Paxos CEO on Crypto Today & Why Stablecoins Are Exploding | Charles Cascarilla

Transcript

I want to be playing in the biggest part of the TAM to build the most valuable business. To me, I look at our TAM and our TAM is enormous. Like we're trying to re-platform the financial system. There's 900 trillion dollars of assets. We got a long way to go. And you do this successfully and you're going to be able to build a very big a very big business doing it. This is like creating an enormous problem where if you own assets, you make a lot of money. >> Yeah, this is the K-shaped recovery. This is the >> Yeah, everyone's coming around to this like affordability crisis. But it what it really is is we're printing money. If you told me we were going to have the most pro-crypto administration and president you could ever possibly imagine. And the average show can be down like 80%. And Bitcoin would be down

50%. And I do think it's the crypto golden age. It's just not the crypto price golden age. Nothing said on Empire is a recommendation to buy or sell any investments or products. This podcast is for informational purposes only and the views expressed by anyone on the show are solely their opinions, not financial advice or necessarily the views of Blockworks. Our hosts, guests, and the Blockworks team may hold positions in the companies, funds, or projects discussed. All right, everyone. Welcome [music] back to Empire. Good to be back. Good to be back. Thanks for dealing with Santi and Rob as I took a little hiatus. So, very excited to have Charles Cascarilla back on the podcast.

Last time I think we had him on was 2022. He's the CEO I think right now of Paxos. Co-founder of Paxos. >> Last time I checked. All right, good. Good good. Um Uh backstory of Charles is I listened to an episode of when Mike and I were starting Blockworks, I listened to an episode uh that Charles did in 2017 with Patrick O'Shaughnessy. There's another podcast called Invest Like the Best and it was this formative podcast for us and yeah, we were like, "Okay, this is a real thing. This serious guy is talking about this you know, Bitcoin and money blowing up and all that kind of good stuff." So, we you know, it's one of the one of the reasons we love podcasts is that you know, there's these formative moments and I think Charles, your podcast was actually pretty formative for us. So.

No, that's awesome to hear. I know actually a lot of people really like that podcast. I think because it was a crossover from traditional finance and crypto. Yeah. Uh so it made maybe a little more accessible than it had been in the past. All right, so you I mean, you guys have been building Paxos for 14 years now. 2012. I'd love to hear and maybe start with what you think you got right and what you think you got wrong. I think we got most things wrong. But we got maybe the most important thing right, which is that we recognized that Bitcoin and blockchain were going to fundamentally change the financial system and lead to a re-platforming that we are now maybe just on the cusp of finally.

And you know, I came across Bitcoin in 2010 actually. So, it was pretty early and we were coming out of the financial crisis and I looked at blockchain and said, "Well, look, I don't know if it'll be Bitcoin or not, but blockchain could really change how the entire financial system works." Turns out that it's both Bitcoin and blockchain. And I remember there were colored coins and the idea was you're going to actually put everything on the Bitcoin blockchain and that was going to be the ledger of record. And so, that was my initial thought about how this was going to evolve because we predated Ethereum. And I'm being involved and starting Paxos even and it was called ItBit at the time. And the idea was well, we're going to build an institutional platform so that traditional institutions can feel comfortable coming into the crypto

and blockchain space. That was wrong. It took them a very long time to get to that point. >> just wrong on the timing. Yeah, well, you know, there's nothing there's no difference between early and being wrong in some sense. You know, you have to have to the right timing is just as much about being right. So anyways, I think when we started incubating the business inside what was our asset manager at the time and we had come out of the financial crisis and we were short subprime and commercial real estate going into it. You were Who's Who's we? You were You were >> My co-founder of my partner in the asset manager business. Emil Woods, yeah.

Hedge fund or what? It was a hedge fund and it had investing in public companies as well as private companies and in private companies it might be VC-backed companies all the way through to like kind of growth or private equity firms. Got it. And he still runs that business today. It's called Liberty City Ventures. Oh, that's Liberty Oh, you You started Liberty I Yeah, we started It was part of our broader asset manager. We started it and then you know, he still runs it. He was a co-founder of Paxos. We incubated it within the asset manager business.

>> know this. So, we started in 2012, but I didn't come in to start running it full-time until about 2015. And You ever wish you just stayed as as an investor? A little easier than running running a company. >> Pluses and minuses to it. I think it probably would have been more lucrative maybe. But um uh but I think I would be a much better investor today and I think about businesses much better because I've been inside of one. And you've seen it from early stages all the way through to later stages and you can now really understand what's going on underneath and how disruption is happening that would have been impossible because even though I started an asset manager, I've actually started two asset managers before Paxos. So, head fund businesses.

They were more services businesses as opposed to a product and technology businesses. And you know, you would just totally misunderstand how you know, what Marc Andreessen said is so accurate about software eating the world and how that could also be very analogous to how blockchain could eat you know, the financial system in some sense. And so, I think we did a very good job of understanding well, Bitcoin could be something that really changes the world and blockchain could be something that changes the world. Let's start Paxos and we invested in a lot of earlier stage companies too like Backed by example like seed stage. We actually one of the lead leads of it.

So, you know, very early that we were involved in the space. I mean, you could get to the end of pretty much the internet on Bitcoin in 2010 with about four clicks. It always led back to the Satoshi white paper. So, I mean it just wasn't really hard to know the whole community then. And I remember going to the first consensus in San Jose and they didn't even have the San Jose Convention Center all to themselves. It was mainly Comic-Con. Yeah. It's like Definitely Charlie Shrem amongst other people. I mean, I'll tell you it was like 80% Comic-Con people like 20% like Bitcoin people and I got to tell you what, the Comic-Con people were actually more normal than the Bitcoin people.

>> What's the crowd like? Balaji, Winklevoss Voorhees Shrem. >> Yeah, I'm sure all they were all there. But I mean, yeah, just talk about an odd lot of other like people on retail and I mean, it was it was interesting. You know what I mean? Like you're you're coming from like an institutional asset manager business and then you're like sitting here and the people at the Bitcoin conference are more unusual than the Comic-Con people. Why do you think that you have lasted um It's interesting. Blockworks has some competitors who you know, they were like formidable competition and I think the reason that we don't really compete with them anymore is not because you know, they had bad products or anything. They just weren't able to last as long. I think maybe there's like a

Some of the founders just burned out. Some of the I don't know. It's Why do you think that you were personally able to build a company in crypto for 14 years? Um Very few people from your class are still around. That's true. There are I mean, I think partly because you've been around that long, you've probably held crypto and you probably made a lot of money and you're like, "Well, do I want to keep doing this?" And what keeps me going is the mission and vision of what we're going to achieve as Paxos. Our goal is to open the financial system to everybody and enable any asset to move at any time in a trustworthy way, really re-platform the financial system.

That's a big goal. It's something that I think is worth continuing to spend time on. You know, I mean, I could go do other things with my time. But I don't [snorts] think there's something that would be more valuable, more impactful to society, be more challenging, and be more fun. But also I think um maybe unlike other businesses because we've had that guiding light even though the market continues to shift. And by the way, the crypto market moves so unbelievably fast and how many different cycles we've gone through since you know, 2010 or 2015. You know, how many times there's been an RWA cycle, how many times there's been different versions of ICOs and meme coins and NFTs and you know, I mean, there's all these things that happen and

it's kind of like a lot of uh you know, immediate lemming behavior into like the next thing and then the next thing. And it's almost like ADD market. And you know, you have to kind of step back a little bit and be able to think about where are things going to be on an enduring basis. And you know, certainly that doesn't mean you're always going to get things right, but it does create an opportunity for you to have longer operating cycles that you're planning around and building a business around. Otherwise, you can easily go down cul-de-sacs and you know, we've certainly done that in many different ways because we've been trying to you know, bring traditional assets onto the blockchain from the very beginning of the company. Yeah. And you know, we're still only now maybe just starting. I mean, if you would have told

me it was going to take 14 years for you to get to 200 billion dollars of like you know, or 300 billion dollars of assets, I would have been like, "Oh my god, this is like you know, we're talking about being early." Yeah. Um but and if you would have told me that, but yet you would have mature public company businesses, I actually would have been surprised, too. So, that's what is a very interesting because you had uh crypto as an asset class expand in a way I would have never imagined. I remember there was like big battles about whether you could have blockchain and you could without crypto, you know, how many different types of cryptos.

>> 2016 and 2017. Yeah, exactly. I mean, even back in like 2013 or were like you know, different like kind of debates about this. Of course, there were the hard fork wars. You know, I mean, you kind of lived through all of this. And at the same time, what has held true, there's a some things that have held true. Bitcoin has been able to I think continue to be a source of truth. Blockchain has continued to be a source of truth. Crypto as a different way to be able to operate in the world and in communities continues to hold as a source of truth.

But if you would have told me that we would end up with tens of thousands of tokens in 2014 or 2015, I would have never I would have said, "What is this? This is crazy. There's only like 3,000 public companies. Why are we going to have as many tokens? Um so there's a lot of things that we hadn't anticipated. We and we didn't actually try to enable that market. Yeah. And uh as an institutional uh infrastructure player, we didn't even have customers that wanted it. But that was the most lucrative place to be. Obviously Coinbase has gone out and built a very big business amongst other firms. And the biggest business is built around monetizing the fact that you can create retail access to crypto assets.

>> Called the tokens. Yes, to all the tokens. Not to the fact that there's $900 trillion of assets in the world that are going to be re-platformed onto the blockchain. Yeah. Those No one has built, you know, uh tens and tens of billions of dollar business doing that. I would have never believed that. >> Do you agree Do you agree with where the industry has gone? I know that you know, it's not really in your hands. It's kind of just the the market dynamics, right? But yeah, there's you know, 40,000 tokens out there right now. Yeah. Yeah, what do you think about that? So um I went to I always go to Token 2049. The one in Dubai and Singapore. And I went to the one in Singapore and I was uh speaking at it. Went on stage and we went into Marina Bay Sands. And this was in like

uh basically the beginning of October. And I probably should have just like listened to my spidey sense. I walked in and I felt like my analogy was it's like you grew up in Austin and you left for 30 years and you just came back. You wouldn't recognize the town. And I went into Marina Bay Sands to go talk at uh Token 2049. And I looked around and I said, "Who are all these people spending $600 to a million dollars on booths? I don't even know any of these." >> my co-founder after that. I was at the same event and I said, "Feels super toppy right now." That's exactly what I thought. >> sell. I I didn't sell either. But I you [laughter] know, only Bitcoin. But anyways, but I I looked around and I go, "I don't even I feel like no crypto for old man." Like I couldn't even

understand what was going on. I felt like I didn't even know the industry anymore. >> And you know, part of that's Asian retail is like highly speculative. Uh but that was also just kind of the nature of the moment we were in. And then you know, we've seen like a pretty significant correction since then across all these crypto tokens. I think um you know, I don't think we need to have all those tokens, but you should have the ability to create as many tokens as the market is willing to fund because there's lots of different possible businesses that can happen. But you know, there is a some element of uh buyer beware here because it's really completely open to anybody to create a project and issue a token, which is cool. Uh but I suspect most of these, if not, you know, the vast majority are

going to zero. Yeah, yeah. Agreed. Um yeah, I think about tokens almost like websites or it's like you know, probably 99.99% of the value accrues to the website provider? No, no, to like 25 websites in the world. Or probably 100 websites in the world, right? But but it's great that anyone can go create a website. You know, one guy create a web like you shouldn't shut down the ability to create websites. But most of them are useless and pointless. It was like if you look at the airline industry, might be a little bit different now, but American Express has made more money off the airline industry than all the airlines' profits combined over the history of the airline industry. Yeah, that makes sense. Right? I mean, it's like some parts of the value chain are much more valuable than other parts of it. Yeah. There is it's much easier to

build a business that enabled people to trade crypto tokens than to launch a crypto token. Yeah, exactly. Um maybe before we get too deep into Paxos's business cuz it's changed a lot since I last talked to you. Um I'd love to hear just your updated commentary on like where Bitcoin and crypto fits in this global monetary capital markets system right now. Sure. Um well, I think it's important to maybe separate crypto and blockchain because um I think of crypto as a way of creating uh incentives and coordination for projects.

Uh and maybe like as a non-Bitcoin crypto. And I think that's very valuable. You know, there's lots of ways being able to create incentives for people to come together as communities to build something. Uh like Hyperliquid being a perfect example of that or you know, you can kind of go on to all kinds of different things. BitTenser and you know, different different places, different ways. Um and you can use a crypto as an organizational mechanism uh to coordinate people. Right. And I think that's really important. You create network effects. Bitcoin, I think of it slightly differently. Uh I know there's other things that are trying to be a store of value like Bitcoin, but none have come anywhere close to it.

Um Bitcoin is trying to do something a little bit different. I think of it as mathematical proof of work. Um and it's in some ways competing with geological proof of work, which is gold. And uh there's a bit of a question of well, today is mathematical proof of work as enduring as geological proof of work. Can you really use it over the next 20 to 100 years? There's going to be new math. Forget about quantum for a second, which I'm no expert on. Uh but you're always going to have new math. You know, you used to have RSA 1028 and then you upgraded to you know, the next one and the next one and the next one. So you have to keep upgrading cryptographic algorithms no matter what.

And um uh I think Bitcoin is uh a solution to creating um a mathematical proof of work that you can use because that's better in some ways than geological. It's infinitely divisible. Um it's uh more transparent. It's not tied to the physical world. So you don't have still some need for trust of wherever it's being stored. Uh so there's great things about Bitcoin. Uh but you know, it's only at a couple trillion dollar market cap versus you know, 40 some trillion for gold.

>> Yeah. And um you know, there is a need for something that you can trust because uh Yeah, currency is basically future proof of work. That's the way to think about it. It's debt. Right. And debt is I'm going to pay you in the future. And you know, uh a little bit of betting on the future is a good thing. Uh you over bet on the future and it consumes the present. And we're at the stage and you can never quite ever stop yourself from wanting to to keep, you know, betting more on the future, uh which is issuing more debt and you know, then probably investing it in things that don't have a very high ROI.

Uh like government spending is probably like a negative uh return in general. And so you just keep issuing more and more debt and you're going to end up destroying a fiat currency. And gold versus dollar, dollars are down like 99% since like you know, whatever it was at $19 was the original price and now we're at you know, 5,000 or something. Uh 4,500. So you've obviously already had an enormous decline in the value of the dollar and all other fiat currencies, but that's going to continue to happen. Um unless like you know, AI gets to a point that we you know, just creates a productivity boom that could ratify all the debt that exists.

Right. But I just find that unlikely that we that will happen. And so I think Bitcoin as a store of value is like in a very good position to continue to go up as it unwinds the risk of mathematical proof of work becoming as valuable or as certain as geological proof of work. Yeah, what what why do you think that it um I agree with every I love I love how you lay that out like mathematical proof of work versus geological proof uh proof of work versus future proof of work for the dollar. Um why do you think though that gold is up 50% year over year and Bitcoin's down 20% year over year?

Um I think they're different dynamics going on. So I think uh as much as I would like Bitcoin not to be a risk asset, it is because your journey from uh speculative asset to store of value is about going through volatility. Yeah. >> [clears throat] >> Climbing walls of worry every time. Now we're about to hit the wall of worry around quantum. >> Exactly. Get over that wall of worry. And by the way, this is a really meaningful and important wall of worry to get over, which is how can we show that we can upgrade the math? Yeah, yeah. Whether it's quantum or otherwise, like you come up with new proofs to other things aren't even quantum that could be an issue.

Um I'm not a quantum expert. I've watched a lot of it, but you know, I mean I'm only going to parrot back what other smart people said. But I just think the broader point is not quantum. It's you got to upgrade math over time. Is there a way to be able to do it that creates certainty that if you basically took uh your Bitcoin and you said I'm going to give it to my great-grandchildren, it's going to be something that you know, you could reasonably presume will be around and be valuable. You know, whether you you know, think that might be the case for gold or not, most people believe that around the world. And it's been true for you know, thousands and thousands and thousands of years. You know, 20 years is not a very long time.

Less than that, right? So you know, we have to put things in perspective. If you want to be worth $40 trillion, you're going to have to go through, you know, some pressure cycles of testing like the the underlying core uh thesis. And then we're at another moment of that. Now I don't know if that is actually why it's down 50%. I feel like a lot of times things go down and everyone's like, "I wonder why?" And you come up with a narrative. And uh but you know, there is a wall of worry that has that we have now found that is valid that needs to be overcome. Yeah. And I think if you looked at gold, you basically had all these central banks that were buying.

And you had retail all over the world were buying. And you know, once price starts to go, it starts to go. And you know, it starts to create its own momentum and everyone's like, "Well, how come gold's up so much?" Yeah. Um and by the way, now it's down a bunch from the highs. And you know, you have central banks selling all over the place because they're trying to cash in like Turkey and Poland have talked about this and other places. And um so you know, you you just can't expect these things to go linearly. In some ways I think this is like the the the price you pay for fiat money, which is you have all this liquidity sloshing around looking for the next momentum thing. >> the hot ball of money. Yeah. Exactly.

And there was like stories about this in like the the '19 '20s and '30s where you just like it felt like money was just like sloshing around the world looking for the next thing. And I think that's exactly what we have going on now. And so it found the next thing that has momentum. And you have all these models and everything that are all based on price momentum to look for what they're looking for and they just like keep following the the trend. Yeah. Yeah, I really strongly believe that sometime this year there will be a Do you remember in 2020, I think it was May 2020 when Paul Tudor Jones called Bitcoin the fastest horse in the race? Yeah. And that basically unlocked the career risk for hedge funds to buy Bitcoin. Yes.

>> And it was this ma- And then um you know, there've probably been a few of those. Every like three to four years we get one of those moments. Yeah. Um it was probably, I think uh Coinbase becoming a public company was big. BlackRock, the ETFs >> ETFs, yeah. um where you unlock the career risk uh to do these things. And so um some I don't know what it'll be, but I I assume something like that could happen this year. And it usually happens at the bottom. It usually happens at when there's a lot of fear and then something happens and then boom, it's off to the races again. And you know, there's also the four-year uh cycles that people like to look at and that kind of puts you into like Octoberish or something.

>> Yeah. Um so, you know, that comes into play. You know, Are you a four-year cycle? Not really, but it you know, it's hard not to, you know, look at it and say it's You kind of worked. It's it's, you know, supply and um you know, I think you kind of look at what the price action of Bitcoin is and you know, it's obviously very volatile. And uh you know, you know, when you start to take away supply Yeah. there's a change and you know, the Bitcoin ETFs were the biggest thing that happened. In some ways, the analogy is well, Bitcoin went public. And when things go public, well, what happens? You probably get a pop. Um but then there's lots of distribution that happens. Yeah. You have a lot of turnover. You have a lot of people who held it for a very long period of time

who've made a lot of money. You have to remember, a couple trillion It's not just percentages that matter. It's also absolute dollars at some point. If you go from $2 trillion to $3 trillion a trillion dollars is just made. Yeah, yeah. Right? Um and so somebody who has uh accumulated that trillion dollars maybe some of them are the new buyers, but a lot of old holders Totally. and you know, people start to sell. It's logical. Yeah. You know what I mean? Like you know, you're you're still living in dollar terms. Yeah. 100K was the first time that I started to see people who were you know, around way before me, like kind of your your crowd, like 2012, 2013, 2014. People were A lot of that crowd real I mean, maybe a lot of them did sell along the way or something like that, but there was this

huge amount of selling by that crowd around 20 um sometime in 2025 I started to see it. And I think it was less because it had hit this I think there's a psychological point at 100K. Yeah. But there's also I think a lot of that crowd got you know, kind of said picked their head up after a decade and said, "I don't really like where the industry's at anymore." Or now there's AI, too. And they maybe want to go play with some some new shiny toy. So Yeah, I mean, some OG's have made a lot of money. You know what I mean? You know, it's just prudent take some off the table, go do something. And like how long, you know, I know someone told me they're like, "My goal wasn't to die with the most amount of Bitcoin." Yeah.

You know what I mean? Like it's And so, you know, people decided want to do other things. >> Yeah. And you know, that makes sense and you know, I get it. Yeah. Uh maybe one more markets question and then I I do want to talk a lot about Paxos. What do you think about just the general markets right now? You're such a great like a connoisseur of markets. You mean broader markets? >> Yeah, just broader markets. Um you know, I think it's just unbelievably hard to prognosticate right now. Yeah. Uh you know, I know President Trump's one of his favorite quotes is from Andrew President Andrew Jackson and it is something like um I was built for a storm, the calm does not suit me. Yeah.

And uh I think that like very much sums things up. So he's kind of a volatility creating machine. >> Yeah, yeah. He's like, "Oh, it's calm going into the weekend?" >> Yeah, we need to do something else. >> Tariffs, yeah. >> Yeah, exactly. Or hey, the markets are selling off too much and so he's kind of managing the market a little bit. Um and I think ultimately, you know, which it is really hard to know here is are if you're the Iranians and that's kind of like the main focus at the moment. If you're the Iranians are you in a better negotiating position to drag this out or worse? And what can the US do to like make put them in a worse position by dragging it out?

>> Yeah. And uh and that's very hard to like tell right now. Um but uh in the longer it goes on, the more likely you are to have a very bad adverse action in the markets because the amount of supply chain disruption that's happening across critical areas, not just um oil, which people look at, but the cost of diesel fuel uh is like, you know, $170, $160, $170 depending on where you're at. Jet fuel, we're running low on it. Helium, which you need for chips uh fertilizers, you kind of go on and on. And uh you know, this is like, you know, very non-linear situation. And uh you're creating a lot of um inflation pressures um that can also destabilize the market,

you know, including like kind of where long-term bonds are. Yeah. And you know, also have an enormous amount of CAPEX that's being poured in through AI. You know, depending on exactly how you want to look at it, you could say it's five, seven, nine trillion dollars over the next five or six years. Um what it cost to put on a terawatt of uh uh a data center I think it was um like $35 billion and now it's like $50 billion. Right. I mean, you're talking about some pretty serious surge pricing uh pricing going up very significantly. Are you going to actually get good returns on that capital? And how much disruption is going to happen to a lot of like uh market cap that exists today? Um how deflationary is that versus how much does it create one-time surges? It's a pretty good analogy to

the 1990s. Mhm. And basically you had this huge CAPEX boom. And then after the CAPEX boom uh you have the productivity Yeah. which is deflationary, but you also have the fact that you're not spending on the CAPEX anymore. And that becomes deflationary. And so you get inflation and you get deflation. You should actually have higher interest rates now. Uh because you're actually going to be spending more capital than you otherwise anyone otherwise thought. So you need to ration What is the whole point of interest rates? Is that you're creating a mechanism to ration capital intertemporally.

If you're using more now, you need higher interest rates. You need uh lower interest rates in the future. Yeah. So you would you would bring interest rates up. You should bring interest rates up. Yeah yeah. Now, that's a quite a different question from whether I would bring them up. And not just because President Trump would like, you know, not be happy with me if I was running interest rates, but because the economy is so imbalanced with all of the debt loads that we put in. >> Mhm. You don't really know what you could do. In the 1990s, 100% Alan Greenspan should have been raising interest rates. Mhm. He said irrational exuberance in '95. The original sin was him not raising interest rates then. Right. He allowed giant bubbles to form and ever since then we've been on a train of we need to print more money to

ratify the prior bubble. Right. So we actually that was the moment where you needed higher rates. Now, I don't know if anyone knows what you can do between these different wars um and uh the AI boom and all the debt you have a very Yeah. unstable uh what I would call it equilibrium. It's a disequilibrium that we're in. And we've been in this for a long time. And so people ask me like, "What do I think about Bitcoin?" I go, "Well, it's like the antidote to this problem." Which is it's very hard to understand what you should price things in a dollars. Mhm. But I think if you looked at gold, people would say, "Oh, look how much gold has gone up." I think it might be just or Bitcoin for that matter. I think you might want to just invert that and say, "Actually, guess how much the

dollar has gone down." Yeah. That's really telling us how much the dollar has gone down, not how much those assets have gone up. Mhm. Because what did 1 oz of gold used to buy you historically? The rule of thumb was it would be a uh month of salary for someone in the army. A soldier in the army or a fine man's suit. Right. And by the way, that's kind of about what 1 oz buys you right now. >> Yeah, yeah. It's not crazy price and like, you know, so you know, you have like another way of looking at these things, not as dollars, but as um really an a unit of energy. What is that a gold is a unit of energy gets you other things that you have to spend energy on. A suit, a person working for you, whatever it is. And that's all really money is. And so if

you reel that all the way back into your question about what do I think's going to happen with markets, so hard to tell what will happen in dollar terms. Yeah, but those are the only terms to play in right now. Well, no, because that's why you can own Bitcoin and you can that's why you can own gold. Which are still denominated in They're you're denominated dollars, but if you took the S&P and divided by the price of gold or the S&P divided by the price of Bitcoin. Yeah. That's a different way to think about other assets. But you're you still, you know, as you know, founder, but also fund manager to have to think about do you buy Yeah, you have $100. How do you allocate the dollars? Do you buy Bitcoin? Do you buy gold?

>> you go buy Nvidia? Should you buy Amazon? Yes. Like, you know, Google's ripping. Do you you know, maybe Google's going to win the AI race. First $10 trillion company, buy some Google. Definitely. And you can buy um some uh shares of equities and say I'm think that's going to go up more than anything else against dollars. Yeah. Uh which is another way of like looking at it. >> So you're trying to think, well, what assets are going to go up versus dollars? Mhm. And um I think in if you look at on a risk-adjusted basis, meaning like what risk are you taking Yeah. your other like somewhat risk-free assets uh like Bitcoin and gold. Now, Bitcoin's not risk-free yet, but uh I think I think that's what gold is you know, really widely considered.

So um you know, if you divided the S&P by the price of gold, it's not like all that nearly as good of a return. Yeah. Right? I mean, and you know, partly that's global M2 goes up by 10% a year. Like that's basically how much Right. >> fiat money is being debased. You have 100 and some trillion dollars right around of M2 globally and it goes up 10% a year. Yeah. So you basically got to earn 10% return just to be flat Mhm. in dollar spending. Mhm. And this actually is creating all of I think the underlying uh societal difficulties that we have Mhm. because people's real wages are not really going up.

>> Totally. And you know, this is like creating an enormous problem where if you own assets, you make a lot of money. >> Yeah, this is the K-shaped recovery. This is the Yeah, everyone's coming around to this like affordability crisis, but it what it really is is we're printing money. Mhm. We keep growing M2 in order to be able to support the level of debt that we have. Yeah. And you know, this is like the debt consuming the future and we're living in it. How do how would you fix this though? Because I mean, we took like kind of our best whack at fixing it. We put, you know, the best entrepreneur of our generation, Elon, on it. Couldn't figure it out. Yeah.

Well, he was trying to fix one part of it, which was that we were spending too much money, which is true. Because if you look at the federal government >> there's the spending and And there's the printing. Yeah, so right now you cut you're collecting taxes that are somewhere around 18% of GDP. Which by the way is normal. Yeah, yeah. That's the normal level going back forever. Like 50 years or something, 60 years. Probably before the Great Society it was less. And you're at your spending is 24% of GDP. It's like the highest it's ever been, near. So we have a spending problem. It's not a taxes problem. Like we can go say we're going to go tax you know, but if you dropped government spending from 26% or 24% of GDP to 21 or 20% we'd be in a recession right now. Hm. And

nobody's voting for that. Yeah, yeah. Right? And then you know, what happens? Well, you you raise taxes, you put your So you're in a It's just a very challenging time. This is why there isn't an easy answer. Yeah, yeah. Right? I mean this is why people keep printing money. >> Bitcoin. This is why This is why So you you know, we were very good in my asset management days of being kind of short the problem. Mhm. And you could be short the problem. There was uh you know, subprime or other things and but then I realized and we stayed bearish too long too by the way. So we weren't by any means perfect on this. But I realized you need to be long the solution. Mhm.

>> That's why we built Paxos. That's why I think you That's why I think Bitcoin is doing gold is in in some ways long the solution. You need to be long the solution. We need to be able to create a different type of financial system. Mhm. And we need to be able to create one that's based on proof of work. Mhm. So that you're actually tied to the present moment and tied to like a intertemporal uh allocation mechanism that is actually real. Yeah. Because fiat money is run by the politicians. Which is really like kind of everybody. And you have a a tragedy of the commons problem. It's not just the politicians problem. We're all voting for all this stuff.

>> yeah. You know, no who's going Oh, I'm you know, everyone voted for these politicians to like lower spending. Nobody Nobody voted for that. >> No. Yeah, I'd really like a recession for the next 5 years in order to solve our 100 year problem. >> Yeah, exactly. Yeah, that's right. I'm I'm going to vote for a mini depression. I'm going to vote for a mini depression. No one's voting for a mini depression. >> Yeah, yeah. I'm a man of the people. Exactly. And so in some ways you could look at the Trump policies and say they were actually being pretty smart about trying to solve this because they wanted to drive energy costs down as much as possible. >> Yeah, yeah. You know, and to me it should almost be like a Manhattan project for fusion. You got to drive energy costs down as low as possible

because if you do that, you actually have a chance of creating like deflationary growth. And if you had deflationary growth then like you could support the debt. >> Yeah. But you're always going to come back to will will we ever get our fiscal house in order even if economically we could? Yeah. I don't I suspect the answer is probably not. Yeah. ZK sync is the bank stack of Ethereum. ZK sync's pervidium is the only Ethereum secured platform that is purpose built for institutions that demand privacy, compliance, [music] and full control of their data. ZK sync enables financial institutions to thrive in the digital assets economy by launching and

monetizing their own chains, tokenize real world assets, build programmable markets, and settle cross border in real [music] time. Visit zksync.io to learn more about the bank stack of Ethereum and book a demo. As always, investments in blockchain technology involve risk. Terms and conditions apply. Hey all, Blockworks co-founder Michael Ippolito here. Quick break to talk about something we've just launched, Blockworks Investor Relations. As the market shifts toward institutional capital, investors want more transparency, more standardization, and a higher level of professionalism. But the traditional IR model is slow, manual, and not built for how crypto

works. If you're building on chain, your data's already live, your business is already transparent. The challenge is turning that into a clear, credible story for investors. That's exactly what we're solving with Blockworks IR. It's a single platform that brings together real-time analytics, branded investor portals, and hands-on advisory support so you can communicate what matters. If you're an on-chain business looking to level up your strategy, check out Blockworks Investor Relations at blockworks.com/investor-relations. All right, back to the episode. You want to get into Paxos? Let's do it.

Why is maybe looking at Paxos through this light of Okay, you you guys were short the short the problem you know, 10, 15 years ago whenever it was. I'm I assume you're talking about 2008, 2009. >> Yeah. Okay. Um then you needed to find the solution. Solution is Bitcoin. Why is Paxos the best You know, you could you could have built anything, right? You could go build an exchange, you could build a chain. Why is Paxos the thing that you're most excited about building right now? Sure. Well, by the way, we tried to like create a chain at one point. So we tried all kinds of weird things. So we had this thing called Bankchain. It was a private chain. It was called a Bankchain. It was a private chain.

>> the branding. >> [laughter] >> And then no kidding. We had more help than just the branding. Though we had some great people working on it. Jimmy Song was working on this thing. Michael Flaxman. And we had all these people working on Paxos. And like some of them are still there. And we were creating this chain. And the whole idea was you're going to create a private chain so that traditional institutions would be willing to put their assets on a private chain. >> 17, 18 when 2014, 2015. Yeah, I mean we were this is like early We abandoned that and I realized it was going to be all about public chains. >> Yeah, yeah. But from 2013 to 2015, 2014, 2015, maybe it was 2016, whatever it was. Right in that time frame there was a big debate around private chains versus public chains.

>> Yeah. I remember we got like R3 and Hyperledger and Corda. >> Yeah, exactly. Corda and you know, and Digital Asset is still around. They've kind of um Well, now they've got a public chain now. Yeah, now it's like It's a pseudo public chain. It's pseudo Yeah, Canton. It's pseudo public It's still like uh Yeah, it's yeah. Yeah. Um but you know, they morphed it. I think that has now been settled. It's going to be public chains. >> Yeah, yeah. Um I think we realized that way back when. And I also thought, well, really what's a chain? It's a database. I don't think we should be in the business of building a database. I want to be in the business of how can we be an infrastructure provider to institutions to use blockchain? How can we provide the tools of disruption?

Um which I think is what we do and we do well. And that's different from kind of building more of a retail offering. Like when you People talk about an exchange you're basically it's a retail broker. Um kind of in an exchange mashed together. And we were never about trying to go bring in kind of the retail end user. And which by the way is arguably a mistake. Certainly been People have been able to build very valuable businesses doing it. The rationale why we didn't do it was you look you have uh the financial system right now it's very fragmented. Everyone has different relationships with end users.

You know, JP Morgan and Bank of America and you know, you go on and on. And all these other small banks and everything else. And everyone's got a financial relationship already. Why go compete against those institutions? >> Right. We'll provide them the infrastructure to enable them to come on to the blockchain world that they can trust that's done in a regulated way. And by the way, I think now is the moment in time for us. That is very true. But what we didn't appreciate very well was how even if we were regulated institutions would still be very hesitant to come on board. Mhm. And secondly, the regulation would be sufficiently ambiguous so that people could go sign and build big businesses and bring all these retail people on, but other institutions wouldn't be able to respond. Mhm. And so

you actually had a very unusual situation that was completely exacerbated by what the Biden administration did where by preventing traditional institutions from coming on board but not preventing crypto institutions, you had a great way to be able to acquire end users. >> Right. And so people were able to go do this across the board around the world from Binance to you know, Kraken to OKX to Coinbase. They were able to acquire customers because if you wanted to trade crypto you weren't going to Charles Schwab or E*TRADE or wherever it was. They weren't even enabling it. Um and even if they were it would be like five tokens, not like 50 or 75 or 100 tokens. And so you could build really build big businesses and acquire customers in a way that I

had never imagined you'd be able to. Because you thought they would all just be able to Charles Schwab and all of them TD Ameritrade would just turn on Bitcoin one day. >> Well, if someone could acquire 50 million customers, why couldn't Charles Schwab turn it on? Right, right. Or why wouldn't they turn it on? >> Turns out the regulations were much nastier than you thought they'd be. Yes. And they And they had other businesses and things they needed to protect etc. Robinhood did do it by the way. Yeah. So they were probably the one that >> But then they had to turn it off. Remember when they turned off Solana trading and then they got back into it. >> got back into it. It was like kind of like because they had other ways the regulators were overseeing them. You could just operate with money

transmission licenses, no banking license, no trust licenses, whatever. And just be able to enable crypto trading. Just it was something that I had never Yeah. thought would exist at any type of real scale. Yeah. Um so that's why you know, um you know, well, that's certainly how we maybe misunderstood how the market was going to evolve. But secondly, that's partly what informed why we created Paxos in the way we did. Um I looked at it and said, how can you create trustworthy infrastructure? Trustworthy wallet infrastructure. And trustworthy tokenization infrastructure that would allow a re-platforming of the financial system.

And by the way, we're very happy to work with crypto firms and fintech firms etc. and traditional institutions as well. So our goal was we're going to provide that infrastructure um to anybody. Mhm. And that would would be a very valuable business just like other infrastructure providers are. You know, exchanges Traditional exchanges are infrastructure providers. Broker dealers are not. Um you know, Visa, Mastercard are kind of infrastructure providers. The banks are not. You know, you kind of look across the board. There's different layers that you tend to have the capacity to be like a common uh utility. Right. And that's what we're trying to build. And I think you know,

now is actually a moment to be able to do that. It didn't exist before because the Trump administration came in and started creating legal clarity, regulatory clarity, policy type of clarity, um in a way that frankly is was almost shocking because Trump one was not all that positive for crypto. Obviously, Biden was, you know, we almost all went to jail. Yeah. Uh now, you know, you are in a complete different operating mode and that means every institution is trying to think about what they can do. Yeah. And so I, you know, I think we finally came around to what where I thought we would have been a long time ago and we really, you know, when somebody you can say skip the steps, you of course had to go through this stuff.

>> Yeah. And you definitely needed to have all these crypto tokens get created and you needed to have a lot of speculation get involved so that you could make it big enough, to make it interesting enough that everyone feels like crypto's an asset class, I got to be a part of it. >> Yeah, bubbles bubbles are great. Bubbles bring in capital and people. That's right. >> And then, you know, The right kind of bubbles are great. >> Yeah, the right kind of Yeah, tulip bubbles not so great. Right, because that's not non-productive. >> but you're not bringing capital and people into tulips. Yeah, productive bubbles are good. Like AI >> and yeah. Yeah, AI could be a bubble. That's a good type of bubble. I mean, it's not good to like destroy capital foolishly but it's there's different types of foolishness.

All right? What does your business look like to Okay, so the way I think about your guys' business is basically regulated infrastructure for institutions and FinTechs who want to come into crypto, right? So, if someone wants to do RWAs, someone wants to do stablecoins, someone wants to, you know, they're a FinTech app, they want to offer crypto trading, Yeah. they kind of just go to Paxos and I think your customer list is like Revolut, Nubank and PayPal and sure I'm butchering some of these but Yeah, the Mercado Libre and you know, Interactive Brokers and you yeah, very large institutions. >> Well, how do you think about your business I guess what is Paxos today? And then what are your revenue lines and products that you're offering? So, our business really has two aspects to it. One is the wallet side and that wallet side enables crypto trading or payments. You

know, it might be Stripe, it might be MasterCard, it might be PayPal, Venmo trading, etc. that all have it on Paxos in the background. So, you have the wallet trading and you have the wallet like kind of stablecoin infrastructure. That's the logic that business cases that are built on our wallets. And we have custody and we also have self-custody now. We purchased Fortify at the end of last year and so you can do different types of custody and you can do different types of business logic from the custody that we're providing. That's all the wallet infrastructure side and that's about half the business.

And then the other half of the business is tokenization. That's where we have a white label stablecoin business. It's been other firms in the past but today it's PayPal dollar and it's the global dollar that we issue on for the global dollar network. And of course there's lots of other institutions that are talking about how they want to launch um Global dollar is that USDG? Is that the one you were Anchorage and Robinhood? Uh Robinhood and OKX and Kraken and MasterCard's a part of it and you know, there's about 130 institutions that are part of the global dollar network. Yeah.

And so we issue on behalf of that consortium. Um And that's like 50/50 revenue. It's about 50/50 between it. We also issue Pax Gold, we have a gold token and we've tokenized equities in the past. We'll definitely do other types of tokenization in the future. Yeah. Why um How do you make money? Is it a SaaS model? Is it an API by usage? Is it like you're making money on the pipes where, you know, money flows through PYUSD and you take little bips? What's the business model? You know, there's there's a couple different ways that we earn but if you wanted to simplify you would basically say on the one hand we maybe earn an asset management fee for the stablecoin business. That's what we earn. We don't take the float. Um and then on the wallet side it's some combination of SaaS fee and transaction

fees. Yeah. So, you basically like you have some minimums for coming in using our wallets and the different logic and then the more transactions you do we take a a small piece of the transaction. Yeah. You ever wish that you that you instead of sitting behind the scenes you guys just did the end product? Like like stablecoins, you guys you like the PayPal stablecoin as I understand it is is you guys behind the scenes. That's right yes. >> But do you ever look at like Tether and Circle and see USDC and, you know, USDT and you're like, we could have done that better.

Well, we did do it better. It was called BUSD and it was actually I mean in there's lots >> This was this was Binance >> the Binance dollar that we issued from our New York trust in the same way we issued the PayPal dollar. Binance didn't do any of the compliance, didn't do anything related to it. We simply had a business relationship with them and they were great partners and they had the marketing on it and they of course had a big distribution system. Yeah. Uh but it wasn't any different than basically Circle is the issuer and Coinbase is a distributor. It's just that instead of it saying, you know, USDC on it it would have said like Coinbase US dollar.

Um and you know, anyways there was lots of uh that kind of ins and outs related to what happened there but that was going to be the winning dollar. Uh 100%. >> you feel so confident in that? Uh well, you know, basically uh USDC depegged. Um and it was going down and Are we talking about when First Republic and those Yeah, they had $3 billion and the government had to basically bail out Circle. Um so like that was a completely different like situation and then Tether at the time was also going down.

So, BUSD was the third largest on its way to being the second largest and I think it would have been the the largest. Uh it was a completely regulated >> had 24 billion in market cap, 23 billion. Yeah. Wow, this is a crazy chart. Yeah. What what happened? Uh basically um there was a couple different things related to it but our regulator at the time, they're not a regulator now because we converted our trust company, uh the New York Department of Financial Services made us wind down the relationship and we also received a Wells notice. Wait, NYDFS made you shut it down? Why? Well, we got a Wells notice from the SEC saying it was a security uh which is kind of crazy because I had met with the SEC and they said it wasn't a security

and then we got a Wells notice saying it was. Um and there was a lot of pressure to base on the whole industry to get debanked. There was pressure on some of our other stablecoins too to not like get launched. I mean, it was like a quite trying time and you know, anyways you know, this was a I think a coordinated effort to uh because of Binance's name on it which of course could have been changed. Yeah. It could have been changed. It it was not uh uh it was a branding and marketing partnership. It wasn't a compliance partnership or an operations partnership or a reserve partnership. We were running the whole thing ourselves. Just like we do for our other other white labels. Um so, you know, I think that was like a really unfortunate situation

because this was issued through a regulated entity. It was a primary We had a primary prudential regulator that oversaw everything that we did and so they could tell you what to do. Uh which is different from USDC where they're issuing from money transmission licenses and Tether is unregulated. And so you basically had the unregulated players win at the expense of being regulated. And you know, it was like definitely you know, pretty confusing and really disappointing but when you're trying to shut down what seemed like the whole industry, the first people you can go after are the ones that are the most regulated.

Yeah, that sucks. Yeah. You were going to be So, you were basically what Circle is to Coinbase you were to Binance. Yes. Yeah. Wow, yeah this chart is is crazy. So, I'm for you know, folks who are mostly listening to the podcast. There's a billion of market cap January of 2021. By the end of 2022 it's 24 billion. Yeah. Yeah, crazy. That sucks. It was a it was tough. That's that was a tough thing to go through. That sucks. Yeah. Hardest Is that the hardest thing you guys have gone through? That was probably one of the most challenging. I mean, certainly the regulatory aspects that were related to it were the probably the hardest part.

Yeah. You know, winding it down, I think we did a great job. We never depegged by the way. is but I'm more saying like I mean, you you raise venture money, you tell them you tell the board your revenue projections, you're modeling out the future of the business. Yeah, you're how much you can just do the math of $24 billion stablecoin what it would be earning at when you got up to like 5% interest rates. Right, it's a billion dollars revenue and by the way it was going to keep growing so it wasn't going to stop. Now, we of course were sharing that with Binance but nonetheless, you can imagine that's a you know, that's a challenging thing to go through but you know, also um uh it does certainly make you stronger because it forced you to really think about what are the most important things

for you to be building, what are the ways in which you have unique um uh market position. And so when you were asking about, well, you know, hey the white label strategy, I think the white label strategy was creating a a scaled stablecoin scaled stablecoin winner and and I think it will. I think I certainly think it will in the future because I think it's going to be very difficult for Tether to be a global stablecoin given the way it's positioned and even the fact that it's not fully backed by dollars today and I think USDC's in a tough position because of the way its economics are shared with Coinbase to the detriment of everybody else.

Yeah. And so that does create opportunities and so maybe that's PayPal's dollar, maybe that's the global dollar, you know, there's a number of global bank consortiums that want to launch dollars. Maybe they won't succeed, you know, we're the infrastructure provider, we want to help them to succeed but ultimately they have to manage the go-to-market and and push the product. So, would you like to have total control? Yes but if you really thought about creating a neutral infrastructure platform that people can build off of, I think that is a a better a better business model in the long run. Hm. Um why hasn't PayPal So, you So, PayPal's stablecoin is like $4 billion right now which is which is good, solid but it's not massive. It's not 24

billion in two years. Why hasn't it Why isn't it bigger? Well, there were a couple problems like so as soon as PayPal launched this they received a subpoena from the SEC which was public Um, so that was difficult for them. That slowed things down. >> Yeah. Um, and you know, they have a big company and they're been doing working on a lot of >> of CEO turnover. They're working to have a lot of like things that they're like been focused on like trying to address and I think the stable coin is very important for them. Uh, but you know, it's always hard to you know, how do you prioritize things especially when like you're we were hamstrung again by like a subpoena.

Yeah. >> Um, and that was like a that was a tough time. Yeah. Um, you know, and so I actually really applaud the effort they put in to push through um, uh, you know, some real adverse um, pressure that they were feeling. >> Yeah. Walk me through when genius got signed. I think I saw a picture and I you were there. I was there, yeah. >> Yeah, yeah, at the at the genius signing. Maybe walk me through just how much the business changed from just genius going through. So stable coins obviously you can look at the chart you can see how they were accelerating even uh, through the Biden administration partly because of um, the Bitcoin ETF and whatever it was. There was just a bunch of tailwinds uh, that was happening for the industry and then

uh, Trump gets elected and you have the negotiations that went out with genius and then you have a bill that gets passed that I think is a very good bill. Uh, you know, no bill's ever going to be perfect. It was a it's a good bill. And when you have a bill pass, you didn't need you don't need a bill to tokenize dollars. Obviously you don't. We did it before there was a bill. Uh, right? I mean it's that they >> [laughter] >> it's like pretty clear. And we were doing it on a regulated basis out of a trust company. So and we've done it now from Singapore and from Abu Dhabi and from New York. So you don't even need It's not like there's some special place that you had to do it from.

Um, putting a dollar on a blockchain it doesn't need a law. >> Yeah. Um, but making something a law makes it unambiguous that it is here to stay. Right. >> So if you're different types of institutions that are thinking well, should I get involved with this or not? I got a lot of other things. Maybe someone else is going to come along and change the rules again. A lot harder to change a law and that really forced every financial institution around the world to say, what is it going to be our stable coin strategy? How are we going to respond to this? What's going to happen? They're not going away. They exist and they exist in a way that like can't basically be um, uh, put back in the box. Mhm. And [clears throat] I think that was the

real significance of the law. Mhm. And you know, it's not easy to get a law passed. I mean, you know, some of the senators can tell you I mean, that thing almost died 10, 12, 15 times. Yeah. >> I almost feel like now having also living through clarity, if a bill doesn't die a lot of times it was never going to pass. Because the market clearing price for like legislative language is the fact that everyone will walk away. Mhm. >> Uh, and so that's the way you basically find like you know, thinking as a markets person. Like oh, the market price for like any language in the bill is who will walk away from it. Uh, because that's the only way you get there. And so you have to have like otherwise there it would be no controversy a bill just passed 100 to zero.

>> Right. >> Um, so you know, if it's not going to pass like that, you're going to have like uh, people who are threatening to walk away. >> Right. And um, you had that happen a bunch of times. >> Yeah. And it wasn't easy to get this through even though, you know, in some ways it's not controversial to put a dollar on a blockchain. People have done I've been doing it. >> Yeah. We were obviously doing it amongst others. Yeah. Um, I think it um, you know, it really is critical piece Yeah. of uh, changing landscape for the industry. Yeah. There's um, but there's different requirements, right? It's now like not only can you put a you know, dollar on a blockchain it's like one to one reserves, bankruptcy protections, um, monthly disclosure all these things that you guys do. I'm assuming there's some

sort of competitive mode there for you guys. Um, there well, in some ways there you could argue maybe there's more of a competitive mode before because uh, no one knew exactly like what you exactly needed to do. Um, but I think the competitive mode is uh, for us a uh, a couple aspects. One is uh, you can be regulated and genius compliant. Europe has a different set of rules. In order to create a token that is genius compliant but also can operate in Europe, you don't need to have multi-jurisdictional compliance. Mhm.

And we're the only firm that has issued a stable coin where you have more than one primary regulator but the token is fungible. Now Circle has a What about Euro coin? It's not USDC in Europe, right? >> have a USDC in Europe but they don't have a primary regulator in the US. They're still money transmission licenses. >> Uh, uh, uh. Right? So they actually don't have multi-jurisdictional compliance. We're the only one where you have two primary regulators. We have one in Europe and we have one in Singapore. So we have two places and they have have an agreement about how we can operate and our goal here is to add the OCC as an issuing place so we can have three.

Uh, and that is like so one is like um, that's pretty complicated to do. Just issuing a genius compliant stable coin uh, is relatively straightforward now. You need to go get an OCC trust or a state trust and need to follow the reserve requirements. Mhm. Um, so that's pretty important like uh, differentiator for us. The second thing that differentiates us is that we operate at scale. We've now minted and burned over 200 billion dollars of stable coins. Mhm. So we've had an enormous amount of velocity that we've done and we've been able to do this very successfully for since 2000 uh, I guess it was uh, s 18 or something when we first issued a dollar stable coin.

Um, and we've been doing white label since then. along. We started with like a Huobi dollar and we did BUSD dollar. I remember that. Yeah, we did a Huobi dollar way back in the day. Um, and uh, you know, and on we went. And Why don't you get you know, partner with the exchanges again? Seemed like it went well. They're all coming to the US, right? Bybit, OKX, all these guys. >> Yeah, by the way, they're almost all members of the global dollar network. Got it. So what so why structure >> OKX is a member and BitMart and you know, uh, you know, you got kind of go on all all these different exchanges. Why would you structure it in this way? Well, it's not so much us. We we're the issuer of the global dollar, USDG. The global dollar network is the membership. So anyone can join and be a

member and the whole point is that then the economics can be shared amongst those members. So uh, someone has balances. If you're a global dollar network member, you can get the interest on your balances. You can decide how you want to pass them along following genius compliant etc. whatever the rules you have. Um, and there's actually a network advisory committee. And there's a governance committee that runs the global dollar network. Now Paxos is a member of it but we're just one member of it just like anybody else can be. Anybody can join it. And so running it that way creates something um, that I think is different from anyone else where you have a um, a degree of certainty about how the economics are going to operate and how the governance is going to operate that you wouldn't

otherwise get. Mhm. Two billion dollar market? 1.8 1.8, yeah. >> Yeah, not bad. When do you um, It's been around for a year now. Yeah. What what world does In what world does like what has to change for a Paxos issued stable coin to challenge what's Tether at 140? USDC is it like 80? I think Tether's 180 and USDC is at uh, whatever 80 something like that. So maybe >> Um, well, I think there's a couple things. One is that you're just you um, the market share has been growing.

So if you look at Paxos issued white label stable coins uh, with BUSD uh, sorry PYUSD plus uh, USDG >> you're at 6 billion dollars. And that was basically like 1 billion like last year. So it's like whatever five or six X uh, which is gaining a lot of market share. So you went from like you know, 20 basis points to like 65 or 70 basis points or something 75 basis points. So you gained a lot of market share. It's still a small market share. And the thing with uh, whether it's PYUSD or USDG or any other like uh, coin that has launched is it takes a while to build some of the other network effects.

Because you're competing on four different vectors. One is basically how are you regulated? We just were discussing that. Yeah. And I think we have unique regulation for both PYUSD and USDG today. Um, and any other person we're issuing for. The second thing is how are you basically paying the rewards? Mhm. You know, who are you sharing? Who's getting what? The third thing is what is your utility? The fourth thing is what is the liquidity? And liquidity and utility are not the same thing. It's like well, what can I go spend it on? Can I go use it in like every payment network? Uh, liquidity is how easy can I get in and out of it?

And liquidity is the hardest thing to build. Yeah. >> actually build utility easier than you can build liquidity. So building liquidity just takes time. You got to have partnerships. You have to like it might be trading pairs but it also might just be in DeFi. It might just be the ability to be able to have efficient reserve mechanisms around the world so that you 24/7 you can create, redeem and size. Mhm. And [clears throat] so you know, when you're at 50 million like someone only wants to hold 10 million dollars of stable coin. Yeah. You're at 500 million they might only hold 50 million dollars. You get to 2 billion they might only hold a couple hundred million. Maybe you can get to five 400 million. Mhm. So you have limitations on how much you can grow and how much liquidity you can create and so there is

a flywheel that needs to happen. And so >> Got to grow to grow basically. Effectively, that's Yeah. And so now PYUSD being at 4 billion dollars Yeah. like opens them up to a whole different set of markets than you would otherwise be in. Yeah. Um, and uh, you know, that's why market cap matters and liquidity matters. It's not the only thing. You want velocity, too. You can have fake market cap. Mhm. Uh, where you can just kind of manufacture it and that's a vanity metric and vanity metrics can be valuable because you know, people respond to like numbers that they see. But ultimately if you're saying what's healthy, it's well, how many wallets are using it? How what is the transaction uh, velocity? You know, how much transfers are happening? Um, how is it being used? You know, if you basically you could have a 10 billion

dollar stable coin that's worth than a 2 billion dollar stable coin because it was just sitting there being used as one person's treasury not moving at all. Not not right? Like that's not actually creating any you know, healthy usage. If you will. >> Yeah, it's not like adding to GDP on stable coins or anything. >> Exactly. Yeah, economic value. Um maybe you're talking about that. What are your thoughts on AI agents? And just where we're at in this I feel like AI agent, you know, we just had this digital asset summit. >> Yeah. A lot of people are starting to talk about agents. Yeah. What are your thoughts on kind of where we're at in the evolution there? Um it's it's hard to exactly tell, but I mean it's going to change everything. Super early, obviously.

>> Yeah, it's early, but I mean, you know, I I mean you can easily already put an agent with a MetaMask wallet and go say come up with a strategy. Yeah. And so you can already see how like, you know, put a like $100 into a MetaMask wallet. Uh whatever you want uh and uh say all right, come up with a strategy and go deploy. Yeah. And it'll go do it for you. And be like, well, take more risk, take less risk. Take a lot more risk. Um and it and it will. So you can already see it happening in the edges. And I think there are some very interesting um companies that we're talking with where they're trying to think about well AI actually changes the entire way in which uh you use the internet. Mhm. How you go to websites, what information is being pulled from it

versus how much it's actual somebody who's going to use um the internet to go purchase something versus just like uh understand like uh uh what the competitive landscape looks like or scrape information. And so you can start to create payment for uh bot movement in a different way. Um you're definitely going to just have agents go do things for you. Uh go book me this thing and uh you're going to want to be able to use stable coins. And so we definitely see this happening. But it's also quite early. Yeah.

>> Um but the way the pace at which AI is moving in like 6 months ago, you know, I still found it to be like relatively uh mediocre in in a lot of things. >> Yeah. Now I have Claude code and I'm coding stuff. Yeah, yeah. And you know, I can see like, oh, I wish you know, I could tell the agent I could tell Claude to go do this thing or that. >> Yeah, yeah. Uh whatever. >> book my flight. Oh, I can't because it doesn't have the yeah. Yeah, or like, oh, um uh just go get me some more get me some testnet tokens from uh Yeah. from like wherever. Uh Solana or Canton or something. Or I want to go test something on like a Binance smart chain.

Like go get me the test tokens. Go get me some tokens. I don't want to have to like think about it. >> Yeah. Like here's a wallet, you just go do the whole thing. Yeah. So you can already see this like happening just in like the the process of coding. >> very quick. It's interesting. So um you know, I feel like this is one of the most pessimistic crypto natives have ever been. This is a very interesting time in the industry, I think. This kind of like moment in It's like a feels like a real line in the sand where crypto people have been building for so long, like a decade plus, are very pessimistic actually on crypto right now. Yeah. >> Mostly because a lot of their the tokens are down and stuff like that.

But um you know, both on the So we just had this conference DAS. The institutions are the most excited they've ever been in the history of the industry. Mhm. And also I was just in San Francisco for 2 weeks, you know, meeting with a lot of the uh both like fintechs, AI companies, payments providers. They're also the most excited That's interesting. Yeah. that they've ever been. Um it's just a very yeah, very interesting time in the industry. Well, I think that's pretty consistent. Well, first of all, uh people are bearish. I mean, got I mean, I remember feeling like the village idiot when uh Bitcoin went from $10 to $1.

>> Yeah, yeah. Uh so like you mean like you know, you got to [laughter] like you got to put some of these things in perspective. Um and you know, certainly if you're newer, I think it's maybe easier to be disheartened. Uh but if you, you know, if you told me we were going to have the most pro crypto administration and president you could ever possibly imagine and the average token would be down like 80%. Yeah. And Bitcoin would be down 50%. In like a 15 months after that. And you had legislation that passed. Those would feel completely mutually exclusive possibilities in the worlds. And yet they they exist together right now. And so I think that's probably part of the reason why people are pessimistic because you're going, what more could we have hoped for? Yeah.

You know, what were we playing for? This is what we were playing for. This was supposed to be the crypto golden age. That's what I thought it was going to be. >> Yeah. You know, you asked me like 6 or 9 months ago, I'd say and I do think it's the crypto golden age. Yeah. >> not the crypto price golden age. Yeah. You know the Meek the Meek Mill song? I used to pray for times like this. That's how [laughter] I feel right now. That's how I feel. Someone was giving us crap because there was all these institutions on stage. They're like, hey, put all these suits on stage. Yeah. I was like, I used to pray for times like this. Yeah, exactly. This is what exa this is what we wanted. Right? What we've been asking for for a decade. >> I'll be honest with you. I mean, I do

think this is a crypto golden age in many ways. Yeah. But it's not a crypto price golden age. And it's partly because there's a lot of projects that were existing that you know, as time go cycles through, you have to bring something valuable to fruition. Yeah, yeah. You know, you have like the 25th chain that nobody's using. Right. You know, like you know, you're you're like you have a DeFi protocol that was being sus- suspended at when the TVL purely by like farming strategies and you've run out of money. Yeah, I mean, that was never like going to be a sustainable business. And you were trying to build a network effect and you didn't. And by the way, that's totally fine. But I mean, that's why you're going to have a

winner wing and you've had these before. You had ICO winters. I know it wasn't during like the golden age, so to speak. >> Yeah, yeah. But you know, you had a lot of examples where things just got wiped out. But >> Yeah. um you know, the the Even after DeFi, we had Terra Luna. Yeah. >> It's like a lot of yeah. You had a lot and you know, you had the blow There's no central bank here like propping up crypto. Right. >> Uh but that's also the good thing because you have so much more freedom to then go out and be able to operate. >> Yeah. And so like it's going to be painful in many cases. Yeah. Uh but you know, I think this is when actually the best time to start crypto businesses are because when everybody's raising money and the FOMO is crazy and you like you

walk into the Marina Bay Sands and you don't know like what you're looking at. That's not the right time. Yeah, yeah. Um you want to talk about raising and IPOing? Sure. Um You guys have raised like 500 million? 530? 540? >> 540. 540. Yeah. So you raised First of all, that's a colossal amount of money to raise. In hindsight, do you think you had to raise that much money? I think uh the more money you raise the better in a business like ours. We're in institutional infrastructure. People want to know you're going to be around. Yeah. Right? If they're like, oh yeah, you're like you know, you're going to spend all the money and you're doing another raise in 2 years. Like people are like, that why would I want to use you for uh a 5-year contract? So you actually need to have capital in the

bank um to be able to uh depict you know, trustworthiness just from a balance sheet. Obviously, there's other things that depict trustworthiness. Like are you regulated? How well have you operated? What are your security postures? Uh but having capital is one of them. Mhm. When I I'm looking at valuation 2.4 billion from 2021. Have you raised since then? No, we haven't raised since then. >> You haven't raised since then? No. That's That's cool. Do you Do you think you'll IPO? Um very likely. Yeah. It's always hard to be definitive, but I would say very likely. This year? No.

Next year? Potentially. 2028? I mean, [laughter] you further you get out, the more the the more the likelihood goes up. I mean, the the Well, there's a longer answer to that, which is um the the whole point of capital structures it helps your business. Right. And it can help your business just because you have more money in the bank. It can also help your business because the people who invest in it can help your business. Right. And that might not just be VCs, that could be uh strategics. So like PayPal's an investor, Interactive Brokers is an investor, Mercado Libre is an investor. Um you know, you kind of go on. We have a lot of Bank of America is an investor. We have numerous strategics that are investors. I mean, even Coinbase is an investor in us. Yeah. Um and so that's great, bring strategics in. And so you

can go we can go raise more money from strategics and that can help our business. People who are our customers who want to participate in the equity value that we create. >> Right. Um you can go public and uh that also is a way of creating value because you change your brand, you change your immediate access to capital. Uh people can say you have more Yeah. uh more media see. >> More people know you. More people know who you are. >> More trust credibility. And uh you know, you know, there's also costs to being public. Yeah. So you got to just say, well, when when do I want to take on a certain cost in my capital structure versus uh the benefits. Yeah. And so while like you don't necessarily think of being public as a cost to your capital structure, it really is. You

have all these different things you need to do and ways you need to explain things. And so I think I think there's a valuable lesson from looking at a lot of the companies that have gone public Mhm. in this first wave. Mhm. And you need to have the right level of momentum in how your revenues are growing uh and how they're going to continue to grow and be able to have the consistency to be able to make quarterly numbers in a way that the street and the market wants. These are complex businesses. They're not easy to understand. Crypto goes through cycles. And it doesn't mean that you shouldn't be public, but you know, it can also be counterproductive.

You create liquidity, but if you create liquidity at the wrong price because someone doesn't understand it uh versus you were in the private markets and you can go create liquidity. Yeah. You know, what's the difference? You know, you can do you have other mechanisms. Now you don't want to go out into the private markets every single year to go and enable employee and shareholder liquidity. But you know, on the other hand, you know, the last thing you want to do is basically be in a position where you're sitting here and the stock price is misunderstood and you're, you know, down in the single digits or lower. Yeah. And you know, I mean, there's some stat like, you know, what percentage of stocks below $5 go to zero? I think it was like 80% or something. Like Yeah.

Who wants to be at that, you know, battling that and doing reverse share splits? >> Yeah. Like I think what's BitGo? BitGo's down to eight bucks. It's down 55%. Um And I mean, you know, it's not that BitGo doesn't have a successful business, but you know, I mean like people decided they don't like it today. Yeah. I mean, you know, and so you're getting weighed. Yeah. What um What's your story? Cuz these are complex businesses, right? I remember when BitGo filed and then it was like, okay, well, is this like a SaaS business? Is this like an AUM type of business? And then all those get different multiples, right?

>> Definitely. Um Well, definitely SaaS businesses are getting worse businesses now. They're getting worse multiples now. >> got, you know, re-rate. SaaS got re-rated. I was talking to um uh the CEO of one of the of one of the big exchanges, and he's like, look, I'm I'm even trying to figure out should we talk about ourselves as a payments business? Cuz those get slightly higher multiples than exchange businesses do. >> and not slightly higher. Much higher. >> Much higher businesses. Much higher businesses. Yeah, you know, two times higher multiples. >> Yeah, exactly. So, you know, and they're they're not public, and he's thinking about getting out in, you know, probably 2027, and he's like, you know, we got to think about retelling the story. So, how do you think about your story? And even maybe one additional question there is like, who do you People love analogies,

right? Are you the Stripe of crypto? Are you the What do you What's the your I know, but it's like sometimes you don't want to um if you're the something of something else, uh maybe you're the nothing of anything. It's a good way to put it. Right? So, it's like, you know, last thing you want to be like, I don't I'm the Uber of for like uh crypto movement or something. You know, you're really nothing. Um reasoning by analogy oftentimes lead to leads to the wrong conclusions, but But it's also helpful, too. >> It's helpful for marketing purposes. >> Um you know, I think there's a couple different components to uh break down here. One is, if you look at like the price of Bitcoin, it's pretty interesting. It almost looks like the chart of like uh software uh stocks.

Um and which is kind of interesting. So, it's like kind of trading like, you know, uh something that it isn't. Um and then you have a bunch of crypto companies that are also trading like uh software stocks in many ways. And um you know, you're constantly trying to think of what is a TAM? What is a TAM for this business? Like, how big can it be? If you're just trading crypto, and like all these things are going like down 80%, and like the you're in a depth of winter, you're like, maybe this TAM is really small. And I think that's why people then go, well, maybe we should talk about payments. Guess what the TAM for payments is? Enormous. I mean, you have, you know, the market caps of just Visa and MasterCard are well north of trillions of dollars, right? And that's like they're like only one piece of the

payment puzzle. >> Right. Right? So, you know, you're look at all this stuff, you're talking about trillions of dollars market caps. So, you can dream really big dreams of payment companies, and they can grow really fast for a long period of time. Yeah. Um and you've seen this with like other companies like Toast or whatever it is. Um Clover and so on, where they can grow really fast, and you know, there's some like, you know, incumbents that can get disrupted, so you can keep gaining market share, plus the market's growing fast. Yeah. So, Toast is a $15 billion company. Did you know that? I mean, it's like it's grown a lot. I mean, and you know so um you know, they're great product and mission critical, and I don't know how it's done recently, but um yeah, I was talking to uh super user of it. He's like, this

thing is mission critical. I can never replace it with AI, even if I wanted to. Toast, you can't replace. He's like, he would he's like, it's just too >> business, the whole restaurant or whatever. >> it's just too much runs on it. Like, I couldn't take the chance that I like vibe coded something up, and he's like pretty savvy person. Interesting. Um and now I don't know if he's right, but he you know, he's he's like a like he runs a very successful restaurant business, like $30 million of revenues and a bunch of restaurants. And um anyways, so like that's why I think everyone's like, well, I got to rotate the like describe myself in a different way. Um and so, you know, to me, I look at our TAM, and our TAM's enormous. Like, we're trying to re-platform the financial system. There's $900 trillion

of assets. How do I get them on a blockchain? You're basically at like 300 billion. Uh so, you're at like 30 basis points. We got a long way to go. And you do this successfully, and you're going to be able to build a very big a very big business doing it. And I don't think that it looks like Stripe, per se. Uh they're a payment service provider, so they're going out and acquiring merchants. We don't want to acquire the end user. Right. We Stripe is our customer. Right? MasterCard is our customer. Interactive Brokers is our customer. So, in some ways, you would almost say we look like, you know, you could argue that we look like maybe more of a Visa or MasterCard, but we're not uh because we're not trying to acquire the end user. They don't either. Yeah, yeah.

Like a card flair. It's like everyone goes crazy. Yeah, or the DTCC is something that in stocks and bonds or something. That's a good That's a good one. You're an infrastructure layer that others can build off of. Now, it's an on an open system, so it's not a closed system, so the analogy starts to break down. So, I I think and I also think there's elements of it that make it look more like a marketplace model. Mhm. So, anyways, I think if you basically said, well, like what is Paxos? Well, we're the infrastructure provider, so that you can operate on the blockchain. Mhm. And we do that either through tokenization, or we do it through wallet software. Those are the way we operate, and um uh most of our customers want to use both. They want to use the wallet software, which is distribution, and they want to use

the content we're providing, which is the tokens. Yeah. Um and so, you're creating you have demand, and you have supply. >> Yeah. Um and so, I think that that's why um a lot of other businesses are, you know, wondering, well, what How should we approach this so that we can be big enough? Right. And by the way, that's why we always had if we go all the way back to the beginning of this conversation, why did we position Paxos this way? It's because I wanted to be playing in the biggest part of the TAM to build the most valuable business. It was also the hardest place to be. Right. You know what I mean? Easier place was to go monetize crypto prices. Yeah, yeah. Build an exchange.

Uh what have you learned about acquisitions? I think you have to be very careful about acquisitions because 80% of them fail. And every time I make an acquisition, I always say, 80% of these fail. How do we make sure that it doesn't fail? Yeah. And you know, it's not because those people aren't smart. Uh so, you have to be very careful. There's like three different types of acquisitions you can make. One is basically buy some revenues and fire everybody. You just buy the client list. >> Right. Right? The other one is buy a division and just let them keep running. And like they're always going to run because they're always like, you know, going to be independent. And then the third and most difficult one is buy something that you're going to like actually integrate in to your business in a full way. And you

should that's the one that you have to be really careful about. You normally don't make uh uh those acquisitions without really thinking about how they're adding to your product set into your ability to be able to help your customers because you have the right signals. What did you do with Fortify and Membrane? And well, Membrane, we're buying licenses. You're buying licenses. We're buying licenses to be able to operate in Europe. So, that is like relatively straightforward. Hard to make that fail. Uh you might not use those licenses. That's maybe how you would call it a failure, but we are, and so like you'd say that's a success. Uh Fortify, it we're not going to have them be independent. We want to use their wallet technology in ours, but you have to be very like careful because they're growing fast and doing great. Um a lot of failures are big companies

buying a small company. Mhm. You know, we are 200 people, and they're like 45 people, so we're only bigger compared to them. Neither of us are big. Uh and but that also means we all have a, you know, we're all spending 100% of our time doing other things. So, if we're going to like go do the integration, it has to be good ROI. So, how do you make sure that, you know, Mhm. our customers will be able to benefit from their wallet technology. Their customers can benefit from our regulatory structures in certain cases. How do we make sure that our customers want to be able to access DeFi markets, which is what they are really great at for Defi for Defi.

>> Um right? I know. He's not >> I never put that together. I know. It's a It's been a little while, too. [laughter] Um And that's what they're known for. They're institutional, so they have the same type of customers as ours. That's a good set. So, you have the same customers. Uh they have an orthogonal that our customers want, and they have a specialty that uh that we don't have. And so, I that to me is like the recipe for how you make a good acquisition. Yeah. Um and we've looked at other ones. There's other places that we would want to acquire potentially in the tokenization space, potentially in some of the uh stablecoin infrastructure space. So, we're out looking for acquisitions, and I expect that we'll make more, but we're going to be like very careful about making sure that we structure in the

right way because you know, we're not just trying to You don't want to spend money just to spend. Yeah, we don't like that's not that's not what is going to make a great company. Yeah. That's what we think about every day. How do you going to build a great company? How can you build a generational company? Yeah. You have any uh lot of founders listen to the podcast. Any advice for other founders who are also trying to build a generational company? I have so many uh things that I could impart if I try to like, you know, make sure I order them correctly. Um I think one of the most important thing is prioritization. What are you actually going to do? What are you not going to do? Everyone always talks about it. And it's you feel that even more in crypto because you can go do a lot of things.

And we're a horizontal company. We're horizontal infrastructure. We're not vertical. A lot of companies try to be vertical. If you're vertical, it can be a little bit more consistent because you're like, well, I'm only going to have one type of customer, and I'm going to do the entire thing for them. Uh but it does mean that like you're maybe limited. I'm just going to be a crypto exchange or something. >> Right. Uh how do I like branch out into other things? Uh whereas we're horizontal, we're providing different types of infrastructure. So, how do you decide which ones are going to be the most important to create a flywheel factor for your customers? So, how are you constantly thinking about what is the thing that you're prioritizing most that's going to create a flywheel effect for your business to grow faster than it would if you just did something that's

going to create linear growth. Mhm. Um and so, that's I think, you know, the heart of the matter because you need to be able to, you know, create um accelerating growth. Um that's what's so important. Um and you have to be careful about that, and you also need to um need to be consistent. It's very easy to get turned around. What am I going to What am I What do I think is true today, and what do I think will be true in the future? When I have new information, I'll change my mind, but I can't just change my mind every time I'm like Twitter decides that something else is cool and hot or whatever. Uh because then you'll definitely, you know, uh find yourself unable to create product velocity.

I think those are maybe like kind of some of the two most important things. And then, of course, you want to have as few people as possible for as long as possible. Yeah. Yeah, I'm surprised you guys only have 200 people. The better that what coordination costs go up. Like, big companies aren't stupid. It's just you have more degrees of connections that need to happen. And now that you have AI, I would just always say like, no matter what like uh you have to lean against the idea that somebody advances in their career because they have more people they manage. It should be people advancing their career because they have more responsibility uh that isn't necessarily related to people. It's related to how they built, you know, a really successful business, and be able to create uh leverage ways to do that. And AI makes it easier and

easier than ever. Uh you know, this is like more complicated. You needed more people to do things. Um and if you're not hiring great people, the marginal productivity of a person, no matter how good they are, when you add them in, is always going to be very low. Yeah. Uh you want to be positive. I suspect for most companies it's actually like maybe slightly positive or negative. Yeah. >> And you don't even realize it. Yeah. Uh less people move faster, um be able to create uh product cycle leverage. >> Nice. Any tips for fundraising? Um yeah, I mean, there it's like you really have to think about who do you want to be your investors.

And you have to think about what the duration of their capital is, and you have to think about how long you want to be running the business for. Right? And so if you're like, I want to run operate for like 20 years, uh build a business for like the next 20 years, you're going to think a lot differently than if I'm going to build for the next 5 years and I'm going to sell the company. Hm. Uh because you need to have ca- capital that can um matriculate with you. And you want to make sure you have capital that can uh be there and not just give you dollars, but give you like really important like uh learnings along the way. And um some of that might be wanting to have strategic capital that's permanent. Hm. Um you know, it could be company capital, it

could be sovereign wealth capital, whatever it might be. So you have to try to match the duration of your capital against the duration of what your business is, and you have to make sure the quality of that capital matches the quality of the business you want to create. Hm. And so that's really important. And then when you're going to raise any individual round, um it's really important to understand, you know, those factors against what do you need in that moment in that time. Because it's so easy to like have to say, I'm just going to show the metrics that I need for the next round. Um and on the one hand, that is true.

You need to have metrics because that's what you're that's how you show that you're, you know, growing and you're building a business that's valuable. Uh but if you're just chasing the metrics, then you're going to have a real different problem. Yeah. Uh because that ends up not being a business anymore, and you end up hitting ceiling and a headroom. So raising capital and forcing yourself like go out and try and raise a lot of capital can be a good forcing function, but it can easily be a very bad forcing function. Yeah. And you chase the wrong things. And so getting that product market fit where you can really see the accelerating cycles is not easy to do. Yeah.

It takes time and like keep going at it and stay as lean as you can while you're doing it. Yeah, agreed. Anything that you wanted to cover that we didn't touch on? I don't know. Uh we we've covered a lot of ground, but uh I feel like we could probably keep going. Um no, I think that I think I I feel happy about everything we covered here. All right, good. Good. Chad, thanks so much, and thanks for folks for listening. >> Thanks for having me. Cool. Cheers.