The Everything Bubble | Charles Cascarilla

Transcript

this episode is brought to you by paraswap the leading aggregator to find best prices across various decks you'll hear more about them later in the show all right everyone we're going one-on-one with charles cascarilla the ceo and co-founder of uh paxos charles hopefully i pronounce your last name right uh paxos is one of the most important companies in crypto that has just been quietly building for the last several years and is actually the backbone of a lot of different products maybe that aren't as forward-facing but kind of sit behind a lot of other products in crypto so we're going to talk markets we're going to talk stable coins we're going to talk about what paxos is doing but before all that charles welcome to the show my friend oh great to be on uh i definitely agree with you we've spent a lot of time

building in the background here and um it's really starting to pay off a lot of people are coming into the ecosystem and we're helping to power them which is exciting for us and i think for everybody yeah awesome man all right so here's what i want to get into first is actually just the markets i remember this march of 2020 uh interview you did i think it was march maybe february maybe april with uh patrick o'shaughnessy on invest like the best and you you kind of laid out the macro landscape and you said the most likely route that was going to be taken by the fed is that they just couldn't stop printing is how you put it and helicopter money would become really really difficult to control and reign in and sure enough you were right right and the market completely ripped and now actually two years later where

we're sitting at is things aren't all fun and games anymore right the market kind of peaked out uh it was peak kind of just narrative uh and excitement and what ended up happening is uh that inflation print ended up coming in above eight percent and it kept coming in above eight percent the fed started kind of spooking the markets said they're going to hike interest rates and now what's happened is things have colossally turned around nasdaq's down like 30 s p down like 15 20 global debt to gdp is sitting at like 350 percent uh snapchat just fell forty percent in one day uh inflation's still like eight percent so i just wanted to ask you how the hell did we get here what has happened over the last couple of years in your mind yeah well uh you know i wish it was only

the last two years that got us here uh would be a lot easier to solve uh but really this kind of goes all the way back to you know 1998 and the asian financial crisis believe it or not because well you know we had we or even maybe 1995. you had this big tech boom that first started and productivity was going up and we cut interest rates and we kept cutting interest rates into y2k and through the asian crisis and you blew a giant bubble and it popped and to solve that bubble we cut interest rates to zero and then we blew a subprime and housing bubble and then that blew up and each time instead of basically taking the medicine so to speak of let's clear the decks we cut interest rates and incentivize debt growth and so really since 1995 i think there's only been one

or two years where debt has not grown faster than the economy that is obviously an unsustainable pattern you know you can't have debt grow faster economy forever and it forced us to keep cutting interest rates to incentivize more debt because if you think about what that is that is money you can something you consume today and you're going to pay back tomorrow and you know you keep incentivizing that and you get to a point where you know you really have um societal wide problems and i think now um we probably have told ourselves the biggest lies lies almost in the history of the world at least from a financial perspective uh the idea that we're gonna be able to pay back um uh whatever the number is now must be 300 trillion dollars or something a

little less of global debt uh 350 350 debt to gdp or something in that range and all the major economies the idea that we're going to pay our 60 trillion of unfunded liabilities on medicare medicaid social security uh when you add all that up it's it's completely impossible so we're just lying to ourselves and the way we've avoided having to come to terms with that lie is by having interest rates keep going lower and lower and and then eventually keep printing money and the pandemic was a situation where it allowed us to print a lot of money and have big budget deficits because you know we all wanted to get through

the pandemic together uh but it was actually just continuing to cover up this fundamental imbalance and it's just this pattern of now what do you do because at least before you didn't have inflation so you cut interest rates and you're printing money there was no inflation so you there wasn't a hard trade-off and inflation is in some sense the reckoning moment for what is happening and it really becomes unclear here we haven't had a situation like this in a very long time or maybe uh really ever in some sense with this size of these unfunded liabilities and debts so i wish we had like a great answer to it i have always believed that crypto and blockchain was the way out of this

situation for us because you're going to need a new financial system a new financial system that would be able to keep up with the new economy and operate at the speed of the internet so that's one reason you need a new financial system but the second reason you need to do financial system is because the contradictions within the old financial system have become so unbalanced that they're not going to be able to hold and and we don't know exactly how that will unfold there's a couple scenarios that are possible so you have eight and a half percent inflation right now maybe that's just you know a couple of supply shocks and some you know uh just uh a point in time inflation problem that's

a possibility in which case what will happen is the federal hike rates to i don't know maybe two percent or supposedly the market says three percent and um that will slow things down and inflation will come down and they kind of keep growing and you like come back into like some kind of goldilocks that's you know that's that's um that's would be the you know kind of the hopeful scenario that's possible maybe we'll be able to continue on and uh that would be great the other um possibility is that the fed continues to hike and asset prices which have already been coming down now i guess um uh we're almost at a bear market here um it had been coming down so maybe 20 off their highs in the in the stock market private valuations are down more and

real estate maybe should start coming down um well then you could have us go into a recession you know maybe a pretty deep recession and then i think you know the fed would cut interest rates to zero again and print money and you know maybe inflation would come back again we'll have some hard choices or um uh you know we kind of just decide to live with above average inflation for quite a period of time um and it just we don't actually pull that under control those are the really the three scenarios i don't know which one we really choose but if you looked at asset prices and this is pretty interesting right now asset prices to disposable income is at 850 percent um so a comp a country uh um countrywide you know for the entire united states which in the average level is about 450

so that tells you how much asset prices are above normal now you could look at 10 or 20 different statistics price to sales price to earnings price to book you know house prices to income everything is at epic levels so you're basically a 99th percentile in almost every asset class bonds so you have a long way to fall in asset prices if the fed really have hiking rates and so you could really you know have some unusual situations that go on here and that'll of course maybe even affect the crypto market in the blockchain market but i i don't think that's something you know i think that's something we should all be aware of um you can't control these things but you need to be prepared for them but what are you know there's also this uh concept of you know going through these very um hard cycles of

crypto but it's all part of what is a very big secular shift that this type of possible discontinuity would actually accelerate so that's kind of the paradox of the thing there's there are three periods i keep hearing this compared to one is the in mid 1970s right so post world war ii you have this absolute boom for 30 years uh 19 what 73 to 75 you get the recession that kind of was like marked the end of the expansionary period post world war ii the other period is maybe the dot-com crash uh exuberance was at an all-time high you had these companies going public that didn't even really have a product and it was just based on like pageview clicks and things like that and then there's obviously 2008 2009. do you think any of those three periods are a

fair comparison to what we're seeing right now well you know i get what mark twain saying it uh you know history rhymes it doesn't repeat itself i think um there's analogies to many of those um you know it might look a little bit more like the 70s only because i think you're having a real regime change and i'm not sure that that uh 2000 2008 really um fully represented a regime change each one you know was like a pretty big shift but you have something very unusual going on which is you don't just have a bubble in one asset class you have almost an everything bubble and you don't just have it and you don't have these debt levels just in the u.s you have them globally and so you you're really at a very precarious place because of that um but

it doesn't necessarily mean that we can't kick the can for another 10 years i mean it's always surprising uh how far uh things can keep going uh but it's like a rubber band and the you know it could you could pull it maybe longer than you think eventually it's going to snap is this the time when it's going to snap it might and if it does i think this would it would represent something that's much more difficult than any one of those prior times because you have misallocated capital on a scale of the economy far larger than any of those times as a percentage of gdp or however you want to look at it and and you're also doing it in a synchronous way outside the us as well it's not like china or japan or australia or europe or canada

look better they actually look worse so you know and it's not like oh well it's just the u.s problem to be honest with you not at all i think the u.s is in a fundamentally better position than than most of these countries uh of course it just depends on the exact metric you want to use yeah how do you think about investing in this period right because for the last two years since march of 2020 since you had that podcast on invest like the best anything you touched turned to gold trading cards rare cars crypto uh equities right it was kind of like the farther you pushed out on the risk spectrum the better you did now the farthest out on the risk spectrum is getting absolutely hammered right uh but there's it for me at least it feels like there's nowhere really to turn uh there's there's no good place in

the market how do you think about investing yeah i mean it's it's a difficult environment because when you have an everything bubble that means you know really what you're talking about is relative choices uh between what is going to go up and what's going to go down and also you know to the extent that you now have interest uh rates up you know people could go to cash um cash isn't trash at the moment it cash is yielding you 75 basis points risk-free and it's funny like in an inflationary period cash is actually maybe the best thing to be holding well because you know it's you know i know isn't that weird like you got eight and a half percent interest uh sorry inflation and you're only earning 75 basis points of interest but if everything goes down 10 or 20 right then you know your positive 75

basis points uh is better because it's all about relative prices right now and so if you thought you're in a period where prices of most assets will go down on an absolute basis uh and certainly on even a relative basis it's just going to be which one is going to go down the least and in that case cash would go down the least um you know and so but there are certain assets like if you looked at um gold as an example um it really hasn't moved all that much you know and so you could say oh maybe that's a place to hide out um you could even make an argument that oh well you should go on the long bond because if asset prices are going to go down uh the fed will economy will go down and the fed's gonna have to cut rates and bonds

will rally so you could maybe go find some certain things to um to go put yourself in but um you know i think right now the the benefit is optionality so we don't know what the world's gonna be so what do you do you try to stay closer to home closer to home is being able to have the ability to take advantage of dislocations and what can dislocations look like it can look like asset price falls in different different places so what does that mean i mean it means sell some winners it means hold some cash it means potentially hold some bonds but hold things that are liquid so that you can also reallocate as things move around so basically try to have optionality which means staying liquid and having dry powder i that's the best

advice i would give now for every single person that's just going to be different depending on where they're at in their life and what their risk tolerance is right right how do you view bitcoin right now um because it's gone bitcoin's gone through this changing narrative you know every couple years in crypto or in bitcoin or whatever you want to say there's a new narrative right it used to be digital payments and then it was digital gold and then it was this inflation-hedged asset and then you started having corporates and nation states putting bitcoin on their balance sheet right there's always every 18 to 24 months there's this new bitcoin narrative and it feels like a lot of those narratives might have fizzled out at least in the short term right now so what is your just view on how you're seeing bitcoin uh i think both the asset but bitcoin

the network how how do you view both of those today well i mean i think there's i think that is a very insightful point um i think that there could be a couple narratives that could emerge here um one is bitcoin as a reserve asset so i know there's bitcoin as um say digital gold or something but bitcoin bitcoin is a reserve asset which would underpin um uh the financial system as the kind of uh settlement um that is not controlled by anybody any any any stopper and the possibility that is starting to happen because you've now seen the dollar be more and more used um as a financial weapon uh and i think all for

good reasons in many cases uh but you know the benefit of having the reserve currency but also the requirement is that everyone should be able to use it and if everyone can't use it then it's not the reserve currency anymore and so to the extent that people become afraid that you can't use the dollar as at any time that means they're afraid that you're going to be defaulted basically like if you take somebody's money that's a the default they can't have a claim on you and um and so that is going to force people to think about other ways to be able to transact i'm not saying that's good or bad it's just i think a reality so i think this concept that bitcoin is a reserve asset

could gain steam um as an unfortunate byproduct of the war in ukraine and um a lot of the different ways we've exerted pressure using our currency just to make sure just so i make sure i understand that thesis is that bitcoin as a reserve so something like petrodollars right something like settling like nation states settling debts with each other those debts would get are we talking at the nation state level like those debts would get settled in bitcoin are we talking about people sending money between each other like what what does the settlement layer of the world really mean well i think that that's definitely what i was talking about here is that it could be a reserve asset um you know kind of like imf drawing rights in some sense right it'd

be an ability for nation states to use a non-sovereign universally accepted uh settlement mechanism um i don't know if that'll happen but i think that there's i i could see that now coming into focus whereas maybe before that seemed a little far-fetched or far out um i don't think bitcoin's ready for that yet but that would be one example of a narrative that could begin to emerge there's another narrative that i think is really starting to gain steam in the case of bitcoin at least is around the layer two access to it um lightning labs uh a lot of the lightning network layers that have been put into place is creating an ability for bitcoin to be used as a payment mechanism

and potentially some of the smart contracting layers whether it's stacks or you know others um where you could now be able to have smart contracting anchored into bitcoin i think that is a much different narrative than has existed in the past the reason i think that's very powerful is um there is so much uncertainty with the other payment mechanisms either l1 or l2s that have been put into place um and uh either because they're um yeah continuing to get clogged up or the technology isn't quite ready yet and i'm not sure it is necessarily a bitcoin either in fact i know it's not but it could be but yeah i think those are really powerful stories um because i think

there's an elegance to the bitcoin as a layer one that is very secure widely used sediment layer and that you're anchoring that into your financial system that is used for payments and is used for smart contracting is it there yet no but um the other ones aren't there yet either and there's actually a lot of flaws in all of them and i think that could be the most likely way to go if you if you look at an analogy of the current financial system you have an l1 which would be say the federal reserve you have l2s which is visa mastercard ach l threes are some of the banks you know l4s could be exchanges or however you want to like exactly uh denote each one of those levels but

that would be more or less like bitcoin being in l1 uh you know lightning or maybe some other companies could be altoos you can then add an l3s and all fours and it's built on top of what i think is a thermodynamically sound mechanism to be able and a a i think most widely accepted asset in the world which is bitcoin um so i could see that also emerging as a narrative again we're not there yet but so those are the two narratives that i think could um start to um come to play in in the bitcoin world certainly over the next 12 to 18 months yeah it does feel like d5 on bitcoin is one of the most contrarian investments you could make as a crypto investor um but something that could

play out uh depe i think it a lot of it depends on how deep into the bear we go um which i think which maybe is i turn that into a question for you right bitcoin since 2009 uh since this entire industry was created has only operated in a global macro bull market i'd call it right how does bitcoin and just actually zooming out the entire crypto industry how how do we do in a maybe global macro bear market here well um there's a it's a it's interesting uh to think about that for a couple reasons um well the the first is um i do agree with you it's very contrarian to imagine that you can end up with a smart contracting layer on bitcoin partly because it

doesn't really exist at the moment but people are working on it and or doesn't exist in a way that has scaled um on the other hand i think there are fundamental contradictions in all of these systems that have been brought to bear and i also think that those contradictions in part are going to face regulatory issues and so i think that's a an interesting uh aspect here that we still haven't come to bear with is that there could be regulatory reasons why this is not effective could most institutions today decide to use something aside from bitcoin as a smart contracting layer to move assets around i i wonder

because of the the lack of regulatory clarity or potential regulatory issues around being a security in some of these l ones but so let's just set all that aside for a second as one reason why bitcoin um creates a lot of um uh let's it's called surety from a regulatory standpoint even though it might not have it necessarily at the moment from a technology standpoint um on a relative basis though nobody really does um the you know and then i think you could look at this bear market that we have started to enter and we'll see how long it lasts for these crypto winners tend to be um you know pretty um uh pretty

uh deep you know they've generally been down 80 to 90 percent and um and that's on bitcoin it ends up being worse for everything else um so you could imagine i don't know if that's what will happen here because we've gotten to set a level of maturity and adoption that that might not be how far down it goes this time but again nobody really knows the answer to that but non-bitcoin related activity goes down more and that tends to be because they're smaller communities they tend to be more speculative i think that that means that there is just less resilience about how those communities act when they go down a lot of what's gone on in these different

areas has been around building community but sometimes that community and i'd say maybe in many cases that community has been uh driven by um uh price appreciation right like hey we're all like is everyone's at the craps table together and there's nothing more fun than you're at the craps table and everybody's winning uh because you're all winning together it's not like blackjack where you go to the blackjack table and one person wins the next person loses like it's just kind of like a singular sport um but you know this has kind of been like a like a large example everyone being at the craps table together now that it isn't doing a disservice to a lot of the fundamental community and innovation that's been built in many places but there is certainly elements of that and

we've seen some examples of that uh in the last couple weeks even uh and uh with the tara and usd un unfortunately and so i think that um it's hard to tell what will happen in this bear market who will end up not being able to make it where you have to prove your business through a business cycle that's the whole point like it's not a business model if it only works when assets go up and prices go up the whole point is a business model works through the cycle and has to add value to the cycle it's you know if you can't work in the downside that's not working that's just pretending really because the there's going to be

bad case scenarios there's going to be tough times there always are you can't live like there isn't um ju even though we've gone long periods of time now without having to uh to have that happen on a broader basis at least and i also think that um you know the fundamentals of what crypto and blockchain represent are not going to be invalidated by a bear market my suspicion is that bear market will actually be validation even more it will be a winnowing process of bad ideas and business models that don't work but it's not because the entire concept doesn't work it's just that some don't and

but fundamentally the shift of the entire financial system needing to change because the current one isn't working doesn't fit with where the new economy is going doesn't fit with an internet space economy you know the basically the financial system right now moves at the speed of the post office it's two days settlement maybe it's five days maybe it's one day but that's what it is why is that the case when all you're moving is electronic information around more or less and i can tell you lots of reasons why but it doesn't make any sense and so that that is the fundamental problem and guess what that isn't going to get solved by anything except for crypto and block me yeah no i i i hear you a lot and i do want to talk about that i also want to talk about the second order implications of what

happens when settlement is more in real time but one thing before we get into that is let me lay out two scenarios to you and i want to see which one you think is more likely scenario a is we go into this long prolonged bear market it feels like 2018 2019 maybe it's even worse the reason being global macro is just in the and like everything is falling apart around us the other option is the bear market's actually not that bad reason being a there's a massive amount of permanent capital in the industry with on the venture side of things right andreessen just raised a four and a half billion dollar fund for right there i think there's 32 billion dollars of crypto vc raised last year so there's a massive amount of

permanent capital sitting on the sidelines um and there's also unlike 2017 there are buyers of last resort right at us there are buyers of when some of these prices go down whether it's coinbase in the public markets or ave or uniswap some of these tier 1 d5 protocols are down a lot right there is a buyer in the public markets for them unlike in 2017 which one seems more likely to you my guess is it's the latter um but and because i do think that the fundamentals here the fundamental secular trend is is much more clear and is so positive so you're just you continue to compound basically it's another way to think

about it so say the world goes down minus 80 or 90 but you're continuing to grow 20 a year through that you might go down too but you're just not going to be able to go down as much because that compounding is going to overwhelm whatever the decline is so that's what my assumption is but you know it's always hard to tell what the second order and third order effects will be as you start to get more price declines because there's leverage in the system there are business models that are built on transaction volumes there's been a lot of over-expansion and so you just can't always tell um how it's going to happen you know the warren buffett's saying you can't tell who's naked until the tide goes out um is always gonna be true because you get second order and third order effects and

so you know for instance luna and tara go down and that's 40 billion dollars or so that's lost outside people from aside from the luna foundation um so 40 billion dollars is lost um is that going to create second order effects that we don't know could there be some lending firms that maybe fail could there be some trading firms that you know are over levered maybe um would that force more liquidations and that would you know kind of you know um expose more over leveraged business models or um you know inappropriately capitalized business models sure um but my and and certainly if you have a just a total decline across all the rest of the economy that could happen too so you always got to be careful that you don't

know when you're in the tail and you're describing a tail event when you're in the tail a small move in the tail is a large move on the axis and that's why they're so impossible to and you don't have a lot of data points so they're very hard to model and you know they uh they really can create some unusual side effects um that you just can't fully understand right now so you need to be you know that's what i was getting into before which is you got to have optionality you got to plan for this you can see uh venture funds from sequoia to y combinator uh to others putting out a lot of warnings to all their companies saying look life's going to go on but life goes on for those you know who are prepared

uh for life to go on you can't just assume it's going to continue to stay the way it was you know things change and you've you gotta react to it and so you know you need to be prepared for a long bear market but um you know it doesn't mean that it's what's gonna happen yeah all right everyone quick break from the show to share a big update from our friends at pair paraswap the best platform to stake swap trade farm and more periswap just launched gas refunds based on how much you stake you can now get up to 100 of your gas refunded on all of your swaps on pair swap this is huge for anyone who has spent a lot of time in d fire maybe it's just starting out you know how egregiously expensive the gas

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because you mentioned tara i don't actually want to get into tara and ust because i i feel like it's actually kind of overplayed at this point but i do want to get your take on something that jim bianco said on the podcast maybe a couple months ago which is um at a certain point the fed steps in um for stable coins or somebody steps in and they don't let this get too big right and um i think his number if i remember correctly was something around 1 trillion um maybe we're at around 100 billion today so maybe the fed or the i don't know whoever it is the government the regulators could let stable coins grow by another 10x and then really step in uh and because of that his thesis was that you actually need decentralized tokens or decentralized stable coins to further grow d5 um

now that now he made that thesis before everything played out with ust and tara but i just want to get your take on kind of that statement but also just where you see the stable coin space and cbdc's and centralized stable coins and you're you guys have a stable coin and decentralized stable coins like how do you view the landscape now that you've had a couple weeks to maybe reflect on what just happened with the algo stable coins yeah uh so we have 20 billion dollars of stable coins a little bit less between our our usdp token and busd token both of which we run and they're regulated tokens and i'll describe our tokens in a moment um i do think that um it's important to define stable coins because i

there's so many different ways of creating stable coins they're not all the same thing so really to me a stable coin is you took an asset and you tokenized it it used to be on a centralized database and now you put it into a decentralized database it's still the asset so is that asset a gold bar is that asset an equity is that asset a 30-year bond is that asset a t-bill or is it commercial paper whatever it is it's still basically that asset that's what you've tokenized of course you can do things differently and and still call it a stable coin and i think that's what's happened a lot so in the case of tether for instance they are they are a bank right they have not just t bills they have long bonds they have gold they have loans they have commercial paper they

have uh deposits of all kinds so they're not just um uh totaling t-bills they didn't just tokenize a t-bill they've tokenized a liability of tether and they hold a bunch of assets to fluctuate in value but they said it's always be worth a dollar that's called a bank i think that's like that's a fine business model whether it should be unregulated is a different issue but it's still essentially they've tokenized a dollar of course you could also tokenize a 30-year bond and say it's worth one dollar a 30-year bond fluctuates in price it's not always worth one dollar and you have interest rate risk credit risk and liquidity risk and you know you you may have in this case it's a public liability it's a public liability that fluctuates in price

what paxos has done is we only tokenize t bills i think our average maturity is less than 30 days at the moment so that never fluctuates in price it's always worth a dollar it's like a dollar in your pocket is like a dollar that paxos is tokenized and that's really important we are trying to create a digital dollar not a digital representation of a dollar uh or you know whatever you know some version of it that isn't it right we're not like there's no liability against paxos here we have taken a t-bill we have tokenized it and or fdic insured bank deposit if i'm reading between the lines you almost wouldn't call usdc or tether a stablecoin that's right those are not it's not it's not a digital

dollar it's not a dollar in your pocket you can tokenize many things and by the way that's what tara did they tokenized their basically unpacked liabilities right i mean that's what it was you know they said it was worth a dollar by the way it's not a dollar it's whatever worth whatever what someone paid for and so someone could say it's worth a dollar they could say it's worth zero and when they said it was worth zero it was worth zero right enough people sayings were zero zero enough people say paxos's dollar is worth zero they're wrong because everyone will buy it up and come to paxos and we'll just sell the t-bills and give you a dollar it's always worth a dollar and what's more important is we have a primary regulator the new york department of financial services and they oversee our token and what can

be held in it plus they oversee the trust company to make sure all the assets are held bankruptcy remote fully segregated paxos's fails you have your dollar and so i just i don't think it's not meant to be a sexy business it's meant to be about financial innovation yeah but someone like uscc to push to try to defend them for a second like they do they're mostly cash and cash equivalents i think they've got some yankees they've got some t i think some treasuries in there maybe like five percent i i don't actually know these numbers so someone should actually cite me on this or fact check but like they've got maybe 10 like corporate bonds commercial paper whatever it may be but they are mostly cash no yeah i mean i think it fluctuates around the idea the point is they don't have a prime they don't have a primary

regulator so they can change the reserves as they when they want you know i mean like any given month any given day they could say tomorrow i want to change the reserves we can't because we have a primary regulator that tells us this is all we can have and they oversee it is is this a risk to the system because i know so you guys have two of the biggest stable coins out there but at the end of the day usdt and usdc are the two largest is that a risk to the system it is a risk to the system um because you're accepting a dollar as a dollar but it's not always guaranteed to be a dollar in the case of paxos it will always be a dollar and i don't think there's anything wrong with tokenizing other things so i don't want to make that clear it's just wrong

if you say it's something that it's not yep right and so when you're not clear about it when you say this is a dollar stable coin but it is only backed by another token that also has no value like luna did you have a that is not a stable coin and so i understand this concept of trying to want to make it as decentralized as possible but this is actually the story of banking for the last 200 plus years which is you give a bank money they give you to give you a dollar back they go put it in all kinds of different stuff right and that's why you have a bank and that's why you have regulatory rules and you have capital requirements because you know plus the fiat nature of it but with you know but if you only had you know one dollar and

you only invested in usd bills and that's all you ever did you're not taking any risk at all all you've done is actually transform it in so that it can now be in a blockchain and that's the exciting thing to me is that you now have dollars on a blockchain isn't that enough you have financial innovation not financial instability and you can now bring people into the financial system that you couldn't before because anyone can hold a dollar with their wallet and it's a real dollar that's what they want yeah you guys have this amazing white label business charles so the stable coin like uh binance works with you guys on the like stable coin as a service i'm pretty sure paypal i might be wrong here but paypal works with you guys on a lot of their like back end crypto you guys have

this like crypto um uh brokerage as a service right so if any fintech platform wants to enable crypto trading they can go to paxos and you guys will help them spin that up is the holy grail here for you guys the us government u.s government wants to create a cbtc and paxos powers that is that the holy grail well first of all we'd always work with the government uh to help them be able to bring innovation into the financial system as they thought was appropriate um but for us that's not necessarily the holy grail um if i describe what we're trying to do it's the re-platform all the assets in the financial system there's 700 trillion dollars of them or whatever the current uh market stocks funds real estate yeah

exactly gold everything yeah and everything and you know why was it important to tokenize dollars because that's the frankly that's the lifeblood of the entire financial system globally and if you didn't have a dollar that could move on a blockchain you can't have other assets move on a blockchain very effectively or at all um and and and that's what you see right now i mean essentially aside from i think nft is trading against eth everything basically still trades against really dollars um and that's where all the liquidity is so you need to have dollars done and kind of upgraded in this way is a stable coin that we have today or anyone else have today in the market capable of running in an economy uh or you know kind of a global

financial system absolutely not there's not enough privacy in it there's zero privacy there's only kind of anonymity there's no way you could have that much information leakage between different businesses like they would be worried what their competitors could see and money movements and money flows so i think we're very far from having product market fit for an economy-wide stablecoin and it's going to take a lot of iterations over time certainly what we've done here is really interesting but uh at whatever is 150 or 180 billion dollars it's basically nothing there's 60 trillion dollars of money of zero maturity of just dollars um we're at just the very very very beginning of trying to understand this and so i think that maybe eventually the fed will want to

issue but my suspicion is that the amount of iteration that needs to happen between now and stabilization of product market fit at a society-wide scale we're very far from that right do we do we ever get there though because if you look at something like um who's a big company apple right apple's never gonna put their is gonna make their supply chain orders for they're not they're not going to make those purchases on a public blockchain uh so do we ever really use like these do do massive like b2b transactions ever really take place on a blockchain outside of financial services well certainly big wholesale movements of dollars might be the last thing to move

on to a public blockchain but that was really what i was trying to get at a little bit um that we don't have product market fit for how you run an economy-wide stable coin on a public chain because there's too much information leakage from a privacy perspective there are ways to um uh really fix the privacy around like say maybe using zero knowledge proofs or you know creating certain types of shards on certain chains there's lots of interesting solutions by the way they're going to need to be tried out and i think you know you'll get to a certain size and scale and then the last ones that come on are always the biggest players because they have the most to lose and they have the most amount of line put through they they're gonna wait you always want to start with these

early adopter communities that's the exciting thing about crypto is this is like it's an early adopter community even though it's this big it's still very um small in the scheme of uh the whole economy and the whole financial system so could i imagine a day where all movements are going through a public blockchain i expect that's what will happen i would be surprised if now there's many different ways of doing that private public blockchain including having privacy enhancing uh aspects to it um so i don't think the way it's done now on a public blockchain will ever involve apple moving money to those other suppliers but that's a lot different from will they ever do it what what happened so okay so 700 trillion dollars of global assets gold stocks bonds currencies commodities real

estate art what happens when all of that settles on a blockchain and it sounds like this future maybe for you as 5 10 15 it's far out in the future but what are the implications of that happening like what unlocks basically in the economy and in the markets well i think the interesting thing of of kind of peering that far into the future is you don't have to um use an imagination that is completely um uh i don't call sci-fi because we've already seen it it's called defy we've seen what the future looks like um you know the the advantage of having an unregulated crypto ecosystem has been that the

darwinian nature of uh ideas and money that are tied to instantaneous movement um has been apparent you've innovated so unbelievably fast now we've also seen the downsides like tara but you've seen the upsides which is we're creating new financial products and new ways of doing things that no one even conceived of five years ago it's amazing um and also like you know there's also been a lot of uh over exuberance and things have gotten out of hand in certain places but let's set that aside for a second the fact is could you imagine a world where you had every asset that's now moving on a blockchain that you could have in your wallet that goes with you wherever you want that you wouldn't be able to have global pools of liquidity for lending for borrowing for

trading for staking for whatever it might be for sending and receiving for payments um so that everyone can be in the financial system simply because they have the wallet on their phone so you can the basically the cost of bringing someone to the financial system dramatically falls the access to products dramatically increases and it doesn't matter who you are or where you live you have an asset say you have a bitcoin i don't know you could pick anything um but you create a global market to be able to borrow against it to lend against it to do whatever against it doesn't matter who you are it's just code um that is so many positive things about creating financial inclusion about bringing unbanked underbe underbanked people not just in the us whereas 20 or 25 percent

of adults are unbanked underbanked but globally maybe there's only a couple billion um people who have bank accounts that look anything like what you would say uh that is in the u.s i know the numbers are supposedly higher but it's really not it's unbelievable how hard it is for people to be able to get into the financial system and be able to be a participant in it and the costs are very high uh if you're not you know it's a huge amount you pay far more fees to the as a low-income person than you do as someone who has higher balances there's reasons for that whatever weight of history but that can all be shifted if everything was sitting in a blockchain now that's not a panacea the blockchain is a tool

crypto is a tool it's has to be used in the right way used in the wrong way you get tara used in the right way and you can change uh access and inclusion and availability uh fundamentally yeah we've seen some of the best projects and use cases of crypto built in these bear markets right 2013 you had coinbase 2015 you had eth 2018 2019 you had d5 and nfts really got created with openc and uniswap and aven compound what are you what feels obvious to you right now going into this bear market of things or projects or companies that will emerge out of this bear market like what are you excited about what feels obvious to you that maybe doesn't feel obvious to other folks

i think that it it really is going to be around uh all the creator economy that's been brought in um into into the crypto ecosystem including uh from gaming to music to wherever it is to me that's actually the sign that this is um really making an impact because it's not just about speculative activities it's around um bringing the end user um uh closer together with whoever is the kind of the issuer and by the way that could be a company it could be a musician it could be an artist that's the whole point is that you now are be able to move remove a lot of distribution agents that are in the middle and

the more you can show that that is to me an indication that you know this is really living up to its promise which is that you're going to end up having a fundamentally more open system that doesn't require intermediaries you might use them but doesn't require them so if you look at bitcoin today i think it's 60 or 65 of bitcoin is held in custodial wallets believe it or not maybe that's up from 10 or 15 you know whatever it was five years ago more or less um that's the interesting thing is that people are using choosing to use intermediaries no one's required to uh because they're have to compete in an open system and they're producing great products that people want and that's what you want you want open systems that can bring people closer

together and you can use an intermediary or not use one depending on if they produce great products for you but not because they have some embedded effect network effect that locks you in like you have in web 2.0 today yeah last question here i have heard you say i think it was from 20 2010 or 2011 maybe 2012 that you saw bitcoin as a call option and that's really what it was in your mind is there a similar you know 10 years later is there a similar call option in crypto today um by the way i think that was kind of the way i thought about it because when you're at like you know uh pennies or even just dollars when was that 2010 2011. yeah it's 2010 yeah may of 2010 when we started like really getting into it april may um you know

it's very it was i don't know three cents so yeah i mean you know it's kind of a call option because you know what's going to get it's going to go to zero um so you know uh i don't know if there's anything that's quite structured like that that was a truly very unusual situation and i know people always look for what is that next you know three cents everyone's chasing the next yeah exactly yeah everyone's looking forward and um you know what i think is is really the next call option is people taking advantage of this new ecosystem to build businesses to you know really build the fundamentals that are going to change things um you know it's it's very unusual to find assets that can go up i don't know whatever it is uh 10 000 or

100 000 times uh that's just to me like uh that that's always so hard to wrap your head around that that can exist out there and look for it because generally the market is not providing those types of opportunities but what you can do is know whatever you're passionate about you now have an opportunity to turn that think about it through a web free perspective and go build that type of business that's what i think is the most exciting thing that's coming out now is all these different businesses all these different ways of bringing people together yeah charles this has been an absolute pleasure i know you have a client call to jump on i don't want to make you late i would encourage folks uh to go check out paxos.com i am pretty sure you're one of the only folks in crypto who does not have a twitter

unless i just couldn't find it so um i think it's very it's well hidden that's it okay good good yeah nice account anyways my friend uh be well this is great and i will talk to you soon all right thanks a lot great to be on