Pod Insights Bankless 189 - Taking Treasury Bills Onchain with Martin Carrica About this episode The overnight fed funds rate is 5.3% but how much are you getting from that in your bank account? How much are you getting from your stablecoins?
Today on the show Martin Carrica walks us through a world in which we can tokenize treasuries instead of just dollars.
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✨ DEBRIEF | Ryan & David unpacking the episode:
https://www.bankless.com/debrief-onchain-t-bills/
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TIMESTAMPS
0:00 Intro
7:16 Intro To Martin
10:37 Risk Free Rate of Return
16:06 Inflation Experience in Argentina
20:41 Why Don't We have Onchain TBills?
22:44 Laws Around Treasuries
27:08 Do The Fed's Want This?
31:53 Don't we Already Have Onchain Treasuries?
37:18 The Next Evolution Of Stablecoins
40:01 How Big Could This Be?
50:12 Cutting Out Commercial Banking
52:21 Explaining The Product
55:57 Onchain Vs Traditional TBills
1:02:51 How Big Can This Get?
1:04:10 Identifying Legit Onchain TBills
1:05:49 Why Doesn't Circle Do This?
1:11:50 Dealing With US Regulation
1:15:02 Central Bank Digital Currency
1:19:02 Can This Start a Bull Market?
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RESOURCES
Martin on Twitter:
https://twitter.com/mcarrica
Martin's article on Stablecoins:
https://mcarrica.substack.com/p/stablecoins-are-cryptos-hidden-money
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Not financial or tax advice. See our investment disclosures here:
https://www.bankless.com/disclosures
Transcript 14,989 words · 3 speakers
Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.
0:00 Speaker 00 If you look at like last seven days Ethereum versus run rate for Circle, it's the same amount of money.
0:05 David Hoffman? Is it equivalent to Circle?
0:07 Speaker 00 Exactly, exactly.
0:08 David Hoffman? Holy shit, Circle's printing money.
0:11 Speaker 00 Every time you pay gas, like that amount of gas, that's the same amount of money that Circle is making. Tether is three times that. Tether alone is making more money than the whole rest of the crypto ecosystem outside centralized exchanges.
0:21 David Hoffman? Oh, that's your margin. That's your margin is my opportunity? Is that what you're saying, Martin?
0:27 Speaker 00 Exactly.
0:31 Ryan 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, and how to front run the opportunity. This is Ryan Sean Adams, and I'm here with David Hoffman, and we're here to help you become more bankless. This is certainly a money opportunity to front run. On-chain T-bills is the topic today. The overnight Fed funds rate is 5.3% right now, and that's some pretty good yield. But how much are you getting in your bank account? Probably not very much of that. How much are you getting from your stablecoin is maybe a better question for crypto natives. And if it's an instrument like USDC in your Ethereum address, the answer is probably nothing. You're not getting any of that yield. But what if we could tokenize treasuries instead of just dollars? What if we could create a USDT?
1:16 Ryan Sean Adams? And the T is for treasury. And that tokenized treasury yielded 5% just for holding in your ETH address. That is the promise of tokenized T-bills, and it's gearing up to be a major theme over the next 12 months. And I think another force for democratization worldwide. We have Martin Carrica here. He's the founder of a tokenized T-bill company, and he's here to get us up to speed. A few takeaways for you on the episode today. Number one, why don't we already have tokenized treasuries? Why doesn't that product already exist? Number two, we talk about why on-chain treasuries are a force for democratization worldwide, especially in emerging countries. Number three, we talk about why the US government actually wants this, even though they may not admit it. Number four, in this weird paradox, we talk about why US citizens will probably have a hard time
2:00 Ryan Sean Adams? getting tokenized T-bills as well. David, you're laughing right now because, man, it is hard being a US citizen in crypto these days, isn't it?
2:10 David Hoffman? Yeah, really. The irony of US citizens being the people that are going to be the hardest people, hardest population, people to access the yield from their own government's money printing. And in fact, no, we're going to just export it straight to the foreign countries of the world. Bankless listeners, you'll just have to listen to the episode to understand, understand the punchline there. But Martin, the guest on the show, does a really good job laying it out for us. I think Ryan presented this as the promise of tokenized T-bills, tokenized treasuries, on-chain T-bills, whatever you want to call these things. Also, I'll add that there's an economic weight here. It's kind of destiny. You know, like,
2:52 David Hoffman? maybe we don't get there for some reason that I can't understand, but incentives will produce this outcome. Eventually, stable coins will be replaced by tokenized treasuries. It's kind of in the same, if you accept that eventually all vanilla ETH will be replaced by some liquid staking token alternative, eventually, like, why would you just hold vanilla ETH and AVE when you can do our ETH and AVE instead? If you accept that, then it's kind of the same thing. Eventually, all vanilla stable coins will just be replaced by tokenized treasuries, and you will get the yield natively.
3:26 Ryan Sean Adams? There's that gravitational pull, right? It's like water goes downhill, and liquidity finds a way, and it'll find, the yield will find its way in a tokenized form on-chain.
3:34 David Hoffman? Yeah. So there's been just growing demand, growing an interest about this topic of on-chain treasuries and real-world assets. So, Bankless listeners, you can consider this the first of a few steps into the world of real-world assets on-chain that we want to explore here on Bankless, starting with tokenized treasuries.
3:51 Ryan Sean Adams? Yeah, I'm looking forward to discussing this with you. A lot of interesting implications here, and David and I are going to discuss that in the debrief. Of course, if you're a Bankless citizen, you already have access to that on the Bankless Premium feed, so go check that out right now.
4:04 David Hoffman? Ad-free, Bankless Premium feed.
4:05 Ryan Sean Adams? Ad-free. It's a beautiful thing. But before we get into this episode, first, we disclose, and the disclosures are, there's nothing really to disclose here. Of course, we hold crypto assets.
4:14 David Hoffman? Didn't even talk about ETH.
4:15 Ryan Sean Adams? No, we didn't. Crypto assets that we do hold stand to benefit from tokenized T-bill transactions, but of Of course, you know that, and we are long-term investors. We're not journalists. We don't do paid content. There's always a link to all Bankless disclosures in the show notes. You can access that at bankless.com/disclosures. All right, we're going to get right to the conversation with Martin on tokenized T-bills. But before we do, we want to thank the sponsors that made this episode possible, including our number one recommended crypto exchange for 2023, Kraken. Go create an account.
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6:14 David Hoffman? check out Mantle at mantle.xyz and follow them on Twitter at @zeroxmantle. Arbitrum is accelerating the Web3 landscape with a suite of secure Ethereum scaling solutions. Hundreds of projects have already deployed on Arbitrum 1 with flourishing DeFi and NFT ecosystems. Arbitrum Nova is quickly becoming a Web3 gaming hub and social apps like Reddit are also calling Arbitrum home. And now Arbitrum Orbit allows you to use Arbitrum's secure scaling technology to build your own Layer 3, giving you access to interoperable, customizable permissions with dedicated throughput. Whether you are a developer, enterprise, or a user, Arbitrum Orbit lets you take your project to new heights. All of these technologies leverage the security and decentralization of Ethereum and provide
6:55 David Hoffman? a builder experience that's intuitive, familiar, and fully EVM compatible. Faster transaction speeds and significantly lower gas fees. So visit arbitrum.io where you can join the community, dive into the developer docs, bridge your assets, and start building your first app with Arbitrum. Experience Web3 development the way it was always meant to be. Secure, fast, cheap, and friction-free. Bankless Nation, I would love to introduce you to Martin Carrica, the founder of Mountain Protocol, a native yield-bearing stablecoin project. And Martin himself is alleged to be extremely knowledgeable about stables, especially from a regulatory perspective. At least that's how he was introduced to us by our friend Nick Carter, who is also extremely knowledgeable about stablecoins. Lately, in the crypto world, the conversation around real-world assets and
7:38 David Hoffman? on-chain T-bills has been growing in interest. So we're hoping Martin here can help us, help guide us in our understanding about what is next in this new evolution of stablecoins from on-chain dollars to on-chain T-bills. Martin, welcome to Bankless.
7:54 Speaker 00 Thank you, guys. Thank you for having me.
7:55 David Hoffman? Well, Martin, this is your first time on Bankless. Tell us a little bit about yourself, your background, and why this story of stablecoins is so important to you.
8:04 Speaker 00 Awesome. So I'm originally from Argentina, lived through high inflation for a long time, started in crypto, got my first salary like a tradfi company, oil pipe company, purchased Bitcoin, going to a miner in a McDonald's and exchanging cash for Bitcoin and having to wait for the two blocks. So we had lunch together.
8:25 David Hoffman? A miner in a McDonald's? That's how you got your first Bitcoin?
8:28 Speaker 00 Correct. So.
8:29 David Hoffman? That is cool. How did you find this person?
8:32 Speaker 00 There were groups, I don't remember exactly what app it was, because this was early on, like this was before Mt. Cox, right? So we would pull all of my friends' money and like someone would go and we would rotate who it was. Wow.
8:47 Ryan Sean Adams? It was like a local Bitcoins type thing. Very cool. All right, continue. So yeah, I mean, I hope you enjoyed the meal at McDonald's as well.
8:53 Speaker 00 Yeah, it was like two blocks. So it was enough to like do everything you needed to do. You had time to count the money. And then we were, it was like super cheap. We would like distribute the Bitcoin afterwards. Just to give you a sense, that was like our internship salary, like 150 bucks each, right? Like it was like minor purchases.
9:12 Speaker 00 So that got me interested in Bitcoin. Initially, I thought Bitcoin was a emerging market thing, right? Like in Argentina makes sense, in China makes sense, in Turkey it might make sense. I, I studied engineering. I got into traditional banking work. I did a lot of work with failed banks, launching new products for banks. I did a high yield checking account with banks and that is relevant to this story. And when stablecoins came in, I was like, okay, this is exciting. Now you have a product that meant like my mom uses, like she actually uses stablecoin today.
9:44 Speaker 00 And in Argentina, if you go now, like people will purchase a stablecoin when they get their salary. He uses our stablecoin and then they will swap it out to pesos to pay for their last week or two weeks of expenses. And that's, they will hedge against inflation doing stuff like that, right? So the, the applications of this in, in Argentina are massive.
10:05 Speaker 00 Basically, back to the, to the guilt bearing, to the high yield checking account side. I did that prior, like 20, the prior cycle after Goldman Sachs did Marcus. And when Luna exploded and appetite for leverage and therefore interest in DeFi went to zero. I was like, how is it possible that the risk free rate is higher than what we're getting in DeFi? Someone has to have built a product that bridges these two things. And that allows everyone in the world to access dollars and now with the native yield of the dollar. Turns out it was hard. Yeah.
10:38 Ryan Sean Adams? When you say risk free rate, can you just define that for people?
10:40 Speaker 00 Yeah, so if you lend money to the US government, the US government can print money. And they do that every day. So therefore it is assumed that the US government is not going to default. If default were to happen, usually they will print more money. So you're going to see it via inflation rather than an actual default. So that means if you lend money to the government, you're guaranteed to get that money back. And then that time value of money is the risk free rate.
11:08 David Hoffman? By the full faith, power and credit of the money printer is because there's a money printer, there's no risk, we'll just print the answer.
11:15 Speaker 00 Exactly.
11:16 Ryan Sean Adams? This is basically the Fed rate that we talk about so often. The whole economy is like, what, 5. something percent right now?
11:22 Speaker 00 5.2, 5.3 percent. It varies a little bit every day. Usually you take the over net, the secured over net funding rate. So a bank will leave a treasury bill, they will take cash in exchange and then they will do a repurchase agreement on the other side the next day. So that's usually what's considered the risk free rate. You still have risk free rates in other currencies. So for ETH, that is the liquid staking yield. That would be the risk free rate for ETH because you know, you're not going to get defaulted on that ETH. In Argentina, you also have the risk free rate in the Argentinian peso. That's 100%. You know, the government is going to pay you, but they're going to pay you in pesos, right? So each currency has their own risk free rate.
12:05 Speaker 00 I would say most assets have their own risk free rate. Bitcoin doesn't. Bitcoin doesn't have any native source of yield, but most of these assets do have some, some kind of risk free rate and it's independent per asset.
12:17 Ryan Sean Adams? So I'm sorry, I interrupted you, Martin. You're talking about the, the risk free rate. You saw that creeping up in, and you were talking about the Fed risk free rate. You saw that creeping up and then what happened?
12:27 Speaker 00 So it was about 1.5%. I was presenting to a bank. They wanted to learn about crypto and I was like, if I were a bank, what would I do? And I was like, this is an amazing deposit strategy. And I calculated the revenue of, of a couple of other stablecoin providers and the number was like massive. And I presented it to them and they were like, yes, but it's very, very hard for us to do. There is no framework for us to issue this and so on. And I-
12:53 David Hoffman? Sorry, sorry. Is it borrowing stablecoins in DeFi? Because you said they were at a lower yield than the risk free rate. So what you're saying like, it's hard for us to do it. It is borrowing stablecoins in DeFi at like the very low post Terra, post FTX rates of like 0.3%, I think, if I remember correctly, while you're saying the risk free rate was 1.5%. So you're saying like, hey, there's this free arbitrage, people are leaving money on the table and, and banks were saying to you, sure, we see that free arbitrage, but it's hard, so we won't. That's what, that's what you're saying, correct?
13:24 Speaker 00 Yeah, so the arbitrage that I was proposing then is go acquire deposits in this market. So if you go and acquire deposits in TradFi markets, you open a branch and people start depositing and you give them an IOU. In stablecoins, that IOU is a stablecoin. So you can issue a bank's stablecoin, imagine a Wells Fargo's stablecoin, and you could start acquiring assets basically at a very, very low rate and you wouldn't have to pay much. And then you can lend that on the other side to the US government and there's an infinite amount that you can lend to the US government in the order of trillions.
13:57 David Hoffman? And so take us further in this story. So you see DeFi yields at zero while the risk-free rate is 1.5%. What do you do about that?
14:06 Speaker 00 So I started looking like someone has to have built something that solves this problem. And no one had. The, the big challenge here is how do you bridge these two worlds? Giving clarity on the real world asset side. So someone has to hold a treasury, a treasury bill. And that person who's buying those treasury bills, at small scale you can buy. But if you're starting to buy anything at meaningful scale, you have to show where the money came from. And that where the money came from, the compliance AMO KYC component was hard to do. So we said, okay, if we want to offer this, you have to be regulated to do this at scale. If you're not regulated, you're never going to have a framework to bring this pipe and have it be wide enough
14:51 Speaker 00 to bring money and show where the money's coming from and still have sustainable banking brokerage custody relationships in the TradFi world. And that is the biggest challenge that everyone in this industry faces is how do you answer that regulatory or legal structure in question?
15:10 David Hoffman? It sounds like what you're trying to build is the largest pipe possible between the government, United States government risk-free rate and DeFi. And right now you're saying that this pipe is actually constrained by our current stablecoin paradigm, the current meta of stablecoins, because you go through it vanilla dollars first, when really you can just go more, let's get right to the punchline of this whole thing, which is like, let's take the yield of the risk-free rate and get it into DeFi.
15:37 Speaker 00 Exactly, exactly. What you're buying today, when you buy a stablecoin, on the backend, it's cash and cash equivalents. That's accounting term to say treasuries, repos, and some cash in banks. So if you look at the disclosures of all major stablecoin holders, most of it is treasuries already. So we are already doing this. The thing that is not flowing through is the yield component. So you're getting a 0% yield on your stablecoins today.
16:06 David Hoffman? So Martin, this is, we actually don't usually ask people about their background and their story about how they came to build what they are building in crypto. But in this particular moment, especially we just did the weekly roll up last week, recorded it, it went out yesterday, and we talked about how increasing inflation in Turkey has led to 12% of the Turkish population adopting crypto in the last year and a half. And you come from Argentina. Argentina is very familiar with inflation. We've had plenty of Argentines previously on the show, Mariano Conti, just talk about the role that inflation played in their lives. And just the happenstance of Argentina also
16:49 David Hoffman? being a very internet-connected country. You mix inflation and internet connectivity, and all of a sudden, you have an entire country that is pushing forward crypto adoption. And this is the story I see playing out with you, right? Like born in the world of inflation, tech-enabled, now you live in the United States and want to build in the world of crypto because that is your genesis, that is your upbringing. And so I wanted to take this moment to tell the story of like showing how inflation leads to people, builders, building stuff in crypto to help progress forward this new financial revolution. And so I just wanted to do the thing we don't usually do, which is have people explain their background because that is how you've gotten to be where you are today.
17:33 David Hoffman? Any comments or reflections on that?
17:35 Speaker 00 I would I would add to that capital controls, right? Like, that's the other big thing that has made Argentina so strong in crypto. I couldn't buy a dollar even if I wanted to, right? So the the experience of buying a crypto asset, like my mom, she's 60 years old. She buys stable coins because she cannot access them through the traditional financial system. Her alternative is to have someone bring her, like, we call it the blue market. It's called the black market in practice. Someone comes on a scooter, brings pesos or brings dollars, and you exchange everything in a very informal way. That's the alternative today.
18:13 Ryan Sean Adams? I I want to put this through the lens of something you were saying when we were going through your your background is you said that at first you discovered Bitcoin and kind of that McDonald's transaction. And then later you discovered stable coins. And you said you were very excited about stable coins. And I think a lot of our listeners today in people in crypto, maybe in the West, they look at stable coins and they don't get very excited. You know what I mean? Like, they're more excited about the speculation. They're more excited about the gambling. But but you see in stable coins, you know, probably as a result of of kind of growing up in Argentina in a high inflation environment, and you see a killer app and a killer use case.
18:58 Ryan Sean Adams? And you wrote this fantastic article I really liked back in December of last year called "Stable Coins Are Crypto's Hidden Money Printers." And you talk about how great USDC is, the stable coin, how that is the definition of product market fit. And you you brought the receipts into this post where you kind of saw the charts and, you know, hey, this is crypto's killer app. It's called stable coins. I want to get to more of that story. But, you know, before we do, let's talk about this this T bill thing. And I have kind of a simple, maybe crypto native type question for you that we've sort of gotten to the edges around, but it's like more directly. I tweeted this out. "USDC and tokenized dollars are fine, but with rates over 5%, I want tokenized treasuries.
19:43 Ryan Sean Adams? Where's our USDT?" I'm not talking Talking about Tether here, I'm talking about the T as in T for T bills. Okay, so the simple idea, and it feels like we should be able to do this. I think you were kind of like, you know, hinting about this, is rather than have an ERC 20 fungible, you know, stablecoin that is just one to one backed by a dollar, why not have an ERC 20, a tokenized form of a T bill, call it USD T, I guess we've tried that one. USD Treasury, right? And like, make that the same thing, except it gets me that 5% yield,
20:24 Ryan Sean Adams? or wherever the Fed rate goes next. Maybe it's down to 4%, maybe it's up to 6%, maybe it's up to 8%. Who knows? Wherever it ends up, I still get that yield. To me, that would be like, the perfect instrument and completely ripe for crypto. So let me ask the really dumb, simple question. It's like, why don't we have that already? I mean, it's not just the three of us making this connection. I'm sure the people at Coinbase and Circle.
20:48 David Hoffman? We're not geniuses here.
20:49 Ryan Sean Adams? Yeah, alright, this is a pretty simple instrument. Why don't we have it yet?
20:54 Speaker 00 The answer is, the regulation is not easy to... There's no regulation where you can plug this in and it's ready to go. The, there's various, we're not the only company doing this. There's at least 10 that I know of. And most of them have gone through the path of, let's literally tokenize the Treasury bill. The Treasury bill is a security, and then the claim that you have is a share, like it's the T bill, or a share of a fund, or something like that. The issue with that path is, you run through securities laws, and it kills the composability, right? I cannot transfer it to you unless you also whitelist, unless you are also an accredited investor. How do you whitelist Uniswap, right? Or a Curvepool?
21:37 Speaker 00 So you start getting into those issues down the securities path.
21:42 David Hoffman? Just to re-articulate why that's such a big issue. So you're saying like, the token, the ERC 20 token on Ethereum would come with a whitelist? And so by default, every other address on Ethereum is not allowed to touch that contract address, until their specific Ethereum address is approved on the whitelist, which is like, what's the effing point at that point, right? Like, one by one by one, automatic? Yeah, there is no composability there. There's no permissionlessness there. There's plenty of risk there. Yeah, that's a huge barrier.
22:12 Speaker 00 So that's a Ryan, you have a
22:14 Ryan Sean Adams? Yeah, yeah, I just want to back up. So is what you're saying that the dollar, right? A dollar is an account and so therefore USDC, that is not a security despite what Gary Gensler might want it to be, right? That's not a security as of now. It's just like a currency. It's something different. Okay. But a treasury, are treasuries securities then in all of their forms and flavors? Like I'm talking in the TradFi market, they're all securities and so they come attached with securities laws. What are those securities laws? Is that, I mean, I'm more familiar with kind of securities laws as they pertain to like stocks. But what is there specifically for like treasuries?
22:55 Speaker 00 So treasuries are considered debt, right? They're a US government debt and by that they are a security. The thing that you're going to is USDC is a wrapper on those securities today. So USDC is a wrapper in a bunch of T-bills. You can, they have a fund in BlackRock. I forgot the ticker, but you can go and check and it has a bunch of securities and repos and so on. So you're already wrapping that and creating a non-security, a payment token. So there is a gap that the US still needs to address for this law, right? This is a gap that Bermuda, where we've gone, Switzerland, Singapore is soon to be to address, the UK, every other jurisdiction
23:39 Speaker 00 is starting to address this gap. So this question that you have is very US-centric in that that model doesn't work. There are other models, which is one that we went down with, but we'll get to that in a second. Let's finish this.
23:55 Ryan Sean Adams? So what you're saying is right now USDC is sort of effectively
24:01 Ryan Sean Adams? A middleman, kind of a go-between. So all the dollars that back USDC, it's not actually dollars. Like, we use that in short form. We say, "There's $1 here, and there's $1 in the bank." These are actually like treasuries. And that is why you can go to Coinbase and you can press a button. Or, I don't even know if you have to press a button anymore. But there's some sort of setting inside of Coinbase where you park your USDC there, and you get, I think it's like 4.75% yield. The reason they're able to give you that yield when the USDC is sitting in Coinbase is because there's actually treasuries behind this. And so, I think, am I right here? Where does the yield come from, Martin?
24:42 Speaker 00 Yeah, so Coinbase and Circle are different entities. Where the yield for Coinbase specifically comes from, I don't think is disclosed. They own a portion of Circle. They might have a commercial agreement. Some centralized exchanges that don't have direct commercial agreements with stablecoin issuers will also pay you, so that you have money for swaps, and they make money in the swap. So it could also be a marketing expense. So Coinbase, I think, is probably not the best example in this yield, because it could be a marketing component rather than them passing through the yield.
25:17 Ryan Sean Adams? Okay. But regardless, the US sort of inserts this middleman-type function, I suppose. That's kind of in between the treasury and the retail market. And you're saying other jurisdictions do not have this?
25:34 Speaker 00 Other jurisdictions? So, we talked about the traditional securities law model, where you build a fund, and the tokenized T-bill is a share of the fund. And that is, today, the market cap of tokenized treasury is 600 million. Most of that follows that path. There's a second path, which is the Suisse DLT law path, where the Suisse DLT has said, a stock, before we had electronic systems, stocks were bearer assets. I could change a piece of paper with you, and you would be the owner of that stock. So why don't we do that with securities again? So there's a company out of Switzerland that did a prospectus, and they have a tokenized security, but that's permissionless.
26:16 Speaker 00 So essentially, it's very similar to like an ETF, like a gold ETF. They put a bar of gold in a safe. They give you a piece of paper. That piece of paper moves around. And if you want to claim it back, you have to do KYC, and you take the bar of gold. This is the same, but for that treasury bill or that fund. And they were the first ones to be able to do permissionless treasuries.
26:37 Ryan Sean Adams? Well, I was going to ask a question about whether the US actually wants this. So, so one thing, one, one thing that's notable about a treasury is that it's a, it's kind of a product of the US government, right? And so is the system that you're describing in kind of Switzerland and our, our scheme here to like, you just create a tokenized version of treasuries and call it US, US DT or something, and get the, you know, 5% yield. Is that contrary to what actually like US monetary policy and kind of Treasury Department, the feds actually want? Like, is, is there a reason that that product doesn't exist?
27:18 Ryan Sean Adams? And so what I'm wondering is like, whether these regulatory kind of arbitrage opportunities in say Switzerland or elsewhere, whether they might be closed at some point in time, because like, maybe this is counter to what US monetary and, and, you know, financial policy actually wants. And so they'll, they'll try to put the kibosh on it in another way. Do you have any insight into that?
27:41 Speaker 00 I, I have to, I think if I were the US government, I would be, I would do a 180 on this. If I could have all Argentinians transacting US dollars, it means I have forced buyers of my treasuries. That means I could sell my treasuries at a lower rate. I lower my interest expense, so therefore my budget closes nicely. And if you deal with Argentina and Turkey and all other emerging markets, you can export dollars globally, and those dollars are going to be stable coins that are holding treasuries. That is like forced buyers, they, they cannot take more risk. So you have, when you're doing those auctions, the interest rates that you're going to have to pay are going to be, are going to be lower. So I think it's against US interest to stop this market.
28:27 David Hoffman? Against US interests to stop this market, one of the things that we say on Bankless is like, DeFi is exporting the power and the brand of the United States dollar. And I think that's what you're saying in agreement too, right? Like, actually, we are just, again, we're just connecting bigger, shorter pipes between AVE and the United States Treasury. And so, like, AVE is just a reseller of United States Treasuries. And that is like, if you're the dollar, that makes you happy, correct?
28:54 Speaker 00 Correct, correct. And I think, going a step further, going on top of Treasuries, if you can bring any stock that's trading in the US and put it in crypto, now you have your expanded NASDAQ or the New York Stock Exchange globally, you should have an interest to do that, too. And have Robin Hood be in 180 countries. So I think there's an interest to export the US financial system if your objective is capital market, capital formation.
29:19 Ryan Sean Adams? So your argument here is to answer the question of, you know, but won't the US try to kill this? Your answer is, well, if they're rational and they actually want to export the dollar, what better way to do that than to have a tokenized version of a dollar plus yield plus risk-free rate? And have that be kind of the ultimate, you know, dollar stablecoin? It's just, and the ultimate form of that is clearly a Treasury, rather than just the dollar, because you get the yield embedded in that.
29:51 Speaker 00 Exactly.
29:52 Ryan Sean Adams? And in a world where, let's imagine, this world might be close to, the US runs out of countries, banks, or like pension funds, buyers in general, of its Treasuries? It's gonna need to find new markets for this. And you're saying, hey, emerging markets like Argentina, like Turkey, maybe, as we're alluding to, global emerging markets, for them, the dollar is still a pretty strong product. And you'll have a net new demand from these markets in these countries. And hey, isn't that in the US interest? That's what you're saying.
30:25 Speaker 00 Exactly, exactly. And if you think about it today, that demand exists, it's called the Euro-dollar complex. So without the US promoting it, this Euro-dollar complex formed and it continues to expand despite it being outside of the purview of the US government. We now have swap lines and so on, so it's starting to connect. But this Euro-dollar, if you add stablecoins on top, you can grow it a lot more.
30:53 David Hoffman? Yeah, we call them stablecoins, but really we should call them crypto dollars. Like you have Euro dollars, you have, now you have crypto dollars, but we're stuck in the stablecoin terminology. Martin, one thing I want to ask is intuitively, yeah, like we get, we, dollars produce yield, let's get the yield into DeFi. But like, kind of, don't we already, already have the value of yield from the United States Treasury markets in DeFi? Not in a direct way, but in a roundabout way, just like, because overall, like slowly over time, the efficient market hypothesis does play out. And then all of a sudden, whatever yield that is being offered by the United States Treasury is through the market being offered by AVE.
31:35 David Hoffman? And then AVE turns DAI into ADI or USDC into a USDC. And then the power of the yield of the treasury market does actually become expressed in an ERC20 token, albeit in a roundabout way, but eventually for the end user, they don't care what happens in the background, so long as they get their yield. So like, don't we already have on-chain treasuries, at least implicitly? And how does actual on-chain treasuries differ as a product?
32:03 Speaker 00 Yeah, so there's a couple of things there. The first one is, it requires not only holding a stablecoin, but also participating in a DeFi protocol. If you look at the percentage of stablecoins that participate in these protocols, it's always about 20%. Even in the, in the bull market, most stablecoins sit in the sidelines. So, and the reason for that is, it's either like experience, because getting into these protocols can be risky, it's complex, it requires management. It could be technical risk and adding counterparty risk to your holding, right?
32:34 David Hoffman? Really, it really kind of neuters the whole risk-free rate thing, doesn't it?
32:37 Speaker 00 Exactly, exactly. Right, like, we saw Curve get hacked recently. So even blue chip protocols are not totally risk-free. So you're adding additional layers of risk that you're taking. It might be worth it if they're paying you an additional interest on top of the risk-free rate, but for the risk-free rate, you wouldn't want to add counterparty risk.
32:58 Ryan Sean Adams? So taking another example of this, and DeFi Martin is Maker, MKR token. So they have DAI, of course, David was just talking about the stablecoin, and they have this function in their contract called the DSR, right? And that is if you park your DAI inside of the DSR, then you get yield effectively. And I'm not sure what the yield rates are lately, but I recall recently they were like 8%, for instance, right? So that was above the risk-free rate. And then kind of governance changes them. They go up or down. I guess my point about that particular product is there's not really the certainty of like, you don't know whether it's going to be above, you know, the treasury risk-free rate, or
33:39 Ryan Sean Adams? if it's going to be below. It's kind of dependent on governance. It would be nice, I think, for a product that just very clearly tracks whatever Jerome Powell's doing, you know, kind of like the one-to-one instantly. If the rates change, then you get that kind of inside of the token. So I feel like that's another plus-one need. It also seems kind of cleaner, right? Because, again, with something like the DSR or AVE, as David was talking about, you still have this like middleman market, right, that doesn't quite track one-to-one with what the treasury is. So it's a less clean instrument. Are these valid points as well?
34:20 Speaker 00 Super valid point. And in fact, the DSR today is the same as the risk-free rate. So they're both at 5%.
34:26 Ryan Sean Adams? The DSR today is 5%.
34:27 Speaker 00 5%, correct. And the risk-free rate is at 5. something, but if you take out the expenses that would be allocated to actually bring it on chain, it's going to be 5%. So it's 5 to 5. The difference is, on one hand, you have Maker, which has DAI, which is integrated everywhere. So it has a bunch of advantages, right? It's also decentralized for some people and some DAOs companies. That's very important. On the other hand, Maker is, it has its own governance, it's decentralized, you don't know what Maker holders are going to vote for. You have smart contract risk that is more complex than a ERC20. So those are the trade-offs that some of our clients are doing. And anyone thinking about buying a tokenized
35:10 Speaker 00 treasury versus putting money into DSR should think. And there's pros and cons to each of those.
35:16 David Hoffman? Yeah, right. Let's be clear. Any tokenized treasury instrument would be very centralized, like completely centralized, right? We're talking about just like USDC.
35:25 Speaker 00 Exactly.
35:26 David Hoffman? Kind of instrument.
35:27 Speaker 00 And in the backend, you're holding reserves. Those reserves are physical assets that can be seized, right? They sit at the Fed. So even there are some protocols that have said, we're going to go with T-bill collateral without any centralization. In the end, the centralization happens elsewhere in the chain, right? If you cannot blocklist OFAC, you're going to have
35:50 Speaker 00 the treasury come and knock your door, right? And in the end, the reserves are going to be the point of centralization.
35:56 David Hoffman? So to understand on-chain treasuries, like you said, I asked the question, why is an ADI out of AVE just kind of the same thing in a more roundabout way? And your answer was, well, there's also smart contract risk. And so that's a difference. And then on the flip side of things, in the TradFi side of the equation, Circle and USDC, even though that could in theory become yield-bearing, it's not as directly connected to being a treasury as an actual treasury. And so you have like the metaphorical middleman of Maker DOW or AVE on the DeFi side, and then you have the unknown black box that is the yield in Circle USDC on the TradFi side of things. And so I think what you're saying is like with this on-chain T-bill,
36:39 David Hoffman? it's the most direct pipe possible on the TradFi side. And then on the DeFi side, there's no smart contract risk. And so it's like, it's not like a race to the bottom, but it's like a race to the logical conclusion of the shortest, fattest pipe between DeFi and treasuries with zero counterparty smart contract risk on the DeFi side. And that's probably why there's like, you said, like there's over like 10 companies in a race. It reminds me of the stablecoin wars of 2017 that have been ongoing to this day. But now there's like the on-chain T-bills race, the race to be the liquid T-bill. So this kind of feels like an evolution of
37:21 David Hoffman? stablecoins, right? We have Tether, the Wild West unregulated stablecoin. Then you have like the teacher's pet stablecoin, which is USDC. And now we have this next evolution in the war of stablecoins, which is on-chain T-bills, which is where we are in crypto history today. Is that right?
37:40 Speaker 00 Exactly, exactly. And I would say in terms of Counterparty risk that you're taking with any T-bill issuer, you don't have the Lindy that USDC has. So you're taking a bet on how the specific issuer is set up, their legal structure and so on. But essentially, the layers that you have in the middle are the same. You have the Fed, you have DTCC, you have your custodian, you have your broker, your bank that you have to go through, your on-ramp and off-ramp, and your issuer. And that's kind of the cleanest chain that you can do. Anything less than that, you cannot move money in and out. So, and that's the same for USDT, USDC, and any other T-bill issuer.
38:20 David Hoffman? I'm inspired by the, not inspired, but like I'm reminded of the conversation around this staked Ether space in DeFi, where like Lido and kind of everyone, I think, has accepted that all vanilla Ether in, as collateral in DeFi, all vanilla Ether and Maker, vanilla Ether and Ave, any collateral that accepts Ether will eventually become staked Ether. And this is more or less playing out like slowly but surely, everything, all collateral in DeFi is being replaced by staked Ether in DeFi. Because why wouldn't you? Like, why wouldn't you trade your non-yield-bearing Ether for yield-bearing Ether? Is this, is this the same, is this the same conversation with on-chain T-bills? Like, well, why would you hold vanilla stables, crypto dollars in DeFi when you could just hold on-chain T-bills in DeFi?
39:05 David Hoffman? Let's just, let's just cut to the chase here and get to the, to the logical conclusion of this thing. This is the same fight that's going on?
39:11 Speaker 00 Exactly. So for Dejans or Crypto natives, we explain the tokenized treasuries as like stake D for dollars. So you have, the Bitcoin chain is the US Treasury, right? That's the source of yield and where the ultimate asset sits. Then you have a wrapper on top of that that makes it liquid. And that wrapper is a New York C20 that is yield-bearing. In our case, rebasing. Some other will do price-appreciating like Rocketpool and Stake D, right? You have those two flavors. And that is a New York C20 that you can move anywhere. So it's very much the same, the same system.
39:48 David Hoffman? How big is this fight? You said there's like over 10 companies trying to produce the same outcome. Why is it like, how much value is there to be gathered? Like, how big is it? How big is this pie? What's the value of this pie?
40:01 Speaker 00 So if we dream big, there's 20 trillion US dollars, right? So
40:06 David Hoffman? I love dreaming big.
40:08 Speaker 00 The market is massive. Just like the stablecoin market cap is 120 something billion. It was 200 billion and a lot of that has died because there's a huge opportunity cost by being on chain. You're taking more risk because you're taking Ethereum risk, which is not negligible. You're taking your ERC20 risk from your issuer, wherever your custody risk. And you're getting paid zero, whereas you could go to a treasury and get 5%. Why would you do that? So we saw this decline from 200 billion to 125. I think by adding yield again, now you have a very compelling argument to tell my mom, hey, take those dollars that you have under your mattress, turn them into a yield-bearing stablecoin
40:52 Speaker 00 and you're earning 5% of your money, whereas you were earning zero. You can go to a small and medium business and say, you know this high yield check? You have dollars, right? Or you're interested in paying dollars. When you're holding those dollars, instead of holding them at your local bank, which by the way, is not FDA insured because it's offshore, hold them in USDM. You're taking Bermuda structural risk or Swiss structural risk or Singapore structural risk, right? All major jurisdictions instead of Argentinean structural risk and you're earning the 5%. So it becomes a way more compelling argument to bring new money on chain. I'm gonna throw a number here. I think we're gonna get to a trillion in stablecoins in the next two years.
41:35 Speaker 00 Like, there's so much money that is sitting in the side.
41:38 Ryan Sean Adams? How long, Martin?
41:40 Speaker 00 I'm gonna say three years for 1 trillion.
41:43 Ryan Sean Adams? A trillion in stablecoins? And that is, when you say stablecoins, you mean the tokenized T-bills that we're talking about?
41:49 Speaker 00 Correct.
41:50 Ryan Sean Adams? Like both that?
41:51 Speaker 00 Anything that follows the value of one US dollar, right? So, or some like tokenized US treasuries, that is USDC, USDT. That could be us, it could be ETF, TBL ETF, anything that follows the core like US government debt.
42:07 Ryan Sean Adams? I can totally see the market demand for something like this. Like, I want it, and there's nothing available like it in TradFi. And yet, I'm still kind of wondering if we're missing something here, like an alignment perspective. What you said earlier was, yeah, why wouldn't the US government want to export its dollars? Of course it would want to do that, and export its treasuries more specifically, export its debt more specifically. But I'm wondering if we're missing an actually important stakeholder, I put important in air quotes, called the banks, right? And, you know, this is Bankless, so we are no friend of the banks. But it seems like they could be cut out of the mix here. Yeah, wait a second. In some way, Martin. So, and let me just ask you how this works, right?
42:51 Ryan Sean Adams? So, I go to my bank account, and yes, full confession, Bankless listeners, I have a bank account, all right? Because I need to pay taxes. And you know it. It's literally Wells Fargo. And my bank account pays me a whopping 0.15% in my savings account. Or actually, maybe that's a checking account rate, okay? There's some arbitrage there, because that's a lot lower than what I see as the risk-free rate, okay? So, that tells me somebody's making some money, and I think it's the bank. And not you. I think Wells Fargo is making that money on the account. And so, there's this kind of arbitrage here. And of course, I could, if I wasn't, if I was more motivated, I could take that money
43:36 Ryan Sean Adams? out of Wells Fargo, and I could go find a place to park it in good old TradFi and get that, you know, the sweet T-bills. I'd rather actually just move it into crypto and buy the tokenized T-bills that you have. That would be great. But it strikes me that if I did that, there would be this sucking sound from the US banking system, the kind of sucking sound that may have been the downfall of Silicon Valley Bank, right? Only, maybe not kind of quickly, but just slow sucking train crash where liquidity leaves the banking system. And I'm just thinking, Martin, the banks might have something to say about that. And the banks have some influence in DC. Not just the banks. Yeah, not just the banks, right? So, is this a piece we haven't covered yet?
44:20 Ryan Sean Adams? Tell me how this conspiracy theory fits in here. So, it's...
44:26 Speaker 00 If you talk to people at Congress and you bring lots of people to the show, they will tell you, there's, out of 20 trillion, there's 5 trillion that are sitting in money markets. Right? So 1 in 4 dollars are making that decision that you just said, right?
44:39 Ryan Sean Adams? And a money market is effectively what we just said, only it's in TradFi, is that right?
44:44 Speaker 00 Correct, correct.
44:45 David Hoffman? For DeFi enthusiasts, that's Compound or AVE, but in their TradFi forms.
44:49 Ryan Sean Adams? Yes, we gotta interpret.
44:52 Speaker 00 Technically, AVE and Compound are margin loan automation smart contracts. So you put an asset and you take a margin loan. Money market funds is more similar to USDC would be a money market fund, or USDM, or a tokenized TIBO would be more of a money market fund. But going back to the banks, the banks are actually, you have the top banks in the United States, the GSEPs, those are paying you 0.15%, like you said. They are actually growing, they're not going down. The people who are paying that price are the small banks, all the regional banks, your SVB's of life, which are the ones that people are going out of. They're going either to money market funds, or they're going to GSEPs, because that's where they are flying to safety, they're trying to get closer to the Fed.
45:37 Speaker 00 What is, what are the banks telling the government? And why this is getting stopped is, if the banks don't have 0% deposits that they can acquire, then they cannot give you a mortgage at 3%. If they have to go and finance at the risk-free rate, which is 5%, call it, then your mortgage has to be 7%, 8%, and your SME loan has to be 10%. And that's what people, like people in the US government are nervous about, is what happens to the economy once the rational actor decides to go to a money market fund? And what happens to all those loans that were issued for mortgages, for SMEs, and so on? And that's the tension that's happening.
46:22 Speaker 00 In my opinion, stopping this, like this is like water, right? Like you can put dams on it, it will inevitably happen because rational actors, like people think they are the best at managing their own money and self-interested people will go where things are best. But that's the tension, why it's not that obvious.
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48:29 David Hoffman? You know Uniswap, it's the world's largest decentralized exchange with over 1.4 trillion dollars in trading volume. You know this because we talk about it endlessly on Bankless. It's Uniswap, but Uniswap is becoming so much more. Uniswap Labs just released the Uniswap Mobile Wallet for iOS, the newest, easiest way to trade tokens on the go. With the Uniswap Wallet, you can easily create or import a new wallet, buy crypto on any available exchange with your debit card with extremely low fiat on-ramp fees, and you can seamlessly swap on mainnet, Polygon, Arbitrum, and Optimism. On the Uniswap Mobile Wallet, you can store and display your beautiful NFTs, and you can also explore Web 3 with the in-app search features, market leaderboards, and price charts, or use Wallet Connect to connect to any Web 3 application. So you can now go directly to DeFi with the Uniswap
49:13 David Hoffman? Mobile Wallet. Safe, simple custody from the most trusted team in DeFi. Download the Uniswap Wallet today on iOS. There's a link in the show notes. So just to, I keep on, I enjoy this like image that keeps on popping up in my brain, which is like you have the United States Treasury on one side, you know, the archetypal bank with columns to, you know, allow for Bankless listeners' imaginations to go. So then, and you have a pipe from the big bank with the columns, the United States Treasury, going into, crossing the dimension between TradFi and DeFi. And that is where these on-chain T-bill companies like, like your company, Martin, and the many other competitors out there, your company spans between these two planes. And so it goes into your, your company, and then it goes out into the world of DeFi, into the
49:57 David Hoffman? world of MakerDAO, Aave, you know, wherever. But like, and so like, again, like, we have the shortest possible pipe between the Treasury and crypto mediated by some sort of centralized company, because that's part of the deal, that's how it goes. And then, and then it's into, into DeFi. And we are cutting out the entire commercial banking layer between this Federal Reserve and DeFi. And so like, while, like, in Bankless philosophy, we would actually call your company, Martin, a bank. But I like it because it cuts out hundreds of other banks before it spits out its product into DeFi.
50:32 Ryan Sean Adams? It does, except there is one banking party, if I'm understanding this correctly, Martin, which is like some bank, let's say, or I don't know if you call it a bank, but in Switzerland, for example. So it's not a US domestic bank, it's somebody with kind of, in a more, I guess, Treasury, tokenized Treasury-friendly jurisdiction that is, is, is set up there. So that would be the bank that would be involved. Is that right?
50:55 Speaker 00 Correct. So that that would be the custodian. So they would be holding that security. And then
51:00 Ryan Sean Adams? We call custodians banks. We call a lot of things banks.
51:02 Speaker 00 Perfect. And then we would fall under the typical definition of a narrow bank, right? So narrow banks issue deposits, right? Like a stablecoin is a deposit. And we turn around and instead of issuing mortgages, car loans, credit cards, we just lend to the US government. And because you're learning to the US
51:20 Ryan Sean Adams? I like narrow banks.
51:22 Speaker 00 Exactly. So narrow banks is very, very hard for you to fail. Like if you have access to the Fed, it's literally impossible. If you have very short duration treasuries, which is what every player out there does, like the US government needs to default for you to fail, right? Like, that's the level of certainty that you have. So that's, we would be a narrow bank, essentially.
51:42 Ryan Sean Adams? So Martin, that is a product that you are rolling out, the product that we just described, right? And, and so tell us what you're kind of building in that product. And then I'm really curious about, like, how big can you actually grow this thing? USDC, right, it's under 100 billion right now, I believe.
52:02 Speaker 00 Like 25 billion, yeah.
52:04 Ryan Sean Adams? Oh, okay, it's 25.
52:05 Speaker 00 It went down dramatically, yeah.
52:06 Ryan Sean Adams? It's gone down a lot. What are you building? Who can access it? How big can this thing actually get? And this, again, this is like a tokenized, you know, ERC20 treasury that does not have all of the handcuffs of past tokenized treasury instruments, right? This is what I'm understanding. Just tell us about what you're building and how big you can you can kind of get.
52:31 Speaker 00 Correct. So first, a disclaimer. So USDM and our products are not available for US consumers in restricted countries. For more information, go to mountainprotocol.com, terms and conditions, and you can read everything there.
52:44 Ryan Sean Adams? Is that Gary's fault?
52:46 Speaker 00 It's the SEC's securities laws we're reading long before Gary. So we use an exception called Reg S, which basically means if you're a foreign issuer, you don't have to register with the SEC, but you have to not sell into US consumers.
53:04 Ryan Sean Adams? That means you can't sell directly into US consumers. What does this mean? So I live in the US. Would I, I don't know if you could even answer this question.
53:14 Ryan Sean Adams? I want to buy it on Uniswap. Do I have the ability to go to the Uniswap protocol and actually buy some of this new, you know, tokenized T-bill thing? Or I can't because I'm a US citizen or something? And what stops me from doing that?
53:29 Speaker 00 So Ryan, I understand why you and many people listening to this podcast might be excited about this product. Everyone listening to this podcast is highly innovative and like trying new stuff, which this product is. However, I think you'd agree that most people in the US don't understand why we need stable coins, why we need tokenized treasuries. All of these products are kind of like odd and they don't really understand what purpose they feel in the market. And the reason is clear, right? Like you don't have an access problem in the United States. For most consumers in this podcast, they can, that are in the US, you can easily open a high-yield checking FDIC insured account. You can use a money market fund that you can access through your brokerage on your phone.
54:13 Speaker 00 So it's very easy to actually access this product. So what that means is there is no US substantial market interest, which is a core component of the law on why we cannot offer into the US. The test that that law gives you is substantial market interest. The second thing I would say is for the people who are listening to this podcast that are really excited about this product, please don't use it. Every company engaged in this industry has to do best business efforts. There are several ways in which you can identify US consumers. And if you are identified as such, as a US person, there will be, each company will have different approaches, but there will be disruptions to your service. So you're not going to experience the full power of what you've got to offer and it's
54:57 Speaker 00 going to be a subpar experience versus what you can get in the traditional markets. For Context Circle, which is like super US-centric, has 30% of their assets that they're USCC circulating in the US. So it's a very, it's a... Most of this is like for US, for non-US persons.
55:15 David Hoffman? I'm confused. So A, I didn't know that about Circle. Can we, I want to try and get into the same conversation through a different injection point. The contract address for this on-chain T-bill ERC 20 token, yours is USDM. Again, there's many other competitors out there. Yours is USDM. Does the, and Tether and Circle both have blacklist functionality, but it's, it's open by default. So by default, all Ethereum addresses are enabled to receive the, this stablecoin. And then if we find out that this one particular address is North Korea, then we add them to the blacklist. That seems totally fine with me. That's aligned with nation state regulations. That's just the dance that we have to play. That's great. That's fine.
55:57 David Hoffman? Is there anything different about a on-chain T-bill smart contract address that is different from that status quo?
56:05 Speaker 00 So the function is the same. The thing that we are adding on top of that USDC or USDT typical OFAC restriction is, let's say Kraken US started trading this coin. We would first message Kraken and tell them to stop because they might not know that we, that they are not allowed to do that by terms and conditions. But if they insist, we're going to block that address so that that doesn't happen. So.
56:27 David Hoffman? Who would be in violation? Is Kraken in this, in this example, breaking the law or are you breaking the law?
56:33 Speaker 00 Kraken is breaking the terms and conditions and we are applying. Correct. So the terms and conditions of using the mountain burglar. Each asset that you hold that's centralized has some sort of terms and conditions. USDT has this exact same terms and conditions. So USDT has been applying RegS since I think 2018. And that's why it's hard to buy USDT locally in centralized exchanges and so on.
56:57 David Hoffman? Okay. Okay. But still like USDC is 80%, overseas? And how do they, 70%, excuse me, 70% overseas as in not held by US people? How do they know that?
57:12 Speaker 00 That's a good question. So I took that quote from Jeremy itself. I don't know exactly, but you don't know exactly which address is from where. But there are providers that tell you these transactions are coming from IPs that are coming from these countries. And you can monitor this in a pretty, you don't have 100% certainty, but you have pretty good certainty about who's using your tokens.
57:35 Ryan Sean Adams? And the reason you have to monitor is because if it gets over 20%, then you're outside of the bounds of the Reg S. Of Reg S, of the Reg S.
57:46 Speaker 00 Correct.
57:47 Ryan Sean Adams? So you have, but you can't, you can't measure it precisely, right? Because we don't know.
57:53 David Hoffman? The burden of proof is just on Circle and on you. You have the burden of proof to say that, hey, we're not violating the law.
57:59 Speaker 00 So for context, I'm not a lawyer, but how I think this is going to play out, I think there's going to be two outcomes. On one hand, you're going to have unregistered, unregulated entities probably doing some fake decentralization. What the SEC can go and point and say, this is a scheme to evade. You still have the question around substantial US market interest, but it's easier, the bar is lower to actually go after these cases. Where I think it's going to be harder is on regulated entities by respected countries, financial regulators, where there's a regulated product, there's best business efforts to kind of avoid US consumers accessing it. And where you still have the no substantial US market interest, which is pretty strong.
58:44 Speaker 00 And finally, these guys like us, we're spending a lot of money on lawyers. So lawyers are pretty happy trying to protect us.
58:51 Ryan Sean Adams? I bet.
58:52 Speaker 00 But yeah, that's how.
58:53 David Hoffman? The ultimate winners of crypto are the lawyers.
58:56 Speaker 00 Exactly.
58:56 David Hoffman? I'm confused how, I didn't know that about Circle USCC. So they need to make sure that the weight, the gravitational pull of USCC is offshore.
59:08 Ryan Sean Adams? No, no, they don't need to do that because it's USDC. Yeah.
59:11 Speaker 00 USDC needs to do that.
59:13 Ryan Sean Adams? Yeah, USDC is fine. That's just a fun fact stat that 70% is offshore. And I think Martin, you were making the point that like, there's a lot of demand for dollars offshore. Just look at USDC, a US product, and yet 70% of the ownership, according to Jeremy Lehrer, maybe is offshore. So you're making the point that basically for this new treasury, tokenized treasury product, hey, a lot of the demand will actually be offshore anyway. And there's no restrictions if it's kind of, you know, somebody outside of the US owning this thing.
59:48 Speaker 00 And the average Joe in the US, they have high-yield checking accounts. Those are FDIC insured. They're paying 5%. You have your Robinhood app, your public.com app. You can go and buy treasuries at 5%. So there's no reason for the average US consumer to go and buy USDM, right? So this is not a product that was... Exactly, right? Like, there's no access problem. The banking system, with all its things, it kind of works. You can trust it. It's insured. So this is not a product aimed for US persons.
1:00:19 Ryan Sean Adams? I get it. At the same time, the US banking system sucks. It sucks, Martin. I would so much rather have all of my, like, dollars into USDC and stablecoins. In fact, that's more the direction I'm going in, but like, take your point. So this is, I guess, outside of the US, though. This is pretty free, unencumbered, works just like USD/USDC would, only has kind of the yield attached to it. And this looks like a NERC 20 token. So it'd be available anywhere that a DeFi application is available. Is that correct?
1:00:52 Speaker 00 Exactly, exactly. So we're doing work to make it available in as many places as possible so that the utility of having USDM is not just having USDM. You can put it as collateral. You can swap it and access other liquidity pools. So that's the work that we're gonna do after we launch on Monday. Just to finish kind of like how the token works. If you think about USDC, it's an ERC-20 in the front. It's actually cash equivalents, which is literally T-bills in the back. This is the exact same thing, but this ERC-20 rebases on a daily basis. So you get airdropped more tokens every day, similar to stake this.
1:01:28 David Hoffman? Yeah, yeah, I was wondering how that how that so there's in addition to the I know inside of the LST ecosystem, the liquid staking token ecosystem, there are many different ways of the value of your token going up. There's a number of different mechanisms. And so this is probably there's different design decisions as to how you actually receive the yield. The actual value of the of the ERC-20 token could go up in like increment up over time. You could get airdropped more, you could rebase downwards. There's that's probably of all the different landscapes of on-chain T-bill competitors is probably a vector of competition to have the most optimized market desired one.
1:02:08 Speaker 00 And the biggest advantage that we have is we've become regulated. So we spent a full year getting licensed out of Bermuda. So the Bermuda Monetary Authority gave us a license to actually do this in a permissionless way. So we are a token, a utility token that is used for payments. So in the US, a payment token would be the closest thing, which is redeemable one to one. And that allows us to be permissionless. Most products out there, they are permissioned and they're adding a lending protocol in the middle to as a DAO to kind of like convert permissioned collateral into permissionless yield via supply on the protocol. So that's those are kind of like the two models that you're seeing out there.
1:02:51 David Hoffman? So this is a bit cleaner then. How big can you grow this, Martin?
1:02:56 Speaker 00 It's a great question. I think I think it's going to be trillions, right? I think this category, regardless of whether it's USDM or other players, if you look at it in a couple of years, it's going to be multiple trillion dollar industry. I think the demand for yield-bearing dollars is going to eat out of the bank dollar bank deposits globally. It's going to eat out a bunch of other alternative stores of value globally. And it's stable, so it's programmable money. So you can have SMEs creating an account and holding dollars and paying their suppliers. And that money is yielding all the time. I think it's going to it's going to change massively.
1:03:34 David Hoffman? So Nick Carter is the one who introduced us. So I'm going to put on my Nick Carter hat here. You said there's like 10 or something competitors out there who are all trying to do the same business model. Understanding crypto, we don't necessarily have the best track record of all of our startups and companies fulfilling their original obligations. How do we know that of these, when we are provided with a slew of companies with on-chain T-bills, how do we know which one's a rug? I would assume proof of reserves gets incepted here or maybe other mechanisms. How will bankless listeners, myself included, identify the rug, UST, on-chain UST bills from the non-rug ones?
1:04:12 Ryan Sean Adams? Well, because we know some of them are going to be rugs, right? And we don't even know, and like Tether is still a question mark. Is it like, what is Tether? We don't fully know.
1:04:20 Speaker 00 Yeah. So disclaimer, Nick is an investor in Mountain Protocol, so he has a vested interest here. The div, like to differentiate a rug from a non-rug, you have like your total scan tokens. You can identify those because they are not licensed. They don't have a regulatory framework that you can go and look at. They're not bank, they like, you don't know who the team is. They are anonymous. You don't have proof of reserves. So all your basic kind of like cleanups in a centralized product, which this is, if you don't see that, that's a very good tell that this is a rug. Then you go to the design questions and who is designed properly to be this narrow bank that you can kind of trust.
1:05:04 Speaker 00 That goes a lot into bankruptcy remoteness. Is the asset recognized in the, in the country where it's registered? You get into more kind of legal questions. The, I think lots of this is going to come out soon. Maker just issued a declaration of intent for RFPs for tokenized treasuries. So you're going to see Maker's assessment of a bunch of products in the next, there's no timeline, but I think it's going to be in the next couple of months. So that is going to be pretty cool. Stakehouse Financial, so Sebastian and Adrian and other friends of the pod are going to be, are going to, are like, did that proposal? And if Maker passes that, there's going to be an independent assessment of a bunch of products out there.
1:05:50 Ryan Sean Adams? Martin, why doesn't Circle go do this? Is it because they can't be a narrow bank?
1:05:55 Speaker 00 There's many reasons. I think the first one is regulatory, right? So if Circle wanted to do this, they would have to give up their US market. That's 30% of their issuance, but they would also have to stop trading in Coinbase. They would have to stop doing conferences in the US. So there's a lot of things that they would have to stop doing.
1:06:11 Ryan Sean Adams? But why? Couldn't they create like an international subsidiary, something like that? Different product, that kind of thing? You're saying that would be quite the pivot, though?
1:06:20 Speaker 00 I think it's not only a big pivot. Reg S, you have to be a foreign issuer. It's not enough for you to be a US company selling outside. If you're a US company selling outside, there's a Class II asset where you have to wait for 40 days after you buy before you actually can move it. So technically, they could, but the experience would be pretty bad. So that's the first reason, it's regulation. I think the second reason is the same reason why Wells Fargo pays you zero today, which is, why would they? And doing that math is, I'm gonna cut essentially from making 100, taking 100% commission on the yield, right? If you think this as Stake D versus CBE, right? It's 10% commission, 25% commission. Circle's commission today is 100%, right?
1:07:04 Speaker 00 And going from 100 to 10%, which is what basically all of the T-bill issuers are getting, that's a 90% reduction on your revenue. It's probably not worth it.
1:07:15 Ryan Sean Adams? And they're making a lot of money right now, right? Hundreds of millions of dollars?
1:07:18 Speaker 00 So the question is, who makes more money? USDC or Ethereum?
1:07:23 Ryan Sean Adams? Hmm, yeah. Well, what is the answer, actually? Yeah. I'm feeling you're smiling, so you know.
1:07:29 Speaker 00 Yeah, no, the answer is it's the same. I just checked, and if you look at like last seven days Ethereum versus run rate for Circle, it's the same amount of money. Tether is making almost...
1:07:39 Ryan Sean Adams? Sorry, when you say Ethereum making money, you're using the way that we often describe it on Bankless, which is like the protocol fees that are burned, Ether that is burned on a yearly basis, like the protocol revenue.
1:07:48 Speaker 00 Exactly.
1:07:50 David Hoffman? Is it equivalent to Circle?
1:07:52 Speaker 00 Exactly, exactly.
1:07:54 David Hoffman? Holy shit, Circle is printing money.
1:07:57 Speaker 00 Every time you pay gas, like that amount of gas, that's the same amount of money that Circle is making.
1:08:02 David Hoffman? Oh my god, wow.
1:08:05 Speaker 00 Tether is three times that. So Tether alone is making more money than their whole other, like the whole rest of the crypto ecosystem outside centralized exchanges.
1:08:15 Ryan Sean Adams? But they shouldn't. So they shouldn't be, right? So this should be passed on to the customers. This should be passed on to the users in an ideal.
1:08:22 David Hoffman? Oh, that's your margin. That's your margin is my opportunity? Is that what you're saying, Martin?
1:08:27 Speaker 00 Exactly, exactly. So that's why, and it's so much money. I think you guys did in the roll up, there's like 4 million crypto users, something like that. If you divide the Tether revenues by crypto user, that's $1,000 per user per year.
1:08:42 Ryan Sean Adams? Oh my god, we're paying this in hidden costs and we don't know. It's not like cost, that's the thing.
1:08:49 Speaker 00 It's opportunity.
1:08:50 Ryan Sean Adams? It's opportunity cost, which is equivalent to cost. It really is, people don't view it like that.
1:08:54 David Hoffman? Irrational, yeah.
1:08:55 Speaker 00 Yeah, so.
1:08:56 David Hoffman? Oh my god, wow.
1:08:57 Speaker 00 That's why I think.
1:08:58 David Hoffman? Over 10 companies trying to do this.
1:09:00 Speaker 00 That's why I think a trillion dollars is not a wild guess. I think lots of people are gonna be, okay, this is free money. How can I get it? And the traditional system is not gonna give it to them. If you're in Argentina, if you're in Brazil, if you're in Turkey, if you're in Europe even, you're not gonna get this this risk-free yield pass on to you. Unless you're in the US, it's very, very hard to get it.
1:09:23 Ryan Sean Adams? Here's the thing, though. So when you guys start up and when these kind of 10 companies doing tokenized treasuries kind of start up, you know, I expect kind of these regulations will sort of hold. It'll kind of make sense. But as you scale up, you're talking about numbers like trillion, okay? So you get to 1 billion, all right. You get to 10 billion, okay. You get to 100 billion, guess what? The IMF starts raising its eyebrows and starts saying things like financial stability. And anytime they use the term financial stability, what they actually mean is control because they don't care so mu— sorry, I'm editorializing. I feel like a lot of times when IMF talks about financial stability, they actually just want control.
1:10:07 Ryan Sean Adams? And if you start creeping up towards like half a trillion dollars or trillion dollars, all right, then that word will start to be used a lot more. And this whole kind of Reg S thing might seem like it's like, you'll get more attention, all right? And I'm wondering if they will try to put a stop to this is kind of a question. And also, I love the test here. I love that we are just pushing this to the limit because how else do we, how else do we improve our banking system? How else do we get rid of the inefficiency and the incumbents? But I wonder if kind of the, as you scale up, the eye will start to turn towards tokenized treasuries and the kind of the regulatory climate might start to clamp down a little bit.
1:10:51 Ryan Sean Adams? What are you thinking about that, Martin?
1:10:54 Speaker 00 Tether announced, I think it was two weeks ago, that they are one of, I think like, if they were a country, they would be in the top 20 in terms of like treasury holdings. So Tether is a very relevant player. They have 83 billion in issuance. Most of that is collateralized by treasuries. So this is already a thing. What I see at least is the government kind of likes the fact that people are buying US treasuries. And the path that at least we've taken is we want to be compliant. So if these clampdowns come, which they may come, we're going to be prepared and we're not going to be two people in a garage.
1:11:35 Speaker 00 We're a licensed entity by a top regulator in financial markets, right? So it's going to be at least harder if they try to shut us down. I think there's no incentive to do so, but if it were, we want to be as prepared as we can.
1:11:50 Ryan Sean Adams? Well, you're gonna have to speedrun it. You're gonna have to get big real quick to the point where, you know, they don't mind so much. I love that as an acid test. The other acid test, which I don't know how it's going to work out, right? Is it's ironic that we're doing this entire episode and both David and I are incredibly excited about these types of products, right? A tokenized version of a treasury. And yet, because we live in the United States, which I don't know feels like a financial prison, we actually can't buy it, right? Or at least we can't officially buy it. And I don't know what's going to happen with, you know, like, respect to that. So if somebody accidentally dusts my account with some USDM, is Gary Gensler gonna show up at my house and try to arrest me?
1:12:33 Ryan Sean Adams? Like, how does it work when there are some US? This is probably not something that you can answer or even talk about. But it just strikes me that the more people who see people outside of the US, the more Americans who see people outside of the US owning these products, and the more American citizens realize that they are like on a list on a website with Iran and North Korea and America that can't access these products, hopefully, the more we react and change the laws that we have. And so I'm excited about that test, too, because there is nothing, of course, at the protocol level
1:13:13 Ryan Sean Adams? that would prohibit an ETH address, no matter where it is, from actually having USDM inside of its account. So it's gonna be an interesting test from that perspective, too. And I'm sure you can't comment on how all of this will unfold. But I'm excited about that.
1:13:30 Speaker 00 Yeah, I think we're gonna test on the Reg S. The test that you're referring to is substantial US market interest. We're gonna test the substantial portion. And that's where it's gonna fall down. And our work is to make sure the substantial is still in check.
1:13:48 Ryan Sean Adams? Well.
1:13:49 David Hoffman? I'm assuming the model would be grow as fast as possible, get as much like TVL, AUM as possible, and then start lobbying, just lobby, get the right guest changes. I remember I've had a history.
1:14:01 Ryan Sean Adams? Court battles, too.
1:14:02 David Hoffman? Yeah, exactly. There are so many laws out there that are just asynchronous with how crypto works that eventually in the fullness of time will have to be walked back. But whether it's two years or 20 years is really the big difference.
1:14:13 Speaker 00 Yeah, I don't think it's going to be us lobbying. I think the US is going to look at the rest of the world and say, we are the exception. Switzerland was first, Bermuda, Japan, Korea, Singapore, now the UK. Everyone is passing laws, making this product something that you can actually do. And all of those regulators are uncomfortable around the compliance perspective, around the soundness of the product. So I think the US will wake up. I don't know if it's some challenge in China doing it and a threat, like a threat coming to the US, or if it's something different. But I think that will change because the US is the one that's the odd get out.
1:14:56 Ryan Sean Adams? Yeah, no, I agree. I think that is the big force for change. One last thing we haven't touched here, Martin, I think we're, we'll maybe close with this question. So we haven't talked about central bank digital currency yet, which is interesting. So one maybe if this puts kind of like the US regulatory apparatus in, you know, in check and shows how outdated its laws are, okay. One counter to that that the US might take is actually to deploy some sort of central bank digital currency that has what you're talking about, right? It has kind of the narrow bank type function where actual citizens can create an account at the Fed and they get access to this yield bearing instrument, right?
1:15:41 Ryan Sean Adams? And it's kind of in its tokenized form. I don't know, the full manifestation of a national tokenized ERC 20, except it may not be an ERC 20. I don't know if it'll be on a private blockchain or what. But this is the idea of a central bank digital currency. And you could see from a, I guess, As a country's monetary policy perspective, it might be kind of nice to have the dials of this. And like directly, you could even get to, I've seen monetary policy papers talking about like negative interest rates in some, you know, different economic climates where you're actually like taking from, you know, citizens' digital dollars, right? So you have this-
1:16:19 Speaker 00 It happened in Europe.
1:16:21 Ryan Sean Adams? Okay, right. It happened in Europe, but indirectly. But this could, you could just cut out the banks entirely, I guess, and you know, the biggest bank in the world could do that, the central bank. How do you think this all plays out? Do you think that some countries, the US or other countries, might decide to leapfrog what crypto is attempting to do with a tokenized T-bill and roll out its own, you know, central bank digital currency that also has a yield instrument and a T-bill attached to it?
1:16:47 Speaker 00 This is already happening in Brazil. Brazil is designing an EVM deployed token, which is going to be their central bank digital currency. So we see this already happening in other parts of the world. The challenge is if you do this, you're doing a death blow to your whole banking system. Who's going to bank at a regional bank? If you have the risk of that falling, they're paying you 0% and the Fed is zero risk and they're paying you the same risk-free rate. So I think getting from where we are to that in the US is going to be very, very, very challenging. I don't, I don't see it happening, at least with the, with the, with the way the world works today. Like, what do you do with all the banks?
1:17:32 Speaker 00 What do you do with loans? Who gives loans? There are so many open questions that I don't think that could go through Congress and actually pass through.
1:17:40 Ryan Sean Adams? So this would be the equivalent of like cannibalizing the entire US banking system, and they're not ready to take that step. But you think that tokenized T-bills as kind of stablecoin instruments in crypto can work because the US actually is incented to find net new buyers of treasuries. And so while they might not like aspects of it cannibalizing the US banking industry, so long as it's outside of the US primarily, they may kind of turn a blind eye to it because they actually like this property of new treasury demand. And that's how we sort of thread this needle with, with the sleeping giant here.
1:18:20 Speaker 00 It's the best of both worlds. You don't have to kill your banking system. You work as it is today, and you're finding net new buyers of treasuries and you're exporting the US dollar offshore. I think that the current equilibrium is pretty good for the establishment.
1:18:34 Ryan Sean Adams? Wow. Well, this is going to be an exciting time. And so all of these projects, including yours, are launching imminently, it seems like.
1:18:40 Speaker 00 So there's a couple that have launched. We're launching imminently. There's others in the pipeline. So it's gonna be LSD5, I think, was the narrative on the first half of the year. I think this is becoming the big narrative for the second half of the year. And I think this will bring, hopefully, the next bull run, because all this new demanding crypto will start in stable coins. But then who knows where that money goes next, right?
1:19:03 David Hoffman? This is a take that I think Jim Bianco gave us, and I think both Ryan and I just readily accepted it, which is that crypto prices, Bitcoin, Ether, pick your favorite blue chip asset, will, cannot, and will not go up until on-chain liquidity goes up, stable coins. And if this brings liquidity into Uniswap, into our layer twos, into all the splattering of layer ones, that is bullish. That's bullish.
1:19:30 Speaker 00 And you're about to bring a lot of new buyers, so.
1:19:35 Ryan Sean Adams? It makes sense. Last bull cycle, I think, the risk-free rate, the T-bill rate, was something like, I don't know, 1%, 2%, right? And this time it's 5%.
1:19:45 Speaker 00 It was 0.25%, so it was technically zero.
1:19:48 Ryan Sean Adams? 0.25%, it was that one.
1:19:50 Speaker 00 Yeah, and the risk rate in Europe was negative. So this is the first time since crypto was born that we're actually seeing non-zero rates, except for a very short period right before the pandemic. So it is the first time we see this, and rates are probably going to stay high for a good time. So this is going to play out nicely.
1:20:13 Ryan Sean Adams? Rates are going to stay high because the time of fiat is drawing to a close. And I actually think that the business model for on-chain treasuries is also an indication of the the long-term close of the fiat era. Because, right, you have to charge interest rates to induce demand, blah, blah, blah, blah. Is that an acceptable take, Martin?
1:20:33 Speaker 00 Yeah, I don't know if the fiat cycle is to an end.
1:20:36 Ryan Sean Adams? Long term, multiple decades.
1:20:40 Speaker 00 Very, very long term. I think governments are going to issue their unstable coins on chain, right? So Argentina is going to issue Argentum on chain. Right now, there's conversations about dollarizing in Argentina. So taking out the central bank because we clearly don't know how to handle a currency and using the dollar. I think that it's insane, but like inflation in Argentina is over 100%. So it is like, it is, it is super tough. Now, instead of going to the dollar, can you go to your own ERC20 with a cap supply or with a fixed emission, right? Like, and automate that central bank. And some countries where the central bank is not credible, I think that's where it's going to start.
1:21:21 Ryan Sean Adams? Well, very cool. Martin, thanks for explaining this to us. I'm sure we'll do much more on the kind of the tokenized T-bill narrative as projects get built out. And your specific instrument is mountain protocol is what you're calling it.
1:21:35 Speaker 00 Correct.
1:21:36 Ryan Sean Adams? And USDM. And of course, if you are a US resident and listener, you live in a financial prison. So you cannot purchase this asset anywhere, apparently.
1:21:46 Speaker 00 You can go to high-yield checking accounts.
1:21:47 Ryan Sean Adams? Stuck in that 0.15% yield account in your Wells Fargo. Sorry, guys. But very cool, Martin. This has been a lot of fun. Thanks for taking us on the tour today.
1:21:59 Speaker 00 Thank you, guys.
1:22:00 Ryan Sean Adams? Bankless Nation will include a link to the show notes. We've referenced it in an article that Martin wrote called "Stable Coins Are Crypto's Hidden Money Printers." Goes through the business model of USDC. It's a, it's a great read. Gotta remind you, of course, none of this has been financial advice. Crypto is risky. You could lose what you put in, but we are headed west. This is Frontier. It's not for everyone, but we're glad you're with us on the bankless journey. Thanks a lot.
Previous ROLLUP: Ethereum Absorbs Alt-L1s | SEC vs. Stoner Cats | Mark Cuban's -$870k Wallet Hack Next Synthetix: A New Hope with Kain Warwick Page updated October 26, 2026 · transcript and summary are machine-generated
