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The Chopping Block: Stablecoin-as-a-Service: The Next Big Crypto Gold Rush? - Ep. 906
01:00:44
From Circle’s Arc to Stripe’s Tempo, Solana’s stablecoin gambit, and the rise of ‘stablecoin-as-a-service,’ the crew debates whether this flood of new stables fixes crypto’s money problem — or just fragments liquidity.
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- [00:00]
Haseeb Qureshi
Binance was able to do busd. But notice no other exchange has this, right? No other exchange has this. Kraken doesn't have kusd, Bybit doesn't have by USD. I mean I remember Huobi had one back in the day.
- [00:13]
Tarun Chitra
Huobi used to have one and it didn't like they were never able to get money velocity.
- [00:17]
Haseeb Qureshi
It just died on the vine and they went back to usdt. That's right.
- [00:20]
Chris Burniske
Not a dividend.
- [00:21]
Tarun Chitra
It's a tale of two Kwan.
- [00:22]
Haseeb Qureshi
Now your losses are on someone else's balance sheet.
- [00:25]
Tom Schmidt
Generally speaking, airdrops are kind of pointless anyways.
- [00:28]
Haseeb Qureshi
Unnamed trading firms who are very involved Talik Eth is the old defi protocols are the antidote to this problem. Hello everyone. Welcome to the chopping block. Every couple weeks the four of us get together and give the industry insiders perspective on the crypto topics of the day. So quick intro is first. You got Tom the Defi maven and master of memes.
- [00:46]
Tom Schmidt
Hello everyone.
- [00:48]
Haseeb Qureshi
Next we've got Tarun, the Giga brain and Grand Poobah at Gauntlet.
- [00:51]
Tarun Chitra
Yo.
- [00:53]
Haseeb Qureshi
Joining us today we've got special guest Gordon, chief number cruncher at Circle.
- [00:59]
Gordon Lau
Thank you so much. Good to be here.
- [01:01]
Haseeb Qureshi
And I am Aseev, the head hype man at Dragonfly. We are early stage investors in crypto. But I want to caveat that nothing we say here is investment advice, legal advice or even life advice. Please see chopping blocks at XYZ for more disclosures. So last week we had a bit of a noisy episode where we talked a lot about Circle and it turned out that sent the bat signal out into the ether. And here we are, we have the chief economist and head of research at Circle, Gordon Lau. And Gordon, you have very generously promised to tell us what the the stock price of Circle is going to do as well as unannounced product launches. So, Gordon, the floor is yours. Please tell us what's going to happen to Circle stock.
- [01:38]
Gordon Lau
That's hilarious to see.
- [01:39]
Haseeb Qureshi
Any forward looking statements you'd like to make?
- [01:42]
Gordon Lau
Okay, that's exactly why people tune in for this particular podcast.
- [01:47]
Haseeb Qureshi
That's right, that's right. Okay, well, all right, fine. I guess you can't. Maybe, maybe that's not, maybe you're not allowed to do that. But there is a lot of talk going on right now about stablecoin chains. So stablecoin chains, of course, are these new generation of chains that are these verticalized chains that are specifically focused on some kind of stablecoin use case. So whether it's payments, whether it's issuance or whatever or all of the above. And the idea is that when you have a chain where I believe, as Tarun put it, the central object is a stablecoin instead of a gas token like Ethereum or whatever, that that potentially creates new use cases, new demand, or is going to be more for what the broad masses of people coming on chain are going to be using these things. The first stablecoin chain of real note was Ark. So Ark is the one that's launched by Circle and it's a Layer one blockchain and we covered it a little bit in a previous show. But I want to compare Ark to Tempo. So Tempo was the one that just announced a little bit over a week ago, although it had been teased for a while that Paradigm and Stripe were partnering up together to build a Layer one blockchain. Now Tempo is being led right now by Matt Huang. Matt Huang is the CEO of of Tempo, which a little bit surprising because he's also the CEO of Paradigm. And it's a payments first Layer one for stablecoins, which means again, you know, things like payroll, remittances, tokenized deposits, agentic payment, whatever, everything that people say stablecoins are used for, they want to be used for that. Some of the details that we have so far about Tempo, it starts off with a permissioned validator set. So they had a bunch of people around the table. Anthropic, Coupang, Deutsche Bank, DoorDash, Mercury, Nubank, OpenAI, Revolut, Shopify, Standard, Charter and Visa were all announced as design partners. Now design partners. I don't know what that means. It's not clear exactly what that means, but many of these people were tweeting alongside the initial announcement saying like, yes, Tempo's great, blah, blah, blah. So we don't have a lot of details about what their involvement is specifically, but presumably they're going to be part of the validator set and the claim is that it's going to decentralize over time. Now there was a lot of. There was a lot of anger at Tempo, seemingly because it was a Layer one and not a Layer two. So a lot of the Ethereum people got really upset and were just like, why are you doing this? This is an assault on Ethereum and you guys are Ethereum turncoats. I was specifically pointing at Paradigm, not Stripe, because I don't think anyone's mad at Stripe. And it's like, hey, why do we need more layer 1s? And then paradigm came out and said, hey, just so you know, we intend this to be a neutral base layer. We're not going to be controlling these pipes, sanctions, and all this kind of stuff is going to happen at the edges. Not on the blockchain itself, but seemingly. I didn't see any of this response to Ark. It seems like it was directed at. You got some too. Okay, well, good to know.
- [04:28]
Gordon Lau
We got some too, but I think we were not as targeted.
- [04:32]
Haseeb Qureshi
Yeah, yeah, clearly, clearly. So there was a lot of comparisons with Tempo and Libra. For those of you who don't recall, Libra was also a consortium back in 2019 when Facebook announced that they were going to build their own stablecoin back blockchain. I know Tarun was actually very involved in the white paper. I think you were a co author on the white paper way back in the day.
- [04:53]
Tarun Chitra
I was a reviewer. But yeah, I loved when you just said to those of you who don't remember, it's like more to those of you who lack.
- [05:02]
Haseeb Qureshi
Those of you who are not here.
- [05:04]
Tarun Chitra
Who lack brain damage from that era.
- [05:07]
Haseeb Qureshi
Yeah, yeah, yeah. Well, I don't. The brain damage seems to be accelerating with every subsequent vintage.
- [05:12]
Gordon Lau
Libra is actually how I first got started being interested in stablecoin. Because at the time I was at the Federal reserve board in D.C. and the broader team I was part of was actually looking at. I was in the international finance team and looking at global sovereign markets, global currency. All of a sudden you have a Libra news pop up. The Fed just went into superdrive of what is this? Is this going to threaten monetary sovereignty? How is this going to work with different central banks? If you remember, you were part of.
- [05:41]
Haseeb Qureshi
The team that called the congresspeople to shut down Libra.
- [05:44]
Gordon Lau
Well, let's just say that at one of the Christmas parties there were definitely people who were celebrating the don for Libra at the Fed. Because if you remember how that construct was initially it was a basket of currencies and that fundamentally just threatened the monetary policy sovereignty of every single central bank out there. So I saw it from the other side and I wish they had some more foresight into what the response will be.
- [06:11]
Tarun Chitra
CIRCLE has employed lots of people who worked on Libra, so I feel like they have institutional knowledge of the mistakes.
- [06:20]
Haseeb Qureshi
Well, thankfully, crypto is now America first, so no more baskets of currencies. That's a very globalist perspective on how to build a blockchain. Now every blockchain is figuring out how do we become America first and launch our own USD denominated blockchain. But so, okay, I want to get your reflections on Tempo, Gordon. I know that you guys are building ARK and there's some similarities with ark, some differences, some of the similarities that I noted. ARK is also going to have stablecoin native fees so you can pay fees. The sort of the gas token, the fee token is going to be in USDC on ark, whereas I believe on Tempo the idea is that you can use any stablecoin. The validators presumably will whitelist some of it. ARK is going to have the full circle stack, usdc, the Euro, it's going to have cpn, Mint wallets, paymasters, all of that stuff is going to be there. And you've also got USYC which is basically a sort of on chain money market fund that I guess non US users can directly access on chain. But it's largely very similar. The whole idea of okay, you got built in fx, you've got confidential transactions where you shield the amount that you're transferring. That stuff looks like similar between ARK and Tempo. And I have to imagine they looked at what you guys are doing and probably took some, let's call it inspiration from what they saw at ark, but obviously also competitors, right? I mean Stripe has Bridge which is their stablecoin issuers, they have USDB and they're directly coming for the crown that right now Circle is wearing. So curious to get what is your response seeing what Tempo has pre announced compared to what you guys are trying to do with ark.
- [07:55]
Gordon Lau
Well obviously Stripe and Paradigm are respected institutions in their respective space in both payments and also in the VC space in the crypto space. Now what they announced is I think they center their message around a stablecoin payment type of use case and payment is what Stripe is known for. I would say that if you think about what ARK is trying to do, it's really trying to bring stablecoin finance or we call stablefi to the masses for adoption. And what do you need for that broader adoption? We've seen blockchain has been around for over a decade and Ethereum has been around for a long time now. But still I would say that the everyday users are not necessarily adopting or it's very hard for people to adopt it. We think that there are cool missing features help. Having silicoin as a gas token to pay fees is one of those features. But that's not the only one. The other aspect, the other two features that we highlighted is subsecond deterministic finality. Now deterministic is actually quite important if you're talking to regulated institutions that require that sort of certainty instead of just economic finality or probabilistic finality. And then the third aspect is we are building up in privacy that would allow institutions, enterprises to selectively hide for instance balances and transfers initially and perhaps later on even addresses. But that's compliant to the rules and laws that regulators have. So I would say those three core differentiate fittings, differential features of stablecoin, fees, Optim, privacy and finality are what set Ark apart from many of the other chains out there and is meant to on that bringing new users new adoptions. Because we believe Circle being this great connector of the legacy world, the fiat world and the on chain world, we have this special trust and we have also the banking rails built out to bring the masses on chain and that'll be great for the benefit of many ecosystems.
- [10:02]
Haseeb Qureshi
Tarun, what's your take seeing Tempo Ark, what do you think about Stripe getting to the game?
- [10:07]
Tarun Chitra
So something I have been kind of curious, confused about is like everyone really emphasizes the FX stuff but like I've never really figured out how much people actually care. I think there's always a story in many things that have happened in crypto in the like last 10 years where people always talk about like FX, local currencies, things like that. And like none of them have really stuck. Like everyone just still ends up.
- [10:35]
Haseeb Qureshi
Just be clear, for those who don't know, FX stands for foreign exchange. So like exchanging one currency to another.
- [10:40]
Tarun Chitra
Yeah, and like we've, we've just like historically had this like lull where like every time someone tries to, to. To do another currency, like do the Euro, do the Rimby, do whatever, it never seems to stick either because like liquidity is bad or yield is horrible or like people don't want to take except the, the Euro version. And so I'm kind of curious like why, you know, I think this was true with Libra. This is true with all the stablecoin chains of like the ICO era, like the cellos of the world where everyone was always talking about this like FX localized currency thing. And I, I know there's this like ideological dream that people think that like that is like a really great selling point, but I, I have yet to really see. So, so I'm curious like why do you, you know, why do you think that's a big focus? Have you observed a lot of demand for that? Because like that's, that's something I've always just been like, people love dollar stablecoins and it's really hard to pry them out. Of their hands. They do not want to.
- [11:38]
Haseeb Qureshi
Well, it's also important to refer to the backdrop to that question is that 99% of stablecoins on chain are US dollar denominated. Many, many people have tried and of course Circle I think has the biggest Euro product and there's a bunch of people doing other currencies and we've gotten a kajillion pitches over the years for non US dollar stablecoins and none of them have worked. So it's important backdrop when you're asking this question for the audience to understand is that the state of play today is that almost everything is US dollars.
- [12:07]
Gordon Lau
Yeah, I think there are two ways to look at it, right? One is what challenges are you trying to solve with blockchain? One of the core challenges I think blockchains could solve is this global payment conundrum where today you have massive amount of FX volume. I think it's like $9 trillion per day of volume. Yet when I'm trying to pay somebody halfway across the world, oftentimes they take days. Oftentimes these charges, I think the World bank estimate the cost of remittance is still like 6% on average in some countries, unquote. Wars is in the teens in terms of percentage that still remains to be very expensive. And so that's a fundamental problem outside of crypto that people should look at and should try to figure out how to solve it. And FX is a core part of that issue because you're actually operating on multiple ledgers. In the fiat world, it's not just a single settlement at the Federal Reserve for the federal system in dollars, but it's also dealing with a separate ledger at another central bank. You have multiple correspondent banks in between. At the end of the day, you're suddenly on so many different traditional ledgers. So that's the fundamental more fiat issue that I think y blockchain could solve because it's more interconnected, because it's faster, because you don't have all these broken fragmentation. But then you, you rightly pointed out absolutely 99% of today's stablecoin are dollar based. But that doesn't mean that in the future there won't be more growth of local stablecoins. In fact, Ark is designed to support many other stablecoins and it's actually we wrote it in our live paper as well that will support a paymaster that allow you to pay in different stablecoins in different dollar stablecoins and different stablecoins denominating other currencies. I Think so far the other currencies hasn't grown yet because simply you don't have local assets that are denominated in those currencies on chain. Imagine someday you have massive amount of on chain real world asset. So traditional bonds and equities that get tokenized. Of course when you tokenize, I don't know, the Korean Won bonds or some Japanese companies, those companies are not going to trade in a dollar denominated stablecoin. They have to have a local stablecoin for it to trade. And the local jurisdictions and governments are going to impose somewhat of a control of making sure that they keep their monetary sovereignty. But it comes back to this important aspect of what is a numerator asset? What is a numerator asset for denominating the risky asset you're trading. So in global oil and gas market and gold market is the dollar and crypto market is mostly the dollar. But when it comes down to local tokenization or local securities, it has to be the local currency. So I think it's just the time hasn't. But once you have local tokenized assets, local tokenized credit, that's trading on chain in a massive scale, you have to have the growth of corresponding local stablecoin that grows with it.
- [15:10]
Tarun Chitra
But do you think it's possible it becomes winner take all where because liquidity depth is so much higher for dollars that everyone just ends up finding the exit costs for exiting out of these assets. Entry and exit costs for complex transactions ends up just being cheaper in dollars. And then people don't use the other currencies because you know, even when I look at local currency pairs on crypto exchanges, right, where they like allow you to deposit fiat. The only two currencies that hold a candle to the USD are like Turkish Lira and Korean Won. And that's just because of like that's where there's a lot of speculative activity. But even there in those places like most of those exchanges still have like USD stablecoin dominance in the long run. So I'm just kind of curious like why this is. The reason I was bringing this up is like I do think the FX stuff features prominently in both Tempo and ark. It's like it seems and like I maybe I'm just like, I've just, I've been in crypto too long and I'm just like it just like make. Yeah, it's just like one of these things where it's like I've seen so many failures of this. Is it really going to work?
- [16:17]
Tom Schmidt
I think it's such a different use case, right? Like if you think about what is PMF for stablecoins a day, it's offering a dollar denominated savings account to consumers all around the world. Right? Like actual payment volume is not small, but it's not gigantic compared to every other sort of payment network out there. It's really just like I want to save in dollars and I'm a person who lives in a random country and so this is kind of the thing that I'm going to use for business. You have a bunch of different concerns, right? Like if you have liabilities in your local currency, you do need to pay those in those local currency, but that's just not where PMF is for stablecoins today. And I think my impression for Ark and for Tempo is like, this is more of a B2B kind of product. And so therefore, yeah, if you're operating in a different country and you do actually care more about FX vs Hey, I'm in Argentina and I want to have some tether Anton. And that totally actually serves my use case well.
- [17:05]
Haseeb Qureshi
So my claim would be the following. So I'd say it's obviously true. I mean, look Gordon, the story that you just told about FX is a story that I've been hearing now for like seven years. And I know that you've been hearing it too. And we're all watching. We're all watching. Yeah, we're watching the fact that like, yeah, this 99% US dollar stablecoin thing has been true. When I started, it was true five years ago, it's still true today. It just doesn't move like USD has been absolutely dominant on chain despite the fact that it's largely an international story. Most stablecoins are used outside the US in countries where US dollar is not the numeraire of the local currency. So it tells us something very important about what the first inning or the first act of stablecoin adoption is going to be is that it's going to be international adoption of a way to use US dollars. That may change over time, but right now that is what it is and it'll probably continue to be that for at least another few years. But like for Circle and for the issuers, all they really care about is the aum, right? The AUM is what matters because that's what you make the yield on. Right? Most of the business models, the yield, although there's a little bit also made in like, you know, create, redeem. But the main, the main money maker is the yield. It's pretty plausible to me that if you're a business and let's say you're a Brazilian exporter and you, you know, have real denominated liabilities or maybe some of you're paying in reals, some of the people you're paying in dollars, you want to have some ability to take rialls, put them all on chain and then like some of them you send to some people in. In reals. Some people, some you send to some people in USD and it all is just very seamlessly converted. Right. That's probably not a huge amount of flow. You probably don't actually need a huge amount of TVL sitting there as resting liquidity to convert all the people who are moving from rials to dollars. But if you have no liquidity, then that person is like, well, this just doesn't work for me. I just can't do this unless I am figuring out how to get the real US dollar corridor myself. And so on some level, for Tempo, for Ark, for all of these chains having that effects engine, a big part of the reason why it's there is just to make it really easy. But it doesn't actually demand that there be a huge amount of liquidity or a huge amount of issuance. It's just that every single corridor, you don't have to think about it, there's a rial stablecoin. You can take your Rials, put them into the real stablecoin with basically no slippage, and then get really tight quotes in real time to turn reals into dollars. And if you just do that for enough corridors, then now you've built. I mean, look, it's not as tight as the global effects market, but it's a hell of a lot better than like, you know, paying 5% and waiting two weeks to move money from reals into dollars. That I think is the, that I think is the pitch which doesn't actually demand this 99% US dollar dominance thing to change. That might still be true even if you have very, very liquid ways to turn rialls into dollars. But the vast majority of the demand is like people just want dollars.
- [19:52]
Gordon Lau
Yeah, I think that's partly true for payment and Circle Payment Network, which we announced and started launched earlier this year. It's kind of addressed at how do you actually get dollars into reals in people's hand. But when you also have tokenization of say CASP 200 index in ETF form, that's tokenized. When you have the Nikki, those assets eventually I think will have a local stablecoin price. It's just we're not there yet in terms of overall tokenization.
- [20:23]
Haseeb Qureshi
Right. But the lesson I think in crypto is that you cannot make moves like three steps ahead on the chessboard. You kind of have to move the pawn down the thing one step at a time. And right now we are at the place where, yeah, there are Brazilian exporters who want to use stablecoins, but there is nobody right now who wants to trade the Nikkei against the yen on chain. Right. Like the volumes for the latter are growing exponentially. I'm sorry, the latter for the former is growing exponentially. The latter. We want it to be true. Everybody's saying it's going to be true, but it's not true right now. And that's not, I think the primary story about these kind of non US dollar stablecoins.
- [21:04]
Tarun Chitra
Actually. Can I ask for a prediction? Which asset, which currency do you think will be number two? Let's say, let's say like ARK and Tempo, both or whatever. One of them, or both of them, at least one of them succeeds. Gets a ton of businesses on.
- [21:21]
Haseeb Qureshi
Well, obviously.
- [21:22]
Tarun Chitra
What do you assume?
- [21:23]
Haseeb Qureshi
They're here.
- [21:23]
Tarun Chitra
Yes. Well, so where do you. I'm just, I'm just trying to, I'm just trying, I'm trying to just like keep the light cone, the light cone of the future open. You know, I'm not trying to like restrict, you know, what the outcomes are. So what do you think number two is, currency wise? Because I do feel like everyone has really been pushing this euro thing, but I just have this feeling in my head it'll never be the euro.
- [21:49]
Haseeb Qureshi
Why, why do you think it'll never be the euro?
- [21:51]
Tarun Chitra
I just sort of feel like the European governments want to find every possible way to add an extra tax at every little time you try to tokenize anything in a way that. Why would you. The most frictionful.
- [22:03]
Haseeb Qureshi
What was the story regulatory yesterday the.
- [22:07]
Tom Schmidt
UK said like, oh, you can only have $10,000 of stable coins or something per person. I was like, what? Like that doesn't make any sense.
- [22:13]
Haseeb Qureshi
Yeah, that was crazy. That was absolutely crazy.
- [22:15]
Tarun Chitra
Yeah, it just feels like there's so much in like friction taxes that seem to just be added randomly and like last minute that it's like how could you ever want to keep like assets that might be like collateral for a long term loan, like in euros? But that's just my personal. I'm just curious, Gordon, of your. You're more deep in load the like, like trying to get ARK out into the world so where do you feel like?
- [22:37]
Gordon Lau
I think it just depends on the use case, you know, for payments. Probably the biggest quotas in which you could actually save money are maybe the south to south corridors like it is paying some of the countries that's hard to get to today. Eventually you'll have tokenized assets that very well could be Euro that's growing, but we're not there yet as Haseeb mentioned.
- [23:00]
Haseeb Qureshi
Okay, so very milquetoast answer, but sounds like maybe Euro. You think Euro is going to be number two in five years?
- [23:08]
Gordon Lau
Five years, yeah. Likely.
- [23:12]
Haseeb Qureshi
Okay. Okay. So I want to ask you, all right, Tempo is kind of the most obvious direct competitor to ark. What do you think are the advantages that ARC has over Tempo?
- [23:23]
Gordon Lau
Well, I think ARC is not a standalone blockchain. It brings with it the full suite of Circle platform products, uscc, erc, usyc and also the interoperability across chains through CCTP and Gateway and Circle MIN connectivity to Fiat. It's part of a broader platform that I think we could support a lot of developers and ecosystem players to build Stablecoin finance. That's not just payment either. It is going to be about trading, lending, FX payments part of it. But also just broadly, how can we bring Stablecoin finance to the broader world for institutions who adopt in ways that currently is not possible? And that's one differentiating feature. And the other part is we stated this in our light paper as well. We are starting out as permission validator set as well. Most likely we are committed to most likely it will still be permission validator set even after wave balance of state will have a transition to proof of stake at some point. Even after proof of stake most likely will still remain to be permission validator set because we think that's what at least our understanding of the current regulatory environment as what is needed for institutions for mass adoption. Because you want to make sure that North Korea is now one of the validators, for instance, and that is also a differentiating feature. But more broadly I would say it's just everything that Circle platform has will be on Ark.
- [25:00]
Tom Schmidt
How do you think about the Circle strategy versus the tether strategy here, which you haven't talked about, which seems to be kind of supporting a few different chains, plasma unstable, kind of being two of the bigger ones and not explicitly making something in house but kind of blessing these other chains and yeah, I don't know, how do you sort of when you see them, what do you think of their strategy and how do you interpret it versus Circle?
- [25:25]
Gordon Lau
Yeah, I can't speak too much about our competitors, but I think where Circle stands for regulator, trust, compliance, transparency and as a public company has an enormous amount of governance behind it as well. And we are launching ARC with that same set of principles of transparency, auditability and sufficient amount of compliance and regulated trust. I think those are just different set of features. And whether you could do that separately from Circle or not, or from the main stablecoin issuer or not, I think that depends on the situation, but I think it's a pretty unique position.
- [26:13]
Haseeb Qureshi
Okay, so let's switch gears a little bit and talk about the way in which the dynamic around stablecoins for chains has been evolving. So obviously last week there was the USDH Bake off, which ended up in this very big almost shift in the overton window about the ability for chains to bargain with stablecoin issuers. It's something we've never really seen before, but hyperliquid was kind of the first to do it. Now Hyper Liquid, of course, is an exchange and exchanges have historically actually been able to bargain with stablecoin issuers, famously Binance adopting busd, which was issued by Paxos and then later fdusd. But we saw just in the last couple of weeks Mega Eth launch a OR is going to launch a native stablecoin called usdm, which is built by Athena and then Solana, largely, seemingly jettisoned, not just championed by mert. MERT is saying that like hey, Solana as an ecosystem should come together and issue our own stablecoin. Why is Circle getting all the yield when we have the big Solana cabal and we've got all these users and blah blah, blah. And so there's almost this notion that I think is fairly new about maybe there should be collective bargaining, not just in a single application like hyperliquid, but in an entire ecosystem. So there was a lot of talk and we discussed last week this idea that maybe the optimal equilibrium is not that hyperliquid has its own native stablecoin, but rather that all of this is perhaps a gambit to go get Circle to strike a deal with hyperliquid directly. And so perhaps on cue, there was an announcement earlier today of Circle x hyperliquid that says, hey, USCC is now going native on hyperliquid. Circle now owns Hype, is exploring becoming a validator. CCTP V2 is now live on Hyper EVM and will be moving to Hypercore. They're launching builder incentive programs for HIP3 EVM dev or Hyper EVM devs and they're bringing a bunch of liquidity onto Hyperliquid. And now they're speaking in hyper liquid terms with putting hyper liquid at the end of their blog posts. So it seems that all of a sudden a deal was struck. Unclear what the details are here of like, okay, how much hype was bought? Is this a commitment to continue buying hype? That's sort of like the equivalent of what we described. We're like, oh, buying back and burning hype or something like this using some of the revenue from the, the USDC and the Bridge. But it seems like something happened here in response to the USDH Bake Off. So given that we have you here, Mr. Chief Economist, would love to understand what are the economics here of the agreement between Circle and hyperliquid.
- [28:47]
Gordon Lau
No, this is not in response to anything recent. Right. We announced that we were launching USCC natively on Hype back in July and actually our team started building it a lot earlier, earlier this year. Right. So this is just accumulation of finally a product actually released today. It's on Hyper EVM today. CCDP V2 is live for Hyper EVM.
- [29:12]
Haseeb Qureshi
But hold on, you got Hype? That clearly was in response to this other stuff. Come on.
- [29:17]
Gordon Lau
But yeah, we have a corporate venture team that if you look at, and this is because they're a public company, you can look at our other holdings. Right. It's. We've been invested in the broader crypto community and ecosystem for a long time. We have other tokens on our balance sheet. And this is no different than how we have always conducted corporate venture and how we have always supported a variety of ecosystem. And we still believe very much in this multi chain thesis. So I would say this is more of business as usual than in response to whatever happened in the past week or so.
- [29:55]
Haseeb Qureshi
All right. I'll say for the record that I don't believe you. I think this was in response to the massive USDH drama, but I think it's also a very rational response. Tarun, what's your take on this whole kind of stablecoin chain?
- [30:09]
Tarun Chitra
Stablecoin negotiating Meta, you said it's new. I think it's not that it's new. Clearly a lot of stablecoins have had negotiations with centralized exchanges and like they announced their deal with exchanges. Yes, Circle Circles had deals. Right. With Binance and okx and stuff. Right. So it's like it clearly does exist. I think the main difference is it's not out in the open. And so the question is what the how the strategy space changes when the entire bargaining process is open versus not. And like I think obviously there you have two very different outcomes in those cases, right. Where like in the public revelation mechanisms like everyone naturally you get to like 0 faster in price but then you also have sort of due to more competition but oftentimes you may be able to get a substandard product. This is kind of like the standard economics analysis of procurement auctions. When like a government tries to say like hey we have some resources, we want like people to give us bids, whatever. Where it's like you e. If you make it too totally public then you actually get like lower quality but like also lower price. And if you make it too restrictive then you get like worse price and lower quality and there's like some trade off in the middle. And I think that's what we're finding is that people are preferring partial revelation versus pure public.
- [31:31]
Gordon Lau
I think you're true academic on this subject.
- [31:33]
Tarun Chitra
Look, you know, I'm not trying to step on anyone's toes here.
- [31:38]
Gordon Lau
Yeah, I think launching a stablecoin today at the Novo Stable Point is not hard. But launching a global scale stablecoin that has a liquidity infrastructure that has the primary market liquidity connectivity with banks in every major market. The USCC had over a trillion dollars of primary market activity that is directly minting or redeeming with banks always at 1. It had over $40 trillion of on chain transactions. It has CCPP that's connected and has instant cross chain interoperability across a number of blockchains. That is something that's not just a ticker, it's not just a stablecoin that you launch out of nowhere. It does come with years of building up the institutional apparatus, building up the market liquidity, building up all the banking connectivities. So I think it's just you're kind of comparing apples to oranges here.
- [32:38]
Haseeb Qureshi
So it's definitely true that. So put Hyper Liquid aside. Hyper Liquid being an exchange, right. If you're a perp Dex, then like what you denominate your collateral with is actually not. Doesn't really affect the UX that much. You know, like largely they can have USDH or whatever, any stablecoin and it's mostly the same experience to their users for something like Solana. Right. So Solana is now talking about oh, you know, Hyper Liquid did this. We guys should, we should come together, assemble the vendors of, of Solana and like go collectively bargain. Almost like unionize to go collectively bargain and like go, you know, go get our own stablecoin and like get the yield ourselves. And I think we talked about this on the last show is that like, that seems to me much, much harder than for hyperliquid to do the same thing. Because the UX cost on Solana is going to be really, really noticeable to users, right? Like when you're moving around stuff and like trying to have liquidity and market making on, on Jupyter and on Drift and on this thing and like spot pairs and blah, blah, blah and like, you know, the bridging experience is going to be very haphazard for a lot of users and confusing. You know, imagine a world where there's a new Solana stablecoin called USD Manlet and USD Manlet. It's like, okay, once you come into Solana, it burns. Some portion of the token, some portion of the yield goes to burn Sol, some portion of it goes to burn all of the major members of the union, you know, so like, let's say Jupiter and Drift and you know, whatever, pump.
- [33:59]
Tarun Chitra
So Libra with Libra with Burning. That's what I'm hearing.
- [34:03]
Haseeb Qureshi
Yes, totally, totally. Libra with Burning with Buy and Burn, right? Which is isomorphic to revenue, like in this world. I think what happens is that the moment, let's say you're Jupiter and you're like, cool, I'm going to create a fast lane for USD Manlet and it's going to be reduced fees or whatever. I'm going to put it on the front end. The moment that you see revenues start to get hit, right? Like just users don't like that. They're like, why are you doing this? They'll be like, shit, I want out. I don't want to do this anymore. Like, my token's going down. Can't we just go back to using USDC? And the predecessor to this was kind of PayPal, right? PayPal USD, which we talked about on the show, was like this. Obviously it was not buying and burning Sol, but it was the Solana coded stablecoin that they were giving incentives to people within the Solana ecosystem to galvanize the adoption and uscc, as far as I know, I mean, maybe you guys were, I don't know. But USCC was just like organically adopted because it was dominant in Defi and USCC won despite the fact that the subsidies were all coming directly from PayPal. And I think we bet on it on the show and we were right that basically PayPal USD was not able to grow to critical mass on Solana. So the reality is that users are very Fickle and they really want a liquid easy to use stablecoin that they don't have to ask like wait, what is this thing? Like why am I now being forced to bridge into this other asset? Which is less true when you're all within a single platform. Right? Binance was able to do busd but notice no other exchange has this, right? No other exchange has this. Kraken, kusd, BYBIT doesn't have Buy USD.
- [35:32]
Tarun Chitra
Back in the day Huobi used to have one and it didn't. They were never able to get money.
- [35:36]
Haseeb Qureshi
It just died on the vine and they went back to usdt.
- [35:38]
Tarun Chitra
Well it had, it was an interesting experiment because if you looked at the data like the supply was like comparable to BUSD at times but there was literally zero money velocity. Like there was like no transactions. You would just see like a huge mint transaction and then two months later that whole transaction would be burnt or transferred to USDT or generally USDT in that case. And so I think the money velocity thing is very hard to replicate. Like the, you can, you can, you can make your new stablecoin but like actually getting adoption in like fee bearing things is very expensive. The thing I, and this is sort of where I'm a little confused about how to reason about these kind of, you know, everyone doing stablecoin as a service at the same time is like there was there, there's kind of this convergence I would say. And, and to give them credit I, I think like M0 probably was sort of deserves some credit for this, for this like model of like hey, you have some base stablecoin and then you wrap it and add all the constraints that like, like your specific use case needs and you can redeem to the base coin and then trade so that you have like some type of fixed numerator. The thing is like if, if there's five, you know, I think there's a version of the world where you're a dominant stablecoin and then you offer this kind of white label wrapped service for people. It makes a lot of sense. But like when there's like 10 different new stablecoins all trying to offer like our benefit is that we will wrap like, like the M0, USDG et cetera. We will be stablecoins of service. It does feel like it kind of dilutes the value of the liquidity advantage that you have for trading and I don't think it seems really hard to bootstrap those things when it's like their value prop is diluting their own brand. On launch. And so that's something that I think you probably have some opinion.
- [37:25]
Gordon Lau
Yeah, I mean, let's just remember that at the end of the day, it's the users that's making the adoption choice. It's the users that's choosing one stablecoin for its liquidity, for its trust, for its reliability and stability. You can't force users to convert. That forced conversion goes against the very basic premise of crypto, which is not your keys, not your tokens. So there are some exchanges that tried this before and I think one of the regulators basically told them not to do that. You can't just force people to convert and instead it's really user driven. What do they prefer to use? Is it the liquidity that they prefer or some other features that they prefer? And I think liquidity does matter a lot, but also the trust and the branding matters quite a lot as well.
- [38:13]
Haseeb Qureshi
Well, Tom made the point last week is that with these turnkey stablecoin solutions, right, like the Agoras and the Paxos of the world, it does feel like the trust deficit has been made up compared to what it was like in 2020 or 2019. Is that back in the day you launch a new stablecoin, people were like, oh, this probably like, this must be like some shoestring thing and some shady geometry.
- [38:35]
Tarun Chitra
You're telling me my basis, cash holdings real. No, I'm kidding.
- [38:40]
Haseeb Qureshi
Now, people mostly do assume that if you launch a new stablecoin, it's probably safe, it's probably regulated, there's probably somebody keeping an eye on the, you know, the reserves are sitting somewhere. But, you know, to, to Gordon's point, like, the benefits of having a global stablecoin that is just, you know, has banking relationships everywhere and has really tight spreads everywhere and has always, always has liquidity, and you never have to like, call somebody to be like, hey, I need to move 5 million bucks. And like, there's no liquidity on this. This pair just never happens for a circle. It's part of the reasons why money has a network effect. That's why we're talking about the US dollar having 99% dominance in stablecoins. Why is it? It's the network effect. So it's true of stablecoins too. But what's fascinating about stablecoins is that once upon a time when stablecoins were in their infancy, so back in 2017, 2017, there was just tether, USDC had not been created yet. And, and at that time, I think most people, myself included, assumed that stablecoins had a very natural network effect and as a result natural monopolies is that there's going to be one stablecoin, it's going to be totally dominant, everyone's going to use that stablecoin and that's not what we've seen. What we've seen is more or less a duopoly where there's tether, there's circle and then distant third is Athena which is synthetic dollar high yielding asset, very different than a fiat backed stablecoin. And then it's just tiny, tiny peanuts of the people who are ranked after that. That and that's surprising. It's a surprising outcome. And part of the way that that has played out is that there are these cleavages in the market that really weren't obvious ex ante that like oh, circle is dominant on chain, tether has almost no adoption on chain. But then when it comes to you go on the ground in Turkey or Venezuela and everyone's using tether and a lot of people haven't even heard of usdc. And so there are these sort of subsections of the market market that have very dominant market positions in one stablecoin or another. And so I don't want to preclude the possibility that that may also be true for some subsets that we haven't thought about yet. Right. So maybe it's possible that in Solana that's a subset that's small enough that you could get one stable. I think it's difficult, I think it's very, very hard because all of defi is connected and so anything that's on Solana, like people are arbing and moving across bridges to get the liquidity from Ethereum onto Solana. It's possible something like Solana could do it, but there's no way that Ethereum could do it. Ethereum is just. Ethereum cannot collectively bargain in such a way to close the doors to prevent USDC dominance on chain from making its way into Ethereum. Whereas Solana, it's a coordinated enough ecosystem that they actually kind of could maybe, I still think they probably wouldn't, but it's possible at least. But the really big mature ecosystems like Ethereum, there's just too many players and they don't all know each other and they've never gotten on a zoom call together. So it would just be impossible for something like that to happen on Ethereum.
- [41:25]
Gordon Lau
I think just echoing one point you mentioned that a lot of today you can trust a lot of stablecoins but the rules for genius act hasn't really kicked in in full effect. One of the provisions in the Genius act is stablecoins cannot pay users directly in interest. And I think that's going to actually some of the stablecoins that's been out there marketing interest payment, I don't think that actually qualifies under the Genus Act. So we'll see how the market develop.
- [41:54]
Tom Schmidt
Yeah, I mean I think of it a little bit honestly like kind of community banks or kind of like there is also, I would say banking is kind of similar in that you have like, okay, there's what, like 7G sibs and then it's like, yeah, this is like the Idaho Public Trust or whatever. And it's like why would anyone bank here? And certainly part of that you could say is FDIC is sort of supporting community banks, but they're all obviously like weird idiosyncratic factors that, that not everyone makes a purely rational economic decision. Right. Some people are like, yeah, they have a branch down the street from my house and they have a shirt and they sponsored my kids little league team and that's why I bank with them. And I could see something like that honestly happening. And I would say that stablecoins that exist in kind of this long tail are somewhat similar where it's like this is just the way this got distributed and it's popular in this ecosystem. And I don't know where that kind of what the kind of carrying capacity of an ecosystem is to like require you to be sufficient to actually have a stablecoin be live. But like I also would not be surprised if we just continue to see these like small little pockets. I was kind of joking with someone the other day around these kind of like crypto neobank kind of things that we've seen popping up and I'm like, I could see something like this happening for like discords or like, yeah, this is my Minecraft server, you know, neobank and we all have the same, you know, stablecoin.
- [43:09]
Tarun Chitra
I will say like at that point the branded stablecoin feels more just like a credit card card then it feels like it's like, you know what I mean? It's, it's like it's like your rewards points are special for your particular credit card rules versus something. This is actually the one thing I think that's interesting about this. This like kind of custom stablecoin thing that is, it feels like it's more like credit cards than it feels like money. The way like the bait like the USDT and USDC really do feel like money like if you're going to like these kind of wrapped branded versions, then it's like, like it really seems much closer to a credit card. I know you're saying like a local bank, but it feels a little more like slightly better distributed than your local bank. Right?
- [43:51]
Haseeb Qureshi
Like, but yeah, the other disanalogy with your local bank is it's more like using a local currency. Right. Whereas a local bank, like you're still using dollars and like you take it out of the bank, you know, nobody's.
- [44:01]
Tom Schmidt
Yeah, I mean all of these are dollars. I think the question is like where, like what level of abstraction is the one that is going to actually users are going to interface with, Are they going to interface directly on the raw metal with USDC or are they going to interface with Starbucks USD? And I think it's still undetermined where that's going to actually net out.
- [44:21]
Haseeb Qureshi
I think what's more plausible, right, so take hyperliquid as an example. The reason why hyperliquid can do this is that once you put your money in hyperliquid, it's collateral. You're not experiencing like oh man, usdh, nobody takes it. Isn't that annoying, right? Like at least within Hyper Liquid Core, the core exchange, you don't have this direct experience of like oh my God, this is, this is so annoying to hold this usdh. But I think it's largely true for apps that have a long holding period. Right? Let's say you're in an app where you deposit funds and then they just kind of sit in there, say polymarket, right? You deposit funds into polymarket. Polymarket could say, okay, you deposit USDC into polymarket Market and while your deposits are here, we actually unwrap them, swap them into polymarket USD. And we don't tell you, right? We basically are just like, ah, user doesn't need to worry about this. And so the assets are all sitting in Poly Market USD. USD. And then once you want to redeem, then they take you back out. And basically that is isomorphic to Polymarket. Just saying, hey, circle, strike us a deal when we have deposits, give us some of the yield when they're in our platform. Which is exactly what the exchanges do, right? The exchanges that have deals with usdc. That's how it works. So you could do that. But it sucks. Like it's a terrible, it's really bad and like your users aren't going to like it if they.
- [45:37]
Gordon Lau
But that forced conversion is not transparent. Yeah, but that forced conversion I think goes against both Crypto principles but also consumer protection issues of you basically didn't tell your users and convert it.
- [45:50]
Haseeb Qureshi
You have to do this in a transparent way that like hey, when you deposit here. But like the point is the user doesn't have to go and like swap to go find Poly Market USD or whatever because that's going to, if they do that they're going to lose users.
- [46:01]
Tarun Chitra
Yeah. This is what I was referring to earlier when I called it sort of the M0 model because I feel like they were sort of. They wrote the first stuff about this and kind of had the first contracts and then I feel like everyone just kind of used the same type of model of like for these kind of stablecoin as a service type things. But I feel like those don't feel like real stablecoins themselves because like the thing that they convert to is a stablecoin but the, the wrapper itself is like some type of like almost like line of credit to the underlying thing. It feels more like a credit card. I don't know how else to describe it. Like it doesn't.
- [46:35]
Haseeb Qureshi
What do you mean? It feels like a credit card in the sense that there's like branding on it and it's like oh, this is like the Mickey Mouse.
- [46:40]
Tarun Chitra
Well, you're opting into extra covenants. Right. It's, it's possible that like that you know, the Poly Market USD, let's suppose it's on one of these stablecoins and service platforms. There's polymark USD and Kalsha USD. Let's suppose for, for simplicity they both are using the same one. So they both can convert one to one to this base stablecoin. And let's say you're an arbitrage trader trading like arbitrages between the equivalent Poly Market market and the Kalshi market. You are willing now to hold both Poly Kalashi USD and Poly Market USD because you don't think of them as different because you can net settle right. You can convert them and then, and deal with that later. And I think that sort of type of thing feels a little more like I have this collateral that's in the base thing. And then each of these markets is lending me money locally and then I can and they give me some guarantee on conversion. That part feels like a credit card more like. Right. They're, they're giving you a, like a kind of a promise in the future that you can always redeem for this other thing. But we're going to let you have you, we're going to give you our Local currency and that's like a credit card. Sort of like the end user experience. Feels like a credit card to me though.
- [47:52]
Chris Burniske
Yeah, I mean I don't think there's going to be like you check your wallet and you have 100 different companies dollar stablecoins in it. I think it's maybe more And I think some apps actually do this today. Like you said for polymarket where it's basically like a Treasury product. It's kind of like a bank, right? You give banks dollars. The dollars aren't just sitting there, they're being lent out and then you get the back and they're kind of being backed one to one. But for people who are big enough, maybe they can strike deals directly with issuers. But if you're not big enough then yeah, maybe this is what you do to get yield if there's not really another option. And again, as long as you're transparent and I think you have robust controls in place, I don't think people would be so strongly opposed to this. A lot of companies already do this today. Effectively.
- [48:36]
Haseeb Qureshi
Calls you USD bank run because the assets are lent out or something. That'd be a very weird outcome. You can't deposit, you can't withdraw from this platform.
- [48:52]
Chris Burniske
It's kind of like a gift card or credit in an app, right. Where it's like yeah, if you are using Bed Bath and Beyond and you pre charge 100 bucks and they go bankrupt. Yeah, your assets are worthless.
- [49:03]
Tarun Chitra
This gets back to this idea that it has the UX of a credit card or gift card to the end user. It doesn't have the UX and money in the sense of like.
- [49:12]
Haseeb Qureshi
If I have like Amazon gift dollars or whatever. I am a. What am I? I'm a secured creditor. You're a creditor.
- [49:20]
Chris Burniske
I don't have a secured.
- [49:21]
Tarun Chitra
I don't know, I don't think you're secured, I don't think you're secure.
- [49:24]
Tom Schmidt
Creditor, Amazon credit charge bankruptcy remote.
- [49:27]
Gordon Lau
And that should trade at a price, right? That should trade at a discount to something that's fully reserved.
- [49:32]
Chris Burniske
Like 95% a dollar.
- [49:33]
Tarun Chitra
Yeah. If I remember correctly there have been cases where like, like companies that were really big would like split off a finance division that would like manage their credit cards and like it's happened where like the finance division went bankrupt and like your card was useless but actually the business survived. So. So like I don't, I don't know how that will end up in this, this Stablecoin white label stablecoin thing. But I Think the, the, the defining characteristics seems to be like if people can't convert to you directly, like they have to go through some other medium. You're like a second class thing. And then you're not really like money, you're kind of like this gift card, maybe credit card encumbered type of thing. Whereas, you know, if you're the base stablecoin, like you really just depend on that liquidity. And this is why, I guess it's like weird to me there's like this huge glut going to the market at the same time. Like that's the thing I don't get. There's like so much supply that is a demand there. That's what I can't reconcile. Like there's just everyone is trying to do and obviously the regulation change makes it more favorable to do this right. Like, but it feels like there's so much supply and maybe I'm wrong. I don't know how you feel.
- [50:43]
Haseeb Qureshi
Supply of what exactly?
- [50:45]
Tarun Chitra
Of like people offering these white label or stablecoin as a service type of thing. Like everyone is going to market with supply. I have yet to see that many demands generating.
- [50:56]
Gordon Lau
I think people don't understand how hard it is to actually build out a liquidity network at a global scale.
- [51:02]
Chris Burniske
I mean, I think a year ago I totally would have created, I think the thing, I don't. I mean I think this is a smaller chance that this happens, maybe like 10, 20%. But I kind of worry that you see this preference cascade now that hyperliquid and Mega Eth and maybe Solana, maybe others and eventually it's like the next smallest player after that says oh well like if blah blah blah, chain has it, well I should also have it. And then you know, the chain at smaller them says well if blah blah blah has it, then I should also have my own stablecoin. And like it's like, where does that window stop? I don't know, but I would have thought it would have been much bigger than hyper liquid again a year ago. And now it seems like maybe, maybe it's actually much smaller.
- [51:38]
Tarun Chitra
Tom turtles all the way down. Schmidt.
- [51:41]
Haseeb Qureshi
Yes, we have not actually seen USDH go live. And again, just to remind everybody, the USDH explicitly said we're not moving any of the USDC in the bridge. We're not forced converting anything, we're not giving any advantages. So it may well be that like USDH is just like PayPal USD, which is that like, yeah, you know, please use this. And like people don't use it because they're lazy and they just want to use the safe thing, which is usdc or is it just the more liquid thing? Right. I mean it's been around forever and people already obviously have all their money in usdc.
- [52:11]
Tom Schmidt
Yeah, I think I look at like story of.
- [52:14]
Haseeb Qureshi
Oh, go ahead, go ahead.
- [52:15]
Chris Burniske
I think I look at busd and I'm like, BUSD was actually working and winning, right. And it got shut down by US regulators sort of prematurely, but I think forced conversion. Yeah, well, I'm saying like I'm saying that whole pattern, that strategy of distribution was working and now in a world where maybe us regulars aren't going to step in or you can do this in a regulatory compliant way, someone is going to run that back. And I think that's kind of the pattern I see often in crypto is like someone does something, it gets prematurely shut down in some way, but everyone's like, oh, that was actually a good idea. They just made this error and then someone else runs it back and does it successfully. And like, like I don't think we've seen the end of the BUSD strategy.
- [52:56]
Haseeb Qureshi
But the point I made earlier is that look, the other big exchanges don't do this, right? So like these other big exchanges are bigger than hyper liquid, but they do not do.
- [53:06]
Tarun Chitra
By the way, the BUSD strategy worked for the following arbitrage reason, which is there were entities who could actually mint BUSD in New York and met all the requirements and they could basically mint sell the assets on Binance for more than what they bought it for because they're sort of implied yield that was priced into BoC because like Binance was effectively a place you could get like 7% on BUSD like pretty consistently during its lifetime. And so there was a huge demand for buying BUSD just to earn that yield. And so there's this gap of like, like roughly 7% that was sort of being arbitraged by people who had the regulatory ability to mint BoC versus like people who are users. And that feedback loop is very powerful. I think the yield aspect of it was really powerful. Also the idea that like Binance incentivized liquidity for the bitcoin busd pair was insanely liquid. Like I think the spreads on Bitcoin BUSD and Bitcoin usdt, which is like the most liquid pair, were within like 3 basis points of each other for months, which is like insane when you compare it to the other exchange SKUs.
- [54:15]
Haseeb Qureshi
Didn'T they also cut the trading fees to zero on Bitcoin versus BUSD and.
- [54:20]
Chris Burniske
To Gordon's point they had forced conversion at a certain point. So yeah, there are a lot of levers, a lot of carrots and sticks you can use. You're right that hey, maybe in a world where all the exchanges just are able to get 100% rev share or rev share that they feel is fine, maybe they don't feel the need to do this, but the threat is out there, I think.
- [54:38]
Tarun Chitra
Well, there's another weird microstructure thing about this. In the normal economy you think of money creation from like banks making loans and then like that is like the synthetic creation. This idea that the money creation is due to this like yield arbitrage is like slightly different than just like a loan creation because the duration risk isn't held by the person who did the money creation. It's like the exchange traders who are holding that risk. And I think it's like a very different equilibrium than what you're used to for money creation where like the, you know, in a normal case a bank is, is, is doing money creation via lending. Well they're holding duration risk. Like they're not just like lending and like getting the money back immediately. But in these, in these stablecoin kind of new stablecoin kind of things. You've seen this thing where it's like they've needed this very low duration yield that they can harvest in order for it to grow. And I don't, no one has ever explained that phenomenon to me. I feel like that is one way in which stablecoin seems fundamentally different from, from like bank money creation. That, that busd is like this case study of and it may also be the case study for all these future kind of white label stable coins. Like I don't know how they do that and obviously maybe I'm just too small minded and I don't see the great growth story. But like that is what I think people are trying to sell you right now. Right.
- [55:58]
Gordon Lau
I don't see how you can sustain a high yield that's just way different than what the safe asset yield is if you are fully fiat back like stablecoin. We've seen this with many stablecoins and most notably with Terra and Luna. I think we can all agree we don't want a repeat of that happening.
- [56:17]
Haseeb Qureshi
Yeah, so I mean there's always some degree of subsidization when you're trying to get a new stablecoin off the ground. But you're right like in equilibrium that can't work. But the other thing is that as rates start to go down, which we've been saying this now for two years and rates have been very stubbornly high. But. But as rates finally start to go down, it looks like we're getting a Fed cut perhaps at the next Fed meeting that I suspect that more of the stablecoin issuers are also going to be charging more on Mint and Redeem and moving their business model away from just yield on the reserves and more on the Mint redeem complex, in which case Tarun, a lot of that stuff actually becomes less economical because you're paying the entrance and exit tax when you're coming in and out of the asset for sure.
- [57:00]
Tarun Chitra
I'm just saying that somehow this is very different than the normal economy. And I don't exactly know how that will play out because it does really change the notion of velocity of money creation versus the normal fiat system.
- [57:17]
Haseeb Qureshi
But I do take Tom's point that ideas in crypto are very contagious. And this idea that, oh, Hyper Liquid should go negotiate and have its own stablecoin, that does feel probably a contagious idea. Idea, but ideas also. There are very few ideas that are stubborn. And this doesn't feel to me like a stubborn idea. This doesn't feel to me like, okay, if USDH doesn't work and then the Solana Manlet coin doesn't work, will people stubbornly just do whatever it takes to make it work? And I think the answer is probably no. I think they'll probably just be like, ah, that didn't work. Oh, well, I guess let's go back to just using the stablecoins we've always used.
- [57:54]
Tarun Chitra
Okay, what do you, what do you think is going to be the most likely successful stablecoin after USDT and usdc? What do you think the third place will be given this current environment?
- [58:06]
Haseeb Qureshi
Do you count Athena as a stable coin or do you say it's kind of different?
- [58:09]
Tarun Chitra
Yeah, okay, let's say after Athena, let's just do. Let's do fourth place.
- [58:13]
Haseeb Qureshi
Fourth place. I think to my earlier point, like you sort of have to carve out a different part of the market that right now is either underrepresented or just. Is really just kind of a green shoot and starting to grow. I think in a way, if you think about CIRCLE and where circle's early adoption story really took off, a big part of it was actually Defi Summer. Right. The explosive growth of DEFI was a big part of how USDC really consolidated its position as being a dominant player and tether just ignored Defi. They just didn't really take it that seriously in the beginning and didn't actively try to make it successful in Defi. And I think that was to their loss. And now you can see how much of the total supply of Circle is just sitting in Defi. So I think the same thing will be true is that there'll be some weird thing that people are doing with stablecoins that Tether doesn't pay attention to, Circle doesn't pay attention to. Maybe it's one of these things that we're talking about now that's like, yeah, yeah, maybe someday people do this, but they're not doing it right now. One of those things, some startup will be like, yo, that's all we're going to focus on is just growing that little tiny seedling and that's going to be our, our just complete mission and they'll get to own that vertical once it arises. So I don't know what that is, but if I did, I'd be betting on it, but I have no idea what that would be.
- [59:26]
Gordon Lau
And we welcome startups to build on Ark. Regardless of what stablecoin you start with. I also think somewhat disagree with you. Like USCC took off in Defi summer just because it was first there, right? It's also because, because it had the stability, it still pegged to the dollar really well. If you think about a lot of these Defi trades, you're looping around multiple times. You basically can't loop around. If you get a de pag once in a while, that would just kill the liquidity. I mean it just like you kill the collateralization ratio.
- [59:58]
Haseeb Qureshi
So you had to have that a very simplified explanation because that was also the time when people were very worried about tether de pegging and about is the money really there? And so on and so forth. And so USDC had a much more trustworthy institutional brand that went a very long way for USDC to get adopted in Defi. Okay, we're going to wrap it up, Gordon. Anything you want us to be on the lookout for or that you want to shill to the audience before we log off?
- [60:24]
Gordon Lau
Look out for the test night launch, public test night launch of Ark that's upcoming.
- [60:30]
Haseeb Qureshi
Thanks everybody. See you all next week.
- [60:32]
Gordon Lau
Thank you.