Bankless - 189 - Taking Treasury Bills Onchain with Martin Carrica

Episode Date: September 25, 2023

The overnight fed funds rate is 5.3% but how much are you getting from that in your bank account? How much are you getting from your stablecoins?  Today on the show Martin Carrica walks us through a world in which we can tokenize treasuries instead of just dollars. ------ ✨ DEBRIEF | Ryan & David unpacking the episode: https://www.bankless.com/debrief-onchain-t-bills/  ----- Check your wallet with our brand new tool: Claimables 🎁 https://bankless.cc/GetClaimables  ------ 📣 LayerZero | Accelerating Web3 Interoperability via GoogleCloud https://bankless.cc/layer-zero  ------ BANKLESS SPONSOR TOOLS: 🐙KRAKEN | MOST-TRUSTED CRYPTO EXCHANGE ⁠https://k.xyz/bankless-pod-q2 ⁠ 🦊METAMASK PORTFOLIO | MANAGE YOUR WEB3 EVERYTHING ⁠https://bankless.cc/MetaMask  ⚖️ ARBITRUM | SCALING ETHEREUM ⁠https://bankless.cc/Arbitrum  ⁠ 🛞MANTLE | MODULAR LAYER 2 NETWORK https://bankless.cc/Mantle  ⁠ 🦄UNISWAP | ON-CHAIN MARKETPLACE ⁠https://bankless.cc/uniswap  🔗 CELO | CEL2 COMING SOON https://bankless.cc/Celo  ------ TIMESTAMPS 0:00 Intro 7:16 Intro To Martin 10:37 Risk Free Rate of Return 16:06 Inflation Experience in Argentina 20:41 Why Don't We have Onchain TBills? 22:44 Laws Around Treasuries 27:08 Do The Fed's Want This? 31:53 Don't we Already Have Onchain Treasuries? 37:18 The Next Evolution Of Stablecoins 40:01 How Big Could This Be? 50:12 Cutting Out Commercial Banking 52:21 Explaining The Product 55:57 Onchain Vs Traditional TBills 1:02:51 How Big Can This Get? 1:04:10 Identifying Legit Onchain TBills 1:05:49 Why Doesn't Circle Do This? 1:11:50 Dealing With US Regulation 1:15:02 Central Bank Digital Currency 1:19:02 Can This Start a Bull Market? ----- RESOURCES Martin on Twitter: https://twitter.com/mcarrica  Martin's article on Stablecoins: https://mcarrica.substack.com/p/stablecoins-are-cryptos-hidden-money  ----- Not financial or tax advice. See our investment disclosures here: https://www.bankless.com/disclosures  

If you look at like last seven days, Ethereum versus run rate for Circle, it's the same amount of money. Ha, is the equivalent to Circle? Exactly. Exactly. Holy shit. Circle is 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 is making more money than the whole rest of the crypto ecosystem outside centralized exchanges. Oh, that's your margin? Your margin is my opportunity? Exactly. Is that what you're saying, Martin? Exactly. 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 opportunity to front run. On-chain T-bills is the topic today. The overnight Fed funds rate is 5.3% right now, and that's some pretty good yield. But how much are you getting in your bank account? Probably not very much of that. How much are you getting from your stable coin is maybe a better question for crypto-natives? if it's an instrument like USDA in your Ethereum address, the answer is probably nothing. You're not getting any of that yield. But what if we could tokenize treasuries instead of just dollars? What if we could create a USDT? And the T is for treasury. And that tokenized treasury

yielded 5% just for holding a near etherdress. That is the promise of tokenized T bills. And it's gearing up to be a major theme over the next 12 months. And I think another force for democratization worldwide. We have Martin Carricka here. He is the founder of a tokenized bill company and he's here to get us up to speed. A few takeaways for you on the episode today. Number one, why don't we already have tokenized treasuries? Why doesn't that product already exist? Number two, we talk about why on-chain treasuries are a force for democratization worldwide, especially in emerging countries. Number three, we talk about why the U.S. government actually wants this, even though they may not admit it. Number four, in this weird paradox,

we talk about why U.S. citizens will probably have a hard time getting tokenized T-bills as well. David, you're laughing right now because, man, it is hard being a U.S. citizen in crypto these days, isn't it? Yeah, really. The irony of U.S. citizens being the people that are going to be the hardest population, people to access the yield from their own government's 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 episode to understand the punchline there. But Martin, not the guests on the show, does a really good job laying it out for us. I think Ryan presented this as the promise of tokenized T-bills, tokenized treasuries, on-chain T-bills, whatever you want to call these things.

Also, I'll add that there's an economic weight here. It's kind of destiny. You know, like maybe we don't get there for some reason that I can't understand, but incentives will produce this outcome. Eventually, stable coins will be replaced by tokenized treasuries. It's kind of the same. If you accept that eventually all vanilla, ETH, will be replaced by some liquid staking token alternative. Eventually, like, why would you just hold vanilla eth and Ave? You can do our eth in Ave instead. If you accept that, then it's kind of the same thing. Eventually, all vanilla stable coins will just be replaced by tokenized treasuries, and you will get the yield natively. There's a gravitational pull, right?

It's like water goes downhill, and liquidity finds a way, and a yield will find its way in a tokenized form on-chain. Yeah. So there's been just growing demand and interest about this topic of on-chain treasuries and real-world assets. So bankless 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. 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 right now. Ad free. Bankless premium feed. 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 assets. Didn't even talk about ETH. 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 at bankless.com slash disclosures. All right, we're going to get right to the conversation with Martin on tokenized T-bills. But before we do, we want to thank the sponsors that made this episode possible, including our number one recommended crypto exchange for 2023. Cracken, go create an account.

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Experience Web3 development the way it was always meant to be. Secure, fast, cheap, and friction-free. Bankless Nation, I would love to introduce you to Martin Carica, the founder of Mountain 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 us by our friend, Nick Carter, who is also extremely knowledgeable about stable coins.

Lately in the crypto world, the conversation around real-world assets and on-chain T-bills has been growing in interest. So we're hoping Martin here can help guide us in our understanding about what is next in this new evolution of stable coins, from on-chain dollars to on-chain T-bills. Martin, welcome to Bankless. Thank you, guys. Thank you for having me.

Well, Martin, this is your first time on Bankless. Tell us a little bit about yourself, your background, and why this story of stable coins is so important to you. Awesome. So I'm originally from Argentina. I lived through high inflation for a long time. Started in crypto, got my first salary, like a Trotphi company, oil pipe company, purchased Bitcoin,

going to a miner in a McDonald's and exchanging cash for Bitcoin and having to wait a company. and having to wait for the two blocks. So we had lunch together. A miner in a McDonald's? That's how you got your first Bitcoin? Correct. That is cool.

So how did you find this person? There were groups. I don't remember exactly what app it was because this was early on. This was before Mount Cox, right? So we would pull all of my friends' money and like someone would go and we would rotate who it was. Wow. It was like a local bitcoins type thing.

Very cool. All right. Continue. So I hope you enjoyed the meal at McDonald's. Yeah, it was like two blocks. So it was enough to 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 bucks each, right? Like it was like minor purchases. So that got me interested in Bitcoin. Initially, I thought Bitcoin was a emerging market thing, right? Like in Argentina makes sense. In China makes sense. In Turkey, it might make sense.

I studied engineering. I got into traditional banking work. I did a lot of work with failed banks, launching new products for banks. I did a high-deal checking account with banks, and that is relevant to this story. And when stable coins came in, I was like, okay, this is exciting. Now you have a product that meant, like my mom uses, like she actually uses stable coin today. And in Argentina, if you go now, like, people will purchase a stable coin. When they get their salary, he uses our stable coin, and then they will swap it out two pesos to pay for their last week or two weeks of expenses.

And that's, they will hedge against inflation doing stuff like that, right? So applications of this in Argentina are massive. Basically, back to the high-yield checking account side, I did that prior, like 20, the prior cycle after Goldman Sachs did Marcus. And when Luna exploded and appetite for leverage and therefore interest in DFI went to zero, I was like, how is it possible that the risk-free rate is higher than what we're getting in D-Fi? Someone has to have built a product that bridges this to things and that allows everyone in the world to access dollars and now with a native yield of the dollar. Really quick, when you say risk-free rate, can you to find that for people? 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 a default were to happen, usually they will print more money. So you're going to see inflation rather than an actual default. So that means if you lend money to the government, you're guaranteed to get that money back. And then that time value of money is the risk rate. by the full faith power and credit of the money printer. Exactly. Because there's a money printer, there's no risk. We'll just print the answer.

This is basically the Fed rate that we talk about so often. The whole economy is like what, 5. something percent right now? 5.2 or 5.3 percent. It varies a little bit every day. Usually you take the secured over-net 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 next day.

So that's usually what's considered the risk-free rate. You still have risk-free rates in other currencies. So for ETH, that is the liquid-staking yield. That would be the risk-free rate for ETH because you know you're not going to get defaulted on that ETH. In Argentina, you also have the risk-free rate in Argentina and pesos. That's 100%. You know the government is going to pay you, but they're going to pay you in pesos. So each currency has their own risk-free rate.

I would say most assets have their own risk-free rate. Bitcoin doesn't. Bitcoin doesn't have any native. source of yield, but most of these assets do have some kind of risk-free rate, and it's independent for asset. 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? 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 stable-com providers. And the number was, like, massive. And I presented it to them, and they were like, yes, but it's very, very hard for us to do. There's no framework for us to issue this and so on. And I started. Sorry, is it borrowing stable coins in DFI? Because you said they were at a lower yield than the risk-free rate.

So what you're saying, like, it's hard for us to do it. It is borrowing stable coins in DFI at like the very low post-tera, post-FTX rates of like 0.3%, I think, if I remember correctly, while you're saying the risk-free weight was 1.5%. So you're saying, like, hey, there's this free-reve. arbitrage, people are leaving money on the table, and banks were saying to you, sure, we see that free arbitrage, but it's hard, so we won't. That's what you're saying, correct? Yeah, so the arbitrage that I was proposing them is go acquire deposits in this market. So if you go and acquire deposits in Trotify markets, you open a branch and people start depositing

and you give them an IOU. In stable coins, that IOU is a stable coin. So you can issue a bank stable coin. Imagine a Wells Fargo stable coin, and you could start acquiring assets basically at a very, very low rate, and you wouldn't have to pay much. And then you can lend that on the other side to the US government. And there's an infinite amount that you can lend to the US government in the order of trillions. And so take us further in this story. So you see defy yields at zero while the risk-free rate is 1.5%.

What do you do about that? So I started looking like someone has to have built something that solves this a 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 was buying those treasury bills. At small scale, you can buy, but if you're starting to buy anything at meaningful scale, you have to show where the money came from. And that where the money came from, the compliance AMLKYC component was hard to do.

So we said, okay, if we want to offer this, you have to be regulated to do this at scale. If you're not regulated, you're never going to have a framework to bring this pipe and have it be wide enough. to bring money and show where the money is coming from, and still have sustainable banking, brokerage, custody relationships in the Tralfire world. And that is the biggest challenge that everyone in this industry faces is how do you answer that regulatory or legal structure in question? It sounds like what you're trying to build is the largest pipe possible between the United States government risk-free rate and defy.

And right now you're saying that this pipe is actually constrained by our current stable coin paradigm, the current meta of stable coins, because you go through vanilla dollars first, when really you can just go more, let's get right to the punchline of this whole thing, which is like, let's take the yield of the risk-free rate and get it into defy. Exactly. Yeah, exactly. What you're buying today when you buy a stable coin on the back end, 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, we are are already doing this, the thing that is not like flowing through is the yield component.

So you're getting a 0% yield on your stablements today. So Martin, 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. It went out yesterday. And we talked about how increasing inflation in Turkey has led to 12% of the Turkish population adopting crypto in the last year and a half. And you come from Argentina. Argentina is very familiar with inflation. We've had plenty of Argentines previously on the show, Mariano Conti, just talk about

the role that inflation played in their lives. And just the happenstance of Argentina also being a very internet-connected country, you mix inflation and internet connectivity. And all of a sudden, you have an entire country that is pushing forward crypto adoption. And this is the story I see playing out with you, right? Like born in the world of inflation, tech enabled, now you live in the United States and want to build in the world of crypto because that is your genesis, that is your upbringing. And so I wanted to take this moment to tell the story of like showing how inflation leads to people, builders, building stuff in crypto to help progress forward this new financial revolution. And so I just wanted to do the thing we don't usually do, which is have people

explain their background because that is how you've gotten to be where you are today. Any comments reflections on that. I would add to that capital controls, right? Like, 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 financial system. Her alternative is to have someone bring her, like we call it the blue market. It's called the black market in practice. someone comes on a scooter, brings pesos or brings dollars, and you exchange everything in a very informal way. That's the alternative today. I want to put this through the lens of something

you were saying when we were going through your background is you said at first you discovered Bitcoin in kind of that McDonald's transaction. And then later you discovered stable coins. And you said you were very excited about stable coins. And I think a lot of our listeners today in people in crypto, maybe in the West, they look at stable coins. coins, and they don't get very excited. You know what I mean? Like, they're more excited about the speculation. They're more excited about the gambling. But you see in stable coins, you know, probably as a result of kind of growing up in Argentina in a high inflation environment, and you see a killer app in a killer use case. And you wrote this fantastic article I really liked back in December

of last year called Stablecoins are Cryptos hidden money printers. And you talk about how great USDC is the stable coin. How that is the definition of product market fit. And you brought the receipts into this post where you kind of saw the charts and, you know, hey, this is crypto's killer app. It's called stable coins. I want to get to more of that story. But, you know, before we do, let's talk about this, this T-bill thing. And I have kind of a simple, maybe crypto-native type question for you that we've sort of gotten to the edges around. But it's like more directly, I tweeted this out. USDC and tokenized dollars are fine. But with rates, over 5%, I want tokenized treasuries. Where's our USDT? I'm not talking about Tether here. I'm talking about

the T as in T for T bills. Okay, so the simple idea, and it feels like we should be able to do this. I think you were kind of like, you know, hinting about this is rather than have an ERC 20 fungible, you know, stable coin that is just one to one backed by a dollar, why not have an ERC 20, a tokenized form of a T bill, call it USDT. I guess we've tried that one. USD Treasury, right? And like make that the same thing, except it gets me that 5% yield

or wherever the Fed rates goes next. Maybe it's down to 4%. Maybe it's up to 6%. Maybe it's up to 8%. Who knows? Wherever it ends up, I still get that yield. To me, that would be like the perfect instrument

and completely ripe for crypto. So let me ask the really dumb, simple question and it's like, why don't we have that already? It's not just the three of us making this connection. I'm sure the people at Coinbase and Circle... We're not geniuses here. Yeah, this is a pretty simple instrument. Why don't we have it yet?

The answer is there's no regulation where you can plug this in, and it's ready to go. We're not the only company doing this. There's at least 10 that I know of. And most of them have gone through the path of, let's literally tokenize the Treasury bill. The Treasury bill is a security. and then the claim that you have is a share, like it's the T-Bell or a share of a fund or something like that. The issue with that path is you run through securities laws and it kills the compulsability.

I cannot transfer it to you unless you also whitelist unless you are also an accredited investor. How do you white list uniswap or a curve pool? So you start getting into those issues down the securities path. Just to re-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 white list. 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 white list, which is like what's the effing point at that point, right? Like one by one by one

automatic. Yeah, there is no composability there. There's no permissionlessness there. There's plenty of risk there. Yeah, that's a huge barrier. I just want to back up. So is what you're saying that the dollar, right, a dollar is in an account and so therefore USTC, 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. But a treasury, are treasuries securities then in all of their forms and flavors? Like I'm talking in the Tradfai market, they're all securities. And so they come attached with securities laws. What are those securities laws? I mean, I'm more familiar with kind of securities laws as they pertain to like stocks.

But what is there specifically for like treasuries? So treasuries are considered They're a U.S. government debt, and by that they are a security. The thing that you're going to is U.S.D.C. is a wrapper on those securities today. So U.S.D.C. is a wrapper on a bunch of T-bills. They have a fund in BlackRock. I forgot the ticker, but you can go and check it and it has a bunch of securities and repos and so on. So you're already wrapping that and creating a non-security, a payment token. So there is a gap that the U.S. still needs to address for this law, right? This is a gap that, Bermuda where we've gone, Switzerland, Singapore is soon to address, the UK, every other jurisdiction is starting to address this gap. So this question that you have is very US-centric

in that that model doesn't work. There are other models, which is one that we went down with. We'll get to that in a second. Let's finish this. So what you're saying is right now, USDC is sort of effectively a middleman, kind of a go-between. So all the dollars that back USDC, it's not actually dollars. Like we use that in short form. We say there's one dollar here. There's one dollar in the bank. These are actually like treasuries.

And that is why you can go to Coinbase and you can press a button. Or I don't even know if you have to press a button anymore. But there's some sort of setting inside of Coinbase where you park your USDC there and you get, I think it's like 4.75% yield. The reason they're able to give you that yield when the USDC is sitting in Coinbase is, is because there's actually treasuries behind this. And so I think, am I right here? Where does the yield come from, Martin?

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 stable coin issuers will also pay you

so that you have money for swaps and they make money in the swap. So it could also be a marketing expense. So Coinbase, I think, is probably not the best example in this yield because it could be a marketing component rather than them passing through the yield of the table. But regardless, the U.S. sort of inserts this middleman type function, I suppose. That's kind of in between the Treasury and the retail market. Correct. And you're saying other jurisdictions do not have this. Other jurisdictions, so we talked about the traditional securities law model where you build a fund and the token. Steeville is a share of the fund. And that is today the market cap of token treasury is 600 million.

Most of that follows that path. There's a second path, which is the Suez DLT law path, where the Suez DLT has said a stock, before we had electronic systems, stocks were bare assets. I could change a piece of paper with you and you would be the owner of that stock. So why don't we do that with securities again? So there's a company out of Switzerland that did a prospectus and they have a token. And they have a tokenized security, but that's permissionless. So essentially is very similar to like an ETF, like a gold ETF. They put a bar of gold in a safe. They give you a piece of paper. That piece of paper moves around. And if you want to claim it back, you have to do KOC and you take the bar of gold. This is the same, but for that treasury bill or that fund. And they were the

first ones to be able to do permissionless treasuries. Well, I was going to ask a question about whether the U.S. actually wants this. So one thing that's notable about a treasury is that it's kind of product of the U.S. government, right? And so is the system that you're describing in Switzerland and our scheme here to, like, you just create a tokenized version of treasuries and call it USDT or something and get the 5% yield, is that contrary to what actually like U.S. monetary policy and kind of the Treasury Department and the feds actually want? Like, is there a reason that that product doesn't exist. And so what I'm wondering is, like, whether these regulatory kind of arbitrage opportunities and say Switzerland or elsewhere, whether they might be closed at some point in time,

because like maybe this is counter to what U.S. monetary and, you know, financial policy actually wants. And so they'll try to put the kibosh on it in another way. Do you have any insight into that? I have to. I think if I were the U.S. government, I would do a 180 on this. If I could have all Argentinians transacting U.S. dollars, it means I have forced 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 deal out with Argentina and Turkey and all other emerging markets, you can export dollars globally. And those dollars are going to be stable coins that are holding treasuries. That is like forced buyers. They cannot take more risk.

So when you're doing those auctions, the interest rates that you're going to have to pay are going to below. So I think it's against U.S. interest to stop this market. Against U.S. interest to stop this market. One of the things that we say on bankless is like defy 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? Exactly. Like again, we're just connecting bigger, shorter pipes between AVE and the United States treasury. And so like Ava is just a reseller of United States treasuries. And if you're the dollar, that makes you happy. 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 U.S. 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 Robin Hood be in 180 countries. So I think there's an interest to export the U.S. financial system if your objective is capital market, capital formation. So your argument here is to answer the question of, but won't the U.S. try to kill this? your answer is, 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 stable coin?

It's just the ultimate form of that is clearly a treasury rather than just the dollar because you get the yield embedded in that. And in a world where, let's imagine this world might be close too, the U.S. runs out of countries or banks or like pension funds, buyers in general of its treasuries, it's going to need to find new markets for this. And you're saying, hey, emerging markets like Argentina, like Turkey, maybe, it's really alluding to, global emerging markets, for them,

the dollar is still a pretty strong product. You'll have a net new demand from these markets in these countries. And hey, isn't that in the U.S. interest? That's what you're saying. Exactly. And if you think about it, today that demand exists, it's called the Eurodollar complex. So without the U.S. promoting it, this Eurodollar complex form, 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 connect. But this Eurodollar, if you add stable coins on top, you can grow it a lot more. We call them stable coins, but really we should call them crypto dollars. Like you have Euro dollars. Now you have crypto dollars, but we're stuck in the stable coin terminology. Martin, one thing I want to ask is intuitively, yeah, like dollars produce yield. Let's get the yield into defy. But like, kind of don't we already already have the value of yield from the United States Treasury markets in Defi, not in a direct way, but in a roundabout way, just like, because overall, like slowly over time, the efficient market hypothesis does play out. And then all of a sudden, whatever yield that is being offered by the United States Treasury is through

the market being offered by Ave. And then AVE turns Dye into a Dye or U.S.DC. into a USC, and then the power of the yield of the treasury market does actually become expressed in an ERC20 token, albeit in a roundabout way, but eventually for the end user, they don't care what happens in the background so long as they get their yield. So, like, don't we already have on-chain treasuries, at least implicitly, and how does actual on-chain treasuries differ as a product? Yeah, so there's a couple things there. The first one is it requires not only holding a stable coin, but also participating in a DFI 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. And the reason for that is it's either experience, because getting into these protocols can be risky, it's complex, it requires management. It could be technical risk and adding counterparty risk to your holding, right? It really kind of neuters the whole risk-free rate thing, doesn't it? Exactly, exactly. Right. Like, we saw a 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 they're paying you an additional interest on top of the risk-free rate. But for the risk-free rate, you wouldn't want to add counterparty risk. So taking another example of this in D5 Martin is the maker, MKR token. So they have die.

Of course, David is just talking about the stable coin. And they have this function in their contract called the DSR. Right. And that is if you park your die inside of the DSR, then you get yield effectively. and I'm not sure what the yield rates are lately, but I recall recently they were like 8%, for instance, right? So that was above the risk-free rate. And then kind of governance changes them. They go up or down. I guess my point about that particular product is

there's not really the certainty of like you don't know whether it's going to be above the Treasury risk-free rate or if it's going to be below. It's kind of dependent on governance. It would be nice, I think, for a product that just very clearly tracks whatever Jerome Powell's doing. You know, kind of like the one-to-one

instantly, if the rates change, then you get that kind of inside of the token. So I feel like that's another plus-one need. It also seems kind of cleaner, right? Because, again, with something like the DSR or AVE, as David was talking about, you still have this like middle-man market, right, that doesn't quite track one-to-one

with what the treasury is. So it's a less clean instrument. Are these valid points as well? Super valid point. And in fact, the DSR today is the same as the risk-free rate. They're both at 5%. And the risk-free rate is at 5. 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 5 to 5. The difference is, on one hand, you have Maker, which has Dai, which is integrated everywhere. So it has a bunch of advantages, right? It's also decentralized for some people. and some from Dow's companies, that's very important. On the other hand, Maker has its own governance. It's a centralized.

You don't know what maker holders are going to vote for. You have smart contract risk that is more complex than a near C20. So those are the tradeoffs that some of our clients are doing. And anyone thinking about buying a tokenized treasury versus putting money into DSR should think. And there's pros and cons to each of those. Yeah, right. Let's be clear. Any tokenized treasury instrument would be very centralized, completely centralized, right?

We're talking about just like USDC. Exactly. That kind of instrument. And in the back end, like you're holding reserves, those reserves are physical assets that can be seized, right? They sit 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 the chain. If you cannot block list OFAC, you're going to have the treasury come and knock your door, right? And in the end, the reserves are going to be the point of centralization. So to understand on-chain treasuries, Like you said, I asked the question, why is an A-Dai out of AVE just kind of the same thing in a more roundabout way? And your answer was, well, there's also smart contract risk. And so that's a difference. And then on the flip side of things, in the Tradfai side of the equation, Circle and USDC, even though that could in theory become yield bearing, it's not as directly connected to being a treasury as an actual treasury. And so you have like the metaphorical middleman of Maker Dow or Avey on the defy side. And then you have the unknown black box that is the yield in.

circle USC on the Tradfai side of things. And so I think what you're saying is like with this on-chain T-bill, it's the most direct pipe possible on the Trad-Fi side. And then on the D-Fi side, there's no smart contract risk. Exactly. It's not like a race to the bottom, but it's like a race to the logical conclusion of the shortest, fattest pipe between D-Fi and Treasuries with zero counterparty smart contract risk on the defy side. And that's probably why you said, like, there's over, like, 10 companies in a race. It reminds me of the stable coin wars of 2017 that have been ongoing to this day. But now there's, like, the on-chain T-bills race, the race to be the liquid T-bill.

So this kind of feels like an evolution of stablecoins, right? We have Tether, the Wild West unregulated stable coin. Then you have, like, the teacher's pet, stablecoin, which is USC. And now we have this next evolution in the war of stable coins, which is, on-chain T-bills, which is where we are in crypto history today. Is that right? Exactly. Exactly. And I would say in terms of counterparty risk that you're taking with any Teebler, you don't have the Lindy that USCC has. So you're taking a bet on how the specific issue 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 Fed. You have DTCC. You have your custodian. You have your broker, your bank that you have to go through, your own ramp and offram and your issuer. And that's kind of the cleanest chain that you can do. Anything less than that, you cannot move money in and out. And that's the same for USD, USDC, and any other typical issue. I'm reminded of the conversation around the staked ether space in DFI, where, like, Lido and kind of everyone, I think, has accepted that all vanilla ether in, as collateral in DFI, all vanilla ether and maker, vanilla ether and ABE, any collateral that accepts ether will eventually become staked ether. And this is more or less playing out, like slowly, but surely everything all collateral in DFI is being replaced by staked ether in DFI?

Because why wouldn't you trade your non-yield-bearing ether for yield-bearing ether? Is this the same conversation with on-chain T-bills? Like, well, why would you hold vanilla stables crypto dollars in DFIi when you could just hold on chain T-bills in DFI? Let's just cut to the chase here and get to the logical conclusion of this. This is the same fight that's going on. Exactly. So for DGents or crypto-natives, we explain the tokenized treasuries. as like stake dith for dollars. So you have the beacon chain is the U.S. 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 a URC20 that is yield bearing. In our case, rebasing. Some other will do price appreciating like Rocket Pool and Steak Dith, right? You have those two flavors. And that is a U.S. 20 that you can move anywhere. So it's very much the same system. How big is this fight? You said there's like over 10 companies trying to produce the same outcome. How much value is there to be gathered? Like, how big is this pie?

What's the value of this pie? So if we dream big, there's 20 trillion US dollars. I love dreaming big. The market is massive. Just like the stable coin 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 ERC20 risk from your issuer, wherever your custody risk, and you're getting paid zero, whereas you could go to a treasure and get 5%. Why would you do that? So we saw this decline from $200 billion to $125. I think by adding yield again, now you have a very compelling argument to tell my mom, hey, take those dollars that you have under your mattress, turn them into a yield bearing stable coin, and you're earning 5% of it. your money, whereas you were earning zero. You can go to a small and medium business and say, you know this high-yield check, you have dollars, right, or you're interested in paying dollars. When you're holding those dollars, instead of holding them at your local bank, which, by the way, it's not FDIC insured, because it's offshore, hold them in USDM. You're taking Bermuda structural risk

or Swiss structural risk or Singapore structural risk, right, all major jurisdictions instead of Argentinian structural risk, and you're earning the 5%. So, it becomes a way more compelling argument to bring new money on chain. I'm going to throw a number here. I think we're going to get to a trillion in stable coins in the next two years. Like, there's so much money that... In the next how long, Mark? I'm going to say three years for one trillion. A trillion in stable coins. And that is, when you say stable coins, you mean the tokenized IST bills that we're talking about slash stable coins, like both that market combined. Anything that follows the value of one US dollar, right? Like token is US treasuries. That is USDC, USDT. That could be us. It

be an ETF, TBLETF, anything that follows the core, like U.S. government debt. I can totally see the market demand for something like this. Like, I want it. And there's nothing available like it in Tradfai. And yet I'm still kind of wondering if we're missing something here, like an alignment perspective. What you said earlier was, yeah, why wouldn't the U.S. government want to export its dollars? Of course it would want to do that. And export its treasuries more specifically, export its debt more specifically. But I'm wondering if we're missing an actually important stakeholder, I put important in air quotes, called the banks. And, you know, this is bankless. So we are no friend of the banks. But it seems like they could be cut out of the

mix here in some way, Martin. And let me just ask you how this works, right? So 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. Wells Fargo. You know it. It's literally Wells Fargo. And my bank account pays me a whopping 0.1 1 to 5% in my savings account. Actually, maybe that's a checking account rate, okay? There's some arbitrage there, because that's a lot lower than what I see is the risk-free rate, okay? So that tells me somebody's making some money,

and I think it's the bank. I think 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 was more motivated, I could take that money out of Wells Fargo, and I could go find a place to park it and good old tradfai and get that, you know, those sweet T-bills. I'd rather actually just move it into crypto and buy the tokenized T-bills that you have. That would be great. But it strikes me that

if I did that, there would be this like sucking sound from the U.S. banking system. The kind of sucking sound that may have been the downfall of Silicon Valley Bank, right? Only maybe not kind of quickly, but just slow sucking train crash where kind of liquidity leaves the banking system. And I'm just thinking, Martin, the banks might have something to say about that. And the banks have some influence in D.C. Not just the banks. Yeah, not just the banks. Right?

So is this a piece we haven't covered yet? Tell me how this conspiracy theory fits in here. 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. Right. So one in four dollars are making that decision that you just said. And a money market is effectively what we just said, only it's in Tradfai. Is that right? For defy enthusiasts, that's cost.

compound or Ave, but in their trad-fi forms. Exactly. We've got to interpret. Technically, Ave and Compound are margin loan automation smart contracts. So you put an asset and you take a margin loan. Money market funds is more similar to USDC would be a money market fund or USDM or a tokenage stable would be more of a money market fund because you put together a bunch of treasuries in there. So going back to the banks, the banks are actually, you have the top banks in the United States, the GSIves.

those are paying you 0.15% like you said. They're actually growing and they're not going down. The people who are paying that price are the small banks. All the regional banks, your SBBs of life, which are the ones that people are going out of. They're going either to money market funds or they're going to J-Sives because that's where they are flying to safety. They're trying to get closer to the Fed.

What are the banks telling the government and why this is getting stopped is if the banks don't have 0% deposits, that they can acquire, then they cannot give you a mortgage at 3%. If they have to go and finance at the risk rate, which is 5%, call it, then your mortgage has to be 7, 8%, and your SME loan has to be 10%. And that's what people in the US government are nervous about is what happens to the economy once the rational actor decides to go to a money market fund.

And what happens to all those loans that were issued for mortgages, for SMEs and so on. And that's the tension that's happening. In my opinion, stopping this, like this is like water, right? Like you can put dams on it. It will inevitably happen because rational actors, like people think they are the best at managing their own money and self-interested people will go where things are best.

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This means that Sellow needs you to weigh in and make your... voice heard. Join the conversation in the cello forum. Follow at cello org on Twitter and visit cello.org to shape the future of Ethereum. I enjoy this image that keeps on popping up in my brain, which is like you have the United States Treasury on one side, you know, the archetypal bank with columns to, you know, allow for bankless listeners' imaginations to go. So then and you have a pipe from the big bank with the columns, the United States Treasury, going into crossing the dimension between Tradfai and Defi. And that is where, you know, where, you these on-chain T-bill companies

like your company, Martin, and the many other competitors out there, your company spans between these two planes. And so it goes into your company, and then it goes out into the world of Defi, into the world of, like, Maker-Dao Ave, you know, wherever. And so again, like, we have the shortest possible pipe between the Treasury

and crypto, mediated by some sort of centralized company, because that's part of the deal. That's how it goes. And then it's into defy. And we are cutting out the entire commercial banking layer between this Federal Reserve and Defi. And so while in bankless philosophy, we would actually call your company, Martin, a bank. But I like it because it cuts out hundreds of other banks before it spits out its product

into defy. 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 U.S. domestic bank. It's somebody with kind of in a more, I guess, tokenized. Treasury-friendly jurisdiction that is set up there. So that would be the bank that would be involved. Is that right? Correct. So that would be the custodian. So they would be holding that

security. We call custodians banks. We call a lot of things banks. Yeah. Perfect. And then we would fall under the typical denomination of a narrow bank. 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. I like narrow banks. Exactly. So narrow banks is very, very hard for you to fail. Like if you have access to the Fed, it's literally possible. 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. We would be a narrow bank, essentially. So Martin, that is a product that you are rolling out, the product that we just described, right? So tell us what you're kind of building in that product. And then I'm really curious about, like, how big can you actually grow this thing? USDC, right, that's under 100 billion right now, I believe. 25 billion?

Oh, okay, it's 25 billion. It went down dramatically, yeah. It's gone down a lot. What are you building? Who can access it? How big can this thing actually get? And again, this is like a tokenized, you know, ERC 20 treasury that does not have all of the handcuffs of past tokenized treasury instruments, right? This is what I'm understanding.

Just tell us about what you're building and how big you can kind of get. Correct. So first a disclaimer. So USDM and our products are not available for U.S. consumers and restricted countries. For more information, go to Mountain Protocol.com, terms and conditions, and you can read everything there. Is that Gary's fault? It's the SEC's securities laws we're reading long before Gary. So we use an exception called Reg S, which basically means if you're an foreign issuer, you don't have to register with the SEC, but you have to not sell into U.S. consumers. That means you can't sell directly into U.S. consumers. What does this? mean. So I live in the U.S. Would I, I don't know if you could even answer this question. I want to buy it on uniswap, right? Do I have the ability to

go to the uniswap protocol and actually buy some of this new tokenized T-bill thing? Or I can't because I'm a U.S. citizen or something. What stops me from doing that? So, Ryan, I understand why you and many people listening to this podcast might be excited about this product. Everyone listened to this podcast is

highly innovative and like trying new stuff, which this product is. However, I think you'd agree that most people in the U.S. don't understand why we need stable coins, why we need tokenized treasuries. All of these products are kind of like odd, and they don't really understand what purpose they feel in the market. And the reason is clear, right? Like, you don't have an access problem in the United States. For most consumers in this podcast, they can, that are in the U.S., you can easily open a high-heeled checking FDIC insured account. You can use a money market fund that you can access through your brokerage on your phone.

So it's very easy to actually access this product. So what that means is there's no US substantial market interest, which is a core component of the law on why we cannot offer into the US. The test that law gives you is substantial market interest. The second thing I would say is for the people who are listening to this podcast that are really excited about this product, please don't use it. Every company engaged in this industry has to do best business efforts. There are several ways in which you can identify U.S. consumers.

and if you are identified as such as a U.S. person, there will be, each company will have different approaches, but there will be disruptions to your service. So you're not going to experience the full power of what you've got to offer. And it's going to be a subpar experience versus what you can get in the traditional markets. For context, Circle, which is like super Eurocentric, has 30% of their assets, their U.S.DC. circulating in the U.S. So most of this is like for non-U.S. persons. Yeah, I'm confused. So, A, I didn't know that about Circle. I want to try and get into the same conversation through a different injection point. The contract address for this on-chain T-bill ERC-20 token, yours is USDM. Again, there's many other competitors out there.

Yours is USDM. And Tether and Circle both have blacklist functionality, but it's open by default. So by default, all the Ethereum addresses are enabled to receive the stable coin. And then if we find out that this one particular address is North Korea, then we add them to the blacklist. That seems totally fine with me. That's aligned with nation state regulations. That's just the dance that we have to play. That's great. That's fine. Is there anything different about a on-chain T-bill smart contract address that is different from that status quo? So the function is the same. The thing that we are adding on top of that USDC or USD-T typical O-Fact restriction is, let's say, Krakken, U.S. started trading this coin. We would first message Krakken and tell them to stop because they might

know that they are not allowed to do that by terms and conditions. But if they insist, we're going to block that address so that that doesn't happen. Who would be in violation? Is Cracken, in this example, breaking the law? Or are you breaking the law? Cracking is breaking the terms and conditions. Correct. So the terms and conditions of using the Mountain Bergle, each asset that you hold that centralized has some sort of terms and conditions. Right. USDT has this exact same terms and conditions. So USDT has been applying reg. Reg S since I think 2018. And that's why it's hard to buy USDT local.

in centralized exchanges and so on. I didn't know that. Okay. Okay, but still, like, U.S.TC is 70% overseas, as in not held by U.S. people. How do they know that? That's a good question.

So I took that quote from Jeremy itself. I don't know exactly, but you don't know exactly which address is from where. Right. But there are providers that tell you these transactions are coming from IPs that are coming from these countries, and you can monitor this.

You don't have 100% certainty, but you have pretty good certainty about who's using your token. and where they are. And the reason you have to monitor is because if it gets over 20%, then you're outside of the bounds of reg. Of reg. Of reg. Of the reg. Correct. But you can't measure it precisely. So that's why we go for zero. The burden of proof is just on circle and on you. You have the burden of proof to say that, hey, we're not violating the law. So for context, I'm not a lawyer, but how I think this is going to play out, I think there's going to be two outcomes. On one hand,

you're going to have unregistered, unregulated entities probably doing some fake decentralization, what the SEC can go on point and say, this is a scheme to evade. You still have the question around substantial U.S. market interest, but it's easier. The bar is lower to actually go after these cases. Where I think it's going to be harder is on regulated entities by respected countries, financial regulators, where there's a regulated product, there's best business efforts to kind of avoid U.S. consumers accessing it and where you still have the no substantial U.S. market in stress, which is pretty strong. And finally, these guys like us, we're spending a lot of money

and lawyers. So lawyers are pretty happy trying to protect us. I bet. Yeah. The ultimate winners of crypto are the lawyers. I didn't know that about Circle, USC. So they need to make sure that the weight, the gravitational pull of UCC is offshore. No, they don't need to do that because it's USDC. That's USD.S.D. Yeah. USD. U.S.D.S.S. D.S. U.S.S. needs to do this. Correct. Correct. Yeah, USCT needs to do that. USDC is fine. That's just a fun fact that 70% is offshore. And I think Martin, you were making the point that, like, if there's a lot of demand for dollars offshore, just look at USC. A U.S. product, and yet 70% of the ownership, according to Jeremy Lear maybe is offshore. So you're making the point that basically for this new tokenized treasury product, hey, a lot of the demand will actually be offshore anyway. And there's no restrictions. if it's kind of somebody outside of the U.S. owning this thing. And the average Joe in the U.S., they have high-yield checking accounts. Those are FDAC insured.

They're paying 5%. You have your Robin Hood app, your public.com app. You can go and buy treasuries of 5%. So there's no reason for the average U.S. consumers to go and buy U.S. deal. Because we're sufficiently banked. Exactly, right? Like there's no access problem. The banking system, without its things, it kind of works.

You can trust it. It's insured. So this is not a product aimed for U.S. persons. I get it. Seems dumb. At the same time, the U.S. banking system sucks. It sucks, Martin. I would so much rather have all of my dollars into U.S.D.C. and stable coins.

In fact, that's more the direction I'm going. But take your point. So I guess outside of the U.S. though, this is pretty free, unencumbered. Free rein. Works just like U.S.D.C. would only. It has kind of the yield attached to it. Exactly. And this looks like an E.S.C. 20 token.

So it would be available anywhere that a defy. application is available. Is that correct? Exactly. Exactly. So we're doing work to make it available in as many places as possible so that the utility of having USDM is not just having USDM. You can put it as collateral. You can swap it and access other liquidity pools. So that's the work that we're going to do after we launch on Monday. Just to finish kind of like how the token works, if you think about USDC, it's an ERC 20 in the front. It's actually cash equivalence, which is literally tables in the back. This is the exact same thing. But this ERC 20, basis on a daily basis. So you get

airdropped more tokens. Oh, that's cool. Every day. Yeah. Yeah. Similar just like that. I know inside of the LST ecosystem, the liquid staking token ecosystem, there are many different ways of the value of your token going up. There's a number of different mechanisms. And so this is probably, there's different design decisions

as to how you actually receive the yield. The actual value of the ERC20 token could go up, like increment up over time. You could get airdropped more. You could rebase downwards. That's probably of all the different landscapes of on-chain T-Bill competitors as probably a vector of competition to have the most optimized market desired one. And the biggest advantage that we have is we've become regulated.

So we spent a full year getting licensed out of Bermuda. So the Bermuda Monetary Authority gave us a license to actually do this in a permissionless way. So we are a token, a utility token that is just for payments. So in the U.S. payment token would be the closest thing, which is redeemable one-to-one, and that allows us to be permissionless. Most products out there, they are permissioned, and they're adding a lending protocol in the middle to, as a Dow, to convert permission collateral into permissionless, you know, via supply on that protocol. So those are kind of like the two models that you're seeing out there.

So this is a bit cleaner then. How big can you grow this, Martin? It's a great question. I think it's going to be trillions, right? I think this category, regardless of whether it's USDM or other players, if you look, at it in a couple of years, it's going to be multiple trillion dollar industry. I think the demand for yield-bearing dollars is going to eat out of the dollar bank deposits globally. It's going to eat out a bunch of other alternative stores of value globally. And it's

stable. So it's programmable money. So you can have SMEs creating an account and holding dollars and paying their suppliers and that money is yielding all the time. I think it's going to change massively. Nick Carter is the one who introduced us. So I'm going to put on my Nick Carter hat here. You said there's like 10 or something competitors out there who are all trying to do the same business model. Understanding crypto, we don't necessarily have the best track record of all of our startups and companies fulfilling their original obligations. How do we know that when we are provided with a slew of companies with on-chain T-bills, how do we know which one's a rug? I would assume proof of reserves gets incepted here or maybe other mechanisms. How will bankless listeners,

myself included, identify the rug, UST, on-chain USC bills from the non-rug ones. Yeah. Well, because we know some of them are going to be rugs, right? We don't even know. There are many rugs already. And like, tether is still a question mark. Is it like, what is tether? We don't fully know.

So, disclaimer, Nick is an investor in Mountain Protocol. So he has a vested interest here. To differentiate a rug from a non-rug, you have like your total scam tokens. You can identify those because they are not licensed. They don't have a regulatory framework that you can go and look. at, like, you don't know who the team is. They're anonymous. You don't have proof of reserves. So all your basic kind of like cleanups in a centralized product, which this is, if you don't see that, that's a very good tell that this is a right. Then you go to the design questions and

who is designed properly to be this narrow bank that you can kind of trust. That goes a lot into bankruptcy remoteness. Is the asset recognized in the country where it's registered? You get into more kind of legal questions. I think lots of this is going to come out soon. Maker just issued a declaration of intent for RFPs for tokenage treasuries. So you're going to see Maker's assessment

of a bunch of products in the next... Interesting. There's no timeline, but I think it's going to be in the next couple months. So that is going to be pretty cool. Stakehouse financial, so Sebastian and Adrian and other friends of the pod did that proposal. And if Maker passes that, there's going to be an

independent assessment of a bunch of products out Martin, why doesn't Circle go do that, right? Is it because they can't be a narrow bank? There's many reasons. I think the first one is regulatory, right? So if Circle wanted to do this, they would have to give up their U.S. market. That's 30% of their issuance, but they would also have to stop trading in Coinbase. They would have to stop doing conferences in the U.S. So there's a lot of things that they would have to stop doing. But why? Couldn't they create like an international subsidiary, something like that, different product, that kind of thing? You're saying that would be quite the pivot, though?

I think it's not only a big pivot, but regis. you have to be a foreign issue. It's not enough for you to be a U.S. company selling outside. If you're a U.S. company selling outside, there's a class two asset where you have to wait for 40 days after you buy it before you actually can move it. So technically they could, but the experience would be pretty bad. So that's the first reason. It's regulation. I think the second reason is the same reason why Wells Fargo pays you zero today, which is why would they?

And doing that math is I'm going to cut essentially from taking, making 100% commission on the yield. If we think this as stake deeth versus CBEeth, right, it's 10% commission, 25% commission, circles commission today is 100%. Right. And going from 100 to 10%, which is what basically all of the TBLE issuers are getting, that's a 90% reduction on your revenue. It's probably not worth it. And they're making a lot of money right now, right? Hundreds of millions of dollars. The question is who makes more money? USDC or Ethereum. Well, what does the answer actually? Wait. feeling you're smiling so you know. Yeah. The answer is it's the same. I just checked. And if you look at like last seven days, Ethereum versus run rate for Circle, it's the same amount of money.

Sorry, when you say Ethereum making money, you're using the way that we often describe it on bank lists, which is like the protocol fees that are burned, the ether that is burned on a yearly basis, like the protocol revenue. Exactly. Is the equivalent to Circle? Exactly. Exactly. Holy shit. Circle is printing money. Every time you pay gas, like that's the same amount of money that Circle is making. Oh my. God, wow. And Tether is three times that. So Tether alone is making more money than the whole rest of the crypto ecosystem outside centralized exchanges. This is insane. But they shouldn't. So they shouldn't be, right? So this should be passed on to the customers. This should be passed on to the users in an ideal world. Oh, that's your margin. Your margin is my opportunity. Is that what you're saying, Martin?

Exactly. Exactly. So that's why I think you guys did in the roll up. There's like four million crypto users, something like that. If you divide the Tether revenues by crypto. user. That's $1,000 per user per year. Oh my God. We are paying this in hidden costs. It's not like costs. That's the thing. It's opportunity cost. It's opportunity cost. Which is equivalent to cost. It really is. People don't view it like that. Oh my God. Wow. No shit. There's like over 10 companies trying to do this. That's why I think a trillion dollars is not a wild guess. I think lots of people are going to be, okay, this is free money. How can I get it? And the traditional system is not going to give it to them.

you're in Argentina, if you're in Brazil, if you're in Turkey, if you're in Europe even, you're not going to get this risk-free yield pass on to you. Unless you're in the U.S., it's very, very hard to get it. Here's the thing, though, so when you guys start up and when these kind of 10 companies doing tokenized tragedies kind of start up, you know, I expect kind of these regulations will sort of hold. It'll kind of make sense. But as you scale up, you're talking about numbers like trillion, okay? So you get to $1 billion. All right. You get to $10 billion. Okay. You get to $100 billion. guess what? The IMF starts raising its eyebrows and start saying things like financial stability. And anytime they use the term financial stability, what they actually mean is control because they don't care so much.

Sorry, I'm editorializing. I feel like a lot of times when the IMF talks about financial stability, they actually just want control. And if you start creeping up towards like half a trillion dollars or a trillion dollars, all right, then that word will start to use a lot more. and this whole kind of reg S thing might seem like it's like you get more attention, all right? And I'm wondering if they will try to put a stop to this is kind of a question. And also, I love the test here. I love that we are just pushing this to the limit because how else do we, how else do we improve our banking system? How else do we get rid of the inefficiency and the incumbents?

But I wonder if kind of the, as you scale up, the eye will start to turn towards tokenized treasuries and the kind of the regulatory climate might start to clamp down a little bit. What are you thinking about that, Martin? Tether announced, I think it was two weeks ago, that they are one of, I think, like, if they were a country, they would be in the top 20 in terms of, like, treasury holdings. So Tether is a very relevant player. They have 83 billion in issuance. Most of that is collateralized by treasuries. So this is already a thing. What I see, at least, is the government kind of likes the fact that people are buying U.S. treasuries.

And the path that at least we've taken is we want to be compliant. So if these clampdowns come, which they may come, we're going to be prepared and we're not going to be two people in a garage. We're a licensed entity by a top regulator in financial markets. So it's going to be at least harder if they try to shut us down. I think there's no incentive to do so. But if it were, we want to be as prepared as we can. Well, you're going to have to speed run it.

Real big, real fast. You're going to have to get big real quick to the point where, you know, they don't mind so much. I love that as an acid test. The other acid test, which I don't know how it's going to work out, right, is it's ironic that we're doing this entire episode. And both David and I are incredibly excited about these types of products, right? A tokenized version of a treasury. And yet, because we live in the United States, which, I don't know, feels like a financial

prison, we actually can't buy it, right? Or at least we can't officially buy it. And I don't know what's going to happen with, you know, like, respect. to that. So if somebody accidentally dusts my account with some USDM, is Gary Gensler going to show up at my house and you try to arrest me? Like, how does it work when there are some U.S.? This is probably not something that you can answer or even talk about, but it just strikes me that the more people who see people outside of the U.S., the more Americans who see people outside of the U.S. owning these products, and the more American citizens realize that they are like,

on a list on a website with Iran and North Korea and America that can't access these products, hopefully the more we react and change the laws that we have. And so I'm excited about that test too because there is nothing, of course, at the protocol level that would prohibit an eth address no matter where it is from actually having USDM inside of its account. So it's going to be an interesting test from that perspective, too. I'm sure you can't comment on how all of this will unfold, but I'm excited about that. Yeah, I think we're going to test on the reg-S. The test that you're referring to is substantial U.S. market interest.

We're going to test the substantial portion. And that's where it's going to fall down. And our work is to make sure the substantial is still in check. I'm assuming the model would be grow as fast as possible, get as much like TVL, AUM as possible, and then start lobbying. Just lobby, get the reg. The reg. Court battles, too. Yeah, exactly.

There's so many laws out there that are just asynchronous with how crypto works that eventually in the fullness of time will have to be walked back. But whether it's two years or 20 years is really the big difference. Yeah, I don't think it's going to be us loving. I think the U.S. is going to look at the rest of the world and say we are the exception. Switzerland was first, Bermuda, Japan, Korea, Singapore, now the UK. Everyone is passing laws making this product something that you can actually do. And all of those regulators are uncomfortable around the compliance perspective. around the soundness of the product.

So I think the US will wake up. I don't know if it's some challenge in China doing it and like a threat coming to the US or if it's something different, but I think that will change because the US is the one that's the odd get out. Yeah, no. I think that is the big force for change.

One last thing we haven't touched here, Martin, and I think we'll maybe close with this question. So we haven't talked about central bank digital currency yet, which is interesting. So one, maybe if this puts kind of like the U.S. regulatory apparatus in check and shows how outdated its laws are, okay? One counter to that that the U.S. might take is actually to deploy some sort of central bank digital currency that has what you're talking about, right? It has kind of the narrow bank

type function where actual citizens can create an account at the Fed and they get access to this yield-bearing instrument, right? And it's kind of in its tokenized form. I don't know, the full manifestation of a national tokenized ERC20, except it may not be an ERC 20. I don't know if it'll be on a private blockchain or what, but this is the idea of a central bank digital currency. And you could see from a, I guess, a country's monetary policy perspective, it might be kind of nice to have the dials of this. And like directly, you could even get to, I've seen monetary policy papers talking about like negative interest rates in some, you know, different economic climates where you're actually like taking from your citizens digital dollars right so you have

it happened in europe okay right it happened in europe but indirectly you could just cut out the banks entirely i guess and you know the biggest bank in the world could do that the central bank how do you think this all plays out do you think that some countries in the u.s or other countries might decide to leapfrog what crypto is attempting to do with a tokenized t-bill and roll out its own you know central bank digital currency that also has a yield instrument and a t-bill attack to it? Yeah. So this is already happening in Brazil. Brazil is designing an EVM deployed token, which is going to be their central bank digital currency. So we see this already happening in other parts of the world. The challenge is if you do this, you're doing a death blow to your whole

banking system. Who's going to bank at a regional bank? If you have the risk of that falling, they're paying you zero percent, and the Fed is zero risk, and they're paying you the same risk-free rate. So I think getting from where we are to that in the U.S. is going to be very, very, very challenging. I don't see it happening at least with the way the world works today. Like, what do you do with all the banks? What do you do with loans? Who gives loans? There are so many open questions that I don't think that could go through Congress and actually pass through.

So this would be the equivalent of like cannibalizing the entire U.S. banking system and they're not ready to take that step. But you think that tokenized T-bills as kind of stable coin instruments in crypto can work because the U.S. actually is incented to find net new buyers of treasuries. And so while they might not like aspects of it cannibalizing the U.S. banking industry, so long as it's outside of the U.S. primarily, they may kind of turn a blind eye to it because they actually like this property of new treasury demand. And that's how we sort of thread this needle with the sleeping giant here.

It's the best of both worlds. You don't have to kill your banking system. You work as it is today. And you're finding net new buyers of treasuries and you're exporting the US dollar offshore. I think that the current equilibrium is pretty good for the establishment. Wow. Well, this is going to be an exciting time. And so all of these projects, including yours, are launching imminently, it seems like.

So there's a couple that have launched. We're launching imminently. There's others in the pipeline. So it's going to be LSDFI, I think, was the narrative on the first half of the year. I think this is becoming the big narrative for the second half of the year. And I think this will bring hopefully the next ball run because all this new demand in crypto will start in stable coins. But then who knows whether that money goes next, right? This is a take that I think Jim Bianco gave us.

And I think both Ryan and I just readily accepted it, which is that crypto prices, Bitcoin, Ether, pick your favorite blue chip asset, cannot and will not go up until on-chain liquidity goes up. Stable coins. Exactly. And if this brings liquidity into uniswap, into our layer two's, into all the splattering of layer ones, that is bullish. That's bullish. And you're about to bring a lot new buyers. It makes sense. Less bull cycle. I think the risk-free rate, the T-bill rate was something like, I don't know, 1%, you know, 2%, right? And this time it's 5. It was 0.25%. So it was technically zero. 0.25%. It was that low at that point in time.

Yeah. And the risk rate in Europe was negative. So this is the first time since crypto was born that we're actually seeing non-zero rates, except for a very short period right before the pandemic. So it is the first time we see this. And rates are probably going to stay high for a good time. So this is going to play out nicely. Rates are going to stay high because the time of Fiat is drawing to a close.

And I actually think that the business model for on-chay. treasuries is also an indication of the long-term close of the fiat era because you have to charge interest rates to induce demand, blah, blah, blah, blah, blah. Is that an acceptable take, Martin? Yeah, I don't know if the fiat cycle is to an end. Long term. Yeah. Multiple decades.

Very long term, I think governments are going to issue their own stable coins on chain, right? So Argentina is going to issue Argentin on chain. Right now there's conversations about dollarizing in Argentina. So taking out the central bank because we clearly don't know how to handle a currency. and using the dollar, I think that it's insane. But like inflation in Argentina is over 100%. So it is like, it is super tough.

Now, instead of going to the dollar, can you go to your own ERC20 with a cap supply or with a fixed emission, right? And like, and automate that central bank. And some countries where the central bank is not credible, I think that's where it's going to start. Well, very cool. Martin, thanks for explaining this to us. I'm sure we'll do much more on the kind of the tokenized T-bill narrative as projects

get built out and your specific instrument, Mountain Protocol is what you're calling in, and USDM. And of course, if you are a U.S. resident and listener, you live in a financial prison, so you cannot purchase this asset anywhere, apparently. Yeah, you can go to high-yield checking events. Stuck in that 0.15% yield account in your Wells Fargo. Sorry, guys. But very cool, Martin. This has been a lot of fun. Thanks for taking us on the tour today. Thank you, guys. Bankless Nation will include a link to the show notes. We've referenced in an article that Martin wrote called Staplecoins are Crypto's Hidden Money Printers

goes through the business model of USDC. It's a great read. Gotta remind you, of course, none of this has been financial advice. Crypto is risky. You could lose what you put in, but we are headed west. This is Frontier. It's not for everyone, but we're glad you're with us on the bankless journey. Thanks a lot.