Kavita Gupta (2:46)

Sure. Hey everyone. My name is Kavita Gupta. I'm the founder of Delta Blockchain Fund and also incubated a cross chain project Inclusively. I'm actually very excited to talk about when you guys are going to talk about stablecoin because one of the things which we are building at Inclusive is also a stablecoin abstraction amongst so many different chains. All the L ones of stablecoin like the new hyper liquid one, how we don't want liquidity fragmentation issues again there. So let's take it from there. Steven, thank you for having me.

Steve Ehrlich (3:16)

Thanks. Absolutely. And I forgot to mention, all guests on our show have Game of Thrones nicknames. So, Kavita, you are the high seer of the Delta Blockchain Fund.

Kavita Gupta (3:28)

Thank you. A dragon now, Steve, I'm sorry, are you going to give me a dragon?

Steve Ehrlich (3:34)

God, I wish. There's only three of them in the world. I forget how many were left when the show actually ended. But I do have a cat here though, who may show up from time to time. And we have one more guest. He's having a little bit of an issue with his audio right now, but we have Alex Thorne, the Bitcoin Viking of House Galaxy, and hopefully he can get those issues resolved soon because I know we're all excited to hear about what he has to say. And last week on the show, even though I know the two of you weren't on it, one of the big topics was galaxy tokenizing its shares directly onto the Solana blockchain through a partnership with Superstate. And so it's really good to kind of get his thoughts directly from the horse's mouth, so to speak. But let's dive in. I mean, Sam, you kind of alluded to it in your opening remarks, but there seems to be a bidding war going on with relation to probably the most high profile or hottest project in crypto right now, Hyperliquid, and who's going to help create their stable point. So why don't you kind of just set the stage for us what's happening there? And we'd also love to hear again how you guys at FRAX are trying to position yourselves.

Sam Kazemian (4:47)

For sure. Yeah. So just to set the stage for people Just like tuning in basically just out of kind of nowhere for most people. The HyperLiquid foundation and Team kind of came out a few days ago and said we are going to have a competition for who gets the USDH ticker. And like this is kind of colloquially been known as what's going to be the Hyper Liquid stablecoin. Obviously it's just a ticker, right? Like so, so they've said, you know, obviously other Stable coins will exist on, on Hyper Liquid and everything, but it is, you know, de facto the opening kind of salvo of a competition of who gets to participate in issuing, running and distributing the yield, how much, all of these things and to kind of, you know, say how important this is. I think from a high level perspective there's this like two, two ways people think kind of the, the world will go, you know, post Genius and like the stable coinization of everything, right? One is this view that like maybe Tether Circle, you know, these, these big issuers, they'll be like everywhere versus the other view as well. There will be a lot of branded stablecoins, right? Like, like USDH or like Starbucks, USD or whatever, Walmart, all of these things. And so the thing that's really important here is like Hyper Liquid is one of the biggest, you know, ecosystems in the entire crypto industry worldwide, right? And so the fact that they are essentially interested in creating their own stablecoin and capturing all of the yield, this is actually where we'll see whether you know, Circle comes in out of, you know, the 11th hour and says like hey, like we're going to publicly say, you know, we're going to give you all the yield, is that going to be enough or is the fact that they, they want this branding and this alignment like it, it's just, it's such a nail biter, right? Because everyone's wondering how this will actually go because it kind of will set the stage on even like smaller ecosystems compared to Hyper Liquid, right? Other chains, other things. And FRAX obviously has a bid into issuing or helping to issue and managing the entire kind of infrastructure with our partners like Layer Zero. And we work with Superstate which is also Tokenized Galaxy, which is super exciting. One of our genius compliant collateral infrastructure pipeline is Superstate USDB which is managed by bny. We have very, very professional partners. But I think the main thing that is really important from this like USDH competition is what does it kind of mean and entail, right? Like originally when I actually talked to the, some of the Hyper Liquid team Like, months ago, like, like in late 2024, about their stablecoin strategy. I actually originally thought, like, these guys must have, like, some kind of deal with Circle, like, and there's like an NDA or something where they can't say they're getting the yield right, and stuff, because there's no way they would, like, leave hundreds of millions of dollars of, like, interest like that every day. It's like, what, Tens of thousands of dollars of, like, literal profit. And so we. I was like, what is the. What's going to be the end result of this? Right? And so, like a few days ago, now we have the answer, right? They're looking to see how they can capture that yield. So it's going to be an interesting few days.

Steve Ehrlich (8:10)

Yeah, absolutely. It's. I really wonder, I mean, polymarket is another one too, where there's real questions about what they're going to do in the stablecoin world. So, Kavita, why don't we come to you next? So, stablecoins, all the usdh. I don't think controversy is the right word, but just interest, intrigue. What do you make of it?

Kavita Gupta (8:31)

I feel like it has become such an exciting new, if I could say, a narrative. Right. We went through a crypto AI bubble and directly fell into institutional stablecoin. And of course, we will talk about that later. But everybody trying to do their own layer ones or layer twos for stablecoin and have their own individual stablecoin, I feel like that itself is going to come up with a lot of its own trouble, right? The trouble with liquidity, fragmentation. The trouble with, how are you going to really. What are people going to do now? We're going to, like, the way we have so many cryptos, we're going to have so many different stablecoins. And so with every different infrastructure or app now, do we have to think about which stablecoin to buy and convert and blah, blah, blah. With hyper liquid ones specifically, I just find it funny and funny and interesting at the same time that they are actually literally auctioning the right of somebody to own a particular ticker. And even though the foundation is going by and saying, hey, we're going to be like, neutral, other people can do it. I think at the end of the day, for me, it's like a meme coin. Funny. Like, you know, let's put in a lot of money to have that ticker. But also we have to. We still have to get adoption. We still have to get a lot of liquidity on it. But here's My question, apart from being funny and maybe raising some eyebrows around it, what all apart from perps are we seeing on Hyper Liquid yields and perps for a stablecoin adoption on a consumer side, like where are we going to see that stablecoin to be really active for Hyper Liquid? It's just a technical question. I'm going to leave it for everyone here.

Alex Thorne (10:22)

Yeah, I mean, I think they're auctioning namespace, right. The ticker. I mean this is one of the interesting things about the auction to me is that there is no, as far as I can tell, there's no additional promise of promotion or anything else for that matter. There's no. It's kind of what I guess Jeremy Allaire is sort of hinting at by saying they're all in on hype. Still, USDC is the largest stablecoin on Hyper Liquid. If they don't get the USDH ticker, I don't think that necessarily, at least as described today, makes them disadvantaged. It may, I mean I'd be surprised if they, you know, with the incentives that some of the proposals are giving back to the hyper liquid community, you can absolutely anticipate that. I think the winner, if they give back like that will do well. But you know, I think to Sam's points earlier, one of the interesting, most interesting things to me is that this is really a distribution question. The stablecoins take like with Tempo and Bridge and Stripe and they've got a giant network and they're making a stablecoin power blockchain. And if you've got other genius act, sort of post genius act stablecoins emerging, they may make use of other distributions that they have. Hyperliquid is a giant crypto native distribution network at this point. Right. And there are others. But I think so much of the adoption of a stablecoin, I mean if you go from 0% of the revenue earned by the coin being given back to the holders on one side of the spectrum to 100% of it given back on the other side of the spectrum, that's still not that much design space in my view. So the game comes down a lot more in my mind to distribution. And while it's not obvious that the USDH is going to be the biggest stablecoin on Hyper, it's not part of the auction at the moment. It's very possible that it will become that. So the big prize on the table for whatever issuer captures that. I think distribution is so important for stables.

Sam Kazemian (12:21)

Yeah, I think just to add really quick on what Alex was saying he touched on a really good point about the space between the 100% yield and everything. So right now at this time, there's basically three short list proposals. There's Paxos one and Agora kind of Consortium one and a FRAX one with our partners. And I'm sure there's going to be in the next 48 hours before things close, a few others. I know. I think the Athena guys are going to put their hat into the ring and everything. So the important thing here is like FRAX was the first one to say we'll give 100% of the yield. There's no admin fee. We'll just, we'll pass it through, through from our infrastructure to whatever Hyper Liquid token holders, a foundation fund, whatever, it doesn't matter. And as soon after, I think everyone followed or even the lowest one, Paxos is 95%. That's not going to be five bips aren't going to be make or break. So the main point here is like the, the yield is basically table sticks. Right. And so what exactly is everyone scrambling for if it's, it's not to capture the yield. Right. And so the important thing about it is like, if you think it, think about what's actually at stake is being close to the flows and, and the, and the distribution of, of one of the most important, if not the most important right now, L1 ecosystem in like Defi, essentially.

Steve Ehrlich (13:46)

Right.

Sam Kazemian (13:46)

It's the biggest Dex, it's the biggest perp trading venue. And like what Kavita said, it's basically being at the forefront of being a good steward of the flows that come in and out of Hyper Liquid, essentially. Right. And that is actually what one of the things for like, for example, frax's proposal we highlighted, which is yes, we have a lot of partners. We work with Superstate, which is Tokenized Galaxy. We work with Stripe and Bridge. Actually they do orchestration for FRAX USD. So does another proposer. The interesting thing is, I think no matter who wins, a lot of the logos or partners, they're willing to work with anyone. So for example, the Agora proposal, I think the RainCarts CEO and founder was like, you know, we're, we're, you know, really excited to do this with Agora stuff. Let's say Agora doesn't win. Let's say Paxos wins. I highly doubt the Rain Card CEO is going to be like, well, we're not going to touch Hyper Liquid because we didn't win. Right. So that's not going to, that's not going to happen. Right. And so the, the real question here is not what is like who's going to integrate? Everyone wants to, that's why they're clamoring for it. Right. The real question is who is going to be like the best stewards of these flows and be able to actually create the most value for the hyper liquid community for themselves and their business and actually be able to increase that ecosystem because of the privileged position they're in at the beginning of the in and out flows of USD into the chain.

Steve Ehrlich (15:17)

One thing that I find particularly interesting is sort of the comparison like I'm interested in how the USDC competes in this type of world and then in the world with like the Wall street stable coins that everyone expects to come post. Genius act because I've spoken with a lot of people that are sort of despite the size and distribution advantages of a JP Morgan or someone along those lines, they're skeptical that some people may want to use those coins because they're just worried about like how loyal are individuals to this banks, to those tokens and do they want to kind of keep like 10 different like tier 1 bank stable coins in their wallet whereas they could just use USDC that's sort of neutral in a way and accepted everywhere. But crypto is so tribal that like in a world like and Hyper Liquid is has gone up like a rocket ship and they have because it's its own L1 has a lot more, much higher aspirations than just being a perps Dex. Like I could see like you were saying, San being able to sort of associate with the continued growth of this ecosystem and this being a very big prize because of just how loyal people in crypto are to the particular brands. So being in Jeremy Allaire's seat right now, this is something that I think can be very critical to them. The same thing with Polymarket. They have such a loyal set of users if and when they launch their own, their own blockchain and you, I mean everyone remembers like Circle and when they filed their, their S1s and how much they already pay in distribution costs. Like I'm, I'm sure that they're not thrilled about having to pay Hyper Liquid. Yeah, I always confuse that with hyperledger. I always say that I've been around too long, I always mix up those two but I'm sure they're not, they don't want to have to pay to keep the business that they already had. But, but at the same point like they got this distribution and the projects that they supported have become so profitable. I mean Polymarket's a $2 billion company themselves that like at some point like the power distribution between them and those markets are, it's, it's inverted and they may have to pay in order to keep, in order to keep that business.

Kavita Gupta (17:27)

But I Steve, just jumping on it. I also feel that I completely agree with Alex. Distribution is going to be the key defining game. But instead of Wall street, if I would be at circle sitting of survival and exp I I would be worried when Instagram has its own stablecoin. You know we do underestimate PayPal's stablecoin or basically PayPal stablecoin or maybe if Square is going to have their stablecoin. And the reason for that is we only think of stablecoin as a crypto native is the billion dollar trillion dollar volume when it's floating within the L1 L2s. We underestimate that. What PayPal is doing is basically every money which is going in dollar amount they are converting it back without really having a circulation of stablecoin just for you to buy and circulate. So if you're going to have all your online shopping giants having their like Instagram having their own stablecoin and have distribution even just on their platform and if you keep that money there like in your wallet giving you rewards or yields basically that is going to be a way stronger competition like what Robinhood is going to try to do with their own stablecoin alone now than anything else also at the bank. I think from the bank perspective and the loyalty perspective, if they're going with the traditional users, the current account or the saving account yields going back to Sam's point, like how much yield are you doing? So instead of 2510 bips today from your current account, having a 4% or 5% on your current account will attract a lot of people because you don't have to do change anything. You just probably have to click a button of yes and they will just keep your money in stablecoin within the same bank.

Steve Ehrlich (19:20)

That makes sense. Alex, anything else you want to add to this discussion?

Alex Thorne (19:24)

No, I think it's. I think everyone, Kavita and Sam have it spot on. I just, I think it's a story about like the power that hyperliquid controls now, I mean commands. This is all the biggest, you know, stablecoins coming to it. And it's also a new sort of dao governance bake off as well, which is quite interesting. I'd like to see Right. Ultimately the hyperliquid validators vote on this. The foundation controls a super majority of the Hyper Liquid. Have they said, you guys know what they've said they'll do on the vote? I assume they'll follow the others.

Sam Kazemian (19:58)

I think they said they'd abstain. They actually delegated a large amount of it to the already kind of the known node operators.

Alex Thorne (20:06)

Yeah, yeah. So I think it's just, you know, it doesn't answer your question. I know that, but it doesn't surprise me. I assume they wouldn't vote that. Why, why bother doing the Bake off if they're just going to pick? But they just. The power of Hyper Liquid. It's basically all of the best stable coins there are. Tether and Circle. I don't think they can give up any, any, any revenue here. Right. So they're sort of like they've got their distribution. They don't really have much of an offering to make as far as I could tell. As you pointed out Stephen, like their, their revenue we've seen is, is tight. Right? It's, they're, they're paying a lot in you know, cost of doing business already. But you know, it's basically every other great stablecoin issuer that's bidding here. So I just find that fascinating. Hyper Liquid, something that, you know, what didn't exist a year ago or existed just about a year ago. And to be in such a prominent position, just what a story.

Kavita Gupta (21:02)

Same thing with Athena. I think this is going to be a very interesting combination if that happens.

Sam Kazemian (21:07)

Well, I think like what Alex was saying is interesting about Circle either not being able to give up yield or maybe they would be because you have this juxtaposition of like circle gives up 100% of yield on Coinbase. Like USDC originated and held on Coinbase. They clearly get some benefit from that. They're like Coinbase is the dollar on off ramp of USDC to like essentially the US market. Right. If, if like that was destroying circles like finances or something, I'm, I'm pretty sure they would do something about it. Right. And I, I think that the point is there are places in which there's a symbiotic relationship where sure, if you look at half of the deal like you get 100% to this entity or whatever, it looks like you're just getting totally gashed right on, on this entirely. But both sides are getting something very valuable to them. Right. And that basically explains why for example Frax came out and said Hyper liquid can have 100% of the yield. We, we want to be the distributor and kind of the stewards of this Paxos. 95% I think then Agora also said 100% or something close to that as well. I expect everyone to say something similar to that. And I actually was thinking about it more of like a philosophical perspective of. Imagine this thought experiment. Imagine if I told you you are the only issuer of Genius compatible stablecoins. Like, like, I don't know, the law kind of anoints you it. But the cost is you're never allowed to take any of the yield or charge any Mint redeem fees or something, right? Like you, you just have. It's almost like a public good of sorts, right? That, that functionality. Would you take it, would you accept that that like privilege. I would, I would definitely accept that. If no one else can issue a genius compliant stablecoin. But the flows go through me. But I just can't monetize the Mint redeem or the. Or the T bill income. I would take that that deal. Right? And so I think that that kind of puts it in perspective of like there's a lot of other intangible like non measurable things that are valuable rather than just the line item revenue. Right? And if it wasn't true, right? Circle and Coinbase wouldn't have this relationship, right? If it wasn't true, like this thought experiment that I'm giving as an example, everyone would be like no, I would not take this at all and I'm not interested in it. Right? But I think a lot of people would take it, right?

Steve Ehrlich (23:30)

I have two quick follow ups but before that I need to take a quick break so we can hear from sponsors who make this show possible.

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Steve Ehrlich (25:11)

So Sam, one thing that I wanted to bring up, you mentioned, I think it may have been in response to a question from Alex, but how decentralized is this? Is this governance even, even if the foundation is delegating voting authority to some of the nerds? I mean I've done plenty of stories in the past about like Dow governance theater and in many cases, I mean going back years that votes are pre socialized or that, I mean they're really not, they're really not true exercises in voting. I wrote a story earlier this year about how the basically the team behind the Crypto.com team, the Chronos Labs team over, what's the word I'm looking for, overrode the will of its constituents when it remitted 70 billion CRO tokens. And I'm not saying that's what's happening here, but there is a lot of money at stake, that there is a very big prize. And I mean I know you're kind of involved so maybe you have to choose your words a little carefully. But I'm curious what you can say to people watching this Dow governance process, process, especially in a world where we're seeing a lot of daos actually revert back to centralized entities because of the, the more favorable outlook from the sec. What should they say so that they what, what can you tell them so that they have faith that this truly is a free and open voting system?

Sam Kazemian (26:33)

Yeah, that's a good question. Honestly I, I, at first I had my doubts too because like again like I said, I was talking to some of the hyper liquid like team members months ago about whatever their stablecoin strategy is and it became like pretty clear to me that like they, they, whatever it is, they, they have a thought whether it's not to do anything or do something. And I think when the thing went up. I think one of the proposals, like, whoever posted it first, like out of nowhere, I think they already had a website which is kind of interesting to think about. Like if they do about, about the proposal, they're their own proposal. So I don't know if like some people have thought of like they knew or whatever. Regardless of that, what I've actually been really impressed about is they've delegated most of the foundation's hype to like the, the community run validators. And I, I know for a fact that those are, those are real groups, real genuine community members and they have real values that they, they will vote on for, for the good of the token holders and ecosystem. Regardless of, you know, whether some people knew about it or not. I think actually the structure of what's going on is really, really interesting. That'll set the stage for like future, you know, chain stablecoins or branded stablecoin competitions. Because, however, you know, whether this is super decentralized, not that decentralized or whatever, I think people are seeing that this is the, probably the right way to actually be public and say we're going to launch like some kind of branded stablecoin. I know, Alex, that is kind of just a ticker. But I think the fact that it's such a big deal, we're all talking about it, it's like in the, you know, crypto media and stuff. I think this is like de facto. The shelling point is like this is the hyper liquid staple coin.

Steve Ehrlich (28:15)

Got it. And one last follow up and then I'll come to you and I want to move on to another topic or two just for, just to sort of tie things up. What are the next steps? What are the, what are the deadlines? When should people expect things to happen that are trying to pay attention?

Sam Kazemian (28:30)

So this was a super fast process. Currently, I think in 48 hours the submissions will be closed, so I expect there'll be a few more. Obviously right now the kind of. The top ones are Paxos, Agora and Rain and Frax and our partners and alliance members. And then I assume, I've heard Athena will put something down, there might be a few more. And then the validators get a chance to vote over a few days after the entries are closed. And so by next week there could be a formalized winner.

Steve Ehrlich (29:05)

Okay, great. So, Kavita, anything else you want to add to this? Please go ahead. If not, I wanted to turn to DATS as well.

Kavita Gupta (29:14)

No, let's talk about DATs. I was just connecting it to how Vulnerability Finance can just completely block but we can move to dat.

Steve Ehrlich (29:21)

So I know Delta is an investor in a lot of the big ones and in particular I'm interested in your thoughts about like what are you talking about as your team right now? Like what types of deals are you seeing? In a world where we're, we're watching some of the premiums drop, some companies are falling below a premium of one which basically means they're trading below book value and makes it really hard to raise money accretively I guess impossible until that number reverses itself. Like what are you saying?

Kavita Gupta (29:52)

Yeah, I feel like the digital asset treasuries bubble is somewhere getting poked if not completely broken. Right. We have companies like Eatzilla which is right now trading at the cost value. We have a lot of them to be very honest. The litecoin one we are investing in the top eight that's in the market. And what we are seeing is first of all anyone and everyone is doing that it's Getting range from $100 million to $2 billion now like 30, 50, $100 million is not big enough. But at the same time we are seeing that the type of excitement so people raising a lot of money to do just that fund, suddenly that excitement is going away because most of the people, the holders have started playing that in a similar fashion as three to four month in and out game based on the market. The third thing which has not the precedence which everybody was expecting, which hasn't been set in is when the dats came the idea was these dats for Ether, Solana, Bitco, Bitcoin, Avalanche, like all those new currencies they going to go into the market and they're going to buy from market like very similar to microstrategy and that is going to push up the price of the crypto and going to create more buy power in the market. But what we are seeing is a lot of those dots. There is no clear timelines after raising half a billion dollar when are they really going to buy. A lot of them are doing different side deals with Treasuries or their own investments to do locked tokens etc. A lot of different things but to create a buy pressure in the market which was the whole idea for a lot of people to also participate and, and by the time and now when the government has started poking, when SEC has started poking and saying hey if you're doing it you need to have a shareholders agreement, you need to have vote on this so that you just, just don't go by a publicly traded company without the people who actually already own a lot of those common shares and have any say into it and suddenly it's different. And I think we're going to see a lot of those rules coming in making it more difficult for the clearance for lot of new tokens, like lot of currency tokens, which nobody really have a market for. That market is going to change a lot now. And the interest, I'm already seeing a lot of veining interest from the investors.

Steve Ehrlich (32:26)

A bunch of things to react to there. But, but Alex, I know Galaxy's involved in, in this industry as well. I'll defer to you first to build on top of what Kavita said.

Alex Thorne (32:37)

Yeah, I think, I mean we're definitely in phase two of the recent. I mean, I guess you could say it's Even possibly phase three if we go back to May 20, you know, December 2020 when Michael Saylor invented this segment. You know, I have a couple. I agree. I mean it's definitely evolving. I think I was shocked. I mean you had similar scientific and meta planet sometime what in 2024. But, but it went almost four full years before anyone even tried what Sailor did. And then it was just really like in, you know, maybe March that this actually started to explode. And now of course we have them across, you know, dozens of different coins and companies. So we're, we're, I would say we're probably, I, I would venture to bet that we're still at the, we're only at the end of the beginning though, and not the beginning of the end. I think you're going to see a lot of evolution. I think there's going to be very few DATs that can do what Saylor is doing, which is only just stack the coin and use Things like perpetual ATMs or preferred securities or debt to do it. I think you're going to start to see companies that have some real value to bring to those ecosystems start to stand out. So particularly in the proof of stake world outside of Bitcoin, you're going to start seeing some of the largest validators will be DATs. They may offer things like RPC access or endpoints and ways to interact with the chain or even start doing their own development. The one that was announced this morning with multicoin Galaxy and jump right, you've got the largest early sole investor, one of the largest validators and one of the most important software developers in the Solana ecosystem teaming up for, for that one. And I think that's more likely where it goes. I don't I think Saylor is going to continue to be able to do what he's doing. He has incredible pricing power and scale that really nobody else has at what, $75 billion worth of Bitcoin or so I don't think you're going to see a lot of others be able to just do that. So it's going to turn into a game of differentiation. I think it already is turning into a game of differentiation and value add around that treasury in particular, using them in defi or earning yield in some way on your holdings that is hopefully safe and there's a risk there. But I think sort of that's what I think. I would say I don't know which phase, which number phase, but I would say we are at the end of the beginning and you know, maybe the beginning of the next chapter is emerging now.

Kavita Gupta (35:11)

The, the only one more thing which I want to add and I'm so sorry, I'll have to drop off in five minutes but the only one thing I want to add here is that basically making me feel like you are raising money. If you're looking at, if you're looking at the sponsor groups and I'm talking about bunch of them out there without fingering or pointing to one is first of all the sponsor group packages have been completely crazy. But it's a new phase, 15%, 20% going back to the people who are just putting it together. Not even the management team takes away a long term incentives from the management team. That's one. Secondly, when you look at people raising so much money which is sitting and most of the crypto investors or the funds who have gone and gets out in four to six months, months because once they have tradable stock there is no way you can really put any sort of a pressure on them. It's the free will. And what I'm seeing is most of the people are liquidating. I feel like instead of saying it, digital asset treasuries, these are becoming companies who are now raising money to do whatever they want to do without having a clear governance for the investors. To be very sure to be very honest, like with some of the DAX which we have invested, it's becoming very frustrating that we have not seen them after raising money when after one and a half month of announcing raising money in their bank account actually going and buying anything from the market, you know, and there is nothing you can do about it.

Steve Ehrlich (36:41)

Kavita, just to follow up on that because I know you have to go. What types of promises are they making? I know, sometimes like business combination agreements can take time and subject to SEC approval. So timelines aren't always in their control. But it sounds a little bit like not that you're being sold a false bill of goods, but that sort of expectations of what was conveyed in some of these meetings might not align with reality. What are those discussions like? And I would imagine that you are connecting with those teams now, especially with premiums dropping to find out what's happening. Like what are they telling you?

Kavita Gupta (37:22)

I think when the premiums. So there are two phases, right? Initially when you are making an investment decisions, most of the people are promising you that they're going to buy this particular asset and they're going to buy it from the markets and they're going to have validator, they're going to provide yields. That's a standard story, right? And that's what most of them are saying. And I'm guessing that that's the idea hopefully long term that they do end up doing it. Instead of trying to spend that money into whatever their creative ideas, they have money and they can just do it. Which was not part of the initial investment memo. But that is not dependent upon the SEC approval because that part is already done. Once they have the changes, they actually submit. And now after 30 days, once they have the new equities, new stocks which they give to people, their investors now those plans are already passed so they can go into the market and buy anytime and generate yields and have somebody to do their validators or create their own validators at any given point of time. So that's where the frustration comes. Now going to your second question which you are saying once the premiums are dropping, how is the conversation? But when the premiums drop and you're asking hey, what's happening? Why is there so much sale? There is a standard answer. We don't know. Maybe the existing investors, because these are publicly traded company for a number of years are now suddenly feel like they already have a premium. But I am guessing that's happened when the news comes out, you know, and it's on the peak of the place instead of when the investors start getting their stocks and everything drops. So I do feel like there is a lot of drop in the prices as soon as the big investors start getting their tradable stocks and especially the companies start getting the new sponsors start getting their tradable stocks. But of course it's very difficult to trace it. You can just watch the market and do the assumptions but every time it's there the same date.

Steve Ehrlich (39:17)

Yeah, that was gonna say I wrote a story on that I guess a month or a couple months ago about some of the big companies that raised a lot of money through pipes. And what happens when those pipe shares become registered with the SEC and doesn't actually because the those shares inflate the circulating supplies so much it doesn't even take that much sell pressure from those insiders to crash the price. I know you have to go Kavita. So just quickly any last thoughts before I'll continue with Sam and Alex for a little more?

Kavita Gupta (39:46)

I think for darts I want to see how the long term strategy would work out. Like one of the first ones which we did was Upexi who has done. Which has done really well because it did drop and then picked up really well. And I feel like hopefully that is how the trajectory going to be for a lot of other dads. But it's only time gonna tell. I'm really sorry I'm gonna drop off but I. I'm really gonna come back to look for the conversation of happened to Justin sun and the World Liberty Financials. I want all the goss. Thank you so much guys.

Steve Ehrlich (40:19)

Thanks.

Sam Kazemian (40:21)

And just to weigh in there, Steve is like.

Steve Ehrlich (40:24)

Yes, I didn't mean to be to be ignoring you. Please, please.

Sam Kazemian (40:27)

No, no, no. This is where I actually wish I could say more about some other dats but the ones that are publicly known at least. So the whole reason you would buy a dat, right, Is because the whole stat is the coin per share should go up. Whatever the digital asset is inside of the treasury company, the common enterprise of this structure of a corporation is that it is a team that people believe in or not, I guess. Right. But the main thing is believe in to increase the price per share better than the coin per share, better than other DATs in the same class. Right. For bitcoin I think everyone is very clear, right? Like bitcoin does not earn revenue, right. Btc, the asset is. You can't stake it, you can't do anything with it. It is an inert thing that it's not coherent to say the bitcoin network has revenue because it goes to the miners. The holders don't get any kind of PNE discounted cash flow, right? It is just a piece of like digital gold, right? And so in order to maximize BTC per share, you basically need a very astute, very knowledgeable financial behemoth that can get lending leverage, get the deals that they want at large size. Sailor is the textbook of this person, right? And so lo and behold they have the best dat, right? Because the market's confidence is this entity can maximize the coin per share, right? Slightly different with different like other dats, right? If eth, for example Eatzilla, which disclosure I'm one of the investors in as well, and so is like electric, which is frax investor if their thing is Ethereum, right? The way that you maximize ETH per share, right, is make sure it's staked, don't lose out on, on, on the apy. You don't sit on an eth, right? You, you do things that are important in defi, that are risk adjusted, that are professional. And so the best ETH DAT would have people who know this. So like Tom Lee, obviously he, he knows these things and is looking into it. Ethzilla, others. Same thing with when you go down the actual list of token rankings, right? So like if there's like an Aptos DAT or SUI or whatever, the team that is most able to maximize the coin per share stat of a dat, which is what the definition of this common enterprise is, is the leader of that assets dat. And so that's kind of an important consideration because the more crowded it gets, right, the more you have to convince the market we are the team for this asset that can maximize the coin per share without imploding, without, you know, losing assets, without doing anything. And as Alex said really well, there's going to be differentiators, right? People are going to say, hey, we're gonna, this is how we maximize it and we do it really well. You know, we're gonna have RPC services, we're going to earn more money and then compound that revenue into coin per share, for example, right? And so that's the thing to watch in my opinion, in the DAT space.

Steve Ehrlich (43:20)

So that, that's the good, that's the good side of all, right? That's the example of how all this can go. Well, companies are responsibly managed. I know, Alex, you were talking about this in between your Winston Churchill quote, which I really appreciated. Like you want companies that can responsibly grow income passive yield from staking or getting more involved in defi. But I can also see the case, especially during kind of a perilous time like this where companies perhaps are struggling to raise that next tranche of funds, et cetera, et cetera, or maybe they start leveraging their balance sheet. They, they start like rehypothecating their crypto, they start throwing money into defi protocols that are promising 100, 200 APYs. Because hey, that, that sounds Great. It looks really good on a marketing deck until they get hacked or rugged or, or whatever. How do you guys. I mean, Sam, you, and then Alex too, like institutionally at Galaxy, how do you try to like, sniff out the projects that are going to stick to sort of the orthodoxy created by Michael Saylor versus the ones that are going to say, hey, look, we can leverage our shares as collateral, we can do all these other things and you're not going to get burned.

Alex Thorne (44:45)

Yeah, sure. One, we work with them. That's one way that gives us confidence if we're working with them. Right. I mean, Galaxy is one of the only lenders that didn't blow up in 2022. And it's because we didn't give away free money. And a lot of the others either gave away their clients money for free, like, which is basically what Genesis did, or they gambled their clients money in ways that was not only not disclosed to the clients, but excessively risky, you know, like the Celsiuses or even Voyagers. So I actually, I would say.

Steve Ehrlich (45:16)

Yeah, I didn't mean to interrupt, but I have the exact same name as the former Voyager CEO. So I still get messages sometimes on Twitter.

Alex Thorne (45:23)

Wow. Well, our, our cfo, our cio, Chris Ferraro, has the same name as the. Was it the Voyager cfo? I think it was the Voyager one too, also. Chris Ferraro. So, look, I mean, I have to reply back.

Steve Ehrlich (45:39)

It's not me. Like, like the.

Alex Thorne (45:41)

Yeah, different.

Steve Ehrlich (45:41)

Different guy. Different guy.

Alex Thorne (45:42)

But please, I would say, like Sailor is doing nothing with his underlying coins. Right. And he's, I mean, he's pledged not to. He hasn't submitted to a proof of reserves that we can technically confirm that. In fact, he's argued passionately against proof of reserves, which is a little bit of a head scratcher from my perspective, but nonetheless, I mean, I think, look, there's absolutely a risk, especially in the hunt to differentiate that some of these digital asset treasury companies are going to stretch the risk and try to go far out on the risk spectrum and use things like dangerous defi protocols. That is a risk. That's not something obviously that we recommend or I think our asset manager would allow or advise those. That's that it advises. But I mean, we will almost certainly see something like that emerge among the. I mean, there are hundreds of these companies, Right. And not just in defi. Not just. I mean, I think we'll see bitcoin ones just do something really stupid. There's just so many of them. Right. And surely they're not all as good at financial engineering and calculating their cost, their risk and reward as Michael Saylor, who really has pretty minor amount of leverage in relation to his total market cap and his Navy. Right. Something like 17% of his nav that he's borrowed against and it's all termed out quite far. And it's convertible. And it's actually. It's not actually that crazy. Like, the way he's. He's done it from a risk standpoint, I think you'll see much riskier stuff happen. I think you will see, especially if you get active. I mean, the coins that he has, he's putting right into cold storage. Right. So if you're not doing that right, if you're. You know, there are stages. Like if you're on eth and you're staking, okay, well, it's not that risky. It's. People know how to do that safely.

Sam Kazemian (47:26)

Right.

Alex Thorne (47:27)

But maybe you're doing liquid staking now, so you're kind of collecting. You're. You're getting a liquid staking token and putting that somewhere in defi. And another layer of, okay, well, I mean, you know, Lido's pretty safe. People know Lido. But then you. Maybe you're, like, re. Staking with Lido. You know what I mean? Like, and then maybe you're lending and. Okay, but they're using aave. That's pretty well vetted and safe, you know, and you can see how eventually it's just like. Well, they're using.

Steve Ehrlich (47:49)

Go wrong.

Alex Thorne (47:50)

Yeah. Later, they're using, like, Alex protocol to do something because it's like the ninth, you know, line in a. In a risk ladder that's been built up. I think there's a risk of that. I think investors should be very cautious in looking at what the companies they invest in are doing. Just like any company that you invest in, you should pay attention to what they're doing. And, you know, I just think it would be naive of us to think that, like, you know, people. Everyone learned the lesson, and I'm pretty sure not everyone learned it. And I think to Kavita's point, I mean, like, again, there is a giant long tail of these. There's plenty of ones that are run by reputable people with good backers and investors. Plenty of them. There are. There's also plenty. I've never heard of anyone involved with it. You know, so I'm just saying, you know, be. Be careful, for sure. I mean, and. And do your diligence and read the documents and understand what they're doing because you will see, you will see them go out on risk to try to differentiate themselves.

Steve Ehrlich (48:45)

I'll raise your Winston Churchill quote with a Mark Twain 1. History doesn't repeat itself, but it often rhymes. And.

Sam Kazemian (48:53)

Do you guys remember like the sincere rhymes? It's like it keeps coming. You guys remember when Sailor first started doing the treasury stuff? Everyone was like, why would anyone buy this other than an etf? This is like the dumbest idea like in the world. And then like one year passed and it kept going really well. And then two years passed and then, then people were like, okay, well let's, let's try, let me try it, right? And then, and then, then other tokens and stuff. And the thing exactly as you're saying, Steve, is like, I think these are like banking where the share the equity token or like the equity like certificate represents essentially a banknote. And then inside of the dat, like the common enterprise is to increase the amount of claims that this note actually has that people hold. Right? What does it look like? It kind of looks like the wildcat banking era of the US where it's like this note has like this much yield and they go out and do stuff with it and then the other bank is like, actually we'll give 10% yield. And then you don't really know what exactly they're doing and it goes farther and farther out on the yield curve. And it is actually also similar to Defi Summer, right, where something was like 40% APY. Then another thing is like 45% APY. Well, what are they doing with it? I think the important thing about DAT is like, @ least they are in a fairly regulated environment. They are publicly traded stocks. And as long as there is proper disclosure, which I think it's a good thing that the NASDAQ has said, like there has to be more disclosure of what they're doing, how they're acquiring the tokens and everything. At the end of the day, I'm a very big disclosure regime type of person where as long as there's disclosure, you know, invest in the risky thing that, that you want and, and don't like, you know, complain if it implodes, but also, you know, if you win out, right, that, that's, that's your winnings. Right?

Steve Ehrlich (50:50)

I don't know if you listened to the show last week, Sam, but actually we, we had Brian Rudick, the, the chief strategy officer for UXI on and one of his main arguments was that DATs are basically banks. And that set off a 20 minute debate because you get to the point where they, like, they pay a certain yield and et cetera. But then obviously banks are very highly regulated, more so than almost any industry in the world, and debts aren't that type of. Under that type of regulation. But it just kind of leads to. It's kind of a Rorschach that. It's a really interesting way of looking at this because simplistically, yes, it kind of functions like a bank, but it comes with certain risks that are much more akin to like, isn't it dat?

Sam Kazemian (51:32)

Isn't. Isn't a bank just a DAT with the token being dollars? Right. Like, that's, I mean, that's kind of.

Steve Ehrlich (51:39)

What his argument was. But obviously banks have like significant requirements. Disclosure and collateral.

Sam Kazemian (51:45)

Well, yeah, that's what I mean. It's like if you're doing a DAT with USD, good luck, because you have to get permission from the specific branch of government that's like USD DAT branch, right? The occ. And like we just passed the law, right, Genius. That says how your, your USD DAT should, should work and all that stuff. Right? But if, but if it's a BTC dat, go go ham. Right? Like give keynotes like, sailor, like, we're gonna, you know, make everyone rich or whatever.

Alex Thorne (52:12)

Yeah. I mean, keep in mind, Hal. I agree. It's, it's. This is an interesting point. Hal Finney, like, you know, a year after bitcoin launched, wrote that there would be very good reason for bitcoin banks to exist that would hold bitcoin and issue their own cash. Right? He's referring more than to like a free banking era kind of thing like George Seljon writes about. But this, this is that like, rhyming history thing, right? It's. It's this. They are kind of. Especially for Michael Saylor. He might not be issuing cash, but he's issuing paper on his bitcoin, right? Like, it's, it's pretty, pretty interesting and similar. So I. It's obviously different, but it's, you know, it's same same, but different.

Steve Ehrlich (52:50)

So what I like to do at the end of shows is really give everybody a chance to either share some thought that was left on the cutting room floor, or if you have a. Or if you have some sort of contrarian take in particular that you think would be fun to talk about and maybe start a bit of a fight on Twitter. That's always good too. But really I just want to kind of give everyone a chance to get whatever off their chest that they're dying to share with the Ether So Sam, how about you go first for sure?

Sam Kazemian (53:22)

Yeah, I think, I don't know if this is like a contrarian take but I think my whole point and what we're working on at FRAX with FRAX USD and ingenious compliance and all of the emerging stablecoin space is like I think there's going to be a world where there's many, many different branded stablecoins but there's going to be a short list of stable coins that are more money like similar to what USDC and USDT are today and hopefully for us frax USD and whatever we work on together hopefully maybe USDH and things like that. Because the stables that are branded are more like tokenized gift cards, right? Like they're basically if they only are accepted in different places. Microntrarian take is there will be like you know, hundreds of stablecoins but only a short list of five that are actually accepted everywhere. For example, if you have Starbucks USD, sure you could buy coffee with it and then you can also use USDC hopefully for X USD, you know, USDH or whatever. But a very short list, right? Those are the ones that are the one trillion dollar opportunity that people that are going for should be investing in working together with those people and seeing where those projects go. Because the most important thing with stablecoins is not if they're branded or like and the contrarietech is not what distribution they have to be honest because you need deep multi distribution integration not one because if you have multi distribution integration you are money. Right? The marginal next user of it actually finds more utility in it. And so that's kind of my contrarian take. Like at FRAX we're working on making everything one to one with our strategic partners and if that's an interesting thing in stablecoins for you, I think Kavita actually said that really well too. That's the most valuable thing for me is that I'm looking to work with people to unlock gateways of one to one moneyness to CEFI DeFi and between different chains.

Steve Ehrlich (55:22)

Great Alex, I'll come to you anything you want to share. But also we didn't have time to get to it yet. We'll just get some initial thoughts on tokenizing Galaxy shares on on Solana if you want to.

Alex Thorne (55:36)

Yeah, I was going to raise something that has come out of that which is. And it's also come out of like Tempo and, and plasma and these corporate chains and questions about why these corporations aren't using Ethereum L2s or why Galaxy isn't tokenizing on an Ethereum L2. And this is something that's come up a lot since we announced last week our tokenization of our class A common stock on Solana. And we wrote about why. And part of the reason is that while an Ethereum optimistic roll up might be sufficient from a safety standpoint for a native asset like eth, because you can replay the transaction in the case that the central sequencer censors you or refuses either delays you or whatever it is, you can replay that directly on the L1 and sort of unilaterally exit. Right. That doesn't exist with issued assets. Right. We would, it might exist if, if we issued on Ethel 1 and then the token you had of our shares was on Bridged or something on the Ethel 2, then the Ethel 1 would know what the token was when you exit. And there's more to it than that. But again, there's a. That, that alone, that reason alone is a reason that we expect issuers to issue stocks on L1s primarily. It doesn't mean they won't eventually go to L2s then. The other thing is that a centrally sequenced, single sequenced, single singular sequencer, optimistic roll up, which basically all of them are today, can reorder your transactions, charge arbitrary fees, can delay settlement and finality of your transactions arbitrarily. They have that capability. And today that's coinbase or arbitrum. Right. Or maybe it's a foundation, but there isn't any true of the. I mean and to be clear, like base is something like 90 plus percentage of all the roll up transactions now anyway, so it doesn't get that much more important. Sure, there are other types of roll ups that might be appropriate and might have different setups than the optimistic ones. But pragmatically speaking, today the roll ups are all single sequence in terms of volume. And to me, a single sequenced roll up that with, you know, capability to either through negligence or malice impact the settlement fees or trading of a security. That looks a lot like NASDAQ to me. And NASDAQ is heavily regulated to ensure that it doesn't negatively impact those shareholders. And in the case that it does, whether by negligence or malice, there is recourse and it happens accidentally all the time, broken trades and stuff. There are rules around compensating those affected. Right. So I think until layer 2s are either more decentralized Ethereum roll ups, I should say again, specifically optimistic rollups are either more decentralized where there is no single party to hold responsible in the case of some kind of problem with the securities trade, or they register and are subjected to significant oversight to ensure that if there are problems, they can be rectified. I don't think Ethereum L2s are ready for tokenized stocks. And that played into our decision to look specifically at Layer one blockchains, and we picked Solana as the first place. I think we're also open to Ethereum L1 for that, but I think this is something that the Ethereum world is not really grappled with, that L2s might be okay, optimistic L2s might be okay today for native assets, but they're not appropriate for stocks today.

Steve Ehrlich (59:06)

Yeah, that's a really important point. And it's something I've been trying to harp on as well, too. I mean, like, every single L2, like you said, Alex, is basically centralized because there's one sequencer, and I've been asking Coinbase for years, when are they going to diversify? And I think they made an announcement, what was a few months ago, that they instituted some sort of challenge period, as a way of moving along the pathway towards decentralization. But as far as I know, based on the latest information I have, there are no plans to add in new sequencers, at least as of yet, which is akin to sort of like taking the training wheels off. And, and, and you're right, either by, by malice or negligence, something can, can go wrong. And, and at that point, like, the L2s are exciting and they're interesting, but, but like, people should not make any mistake. They are completely centralized.

Alex Thorne (59:54)

And it might not matter too much though, for like a. An ETH transaction on an L2, you know, oh, crap, I'm delayed five minutes. I can. Or I'm delete forever and I can back out. But. And it might not economically matter for a stock trade. It might not, but it also might. And to be clear, like, national securities exchanges and ATSs are regulated such that if there's any mistake of any size, there's recourse. Right? I mean, native crypto ones aren't regulated, and I think that's good. But I think securities just are different. And so centralized corporate L2s, to me, are just not. They're not it. That looks a lot like just a. I mean, Nasdaq's a centralized company that runs an L2 for trading, and it's called, you know, Nasdaq, PHLX or whichever of the other exchanges they have.

Sam Kazemian (60:38)

Well, well, so, so then. That's a good point. So then would Robinhoods have been ideal for you guys to issue on because if it's good, if the chain is run by Robinhood, right, And they are the, one of the biggest like trading venues like in the United States for, for people and it's, and it run, you know, they run their thing well and, and they, they haven't had issues. Is that, is that sufficient for you guys? Basically, if they run it.

Alex Thorne (61:00)

So Robinhood is a broker dealer themselves. I don't know if their L2 is going to operate as a broker dealer. If you actually facilitate like a listed order book, you are a national securities exchange or an ats and that's a different registration. I think if Robinhood or Coinbase had that registration, then we as an issuer could feel comfortable that our shareholders wouldn't be taken advantage of without recourse. It's not that we think that Base or Robin Hoodle 2 or Kraken's Inc. Or any of, or you know, any of the other corporate controlled ones will try to take advantage. It's just that because they can, we think they should be overseen. You know, and, and this is not to say, you know, there's valid pushback that like. Well, surely like the Solana validator set's not perfect, right? Or the Ethereum validator. It's not perfect. That's totally right. I mean we could get just crowded out for some reason. I mean, you know, look, you have a, you have local fee markets, there's plenty of space on the Ethel one at the moment, so it's not likely that you'll just like. But let's say there's just congestion. Well, that could hurt our stock trade. There's just nobody to register. We're not saying it's perfect. We're just saying because they could register and be overseen, they should. If they can't register and be overseen, they wouldn't be able to and they start to look more decentralized. And that's the reality of a new decentralized world. And there's other steps that you know, we take to protect our investors. One of them, for example, people raise mev. It is true that basically the base sequencer is preventing MEV from taking advantage of the users on base. That's true. But because they, because they control the ordering, right? They're not outsourcing the ordering to, you know, a flashbots market or something else. But permission tokens like glxy, which you cannot transfer without being on an allow list, isn't really subject to MEV in that way. Unless you Know we accidentally were to add a mev bot to our allow list. Right. So like you can't really. So it's not really a real thing that's possible for a permission token which our stock certainly is. It's just among the, I think the current setup. I think if the ultimate stock market on chain became some single company's L2 we would go there. I mean I think like any listed stock you want to be on the biggest market. Right. It's just that like we think and we're sort of in this elbowing around and debate design phase with you know, as an industry and with the SEC about what the nature of on chain stock markets looks like and I just don't think it looks like unregulated single synced optimistic roll ups today. Yeah, that's not enough for us.

Steve Ehrlich (63:29)

Yeah, interesting. I will follow that. Thanks for that context. And, and then just quickly for me, one thing I just wanted to briefly bring up is sort of just, just the, again, I don't know if controversy the right word, but sort of the, the, the hoopla surrounding the world. Liberty Financial team, I guess freezing. Some of Justin Sun's WLF tokens heard a lot of different reactions to this. It's, and it's really just kind of interesting because like I profiled Justin sun one of my last stories before I came to Unchained and like at the time I don't know how many, how many people remember, but when he invested in wlf no one else had in a certain way he helped them reach their initial $30 million threshold to actually launch. And, and, and now it's just kind of, I mean I know Justin does a lot of opinions about Justin but it's just kind of interesting that like he's the one who's theoretically being frozen at this point. Utopians. And I think it's also a reminder too that for as much as the community is happy with how much the administration and the president have supported this industry and I went to a complete 180 in terms of the outlook from the SEC and then ETC, like this is what happens in a centralized world that's pretending to be decentralized or purported to be decentralized. And I think it's just a good reminder for people to always remember that crypto was meant so that crypto was intended for things like this not to be able to happen. I know sometimes it can be the cost of doing business, but it's, I think it's just a good reminder that crypto as it has in the past should be able to succeed no matter who's in the White House, no matter who who's coming after it, who's supporting it, etc. And I, I'm really interested to see what will end up happening here because Justin and the White House, I mean they've become very strong partners. I would imagine they're going to think continue doing so and they're going to find a way out of this. But it's again it's just a reminder that there's a lot of things purporting to be decentralized that very much are not and that that just kind of takes away. I wanted to share about that particular piece. Sam and Alex, thank you guys very much for joining. It was a really entertaining discussion. We'll have to have you back soon. We'll be back in one week to discuss how the worlds of crypto and macro are glading one basis point at a time. So with that, thank you everybody and have a good rest of the week.