Galaxy and Sky: sUSDS as institutional collateral

Transcript

if the tokenized market grows to many trillions of dollars, which I I actually do believe that will happen in the next five plus years that SUSDS could easily become a hundred billion plus asset. Galaxy bought an undisclosed amount of Sky tokens and is now holding $100 million of SUSDS on its balance sheet. Is this the beginning of institutional money finally coming to DeFi? And what do crypto investors need to know about all of this? Hello and welcome to Milk Road Crypto, the show that knows that when Sky and Galaxy team up on the future of finance, the only direction to go is to the moon. I'm your host, John Gillan. Today is Tuesday, September 29th, and today we are joined by two guests, Max Baris, head of lending at Galaxy, and Greg Fibbus, global head of capital markets at Sky Frontier

Foundation to discuss their new partnership. We're going to tell you all about it. There's going to be a lot of alpha in this one. If that sounds good to you, make sure you like and subscribe. Share this episode with somebody who needs to hear it. And as a reminder, our podcast today is free and that would not be possible without our wonderful partners at Nexo, the digital asset platform that lets you trade, earn, and borrow all in one place. So keep an eye out for more information on them later in the episode. But for now, welcome to Milk Road Crypto, Max, Greg, gentlemen. How are you today? >> Doing well, John. Good to see you. >> I'm doing well. Thanks for having me, John. >> Well, I'm glad to have you guys.

Gentlemen, before we dive into this new announcement, this new partnership uh or new, I guess, agreement in the ongoing partnership, tell me a couple sentences each about your roles at your respective firms and your involvement in the partnership that's been announced. Uh Max, let's start with you. >> Happy to. So, Max Bares, I'm the head of lending at Galaxy. You already mentioned that, but I've been here for uh almost 5 years now, which in crypto, you now have seen multiple cycles. It's been a great time to be at Galaxy. We run a number of different things in terms of the lending book here. We've been long-standing power users of the Sky ecosystem.

Really excited to talk about some of the things that we have going on uh with a number of the different teams within the Sky ecosystem, how we've been able to partner, and then talk about what we're doing at the actual Sky level now with Greg and and John who have recently joined. This has been uh a long overdue in terms of us codifying this partnership and really happy to make that announcement here. >> Awesome. And Craig yourself? >> Sure. Yeah. Unlike U Max, I've been at Sky for almost five months, not five years. But global head of capital markets really that's multifaceted role that concentrates on working alongside our risk team to really uh focus on asset liability management for the

balance sheet uh and really kind of balancing our you know requirements around liquidity with our current kind of investments. And so there's a a part of certainly working closely with the the various [clears throat] agents who are looking at their own allocations but looking at that from a portfolio level you know kind of grouping exposures together and and ensuring that the the protocol is operating at an optimal level where liquidity is there but we're also optimizing uh the yield and the return that we're getting for for SUSDS users.

>> Gotcha. Okay. So before we dive in a little bit more to the ongoing relationship between Galaxy and Sky, let's just talk a bit about what was announced last week and what you think people should know about some of these headlines. Um Greg, let's start with you on this one. Talk me through what's been announced and what the takeaways are here. Yeah. So, so the major kind of headline announcement I would say was the hund00 million allocation from Galaxy and their their balance sheet to SUSDS, which is our our savings um token that's issued by the Sky Protocol. Uh that was obviously the the headline number, but you also have um a purchase of Sky token, which is the the governance token for the protocol in

addition to accepting SUSDS as collateral. Um obviously the the unlock there was having underwritten it themselves, which Max can can talk to you about making it available to their their clients as acceptable, you know, collateral for the lending desk. >> I I can piggyback on that. So, I I think more than anything, and this will probably bleed into what was going to be your next question anyway, but from my standpoint, $100 million of SUSDS is more of a codification than anything else. We've been power users of the Sky ecosystem for a very long time. We had SUSDS on the balance sheet many times throughout the my time here at Galaxy. And so this

is more of just a formalization. Putting $100 million on the balance sheet is sort of regular way course of business for us. It's a really good way for us to effectively do uh treasury management for the digital asset balance sheet. There's a number of different things that allow you to both put on additional SUSDS positions and then also utilize it on a weekend for example when you have clients coming in for large flow. And unlike something like a treasury bill or even a traditional money market fund, I don't have to wait until Monday morning to get out of that position. And if I have a large ticket that comes in from the trading side of things or the derivative side of things or even a loan, I have the ability to to move that

position on chain and be able to get myself the liquidity I need to continue to facilitate the business that continuously flows to Galaxy 247. Seems like the weekends are oftentimes the busiest, which uh I know can be fun from time to time, but that's that's the business we chose to be in. >> Max, I I want to ask a little bit more about this. Clients of Galaxy can now post SUSDS against a Galaxy loan and they can continue earning the savings rate the whole time. Explain a little bit about what this unlocks for the the lending business at Galaxy and you know, what people should know about this as investors in in crypto and digital assets who might be, you know, potential users of some of these products. Yeah, I'll start with the underwriting process. I think for anything that we

look at as a collateral type, we're always looking at the correlation between the two different assets. And so when people are posting SUSDS as a collateral object, they're likely borrowing some kind of crypto token, there's a number of reasons people would do that. One of the main examples could be uh VC has a locked position they're trying to hedge. there's some sort of funding rate arbitrage that somebody can can do if they have access to the token. On the underwriting side of things, we're looking at the liquidity of the token. We're looking at the operational mechanics of going in and out of the token so that we have a deep understanding of how can we trade out of our risk in the event that somebody goes into a margin call or missed margin call. And then we have the ability to

get out of that position in a timely manner to make sure we're also not moving the market in a way where it puts undue risk on whatever the assets may be or the pair may be where we have that, you know, 24hour margin period of risk where we're doing the analysis based on the counterparty we're facing. And that puts us in a a really good riskmanagement position to be able to accept that as collateral and then also uh provide the leverage against it. And it it just makes a lot of sense for us to formalize this announcement. But it also allows our clients to continue to earn yield on their their cash position really in the interim while they're putting on whatever the trade may be.

Just want to pause for a quick second to remind you all that the crypto bull market is back. I have been deploying capital into altcoins that I think are going to do very well this bull market. Some of them are already up over 2x from where I entered. So if you want to see what's in my portfolio, what's on my watch list, and have access to me in Discord to ask questions 24 hours a day. Join Milkroad Pro now. The link is in the description. It's just a dollar. I'll see you there. Okay, gotcha. Greg, I want to ask you a question about the the collateral asset uh aspect of SUSDS. I've heard you say that ple pledging treasuries as collaterals is normal in tradi and that you're you're trying to angle for susds to be seen as sort of the onchain treasury bill. Talk to me a

little bit about that and what has gone into sky's efforts to bring to market such a high quality you know collateral asset here. >> Yeah, I mean ask you know Max about different forms of collateral. I'm sure Galaxy like any any cryptonative person who sees this announcement is like okay a new collateral asset but the you know accepting a high V asset compared to like even a T bill right they have vastly different VA profiles and so that's why you know you can lend it Max's team can lend at higher LTVs for some lower for others and and kind of you know view that in a in a different way and so SUSDS fits into this this like super low

kind of bucket, right? Which allows for uh more attractive LTVs for borrowers. And at the same time, it's also productive capital, right? Where they're they're generating yield while the asset remains, you know, within within custody at at Galaxy through, you know, perhaps one of their their custodial partners. Um which is how the the Galaxy warehouse um Grove warehouse uh facility was set up, which we can of course get into. But yeah, I think it's all about, you know, bringing productive assets to the table that have a an attractive volatility profile and uh make them make them attractive collateral assets. So yeah, the advent of of T bills was I think the

first you know the T- bills on chain was was really the first time that we saw that within within DeFi. I think you know having having been at ato very early and and Midas etc who are all issuers of some variant of a of a of a T-bill token you know that that was a very obvious first mover type of use case um through you know through onchain lending markets and and that's where I think you you saw the first set of users attracted by assets like pledging collateral other than let's say ETH or stake ETH or or Bitcoin and and that continues to be an area of growth, especially when you factor in, you know, traditional financial firms

coming on chain. This is this will be one of the the the triggers that, you know, because they see the they I think they see how the the two worlds are colliding because it's it's effectively the same asset or a variant of a similar asset. >> Sure. Okay. So, let's talk a little bit about the two worlds colliding. Obviously, this is not the first thing that Galaxy and Sky have done together. Greg, walk me through a little bit of the history of the partnership here from your perspective at Sky and just talk to me about all this through the perspective of institutions coming to DeFi.

>> Yeah, I I would love for people outside of Sky to think that I'm some like genius dealmaker, but here's the truth, right? The truth is that a lot of people laid a lot of groundwork before I got here. Again, I've been here for 5 months. I've known a lot of these people for a while, but yeah, I mean, I'm not going to take credit for for their work. And so, with that being said, I give a lot of credit to Grove and and the team there, Sam and Mark and Kevin for having structured uh a CLO, the first tokenized CLLO alongside Max's team at Galaxy. Sky was and Sky via Gro was was the first uh allocation into that structure. I believe it was a $50 million allocation

uh with I would say a lot of the the same kind of credit structuring tenants that are available in in similar structures in in the real world. And so Max could probably talk a little bit about that in time. Well, yeah. I mean, uh, on on the back side of that, right, we had the Galaxy Crow warehouse come to market. That was obviously a larger allocation with I think this yellow being maybe a bit of a test trade in a sense. I mean, it was real real yield, proper structuring, you know, uh, the first loss capital there available for Sky to make that investment into the structure. But yeah, the warehouse was a $500 million ticket whereby um Galaxy

then originates over collateralized loans to their borrowers um with very very kind of structured and codified elements to that warehouse where you have you know things like collateral composition you know limits and uh single obligor concentration limits and you know very firm liquidation thresholds and LTVs and things of that nature. in addition to certain legal protections as well. So when you look at all these things in addition to Galaxy working with Spark and and just Max, you know, having spoken to the kind of the long history of of Galaxy, you know, kind of tangentially touching the Sky ecosystem.

What I was getting to earlier was that for me, you know, putting all those pieces together and and, you know, helping construct this deal with with John on our side who who runs bisdev, it was kind of easy in that respect because you were already working together in so many different places and and you know, the firms were um were really working together in in a lot of different ways. >> Okay. So, there's a lot of pieces to this, a lot of history. Uh, Max, I'd love to hear your perspective on this and the developing relationship with Sky over time and and and where we are today.

>> Very happy to to go into detail there. We've used the the Sky ecosystem for a very long time. I think even before Grove, we've been a user of Spark and Sparkland for for a very long time. They were one of the select number of protocols that we added to our Galaxy onchain financing rate. Uh, Gopher for short, which is a play on sofur. that made a ton of sense for us and we've also used that as sort of like our our way of engaging with the Sky ecosystem very early on. I think worth stating I think most people know this but Sky which was legacy maker DAO is the oldest if not the absolute oldest onchain protocol and so there's a ton of history

there. It is one of the most tried and tested onchain protocols out there. And so there's an element to the way that we engage with DeFi where time is a component in terms of our trust for an onchain protocol. And there's no older protocol out there when you talk about the time test where that has, you know, a ton of pen testing as well just because it's been out there for so long. Since then, we uh started working closer with the Grove team. We did the Arch Galaxy Grove CLLO at the end of last year and then the natural extension was we have these deal docks that we did for that onchain transaction where we did

the tokenization component and then we just did the next iteration which was Galaxy you have a large institutional lending business why don't we create a facility where we can warehouse some of that and it just was a very natural progression I think that this the actual Grove team is incredibly well talented in terms of their their structuring, their credit backgrounds, and there was a lot of really creative time, effort, a lot of hard work that was done not only by myself, uh, Griffin Tidy on my team spent a ton of time with the with the Grove team, but then also, uh, Keith and Sam over at the Grove team to get that actually stood up.

>> I really appreciate the context on this. It sounds like you guys are you you're talking in a lot of jargon and it it's clear to me that you guys are deep in the weeds working with each other and I think that's really encouraging because there's there's clearly a lot of conversation going on, a lot of moving parts to all of this. Max, I'd like to hear you expand on the decision that Galaxy made to purchase Sky tokens because that wasn't necessary to access SUSDS, but it does seem to be a very strong vote of confidence in the Sky protocol. Talk to me about that decision and and what went into that. Yeah, I definitely need to be careful in terms of talking about balance sheet and uh directional positions especially interquarter. I think it was like I said a a codification of the partnership. I

think that from our standpoint we wanted to show a vote of confidence. We wanted to show that we were a good partner. Undisclosed amount. I think the SUSDS as a savings token talking about the number and the announcement was a little bit easier, but from our standpoint, we we like what the Sky team's doing. We have a deep rooted partnership there and so it just kind of made sense as like an overall codification of everything that we're doing together. >> Gotcha. And just general alignment. Greg, I'd like to ask you a question about this. Our audience are primarily, you know, digital asset investors and we're interested in things like tokens.

Um, Sky had one of its best quarters ever. It was $100 million of revenue last quarter. I watched your your quarterly report on that and it was really impressive. Um, SUSDS supply is up over 150% year-over-year. Talk to me about the growth and uh just like what you're seeing in terms of the the trajectory for the Sky ecosystem and where the token fits into all of that. Yeah, I think it's it's largely kind of taking on the meaning SUSDS is largely taking on the the risk return uh dynamics of of the market. So when when you know Bitcoin and other risk on assets start to start to pump, you'll see an exit from SUSTS and dollars

moving to, you know, to other places onchain and and sometimes they'll move to, you know, to to places that have some juicy short-term incentive program or something like that for some new chain launch, etc. like our users know where to store their money and to keep it safe, but then they know how to obviously extract value when when it when it appears. And that could be through, you know, spot markets or pers or whatever they're doing, right? Farming, etc. But yeah, I mean, I I think the the biggest thing for me in the short time that I've been here is seeing those assets um come back, right?

So, so kind of using SUSDS as a as a almost like a a checking or a savings account of of sorts where um you know the money is is understood to be safe. It's akin to a bank, right? I'm not kind of likening [clears throat] it to that, but I would say where people know that their money is safe, you know, they see the level level of collateralization, they see that we've adopted Basil 3 like uh attributes to risk management. And so what I mean by that is that we have various levels of of kind of risk capital within Sky and we use um the growth of the protocol via surplus to contribute to that to that um uh to

those risk buffers. And so what I mean is that at the agent level each agent has a respective amount of surplus that they use to create a a a risk buffer of first loss capital. And then at the sky level, at the protocol level, we also have a buffer. And and so in totality, we have over hund00 million of risk capital. And so even if there was a loss in one of the the constituent parts of the portfolio and you know, we we have exposure to some private credit or you know, very small amount or or some other types of assets. If we were to ever take a loss, that would first hit the agent at the agent level and their first loss capital. And so it probably would never even cascade to the protocol level first

loss at which point right that is only the point if that's superseded that the actual USDS user would would even you know realize that anything happened per se and so um thankfully we haven't had those types of of incidents because of of the risk management that we that we use uh and that we employ on a daily basis. But uh it's just I think a sign to Max's point of Sky has been here for 10 years. It's the oldest protocol on Ethereum. It is tried and tested and proven through every single market condition through the likes of 1010 and and other types of events that have happened over the course of of of crypto

history and and in macro as well, right? >> So yeah, I think it's um a case where >> you can definitely attest to the risk management going through the Grove CLLO. They are super detailed and thorough and hat tip to to them. I also think it's worth maybe talking about just the sky overall balance sheet and you know how large is it? What is the liquidity profile? How do you think about liquidity? I I think that that's uh an interesting thing to talk about and then also the stickiness of capital across some of the the the deposits that have gone into the sky ecosystem.

>> Absolutely. Absolutely. So, I am actually going to pull up my my dashboard here, my Sky dashboard in real time, and go to uh our liquidity tab here where we have a uh a surplus right now of $4.13 billion of this is this is unencumbered USDC held in a qualified custodian at Coinbase. So effectively this is your kind of topline liquidity that's available available for atomic redemption. So when Max as the head of a lending desk is looking at underwriting SUSDS as collateral, right, he was talking about the availability of liquidity over a weekend when, you know,

world leaders choose to take certain actions that may have cascading effects in not only crypto but also macro markets, right? And this is why we've seen hyperlquid become so prominent because you have the likes of crude traders who are unable to access you know crude markets on the weekend but you know users on hyperlquid trading you know WTI or WTI future equivalents and >> yeah and I was kind of leading the witness there that kind of goes back to something I was talking about earlier where the asset liability composition of the Sky balance sheet is one of the things that makes SUSDS an attractive balance sheet asset for Galaxy. It

allows for us to do something like a asset liability matching exercise where we can go out and we can go source a one-year borrow. And so you normally have to pay term premium for something like that. So if I'm paying 200 basis points over sofur, I can then look to reduce my carry by immediately putting it into a savings token. So now I'm holding SUSDS, but then in two weeks I have somebody who comes in for a three-month or a six-month borrow. I can then take that down and then use that to then lend it out. So, I I I think that's like I'm probably going to put words in Greg's mouth, so correct me if I'm wrong, but I I think that's how the Sky ecosystem wants trading firms to to

utilize the SUSDS market because that allows for them to grow the ecosystem, but it's also a really prudent way for digital asset trading firms to think about their asset liability composition to make sure that they're in a position to not get caught wrong way, which is what we saw in 2021 and 2022. too where people had a bunch of open term borrows. They were lending out on term and then they had to pause withdrawals. >> Yeah, 100% Max. That's that is how we look at it. I mean, I think we're extremely conservative with the way that we, you know, pursue ALM and if you log on to sky eco.blockanalytica.com, blockanalytica.com you'll be able to see the dashboard and

the the liquidity waterfall that informs right these types of of activities. So for example you'll see that of let's say $9.63 63 billion in all in current allocations. 8.9 of that can be redeemed within a week. And then you can granularly see, you know, within a one day window, a 3-day window, a one week window, how those exposures kind of add up to that amount. And that's the way that we construct the book. And that's what gives the likes of of someone as institutional as Galaxy kind of the the confidence to really use SUSDS not only in their own balance sheet but also as uh accept accepted collateral within

their lending business. >> You know, one of the weird things about crypto is that the longer you're in it, the more accounts you seem to end up with. You buy in one place, trade somewhere else, earn yield somewhere else, and if you actually need capital, you end up having to sell something that you probably wanted to keep. That's why we at Milk Road are partnering with Nexo. These guys keep the whole thing under one account. You can buy, trade crypto, earn interest on what you already hold, and even borrow against your capital without having to sell it all in one spot, all in one account, all on Nexo. So, if you need liquidity, but you don't want to give up your position, or you're already holding crypto and you want to be able to do more with it, I think Nexo is worth your time. We love

working with them. I think you will, too. Tell Milk Road sent you. This is one of the reasons why I was so excited to get both of you on together is to just let you all have a dialogue. So, I I'm glad we went through that and I hope the audience understands a lot of of what's being said here and the significance of all this. I want to talk about the future of institutional DeFi and institutional capital coming to DeFi. Uh Max, I've heard you say that institutions want onchain credit, but they don't want to build the infrastructure to access it. Talk to me a little bit more about what you mean by that and what does it look like for institutions to finally start accessing DeFi with with their capital in size and and how you see that starting to actually happen here. So I definitely

said that when I was talking about the Gopher product. So uh what I mean by that is there's a lot of people who have engaged with crypto and there's a complexity when you go from I'll use Bitcoin as an example. You take your Bitcoin, you want to get leverage on Bitcoin. You've heard of these amazing onchain borrowing opportunities, but they have no idea how to turn Bitcoin into wrap Bitcoin, CBBTC, or a usable asset on some of these these protocols. What Galaxy can do is they can offiscate away the complexities that sometimes are associated with DeFi. You can post the Bitcoin directly to us. We can wrap it on your behalf. We can then take that and we can put it onto the onchain protocol. Most of the onchain protocols

if well I actually think all of the onchain protocols that we engage with for Gopher have auto liquidation and so Greg had mentioned 1010 uh also February 5th earlier this year there were mass drawdowns in terms of uh liquidation levels etc that put stress on that auto liquidation component for onchain activity and that creates market risk because you might get auto delevered without realizing it. Galaxy just because of the way we're set up, we have the ability to send margin call notifications to people as we're approaching liquidation levels so that we can make sure that we're in a position to handle some of that for the different counterparties that want to engage with DeFi but don't have

necessarily the 24/7 operational capacity that we do. And then in addition to that, I think with frontier AI models getting more sophisticated, we've seen an increased number of exploits that have happened over the last 12 to 18 months. And with that, I think that there's a level of galaxy sophistication within the ecosystem. We have certain things like hypernative alerting and the ability to flash loan between the different protocols to port over risk. And we're constantly also thinking about different ways to mitigate the risk such as engaging directly with some of the protocols where we can do off-chain borrowing.

That way you can have some of your collateral where we don't even need to take it and wrap it. But we have deep ecosystem partnerships where we can go directly to some of the protocols that may or may not have been mentioned already on this and borrow from them directly and pass back through the rates that you're seeing on chain. >> Thank you for that uh context there, Max. There's so much to this and I I feel like um our audience might need a little bit more of like um a history of DeFi and like deep dive on institutional lending to to grasp some of this, but I think there's a lot of alpha in this.

I'm just going to have to watch it again slower myself. Greg, I want to hear what your thoughts are on this. Like what what are the conversations been like with other institutions? Um where are you seeing demand for onchain credit and and what does it look like to bring more institutional capital into DeFi? >> Yeah, I mean I think we're we're at this kind of inflection point. We all had hoped that clarity would pass, but now we're seeing kind of the SEC, a CFTC step in. It used to be the case that it was regulation by enforcement, and now we're seeing, you know, regulation or or um anticipated regulation by necessity.

It feels like at this point, you know, I think the industry almost feels as if, you know, that the legislative route has kind of run out, that opportunity has run out. I don't believe that to be the case entirely, but I do think people are just kind of burning out um and and have exhausted that that route. And so I do think we'll see some some really interesting innovation from from the SEC, CFTC. We obviously saw the innovation exemption, things like that will contribute to more firms coming on chain uh and they'll see the opportunity. I think there is still a good deal of hesitance from like actual traditional financial institutions. I'm not talking about

crypton natives that for the last 7 to 10 years our industry has said you know is are institutions. I'm talking about true institutions, corporates, banks, real you know players who have real institutional capital to deploy. that is becoming true, but it's becoming true slower than we'd like to see. Those conversations are mostly rooted in proof points like Galaxy, right? A public company, a NASDAQ listed company putting SUS on their balance sheet, right? That is a a sign of confidence to show others. I would also say that S&P rating uh of Sky was actually a a watershed

moment for us. um that allows for traditional institutions to underwrite Sky and you know they they view S&P and other other ratings agencies as as kind of a north star for these types of of credit related activities and so if a if if a rating agency like S&P is is is able to you know to to give us a an actual rating that you know if we're passing the process at all right that's actually a sign of confidence and allows us to to really ingratiate ourselves with like the bigger institutions. I think the first sign of where they would come in is with an allocation to SUSDS.

It's I think more unlikely to be the spot holding of of Sky. Although I think Sky could be a great part of of some type of like you know index type product for for more traditional institutions who are creating those types of products. But yeah, I think SUSDs were having some really positive conversations there with like, you know, really big institutions. >> Max, I'd love to hear your perspective on something Greg touched on, which is the Clarity Act not moving forward, but the SEC and the CFTC moving forward on regulation. The bill would have banned yield on idle stable coin balances. That didn't go through obviously because the bill didn't pass. How does all of this net out in your calculus for Galaxy in terms of what they're they're they're

doing on chain, what they're trying to do in in crypto? Um, and just like how have these regulatory events um impacted the the projected growth of of what Galaxy is working on in crypto? >> We're an institutional firm, so we've always taken a belt and suspender approach to everything that we do. And so what I mean by that is we've been waiting for regulation. We've been preparing for sort of a worst case scenario all along. And so everything that we've done has been with the lens that the SEC is going to enforce sort of similar to the way they did during the Biden administration. And I I I think getting more clarity, for lack of better terminology, out of Congress would have been

excellent for the growth of the digital economy. I do think now we're starting to see the SEC come in to Greg's point earlier on the innovation exemption and you're starting to get a little bit more in terms of relief and exemptive relief that allows for people to engage a little bit more easily with sort of the onchain ecosystem because that's that's really what the innovation exemption is trying to promote. >> Gotcha. Okay. So there there is some some constructive tailwinds on some of all of this. Um and we'll kind of have to see how that plays out in the markets. Greg, I'd like to get your thoughts on, you know, what is the next marginal institutional look adoption of of Sky look like? I it seems to me from what I've heard you say that SUSDS is

sort of the product you would pitch to them. Do you go to them and use Galaxy as a case study and like what does that conversation look like and and what is the pitch for for future adoption of Sky here? >> Yeah, I mean I think Galaxy is a bit of a case study, right? because the business is touching so many parts of of the Sky ecosystem, right, through Spark, through Grove and and perhaps through other avenues, obviously SUSDS, and obviously those allocations help feed into surplus for what ultimately power powers SUSDs through through a governance set rate. But yeah, I mean, I I do think it's a really good road map for how we could present it to institutions.

I do think there are institutions who are building more DT kind of oriented solutions that might never right I think like actually bridge over to using a solution like sky and and that's fine because we think that there's a massive address addressable market where I do think there's a massive opportunity is in the tokenization space and yeah Sky allocates to some tokenized products I you know we're also exploring some off-chain uh options as well just to um to further diversify the portfolio. But what I would say is that in tokenization you have these assets that have vastly different uh liquidity profiles. And so

when you look at just to to to show both both sides of the curve, right, you have like a money market fund versus like a quarterly or you know yearly redeemable private credit asset, right, from from one of the the private credit managers. And so if those are both tokenized, obviously you can you redeem the treasury or the money market fund in call it one to two days of of settlement, but uh the the private credit vehicle in in a quarter or whatever it may be. And even then, right, you have to cue sometimes and your redemption isn't met because that redemption capacity has been exhausted and then you get pushed to the next quarter. And so there are a lot of risk

there when it comes to using these assets as collateral within onchain lending markets. Right? To Max's point, you need to ensure that if you're accepting that asset as collateral, it is redeemable or liquidatable, right? In the event of a market that's cascading downward. And so I I actually believe that SUSDS is the perfect asset for these liquidity sleeves that sit alongside these tokenized assets and allow for atomic redeemability. Not of the entire position necessarily, but of of some portion of the position. Yeah, we we're really pushing on that narrative right now. And we believe that if the tokenized market grows to many trillions

of dollars, which I I actually do believe that will happen um in the next, you know, five plus years that SUSDs could easily become a hundred billion plus asset easily and and that's through various different levers with one of those levers being you know inclusion in these in these liquidity sleeves. >> Okay. So you guys have built a great product taking it to market and getting the adoption is the next step there. Max, what's on the horizon for Galaxy, especially in the onchain um lending business? You guys have been very involved in this, very active. What's on the road map? What are you looking forward to on the horizon? Talk to me about the future outlook for you guys.

>> I think the future outlook for me is or Galaxy, I should say, is trying to figure out the proper way of continuing to scale and grow our lending business because we have so much demand, but trying to do it in a way where it's a little bit lighter on the balance sheet side of things. And I think these partnerships that we've engaged with Sky on and then also what we're doing in addition to that is really signaling our focus towards allocating equity in a a thoughtful way. We obviously have the data center component to our business that's going to take up a lot of equity.

And these partnerships have allowed for us to get high return on equity and a thoughtful way of thinking about our liquidity management that allow us to continue to scale, meet our clients where they are, continue to facilitate the demand and grow as a digital assets trading business without necessarily having some of the balance sheet constraining loans, the non-rehip loans where you don't necessarily get the back leverage you need to continue to scale the operation to hit your return on equity targets. This has been a really fascinating conversation. I can't wait to watch this back again myself with Google open and like slowly digest everything here because there there's so much alpha in this conversation and I I love hearing this like inside look into institutional finance, institutional

DeFi. So, thank you both so much for being here. Uh Max Baris, head of lending at Galaxy, Greg Fibas, global head of capital markets of the sky Frontier Foundation. Where can we send people to find more of you and your work online? Greg, let's start with you. Yeah, Greg Fibbus on on X and Sky. Money is our u main website. >> Max, how about you? >> It is right here at Gamesetmax is my Twitter handle. You can also follow the Galaxy HQ Twitter handle as well. That has a lot of our announcements that go through there. We also put out uh monthly market color on lending products on our Galaxy website. So, Galaxy.com.

If you're looking for the latest in the Gopher rates, you can go to galaxy.comgopher. >> Thank you all so much for being on Milco Crypto. I learned a lot. I know our audience will really enjoy this conversation. There's tons of alpha in this one. So, thank you both so much for being here. >> Thank you, John. >> Thanks again, John. >> And thank you all for joining us. I hope you all learned something today. I know I did. This is going to be a lot of fun digesting this one. So, thank you so much for being here and we will see you all on the next episode of Milk Road Crypto. Stay safe, stay educated, stay bullish. Thanks for being here, everyone. Bye. [music] Thanks for listening to Milk Road. If you enjoyed the show, make sure you like and subscribe. And if you're struggling to

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