Superstate: Unlocking On-Chain RWAs | Rob Leshner

Transcript

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unprecedented control over your liquidity all right everyone welcome back to another episode of Empire we are joined Again by Robert leschner who has been on the show before but for a different thing that he was working on now uh Robert you recently announced super state so super excited to chat with you about this uh welcome back to Empire thanks for having me back super excited about talking about super State yeah yeah it's a nice name it's like you know super stay it's exciting you know yeah like in like you know 50 years we'll have like the super State Arena you know for some sports team uh yeah you've been thinking about that I know you have a 50-year plan what uh what what sports team would you uh would you sponsor um you know probably in 50 years the

most popular sport will be pickleball or an Esports so you know something like that yeah you're probably right you're probably right are you sad that you have to give up uh are you not playing as much chess now and I I saw you were getting pretty good out there you know there was a while where I was spending like a lot of time on chess um my ratings are going stale and a little bit down because I have not been taking as much time but you know there was a one year period where I was definitely learning how to play chess nice I was complaining to my wife the other day I was like yeah I'm spending way too much time on my phone she's like all right well let's look and do let's look at your phone like you can see where you're spending time on the apps

it was like one hour texting like one hour on email or whatever it's like six hours on chess.com uh she's like well this is where it's going well personal question what's your rating on chess.com uh not not good enough to be spending six hours I um I'm a 12 1200 so do you play bullet Blitz or rapid so this is one of my problems I was just playing a bunch of uh like bullet and Blitz Games and so I actually just got a chess Coach and he's like you got to go to the you know 10 15 20 20 minute games to really to really start to like learn how to play right that's how you learn how to fly yeah that's great you'll uh I look forward to watching your rating you know March up over time we'll see we'll see um awesome man well let's let's chat

super state so my like tldr high level understanding is super state is going to buy short-term government debt tokenize it on blockchains um but would love to hear your I think like two things the vision for the company but also like the why behind why this is the most exciting and biggest and best opportunity that you can go pursue right now absolutely so I'll start with what we're doing and then I'll explain why I think it's so exciting so you know to clarify a little bit um what we are is we are an investment management business um that we've created and we're in the business of advising mutual funds um a few days ago last week there was a registration filed with the SCC it's a preliminary registration statement for a

fund called the super State short-term government um bond fund and this fund is in a lot of ways very similar to most mutual funds out there in that it has a very simple investment mandate and um it will purchase a number of Securities and it's say you know it's planning to be a registered um and um investable mutual fund what's different about it from other mutual funds is that um as filed in the preliminary prospectus there will be a component where shareholders of the fund can request to have a record of their ownership uh sent to a blockchain address that they control either

self-custody or at a qualified custodian um that they might be working with and the advantage of this is that it gives an extra layer of transparency to shareholders in a format that they're already used to so if you're a crypto crypto Venture fund or a crypto hedge fund you might not want to you know create you know parallel infrastructure between crypto Investments and transfy Investments and you know you might want to just keep everything at the same crypto custodian and so as an investor this would give you a a tool to be an investor in a you know very specific mutual fund but also see it alongside your other Investments at a custodian or

be able to track in a single portfolio management approach and just you know be able to like have a unified uh technical architecture for how you sort of store manage and monitor your Investments and so you know this is um you know a distinct Advantage it's not a massive Advantage but we think that it's really you know the first step on the you know tokenization or digitization you know whatever you want to call it for what many people call real world assets um I just call them you know traditional assets in a lot of ways but bringing a traditional asset or traditional investment on China's home capacity and this is like chapter one of

like as a whole society and a whole industry you know this shift of bringing assets on chain and the advantages long term of having assets on chain are numerous you know um you know there's a composability with other on-chain systems there's you know a massive increase in transparency in Automation in the speed and you know permanence of settlement like all the reasons that people love defy you know are eventually going to exist for traditional assets the nutritional assets like mutual funds stocks bonds currencies you know that is the end State and you know what we're doing is we're doing our piece you know a very specific narrow piece

um to usher in this future and you know when I look at like you know why are we doing this you know when I got into crypto in 2017 you know at the time I was like oh real world assets and tokenization of things is just around the corner you know I I said you know to everyone who would listen to me and you know like the security token summer of 2018. yeah exactly of 20 you know 18 I was like oh man like we're just like one step away from like all of the bonds and all of the equities and all of the currencies and commodities and real estate being tokens on a blockchain one day and six years later you know we've seen very little demonstrable traction and proof of

assets coming from traditional markets onto the blockchain and you know I view this as one of the single largest opportunities for you know the blockchain ecosystem as a whole for investors for developers four Builders is to like just assist in the process of bringing assets on chain in whatever way is you know feasible impossible and that's the sort of why you know I just view this as a massive migration that I thought would have happened by now you know I thought you know if you asked me in 2017 like you know how long is this going to take I would have said like five years everything's gonna be on chain you know a protocol like compound or a uniswap or makered out or whatever

is going to be able to interact with like commercial real estate you know but like none of this has occurred yet and so you know that's the why I just use this this massive migration that really hasn't started that's been lagging that like for the builders and developers in you know the crypto ecosystem like I thought other people would have made more progress by now and more attraction by now well why do you think that hasn't happened because actually I there are a lot of folks who've tried to take this on right do you remember Harbor is like Josh and harbor and I think bitco might have acquired them back in the day there's obviously folks like securitize like there have been people who have been working on this and kind of attacking it from different angles like a lot of folks trying to tokenize real

estate that obviously hasn't hasn't worked out so well like why do you think the kind of securitization platforms the last five years haven't worked out that well yeah it's a great question I think you know a couple reasons one is you know it's been relatively early in the sort of growth of demand um you know it's a chicken and an egg problem but there has to be demand from end users to have things on chain who are a giant economic invisible hand that's like you know pushing them on chain or pulling them on chain like there has to be some like massive driving force that like wants it really badly and you know that's I think the most important piece and I think like the Invisible Hand of like wanting

you know securitization and tokenization over the past few years has not been that strong in comparison to assets that are issued native to crypto so assets that only exist on a blockchain so you know I look at the world very simply as like a black and white thing of like is the asset originally created on a blockchain and is that the only place where it lives or does the asset exist in the traditional Financial Market and it needs to be brought onto a blockchain and all those types of crypto assets for Traders in crypto for hedge funds for Venture funds for whatever crypto native assets it's the assets associated with the layer one blockchain the assets issued on top of a layer one

blockchain you know and all of these things and it's just so much easier and closer for these crypto native assets and so you know there's been enough of a market for crypto native assets that's and where all the excitement is that you haven't really seen you know a huge amount of demand for like okay we need to get you know stocks on to the blockchain we need to get real estate onto the budget there's a huge amount of interest you know in crypto native assets like you look at anyone you're asking what they're excited about you know they're excited about crypto because it's different than you know real estate or equities which they already have access to they like the thing they don't yet have access to that's new but I think over time that pull or that gravity is going to

increase especially as the amount of things you can do on chain increase and so when I look at this I think the Invisible Hand is biggest right now and probably for the next few years with you know short-term interest rates I think like the biggest poll is going to be people who are on chain who are native to blockchain saying well we really want the yield from tradify I mean like t-bills are five percent plus like who doesn't want that it's one of the greatest assets of all time it's you know an incredibly safe short-term investment and so you know everybody wants that and it doesn't really really exist on chain right now there's a lot of you know

teams out there that are developing Solutions um you know we're not alone we're not going to stay alone there's going to be you know a hundred like phenomenal teams that are all trying to you know facilitate what I think the Invisible Hand wants which is like how do you get this great investment from the traditional market and bring it on chain where I can like you know use it in interesting ways but like that's where I see the Invisible Hand being strongest um his around rates and mostly because you know the interest rate differential between you know try Phi and D5 right now favors try to fight coming on Chase rates you know that are scalable into the trillions right now are like five percent Zone rates and defy across the border or not they're like two three

right maybe at best four percent and so you know it's the time for there to be a giant magnet pulling assets from off chain on chain the opposite existed you know three years ago where like rates in D5 were like eight years the inverse of D5 summer yeah zero yeah yeah it does feel like there's this huge market like space right now to smooth out the kind of the proverbial like interest rate gap between web 2 and web3 or traditional Capital markets and and D5 um absolutely before we get there because that's actually really interesting um before we get there I so I interned it um oh my God what was the name of this Mutual uh Capital group American Funds um which I guess is like a you know big one

of the biggest mutual funds out there competitor to the you know vanguards and and fidelities of the world are you there are kind of two angles I feel like you could have taken here one is basically trying to recreate vanguard's business or maybe Franklin templeton's business and do it more on chain another uh angle that you could have gone here is to build a platform to help the vanguards and fidelities and Franklin templetons of the world come on Shane which which direction did you go and why yeah that's actually a really interesting question so there's definitely technology companies um that are trying to enable investment managers to come on chain we're in bucket one or the first approach that you described which is

we're creating an investment management business that will be technologically savvy you know you know I have a lot of experience in you know on-shaped markets but dense an investment management business first so it actually looks a lot more like a Vanguard that's going to make more high-tech Financial products not a technology company trying to level up you know Vanguard and BlackRock and so you know I view superstate the business that you know we've recently launched as something that eventually over time will slowly compete with Vanguard BlackRock and investment management businesses with you know like a tech Focus to create you know just like huge amounts

of funds that people prefer because they're you know slightly more functional and higher Tech and you know more transparent and better you know all these advantages huh it's interesting I never really thought about like that business as being a business as being like a business to go into but I guess if you think about it um a lot of these are kind of like Legacy family-run businesses like I think Capital group is still private started a long time ago still private run like family owned business I think is uh Fidelity is the the Johnson family right it's been running it for a long time Franklin Templeton I'm pretty sure family run business um and I never really thought about

going after these businesses but that's interesting yeah there's not many people you know trying to think it's the less taxi thing right because you could have raised a bunch of money for a tech platform at a really high multiple even in this market I'm sure so yeah I think boring is sometimes good um yeah we're basically trying to like fill the shoes uh someone who did not start a D5 protocol uh and had some foam on the uh D5 Samurai boring boring ended up being pretty good tell me more about like the types of assets that you that you envision tokenizing because I think like when people talk by the way I like that you called them traditional assets not real world assets because I think real world kind of implies that I mean things digitally is not the real world but obviously that's not true so I

like this word traditional assets tell me what you are starting with and then maybe like how you expand to to other traditional assets and like which ones you kind of take on first yeah it's you know for me it's it's relatively you know obvious which is I think the biggest poll and the biggest demand is going to be around you know a safe short-term interest rate um you know there's trillions of dollars that are looking for short-term yield that aren't trying to chase risk or you know duration a short-term Government Bond Fund is like you know the lowest taking fruit it's the juiciest Apple that's closest on the tree and it's like the most obvious candidate um mostly because I think the market for it

is massive I think there's you know potentially trillions of dollars of you know incremental interest in short-term government debt and so that one's obvious down the road you know we're going to explore a diff additional asset classes but not until we've proven out what works what doesn't work and iterated with a single asset because I think it's like the most important asset it's the most obvious and it's too early to be like all right well if a short-term Government Bond Fund Works what about an equity Index Fund or you know a Commodities fund or a real estate fund or a currency fund like you can create a fund for any asset any strategy I mean there's you know a trillion different

funds you could create but we're just going to start with the most obvious before spending the time and focus and bandwidth on you know what else is potential yeah yeah I guess there's um I remember actually pomp always saying his like the you know a pompism back in like 2018 or 2019 was like tokenized the world and he was like I remember him always saying like you know stocks bonds currencies Commodities will all be tokenized what uh what in terms of like difficulty I'm maybe on more of like a micro scale I'm actually very curious like how this kind of works like what you have to build to maybe tokenize something like equities or Commodities like how does that actually work yeah it's a great question I mean

fundamentally it's actually not very different from you know having a bond fund where the shares can exist in a digital record on chain if you can have a fund then the shares exist you know on chain as a digital record it doesn't really matter what's in the fund it can be bonds and cash it could be stocks you know theoretically it could be real estate you know it could be anything um it's really not incrementally different I think the most important thing and I'll keep going back to this phrase just like what does the Invisible Hand what like the interest rates yeah and yeah I I think that's like what's fundamentally different you know I don't know how many people really care about having stocks on chain right now because

they can get stocks off chain and they may as well what does this what's kind of like the second order impact of having um traditional yield like you know five six percent yield or whatever in D5 what what does that do for D5 what does that do for crypto yeah it's really interesting thought experiment I mean if you have like a huge amount of yield opportunity you know coming from traditional assets but on chain and the switching costs are low you know I think eventually what that does is just you know crowds out you know defy up to that interest rate like if it's incredibly easy to get

t-bills on chain and they're five percent you know I don't think people are going to you know be comfortable with an on-chain returned less than that and so like you know the equivalent like risk-free rate in D5 will go up and the you know available interest rates and D5 will go up beyond that it's just that right now there's so much friction between you know off-chain markets on chain markets like there's back and forth costs there's you know switching costs there's like opportunity cost you know if you actually have at scale and without too much friction you know the risk-free rate on chain everything else is going to have to like match it in its equilibrium like no one's going

to you know take incremental risk there when they're like oh well I can instantly get five percent right and I know it's just it's just T bills like I that's awesome like how could any protocol or any system offer less than that the only reason they can right now is because there isn't some scalable on chain access to a low-risk liquid investment okay so then does the uh I've been trying I've been thinking about like the I've been reading about Libor recently trying to understand Libor and just think about like what the risk-free rate and D5 will look like in a couple of years on one hand you could think of it as like almost the yield that staking spits off could be the risk-free rate but on on

the uh on like on the other side you could think of it as like the you know the Tre like 10-year treasuries right or about as risk-free as you can get so like how do you think about the yield that you get from something like 10-year treasury being tokenized versus the yield that you get from staking yeah it's really interesting Okay so you know four a given currency there's going to be some essentially risk-free rate okay the word currency and commodity are kind of squishy but like you know for ether there's a risk-free rate but ether is different than dollars dollars have their own equivalent risk-free rate for ether it's staking right and that might be five percent but the exchange

rate between ether and dollars might be incredibly volatile um you know there might be a risky rate for Euros which matches you know like the ECB rates on chain but ether is its own sort of like currency or like base level asset you know five percent in ether is not comparable to five percent on dollars because dollars are flat they don't really do anything they're sort of like a straight line whereas ether goes up and down in dollar terms three percent a day um but if you're like completely like I am an ether Max Wilson I only think in terms of ether you know eaters risk pervade is all that matters to you and a rate on dollars is the risky one because that one's going

up and down in ether terms all day and so it's subjective in the same way that like the interest rates on any currency are subjective to the people you know it exposed to the local currency versus being a foreign currency and you know there's preferences but you know there's not one risky rates there's a risk rate per currency and for each of it's gonna come from steak and yield and for dollars it's going to come from t-bills as all of these you know things reach you know scale and parity huh that's really interesting did your I imagine some of your like how do your learnings from compound apply to what you're building right now because they're like the radon compound varies widely right which leads to like

interest rate volatility and which comes from like just kind of full free market full decentralized free market and I'm just I'm which which has some which has some problems right it limits some things that can happen um and I'll you know we don't have a fully baked out like interest rate swaps market and defy yet and people are working that on that but how does like your learnings from compound specifically applied to interest rates applied to this yeah it's a great question so you know the first lesson that you know I learned probably around like 2018 2019 after like the first like version or two of compound was released was that you know for the most part almost all of the demand to borrow was in stable cards when I originally envisioned compound

and like wrote the first white paper in like 2017 I was like oh people are going to want to borrow every crypto native asset that exists like people want to borrow ether and people want to borrow you know chain link tokens and the reality is that people really just want to borrow stable coins or you know a stable asset because you know they prefer that their debt isn't uncertain right they don't like it going up and down wildly they want to borrow something where they know exactly how much they're going to owe you know borrowing the stable coins has been like the overwhelming preference um for a lot of users that I've been able to observe and you know that was the first like major lesson and that actually actually

informed you know a lot of the decisions that went into the design of like compound version three which was like well what if we just like remove half of protocol and you can only borrow a stable coin and you know and like what happens if you just like rip out half the code um and it led to like a real like you know reinvention of just like thinking about you know what do people want whether it's like a crypto hedge fund or uh High net worth you know Speculator like what do they actually want and like can you like rip out all the things that they don't want um and from an interest rate perspective you know one of the things that surprised me is that you know fixed rate instruments haven't taken off

yeah um you know I was expecting you know from the earliest days that fixed rate markets would have taken off I've you know as an investor at robot Ventures invested in like 10 different protocols that do fixed rates um you know we still haven't really seen any markets or any products that do fixed rates like really scale in crypto yeah there's been a lot of incredible experiments I'm really excited about a lot of teams working on this but like you know to your point like the rates that actually are there you know like compound Ave you know curve whatever these are ways to change you know block

by block these are not terms rates really for any structure it doesn't allow users to like you know take a lot of like rate predictability and so you know this has been a surprise to me and like that's a lesson is that this is a surprise that it hasn't developed and have have hasn't grown at all and so you know I think it like lends more Credence to the idea that like you know things will just exist in their most scalable equilibrium format and there hasn't yet been a large amount of demand for a fixed rate on the borrowing side or interest earning side hmm I think it kind of just clicked to me

that the opportunity here is not with actually individuals but it's with it's with companies right because um you know like people are flexible when they get their mortgage right like some people want fixed rate some people want variable whatever different pricing Etc but you know if you were a company taking out a loan like if you got a variable loan that that could crush your business um and so like they're you know com companies don't basically borrow on chain right now because of the I think one of the many reasons is because of the unpredictability of the interest rates which can completely crush a business um but actually like think about it with treasuries like block works right now is looking into kind of like you know you get five percent if you just put it in 10U right now so like what do we kind of

do with some of the money in the bank account and um it feels like the huge opportunity right now which is like the the trillion dollar opportunity is actually with treasuries and I'm curious to hear just how you think about like treasuries being the opportunity yay or nay I think yay I mean um and I think to go back to our earlier moment in the comment I guess like is that the End customer like is the End customer here when you think about your customer for the business is it is it a company tokenizing or uh allocating their their their some of their treasuries to get this yield in 50 years potentially in 20 years and 10 years right I think most companies if

they're looking for you know a stable investment and like they're not already crypto native themselves like they're they can go out and buy you know a 10-year or five-year treasury bill or no today right they just go out and buy treasuries like they don't need any product that's existing crypto um you know the question is do they want to do that you know on chain or not and the answer is on chain increasingly over time being it's just gonna be yes because more and more businesses and more and more institutions are more and more users and investors Etc will be you know capable of interacting with blockchains and accessing blockchain based markets and services

and so you know as people come on chain they're gonna want that five percent you know note on chain yeah they're not going to want it through you know a traditional you know web 2 or you know web one stack it's not going to want it a web three stack um but you know today they if that if it's just about the investment return and like the liquidity profile and all of this they don't have to buy an asset on chain they can buy an asset there's a million ways that you can go out and get those treasuries right now all right quick break from the show there is this kind of overused cliche saying in crypto but it's true bear Market's rebuilding and everyone tells you that everyone knows

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like why not there's a different strategy here which is you go get every crypto fund I'm sure they all would have allocated you go raise how much did you raise four or four million yeah you could have raised probably you could have 10x that I bet you could have read 40 million I probably could have right you could have raised 40 million you could have got like 50 of the best crypto funds you probably could have gotten some traditional funds on board why didn't you do that well I think you know it it's a really interesting question I mean we really wanted to optimize for getting you know firms that we already knew and who we think would be you know ideal users I mean you know customers and you know participants over time I think at some point we will go out and talk to all of the rest of the

crypto funds and do something larger you know but early on we just wanted to optimize for making sure that we had you know exactly as much Capital that was needed to get this off the ground and you know we've really just optimized for something simple and straightforward um where we didn't have to have a lot of conversations and so you know it's likely that maybe we will go out in you know a year or whenever and you know try to build a really close relationship with a lot larger of an audience um but it's just something we didn't do it this sort of preseason nice cool um if Franklin Templeton or Vanguard or Fidelity wanted to put in a a big chunk

would you would you let them or is that a competitor now on your cap table yeah that's an interesting question I mean you know I haven't thought about it um you know over time you know I think like the lines of like what's competitive and what's Cooperative like evolve considerably like one of the things I've seen you know not just from crypto but many different Industries is that things that look like competitors are eventually collaborators and they're cooperative and things that look Cooperative or eventually you know competitive and so you know I actually think it's generally okay to take strategic Investments as long as there's no you know separate terms one of the things I've seen actually harm a lot of companies are when strategic Investments come with like incredibly restrictive like

covenants or side letters and I'm saying this as an investor and as a Founder with lots of friends who are founders you know if it's just capital then it's actually great to have whether it's Cooperative or competitive like the industry on your cap table but the problems really arise when it's you know coming with like all these extra terms like terms like oh we get a first look at any M A activity right we're like we have a writer first refusal on M A or like oh we need additional like management rights or information rights versus all of your other investors or oh we need to be able to see your products before they launch you know like all of these things that are not purely Capital

based can like only harm a company and make it less successful and so you know my advice to any founder out there is like you know if there's a Strategic investment from someone in the street it's actually like probably a benefit to both firms like if it's just Capital based but if it comes with like lots of like weird you know Clauses that like limit your own business it's going to be a negative and so which if it comes from a corporate corporate VCA usually does so usually does and so if you can do it without you know the complexity like you should and so I would say like if you know down the road you know we were able to take investment from someone like you know BlackRock or a Vanguard or a Fidelity and it didn't come with you

know restrictive you know behaviors then it's beneficial to both firms yeah all right going back to what you're building for a second just kind of I've one more question that came up on the interest rate stuff um the yield the yield curve right so like the yield curve in in economics is like Central to the transmission of monetary policy and we we don't really have a yield curve in in defy um I'm assuming what happens is like you push into like treasuries and then munis and then like investment grade stuff and then maybe high yield stuff and this this combined with interest rate swaps creates this yield curve is that the is that the vision here and like maybe tell me about your vision and how it relates to to kind of building this defy native

yield curve yeah so you know my vision really starts with just like doing what I think is like truly the biggest opportunity which is short-term government debt because short-term government debt there's so much demand for it and yeah fundamentally it's a incredibly healthy product right the investors in the short-term government fund are not going to lose money like unless there's like some like one and you know you know Black Swan Black Swan situation ask the Bitcoin Maxes they might disagree with you over yeah okay that's true you know the Bitcoin maxes out there we can debate this on Twitter um but it's an incredibly healthy product and in general you're like not gonna lose out really against inflation and it's like long-term like a great product

um you know and it's the perfect product to sit at the base of you know the product cycle and the yield curve um as you talk about all these other things it's just you know investment decisions on what you want instead of the risk free rate like you know and there is risk in all of them and you know there's a market for all of them in fact there's a huge market for every single one of the massive um but they're not as simple it's very simple to think about you know short-term government debt because short-term government debt is just one of the healthiest possible products and you know it never hurts to put people into it um what other regulatory side of all this um I think I read that you guys are gonna

have to whitelist anyone who holds it so what I'm like that's that's almost like a a moral trade-off maybe potentially like how did you think about this yeah it's a really fascinating you know set of trade-offs um there's I'm sure ways to make products like you know stable coins like usdc and tether where like they're not whitelisted or permissioned in any way um you know anyone can hold tether and there's you know no checks there's no you know kyc amlofac there's none of this stuff um you know there's ways to make those products and I think there's a lot of people that are like are going to benefit by making

those products you know I kind of see a world in which like you know 10 years from now like what's this like D5 look like it's an amalgamation of assets that are permissionless and permissioned and that they coexist in the same protocols and the same markets and the same you know entities I mean you could have a protocol where like Ave or compound where like you know ufs has said a billion people can access and eat billion people can access and it's just like they're under the same roof but you have ways of like sectioning off certain assets you know the reality is we're taking a path which you know by filing a prospectus and

creating you know a product it means it's going to be available to us investors and investors with us addresses which is awesome but it you know it also means that you have to verify in some fashion that someone is a U.S investor and you know this is necessary for so many different reasons um you know it's for AML it's for tax it's for appliance it's for just like Market Integrity like you do have to know who the shareholders of a registered Mutual funder and that's not a bad thing right there's a huge number of people that can hold that asset there's a huge number of people that can hold that asset it's possible over time there's products that are only

for offshore investors and then you have you know a product that's for U.S investors and you have a product that's for non-us investors and they both exist um these are just the choices that get made and you know from where I sit I think it's actually really exciting to go down the path of building a product the U.S investors can purchase that you know has been registered in the US it's not easy but I definitely think it's something that you know opens it up to a really cool market and you know we're going to be able to have a system where you know yes people will have to onboard in order to hold it but there's going to be a lot of reasons to onboard in that

you're going to be able to have something that at the end of the day we'll eventually be you know a really healthy investment that you can hold on chain that is useful and you know you're incentivized to have it over you know let's say a stable coin that just gives you zero percent and burns a hole in your wallet until you say like Hey how do I exit this thing I think I think one of the last things I'm curious about here Robert is um is on the stable coin front uh I'm curious how you I think I saw somewhere that you were either saying that this will compete with stable coins or maybe I saw someone else posting about that but how do you think about stable coin competition and maybe the better question is like five years from now uh super State versus usdc

like competitors enemies Frenemies like what does that look like yeah it's it's interesting to think about because I think that you know between products over time stable coins and Investments are going to run into each other for users for capital for use cases in general and I think the reason why stable coins are so dominant right now is because there's very few alternatives on chain stable points are a really positive product I mean they are the first product besides crypto native assets like Bitcoin and ether that have like absolute product Market fit it's why we've seen stable coins go from zero dollars to 130 billion plus dollars in a

short amount of time stable coins are crazy useful because they settle instantly they're super portable they're programmable and you're able to self-custody them and so like as an asset that asset is just better than cash in so many ways and so like there's huge amounts of product Market fit there but the environment behind Sable coins is getting worse and worse so when rates were zero stable coins were the greatest thing imaginable when rates are five percent stable coins are not a healthy product they burn a hole in the wallet of anyone holding them they burn a hole in any corporate treasury they burn a hole on any balance sheet that they're held because right

now the sponsors and stable coins are you know earning five percent Plus keeping five percent plus and giving the holders of the stable coin zero and this was fine when rates were half percent who cares bone rates are five percent the sponsors are getting incredibly wealthy at the expense of the holders and that's going to change and the reason why that's like tolerable right now is because there's very few alternatives it's very hard to convert the stable coins back into dollars and then go out and do something with them that's why stablecoin balances have stayed shockingly High even as rates have gone up but when there's Alternatives that are easily accessible to crypto native

investors then I think there's going to be a war between traditional Investments and stable coins and right now that war is incredibly there's almost no traditional Investments available to crypto native investors it's slim packets but when they're readily available I think that's going to be one of the primary Battlegrounds is looking for like where does Capital choose between a stable coin and an investment product that you know they can use on chain right and when they both exist I think there's going to be a competition between the two the other competition that's going to exist you know for better for worse between stable coins and investment products is that you know stable coins still are on a you know no kyca AML

Bearer model right anyone can hold them whereas investment products are going to have a narrower yeah ownership base and so I wouldn't be surprised if in like 10 years there's 400 billion dollars of stable coins and like 200 billion dollars of on-chain investment products like that wouldn't surprise me either if like they both continue to grow and it's just like hey if you're not within this you know you know known perimeter the returns suck and if you're within this known perimeter or the returns are what they are supposed to be that wouldn't surprise me either yeah and will you be able so there's gonna be a you know a token like what what's the token like you know sstf or what what's what's it

going to be called oh I don't know yet yeah okay well let's all make it up so all right so the super State token will you be able to put that will you be able to trade it in things like you know not as much no no not at lunch but eventually you want to basically create these like white labeled pools I'm assuming inside of the compounds in the world well it's a really hard problem because you know for a fund a fun test to actually know who all the shareholders are and when assets go into a pool like uniswap you start to lose context on who the actual owners are right if there's 10 LPS in a uniswap pool right it's hard for this the fund itself to even know how

many shares each person has right especially like look at you just want B3 people have different you know liquidity ranges like when the price has moved one dollar like how much do each of the underlying LPS even have anymore like it's an incredibly hard problem and the reason it's necessary to like understand this you know besides like the first piece of like oh okay like can we make sure that North Korea isn't one of the holders of it that that part's honestly quite easy to like make sure North Korea is not a holder the harder part is just saying like hey we have to issue like 1099s and yeah like essentially p l like you really have to know when each

shareholder has Acquired and disposed of an asset um and if you can't do that then like it's just mechanically like impossible to operate and so I think what's going to happen is over time the development cycle is actually going to go in like a different Circle so you're gonna get investment products and then DFI platforms are going to have to reinvent themselves to accommodate them um it might require small changes to protocols that may require like medium changes to protocols but like I actually think the opposite happens it's not like hey you know we're doing this asset it's going to go in Utah and we're going to figure out how to make it work it's going to be here's how we have a compliant product that's able to you

know handle taxes correctly and it's able to handle kycaml oh fact correctly and all of these things and then like what does a protocol need to do to actually make those assets cable to be used in the protocol because right now frankly like uh interesting I don't think uniswap V3 actually would work with you know a fund I have a product idea tell me if it uh tell me why this is a bad idea one um what if you could create like a basically a kyc AML protocol and once you go through the once you go through kyc AML you just get a um what are the non-tradable soul bound token or whatever you want to call it a

non-tradable nft that just sits in your wallet and then when I go on uniswap it also sees that I have this Soul bound token that's like the kyc token and only for people who have that they can trade the super State funds good idea bad idea yeah so it's actually really interesting the idea of having like a global sort of like kyc system that like many different issuers or protocols could hook into um the approach that we're taking is that you know the fund admin and transfer agent and a investment advisor which is like us and service providers that's who you're actually providing the information to really providing it to the fund admin at the end of the day which is going to be a very traditional

Wall Street entity um you know they're the only ones who are going to have the information of the shareholders it's not going to like live on a blockchain being like 0x123 F2 is you know Yano you know like that's not gonna like live on the blockchain um you know Jason's information isn't going to be on chain it's going to be with a fund admin and the fund admin is like okay like one two three F you know fours you know it's Jason you know whatever um yeah the other sort of difficult piece with that product idea is you know you don't want to expose the information but each of the people that are like using the whitelist kind of have to know

who it is they can't just be like oh super State signed off on their kyc therefore like you know people can like use our platform It's like because if like a regulator goes to them and says okay well who's user123fd they'll be like I don't know like go as super state but it's not like our product right it's not like our you know thing that you're using so it's just like creates this like information imbalance that like makes it hard to have like one Global white list because it's like where's the information even live um and so I think the best approach in the short term is just like hey you can onboard with this fund admin the fund admin knows you

and can say one two three you know FD is you know approved to be able to hold this asset but no one knows Juan chain who one two three FD is besides the fund admin the information's not exposed you can hold the asset you can transfer to another shareholder you know high five everything just works you know getting the systems for many different projects or products or systems share the same whitelisting system just starts to get like really complex and I think someone's going to do it like honestly in like 10 years there's so many smart people out there and 10 years someone's going to figure out how to have a zero knowledge proof based system yeah where you can prove that you're not North Korea and the whole thing just works and it's interoperable on every deep five

protocol can have it for investment assets and like you know crypto native assets like without a white listing just continue to work like that and like the whole thing just goes together and it's perfect and users love it but that's like yes voila just yes that's a mile away and so like if you see those projects like let me know I'd love to address you I got you um business model here is just fee model right like it's fees yeah okay yeah it's gonna be 30 three bips on the fund that we file the preliminary perspectives for uh it'd be creative like over time that comes down to be more competitive with Vanguard and things like that but it seems like a pretty competitive fee to start it's

actually a beautifully simple business it's I uh I wish blockworks had just one rev like one simple pricing like that's that's that's a beautiful business but um but it's also a tough business because it's a very small amount of money right like if you get a billion dollars I think this mental math is Right a billion dollars on 33 bips that's three million 300 000. that's right so I guess you're just betting that like you will have 200 Milli 200 billion right not that's the goal the goal is over time to be competitive with BlackRock right and 200 billion on 33 bips what is what is that that's 660 million all right that's a nice billion

per year is like cash flow yeah that's yeah that's a great business yeah fair enough um awesome man anything we missed on super state I think we've covered pretty much everything cool did we decide to be back in the uh the early stage like yeah one days I'm like a zero to one guy and I'm also like a one to ten guy I'm not like a 10 to 100 guy or like 100 to a thousand like I actually really like the early stages um a lot because it's like bringing something to life that hasn't existed before for me is like really fun and like beyond that I love growing something I love like taking it from like hey there's usage to like hey there's a lot of usage but I think there's people who are better at like

hey there's a lot of usage how do we get into crazy usage than me and so I love the early stage it's what I love as an investor it's what I love as a Founder yeah you know just like you know what do you have to do to bring something new to the world that should exist that like users want that regulator to want that like you know composable you know businesses and protocols want it's like how do you just like Usher it into being like that's so fun and like that's what I'm really happy to be doing again yeah I'm excited for you man what what did you find to be the toughest thing about running a company that had gone into what I'd call like that third stage like the I don't know how many employees you guys had but like it was definitely past

you know 10 employees like 30 or 50 I don't know how big it was but yeah well it's interesting because like my focus for last like couple years at compound was on a product called compound treasury which you can start to see the parallels but it's funny because when I saw this I was like oh he's been trying to do this but it didn't it was like square peg round hole inside a compound so yeah square peg round hole so like my focus was on compound treasury which was a product for institutions that the idea was like you know you could have a D5 protocol and then you would have a layer on top of a D5 protocol right and the institutions could interact with this layer on top of the D5 protocol that was like you know had a regulatory framework and like they could get the benefits of

D5 without using it themselves and it was a really cool idea like to be honest like I actually thought it would work and like we actually got like 33 really cool institutional users and customers um for the product and it was starting to scale and growth was great and then see if I blew up I mean you know 3ac Genesis Celsius FTX like all these block fi um a bunch of other ones it was like everybody who was in the business of like give us your money like trust us like we'll make it work correctly and safely like prove that like that model like was like not gonna work

um and it was really frustrating because it would be spent like two years or so building up like a really cool product and like it was the first product um in crypto with a credit rating like we've like literally were like trying to model and remember yeah and like like allow others to even like see the risks and like see how it worked and be incredibly like transparent about building a product that like people could get comfortable with like what are you doing and how does it work and then when everybody blew up just the idea of like give us your money and like we will like give you more back even if it was like based on a D5 protocol under the hood like using a smart contract they can't steal your money like the whole

concept of like give us your money like seemed ridiculous yeah and so like if you're gonna do it you need like every sort of give us your money whether you're raising for a fund a company a product not a great time not a great time for like give us your money um and so like that's really like the kernel of the idea that's evolved into Super state which is hey if you're gonna say give us your money you need a really well trod path and like a really clean structure for that and like in my mind the cleanest structure possible is you have a registered investment product with Auditors and service providers and it's like give your money to a mutual fund does that sound scary you know give your

money to a mutual fund with cool on-chain components that like evolve is like really actually quite you know silent um it's not like give it to a business to like do what they want with and so I think it's the path that institutions unfortunately are going to have to go down I think it's like the only thing like tolerable to acquire the next billions of dollars of Assets in the crypto ecosystem is hey here's an incredibly straightforward you know product that you can understand that's regulated that there's a lot of Professional Service Providers built around and that you know you know that the assets are being invested in something straight simple

and transparent and but it's also composable over time with the crypto ecosystem and wire here in the first place and so yeah it's an evolution you know it was really sad for combat treasury not to work um you know but it's really exciting that is there's no tougher thing I think than shutting down something shutting down something whether it's a company or product or anything that you've been working super hard on for the last couple years I know it was it was difficult but I think like this new direction is really exciting compound Labs has you know New Management um I want to commend you by the way I I actually I I don't know Jason I've been dming with Jason a little bit um just on Twitter I think he's going to come on

the podcast we'll we'll have them on soon at some point but um I commend you for putting a product designer in charge of compound because if you of all of the things the skills basically that are undervalued in crypto today people value Engineers people value BD people people value marketers product design I think is the most undervalued skill set in all of crypto today and it's something that we need a lot more product designers and a lot better product designers so I uh I thought it was awesome that you put a product designer in charge I completely agree um you know Jason's you know not just a product designer but just like a great product thinker and you know I think user experience has so far to go in

crypto generally that the more people you can Empower who are just like you know really focused on the user the better and you know for the last couple years he was you know really you know leading pretty much all of the product that compound and so you know having him there I think like they're going to do really cool things awesome Robert anything else man I think that's it cool always a pleasure my friend uh I hope you enjoy the rest of your day and uh best of luck to you in uh super State yeah thank you thanks for having me on the show foreign [Music]