Ram Alawalia (5:26)

First off, if you're just on audio, make sure you tune into the video to see for the professor's hair. It's a very important part of the new program going forward. We're going to monitor it every week. Yeah, this was pretty spicy. Over the weekend you had a founder who didn't sign an NDA, and, and he's like, you know what? I didn't sign an NDA, so I'm going to tell everyone what's going on. It confirmed what a lot of people knew, that distribution is very expensive. And for many of us, I don't think we signed up for this environment that we now live in, which is these massive centralized organizations have so much power and control. But distribution matters. I mean, just ask Circle and Coinbase and it's expensive. You know, I think the founder took a big bet and he took a lot of risk by saying, you know what, because he just lost for the foreseeable future any kind of liquidity you can expect on Binance. Not sure that's the best way to do business. Maybe it'd be better to kick that document back and forth. But I think he wanted to show everyone for the greater good how expensive it can be. From my seat. This is a supply, this is very much a markets driven phenomenon, right? If you're an exchange, what do you want? You want a lot of liquidity, you want people to love that token and you want to, you know, you're going to put resources behind it to cultivate that liquidity. And so if you're a very high profile, high momentum project, you know, generally there's a lot of wiggle room in the way that you can, you can thread that needle. And again, I don't know how many turns they took. I'm not that familiar with CJ's project, but you're going to pay for distribution one way or the other. And in Tradfi, as you know, it's the same, right? You can essentially have to go through the investment bankers, they take a cut, you got to pay exchange fees. Honestly, I believe that this world is going to be converging tokens, equities. I Mean, look what Robert Leshner just did over at Super State. He issued canonical equities on chain on Solana Direct listing, which is already fine from regulatory perspective. And so now that we're in this like regulatory period of normalization, I will tell you something. These legacy players are about to, and I think this extends. We're going to talk about perps later. You're going to see some of the big boys from TRADFI coming in and, and I think there's going to be a lot of pressure because if you're an end user, do you want to go regulated or unregulated? And you know, and, and are there ways that we can optimize the space? So look, it's, it's not, it's probably not the way I would do business but I think it should shine a light on an issue that people are dealing with. I think the market is going to address it in time.

Chris Perkins (8:01)

I'll be brief here. You saw me nodding my head there. In the US there's this concept of segregation of duties where different roles and responsibilities. Binance, which is one of the most successful private businesses the world has ever seen, that's a dominant international player. And CZ who should be on the Forbes 10 list built incredible business. He's a broker dealer, he's charging 8% for capital raising. He's an exchange, the venue where these transactions take place. He's the custodian and also he's got a kind of a non bank bank with issuing these stable coins where he can deposit new lending on. So in the U.S. you know, that's not permitted in international markets. You can do that. He's built an extraordinary business. You know, I'm more of a libertarian type but there are reasons why you have segregation of duties. Like that's, that's good regulation and that's what's not here. And you're kind of seeing these market forces play out.

Ram Alawalia (9:03)

That's not his fault. Right, because he had no choice. You know, there was nothing else that was available as we. And by the way, Guy Gensler pushed everything offshore. So you know, you can't fault Binance for having, you know, that vertical.

Chris Perkins (9:16)

I'd like to own Binance to be clear. So yeah, I'd love to own a slice of Binance. Yeah.

Austin Campbell (9:23)

100 fault them.

Chris Perkins (9:24)

Can you fault the Apple store for charging 30 take rate on revenue? It's egregious, it's high stifles on for the instrument. Can you. They're acting in their incentive but same story.

Ram Alawalia (9:35)

Yeah, right.

Chris Perkins (9:36)

Go ahead.

Ram Alawalia (9:37)

No, and again, I'm talking about faulting them for building out that vertical custody, you know, exchange, everything. I'm just saying there were no options. And I think, look, if they're charging egregious fees, the market's going to figure it out. I think, I think it will. Because now I think the US is coming roaring back and I think the options are gonna, I think we're gonna see new options come out. I think CM even launched, it is launching a spot exchange. And so like these legacy players are now going to come in and I think it's going to be really interesting. How are they going to partner with, with the natives? How are they going to buy them, partner with them or compete with them?

Austin Campbell (10:10)

I mean, are we also seeing an element of the call it traditional listing model versus direct IPO model from TradFi conflict now showing up here in Crypt? Folks on base are pitching against finance.

Ram Alawalia (10:24)

Totally. So there are three models to go public in the United states. Really maybe four if you count RTOs. But you have traditional intermediated IPOs, right? That's where you pay the bankers. They go out and they build the syndicate. Blah blah, blah, Intermediated. Very expensive. You have things like SPACs where you go public and then you buy something. Poor man. Poor man pe. And then you have direct listings. Direct listings are where you let the market set the price. You don't go through the bankers. It's just. And like to me, that's the market that's really interesting. I talked about Leshner earlier and superstate what they're doing. But think about it. The meme coin market cap in 2024 was $140 billion. Okay, why do I say that? Because these things were unregulated. You can access global markets and you can tap into that global demand for something that was worthless. The IPO market in 2024 was $30 billion. What's going to happen when we bring value into direct listings like that is the future. That is the future that we signed up for. And that's what this technology makes possible, in my humble opinion.

Chris Perkins (11:29)

I agree, I agree. Look, I think that's what excites me about the whole Internet capital markets thesis. Several people are talking about that. Kyle from Multicoin and Tolle on the Solana ecosystem, Nasdaq and block marketing around this. But I agree Google was introduced to public markets via direct listing. We need to see more of that. And it also ties back to community and capital themes too. So we need to keep advancing in this direction.

Austin Campbell (11:58)

I mean, If I recall, I think Coinbase was a direct listing as well in terms of putting their money where their mouth is on this one. But, you know, another interesting point of this one is exchanges are actually not completely cheap to run. And this will relate to something we're going to talk about later. But, like, you need to have, like, servers with good uptime and surge demand capacity. You need personnel. And especially if you've broken all these things up in the US way, you have a lot of different moving parts that you're accounting for. Somebody's got to pay for that. So, like, one question that I want to throw to the two of you before we move on is, is it better to be charging listing fees of the projects, to be charging your users in the form of higher trading fees or fees for custody or something like that? Or where would you think of the balance point here? Because, so to speak, the money's got to come out somewhere.

Chris Perkins (12:50)

I don't have a strong view. I think in all marketplaces, you have to choose who your primary customer is, right? In the case of Amazon, they have a choice between help suppliers or help consumers. They have a choice on consumers. They drive down prices and beat suppliers against each other. And exchanges have to make a decision on who their primary customer target is and deliver value for that. And there are a lot of different ways you can approach it.

Ram Alawalia (13:16)

You're going to pay, you may not pay. You're going to pay somewhere. You may pay in custody, you may pay in some kind of joint marketing, you may pay in listing fees, whatever. Distribution is expensive and it's very valuable. And so that, that's something that is absolutely going to happen, you know, forever and ever. I think what DEFI allows you to do is maybe to get access to capital markets in a more efficient, direct way. But I, I don't think CEFI is going anywhere. You know, you provide, they provide a lot of client service as well for people that need their hands held. DEFI is just not there yet. So, yeah, you're always going to pay.

Austin Campbell (13:53)

I think the other part, and Chris, you touched on this earlier, is if you want to reduce the market power of somebody like Binance, the best way to do that is compete, right? Like, we need American competitors entering into this space and able to fight them, you know, essentially on equal terms. Because if anybody thinks the past 4ish years under the Biden administration were a fair fight between Coinbase and Finance, you have no idea what was going on onshore in the United States. And short of using the extremely heavy and Often I would say complicated bat of antitrust, which would be even harder with an offshore entity. You need to fix this problem through competition. And one of the reasons that listing fees are a reasonable number in traditional finance and that exchange trading prices have gone down, down, down, down is competition. Right. Like even now we're still seeing more proliferation with BlackRock starting an exchange with partners in Texas. Right. And so, you know, I, I would, as a final thought on this topic, say the ultimate solution here is always going to be more competition in markets in order to drive value for the consumers and at the users. All right, onto what I think Chris has been excited for, which is Black Friday. So in case you were living under a rock, Black Friday was recently one of the largest liquidation events in the history of crypto. We wiped out about 20 billion and counting of leverage positions spread across many venues. Hyper liquid binance and more. This was one of the largest deleveraging events in the history of the ecosystem, probably on par adjusting for market size, with some of the catastrophes of 2020 to and for those unfamiliar with what was going on here, a deleveraging event is essentially a stress test for the system that you're living in. And in crypto, which is a 24, 7 always on system, you get auto liquidations and then if those are not sufficient, you end up in the realm of, call it backstops. So first of all, this is all well and good locally, right? Like we've seen automated liquidations for borrowing positions. We've seen small perpetual positions being wiped out. But what happens when it's not local, when the entire market is moving in size? Large liquidations need to happen all at once and there may not be, quite frankly, enough there there to absorb it all. Well, the thing that happened here is called automatic deleveraging. And there have been a lot of takes about this and what happened. But I'm going to start by reading one from Don Wilson, the founder of drw. And then I want to kick it over to Chris and then Rom, but Don had this to say and this is a threat on X. If defy is the future of Tradfi, what did Friday teach us? Friday's crypto sell off was a stress test for market infrastructure. It didn't pass. Here are the three big lessons the market needs to learn from the tuition it just paid. Real time margining keeps things real, but needs a check. Real time margining is one of DeFi's core innovations. But in a market that moves 24,7, it also creates new risks to manage. DeFi needs infrastructure that lets you sleep without worrying you're going to wake up to mass liquidation. Enter fcms. Traditional markets work on batch margining. Your FCM calls. You've got a few days to send more money. We've all seen that go horribly wrong. But in a real time market, they become the credit buffer, the liquidity shock absorber, and the human judgment to smooth the system's response to volatility. ADL is at risk management. It's a last resort kill switch. Friday showed what happened. Without these buffers FCMS provide. When exchanges froze deposits on Friday, there was nowhere for the pressure to go. Result, ADL kicked in, forcing other participants to take losses. That's a design flaw, not a market failure. Even worse, rumors circulated that some large participants were exempted from adl. This mechanism is problematic enough when deployed in ways that aren't uniform or transparent. It undermines trust in the market. Exchanges can't be all the things. In fact, they shouldn't be anything other than a neutral venue for trading. The minute they are providing liquidity or generating revenue from liquidation events, we've passed what should be a bright light and a bonus lesson from decades and markets. On Friday, liquidity providers did what they should be expected to do and what mature markets anticipate they'll do. They reduce the size to reflect higher realized volatility and then increase their size when markets normalize. That's rational market behavior. Stress tests reveal where systems are resilient and where they're not. The right takeaway from Friday is to review what happened and identify places where together we can strengthen infrastructure and resilience. If DEFI is the future of finance, it needs to meet the same standard as TradFi. Transparency, continuity and trust that it works, especially in heightened volatility. So there's one set of comments. Chris, what do you think you'd like to jump in?

Ram Alawalia (18:57)

I thought there were a ton of terrible takes over the weekend. As like you go through your podcast feed, the purpose market is, you know, the purposes of product are awful. That's not ready for prime time. I don't agree with that. Oh, Defi held up great. I don't agree with that either. You know how many takes Defi did Great. It did exactly what it was told to do. Yeah, of course it did, but that doesn't mean it was designed correctly. And then CEFI was also pretty much a disaster in my mind. What we what's the take? The take is that perps are here to stay and that field was wide open because I don't think it's been figured out yet. You had an entire industry that ignored, you know, you want to talk about liquidations? I was in the biggest liquidation, it's called Lehman Brothers. I was on a floor when that happened. And like we learned a lot of lessons. And it's easy for crypto people, you know, to say, oh, you know, stratified guys don't know what they're talking about. Like, we went through agonizing week after week of trying to fix like all the things that were broken in derivatives. Do we come out perfect? No. But we haven't had like these types of issues. And what we did was we came up with obviously back then we didn't have decentralized technologies which frankly probably would work better because we could send the risk out. We decided to super centralize everything into call CCP's. We just didn't have the tech. But what we did was we came up with principles that would protect that system. And it's called risk waterfall. Risk waterfall has a few different items. The first is good pricing, which obviously broke down in this last crisis. Second is initial margin. And like what you want to do is if people put on trades, they should pay for their own risk, they should collateralize their own risk. That's the, that's the North Star principle when it comes to derivatives markets. Okay. And then the exchange, the clearinghouse basically called spin in the game. This is their own capital. And why do they put their own money in skin in the game? Because they calibrate the whole thing, they program the whole thing. If they screw it up, they should pay. Okay? And then it goes into what we call guarantee funds, insurance funds, whatever. That's a mutualized pool. Traditionally it comes from members. I think you can probably do something really cool with token, with token incentivizations, etc to have third party capital. But that's a socialized pool. Hey, we broke through these lines of defense. Now someone who, who wasn't putting on the risk is going to pay. Okay? You need to make sure you get paid for that. And then, you know, you go into what's known as recovery and resolution, you know, so you, you try to do some things for your haircut margin and then you end up with that adl. So ADL is like kind of at the end. And what these guys did was they ignored every aspect of risk management. And we jumped right to the end and we said it worked, you know, in certain cases. No, no. So what I'm kind of excited because now I think the light's been Shining. And by the way, derivatives are everything in markets. You want to know why I spot NYSE and not the other way around? Because derivatives are much more lucrative. We can maybe talk about. I talked last time I was on the show about futures, how futures are holding this industry back because you can't hedge. But long story short, this is shining a bright light and I'm excited because I think this opens the fairway now for people to jump in and do things right and differentiate with risk management. Now, you could do it regulated on shore or you could do it unregulated. I don't care if you do it unregulated, go for it, but at least have transparency and know what you're up for. But yeah, to me it was a catastrophic breakdown. But I think the good news is that the industry can now move forward.

Chris Perkins (22:29)

Yeah, no, I agree. So in this case, CCP means central clearing power, not Chinese Communist Party. So there's ice, there's cme, dtcc, for example. And Chris just walked through the five levels of defense around that. Digital assets just speed, runs history and a lot of what's been understood and learned. So in 2021, Digital Assets learned where rehypothecation was and why you can't have a Celsius. And next to all these other players lending out customer collateral, rehypothecating, you just can't do that unless you have a lender last resort and something like FDIC insurance. So now on the derivative side, we learned what central clearing is and how clearinghouses work. So yeah, the category will learn and update. From a markets perspective, I think it's bullish. Derivatives are zero sum by design and the margining's in cash, so for those losers, it's a matching winner. Now there are some forced liquidations to the automated deleveraging process, so I'll leave the concept of fairness out of it. But some of the mechanics aren't perfectly symmetrical, but there's, there's cash out there and so they're prepared to lean in and, you know, buy the dip on this, which they did.

Austin Campbell (23:46)

All right.

Ram Alawalia (23:47)

Huge opportunity for stable coins though. I mean, awesome collateral for derivatives and I think that's one of the biggest use cases that are overlooked.

Austin Campbell (23:55)

All right, great point. So on that note, before I have a lot of things to say about what you guys just said, but first we do need to hear from an ad. So I'm going to do that and then I'm going to come back and then start a flight.

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Austin Campbell (24:51)

All right, so welcome back. Now let's talk some more about this problem. So one I would say, and I've said it before on this show as a guest, one of my persistent critiques of the crypto space is that they don't pay enough attention to craftsmanship on things that as ROM was alluding to traditional finance has spent a lot more time on. And we kind of have this habit of saying, oh we're going to rebuild the car, we're going to re engineer the car and you get like an engine and a steering wheel and then you're like cool, I'm done. Right? Like nobody puts wheels on it, nobody puts brakes on it. God knows there are definitely no seatbelts. And so if anything happens, people just go flying through the windshield at 120 miles per hour. And so in this case, what I would point out is a couple of things that I think were exacerbating factors for how as Chris stated, we kind of raced to the bottom of the stack. One is there's a real problem in this space with price feed like stability, redundancy and design. Which is to say as somebody who's like managed a 40 act fund at public markets, I can't close my book by just taking prices from one broker being like that's good enough, right? And moving on, I'm taking like averages of quotes. I need multiple redundancy, I need a process to value things. If like I don't know, my broker's sick, it doesn't send a quote sheet. And here we had a lot of people relying on the Binance price feeds which during this drawdown basically just bricked for a while. And so one of the things you've got to have happen is that the price activity that you're observing actually needs to be the real price activity. And I think for a lot of this we honestly probably couldn't say it was number two. I would say as you're designing these systems to go back to the collateral point, you need to pick the right collateral because one of the other things we saw here was essentially a temporary DPEG in some ways of USDE which, which is Athena's synthetic dollar. And I want to be clear, there was no problem with Athena that caused them to pause redemptions but somebody wiped out an order book probably searching for collateral and as a result of that this thing traded down by like many tens of cents. Well when you've allowed that to be a tool to collateralize derivatives and again you also screwed up your price feed, we're back to sort of one of the 2008 era problems which is not only am I having problems with the, the leverage and derivatives positions that I may have created, but I'm having problems with the collateral that I posted back those derivatives positions because if anybody remembers like asset backed commercial paper, there have been totally things that we thought were worth par and everything is good and actually JK, they're worth like 70 cents.

Chris Perkins (27:32)

Look, I think digital assets always iterate and learn. Like Traffi has learned from screw ups and then it learns and adapts and it's still screwing up.

Ram Alawalia (27:41)

Right?

Chris Perkins (27:41)

Speaking of asset backed, in the last three months we've had frauds from Canton, Tricolor first brands where you've got borrowers that are alleging that they have good collateral that meet certain covenants and that's not the case and it's fraudulent by the way. All that needs to be on chain. It's absurd that it's not. Today you still don't have loan level transparency in securitization. So markets learn by taking these hits. Then private market actors adapt and respond and sometimes this heavy handed regulation that comes in just finding that right balance.

Ram Alawalia (28:19)

The technology in our space, in the crypto space is so much better and we can build such a better system. Real time collateralization is awesome. I wish I had it when I was running the largest FCM in the world. Right. And the issue is that it's not a technology issue, it's a design issue. It's things that people didn't put thought into for whatever reason they ignored risk management and stuff that could be calibrated just so much better. I mean how cool would it be to reconstitute a risk waterfall? Decentralized risk waterfall. Right where you're going, where the code is going through the liquidations, it gets to this guarantee pool from LPs that are contributing and getting paid in incentives and they're putting their money at risk and they're getting Paid for it in a decentralized manner. This is so exciting.

Austin Campbell (29:08)

No, I agree with that one completely. Chris. Let me, let me take actually this and yes, and you. Do you think we should be bringing the FCM model on chain because to channel another one of our former colleagues at Citi, how do you balance the interests of individual retail traders who have to do things like eat and sleep against institutions at a 247 arena? Or do you think there's another model you're thinking of there?

Ram Alawalia (29:32)

So FCM model means that it's an intermediated model where the broker like Don is saying is like meeting all the margin calls and taking care of everything. I think there's going to be continued demand for that service. You know, this is something I know very well because some institutions will want it and they'll want to pay for it. I don't think they paid enough for it in the past to be honest with you, from personal opinion. And I wish Don would pay more, but that's another story back in the day and, but that's fine. That doesn't mean that there shouldn't be a decentralized alternative as well. So I think these are just different strokes for different folks and I think it's very. Yes, there's going to be an FCM model. Yes, there's going to be a D5 model and there's benefits to different types of players.

Austin Campbell (30:15)

Let's move on then to building some other stuff. So another little news item that, you know, small detail for the world is that Tempo, a blockchain for payments backed by Stripe, recently raised a funding round what we know, $500 million Series A to $5 billion valuation backers included Stripe and Paradigm. Thrive Capital was in there, Green Oaks, Sequoia, Ribbit, SV angel. And the goal is obviously making us dollar backed stablecoins core infrastructure for global payments. So before we get to some of the joiners who came to that project, I just want to pause there and ask Chris and Ram, what do you guys think of those terms? What do you think of this launching into what is becoming an increasingly crowded and competitive market?

Chris Perkins (31:02)

Look, the cynical take which I think is accurate is this is an internalized version of a round trip trade, right? So that in the backdrop public markets have been soaring. You've seen deals like Nvidia invest in OpenAI. OpenAI turns around, buys GPUs from Nvidia, right? That's the critique of the market by the long Nvidia etc. But you've seen that here like Stripe and Paradigm didn't need to actually raise equity. They can self fund this whole thing, but the valuations are so high they're funding their opex. The invest actually in this case capex and opex with external investor money because they can. And then the valuation goes higher so it pays for itself and then some. So that's my. From a financing perspective, that's what I see this, that's what this looks like.

Ram Alawalia (31:55)

I mean this is part of a bigger trend around stablecoin and stablecoin distribution, right. You're seeing plasma, who's very close to the tether codex out there. You're seeing now Stripe and tempo. I think stablecoins are. You're the stablecoin expert, Austin. We could have 3 trillion of these things. How big is it going to be? They need to move and they need Rails to move upon. I think what Tempo did was they attracted some amazing talent in dankrad, but they're optimizing for stablecoin and payments. Right. And I think that customization may be the end game in certain places. Interesting design choice evm. So maybe that's good for the Ethereum ecosystem, but not a layer two. Maybe that's bad for the Ethereum ecosystem. So it's really interesting from a design choice perspective, but it's part of this larger trend. I'd love to know what your take, Austin. You're the stablecoin guy. I mean obviously these stable coins are coming. I think there's going to be trillions of them. They need to move on something. Are these going to be competing ecosystems? How are the rails going to work?

Austin Campbell (33:07)

So if we're zooming out and thinking about what is everybody trying to do here, just to scope the size of the opportunity and give a sense of why everybody cares. There's you know, round numbers, $1.25 quadrillion of wire business annually around the world, like, and that's a number so large it sounds like my daughter made it up. Right? Like this is a stupendously large market that is out there for transfers. And so one, I want people in crypto to know when you hear numbers in payments, like, oh, we moved billions that payments. People look at that and go, oh, cute experiment. Let me know when you get to something that's scalable, right? Like the market is tremendously large and we're only just starting. So I would say if you're drawing lessons from that space, Chris, one of them is that the ultimate winner tends to be liquidity. Right? Like you want money to be able to move, you want to be able to use it. You want to be able to use it fungibly for a live things. And this was something that like JP Morgan has been learning the hard way for now, roughly the past almost ten years with Onyx. Right. If you're a behemoth the size of JP Morgan, because if you think Binance is big, go look at them. And you can't get people to unilaterally adopt your own private blockchain. Right. That they were attempting to push out into the world. I have a lot of questions about whether any of these single company affiliated efforts have a chance to be successful. Because, like, put on your hat for a moment and imagine that you're the CEO of PayPal or that you're the CEO of like Block or Visa or MasterCard or really anybody. And Stripe comes to you and says, hey, we want you to start doing payments on Tempo.

Chris Perkins (34:50)

Yeah.

Ram Alawalia (34:50)

So what's the end game? You decide. You know, obviously for certain apps, there's going to be accumulation of stablecoins, maybe their own stablecoin. I could see a world where, you know, I'm poly market or something like that. I'm like, hey, you want to come into my ecosystem? You're using my token. I don't know, I don't have information around that. I'm just speculating. But what's the end game for payments? Are you going to see like one global public rail or these, these fiefdoms?

Austin Campbell (35:18)

So one on the tokens themselves? I think the question as to whether we see one or many ultimately comes down to how fungible they are, Right. If they're relatively fungible with each other, I do think we're going to see many because it makes sense for people to, to want people transitioning into their type of money if you can easily get between them. So like, let's, instead of traveling forward in time, travel back in time and think about check clearing, right? Like checks cleared pretty liquidly between banks. Consumers kind of didn't care. The money just showed up. They didn't have to like, think about that whole thing. And meanwhile, yeah, there's a small army of human beings, like literally exchanging checks back and forth in back rooms and clearing everything. Anything. But, like, fine, it worked. So if we move to a world, let's massively oversimplify this, Chris, since you mentioned them earlier, where everybody's stable coin is just a wrapper on Superstate's government money market fund, then there's going to be a huge proliferation of stable coins because you could move between all of them. Seamlessly with a wrap and unwrap item. However, if there's way more fragmentation on the back end of stable coins, I think you move towards something that looks. Looks like winner take all. So it creates this weird, like, geopolitical push pull of if you have, like, Micah writing their own, like, requirements that are very divergent from genius, which might be very divergent from what's going on in Asia. Ironically, we're increasing the probability of a winner take all outcome, and that's probably a bad thing for everybody other than the United States. So I'm not sure we're against it here. But, like, if I'm Europe, I'd be terrified of telling everybody, hey, why don't you use genius stable coins? They're the most liquid ones.

Chris Perkins (36:59)

You probably see both proliferation and a power law distribution in terms of the dollars back in it. Just like you see in digital assets, right? You have five to 15, maybe 20 digital assets that matter. But the barrier to entry to issuing is so low and other players are coming into the market make it easy to issue. So we'll see that. But here's the other kind of angle on this is Thrive Capital co led this investment. Thrive is run by Josh Kushner, linked in the Trump orbit. I think that's another reason why they did this, because the political orbit of the White House confers value in the next three years. So maybe, maybe that's why they did this. This financing.

Austin Campbell (37:46)

I mean, I. I was gonna say. I can't say. That hasn't been the case in markets.

Chris Perkins (37:51)

Like, there's no doubt that's what happened. Look, Ribbit didn't lead it. Now they were participating. Now Rivet's ecosystem of fintechs probably will be motivated to adopt Tempo. Sequoia was involved. Andreesso Horowitz wasn't. That's kind of interesting. Yeah, but the main player is like. It's Kushner. That's. You don't see that. You don't see that, right? Chris, You're. You're the VC in the room. Like, they're. They're not like the leading crypto vc. They're very skillful, very thoughtful, have had an amazing sets of wins. Right? Very thoughtful. He got a profile on a magazine the other day. To their credit, they got this deal done. This is a. This would have been a highly coveted deal to have Stripe and their muscle behind this. What do you think about the political angle here?

Ram Alawalia (38:42)

Well, it's not the only political stable coin, right? We have a World Liberty One as well. So where do you draw the line.

Chris Perkins (38:50)

Right?

Austin Campbell (38:51)

I mean, going back to a previous topic, do we think World Liberty paid a listing fee on finance? Right? Like, clearly there's some value, you know, to be associated with the Trump brand there, as Rahm said, at least for the next three years in the United States. So. All right, I want to get to the other angle of this story, which Chris, you already alluded to, which is Dagrad Feist left the Ethereum foundation to join Tempo and this definitely provoked some reactions. So Ryan Adams of Bankless said Tempo will optimize for itself, not eth. Nick Allman said, not a death sentence for eth, but Tempo will ship faster, better UX via Stripe. Ethereum can't compete directly and others have said this is a big loss. So Rahm, I want to start with you on this one. Like, what does this say about Ethereum and what does this say about some of the attempts at permissionless blockchains, if people from that world are now leaving for things like template?

Chris Perkins (39:48)

Overall, I think Ethereum as an asset is good relative strength. Like I own Ethereum, I think it's well positioned. Beneficiary of stablecoin, it's tradified chain, which is actually a good thing, even though it sounds not good. That's one header statement.

Ram Alawalia (40:00)

Right?

Chris Perkins (40:03)

Look, I think people are moving to where the capital is going and Tempo is the next FOMO thing. And if you're an engineer and you're not being compensated well at Ethereum, which was also the allegation, then you're going to do that. The third piece is that we talked a little about this earlier. One of the main hangups around Ethereum is a lack of leadership around focus and opportunity set and what pain points you're trying to solve. Like Vitaliks have been doing the merge, the purge and the Splurge and the Verge. And then we stopped writing out things that rhyme with those words. And it's very theoretical as opposed to like what Solana is doing around Internet capital markets. We're solving these problems and it's easier to engage with that ecosystem. So Ethereum, what's been accomplished is obviously extraordinary. It's phenomenal what's been built. But the ability to commercialize, it's been difficult. Like if you enter the ecosystem, like where you go, it's difficult to navigate. So I can appreciate someone who's in the ecosystem, they've seen the maturity of it and they're trying to jump on the next train.

Ram Alawalia (41:10)

Rom I think that Ethereum is making some changes to address some of the shortfalls that you cited. I agree with Solana and other, you know, labs organizations. They're very focused on bd. They're driving it every day and I get it. And they're very successful and that's an edge. And if, you know, they can in certain cases move quicker. And they've got a great story on Internet capital markets, the Solana side, they need to solve derivatives. That's been something that I've been looking for. If you're the decentralized nasdaq, you got to figure out derivatives. And so I want to see looking for that on Ethereum. Look, you got to theorize now Vivek over there, he is pushing every day. He's business development. You got Thomas new blood in the EF as well. And it feels much different than the past. There's a pretty deep bench there. To your point, Ethereum has some things going for it that others don't. And putting my old tradfi hat on has 10 years, right? How many risk models, Austin, did you look at that you required 10 years of historic risk or the regulators wouldn't let you do anything? It has 10 year history, never going down. And that, that's very meaningful. And it's something that you, it's like, you know, you can't, you can't coach size, you know, like it's, it's a thing you gotta. And it's an edge and it's shown a lot of resiliency. Even with this AWS outage. You saw a little bit of noise, you know, maybe around some of the layer twos that are still working, decentralization, etc. But he's just moved on and I think there's value. So at the end of the day, I think these ecosystems all have promise and can be successful in their own ways by optimizing. I'm not so sure how the stable coin play ends up. Right now Ethereum dominates the space. Are you going to see it migrate to some of these high performance payments change for sure, but there's a lot of different use cases. What about collateral? What about this? What about that? What about Solana and others? So I'm not sure how this plays out. We'll see.

Austin Campbell (43:08)

Well, I'll say something provocative on that front. I'm pretty sure the stable coin that will have the largest AUM and transaction volume in 2040 probably hasn't been created yet. Right. And I say that because in crypto we have this belief that there's like a unitary form of money that could be used for everything. And that is simply not true. Like Chris, you and I know one of the biggest use cases for stable coins is clearing derivatives trades on chain 100. And once you start moving there and you want to build something robust that institutions will use, that means bank deposits can't be involved. You're probably doing something that is created and redeemed in kind with T bills like, oh, I don't know how it's actually currently done in derivatives markets in many cases. Right. So please, whatever you do and take from like our stream, don't go read a csa. But just know the number one form of collateral you could post for derivatives is T bills. Right? And so I think it's very possible that people are going to start bifurcating or trifurcating or whatever number it is among use of stablecoins of like retail payments that might look more like check querying, derivative settlement that might look more like institutional grade collateral. And then there are probably other preferences for things like treasury funds, yield generation, et cetera. I think this market is nowhere near mature. Like I would say, Chris, if you want my prediction, it's that we're still at like, call it the AOL where everybody's getting like stuff on CDs and there's that horrific noise that sounds like, you know, an electronic goat being tortured to death coming from the modem. And nobody has been like, aha, Facebook. Or much less, aha, tick tock. Right in the stablecoin space yet.

Chris Perkins (44:51)

Love it. I agree briefly. So city CEO Jane Frazier on the earnings call last week said essentially tokenized deposits are coming. She sees them as a better payment vehicle than stablecoin. So we could spend an hour on this top. I just wanted to highlight. I agree with your point. Don't take the current market leaders as the base case for where we are three years from now.

Austin Campbell (45:13)

I'm going to tee this one up for rom and then I think we're just going to jam, which is to say to talk about the other big crypto asset, ROM, gold versus bitcoin. 23.5% win for gold over the past month. So let me just ask you the question in this way and then we'll roll. Is bitcoin undervalued versus gold right now?

Chris Perkins (45:35)

Yes, it depends. Look, everything depends on time horizon, all the rest. But I think tactically to the day, where we stand. Yes, that's one, two is. I'm going to show my screen here real quick here. I'll pull up gold on a chart. You know, gold is really a dollar substitution play, folks. That's the way to think about it.

Ram Alawalia (45:58)

Right.

Chris Perkins (45:58)

It's a dollar substitution play and it's been benefiting from this increased geopolitical uncertainty which is starting to abate. It's obviously benefited from China shifting from purchasing Treasuries to augment the foreign reserves to gold. That's been the primary bid. Then there was a narrative and then debasement got in the narrative and then momentum showed up. So that's where we are with gold. Right. But here is, here's gold. You can see 30% in the last three months, one year, 60% here. I'm showing the relative strength, kind of a basic technical indicator. It's a commodity. So you're dealing with the commodity, you know, the fundamentals. We talked about China bid, there's a dollar basement narrative on the technicals. I mean, if you're buying here, I don't think that's a wise decision. It doesn't mean that it doesn't go up next week. You know, I call this part of the movement. It's called a, like a. It's a bargain with the devil. And I see it often when you have these parabolic moves, meaning the probability of the next day going up is very high. And the probability there for that's going high, higher as well. But the probability of one month or three months later is actually negative. Markets do this all the time. Same thing happens at the bottom of a correction. It's mirror symmetrical. When you're having a cascade capitulation down, the probability going down, the next day's high as the dick starts shooting up. But the probability three months later of that being lower is actually low. And so what, what the markets are now just sucking up that marginal liquidity and that FOMO buyer and squeezing people that are trying to short on the way up, which you shouldn't be doing either. And so that's kind of where I see it. And I think bitcoin and digital assets have room to rally where we are at least looking out from a few weeks. But this is such a dynamic market, you really have to reassess because time is one variable and price is the other variable. If bitcoin shot to125 tomorrow, my view might adjust. Not might.

Austin Campbell (47:56)

It would after we consider.

Ram Alawalia (47:59)

So what's the trade, Rob? Sell gold, buy Bitcoin, I think sell.

Chris Perkins (48:04)

Gold and buy QQQ into tech earnings and small cap value, which is still rallying and beating tech and beating all these things being all these things. Right. Even today. Right. Mortgage refinance names like better was up 30% today. I mentioned better on this show like two months ago, I think. But that's rally. Mortgage refinance names are rally, not just that one, but like Wells went up on earnings. Loan depot went up 15 today. So mortgage refinance is a, you know, rates coming down. Is the, is the trade or the trend? And the question is, how do you express it? Maybe home builders consumer spending is going to go up. People are refined more disposable income. Consumer discretionary stocks like the airlines are going up. So sounds boring, but I think like those ideas are good ideas going into Q4, like I'm more of a risk adjusted return kind of person. Like I, I think that's a better risk reward, all things considered.

Austin Campbell (49:05)

All right, so let me ask the follow on question that comes from that because clearly we're still on these stocks are the best investment really over gold though. But to go back to kind of Chris's point, at their current levels, if you had to hold without the ability to sell one of gold or bitcoin for the next month, even knowing we're in like devil's bargain territory with gold, which one are you going with?

Chris Perkins (49:29)

I don't know. I mean, that's hard. I mean, the thing is, the reality is markets don't actually present you with that choice. It's like, you know, I mean, look at your overall portfolio and what's the role, what you're trying to accomplish, how does it fit together with other assets and you know, stick to your knitting and, and you'll do well. You know, there are actually a lot of ways to make money. Try not to get into FOMO and get into style drift and you'll do okay.

Austin Campbell (49:56)

So I'll actually try to make part of the argument for gold here, which is that you had earlier said gold is a dollar substitution trade. I'm not sure that's the only thing it's a substitution trade for. Right. Like, you know, again, thinking of past market regimes and rhyming, we're in this weird place where although we continue to spend money here in the US we may still have like, call it the least dirty apartment of all of the dirty apartments. When you look at most other currencies, I wonder how much of the gold demand is more, you know, like vibes from the late 90s and looking at Asian currencies and saying, do I really want to own anything denominated in that or would I rather just park it in gold?

Chris Perkins (50:37)

What? Yeah, good question. What are the retail investors doing? Look, look at this new York Times article. No, we're talking in New York Times. Right. So like, like when you. This is almost the Economist now. I'm waiting for the Economist headline this weekend telling everyone how's it going. Right. You know, that's coming soon. But I can't get in the New York Times because I spend my money wisely. I don't subscribe to the New York Times, but you can see the headline here is gold bars, gold necklaces, gold earrings, the rush to cash in. So this sounds like retail buying. You've got CNN talking about it three days ago, the Wall Street Journal. They weren't talking about it three months ago. This is late momentum. I think this is. It's an easy read that it's light momentum, too high. Conviction that it's like momentum.

Austin Campbell (51:27)

Chris, you looked like you were in pain when I brought up the Asian currency crisis. What do you think?

Ram Alawalia (51:33)

Look, don't have strong thoughts on gold. I think what we're seeing is a hot ball of money. And right now that hot ball of money is in the gold space. Not sure where it's going to go next, but it's definitely there. Now, look, I think. But if you're looking at a store of value, bitcoin is a much purer store of value because it's programmable. How much gold is there in the world? Somebody told me you can fill an Olympic swimming pool and that's it. But then maybe there's a rumor that they found some in China, like. Like the supply is less certain. And so I think it's time. But. But what do both have? They have social consensus as a store of value. My money's on bitcoin just. Just from a fundamentals perspective, because it's more pure when it comes to its limitations.

Austin Campbell (52:22)

All right, let's move on to what's probably our last topic then, which is where the hot ball of money just was. Chris, which is the DAT space. We still have more DATs coming and we saw Huobi's got a 1 billion eth. Dat ripple is coming with a 1 billion dat through the acquisition of, I believe, G Treasury. Chris, what are we seeing in this space? I know you had some thoughts about them vis a vis what had been happening in crypto overall.

Ram Alawalia (52:48)

Yeah, I think the question is, is it a frothy space or is it going to be part of market structure for a very, very long time, maybe permanent? The answer is yes, it's both of these things right now. And yes, MVAVs have come down. One of the biggest problems that you have with these assets is that it's very hard for institutional players to enter them. Why? Because they're so damn volatile. And if you had futures or a more robust derivatives market that was suppressed for so long under the last administration. Yeah, you have it now for the, the big four, whatever. But we need comprehensive futures. So then, like I'm working on an article now, it's kind of this new wrinkle on the basis trade because we don't have ETFs either. Remember, we're still lacking a whole ton of Tail ETFs, but maybe in the interim, once we have those futures, and I think they're coming based on some conversations with, with a number of folks, including regulators, now you can finally give institutions the ability to hedge. That's what's lacking. That said, you know, I think these are gonna be permanent. Like by the way, during Black Friday, if you were a debt investor, you woke up on Monday and nothing happened, right? You just kind of. Maybe it was a little volatile, but you sailed through. I think there's something to, to learn through that example. So. So yeah, they're definitely here to stay. We look at a number of different factors as we evaluate them. Those factors are really hard to put together. Do you have an asset manager knows what they're doing? Do you have someone who can tell the story? What are the fundamentals of the underlying token? But done right, and you do your research. I think there's a lot of value here.

Chris Perkins (54:24)

A lot of research on what though? Aren't these all attention assets? Research on who's got the, the biggest attention turret, and then you buy that these are the momentum asses?

Ram Alawalia (54:35)

No, no, they're fundamentals. Look, you're taking an asset, you're wrapping it in, in something that is operationally accessible, something that, that you don't have to adjust your investment docs to, to trade. You're opening up pools of capital that can't access crypto. You know, a lot. No operational complexity, right. So there's that abstraction that's very important, right? You have underlying token fundamentals. And by. If you have an asset manager knows what they're doing and you increase your crypto per share, you know, like rom. Look, you have, you have strategy. I think since, since inception, when I started buying Until September of 25, I think strategy was up 22x. Bitcoin is up like 11x. Right? So done correctly and structurally, I think you can drive real value.

Chris Perkins (55:20)

I think it was fair. There are fundamentals. I don't think it's the Primary driver of price. So the primary drive microstrategy was Michael Sailor and oh yeah, evangelical abilities and you look at like the Ethereum DAT space what's got the most relative strength, what went up the most today 100%.

Ram Alawalia (55:42)

It'S Tom Lee and Bitmap. Right? Because you have someone who's able to translate to those institutional buyers a product that they can access.

Chris Perkins (55:51)

You think it's that's not institutional buyer. Institutional buyers should not be buying Tom Lee's product. They should be buying Ethereum machines which is has I believe the right correct fundamental underwrite, the right structure. There are no games with the warrants to create a short term bid etc so it's not.

Ram Alawalia (56:11)

I don't have an issue I'm not going to get into to that's like which ones I like over which ones I don't. I'm talking in general terms. Right. But I think the point is, is that there is value. Like as you just said you like Ether machines so there's value. Right. Like I would say like let's look.

Chris Perkins (56:24)

At the top holders of sbit for example the top well parify. They must have gone in on the pipe. You know we should have been Ben back from Terrify. I think he's been very active here.

Ram Alawalia (56:38)

Yeah, we should get Danny on from. From Orbs.

Austin Campbell (56:42)

What I'll. I'll say, I'll pile in and say one thing that I think is also going on here is still some of the hangover from the previous sec and some of the functional abilities that DATs have. Chris, to your point, like I wrote a paper recently with some of my friends over at JITO foundation on liquid staking Tokens should be allowed within ETFs because then you can capture the staking yield but still have liquidity to pay redemptions at the same time if truly necessary. And this is still like a cutting edge revolutionary idea. Whereas a dad is going to have a whole internal functionality to like manage and measure that if they're doing a good job on those sorts of things. So I can see to your point Chris, a structural argument for DATs that are really doing something that has fundamental value. I agree with rom, a lot of them are just attention plays. That doesn't have to be uniformly true. But some of these are probably going to die horribly.

Ram Alawalia (57:36)

You're right because we were deprived ETFs on purpose and so we had to innovate through that. Now ETFs are tough because of daily liquidity. Right. And these instruments do Rob, you got to Admit, man, they give you a lot more flexibility to drive yield and to increase your M nav. Done correctly.

Chris Perkins (57:55)

Correct.

Ram Alawalia (57:56)

But it's really hard to do.

Chris Perkins (57:58)

It's a better product than an etf. All things put together. I agree. Yeah, yeah.

Ram Alawalia (58:02)

It's not easy to pull off.

Austin Campbell (58:04)

I mean, in some ways, one of the great things about various forms of term or interval or closed end funds, to your point, Chris, is burying the following volatility for a lot of people. Like, look, whether we like it or not, human psychology of investors is they feel loss is about twice as much as gains. And so people panic and bailout and volatility.

Chris Perkins (58:23)

But it does seem like the IPO market is cooled off now. It needs a breather. There's just so much frenzy. You know how many of these 5x levered funds have filed to launch? You guys seen this 5x levered bull bear? Like any. All the combinatorials around ETL's that anyone could conceive of is now filed. They're not listing yet because the government shut down. Probably a good thing for now, but we are seeing these discounted navs come back. There's at least one closed end fund that has an 18 discount to NAV. I'm looking at, for instance.

Austin Campbell (59:01)

And I think some of the answer for the dats is going to be how easy is it at some point for somebody to take the thing over and, you know, essentially put it down if that discount gets too large? And the answer to that, by the way, is not uniform. That'll vary heavily on a case by.

Chris Perkins (59:16)

Yeah, I agree. Now, some of these debts carry unspoken liabilities.

Austin Campbell (59:20)

Yes.

Chris Perkins (59:20)

Based on how they were brought into public markets and the legacy obligations that the companies had and any lawsuits, those things show up, you know, either when these things go way up in price and some say, okay, like let me get a claim, or they lose money, the losses show up. So, you know, there are cleaner stories out there and then. And then kind of dirtier dad stories too.

Austin Campbell (59:45)

All right, so on that note, we're gonna leave it there next week. We'll come back and find out which dats rom likes most. Right? No, I'm just giving you a hard time. All right, so everybody, thank you for joining us for this episode of Bits and Pips. We'll be back in one week to discuss more about how the worlds of crypto and macro are colliding. Until then, take care.