Why It Sounds Like the Pope Is Into Bitcoin's Decentralization and CROPS

Transcript

Hey everyone, welcome to Bits and Bips, where we explore how crypto and macro collide one basis point at a time. We're here to discuss the latest stories in the worlds of crypto and macro, and today I think we have an excellent guest for that. But, before we begin, a quick word from one of our sponsors. If you've been loving Bits and Bips, [music] don't forget that the show is transitioning to its own feeds on X, YouTube, and your favorite podcast player. If you're not already [music] subscribed to Bits and Bips on its own channels, go there now and hit that subscribe button so you can keep up with our twice weekly [music] live streams and macro meets crypto breakdowns. Bits and Bips will only be on the Unchained feed for a few more weeks, so subscribe [music] today to be ready for launch.

You can get all the links at unchainedcrypto.com/bitsandbips. So, as always, I'm your host Austin Campbell, high scholar of Zero Knowledge Group, uh here with my co-host today, uh Chris Perkins, the golden hand of 250 Digital Asset Management. To the best of our knowledge, Rom is currently somewhere in a black site being interrogated for his negative comments about ChatGPT, but he should be back next week. Uh so, today's guest, who I'm very excited about, is Arjun Sethi of Payward, aka Kraken.

And for our first segment based on that, Arjun, we wanted to talk a little bit with you about Kraken, your M&A, and the overall push for the platform. So, let me frame some of what we've been seeing, and then we can talk about it. One, there's been a significant amount of M&A. There was Reap, there was Bitnomial, there was Magna, there's NinjaTrader, and there's Small Exchange. That is adding a significant amount to the platform. We've got X Stocks launching, um and with Bitnomial, I think you were the only crypto-native CFTC trifecta now, right? Like an FCM, DCM, DCO.

And then from a platform perspective Fed master account, which I believe was granted to your Wyoming entity, but correct me if I'm wrong. Um That's right. >> a NASDAQ partnership. And your overall platform now has become one of the more complete ones in crypto. We've seen valuation moving up and down as a result of this, allegedly 20 billion, though you don't have to comment on that. And an IPO coming, but what I wanted to start with here is this is roughly 2.75 billion on M&A over 12 months. If you had to do all of this over again, which acquisition would you defend the most? Like which one was most

strategically important for Kraken? Um Well, I won't answer that question directly immediately. >> [clears throat] >> I'll I'll start I'll start off with the basics. So So Payward Um I I think the the way to think about at least how we view the world and what we're trying to build is like while we've done the string of um acquisition, it's a deliberate stack. So the [clears throat] Bitnomial is the only crypto native CFTC trifecta, as you mentioned. So, exchange, clearing house, brokerage. Um and if you just take a look at that company and also what we've done in any market, we've essentially had a decade plus of regulatory work

absorbed into now this one transaction. Then Reap, as you mentioned is a stablecoin payment and card issuance layer. So, for the regions that are actually growing um in uh a lot of these emerging markets, so Asia, Latin America. Um Reap for instance, they tripled their revenue in 2025. Uh it's pretty, you know, it it's kind of unimaginable when you think about what's happening in the in the developed markets. Then NinjaTrader gives us the active trader distribution surface. Small exchange, um which is another one that we did. Small account derivatives wedge. Then Magna, we did token management X stocks. We did that through an acquisition, um, of a company called backed, but we also

had done a a joint venture with them to get this up and running. And that one over the last 8 months has been roughly around, you know, 25 billion in transaction volume. To be clear, we don't think like that's success, we just think that's the beginning. And so if you put those together, uh, the right way to read Payword in 2026 and beyond is not, "Hey, you're just a bigger crypto exchange." This is how we think about building our view of what the world's going to look like as an operating system that's 24/7 global capital market spot derivatives, payments custody uh tokenized equities, uh, federal settlement, all under one, uh, jurisdictional licensing stack.

Um, as well as a global stack, um, for for just one user and and beyond. That's very different, I would say, structurally than what a lot of people have been used to from other crypto companies. Where Coinbase is, you know, uh, great company, but they're fundamentally institutional first, um, and retail first, um, US domestic. And then Robinhood is, you know, in my opinion, just a retail broker with crypto bolted on. And so, while they're great companies, no one has really focused on what I say the foundational layer of assembling, um, you know, what like the market hasn't seen yet. And so the market hasn't repriced these types of things cuz they just haven't seen it. All right. So let me start by drilling in on something you said there that I think is

going to be interesting for a lot of this audience because they're probably somewhat US centric. You said REAP is tripling revenue year over year and that is mostly focused on, I would imagine, emerging market cards, not like US card distribution. What are you seeing there? Like what are the trends? Why are people using things in that space and what is driving that growth for people who are unfamiliar? Yeah, you know, I I think it comes down to basics and we kind of forget about it, which is you don't have access, right? So, if you think about where your assets may lie and how do you be able to get access to them and get access to capital and then to be able to borrow from them.

A lot of the biggest markets where we've seen even stablecoin adoption, which is what we talk about a lot, but people forget where they actually exist is um, you know, you you think about and it's similar By the way, this is similar to X stocks, which is start thinking about like the trader in Lagos or someone who's in Buenos Aires or Manila or Karachi. Like the list goes on. This is the same for like, you know, Southeast Asia Vietnam Cambodia um, where Reap a lot of their distribution and flow comes from these markets. And so, when you're a small to medium business, if you're a company, if you're even a new fintech that needs access to um, access to, you know, card issuance, who are your choices? You don't have 50.

Um, you've got like maybe three. And so, Reap was one of those and and they've been scaling up. Again, I've also been profitable since day one. Their story is very much in line with the way in which we built our company, which is bit by bit um uh, and and, you know, and mile by mile just getting a larger and larger. And and I think, you know, at least the Western markets are Western investors have a tendency kind of to miss actually what's happening outside of our borders in places like, you know, Latin America, Africa, and Southeast Asia. And those are the places where DeFi, stablecoins, X stocks are are growing the fastest. Um, if if you look at it from a pure access and distribution standpoint.

So, we've talked about that a little bit in the past with regard to the distribution of US dollar stablecoins as well, but it's interesting to hear about the overlap now hitting, call it, traditional payments markets through the stablecoin factor with Reap. I want to go to another thing we've talked about a decent amount, which is, call it, tokenization of assets overall. Um, so, you've said in the past that tokenized equities won't quote open the floodgates for institutions, but you're also very optimistic about X stocks. So, I wanted to ask you, who are you seeing as the target audience there? Is it the same people currently using REAP? Like, what is the distribution play?

So, I I think the I I think the So, let's just take um on-chain equities and hyperliquid. That's probably a a good sort of segue. I think the two markets to watch are not what people think. You know, um spot tokenized equity is about what? 1.7 billion in wrappers. Um and I think they're growing at like, you know, 13.6x. Um you know, a lot of people have have spoken about this. You look at hyperliquid. Um You know, the open interest is already at like two and a half bill. Um and they're continuing to grow. Then, you've got tradex XYZ.

And I think they had done like 22 billion in volume, right? And I think this is something that um you guys have mentioned, other people have mentioned. And so, the And And where is this volume? Tesla, Nvidia, Apple, Amazon. I think one thing to note is that there's two separate um parts of the market. There's what I'd call a shadow stock exchange operating on permissionless rails. So, that's, you know, what what I just mentioned with, you know, hyperliquid. But I But I But I think it tells you that the actual demand isn't necessarily the custody of the underlying. It's do I have access? Can I get exposure? Can I get leverage to it to single name US equities from anywhere in the world?

Now, you take that to a more extreme, even the spot tokenized um equity layer, this is a real product for a real user, and more and more use cases have to be built on top of that. And so, the I would think the the volume signal is more that it has just started, and then the killer use case for now has been perps. Um and people want to hold these assets. So, for example, even for us, tokenized equities, the way X stocks works is not just on, you know, the Kraken platform or on our unified rails. It works with Bybit, it works on Tron, it works with BNB.

Um it works on Solana, even with decentralized exchanges outside the United States. And I think what's really important is that um where are where are where are all these demands happening? And they're again all in these emerging markets, very similar to stable coins. And And again, what do they want to be able to do? They want to be able to They want to be able to invest in it, they want to be able to store it, they want to be able to get yield on it, they want to be able to have access to capital from those assets, just like we are used to here in the United States, um or any other um developed markets. And And that's the way to sort of think about where this demand is. So, it's not um institutional first. It's always been And I think this is the part where

crypto kind of forget like the the thesis of why we started this is that access and demand are are are are the biggest issue in a lot of these markets. And so, that that's where we're seeing the largest growth, and I think we'll continue to see that. And at a certain point, it eclipses and moves at a faster pace, rather than linear, because adoption in and multiple fintech and multiple platforms and multiple infrastructure supports um you know, a a style of the underlying. We're hoping that's us, um in the way we built our approach. But that that's the way to sort of I would say frame what you're seeing worldwide.

Arjun, uh derivatives to me seem so much more interesting than spot. Um generally, the volumes are much more significant, the profitability is much more profound, you don't have to deal with custody, it's synthetic in many cases. Now, you just bought Bitnomial, you have that entire ecosystem, which is really interesting, onshore regulated. You have the offshore solution as well, and we And then you've got Hype out there uh doing the DeFi thing. Can Can you talk through how you think liquidity evolves? >> [snorts] >> Does it stay in like the Hypes of the world? Does it stay offshore? Or do you think 5 years from now, you know, you guys are just monsters on shore with with US regulated liquidity.

Look, I think if you look at a worldwide volume, right? It's derivatives and perps. I mean, that's that's what drives, you know, what what is it now? Like 95 to 98% of all volume. Um and and the reason why it happened, and you guys know this again as just as much as I do, is um it's permissionless. You got it's it's at people have access and and it doesn't really matter if there's underlying or synthetic. It's The point is that um it's a demand for a product. And once you have demand for a product, then you can look at the stack and say, "Okay, great. Well, what are the things that we need to to build on top of it um or underneath it in the in many cases, right?" And so, you're you're seeing people talk about like so, for example, we started with X

stocks offshore, and then uh we've been in the process of building it um onshore. But what's more important is we already have it in Europe, and you see rest of world demand. Um again, I'm going back to demand. The the US pathway today that people talk about is, you know, DTCC rails, meeting issuer consent under whatever the SEC ultimate ultimately will bless. I I definitely think that's a slower path, but it's probably the right one for institutional. And And the reason I'm mentioning this is that when you think about volume and large amounts of capital moving, it usually happens from what I call mid-market institutional players. What you're starting to see now is that you see a lot of that type of volume also happening rest of world with, you know, um

synthetic or perps or uh non-underlying uh you know, uh different um dura- duration um or or or maturation in some cases. And so, you know, I I I'm not sure what will happen over time. If If you believe, you know, Africa, Latin America, and Asia are some of the strongest markets, I would actually presume that they might be greater than or equal to what we think about institutional flow and derivatives may look like, you know, in the United States. So, yes, we're building out these products for ourselves and our and our uh customers in the United States, but we're also building these products outside the United States for those jurisdictions cuz we know those are also growing markets and in some cases they may eclipse what you see in the US in terms

of volume. Hey Arjan. Uh sorry about the progress you guys have done at Kraken. I've been a shareholder since last summer before your funding round. So I'm biased here. Full disclosure. Yeah. Good good good disclosure. I didn't know you were at the 12 billion valuation. So I love that Citadel got in 2 months after You got in at the 12 billion valuation. So I love that Citadel got in 2 months after It's when you can front run Citadel gives you special kind of satisfaction that you can tell three people about that might appreciate it. Uh they front run me on all the rest of the trades, so it's probably a wash at that point.

Question for you. If you're to fast forward 3 years and look back in time and say what drove success for Kraken? Like clearly you've got a number of offerings, your focus international. You've got exposure to NinjaTrader, which I I love that acquisition. Um stable coin. What's going to be the number one driver where you stand today, right? It was it the bet on international? Was it the bet on the on the active trader and the that maniacal customer focus? Was it stable coin margin? What was What will be the number one driver of growth?

Look, I you know, we um I feel like I've said this many times and I try to be as transparent as possible even externally. There's two sides of what I say any financial services business. Uh there's one side which is um you know, what are your products that drive volume? And then what's your take rate on top of that, okay? And so we can talk about spot margin futures, perps, etc. Then there's another side of the house which I think a lot of people forget about especially in crypto is your assets on platform, your assets under custody, and then what are the types of yields that you can provide to your customers. Now when you think about the permissionless world of what you can do, right? We think about, you know, earning more yield on your DeFi, your stablecoins fiat etc.

Um, when you've got the full financial stack that and the regulatory stack that I mentioned before, the question you got to have to ask yourself is, "Okay, what are all the products that you want to be able to offer your customers?" And then how do you move up and down the stack um on what we call AOP, sort of assets on platform, right? So, there's consumer retail that which is a approach that some people take. Um, then there is what I'd call professional traders, which is what we that that's how, you know, Kraken and that and Payward was born. And then you've got the institutional side. But again, what's more important is that once you've got um the tokenization of any asset on one rail system, people want to do risk management, they want to borrow against it, they want to be able to hedge. There there there there's just so

many different interactions that they want to have. And so part of having the volume side of the house being supported by AOP and vice versa is that um they feed into each other. So, we need to think about growth longer term. Is all of these markets that we just mentioned that are um are merging, they care more about um AOP in the long run than they care about um volume. Cuz volume is already a part of their blood, but it's more, "Okay, well, where do I Where do I store those assets? How do I get extra yield on those assets? And then how do I pull those assets for whatever activity I want?" And so, you know, as as ridiculous as this might sound is that, you know, crypto rails, liquidity, movement of capital, um a lot of this just compresses, you know,

intermediaries down to zero in many cases, is how do we provide these products and services to those customers? And so, a lot of what we're building are banking and financial services products. And so, you'll see do us do more and more of that. So, the reason why we elevated the Payward brand, which is we were always Payward, but Kraken was um one of our products um our star product. And now it's Ninja Trader. And now Xapo's becoming larger um as our our Payward infrastructure and rails um is actually going to elevate to a, you know, different uh, products that we're going to start offering. So, you will see Payward asset management, you will see Payward banking, um, as a part of that, um, as a part of that push. So, so you talk about AOP, assets on platform. Obviously, we just went through a pretty brutal battle in DC.

Coinbase was very outspoken around what they wanted vis-a-vis stablecoin yield. The banks were on the other side. How do you think about that, you know, and as that, you know, assuming that this we move forward with that bill, is that going to help you, hurt you? Do you have a view on, you know, your your your quest for AOP in the context of clarity? So, so I think one thing that's important to note is we, um, what's great about crypto is it's global. So, we started off global day one. So, Europe, >> [clears throat] >> UK, um, you know, we say rest of world, but what's important, you know, Brazil, Mexico, um, South Africa, uh, now we have our VARA license, so UAE plus those markets, um, Southeast Asia, um, and you

know, India will be a part of the the push as well. You look at all of these markets, um, and the speed at which they're growing. They all have different rules and regulations. In some cases, they've already uh, moved forward. So, obviously, in Europe, you've got MiCA, um, but Australia, Canada had to sort of the, what I'd say, the the same focus and and and similar outcomes to where we might land here in the United States. Uh, and some people are watching the United States. Is [clears throat] yes, the banks in the US have always been, um, what I'd say, have monopolized a very specific set of products, and they've always wanted to protect yield. Um, now, I'm not saying that's good or bad, and I'm I'm not going to make an argument on if it's good for the financial ecosystem or leverage or debt or deposits in the

United States. But, what I think is more important is outside the United States, there's been a lot of fintech applications and fintech companies that have gotten and scaled very large. Um, Nubank is a great, um, example. There's a company that I co-founded called Capital, we're the 10th largest bank in Mexico. And and then you take a look at Africa, you you do the same thing um, in Southeast Asia, China, etc. The list goes on. What has made them innovative to be able to grow at at speed while still having banking products is that they're allowed to build software, they're allowed to innovate, and they're allowed to go into other markets where they can cross um I would say cross-collateralize products. They can just build other value-added services for their customers, including payments.

When I think about crypto, it's kind of very similar here, which is do we want to take deposits? The answer is yes. Will we become a bank in some of these markets? The answer The answer is yes. Will we do it in the United States? The answer is no, but we did have the SPDI in Wyoming to be able to do custody. Um and so I think in each market um the regulatory stack is going to be different depending on what you want to be able to serve to your customers. Um and so, you know, I don't think it's a secret, but like the strategy is we will be, you know, giving banking and financial um bank products. We will probably be a bank in some of these other markets because we have to. Um while we have our uh money license, while we have our

capital markets licenses depending on, you know, securities or commodities to depending on each jurisdiction. And and I think that's that's going to be natural. You're going to see convergence on both sides. We can do that outside the United States because uh the rules and the regulatory posture allow us to do so. All right. So, let me hop in here and say this sounds like a pretty interesting global strategy. You're putting together both a product stack in terms of what you can offer, a regulatory stack, and distributing across the globe. So, one thing I like to ask people who are running these companies is if it goes wrong, where does it go wrong?

Like, what keeps you up at night as you think about these things? And where, if anything, do you see problems in this space? Yeah, I mean, that this is an easy one cuz we've seen this for, you know, 50 years is risk management, right? Leverage. When you when you hide leverage in the system and it's not transparent, It's hard to risk manage and then you don't actually know where the risk or the underlying risks lie. Or we we've been like really purposeful around how we think about uh lending, margin, access to capital where it is, which is why we have, you know, fully collateralized programs. We know where the assets are at any given time and and for us, you know, uh if there's a deleveraging event, you know exactly what to do. We've been doing this for 15 plus years. Um and we, you know, our

loss ratios are essentially near zero. There's a reason for that. Um it's, you know, unified risk engines, unified systems, unified collateral, and then moving into that capital. I think this is where a lot of people forget that, um you know, just because you have a, you know, uh 20x leverage in a product um with like, you know, hyper liquid uh that doesn't mean it's right or wrong. It just means like that there's a certain amount of risk um in these types of products. And and and I don't think regu- regulators um have the the the aspect of having regulators and policy and government or even central banks involved in some cases is like, well, how do we educate them on products? How do we educate them on leverage? But how do we educate them on making sure that as we're building out the stack, especially maybe we can do it

right this time versus what you see in TradFi. In TradFi, you don't know leverage upon leverage upon leverage upon leverage and what that actually looks like, right? Cuz the definition of equity just means that someone is putting a certain amount of capital into something and you put leverage on that, but that equity might have a leverage behind it as well and that just continues to compound. And that And that's something that I think crypto can help. Not necessarily fix, but bring a lot more transparency into and so when people talk about privacy, I kind of roll my eyes, which is like, well, uh do you really want privacy in the leverage world? And I think the answer is no. All right. So, speaking of privacy and complexity, let's move on to what's been going on with the SEC cuz this is probably directly relevant for X stocks as well,

which is there was a report out, I think originally from Scott Patterson at Bloomberg um that the SEC would be pushing forward with an innovation exemption. And then, a day or two later, it came back that the SEC has paused its innovation exemption. Um allegedly after pushback from a number of different parties, including some TradFi groups, Citadel, SIFMA, JP Morgan, some legal and policy people asking questions as well. It seems like the sticking points were the following. One, a draft provision that would have allowed third-party synthetic tokens, aka wrappers, without the consent of the underlying company.

And two, some questions that quite frankly were unanswered about the exact form factor on chain. And as a result of that, how you think about some of your obligations within the 40 Act and within the Bank Secrecy Act. So, the market didn't like this. Uh BTC declined slightly. Ondo was down 6%. But I want to quote Commissioner Peirce here saying, "I appreciate the interest in, but not the hyperbole about, the contemplated innovation exemption. It would be limited in scope and would facilitate trading only of digital representations of the same underlying equity security that an investor could purchase in secondary markets today, not synthetics."

And she said, "The January statement distinguishes tokenized versions of issuer-sponsored stocks from synthetic instruments that provide exposure to stock." Now, people have come down both ways on this, right? There are some from Citadel, uh there are some from SIFMA claiming this will fragment markets, that DeFi is an exchange, etc., etc. There are also those who are, call it, more bullish on this. What I want to do is that and actually, Chris, I would like to start with you given your markets background on this one. What do you make of what the SEC is saying here? And why is this so hard for them? Like, why are they grinding on it to get it right? It's tricky. Um, you know, what DeFi does is it really

questions the entirety of uh market structure in the United States, which is predicated on things like Reg NMS. Um, and the NBBO, which is the national best bid and offer, national market standard. So, essentially, when you execute an equity, it gets routed to the best price. Um, and then there's usually something called PFOF, all these acronyms, I apologize, payment for order flow, where someone intersects it on its way to get the best price, and that's how the markets work. And the fact is is that, you know, some of these companies have spent uh hundreds of millions, billions of dollars to really own that market structure.

And so, when you're an incumbent, um, and rules come around that can disrupt you, you probably don't like it. Uh, uh, you know, I grew up with a lot of these guys, and I remember sitting down with one of them at lunch, and I'm like, "Dude, like, why are you so against, um, you know, Clery Act blah blah blah whatever?" And his response was, "Bro, um, do whatever you want with your silly little tokens, but don't mess with my equities, or we're going to have a problem." Um, but but yeah, this is completely underwriting. And so, if you're the if you're the SEC, look, Chairman Atkins has made it very clear. I mean, he, um, from a philosophical perspective, he gets it.

He sees the gaps in market structure. He wants to make IPOs great again. He talks about that constantly. The truth is is that our public markets um are broken. And and when 80% of companies over 100 million dollars in the United States are private, probably something going wrong when your IPO becomes exit liquidity, uh rather than real capital formation. And um so, anyway, I I I think he's very focused on fixing this market structure. Um, we also have a ton of politics going on right now around clarity. There's a ton of horse trading.

And I just think it's going to be, you know, things get weird towards the end. Um you just can't wake up and change a market structure that's kind of working. You know, we do have the best capital markets in the world and introduce any kind of like systemic risk. You know, that that's that's that's always the concern. Uh and then look, our our DeFi markets are they ready? Uh you know, we continue to have some challenges in DeFi. If you look at DeFi stats right now, Frank Chaparro uh just tweeted out how DeFi TVL's down 50% since October. And so, you know, those are some of the things that I'm thinking about. Is it ready from a risk perspective? And I think those are some of the things that the SEC's thinking about.

I think all the problems that we've seen in DeFi are solvable. Um security is one thing. We've got great AI tools coming online. Um and then there's other risk management issues that need to get sorted as well. Um but it's not something it's complex. I think it gets done. Um usually regulators dip their toe in the pool first. But uh we'll see what happens. What do you guys think? Yeah, you know, >> [clears throat] >> I I don't think the pause as a tokenization defeat. I think of it as a uh like a corporate plumbing prob- problem.

It's probably like my my perspective. And so, I think what you've seen is that the proposal has been getting hung up on like specific provisions, right? Which is >> [snorts] >> what what would have a permitted third party synthetic token wrappers issued without any underlying company's consent. What does that look like? What What happens with dividends, voting, beneficial ownership, um transfers, etc. Um those are all kind of unresolved. And I think if you if you look at um like Hester Peirce's like she she basically has drawn the line at issuer-led and issuer-consented tokens, which I which I think actually is the right line. Um if I look at it just from like a um you know, you know, pure um, first

principles perspective. And so then, you know, when you think about, "Okay, well, what is the SEC's job?" It is investor protection. And that protection does require some of the economic rights. And I think we we all kind of forget about those pieces as like a starting point. So to Chris's point around dipping their toes, which is, "Okay, great. Well, what is the first step?" And I And I think maybe the catalyst we should be watching isn't like a new SEC rule. It might be, "What's the first major American company that decides to issue natively on chain?" Um, and I'm not saying that's the right or wrong approach, which is like, "Who might do that?" Um, it may not happen.

Right? Cuz [clears throat] we have a we have an approach with the X stocks as well that's different. And so the And then you know, and as we know, DTCC, like they they have a pilot for what I I forgot what it was. I think, um, the Russell 1000 equities. Um, I think they're some doing some stuff with treasuries. BlackRock, Goldman, JP Morgan, Circle, Ondo, Ripple, blah blah blah. Um, but I think there's there's a much bigger structural factor than that headline delay, which is that the rails are already being laid, right, on both sides, regardless. And I don't [clears throat] think that door closes again. I think it just continues to augment. The other aspect Yeah, sorry, go ahead.

>> Oh, sorry. No, no, go ahead. I I thought you were done. I have a question for you. Yeah, the other aspect that I think is really important is that if you just look at the meeting logs, like Citadel, Sifma, JP Morgan, they're the ones that really pushed back the hardest in like January meetings with the SEC's crypto track task force. I think that's a tell. Um, Citadel obviously runs the biggest off uh, exchange market maker book on Wall Street. We we know this. Um, and then tokenized equities trading 24/7 on permissionless rails, we know directly threatens, um, the payment for order flow, the PFOF, um, uh, economics.

So part of what's getting framed here is what I what I would, um, reckon as regulatory caution, is actually also to say, "Hey, well, this is what market structure actually looks like in the United States." And the peoples whose toll booths get bypassed are showing up at the SEC to argue for slower rules. By the way, I don't think that's wrong because it like market structure has to evolve. It can't like be disrupted immediately. And so I so I don't think that's wrong in the merits. Um I think it's more of on hey, okay, well what are the issues with NBBO calculation as you'd mentioned Chris, shadow shorting, etc. Um so I mean we could go on forever, but I think the with the way to think about it is the crypto native counter is that we have 24/7 markets. We already have continuous settlement.

Um and that should be what we push for moving forward. You said something interesting that I wanted to to unpack a little bit. So there's really three ways to go public in this country. One is via traditional IPO where you work with bankers, they set the price, it's intermediated, they give a bunch out to their best buddies. They also maybe are giving larger tranches to retail now. Very uh well-trod the traditional way of going public. You could technically go public via a SPAC. But then there's this direct listing thing. [clears throat] And I've always been of the mind that in crypto I would expect to see more direct listings and direct listings to take over. And that's really where the market sets the price.

Um and you can you can actually raise new capital now. There's been some rule changes to do so. Do you share my thesis? Do do do you think that direct listings and Coinbase had a famous direct listing? That that crypto people crypto companies are going to be more keen to go that route. I don't think we've seen a lot of it yet. Uh but but do you think that that is part and parcel to um this new on-chain way of going public? You know, if you the there's been a there's been this argument that you get um the best price discovery with um direct listings or forms of it. I'm forgetting the company that just went public um a couple weeks ago where they made that argument and you just saw the price pop. And so I I don't I I know if

that's true, right? In terms of like the price discovery, but I think the question ends up being >> [clears throat] >> what does what does crypto rails, crypto exchanges allow you to do? And and the direct listing I let's just say actually the direct listings first principle um I think what you're trying to get at um I'm trying to try to mold this in with Wall Street is that you've got like a natural fit for crypto because the conditions Wall Street built underwriting to solve price discovery, distribution, building an investor book, etc. Doesn't really exist for um crypto companies um or even like crypto protocols in many cases.

And so a lot of crypto companies worldwide um are they build a brand with a global base. And so the the posture might be that like hey you don't need these underwriting fees, you don't need the um you don't need the the you don't you don't you don't need the global perception because it's already underlying there. Um I think maybe the um the pathway to think is if you've got a 20 and and I might be going on a different different rabbit hole but if you've got 24/7 uh trading, instant settlement, no intermediary capturing the spread, what does it allow you to do to go public as any entity um including a company on these global rails in DeFi or in CeFi?

And does that give you the better ability to be able to get access to capital? We've seen that with ICOs. And in some cases um you know, you've seen billions of dollars being able to get raised in you know, seconds and minutes. And so what happens if you've got a company in Brazil that wants to go public with you know, 50 million revenue? Do they have a better ability to go public on our rails? Um or DeFi rails versus you know, traditional NYSE or Nasdaq. And and I think the future and maybe people already know this they don't want to say it is the future is it makes much more sense to be able to get um go public and get access to capital on 24/7 rails that which is very similar to direct listings. And what is the ecosystem like it's built on top of that in order to be

able to raise that or get uh price discovery and distribution of what an investor book would look like on those rails. I mean this Yeah, global, too. This is almost more an argument about Sarbanes-Oxley in that sense and the incredible burdens that you face going public through like intermediated markets because Chris, you were saying earlier and this is true that the super majority of companies that about 100 million plus are still private markets right now, whereas that was very much not the case in the '90s if you look at the number of IPOs in the original tech boom. So, Arjun, if you're right that this could become a tool for those sorts of companies to go public with a more direct listing process, that would actually go a decent way towards, let's call it, democratizing what currently

exists in private markets, but I want to actually pause and say I thought you brought up something really interesting with your commentary on this being like a financial plumbing argument. So, let me add a Y axis to your X axis there. I also view this to some extent as a regulatory plumbing argument, right? Because as somebody who operates globally, most jurisdictions helpfully have one, maybe at best two regulators that you've got to sort things out with, and here we have like eight. And one of the things that I've noticed has been very difficult as the SEC has started chewing on these issues is some of the commentary coming in less from the broker-dealer community and more from like the banking community and the BSA

side because I know one of the objections that was raised about the innovation exemption was, "Hold on, if there's people on chain, I don't know who they are and I've got to pay a dividend, I literally can't do that." Right? Like I'm prohibited from doing so because I have sanctions problems there. So, is some of this also being creative, just to be honest, from the fragmentation of US regulators and them not being able to like sail their ships together is something I'm worried about? Maybe that's where clarity would be helpful. Curious what you guys think.

I don't know if Chris you want to take that first. I've got a lot of thoughts on that one, so. No, you go, man. I was I was just looking up some stats that I that I used to have that I want to share after you go. Look, I think um sometimes the simplest answer is the true answer is they just don't know, right? Like most most companies don't know how to um operate outside the United States. So, if you're a bank in the United States, you're [clears throat] going to say something about KYC, AML, you're going to be like, I don't know who the customer is. How do I do this distribution? It's because they don't know. And they don't know how to build those products and they don't know how to uh siphon They don't know how to work with let's call it, you know, chain

uh chain analysis and the other vendors that are out there. And so, crypto and global, you know, fintech companies have been figuring this out for a while. Like, we're not the only ones, right? Revolut's been [clears throat] doing this in Europe for a while and they've been adding more and more products. Um I I actually think this just really comes down to do you know how to operate a company across multiple licensing structure, multiple liquidity structures, um and multiple regulators, right? We We deal with regulators on a state-by-state basis in the United States. Then we've got SEC and um CFTC. Now we've got OCC.

>> [clears throat] >> Sure, Department of Banking, Fed, etc. The list goes on. Then you've got the equivalent of that in Canada, in Australia, in Ireland, in UK, um in the member states, in all of Europe. Then you have the same thing in UAE, the same thing in India. And so, the list goes on, right? And I'm And I'm naming some of the recency bias, obviously, from my side because that's what I've had to deal with for the last 2 weeks. Not in a negative way, in a positive way, right? Cuz you're also educating. And then you've got crypto, then you've got AI, then AI, and then you've got stuff, and then you've got um non-custodial, custodial wallets, etc. All of these things, if you're a if you're a bank who's not had to do this for a long time, I would say it's actually very akin to

you know, when the rates went up a few years ago, you didn't know how to do risk management when the rates go up and you had these, you know, long long dated assets [clears throat] and then you had assets and liabilities mismatch. Like all of these things, I think it really just comes down to they're scared of how to think about risk management for their own company and how to innovate on top of that. Yeah, they're definitely not ready for 24/7. That's very, very scary and that's something that we in the native world live every single day. To to me as we're seeing this institutional era, that's the one thing that they're scared about. Uh I mean, I'll give you two examples. Obviously hyper liquid is is sending shockwaves throughout TradFi. I mean, everyone's looking at it right now for price discovery.

Um and then I'll even go back to what really shocked them and and I I talked to a couple of major institutions recently and people don't understand this, but what really scared them more than anything was actually the Trump token launch. Not because they thought it was, you know, you know, whatever ethical or whatever, it's because like, "Oh my god, this dude just raised $15 billion market cap in like on a Saturday night while everyone was at a ball in 25." And that was like >> was a started at 2:00 a.m. right? Right?

Right? And like all these institutions are like, "We've lost." And it had nothing to Forget Trump, forget, you know, everyone you say Trump they get all angry, whatever. That was an incredible incredible uh historical moment for capital formation. I'll challenge that. >> A lot A lot of that was non-US money also. Yeah, yeah, that's fine, Rob. It's still It's still My point is this is a global capital formation moment. All right, but but let's let's So how do you view the old guard Wall Street firms reacting to this? I think kind of the view here is, "Hey, crypto's ahead of the curve, instant settlement, global permissionless."

And look, I I stand for a lot of that, too. Think you got to challenge the status quo. Yeah. >> But the Wall Street also has an inside lane here. They've got distribution. They know what they're doing. BlackRock's all over tokenization. So is the DTCC. So is JP Morgan. So is Citadel. What are the odds that they just take the ball and run with it now that you have more regulatory clarity? I I believe that the crypto is underestimating that possibility. I I don't disagree with that. They bring a level sophistication that crypto natives just don't get.

But I think they think it's a material opportunity. But it's also a humongous threat. And I'll give you an example. I may have talked about this previously. You guys know the history of the the Bund future? Mhm. So the Bund future used to be traded on the LIFFE exchange. A bunch of big sweaty guys in the pits, you know, fighting for bid and offer. And behind the scenes, Eurex built electronification. And like the thing about liquidity, I know you guys been around for a while. Nobody knows how how it forms. It just happens. Like like if if we had a magic formula for liquidity, like none of us would be here because it's magic, right?

But overnight that electronification happened, and liquidity moved into the Bund future right into Eurex, and it stayed there to this day. And you've seen multiple, you know, examples of people trying to like lower prices, whatever. So to me, this is a Bund future moment where people are like, "Oh my god, if I I don't want to be LIFFE in this case. I need to be Eurex, and I'm very, very concerned because this is incredibly disruptive technology." All right. Well, before we argue further about that, and before we run out of time, I am going to take a quick break here to send us to our second ad, and then we'll be back to argue about rules and where things are going.

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Chris Ola, and Leo had a lot of things to say here, not just about AI. We'll get to something else he said as well. But he said, "Artificial intelligence needs to be disarmed, deliberately chosen, uh because this moment needs words capable of attracting attention." He said, "AI is an instrument of domination, exclusion, and death if unrestrained, and that the pursuit of greater profits cannot justify choices that systematically sacrifice jobs because the human person is an end, not a means." There were a couple of other things in here, but I also want to get to some of his greater comments on the financial ecosystem writ large as it impacts this debate, which was, "In

recent years, finance has increased in importance and has undergone significant innovation, driven partly by the introduction of crypto- currencies." That's right, the Pope is talking about crypto. "The reflections and observations contained in the teaching of my predecessors, particularly in their encyclicals, have highlighted how the financial intermediation sector, when operating without the necessary anthropological and moral foundations, has not only produced manifest abuses and injustice, but also demonstrated a capacity to create systemic and worldwide economic risks.

On the other hand, the Pope also said, saving transformed into credit for the real economy, thereby creating both jobs and self-employed work, remains central for the development and the investments that must accompany ongoing transactions. The social function of credit remains irreplaceable. So, there's a lot to unpack, and I put those side by side because the Pope seems to be saying, "I'm not for or against either of these tools. It's a matter of how you use them. But Chris, I want to start with you. I know you had some views here.

What did you make Pope Leo's comments? Well, when the when the big man talks and I and I'll just say that Villanova is having a moment right now uh between the Pope and then then the Knicks. Um >> [snorts] >> but I think it's absolutely fascinating that the the Pope is talking about these technologies and and even crypto. And and the church has had a long storied relationship with technology going back to the Gutenberg Press. Uh in the beginning they thought it was awesome um because all of the uh it was an had gave them the ability to spread their teachings.

But then, you know, the Protestants got a hold of it and they were like, "Wait a second, we need to control this stuff." And so it's just so fascinating to me that this is another iteration of the Catholic Church uh you know, having a relationship with technology. Um and by the way, I don't know if you guys have seen the stats. The uh the Catholic Church is doing very very well amongst young people. Uh I was down at Georgetown recently and I don't think it's um an anomaly like I talked to the kids there and they're like, "Oh yeah, um the church gives me meaning. I lost it in social media and now I'm finding it again." which is just fascinating. So these are part of big macro trends that are happening. Um I think at a very basic level, the fact that the Pope is mentioning crypto is a

net very much positive for the space because talk about distribution. The Pope has massive distribution particularly from a mindshare perspective and a mainstreaming perspective. If this was fringe technology, I don't think the Pope would be talking about it. That goes for AI, too. He's talking about AI and crypto together. Uh how many times have we talked on this show these are technologies that you cannot separate. They go hand in hand. Excellent. I thought it was fascinating that he was critical of intermediaries. And my open question is maybe the guy likes DeFi. Maybe uh Villanova's finest likes DeFi. And and I think there's there's a reason for uh peop- for the Pope to like D5 frankly because it does

democratize access to financial services and credit things that he thinks I think done right are are are thoughtful. But I mean in my mind this is absolutely fascinating. Yeah. I I thought the Pope's comments I thought they were very thoughtful. You know, he was invoking Emmanuel Kant when he said focus on people as ends not as means. He identified AI as a technology of tremendous genius. He said it's a powerful tool. But what he he also said he doesn't want to diminish he doesn't want to diminish the role in of human dignity.

So you sort of think about things like all automated lethality and the rise of drones. You have decision-making that's done by an AI. There's a risk of dehumanization between the distance between one human being and another. Um I think that may be what he's addressing. I thought all those comments um made made a lot of sense. He also highlighted in an earlier speech few months ago around the risks of creating concentrated wealth in and power in the hands of few people through AI which is a legitimate risk. You know, if you control AGI you can spin up businesses divisions on the fly. You can marshal execute resources. Citadel's well positioned to benefit from AI.

If tokens become money and tokens are claims on productive assets and they're going to trade which they will in the future uh you know, there are legitimate concerns around this. So I think he identified the right issues. Uh so I thought it was a you know, it was I thought it was a very well written speech. You know, there's um >> [clears throat] >> I think the crypto philosophical lineage I think is kind of important to think about. You know, there's a and I spend I don't know why I do this but I've been spent spent a lot of time thinking about this. Um you know, like Judeo-Christian philosophies. I think there's a general thread connecting what um, the Pope said and to the entire crypto philosophical project, right? All the

way um, all the way back to the Bitcoin white paper. And I And I don't think it's a stretch, actually. So, if you look at like traditional Catholic social teachings, it has a it has a principle called like subsidiary. Um, sorry, subsidiary. Um, and that idea is that the decision should be made at like the lowest competent level, and it's not centralized to upward. And so, that principle tracks back to like Augustine's City of God, >> [clears throat] >> where the worldly powers always presumed to be corruptible, which is what we're talking about right now. And then, the only stable institutional design is one that resists concentration. So, when he's speaking about concentration, um, this is the same thing if you read the Bitcoin white paper white paper is

that the lens that Satoshi is essentially arguing for is monetary subsidiary subsidiary. Sorry, I always mess that up. And so, it pushes decisions down to the protocol layer, rather than upward to a central authority. And this is what we always talk about, right? Like, what what is the point of why we started this in the first place? Why are we excited to get up? And so, I think when the Pope is framing things in terms of AI, I think it's the same terms, which is how do you resist concentration? How do you protect in this specific case human agency, regardless if you think it's right or wrong? And so, he's kind of drawing on an intellectual tradition that I think um, is also a crypto philosophical um, and and what is it inherits. So, I'm I'm not you know, I wouldn't say it's like a

metaphor or anything, but it is a same philosophical comment expressed in different vocabulary. And we're all thinking about the same thing. So, the political application I think is that a decentralized infrastructure argument now has more of a moral and theological backing for, I don't know, the billion and a half people that like follow Catholic teachings of the global institution, which should show up in EU regulatory debates, should show up here in the United States, it should show up in the global south policy, etc., etc. And hopefully at the next round of how people think about AI and finance legislation. Um or in some cases non-legislation, we just continue to the path. And so I I my hope is that that that is at least his um

his essay or his post or his speeches um gives like a real shift in that type of political coalition and thinking. Um and I think maybe the markets may not price that today even if that is the direction that we go down. I think there are some interesting Austin, you sorry, Austin, you have to quote Aquinas now. We got an Augustinian [laughter] That was thoughtful answer, man. I am and I'm going to go a different direction here. I'm actually going to like pull out another philosophical thread which I found it interesting to read this with WEO being the first American Pope because part of the exact same framing that he's putting there also shows up in some of the political theory around the founding of the American system writ large. Right, which is this idea that concentrated power is inevitably

corrupting in whatever form it is given and that one of the ways to fight that is of course decentralizing it. I will remind everybody the first American government actually had to be redone cuz it was too decentralized to function with the articles of confederation. But two, if you read the Federalist paper, it's or papers, excuse me, it's the idea of having all of the different nodes fighting against each other and working at cross purposes because if we believe in inevitable corruption among these things and that they're fallible sort of creations of man, you put the states against the federal government, you put the federal government against itself with the executive and the legislative and the judicial separation.

It's fascinating to me to see related principles expressed in theological terms because I'm wondering if what we're moving towards here, especially in the world of AI and like fears about AGI and jobs is a greater appreciation of not what I will call anonymous decentralization but call it non-anonymous decentralization. Right? Like actually allowing individual people to get their hands on the decision-making apparatus and be respected in that framework. So, I'm wondering if the Pope is perhaps going to create an alliance of strange bed like bedfellows here as we start seeing these disparate forms of philosophical thought run together because a lot of what I just said market

economists would be all over as well from a competition perspective. Yeah, you know, I think >> [clears throat] >> the I'm getting the actual quote um but like there there's a quote around the separation of powers, federalism, Bill of Rights, etc. Um you can make the argument that it's the same structural separation argument applied to like political power and it traces back again. I mean, this is you know, Catholic Catholic natural law philosophy. And so, you know, when you think about all the folks that wrote this and then and and then eventually you had the American founders. Sure, I mean, you can say you can you might have this perspective that um the American Pope is referring back to this. I I think it's

more important which is um what's the forward implications of when people speak about this and it does anything happen. I don't know if anything will happen but >> [snorts] >> when I think about what we're doing in crypto and then you know, it's we're we think about antitrust, we think about mandated interoperability, we think about neutral utility regulation, we think about ring-fencing. And so, my perspective and and I think actually Trump started this in the United States. So, I should credit should be given to who started it um you know, after the Biden era is just to get the moral cover from more globally um acceptable and credible voices on ethics and decentralization.

Um and then the moment where we think about American antitrust, I think it's is a maybe there's like a political um system that's being rebuilt around that and then AI being the second piece of that. And so then we think and then and we can use the same logic around financial infrastructure, payments network, exchanges, stablecoin issuers, custody, etc., etc. And they all run on a winner-take-all dynamics in the past. Question is the thing what does it look like in the future? Um that's open and neutral. So you guys, are you saying that the Pope is into CROPS? I hope so. I hope so. >> Sorry. I couldn't help it, Austin. It's a sh- I'll throw in another one.

Let me explain what CROPS is. Like that's that's the Ethereum Foundation's doubling down on its philosophy on censorship resistance, open source, and privacy. So I don't know. It just sounded like a CROPS thing. You should just You should just say CROPS. Well, I'll throw in another biblical metaphor. There's this comment Sam Altman made referring to AI as magic intelligence in the sky. And when I first heard that, I said, "Gee, this sounds an awful lot like the Tower of Babel." The Tower of Babel, of course, was the first human centralized platform. It literally was about translation, which is the core use case of AI. It's built towards the heavens and it was about ego over humility.

Um and so I think there's a good message for the Pope. It's like, "Hey, you know, there's it's not a substitute to reify synthetic intelligence above human judgment and intuition." Did you just make an argument for building a single giant AI data center into the sky? I would basically the Tower of Babel is like a stack of GPU chips in this metaphor. Hold Hold on a second. For those like checking the prediction markets, InfiniBand is, you know, the connectivity. Go ahead.

Ram Ram did his, you know, every show bashing Sam Altman. So he got it in, guys. Not a nothing burger. Got it in. So all right. Let me let me push back slightly here and say I find it questionable that the Pope is arguing for complete decentralization, right? Given the nature and structural design of the Catholic Church, just hypothetically speaking. But, I think the greater point, and this is one that actually probably hits the pivot point of the Crops argument, is how much decentralization do you need?

Do you need everybody to be their own sort of source of truth or decentralized, you know, version, aka the Quakers, or do you need a system, if we're going to go in the other direction, where it's okay for there to be some top-down direction, so long as it is not absolute in the sense that denies human dignity, which is something that looks more like, call it, I don't know, a semi-permission chain? That, I think, is an open question, but the interesting thing about the comments to me is less about what specifically is it defining? I think it's very clear from Pope Leo's comments that he's not okay with a system where it's just one or two large companies telling everybody how to think.

aka Pope Leo is not a fan of FedNow. But, he's a fan of Canton, it sounds like you're saying. The Canton guy. So, Canton's not a blockchain. It doesn't belong in the discussion. >> [laughter] >> We'll just We'll just throw a stone there. No, but like, all facetiousness aside, where I think if his comments are received, and Arjan, you made a good point about what what is like the butterfly effect when somebody speaks like this, and I think that was very insightful, is if there's a downstream argument here that moves towards an acceptance of the value of decentralizing decision-making power in more traditional tech and finance, that's probably a net positive for people in the world over time, given

you know some of the abuses we've seen in the centralized system. So I hope that's the outcome and for the record I have absolutely no dog in the fight for the Knicks thing. I'm a long time Spurs fan. So we'll wait to see who's in the finals there Chris. We'll see you there. So we're up against 5:30. Arjun I want to specifically say to you thank you for joining us today. This has been really really insightful and very interesting. So really appreciate you taking the time.

For everybody else as always thanks for joining us on bits and bibs and we'll see you again in a week to unpack the intersection of crypto tradfi and macro. Thank you for watching and hope you enjoyed this episode of bits and bibs. Just remember nothing we say here is investment advice and please check unchainedcrypto.com/bitsandbibs for more disclosures.