The Future of Stablecoins | Roundup

Transcript

all right everyone welcome back to another episode of bell curve before we jump in quick disclaimer the views expressed by my co-hosts today are their personal views and they do not represent the views of any organization with which the co-hosts are associated with uh nothing in the episode is construed or relied upon as Financial technical tax legal or other advice you know the deal now let's jump into the episode thanks everyone we've got a great episode here but before we do I just wanted to give a quick shout out to permissionless this is the biggest and best conference in all of D5 it's the one that we do with bankless who's a great partner for us last year we had almost 7 000 people there in West Palm Beach we are moving this year to Austin Texas so I'm

September 11th through the 13th and if you're a listener bell curve any of these last five seasons this conference is basically custom made for you we're going to be talking about liquid staking the theme of this season we've got a bunch of great panels on Mev if you listen to the app chain thesis we've got a bunch of Cosmos folks out there in full force we're talking about the converging architecture of Solana the roll-up space in eth and Cosmos so I would love to see all of you there and to reward you for being such great listeners to bell curve you get a special 30 off code it's bell curve 30. that'll get you 30 off tickets click the link in the show notes and then head over to the permissionless site and make sure that you get your ticket today again that is bell curve 30 click the

link in the show notes alright everyone welcome back to another Roundup edition of valkyr by popular demand we you've only got the best two of the show today Michael's one and two oh my God yep the best addition by subtraction addition by subtraction in the beginning uh when Jason and I were doing podcasts we used to listen to each other's shows and he was like so I've noticed every podcast you just start with a dad joke and then go right into the content I was like yeah I guess I do do that actually um whatever man the works it works um we got some uh pretty big stories this

week actually so I think the big one that it makes sense to start with probably just in terms of long-term impact although there's a question on how the execution is going to play out is the PayPal stable coin so uh pyusd I guess we're calling that pay USD will be issued by paxos this is a company that's previously worked with binance to issue the USD backed busd PayPal USD will be compatible with the web 3 environment and soon will be available on venmo which obviously is gigantic very active user base reserves are held in a separate nydfs trust structure so if anything were to happen to paxus or PayPal all stable coin reserves would be Untouchable by company creditors I know you we were talking a little bit about the fee structure and how that's going to work with with PayPal USD but what do

you just think about the broad implications of this the big things are if you if you break it down you've kind of got everything that's going on in Washington right now as a backdrop to all of this um you now have a second major publicly traded company that's a major Financial services provider in the United States coming out with their own stable coin I know Maxine Waters had a number of choice perspectives as to her thoughts on the fact that PayPal is launching a stable coin um some of them seem to be educated and most of them were not um the the just the fact that you're going to have the ability to have venmo you know arguably up there with cash app in terms of usage I think it's number two right now in terms of P2P transactions integrate into a uh

integrate in a stable coin just produces a lot more Network effects for number one stablecoin issuance and the ability to have a stable Reserve dollar that you can use within the ethereum within the blockchain ecosystem and number two it solidifies ethereum because that's another major component of this the the pi or pay USD will be will be based on ethereum as well at least initially um so I think it solidifies a lot of the narratives around stable coins being being a core component we've known that for a long time and ethereum being the course up straight for D5 and yeah I I saw a tweet um I'm not sure if this is 100 accurate

I would imagine it is it looked like it was a screenshot of the conversion costs of using Pay USD it was something like 30 cents up to ten dollars and then it maxes out uh volume based max out at 1.75 percent to convert USD to pay USD I I think it's going to be if if that is true and that's actually what they're going with from a business model perspective it's going to be exceedingly difficult to get adoption from that versus a usdc which has automatic conversions and I I think that you know we're going to start to see these different stable coins test each other's business model um for you know growth and distribution but also how do you get value capture um so it's good to see more shots on

Roll uh altogether what this sort of reminds me of is there was a period of time there's is mid 2019 just in the doldrums when Libra kind of got launched out of the gate and right now we think of stable coins as this you know 125 billion dollar opportunity and it's only growing on crypto but at that time I think the amount of stable coins that were issued were something like two or three billion dollars or something like that and it was much more of a wow that's a very interesting take and to Libra's credit or to face meta's credit they did see the opportunity and ended up getting shut down in Congress I suppose you could ask the question why would that not happen to PayPal I think optically it's pretty different

PayPal launching a stable coin as opposed to meta where there is plenty of backlash and antitrust sentiment and all that kind of stuff I think it's pretty safe to say this is bullish you know I think this is a really encouraging sign of institutional adoption it's a reminder to all of us that just because there's negative sentiment out there does not mean you know these institutions do tend to think in very long on very long time Horizons and PayPal's kind of been in and out but this is definitely a big I think confirmation and it could bring a lot of users into crypto 100 agree it's bullish and I think um you know no matter what the business model is once again we're just pushing more things out we're testing the waters um major institutional adoption from

places like PayPal uh coinbase even rumors of uh Acts or Twitter whatever we're calling it now you know the origination of x.com was a financial services platform and and you know even talking to Peter Thiel about the initial version or the initial thought you know with Max left in around what this could be what they wanted it to be in 1996 through 1999 was effectively what a lot of the blockchain ecosystem represents right now um I think you know being able to intertwine um social networks and and social productivity um with financial services is a fundamentally interesting proposition and that's what cash app venmo kind of all the like even Robin Hood to a

certain extent that's that's you know the basis of their success so having more opportunities to see new products come out you know fundamentally bullish how do you see the eventual Market structure for stable coins playing out is there one or two or three dominant providers do you end up segmenting it mentally in your head between just Fiat collateralized very centralized stable coins versus some of these more decentralized Alternatives like die or frax or something like that what do you think the end State structure ends up looking like yeah so I think you can disaggregate um let's call it some flavor of centralized versus decentralized and by decentralized I mean you know frax die susd anything that is existing and

created by specifically a smart contract you probably with some collateral basis I think we've also seen that the under collateralized uh decentralized stable coins just are not going to work we have yet to see you know anything in the same way of uh you know Luna Terra um fracts I know has some you know slight under collateralization but it's still backed by you know other assets it seems to be a more robust model we'll put that to the test on the flip side centralized stable coins I think you know is probably the bigger question here and obviously what you know pay USD is in the camp of um frankly I think the biggest variable there is just regulations you know we've got the stablecoin bill that has passed committee it'll go to a house vote uh

after the August recess whether it gets adopted by you know the senate in this current iteration or if it happens you know in a couple of years down the road um I we know that we've had a number of conversations with companies who are wanting to build centralized stable coins we have companies that are going after State banking Charters to try and build their own stable coins uh the fed you know is kind of it's unclear as what it actually means but the FED came out uh earlier this week and said we are going to have a process for if you want to have a stable coin that is produced by a state bank or a National Bank we're going to have to give a non-objective opinion on that before it can launch um so I think everything that exists and frankly you know going back to it with

pay USD I think we're probably going to see a similar perspective to what Libra had as well which was Congressional and Regulatory backlash or at least a pausing or a or a pressuring to you know kind of call things back um we'll see if it gets fully call back or if it actually you know goes through the full Libre equivalent process but I would imagine with all of the new regulations that are pushing through maybe there's some okay this actually helps us push you know the perspective of stable Point Bill and you know these companies are going to continue forward unless there's a black and white you know go forward Playbook um so yeah all this is to say I think really

on the centralized side we just frankly don't know and it's not going to be you know a business model or a distribution model that that necessarily wins it could be something that is you know regulatory grandfathering or a new playbook for how to you know have a bank-based uh you know uh stable coin I would have to imagine I'm sort of been living in LST land recently and that has firmly solidified for me in a mental model of a winner take all our winner take most Market structure and it would make sense that to me that stable coins would play out similarly there I think it's pretty unlikely that we live in a world with many different you know pyusd usdt usdc I mean there's only some right that's just very confusing from a user experience

um so I would imagine that eventually someone ends up winning out but yeah it'll be interesting to see play out usdc has a gigantic Head Start usdt who knows what is going on over there and PayPal has an enormous very engaged user base and if they don't get flooded out by The Regulators then they'll have a huge set of advantages as well so should be interesting to see how it all plays out but um exactly fully agree yeah let's talk a little bit about uh coinbase uh coin based recently they've been uh a lot of big stuff so let's we actually uh coinbase earnings just came out while miles and I were recording last week's

Roundup but it was overall a so revenues were down quarter over a quarter but it was still ahead of expectations for analysts who are frankly expecting a bloodbath so revenue is down 12 quarter over quarter um but that was still well ahead of analysts expectations revenues came in at 708 million for the first time I think the thing that stood out the most to me from this earnings call was that their subscriptions and service Services contribute to 51 one percent of their revenue at 327 million so they actually did more from subscription and services that they did from transactions and that's always been the knock against coinbase right they generate most of their fees from you know pretty

transaction costs from an uninformed retail base that are kind of getting scraped on that and everyone thinks it's going to be a race to zero and I remember Brian coming out probably a year and a half or two years ago and saying eventually subscriptions and services are going to make a very very large part of our revenue and I I as a supporter of coinbase I was kind of like okay you know sure about how are you going to do that and to their credit they've done it and they've done a very good job at it so I mean what did you think about earnings um positive and kind of exactly what you would expect um I I also too was surprised by that I mean the transactional revenue uh Wall Street is so interesting it's it's funny they want you know predictable Revenue

growth is it exactly what Wall Street wants they want you to be but not be by too much because then you're outside of the bounds and maybe something's wrong with your business model and they want you to like be predictable and being able to forecast your guidance and be accurate about where it's going next month well the best way of having a successful business that has predictable Revenue growth is something that isn't transaction based where not only is it a race to zero a potentially for you know transaction fees themselves per volume but it's also something that's highly cyclical and we've seen that you know as well where you know as the crypto Market Ebbs and flows what seems to be every three to four years these days um transaction revenue is going to ebb and flow with that and so you know the shift is fundamentally important for the

success the long-term duration success of coinbase and they knew that a couple of years ago um and it's it's great to see that I mean the things that are really contributing to that success right now are um a two-fold one interest income so as they have usdc we're talking about business models of stable coins interest income you know is one of the core variables that gets put into that bucket but then you also have all of the services Revenue that stems from staking and I I think we're going to as you you've been talking about you know lst5 or uh LST um or whatever the whatever the common phrase is now I mean the new Target of

how much eth is going to be State I think is higher than basically anybody else predicted I remember talking about this maybe like a couple of months ago right as the merge was going in and we were saying oh all of this eth is going to become unlocked and you're you're going to see a massive with rock you and blah blah blah well in fact what rochu is has been effectively at zero uh for the last two months um and the and the queue to become a validator uh has been at like 70 60 to 70 to 80 000 waiting which is about a month of time and so I I think a lot of that is going to continue to go to coinbase a lot of that's also going to some of the you know LST Phi I I know uh Lido just hit 8

million um eth uh in within Lido earlier this week um but I think those numbers are going to continue to crop up I wouldn't be surprised if we ended the year you know at 30 to 40 million eth state so there's obviously interest income and CPI came out earlier today it was slightly higher than expected and for for the first time since June 2022 the headline CPI number Rose from from three percent to 3.2 percent I think that has to do more with you know the previous year effect of you know where the numbers were last year because it's a year over year number um but you know if we assume that interest rates are going to continue to stay higher for longer that gives a great you know kind of cover for uh

coinbase usdc to continue to make money off of their interest income you can see it here Q2 201 million out of the 335 you know know massive number I think they're going to continue to outperform there and that gives them plenty of time to build up blockchain rewards custodial fee Revenue other subscriptions and earlier this week and I know we're going to talk about it um base launched yesterday and and yesterday I think they did 216 000 worth of Revenue or something to calculate at that which is about a 78 million dollar run rate of Revenue and that's off of the first day and obviously you know everybody was incentivized with the first aid mint but you know base is really getting a lot of attention right now

um and I think not many people fully understand the the ramifications of having a blockchain you know that you own and and you know derive revenues from and people actually want to use and having that in captured uh within a within a publicly traded Equity I think this would be a really powerful example of the Wall Street as to what you can do yeah I tend to agree with you on all of that Mike so just to break down some of that the what we're looking at here for folks who are following along is we're looking at coinbases Revenue which is broken up into transaction Revenue so that's between their consumer and institutional segments and then we're looking at those subscription and services buckets which is blockchain rewards which is I think primarily staking then there's custodial fee Revenue interest income and other subscriptions and services so I guess

that's sort of a bucket of coinbase one and other the interest income which has been a rocket ship has gone down a little bit it's about a 20 decline I'd guess that's just because usdc's market cap is continued to decline I think since around um like April or May of this year uh but staking to your point blockchain awards has has trended up and yeah it was interesting to see I was very curious to see how the analysts were going to discuss base and if they were going to ask any questions about it and they have and they did they asked a decent couple of questions about it and uh I think Brian confirmed that the sequencer was going to be the way that they were going

to monetize which is very interesting to hear because there's a lot of talk about decentralizing sequencers and talked about on this podcast a couple times but I feel like it's a growing Groundswell that maybe we don't actually need to do that and that has big implications for Value accrual on these layer twos the interesting thing about coinbase I saw someone tweet this out but one of the interesting opportunities that coinbase has is they have the opportunity to actually do identity um on their on base and we covered worldcoin a couple of episodes ago and while I think there was some some qualms about world coins some of which are

probably pretty well deserved figuring out that proof of personhood idea has a lot of benefits mostly it's it's civil resistance and you can do you can do more accurately uh air drops and stuff like that so the ability for a coinbase to do that for customers on their Layer Two on base is the way I would draw it they kind of created this new category of you used to have just C5 over here and totally unregulated Lawless Wild West defy over here they have this really unique opportunity to kind of find maybe this Middle Ground where you know it still has the the spirit of of crypto but they can add in a little bit like do things like proof

of personhood for people from the exchange for instance I don't know I mean yeah I'm pretty excited about it uh that that to me and and frankly asset framework has always been the thesis on base it's not going to be the place where everybody you know moves I think there still will be a lot of interest just based off of liquidity and interest right now you know there's still potential for it to become a hub of liquidity but I think to your point exactly I mean at framework we call it public permission defy where it is still public it exists on a public blockchain but and you can verify you know authenticity you can verify scarcity whatever you know the superpowers of blockchain still exist but um and and I saw that tweet as well I imagine having

venmo but you can see where all the money is and you can see everything you know on chain um and that would require kyc and imagine you get uh you you attach your base wallet uh or you attach your coinbase wallet to your base wallet and you have a permanent kyc uh um nft that goes into your wallet that you can then use to verify kyc and the different types of applications now that you can assume that the 40 million coinbase customers now all have a verified wallet address is huge I mean that that opens up the aperture lens for new types of financial products specifically for U.S persons because kyc is a requirement for for that um and and yeah I think you know it's

just a new ecosystem for application development um I think that's you know one layer of it I think the other layer too is uh is also um just the fact there's a ton of Interest right now I mean the whole bald situation and you've got all this excitement and people are minting you know all kinds of stuff and it's sort of like the animal spirits when this when this stuff starts to happen and the hot ball of money starts to roll around like that's when you can start to assess the tea leaves and see okay like you know the green shoots exist like we can see where the market is trending and trajectory is up but you have to start to see like the roll bit rolling into the unibot rolling into the base ecosystem like it just starts to compile

um and so I I also just love to see that me too man I'm so with you okay let me ask you this question do you think we had a debate about this on last week's Roundup do you think that bald going live on base was a good thing or a bad thing for the rollout ultimately a very positive thing so um and I everyone was like oh well is it going to erode the trust with consumers it's like no it brings people in like people hear about it because of it um and you know like oh well wall Street's gonna like get really scared and not trust the the sanctity of this because it was like you think Wall Street actually understands anything about these EPO systems like absolutely not um so no I I'm that was 100 positive I don't think it was planned but you know

sometimes you have to get lucky you know I did a little Wish Upon a Star none of the analysts asked Brian about bald which really would have been the cherry on top of that of that earnings call but um but I agree with you I think the miles and I had this actually came out on different sides of this on last week's Roundup but I think it was you know what would have sort of crushed my soul a little bit is for coinbase to say hey we're not going to have that kind of stuff on our chain and I think this was actually an opportunity for them to let their hair down a little bit and I don't know I think it's I think it ends is going to end up being a long-term positive thing because everyone has this aspiration of well these aren't the customers that we'd

like to have we'd like wouldn't wouldn't it just be great if we had these utilitarian apps that people want you have to meet the market where it's at I don't know yeah I'd like it too if we had like coins and more apps that were getting utility but meet the market where it's at today and build towards something longer term I don't know here's a strange analogy but I've been thinking a lot about it because of you know everything that's been going on this week um think of it as the like tight really buttoned up version of what is sports commentary and the professionalism versus Dave Portnoy and Barstool just the difference of you know the sanctity and and professionalism versus talking to where the market actually is

and what those types of outcomes can actually be sort of like the ESPN versus Barstool perspective completely and I think coinbase because of you know who they represented in the industry and you know being publicly traded what they couldn't couldn't do etc etc you know they haven't had an opportunity to participate in a lot of what's been going on in the community um in the culture around crypto and I I think bass is actually a great opportunity for them to participate and and help proliferate a lot of that culture without necessarily being directly involved you know their technology platform now that anyone can build on top of um so yeah I'm

I'm 100 with you you gotta you gotta be able to go where the market is and I think they've been stuck uh with hands tied behind their back historically so I'm excited to see what they can do now yeah me as well not to go too far down the Shroud but hold but I don't know if you saw that Penn did some big deal with ESPN and they actually cut oh yeah I think Prez just got it back for for zero dollars but then you know 50 of the proceeds of a future sale but nah well yeah so that's what I was that's what I was referring to it's just like the the person who made the best deal of the year so far is Dave Portnoy um sold it for 500 million dollars and bought it back it basically fully intact for one dollar

um and that that is the whole thing of what I was referencing with Barstool versus ESPN ESPN told Penn allegedly um you we will do this billion and a half dollar deal with you a 10-year license agreement to create ESPN bet uh which is the new you know betting platform that they wanted to have bar stool has been this anchor on pen for the last two three years because they haven't been able to get the gambling licenses that they need or the gaming you know uh um licenses and they haven't been able to you know move past the 16 states that they have whereas ESPN is sort of like the the polished you know Sports perspective in the industry and they basically said hey if you want

to do this deal you gotta don't get rid of bar stool and they said all right Dave we need to get rid of Barstool and he said great I'll take it all and buys it back for a dollar he also has to give up 50 of any proceeds of what he eventually sells it for but this is uh what he said live was I'm just never gonna sell it so let's talk a little bit about the what one thing I'd be curious I've been thinking about a lot and we talked about a little bit on last week's roll-up is just the value accrual that's going to end up happening in the roll-up space so it's starting to get interesting I think so for me value accrual on ethereum is very elegant um and very easy to understand uh from my perspective it's really eip1559 and there's a burn mechanism and

uh price is a function of supply and demand and the more demand that ethereum gets the less Supply that there is you know the less Supply that there is and there's a pretty clear relationship there I think on Layer Two level it's a little bit more Up For Debate and I for one have really liked the architecture that a lot of these Roll-Ups have taken on I think the op stack was the first one to really lean into an app specific architecture and since then you've had others arbitrum orbit which is a little bit different because you have to settle through arbitrum then you also have the ZK stack Etc and it seems like a pretty elegant design decision the question is where is the value capture going to take place

and I think this is playing out in a pretty interesting way frankly even between something like bass because these revenues that base are going to generate they're not going to optimism so and then the other thing that's happening I think over in optimism land is Conduit which is a essentially a Ras type solution that leverages optimism and it's looking like there might be a risk From optimism's perspective that this is where the value capture is actually going to take place I think probably the right analogy here is the open source Linux versus the you know 50 billion dollar company red hat which monetized that really effectively so it can be really asymmetric payouts depending on where you are in the stack

and where the value capture ultimately ends up being and I think you're starting to see optimism realize this a little bit they recently released something the law of chains which is hey you can really build whatever stack you want but if you want to be in super chain you have to adhere to these standards then I think what they're creating there is a little bit of lock-in and for let's say you know if you want to integrate with um like it's more valuable like let's say you want to have an integration with a company like fireblocks or something like that well the specifications are going to be for anyone in the super chain and if you're not in the super chain then maybe you can do whatever you want but you're not going to have this easy this easy set of built-in integration so what do you

think about this I mean what are your thoughts on how value capture is going to look on the roller player yeah really good question and actually here's a question back to you do you know exactly what the business model of Cantina or not Cantina um uh Center what conduit is uh because I I would I would imagine it's probably some and the services that they're providing we're we're not investors I I don't know very much about them other than what's on their website um but it seems like they help you spin up your own optimism based chain um and actually one of the people on our team they were Rajiv um was saying he tried to do it just to see what it was like and he was like

yeah it was up and running within three minutes obviously nothing was happening on it but you can truly spin these things up very very quickly um I I would imagine you know there there is going to be a fundamental question around you know what is where does value accrue to the specific ecosystems but then also the specific chains base I think is very simple it's you have the shared sequencer and that is owned by coinbase Incorporated and you know you pay fees to run on base and those fees go back to coinbase the interesting part would be okay Cantina is going to create a diaspora of other op based chains I've got not Cantina conduit it's going to create this you know explosion of new chains

are they each going to have their own sequencer are they going to rely on a sequence or network you know where does the value accrue in those ecosystems as well does that go back to you know the Linux equivalent optimism uh or is it something that gets accrued to a red hat because they're able to provide services and you know um we were talking about this internally a framework and you know sort of like what what's the future potential of uh conduit and you know how are they going to work when forward easy to spin up you pay a SAS fee probably and and what do they do afterwards well maybe they help you with devops or maybe but like red Hat's business model isn't that you know if you have you know Linux and it's this proprietary software that you can now pay them for it's that they provide you

services and um you know devops and all the things that it takes to run at scale um and that's that's how they make their money and you know it's a I think a 25 30 billion dollar purchase so you know massive business on top of Linux there's going to be a huge question as to like where it is value true in the same way I do think that there is an element here that's differentiated in that you do have a sequencer that's extracting value and it costs a certain amount to pay to use it whereas Linux is just like it's free open source software um but it will be a question as to you know does eventually you know the optimism stack decentralize their sequencer does it go to a different model where you can tap into a shared sequencer Network and that's you know

the the way that you pay for things but then they also share revenue or something along those lines um the other interesting variable here and so all that's to say like I I don't know but we're going to start to see a bunch of different models emerge um of you know maybe run your own service tap into an existing one and pay you know the existing one or or paid coinbase to use you know build on theirs the benefit though is I think you can be across all of these different ecosystems simultaneously and so maybe it's sort of a let the users decide where they want to be type question um you know I know the a number of the protocols in the synthetics ecosystem are talking about you know what if we launched on base they're already on

mainnet they're on optimism and now the question is well what if we ported our stuff over over to base just so that we have coverage of all the different ecosystems it's really easy if you're building on optimism technology to be able to have it across compatibility um so it might ultimately end up being you have all the different versions of all these different ecosystems with different value capture and ultimately the users will decide where they want to advert it and where most of the revenue is generated it's tough I think I think the way that at least I mentally walk through this just from the perspective of a potential new app chain and let's say that I'm trying to spin this up and ultimately what I could do is figure out all these modular Parts myself and as much as we

say this is open source technology and it's super easy it's probably a lift if you're not technical or there could be some layer of abstraction that sits in between you and ultimately the code that optimism has open source and you could pay a small fee but it could save you an enormous amount of time and if you're an entrepreneur that's a really easy decision to probably make and right now if I had to guess where the value lock-in happens I feel like it's at the sequencer that might be just being way too simplistic but that's kind of the you know right and left part of the bell curve that just that's what we all think right it's the sequencer so I it's probably a pretty good business model

that they've got there um totally yeah the other the other angle here which I think is interesting yes okay you've got you know a crypto native app developer uh you know who wants to build potentially their own application on top of their own chain um I think the other variable here is what about all the people who are app developers who don't know a thing about blockchains where are they going to start where is code recola going to come in and say oh we want to have our own out to L2 as well right and that'll have the total uh you know nfts on it well they're they're probably going to enter time to it and spin things up and say okay boom we've got ourselves an optimism stack and maybe they're going to have cross compatibility with coinbase to be able to say hey coinbase

users if you connect your wallets you know whatever it may be maybe it's a terrible example thinking out loud but the the idea is you know I think new entrance into the space the easier it is they're probably going to go with that and it's going to be the least costly but you know even existing applications if you wanted to move over or new developers who understand the space who want to build new apps you know there's still going to be a lot of interest in going in that direction too yeah I agree it also it's interesting to listen to the Aiden from stride the one of the co-founders described reminded me of this but developers they're not all developers are the same and usually infrastructure developers are very different from App

developers in Cosmos land those lines are blurred a little bit more but in ethereum there's kind of this group of infra guys and gals and then there are the app developers and they they're very different in terms of their skill set mindset and I think what uh products like conduit will ultimately do is help abstract some of that distinction away so that if you only care about building an app you can just come in and do that it could be Coca-Cola but it just could be crypto natives who aren't infrastructure developers but they're you know laser focused on the app layer which eventually we need we eventually want more of that I think I mean there's so many examples of this of like Heroku and Docker and uh like all the different uh just put your

infrastructure in a box get spun up sure it's going to be able to work it's gonna work for like 10 000 concurrent users not 10 million but you could test your app you could build it you can you know do all the different things you needed to without really having to worry about it and I think easing the access points of infrastructure um ultimately will make the applications better and I know we were talking about this um you know a podcast or two of like infrastructure phase versus application Phase and when are we finally going to start seeing the applications it felt like ECC was a lot of infrastructure well you know it it is because we still need to solve a lot in infrastructure but one of the big ways that we can cross over into the application Phase is we get a bunch of application developers

to not have to worry about infrastructure and and I think you know this is a good example of that I agree one thing the the last question that I'll ask you here it's it's interesting to hear you say that maybe the docker example being good you know maybe there's some sort of sequence here where you first try to get a little bit of product Market fit and you would use something like a conduit maybe even before that you're an app on main chain or something like that you're just trying to just get your product out there in an MVP type State and you don't care that much about the granularity of your ecosystem but it's just really important that you get it out there and the cheapest most cost efficient way then maybe step two is to build on a platform like the op stack that

leverages conduit and that's infra in a box and maybe that gets you to I don't know a hundred thousand 200 5 million users maybe but then event the question is what do you do after that because once you have product Market fit this I think there's a technical part of this discussion which is okay the condo it still makes sense for me at that level of scale but there's also a bundling benefit I think one way to understand what's going on with law of chains and all of these different Roll-Ups is there's always going to be a little bit of attention I think the game they're trying to play is we want the next big app that gets product Market fit to be built on our chain and if we put it all in the super chain then everyone will derive the benefit of that yeah everyone

thinks like that except for the app that gets product Market fit and it's like hey you guys are riding my coattails and that is a it's a challenging it's that's a challenging that's challenging so what I what I've always envisioned happening after that is Cosmos because that's the the next sort of logical step where you can have you can own everything you can own everything full stack and it doesn't make sense for so many products now because so few products have product Market fit but eventually you could see a lot of springboarding layer twos moving over to the the cosmo system what do you think about that I've always thought that you're gonna have the exact some similar progression of uh you start off as a smart contract on you know a really cost effective chain it's

not going to be built for scale it's gonna be built for assessing product Market fit then maybe you move into a more cost effective environment where you need the scale where the liquidity exists um you start to harden your product your service you test the scale you test the capabilities of it and then it moves into more of a multi-chain experience and I think that's where the growth phase comes in it's sort of like okay we've built everything within op and you know we started off as a smart contract now we have our own token we're our own L2 but then we need to move to like base and eth L1 I mean Avalanche and like everything Solana who knows like you need to build instances everywhere to be able to attract all the potential users and then yeah I think there is a question as to and we haven't really

even seen that many examples of that right now like you've got Ave across a bunch of different you know blockchains and you've got uh uniswap we'll see exactly how uniswap X works and maybe that's the router that enables the unified product experience across chain I think it will be um and you're starting to see cross chain compatibility d by DX will be the first real kind of test for that four phase which is own your own L1 um and I I think that there are obviously a ton of benefits for for having that um there are also a lot of additional costs and a lot of new core competencies that you have to build within the team to be able to do that well and this is like an oversimplification and personal

example but when I was at Dropbox one of the big questions in Dropbox historically was basically like cloud storage built on top of AWS and with the nice syncing function and and your utility bar um but all the all the storage data existed in S3 um and you know we're the largest AWS customer by Longshot um there is this huge effort to move all the data off AWS and build your own data centers and own the own your own data yourself and I I think one of the more interesting things that happened with that was you know there was a strategic value to owning your own data and being able to like when the server goes down call up a Dropbox employee versus an Amazon

employee but it is also it was found to be npv negative for that transaction to move everything off of AWS just because of the economies of scale that AWS had versus running your own infrastructure obviously not the same example but there is a question of what is the what is the scale and security guarantees that you get with an eth L1 um and you know one interesting variable here um I've already mentioned his name but Rajiv within framework did some analysis on this it just like where's 484 eip4844 where is that kind of trending um and what are some of the updates and

the basic update is it's looking like it will be roughly 10 times cheaper for a a an optimistic chain to put call data on L1 at least ethereum um and that does change the economics like pretty fundamentally in in favor of maybe it is actually just better to put the security guarantees into ethereum the cost of of call data is going to go down an order of attitude and you're gonna be able to have like a pretty inexpensive um to run uh potential roll-up that you can have for yourself maybe maybe that that third phase of growth where you're running your own L2 you know hat tip to him for all the analysis that he did and and you know

kind of the understanding there but it does make it quite it does make the question of like where do you want the value to accrue is it going to be something that exists in the sequencer layer and you kind of have differentiation on the sequence we've been talking about or do you eventually get to a state where you're like okay I just have to have my own chain and I have to run my own security model myself um I think it's probably more of the former uh especially if prices continue to go down for for l2s um and then you differentiate on on business model of the sequencer so the point about call data being more inexpensive is I think a very good one it's someone posted a blog post a while ago transaction throughput is overrated and

the point they were trying to make is you know people cite TPS quite a bit in terms of cost efficiency but really one of the big bottlenecks is data availability and the cost of posting data so computation and throughput is obviously much cheaper much faster on the layer twos but there's still this bottleneck of ethereum now you could there are a couple other solutions to this right there's gonna call data is going to be cheaper with 4844 I think is the name of the upgrade but there's also going to be some other data availability Solutions so eigenda is one where uh validators that opt into running an alternative data availability solution will be able to process that'll be another solution for posting call data Celestia is another routing sort of

solution there was an interesting post from dankrad on Twitter today so one of the I actually posted something about this a couple weeks ago coming back from modular Summit but kind of as an interesting thought experiment if your chain let's say you use the svm for execution you use Celestia for data availability but then you settle to ethereum what kind of chain are you and it's exactly you know it's an i it's kind of interesting and the it's sort of malformed question to be honest but all of the responses that I got were it's the settlement layer I'm not 100 sure about that actually um it's a it's a worthwhile question I think I think there's actually two

different perspectives yeah and it's a question of um to whom are you asking the question of what blockchain are you is it the developers yeah because that's the settlement chain is it the users because that's the execution engine that's a really good point yeah point being all this is just gonna be exciting to watch how it plays out and I think everyone can have their assumptions tested quite a bit in in the coming years but that'll be fun uh speaking of assumptions getting tested we should move on to xrp it looks like the SEC is kneeling that decision done done what do you think about that yeah well so this is me putting on my fake

legal hat uh my fake lawyer hat but um I uh so it's an interlocutory appeal yeah uh and what that means is um and I read the whole thing yesterday there's three variables that you know constitute whether or not you know there should be an interlocutory appeal and I'm paraphrasing I'm going to miss Parts um so forgive me but it's effectively like does this cause confusion in the marketplace um and is there sort of like an impending reason you know why we need to do this sooner rather than later the typical appeal process would wait for the full conclusion of of the suit to play through and that would also include the specific complaints against uh the former and existing CEOs which is

probably a year away and so you can either file an interlocutory appeal on the existing summary judgments right now um and see how that plays out or you can wait for the entire thing to be finalized and then appeal either the whole thing or components of uh the the case and so they they chose a lot of the former in that they wanted to do the interlocutory appeal it's specifically referencing two facts number one that the judge and the terror case said um effectively dismissed the motion for dismissal um by saying that you know the the the precedent that set in the Ripple case does not apply here and the that one is

sort of a weak argument um but it's you know you basically saying like we can't use the precedent set in the Ripple case to therefore dismiss this case these are two separate cases um the bigger one I thought was the confusion uh that lies now in the coinbase suit which they also referenced saying coinbase is now referenced has put through a motion to dismiss our case and they reference Ripple as one of the reasonings for why they should dismiss um the coinbase suit so obviously you know I I think I obviously don't know exactly what's going to happen um I don't know where sort of you know the the winds are blowing in terms of these perspectives

um it seems like the timeline here is in the next like weeks not months in terms of figuring out whether or not this will happen I know that what does happen is the judge in the Ripple case as well as the second circuit itself will have to approve this interlocutory appeal which will effectively pause all of the continuing stuff going on in the Ripple case and until they can reassess the the points that were summary judgmented um uh a couple of weeks ago so it's interesting I think um a lot of people who know more than I do were expecting something like this to happen so it's not as a huge surprise and this was actually the week that everybody was saying you know if it's gonna happen it's gonna happen this week

um so it'll just be interesting to see how it plays out I think um you know we can't hope for these different opinions and different judges to to come and create the new standard that's not how these rulings work um we have to have new rules and regulations so I think this just furthers the the need for there to be you know congressional action um and and that stuff that's happening concurrently um and we'll see where that lands in a couple of months once recess is over but yeah it's um unexpected or not not anything that's unexpected um and uh I I would say it's probably 50 50 as to where it ends up now I think

the the generally expected or the consensus would be that if this were to get reversed then the only two crypto assets that would be pretty safe from being deemed security so be Bitcoin and eth I think it's up in the air for almost everything else then I think you need to probably reapply the discount rate that you're applying on other all coins frankly and yeah it's I mean it's definitely something very meaningful I have no knowledge really no special knowledge better than anyone else listening to the show on how these things play out in court so I guess we'll just knock on some wood and cross our fingers here because that would kind of suck if it got reversed I mean the other thing here too is okay

so let's say this does get appealed and it does go through and it goes through in favor of the SEC well the next step would be to reappeal and I'm sure Ripple would do this reappeal to the Supreme Court and that's you know I obviously a choice that the SEC has decided to go forward with but one of the perspectives that I heard is well you know if you appeal it you run the risk of having it go your way the next time but the next and final step after that is is the final uh final boss of the Supreme Court um and we know how they feel about overreaching uh administrative uh bodies just based off of some of the rulings that they've had in the last six months

uh and that Court's probably not going to change in the next three to five years when when that would get adjudicated so it is a risk for the SEC you know as they progress this up and up the hill you guys had a an investment in spear bit uh now I think being formally named Cantina or that's the name of the marketplace that they're creating but talk to us a little bit about that investment because I feel like auditing is just so critically important these days for D5 protocols that we're coming off you know two weeks off the back of the curve X exploit and it just feels more than ever that we need to solve this issue so yeah what was behind the investment or whatever you can say yeah so 100 agree on the need to solve this it's probably one of the most glaring

issues that that has existed since day one that hasn't been solved and it's not something that you can really solve with a clean easy fix cyber security in general is sort of a whack-a-mole problem um and and you know everybody continues to get more sophisticated over time on both sides um and so yeah the the back story is spirit is you know they're one of the top brands in auditing um over the last few years and have sort of the traditional business model of you know engagements where you know uh um they dive in and do a project do an audit there's some Cycles on it but they're really kind of meaty sized projects where you know these can be 100

150 200 000 per engagement with you know tens to hundreds of hours of security researchers time going into these specific Audits and that you know is is Big they're clunky they're kind of hard to you know schedule you know back in the bowl cycle you'd hear of people like pre-scheduling nine months out for you know their audit with one of these firms because they wanted to reserve that time so that they wouldn't have to wait another six months once they finish the work to be able to get the audit in I mean it's a it's a finite resource and um these things say time and and so from that and and really kind of the thesis is Cantina will become more of a Marketplace for security where you

didn't have bite-sized engagements and continued um work with consistent security researchers who will you know basically become you know extensions of your team that can help with hey we can do a full engagement you know we can do the full audit but maybe you need to check and upgrade or maybe you need to spend three weeks this week and it'll be on more of a bite size per hour type engagement so really kind of turning the security model and the existing business model of a lot of these firms on its head I mean the other thing too is when you have an engagement a vast minority of that total engagement values actually go into the security researchers and so they miss out on a whole ton of the economics that

they're generating and we feel like that's unfair and we want to make sure that it is that we're lifting up security researchers and being able to create brands for themselves whether they're full-time or part-time workers in this industry being able to have reputation I think will go a long way to creating long-standing relationships and you know you'll better understand who the best people are and they're going to be able to rise the ranks and it'll be it'll be kind of a fun game to see how it plays out um so yeah excited to see this new model go forward and decided to invest in spirit how are you thinking about managing in terms of the one of the um things that I always think about with marketplaces like this where you're

connecting two different groups of people who will mostly be working in an offline sort of environment how do you ensure that people don't kind of come off the platform and end up you know trying to circumvent Cantina and not pay the fee yeah I mean I think with any business any marketplace right it comes down to a few things it's sort of like ease of use so how easy is it for the marketplace if you're if the marketplace is a point of Fortune then your your DOA um if it's a facilitator of these types of interactions then it actually is a lubricant um so you know things like payment uh facilitation and um I think all of that makes it really easy but the big one here is also

reputation and so if you have you know really high reputation on platform um you're able to Garner more work or hire higher uh per hour work um that becomes your business right um and I think a lot of that you could think about it like in an Airbnb model of people wanting to be on the Airbnb platform because that's their inflow of New Opportunities and people will go to the Branded place to find those opportunities when they're you know uh so when they're demanding the services and and Supply will exist there and so if you can build you know successful controls around uh easing friction and making reputation

um and revenue opportunities on both sides I think you know that's how you build a really liquid market for this because really that's what it is it's a Marketplace for security um and there's a lot of other stuff that's in the hopper in the works right now but you know those are kind of the basic principles it's been a week um hopefully we we come back with uh next week with more good news honestly another PayPal type company launching a stable but you know if this one thing that I have had a takeaway just being in Block works for the years the the news is just so uncorrelated to price some of the things that have happened in the cup in the last couple months news wise if

this had been a bull market you know there would have been tweets with 10 000 likes and people would be saying the Market's going up because of this news and the market do not have the correlated relationship that people think I really believe it so I I was actually thinking about this this week thinking about PayPal launching a stable coin on ethereum okay if you take it all the way back and you bring it back to like 2017 ethereum would have popped 100 on that day right yeah and you know it had it has a lot to do with like liquidity and you know interest but that's like a oh my gosh you know Enterprise ethereum Alliance is actually doing something and it's legit it's not just Promises of these BD relationships which even move ethereum 40 or 50 when they announced that day

um you know and yeah you get more mature and you're like okay in 2020. if we had a couple of stable coins and we had a couple of you know D5 protocols that were working but then you have PayPal stepping in and you know the Big Brand and they're going to bring like the institutions are coming became real because the institutions literally got here how big that would have been um like that would have been a huge day as well you know and and I think you know ethereum was flat when PayPal launched you know this year it's like I think there is an element of the industry matures to where proof is in the pudding just because there's an announcement doesn't mean anything let's like show me in the data after it's working I think there's also some questions as

to like will they be able to get this or is this going to be another Libra you know announce the protocol the product and like you know have Congress you know show up on your front door um and and then also uh like we already have so many working um you know centralized and decentralized protocols uh the stable one protocols um and like is the market saturated there with usdc and you know the other the other one that we didn't really talk about on the decentralized side is like dye has had a heck of a week you know with the DSR changes and um you know it's jumped up like I think six or seven hundred million dollars this week and like there's there's some really

interesting stuff going on in the stablecoin market um so it's sort of like do we need another one right now but um ultimately this will be positive I think the data will actually come through and a number of people who use PayPal religiously and I'm sure would love to entertain using uh pay USD is actually pretty high um so I I'm very hopeful for this one um I don't think it's just to be a flashing pen yeah me too I think so I flip-flopped a little bit we covered Maker's end game a little while ago I was not super positive on it I recently come around a little bit on it and think I maybe I still don't feel like I fully

understand it but I I've I've started to change my mind a little bit but here's what I generally think about stable coins is that stable the market for a stable coin a successful stable coin at scale is gigantic I kind and it's very difficult to do history would prove that out so if you're going to be offering a stable coin I would like to see that be the only thing that you do is generally how I think about this stuff because I think it's just too much I think if you're viewing your stable coin as an alternate Revenue stream or something that fits into a broader pie it's just too risky and it's already going to be hyper competitive and intense and I I kind of think I already think it's going to be a winner take most market so that's sort

of my thought on stable coins is that if you're gonna as your stable coin it should just be the only thing you do totally fair and you know end game is gonna be really fun to watch it's kind of my perspective um and I'm glad we're taking shots you know like trying different things and um so yeah I decided excited excited to see all that but um I agree I I I I think uh yeah building your own currency is is difficult enough Atomic equation Circle had 779 million in revenue for first half of year already surpassing the 772 million for all of 2022. the private firm generated 219 million in adjusted earnings before interest tax so ebitda outpacing the 150 million for all of

last year they have over a billion in cash on the balance sheet so it's been a tough couple months from the market perspective like a market cap perspective of usdc but they've got a money printing machine on their hands definitely rare for them we need more Jeremy alaire's and more circles um but it actually makes sense because it is uh I mean think about it June July last year was when interest rates started Rising yeah and that's half the year and we've just passed the first half of the error and it's almost the exact same number so like yeah you turn you turn on interest rates for half of last year and the first half of this year the number is probably going to be the same I would guess they'll finish the year at twice

what they did last year that's so Michael do you think when Jay pal started hiking interest rates Jeremy was just like let's go boys he's doing cartwheels yeah I mean it's an interest rate it's an interest rate business model so it is you know it is I feel like I agree though I was just I feel like it prints in both directions because in a bull market there's just more Capital coming into the space overall it's probably good for your business but in a bear Market there's probably a pretty high correlation between bear markets and when interest rates are going up and then at the same time stablecoin

dominance probably goes up during a bear Market I would guess a lot of people used to move entirely into Bitcoin but now they probably go into Stables so uh yeah and I also don't think we're getting back to zurp anytime soon so I think they're going to be around for a while I don't think so either that I mean that yeah you reference CPI that report came out at 8 30 this morning they it was I think still below expectations there was 3.2 headline versus 3.3 expected but it's basically yeah this is basically in line with what folks thought and you know it's not Jay Powell did say during the last fomc that he doesn't expect two percent inflation to

come back until 2025. so that's probably an important date to lock down but um higher for longer hard for longer baby all right for longer macro we got our macro pod uh commentary in there so like we can edit on that Michael and uh see you here next week [Music]