good.

• 1:23:49Ryan Sean Adams?

  More addresses and more peoples, in more use cases and more gas fees and all of these things. What do you think? So if this vision comes true and we get crypto dollars rising to scale of the euro-dollar market, is that going to be good for crypto native assets like bitcoin and ether?

• 1:24:08Speaker 02

  It depends on whether you lean into the change or whether you reject it. So I think I wrote a blog post for you, for your newsletter, like some years ago, like saying, I think crypto fiat was parasitic.

• 1:24:21Ryan Sean Adams?

  You totally did, yeah.

• 1:24:23Speaker 02

  At the time, I think I'd be saying it was. So I think the real question is, how quickly are you able to internalize this reality? Like, one of the charts I showed on one of my talks showed that something like 70, 80% of all dollar value settling on blockchains is now happening in dollars as opposed to bitcoin or ether or other L1s. And when I wrote my first white paper in 2020, it was 30%. I already thought that was a big deal. And now it's like 70, 80%. So it's a huge deal now. So it's the kind of the challenge I posed to the protocol engineers. Can you make your blockchain such that it benefits from the existence of settling non-native assets?

• 1:25:02Speaker 02

  The ETH folks, I've said this before, I think, did a good job because ETH tokens are able to extract some of the value from the transactions happening in fiat via fees and like the burn mechanism, things like that. Bitcoin is still more up in the air because, well, there aren't really a lot of crypto dollars settling on Bitcoin. But potentially it could be a force driving up fees if that were to be to become a domicile for crypto dollars. But it would also be, it would eliminate the medium of exchange value prop of Bitcoin. Now, maybe not eliminate it, but challenge it. And this is a big argument I've been having with the Bitcoiners.

• 1:25:40Speaker 02

  Like, is Bitcoin being a medium of exchange and bridge currency an absolutely inherent part of the Bitcoin thesis? If it is, that's challenged by the emergence of stablecoins for sure. However, if you can position your blockchain such that stablecoins represent a revenue opportunity for the blockchain itself, then you can certainly benefit from it. So I don't think it's a bad thing for crypto that we're settling a ton of dollars. Like, that's usage, that's very real world economic usage. That seems like a great thing. But the question is, can you position yourself to benefit from it? I think you'll see a lot of these L1s start to realize this and start to try and position themselves to be like the stablecoin domicile of choice.

• 1:26:25Speaker 02

  Like, we certainly see this with like the stellars of the world. Solana is like leaning into this heavily. ETH, I think, tends to not really care what kind of transactions you're doing. So maybe this is for the newer, smaller L1s that want to distinguish themselves in some way. But yeah, it's kind of like up to you really, whether you benefit from this trend because it's very real and I think intensifying.

• 1:26:47Ryan Sean Adams?

  Yeah, it'll be fascinating to see what L2s do with it as well. I mean, your base is a fascinating experiment with kind of a Coinbase, who is obviously very friendly with USDC and Circle and now having their own layer two. There's going to be a lot of innovation here. Nick, a final question for you. You've been kind of an oracle of crypto dollars and stablecoins for a while. You know, long predicting that their star would rise. Is that the fourth time we've used that in this episode? I'm not sure. But so give us some of your predictions, right? And over the next three to five years, what's going to happen, do you think, in the world of crypto dollars?

• 1:27:28Speaker 02

  Okay, so first of all, I think the US dollar is going to remain the main unit of account. I think the interest-bearing cohort of stables, it's less than 1%. I think it'll be at least 25% within two to three years. So I think that'll be a huge, huge shift.

• 1:27:43David Hoffman?

  That's large growth.

• 1:27:45Speaker 02

  I think Tether will eventually realize this and probably be forced to create their own competing product. USDC will not be able to directly, maybe they'll be able to indirectly, it's the way they're currently doing it. I also do think crypto collateralized, starting with ETH collateral, would also moving on towards Bitcoin collateral. Those will become a meaningful sector, at least 10% of supply. And of course, I think total supply is going to grow dramatically. I like, completely plausible to me, we'll see $500 billion worth of stables within three, four years, right? So.

• 1:28:18Ryan Sean Adams?

  Do you think stablecoin market cap might actually overtake Ether market cap?

• 1:28:22Speaker 02

  Yeah, I think so.

• 1:28:23Ryan Sean Adams?

  Woo hoo hoo hoo.

• 1:28:26Speaker 02

  I certainly see that. I think stables will ultimately flip in this kind of crypto native assets. I mean, it's an interesting question.

• 1:28:32Ryan Sean Adams?

  Bitcoin too?

• 1:28:34Speaker 02

  Yeah, yeah, sure. For sure. Like, what's the supply of all stocks? And then what's the supply of all dollars? It's actually probably pretty close. It's actually probably pretty close.

• 1:28:45Ryan Sean Adams?

  Yeah.

• 1:28:45Speaker 02

  I think their equity, public equity, my market cap. But Bitcoin and Ether are like, you know, just a subset of that. So yeah, I think crypto dollars will ultimately exceed the L1 equity tokens, rather. One thing I think is that the rise of crypto collateral as stables will push down ETH yields, because that'll be a big consumer of ETH staking. And it also pushed down the yield from basis trade on ETH and Bitcoin, because basically, stablecoins themselves will be doing this carry trade.

• 1:29:17Ryan Sean Adams?

  You think the issuance and minting of stablecoins will use Ether staking as one of its assets?

• 1:29:24Speaker 02

  Yeah, yeah. I mean, so you look at these synthetic stables, like ETH is a good example, where they're long ETH, staked ETH, and they're also short ETH futures. Both of those have a positive carry. As you see billions and billions of this type of stable created, it'll push down both of those yields. I think the other big prediction is other jurisdictions will embrace US dollar stables. This is clearly already happening. And then I think, longer term, it'll take the US some time to realize this, but they'll see the benefit and themselves fold stablecoins in and potentially even give stablecoin issuers closer access to the central bank directly. So I think eventually you'll see that.

• 1:30:06Ryan Sean Adams?

  Any short-term, Nick, US laws, do you think, that will be pro-stablecoin? Do you see that happening in the next one to two to three years?

• 1:30:14Speaker 02

  Certainly not before the election. Maybe if the Senate, you know, becomes Republican, then maybe we'll see that. But not with this current Senate.

• 1:30:22Ryan Sean Adams?

  There we go. Nic Carter, thank you so much. Clearly, you are bullish crypto dollars. And maybe we never call them stablecoins again. This has been an absolute pleasure. We appreciate it.

• 1:30:33Speaker 02

  Thanks, guys. It's been great.

• 1:30:34Ryan Sean Adams?

  Bankless Nation, got to end with risks and disclaimers. Of course, crypto is risky, but crypto dollars, on the other hand, no volatility there. You've just got to make sure you know what backs them. You could definitely 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.