Taking Treasury Bills Onchain with Martin Carrica

Transcript

you look at like last seven days ethereum versus run rate for a circle it's the same amount of money it is equivalent to Circle it exactly exactly holy Vegas like that amount of gas that's um the same amount of money that circle is making together is three times that tether alone is making more money than the whole rest of the crypto ecosystem outside centralized exchanges oh that's your margin that's your your margins my opportunity it's exactly what you're saying Martin exactly welcome to bankless where we explore the frontier of Internet money and internet Finance this is how to get started how to get better and how to front run the opportunity this is Ryan Sean Adams and I'm here with David Hoffman and we're here to help you become more bankless this is certainly a money opportunity to

front run on-chain t-bills is the topic today the overnight fed fund tray is 5.3 right now and that's some pretty good yield but how much are you getting in your bank account probably not very much of that uh how much are you getting from your stable coin is maybe a better question for crypto Natives and if it's an instrument like usdc and your ethereum address the answer is probably nothing you're not getting any of that yield but what if we could tokenize try treasuries instead of just dollars what if we could create a usdt and the T is for Treasury and that tokenized treasury yielded five percent just for holding in your eth address that is the promise of tokenized t-bills and it's gearing up to be a major theme over the next 12 months and I think another Force for democratization worldwide we have Martin carica here he's the founder of a

tokenized Tebow company and he's here to get us up to speed a few takeaways for you on the episode today number one why don't we already have tokenized treasuries why doesn't that product already exist number two we talk about why on-chain treasuries are a force for democratization worldwide especially in emerging countries number three we talk about why the U.S government actually wants this even though they may not admit it number four in this weird Paradox we talk about why U.S citizens will probably have a hard time getting tokenized t-bills as well David you're laughing right now um because man it is hard being a U.S citizen in crypto these days isn't it yeah really the irony of U.S citizens being the people that are going to be the hardest people hardest population people to access the yield from their

own government's money Printing and in fact no we're going to just export it straight to the foreign countries of the world uh bankless listeners you'll just have to listen to the episode to understand understand the punch line there but Martin not the guests on the show does a really good job laying it out for us I think um Ryan presented this as the promise of of uh tokenized t-bills tokenized treasuries on chain t-bills whatever you want to call these things um I'll also I'll add that there's an economic weight here there it's kind of Destiny you know like maybe we don't get there from some reason that I can't understand but incentives will produce this outcome eventually stable coins will be replaced by tokenized treasuries it's kind of in the same if you accept that eventually all vanilla eth will be

replaced by some liquid staking token uh alternative eventually like why would you just hold vanilla East and Ave when you when you can do our eth in in Ave instead if you accept that then it's kind of the same thing eventually all vanilla stable coins will just re be replaced by tokenized treasuries and you will get the yield natively there's a gravitational pull right it's like water goes downhill and liquidity finds a way and it'll find it the yield will find its way in a tokenized form on chain yeah so there's been just growing demand growing an interest about this topic of on-chain treasuries and real world assets so bankless listeners you can consider this the first of a few steps into the world of real world assets on chain that we want to explore here on Bank list starting with tokenized treasuries yeah I'm looking forward to

uh discussing this with you a lot of interesting implications here and David uh and I are going to discuss that in the debrief of course if you're a bankless citizen you already have access to that on the bankless premium feed so go check that out right free Bank list premium fee ad free it's a beautiful thing but before we get into this episode first we disclose end the disclosures are there's nothing really to disclose here of course we hold crypto no we didn't crypto assets that we do hold stand to benefit from tokenized t-built transactions but of course you know that and we are long-term investors we're not journalists we don't do paid content there's always a link to all bankless disclosures in the show notes you can access that at bankless.com disclosures all right we're going to get right to the conversation with Martin on tokenized t-bills but before we do we

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project to new heights all of these Technologies leverage the security and decentralization of ethereum and provide a builder experience that's intuitive familiar and fully evm compatible faster transaction speeds and significantly lower gas speeds so visit arbitrum.io where you can join the community dive into the developer docs Bridge your assets and start building your first app with arbitrary experience web3 development the way it was always meant to be secure fast cheap and friction free Banco station I would love to introduce you to Martin carica the founder of mountain protocol a native yield bearing stablecoin project and Martin himself is alleged to be extremely knowledgeable about Stables especially from a regulatory perspective at least that's how he was introduced us by our friend Nick Carter who is also extremely knowledgeable about sable coins lately in the crypto world the

conversation around real world assets and on-chain t-bills has been growing in interest so we're hoping Martin here can help us help guide us in our understanding about what is next in this new Evolution of stable coins from unchain dollars to on-chain t-bills Martin welcome to bankless thank you guys thank you for having me well Martin this is your first time on Bank list tell us a little bit about yourself your background and why this story of stable coins is so important to you awesome so I'm originally from Argentina uh lived through high inflation for a long time started in crypto got my first salary like a truck fight company oil pipe company purchased uh Bitcoin going to a minor in a McDonald's and exchanging cash for Bitcoin and having to wait for the two blocks so we had lunch together

a minor in a McDonald's that's how you got your first Bitcoin correct so that is cool so how did you find this person there were groups I don't remember exactly uh what app it was because this was uh early on like this was before Mount Cox right so um we would pull all of my friends money and like someone would go and we would rotate who it was wow it was like a little bit at least I think very cool yeah all right continue so yeah I mean so I hope you enjoyed the meal at McDonald's as well yeah it was like two blocks so uh it was enough to like do everything you needed to do you had time to to count the money and then we it was like super cheap we would like distribute the Bitcoin afterwards um just to give you a sense that was

like our internship salary like 150 bucks each right like it was like minor purchases um so so that got me interested in Bitcoin initially I thought Bitcoin was a Emerging Market thing right like in Argentina makes sense in China makes sense in Turkey it might make sense uh I I studied engineering I got into traditional banking uh work I did a lot of work with failed Banks launching new products for banks I did a high yield checking account with banks and that is relevant to this story and with stable coins came in I was like okay this is exciting now you have a product that meant like my mom uses like she actually uses stablecoin today um and in Argentina if you go now like people will purchase a stable coin when they get their salary the US dollar stable coin and then they will swap it

out to Pesos to pay for their last week or two weeks of expenses and that's they will hedge against inflation doing stuff like that right so the the applications of this in in Argentina are massive um basically back to the to the yield bearings to the high yield checking account side I did that prior like 20 the prior cycle after Goldman Sachs did Marcus and when Luna exploded and appetite for uh leverage and therefore interest in D5 went to zero I was like how is it possible that the risk-free rate is higher than what we're getting in divide someone has to have built a product that Bridges these two things and that allows everyone in the world to access dollars and now with the native yield of the dollar turns out it was hard yeah remember when

you say risk-free rate can you just Define that for people yeah so if you lend money to the US government uh the U.S government can print money and they do that every day so therefore it is assumed that U.S government is not going to default if a default had were to happen usually they will bring more money so you're gonna see it via inflation rather than an actual default so that means if you lend money to the government you're guaranteed to get that money back and then that time value of money is a respiratory by the full faith power and credit of the money printer is because because there's a money printer there's no risk we'll just print the answer exactly this is basically the Fed rate that we talk about so often and the whole economy is like what five point something percent right now five point five point two or five point three

percent it varies a little bit uh every day um usually you take the overnight secured over net funding right so a bank will leave a treasury bill they will take cash in exchange and then they will do a repurchase agreement on the RSI uh the next day so that's usually what's considered the risk-free rate you still have risk-free rates in in other currencies so for if that is the liquid staking yield that would be the risk-free rate for each because you know you're not going to get defaulted on that eth in Argentina you also have the risk-free rate in the Argentinian peso that's a hundred percent you know the government is going to pay you but they're going to pay you in pesos right so each currency has their own uh risk free rate I would say most assets have their own risk free rate uh Bitcoin

doesn't Bitcoin doesn't have any native source of yield but most of these assets do have some some kind of risk rate and it's independent press it so I'm sorry I interrupted you uh Martin you're talking about the the risk-free rate you saw that creeping up in and you're talking about the Fed risk-free rate you saw that creeping up and then what happened so it was about 1.5 percent I was presenting to a bank they wanted to learn about crypto and I was like if I were a bank what would I do and I was like this is an amazing deposit strategy and I calculated the revenue of of a couple other stablecoin providers and the number was like massive and I presented to them and they were like yes but it's very very hard for us to do there's no framework for us to issue

this and so on and I sorry is it uh borrowing stable coins in D5 because you said they were at a lower yield than the risk-free rate so what you're saying like it's hard for us to do it it is borrowing stable coins and defy at like the very low post Terra post FTX rates of like point three percent I think if I remember correctly while you're saying the risk free weight was 1.5 percent so you're saying like hey there's this free Arbitrage people are leaving money on the table and Banks were saying to you sure we see that free Arbitrage but it's hard so we won't that's what that's what you're saying correct yeah so the the argument charge that I was supposed to name is go acquire deposits in this market so if you go and acquire deposits in traffic markets you open a branch and

people start depositing and you give them an IOU instable coins.io is the stable coin so you can issue a bank stable coin imagine a Wells Fargo stable coin and you could start acquiring assets basically at a very very low rate and you wouldn't have to pay much and then you can lend that on the other side to the US government and that there's an infinite amount that you can lend to use government in the order of trillions mm-hmm and so take us further in this story so you see you see defy yields at zero while the risk-free rate is 1.5 percent what do you do about that so I started looking like someone has to have built something that solves this problem and no one had the the Big Challenge here is how do you bridge these two worlds giving Clarity on the

real world asset side so someone has to hold a treasury a treasury bill and that person was buying those treasury bills at small scale you can buy but if you're starting to buy anything at meaningful scale you have to show where the money came from and that where the money came from the compliance AML kyc component was hard to do so we said okay if we want to offer this you have to be regulated to do this at scale if you are not regulated you're never going to have a framework to bring this pipe and have it be wide enough to bring money and show where the com the money is coming from and still have sustainable banking brokerage custody relationships in the traffic world and that is the biggest challenge uh that everyone in this industry faces is how do you answer that

regulatory or legal structure in question it sounds like what you're trying to build is the largest pipe possible between the government United States Government risk-free rate and D5 and right now you're saying that this pipe is actually constrained by our current stablecoin uh Paradigm or the Met current meta of stable coins because you go through it vanilla dollars first when really you can just go more let's get right to the punch line of this whole thing which is like let's take the yield of the risk-free rate and get it into D5 exactly exactly what you're buying today when you buy a stable coin on the back end it's cash and cash equivalent that's accounting term to say treasuries repos and some cash in Banks so if you look at the disclosures of all major stablecoin holders most of it is treasuries already

so we are already doing this the the thing that is not like flowing through is the yield component so you're getting a zero percent yield on your stable guns today so Martin this is uh we actually don't usually ask people about their background and their story about how they came to build what they are building in crypto but in this particular moment um especially we just did the weekly roll up last week uh recorded it went out yesterday and we talked about how increasing inflation in turkey has led to 12 of population of the Turkish population adopting crypto in the last year and a half and uh you you come from Argentina Argentina is uh very familiar with inflation uh we've had plenty of argentines previously on the show Mariano Conti

um just talk about the the role that inflation played in in their lives and just the happenstance of Argentina also being a very Internet connected country you mix uh inflation and internet connectivity and all of a sudden you have a a entire country that is pushing forward crypto adoption and this is the story I see playing out with you right like born in the world of inflation uh Tech enabled now you now you live in in the United States and want to build in the world of crypto because that that is your Genesis that is your upgrading bringing upbringing so I wanted to take this moment to tell the story of like showing how inflation leads to people Builders building stuff in crypto to help progress forward this new Financial Revolution and so I just wanted to I do

the thing we don't usually do which is have people explain their background because that is how you've gotten to be where you are today and any comments or Reflections on that I would I would add to that Capital controls right like that's the other big thing that has made Argentina so strong in crypto I couldn't buy a dollar even if I wanted to right so the the experience of buying a a crypto asset like my mom she's 60 years old she buys stable coins because she cannot access them through the traditional Financial system their alternative is to have someone bring her like uh we call it the blue Market it's called the black marketing practice someone comes on a scooter brings pesos or or brings dollars and you exchange everything in a very informal way that's the alternative today I am I I want to put this through

the lens of something you're saying when we were going through your your background is you said at first um you discovered Bitcoin in kind of that that McDonald's uh transaction um and then later you discovered stable coins and you said you were very excited about sable coins and I think a lot of our listeners today uh in people in crypto maybe in the west they look at stable coins and they don't get very excited you know what I mean like they're more excited about the speculation they're more excited about the gambling but but you see in stable coins um you know probably as a result of of kind of growing up in Argentina in a high inflation environment and you see a killer app and a kill killer use case you wrote this fantastic article I really liked back in uh December of last

year called stable coins are cryptos hidden money printers and you talk about how great usdc is the stable coin how that is the definition of product Market fit and you you brought the receipts into this post where you kind of saw the charts and you know hey this is crypto's killer app it's called stable coins I uh I want to get to more of that story but you know before we do let's talk about this this t-bill thing and I have kind of a simple maybe crypto native type question for you that we've sort of gotten to the edges around but it's like more directly I tweeted this out usdc and tokenized dollars are fine but with rates over five percent I want tokenized treasuries where's our usdt I'm not talking about tether here I'm talking about the t as in t t for T bills okay

so the simple idea and it feels like we should be able to do this I think you were kind of like uh you know hinting about this is rather than have an erc20 fungible um you know stablecoin that is just one to one backed by a dollar why not have an erc20 a tokenized form of a t-bill call it usdt I guess we tried that one USC uh treasury right and like make that the same thing except it gets me that five percent yield or wherever the FED rates goes next maybe it's down to four percent maybe it's up to six percent maybe it's up to eight percent who knows wherever wherever it ends up I still get that yield to me that would be like the

perfect uh instrument and completely right for for crypto so let me ask the really dumb simple questions like why don't we have that already I mean Kim it's not just the three of us making this connection I'm sure the people at coinbase is here yeah all right this is a pretty simple instrument why don't we have it yet the answer is the regulation is not easy to there's no regulation where you can plug this in and it's ready to go the there's various we're not the only company doing this there's at least 10 that I know of and most of them have gone through the path of let's literally tokenize the treasury bill the treasury bill is a security and then the claim that you have is a share like it's the T bill or a share of a fund or something

like that the issue with that path is you run through Securities laws and it kills the composability right I cannot transfer it to you unless you also whitelist unless you're also an accredited investor how do you whitelist uni swap right or or a curvepool so you start getting into into those issues down the Securities path just to re-articulate why that's such a big issue so you're saying like the the token the erc20 token on ethereum would come with a white list and so by default every other address on ethereum is not allowed to touch that contract address until their specific ethereum address is approved on the whitelist which is like what's the effing point at that point right like one by one by one automatic yeah there

is no composability there there's no permissionlessness there there's plenty of risk there yeah that's a huge barrier so so that's a Ryan you have a yeah yeah I just want to back up so so is what you're saying that um the dollar right a dollar's gonna count and so therefore usdc that is not a security despite against Gary Gensler might want it to be right that's not a security as of now it's just like a currency it's something different okay but a treasury our treasuries Securities then in all of their forms and flavors like I'm talking in the Trad five Market uh they're all Securities and so they come attached with Securities laws when what are those Securities laws is that um I mean I'm more familiar with with kind of Securities laws as they pertain

to like stocks but what is there specifically for like treasuries so treasuries are considered that right they're a U.S government debt and by that they are a security the the thing that you're you're going to is usdc is a wrapper on those Securities today so usdc is a wrapper and a bunch of of T bills you can uh they have a fund in BlackRock I forgot the ticker but you can go and check and it has a bunch of Securities and repos and so on so you're already wrapping that and creating a non-security a payment token so there is a a gap that the US still needs to address for this law right this is a gap that Bermuda where we've gone Switzerland or Singapore is soon to be

to address the UK every other jurisdiction is starting to address this Gap so this this question that you have is is very U.S Centric in that that model doesn't work there are other models and which is one that we went down with but we'll get to that in a second let's finish this so what you're saying saying is right now usdc is sort of effectively um a middleman kind of a go-between so all the dollars that that back usdc it's not actually dollars like we use that in short form we said there's one dollar here there's one dollar in the bank these are actually like treasuries and that is why you can go to um coinbase and you can press a button or I don't even know if you have to press a button anymore but there's some

sort of setting inside of coinbase where you park your usdc there and you get I think it's like 4.75 yield the reason they're able to give you that yield when the usdc is sitting in coinbase is because it's there's actually treasuries behind this and so I think am I am I right here where does the yield come from Martin yeah so coinbase and circle are different entities where the yield for coinbase specifically comes from I don't think it's just closed they own a portion of circle they might have a commercial agreement some uh some centralized exchanges that don't have Direct commercial agreements with stablecoin insurers will also pay you so that you have money for swaps and they make money in the swap so it also be a marketing expense so coinbase I think is

probably not the best example in this yield because it could be a marketing uh component rather than them passing through the yield okay but regardless the US sort of inserts this middle middleman type function I suppose that that's kind of in between the you know the the treasury and and the retail market and you're saying other jurisdictions do not have this other jurisdictions so we talked about the traditional Securities Law model where you build a fund and the token a stable is a share of the fund and that is today the market cap of Treasury tokens treasury 600 million most of that follows that path there's a second path which is the Suez DLT low path where the

source DLT has said a stock before we had electronic system stocks were Bare Assets I could change a piece of paper with you and you would be the owner of that stock so why don't we do that with Securities again so there's a a company out of Switzerland that did a prospectus and they have a tokenized security but that's permissionless so essential is very similar to like an ETF like a gold ETF they put a bar of gold in a safe they give you a piece of paper that piece of paper moves around and if you want to claim it back you have to do kyc and you take the bar of gold this is the same but for that treasury bill or that fund and they were the first ones to be able to do permissionless uh treasuries well I was going to ask a question about um whether the US actually wants this so

so one thing one one thing that's notable about a treasury is that it's a it's kind of a product of the US government right and so um is the system that you're describing in kind of Switzerland and our scheme here to like um you just create a tokenized version of treasuries and call it us usdt or something and uh get the you know five percent yield is that contrary to what actually like U.S monetary policy and kind of Treasury Department and the FEDS actually want like is is there a reason that that product doesn't exist and so what I'm wondering is like whether these regulatory kind of Arbitrage opportunities and say Switzerland or

elsewhere whether they might be closed at some point in time because was like maybe this is counter to what U.S monetary and and you know Financial policy actually wants and so they'll try to put the kibosh on it in another way do you have any insight into that I I have to I think if I were the US government I would be I would do a 180 on this if I could have all argentinians transacting US Dollars it means I have four buyers of my treasuries that means I could sell my treasuries at a lower rate I lower my interest expense so therefore my budget closes nicely and if you do that with Argentina and turkey and all other Emerging Markets you can export dollars globally and those dollars are going to be stable coins that are holding treasuries that is like

forced buyers they they cannot take more risk so you have when you're doing those auctions the interest rates are going to have to pay are gonna be are going to be lower so I think it's against uh U.S interest to stop this Market against U.S interest to start this stop this Market one of the things that we say on Bank list is like D5 is exporting the power and the brand of the United States dollar and I think that that's what you're saying in agreement too right like actually we are just again we're just connecting bigger shorter pipes between Ave and the United States Treasury and so like Ave is just a reseller of United States treasuries and that is like the United the if you're the dollar that makes you happy correct correct correct and I think going a step further going on top of treasuries if you can bring any stock that's trading

in the US and put it in crypto now you have your expanded NASDAQ or the New York Stock Exchange globally you should have an interest to do that too I have Robin Hood be in 180 countries so I think there's an interest to export the U.S financial system if your objective is Capital Market capital information so your argument here is to you know to answer the question of um you know but but won't the US try to kill this uh your answer is well if they're rational and they actually want to export the dollar what better way to do that than to have a a tokenized version of a Dollar Plus yield plus risk-free rate and uh have that be kind of the ultimate you know dollar stable coin it's just and the ultimate form of that is clearly a treasury rather than rather than just

the dollar because you get the yield uh embedded in that exactly and in a world where let's imagine this this world might be close too the US runs out of countries or Banks or like buyers Pension funds buyers in general of its treasuries it's gonna need to find new markets for this and you're saying hey Emerging Markets like Argentina uh like turkey maybe it's really alluding to the global emerging markets for for them the dollar is still a pretty strong product and you'll have net you demand from these uh from these markets in these countries and hey isn't that in the U.S interest that's what you're saying exactly exactly and if you think about it today that demand exists it's called the euro dollar complex so right without the US promoting it this euro dollar

complex form and it continues to expand despite uh it being outside of the purview of the of the U.S government we now have swap lines and so on so it's starting to connect um but this euro dollar if you add stable coins on top you you can grow it a lot more yeah we call them stable coins but really we should call them crypto dollars like you have Euro dollars you have now you have crypto dollars but we're stuck in the stable coin terminology Martin one thing I I want to ask um is like uh intuitively yeah like we get we dollars produce yield let's get the yield into D5 but like kind of don't we already already have the value of yield from the United States Treasury markets in defy not in a direct way but in a roundabout way just like because

overall like slowly over time the efficient market hypothesis does play out and then all of a sudden whatever yield that is being offered by the United States Treasury is through the market being offered by Ave and then Ave turns die into a die or usdc into a uscc and then the power of the yield of the treasury market does actually become expressed in an erc20 token albeit in a roundabout way but eventually for the end user who they don't care what happens in the background so long as they get their yield so like we don't we already have on-chain treasuries at least implicitly and how it is actual on-train treasuries differ as a product yeah so there's a couple things there the first one is it requires not only holding a stable

coin but also participating in a D5 protocol if you look at the percentage of stable coins that participate in these protocols it's always about 20 even in the in the bull market most stable coins sit in the sidelines so and the reason for that is it's either like experience because getting into these protocols can be risky it's complex it requires management it could be technical risk and adding counterparty risk to your holding right really really kind of neuters the whole risk-free rate thing doesn't it exactly exactly right like we saw curve uh get hacked recently so even Blue Chip Protocols are not totally risk-free so you're adding additional layers of risk that you're taking it might be worth it if you if they're

paying you an interesting I need an additional interest on top of the risky rate but for the risk-free rate you wouldn't want to add counterparty risk so taking another example of this in D5 Martin is uh maker uh mkr token so they have die of course David is just talking about the stable coin and they have this function and their contract called the DSR right and that that is if you park your die inside of the DSR then you get uh yield effectively and I'm not sure what the yield rates are uh lately but I recall recently they were like eight percent uh for instance right so that was above the risk-free rate and then kind of governance uh changes them they go up or down I guess my point about that particular product is um there's not really the certainty of like you you

don't know whether it's going to be above you know the treasury risk-free rate or if it's going to be below it's kind of dependent on um governance it would be nice I think for a product that just very clearly tracks whatever germ and Powell's doing you know kind of like the one-to-one instantly if the rates change then you get that kind of inside of the the token so I feel like that's another plus one need it also seems kind of cleaner right because again with something like the DSR or Ave as David was talking about you still have this like middleman market right that doesn't quite track one to one with what the treasury is so it's it's a less clean uh instrument

um are these valid points as well Super Value Point and in fact the DSR today is the same as the risk-free rate so it's they're both at five DSR today is five percent five percent correct and the risk-free rate is at Five Point something but if you take out the expenses that would be allocated to actually Bring It On chain it's gonna be five percent so it's uh five to five the difference is on one hand you have maker which has die which is integrated everywhere so it has a bunch of advantages right uh it's also decentralized for for some people and some kind of dials companies that's very important on the other hand maker is it has its own governance it's decentralized you don't know what maker holders are going to vote for uh you

have Smart contract risk that is more complex than an erc20 so those are the trade-offs that some of our clients are doing and anyone thinking about buying a tokenized treasury versus putting money into DSR should think and there's pros and cons to to each of those yeah right like let's be clear any uh tokenized treasury instrument would be very centralized like completely centralized right we're talking about just like usdc it's exact kind of instrument and in the bucket you kind of like you're holding reserves those reserves are physical assets that can be seized right they see it at the Fed so even there are some protocols that have said we're gonna go with uh t-bill collateral without any centralization in the end the centralization happens elsewhere in the chain right if you don't if you

cannot block list ofak you're gonna have uh the the treasury comment and knock your door right and in the end the reserves are going to be the point of centralization so to understand on-chain treasuries like you said like what I asked the question why isn't a die out of Ave just kind of the same thing in a more roundabout way and when your answer was well there's also smart contract risk and so that's a difference and then on the flip side of things in the Trad Phi side of the equation uh Circle in usdc uh even though that could in theory become yield bearing it's not it's not um as directly connected to being a treasury as an actual Treasury and so you have like the metaphorical middleman of maker dower Ave on the defy side and then you have the unknown black box that

is the yield in circle uscc on on the tradfi side of things and so I think what you're saying is like with this on-chain t-bill it's the the most direct pipe possible on the traffic side and then on the D5 side there's no smart contract risk and so it's like it's not like um a race at the bottom but it's like a race to the logical conclusion of the shortest fattest pie type between defy and treasuries with zero counterparty smart contract risk on the defy side and that's probably why there's like you said like there's over like 10 companies on in a race it reminds me of the stable coin Wars of 2017 that have been ongoing to this day but now there's like the on-chain

t-bills race the the race to be the the liquid t-bill so this kind of feels like an evolution of stable coins right we have we have us united we have tether the wild west unregular unregulated uh stable coin then you have like the teacher's pet stablecoin which is uscc uh and now now we have this next evolution in the war of stable coins which is Unchained t-bills which is where we are in crypto history today is that right exactly exactly and I would say in terms of counterparty risk that you're taking with any type of uh issuer you don't have the Lindy that usdc has so you're taking a a bet on how the specific usually set up their legal structure and so on but the essentially the the layers that you have in the middle are the same you have the

fed you have dtcc you have your custodian you have your broker your bank that you have to go through your own ramp and offer and your issuer and that's kind of the cleanest chain that you can do anything less than that you cannot move money in and out so and that's the same for usdt usdc and any other typical issue I'm uh I'm inspired by this not inspired but like I'm reminded of the uh conversation around the staked ether space in defy where like Lido and kind of everyone I think has accepted that all vanilla ether in as collateral and defy all vanilla ether maker vanilla ether and Ave any any collateral that accepts ether will eventually become staked ether and this is more or less playing out like slowly but surely

everything all collateral and D5 is being replaced by staked ether in D5 because why wouldn't you like why wouldn't you trade your non-yield bearing ether for yield bearing ether is this is this the same is this the same conversation with on-chain t builds or like well why would you hold vanilla Stables crypto dollars in D5 when you could just hold Unchained t-bills in D5 let's just get let's just cut to the chase here and get to the to the logical conclusion of this thing this is the same fight that's going on exactly so for degens or crypto natives we explain the tokenized treasuries as I stake teeth for dollars so you have the big chain is the U.S treasury right that's the source of yield and where the ultimate asset sits then you have a wrapper on top of that that makes it liquid and that wrapper is an erc20 that

that is yield bearing in our case rebasing uh some other will do price appreciating like rocketball and state teeth right you have those two flavors and uh that is a near C20 that you can move anywhere so it's very much the same the same system okay how big is this fight um you said there's like over 10 companies trying to produce the same outcome why is it like how much value is there to be gathered like how big is it how big is this pie what's the value of this pie so if we dream big there's 20 trillion US dollars right so I love training big the market is massive it's just like the stable coin market cap is 120 something billion it was 200 billion and a lot of that has died because there's a huge opportunity cost by being

on chain you're taking more risk because you're taking ethereum risk which is not negligible you're taking your erc20 risk your from your issuer wherever your your custody risk and you're getting paid zero whereas you could go to a treasure and get five percent why would you do that um so we saw this decline from 200 billion to 125. I think by adding yield again now you have a very compelling argument to tell my mom hey take those daughters that you have under your mattress turn them into a yield bearing stable coin and you're earning five percent of your money whereas you were earning zero you can go to a small medium business and say you know this how you'll check do you have dollars right or you're interested in paying dollars when you're holding those dollars instead of holding them at your

local bank which by the way is not regular it's not fda's insured because it's offshore hold them in usdm you're taking Bermuda structural risk or swiss structural risk or Singapore structural risk right all major jurisdictions instead of Argentinian structural risk and you're earning the five percent so it becomes a way more compelling argument to bring no money on chain I I'm gonna throw a number here I think we're going to get to a trillion in stable coins in the next two years like there's so much money that is how long Martin I'm gonna say three years for one trillion a trillion in stable coins and that that is when you say stable coins you mean uh the token ISD bills that we're talking about Slash correct

anything that follows the value of one US dollar right so uh or some like token SDS treasury studies usdc usdt that could be us it could be any etf-df anything that follows the core like U.S government debt I can totally see the market demand for something like this like I want it there's nothing available like it in in tradfi and yet I'm still kind of wondering if we're if we're missing something here like an alignment perspective what you said earlier was um yeah why wouldn't the US government want to export its dollars of course it would want to do that and export its treasuries more specifically export its debt more specifically but I'm wondering if we're if we're missing uh an actually important stakeholder I put important in

air quotes um called the banks right and uh you know this is bankless so we are no friend of the banks but um it seems like if they could be cut out of the mix here yeah wait a second in some way so so and let me just ask you how this works right so I go to my um my bank account and yes full confession bankless listeners I have a bank account all right because I need to pay taxes you know it it's literally Wells Fargo and my uh bank account pays me a whopping Z 0.15 percent in my savings account or actually maybe that's the checking account right okay um there's some Arbitrage there because that's a lot lower than what I see is the the risk-free rate okay correct so that tells me somebody's making some

money and I think it's the bank Wells Fargo is making that money uh on the account and so there's this kind of Arbitrage here and of course I could if I wasn't uh if I was more motivated I could take that money out of Wells Fargo and I could go find a place to park it in good old Trad five and get that you know the sweet tea bills I'd rather actually just move it into crypto and buy the tokenized t bills that that you have that would be great but it strikes me that if I did that there would be this like sucking sound from the US banking system the kind of sucking sound that uh may have been the downfall of Silicon Valley Bank right only only maybe not kind of quickly but just slow sucking train crash where kind of liquidity leaves the banking system and

I'm just thinking Martin the banks might have something to say about that and the banks have some influence yeah not just the banks right so so is this a piece we haven't covered yet tell me how this uh yes conspiracy theory fits in here so it's it's if you talk to people at Congress and you you bring lots of people to to the show they will tell you there's out of 20 trillion there's five trillion that are sitting in money markets right so one in four dollars are making that decision that you just said right and and a money market is effectively what we just said only it's in traffic is that right correct correct so you will buy your defy enthusiasts that's compound or Ave but in their Trad five forms exactly we gotta interpret technically uh avian compound are margin loan automation smart contracts so you

put it you put an asset and you take a marginal money market funds is the is is more similar to usdc would be a money market fund or usdm or a token a stable would be more of a money market fund but going back to the banks the banks are actually you have the top banks in the United States the G6 those those are paying you 0.15 like like you said they're actually growing and they're not going down the the people who are paying that price are the small Banks the all the regional Banks your sbbs of Life which are the ones where people are going out of they're going either to money market funds or they're going to gcips because that's where they are flying to safety are you trying to get closer to the Fed what is what are the banks telling the

government and why why this is getting stopped is if the banks don't have zero percent deposits that they can acquire then they cannot give you a mortgage at three percent if they have to go and finance at the risky rate which is five percent call it then that your mortgage has to be seven eight percent and your SME loan has to be 10 and that's what people like people in in in in the US government are nervous about is what happens to the economy once the rational actor decides to go to a money market fund and what happens to all those loans that were issued for mortgages for smes and so on and that's the attention that's happening in my opinion that stopping this like this is like

water right like you can put damps on it it will inevitably happen because rational actors like people think they are the best at managing their own money and self-interested people will go where uh where where things are best but that's their that's the tension why it's not that obvious cello is the mobile first evm compatible carbon negative blockchain built for the real world and now something big is happening introducing the cello layer 2 it's a game changing proposal that's going to bring Cello's rapidly growing ecosystem home to ethereum vitalik has shared its excitement for the cello layer 2 on the cello Forum so has Ben Jones from optimism but why the cello layer 2 will bring huge advantages like a decentralized sequencer off-chain data availability and one block finality what does all that mean Rock Solid security a trustless bridge to ethereum and more real world use cases for ethereum

without compromise and Real World Adoption is happening active addresses on cello have grown over 500 in the last six months with the cello layer 2 gas fees will stay low and you can even pay for gas using ER C20 tokens but cello is a community governed protocol this means that Sello needs you to weigh in and make your voice heard join the conversation in the cello Forum follow at celloorg on Twitter and visit cello.org to shape the future of ethereum are you a metamask user well you're listening to bankless so of course you are the wallet you know and love just got a whole lot better metamask portfolio is the ultimate One-Stop shop for all of your crypto needs it gives you a holistic view of your crypto portfolio across multiple chains and multiple addresses all at once you can easily View and manage all your coins tokens and nfts in one convenient place

just by connecting your wallet metamask portfolio goes beyond just viewing your portfolio though inside the portfolio you can do all the incredible money verbs that make D5 so powerful you can buy swap bridge and stake your crypto assets with ease it's like having a powerful battle station for all your D5 moves right at your fingertips so if you're looking to do more in web 3 your way metamask portfolio is the answer I already know that you have metamask wallet so go check out your metamask portfolio learn more at metamask.io portfolio you know uniswap it's the world's largest decentralized exchange with over 1.4 trillion dollars in trading volume you know this because we talk about it endlessly on bakeless it's you to swap but uniswap is becoming so much more uniswap Labs just released the uniswap mobile wallet for iOS the newest easiest way to trade tokens on the go with a

uniswap wallet you can easily create or import a new wallet buy crypto on any available exchange with your debit card with extremely low Fiat on-ramp fees and you can seamlessly swap on mainnet polygon Arbitron and optimism on the uniswap mobile wallet you can store and display your beautiful nfts and you can also explore web3 with the in-app search features Market leaderboards and price charts or use wallet connect to connect to any web3 application so you can now go directly to D5 with uniswap Mobile Wallet safe simple custody from the most trusted team in D5 download the uniswap wallet today on iOS there is a link in the show notes so just to um I keep on I enjoy this like image that keeps on popping up in my brain which is like you have the the United States Treasury on one side you know the archetypal bank with columns to you know allow for

bankless listeners imaginations to go so then they have a pipe from the big bank with the columns the United States Treasury going into crossing the dimension between Trad Phi and defy and that is where these on-chain t-bill companies like like your company Martin and the many other competitors out there your company spans between these two planes and so it goes into your your company and then it goes out into the world of defy into the world of like makerdale Ave you know uh wherever but like and so like again like we have the shortest possible pipe between the treasury and crypto mediated by some sort of centralized company because that's part of the deal that that's how it goes and then and then it's into into defy and we are cutting out the entire Commercial Banking layer between uh this Federal Reserve and defy and so like

while like in bankless philosophy we would actually call your company Martin a bank but I like it because it cuts out hundreds of other Banks before it spits out its product into defy it does except there is One banking party if I'm understanding this correctly Martin which is like some Bank let's say or I don't know if you call it a bank but in Switzerland for example so it's not a U.S domestic bank it's somebody with kind of in a more I guess treasury tokenized treasury-friendly jurisdiction that is is set up there so that would be the bank that would be involved is that right correct so that that would be the custodian so they would be holding that security and then we call custodians Banks we call a lot of things perfect and then we would fall under the typical animation of a narrow bank right so

narrow Banks issue deposits right like a stable coin is a deposit and we turn around and instead of issuing mortgages car loans credit cards we just lent to the US government and because you're learning the U.S like narrow Banks exactly so narrow Banks it's very very hard for you to fail like if you have access to the FED it's literally impossible if you have very short duration treasuries which is what every player out there does like the US government needs to default for you to fail right like that's the level of of a certainty that you have so that's we would be a narrow Bank essentially so Martin that is a product that you are rolling out the product that we just described right and hey and you said so tell us what what you're kind of building in that product and then I'm really curious about like how

big can you actually grow this thing um usdc right I I it's under a hundred um billion right now I believe 25 billion yeah oh okay it's 25. it went down dramatically yeah it's gone down a lot um what are you building um who can access it how big can this thing actually get and this again this is like a tokenized you know erc20 treasury that does not have all of the um handcuffs of past tokenized treasury instruments right this is what I'm understanding just tell us about what you're building and how big you can you can kind of get correct so first a disclaimer so usdm and our products are not available for us consumers and restricted countries for more information go to

mountainprotocol.com terms and conditions and uh you can read everything there yeah uh it's it's the sec's um Securities laws were reading long before Gary um so we use an exception called regas which basically means if you're a foreign issuer you don't have to register with the SEC but you have to not sell into U.S uh consumers that means you can't sell directly into U.S consumers what does this mean so I I live in the US would I uh I don't know if you could even answer this question I want to buy it on uniswap right do I have the ability to go to the unit swap protocol and actually buy some of this new you know tokenized t-bill thing or I

can't because I'm U.S citizen or something and what stops me from doing that so Ryan I understand why you and many people listening to this podcast might be excited about this product uh everyone listen to this podcast is highly Innovative and like trying new stuff which this product is however I think you'd agree that most people in the US don't understand why we need stable coins why we need tokenized treasuries all of these products are kind of like uh odd and they don't really understand what purpose they feel in the market and the reason is clear right like you don't have an access problem in the United States for most consumers into in this podcast they can that are in the US you can easily open a high-heeled checking FDIC insured account you can use a money market fund that you can access through your

brokerage on your phone so it's very easy to actually actually access this product so what that means is there's no U.S substantial Market interest which is a core component of um the law on on why we cannot offer into the US the test that that law gives you is substantial Market interest the second thing I would say is for the people who are listening to this podcast that are really excited about this product please don't use it every company engaged in this industry has to do best business efforts there are several ways in which you can identify U.S consumers and if you are identified as such as a US person there will be each company will have different approaches but there will be disruptions to your service so you're not going to

experience the full power of what you got to offer and it's going to be a subpar experience versus what you can get in the traditional markets for context Circle which is like super eocentric has 30 of their assets their usdc circulating in the US so it's a very it's a most of the of the of this is like for us for non-us persons I'm confused um so oh hey I didn't know that about Circle can we I want to try and get into the same conversation through a different um injection point the contract address for this on-chain t-built erc20 token USD yours is usdm again there's many other competitors out there yours is usdm does the you and tether and circle both have Blacklist functionality but it's it's open by

default so by default all ethereum addresses are enabled to receive the the stablecoin and then if that we find out that this one particular address is North Korea then we add them to The Blacklist that seems totally fine with me that's aligned with nation trade regulations that's just the dance that we have to play that's great that's fine is there anything different about a on-chain t-bill smart contract address that is different from that status quo so the function is the same the thing that we are adding on top of that usdc or usdt typical of fact restriction is let's say cracking us started trading this coin we would first message Kraken and tell them to stop because they might not know that we that they are not allowed to do that by terms and conditions but if they insist we're going to block that address so that that

doesn't happen so who would be in violation is Kraken in this in this example breaking the law or are you breaking the law cracking is breaking the terms and conditions and we are applying correct so the terms and conditions of using the mountain burgle each asset that you hold that centralized has some sort of terms and conditions usdt has this exact same terms and conditions so your city has been applying regas since I think 2018 and that's why it's hard to buy usdt locally in centralized exchanges and so on okay okay but still like a usdc is 80 80 overseas and how do they 70 70 excuse me 70 overseas as in not held by us people how do they know that that's a good question so I took that

quote from Jeremy itself um I I don't know exactly but you you don't know exactly which address is from where but there are providers that tell you these transactions are coming from IPS that are coming from these countries and you can monitor this in in a in a pretty you don't have 100 certainty but you have pretty good certainty about who's using your tokens and the reason you have to monitor is it is because if it gets over 20 then you're outside of the bounds of the records of regas of the regas um correct yeah kind of so so you have but but you can't you can't measure it precisely right because we don't the burden of proof is just on Circle and on you you have the burden to prove to say that hey you were not violating the law

so for context I'm not a lawyer but how I think this is going to play out I think there's going to be two outcomes on one hand you're gonna have unregistered unregulated entities probably uh doing some fake decentralization what the SEC can can go on point and say this is a scheme to evade you still have the question around substantial U.S market interest but there it's easier the bar is lower to actually go after these cases where I think is going to be harder uh is is on regulated entities by respected countries uh Financial Regulators where there's a regulated product there's best business efforts to kind of avoid uh U.S consumers accessing it and where uh you still have the no substantial U.S market interest which is which is pretty strong and finally these guys uh like us we're

spending a lot of money on lawyers so lawyers are are pretty happy trying to protect us but yeah yeah that that's how the ultimate winners are crypto are the lawyers exactly I'm confused how uh I didn't know that about Circle uscc so they need to make sure that the weight the gravitational pull of uscc is is offshore no no they don't need to do that STC yeah yeah he needs to do that yeah it's fine that's just a fun fact stat that 70 is offshore and and I think Martin you were making the point that like if there's a lot of demand for dollars uh offshore just look at usdc the a U.S product and yet 70 of the ownership according to you know Jeremy

Lair maybe is is offshore so you're making the point that basically for this new uh treasury tokenized treasury product hey a lot of the demand will actually be offshore anyway and there's no restrictions if it's kind of you know somebody outside of the US owning this thing and the average Joe in the US they have high yield checking accounts those are fdac insured they're paying five percent you have your Robinhood app your public.com app you can go and buy treasury stuff percent so there's no reason for the average U.S consumer to go right and buy usdm right so this is not a professional Bank yeah exactly right like there's no access problem the banking system with all its things it kind of works you can trust it uh it's insured so this is not a product aimed

for you as person I get it so yeah same at the same time sucks it sucks smart and I would so much rather have all of my like um dollars into you know usdc and stable coins in fact you know that's more the direction I'm going in but like I take your point so this is um I guess outside of the us though this is pretty free unencumbered works just like USD USD C would only has kind of the yield attached to it and this looks like an erc20 token so it'd be available anywhere that a D5 application is available is that correct exactly exactly so and we're doing work to make it available in as many places as possible so that the utility of having usdm is not just having usdm you can put it as collateral you can swap it and access other liquidity pools so

that's the the work that we're gonna do after after we launch uh on Monday just to finish kind of like how the token works if you think about usdc it's a newer C20 in the front it's actually cash equivalent which is literally tables in the back this is the exact same thing but this erc20 rear bases on a daily basis so you get air dropped more tokens every day similar to stick teeth yeah yeah yeah I was wondering how they had it so there's in addition to the I know inside of the LST ecosystem the liquid second staking token ecosystem um there are many different ways of uh the value of your token going up there's a number of different mechanisms and so this is probably there's different design decisions as to how you actually receive the yield the actual value of the of the erc20 token could go up and

like increment up over time you could get air dropped more you could rebaste downwards there's that's probably of all the different Landscapes of on-chain t-bill competitors is probably a vector of competition to have the most optimized Market desired one and the the biggest advantage that we have is we've become regulated so we spent a full year getting licensed out of Bermuda so the Bermuda monetary Authority gave us a license to actually do this in a permissionless way so we are a token a utility token that is used for payments so in the USA payment token would be the closest thing uh which is redeemable one to one and that allows us to be permissionless most products out there they are permissioned and they're adding a lending protocol in the middle

to as a dial to kind of like convert permission collateral into permissionless yield via Supply on that protocol so that's those are collected two uh models that you're seeing out there so this is a bit cleaner then how big can you grow this Martin it's a great question I think I think it's going to be trillions right I think this category regardless of whether it's usdm or other players if you look at it in a couple years it's gonna be multiple trillion dollar uh industry I think the demand for uh yield bearing dollars is gonna eat out of the bank Dollar Bank deposits globally it's gonna eat out a bunch of other alternative stores of value globally and it's stable so it's programmable money so you can have smes creating an account and holding dollars

and paying their suppliers and that money is yielding all the time um I think it's gonna It's Gonna Change massively so uh Nick Carter is the one who introduced us so I'm going to put on my Nick Carter hat here you said uh there's like 10 or something competitors out there who are all trying to do the same business model understanding crypto we don't necessarily have the best track record of all of our startups and companies uh fulfilling their original obligations how do we know that of these when we are provided with a slew of companies with on-chain t-bills how do we know which one's a rug uh I would assume uh proof of reserves gets incepted here or maybe other mechanisms how do how will bankless listeners myself included identify the rug

UST on-chain USC bills from the non-rug ones well because we know some of them are going to be rugs right and we don't know question mark is it like what is tether we don't fully know yeah so um disclaimer Nick is an investor in Mountain protocol so uh he has a vested interest here the the div like to differentiate a rock from a known rock you have like your total scam tokens you can identify those because they are not licensed they don't have a regulatory framework that you can go and look at they're not back they like you don't know who the team is they are Anonymous you don't have proof of Reserve so all your basic kind of like uh cleanups in a centralized product which this is if you don't see that that's a very good tell that this is a rug then you go to the design questions and

who is designed properly to be this narrow Bank uh that you can kind of trust that goes a lot into bankruptcy remoteness is the asset recognized uh in the in the country where it's uh registered um you get into more kind of legal questions the I think lots of this is going to come out soon maker just issued a declaration of intent for rfps for uh tokenized treasuries so you're gonna see makers assessment of a bunch of products in the next there's no timeline but I think it's going to be in the next couple months so that is going to be pretty cool Steakhouse Financial so Sebastian and Adrian and other friends of the Pod uh are gonna be are gonna are like did that proposal and if maker

passes that there's gonna be an independent assessment of a bunch of products out there Martin why doesn't Circle go do this is it because they can't be a narrow Bank there's there's many reasons I think the first one is regulatory right so if Circle wanted to do this they would have to give up their U.S market that's 30 of their issuance but they would also have to stop trading in coinbase they would have to stop doing conferences in the US so there's a lot of things that they would have to stop but why couldn't they create like an international subsidiary something like that different product that kind of thing you're saying that would be quite the pivot though I think it's not only a big pivot regas you have to be a foreign issuer it's not enough for you to be a us company selling outside if you're a US company

selling outside there's a Class 2 asset where you have to wait for 40 days after you buy it before you actually can move it so technically they could but the experience will be pretty bad uh so that's the first reason it's regulation I think the second reason is the same reason why Wells Fargo pays you zero today which is why would they and doing that math is I'm gonna cut essentially from making 100 taking 100 Commission on the yield right if you think this as a stake teeth versus seabe right it's 10 commission 25 commission circles commission today is 100 right and going from 100 to 10 which is what basically all of the table issuers are getting that's a 90 reduction on your Revenue it's probably not worth it and they're making a lot of money right

now right hundreds of millions of dollars so the the question is who makes more money usdc or ethereum hmm yeah well what is the answer actually yeah I I feeling you're smiling so you know yeah no the answer is it's the same I just checked and if you look at like last seven days ethereum versus run rate for a circle it's the same amount of money tether is making oh sorry when you say ethereum making money you're using the way that we often describe it on Bank list which is like the protocol fees that are exactly ether that is burned on a yearly basis like the protocol Revenue exactly is the equivalent to Circle exactly exactly holy printing money every time you pay cash like that amount of gas that's the same amount of money that circle is making until oh my god

wow tether is three times that so uh tether alone is making more money than their whole other like the whole rest of the crypto ecosystem outside centralized exchanges this is insane so they shouldn't be right so so this should be passed on to you uh the customers this should be passed on to the users in an ideal oh that's your margin that's your your margins my opportunity is exactly what you're saying Martin exactly exactly so that's why and it's so much money right I think you guys did in the roll up there's like four million crypto users something like that if you divide the tether revenues by crypto user that's a thousand dollars per user per year oh a thousand dollars it's not like cost that's the thing is it's opportunity cost which is

equivalent to cost it really is people don't view it like irrational yeah yeah so oh my god wow that's what you think over 10 companies trying to do this that's why I think a trillion dollars is not a wild guess I think uh lots of people are gonna be okay this is free money how can I get it and the traditional system is not going to give it to them if you're in Argentina if you're in Brazil if you're in Turkey if you're in Europe even you're not gonna get this uh this race really yield pass on to you unless you're in the US it's very very hard to get it here's the thing though so so when you guys start up and when these kind of 10 companies doing uh tokenized strategories kind of start up um I you know I expect kind of these

these regulations will sort of hold it'll kind of make sense but as you scale up you're talking about numbers like trillion okay so you get to 1 billion all right you get to 10 billion okay you get to 100 billion guess what the IMF starts raising its eyebrows and starts saying things like Financial stability and anytime they use the term Financial stability what they actually mean is uh control because they don't care so much sorry I'm editorializing I feel like a lot of times when the IMF set talks about financial stability they actually just want control and if you start creeping up towards like half a trillion dollars or a trillion dollars all right then that word will start to be used a lot more and um this whole kind of reg s thing might

seem like it's like you'll get more attention all right and and I'm wondering if they will try to put a stop to this is kind of a question and also I love the test here I love that we are just pushing this to the Limit because how else do we how else do we approve improve our banking system how else do we get rid of the inefficiency and the incumbents um but but I wonder if kind of the as you scale up the I will start to turn towards uh tokenized treasuries and the kind of the regulatory climate might start to clamp down a little bit um what are you thinking about that Martin um tether announced I think it was two weeks ago that they are one of I think like if they were a country they would be in the top 20 in terms of like

treasury Holdings so tether is a very relevant player they have 83 billion in issuance most of that is collateralized by treasuries so this is already a thing um what I see at least is the government kind of likes the fact that people are buying uh U.S treasuries and um the path I have at least we're taking is we want to be compliant so if these clampdowns come which they they may come we're gonna be prepared and we're not gonna be two people in our garage we're licensed entity by a top regulator uh in in in in financial markets right so it's gonna be at least harder if they try to shut us down I think there's no incentive to do so

but if it where we want to be as prepared as we can well you're gonna have to speedrun it you're gonna have to get big real quick uh to the point where um you know they they don't mind so much um I love that as an acid test the other acid test which I I don't know how it's going to work out right is um it's ironic that we're doing this entire episode and both David and I are incredibly excited about these types of products right a tokenized version of a treasury and yet because we live in the United States which uh I don't know feels like a financial prison we actually can't buy it right or at least we can't officially buy it and I don't know what's going to happen with you know like respect to that so if somebody accidentally dusts my account with some

usdm uh is Gary Gensler gonna show up at my house and you try to arrest me like how does it work when there are some uh this is probably not something that you can answer or even talk about but it just strikes me that um the more people who see people outside of the U.S the more Americans who see people outside of the S owning these products and the more American citizens realize that they are like on a list on a website with Iran and North Korea and America that can't access these products hopefully the more uh we react and change the laws that that we have and so I'm excited about that test too because there is nothing of course at the protocol level that

would prohibit an eth address no matter where it is from actually having usdm inside of its account so it's going to be an interesting test from that perspective too and I'm sure you can't comment on how all of this will unfold but um I'm excited about that yeah I think we're going to test on the regas the test that you're referring to is substantial U.S market interest we're going to test the substantial portion and that and that's where that that's that's where it's gonna fall down and our work is to make sure the substantial is still in check well I'm assuming the model would be grow as fast as possible get as much like Tu tvl AUM as possible and then start lobbying just Lobby get get the red guest changes I I remember history yeah exactly there's so many laws out

there that are just asynchronous with how crypto works that eventually in the fullness of time will have to be walked back but whether it's two years or 20 years is really the big the big difference yeah I don't think it's going to be us loving I think the the the us is going to look at the rest of the world and say we are the exception uh the Switzerland was first Bermuda Japan Korea Singapore now the UK everyone is passing laws making this product something that you can actually do and all of those Regulators are uncomfortable around the compliance perspective around the soundness of the product so I think I think the U.S will wake up I I don't know if it's uh some challenge in China doing it and a threatened uh like a threat coming to the us or if it's something different

but I think that will change because the U.S is the one that's uh the odd the odd get out yeah no I agree I I think that is the big uh Force for for change one last thing we haven't touched here Martin I I think we're uh we'll maybe close with with this question um so we haven't talked about Central Bank digital currency yet which is interesting so one maybe uh if this puts kind of like the US regulatory apparatus in you know in track and shows how outdated its its laws are okay one counter to that that the U.S might take is actually to deploy some sort of Central Bank digital currency that has what you're talking about it has kind of the narrow Bank type function where

actual citizens can create an account at the fed and they get access to this yield bearing instrument it right and it's kind of in its tokenized form I don't know the full manifestation of a national uh tokenized erc20 except it may not be an erc20 I don't know if it'll be on a private blockchain or what but this is the idea of a central bank digital currency and you could see from a I guess a country's monetary uh policy perspective it might be kind of nice to have the dials of this and like directly to you could even get to I've seen monetary policy papers talking about like negative interest rates in some uh you know different economic climates where you're actually like taking from uh you know citizens digital dollars right so you have this happen in Europe

okay right it happened in Europe but indirectly but this could you could just cut out the banks entirely I guess and you know the biggest bank in the world could do that the Central Bank how do you think this all plays out do you think that some countries in the US or other countries might decide to LeapFrog what uh what crypto's attempting to do with a tokenized t-bill and roll out its own you know Central Bank digital currency that also has a yield instrument and a t-bill attached to it this is already happening in Brazil Brazil is designing an evm uh deployed token which is going to be their Central Bank digital currency so we we see this already happening uh in other parts of the world the challenge is if you do this you're doing a death blow to your

whole banking system who's gonna bank at a Regional Bank if you have the risk of that falling they're paying you zero percent and the FED is zero risk and they're paying you the same risk-free rate so I think getting from where we are to that in the US is going to be very very very challenging um I I don't I don't see it happening at least uh with the with the with the way the world works today like what do you do with all the banks what do you do with loans who gives loans there are so many open questions that I don't think that could go through Congress and actually pass through so this would be the equivalent of like cannibalizing the entire U.S banking system and they're not ready to take that step um but you think that tokenized t-bills as a kind of stable coin instruments in crypto can work because the US actually

is incented to find net new buyers of treasuries and so while they might not like aspects of it cannibalizing the US banking industry so long as it's outside of the U.S primarily they may kind of turn to Blind Eye to it because they actually like this property of new treasury demand and that's how we sort of thread this needle with uh with the sleeping giant here and it's the best of both worlds you don't have to kill your banking system you work as it is today and you're finding net new buyers of treasuries and you're exporting the US dollar offshore I think that the current equilibrium is pretty good for the for the establishment wow well this is going to be an exciting time and so all of these projects including yours are are launching imminently it seems like so so there's a couple that have launched

we're launching imminently there's others in the pipeline so it's gonna be uh lsd5 I think was the narrative on the first half of the year I think this is becoming the big narrative for the second half of the year and I think this will bring hopefully the next Bull Run because all this new demanding crypto will start in stable coins but then who knows where where that money goes next right this is a take that I think Jim Bianco gave us and I think both renai and Ryan and I just readily accepted it which is that crypto prices Bitcoin ether pick your favorite blue trip asset will cannot and will not go up until on-chain liquidity goes up stable coins and if this brings liquidity into uniswap into our layer twos into all the the splattering of layer ones that is bullish that's bullish

and you're about to bring a lot no buyers so yeah well it makes sense last um last bull cycle I think our uh the risk-free rate uh the t-bill rate was something like I don't know one percent you know two percent right and this time it's fine it was 0.25 so it was oh my God technically 0.25 it was that way yeah the risk rate in Europe was negative so uh this is the first time since cryptos was born that we're actually seeing non-zero rates except for a very short period uh right before the the pandemic so it is it is the first time we see this and rates are probably gonna stay high for for for a good time so this is gonna play out nicely rates are going to stay high because the time of Fiat is drawing to a close and I

actually think that the business model for on-chain treasuries is also an indication of the the long-term close of the Fiat era because right you have to charge interest rates to in like induce demand blah blah blah is that an acceptable take Martin yeah I don't know if the Fiat cycle is to an end um long time multiple decades very very long term I think governments are going to issue their own stable coins on chain right so Argentina is going to issue argentum on chain uh right now there's conversations about Dollar Rising in Argentina so taking out the central bank because we clearly don't know how to handle a currency and using the dollar I think it's insane but like inflation Argentina is over 100 so it is like it is it is

super tough now instead of going to the Dollar can you go to your own erc20 with a cap Supply or with a fixed emission right like uh and automate that Central Bank and some countries where the central bank is not credible I think that's where it's going to start well very cool uh Martin thanks for explaining this to us I'm sure we'll do much more on the kind of the tokenized t-bill uh narrative as projects get built out and uh your specific instrument is Mountain protocol is what you're calling it and uh correct usdm and of course if you are a U.S resident and uh listener you live in a financial prison so you cannot purchase this asset anywhere apparently you can go to high yield checking accounts stuck in that 0.15 uh yield account in

your Wells Fargo sorry guys but um very cool Martin this has been a lot of fun thanks for taking us on the tour today thank you guys bankless Nation will include a link to the show notes we've referenced it an article that Martin wrote called staplecoins or crypto's hidden money printers goes through the business model of usdc it's a it's a great read gotta remind you of course none of this has been Financial advice crypto is risky you could lose what you put in but we are headed west this is Frontier it's not for everyone but we're glad you're with us on the bankless journey thanks a lot foreign [Music]