Live From DAS: Where is the Stablecoin Market Headed? | Roundup

Transcript

One thing that I think a lot about is um at some point there will be treasury auctions on chain like this industry will grow large enough that the Fed will actually issue and redeem bonds on chain. Hey everyone, quick disclaimer before we get into today's episode. Nothing said on bell curve is a recommendation to buy or sell securities or tokens. This podcast is forformational purposes only and the views expressed by anyone on the show are solely our opinions, not financial advice. Our guests and I may hold positions in the companies, funds or projects discussed. Hello everyone. How's everyone doing out there? Hello. What's up? What's going on fellas? Just hanging out. Having a good d. What about you? Yeah. Give us the what's your impressions of the conference so far? This is a live bell

curve episode. Do we have any bell curve listeners in the audience today? All right. Shout out that guy. All of us. Yeah, we got mice one and two. Mice one and two advance. Uh, a lot of talk about stable coins, a lot of talk about private credit. Uh, I think the big moment of the week was when Maker allocated a billion into Bidd and other tokenized T bills and I think they're going to start aping, you know, into like AAA CLOS's with the 5 a.5 billion of USDC they have on their balance sheet today. So, I think like the the RWA narrative is is certainly coming back and um just different types of bespoke private credit deal flow and I think there's I mean there's a good chance that Maker can get to a billion

in earnings a year and like nobody's talking about that because it's not kind of entirely cryptonative but it's important nonetheless. Okay, let's talk about you know we've sort of had maybe two segregated paths of talking here. one which is very focused on stable coins and RWAS and a very permissioned more traditional sort of route and then we've talked a little bit about some more permissionless DeFi protocols maker is kind of at the forefront of merging those two worlds right it's a decentralized structure it's unquestionably DeFi but it's moving further and further along the path of RWA and also a trend that we haven't talked too much about which is buybacks so let's talk about both of those things um just how you guys see Maker maybe as like very early in terms of front running the combination of these two

different parts of crypto and then let's talk about the importance of buybacks especially when it comes to liquid tokens which everyone has been pretty bearish on uh for most of this conference. Yeah, that's dumb if you're bearish on liquid token. I mean, it is probably smart to be bearish 99% of liquid tokens, but um you're looking for the outliers. And I think really the thing about, you know, and it's now called Sky. It's not Maker anymore. So, we got to like we got to fully cut over. We're just going to like terraform that in everyone's mind. But, um they're doing about $500,000 of buybacks a day. Annualized pace of like 180 190 million.

The FTV of the token is like I think like 1.2 billion. So, they're buying back like 15% of this thing a year. And it's the most important experiment that's going on today because if you can direct value directly back to token holders, you know, there should be a price movement at some point. And market's down, whatever, the buybacks are going through at a price that's more favorable long term. But there's just going to be an undeniable impact at some point. And I think the even bigger thing is that you know as they move out of just like stable coins with no yield into T bills into AAA CLLO's into energy lending which we'll talk about you know they've the business model of stablecoin is very simple how many stable coins are there there's about 8 and a half billion today in maker sky uh that's growing

probably a billion a month you know they could get to 20 billion of stable coins and be earning you know probably low teens on it and if that happens you know even if people are staking USD DS, which you know, they pass back the the savings rate to them, you could easily get to a billion of earnings. And and that's what we're playing for. You know, a real company is one that has a billion of earnings and nothing else really matters. And so, I think it's possible to be bummed out about not everything working in crypto today. I think that's like one mental model, but you know, there's only seven in the mag seven and and that's what we're really hunting for as venture capitalists, like finding those outliers, and they're there. You just got to be locked in and interested.

So I I I think we talk about this in the pod all the time, but like the next couple of years, the next couple of quarters is all going to be about dispersion. You know, how do we separate the stuff that's working, the stuff that's not working, what has real durable value, but just to put a finer tooth on it, I mean, the way that these protocols, which are making money that actual businesses pass back, you know, there aren't that many options other than buyback and burn, uh, or buy back and distribute, however you want to do it. But the buybacks are going to be what disperse, you know, the the selection of who's good, who's not good. uh major is at the forefront of that and um you know when major switched to sky in the fall they turned off the buyback.

You can directly see the the time in the chart where where that happened and lo and behold they turn it back on a couple weeks ago. You can also see the direct impact of that on the chart. I think that as things come back and the market you know generally comes back those are going to be the things that do the best. the the the super powerful thing about like the combination of like maybe private credit or like you know just things that are further out the risk curve on the credit side combined with stable coins is if you have a stable coin with like you know call it like $10 billion of scale like Sky has um you know you're really kind of processing redemptions on the order of like maybe 10% you know or 20% a year it's not like everyone's kind of like coming all the

way in and then going all the way out like you need to have the cash and they have like 5.8 and 8 billion of USDC today in their PSM which is their PEG stability module but that will go into these higher yielding assets and like you can really go far out the risk curve with like a slice of it and you know say something like Apollo private credit if that comes on chain Sky can allocate a few billion dollars to that that's probably mid- teens yield and they pass that back to people in a stable coin and like I don't know what you guys do with your cash but like in JP Morgan it's like you know do you want to lock it up in a CD or do you want to get shield one of their private credit funds it's like all of stuff is way too complicated. A

stable coin that you can just take and stake and earn the yield from just tanches of different risk on private credit is it is the endgame for all crypto. Like we used to have like Bitcoin which is getting money and state decoupled. But I think kind of the heretical thing is like modern USD on blockchain rails with like high yielding highquality private credit backing is probably one of the world's most interesting financial instruments today. This episode is brought to you by Marinade. Marinade is a high performance staking delegation platform that brings both liquidity and security to the Salana network by connecting soul holders with the best staking rates on Salana. Follow the link in today's show notes to learn more. I'm not sure how familiar with uh folks are in this audience with Sky or Maker in the

history. Just to give a brief 30 second history of Sky and what the protocol looks like today is you know Sky was a CDP protocol where you could initially deposit Ethereum and you can get a loan in D which is the native stable coin at the time. Um that has since expanded because there was a limited market of people that wanted to deposit ETH and essentially get leverage on that in the form of D. And so they've now brought on a whole bunch of real world assets that generate a yield. And so Sky is this very interesting mix of a decentralized protocol where anyone can interact with the smart contract that MS die. Um but there's like all a whole different portfolio of real world assets and it's now a capital allocation allocation question from the sky perspective. And so we've got treasuries in there.

There's USDC and the PEG stability module that you mentioned Vance and there's a new um form of RWA uh like an energy source of yield which is being brought on chain. You guys were telling me about this backstage. This is super interesting. Can you detail the energy use case here? So, this is actually I think the first real world asset because everything else is called RWAS, but it's really just like tokenized T bills or private credit, but um there there are a couple of protocols and and daylight is one of them that's working on this. um where you're actually able to take as an example real world energy that is being generated in the form in this case of solar and then power storage where residences in the United States will

basically work with you know an installer and and the protocol will help facilitate this where they actually own and operate solar panels that are put on top of people's roofs and they're going to start in in a few states it's going to come out in a couple of months but the idea is you can put solar on top of the of someone's house, you can start generating revenue. It gets stored in the battery that they then also install maybe in someone's garage. And if you form enough of these, you can develop what's called a power purchase agreement, a per PPA, where you can sell all of this energy back to the local utilities. And that's a a form of revenue that's, you know, always on. As long as the sun rises and you you have access to it, you're able to generate some revenue. But the other aspect

that's really interesting and and what they're also facilitating is in the United States there's what's called an ITC an incentive tax credit. So for all the cost of the solar as well as the battery and it and the install cost you get a 30% credit for the cost of installing that solar. And that is something that you can sell to a a second you know a third party. Um you can finance it. So maybe 30% you get 20 20 25% immediately off the top. You can also depreciate it and someone will buy that depreciation as another tax incentive. And when we're talking about how do you move maybe further from just T bills on chain wherever the Fed funds rate is maybe in a private credit a little bit further out the risk curve

higher yield uh differentiated sources of yield. I mean, this is like the the connecting the digital to the analog in in a perfect way where the yields, you know, are are in the, you know, 30s to 40s% um based off of, you know, a lot of these combined and bundled into this ecosystem. And there are a number of kind of um trunched CLLO type products that trade in in other industries for solar or other in in traditional markets for solar. Um but this will be the first one that's on chain. Um and Maker is definitely going to be a facilitator of it. Mhm. Yeah, it's a very interesting framework, right? I'm not sure how many people have this um you know in their mind, but you can kind of think about all of these distinct sources of yield, some of which exist onchain, some of

which exist offchain. And what Maker is doing and other protocols like it are importing those yields from a more traditional financial uh set of infrastructures into crypto, which is a super cool concept. And in that framework, Sky acts as a capital allocator, which is fascinating. Exactly. If you think about kind of like after 2008 when all the private equity firms started their own insurance companies like those are the things that really drove the AUM and the profitability and the scale of those firms and it is also the thing that allowed them to take a lot of risk because like the more AUM you have kind of the more risk you can take and um there is like this reflexive flywheel that happens when that is the case and I think stable coins is basically running

that back on chain where um you know you can decide to like tokenize private credit and put it on chain, but you know, if somebody wants to redeem from that and it's just a standalone asset, like it's just not going to work that well. Like tokenization does not always imply liquidity at NAV. But when you have a stable coin and you can package that into the backing, like that becomes kind of like the insurance company that's going to feed the growth of these like private credit vehicles. And a lot of people talk about like just like this tokenization wave and putting things on chain and you know that's great, but like somebody needs to actually be the buyer, packager, and redeemer of the actual collateral. And that's what stable coins, specifically Sky, is doing. And um I don't think anybody ever unseats Tether. It's not going anywhere.

It's, you know, it's just dominant. It's so dominant because it's so dominant. But the race for number two, it's kind of more unclear to me. It's like, does USDC really have that big of a mode, that big of a business, or is something that's yield bearing and that's dynamic and global going to take over? And I would I would bet on on USDS and Sky doing that. Hey everyone, quick shout out to today's sponsor, Marinade. Since launching in 2021, Marinade has expanded their suite of products to provide solutions for both DeFi users and Tradfi, including liquid and native staking, as well as direct enterprise integrations. Marinade's platform is optimized for institutions to securely expand their exposure to Salana. Whether through the provisioning of custodial or

non-custodial yield, integrating staking rewards into Salana financial products, or leveraging Marinade's best and market rewards rate for revenue and treasury management. Whether you're in DeFi, Tradfi, or somewhere in between, Marinade has something for you. To learn more about Marinade, follow the link in today's show notes. Let's talk about stable coins in general and where you think this market is headed. So, for folks out there who might be a little bit less familiar, there's kind of two, I think you'd bucket two different groups of stable coins. There's USDT and USDC, right, which are not they don't pass any yield back onto their users. And then there's a whole new class of uh like the USDS's of the world which do pass yield back. Well, you could you could probably say USDC does. I mean, you could hold USDC on Coinbase or you you definitely can get USDC yield. Uh it

just comes in different forms. That's a good point. That's a good point. Um but it doesn't pass back to the Yeah, I guess if you hold if you custody on Coinbase. Um but you know there were there have been a couple of speakers over the course of the last yesterday and today uh that were predicting there's going to be more uh stable coin entrance. So Brian Moyahan recently the CEO of Bank of America has said that they would consider launching a stable coin if the um you know if the regulation permitted in the US. So I think we can pretty safely bet over the next 5 or 10 years a lot of new issuers. So I'd be curious what are you know how do you slice up that world? um where are the uh and how does just the market share change from what it looks like

today? I I think I mean stable coins are really about two different vectors. One of them is kind of disperate growth. So where where can you use it? You know what is it something is it integrated into DeFi? Is it the reason why Maker and Sky have taken off is because D was one of the first stable coins and it was deeply integrated into basically every single piece of defi infrastructure. USDC is you know redeemable for a dollar. It's integrated into every US exchange. um you can get yield if you hold it in in a US exchange and uh it's sort of the you know tokenized dollars is is how I would look at it. USDT just has this historical president to Vance's point. The reason why it's so big is because it's so big. It's like this this network effect that you know is

extremely strong, extremely entrenched. I mean there was a uh someone uh that we were close with went to Kowong in Hong Kong a few years ago and you know the the values that they're quoting for the different currency exchanges are literally denominated in USDT you know and that's you know a traditional currency market and and so I think you you kind of have these areas of growth these vectors of growth but then it's going to become a question of what can you actually get from them um and if it if it really is just tokenized dollars it doesn't really matter to me whether or not I hold of Acoin or JPMcoin like it it totally doesn't matter unless I can get something additional from it.

And so I think product differentiation is the second vector and we're starting to see that a little bit with USDS and and the capabilities that you get if you you know put it into the into the staking rate or um but as long as it's secure and as long as it's um geographically or or productwise diverse and and capable of used being used anywhere then it becomes a question of what can I get from it. So yeah. So how I a couple of just thoughts is one I mean if you have a bunch of new stable coin issuers at one point do we just stop calling them you know JPMcoin or USD amber or at some point it's got to be USD right you can't keep that many different coins in your head at any one given time. Well there's curve you know for this entire purpose. Yeah 100%. I

don't know what's going on with Curve these days. That's a stable coin uh exchange. Um but you know the other thing too that you know when you look at USDT and USDC I think a common element of those uh success stories is that they became trading pairs. So USDT became a huge trading pair on offshore exchanges. USDC is still like one of the stickiest parts of that uh of that stable coin I think is its place in decentralized finance. That'd be a very difficult thing for to get unseated at this point. So, you know, when you look out into the world of new issuers, maybe exchanges like new exchanges, right, that are moving into this space could issue a stable and have it become a trading pair and get sticky that way. One other one other thing that we haven't really seen is the big payment networks really lean

into this space yet. PayPal. PayPal, right? But even like Venmo, right, Venmo, you've got crypto and Venmo, but it's it's it's in its own separate tab. Like I am I should be the exact user for this and I've clicked on that once just to look at it. So I so I think this is actually like the best kind of like counterpoint to maybe there being a thousand different stable coins because I mean look at PayPal. I don't even know what the the value of it is right now but it's dimminimous. It's a it's a rounding error in comparison to basically all the other the three major stable coins and they you can also get yield with PUSD or pay USD and I think it just hasn't taken off because it doesn't have the same kind of network effect. doesn't have the same reach that you have with the other ones and and

that is such a hard network to displace. You know what though? It's there are actually a thousand there are tens of thousands of issuers of uh like stable coin dollars that exist today, right? Technically dollars aren't fungeible, right? Every single dollar is an IOU from a specific commercial bank. There's just a layer of infrastructure underneath the commercial banking system that backs stops it and so they've abstracted that away from you as a user. Like I would imagine the same thing roughly happens with stable coins, but maybe instead of the government bailing out a bank whenever it goes under, maybe there's a technology solution or maybe there isn't and the US just backs stops that. No more bailouts. I I think um like one thing that I think a lot about is um at some point there will be treasury auctions on chain like this industry will grow large enough that the

Fed will actually issue and redeem bonds on chain. I do think there is this moment where like take tether for example you know you have USDT on chain that's that's $1 then you have the treasury bill that's sitting in the tether account that's another dollar and then say you can swap USDT for a T bill onchain without redemption of that USDT like you've then rehypothecated a dollar and that is like kind of like the stable coin singularity like when we just don't go backwards ever before because there's just not not just more capital efficiency but like additional leverage that's implied in the system and um I think that's like probably 3 or 4 years away but it'll happen. We'll get there.

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financial companies of the future such as Coinbase will build on decentralized protocols like Morpho. Whether you're an individual fund fintech or institution, Morpho is for you. Follow the link in today's show notes to try Morpho today. You know, one of the, you know, we started this conference off by saying there's a big divergence in sentiment between the institutional part of this industry and the more retail kind of cryptonnative part of the industry. Uh, and I think part of that actually is that okay, RWAs and stable coins are working, but what do I buy? How do I make how do I make monies on this? USDC. No, I think like USDT to $5. Yeah. PE people are searching for like who are the serious people in this industry and like Michael and I came up in retail like we were trading crypto in Michael's mom's basement for a long long

time. So like we understand what it's like. Um but I think what the reality of the industry is today is that we understand which business models work. We understand how to pass back value to token holders and we understand which tokens are capable of doing both at scale and with growth and with a reliable mode. And so yeah, I mean you got to be in one of those four or five assets like there isn't an investable universe of thousands of tokens even though it may appear so. Um and every single time like in order for things to stay the same in terms of like the dynamism and the up only price action and everything interesting like things do need to change. And I think right now it's like can we get a stable coin large enough to dictate terms to traditional finance to bring things onchain and have

no redeemability to rehypothecate things to get to the singularity and I think we can. It's just going to take time. Uh I think um in in talking about the tale of two cities of like retail versus institutional institutions you know are are looking for BIPS or or you know maybe maybe even percentage points difference and that's a huge you know thing for them if they can get the scale that they're operating under. And that's where you know real world assets has really started with treasuries and maybe some private credit moving further out the risk curve. But when you're a retail audience, uh, you're looking for something that's going to go 10x, not, you know, earn you 10% over the next 3 years. And I think what we're going to start to see as we move further and further out the risk curve of what can

get tokenized, if we're talking about, you know, real world energy, let's call it, and you're able to actually get, you know, reliable real world differentiated sources of income at, you know, 10, 30, you know, 40% yield, that that is an attractive product that nobody else really has access to. uh if you're a retail customer in you know a retail setting and so I think as we move into more bespoke and interesting assets to tokenize that's where you start to see the re retail adoption come on chain and that's where you can differentiate between kind of the institutional perspective and and the retail perspective but there's no like go figure why people were trading meme coins because you know they could flip it for 2x and and you know call it a day and that's what that's what they're

playing for but I I think a 4.5% T bill on chain is just so uninteresting Yeah, I feel like we've learned time and time again there there have been some of these fixed yield protocols which have stripped out the principle and the variable and you know the principle is this kind of you know steady four to 5% yield and then the variable is you know the lower part of the capital structure which is way more variable and we've always thought that you'd opt into the you know the PT and everyone yolos into the just keep in mind we're the least patient industry in the entire world so yeah I mean it has to do with everyone's on Twitter constantly all the time that doesn't I do think it's likely Like people think we're going to reinvent the future of payments. I think that is probably 90% chance going to happen with

stable coins. I think it's equally as likely that we reinvent private credit by accident. Like a lot of bespoke interesting deal flow comes on chain is packaged in a stable coin and distributed globally. And like that is the real sci-fi stuff that I love and Michael loves too and I'm sure you as well. And like that's why we do it. We love it. We love crypto. Oh yeah. Note of optimism to end on. Guys, this has been a ton of fun. Everyone, thanks very much for listening. [Music]