Tom (4:41)

Well, this is not the first per deck war. One of the things that I find amusing is that up until a couple days ago, everybody had decided that Hyper Liquid was the winner of the per decks wars and there weren't wars anymore. And then it was sort of a decided, you know, narrative. It's amazing how quickly things can change. We've been having per deck wars for like six years. I mean, who remembers the OGs? BitMEX was like the king of this stuff, right? There was a time where the decentralized perp exchanges like DYDX were the kings. A lot of perp venues have come and gone. Things that had massive market share, that were dominant have in the past quickly been dethroned. And so I can't predict whether hyperliquid will stay on top of it.

Haseeb (5:29)

Sounds like you're saying it sounds like what you're implying is that like this is the passing of the guard and like CZ is now going to take over.

Tom (5:36)

It could be. I mean, I think one of the things that's driven a lot of these over the years has been the combination of, you know, liquidity, which is a little bit of a network effect, combined with points, tokens, airdrops, distributions, farming, whatever you want to call it, to attract all the users and to build that critical mass. And so I don't necessarily know that even if Aster takes the throne, it will be a permanent thing. We've seen so many new points, new tokens, new distributions, at least temporarily capture that critical mass that I might posit that the perp wars will never end and that this is a battle that's going to be going on in perpetuity and that we might see know new entrants come and go or maybe at some point, you know, the market structure will just evolve where it's like, oh yeah, like now that we have CME perps, like everyone uses that or yeah, I hope that's not the outcome. But you know, we'll see where this goes. But I don't think this is the end. I think, you know, in a year we'll say, oh man. But what about this new per that wasn't even talked about, you know, on the September 24th show. So it's drama. Everyone loves the drama in general. I think it's good for people. More competition is Better, you know, more venues, better. Let the best perp win. And good luck to all the combatants.

Haseeb (6:55)

Tom, you have a take.

Robert (6:57)

I love Robert with the. He's like the Rob Lowe, the NFL hat. Just like the man loves perps, doesn't care who's winning.

Haseeb (7:03)

I love her. Yeah.

Tom (7:05)

Let both teams rule.

Robert (7:07)

I mean I, I think I agree with a lot of that. Like the only the market is very red queen like in that way. And that's really been the only constant in my entire time in crypto is there's a new competitor, someone else comes up and creates a better product and they replace them. And I think really like Tether is the only one I can think of that's been around for so long that everyone thinks is going to die and has never really died.

Tom (7:28)

Wait for Tether to launch a perps exchange and compete in the perp wars.

Robert (7:33)

Paolo, if you're listening, you're listening. There's your man.

Farooq (7:35)

Yeah.

Robert (7:38)

I think for Aster look, I think it's genuinely just Occam's razor. It's basically just points farming and it's very clearly incentivized volume. I mean they say in the Dom, in the deck takers get 2x the points of makers. Which I'm like, that is so obviously backwards from how you would actually want to be incentivizing liquidity on your decks. And so I think this is one of those things that's short lived and maybe market participants know it, maybe they don't. But generally the way upstarts disrupt incumbents is through product innovation. And this is just not that no disrupt to the Astro team, but I just don't think that's kind of what's.

Farooq (8:14)

Happening here on the product side. Right. Like there's, I mean this is a very lucrative product set and you can make a lot of money very quickly in perps. Right. And then there's the other thing is it's like one of these high velocity things where users are getting, they can realize that like dopamine hit also very quickly. So it's like it's kind of the perfect storm where you'll have like kind of to Robert's point, you'll have these ebbs and flows of existing products. And historically like, I mean to his point again, we've gone from one partner player to another player to another player to another player very quickly within a cycle. Right. And so each cycle will have its protagonist, then the next cycle will have its protagonist. And sometimes people will come out of nowhere, other times they'll have Been around the whole time. And so it's one of these things where as we continue growing, I think it'll make sense that people want to build in this market because you can actually extract a lot of value very quickly and you can have a product which is from a product perspective very similar to a different product. And by changing a couple of parameters you have a much more lucrative product for your customers. Also potentially a higher velocity product for yourself. And the other downside is that the cost of standing one up is not very high.

Haseeb (9:35)

Yeah, I think the point about the way they're doing the points program is clearly set up to incentivize volume. And I feel like there's a lesson that people learned a long, long time ago with like FCOIN that that is just not the right way to do it.

Tom (9:52)

Trans fee mining.

Haseeb (9:54)

That's right, that's right. It's like always a mistake to just nakedly incentivize volume. It just gets you the wrong answer. It gets you the wrong behavior. Not sticky, like that's not, that's not what makes an exchange. Durable liquidity is. Durable liquidity is actually something that you want to incentivize so that you can win in the future. But getting more volume just running through a pipe over and over again doesn't give you any advantage tomorrow. So now that being said, so it's easy to look at that and say haha, very. If you look at hyperliquid and the way that hyperliquid incentivized behavior, probably the single masterclass, like absolutely incredible insight and mastery of the art of how you create incentives to create a durable moat. And I think like probably the two best to ever do it were blur and hyperliquid in terms of the foresight and the insight in the way they designed their incentive programs. And it paid off in very clear ways for both of them. I think for something like Aster, you can see, okay, they're making a huge mistake with the way they're creating their incentive program. And I think it's very easy to on that basis wave them away and say aha. Well they're idiots, they don't know what they're doing and therefore they're not really a credible competitor to hyper Liquid. I think that's a mistake. And I think that's a mistake because you know, if you look at especially teams in Asia, what they're really, really great at is iterating. They're great at like just throwing shit at the wall, making a mistake and then being like, great, we're going to change that. We're going to go to this thing, we're going to change that and go to this thing. We're going to figure out what this person was doing, right? We're going to copy them and we're going to go do it over here and we're going to do it at better scale, faster, cheaper, with more distribution. And that's a big part of the reason why the Asian exchanges are so dominant globally is that they're really, really, really good at executing on playbooks. The west writ large, this is a huge generalization, but a largely correct generalization is that the west tends to be better at innovation and the east tends to be better at execution. And the Perp Dex market is finally in a place where it's less about innovation and more about execution. And I think a lot of that was really, the carpet was sort of laid out by hyperliquid of showing the way to do this right. Like the distance between DYDX, especially like DYDX v2 and hyperliquid was enormous. There was a lot of ground to cover to figure out how to do a perp Dex in the right way. But we're pretty much there now. Right? The products are very, very good. All of them are very, very good. They have differences, obviously, but they're all so much better than what we were working with just, you know, even three, four years ago. So given that, I think there's good reason to be afraid of Aster, especially given the backing of Binance and the strategic element that they're bringing to bear. And I think their mistakes, likely they can iterate on. So I don't think you should take the numbers at face value. And I think the other thing that's scary about this is that the market doesn't seem to be appreciating that. Right. Like valuing ASTER at 20 billion FTV, which, you know, it doesn't have a lot of float, so maybe FTV is not the right number to be fixated on. But at 20 billion FTV it does feel like it's probably being valued too highly. But if you just look the numbers on face value, you look at the run rate revenue on its face, it's like, well, it's easy to just draw the line out, which is, is, is concerning that the market's not looking past that right now. Yeah.

Tom (12:59)

Good luck to all of those trading on.

Haseeb (13:02)

Good luck to everyone trading.

Robert (13:03)

Okay, I know.

Haseeb (13:05)

All right.

Robert (13:06)

I, I'm not saying I did like the conspiracy that James Wynn is cz because part of the sort of feature for Aster is they have hidden orders which are really just like, orders that I'm guessing are on their server that are just not accessible or revealed. It's not actually encrypted in any way. But then obviously that allows you to sort of conceal your position, which was sort of the whole James Wynn saga. And then James Wynn actually tweeted, hey, this is why Astra exists, because of me. And so I saw people kind of having some conspiratorial musings as to who the actual identity was, which I don't really believe, but I just thought it was kind of amusing.

Tom (13:45)

Yeah, I find it hard to believe that CZ would be on Twitter LARPing as a James Wynn for weeks at a time and becoming the Accidental Fringe main character for a while as an insane, terrible, amazing, lucky, unlucky traitor. I just don't see it.

Robert (14:02)

Well, you know, this is during his period when he's not allowed to work at Binance, so he's got a lot of free time on his hands. There you go.

Tom (14:07)

Yeah, he made up an alter ego and lost $100 million trading perfs.

Farooq (14:12)

The intrigue is the best part of the industry, right? Like, the. The level of intrigue and conspiracy around seemingly normal things is actually one of the fun things about the industry.

Haseeb (14:24)

Well, so speaking of intrigue, there's now been a big discussion going on on crypto Twitter about regulatory capture in crypto. And so I think we're finally at the stage as an industry where we can have this, as a problem of this sort of regulatory infighting. So if you remember way back in the day, there used to be a lot of anger directed at Ripple for trying to say that Bitcoin was Chinese and therefore Bitcoin needs to be regulated, or Bitcoin is bad, or something like this because of. Because of the Chinese mining pools. Since then, I've never really heard anything at all about regulatory capture in crypto or this sort of regulatory infighting of, oh, you should be regulated and I shouldn't. But now there's this hullabaloo going on, accelerated by a friend of the show, Max. Max Resnick, who's at Anza. And Max Resnick tweeted this. A centralized sequencer. So he's talking about L2s. And the underlying claim is that L2s should be regulated. A centralized sequencer that can change the matching or execution of orders obviously must be regulated. Otherwise any exchange could set up a, quote, unquote immutable matching engine program. And then run on their own server in order to bypass all U.S. securities laws. If a base contract is upgradable and a multi sig can stop trades from going through the slow path, then, you know, yada, yada yada, L2 should be regulated and they should not be treated the same as an L1. And so this shut off a bit of a firestorm between the Ethereum people and the Solana people about, hey, is Solana trying to like kind of kick out the legs under the chair or kick out the ladder behind them and say, oh no, the L2s are too centralized and they shouldn't be allowed to operate on a level playing field with the L1s. And, and there's also been increasing rumors that we were, we were just talking about the hearsay show as a rebrand from the chopping block. But the, the, there, there's, there's been a lot of rumors also that there's people in D.C. who are now trying to spread FUD from the regulatory perspective on hyperliquid and trying to get hyper liquid to get some regulatory attention from the CFTC or from, from some of the agencies in the U.S. now, my perspective has been from chatting with a lot of the agencies is that it's not working right now. They don't give a shit about hyperliquid. And the mandate right now very clearly is don't mess with defi, leave defi alone. But obviously things can change and things can evolve. And so it's a little bit disconcerting to see this degree of infighting within the industry of people pointing fingers at each other and trying to say, hey, you should be regulated and I should not be. Want to get thoughts from the panel here. How do you think about the regulatory wars that now seem to be playing out within the industry?

Farooq (16:48)

I think it's going to get worse before it gets better. Right. I think this is just generally anything that happens, anytime there's a technology shift and there's early participants and late entrants, you're always going to have people that are going to try to use their advantage or their relationships, then try to close the door behind them. They're like, yeah, you know what, we shouldn't let any more people like me in here. Right? So this is just human nature and this happens in every industry. And I think that like, there's always valid arguments whenever people are trying to push for these things, both for and against. And the challenge always is, is like, do you just assume that where we are right now is the maximum level of innovation that we're going to tolerate in a market or do you think that there's going to be better stuff that's around the corner from a regulatory perspective? Right. And so like a lot of times if I'm ahead, I'm going to want it to be, hey, you know, nobody else should be able to do what I get to do. And you know what, in a lot of what I get to do potentially is illegal. So like I'm even going to stop doing this piece because look how horrible it is. I just happens to also be the small, the smallest piece of my revenue line item. And then you can become essentially state's evidence against everybody else and then you just pull up the moat and now you have this like really exciting opportunity ahead of you. This happened, you know, this happens in like telecoms. If you look at a lot of countries, there's like Monopoly now because people successfully did this. And you look at other countries where there is no monopoly, there's continuous development, there's cheap costs, there's better products because nobody pulled up the drawbridge. Right. And so there's always going to be this level of intrigue. And I think part of this just means that we're growing up as an industry which is probably like a good hallmark.

Haseeb (18:30)

You're not surprised. But it doesn't even sound like you're upset about it. It sounds like you're just like ah.

Tom (18:33)

You know, like libertarian. Like you know what, like you know like people use the government competitors and I know it's not.

Haseeb (18:40)

No, that's not libertarian market.

Farooq (18:44)

You know, I pr personally I think that like people that do this are small minded, right? People that are pushing for regulatory capture are generally small minded and it's largely driven by an anxiety that you can't compete in an open market. And I think that calling that out is important because if they weren't that then they wouldn't be worried about losing in an open market because they are just better or faster or whatever it is or better at execution. I think people generally, they resort to this because they have this anxiety that they're not better, faster, differentiated, have no meaningful differentiation aside from this like nuance around how you ended up building the piece of technology you ended up building. Right. So I think it's important to call that out. I think people that feel that best technology, best product, best teams, best execution will win. I think that generally those folks are not the ones propagating this type.

Tom (19:35)

Yeah, two points. One, I think regulatory capture is actually extremely bad. It's bad for markets, it's bad for industry, it's bad for everything. Right? So I actually dislike that somebody, let's just say, you know, Max or otherwise, you know, has gone out to, you know, try to, like, throw L2s under the bus. Okay? Like, I think that's bad behavior, and I don't think we need it. That being said, I also think that the argument that set off this firestorm is just flat out wrong on securities laws. And again, I am not a lawyer. I will preface any legal statements with that. I think he's incredibly wrong on the law here. I think he either chatgpt something incorrectly or he was at a dinner party where people were talking about a very similar concept and he misunderstood it. But I don't think there's any risk that an L2 is an exchange. I think there's much more credible arguments out there that an L2 is a clearinghouse and that it's settling transactions or settling trades. I've heard, you know, people speculating, you know, that L2s could be clearinghouses. I have not heard anyone with a legal background speculating that an L2 could be an exchange. And it's possible that, like, he just got this, like, basic conversation that is sort of happening out there. Very wrong.

Robert (20:52)

But, I mean, I think Hester Purce said that layer twos might have to face exchange registration depending on how they're sort of structured.

Tom (21:00)

Yeah, I mean, okay, an exchange is something very specific, Right. Exchange act regulation includes things like clearing houses, et cetera. And so I think that what happened here is people who are not lawyers just decided to start slinging mud without researching too deeply.

Haseeb (21:21)

Tom, I did not catch this. Can you walk through what Hester Purse said and the context there?

Robert (21:26)

Yeah, I think she was on a podcast and said, hey, if you have a matching engine that's off chain, but it settles on chain, that looks like a lot like an exchange. It might face exchange registration. And so I think maybe what she's referring to more is kind of like, yeah, like dydx v2 or like paradex or these things where, hey, it is actually they have arbitrary control over trade execution, order sequencing, things like that. And then, yeah, I definitely understand that argument. Right. There's a spectrum between you have total control and the ability to make arbitrary state transitions. And you're something like arbitrum or optimism, where you're literally just running EVM transactions and putting them on chain. The multisig really exists, again, I believe, with a time lock, too, as sort of a mechanism for upgrade or Escape. And so there's a range within there. But I think it's wrong to say that every centralized sequencer looks the exact same.

Tom (22:20)

Totally. And by the way, I think you're right, Tom. I think there's things that look like trading app chains, which might be like exchanges. But I think the argument he was trying to make was against the Ethereum L2s. And there's a broad category that is everything from a base to an optimism to an arbitrum to whatever. And I think maybe that's where there was some misunderstanding in that those don't look like exchanges. There might be Dex applications built on top of them. You know, they definitely don't look like exchanges to me. They look like not exchanges. But if one were to try to like, attack them, that's not the line of argumentation one would use. They would probably try to go for something else.

Haseeb (22:58)

Yeah, there was a great line by Dan Robinson in response to Max Resnick. I think it was a callback to this play A Man for All Seasons where he says, I think it's bad form and a bad strategy to try to summon the regulatory demon, to strike down your competitors over technical or ideological agreements. Where will you hide when the demon turns around on you? And I think that's exactly right is that if you sort of start this arms race, it doesn't end. Or the way that it ends is when you cut down the neutrality of the laws. Well, that cycle of violence of, okay, the laws are going to be overturned and overturned and overturned for whoever's in power to attack their competitors, then there's going to be a certain point where the next Solana is going to do the same thing to you. And so I do think it is very unwise to try to. You brought the word up libertarian before. The spirit of libertarian innovation in crypto has always been that everybody should be free to innovate. And the more that you start trying to shift the Overton window about what kinds of innovation are acceptable and are not acceptable, it's a very dangerous game to play. Now, it's certainly true and I very much see the wisdom of Hester Peirce's point in that podcast is that yes, there are certain structures that do give control to the person running the off chain order book. And we've known this for a long time. And this is part of the reason why things like Hyperliquid and things like LIDR have done so much to try to create make the order book itself non discretionary for the operator, that the operator themselves have no control. And it is truly credibly neutral. Same thing with Hibachi. Same thing with many of these perp dexs that have tried to solve that last bit of centralization in perp dexs, which is the order book. But I think the overall strategy here cannot be that we decide this person is okay to get regulated and this person should be free from regulation. It kind of has to be that. The spirit of all of this, Whether or not L2s have centralized sequencers or whether or not they have multi sigs or whatever, I'm sure they all do. Once you start litigating the individual questions of like, oh, how many people are in the discord? How many people are on the multisec? How many people are in this? How many people are that? It's like, you really don't want to play that game. Because then for an L1, okay, well, for L1s, they're also continua. So for an L1, how many people are in the discord? How many validators above 50%, how many blah, blah, blah, blah, before we end up at the place where like, hey, how decentralized is Bitcoin even? Right? How many core devs have to make a decision before the GitHub repo changes? And, you know, does that fit some legal threshold? So I think there's. Yeah, I think, I'm pretty sure the quiet at this point, but it does feel like this is something that probably should not go any further. And I think the uproar over this is good. It's part of the immune response of crypto. It's like, hey, this norm that, like we, we. We compete in the marketplace, we do not compete in the regulatory sphere. Is very, very good way to keep the, this Chesterton's fence that we don't cross. Because once we do, a lot of shit you can't undo. Okay, let's switch topics a little bit. I want to come on the stablecoin side because of course, Farouk, you're a founder working on a business that very much touches stablecoins. And we're going to go do a little bit of a deep dive on it right after this. But one of the big stories of this week has been about the biggest stablecoin in the world, which is Tether. So there was a story reported by Bloomberg that Tether right now is looking for a private placement, basically meaning they're trying to sell shares out there to private investors at a $500 billion implied valuation. They're trying to place roughly 3% equity, which would mean 15 to 20 billion dollars that they raise. Just to give you some high level numbers on the company, USDT has about $172 billion circulating currently. They claim their Q2 profit was $5 billion and the company has 99% gross margins. So they are obviously an incredible company. And we were just chatting recently about their usat, which is the US dollar, stablecoin, that's going to be genius compliant, that's going to be operated in the US led by Beau Hines who was previously the digital asset emissary in the US. So they're making big moves. But a $500 billion valuation would make them one of the most valuable private companies. That's the size of OpenAI, that's the size of SpaceX, that is as big as it gets for a private company. Want to get thoughts from the field? What do you guys think? Farooq, why don't we start with you? What do you think about tether at 500 billion?

Farooq (27:29)

I think if the market will bear it, it's worth it, right? I think that's just general.

Haseeb (27:34)

Do you buy at 500 billion? Are you a buyer?

Farooq (27:36)

I think that there's a lot of upside here still. It's still so early in this market and I think that there's massive opportunity to figure out exactly what the future of stablecoins will be. The other reality is that dollars for the most part, I mean regular dollars, right, most of them circulate outside the US and there's always going to be an opportunity to be the official or the de facto Euro dollar or international dollar. And I think that that universe is still very much up. I mean that crown is still very much up for grabs. And so if Tether was to seize that crown more dominantly, right, from essentially cash or from some of these correspondent banking networks, there's a lot of upside still, right? I mean, I think right now if you look at this type of business, it's super efficient. Like you don't need a whole lot of people to run it. They have a tangible moat because like adoption is really important. And then the other thing is, is that they have something that a lot of people don't have, which is distribution, right? Like it's not as simple as having people hold it. It's getting counterparties and people globally to accept it for a transaction, right? And they actually have the type of penetration that people would dream to have, right? Like there's people that would think about it as, hey, if I'm presented with a choice, I'll pick Tether. And so that's really, I mean it's really unique. I mean look, I think in the long term a big part of what rains value proposition is that we don't make people choose tokens. We can give you the same interoperability with any new token that we support out of the box and we can solve this distribution or acceptability problem for news token issuers. But at the same time we still support Tether. It's like one of the, one of the big currencies that a lot of our customers they use. Right. And they have on their platforms. And so for us it's you know, it's important.

Haseeb (29:24)

How much of your guys volume is Tether?

Farooq (29:27)

For us it's probably right now like it's like less than 50% for the most part because we've. Okay, yeah, like we just don't, we don't touch a lot of the use cases still where it's like predominantly the currency being used. Right. Like a lot of P2P wallets is where Tether is really popular and there's still chains where we have support for them. But we have like our customers are still like developing solutions for how we want to engage. And for us we've also been in a wait and see mode on like where the regulatory treatment of Trether is going to come out for domestic use cases in the US and so the USAT stuff is really interesting. Like we are pretty maximalist when it comes to stable coins but at the same time like we have to run a like a reasonable regulatory scope business. And so for us like we can't just go into everything just because customers want it. We have to really think about like how does this impact our regulatory position with like state regulators or national regulators. And so for us we support it where we are able to with confidence and we are have been waiting and monitoring for where we can add support or do more because we've been waiting to like see how like what's their genius compliance plan? What is like their Mika compliance plan. And so as we expand like we can't just make it available to everybody but we really have to think about like the, the ins and outs of how this impacts our business. And so it's probably less than it could be if, if all of those answers were like all those questions were answered and like Tether would probably become very similar to how it is in the, in the global market which is like 60, 70% of market share.

Tom (31:01)

I think it's a terrible deal. I mean just to look at the numbers of this. Right. Using Circle as a public market comparison to it, circle has about $74 billion of stablecoins issued and they trade for less than half of that in their market cap. Tether, much bigger. $173 billion of stablecoins issued. They're currently trading. If this deal goes through at three times that, it's roughly on a comp basis, six times as well.

Haseeb (31:30)

But the margins are totally.

Tom (31:32)

I agree. I agree. Circle is a worse business than Tether. Tether does not have that many employees. Circle is relatively inefficient. Right. Circle is worse at its margins. These are things that could hypothetically be fixed by Circle. Over time, they should maybe reach an equilibrium. But it's trading for more than six times the premium of Circle, its closest competitor. And yes, there are times where the number one in the market is significantly better than the number two in the market, where Uber is significantly better than Lyft. But is that like a 6x valuation difference?

Haseeb (32:08)

What do you think is fair price? What do you think is fair price for Tether?

Tom (32:12)

Honestly, like, again, I have not been invited to invest in Tether, but if you showed me this deal at 200 billion, I would probably invest at 500. Like, it's sort of like stomach turning.

Haseeb (32:24)

Would you take it at 300?

Tom (32:25)

At 2x, their stable coins play. No, I mean, rates are going down. You know, I think Tether's genius in the sense that they are raising when the numbers look best, when the chart looks best, when their income looks best. You know, if the Fed cuts a couple more times and the Fed funds rate is at 2%, tether's business looks a lot worse. And I think this is the perfect time to raise. I think they're going to raise it because it's a rare asset. You know, it's. It's hard to acquire and good for them, but I think it's overpriced.

Haseeb (32:58)

I mean, the dot plot doesn't say rates are going that low. Go ahead, Tom.

Robert (33:01)

Yes, I have the total opposite view. I think Circle is a terrible business. I mean, just for, for reference, it pulled up their 10Q Q2. Their adjusted EBITDA was 126mil. So you're literally looking at what, 1/40 of tether compared to, what was it, 4,5x the valuation? Yeah, and I think to your point, this is one of those markets where either you do reach escape velocity and you're just totally untouchable, or the other crabs in the pot pull you back down and you get sliced into little bits and you have nothing. And I think through Circle, that is kind of slowly what's happening, where it's like every single deal that you have to strike with every single exchange, every single large holder means less and less revenue. And then everyone else sees that and they think, well, I should have some of that revenue too. And I think that's just going to get harder and harder and harder and there's reverse momentum in that way. Whereas for Tether, they've been obviously able to escape without really doing many of many of those deals. And I think that therefore is just going to continue and therefore they're just going to continue to improve their margin, continue to get bigger.

Haseeb (34:01)

I do also, you can't improve your margin from 99%.

Robert (34:05)

Sorry, maintain their margin. They're not going to get sliced by a million employees or by every single exchange coming out of the woodwork and taking their pound of flesh. I do also want to pat myself on the back for saying I do think Tether should have bought circle pre IPO when no one was buying the shit at 5 bill. That would have been an amazing scoop. And then they really just kind of run away with the market.

Tom (34:25)

And now if there was only one stablecoin and they rolled that whole thing.

Robert (34:29)

Up, the narrative would have been sweet. Would have been sweet, would have been genius.

Haseeb (34:33)

That certainly would have been 500 billion. 500 billion, Tom.

Tom (34:38)

I don't know.

Robert (34:40)

I mean, I think the comp is maybe a good trade in absolute terms. I don't know. But it does seem like this is one of those trades that might be obvious in retrospect, where everything else, you can kind of rationalize your way out of it and say there's a bunch of competitors, et cetera, et cetera. Tether just continues to win. And the question is, what's going to stop them from winning? I don't see a lot of close followers in the rearview mirror.

Farooq (35:02)

I mean, if it was a public offering, like an IPO type thing, I would want to get in because I think it'll pop. But here in a private round, private placement situation, limited exits, it's more difficult to make that assessment. But I mean, look, the thing is Tether from a rev share perspective, right? Like they've just had significant less pressure, largely because aside from the trading use cases, the consumer side of it, like Tether is competing with $100 bill in a shoebox under a bed, where you're also not getting stable. Like you're not getting yield, right? Where Circle is competing with like prepaid balances and omnibus accounts, things like that for like institutional use cases. And there like the comp is actually a bank that is paying you yield on these monies. Right. So like there it's like a fundamentally different type of business. Like if you are being asked to hold on to a hundred dollar bill where you can just do whatever you want with it until somebody wants it back and even that they can't actually redeem it back directly, they have to go to find someone else to redeem it back with. That's an amazing business.

Haseeb (36:09)

Yeah. So it's interesting. I definitely am not familiar enough with the bottom line of Circle to be able to compare the two as effectively as Robert. I'm sure you can. Or Tom. My intuition though is that I don't think so. Two places where I disagree with you guys, but I think I'm probably in a similar camp. So one, I think it's pretty clear that the stablecoin market is not a uniform market. I think if you rewind the clock six years ago, before USDC existed, it seemed very obvious to me that there was basically going to be one big US dollar stablecoin and that it would be more or less an obvious network effects market and there'd be no reason for a second one to exist. Even if there was a second one, it would quickly get wiped out and there would just be like one dominant one. And that's how it works. There's one Google, there's one Facebook, there's one LinkedIn, whatever. And that's not what we've seen and it's surprising and it's worth kind of reconciling. Why is that surprising? What we've learned in practice is that actually there are really separate submarkets within stablecoins that don't really fully penetrate each other. Right. So like the thing that you use to trade on Binance or trade on hyperliquid really doesn't need to be the same thing that's on Ethereum Defi. Because the reality is that like the balances that you have on Binance don't really permeate, you know, the yields and the, and the opportunity costs don't really necessarily permeate from one to another. Like these are kind of captive pools of money that just sit there and they do their own thing. Or to Farouk's point, the sort of money in a shoebox where you're in an emerging market and you're just like trying to save money, you're trying to get out of the local currency that really doesn't go on Defi. You know, there's, there's not a lot of overlap between those two. So because of that, it turns out there are these cleavages in the US Dollar stablecoin market that were maybe not obvious ex ante, but now they're very clear. And those, those cleavages, like USDC is dominant in DeFi. Like USDT really has very little penetration in Defi. And when it comes to emerging markets, USDT is dominant in most of these markets. When it comes to exchange trading, USDT is dominant. And there may be other cleavages like that that we haven't seen yet. Right. There may be, you know, for cross company settlement that maybe that's a totally separate cleavage where they're not touching crypto trading and they're not touching emerging markets. And so there really could be a different stablecoin that's used for that. Maybe JP Morgan Coin is going to be used for that. Who knows? So, so for that reason, I don't think that it's true that you will see one of these two players eclipse each other. I think it's quite likely that USCC is going to continue to grow. Tether is going to continue to grow. I think it is clearly true that to Farouk's point, one of those two businesses has better margins because the opportunity cost looks very different for somebody in emerging market versus a corporate or even Defi. Defi does have very different opportunity cost than a lot of those players. So I think Tether is a very, very good business in that regard. And it's going to grow like crazy. Because it is going to grow like crazy. I think this $500 billion number one thing I think is also true is that I don't think actually Tether is very likely to ipo. And not because they can't. I mean, right now they obviously can't because I don't think they could pass an audit, but they could eventually, almost certainly get the business into such shape that they could. I think the main reason why I don't think Tether is going to go public is I don't think they want to. If you just look at the ownership structure, like, very famously, Giancarlo is super private, doesn't really want to have the thumb of US regulators on top of him. And I think he also knows that, like, look, this administration might be very crypto friendly, the next one might not be. And I think they have very, very long time horizons at Tether. And that's part of the virtue of the business. It's part of why they're so good at what they do is that they're one of the few businesses that really can think on long, multi year time horizons and has that kind of risk appetite as well. So I think actually tether, despite all the craziness of the company, I think they're actually quite risk averse. And I think from their perspective, it's like, hey, this is an amazing cash flow business, right? We're making $5 billion a quarter. Why would we want to go public? What exactly are we going to be getting from going public when we can just pay ourselves? It's like a 99% net margin business. Usually those things are privately held. Those things don't go public. It's not like they need money for growth. What do they need money for growth for?

Farooq (40:17)

It's like a Berkshire Hathaway, right? You can kind of build that type of business with this float. That's why for me, like the way that I think about it is like if they have all this free float that's coming in the door, that can all be reallocated. It's not like it's sitting around, it can be reallocated. It's 99% margin business. You can invest that in a bunch of other things. You can make bets, you can make R and D investments, you can do a lot of these things. It becomes a private credit or private investment business, like a Berkshire Hathaway, like an insurance company. And then that valuation can be totally fair. Right? Because if they're throwing off more float than the world's largest, like 10 insurance companies with way less downside risk, no exposure to natural disasters or any of the other risks that insurance companies generally take. The business looks actually really interesting. Right?

Haseeb (41:05)

Yeah. So I'm actually pretty skeptical of this 500 billion number. I think this was probably a first because it got leaked in the story and it's very plausible to me that it was strategically leaked as a, oh, hey, anybody's interested, come hit us up. But my guess is that like the.

Farooq (41:21)

Trillion dollar Aramco or like what the $3 trillion Aramco IPO.

Haseeb (41:28)

Totally, totally. Where like, it's just maybe you start.

Tom (41:30)

Asking for 500 and you go to 300 and everyone feels like they got a deal, you know?

Haseeb (41:35)

Yeah, yeah, yeah, exactly. I, I guess probably, yeah, somewhere it's a good opening gambit and it gets people talking and like now all of a sudden people are like, oh, hey, did you see the tether deal? Do you like get, you know, so, and there's like 50 people who can do this deal. Right. It's not a large group of investors who can write a billion dollar check.

Farooq (41:52)

So I got 50k that I'll toss in into Tether if they're willing to take my money.

Haseeb (41:56)

All right, Tether, if you're. If you're listening here, Farooq's in for 50. So you're. You're on your way to the 20 billion. Yeah.

Tom (42:02)

And if the market is listening, Superstate is raising at 50 billion. And if you want to meet somewhere in the middle, like 25, just let me know.

Haseeb (42:10)

Yeah, we're. We're actually selling GP at 100 billion, so good plan.

Tom (42:14)

That's cheap.

Haseeb (42:14)

That's cheap for Dragonfly. Definite. Definitely getting in early.

Robert (42:19)

I hear you. On the IPO thing. I mean, I obviously don't have a read, but you did not mention the most obvious path for liquidity for Tether, which is, of course, to issue a tokenized version of their equity via Superstate. So they could do that, too.

Tom (42:35)

I mean, that would be an incredible future Tether. If you want to have your stock trade on blockchains, let me know. At any valuation.

Haseeb (42:47)

Robert will run the book for you at 500 billion. If you tokenize it on Superstate.

Tom (42:51)

Yeah, we don't run books. Sorry, that's not what a tokenization platform does.

Haseeb (42:55)

Fair enough. Okay, well, in this spirit of shilling, I want to now move the spotlight over to Farouk. So, Farooq, for those of you first, I should caveat that we're investors into Rain. You guys recently closed around, raised 58 million, I believe, which congratulations on closing. Give us for the audience. What the hell is Rain? Who are you? What's going on here? And how should they understand your business? Because I think one. I think one of the reasons why we want to bring you on the show is that what you guys are doing with respect to stablecoins, I think it'd be very interesting for people to understand what's going on around the world with respect to stablecoin adoption, because people hear the stories, they see the numbers, but they don't really have that, like, lived texture of how our stablecoins actually being used. And I feel like you guys are very, very close front row seat to why that's happening. So talk through that for. For our audience.

Farooq (43:41)

Yeah, I'm Farooq. I mean, Rain is a stablecoin payments platform, right? We are focusing on building all the infrastructure for any. Any token to be able to be used like money for payments, whether it's holding Earning, spending, sending, you can do that all with rain. Using our infrastructure, we're natively deployed on multiple blockchains, we have various different virtual machines we support. We're token agnostic, we're custody agnostic, we're wallet agnostic. So like the way that we've built this is that with the core thesis that look, money that everybody holds around the world, they, the bills can take different shapes and colors, they can have different people on them, they get issued by different people or institutions. But the way we spend globally is the same, right? Whether it's an American consumer or a Nigerian consumer or a small business in Turkey or a like a car owner in the Philippines, we all pretty much spend the same three or four different ways, right? Like cash, we got like QR code payments, we have card payments and we have like checks and you know, physical transfers or bank transfers, et cetera. But like the way we spend money or send money is pretty much the same. The way we earn money is largely the same. And so what we've just realized is like look, in the short term there needs to be like a, a gateway for old style money to go in and new style money to come out. Like the future of money needs to come out the other end and then you're living in the future while it's there. And if you can spend that money using stablecoins natively, using a card that's issued by Rain, powered by Rain all the way to the network, that transaction never goes back to FIAT for us, it never goes back to FIAT for our partner, never goes back to fiat for the end user. Like once it goes to the card network from there some of those payments go to fiat, other payments actually stay on chain, come back into the RAINS ecosystem on the merchant side where we also provide services. And so that's kind of our thesis which is how do we become this like gateway between traditional financial Rails and the future technology Rails, where every customer that uses RAIN is actually natively on stablecoin infrastructure. And we're just adding to the adoption of stablecoin technology and orchestrable on chain like programmable money for any type of use case. And we have a lot of different types of customers. We have like fintechs, we have exchanges, we have banks even we have lots of different types of folks where on the back end it's all stable coins. Like we have traditional financial services like credit cards, like unsecured cards, charge cards, all of those products like the credit line for those, for the warehouse lending is on the blockchain. The Settlement for that with the card network is on the blockchain. The user is spending regular money at a regular terminal, whether it's USD, whether it's brl, gbp, euro, whatever it is, they can, they're free to go wherever the world and tap their card. And that just works. And in the back end, it's all stable coins that we're able to pass through. Significant cost savings, efficiency savings because we have 24, 7 money and everybody else that our customers compete with have 5 day, 8 or whatever, 9:30 to 3:30 money, not including holidays, not including the lunch break where you can't send a wire because you're at a smaller institution that doesn't have this automated. We are able to actually do a lot of stuff faster and quicker and our customers are able to benefit from that service. A larger global customer base because the digital money is global and we can face international customers because we're not a bank. Right? So there's a lot of different things that we are able to bring to the table there and there's a lot of really cool things we're starting to see and our customers are building that wouldn't have been possible without the stablecoin infrastructure that we built and the primitives that we've deployed.

Haseeb (47:16)

So, okay, Farooq, if I can summarize, you guys are B2B2C stablecoin payments business. The businesses are things like B2B2B as well. They want to offer B2B2B as well. Okay, fine. So a stereotypical customer might be a fintech and they're like, hey, I want to offer cards to my customers. They've got USDC balances in my FinTech app. They're like, I'm distributing in Africa or in Latam or wherever and I want to give them cards because they want to spend their usdc, but they can't just like swipe across, you know, maybe in like certain places like Venezuela or you know, places that are really, really having a bad time is they're actually merchants accepting stablecoin payments, right? Like we've, we've all heard the stories, but this is only really in places that like have bad hyperinflation, where the, you know, the infrastructure is really poor. Right. In most places, even where people do have stablecoins or they do have stablecoin balances, it's not enough of critical mass that merchants are accepting stablecoin payments, in which case a user of this fintech can get a card issued by Rain and that card allows them to pay with stablecoins but using like Visa infrastructure. Is that the tldr? So give me an example of like who's a stereotypical user? What do those users look like? What are they, what are they using these credit cards for?

Farooq (48:29)

We've seen every imaginable type of user, right? We have like, like we have payroll companies in the US that are using us to create a dollar wallet. It's not a stablecoin wallet, it's just a dollar wallet. We have earned wage access players that are using our infrastructure to be able to disperse stablecoins directly because they can do that 24 hours a day as you earn money. So like you have a night shift, you can actually get paid into a spendable instrument at night and it's non fungible money so it's not even float, right? They're actually disbursing stable coins to you at night as you get off night shift, you're on the way home, you can actually tap the card and pay for it with the money you just earned. So it's not a credit product anymore unless you want to design it to be. And there's other people. Like for example we have like I said, like a high net worth card program that uses us. The entire warehouse lending line for that program is on the blockchain we have. And those customers are high net worth, like travelers, like fancy people that are going to fancy hotels and buying fancy things and they don't know that they're out there spending stablecoins, right? They have no idea. And then on the other, and we also have businesses that are like buying Facebook ads and running their business where they may be getting stablecoin settlement in from like a payment, payment service provider from the card network for their sales, right? So they're selling, let's say they're selling a cardigan on Instagram shop and then they're making that money comes in from the network and stablecoins for because they're in some country where they don't want to be able to get paid out in the local market, they want to have dollars because they're selling into the US and then those actually go into a rain powered account and then instantaneously the moment the token hits, you're buying the Facebook ad to then run that ad to get the next customer. So there's a lot of these things which we're starting to see our customers design which are use cases that were not previously possible because just the delta between business hour money to 24 hour money is that you can now design and Think of things that you couldn't build before. And so customers are building the solutions themselves. And the coolest stuff that's happening is actually stuff that we're finding out because we're seeing it being like, why didn't we think of that? Right? Like we have like partners where they've connected defi lending protocols to the back. And it's a true defi credit card where each disbursement, each authorization goes to the blockchain, pulls against the smart contract from the defi credit line, disperses into our contract and then we send it to the network. This is cool stuff. And that user.

Haseeb (50:55)

So you're telling me at the moment I swipe my credit card, I'm like, I go into a mall, I want to buy a coat. The moment that I swipe my credit card, my USDE or S U S D E, which is like earning yield all the time. That at the moment I swipe my card in the auth window, it like moves that to a dex, sells it for usdc, then moves the usdc, sends it to Visa to settle my transaction with Visa and, and then sends the remainder back to my account. And so I'm like earning yield the entire time.

Farooq (51:23)

The moment I swear it only takes the amount that you owe. It doesn't even take any. There's no, nothing else to send back to your account. It's just, it's atomic. Like we had somebody like some like a person that has like a pretty significant bitcoin bag they're using one of our partners, they paid for a down payment on their house and it flagged all of our things because we were like, what the hell is this? And like our compliance team reached out and we got the bill of sale. We talked to like the people that were selling the property. We talked to real estate agent. Like we were able to get this entire thing. We were like, we didn't even think that people would like. I mean, of course now that we've seen it, it's like, of course it makes sense. Like you have, let's say several million dollars or something like that in bitcoin. You're lending that into a, you know, a, a pool. You're borrowing against that to buy your house, right? So you want to hodl. You want, you don't want to sell, you want to be able to get liquidity. And this person put their deposit down on a down payment on a house and they're going to negotiate the mortgage and all that stuff separately. But there's all sorts of things that we're seeing like, we have a lot of clients that are in South America. One of the coolest things we started seeing early on was small business owners in like Bolivia or Paraguay or Argentina, Brazil, using our card because it was cheaper to pay with a credit card to import things from China than it was to send a swift transaction. And so, like, there's that use case, there's individual, like, I mean, and the other thing is in a lot of these countries, there's no distinction between an average person and a business owner. Everybody is kind of a gig economy worker. They have sort of a side business, they have a job, they have all sorts of things. And so we're seeing like all sorts of, like informal economy stuff. All sorts of like our customers are actually seeing stablecoin payments within their own ecosystem now. And so people are actually paying vendors with some of our customers apps, they pay each other. And then the reason they pay each other is because it has a card attached on both ends and so you can actually spend that money instantaneously. We've added like payout capabilities so you can press a button and it'll show up in your bank account. Right. Anywhere in the world. So there's a lot of really cool stuff that we're starting to see. Because for us, the future of money can only really be actualized when the consumer is choosing to adopt it because it feels at least the same and usually better. Right? Like, you're not going to be able to get people to change their behavior just because, you know, you're saying, oh, well, you know, you really should think about getting the sticker to accept the stable coin because you get to feel cool. It's like, as a consumer, if you can't pay for your bus ride home, why would you accept money from someone that way?

Haseeb (54:01)

Yeah, that makes a lot of sense. I'm really fascinated by this idea of the connective tissue, as you put it, between the old money and the new money. And one of the lessons from technology generally is that it's really, really hard to disrupt something that's good enough. And a lot of the infrastructure that you see for payments is good enough. It's not great, it's not excellent, but it's good enough. And if you want somebody to move wholesale from that to like, for example, in the US during COVID there was this idea that like, oh, maybe Covid is going to cause QR code payments to take off in the US and obviously it didn't happen. It didn't even get close to QR code payments. Taking off in the US but we did get Tap to Pay, right? Tap to Pay really did take off in the US During COVID and the Tap to Pay phenomenon, of course, like, you know, it was Apple Pay and Google Pay and all this stuff. It all piggybacked on the credit card rails. And that's why it was easy for it to, for us to have that transition as a society. And the reason why is that it really wasn't that much of a leap from a technology perspective other than just, okay, now you have this NFC thing that you do when you press the thing against the thing. So it feels to me like a kind of perfect analogy that for, again, for certain economies where they're borderline failed states, okay, maybe there is enough bottoms up adoption of like, hey, we're going to pay each other in USCT on Tron and you just, you know, you come to the checkout and you just put the little QR code and you pay with Binance pay. But for most places in the world, right, like take like Dubai, I was in Dubai not too long ago, and there's a lot of Russian and Ukrainian immigrants in Dubai since the war. And a lot of them, like, they have money, but they have trouble getting banking, especially after the Russia sanctions. And so like, you can buy a house with tether in Dubai, you can buy a car with tether in Dubai. But if you go to the mall of Dubai, you cannot buy anything with tether, right? They don't. If you want to go buy shoes, you cannot do that with tether. And so like this, this, like the stablecoin credit card, stablecoin charge card concept was the thing for me that really squared the circle about how this is going to like, what's that bridge between where we are now and where we're going in terms of actually modernizing financial infrastructure in all these different places. So that's a big part of the reason why since, since meeting you guys and also learning more about all the trends that you guys are seeing about how people are using these things really made me understand a little bit more about where I think stablecoins are going.

Farooq (56:25)

No, I appreciate that a lot. Right. I mean, for us, the exciting part for us is when we talk to potential customers that have existing programs or thinking about building something. You're right, it is hard to compete with something that's good enough. But a lot of people have been burned by this FinTech 1.0, right? Banks have promised them a lot of stuff and then there's been a lot of structural Failures in these types of constructs. And Then even FinTech 2.0 where people are like, oh, well, now we actually are not the middleware. We are actually on top of a bank separately, and you're contracting even that people are realizing, okay, well, the participants in this transaction have not changed and we're trying to do the same thing. And if it was not okay with regulators previously, what is going to make this okay with regulators now? And so a lot of people are just kind of wary of making the same decision multiple times and then expecting different outcomes. And so they're willing to actually try stable coins. I mean, maybe not immediately for the whole thing, but like, for a small piece that, like, we were getting a lot of people coming in and say, hey, you know what, we're going to try this new thing. And because we can launch in three weeks with rain, we'll just start with stable coins. Let's just go. And then they're coming back to us like mid integration, and they're like, actually, we're just going to switch everything over. We're just going to take us a little bit longer. This is so much better. Let's just go. And so, like, there's so many things that we're like, seeing where we're actually bringing all this net new adoption into the stablecoin ecosystem. And we're bringing it in from like tradfi rails where people are like, well, you know, I'm at this financial institution which is worried about staying below the Durbin cap, but I have almost a ton of. I have a ton of deposits. And they also don't have any money to like, pony up for more equity. And they make us actually put our money into 200 financial institutions at night because they don't want it to be here. And they're like, well, you know, they go to Circle. And Circle's like, well, you know, you can give us $30 billion and you can move it here into USDC whenever you want. And they're like, oh, this is a totally different type of institutional counterparty then. And like, we're able to access like a balance sheet that's bigger. We're able to get institutional custody at bank bank in New York. We're not facing a community financial institution and, you know, name a state, right? And so, or name a country. And we're facing somebody that at the very least is publicly traded, has audited financial statements, is facing institutional counterparties. And then you'd expand that to like, people outside the US they don't even have institutions that where the dollars are insured by anyone, right? And so you're not even getting one to one backing in a lot of these places because there's no guarantee that like the bank itself doesn't have a correspondent relationship with the US Bank. So where are they actually holding it? Do you have any visibility? Do you have any security? Like, it's, it's very difficult to kind of, you know, for private citizens to think about this, right? And, or businesses to think about this. And so stablecoins in a lot of ways in a lot of countries represent financial counterparties that are far in excess of anybody that you would be able to access domestically.

Haseeb (59:24)

Okay, so last question for you, Farouk, before we sign off. Tell us about the growth that you're seeing because this is also one of the fascinating things from, from our conversations of okay, this is a thing that's happening. There are some people using charge cards or blah, blah, blah. How big is it and how big is it getting? Like, what are you guys seeing given that you have such visibility into what's happening on the ground?

Farooq (59:41)

We are seeing every single customer that goes live. Gross. We don't have a single user cohort that is not growing month over month, week over week. Every single customer cohort is running. It's complete insanity. Because what this is saying is that like people are able to acquire customers cheaper because they're able to have more meaningful economics. So like our customers, the CAC is lower because the product is, has a wider distribution aperture. And then on top of that, because we are more efficient than a traditional partner that you would want to work with, we share a lot more economics back with our partners, so their payback period is faster. And so that just creates this flywheel for our customer base that nobody's really seen in platform businesses before. And I mean, I really do think, like we were doing a postmortem on our stuff like a few weeks ago and one of the things we realized is it's largely because a lot of our customers, right, they were able to pivot their customer base, the customer segment, because we can service multiple geographies with Stable coins because it's a global dollar. And so they were like, oh, you know, I want to launch in Country A for this market segment. And they were like, oh man, there's like 10 different people in that market segment. And some like somebody forgot to geofence an ad or whatever it was for like this like stablecoin wallet. And they had somebody from Country B sign up for their stablecoin wallet and they were able to service them. Because Self Custodial Wallet is a international product. A stablecoin is an international product. I mean, our products are not global products today, but we're working on expanding our licensing and our global coverage so we can continue growing. But just those types of elements create this dynamic that you really don't have with traditional fintech. Right? Like if you want to launch a card product in the United States or a bank account in the US and you realize that your customer segment in the US is not there, you can't just expand it to Canada or Mexico. You have to go start all over in Canada, start all over in Mexico. And that's the power of stablecoins, right? Like you can actually just say, hey, I'm going to provide this product. And maybe that product is going to resonate with alternative music fans in the Midwest, but you can service them. And maybe then it's also going to resonate with this subculture of people in Bangladesh. You can also service them. And that's this, like, amazing thing that creates a totally different dynamic for startups, early stage companies, because it creates this, like, opportunity for good things to happen to you that really hasn't existed in financial products.

Haseeb (62:10)

All right, Farouk, we gotta sign off. Where can people find you and what should they be looking for if they want to get in touch with Rain?

Farooq (62:15)

Yeah, I'm at Rookster on Twitter and We're at Rain XYZ. Please reach out. Our DMs are open, mine are too. And so are the companies. We're happy to collaborate and design the future with everybody listening.

Haseeb (62:29)

Very good.

Farooq (62:30)

Thanks.

Tom (62:31)

Frick.

Haseeb (62:31)

All right, we gotta go. We'll be back next week. Thank you, everybody. See you all.