Circle’s Arc: Bull & Bear Cases | Roundup

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I don't know why I I draw this analogy and I don't know if we should be drawing analogies, but think about one of the biggest blockchains of all time. It it was Terra and what did Terara have? Well, they had like a stable coin and then they had a settlement layer. And that hasn't really been done since Terra went to dust. And so I think the bull case is that they're the new Terara. It's a settlement layer with a really great stable coin with liquidity and potentially foreign exchange as well like Terara also tried. And that can be a massive outcome I think if they get it right. Hey everyone, quick disclaimer before we get into today's episode. Nothing said on Bell Curve is a recommendation to buy or sell securities or tokens. This podcast is forformational purposes only and the views expressed by anyone on the show

are solely our opinions, not financial advice. Our guests and I may hold positions in the companies, funds, or projects discussed. Dave, where are you these days? I feel like you are you're like if you ever seen that movie Twister where they're like following the volcanoes around. I feel like you're doing that with crypto conferences at the moment. >> Yeah, I did uh New York, Lisbon, SF Miami, now back in Lisbon. So, um it's been good. Then I'm off to London in a few days. So, definitely hopping around the place. But, uh feeling good. I had a conversation with a few friends today in person in a co-working we have in Lisbon with crypto co-working. And yeah, I think uh there's still some interesting people building cool stuff, which is

always a positive when times can feel quite hard. So yeah, it was great meeting some strong builders around the world. And I'm pretty bullish. Like there's people doing very very different things in crypto right now across many different categories. So uh there's still hope. It's it's been a good few weeks. Good to be back though. I'm going through everything and following up. Which uh which of those cities has been the most promising from a >> Yeah. >> Yeah. >> Um look, I think like as you know, Mike, I guess you know, we've developed our relationship uh a lot for your times in New York over the years. Um I've romant, but uh that that was definitely the

case. Um but yeah, I mean like New York sick for different reasons. I mean, I think all of us have spent quite a bit of time there the last few years, but I just got the sense being in SF when I was there that like really that's where it's at again. Um, and I feel like more people were going to realize this in the next few months. So, I still love New York. There's nothing is ever going to beat New York, but I think SF as a place for crypto people to spend time in, I think will become more important in in the next few years. And yeah, it was cool to see. I guess the big VCs are all there still pretty active in crypto. All those funds were raised obviously of course A6 andZ Horn etc. So, um, yeah, there's still capital, there's still big

VCs, there's still crypto interest. So, uh, yeah, and I do think maybe for for listeners, I guess as someone who has been based in Europe now for quite some time, I guess postregulation, I spoke with a few friends on the weekend about this as well. I just think right now, US is really like where it's at. And it definitely wasn't always the case. I think everyone here can can admit that like two two and a half years ago, it was maybe even the opposite. It was all going to Asia, Dubai. Now I kind of feel like I should be living in US almost. It's like I'm just there every five seconds. So uh I think that is a macro thing that perhaps people take for granted right now that really the entire industry is back in US which is probably a really good thing crypto long term.

exciting times >> like the experimental stuff versus like let's say like the stuff that's working like payments RWAS is that also like are you seeing the best of that in the US or is that like my gut sense sometimes like that might like the US tends to like concentrate around like hot things that are already working um whereas you might find some like out there ideas from Europe >> I well it's a interesting question because there's always the occasional European team that has some kind of wild idea like researchbased, PhD person and I think that's always underrated. Uh so there's definitely some of these people that still pop up in our pipeline but I would say overall there are some really cool teams building in US right now even

across some pretty new out there ideas in crypto. I kind of think right now if you're still building in crypto you're like a massive ideological person that like believes in crypto forever. So like you're not going away no matter what. You're like a cockroach. So I think there's a few cockroaches in US. Probably more cockroaches in US than there is in Europe. I think in Europe like sometimes it kind of feels that people are finding it harder in crypto and you know times are maybe a bit tougher because it feels like it's not really being pushed top down here and so people are kind of thinking well what's next andor they're actually spending more time in US like someone like me. So there has been such a massive change in the last two and a half years. I think unless you've been boots on the ground

for for the last few years, you you wouldn't really understand how just how big it's been. >> On the US front, by the way, if you have people who are listening here, uh make sure that you call your senator. I'm going to drop the link in show notes here, but clarity is this is a big week for clarity. Uh shout out to Coinbase who's done a really good job on this, but I think that that's Miles to your point on like the RWA side of things, AI side of like that stuff's all happening here. Um, I I weirdly do think that one area because DeFi was so heavily scrutinized, there's a lot of European DeFi activity still. Um, but I I I kind of think a the market I'm biased here saying this because Rockworks has been a

US company from day one and so we made some strategic decisions to mostly stay local to the US, but we always thought it's the market, you know, to win. Um, and so the the big thing that's that's coming down the pike here is clarity. It's a good bill. Um, so yeah, shout out Coinbase who's made it really easy to call your senator. >> I'll give her a good friend, uh, Lizzie Warren a call. I'm sure she'll >> I'm sure she'll be pleased to hear from us. >> Miles, your call is going to be the straw that broke the camel's back. Lizzy Warren's crypto dance. >> Get her. Yeah.

>> You know what though? It's funny watching how this has played out up close and personal. I'm sure there are lots of other industries like this, but I feel like I gave a lot more benefit of the doubt to, you know, people have good reasons to oppose this stuff. I mean, especially around the yield stuff in crypto, like the banks, there's really no bull case for it or rational steelman for why this makes any sense. It's just pure regulatory capture and, you know, benefiting the incumbents. It's kind of crazy. I mean it's just like hey we should be paying which by the way was the standard before 2008 we should be paying depositors or like giving some yield back and it's just an excuse purely for the net interest margin of

banks. It's crazy that the dems are defending bank nims. I mean look at how much has changed since Occupy Wall Street. It's crazy. It's just crazy. There's there's no Yeah, I think it's nuts. >> What What are the odds on it passing right now? I actually haven't been following too closely. >> Um it's gone in between. It's I mean on Poly Market at least there's only there's less than a million dollars of volume and I think last time I checked it was like 60%. But it was as high as 80% you know earlier this week. So I think what you're really just seeing it's pretty low low volume and people are just saying we're not really sure but anyway we'll see. So call your senator.

Call your senator. Um okay so this week um we got another bull verse bear case for you. Um this was prompted by a very large token sale. Um and the kind of on the theme of institutionalization of crypto US-based uh stable coins. Uh we're going to be talking about ARC. Um so ARC is the new proof of authority L1 um which has been launched by Circle. Uh it's interesting for a number of reasons and connects to a lot of what we've been discussing for the last six months or so. One uh it's more of a like a proof of authority type chain. Um, and that's kind of the theme of like the enterp the new like the v2 of enterprise chains is something that

we've discussed quite a bit. So, Canton is like this, arc is like this, tempo, etc. Um, so it's it's that type of architecture. The other thing that's interesting about it um and potentially novel I guess uh is you know it's it's connected to one of the primary two you know fiat stable coins USDC where there are arguably a lot of network effects around it. So just before we even get into uh you know the connection there the the reasons why this is interesting and why it might work very well versus not here's what it is. So ARC is an EVM compatible layer 1. um it's built by circle for stablecoin native financed.

So it's less of an everything chain and it's more trying to be infrastructure for payments. So for instance this is Miles what you and I over the years have called sector specific block space. Um uh some of the similarities into what uh tempo is kind of built in but for instance you have a uh just a built-in FX margin. Um you know other hallmarks of the chain you have USDC is gas so the fees are all dollar denominated um and obvious in theory you know contribute to the network effects of USDC it's very fast you know sub-second deterministic finality um you also have maybe some enterprise friendly features uh built in from day one opt-in privacy easy compliance and then it's just EVM compatible so I don't know guys if

there's anything that I missed on the overall description there but um this was prompt prompted by the way as well uh by a very large uh token sale. So, Circle just closed a 22 or $222 million token sale like pre token pre-sale uh you know from the likes of Black Rockck, Apollo, etc. And it valued the chain at three billion. So anyway, that's where ARC is. What did I miss? >> No, I think you got it. Um, I think maybe the one maybe like a kind of confusing thing is we're talking about like Tempo seems pretty clearly like a payments chain. Say Canton seems pretty

clearly like a institutional RWA, you know, regulated DeFi chain, right? And then ARC is kind of like positioning itself uh somewhere near the middle. Um, and I think that's also reflected by backers like like Black Rockck, right? Um, and so at 3 billion valuation, that's about 10% of the valuation of Circle's equity. Um, and Circle Equity is, I think, like um, trading at roughly like 20x revenue or something like that. Um, so this is, I guess, you know, underwriting that, um, circle or that arc at like same multiples can get to 150, you know,

million dollars of revenue. 50 to 300 million just depending on like a multiple >> which is a lot. >> The the way Jeremy the CEO of um Circle explains ARC I think is quite interesting. He talks a lot about it as a kind of operating system and how blockchains are economic operating systems and he sees ARC as this new kind of economic operating system that is needed for USDC to be transferred amongst institutions especially. So he believes there's a need for this kind of infrastructure in market right now especially as they on board more institutions and you can't forget that they work with a lot of institutions. So I imagine there must be some insight on their end for why they built this

blockchain in particular because sometimes in crypto arguments can be made for why we don't need more layer 1 blockchains and more settlement layers. However, I think here yeah as mentioned they have done this for a reason. and they treat it as a new economic operating system, you know, that's very fast, transparent, public, etc. Um, and open for institutions to be able to verify um, who the counterparty is and how they're transacting, etc. I think the last thing worth mentioning about what they're targeting with this blockchain, which is potentially somewhat novel, maybe somewhat similar to Tempo as well, is the AI agent side.

Um, so Jeremy has spoken quite a bit about AI agents as these new economic actors and these new economic operating systems and he believes that the infra actually isn't ready for agents including Ethereum and Salana. So Tempo of course has their own standard MPP and then Coinbase has their own standard X42. I I'm not 100% sure if Arc is adopting either. Um, but they believe they're not trying to be the standard. They're trying to be the underlying settlement rails for these standards essentially which I think in itself is actually quite interesting as a target market that Ethereum and Salana would have had if it wasn't for ARC and I think actually Arc will end up competing with them longterm for this target market.

>> Yeah, I think the one of the something that's changing a little bit in crypto as well is you know if you look at a lot of the early product market fit for what we usually call DeFi 1.0 we know maker a etc. It was a little bit it was kind of it was a little bit of a hodgepodge of a bunch of different ICPS or customer type but but retail was pretty heavy and you also had retail people that became institution like whales because of how early they were to Bitcoin or the Ethereum ICO things like that. it has really become a much more difficult uh you know

competitive game on the BD side of things especially as RWAS and the dominance and importance of RWA has been realized by the crypto community. So yeah, you know who used to get a lot of [ __ ] for this but I think they were directionally right was like Avalanche, you know, Avala Labs did a good job of this early on. They got so much flack for it. I know Zave, you're an you're an avalanche bull. Uh we had some early early conversations about the red coin. Um but yeah, I I think that things have really started to change a lot and circle certainly does, you know, they've got they're organized. I mean, they've been doing institutional BD for a long time. They also have network effects

around the stable coin. Um although it is not clear and I think it's been a very big question mark even if you look at how users and liquidity and activity has been once it once it stays on a chain it's pretty sticky or even earlier versions of something like uni you can't really if you're unis swap you don't have the power to move your users from v2 to v3 and v4 um so you kind of end up you know we we kind of watched tethered there was initially an idea of doing this with um plasma and that hasn't really gone anywhere.

So, I think it's kind of, you know, to get into some of the questions that we'll be talking about this episode. I'm not really sure how much or how directly you can leverage that network effect around USDC for the adoption of ARC the chain and they almost have to be independent of one another, but what do you guys think about that? >> Um, I think that sounds right. I mean, you can like there's there's lots of fast chains out there uh that you can use USDC on. I mean, if they could they will basically try to lift and shift all of USDC onchain activity from where it is today and bring it in. But um there's no clear like distribution um advantage here in my opinion. like

it's still it's not as clear-cut as say like Stripe's, you know, let's say merchant customer base that they can just flip a switch and all of a sudden they're on Tempo. Uh or Coinbase's, you know, like retail user base getting on to base, right? Um they don't actually really own the end customer that much, but they do have I think like they do do a lot of like, you know, there's no way that these like large institutions are going to like start using USDC without talking to circles. So like they do talk to them. Um but I don't think there's as clear of a cut like uh distribution advantage here. But there is a there is a trust advantage. Um and so I think you know the the POA sort of like um approach to the validator set gives you

a lot more control. Um you know things like okay hacks don't need to be a problem on ARC because we can just you know coordinate to roll things back. Um I think they'll have a lot of privacy measures that they've heard you know folks want across the years but um you know maybe we can save this for a little bit later but the revenue story I think is a bit challenging if that's how you're like kind of getting to this this valuation. Yeah, I think just on the distribution point, um I guess some of their cap table they announced in that massive raise they did a few days ago, that is some of their initial distribution and some of those kinds of players are RWA issuers, etc. where if

you issue enough RWAS on ARC, even from just four or five names and get enough capital into those assets and they're all settling to USDC, that could potentially be even in the billions. Like, we don't even know. I mean, I was just looking at a stat before, you know, something to do with thing or assets settled in USDC across all chains is actually in the trillions. So, even if they just capture some small percent of that to get started, like as early distribution, I think it's still like potentially pretty interesting. Um, I do think the more I think about ARC, the more I think that they're potentially directly competing with Ethereum. Um, especially on the RWA front, it seems like they are allowing these RWA issuers to get a slice of the art blockchain to

incentivize them to issue RWAS on their chain and therefore settle in USDC and probably move off Ethereum full stop. And I mean, it goes both ways. Of course, we don't know the asset issuers themselves. do they want to control the economics long term and also launch their own chains and so everything settles to their chain like at some point there has to be liquidity and I think that the bullcase before we even get into the bullcase uh discussion I think USC has the liquidity um across many partners and they have the seriousness of essentially converting their partners onto this chain similar to tempo where it's like probably because they already have a stack like

CCTP P and some other circle kind of tech parts that they've put together over the years. It's probably not that hard for someone already using USDC to like you know one code API call or one line of code to like integrate something on AR blockchain instead of like Ethereum itself. So the easier they make that the better distribution they get. I think the yeah potentially the bigger it'll be short and long term. So it'd be very interesting to see exactly what that looks like. >> Maybe to get into some of the bull verse bear case here. It's even if you were to just purely analyze this from the standpoint of business development, what circle what uh ARC rather has going for it is you have some organization around BD and links into enterprises. Like I

remember being on a couple years ago a Cosmos uh Twitter spaces where there was a debate around should we do BD. I mean just talk about how far this industry has come. Uh the consensus was no. um because that's centralizing. I mean just just because we memory roll ourselves a lot in crypto. I mean this this was a very legitimate conversation that was happening a couple just just a couple years ago. Um so obviously Circle has no bones about doing that nor should they organized and selling into institutions and enterprises is a hard it's much more difficult you know coordinated sale on on the other side. On the other hand um you know we talked about this a little bit in the tempo episode. I think

they're still going to be coming up against the brand challenge here. Like I think that the sale of hey route some of your you know settlement flows uh to the circle it might might be a relatively easy sale but I think building businesses and it's it's that same thing that no one who views themselves competitively here is going to want to give Circle an edge or entrench a moat. um there's still there's more of a feeling of profit because even though Circle is its own L1 and it has a token probably to decentralize, it's still POA and Circle still owns a large percentage of the token share. So I think they're running into the same brand challenge

here and I think this is where Ethereum has a massive edge where you build on this and okay, maybe the tech isn't quite as good. is that is specialized for your use case, but you're not going to get rugged and you're not entrenching a competitor's moat. And I I think that's kind of the bare case here if you Z frame it like you framed it, you know, competing against Ethereum. So that's the way that at least I would look at it purely from a BD standpoint. And it's actually doing Ethereum is doing pretty well. Um yeah, I don't know, but that's that's the way that I would look at it.

>> Yeah. I think something interesting to think about which we've talked about on this podcast is kind of a focus in terms of what the chain wants to win with tempo. We mentioned it's payments especially B2B and I think that's a massive market in itself and they're going to do really well there. With ARC I guess the question is like what exactly are they trying to win? I think off air we were talking about Canton is trying to win RWA's you know Ethereum potentially somewhat similar Salana maybe trading you know tempo B2B payments I guess with ARC it's unclear exactly what they're going to be the exact best at like they have pretty good compliance and those

kinds of things versus maybe some other chains and maybe some of that is is valuable in terms of like endto-end workflows for institutions to feel comfortable using blockchain which maybe that's something that we're not thinking about enough right now but uh yeah it's hard to to know right now the differentiation because there's just so many chains now even like Canton etc. There's probably like Avalanche we mentioned before has tried it. You know, so many chains have tried it. I think Circle has the connections and it has the liquidity and it has it has pretty much everything you need to build a chain. So, it's like why not? Uh is the question. Um another thing I mentioned to Miles earlier and I think is also an interesting open question. Uh I'd love to hear your take on this as well, Mike,

is I guess the token versus equity. One of our favorite topics on this podcast. Uh it's not necessarily a bull or a bear case. It's more like an open question around you have circle equity, you now have the ARC token. The ARC token is more like a sort of staking token long-term where you stake it to earn some of the revenue coming from the ARC network itself. The question is like who's the buyer of both? Who's the buyer of the token or who's a buyer of the equity? Like someone who's cryptonative might prefer to buy the token and maybe that crypto native person doesn't buy equities and they just buy ARC token and vice versa. an institution might like equity and they might like buying circle so equity and they're fine with a token going live but they're not going to touch it. So there is maybe something to

be said about they just want to get more buyers across blockchain and outside blockchain into their token and their equity at the same time. But it is interesting that they're going first here in terms of like having a token and the equity when I feel like sometimes in this podcast we talk about maybe doing the reverse and having either or. So yeah, you have a stable coin for payment of course and for fees, let's say, but then those fees acrew to the governance token, which is a big question mark on like the value of a governance token. So maybe there's some economic risk here. I think full stop that maybe we're all discounting a lot and and they go to market, >> right? I mean, I just think there's like innate tension between what uh is best for the value curl for the equity and

versus what's be best for ARC. Um, so if you're circle, you make revenue from the reserve yield of the supply of USDC. And if they, you know, launch a bunch of other denominations, same thing, right? Um, so the way to get that supply up is to launch this like settlement layer specific for USDC that's subsidized where like fees are basically as close to zero as possible. You know, they talk about like nano nano payments, right? Um but from ARC's perspective they need fees to be nonzero. Um there's no at the moment at least there's no other value acral mechanism. Um apart from settlement fees, right? So then it

becomes like is this a defy me sort of story here? Does there need to be something here? Do you like enshrine some sort of like um forex market, right? where like you have to be an ARC staker to participate in this forex market or like there's some sort of like medallion, you know, like membership play here. We've talked about that, but but I think they actually do talk about >> I think that's the right I think that's the right analogy. >> Yeah. I mean, they they talk about it in like the the white paper. Um I think it's like if you are a staker like we're exploring, you know, uh further subsidies to like, you know, XY.

>> Did he use medallion the medallion analogy in the white paper? >> No. No. I bet I was >> curve listeners. >> Yeah, exactly. Well, maybe they did. I didn't read it. But >> um yeah, I think that's the tension here, right? Is that like if the reserve uh revenue from USDC is still going to go to circle, which it has to um right >> then where is the revenue coming from and where what is the valuation like you know uh how do you defend it? Like what are they underwriting? Well, so just from a high level perspective, I think the most important thing, right, is it's okay to have equity in tokens as long as you're disclosing what the ownership is and what the rights of token holders are and how value acrru, right? I I think

what has been expressly not okay or just a a representative of being a broken market is when those relationships aren't clear. So right now an existential problem in crypto is good company bad token for exactly this reason. Um sometimes that's because the very legitimate reason of it's you know you you you could have been arrested for trying to provide value back to token holders. There are some other less noble reasons why that exists why these relationships exist. So in in in the as long as everything is disclosed I think things are fine. My my personal opinion is it's hard. I'm more in the camp that less is more and one instrument is generally better. In theory, I like this

is me speculating. I have no inside information on ARC, but I would imagine the way that they arrived at a token was okay, we have USDC the asset. What can we do to increase the network effects of USDC? Well, turns out in a network like Ethereum and with ETH, the network of Ethereum is what entrenches the network effect of ETH. Therefore, it makes a lot of sense from Circle's perspective to build that network. You want to decentralize the network and the whole reason why L1's are decentralized in general or the mechanism is the token.

So, I can totally see how they got there. But then you have this other challenge of um then you have this other challenge of okay well how how can I make investors understand um how can I make investors understand what acres the token versus the the the equity and I think it's confusing I I I think that the bare case of this is that you might divide flows and therefore both assets underperform and I can certainly point to examples where this has worked. Binance equity and B&B the token is probably the best example. Um but I I think in most cases again what it what a public what an instrument like equity or token is supposed to do is

unite internally. It should be a force of unification within a company from an operational perspective. Sales and marketing have differing incentives. That's okay because the head of both of those functions are aligned by equity. when you when you uh have multiple instruments, you're actually dividing the incentives of people that should be working together. And so I would imagine purely from an operational standpoint, it's pretty counterproductive. I do think, let me flip this back to you guys. The two things that I think are kind of interesting here and evoke long-term debates is we haven't had a publicly traded US company launch a token before. That is new and it begs a lot of questions. Are shareholders going to be okay with this? Right? I'm not sure if there's precedent here. It would

sort of be like if JP Morgan launched a second equity instrument for a part of its business is the best analogy that I could make. I think that I would imagine some shareholders would have a problem especially if C circle equity underperforms. The other you know the other thing that I think it is why it's interesting is you're going to really see why no one's going to be able to say ARC is money. So that whole oh monetary premium BS argument gets thrown right out and instead I think it nakedly shows you what these chains should be valued on which is fees. I mean I've been a fee maxi for everything other than Bitcoin for a long time. So I'm talking my own book here. But that's that's why I think

this is interesting. I don't know what the legal side of things are going to be. And then I do think it's kind of like if you look at something in the extreme it shows you more clearly uh how things are working in the middle. Um, this to me is interesting because it's an example of an L1. You can't say that this is money. You can't make any of those high flulutin, you know, foofy arguments. And so you're forced to look at the facts, which is people are going to value this thing based on fees 100%. Um, and you know, the the flip side of that is like they do have more control. Um, so they could probably get more creative with like value overall methods if they if they wanted to. Um it's not like you're facing like

actually decentralized government governance but yeah there's there's like another world here where they um just launched a rollup right uh with like value coral acrewing to circle just like base is today. Um, and so by going this route, I guess it's because they wanted it to be a more credibly neutral settlement layer or at least like have other big institutions be able to operate the network with them. Um, but you know that that there's there's a real tension now where there's like what like 4% like that's what like reserve yields are are yielding right now. Um, and obviously like the the status quo

has been like the issuer captures 100% of the yield, but now you have pressure from like M0, from Braille, um, you know, from Athena, right? They're launching white labeled stable coins. So those are, you know, largely sharing like the most of the revenue with the customer. Um so they are already facing pressure from those from like the hyperlquids of the world to say like come on guys give us some of the revenue like you should not be capturing all of this revenue it's on hyperlquid because of our app right and now they I could see you know pretty quickly feeling a little bit of pressure to share that revenue the reserve yield revenue with arc too right when people start to see like oh settlement fees are not like a

lot it's like you know start Yeah, Celest Celestia revenue chart. >> This is the multicoin salon. >> And then and then on top of all this, rates could go down and that top line, you know, that pie of 4% could go to like two or, you know, 1% even in the next couple years. So >> yeah, >> now you don't have very much revenue to like share around. Um, that was pretty dark, but like I I do think that that's that's kind of where, you know, I think this is going. Um, >> it's super interesting. I I think that this now do you guys remember this old argument people used to debate Ethereum versus ETH kind of the asset versus the network.

>> Yeah, of course. >> And you know, I hadn't really thought about this before, but now that you have some of the stable coin issuers that have network effects around the asset trying to build the network, it kind of demonstrates more clearly how separate those things really are. Um, you know, there's really the asset and then the network and they can work in tandem, but they can be pretty different. Um, and the asset is much more the story of the asset than it is than it is anything else. So, I don't know. Um I I think one of the things that Circle has going for it actually um it's possible maybe in a bare and bull case in a sense is that

they might be doing a lot of work for something that's not necess like the network is kind of what's needed to bootstrap the asset but they already have takeoff you know critical momentum and mass on the network effect of the asset. So maybe they don't need all of this stuff like the network attached to it. Um, in theory it could boost the but that's what you're after, right? The network effects of the asset that the network is really in service of the asset and they already have it with the asset. So might just be a lot of work for something that they've already achieved. But it's interesting to think about. I don't I don't know. Um, that's the answer.

>> Yeah, I I agree, Miles. I don't think they're going to get a lot of fees. I think it'll be very difficult to get fees for this as well. Well, something Miles and I again talked about when you were away before the show, Mike, is I guess uh plenty of discussions without you, mate. Um yeah, I guess there's a good good question around me, Value Capture. You know, you see the major chains today like Salana, etc., and they're not generating a lot of fees. And if we value these assets like Salana on the fees that they generate, um yeah, like what what is the long-term value of of these networks? And I I guess like you guys just said rightly so with with Arc if they well I think one of the value props is supposed to be that you

know maybe Salana is a good chain if you're an institution but there's like it can go down and there's also MEV like just like classic arguments you could make you know fingers crossed hopefully ARC doesn't go down I guess is the claim but also the probably the claim is there's I assume no MV as well. Uh, and I think that if you sold that to institutions, I don't know if there's MV on Canton or anything like that, but I do think that, you know, MEV is good for value capture but bad probably for like institutional on boarding, but at the same time, if you don't capture the value from me, then what are you capturing it from? Especially if there's like zero fees on the network. And then like you guys were saying, which I agree with, it's like a USDC distribution play of like getting USDC in the hands of

even more people on their chain and like and bring it off Ethereum and just kind of like you know having more people issue USDC on their chain and then they hold it in their you know T bills whatever and that yield goes back to circle. I want to take us back to a point that Mike said before as well a bit earlier around um I guess just the ambiguity around the value capture of the token itself what it does and I think it's already clear right now there's some ambiguity with this token because ARC is a proof of authority network which means that the nodes are chosen by ARC itself and so like there's no need for the token to to be staked in order to join and validate transactions.

However, their plan is to move to a proof ofstake blockchain there. Of course, like the token has like a decent amount of utility because you need the token to join the network in order to earn the fees etc. And there's actually like a real reason to buy that token. I think before that period the question is like why are you buying the like are you staking the token right now like I don't know like probably not and and maybe you are but like maybe they choose the validators and you stake it but like I don't know does the validator have like 80% of the stake and they just do they do 80% of the transactions and and it's all good or like do they just be like no like we're not doing it like that. So I think the actual USDC is a fee and how

that acrruc token and if it's staked or not like that for me is the issue right now on the value acrruel side of like if arc listed tomorrow I think they're planning to list mid this year by the way I think that was a plan for mainet at the very least so yeah the question is like what do you actually buy it for is like and and also we talked about it earlier but I think it actually is supposed to be like decentralized governance like that in the white paper I'm pretty sure that's the plan so Do you buy it for government? >> Yeah, it's a consortium play, right? Like um last thing uh that is Z and I were talking about behind your back, Mike, is like >> it does feel like kind of 2019 again or it's just like >> I know >> where the the the big institutions are

coming in and they're kind of like left curving all of this and we're like getting into the weeds and very much so mid-curving all of it. Um it's like the there's an opportunity to replace like you know combination of Swift the DTCC like the global financial rails for payments and for assets. Um I think the technology is like more derisked than ever and I think the public chains are probably looking more bearish than ever. So it's almost like we have another stab at like you know the apple here of of the new the you know those new financial rails except like people are betting more so on let's say the teams that studied and built on the public chains

and are now like [ __ ] that like we're just going to build it ourselves uh because we have all the leverage that's you know canon tempo arc um light spark things like that >> so we may just be mid-curving this and like there could be just you know trillions and trillions and trillions dollars like settling on AC across these like couple networks or like obviously there's going to be power law winners. So, you never know like maybe I don't know what the distribution ends up looking like. Um and then all of the nitty-gritty like ah is it faked? Is it you know this or that? It's like no well it's like the most one of the world's most important pieces of infrastructure.

So like whatever they they'll figure out the revenue later. So that that's my bull case is that we are being we are like fully midcurving all of this. We're definitely mid-curving. We're definitely mid-curving. But I but I also think that there's a long-term bull case here, which is, you know, I think crypto does a pretty good job of catching on to the right issues, but then I don't know that they either like over over complicate and throw too much money and weirdly distort it. But I do think removing the word like credible neutrality as like a word. I I think the the what makes the public chains attractive here is that they aren't owned by anyone. And the thing even though the uh you know the by the way I think that there's room for success on

with both models here but like the arcs and the canton and these sort of um you know what is >> consortiums >> consortium chains is maybe the right word is that all the the the entities that are establishing these consortium chains have competitors and you know one analogy here which don't read too deeply into this analogy I'm not saying Ethereum is TSMC But what I will say is, you know, most of the the the fabs used to be integrated with the chipmakers and and it was, you know, Intel that was a huge, you know, fabrication operation, but when ended the the the misalignment of incentives is you were essentially buying, you know, you were relying on your own competitor to make a core

input. And I I and like when TSMC founded, it was actually really unattractive. Like Pure Play Foundaries, low margin. Everyone thought it was a shitty business. you're picking up scraps. But over time, what the the killer feature of TSMC is that you were buying from someone who you weren't competing with and everyone ended up choosing that over time and then eventually the barrier to entry. Now it's like competing with TMC is like good freaking luck. And I I think that that's the bull case still for the public chains is that eventually people are like okay yeah I you know I mean weirdly I know we talked about this and I don't really but I I even thought it was a little funny that Jump was the architect of the major client on Salana

you know I think an interesting question to ask is if you were a competitor to jump would you want to trade on a chain that your biggest competitor had designed? I don't think you would. And I I think that's the if you're a competitor to DRW, it's like did you want to trade on Canton or I think I think these are not, you know, I think both of those projects will be successful. I'm just asking the question um and I think that that question will get louder over the coming years. Can we compare ARC though to Tempo? Because you Z, you you compared it to Ethereum, but I think ARC is going to get comped against Tempo. Um, and you know, if you look at the the pros and cons of what Stripe brings to the table versus Circle, Circle has the benefit of like

the synergy of USDC, the asset, and then the underlying network and chain. Um, although it's less clear how it leverages that distribution versus Tempo has a much clearer, easier line of sight into they've got four million merchants um, worldwide that they can, again, they can't flip a switch. They're not going to force their customers to use the chain. It's not like they can do that, but they can incentivize them and they have a big advantage. Um, so I mean I I feel like that those are the two that are going to get compared. Um, but yeah, I mean my take here, which I guess let's wait and see if it's correct or not, but Tempo to me feels very like B2B. Like I don't know if I'm going to be using Tempo that much like

ever. Maybe at some stage I might be using it without even knowing it via some merchant. But sir, Arc seems to be a chain that I could see myself using, which probably means that there's probably going to be quite a few cryptonatives using this chain eventually. And I think we all underestimate that. Like we talk about institutions coming on chain and it's all very great, but I still think that cryptonatives make up a large share of network activity across all blockchains right now. And so what makes me think that Arc is actually more competing with the public generic chains like Salon and Ethereum is that I think it could capture some cryptonatives using these rails for payments or whatever else it is. If you just swap a tab on MetaMask and you're on ARC blockchain instead of

Ethereum and it's lower fees and whatever else maybe DeFi yields are higher there and there's a launch there and there's more liquidity like I don't think people were biased towards like keeping I mean okay maybe Ethereum security like that could be an advantage of keeping it there but if I could see myself using ARC I kind of could see others with tempo it's different because I think a lot of their initial traction will come from volume from merchants especally payments and I think this will be pushed top down and then I guess the question there is like how fast will that grow and also how big will that be long term. I think with USDC it has staying power same as tether in terms of it seems like these are the two winners

right now in stable coins and how much bigger would this get probably like quite a bit bigger um and the difference if anything to be honest I wouldn't compare ARC to tempo I would compare it to plasma uh and the other one stable whatever it's called and another thing that we discussed before which is also a good point but Um I think plasma and stable they were aligned with tether the asset issuer but they weren't necessarily working with the parent company itself directly. Okay there was some investment there but the CEO was kind of you know putting eggs in a few baskets and then they kind of had two different chains and no one was really sure who was involved with what

and there was confusion. With Arc it's very aligned. It seems like I mean Miles was saying before to me that you know Circle has team members working on Arc directly to like try and build the chain and they're very in tandem and so it's very professional. It's very clear that Circle wants Arc and Arc wants Circle and they want to work together and make this thing big together. So I would maybe compare it to Plasma and and Stable and then I think both plasma and stable have done decently well. I don't think they failed. I think it's still early but also maybe not as big as what some people expected. Um, so I would put them more in that bucket.

I would maybe claim that I could see them doing a bit better in the next year or two. I don't know long term, but um, I think to be honest, I could see both ARC and Tempo doing very well in very different markets. So that's how I could see it, but I could be wrong. >> I haven't thought deeply enough yet about the network effects here and how many chains you really need for this. I mean, I think what's starting to play out in public, at least public blockchains that are a little bit more mature is you had just kind of this idea of genurpose chains was kind of being disproven in real time. Like Salana is kind of the trader consumer chain.

Ethereum's kind of the onchain borrow lend finance chain. Bitcoin is the original money app chain. like it you'd be kind of hard hardressed to find any chain that has critical I don't think there is a single gen purpose chain that has critical mass around two use cases and so it's definitely possible that circle like circle and uh or arc and tempo differentiate the the issue with that would be from arc's perspective feel like where they have an advantage which is just payments son's commercial payments just retail people sending money around the world. That just doesn't feel like a money winner. Um it's going to be very hard to justify

that valuation because there really aren't any fees that get created doing that. Um so I think that's a challenge. >> Yeah. I don't know. I would also um I'd be I'm personally on the lookout for uh acquisitions that they might make in the next couple months. Um you saw like Stripe was extremely uh aggressive and intentional in getting Bridge then Privy um and you know I think they bought like a a billing partner that's not necessarily stable coin related but easily you know um shares shares infrastructure there. So, like that's what um I think we'll have a good sense of like whether or not they're going the tempo direction or like more like um you know pure Ethereum like incredibly

neutral, not going to be too opinionated um over the next over the next few months. I would also be curious to see if they were like got more aggressive on let's call it like stablecoin forex. Um I could see like an acquisition happening there or just them like building out a bunch of firstparty infrastructure and enshrining it into the chain. So that like basically you can be using any denomination of stable coin. You can get all those like clean offramps. Um and you can also monetize that right you could say something like okay free free no no no no no fees for like transferring into ARC but like once it's in you know um you can you know some charge for to get it out. So yeah I just think it will be like increasingly

competitive with let's say like Coinbase and Stripe who have all like started at little different parts of the stack. um but are now trying to commoditize the the parts that you know they is not their bread and butter. Um >> here's what I would say on just cuz I know we got to start wrapping soon. I think the the challenge for ARC and Circle generally are going to be this division of token versus uh circle equity. Um, I I wonder if that's opening up a can of worms that might be more do more harm than it does good.

>> It could. Um, it could because like we've been having this debate in our little bubble for a very long time or like then we've been calling out that this is like not a good practice generally. >> Yeah. >> And now we've got for the first time like just lots of public, you know, equity shareholders that are going to be like, "Wait, what the fuck?" like Coinbase launched a chain and I get that money, right? Like as a shareholder and now you guys are saying that I you're doing the same thing but you're launching a separate instrument. So where when's the B1 coming for for ARC?

H soon soon TM uh I mean all of that's I mean this is also why clarity is such a good um not because of the B1 but just in general I mean these are these are questions that the company should should necessarily have to opine on um you know the stuff should just be disclosed in a clear way for circle they're a public company I'm sure they will probably do that but this stuff shouldn't be it's in everyone's incentive to not have these be open questions it move from assumed to explicit across the domains. I will say on the the the on the bull case for maybe less so Arc necessarily than Circle. I think people in crypto are

very critical of Circle and in some some for some in some cases I understand why, but I think they're a little bit too harsh on one of the most successful companies that crypto has created. And I think that people are people underell the leverage that Circle has. um with USDC. I I think that people have generally assumed, well, you know, Circle has to pay people because otherwise everyone's just going to spin up their own stable coin. And I don't actually think that that's true. I think that the stable coin infrastructure provision is generally I'm bearish on the idea that there are going to be a gajillion stable coins and you're going to need a lot of interop infrastructure.

This is the same thing with again, sorry to be throwing Cosmos under the bus again here, but that was exactly what the Cosmos thesis was. you're going to have all this heterogeneity, but we're going to have amazing tech to make it seamless. And it's like, no, you're going to have a couple big ecosystems and that's way easier. It's just simpler. And I I think that I kind of think that's what's most likely going to happen with USDC and they'll probably need to share a lot of their yield, but I think you still have a monster business at the end of the day with them. And I think you don't they don't need to do a ton. Not that they don't need to do a ton, they still need to execute, but the the network effects, you're already seeing it. So, I think people sleep on circle and are a little

unfair. >> Maybe one extra bullcase, which I think people might be underestimating right now about Arc versus some of their competitors, EG Canton. It seems to be public and also moving towards being permissionless. So, it could get interesting because we don't even know if Tempo is going to be permissionless. Of course, that is their plan, but like whoever moves first to be permissionless and public, I think this is like a big move. And if they're aligned with a publicly traded company, like you were saying earlier, Mike, I think this is like this is the crypto dream of 10 years ago that you have a publicly traded company with a public permissionless blockchain. Like that would be insane. I think if if that actually works out and then I think

there why can't DeFi run on those incredibly neutral rails and takes me back to my argument of why I think ARC actually could compete with Ethereum long term because if they have USDC settling into RWA and incredibly neutral permissionless public blockchain it seems to me that's like a very similar path of as Ethereum but another difference is that they have like very fast finality and there's you know no reversing transactions etc and maybe no MV etc. So I can definitely see why the chain makes sense. There's a question now of I guess timing and execution I think here is going to be really critical. We have seen by the way which we haven't mentioned in this podcast yet. I forg uh Mike's mentioned Cosmos a few times

in this podcast. I wanted to bring this one up. >> Um I forgot you >> haven't heard that name in a while. you learn like an a Cosmos uh ecosystem person built Noble a while ago and at Chorus one when I was there like I was super bullish. I was like he's telling me we can run nodes and we can earn USDC and there's like actual value here and this is like something uh that is benefiting the entire ecosystem. So this is like a much more dressed up version of that with Circle itself working with the chain and and other validators getting on board and probably pushing more activity there than they did in the past. So, um, yeah, I think it's it's going to be really interesting. And I I don't know why I I draw this analogy, and I don't know if we should be drawing

analogies, but think about one of the biggest blockchains of all time. It it was Terra. And what did Terara have? Well, they had like a stable coin, and then they had a settlement layer. And that hasn't really been done since Terara went to dust. And so, I think the bull case is that the new Terra, it's a settlement layer with a really great stable coin with liquidity and potentially foreign exchange as well, like Terara also tried. And that can be a massive outcome, I think, if they get it right. >> Oh, man. That'd be fun if you uh you could burn burn ARC for USDC. And yeah, like that it's like not a crazy idea for that.

>> I did read this is not someone has to fact check me. So don't don't take this uh for as facts but I did read that they are doing something with like burning tokens or something ARC tokens with USDC and like there is >> no no they are it's like the the fees are paid in USDC um some portion of the USDC goes to the validators and some is used to purchase ARC and um actually I think I think it's all swapped to ARC and then like some of it's burned and some of it the ARC is sent to validators likely to be >> it's like EIP59 kind of related from what I saw.

>> Yeah. The other one is uh one of the other OGs is Codeex um who's been building um and and really focused on like the Forex uh component of this for a while. So, you know, don't sleep on don't sleep on that team in particular. I think they're a great team, but I could also see like, you know, if there is going to be consolidation, like we probably won't need 17 stable coin chains. Um >> I don't think I think I think it was Jim Barkstdale who said all of business is bundling and unbundling and crypto has gone through these phases and a couple years ago we were all very excited about the modular future and we either

overbuilt well couple possibilities but we were either too early and overbuilt or we're wrong and we don't need as many different businesses. I'd be in the I'd be more in the camp that we're early and overbuilt, but I think we're in a phase right now of consolidation and uh fewer networks, companies winning more market share. Like we're at a phase of consolidation. I do think you'll unbundle that because there are these weird incentives. Um I I continue to think that as an early supporter of the value of distribution and basically as someone who's built a business around leveraging distribution, I it's super important. it is not the end- all beall and one company can't do everything and

I think that we're forgetting that now and just assuming because a company has distribution in one area they can win in every every other sector and I I don't agree with that thinking long term so I don't know I think the circle experiment is interesting at the very least it's going to provide some clarity on how L1 should be valued and when tokens start to intersect with when the issuer of a token is also the issuer of public stock we've never seen that for and I think it's going to tell us some pretty interesting stuff. But okay guys, I think this is all the time we have. This was a really fun one. Thanks for bearing with me at the beginning of the pod.

Call your senator. >> Call them. >> Um >> and uh yeah, we'll see you guys. See you next week. Great game. Cheers guys.