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A | If you look at, like, last seven days, ethereum versus run rate for circle, it's the same amount of money is equivalent to circle. Exactly. Exactly. Holy shit. Printing money every time you pay gas, like that amount of gas, that's the same amount of money that circle is making. Tether is three times that. Tether alone ... |
B | Oh, that's your margin. That's your margin is my opportunity. |
A | Exactly. |
B | Is that what you're saying, Martin? |
A | Exactly. |
C | Welcome to bankless, where we explore the frontier of Internet money and Internet finance. This is how to get started, how to get better, and how to front run the opportunity. This is Ryan, Sean Adams, and I'm here with David Hoffman. And we're here to help you become more bankless. This is certainly a money opportunit... |
B | Yeah. Really. The irony of us citizens being the people that are going to be the hardest population people to access the yield from their own government money printing. And in fact, no, we're going to just export it straight to the foreign countries of the world. Bankless listeners, you'll just have to listen to the ep... |
C | There's a gravitational pull, right? It's like water goes downhill and liquidity finds a way. And it'll find it. Yield will find its way in a tokenized form on chain. |
B | Yeah. So there's been just growing demand, growing an interest about this topic of on chain treasuries and real world assets. So, bank listeners, you can consider this the first of a few steps into the world of real world assets on chain that we want to explore here on bankless, starting with tokenized treasuries. |
C | Yeah, I'm looking forward to discussing this with you. A lot of interesting implications here, and David and I are going to discuss that in the debrief. Of course, if you're a bankless citizen, you already have access to that on the bankless premium feed. So go check that out. Ad free. |
B | Bankless premium feed. |
C | Ad free. It's a beautiful thing, but before we get into this episode, first we disclose. And the disclosures are. There's nothing really to disclose here. Of course, we hold crypto. |
B | Didn't even talk about eth. |
C | No, we didn't. Crypto assets that we do hold stand to benefit from tokenized t bill transactions. But of course you know that. And we are long term investors. We're not journalists. We don't do paid content. There's always a link to all bankless disclosures in the show notes. You can access that@bankless.com. disclosur... |
B | Bankless nation, I would love to introduce you to Martin Karika, the founder of Mountain Protocol Protocol, a native yield bearing stablecoin project. And Martin himself is alleged to be extremely knowledgeable about stables, especially from a regulatory perspective. At least that's how he was introduced to us by our f... |
A | Thank you, guys. Thank you for having me. |
B | Well, Martin, this is your first time on Banklist. Tell us a little bit about yourself, your background, and why this story of stablecoins is so important to you. |
A | Awesome. So I'm originally from Argentina. Lived through high inflation for a long time, started in crypto, got my first salary like a traffic company, oil pipe company, purchased bitcoin, going to a miner in a McDonald's and exchanging cash for bitcoin and having to wait for the two blocks. So we had lunch together. |
C | A miner in a McDonald's. That's how you got your first bitcoin. |
A | Correct. |
C | That is cool. How did you find this person? |
A | There were groups. I don't remember exactly what app it was, because this was early on. This was before Mount Cox. We would pull all of my friends money, and, like, someone would go and we would rotate who it was. |
B | Wow. |
C | It was, like, a little bit true. P. Two p I think. Very cool. All right, continue. So, yeah, I mean, I hope you enjoyed the meal at McDonald's as well. |
A | Yeah, it was, like, two blocks. So it was enough to, like, do everything you needed to do. You had time to count the money, and then it was, like, super cheap. We would, like, distribute the bitcoin afterwards, just to give you a sense. That was, like, our internship salary, like, $150 each. Right? Like, it was, like, ... |
C | When you say risk free rate, can you just define that for people? |
A | Yeah. So if you lend money to the us government, the us government can print money, and they do that every day. So therefore, it is assumed that the us government is not going to default. If default were to happen, usually they will print more money. So you're going to see it via inflation rather than an actual default... |
B | Full faith, power and credit of the money printer is because there's a money printer, there's no risk. We'll just print the answer. |
A | Exactly. |
C | This is basically the fed rate that we talk about so often. The whole economy is like, what, five point something percent right now? |
A | 5.5.25. .3% it varies a little bit every day. Usually you take the secured overnight funding rate. So a bank will leave a treasury bill, they will take cash in exchange, and then they will do a repurchase agreement on the other side the next day. So that's usually what's considered the risk free rate. You still have ri... |
C | So. I'm sorry, I interrupted you, Martin. You're talking about the risk free rate. You saw that creeping up, and you were talking about the fed risk free rate. You saw that creeping up, and then what happened? |
A | So it was about 1.5%. I was presenting to a bank. They wanted to learn about crypto, and I was like, if I were a bank, what would I do? And I was like, this is an amazing deposit strategy. And I calculated the revenue of a couple other stablecoin providers, and the number was massive. I presented it to them and they we... |
B | Is it borrowing stablecoins in defi? Because you said they were at a lower yield than the risk free rate. So what you're saying, it's hard for us to do it. It is borrowing stable coins in defi at the very low post terra, post FTX rates of 0.3%. I think, if I remember correctly, while you're saying the risk free rate wa... |
A | Yeah. So the arbitrage that I was proposing then is go acquire deposits in this market. So if you go and acquire deposits in traffic markets, you open a branch and people start depositing, and you give them an IOU in stablecoins. That IOU is the stablecoin. So you can issue a bank stablecoin. Imagine a Wells Fargo stab... |
B | Take us further in this story. You see Defi yields at zero, while the risk free rate is 1.5%. What do you do about that, I. |
A | Started looking like someone has to have built something that solves this problem and no one had. The big challenge here is how do you bridge these two worlds, giving clarity on the real world asset side. So someone has to hold a treasury, a treasury bill, and that person who's buying those treasury bills at small scal... |
B | It sounds like what you're trying to build is the largest pipe possible between the government, United States government, risk free rate and defi. And right now you're saying that this pipe is actually constrained by our current stablecoin paradigm or the current meta stable coins, because you go through it vanilla dol... |
A | Exactly. Exactly what you're buying today. When you buy a stable coin on the backend, it's cash and cash equivalents. That's accounting term to say treasuries, repos, and some cash in banks. So if you look at the disclosures of all major stablecoin holders, most of it is treasuries already. So we are already doing this... |
B | So, Martin, this is. We actually don't usually ask people about their background and their story about how they came to build what they are building in crypto. But in this particular moment especially, we just did the weekly roll up last week, recorded it went out yesterday. And we talked about how increasing inflation... |
A | Would add to that. Capital controls, that's the other big thing that has made Argentina so strong in crypto. I couldn't buy a dollar even if I wanted to. Right? So the experience of buying a crypto asset, like my mom, she's 60 years old. She buys stable coins because she cannot access them through the traditional finan... |
C | I want to put this through the lens of something you were saying when we were going through your background. You said that at first you discovered bitcoin and that McDonald's transaction, and then later you discovered stablecoins. And you said you were very excited about stablecoins. And I think a lot of our listeners ... |
A | The answer is, the regulation is not easy to. There's no regulation where you can plug this in and it's ready to go. There's various. We're not the only company doing this. There's at least ten that I know of, and most of them have gone through the path of. Let's literally tokenize the treasury bill. The treasury bill ... |
B | Articulate why that's such a big issue. So you're saying, like, the token, the ERC 20 token on Ethereum would come with a whitelist. And so by default, every other address on Ethereum is not allowed to touch that contract address until their specific ethereum address is approved on the whitelist. Which is like, what's ... |
A | So, so that's the. Ryan, you have a. Yeah, yeah, I. |
C | Just want to back up. So is what you're saying that the dollar, right. A dollar is in an account, and so therefore, USDC, that is not a security, despite what Gary Gensler might want it to be. Right. That's not a security. As of now, it's just like a currency. It's something different. Okay. But a treasury, our treasur... |
A | So treasuries are considered debt, right? They're us government debt. And by that, they are a security. The thing that you're going to is USDC is a wrapper on those securities today. So USDC is a wrapper on a bunch of t bills. You can, they have a fund in Blackrock, I forgot the ticker, but you can go and check and it ... |
C | So what you're saying is right now, USDC is sort of effectively a middleman, kind of a go between all the dollars that back USDC, it's not actually dollars. We use that in short form. We say there's $1 here, there's $1 in the bank. These are actually treasuries. And that is why you can go to Coinbase and you can press ... |
A | Yeah. So Coinbase and circle are different entities where the yield for Coinbase specifically comes from. I don't think it's disclosed. They own a portion of circle. They might have a commercial agreement. Some centralized exchanges that don't have direct commercial agreements with stablecoin issuers will also pay you ... |
C | Okay. But regardless of the tiVo, the US sort of inserts this middle middleman type function. I suppose that's kind of in between the treasury and the retail market. And you're saying other jurisdictions do not. |
A | Have this other jurisdiction. So we talked about the traditional securities law model, where you build a fund and the tokenist bill is a share of the fund, and that is today the market cap of treasury, tokenized treasury is 600 million. Most of that follows that path. There's a second path, which is the Suez DLT law pa... |
C | Well, I was going to ask a question about whether the US actually wants this. So one thing that's notable about a treasury is that it's a kind of a product of the us government. Right. And so is the system that you're describing in kind of Switzerland. And our scheme here to like, you just create a tokenized version of... |
A | I have to. I think if I were the us government, I would do a 180 on this. If I could have all Argentinians transacting us dollars, it means I have four buyers of my treasuries. That means I could sell my treasuries at a lower rate, I lower my interest expense, so therefore my budget closes nicely. And if you dealt with... |
B | Against us interest to stop this market. One of the things that we say on bankless is like DeFi is just exporting the power and the brand of the United States dollar. And I think that's what you're saying in agreement, too, right? Actually, we are just, again, we're just connecting bigger, shorter pipes between aave an... |
A | Correct, correct, correct. And I think going a step further, going on top of treasuries, if you can bring any stock that's trading in the US and put it in crypto, now, you have you expanded Nasdaq or the New York Stock Exchange globally, you should have an interest to do that too, and have Robinhood be in 180 countries... |
C | So your argument here is to answer the question of, but won't the US try to kill this? Your answer as well. If they're rational and they actually want to export the dollar, what better way to do that than to have a tokenized version of a dollar plus yield plus risk free rate and have that be kind of the ultimate dollar... |
A | Exactly. Exactly. And if you think about it today, that demand exists. It's called the eurodollar complex. So without the US promoting it, this euro dollar complex formed and it continues to expand despite it being outside of the purview of the us government. We now have swap lines and so on, so it's starting to connec... |
B | Yeah, we call them stable coins, but really we should call them crypto dollars. Like you have euro dollars, you have now you have crypto dollars. But we're stuck in the stable coin terminology. Martin, one thing I want to ask is, like, intuitively, yeah, like, we get we dollars produce yield. Let's get the yield into d... |
A | Yeah, so there's a couple of things there. The first one is it requires not only holding a stable coin, but also participating in a DeFi protocol. If you look at the percentage of stable coins that participate in these protocols, it's always about 20%. Even in the bull market, most stable coins sit in the sidelines. An... |
B | Really kind of neuters the whole risk free rate thing, doesn't it? |
A | Exactly, exactly. We saw curve get hacked recently, so even blue chip protocols are not totally risk free. So you're adding additional layers of risk that you're taking. It might be worth it if you, if they're paying you an interesting, an additional interest on top of the risk free rate, but for the risk free rate, yo... |
C | So taking another example of this, in Defi, Martin is maker MKR token. So they have DAi, of course, David was just talking about the stablecoin, and they have this function in their contract called the DSRDH. And that is if you park your die inside of the DSR, then you get yield effectively. And I'm not sure what the y... |
A | Super valid point. And in fact, the DSR today is the same as the risk free rate. So they're both at 5%. |
B | The DSR today is 5%. |
A | 5%, correct. And the risk free rate is at five point something. But if you take out the expenses that would be allocated to actually bring it on chain, it's going to be 5%. So it's five to five. The difference is, on one hand, you have maker, which has DAi, which is integrated everywhere. So it has a bunch of advantage... |
C | Yeah. Right. Let's be clear. Any tokenized treasury instrument would be very centralized. Like completely centralized. Right? We're talking about just like USDC kind of instrument. |
A | And in the back end, you can know, like you're holding reserves. Those reserves are physical assets that can be seized. Right? They see it at the Fed. So even there are some protocols that have said, we're going to go with t bill collateral without any centralization. In the end, the centralization happens elsewhere in... |
B | So to understand on chain treasuries, like you said, I asked the question, why is an a dai out of Aave? Just kind of the same thing in a more roundabout way, your answer was, well, there's also smart contract risk, and so that's a difference. And then on the flip side of things, and the tradfi side of the equation, cir... |
A | Exactly. Exactly. I would say in terms of counterparty risk that you're taking with any t bo issuer, you don't have the Lindy that USDC has, so you're taking a bet on how the specific issuer is set up, their legal structure, and so on. But essentially, the layers that you have in the middle are the same. You have the F... |
B | I'm inspired by this. Not inspired, but I'm reminded of the conversation around the staked ether space in Defi where Lido and kind of everyone, I think, has accepted that all vanilla ether as collateral in DeFi, all vanilla ether and maker vanilla ether and aave, any collateral that accepts ether will eventually become... |
A | Exactly. So for degens or crypto natives, we explain tokenized treasuries as like stake deed for dollars. So you have the bitcoin chain is the US treasury, right. That's the source of yield and where the ultimate asset sits. Then you have a wrapper on top of that that makes it liquid. And that wrapper is an ERC 20. Tha... |
B | How big is this fight? You said there's over ten companies trying to produce the same outcome. How much value is there to be gathered? How big is this pie? What's the value of this pie? |
A | So if we dream big, there's $20 trillion, right? |
B | I love dreaming biggest. |
A | The market is massive, just like the stablecoin market cap is 120 something billion. It was 200 billion. And a lot of that has died because there's a huge opportunity cost. By being on chain, you're taking more risk because you're taking Ethereum risk, which is not negligible. You're taking your ERC 20 risk from your i... |
C | How long, Martin? |
A | I'm going to say three years for 1 trillion. |
C | A trillion in stablecoins. When you say stable coins, you mean the token ISD bills that we're talking about slash. |
A | Correct. |
C | Both that. |
A | Anything that follows the value of $1 or some like tokenized us treasury studies. USDC. USDT. That could be us. It could be an ETF, TB, ETF, anything that follows the core, like us government debt. |
C | I can totally see the market demand for something like this. I want it. There's nothing available like it in tradfi. And yet I'm still kind of wondering if we're missing something here, like an alignment perspective, what you said earlier, Washington. Yeah. Why wouldn't the us government want to export its dollars? Of ... |
B | Yeah, wait a second. |
C | In some way, Martin, let me just ask you how this works. I go to my bank account and. Yes, full confession, bankless, listeners. I have a bank account, all right, because I need to pay taxes. And, you know, it's literally Wells Fargo. And my bank account pays me a whopping 0.15% in my savings account. Or actually, mayb... |
A | Correct. |
C | So that tells me somebody's making some money, and I think it's the bank. And Wells Fargo is making that money on the account. And so there's this kind of arbitrage here. And of course I could, if I wasn't, if I was more motivated, I could take that money out of Wells Fargo and I could go find a place to park it and go... |
A | So, if you talk to people at Congress, and you bring lots of people to the show, they will tell you there's out of 20 trillion, there's 5 trillion that are sitting in money markets. So one in $4 are making that decision that you just said. Right. |
C | And a money market is effectively what we just said, only it's in traffic, is that right? |
A | Correct. Correct. So you will buy. |
B | For defi enthusiasts, that's compound or aave. But in their tradfi forms, we gotta interpret. |
A | Technically, ave and compound are margin loan automation, smart contracts. So you put it. You put an asset and you take a marginal. Money market funds is more similar to USDC would be a money market fund or USDM, or a tokenized tivo would be more of a money market fund. But going back to the banks, the banks are actual... |
B | So just to enjoy this image that keeps on popping up in my brain, which is like you have the United States treasury on one side, the archetypal bank with columns to allow for bankless listeners imaginations to go. So then you have a pipe from the big bank with the columns, the United States treasury going into crossing... |
C | It does, except there is one banking party, if I'm understanding this correctly, Martin, which is like some bank, let's say, or I don't know if you call it a bank, but in Switzerland, for example. So it's not a us domestic bank. It's somebody with kind of in a more, I guess, treasury tokenized, Treasury friendly jurisd... |
A | Correct. So that would be the custodian. So there would be holding that security. |
B | And then we call custodians banks. We call a lot of things banks. |
A | Perfect. And then we would fall under the typical denomination of a narrow bank. Right. So narrow banks issue deposits. Right. Like a stable coin is a deposit. And we turn around and instead of issuing mortgages, car loans, credit cards, we just lend to the us government. And because you're learning. |
B | I like narrow banks. |
A | Exactly. So narrow banks is very, very hard for you to fail. Like, if you have access to the Fed, it's literally impossible if you have very short duration treasuries, which is what every player out there does. Like, the us government needs to default for you to fail. That's the level of certainty that you have. So we ... |
C | So, Martin, that is a product that you are rolling out, the product that we just described. Tell us what you're building in that product. And then I'm really curious about how big can you actually grow this thing? USDC is under 100 billion right now. |
A | I believe, like 25 billion? Yeah. |
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