DeFi’s Value Proposition | Robert Leshner & Hasu | S9 E2

Transcript

All of this stuff is totally ripe for migration because blockchains fundamentally are better place for assets to live than the legacy file formats that are not composable at all, that are not programmable at all, that are opaque and that are inefficient. And so everything's coming on chain. Quick shout out to Permissionless 4 coming this summer to New York June 24th through June 26th. We'll have speakers from all across the industry including Hayden Adams, Kyle Samani, Guy Young, and more. Get your tickets today by following the link in today's show notes and make sure to use code ble10 to save 10% on your purchase. See you there. 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. All right, everyone. Welcome back to another episode of Bell Curve. This is the first interview episode of the DeFi season. So, I've got my trusty co-host Monae with me. Monae, welcome, sir. Um, and we've also got Robert. Uh, so Robert, welcome to the pod. Um, especially GMG and Hu, who is a uh Belrov alum, definitely friend of the pod at this point. Hu, uh, good to have you on, my friend. Good to be back.

Awesome, guys. Um, so yeah, we want to use this in uh this episode as a way to introduce and get your guys' thoughts on some of the themes that Monae and I introduced at the kickoff episode of this season. Um and so for those of you who didn't necessarily catch that episode, you can just reintroduce a couple of them here and maybe we can start with this idea of um fragmentation and more modular design. But basically this idea of some of these um newer designs of protocols like everything from Uni V4 with its um you know hooks uh and AMM design to lido v3 uh which is based on a vault architecture to morpho which is isolated uh borrow. Uh it seems like it's a common design choice across a bunch of different protocols. O want to get your guys' thought on that. Also

want to get your guys' thoughts on the idea of vertical integration that's happening around DeFi at large. The introduction of RWAs and how TRDFI and DeFi are beginning to intersect. And ultimately want to end this podcast with how are both of you thinking about the value proposition of D5 today and whether or not that's changed from when you guys were aping into pool twos uh back in 2021. Or maybe you weren't doing that. Who says we were aping into pool twos? I listen to you on the chopping block, Robert. I know that you're a secret DJ and uh I have no doubt that you were in those pools. I I was more of like a pool one guy, you know, never pool three, you know, maybe maybe a dash of pool two. The type of guy that you'd bring home to your parents, right? Just

a pool one guy, right? He's on the edge, but he's not super dangerous. Wait, which which pool was which? Like which was the pool where you Okay. Okay. Here's how it worked. Just to give you guys like a way throwback, you know, analysis of this. So pool one was when you took a crypto token, you know, maybe it was like ether or link or uni or whatever and you staked it or supplied it or you participated in the new protocol with it. Pool two is when you had an LP position where it was like the new protocols token and ether, right?

And pool three was when you just took the new protocols token and you were staking it, right? And so they were degrees of risk and speculation. Obviously some yield farms back in the day that ran this pool one, pool two, pool three model, you know, the Andre systems and some other ones beyond it. You know, if the protocol was successful, pool three was the best. Like for sure, you know, if the protocol was unsuccessful, pool three was something that would wreck, you know, all of the users. And, you know, it was a gradient of risk. So, when I say I'm a pool one guy, it means I am probably the most conservative one.

Uh, pool two would be a great name for a uh DeFi startup for anyone who's out there listening. That's kind of an interesting throwback. It's a cool name. Um, podcast. Oh, podcast. Do with that. Do with that what you will. Yeah. Pretty cool. Yeah. Um, okay guys, I would love to start with this idea of sort of this new design philosophy and architecture for many different protocols that we're seeing today. So even if you let's use the example of unis swap right and then we can uh talk about some other like borrow lend categories etc. But if you look at unis swap going from v1 to v4, there was first just this very simple kind of immutable protocol which didn't have a lot of flexibility around you lping. Um and then that kind of evolved into v2 where you had more flexibility

around different types of tokens you could pair together. V3 where you could provide concentrated liquidity and finally v4 which is this kind of um almost fragmented architecture with different hooks right where they're trying to incentivize a bunch of different AMM designers to come in. And I think if you look at a bunch of different protocols across DeFi in general, a lot of them look like that. Morpho today like the original A is kind of like a large managed product where the team which is creating uh the parameters and managing the risk around that product is the A DAO, right? It's the A team. Um and in Morpho that's much more fragmented today. You have different uh basically uh financial products. Um and same thing with Lido Hasso. did an episode on Lido V3 which is kind of bring your own validators and you have these this vault architecture

which is very similar. Can you guys talk to me what like what is the common driver of this design philosophy across different DeFi protocols and is this is this here to stay? Um does it make sense for more some protocols more than others? How do you guys contextualize this within the the history of DeFi? Au let's hear from you first. Okay, I can go I can go first. Yeah, I actually thought about this a little bit before the episode because I mean it really is is kind of uh you know you're seeing it a lot more often right now and when you look at the protocols to do it generally also seems like the right play for them right you can always say why it makes sense for Enosop to do this right now

why it makes sense for Moro to do this right now why it makes sense for Leido to do this right now I think it's a little harder to kind of back out some kind of general theoretical principles um for when you should do it. I think one uh one thing that definitely comes to mind is when it's about innovation and variety in the market. So for example, you know, take the Apple App Store, right? So I mean Apple can design a great phone, but it can't necessarily design all of the apps that people may want to build on top of this phone, right? Um or you know take Steam for example, right? You can have a great like game store but you know you can't

you know you you can't make like a million indie games per year like that's that's not possible right so when your product is variety then you want to tap into a kind of more like modularized or platform model where you tap into the creativity of a market to to provide this instead and you can see this with vaults because you know the whole point of vaults and lido is you know there's actually many staking configurations that people want. There's many in UNISO v4 there's many potential hooks that people may want to build and that that we can see as useful. And then in Moro the same way, right? There's many different um repo agreements that people may want to build and um you know

different risk levels and managed by different curators and and all of that, right? So it's it's creating it's creating this huge explosion in variety that like an integrated provider could simply not do. And I I pause here. There's like many more reasons, I think, but this one is is already kind of that's the biggest for me, I would argue. I I agree with that. And Robert, I want to get your opinion here and I want to interject uh something that I've been thinking and Robert maybe get your thoughts on this as well, but I wonder if the catalyst or the common denominator here across all of these different protocols is the introduction of the institutional customer. So, Hosu, to your point, it makes more sense to offer a plat platform model, right? But I think the thing that's changed here is we might have maxed out our uh it's kind

of saturated the market for a more retail facing product. And when I look at a lot of the V1s of many of these DeFi protocols that are around today, they were built for a retail audience. And my sense is speaking with a lot of these protocol teams is that they're now focused on the institutional customer because they finally feel ready to to come in today. And so when I look at Hosu, what you wrote with Goose V2, it seems like a lot of the design architecture is being influenced by that. And Robert, you play in that space very deeply. So, you know, I'm curious to get your view on this kind of um you know, modular design. And I'm wondering from your perspective, how much of this is the introduction of the institutional customer here? Yeah. Well, I'll I'll I'll start by actually disagreeing with

the hypothesis. Um and you know, I'll sort of build on what Hu said. you know when when I look at this you know what I see is a spectrum from the original developers of a protocol towards end developers and an ecosystem of developers and where the focus is on making decisions about how the protocol should work. So, you know, just use unis swap as an example. You know, unis swap v1 was unbelievably simple. It was, you know, we'll call it barely composable.

It was not really used in very many other outside systems, but it did its job, which was prove that you could have a functional AMM, right? UniS swap v2 was probably the most opinionated by the developers on what you were supposed to do with it. You were supposed to do something extremely simple with it. You're supposed to take two assets, not even think about, you know, the relationship between them and just drop both assets into a pool and create an AMM. It was, you know, very, we'll call it original developer opinionated. Unis swap v3 was a little bit less opinionated on what you're supposed to do with it. It was basically taking the mindset of like, well, actually, we don't really know what leads to the best AMFM. You know, there should be

experimentation on fees. there should be experimentation on what curves look like. we're going to step back and say like we're not really sure about what this is supposed to be and unis swap v4 goes even further and it's like the least opinionated on what you're supposed to do with the thing meaning that external developers have the most flexibility on what they do with the thing with the introduction of hooks and unis swap itself has really gone down this gradual path to get to this point where honestly unis swap v4 is like it's a toolkit for developers to build amm systems Right. It's very very non-opinated on like what that's supposed to look like and how it's supposed to work. And that's really interesting and exciting and to you know

Michael your point yes that flexibility allows you to make more institutional focused products or experiences etc. But it's generally just you know more flexible and I think there's a little bit of you know experimentation happening with institution focused products. I would say as of right now it's still pretty early and it's still pretty light and I don't think unis swap v4 is that institutional. I don't think anything in morpho is that institutional and I don't think anything in you know lo is that institutional maybe a little bit more but you know eventually it will be a lot more institutional because of that flexibility to express whatever opinions a broader ecosystem have.

Yeah there's two things that I would pick up on. So I I I agree also entirely with you Robert and just to kind of speak about Lido like I don't think I mean the the like shift to a more institutional audience and light v3 are coinciding but I don't think that the shift to institutional necessarily motivates light v3. It really isn't more the variety point that that we that we talked about because you know if it was just about serving institutions and they were a relatively homogeneous group then you would still be better off building a very integrated product because then you know you actually can control the whole end to-end experience. Like whenever you're very opinionated like you know that what you're building is you know

there's only one way to do it and you're very sure of that then you should probably do the integrated thing right. So that's that's why I would actually kind of disentangle the two. And then I think that it is for another reason also that we're right now seeing this shift to modularity and I think it has a lot to do with the growing maturity of DeFi. And so I mean we saw how unused as extremely simple. We can look at blockchains themselves like every blockchain started as a monolith because you know we didn't even the in technically there were different layers but like the maturity of these interfaces was so weak that you you basically had to control the whole stack to even find a like be able to build a

system that like somehow works where the wheels don't come off right and now it's crazy how far we've come I mean we have several blockchains that like work together right like one is the execution layer one's the DA layer one's the settlement layer and then somebody else runs the sequencer and like the the interfaces between those are so mature and like each protocol is so mature that they can rely on each other right so like much more outsourcing is even able to happen because of that and so that's why I think over time you you should expect in like a maturing market you should expect to start with integration then move to modularization but then when the market changes maybe in dramatic ways because of customer preferences or because of technology,

then you may actually see a kind of re like a push back to to vertical integration as like people discover new bottlenecks. Um, so I mean what would be an example of this maybe? So if it actually turns out that institutional customers all kind of want the same thing and there's a specific way of giving them that then we could actually see a move away from modularization back to vertical integration uh just in order to serve these institutional customers and I I mean Robert do you know if anybody's pursuing that strategy right now? I mean I would say you know from a philosophical perspective there's a million people pursuing every possible

strategy and every possible approach right it's just a question of whether or not you know anyone is making any traction or headway right yeah yeah I mean that's true which is just I I I talk to startups quite a lot right and whenever I see a new startup that's coming up and they're saying we're building something modular this is for me another you know I'm very bearish almost always on that because like if you're do and you don't have any pre-existing distribution and network effect, it's a terrible idea to, you know, build anything that you want somebody else to rely on as critical infrastructure. It's never going to work unless it's like 10x better, right? Like if it's just like a real step function up, then like maybe, right? But I agree with you like you

have to have completely onpoint, you know, business development and developer relations, like all of this stuff to get anyone to care at all about what you're doing is just hard. And so you know I think the natural path is you start off with something you know quote verticalized or non-modular and then as you build up you know a broader familiarity with your platform protocol team whatever start to expand into modularity but you know a cold launch of something modular is unbelievably difficult. Today's episode is brought to you by Ledger the global leader in digital asset security celebrating 10 years of innovation. Ledger is trusted by 7 million users, secures 20% of the world's digital assets, and remains the most secure hardware wallet for your

crypto and login. Follow the link in this episode's show notes to grab your Ledger today. Yeah, I think that's like an interesting um maybe an interesting segue into something else that we've been focusing on a bit, which is uh like vertical integration in protocols. So on the one hand you have a lot of protocols that are kind of building uh a more primitive uh protocol in a way like you know they're building it as a developer platform that's very modular but then there's also a trend towards trying to capture kind of more value on different parts of the stack. Uh you see that with uh A launching a stable coin. You see it with um uh Makerdown now Sky um launching uh you know lending markets

and kind of going into new business models. So um how do you how do you like envision this trend uh going like uh either kind of more modularity in Money Legos's vision or um or kind of a more like a continued shift towards vertical integration single protocols trying to like own more and more of the the stack. Well, I definitely think that any team, company, protocol, whatever you want to call it, any organization as it grows, it generally seeks to do more, right? Whether we're talking about like any form of, you know, human organization, right? And the ones that are successful clearly going

to choose to either go and verticalize and do more of a similar thing or expand horizontally. But like everyone wants to expand, right? Almost no organization is content with success. you want more success either with a horizontal expansion of new and different products or a vertical one of the inputs and the outputs you know above and below your existing products and so you know I think it's absolutely natural for you know a to start trying to do more and maker to start doing more and like all of these things I think that's inevitable and I think you know a lot of pro projects will fight very hard to get that sort of like first critical mass in order to be able to later expand but I think any project you're describing that has initial success is going to want to expand like that's so natural.

Yeah. So I mean I think if you a and UNISOP would be two good examples to talk about maybe because the for me the two reasons to vertically integrate that that we're seeing is I mean either you can fix an important bottleneck or you you are a new team coming into the market right for like and it's the same thing because if you're a new team you must be fixing something that you know didn't work before otherwise you have no chance anyway. And so in a what we're seeing I mean just as an example so you know as flashbots we have been working with them and chain link to actually for a to take control of the way that chain link oracle updates are published on chain. So now instead of going in the public meu they go into a searcher auction because these oracle updates

create liquidation opportunities now the the value of these opportunities instead of being basically bit forward to the validator it's actually bit forward to a itself right and I think that is a that is a great example of someone looking at like the entire you know value chain of a part of their stack and saying you know we could you know we could make these liquidations actually much better this is a big you know uh loss of revenue here and we're like have to be too conservative in how we liquidate and you know and if we could control this then we could offer a much better service and so let's think about how we can do that so this is like a really good example and then with uni with unisop I think

uni chain is is very is like I think a fantastic case study in a sense it's it's both opening up unisop more you know as a platform because anybody can build on it, but then at the same time it's moving from an app to a chain where they can control much more of the sequencing experience, the the block building side of things. And like it turns out that block building is just this extremely important aspect of trading. It's you know if you talk about a centralized exchange it's like you know where the whole you know matching engine and uh and the order book and everything is like kind of sitting and um you know it determines like 80% of the user experience and so turns out yes

you should actually be innovating hyperlquid also innovated a lot in the sequencer you know and it turns out that if you basically give you know in the way that like transactions are processed you give market makers actually the priority over takers you reduce a lot of toxic arbitrage me and you can really lower the cost of liquidity and you know reduce spreads for your users and so you know another example where somebody looked at the bottlenecks and they were very like highly intelligent and said if we could control this we could really change the the way that things work and so I I love seeing that okay Hu does this make you change how you think about in the past when we've talked about and I know you don't speak for all of Lido here right but um we've

talked about this within the context of something like liquid staking and restaking and it's so good that you're asking this. Yeah. Yeah. So there's a there's a little bit of an overlap there, right? And we talked about this within the context of the staking router, maybe you might just have a module which is a restaking module. So this was always something where there was a little bit of co-opetition maybe is the right word here. And I'm curious if now that you see others expanding into this more vertically integrated strategy, have you changed how you're thinking about the border in between restaking and liquid staking for Lido? Oh, I thought we were actually going to ask a different question, which is if I kind of Oh, ask the question that you thought I was going to ask. Jesus, you gave me all these props. I regret the strategy that

we answer the cool thing. The cool thing. Yeah. Yeah, I do regret the strategy that we took. I think we made a mistake. Yeah. in the sense of there was a strategic decision not to create a secondary staking token you know and and so I think you know you you could maybe think about it as like three options like you know do nothing uh and do restaking inside the main Lido pool where like the rewards are kind of just socialized but so are the risks and then it's you know have a separate thing where you have a se like whole separate version of Lido you make a new token but it's like all reststicking right and what we're doing with V3 now allows anybody to do that thing, but maybe we should have done it earlier because it turned out the demand was much bigger

because, you know, the points were much more valuable than we thought and it turned out that you know that the fact that there are no fees generated from it didn't actually matter and uh you know so I I would say that I definitely regret like not actually launching this other token um in a in a separate thing and I think it was partially because I think we like I at least personally overrated the network effect that that you would have from, you know, just focusing on this one token and like being super strict about not diluting your network effect. And so, you know, it turns out that, you know, there's an the desire for people to use a different thing was bigger than the network effect from having this like one large thing.

And so, like they they actually, you know, preferred variety like more than the network effect of the existing thing. And so yeah, I think you know this was absolutely a mistake. So maybe we can uh we can I like the way that I think about vertical integration here. I think there might be people used to talk about this in Cosmos all the time especially around me. Um the question was is MEV a revenue source? Is it about internalizing the ME as a as a source of revenue or is it about improving the UX? And I think that there are those two things are tightly related but they're a little bit different. And you know when I look at the the reason why like a protocol like jetto right jet

it seems like their strategy is to say I have a rel they started with me right and they were a sidecar for salana validators said well what else could I sell to these validators right like if I'm looking at that as the customer and I can bolt on additional products liquid staking makes a lot of sense. Oh, and by the way, those yields that I'm generating from better MEV, that'll that'll increase the value of my uh you know, my the competitive positioning of my liquid staking product. Oh, and then by the way, a lot of this infrastructure is quite centralizing. So maybe I'll develop a reststaking product, which by the way, my validators also want. So it's almost like a sliding doors moment in terms of different strategies. But I think the inside of Jetto, I'm speak Lucas, you can shout at me here, but it

seems like they were focused on the customer of the validator, right? in building additional services. But then and Robert, this is where I'd like to poke at you here a little bit. Um there also when I look at the story of kind of Sky um Sky Maker and a it seems a little bit different to me. Um it's almost like the analogy was actually back in 2018 or 2019 people were all excited about Prime Brokerage and you had a lot of people that started from different spots. like you had the lending part of prime brokerage and you had cap intro or whatever and then everyone was like oh yeah it makes sense for these services to get bundled together um and then you had to go which got acquired by coinbase and most of those sit within exchanges now but that's what it seems like

looking at kind of the skies and the a of the world is you started with borrow lend you started with the decentralized stable coin and you're building something that looks a little bit like banking light to me not a bank as the folks at sky would say um but it seems like there are these products which belong together. Um and so yeah and and actually a lot of the times and I'm very cognizant of this when we have a research product right like research is often uh offered as a loss leader right for a lot of so I'm also wondering if some of the um some of these protocols figured out that there's not really a good way to extract meaningful margin or long-lasting revenue because they

started with the commoditized part of the business and now they're expanding into the parts of the business that do have more margin and I'm curious Robert as a one of the you know, founder of compound like whether or not that resonates with you. I mean, it sort of resonates. It resonates more for a than it does for maker/ sky. And here's why. So, you know, borrow lend itself is an extremely low margin. Yeah. Process, right? So, like if you think about like all the interest that's generated, you know, almost all of it is paid to the user supplying an asset and very little is held by the protocol, right? it's very low margin. Whereas, you know, being able to manufacture a decentralized stable coin

like D or like go or like whatever, theoretically all of the interest that's paid by borrowers is margin. It can theoretically be 100% margin. And you know, there's obviously reasons that you know, there's other costs and other expenses and other pieces that go into it and you know, there's a savings rate and that you know, blah blah blah blah blah, but it's much closer to 100% margin. And so if you're an a you're sitting here saying, "Oh, we have, you know, 10 billion dollars of assets being borrowed and, you know, the protocol and our governors are keeping very little of that." Um, it's not a phenomenal business. And I think you get jealous of something like D. And if you're die, I think you say, "Well, we're already

doing this, you know, extremely high margin thing. Why don't we do everything else?" But I don't think that everything else makes as much sense. Frankly, I think it's way more intuitive for an Ajave to expand into a stable coin than it is for a stable coin to expand into lending. H yeah I think it's a very interesting debate because I think that this you know a lot of crypto people have been thinking along the lines of you know really it's free money to launch a stable coin and you have seen a lot of stable coins launched over the last couple years because people think well you know here's uh basically you know like if we can get people like to hold a stable coin for free we can reinvest all

this money and keep the entire like net interest margin right and it's true if you can make a stable coin that people hold for free, but you know, it's extremely hard to do that in practice. And I think we've seen like many stable coins try to launch and then like basically circle the drain for like a couple months or years and then eventually be shut down. Um, you know, some also realize they have to take a lot of risk and they blew up, etc. But ultimately I I think that you know if you look maybe more at traditional banks like the net interest margins are not that high. If you look in Sky I don't know how high it is but it's you know it's it's it's probably below 20%. So

you know it's not anywhere near 100. And you know the reason is just that there's a lot of competition these days to pay yield forward to holders right. So whenever somebody holds a stable coin, they're effectively lending you money and then you're trying to reinvest that money at a longer duration for a higher yield without trying to cause a bank run. And so, you know, it turns out that's actually not that easy. Like the market is very competitive. Um, you know, it's there's a lot of things that can go wrong. You need to like constantly invest. Even you look look at circle which is just trying to go public and like they had to disclose how much they are paying to to Coinbase you know just

for the distribution and you can see that you know they had to pay also most of the money forward right like it wasn't anywhere this is the this is the second largest stable coin right so in theory you should think they should have a lot of market power but it turns out even USDC doesn't have all that much market power right and the thing is with tether nobody really knows right we think that you We think they may have a really high margin, but who knows? I think they have I think they have a really high margin. Has Yeah. Yeah. You know, it's it's probably true. But they could be paying they could be paying exchanges for the distribution and they could have whatever revenue sharing deals with like large uh you know offshare like uh you know offshore entities you know like if

you're if you're a whale uh you know from from China or whatever else and you you know you hold like $100 million in tether like do you think you could negotiate a ref share with them? I have no idea but like I wouldn't rule it out entirely. Yeah, I think it's it's interesting specifically for stable coins that like um a lot of a lot of these ones that seem to have the best economics like Tether or to a much lesser extent uh Sky, they kind of like came up in a zero interest rate environment. So, um there was maybe maybe people just got used to earning nothing on their stables and then they were able to just kind of grandfather in all this demand. That's interesting to think about. But yeah, I I would kind of

concur with Hu that um it's uh it's a bit less lucrative of a business model compared to lending than it might appear on the surface. In many ways, Ledger is the global leader in digital asset security, trusted by 7 million users and securing 20% of the world's digital assets. In recent years, Ledger has built a comprehensive ecosystem of products and services, making digital ownership more secure and accessible for everyone. Ledger's newest devices, Ledger Stacks and Ledger Flex, introduced the world's first secure touchcreens, making it easier and safer to manage your assets. Alongside Ledger Stacks and Ledger Flex, they have also launched the Ledger Security Key app, offering a safer alternative to traditional password management. Follow

the link in today's show notes to get started with Ledger. Today, I wanted to uh to pivot uh just for one one other thing about vertical integration. Um we see in DeFi like um a lot of cases where you know A launches a stablecoin, Maker launches a a lending market. You see it also in sort of uh the more trady adjacent part of the space where I think just recently circle um they expanded into like kind of like a payment processing business which is typically been the uh kind of the purview of people who are using USDC circles their clients uh essentially. um do you think that there's any like challenges there when you decide to move a layer up or

down the stack um in being less neutral like um is is what you what you gain from you know participating having like a bigger control over your inputs and outputs and and kind of like a more more vertical integration. Um, could you maybe potentially lose more from uh like a lack of neutrality or competing with some of your your clients who may no longer feel comfortable using you as neutral infrastructure? Are you asking about stable coins in particular or just in in general? Just in general uh you know when you when you want to vertically integrate and you start competing at a you know a different layer of the stack uh against

people who are maybe traditionally your users like how could you square that circle? I mean, I guess just to look at it from, you know, a layman's perspective, I don't think it's caused too much issue for most of the folks that have done this, right? I don't think it's really created an outcry, right? Like whether it's, you know, Maker adding lending markets or a adding a stable coin or MetaMask adding swaps features or Coinbase adding a blockchain, right? anytime any of these successful, you know, systems has been vertically integrating, like I I I haven't really seen too much opposition to it, it's more like, oh, well, you know, good luck, you know, and let's see how it turns out. And sometimes it turns

out awesome, right? And sometimes it's like, no, that's a stupid feature. Like, who cares? Like, why did you know you add that? Like, what a what a distraction. You should have been focused on like, you know, the core product. But I I I don't think that like there's too much, you know, consternation from the user base feeling, you know, threatened or from some other, you know, adjacency feeling threatened. I think for the most part, this has across the board gone pretty smoothly when projects have tried to expand. Well, I guess maybe I'll just follow up for for one thing that might impact superstate a little bit. I think if I recall circle also bought uh like one of the um varian stable coin issue with hash. Yes. Um circle is also a very

important um part of how superstate products like the life cycle of coming into or out of superstate products. A lot of people do um primary market transactions with USDC. So um like does that cause you you all to lose any sleep at night or or any concerns? Not really. Uh, you know, frankly, since Circle acquired HashNote, the TVL has been a straight diagonal line downwards towards zero. Um, so, you know, if it was the opposite and it was like, man, that product's growing like gang busters ever since bought it, I'd have a different perspective. The reality is, you know, I I I'm not concerned by it, right? Like

yes, there's always the risk that Circle turns on everybody and decides, hey, everybody who has a competitive product to Hashnote SL, they've rebranded it, you know, Circle of something, right? I don't even know what it's called anymore, but they could decide, hey, we're not going to process USDC payments in and out for all of the hash no competitors. That's possible. They could give Black Rockck a hard time and Superstate a hard time and all of us a hard time, but I think they have more to lose than they have to gain from that. I think they're trying to like revenue max, you know, in preparation for an IPO or a acquisition by Ripple, you know, is the rumor joke. Um, you know, so I saw a headline that they increased their bid to 20. I think that was true. No, no, I

think that was a troll. Is that a troll? Yeah. Yeah. I think I think the original offer of, you know, $4 billion or whatever was realistic. I think someone put out there as a troll like Ripple increases to 20 probably just to generate headlines and pump XRP or something you know who knows um but I don't I don't perceive it as a risk even though they are going from directly cooperative to you know somewhat competitive simply because I know that as a founder and as somebody building a product I'm able to build a better product and I'm able to do it faster than a company like circle can I have maybe this is a good segue into I would love to get both of your

perspectives here on I think one of the things that's worked incredibly well is stable coins um over the course of the last couple of years and yeah if you were to look at charts outside of Bitcoin probably the stable coin market cap is the best one that you could find in crypto um and you know I was actually just looking at this week a report that just came out of the Treasury um it's a 20page report it who was incredibly thorough in terms of how they're dividing up the space between what they're calling payment stable coins where you don't give interest back to users versus more onchain money market funds. They they had a lot of really interesting considerations in there.

They're putting it within the context of the US's national security and sort of debt issuance regime. They're um considering the implications that it's going to have around uh bank funding sources and maybe banks are going to have to pay more uh to users or to depositors. Um, and they actually predicted or they thought that there might be as much as two trillion uh worth of these stable coin or onchain money market funds on chain by 2028, which is pretty breathtaking. Uh, that's about a 10x from here. And that's coming from the Treasury, which is uh super interesting. And so, do you know if they if they project this as like mostly new interest or cannibalizing the Euro dollar market as is? I don't know. I'm not sure. Um, but I think that I mean we

can get into this a little bit of a rabbit hole, but Tether looks very Euro dollar market. Uh, uh, that looks like they're that's the market that they're attacking, right? Um, but either way, uh, it's the the point that I'm trying to make is this going to be there going to be a lot of downstream implications for something like this. Um, and you know, I'm curious, you know, when we were originally conceiving of crypto, you know, kind of the money use case was at the core of a lot of these assets. So, Bitcoin and then E ETH uh as kind of the the main asset of uh the smart contract platforms um you know that we're thinking through and now that you have a bunch of centrally issued um RWAS coming on chain you know there are a lot of downstream implications of that and

I'm just curious maybe starting at a really high level how does let's say that that prediction from Treasury is right we've got $2 trillion worth of stables and RWA on chain in three years How different does this world look? Um and how should we be thinking about how you know kind of centrally issued KYC um assets are going to interact with what has historically been sort of wild west and you know non-s sovereign you know uh non-kyced uh financial space. Well, we'll start on this one. I mean, I think I think it's inevitable that we're going to have $2 trillion of we'll call it off-chain assets/wealth that lives as tokens on a

blockchain. I think we've seen this growth with stable coins. I think it's really not controversial to expect that we might have two trillion of stable coins. We're seeing this growth in tokenized money market funds. It's not controversial to think we could have $2 trillion of money market funds on chain, right? These don't seem impossible to me. In fact, they seem inevitable, right? So then, you know, I go to the next part of this question is what does the world look like when that's the case? Well, when that's the case, you know, I think that, you know, DeFi protocols are going to have a lot more resources to play with. I think a lot of the demand for these assets to come on is going to come from DeFi protocols.

We're seeing Maker and Athena and all of these things be the biggest, we'll call it, consumers of these products. I think in the world in which they're plentiful and widely available, we're just going to see more and more DeFi protocols that consume off-chain assets. And when we live in that world, when there's tons of DeFi protocols consuming off-chain assets, what does it look like? Well, those DeFi protocols could be KYC and buying offchain assets when they supply services to users that aren't KYC and don't even know what's happening under the hood. They don't know that the D5 protocol has a company that's incorporated and the company, you know, has a superstate account. All this can remain completely invisible to users.

And the end state is not one in which it's like, you know, this Byzantine maze that everyone has to navigate between, you know, regulated assets and unregulated assets and all of this. I think what we're going to have as a market structure is DeFi protocols will work the way they do today. They're open and they're composable. And some assets under the hood will be permissioned and certain users will be able to use them, hold them directly or certain people will be able to integrate them into a D5 protocol. But what we'll have is just open composible DeFi platforms and slightly more permissions around how the underlying assets can enter and exit those platforms. But I don't think functionality is going to go

down. I think functionality is going to go way up for all of the users. Yeah, I that resonates with me. I think um kind of to take a step back, I mean it shouldn't really come as a surprise to anyone that I think stable coins are seeing the success that they do. I mean um I think only a few like hardcore libertarians, you know, basically ever believe that Bitcoin would, you know, replace like the dollar as the dominant form of money. um or that Eve would is even like less you know less likely even more crazy and so what I would you know I would really encourage folks like there's a article from from stake that

we put out like already a long time ago in squ you know the hierarchy of money and it outlines this this hierarchy of money it's not original research it's a very common concept like um and it just says that for example gold sits at the top of the hierarchy it's like the real kind of base money and then next comes currency and then there's like onshore deposits and then euro dollar deposits and then crypto deposits, right? It's like and it's like a you know it moves like between money on the one end and credit on the other end, right? It's kind of a a kind of a a gradual transition and you know Bitcoin and Eve sit somewhere at like the base money type but like this you know the society doesn't want to transact in base money like there's a flight to base money as

credit contracts if the economy implodes you know if we go into deep uh you know recession or even depression then you have a credit contraction and then people like retreat to the lower layers right and so that's why Bitcoin and ETH and gold they would always have like a place in people's portfolio, but they will never replace credit money. Credit money is just like the, you know, you can't run the world anymore without credit money. It's just so much better, right? So, you will never see this like return back. It's it's never going to happen.

0.0%. Um, except for like short periods of extreme turmoil basically. And so, that's why I think that, you know, stable coin adoption is natural, is good. um and they will like crowd out BTC and they will crowd out Eve at some point and like how that will look like I'm fully kind of in line with you Robert here. Um there's only one thing that I would add which I think due to like the composability of these things um I think I'm not yet sure how strict those like lines of regulation will actually be able to to be implemented in the sense like look at Black Rockck's Biddle token like it's whitelisted right so like I couldn't hold it but then Sky

is on the white list you know and so like but I can hold like SUSD and they invest in Bidd right so it's um it's it's it's not clear to you know how they will basically enforce this entire chain like when there's many hops possible and like so yeah I think we I think we will see like the good thing about um DeFi is because of the modularity um you're seeing that you know risk can basically be siloed and so you know maybe there's a curator who will be you know willing to take more risk and put out like a different token or market that to customers and there's no way to stop that etc. So I think yeah the market will just like in its end state I think

still look more open than than what we've seen even like after all of the regulation has come down. Yeah, I think um it's definitely interesting thinking about the impact that um that stable coins and growing adoption there is going to have on uh base layer tokens. Uh I've also been kind of interested to think through uh what's the impact of stable coins on uh the traditional like sort of fractional reserve banking system. So um just like a background on like full versus fractional reserve which I think stakehouse actually talks about in the stable coin context a lot. Uh full reserve stables are backed entirely by essentially like cash equivalents like

treasury bills. um versus when you know you get payment services from a traditional bank, you have a checking account, they're taking the majority of that money and they're lending it out um for longer durations, maybe for stuff that's not perfectly risk-f free like a treasury bill. Um and this is kind of an interesting time where like it's stables are like the first product uh available broadly to retail users where you can get payment services without being part of the fractional reserve system. Um so I'd be curious to think uh or to ask like do you think that the growth of stable coins is going to have a really big impact on traditional finance and on

banking? And then as a followup, do you think that, you know, DeFi might have a role to play in um sort of taking over some of those credit creation processes that happen in the banking industry? Yeah. So I can start. I mean, so I think it helps to look at just the role that banks play in the economy and like society as we know it today. So banks take you know idle capital from savers and they distribute it to people who want to invest who want to innovate and like build new stuff and it is such an important driver for the economy you know and society at large and so you they play this extremely important like role in in society and so there was a

couple years ago basically uh the proposal to create what's called like a narrow bank, which is just another word for like a full reserve bank, a bank that doesn't actually invest in anything, but but you know these like uh currency like you know T- bills and and that kind of stuff and uh you know the Fed stepped in and they they said you know this this can't happen because the demand for this type of like we can't really allow people to hold um central bank money directly uh you know it's we we are too afraid that it will lead to like credit contraction in the economy.

And so in a sense, this is what you're seeing also with stable coins like stable coins could lead to less money being invested through, you know, for these commercial things and like more money being lent to this, you know, rushing into these like super safe types of investment that are not that productive for the for the economy. And so I think for those reasons you will see a push actually for stable coins to look much more like banks over time because we need the investment and you want regulators will want stable coins actually to hold you know commercial paper and like you know invest in companies, invest in real estates, invest in in all that stuff. And um the stable coins also want it, right? So

because you know they they want access to longer maturity, higher yield um like diversified investments that's not just you know US treasuries and so I think they will look in a couple years they will practically look the same and it will be fine like all the banks will get into still the stable coin business and some new banks will be created. Maybe you will see like a modularization of the different roles. So you have, you know, companies who only basically borrow from the stable, like they borrow from the stable coin and then they distribute the money into the economy and then they tokenize that, right? And I think yeah, this is I think your perfect time to hand it off to you, Robert, because it I mean I feel like that would be a very logical end state for for superstate as well. Well, I I'll

give the devil's advocate, you know, opposite view on this one for a second. Um, and it's based on the fact that banks are the most regulated organizational type on the face of the planet for a whole host of reasons. But banks are hyper regulated. And I don't think that banks which are hyper regulated are going to allow stable coins to perform a replica set of functions and benefits without the same level of hyper regulation. I mean banks are credentially regulated by three different regulators to make sure that they're not doing anything silly. In no

world do I think that, you know, there's the probability that a stable coin is going to be able to do all the same things and take all the same risks without the same level of extreme regulation. Uh I I just don't see that as likely. You know, for better or for worse, banks do have some of the largest lobbying, you know, capabilities of any industry. And even as we start to look at existing draft stablecoin legislation as a template, you know, it really starts to try to make clear that stable coins and banks can't compete, right? And so I don't think the end state is stable coins are pseudo banks just running on a blockchain. I think that they're going

to be fundamentally different in perpetuity. And I think if they do converge, it's because, you know, we have legislation in like 2032 that says, you know, you can have a decentralized bank, you know, with maybe slightly less regulation. I just think that right now, like it's a little bit of, you know, over optimism to be like, we can do anything that, you know, 200-year-old organizations can do with none of the oversight. You know, like I I don't think that's going to be the pragmatic outcome. No, I think that makes sense. I think I'm updating my views. Um I I And that's just the devil's advocate perspective, you know, like I I view something in the middle

personally. That's just I mean I I do think you will see uh just like more, you know, more tokenization of commercial credit and other forms of credit. Um and that coming on the blockchain and stable coins will hold those and so you know and they will they will have like asset liability managers and whatnot, right? Like so I think you are you know whether you want it or not you are approximating like the end state of a bank because like what defines a bank is just how it balance sheet looks in a sense right and can like the balance sheet of a stable coin look exactly like the st the balance sheet of a bank without any changes in regulation or like you know any anybody like being able to stop it. I think you know right

now my answer would be yes but what happens then I'm not sure. I know. But if the answer is yes, if the answer is yes, right, I could see a world in which JP Morgan says we're a stable coin. Yeah. Right. We're like encapsulating the business activities of this bank as a stable coin, right? And go toe-to-toe with Tether, USDC, you know, Sky, everything else. This episode is sponsored by Catria. Catria is the first zero knowledge rollup to enhance the capabilities of Bitcoin block space, enabling Bitcoin applications and unlocking Bitcoin's full potential as a programmable financial platform. With Citria, developers can now tap into Bitcoin's

liquidity to build scalable payment systems, privacy solutions, and more. Citria is currently in its test net phase and is approaching its mainet launch. To learn more about Citria, follow the link in today's show notes. It's kind of fascinating when Brian Moahan, the CEO at Bank of America, discussed potentially launching a stable coin. He called them exact they're just tokenized bank deposits. So yeah, it's really interesting that you guys brought up this idea of narrow banking where I' I've seen people compare I don't think it's exactly what narrow banking is to my understanding is how you described it having a direct account with the Federal Reserve. But yeah, maybe stables look like a pseudo form of that, right? where if you have full commercial banking over

here and narrow banking, stable coins are in the middle where you have um almost like a low overhead tokenized uh dollar deposit bank account where you get away with the lower overhead because you're taking less risk on the asset side of your balance sheet. Um and the disadvantage of that is that you can't get more yield, right? Like the asset you can't go out on from duration or credit risk or anything like that, but you're global from day one and you're extremely liquid. So you get away with being regulated less, right? So you have less of that compliance overhead that a bank has. So I don't know how those two things merge, but that's where I would slot stable coins as they exist today.

I'm curious what you guys think. You know, we there are um a bunch of new issuers coming into the market. Um and I think there are a couple of different dimensions to this. There's one um assets that kind of originally build themselves as stable coins but are like I don't know how you would describe Athena or USD. probably not a stable coin in the sense that USDC they never called it a stable coin. They always called it a synthetic dollar I think or something like that. Okay. Yeah, it's uh yeah it's whatever it is, right? It's not fully a stable coin. It's definitely not a payment stable coin in the way that USDC is. Um, okay. So, yeah, I'm curious what you think about uh some of these new and even like level and cap um as sort of uh designs where you're taking advantage of

maybe the lower startup costs and being able to take some of the yield from something like a or cap kind of leveraging more professional um yield manager or uh you know uh hedge funds and sources of yield um and finding interesting ways to secure um end users. But then also we have, you know, uh, companies like Robin Hood have maybe teased this or even Bank of America. And so it seems, you know, of that $2 trillion that's coming into the market, it feels safe to assume that at least a decent portion of that is going to come from new issuers. So I'm curious when you all look out into that world, who seems likely to come out on top in terms of dominating market share there.

If I knew, I'd make a lot of money speculating on that. I don't know. Yeah. Um I I will take the controversial stance that there's room for more uh than a couple players and it keeps coming back to the idea of just a hierarchy of money. Just the fact that different stable coins play you know or like different you know synthetic dollars just play very different roles in uh you know the crypto economy and the economy at large. And so something like Athena, you would basically I think see it at the very far like extreme end like where you know in this framework like it's a security. It's like a just a tokenized like money market fund that

like invests with like high discretion and so on. And you know then there's other things that are just like a token like you know a payment dollar or a savings dollar you know just like a narrow bank dollar a tokenized T bill or like a collection of those and you have another dollar just just like tokenized uh like a you know a big aggregation of like you know to tokenized uh you know commercial loans or something like that right and so you know I think that you would have more of this pyramid thing going on where um stable coins will hold each like it will look like stable coins are holding each other but actually actually they're all fulfilling like a valuable role on each other's balance

sheet. Yes, but right now it is a whole lot of circular references. Okay, I have one more question for you guys on the the tokenization front and then maybe we can shift into kind of tying a bow on this and getting your guys updated perspective on the value proposition of something like DeFi. Um but when you look at which assets um have been tokenized thus far, it's mostly been very large, very liquid assets like the US dollar, right? And then you also have tokenized treasuries that are coming on chain which makes an enormous amount of sense. And then it almost seems like there's a barbell um all the way on the other side of the risk spectrum where you have very ill liquid assets uh that would benefit from liquidity like potentially private

credit or you know there's talk of bringing some basically doing this thing that everyone talked about in 2018 which is bringing LP shares right of private funds and making them tradable onchain. And so that makes a certain amount of sense to me. There's demand for uh very liquid collateral. Um, but there's also demand for, hey, I'd like liquidity for some of these private assets that I get no liquidity on currently. And you could also read stories in the Wall Street Journal about uh private assets and private markets being under stress in the US. They're trying to stuff some of those assets into 401ks and change the rules there. So, it makes sense to me that some of these uh holders would want to move them onto blockchain rails. You know, I'm curious when you look out into the future of where what types of assets

are we going to tokenize outside of the obvious ones, where do you see opportunity and traction? Yeah. I mean, I I I I thought when you said bar, you were talking about like I don't know, like uh tokenizing some kind of like one of like artwork, you know, like you know, like just another critique on my question. She's like, you're not asking good enough questions, but let me help you. Let me I think it's actually like it's I mean it's totally not a barbell. I think it's just like you know a pyramid or like a waterfall in the sense that who is actually the buyer for these things is the big question right. So you know for these like whatever like individual real estate or artwork or whatever you have

like yes you have like markets but they are very tiny and when you get into stable I think that stable coins actually are a huge demand driver to tokenize stuff and like you're seeing this with skies like Grand Prix and other initiatives that are going on like there's a lot of developments kind of going on behind the scenes where these big stable coin issuers are working with uh you know you know prime brokers and like asset issuers uh you know and they are trying to bring like more uh you know types of collateral uh on chain just so they can hold them right and it's you know something like sky can solve effectively the cold start problem

of doing that because they can say you know we're committing whatever $300 million or we can commit like $600 million right and I think that a lot of these asset issuers need some kind of you commitment like that and then this is what gets them over the line and like gets them to tokenize and you know you could it couldn't really be any other way I think because like if no if you can't a lot of the value in tokenization is like you know using it as collateral holding it on the balance sheet but you need to be able to liquidate as well right and this is like a very I think we love to your talk uh your take on this um Robert like liquidity liquity, access to liquidity, some kind of like

liquidity window or something is like an extremely underrated part of this whole um RWA debate because not all assets are like made equal here. Like a lot of traditional kind of assets, they have super long uh withdrawal delays like once per quarter and you can only redeem like x% of a fund. It's actually, you know, not every asset lends itself to being tokenized and you will have to see innovation and, you know, somebody needs to pay for that innovation and that's why it's so important that the big stable coin issuers actually solve this coldart problem.

Yes. Well, at a high level, you know, I think the thesis is very simple. Eventually, every asset is going to be on chain simply because a blockchain is better rails or a better file format for wealth to be recorded than spreadsheets, paper contracts, you know, law law offices, you know, cobalt databases, like all the tools that are currently used to record wealth. So, I think inevitably all of this stuff is going to come on chain. It doesn't mean that it's going to change the underlying risks and returns and liquidity characteristics of these assets. I mean to Hasu's point, you know, you take some hedge fund and you make the LP interest a token, you still have like quarterly, you know,

redemptions like that doesn't change at all, right? What it does do is because tokens are way more easily transferable than you know filling out 30 pieces of paper, maybe it increases the secondary liquidity for an interest. Correct. Hedge fund LP stakes do trade secondarily. Not that much, not that often, but they do trade, right? Same with private equity, venture capital, you know, all of these things. So, I definitely think it can, you know, create an environment ripe for more efficiency, but it doesn't mean that out of the gate there's going to be more efficiency. If we take, you know, any hedge fund, let's just say Citadel's, you know, main fund and put it on chain

as a token, how many people want to be trading that, you know, I I don't know. And so I it doesn't make it liquid out of the gate. Um, but I think it's inevitable that it will come on chain. And that's sort of the paradox. I think what's more likely to come on chain and have you know composability with DeFi is probably not you know esoteric slightly exotic hard to value assets. I don't think they make good DeFi composability. What I think is going to come on chain next is the stuff that integrates really elegantly with DeFi protocols that elegantly, you know, you can lever up, right? Stuff that's liquidish, stuff that's, you know,

stableish, stuff that is easy to price with an oracle. So I think like the next things that will become popular are things like you know corporate credit and things with duration and things that look a lot like tea bills to start with but are just like one degree of separation you know more interesting and different not eight degrees of separation different and so you know we're going to have everything eventually I think next is going to come things that are still in the yield world that offer something a little bit different um but are still totally totally fungeable, totally huge assets and composable with DeFi more easily than something like a hedge fund stake.

Yeah, couldn't agree more. Okay, guys, I want to start to maybe just end here with a couple of uh you know, we kind of started high level, went into some of the more weeds and then zoom I want to zoom back out again and get your guys um sort of updated views on what are we doing here and what is the value proposition of DeFi. We're dancing around it. Robert, I kind of heard you just outline um outline it a little bit, but you know, if I rewind the clock and maybe uh try to speak from the perspective of different eras in crypto when what the original value propositions that we all thought we were coming here to build on is you know, you know, host those uh those hardcore libertarians that you mentioned in the beginning, right? I think there was this huge um amount of interest and

inspiration that the original ideals of Bitcoin generated for everyone. Um, and that was non-s sovereign currency, right, which couldn't be controlled, not your keys, not your coins, all of that kind of stuff, right? Um, I think a secondary characteristic of that was the robustness of a new financial system in currency, right? Bitcoin was originally created, you know, chancellor on the brink of second bailouts for banks, right? And so that was everyone kind of really liked this idea of something that you couldn't mess with. You weren't doing all this rehypotheation and financialization. And one question that I've asked myself is are we building a more secure and robust uh financial system or are we building one that supercharges the potential for

financialization which actually probably crypto rails maybe does. Um and then lastly, you know, once we have if the majority of assets on crypto rails are centralized um issuers, one, what does that mean for our beloved uh mostly L1 tokens like ETH or soul, right, or BTC? Are are these uh you know, US dollar especially denominated assets competing with those? But also, what does it mean for you know how permissionless finance is? I mean, I think the first thing to address is the fact that assets themselves don't have to be fully trustless. Like USDC is not at all trustless. Tether is not at all trustless. WBTC is not at all trustless.

Any of the tokens that we're talking about that are cryptonative tokens, all of them could hypothetically get rugged or like, you know, have a bug or like whatever. None of them are trustless either, right? Basically, no asset besides the assets of native L1s, Bitcoin, Ether, Soul, is essentially a trustless asset. Right? Almost everything that's issued on top of an L1 is in some capacity a asset that requires some degree of trust and analysis, right? Period. Right? Pick any token and like I guarantee you it's not like a fully trustless asset except for the L1 tokens themselves. And so with that in mind, right, I think that we can

acknowledge that blockchains are incredible. They're incredible for recording wealth. None of the stuff that you own in your brokerage account is trustless. 0% of it is, right? 100% of it is based on believing that some company is going to exceed the expectations that have been set out for them. All of it is based on putting your faith in others at the end of the day. Every single lesson and going all the way to like US government bonds, right? you're putting your faith that the US government doesn't do a bunch of stupid things. All of it is based in putting your trust in someone to do something successfully. And so the assets themselves don't have to be like fully trustless. I expect that we're just going to get more and more and more and more and more trustbased assets on blockchains that are

composable with DeFi. Whereas the L1s, you can have complete trust. are decentralized, that they're fair, that they're orderly, that they can't rip you off, that you know the rules are written and hardcoded and will perform, you know, with complete resiliency and that they're robust to tampering or censorship, right? Execution environment crazy decentralized assets don't have to be and that and protocols can or don't have to be, right? Like that's the whole like question of like what protocols do you want to be completely trustless or on a spectrum to like completely trust based.

But all of this stuff is totally ripe for migration because blockchains fundamentally are better place for assets to live than the legacy file formats that are not composable at all that are not programmable at all that are opaque and that are inefficient. And so everything's coming on chain. So can I maybe zoom in and hu get your opinion on what does this mean for L1 tokens like I'm I asked this about within the context let's like talk about this within the context of ETH and soul here let's say let's say this group this team here is unilaterally in charge of both Ethereum and Salana we'll just say both of those I'm going to use both those changes interchainably so it doesn't become a Salana versus Ethereum debate we're we're the four of us we're coming

up with the future is it good for the price of our L1 token to bring these assets on chain because in one sense it just feels intuitively like yeah I would want to be the coordinating layer of all of this activity and all these assets that are coming on chain. On the other hand it does feel like this is competing for the store value moneyiness type of thing that we all liked about ETH the asset a little while ago or or soul eventually the asset. Um and I'm actually curious how this ends up working with BTC like Bitcoin L2s, right? like I'm very curious how that ends up playing out in practice as well.

But what do you think about that interplay? I mean I think it's net extremely good uh is my my short answer. Why? Because I mean there couldn't be another way like you know Eve is not going to scale quote unquote as money like you know much more beyond where it already is. Uh and I think that you know just replacing you know I mean it sounds like such a simple thing like changing how the world do does its accounting if you will is you know like is an incredibly important innovation that will change the world in in many ways and the world doesn't run on on trust and like you know not say

even trust because we have a lot of institutions built up to kind of reduce that trust right I mean When when a bank lends money to like when a bank borrows money from someone there are regulations in place that make it hard to like run away with that money. When somebody borrows from the bank you know they have to put up collateral they have to be part of that legal system. there are ways of like clawing back that that that that that you know usually and so on right so um I don't think we we would want to live in a world where those things are no longer happening right like I think the the world where like everybody's just sitting on their BTC sitting on their EVE you know there's no credit creation taking place or you know it's only like it's a very small part of

the economy I think you know that would be not a world actually where I think if we went there actually I think you know that would not be very pleasant. So I think uh if we want crypto to be to play a part in in the kind of the overall economy then there's no other way than you know for it to happen in this way where we bring more and more assets on chain and we allow people to enter into more agreements with each other than they currently can. Right? Crypto I think is ultimately is ultimately like a like a trust technology in the sense that people can do more with each other. They can trade more. They can innovate more.

There's less trust required. But with the end goal of like people working together better, right? Like not working together less. And so, you know, I think that in in the bullish case like Eve becomes the backbone of kind of the internet economy. Everything gets tokenized. Um you have massive repo markets. You have massive exchanges and like all kinds of innovation on top of this like large asset base and it's all paying fees to Ethereum and to the layer 2 and yeah if it's making Eve the asset better as well because you know in this hierarchy of money there will be then basically you know E will always have its status as like it's the best form of collateral. It's like the it's the base money, right? It uh and so it will have

a place in people's portfolio and it you know that will scale as Ethereum grows. But like I don't think it could work any other way. I think you have to scale by by scaling like Ethereum itself as as kind of the asset and exchange and like lending layer of the internet. Yeah. So I I guess I'm hearing from both of you that it's it's clear that finance will move on chain because there's just such like insurmountable efficiency gains and broadly that's that's good for these these crypto ecosystems that are hosting this activity. Um I guess I'd really be curious to hear just a quick take uh from each of you. Um, do you think this process of finance moving on

chain is going to make the economy more decentralized, reduce some of these trust assumptions that like Satoshi was originally kind of backlashing against uh with the creation of Bitcoin? Um, or is it just purely going to be efficiency gains, but the economy is still going to kind of exist with these same level of of trust assumptions and and centralization that we've seen in the past. I think that you know the world will not look that different from today. Um so I mean you will still have the same level of credit creation you know savings and like reinvestment and maturity transformation and you may you know you may see like banks go bankrupt and you may see them being bailed out by

government by government etc. Um which is like overall like the system works that way because we we think that it works right. It's like net good. I'm definitely not coming to crypto from the perspective of the exist system the existing system is is broken. Like I don't think it's broken, but it can be improved in in a lot of different ways. More of an incrementalist if you awesome. All right, guys. Um I think we're probably winding down. That's about all the time that we have. Uh the goal is always to make these an hour, but uh we've yet to actually stick to that limit. So um Awesome Robert, this was a ton of fun, guys. Thank you so much. Literally, there's no one that um Monae and I would rather kick the season

off with and uh you've given us a lot to think about already. So, really appreciate your time. This was uh this was a great interview. Yeah. Thanks. Thanks for having us. Learned a lot. All right. All right. Take care, guys. All right, Monae. Great first episode in the books there. Um that was a ton of fun. Yeah. Great chatting with Hu and Rob. Yeah. Yeah. what did you think about um so you know it was kind of interesting we started off with that more modular design for um for DeFi protocols and yeah I feel like that uh institutional theory got shot down a little bit I think um yeah I tend to think that they're both right right that this is just increasing flexibility

and um evolving towards more of a true platform model uh for all the different types of use cases that we're going to see but any kind of thoughts there around the discussion on the sort modular platform type model and then also vertical integration. Yeah. Well, I I think they both were slightly shooting down the idea that it was to cater to institutions, but then uh it's interesting because I know they both kind of work pretty deeply on bringing institutional participation into some of their their projects. Um you know, Rob of course is doing Superstate, which is bringing you know, sort of institutional products on chain.

Um, Asu has been doing a lot of work with Lido where um, yeah, maybe maybe he wouldn't put it this way, but I think that's one of the biggest um, benefits of LITO v3 is that it gets institutional participants comfortable with using, you know, onchain staking product. So, um, yeah, they didn't, it was interesting. They didn't they didn't want to call it like catering to institutions, but I think that's probably the biggest um the biggest benefit you have uh when you're uh doing a modular approach that can cater to more use cases. That's like the the use case that's been really underserved in DeFi to date. Um so they yeah, they shot it shot it down a little bit, but um I also I I still feel like it's it's

definitely a big uh big focus is is bringing the institutional participants on chain. It's also interesting how um just to add on to that as well is I I think that the design of these protocols at least requires institutional or more sophisticated actors to be involved like V3 a huge debate was the the proposition of market making became much much more difficult when constantly traded liquidity became a thing because you it no longer was entirely passive right you could provide liquidity at certain ticks or whatever um and same thing for something like Morpho It requires the existence of the BA labses of the world or the steak houses of the world to manage that risk. So I and there there

are many many examples of that within the world of ME as well. So I I do think even if it's not 100% intentionally for this new customer, it does require the existence of at least more sophisticated actors. For sure. Yeah. And one like sort of uh crossing over from like the modular design to vertical integration. One one thing that I saw um them pick out which was really interesting was especially Hu he he was saying that in some cases um you know you you make a modular design to cater to more use cases. But then you need to kind of go back to a more integrated protocol once you once you um have some successful use cases to try and have a little bit more control over the US user interface. Um

you know that could be just a more integrated uh protocol design at one layer of the stack or it could also be vertical integration. And um you know I think a lot of people think of vertical integration as just trying to capture more value. But uh it's also interesting to think of it as a way to have a more consistent user experience and u just you know basically deliver on these these key user groups and use cases that you've discovered uh when you're you know having a more modular design. Definitely. And I think that if we had Uniswap represented on the podcast, they would uh they would definitely champion that view that a huge driver of why they're moving up the stack. There's a there's a sort of self-interested value

capture component there, too. But there's really a user experience uh standpoint as well. I think Hayden or or one of the Uniswap uh team members described that some huge percentage of early complaints and product feedback had nothing to do with unis swap but MetaMask. So it does make sense to kind of move up the stack, get closer to the user, understand what their pain points are, and solve them, especially if the partners that you're relying on aren't necessarily, you know, no shade at MetaMask, good, but uh yeah, it makes sense to want to have more control. I think as well, um, you know, what we didn't really get to there was the implications around governance there.

And I think that one of the two things which have historically been coupled is this desire for it's hard to understand what came first, the chicken or the egg. This desire for a more thin horizontal product and approach and Dowo governance, which only really makes sense if you're not managing a huge amount of complexity. And so we didn't get into or we didn't have time to really unpack what are the implications if you have more vertically integrated products and protocols within crypto. and um and how's that going to impact Dows and governance? But um that's something I guess we'll have to dig into in later episodes. Yeah, I I I'm hoping and I'm I'm sure we will get into it in later episodes because there's a lot to unpack there. Dows have been um you

know, I would say in many ways less successful than than all of us would have hoped in 2020. um you know it's it's extremely difficult to um try and manage a successful product and protocol without uh centralized leadership. Um so yeah I I do think that there's you know a lot of interesting uh new designs happening even in um in in protocols that are vertically integrating a bit. You know taking as an example the sky ecosystem and subdows um they're vertically integrating. you know, they're trying to capture like lending market business below their stable coin business. Um, but they're also sort of uh separating the

governance of these different segments and letting people specialize. You know, Spark is specializing in one area. Um, new new subdows that are going to launch in the future are going to specialize in their own little little segments. And I think that's that's a model that actually hopefully can scale um you know minimizing kind of the scope of of governance into uh smaller areas that people have the potential to actually you know specialize in and do really well in. Yeah, absolutely. And you know, one of the things that I would love to start to pick apart as well is we um you know, we got into stable coins a little bit and we hinted at them but didn't get into the weeds of some of

these nextgen stable coins or I don't know if you want to start calling them sort of onchain money market funds, but I know CAP has uh thought quite a bit about this and the evolution of uh managing a stable coin and the way that they phrase it is there's kind of an authoritative one team like the Athena team or something like that or I guess tether as well. Then there's kind of this more DAO ccentric model which would be a sky type model where you have exactly the subdow uh the sort of one organizing factor of allocating capital and then the yield generation comes from these little subdow units sparks of the world. Um and then there's also a almost more market based they have a new sort of market based approach for this. Um but it could be interesting to dig into some of those products as well. Um, what

did you think about um, so the this idea, you know, getting into stable coins and kind of the hierarchy of money um, and the banking view and kind of this comparison to narrow banking I thought was definitely interesting and worth considering. And you know, one of the things as well that I don't have a great answer to yet is people don't really talk about stable coins within the context of being US or XUS, but the stable like the runaway success uh story of stable coins thus far has been Tether. And it does make sense to me now that you articulated that that that's XUS. There's more demand for dollars out there. So yeah, I'm curious. Um I think I asked you this on the opener, but

yeah, where do you see new issuers being successful? Do you think it's a US versus XUS kind of market yield bearing versus non- yield bearing? What's your kind of up-to-ate thoughts on this? Yeah, I I you know I I don't want to like oversell one uh viewpoint because um yeah, it's it's really tough to say at this point, but um I think that the sort of onshore like US uh issuers have been a bit hamstrung because um you know the the regulatory environment has been quite quite uh unfavorable uh up until maybe even a few months ago. Um, so I'm excited to see, you know, a lot more issuers coming out of the US potentially from, you know, payment processors like

Visa and PayPal, uh, banks. Um, I think that, you know, a clear regulatory standing in the US is going to allow a lot more, um, onshore issuings. Um, and it's I think in a way it might actually collapse the difference of the the offshore versus onshore because stable coins are natively global products. Um, they're not KYCed at each secondary transfer on the blockchain. Um, so it could be issued in the US but then serve uh the euro euro dollar sort of traditional market of offshore users um and still meet a lot of their um key concerns where you know they don't want

to have like a direct account relationship with an onshore issuer perhaps but with stable coins they don't necessarily need to. They can just acquire uh their stable coin on the secondary market. Um, so I think that's an interesting potential trend is is, you know, kind of a convergence of the US financial system versus the Euro dollar system. Uh, and a little bit less of a a, you know, a difference between a tether being issued offshore versus a, you know, a PayPal dollar issued onshore. I wonder how other countries will feel about that. There are definitely strategic implications for every country having access to its own banking system, right? I mean, you know, a lot a lot of this for reasons around

uh, you know, being able to control interest rates domestically and being able to honestly exact financial oppression when you get too far out of whack and all. There have been these historical reasons around why these different payment zones and banking zones have remained segregated. And it's it would be interesting to see, you know, what would happen if you just had a more dollarized world, how other countries might react. Um that's something um we maybe we'll be able to get into later in the season as well is there's kind of a new trend of uh like local stable coins which I think generally the meaning is non-dollar stable coins that you know correspond to different local currencies. The euro is already uh issued by circle and a few

other issuers. There's euro stable coins but there's um a whole slew of of uh smaller currencies that are being issued on chain as well. And um yeah, it really remains to be seen how much demand there's going to be for those products or whether everyone will, you know, on and off ramp with these but still generally use dollars to save. Um but yeah, I think there's, you know, there's a possibility that we'll have a a more kind of like multi- polar uh stable coin system. Um, but it could still be, you know, for the weaker currencies, I think it's going to be a very big challenge because historically they've always had a very tight grip on who's allowed to have a dollar bank account and they can even, you know, rug those dollar bank

accounts and just take all the money for the central bank if they've if they feel like they need to. Um, so it's definitely going to change uh, you know, some of the the dynamics there. Yeah, we should poke around about that. I thought Robert's perspective or Hosu's perspective around yeah it doesn't uh just because an asset exists on a blockchain doesn't change the underlying attractiveness of the asset is probably people want dollars more than other currencies for the for yeah just almost in general right um that might change if geopolitically depending on this multipolar world they're entering or whatever but I think in general people would want that and so I might be a little bit of a challenge for even if each like smaller countries issue their local stable coin okay it's on blockchain rails, but that doesn't make

the currency any more desirable necessarily. So, definitely something very interesting to pay attention to. Um, yeah, and I I think even, you know, we we talked about these smaller countries with their, you know, kind of weaker native currencies struggling to come to grips with stable coins. But I think even possibly the US banking system could see some challenges or or the euro uh banking system um when you know stable coin they allow you to uh unbundle the traditional functions of a bank. So you know you can save and um save and transfer money and have payment services but you don't need to buy into this fractional reserve lending uh

system which traditionally with banks you do. So, um, how how is the US economy going to going to sort of square that and, uh, adapt to a system where people aren't just getting funneled into, uh, fractional reserve banking? Yeah, it's really interesting. I think this is just too difficult to predict where this ultimately ends up playing out. I'm you know this has been the critique of narrow banking is that it's it undermines the uh utility of the domestic um you know commercial banking system and I could either see which I think is why there's been such resistance historically to stable coins also that resistance clearly is not there anymore

and I want you could kind of see it going in two different directions right um one actually is I could see a world depending it really a lot of this depends on politically where the government ends up in the US and I could actually see a world where they say hey we're kind of we have an unnecessary intermediary here in the form of this commercial banking system in the US actually it'd be really great if you just had the Fed and then stable coin issuers and you could actually much more directly control monetary policy whereas right now okay the the big banks and the government are joined at the hip we all understand that but there still is a kind of separation in between those two entities, right? Um you could you could just say, "Hey, uh I don't want this separation anymore. I'm

just going to link this up and and it'll make more sense. I could control it more directly." I could see that. Um and I could also see uh yeah, actually banks essentially opening up their deposits to the entire world. um you know and like just leaning into building banks on stable coin rails and maybe you reduce some of the compliance overhead and you know you expand globally but it's really difficult to predict. Yeah, I think you're right. Maybe the the interesting look here is how stable coins end up transforming the US banking system.

Yeah. And I I think there's there's a possible future out there where uh one of I think Robert identified that um you know uh the reason that uh uh onchain issuance of RWAs is potentially compelling is because the secondary market liquidity and just the secondary market trading infrastructure for these assets is um you know potentially a lot more efficient. So there's a there's a possible future where um we do completely unbundle and kind of uh just do away with the traditional fractional reserve system, but we can still um you know use kind of the more efficient secondary market for for a DeFi ecosystem to support credit creation.

So, we'll have like, you know, tokenized corporate bond funds, tokenized uh credit card receivable funds, um all the things that banks traditionally put their money in under the hood. People will just have a much more transparent way to say, I want to be, you know, investing in X, Y, and Z assets to get a little bit of extra yield, but I'm not forced into them. Yeah, that's really interesting. And there's a huge industry of that. like a lot of the lending activity has moved into was one of the PIMCO guys that originally coined shadow banking where because banks are more and more regulated you know a lot of that lending activity is still happening it's just not happening within the purview of banks so this is one of those I feel like one of the cool things about crypto

at the current moment is that some of the stuff that crypto got obviously right is leaking back into the finance system and one thing that I would point to there is uh the NASDAQ is now it's not 24/7 it's 245 it's like Hey, uh, crypto guys got this right. This [ __ ] should be 24/7. You know that, uh, just makes a lot of sense. And I think that, uh, stable coins will there'll be a, there'll be a similar people will start to say, wait a sec. I mean, okay, so here was a I'll actually pull this up. I thought this was fascinating, uh, as a quote from Treasury in their overview is they have a little section on what are the potential impacts on bank deposits.

Uh, and one of the subsections is in light of potentially exacerbated competition, banks may be required to increase interest rates to maintain funding or find alternative funding sources. And so already it's making everyone question, wait a second, why do banks not give more back to the consumer, right? They kind of got away with that for a long time. At least in the US, they really don't give you much back. So that'll be very interesting to see. Um, it'll be an interesting future in the next five or 10 years when the rubber starts to hit the road on a lot of this stuff. Yep. Okay, last question for you. What is your opinion on what we were digging into with Hosu right at the end there around okay, you've got an ecosystem like Ethereum or Salana. You have stable coins and RWA that are getting issued. What are the

implications for the L1 token? Um, you know, I I would tend to agree with Hu that it's it's bullish. um it displaces the L1 token as this sort of like mimemetic money uh where you know if you look back a couple years on Ethereum you had to hold ETH to buy NFTts you had to do it to trade on unis swap v1 um for gas even which you know we might see some gas abstraction coming up so I think it it loses some of that mimemetic moneyiness um but it does feel like this is kind of an inevitable um you know an inevitable uh trend. Like if you look at the real

economy, uh how much are people holding their wealth in gold versus productive stuff like real estate and company shares and uh notes and debt? Um it would almost be a bit of a perversion of the economy if we were putting so much of our our collective wealth into stuff that's not productive for real people's lives. So, um, yeah, I think it's, you know, it was always going to happen and it's bullish to to see, um, you know, these these L1s actually start to be the substrate for all this economic activity. I agree with that, too. And I know we're using unis swap a lot as an example here, but if you look at the role of ETH within unis swap over the iterations going from v1 to v4,

originally you were paired ETH against an ERC20. And then v2 was ERC20 versus ERC20. And then, you know, as you kind of had successive and successive versions, ETH was less central to that. And over in Salana, what you see the same thing on pump, right? like pump was kind of this sole vacuum where every pair you know the original bonding curve was you know XYZ shitcoin or memecoin and soul and then that just got burned and is held in a contract um but that becomes less and less relevant now you got radium that's um competing for that market and it's not that could be any pair against any pair right and you see on L2s in Ethereum it's the same thing so yeah I think that my intuitively it

feels like the more real world assets that you have on your coordinating layer and chain, the more valuable the L1 token is. I do think though you have to connect the activity that's happening with RWAS into fees generated and paid to Ethereum. That's the missing link for me. I think otherwise you do risk cosmosization here because if there's no you have less desire to hold the coin uh just based on the construction of the protocols and the apps then you need another reason to hold it and I think that's got to be fees right I don't know what else it would yeah be yeah um that'd be my opinion but I think everyone's kind of realizing that right in Ethereum I don't know how they think about it in Salana land but that's I think that's what uh people are coming

to But my conclusion, yeah, I think, you know, it's it's interesting though because, you know, Ethereum, um, yeah, it doesn't have as much of that mimemetic money strength that it did maybe four years ago. But, um, for DeFi protocols, I think in a way it's a lot easier to underwrite ETH than it is to look at some of these new, you know, credit products like the Apollo fund coming on chain. Um, they're so complicated. it's kind of way above the pay grade of your average like forum contributor for a DAO to be underwriting these things. So, um I think you know I think the L1 tokens for these ecosystems, they're always going to have this privileged place as the simplest thing um for you to possibly be dealing

with in DeFi. You you know it is what it is. Um I think Rob said like these are the only trustless assets on the chains and that's worth something. that that'll still be worth something even if uh most of the activity is happening in stables or in interesting RWAs. I completely agree and you know the if you look at the quote unquote the store of values that exist in the real world, people love to myopically point at gold, but I point out that the market for treasuries is bigger than the market for gold. the market for real estate which has this huge premium because people use it as a way of storing and holding on to their wealth is much larger than the market for gold. There's a strong psychological

bias towards productive assets. And so I would even posit that okay let's say there are two uh like in a hypothetical scenario where you have asset A which is let's just call it like bitcoin which is kind of pet rock and it apply it appreciates x% per year whereas you have uh coin B which it appreciates slightly less but you also have a yield that's paid on top. I think that the yield asset does better because people just have this it's a productive asset. I can model it. I can yada yada. So I just think that's a strong I think that's a bias that you cannot overcome and it's just ingrained in how people think about uh valuing assets. So now I think there is still a lot of room to do good valuation work here on because there's

like the liquidity uh you know aspect of the valuation of an L1 something like that there's the amount of yield there's all this stuff you'd have to underwrite you know how durable the fees are that are being generated. I would argue that the fees that Ethereum generates today from a and unis swap are more durable than maybe pump fund revenue, right? Like that feels like a more durable market to me. So there's a lot of nuance underneath the hood there in terms of how you might think about doing these valuations in like 10 years. But yeah, I think um that'll be part of the fun is figuring all that out, right? Yeah, we're we're growing up a little bit here. we we have to go from just pure memes to well really the strongest meme of all is, you know, passive income and

yield and stuff. So, I think, you know, it's a natural progression. Agreed. All right, my man. This was a fun one. We This was a really good one where I feel like the the first couple episodes we started high level and tackled some of these um some of these higher level themes and ideas. This next one, we're going to be getting into the weeds with a couple of the leading DEX uh designers and builders today and ask quite a bit about uh DEX design, but also um capital efficiency and vertical integration. So, that should be a really fun episode. Yeah, I can't wait. All right, take care, man. See you.