How The Genius Act Could Change The Dollar Forever - Sam Kazemian & Stani Kulechov

Transcript

You heard it here first on the rollup in a uh perspective. The the actual lending and borrowing protocol stable coins is is very core of that. So there's a really good relationship with stable coin issuers because that's where you get utility in DeFi by accessing yield. What is the thesis to why securities tokens will overtake multiple crypto assets and stable coins as in terms of the greatest asset class onchain? There's a lot of things denominated in dollars in the financial system that that like look like dollars, but they're not real safe dollars.

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will be managing your onchain transactions for you. But without guardrails, it's a disaster waiting to happen. Newton locks agents to your intent with cryptographic proofs and real penalties if they slip. Learn more at Magic Newton on X. What is going on, guys? Welcome back to the rollup. Today we have the pleasure of hosting our stable coin experts, Sam from Fracks and Stani from A. These guys know everything that's going on with all of the adoption happening in the stable coin world. I am very very excited for this one. Guys, you're you're a friend of the show.

Welcome back. It's a pleasure to have you guys. Pleasure to be here. Thanks for having having me here. Absolutely. I mean, let's just be let's just be, you know, brutally honest. Stable coins are on an absolute tear. I think this is one of the few products in crypto that has found product market fit. We see stable coin regulation being passed in the House and the Senate. Things are progressing so swiftly. It just seems like there's no resistance and this is a runaway train. Stable coins are at 1.1% of all dollars in circulation and and it it's just up only from here. How are you guys feeling being in the stable coin space right

now? You want to you want to go? Okay, let's let's do it. So, I mean I uh I'm just trying to hold back my excitement. Uh so if it if it looks like uh um too excited, let me know. I'll tone it down cuz I'm absolutely like ecstatic. Um I don't I didn't expect this to be like to this level. Even myself, every report from like Bloomberg ETF, everything I I read in terms of investment reports, everything it just says the two most incredible industries right now, the hottest industries in the entire planet right now, AI and stable coins, AI and stable coins, AI and stable coins, AI and stable coins. just like there's absolutely uh nothing that matches these two, at least right now. Um and so it's like really so incredible to finally um

be at the apex of the um thing that you've worked on for for years and the world is finally like meeting meeting you there, right? I think that that's uh an incredible feeling. I know Stani uh basically he he's like one of the DeFi godfathers. So like he probably already has felt this feeling when you work on DeFi for like years and then the entire planet meets you there at the top of the mountain and and it's a it's a different feeling. Um and and like I it's really cool for me to finally feel it. Donnie is even more of a veteran uh than me because he's he's felt this uh incredible feeling. And so you're you're right in that right now um after Monday the the genius bill closure uh which was the actual most um unknown and difficult

part. So like the the US procedural like like uh system the political and legislative system is very complicated and so most people that are like observing it don't actually know what the heck is going on um in it's like a biccameal legislature. There's multiple votes. People are like oh wait this king vote again. How the heck is and then wait there's another vote now and all this stuff. The short answer is that now barring some huge different thing that even Republicans change as a priority which is very very unlikely um some form of this and kind of a fusion of the stable act or this uh which is the house version will will get passed basically like that. That's why you see all the all the headlines of like the Senate passes this technically there's no such thing as uh being law when just the

Senate passes it, right? So it has to be signed by the president's desk. This is such a historic uh thing that I think everyone is beyond ecstatic. There's just um I'm I'm personally next week speaking at a conference um with uh Senator Bill Hagerty and and Tom Emmer about this exact thing, stable coins and uh all of the things that'll go um in effect as soon as there the ink is dry. So short short answer is I am uh absolutely ecstatic. FRA is right there and uh can't imagine how cool this feeling was when um a led this in in a DeFi summer.

Yeah. Yeah. Yeah. I think it's it's a kind of a uh I echo what what Sam said that it's really interesting when you work in a space and Yeah. and kind of like you don't really expect where things are how far things are going. So in some ways in in back of your head you always have this idea of of uh you know this this technology and and stable coins and DeFi you know it's going to be the backbone of of all finance uh eventually. So it it's just a natural way of of moving to a new type of a uh financial substrate that enables new types of uh use cases and the same way we went from uh paper to digital and

now moving to uh completely new worlds and and that progress takes a lot of time and when we started with with a and earlier with uh Eland by that time uh there weren't stable coins actually on Ethereum um so you didn't have this whole concept of of stability. And now a few years later, stable coins became the the main primitive to to actually consume liquidity um and also extract uh yield as well. That's really kind of like a understandable form for uh more of like institutions and and mainstream.

So I always think that simplicity scales and that's somewhat applied to to crypto as well because uh stable coins are very simple concept to to understand. My kind of like u the reason why I'm super excited is is is because it can really change the whole perception of of crypto. First of all whenever mainstream thinks about crypto it's it's a lot about speculation. you know, speculation exchanges because that's how it's engineered and marketed for a lot of users because they have to go to an exchange uh marketplace to purchase an asset uh that might have uh very little uh utility. Um and and that's a big

problem. But with stable coins, you actually open a new type of use cases um that didn't exist before for for mainstream. uh and I think stability is actually the least interesting one. Stability works really well where you have a very fragile or inefficient financial system that can be for example Argentina across Africa and some of the countries in Middle East and and um Asia. But what stable coins can actually do in the western world like Europe and US uh where a lot of this legislation is is being now passed is is give an access to that uh DeFi opportunity and and being able to consume that liquidity and

and then also being able to consume and extract that uh yield opportunity as well. And I think that's fundamentally interesting use case. And then what um can happen with with payments and and and value distributions without uh borders. So yeah, I'm I'm really um excited about this uh quite a lot. And of course when it comes to legislation, a lot of uh um well the devil devil is in the details um what kind of uh details the legislation has and and that affects uh this space. So even things are getting regulated, we have to be extremely careful that right type of regulation uh will pass and there's still compromises that we have to make.

Yeah. Yeah. So I I think that's a very good point and we'll we'll dig into the nitty-gritty here with regards to the Genius Bill and you know th this is still still remains to be seen how these regulations flush out in the stable coin world in the credit markets for instance you know I I think a a significant value proposition Stonnie that you mentioned and and Sam you hit on this too is the extension of the US dollar and and really extending this into markets where currency Currencies are hard to come by.

Good currencies are hard to come by. For instance, you mentioned Argentina, some African countries, some some countries in the Middle East and Asia. And these are countries that are plagued by hyperinflation. And and so they they crave the US dollar. They need the US dollar because it is one of the more stable currencies that that exists around the world. And so the first step is extending stable coins into these markets and these jurisdictions. The next step is extending yield opportunities on the US dollar and stable coins in these jurisdictions. Not only do they, you know, now preserve their wealth and their capital by not inflating it away in their native currency, now they're able to earn some stable yield on these currencies as

well. And I've heard arguments on either side of the fence with regards to how stable coins will affect the US dollar's position in the global currency dynamics around the world. I I've heard some arguments that say, look, stable coins are going to threaten the US dollar supremacy around the world. And then, you know, I think all of us here would say, you know, that that stable coins really extend the US dollar uh position in markets around the world. And so, do you guys have any comments to the push back that we hear sometimes about look, you know, stable coins could actually kind of undermine the US dollar around the world? H how how would you respond to some of those criticisms?

Yeah. So, I'll uh I'll I'll take this one because the first part about it I think requires some background for everyone even considering the the question. Um I've been in the crypto space for like over a decade now and like I've seen like I started mining it back in college uh back at UCLA and like before Ethereum and all this stuff. I think when it comes to stable coins, people have to understand there's basically two phases. uh you know when like history like is is classified as before Christ after Christ BC and all this stuff I I like to classify this as there's two phases of stable coins one is the original ethos and thesis of like stable coins was could we bring like bitcoin's trustlessness its non-custodial nature it's everything to uh a stable unit like something we're

familiar with like the USD that was like the holy grail and that that was kind of the the entire uh ethos of decentralized or algorithmic even stable stable coin algorithm kind of represented this infinitely scalable and contractionary and like you don't need a bank account to keep it stable. There doesn't have to be a dollar in like a thing redeeming it or anything. It's just this incredibly onchain amazing thing that's like all the best parts of Bitcoin and Ethereum or whatever, right? And in a uh in a stable unit. Turns out that that's uh that's not actually the most immaculate design because it doesn't work. It's like an infinite uh like you know energy machine. Those things don't exist, right? It's it goes against the laws of uh physics or economics essentially, right? And the the industry moved on from that as the immaculate design of

like a a stable coin. And to be honest, even when the industry was like fixated on that, which is why Terra got super big and then imploded, actually the the V1 of FRA for people that are familiar that watch the rollup, right? The V1 of FRA was the immaculate design of stablecoin is this hybrid decentralized scalable model. And what actually uh it turns out if you're going to peg to a uh national unit like the USD, the actual immaculate design for that stable coin is if the entity that issues it, in this case the US government, right, actually points to your thing that you issue and you and it says that's a dollar by decree of law like fiat, right? by literally decree of uh like like the the government and that that's how you turn

pieces of paper with just pictures of like dead presidents into actual like like money, right? Uh by literal decree of of of fiat, right, of of the uh state. And so no one really expected that that would even be possible. That was like even outside the reach of like oh let's get banks to like work with banks or whatever. Um and so now it's actually seems like it's going to be possible in the next like couple months which is uh incredible. And so that's actually also why FRA's, you know, new F FRXUSD stable coin and our completely new revamped roadmap that's completely different than uh how we start. It's still based on stable coins obviously like with FRA always a a uh innovative stable coin uh protocol and issuer and and and now chain developer too with

Fraal but it is like the we we go after the immaculate design the thing with the trillions of dollars of of TAM and it seems like now uh going across the arc like if you're writing the history of stable coins or like crypto or finance looking back on it this is how I would describe it right this this collective consciousness of realizing you don't have this like fully decentralized immaculate design that's scalable to like 20 trillion which is a total amount of USD actually like the Fed tracks as M1 right you can't do that uh the actual best way to actually have this immaculate design is have the the the Fed and and the US government be like your digital uh non-custodial

cryptographic token is M1 money like that that if you could actually do that that is the most incredible thing in the world that's FRA's current roadmap app uh with F FRXUSD. And I think that when you look at it like that, it becomes really self- obvious back to your question that it is not against the the interest of the US dollar if you're going to get the US government to actually say that, right? Yep. Yeah, absolutely. Stan, anything to add? Yeah, I mean I I I do think that's um the dollar is is is a very simple instrument of of settling transaction in terms of just thinking the mental model and I do think that uh the internet

didn't really disrupt um dollar in any negative way. uh in fact it expanded trade in dollar across the world and I expect the same thing happening because the reach is just higher. Um and I do agree with what Sam is saying about the the the scale that we have to think about here because uh doing something kind of like a you know in a more decent way where we can um have a common let's say a pointer or like a peg into a new system uh requires quite significant amount of time uh and adoption um and I think that's a years of work of of of

getting something more universal than dollar. And I would like to see like a more of a universal uh currency that is more decentralized and um has some um really fair equitable rules as well. But for the time being, I think that where we see most of the scale for this technology is is simply um in in terms of um scaling it into existing value. Now what I think will happen over time is that we do have now cryptonative assets that are um the biggest kind of like asset class on on chain. Um, stable coins will be the biggest asset class on

chain uh from 2 to 3 years from now and then from five to seven years uh security tokens um will be the biggest asset class even bigger than stable coins and and also cryptonative assets combined. So the the scale that we're going towards is is really important here and there is definitely a benefit of of getting and onboarding these traditional assets as RWPAS and reflecting them on on on chain and most of them are um USD. So I think actually down the line it just strengthens the concept of selling transactions in a in

a value that is dollar but that's not necessarily the the endgame of what is the financial system going to look like in in the future. This is just a transformation that is going to happen for the next uh 10 to 15 years or so where we change the medium where we transact into a new one which has very unique security properties and interoperability properties that enhance the liquidity aspect. But down the line that just creates more interest towards our ecosystem and to on chain to actually then build some really um futurep proof uh stable coin uh primitives and and ways to transact value. So now now that what what what's

important is to actually like make this trans transition to happen as fast as possible and as as uh to accelerate it as much as possible. And that's why I'm super excited when I see more kind of uh traditional financial institutions, fintex to actually thinking in realms of uh stable coins and supporting the space because that's just additional uh validation and and and that that's that actually highlights that there's a change of perception that is happening and and high interest at the moment.

Stonnie, can you you you've been right multiple times, right? You were right with DeFi lending and borrowing significant part of D5, maybe the most significant. And now stable coins has its coming out moment. You know, you're two for two. And now you're saying securities tokens will be the largest asset class on chain greater than the collective sum of of stable coins and crypto assets. Can you explain securities tokens? You mean equities? And you know, we saw Kraken's announcement, Robin Hood is coming out with tokenized equities. I is this the securities tokens you mean? And generally, what is the thesis to why securities tokens will overtake multiple crypto assets and stable coins as ter in terms of the greatest asset class

onchain? First of all, I think I'd be more wrong than than right. But uh that being said, I I think that the the concept of security tokens or maybe we use the term RWAs is that it's a such a wide spectrum. So it can go start from equities um can be pro publicly traded companies but it can be also privately traded companies that people don't really have access to as of today where taxes on is on a limited group of um people and institutions and it can go all the way to for example uh debt um and we see already T bills is a really simple example of tokenization of

of securities that has been valuable when D5 rates has been lower for example to bring that yield on on chain but but also over time we will see progression on the risk curve going just higher on on the interest rate that that uh interest rate opportunity that exists in traditional finance u and bringing that uh onchain. So that aspect is is quite big and long like a big um wide category but I also think that it enables a lot of uh new types of value that kind of exists on on in the traditional world but doesn't really find liquidity and I think the main kind of like uh output

from DeFi is uh the ability to to to concentrate a lot of liquidity make it as interoperable interoperable as possible where opportunities find uh where capital finds opportunities. And if that happens as efficiently as possible, we actually see valuable things coming on chain that were illquid, but not because they weren't interesting um investment opportunities, but because um it's actually hard to invest or it has other types of uh implications. So that's where I I think it's it's really uh interesting and in some ways you could argue that stable coins are uh RWA's they just don't pay the yield uh for the uh end user. Um the

yield might be more B2B from that perspective but but that means just that that so much value is outside of the blockchain system that is coming in naturally because of all the value is outside at the moment. So that's where we're going to see a lot of growth. Yeah, abs. Absolutely. I think I think that paints a vivid picture of the value proposition of bringing these assets on chain. It's about turning these into productive assets and tapping into the opportunities that interoperability and composability with a greater financial system provides. Yield, liquidity. These are instruments that are seeking liquidity and yield and they can find it

on chain. And so you you mentioned treasuries which I believe are the primary reserve asset of a lot of these stable coins that are issued on behalf of these these reserves. Um Sam, you you talked about the the talk you're going to have next week in Vegas with with Hagerty and and you know others that are writing this legislation. You know, part of part of what you had described was kind of what opportunities open up once the ink dries. Could you kind of talk about what what are those opportunities? We all kind of understand the stable coin environment as it exists in the current moment here today once the ink dries. What are those new opportunities that open up? Yeah, for sure. Um, I actually like to explain this because

it's pretty much totally different than kind of these regional like stable coin. Um, like in in the EU there's Mika. I think in the UAE there's Vara, the virtual asset like regulatory authority or whatever. And then like Japan has something like some stable coin license. I think Circle announced they got it like a couple months ago or whatever. And I think the main thing people miss about like Genius uh is that this is not some like uh guidance or like some license that you collect in like a region you want to expand to. This is the actual government of the entity that issues the unit everyone pegs to. If you're issuing like E EU like EU stable coins, yeah, you you this isn't this does not it's not that important to you.

This is like a regional license thing, right? But if you're pegging to USD, which is pretty much 95 plus percent of the entire like stable coin market cap, the what the entity that creates USD by pointing at pieces of paper says about your thing is pretty much the the the root perms so to speak and in like uh code lingo, right? Because it is not actually uh just some like like region. Um I think like actually um I I love Arthur uh Arthur Hayes. He's always on on the rollup and stuff, but I think I heard him like literally on one of the other ones like last month or something say like, "Oh, I haven't even read Genius. I haven't even I haven't it's just for like Americans or blah blah blah and and like whatever like we're

we're focusing on uh the emerging market or or whatever." Um I think respectfully that's exactly the opposite that that's wrong because this is about the USD unit and so if you are really like realized as a dollar for for your cryptographic like token representation uh anywhere that accepts dollars right like like even EU banks and stuff right is going to be open to accepting this obviously barring like they need to be able to ping a blockchain let's it's in a blockchain ledger instead of cobalt like old, you know, Swift uh enabled database, but legally it's a dollar, right? If you think about uh euro dollars, those aren't dollars in the US

system, right? But dollars uh in in the US system are by definition uh legitimate dollars in the euro system, right? Euro dollars aren't. Otherwise, they'd just be called dollars, right? Like there there's a reason it's called euro dollars to distinguish it from the fact that it's not real dollars, right? And so in in like the outside uh US um you know dollar intaking depository accepting uh financial systems that basically are like takers, right? They take dollars from from the US M1 supply. Anything that's a that's a dollar is is fair game. Like you you would have to go out of your way specifically to make sure like you don't accept it. Otherwise it's it's fungeable with other M1 M1

dollars, right? And so in fact, the other way that I'd like to say this is like um this the genius bill, it doesn't turn your your stable coin into like a legal stable coin. It turns it into a legal dollar, right? Like like so so like if if a dollar is legal in a different jurisdiction, uh just removing the, you know, blockchain, you know, balance check, you know, tech side of things, right? Uh you're you're fine. You don't need permission to like literally operate in in a different jurisdiction or something like that. uh you're you know banks literally like you you uh um you probably saw like banks are talking about how to create consortiums to issue their own legal uh like stable coins right like JP Morgan City and etc. And like I wish I could

actually talk more about it because I we had to sign an NDA but we we actually were talking to uh like the banks in that list um and and they they understand all of this stuff that that this is a pretty big uh deal. And so like with FRXUSD with whatever payment stable coins I assume USDC circles already looking into it. I know Tether for a fact is Paulo has been in DC you know whenever uh I I I was and probably more way more right. They know that this is a big deal. It's not like uh oh we're not Mika compliant. Okay just delist us on a few of these European exchanges.

This is like make or break if you actually issue a USD unit right which is why that everyone is there. It's not for like some like photo op or something uh to pump a token. Tether doesn't have a token, right? Circle doesn't have a to it's not about that. It's literally about this huge uh important like landmark bill that you probably saw on Twitter people are saying like even the people that know they're like lawyers and all this stuff in the crypto industry. They're like, I don't think this is priced in. Like, this is definitely not not priced in uh yet. And it'll slowly get priced in probably over the coming months as there's more news of like banks issuing legal stable coins. Uh hopefully for axd uh you'll see a lot more news there and and and things like that.

So this this sort of breaks the momentum, breaks the inertia and and starts to indicate the the trajectory of the US dollar and its intertwinement with stable coins. And it's that there are multiple issuers of the dollar, right? So it's not just that, you know, one entity has its finger on the money printer button. Now it's like there's multiple entities that have that button available to them. you know, you mentioned Sam, like the major banks, JP Morgan, City, these guys are exploring this joint venture. Um, and it's exciting to hear that, you know, you had to sign NDA because it means you're kind of progressing down down some talks with them. Congrats. Kudos. And and so to to

explore that that train of logic, it's like, okay, well, these guys are now launching, you know, a potential stable coin, right? We had Meta say that, you know, potentially they want to go ahead and launch a stable coin. maybe Apple, maybe all of these, you know, whether it's financial or tech or or CFI or DeFi, these entities are beginning to explore launching their own their own stable coin. And all of this is really a form of US dollar as long as it it has the, you know, magic wand that says it's a US dollar, you know, it's compliant and it it really does fall within that category. But it is a change in the system where we had one dollar right and and it was issued by one entity and now

there's multiple issuers and multiple entities that are issuing dollars. So in my mind the the natural conclusion of this like we trace this slippery slope and there we end up with you know multiple local issuers of US dollars eventually. you know, what does this turn into when all of these different companies are able to issue the dollar? Like, what are some knock-on effects of that? Because it it seems like there's going to be some like economic knockons of of multiple entities and issuers of of the dollar.

Does it mean we we kind of transition into like a more localized credit market where we can have more issuers kind of issue these loans, extend the extend the supply of dollars? Generally, maybe you guys have thought about this. What What do you think are the knock-on effects of, you know, multiple issuers of of US dollars? Innovating finance, global, institutional, and onchain. Deep liquidity to drive capital efficiency. Now, maximize yields on institutional grade liquid staking with M. Unlock trillion dollars of capital via Fitbitcoin.

All of this secured by Mantle's treasury of billions in stables and ETH capital pools. This entire ecosystem is coordinated by a vast network of seasoned VCs that are aiming to create the next generation of banking and financial technology. This is Mantle. So, I I'd love to hear uh after I say this what what what Stonyie thinks about what what I'm about to say, but like basically you're you're totally right in that uh there's essentially multiple definitions of dollars, which is why the Fed has the M1, M2, M3 definition because there's a lot of things denominated in dollars in the financial system that that like look like dollars,

but they're not real safe dollars, right? and and people know that in DeFi from Terra, from all of the other things that are like uh dollars and then they implode and they're no longer dollars the next day, right? And so the important thing I think to focus on here is like the only uh so so the definition of M1 is like money immediately usable in the economy. M1 money is like bank deposit on demand bank deposits like money market funds that are same day uh convertible to cash in in like a bank or into like your Venmo account and you could use it in the economy every single uh day easily. Um, and so there's M2, which is more risky, like debts denominated in dollars that are not uh FDIC insured banks, that aren't uh any

of these things, right? Uh, they're they're more like investments denominated in dollars. Um, and so the mo the most important thing with the Genius Act and payment stable coins is that for the entire financial history of like the United States since like the basically the early to mid 1800s when like wildcat banks started to pop up and and everything, the only people or entities that could actually make M1 like money were were banks, chartered banks that had a very specific way of like and then more and more regulation obviously happened every single decade as early as like 2008, right? with um new uh the Sarbain Oxley Act and like Basel 3 and all this stuff. Um but for the first time, I think which is why

actually some banks until it's really seems like now it's about to pass were very very very against uh the the genius bill and and these acts because they prefer and honestly if I was a a bank CEO or like a a bank uh shareholder or like whatever uh they prefer their single monopoly on on issuing M1 money, right? Which is why the bank lobby is was is not very fond of this bill because for the very very first time in history, some other entities that aren't chartered banks that don't have to actually do the exact same thing as as like the the large banks uh can come be nimble, innovate uh and actually issue M1 money. Obviously, the rules for it are very very uh clear, right? It can only be backed by 28-7 money market fund

uh securities, T bills, Fed reverse repos, uh certificate of deposits at uh FDIC insured banks, which are basically as good as money. That's part of the M1 definition of of money u of of the Fed. And so after that, you can issue it, right? You can and and FRAUSD is uh gunning to be hopefully the first uh payment uh stable coin chartered entity. Um we'll see, right? Like at least one of the first. Um, and I think that that is what you're getting at. And I think that's super super exciting because it really is the first time in history that that's why it's super historic. And I'd love to know uh how Stan is thinking about it.

No, no, I agree. like the that's the same thing that's you know when it comes to legislation and these ads the devil is in the details on on what kind of um if like intuitively it always feels good that there's some sort of uh um regulatory regulatory approval on uh for example stable coins but the the main challenge there is that what kind of uh limitations uh these acts can actually have and I'm mostly concerned obviously on the uh innovation aspect. So I've uh before building DeFi

uh I was building um fintech and pretty much at that point when crowdf funing peer-to-peer lending was um a big thing at at that time and regulation followed really quickly um in in that space and at some point it became very difficult to actually um compete and and create products with a smaller team without having a a proper um investment into uh legal resources and and actually then sufficient capital. So it it is really tricky and and I I think that's we have really good people uh from the kind of a

crypto space representing and looking after um our industry and that's not the case uh always when when it comes to uh this types of uh technology where you see a lot of um uh innovation happening but a lot of it goes away and the innovation opportunity goes away because it gets easily overrated. Partially I could argue that Mika has some of these um challenges on the European side where um Mika establishes um some of the rules operating a crypto company, stable coins and so forth. But at the same time, the whole legislation was based on a stable coin like Libra from from um Facebook

where use basket of different currencies and that doesn't even apply and it end up still into the actual regulation as of uh today without actually putting a lot of attention of what are the stable coins that are actually used in in our space. So that's a really a kind of like an angle that I would always be critical of of ensuring that nothing really stops building decent interest systems and by decent systems I mean building resilient uh infrastructure that just creates better outcomes like better uh better pricing better efficiency more transparency and and just overall better financial system that serves people. So

I I think that's the the kind of point. So I'm I'm overly like uh positive because um so much work has gone into actually uh ensuring that um that innovation opportunity doesn't really uh disappear. Yeah. And and I think from what I've seen from the outside looking in on this administration, they are thinking about deregulation. And so Sam, I think to your point, you know, we initially had this monopoly uh essentially of banks that were uh part of this inner circle that could that could issue and they they had charters to to issue dollars and that that was part of M1. And you know, despite putting more regulation by

passing this Genius Act, we're actually dismantling that monopoly and and we're extending that uh that kind of that inner circle to to a broader set of institutions, broader set of entities that are now able to to issue. And so ultimately this is you know favorable regulation but it actually deregulates the industry a little bit in the sense that now it's more accessible for new decentralized even companies to come in and and experiment and innovate now. Yeah actually yeah actually you said let let me just add something there. you you said a really good point because this is how you know this specific uh regulation this specific bill is really good

because usually regulation is most often opposed by the small guy exactly as Stani said because they they have these uh lack of resources right that that these big companies do not and regulation usually the main thing people say against it is it just makes the monopoly of the incumbents even even bigger and harder to pierce and and everything the fact that you can see how uh anti the the banking lobby uh and and the traditional financial system have been against this specific legislation is proof right like that that's empirical proof that this is one of the few uh legislation and and regulations that actually opens the playing field

that ideally that's what regulation should do right they should flatten the playing field allow for more innovation exactly as Donnie said and then also uh encourage and and excite entrepreneurs and innovators to get into a specific place while creating clear-cut rules so that everyone has to obey those actual rules and you don't have many examples of those right if I were to tell you hey like what what's the last thing that you know of example that like this exact dynamic happened where entrepreneurs are like yes more regulation and then like the the the incumbents are like no not more regulation there there isn't many that's how you know that this is a very very good uh thing in the space because it does the exact opposite instead of what people characterize, you know, usual regulation as.

Yep. Absolutely. Yeah. So, I I think as we see more issuers uh enter the playing field and and we start to see more stable coins, I'm curious as to incumbents in the stable coin field, how you guys are going to sort of maneuver and position around these newer stable coins and these new issuers. Right. We we mentioned some some major banks that are coming into the stable coin game. For instance, h how do you guys see go interacting with a new you know bank issued stable coin or you know fracks interacting with like a meta stable coin? How how do you guys see those stable coins interacting with one another? Are they complimentary or ultimately is there a new robust competitive landscape that forms? How how do you guys see it? Yeah, I don't

see stable coins um competitive at all. Like I I actually see them in some ways as like payment trails. It sounds a little bit weird but like if someone uses let's say uh go or USDC they they they basically choose a payment trail and and in the same way I I I I think will apply to to pretty much all the stable coins. So in a uh perspective the the actual u lending and borrowing protocol stable coins is is very core of that. So, um there's a really good relationship with stable coin issuers because that's where you get utility um in DeFi by accessing yield um and and

consumption as well. And and that creates also not just yield and consumption but also long-term uh holding. So, roughly over half of the suppliers in the A protocol are holding their stable coins uh in a over six months. um which is good for stable coin issuers and from go perspective um go is obviously backed by mainly uh the native uh crypto collateral like it and it derivatives or bitcoin and and bitcoin derivatives. Um but at the same time go can be minted against uh these other stable coins to to get scalability

effects and other uh properties. So, so for example, the stability stability modules uh within the other ecosystem for go like GSMs that we call them uh you have one with uh USDT and one with USDC and we could see more similar in the future. So because Go has this facilitator uh functionality where a facilitator has a bucket that can actually mint go against uh collateral we'll see this as a way of of actually allowing more collaterals. Then it's up to obviously then of uh up to the ADA to decide um what kind of a um RWA or like a stable coin collateral could could

actually be back pack backing go. So that's the kind of like angle that um I would say from GO's perspective. Yeah, I I think I totally agree with with Stani in the sense that like liquidity begets liquidity like the like like economics is positive sum. Uh sometimes it's it is negative sum. Uh but you you don't necessarily have to take other people's piece of the pie, right? you can grow the entire Pi, which is why I keep bringing up the 20 trillion M1 uh money that's basically up for graphs to being converted to stable coins, whether it's a, you know, whether it's F FRXUSD or USDC or a bank stable coin and stuff, we've only converted about 1% of the the digital dollars of

like the analog web 2 world into the web 3 uh digital dollars, right? And so, um, I think like the most important thing here is to consider like everything needs a foundational like digital dollar, especially hopefully now legal one. So, the the ones that are, you know, annoyed by like the the US government that issues dollars if we're going to be doing business in USD onchain or offchain, right? Um, to be a dollar. And so, um, FRXUSD is for example only like about three months old. So, uh, we're actually going through the A, uh, listing in, uh, RFC, I think, process is is what it's called.

And maybe later will be, uh, hopefully a, uh, stability module, uh, mint for for go because it's it's fully redeemable. Uh, hopefully it's legal, uh, tender, you know, issued by, um, FRA and and everything. So, I think that's a really good example by itself of how it's symbiotic, right? And um the the interesting thing is the the places where digital dollars like FRXUSD, USDC, USDT cannot uh compete which is like higher yield than the risk-free rate. Like there's there's basically reward programs that that like digital dollars can can do um outside of their token, right? The token has to be a dollar always a dollar and mint redeemable for a dollar. But like you see Coinbase, you know, there's a USDC earn program. We

also will will have something similar called FRANET where people like basically sign up for a fintech account that they can connect all their web two stuff, banks, brokerages, all this stuff, mint frack USD and uh they custody it. They just connect their web3 wallet, right? And then they can get the uh risk-free yield, right? Like uh the for for the FRXUSD that they hold, right, through the FRANET fintech and and banking app. There will be those things, right? And you already see it with like USDC and Coinbase, right? this earn system. But by definition, those can only ever go as high as the risk-free rate on short-term T bills or uh registered security money market funds, right? That's where Go, that's where Athena, that's where Maker um or Sky, right, comes in where you're able

to actually have things that establish themselves as, you know, the premier of like M2 that everyone wants to save and use onchain, right? uh on top of the the legal digital dollars and that's just positive sum, right? That that that increases liquidity and usage of the underlying digital dollars and then those digital dollars can't necessarily compete with the the higher yields and and usefulness inside of DeFi on the decentralized stack and the decentralized yields. So, it's uh it's pretty symbiotic and one wouldn't pretty much exist without the other, right? Man, I I'm curious like I mean I'm just I'm just stoked because you know we we said you know 1.1% of of stable coins or 1.1% of the US dollar in circulation of

of that M1 supply right we're only breaking the surface as more and more liquidity comes on chain it it tends to proliferate outwards from there and so that finds its way onto a it finds its way into, you know, money markets as a whole in DeFi, finds its way into, you know, the these different trading venues and DeFi venues and and this is, you know, the industry that's been building for this sort of liquidity generation moment. So, I'm just I'm I'm, you know, extremely excited. Um and and you guys both have been making so many innovations to your own protocols basically getting prepared right so that when there's institutions that are

looking at these protocols you know it it passes that due diligence um you know Sam you guys are transitioning to an L1 right from Fractal the L2 to an L1 you know is part of that like getting prepared for this institutional wave what what went through that thought process and how might things change on the L1 as you see this onslaught of liquidity. Yeah, definitely. Um it it was a pretty um hard decision both in terms of like uh both technical but also like like structuring because we've uh upgraded the old FXS token which is like runs like the governance token to like an L1 gas and unit of account token. We've just renamed that FRA share token to

just FRA um because the new stable coin is FRXUSD. So it's totally different. It's a payment stable coin. These two tokens uh are completely separate now. And the L1 token, a FRA still is just the FRA, you know, scarce commodity asset. It's a gas token. It obviously also you could stake it to get uh all of the income of of like the chain and and the FRA ecosystem, etc. Um but I think actually Stonyie mentioned Libra, that's actually the simple oneliner is like FRA is executing uh the the Libra road map at the right place and right time. uh right because there's this L1 and it actually is the issuance and settlement hub of a stable coin for us F FRXUSD right and then obviously it's issued on a lot of ledgers because if it's good

money it should be used on a lot of places and then the message passing uh system goes through the fraal L1 so one way you can think about it is like our version of CCTP is a uh a chain so like if CCTP was like a fully programmable chain right circle's uh message passing system where people take USDC one to one different chains. We're also on 15 I think 14 15 different uh chains like Solana uh you know uh Ethereum uh L2s all this stuff and then it goes through uh fraal chain right and so um if you run like a validator and all this stuff which we're actually the next hard fork will allow that um the first one right now earlier a few weeks ago changed the FXS token to frack like the L1 gas token

um update by update I think this L uh this Libra vision is like really interesting because you have this chain right this L1 that is specifically made to accomplish a very very uh large TAM vision right for us it's uh digital dollars it it's it's payments stable coins right um you kind of have the same concept with hyperl right hyperlid is an L1 and the goal is to establish this system where it is the premier per trading venue and then the next layer right like Hyper EVM people can build programmable. It's essentially a programmable uh per and high uh high performance engine, right? And so Fraal is also a high performance EVM, right?

And and the goal is using it for payments and and this enshrined digital dollar. And I think you'll see this structure of L1 with killer, you know, multi- trillion TAM uh fused into accomplishing this mission uh a lot more. I think the, you know, Libra was the original one. Uh I think uh FRA uh with Fraal and FRXUSD is like the second one or maybe you could say hyperlquid and and like person trading is the second one and like we're the third one. Nice. And and so you guys have gone the L1 route. Stonnie you guys launched V4 and this is continuing to develop and there's some really exciting innovations there in terms of the A architecture.

One of those is this unified liquidity layer and and it creates sort of these adaptations to different modules. You know, why did you guys choose this path at A for this unified liquidity layer versus doing something like your own L2 or your own L1? What made this architecture and this design choice the right one for AB? Yeah, quick correction that we haven't yet launched W4 although I was hoping for but um um the proposal to build before passed last year and and we're coming to an actually uh last cycles for the development and the the the main kind of like idea for us was to figure

out how do we like if all value will come on chain how do we actually um are able to segregate the risk of of of different types of collateral types and and and markets without actually creating um liquidity uh segregation uh challenges because the liquidity concentration is is is quite important because that's how you get um scale and the AV4 architecture includes a concept of liquidity hubs and liquidity spokes um and that allows you to to to actually um create spokes that have different kinds of assets as a collateral and

borrowing configurations like risk parameters. So you can have a one spoke that has more conservative assets and then another spoke that has basically RBA assets and liquidity hubs are uh where the actually liquidity is stored. So you always come as a user by consuming one of these pokes depending what's your intention uh to supply or borrow. But then the liquidity hub acts as a kind of like a central bank that can give credit lines uh to these uh liquidity spokes. And that way um whenever there's some sort of a new innovation that we want to bootstrap quickly or let's say uh tomorrow Sam comes up with a very interesting

innovation that he wants to um utilize in a he can just permissionlessly create a spoke and then with a one transaction request a credit line as a as a seed liquidity from the liquidity hub into the spoke. This just showcases that we don't really understand and know what's what the future will hold and what kind of innovation and and assets uh what not but there's going to be a diversity there and this allows users to actually ensure that um they're able to enter into the system from one point which is one of the benefits of of a that you don't have segregation of different markets and you don't get confused of of

of a for example borrowing experience where you have different types of markets and you don't know what to do as a user. So the UX is is simplified for for for the for the suppliers and the borrowers. Uh but still there's a way to actually choose your uh and position yourself uh in the risk curve and I think that's really valuable. Um and there's a bunch of features on on V4 that that makes it really exciting like the risk premiums where we want to price accordingly and accurately um each assets borrowing costs uh based on the uh collateral or collateral composition.

So um if you supply very lean collateral into the of a uh protocol and you borrow USDC uh you're going to pay very lean rate basically just a base rate but if your collateral composition is is more complicated then you're paying that base rate plus a risk uh premium and that way um all the users they don't basically have to pay um for a a premium of of users that bring more risk into the system and this creates more accurate uh pricing for lending and borrowing. Um but yeah, I could go on and on about LE for there there's a whole proposal about it. This is actually great because I'm

going to use this time to actually pitch Stani one of the innovations that he like uh that I actually have thought of and and going to do it like in front of everyone because I think that it's actually really good a V4 demonstration of like uh I haven't actually ever said this to him but like one of the things I was actually thinking of uh Stani was like just like how FRXUSD is just going to be like legal digital dollars and fully redeemable we're going to have this rewards program uh in in our fintech app called uh FraNet and um anyone can earn the the full yield rewards by holding uh FRAUSD in their non-custodial wallet. One of the things I was thinking of is we can actually do a rewards program that deposits uh FRXUSD in a so we can actually instead

of you know like Coinbase does USDC earn if you hold your USDC in uh Coinbase's centralized exchange. Now imagine a legal digital dollar that's redeemable like FRXUSD and our earn program is actually you deposit it in a so that you also get the the actual uh yield right like from whatever but borrowers are like paying right because because they they borrow your FRXUSD they can either swap it to USDC or or redeem it or whatever because it's like a a digital dollar but then you also earn the entire risk-free yield as like a frack earn program right and so that's a very powerful thing in that you bring digital dollars to a and further make it the uh risk-f free yield uh earning venue

because it's already seen as the place in DeFi that's basically as close to uh risk-free as possible. But in traditional finance, there is literally a risk-free yield which is like the short-term overnight rate of of like the Federal Reserve or or short-term T bills. What if we combine those together and do a huge FRAUSD and a partnership? That's one thing that I was like thinking of. Yeah. Yeah. And I like the idea and that's that showcases the kind of like composibility that that can be created even in existing the the V4 or sorry V3 of a U and especially with uh with uh V4 and Sam has had like a really exciting uh ideas. I think he's like a continuous continuously innovating and coming out with with really cool cool

things. You heard it here first on the rollup. I love it. The Roll-Up breaking news. You guys will soon see Sam and Stan on the Roll-Up TV breaking more news coming at you live. Um guys, I think that's a great place to wrap. This is uh this was phenomenal. It was a lot of fun. We uh you know, we have partnerships in the making and uh certainly learned a lot about stable coins, the Genius Act, uh and everything that's coming down the pipeline in terms of stable coin regulation um as well as new stable coins launching. Guys, just again, congrats on on all of the great work leading up to this point. It's, you know, tremendous to see pioneers in an industry and and now the industry get adoption. Um, so again, thank you so much for sharing the time with with the

roll up here. Thank you so much. Thanks for having us.