🟢LIVE: North Korean Hacker Litmus Test, LIT vs. HYPE, Stablecoin Taxonomy Explained

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[music] [music] [music] [music] 72. 7. [music] [music] We'll see you around the timeline.

[music] Feels good to be back. [music] >> I think The Rollup is one of the most premier media brands in crypto and Andy and Robbie are great experts [music] at everything they talk about and it's my favorite podcast. to my library as we see >> potentially multi-chain deployments. We are at connect [music] day one here from base. [music] [music] [music] Heat. [music]

[music] [music] Heat. [music] >> [music] >> JP Morgan, Black Rockck, DTCC, Fidelity, the entire thing was just institutions.

It's just it's next level. This industry is going to the next level. And guys, I I don't know what else to say. >> I'm bullish. >> He said it. He finally said it. >> So bullish. It is bullish. I'm bullish. We're bullish. [music] Heat.

[music] [music] Heat. [music] Heat. [music] Heat. [music] >> [music]

>> Corola is headed to [music] the top. If we're not already at the top, we're going to the top. >> Roll up is my favorite. >> People from all walks of life, all over the world, all over this industry come together for the roll up. [music] [music] [music] >> [music] [music] [music]

>> Zoom out. The institutions aren't coming. They're simply here. It's the golden age of crypto, guys. Get right. Let's go. [music] Welcome to the next. See you on the show. Yes, sir. Happy Monday, ladies and gentlemen. >> Happy Easter. >> Hey, happy Easter. Nice blazer, Rob. Let's give Rob's blazer some love here, man. Look at the guy. Come on. Yes, sir. Yes sir. >> Only going to come out when the markets are green. I think that's going to be a rule. We're going to make some blazer rules and we're going to have a dress code. Andy, he's got the shirt on, but he doesn't have the jacket. Where's the jacket Andy?

>> No jacket, man. I am in the tokenization tower. Shout out to Plume, the home of the nest, guys. They have some big things coming this week. You'll hear from them on the show. Just want to give them a quick shout out. Let's give them some love as we open up our first show of the week on this beautiful Monday. Rob, >> I'm in a Wordle chat with a lot of my family. And for so many days, they have used the word plume to start off. I don't know why. I did not ask them to. There is some sort of magical plume energy in the air and it's making its way around the country into the Wordle group chats at last.

>> The Wordle group chats. >> Yes. >> Man, I think the group chats were uh >> monitoring the situation this weekend. I'll tell you that much. Trump did not let us have any sort of Easter, did he? >> And I mean, Trump is praising Allah on Easter. And then you've got you've got Manni flipping the other way. And then you've got a 48 hour 10 a 10day deadline that comes due tomorrow night, Tuesday 8:00 p.m. >> Uh we're going to get into our geopolitical armchair expert analysis in a little bit.

>> But first, Andy, I'm curious cuz I'm closer to Miami right now than I am to New York. What's the weather like up there? >> Yeah, man. Let's get into today's topics. We have a slate slate of a show. Uh, obviously we're back from tokenization tower. Rob is at our Florida location which is actually kind of scheming out some ideas there for what's possible for the uh New York Miami tour. We got Markets and Weather live from New York and of course our Stabled Up episode with Stablely co-founder talking about stablecoin taxonomy. Really just into the nitty-gritty of what makes stable coins, what makes these things powerful, uh what's the differences. Athena had some

really interesting kind of like new market structure to their USDE uh asset. Basically bringing new types of yield, new types of collateral there. Um so lot to talk about there. Obviously today's topics is powered by Treasure. We had them on the show. Let's give Treasure some love, man. These guys are putting in work. Uh one of the best uh hardware wallets on the market, guys. Use code rollup10 for Treasure and at treasure.io. And let's get into the markets and weather in our opening segment. Rob, before we do, >> recap the incredible 3-w weekek sprint that we had leading up to today, which is the first day that we are back in our tokenization tower and flidian beach paradise here. I mean, we had a chance

to catch up with so many of our friends in Can. That was incredible. We had Danny on the show. We had our friends Rand who's going to be sponsoring our next segment, our weather segment coming up. Uh, these guys are incredible. Can was a vibe. I At first, I said it was too cold. I was complaining. I was proven wrong by the the impending weather over the next few days was absolutely incredible. Uh it was a little little bit more chill, less beach uh beach clubbing, a little bit more relaxing on the beach club this year.

>> Yeah. Everyone just kind of took it down a notch. Felt a lot more practical, a lot more pragmatic. Obviously, that was coming off of two incredible weeks. DC then D and then we capped it off in canned. Um any any big takeaways from your end? What you know anything stood out? >> Um from the entire three weeks it it was two weeks of bull market conferences DC and D very much just bullish all around. ECC felt like a bit more like a bare market conference in terms of like the native uh people and the kind of like defi oriented folks. I felt like it was very kind of like push comes to shove.

That would be my like broad sentiment takeaway is just that you know you had this kind of evolution of regulatory and in institutional pushes that were very bullish. And then on the native side, it felt a bit more a bit more slow, a bit more kind of like, you know, facing the reality of onchain having low levels of activity, people wanting to uh have new products, looking for new investment opportunities. That was kind of my key takeaway. I don't think it was like a a big bearish uh vibe in Cam, like it wasn't like it's all over, but it was very like as you say pragmatic practical.

>> Felt very sober. It felt very like like the DC politicians were drunk and euphoric on all this regulation that they slammed into the press over the two days that we were there. SEC, CFTC, Congress, everyone is just fueled up on making things happen. >> Can was felt very sober, very much let's get down to business. Uh and then D was kind of in the middle. It was, you know, it felt like there was a lot of adrenaline and people really pushing the limits on what's possible, which I I found very exciting.

>> Yeah. >> So, yeah. Overall, incredible three weeks and it feels good to be home and uh and to hit the ground running. We're not going to stop. We're not >> Yes, sir. Let's move on to markets and weather. Before we do, let me tell you about FRA, guys. Frack is our core partner for FRXUSD, the future of digital money, open, stable, and borderless. building infrastructure for the future of digital money. For more information, visit frack. Finance, guys. Check out fracks. Uh they've they've been doing a ton of cool stuff with superstate uh s uh securitize and more. Guys, we're live in the tokenization tower. It is 49 degrees. Feels like 44.

It's probably about 88 degrees down there in Florida, Rob. Um >> is that right? >> Yeah. I mean, it's a sunny, beautiful day, but a you know, a little bit little bit on the cold side here. It's not quite spring. Shout out to Relay powering crosschain swaps across the entire marketplace. Guys, use relay.link powering our weather segments day in and day out. Um yeah, Rob, what is it like down there right now? It's got to be summertime vibes. >> There's about 50 degrees of difference here between uh theization tower and the the Miami Beach Paradise. I mean, Relay crosschain swaps takes you all the way from New York to Miami. So, there's no [laughter] there's no place that relay can't take you. Um, and and it really is. Uh, it's starting to warm up. Uh, it feels like Florida again. And, uh, what

can I say? The the sun was shining. Uh, feels good. Feels good to be home. >> Good, man. Good, man. All right, let's move on to the markets. I think we're green today. People are excited about this. Um, Bitcoin just under 70. I think maybe even this could get a little re. Nope. Okay, we did have a bit of a pullback just as the show started. Ethereum at 2130. soul back above that 80 level after that drift hack. People were really kind of knocking down on Soul. Nothing new for that community. Those guys get it every every once in a while. They get the uh Salana's over vibe. Chain link just right under uh nine and near just seems to be at 1.3 in perpetuity. Um so this where we're at guys. Optimism around the war

potentially ending, potentially coming to a close. Obviously, Rob, we were talking about kind of Trump has this big this big 48 hour deadline and yeah, I mean, oil is back down to about 105 107. Um, and these disruptions in the straight of Hormuz persist. >> Should we should we talk about these disruptions? I I mean I uh I read the Catrini article. I read most of it um this morning and the counterintuitive point and an incredible article. I mean, just coming off of the banger that they had about this AI report from 2028 that we read when we were at Nearcon in San Francisco. That one was free for everyone. This one they put behind a

payw wall. But um yeah, I mean it it does stand up. It's incredible writing. It tells the story of analyst number three who is uh research analyst from Satrini. True story. Uh this guy uh basically had the thought, well, why can't we just go to we hear so much about the shrimp hormous? let's just go there. So, this guy goes, flies into Dubai. He uh he lands, gets set up uh in this hotel, and he says it's this elaborate hotel. Usually, it's buzzing with tourism. There's like two people there. They're trying to put on this facade that tourism is still real. Gets past border agents. He says he's there for tourism. Uh and he goes and he plays in this Dubai poker game and he's he's

playing with these guys and trying to get relationships there. Uh he ends up meeting people that he knows that are able to help him out. So long story short, he does make it into the straight of Hormuz. He gets tracked by the Oman CIA. Uh they tell him to cancel his trip into the straight. Uh initially he was going to go with a dolphin tour guide. That guy ended up canceling on him. He found an Iranian smuggler that was going to take him in this little 40-year-old dinghy into the straight. Uh the CIA knocks on his door the night before they're supposed to take off. They said cancel your trip. Uh he talked to his friend who ran runs this smuggling boat.

They decided the police. That's what they decided together. They go into the straight and they're like toring along the lines and so they start to make some really interesting findings and and and uh uh they notice some really interesting things is that most of the boats are just paused or hugging the coast either on the Iranian side or on the Oman side. There is one Greek tanker that is just blitzing through the entire straight. And so what they realized is that there are boats that are passing through the straight that are making deals with the Iranian government. Uh initially there was some theory that the entire straight they had dropped landmines inside the

straight so that anything going down the middle was going to blow up. Not the case. Essentially what's happening is that Iran just wants to be paid. They're acting as if they are the Coast Guard and they are in control of the straight and so they are collecting tolls and fees as boats pass. And if you make a deal with Iran, they will let you pass. Um there it's not at a standstill. The originally the differentiation was is this a blockade or is this a toll booth? People originally thought this was a blockade. It's not. If you pay the toll, you can cross. And so now the the the thesis here is very counterintuitive.

The thesis is that the war will continue to escalate, but there will continue to be more ships passing through the straight. And the and the reason is this. It's it's that and I I'll read you this passage here. The most counterintuitive finding from this trip is that the hot war and commercial diplomacy are happening at the same time. The rest of the world is adapting and negotiating passage while the US continues with military action. US allies including France, Greece, Japan are all figuring it out. Before it would have been unlikely to imagine a world where Japan, the EU, and other US allies were negotiating with the country that the US was directly in con in conflict with to secure passage while

the US maintain footing for an escalation of kinetic warfare. >> If we're in a war with someone, usually it's not the case that our allies are negotiating with terrorists. >> So they say now that's simply how the world works. These countries must deal with the issues imposed as the US won't be sorting it out on their behalf. This is what Trump told them to do in his address when he said the nations could re could that rely on the strait should take care of that passage themselves. Uh this is also what makes us feel that it is distinctly likely that we see both an escalation of the conflict within the next week or so while traffic simultaneously increases through the straight.

>> And so >> wow >> economically >> Yeah. What this what I think this means is that oil is going to come down. We're going to see more flowing through, but the narrative politically is going to continue to escalate and this could mean a warmer and warmer uh kinetic war between Iran and the US. And so >> this is not it doesn't seem like this is coming to an end anytime soon. Um but coincidentally, you have Trump saying that they must open the straight >> open the straight uh so that in full.

But if you ask Iran, the Iranians are going to say, "Hey, the straight's open. You just got to pay our tolls." >> Yeah. Exactly. >> And so these two sides are kind of talking past each other. Um, according to Catrini, more ships will be passing through the straight, but we will have uh greater kinetic war pressures uh for some time to come. >> Well, I think that that's kind of why the markets are reacting in the way that they are, right? Like I think that um the the market's green today had that kind of bounce last night. People are realizing that you know like the war will continue and perhaps there's going to be printing that's going to fund that. But, you know, if the straight's going to be opened, oil can come down.

That can kind of ease a lot of the recessionary pressures on the market and then hopefully kind of like drive and deliver more uh economic revitalization in terms of all these countries that are affected by uh this straight being closed. And so, I think that's why the market's reacting today. Thank you for the Catrini summary. Um, yeah, that I I just cannot believe that that person actually went there. And I saw something in there that was like, um, named analyst three to refrain from emotional attachment, whether it be for the readers or for Catrini's company themselves.

>> I I think Catrini's company knows who Analyst 3 is. I think for the readers, uh, this is a gripping story. Like, they could make a movie out of this. shore. A lot of the footage got uh confiscated. He got picked up in port jail, which is where all these smugglers go and they get caught. Um and so we pretty much have this guy's stories. Uh there's some very few pictures, but um I'm sure this guy would have been uh >> persecuted a little bit harder if uh he wasn't named analyst 3 and his name actually got out there. All right guys, that is our markets for today powered by Zama, one of the best confidential applications on Ethereum. Build anything private, private tokens, all on Ethereum mainet. Let's give Zama some love and

let's get moving into the news coverage. Let me tell you about Near first, guys. The blockchain design for AI native applications and autonomous agents start developing at near.org. The blockchain for AI. Guys, a lot has happened outside of just the war. DeFi needs an open-source and collaborative risk framework. Major protocols with centralized control must use best practices for OPSAC and the risk framework should reflect this in the underwriting process. Most want this from my discussions at ECC. Let's make it happen.

I mean, do you think we're talking about drift here? Do you think we're talking about vaults here? What what what are we talking about here? >> Yeah, I mean obviously uh over the last three weeks uh we've seen two major hacks, $80 million from Resolve, uh where their vaults were were drained. Uh this affected Morpho uh and some of the other vault curators. Uh and then obviously Drift in the last week, $270 million was exploited. Uh that is a fascinating story which I'm sure we'll talk more about here coming up.

>> Yeah. >> Uh there's inperson North Korean agents that are being sent to Ethereum conferences to infiltrate some of our top protocols. I'm sorry. What? That's I think the title of our show today is a North Korean litmus test because apparently you can uh ask them to say >> um >> Kim Jong-un is a fat pig. >> Yeah. and then they won't do it. And I saw this video of this of of a guy on Zoom who was, you know, asked to say that and then he just left the call. His screen froze. [laughter] >> Yeah.

>> So, I think Sam's getting at here is like, look, we're trying to standardize risk in this market, right? Like there's onchain risk ratings. U has a curation model. Obviously, Morpho has kind of this uh curator model. A got this DAO model. It just seems like the risk standardization is what Sam's getting at here. And look, I agree, man. I think right now it is a sentiment in the kind of DeFi landscape that whatever yield or possibility that you may get. Um, the risk of getting zeroed is simply not worth it. And I don't think that's fair.

I don't think that that applies to all DeFi. Uh but but I think we're we're seeing the sentiment where it's like guys like if I'm going to get 2% more than a money market fund, why am I going to risk it all? I again I don't think that's accurate. I think that's kind of an extreme side of the take here. But I think I just agree with Sam. We want something that we can present that we feel strongly about to institutional allocators and be able to say like hey like here is how our protocol is standing up against all of the risk frameworks that the entire industry has essentially came together and agreed upon and here's where we stand and I think having that in an open transparent

process I think is a step in the right direction. Blockworks has this token transparency thing. I think that's interesting. I think all of these kind of like general frameworks of mind are the way are the right way to think about this and yeah I mean we'll see if the industry can come together. Um lowrisisk DeFi was obviously a part of this. Now now it's time for an open framework. >> Yeah I think that's the right take. Um obviously the vault complex right now is in the position where they are trying to be seen as infrastructure providers.

That's why you have Morpho uh and a the VETA all of them uh are bringing in these risk curators to be the risk managers and curate these vaults. They don't want to be seen as taking on the financial considerations of what it takes to to to differentiate a good vault from a bad one. they just want to build the infrastructure that can support this at large. Um at the moment >> the risk framework is obviously too fragile. Um there are entire global risk departments uh in some of these large financial institutions. It is some of their biggest departments. Um >> I think a lot of this should be done inhouse. I think for too long we've actually had uh the decentralization has shot us in the foot as an industry.

>> Um and we want to make sure that we maintain the ethos of this industry. the decentralization uh the programmability the permissionlessness but not sacrifice um some of the quality of these assets in these vaults uh as a means of making this kumbaya inclusive for everyone anyone can launch whatever they want and then showing slop to end users and customers I think ultimately an open source collaborative risk framework is how we get the best of people in the industry working together because a lot of these assets are so much more transportable and composable across the networks. And so if you have a closed garden, >> you don't need a collaborative risk

framework open source. But because we have resolve in vaults and then you have drift and tokens and per all these things are somewhat connected. These things really should be collaborative across protocols. >> Yeah. Yeah. And I think I think we're getting closer than ever. I think you know these these exploits as of late were a bit kind of shocking to the market like wow this is still happening. Um, so I think there's definitely a stronger driving force now than you know probably ever since I mean maybe 21 22 when we had the that kind of wave.

>> One more thing to add here is that as new curators, risk managers, you know, the Apollos of the world start using Morpho. Uh, you end up with Bitwise coming in and starting to curate their own vaults. they have internal risk and compliance departments that will do their own due diligence on the open garden of Morpho vaults or a um and they will apply that risk framework to those vaults and start to filter down and curate their own uh their own pools of capital so that >> when you're talking about the $900 billion Apollo uh capital allocation that will not that will have to pass the risk test of Apollo at large it won't pass through to Morpho uh in general.

And so as these institutions come in, I would expect that we end up with less of these hacks. >> Yeah. In the kind of vault curator model, it is on the uh curator to underwrite and kind of like uh do the risk [clears throat] assessment, but then they're not that the they're not the same party who's like originating the uh credit and the and the asset. That's that comes from a separate source. I had a really good panel with Apollo and uh Paul from Morpho. I think it was uh in the midst of this private credit situation. It's interesting to think about how we're going to unlock more and more credit on chain. But as Sam says here, doing it in a risk adjusted open risk framework manner that, you know, allows anyone and

everyone to be able to have their say, set an onchain risk rating for smart contracts for DeFi. update it, review it, revise it, have it, grade everyone on the same open playing field. That I think is something that that the industry is going to need. Institutional allocators are going to demand. Let's move on here from uh Sam. I think we have an interesting video here uh from or first we have Tether is reportedly again trying to open up their $500 billion round. Um I think that they weren't able to pull this through last time. I think they did not get the uh demand that was expected. Um they have $13 billion of annual profit, less than

100 employees, crazy margins. Obviously, their USDT reserves are driving a lot of that value. And I just don't know if I Yeah. At 500 bill, Rob, is this a is a copper drop? >> From my conversations at uh at these conferences, um Tether doesn't need to raise. Look, Tether's already buying the random things on the street. Like, they're investing in cattle in Argentina and land, soccer teams, things that are way outside their domain of expertise.

Why does Tether need another And they're making 13 billion dollars in profit. >> Yeah, >> they're investing in everything under the sun. Why do they need a raise at a $500 billion valuation? >> I and and and according to this tweet, they have zero plans to IPO. I I I I don't think Tether needs to race. I I I'm confused as to why they're they're putting this out there. >> Well, you saw them put the um they took a step with KPMG to create an audit report. >> Yep.

>> I think it's probably these go hand in hand. The audit hopefully comes first then the raise. I I I imagine that the investors looking to invest this amount of capital at this valuation or certainly looking for an audit. But I think it's like a stamp of legitimacy and can very much if they get the right backers will increase their kind of dominance is how I'm thinking about it. >> I I think that's right and I think they're planning a US launch. >> I don't know. You know, obviously Tether is permissionless and you know there was some skepticism in the US and Circle has a foothold here but Tether could already circulate in the US. They're just choosing not to. and the raise plus the KPMG audit makes me think that, you know, leads me to believe that yes, they

will be making a push into the US, what that could look like. Are they going to be going after centralized exchanges here? Uh they're going to be looking to deploy some sort of projects or work, you know, >> look, there's a there's a undercurrent here where Bo Hines was instrumental in writing the Genius Act and now Tether has hired Bo Hines and then let him go. I could see a world where Tether has some sort of uh domestic influence. I also that there is some affiliation with the Trump family. I don't know if it's Eric or or Trump Junior, but there are pushes for um multiple stable coins and stock Bessant has said that he is

planning to issue more debt. He expects stable coin companies to be buying that. And so there's lot there's a very multi-dimensional plan here of how Tether could approach the US market and if if they're planning on doing so in the near future then that is where uh this additional fund raise could come into effect. Just to me it's like if you're planning this US this US launch why are you buying soccer teams and investing on in all these companies? Why not use that capital >> diversification Rob? >> All right. >> Come on. diversification.

>> All right, guys. Let's move on into uh next piece here. I think uh Tyler will raise, but not sure if they'll get the 500 billion. I'm not sure if they get the 20 billion demand that that they want. But guys, this was really interesting. This is a private credit kind of conversation here with Lynn Alden. She's a really kind of uh macro geopolitical speaker and she has some really really solid takes around financial versus physical constraints. uh scarcity commodities wanted to play this out um and just kind of hear at least part of this conversation. I think it was a really good clip here.

regional bank crisis. Uh literally the day I think it was March 9th when it was kind of playing out. Uh I I just went on Twitter. I was like I know it's like non-conens at the moment but most banks are going to be fine because this is like a it was a specific bank issue. A handful of banks that were like had had very specific issues that they ran into. >> Yeah. >> Uh and most banks were fine. Um and very small amounts of of tweaks were able to kind of put that fire out. What makes you think that? Because I did a show with your sparring partner, Jeff Snyder. I I can't remember exactly when it was, but I think it was just before the war started. So, to be fair, he didn't have that to sort of tie into this, but he was looking at private credit and

thinking this might escalate into being a real issue. And he he wasn't calling for financial crisis now, but he was like, "This is something we need to pay attention to." Well, I I would agree with that phrasing and I even in my own research, I was like, I don't consider an issue yet, but I I mean, it's it's notable enough that I'm watching it, especially because if if people are always asking about it, I want to be able to give them answers that that are backed by analysis, not just kind of like off the cuff. Um, but when you just quantify the size of private credit, so it's total bank lending to non-deposit financial institutions. It's a it's otherwise known as shadow banks.

>> Uh, which sounds scary in some ways. They're less scary than than normal banks because normal banks do fractional reserve bank lending. They take your checking account like your demand deposits your if you're running a business like literally your payroll account and they go and make a liquid loans with it and and they you know and and they just hope that not too many people withdraw at once. Uh now but because they are so risky they're also highly regulated banks especially after the global financial crisis. So shadow banks are entities that make loans but they don't use depositor funds. Mhm.

>> Uh and and if anything, so it's mostly like high net worth investors, um institutions that that want a return, uh some, you know, insurance companies, pensions, just large balance sheets as well as just wealthy individuals will put money into this fund and right up front it'll say like we can't guarantee liquidity. You know, this is this isn't a savings account. This is your you're putting capital in. We're making loans with this capital and we you know, when you want to pull your money out, we'll we'll try to accommodate that. But I mean, if if too many people want at the same time, you're going to have to wait.

>> Tough luck. >> Yeah. Uh and that's that makes sense for savings, not for a a checking account or like, you know, near-term savings. >> So, when they gate withdrawals, it's not nearly as bad as a company that who's like payroll, >> what it's like, what do you mean it's not there? What do you mean I can't access that? Right? Or what do you mean by checking account? So, it's it's a it's in some ways less scary, but the the the the part that of course freaks people out is that it's one, it's it's more opaque. uh it's less regulated um and uh they they do generally engage in riskier types of lending than a than a regulated bank. And the kind of the cheat code I guess it I'll use the word cheat code because where we are is banks want exposure to that area but they want risk

reduced exposure. So instead of you know lending the types of entities like these smaller businesses that might be recipients of private credit banks will lend to the private credit fund and then the private credit fund will go out and make loans. >> Okay. Now the difference is the bank's not lending all the capital. So the private credit funds mostly taking capital from investors either again high net worth individuals or institutions. They're lending it out but they're also borrowing from a bank for a smaller portion of their capital. >> And let's say they do make bad loans because they're you know some of these are risky loans. Some of them are consumer loans, some of them are business loans. There's different specialties. And let's say they do start to go badly. the the first people that get hurt are the investors, the ones that decided to put money in and you

know they expected to make say 90% returns on these loans. >> But that risk on them that's kind of fine. >> Yeah. And that's fine. I mean it's not it's not great. It it around the margins it can the the negative wealth effect could hurt the economy because if you know if you had a billion dollars in this fund and it got cut to 700 million maybe you'll buy a couple less cars that year. you know, it can affect high net worth spending around the margins, but it's not a grave concern compared to like a true financial crisis. It it would have to get so bad >> that they lose so so many like um loans that even their bank loans they have trouble paying back like they're they're more kind of frontline creditor uh not just the like investors in the fund. uh and when you quantify the numbers, so

banks in the US currently have 1.9 trillion in loans outstanding to all non-deposit financial institutions. Um and that sounds like a lot, but that's out of 25 trillion in total bank assets. So something like 7 or 8% of their assets. Uh which of course their assets are someone else's liability, but of their assets, seven or 8% is in non-deposit financial institutions. of that. Some of that is private equity, which actually has its own problems at the moment. Uh, so only a subset of that 1.9 trillion is private credit. Um, and so, you know, it's a it's a trillion in change. Um, and let's say half of that were to go away. Half of all private credit is defaults tomorrow. Well, first

the investors take hundreds of billions in losses. Some of the worst hit funds then might start defaulting on the bank loans, but the the the amount of that gets through to the banks, the losses, we're talking, you know, 100 100 billion, 200 billion, >> drop in the ocean, >> 300 billion. I mean, yeah, they have 25 trillion assets and they have I mean, their bank capital like their the amount that their assets exceed their liabilities is it's well over two trillion. Um, so while there might be individual banks like probably banks you never heard the name of that suddenly we wake up and kind of like how's Silicon Valley Bank had a very particular issue and and a couple others along that you could absolutely have a bank failure.

Uh, but it won't be the generally >> interesting. >> That's uh that's the key that's the key part there that it's a drop in the ocean, right? So >> I think people are skeptical skeptical about this market because it is a large market. It's also one of the primary markets that's gotten tokenized in recent months. But um when it comes to how this private credit market and its issues and cracks could systemically affect the rest of the banking system, relatively minimal.

>> Yeah. I mean it it also just seems like this is probably like a money printer go burr type of solution as well. um you know there's there's liquidity effects here that could happen that could be improved for the system. It doesn't sound like the major banks are going to be under any fire as you said drop in the ocean. The investors in these products the like the direct investors who obviously signed off on like the risk uh parameters and you know the general memorandum of of risks. Sounds like they're going to be the ones who if something is to happen uh will obviously be the ones who face the largest percentage loss based on what they

actually allocated. I think I think it's not that big of a deal though because it sounds like basically these products are meant to be invested in a way that is like more like longdated more like illlquid type of products and that's what Jeff Park was saying on the show when it's like they market to market you know very infrequently and it sounds like basically if all these people are trying to get their money back at the same time then it's somewhat normal that they gatekeep the exits because they don't want to, you know, be forced sellers of an asset that they're supposed to be holding for three years, 5 years, seven years. So, I I don't know that it's I I put out a tweet this morning saying like, what's the

latest? Didn't really get anything of substance back from uh anyone, but yeah, I was hoping that maybe it could get something and that maybe this video kind of like illuminates some of what's happening. Yeah. I mean, >> the the the other thing I'll add here is just when it comes to how we're tokenizing these digital assets, yeah, uh specifically private credit um as well as tokenized equities, these supposed, you know, high quality assets, both speculative and non-speculative. Equities of course are speculative, could go up or down as much as you'd like. Uh and and non-speculative being more in this private credit space. Um, I was I was I had mentioned this to you

before, I think, but you know, I had this conversation with Joe Luben and how they're thinking about tokenizing some of these DTCC certificates. Well, >> I was laughing just a minute ago because the way that these private credit deals are marked to market. Sounds like it's similar to how NFTts were marked to market. You know, they're only marked to market when they're bought or sold. Otherwise, they just, you know, maybe pay a yield, right? when it comes to these private credit uh these private private credit offerings, um they should really be the way that they're currently being tokenized is, you know, you you put all of this into a pool of capital u that represents the the the private credit offering. It pays a yield and because we're offering essentially

instant liquidity on these products, it resembles some sort of staking product. Maybe there's a lock up, but for the most part, it's just a pool of capital and it's earning some yield on it as interest payments are made into that pool of capital. The reality is that these are probably better architected as NFTts. These things have these things have duration to them which means that you know you and I could go both go into a blue owl fund but depending on when we go into it our investments are actually quite different depending on the duration of how long we anticipate to be in that fund what kind of lockup requirements there there are the redemptions that they're in and then obviously the the liquidity dynamic of

who else is is into that fund as well and that could have liquidity effects in and of itself. And so, um, you know, this conversation I had with Luben was essentially around the same being of tokenized equities and how, you know, there are certain shareholder rights. There's there are certain parameters and requirements. Not all equities are equal. Um, and and how we should tokenize these certificates in the DCCC. And I think the same could go for private credit. And so it just signals to me that we are still so early because we are at the first attempt of tokenizing these products. There's going to be ways in which these things don't

work. Some of these things are going to continue to stick on. They're going to work, but overall these things, some of them are just still experiments in how we're to going about and tokenizing them. Some of them are not going to work and then we're going to try again differently and then we're going to end up learning about the right way to tokenize these products. And I think we're we that might be how we see the the return of NFTs. >> The return of NFTTS as private credit products earning yield the crack showing Robbie Clay just ladies and gentlemen the NFT bull. Let's go Rob. All right guys, I think we got Corey coming in stabled up our lovely weekly premiere stable coin show powered by our friends at Fracks. guys. Um, we're going

to talk about the token taxonomy when it comes to stable coins. Uh, what this means from his his perspective. Um, Stablely is doing some interesting work as well in stable coins generally. Before we get to our lovely first guest, let me tell you about Relay, the easiest way to swap tokens across multiple chains from one interface. guys, enabling consolidation of your assets on venues like FOMO, so you don't have to worry about what happens under the hood. Better UX for you and your users. Start swapping CC today at relay.link and let's get him in. Guys, stablecoin taxonomy, Rob. I mean, we have two kind of ideas for what stablecoin taxonomy

is. We're going to hear from Corey direct after a super quick commercial break. We'll get back with Corey. Hell yeah. Heat. Heat.

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>> [music] [music] >> Welcome back It's another episode of Stabled Up, our premiere weekly show covering the ins and outs of digital dollars, stable coins, and the future of decentralized finance. Show is made possible by FRA, and FRA is powering the financial engine of the internet, powering FRXUSD and genius compliant stable coins. This is the stable coin super cycle made possible by FRA. Now enjoy stabled up, our weekly [music] stable coin show.

All righty, guys. Welcome back to Stabled Up, episode number 26. We're going to have Cory Hang talk stable coin taxonomy today, guys. Let's get Cory up on the show. Bring him in to Stabled Up episode number 26 powered by our friends at Fracks. Cory, welcome to the show, man. >> Hey guys, thank you so much for having me on the show. It's a pleasure. >> Absolutely. This is our uh our cornerstone stabled up show all about the stable coin economy. Um, and you've got a stable coin taxonomy that we are very very curious to hear about, talk about, and understand uh what went into this, how you're thinking about stable coins. Uh, before we do, Corey, could you just tell us a little bit about

yourself, how you ended up as co-founder of Stably? >> Yeah, absolutely. So, hey everyone, my name is uh Corey Hong. I'm the CEO and co-founder of Stably. Uh, we've been building stable coins at Stablely for actually more than eight years now. Um, as for how how I went down this rabbit hole, well, I guess I've always been fascinated by the concept of narrow banking, where banks act more like custodians with full reserve backings of customer deposits. However, the history of banking, as you guys know, has largely been a history of fractional reserve banking, right? We never truly experience something that's as close to narrow banking as stable coins until they finally came out, right? So payment

stable coins are indeed the modern manifestation of a for reserve system and that's where you know my original interest got really attached onto this uh technology and um back in 2018 we actually issued the fifth uh US dollar stable coin in the world. It used to be called USDS. Uh we listed on Binance on Bitrex in early 2019. Um, but within a few months of getting on Binance, we actually realized that we were, you know, now that we're on the big boys playground, we had our first taste of uh a very fierce liquidity competition in what became known as the stable coin war of 2019. Um, long story short, other stable coin issuers, they were selling

their tokens at a discount to market makers and this allowing these market makers to redeem them for several months. And then you know the bigger the discount they took the longer that they had to wait to redeem. And so to realize these profits, uh, market makers, you know, swapped the tokens that they bought at a discount from these larger stable coin issuers and they swapped them into other stable coins on Binance like USDS, from Styly, right? And then they proceeded to redeem the uh newly acquired stable coin without any restriction from us uh capturing arbitrage for themselves. And you know they were able to effectively reduce our reserve and circulating supply significantly. And you know uh this was basically our foray into the stable coin war. Right? This was the first one

started in 2019 and we very quickly realized that we were not sufficiently capitalized to pick a fight heads on with you know much larger stable coin issuers right there was circle paxos trust token um you know Gemini they all raised way much more funding than we did we only raised like you know about a million dollar in funding uh during our first year so um you know therefore we decided to uh pivot stavely in the beginning of 2020 and dellist USDs from Binance And we decided to pivot to uh stablecoin infrastructure development and strategic advisory services and basically taking what we have built and what we have learned to help other organizations launch their own stable coin their own branded stable coins.

Basically we were one of the earliest uh industry pioneers of stablecoin as a service or white labeling as you know as come to know >> and we've been helping folks uh doing that ever since 2020. We work with many names like you know Vchain uh Tezos, Stellar, Ripple. We advised Ripple initially during the the development of RLUSD. So you know we have a little bit of our DNA everywhere. Um but yeah to date you know stably we have supported over 20 stable coin launches uh including one of the first go back tokens in 2021. Um and we also launched a uh the first stable coin with interest rebates for borrowers back in 2024. Um, our clientele range from blockchain

foundations to stable coin protocols to institutions, some gaming companies as well. And yeah, that's pretty much been my uh story since 2018 in the stable. >> Yeah. >> Awesome, man. Um, man, that must have been a wild time with the uh uh fighting against, you know, the large issuers now back in kind of like the earlier days before folks really, you know, understood what stable coins could be. I mean, I remember uh Rob like trading on on exchanges back in the day. There was no stable coin pairs, you know, and then like the stable coin pairs came about and it was like a whole new like way to trade on on on on the markets. Folks were like used to pricing things in

Bitcoin terms now was dollar terms. Uh to be thinking about where these companies have came since then is is is pretty insane. >> Yeah, absolutely. I was one of those people back in 2017, right? I was trading crypto. Tether USDT was the only one uh you know that we the only stable coin around at that time and you know everyone that had uh you know a little bit of knowledge of history of banking and finance kind of you know were able to foresee that you know this was going to become digital dollars of the future right fast forward eight years you know blah blah blah right so I don't need to go too much into that anymore but uh back then it was very difficult to convince a lot of you know people who never heard of a stable coin before um and Even for you know USDT it was you

know it was the only one right there had to be more right there had to be more stable coin to come out with more diversification and flavors and so we decided to be one of those uh you know projects back in the day >> we just didn't realize you know uh the scale of the stable coin war and the liquidity war that was going to unfold right and so you have to be very prepared uh you know not not just from a you know capital perspective but also you know industry connections and a lot of other things in order to you make sure that that that it works out. So, >> yeah, certainly. And and through your experience, eight years in the stable coin business, you've you've seen a thing or two, you you've noticed that not all stable coins are are the same, and there's several different kinds. Uh

and so, as you guys are advising some of these clients, you know, there's many different types and var varieties of stable coins that you could pick from. Could you just >> start to sort of approach the stable coin taxonomy? maybe you know talk us through how you initially put this together and what are some of the highlevel key categories in this uh this stablecoin framework. >> Absolutely. So I actually uh released a stable coin taxonomy paper uh recently. You can check it out on my Twitter. Uh but you know at the highest level the uh the framework that you know I not you know came up with I I like to think of I updated it right. Um the framework that I'm using now classifies stable coins

based on how they are backed how they are backed not just what backs them right so the core split is between what's called exogenous exogenously backed uh endogenous endogenously backed and hybrid design right most of the market uh today it falls under the exogenous models so exogenous mean you know the stable coin is backed by external assets or collateral right external reserve as our collateral and endogenous mean the stable coin has value that is created within itself within its protocol. that doesn't require on external collateral or reserve to maintain you know uh intrinsic value or you know pec stability right so but let me um let's go back to exogenous uh stable coin

category because that's the largest one so within the exogenous uh stable coin category there are three further subasses right the first one everybody knows is the reserve back stable coin also known as fiatback stable coin or payment stable coins right but just because it's backed by a a reserve doesn't necessarily mean it you know is a fiat reserve right perhaps it's a you know onchain reserve of other stable coins or you know yield bearing assets as well right but generally speaking uh fiat back stable coin payment stable coins under genius definition they fall under the reserve back stable coin category or RBS right they are considered RBS and so these are issued one to one against reserve like cash

tails or yield bearing stable assets and they're designed primarily for payment and settlement purposes. Um the second class of exogenous stable coins are collateralized uh debt position stable coin or CDP back stable coin, right? They're also known as cryptoback stable coin where you know users lock up crypto collateral uh into a CDP into a collateralized debt position in order to mint new stable coins, right? And when they're minting it, they're actually borrowing it, right? So these uh CDP stable coin they're closer to synthetic dollars. Uh and a really good example of this uh largest uh decentralized stable coin in the world is uh Maker Dow or D

from Maker Dow or actually recently uh they rebranded to USDS. Yep. And this guy your name >> they took your ticket. >> Yes. We actually uh we actually uh sold them that trademark back in the day but different story, right? Um, so we, you know, uh, the, uh, the SkyUSDs stable coin, it's not exactly a purely CDP back stable coin. It's actually a CDP and RBS hybrid, right? Because you can lock up collateral uh, in Sky to mint USDs or to borrow USDs. But you can also deposit reserve, >> right? In order to mint USDs one to one.

If you deposit collateral into a CDP to mint to borrow USDS, then you have to overcolateralize it, right? So for every $1 of USDS that you borrow or mint, you have to put in more than $1 of collateral. >> But if you put in reserve, right, under the RBS module, then it's just one to one, right? You put in $1 worth of reserve, then you get $1 of USDS back. >> So that's a hybrid model. Um, and the the third class of exogenous stable coin is what I call strategybacked stable coins or SBS, right? >> SBS, they're you know, they're very similar to RBS. They're backed by a reserve, right? But you know RBS are backed by reserve of fairly liquid static assets like T bills, cash

deposit, bank deposits, right? Whereas SBS the reserve is actually very actively managed in you know some sort of delta neutral strata str strategy you know basis trading um and market neutral strategy and it's typically hedge right in order to make sure that you know it achieves a price neutrality without taking you know volatility risk right so a very you know famous example of this is Athena right uh USDE from Athena >> but again that it that is also a hybrid right it's not purely a strategy strategy back stable coin anymore is a hybrid between a strategy back stable coin and I would say reserve right because sometime they do hold reserves of other stable coins or T bills and

static you know fairly liquid assets as backing right so it kind of you know depends on market environments and where you know the uh uh strategy overall strategy is right the composition of USD reserve backing it could you know shift right >> and Corey is that on Athena is that only as a result of the recent announcement that they made in the in the last day or so that they will be updating some of their some of their uh reserve strategy >> uh that that definitely uh you know further strengthened the hybrid nature of it but even before that I think US uh DE was backed by not just delta neutral strategies uh strategy strictly right uh there were also uh tokenized T bills or

also um cash backing of it I'll have to double check again but I do believe that you know there's more than just delta uh neutral strategy uh that is >> yeah I mean they said um institutional yield products uh and RWAS uh beyond T bills equity and commodity uh exposure through the basis trade not just basis trade on digital assets but through equities and commodities as wellending is that uh is that new did that just come out >> this just dropped today this morning that there is a like that they're now kind of bringing in this like institutional grade reserve portfolio.

Um, and that is kind of like what they're trying to do. So, there's going to be institutional triparty collateralized lending via Coinbase, Kraken, Anchorage, and others. Prime lending across centralized exchanges and hyperlquid. Uh, and then liquid high quality non-T bill RWA exposures as well as basis on non-crypto assets. I see. uh because I think basically what what guy the founder put out was that um the market cycle that they've been through obviously with uh this kind of crypto winter has really reduced the basis trades profitability and so they're looking to expand and kind of diversify their collateral sources in an effort to basically be able to generate you know more sustainable consistent yield even

in in a crypto crypto kind of winter. >> Yeah. More diversified yield sources. Yep. 100%. Um yeah so you know as you can see that further you know um exemplify the the hybrid nature of of uh you know these stable coins nowaday right they they >> you know a lot of them are purely you know uh sticking to one category and a lot of it are you know fiatbacked stable coin the regulate payment stable coins right but the ones that are you know quoteunquote decentralized or a little bit more innovative a lot of them are you know implementing hybrid models they're not just sticking with one p uh one pure model anymore.

>> Yeah. >> Yeah. Uh I have a question for you on the kind of uh fundbacked or like basis trading backed stable coins, right? You call them like strategybacked. Um there's a kind of a sentiment going on in DeFi right now that is like why would I go and try to get a little bit of extra yield you know with the understanding that there is a risk of losing all my principal or taking a significant draw down on my principal when compared to something like a T bill compared to something like a just a uh you know a Robin Hood gold uh earn account or something. So the question there on the strategy backed stable coin is like when you when you look at like classifying the the risks of different strategy backed stable coins a lot of these things are just kind of like hedge

funds backing a stable coin and you are holding that token you are assuming the risk of that of that hedge fund right um >> absolutely >> how do you think about the the sustainability like the long-term viability of these strategy backstable coins and what are some of like the risk parameters that you try to understand when thinking about this this specific category. >> Yeah, absolutely. I guess I can start with you know people can you know investors can lose money in risk risk assets from stable coins to you know yield bearing assets or what I like to call yield coins. I don't like to call them yield bearing stable coins. So >> or even you know in traditional finance private credit right there's a lot going

on in private credit sector right now right? So you know not to say you know not to trivialize the the nature of the risk in in DeFi and uh stable coin and yield yieldcoin projects right um there there is a lot of risk significant amount of risk and not just from the underlying strategy itself also you know from security risk as we have seen over the past uh you know week with uh the trip protocol incidents and also with resolve right the uh uh strategy back stable coin actually so you know yes That's a very valid question. Why are people risking so much uh in order to chase you know returns that are barely you know competitive versus T- bills right and you know I mean if if this was

the case all the time that it wouldn't make sense right absolutely wouldn't make sense but this is not the case all the time right we do know historically that during bull markets or during you know better periods yield and defy for stable coins and even for you know crypto assets has you know we're very competitive versus traditional finance extremely competitive Right? And in this particular market environment and market environment right now, if you are looking at you know uh the market and you're saying the yield is low well you know what on the other side of the equation that mean borrowing cost is also low right and if borrowing cost is also low now again this might involve taking on more leverage more risk in order to you know you know uh compound

the yield uh exposure right through yield looping strategy or carry trading and things like that. But you know if people really do want to get higher yield then you know there are ways for them to achieve it but they do have to undertake the risk. That's just, you know, that's just a natural thing that you have to deal with financial markets, especially with a market like DeFi and stable coins and yield coins that's extremely nent, very immature right now, right? So, you can't just look at this market right now and expect it to have like, you know, regulatory standards or like, you know, traditional finance standards. That's that's not a fair apple, you know, uh, apple to apple comparison, right? It's it's more like apple to like I don't know like a grape or like an orange or like something like that, right? It's way different right

now. Maybe one day, you know, with more regulation and more progress and with better security development things like that, it will, you know, uh the risk premium will start to converge more and more toward the the same with traditional finance investments and you know that also mean returns and yields will also start to converge with Trafi, right? So we we do want to work toward that day because that means we're improving market efficiency right when we get there. But until we get there's going to be there's going to be you know a lot of um there's going to be a lot of uh you know back and forth you know a lot of heartbreaks and you know stressful you know sleepless night and that's that's just part of the process.

Imagine when people first built airplanes right imagine how many airplanes actually like didn't you know finally make it back into the ground with people alive right? But what did humans do? We kept going. We didn't stop, right? We just kept going. And then within 60 years, we were on the moon or like 70 years. I can't double check my math here, but yeah, we were on the moon. >> Yeah. >> Well, I I think we were on the moon. So, you know, we're we're about to go back there again soon, right, [laughter] >> man? Uh, another thing that just dropped today, I'm curious to get uh your opinion on it, is Poly Market is changing their collateral token on Poly Market itself to a P or Poly Market USD.

It's going to be currently backed 100% by USDC. Why do you think Poly Market wants to take control of the stable coin plat of of the stable coin on their platform? What what could this suggest for prediction markets like Poly Market? Um, yeah. Yeah, absolutely. So, this is the kind of like the whole reason why, you know, we started uh stablecoin as a service or stablecoin consulting way back in the day, right? We foraw the you know the the rise of privately issue money or stable coins uh privately, you know, white label stable coin or branded stable coins, right? Um and right now there are still not that many of them.

You you feel like you're hearing a lot. That's not a lot. Have you seen, you know, white label debit or credit cards with like traditional, you know, uh, supermarkets or like, you know, Walmarts and Amazon? Tons, right? If you compare that to how many branded stable coins there are in the market, it's absolutely like, you know, minuscule, right? And for the very similar reason, why would any of these companies want to issue their own debit card or credit card, right? Why don't they just, you know, Bank of America does it, JP Morgan already does it. Why do they need to have their own, right? Well, number one, uh, if they issue their own stable coins, they get to reduce, well, in the case of Hyperlid, it's not so much payment cost, but like, you know, in the

case of like a supermarket or like a e-commerce platform, right? They get to significantly enhance payment cost, right? Stable coin cost nothing or barely nothing to send and they settle almost instantly, right? You don't need Visa, you don't need Mastercard, you don't need anything in between, right? In order to, you know, have that stable coin payment be settled to the merchant. uh literally within seconds, right? Secondly, um the stable coin as long as it is in circulation, right? Meaning somebody has to acquire the stable coin, hold it before they spend it, right?

>> Yeah. >> You're not going to go to you're not going to go to like, I don't know, Costco in like 10 years in the future, get in line with all your stuff, and then like, oh crap, let me go get the Costco stable coin real quick before because I need to get this 2% discount on Costco stable coin. You're not going to do that, right? you're going to get it from home or like way ahead and by the time you get in line, you just go ahead and you pay. Boom. Right. And if you're if you have to get that stable coin from Costco ahead of time, now Costco is sitting on a lot of float, right? A lot of reserve. That's back in that stable coin. And now they're earning yield, right? Float income.

They're owning float income from all that stable coin that's sitting in circulation but has not been spent yet, right? That float income could be extra revenue or it could be redirected forwarded back into their ecosystem in order to enhance, you know, user benefits and and um values, right? >> For example, Costco issued their own stable coin. Well, use Costco stable coin within Costco. Save two 3% or something like that, right? Where does the two or 3% savings come from? Hello, Visa and Mastercard is not in the picture anymore. And they get they get flow income from the reserve. they could literally redirect that back to their customers to make it even cheaper, right? To to buy stuff with Costco stable coin.

>> So now you have natural demand. You have natural demand for people to want to get into Costco USD to spend it within Costco, right? Because >> they they get a tangible, you know, financial benefit. They get a discount, right? And now that allows Costco uh USD to have its own like, you know, it its own e economy. It has its own money velocity and eventually you know stable coins they're not closed loop system they're open loop so they can actually go outside of Costco right they can circulate into other ecosystem they can you know just like how the US dollar circulates outside the US economy right that further increase the power of the United States and the US dollar the same

thing would happen to like any company that issue their own privately branded stable coin that you know gains velocity and adoption right be it hyperlquid be it Costco be that Amazon, you know, anyone that wants to, you know, financialize their ecosystem in the, you know, in the form of a digital a stable coin now they can capture all that value, all that network effect, right? Keep it within their own ecosystem, bene further benefiting their own users as opposed to letting it go elsewhere. >> Yeah. Yeah. >> So, you know, one of the things that's really significant here for Poly Market in this particular example is that Poly Market hasn't charged any fees up to this point. have zero revenue and this activates their entire monetary base. Uh

I'm seeing estimates uh there we don't know exactly how much float exists on poly market at any given time but the estimate is that there's about 500 million uh in USDC that's just deposited onto poly market for people that are just you know holding balances on the platform in order to place these prediction market uh predictions um based on the spread >> that's more than that's more than $15 million a year in float income right there based on current TBO rates. Exactly. >> Circle but Circle and Circle and Coinbase keep most of that. Not Hyperlquid.

>> Yeah. >> Or Poly Market. Sorry. >> Yep. >> Yeah. >> Right. Right. And so, um, I'm curious, you know, on on one hand, we've got this float income. Stable coin businesses are are really well positioned to capitalize on this. On on the other hand, you know, AI payments and these sorts of things is making just in time payments a lot easier. So how do you how do how should we rationalize these you know when in in just in time payments means like hey I want to predict places prediction I deposit it places the prediction all in one click I don't have to hold balances on this platform in order to facilitate making a prediction that takes away all of the float income from companies like poly market or Uber or Costco. H you

know do you do you see that as a core risk to the to the stable coin business? Not at all. What people fail to realize about stable coins, you know, they're are like digital checks. Bank checks, right? They're like digital bank check. You know, they're backed by, you know, actual cash deposit somewhere and you can redeem them for cash. It's very similar to a bank check, but it lives on a blockchain, right? And because it lives on a blockchain, it's more open. It has more money velocity. It has more utility, blah blah blah. Right? At the end of the day though, it's still similar to a bank checks. Banks don't monetize checks. Banks give checks away for free. Actually, if I pay a little extra fee, I might get a nice little poodle on my, you know, bank check or whatever customized, right? But that's

about it. They don't really monetize that for their VIP client. They're definitely like giving out customized checks away for free, too, right? So, that's literally what a stable coin is. If it's like, you know, a bank, if it's similar to a bank check, then how you really, you know, expect to monetize it over time, right? the the the true answer is in the long run you don't you don't monetize stablecoin off of flow income >> you have to share that away you have to you know give that away to the ecosystem to the users in ways that are compliant right now you know genius said you can't share yield with the users okay well that's p you know potentially that's passive you know yield sharing for the holders right what if the you know what the user actually uses stable coin for

things right for payments for borrowing for lending for trading providing liquidity, blah blah blah. Right now, you're actually doing something with it. Can I get rewarded with it? I don't see why not. Right? Like you go you go to, for example, you go to um what you call it uh the your your Hyundai dealership, right? To get a new Hyundai Sonata, for example, and I actually saw one earlier in Seattle. They they were um giving away one of these uh financing deals for 1% APR [laughter] on. And I'm like, how the heck is that even possible? And so, you know, when I when I talked to them, guess what?

>> Hyundai is subsidizing that interest rate, right? Really, they're giving interest subsidy or interest rebates or whatever you want to call it to the user. That's not an expectation of profit that, right? So, legally, there's been many historical presidents saying that interest rebate in subsidies is not considered, you know, security expectation of profit, right? And so, you don't have to just share the yield with past holder. There's so many other ways that you can share yields to like you know um ecosystem market participants and users in a way that could be compliant that would be compliant with the the Genius Act, right? And that that right there is further reasons why, you know, there's going to be a lot of competition among a

lot of stable coin issuers. They're all going to want to forward this yield out, right? It's not yield bearing stable coins, right? It's yield forwarding stable coin. That's the terminology, right? So they're going to forward this yo away to as many like you know it be merchants. Hey merchants accept our stable coin as a form of payments you know so that you know we can gain more uh payments volume. Okay. And then we'll we'll share some of the uh you know uh pay uh rewards to you if people makes payments volume in in our stable coin right? Okay. So that's the merchant lending and borrowing platform. Hey if you lend our stable coin we'll give you rewards or if you borrow your our stable coin we'll give you interest rebates.

Right. M >> so many ways to like you know chop it up. So like it's >> it's really like this is where we come in with stably and years and years of experience right we look at this and we said you know I've been >> thinking about this you know yield forwarding issues since 20 since the the end of 2022 >> right there's so many ways to do this everyone just caught up over oh yeah yield bearing stable coin we can't pay the yield >> there's so many other way to afford the yield right I mean PayPal's already doing it Ripple's already doing it look at Morpho look at a look at curve finance right They're already forwarding rewards all over the place, you know, to to these protocols, to their users on these protocols.

>> And it all it all comes from float income. It all comes from reserve income, right? And these are, you know, rewards for activities, right? You have to do something on curve. You have to do something on morpho. You have to do something get this reward. >> Yeah. >> So, you know, it's not passive holding uh yield. That at least that's what the way I see it. >> Yeah. >> Again, I'm not a lawyer. I'm not no disclaimer. not not a licensed legal professional. So definitely double check with your legal counsel. Uh yeah, you know on on this topic. >> Yeah. Um it seems like regul like from the regulatory perspective with regards to clarity and market structure regulators are favoring these fully reserved you know genius compatible

fiatbacked stable coins. Um, I'm curious if you think that this is going to be firmly locked as like the payment category globally accepted standard like basically USDT, USDC. Um, while pushing the rest kind of to the fringe for more like investment based assets. Um, how do you think about like how the regulatory landscape is affecting which globally accepted standard type of stable coin is going to be like the payments uh oriented stable coin? >> Okay. The way I like to think about it is like yin and yang, right? It's not one overtakes the other. They coexist.

There's a need there's a place for both of them, right? The ones that are stable and used for payment and settlement that doesn't have any yield and the one that is more geared towards savings or investment use cases that does have yield or appreciation, you know, ability. Right? Now one core distinction that you need to keep in mind is any healthy monetary system they need to separate payments money from savings money. You cannot combine the properties of these two into one single currency. That's why that's when you have like an unhealthy monetary system, right?

>> I'll give you an example, right? Let's say you have a stable coin that's paying you yield. It's a yield bearing stable coin, right? You're probably not going to want to spend it. It's paying you yield. Why would you spend it? Right? It's an opportunity cost, right? When something carries yield, it introduces opportunity cost. So now you're less likely to spend it. That reduces money velocity, right? So that's in the use case. That's a medium of exchange use case. In the medium of credit use case, nobody borrow yield bearing stable coins or like you know y you know yield bearing assets, right?

Because you don't get to keep that yield as the borrower. you you have to pay that yield back to the lenders. You owe that to the lenders. On top of that, you still owe them interest. Matter of fact, in in traditional finance for dividend dividend stocks, right? You borrow dividend stocks to short them, right? To short sell them, you own substitute payments on those dividends to to those who lend you those stocks, right? You don't get to keep that dividend, right? So anything that's yield bearing it for it it it acts the yield acts as a tax not just on spending but also on borrowing right so that reduces both money velocity and credit velocity right so you cannot position [clears throat] a

yield bearing instrument as something that is designed for payments and settlement use cases because anything that's designed for payment settlement medium of exchange or medium of credit right they don't have yield just just look at around you right your your bank account, right? Your checking account, which is the thing that you used to spend, you know, every every day, right? Do you ever spend money from your money market accounts or your savings account? No. Right? Maybe maybe some people do. Psychos, right? Most people, they're they don't do that. So, this is a distinction that most people miss, right? People, they don't they don't understand the difference between payments money and savings money. And so maybe they, you know, I mean, some of these people are actually very great,

very innovative, you know, stable coin founders and builders. You know, they want to create, you know, yield bearing stable coin or yield coin products, right? The the next evolution of where this industry is going. But then they don't realize that, you know, a yield bearing asset is not good for payments or borrowing credit use cases, right? And so, you know, sometime they would position that, you know, their their project in a not as optimal uh, you know uh uh go to market approach, right? Whereas, you know, perhaps you should think about having two, right? One that is non-yielding specifically for payment and borrowing and lending or whatever and one that maybe does have the yield, right? And that yielding one that's you don't position as, you know, for payment

or whatever. It's a savings instrument, investments instrument, whatever. Could be a security, whatever, right? But that's, you know, that's in a different category that's completely, you know, separate from the uh the other one. Yeah. Yeah. I think I mean when Sam kind of came on for one of the first episodes of this weekly show, he laid it out as two separate kind of categories just yield generating assets and then kind of genius compatible more like uh yeah like settlement payment assets. Sounds like you're introducing kind of a third here with this hybrid model. So it's interesting to hear how you think about the the uh discrepancies as it pertains to like the regulatory changes because it the regulatory is changing so much.

For example, like Binance USD, B USD went from I mean like zero to like 25 billion almost in a very short amount of time and then that thing got completely shut down. You know, the SEC went after Binance. Uh that was something that was kind of still in this hybrid model. Um it was a little bit less friendly regulatory setup there. Binance obviously operating from a different spot. just it's interesting to understand how the the regulatory changes are going to affect how people are like labeling these things and kind of interacting with these things on a global scale.

>> Absolutely. Well, first we have Genius already, right? And and also Mika and many other regulatory frameworks that's popping up all over the world and it very clearly says that you know payment stable coins >> cannot have yield right cannot be yield bearing cannot you know pay yields passively to holders right. So that's already clear as day, right? And you know, for better, I mean, you know, for all intent and purposes, they shouldn't have yield. >> Yeah. >> Payments. They're for payments or for borrowing credit use cases, right? They should never have yield, right? But Genius Act also leaves, you know, a section that says, you know, they're going to look into non-payment stable coins right?

What defines a non-payment stable coin? Right? This is the part where we're we as an industry have to work together with policy makers and you know regulators in order to help educate them right on and what is a you know payments what is a non-payment stable coin because then you're going into so many other like you know lending credit liquidity provision uh pay uh not payment but um what is it uh potential uh arbitrage or insurance and bunch of other things right So there's so many use cases for stable coins that you know um what you end up calling them or categorizing them in order to regulate them you know that's

an ongoing process and I think you know the the the market and the regulation will continue to evolve hopefully in a collaborative manner. >> Yeah. >> Um like we have been seeing over the past year which is really great. um you know that will foster innovation and that will you know allow regulators to also >> you know be open mind to these things help them you know they help themsel understand it because if if we still have you know uh what is what's his name uh Gensler at the SEC and he's you know uh what is it a regulation through enforcement right well that's not open-minded that's never going to you know be collaborative and help the industry move forward in you know in a way that is uh you

positive for everybody, right? So, the builder is going to keep, you know, trying to avoid the regulators and, you know, keep doing things in DeFi an anonymously and there's no, you know, there's there's there's no oversight of them. Uh whereas if you know, the government the regulator were open-minded and they said, "Hey, we'll let you guys experiment, right? Like, you know, let's we know there's things that could happen, you know, bad things could happen, but let's keep an eye on it and let's let's experiment, right? Let's work together on this so that we don't miss out on potential innovation, right? What if other countries other than America start adopting these and we don't, >> you know, and then we'll be technologically technologically behind other countries. So, you know, Corey, one of the things that I found most

interesting about part two of your stable coin taxonomy was the idea that this is actually a feature. you know, we we we typically think, okay, well, if I'm, you know, if I have this asset, I'm holding it, uh, maybe I'm using it for payments, yield would be great, right? It would be nice if we could also in in addition to get yield. But it turns out that the the the best uh characteristic of a payment form of money, whether it's a coin or otherwise, is that it's high velocity. And you make this point in part two that if you end up paying yield on your payment coins, it would be more likely that people would use them as collateral uh for lending, use them in faults and do these sorts of things. Um

I'm just curious if maybe you could unpack, you know, part two, anything else that you think is is relevant to this discussion as we sort of think about the knock-on effects, the second order consequences of increasing the monetary base with these stable coins. Oh, we're talking about money supply. Okay. So, now we're not talking about taxonomy anymore. We're talking about stable coin money supply, which is part two of my paper. So, this one is a little bit um we need to kind of like take a step back and understand how money supply works in traditional finance and for fiat first before we talk about stable coin, right?

Um and most, you know, I a lot of time I ask, you know, clients or partners or investors, do you know how money is created? How's money created or how is money printed? Right? And most people they would, you know, they know the answer. They will always start with the Fed. Yeah, the Fed prints money. Okay, that's base money, right? That's M0. What about the rest of the money supply? Do you know how the rest of it is created? And they're like, uh, yeah, lending, you know, bank loans. Okay, you're getting there bank loans, but like, you know, how do how do they make, you know, increase the money supply? Oh, you know, banks take in customer deposit and then they relend them. Nope. That's not how it works anymore, right? Maybe it was 50 years ago, 100 years ago, but

nowadays banks literally print money, bank money out of thin air. They give that to you as a loan, deposit liabilities, right? That's considered a M1 money supply and that sits on top of the M0 money supply, right? Banks actually create loans first which then become deposit and then they go and they acquire reserve after right. So in traditional finance fiat now has evolved the money creation and credit creation process it has evolved to a loans deposit and reserve model. Now let's look at stable coin right completely opposite right for a stable coin in for it to be created it has to be fully

backed by reserve at least for payment stable coin reserve back stable coins right it has to be backed by reserve one to one right you can't create new stable coin out of thin air through credit creation through loans right you can't do that right so credit creation is not involved in the money creation process of stable coin credit intermediation is involved in the you know in in facilitating lending and borrowing for the stable coin right but that happens in the secondary markets right when you issue a stable coin it's just one to one then you have to take that stable coin put it into a lending deposit somewhere right so the the stable coin itself is a token liability you take that token liability you put it into a deposit

liability for the token right like a morpho whatever now that deposit is earning yield right So for a stable coin you know the the base money the m0 of it like fiat is also the reserve right but the reserve of stable coin can you know has to be onetoone with the circulating supply circulating supply is the M1 money supply of the stable coin right in traditional finance M1 can be much much much bigger than M0 not so with stable coin M1 M0 the same one to one right and in traditional finance M2 money supply right? All the, you know, loan and savings account, money, market funds, and all that stuff, right? It can further increase the money uh supply,

the M2 multi multiplier, that's what it's called, right? It's 4.21. For every $1 base money, you get another $3.21 of additional, you know, uh, broad money that's created on top, right? lending deposit and all these liabilities for stable coins. The M2 multip M2 multiplier for all the you know all the major stable coin tether circle sky USDS die right group them all together the M2 multiplier 1.13 which is it's 1.13 for stables and it's 4.21 21 for fiat, right? So that right there shows you how stable coin itself, you know, because credit creation is not embedded into the issuance process like

fiat money. You can't create credit out in thin air and, you know, have a lot of credit expansion in order to drive money, you know, supply expansion, right? The actually the opposite happened. When you borrow a stable coin, what do you do? You sell it, right? >> If you don't sell it, you're going to redeem it, right? You need to get that final settlement liquidity from from underneath it out, right? What does that do? That you know that reduce the circulating supply that also reduce the reserve. So unlike fiat money, credit expansion for fiat increases the money supply. For stable coin, credit expansion could reduce the token supply. Right? So it is a inverted structural dynamic to fiat. And

this structural dynamic is inverted because again fiat is fractional reserve stable coins full reserve right again we never had a full reser narrow banking system at scale so we never you know we didn't grow up with this we don't study you know we never studied this in textbook right now that you know the stable coin industry is being pioneer and and being you know proliferating as we speak this is the modern equivalent of a narrow banking system of a full reserve banking system that we never had. You know, we always had we always had fractional reserve. Now we finally have something that's like as close to full reserve banking as it, you know, it can get.

>> Yep. Incredible. Corey, I mean, I I feel like we could talk for hours, but uh I I think you've got a flight to catch and and we've got >> a show here. So, uh really appreciate you coming on, man. You you took us all the way through the stable coin taxonomy as well as the monetary base and how stable coins play into it. Um, I think uh we'll have you on again here here soon to to ask some more questions, but uh but for now, really appreciate you coming on. >> Yeah, thank you so much for having me on. It's been a pleasure. Thank you guys.

>> Thanks. >> Absolutely. We'll see you next time. >> Yeah. See you. Byebye. >> Bye, >> man. The stable coin taxonomy. I I think he's about six minutes late for his flight, but I think he's going to make it. >> I think he's going to make it, too. Uh >> I think he's gonna make it, >> man. Cory, smart guy. that would r runs deep, man. Runs deep. >> Uh there was an entire part two. I wanted to get a little bit of part two. Uh but it talking about stable coins as monetary base. You think about the the credit supply, the credit multiplier here. Put some numbers behind it. 4.21 for fiat money and 1.13 or 1.31 uh for stable coin money means the >> yeah,

>> you know, despite the velocity, the growth of of stable coins is quite a bit slower. Um just interesting to see how this could play out >> like narrowbacked model versus the fractionally reserved model. >> Exactly. Uh and that would mean a lot less inflation as a result. >> Yeah. Well, there's also like less credit opportunity to be created. uh which is why some of these like uh different protocols on chain are could be a thrusting force for the creation of new stable coins just through looping or um but >> this is why this is why I think sky in USDS is growing so much it's because they have this model sky is like the central bank and then you know it loans

out money to these stars right so every time that there's one of these commercial banks that feels like they can go get some extra edge they can go take a loan increase the Sky USDS money supply, go loan it out, farm it out to, you know, private credit, whatever they want to do, and then they capture the spread, right? They pay they pay USDs, they pay Sky what, three and a half%, 4%, 3.75, I think, >> and then they get to keep everything on top. So, it's a great deal for all of these stars. And it it mirrors the traditional banking system quite a bit more similarly as a result of how they're able to multiply credit.

>> Yeah. because that's kind of like the entire that's what the entire system's been built on. And yeah, stable coins just don't have that. >> You know what, just to take this one point further, you know, we're talking a lot about what are the knock-on effects of stable coins, more stable coins in the system means that they're going to go invest and kind of spill over into these onchain credit protocols. But I think something we don't talk about is enough is that as more onchain credit protocols come onchain and tokenized equities it's a two-way the the cycle is reinforcing itself because then there's going to be more opportunities for these these stable coins to mint and go get more yield on chain which means that they're going to end up creating more

stable coins as a result. And so, you know, they're only going to mint stable coins if there's a greater yield that they can go and generate elsewhere. Uh, which is the same reason that they're going to be multiplying credit, extending loans, yada, and just continuing to inflate these stable coin supplies. As more onchain credit protocols come on chain, >> those are going to beckon more stable coins, >> right? And draw them out of some of these stable coin issuance protocols. >> Yep. >> Right. And so then obviously they come on spills into some of these onchain credit and and the cycle continues. And I think we talk a lot about some of this the knock-on effects of stable coins are minted, but we don't talk quite a bit about how those stable coins are minted or why those stable coins are being

issued and there is and they're being issued because more of these opportunities are popping up on chain and you know, of course, more of the stable coin environment is taking market share in things like payments, remittances, B2B, um, and and more. So, it's it's pretty incredible how multi- how there's there's so many different dimensions to the stable coin industry as a whole. >> Indeed. And it's um it's growing fast. And as I said, B USD was an insane example of like the regulatory uh clampdown causing kind of this impact to a you know, a relatively large growing stable coin. went all the way to 20 something billion a couple years ago and then now is literally at zero because they they kind of like put the

foot down on Binance. That era is over. Now it's just a race to to kind of win the current market and who's going to be able to uh win the US, right? Tether's trying to come in. It seems like Circle's obviously winning there. Then there's like payments. Then there's like the blockchain like uh part of it which is like Polygon's doing quite well in terms of payments. Then there's issuers. there's like kind of like all these little uh parts to the stack that are still being like kind of up for grabs in terms of like a one, two, three uh kind of category of leaders. Um this stack is going to be the stack for the you know future of the narrow banking financial system at the very least if not the broader global system. And so this is

like one of the most exciting kind of races to be a part of in the entire space. Guys, we're going to take a super quick break. We'll be right back with uh some more headlines news covering from uh the show today. Shout out to Corey being our episode 26 of Stabled Up. Be right back, guys. Heat. Heat.

down. Hey Angel. You know, hey Heat. Heat.

Hell yeah. Hey, hey hey.

Heat. Heat. N. Okay. Hello.

Drift Protocol sixmon. social engineering operation leads to a $280 million exploit. Ladies and gentlemen, there is a new litmus test as part of this industry that you must know. It is the North Korean DPRK litmus test. You have to ask everyone that you meet at a conference from here on out to say something on record about Kim Jong-un, something negative, calling him a big fat pig, or else you risk getting exploited. Rob, this is one of the saddest kind of exploits we've seen in a while and truly gave me chills

reading this down through, you know, we've read a lot of different post-mortems from DeFi protocols, but this thing just this thing hit different. Yeah, this uh this one is difficult to wrap our head around because uh the potential for some sort of systemic vulnerability. Uh if it happened to drift and it's been happening for six months, how many other protocols have been affected? Um, I'd imagine that there's some very uncomfortable conversations happening in these Discord channels, in Google Meets, and Zoom calls.

>> Uh, looking at some of your peers and saying, >> "Are you North Korean?" Man, I mean, look, I think there's a new like like I said, there's a new way to um vet your people and it is to to do the North Korean litmus test litmus test. So, there was an attack of on day like April Fool's, April 1st. Um it within, you know, an hour or two, Drift was exploited for almost $300 million uh stable coins, other assets on chain. And it's came out that the way that it happened was a development company actually went and pursued the Drift

Protocol team across multiple different conference venues, actually deposited a million dollars of their own money, then sent a new variation of a product or tool that they were working on as a test flight app. Use that to get access to two of the signers. Um and then we're actually able to do these kind of delayed execution transactions with a specific non which like a technical uh execution uh framework or spec uh that is specific to the Salana virtual machine to actually get a delayed transaction ex execution um to sign off on on this massive massive exploit. Uh

pretty insane. This is um state sponsored terrorism is it not? I mean it's economic terrorism sponsored by the North Korean government. Uh they are funded and operational uh from North Korea. uh this is something that look they used a million dollars of their own capital right so they've been doing this they've been able to amass capital they're highly technically literate >> they have verifiable professional backgrounds and they were familiar with how Drift operates that >> they actually created a vault for a million they put a million dollars into their own vault on Drift

>> put a million dollars of their own capital into that vault that they were able to deploy uh and they were very patient which means that they are getting sponsored. >> Uh and so this is this is a very sophisticated attack. >> I mean it is it reading this post really just makes you question a lot. I mean there was a malicious uh cursor or or a GitHub repo, fake testite wallet app, a device level compromise. All of that is like the technical the the the chilling part of this is that you don't even know who you've spoken to at conferences for the last se several years. FBI agents,

secret service, DPRK exploiters, state sponsored terrorists. It is absolutely insane. Uh there is medium to high confidence that this operation was carried out by the same actors responsible for the October 2024 Radiant Capital hack. >> Yeah. >> Uh that was attributed to Madant uh UN 4736, a North Korean state affiliated group. >> Insane. >> They go by multiple names. Apple G or Citrine Sleet. Uh this basis is formed as a result of onchain fund flows uh used to fund that vault and test this

operation uh traced back to that same radiant group of hackers. Um >> yeah. Yeah. I mean >> assets weren't frozen. Um at least the majority of USDC wasn't circle is getting a lot of flack for that. um the entire space is coming together to be like what the hell's going on with our you know with who you're speaking to from the offset perspective. Saw this other tweet that was like I hope Hyperl is in a war room right now analyzing everyone that they've spoken to. Um >> yeah why why was just quick thing on why was Hyper why do you think Hyperlid was singled out like that? I don't know.

It's just a tweet, man. It's just in the spur of the moment like people are, you know, then going to the the number one per sex and be like, "Hopefully this doesn't happen to them because then this industry is entirely, you know, cooked." >> Yeah, that makes sense. >> Multip billion dollars hack. >> At least on the face of it, it doesn't seem like Hyperlquid is at any more risk than any other protocol. >> No other Purpex is at risk. I mean, they're all at risk to the equal amount, right? It just depends on if they've gone in talks with any of these people and had these, you know, developer relationships that are potentially threatening. But Drift has like these vaults that you can like kind of like permissionlessly launch and like use on Drift. Lighter Hyperlid, they don't have the same level of like

>> also my understanding of Hyperlid is that it's 12 people in an office together and if you're in the office with someone, they're much less likely to be a North Korean agent. >> [snorts] >> I mean guys, takeaways from this is just you never know who you're speaking to, especially at these conferences as this industry is growing. I mean, um, at the at the DC blockchain summit, there was an FBI agent, you know, there was French secret service roaming the streets and roaming the side events in Khan last week. I mean, it's just you don't ever know who is going to be there. And heart goes out to Drift, heart goes out to the entire team, to the Salana ecosystem. I know that they're fighting fighting all this right now. Um but Rob this come comes back to the point man that that we were talking about with Corey and just

earlier like we need this kind of collaborative risk framework on chain. We need to understand what the different levels of risk are. And unfortunately, this couldn't even if we had a risk framework, this type of social engineering attack probably couldn't even be included because it is the level what would be included was the two of five multi-IG. >> That is what would have been included in it, right? Um but this level of social engineering is just unparalleled and honestly uncannily and just terrifying. Yeah, it's uh it's something to be reckoned with. Uh and I think a lot of compliance departments internally are starting to take a second look at their internal operations. Um and this is a wakeup call to teams that we shouldn't

need some sort of legally implemented risk framework to go about protecting ourselves. Uh we should be doing it uh when we have these wakeup calls such as this. Uh >> I agree. >> Yeah, >> I agree. Ladies and gentlemen, we have we have an amazing show coming up for you tomorrow into the rest of the week. We have some inerson guests uh here in the studio this week as well as tomorrow. We we've got Tay actually. She's going to take us through um more of this hacking, more of this kind of like DPR arcade talk. We got Shane Mac tomorrow, uh the RE7 team and Plume as well as uh some of the folks from Kyo.

So yeah, Rob, um feels like a big week. feels like volatility to the upside is coming. Obviously, this Trump thing, I think all of us just want this war stuff to be over. Um, but look, I mean, that's where we're at. Tomorrow's going to be really it's going to like tomorrow and then like whatever happens Wednesday is going to be uh very telling of I think what happens to risk and just generally to the entire sentiment for the industry and for the entire macro. So, big week, >> big week. Tuesday 8:00 PM. We got a big show tomorrow. Plenty more to come, guys. Stay safe out there. Thanks for watching the rollup.

>> Peace out, guys. See you tomorrow. [music]