On The Brink with Castle Island - Martin Carrica (Mountain) and Philippe Bekhazi (XBTO) on Digital Assets in Bermuda (EP.533)

Episode Date: June 6, 2024

We sit down in Bermuda with Mountain Protocol founder Martin Carrica and XBTO founder Philippe Bekhazi for a talk on stablecoins and doing business on the island. In this episode:  Why XBTO is Bermuda-first and why Mountain set up there The "Bermuda triangle" for doing business on the island The overlap between Bermuda's reinsurance industry and crypto The partnership between Mountain and XBTO The rise of interest-bearing stablecoins USD stables as extending the reach of the dollar The relationship between crypto and big 4 auditors The coming race between interest and non-interest bearing stablecoins Blackrock's BUIDL product and tokenized treasurys

Hello and welcome back to On the Brink. Last month I went to Bermuda for the Tech Summit and had the chance to sit down with Martin Carrico, the founder of Mountain, which is a Bermuda registered interest-bearing stable coin. And Philippe Bacazi, the founder of XPTO, which also has offices in Bermuda. Bermuda is one of the most interesting jurisdictions from a digital assets perspective. They've been very progressive on the regulatory front. Of course, we've had premier David Burt on this podcast before. It's a fascinating place to do business, and they're a great case study in how helpful and responsive regulation can actually inculcate a super vibrant local industry. Some of the biggest crypto firms in the world are now redomiciling to Bermuda.

By all measures, their experiments are paying off. So let's dive right into this conversation with Philippe and Martin. And welcome to On the Brink. I'm Nick Carter. This is a special episode from Bermuda. I'm sitting down with Martin Carica and Philippe Bacazi, Mountain Protocol founder and ex-BTO founder and CEO. We're here in the XPTO offices. We're going to talk about stable coins, talk about doing business in Bermuda. We just wrapped up a board meeting for Mount. and thanks for joining us gentlemen. Welcome to Bermuda.

Thank you for having us, yeah. It's chillier here than Miami. I don't know what happened. Yeah, you're in the middle of the Atlantic and there's a lot of wind here. Okay, so we have to address the elephant in the room, which is the pink sand beaches. They're not pink.

Some of them are. They're represented as pink. If you really squint and you look at the individual granules, there's okay there's some pink but in the aggregate there's just there's no pinkness do you feel like you got sold a bag of goods i think that i was somewhat rugged and um you know at the hotel i'm saying at the beach is called the pink it's called the pink beach at the loran yeah yeah and it's beachy colors so that's my bermuda feedback so far all right i mean like as a digital assets jurisdiction You know, it's great.

So actually, I think we're going to open there. XBTO Mountain, both obviously domiciled here in Bermuda. Bermuda has a six-ish-year track record regulating in the digital asset space since 2018, I think, is when things began in earnest. I think it would be really interesting if you were to both share with us your sort of journeys to Bermuda. Why Bermuda, why, you know, did. digital assets in Bermuda. Yeah.

I'm happy to go first. So XPT was started in 2015. We were starting in New York. So in the middle of, you know, in the financial capital of the world. And great place to be to do Tradfai. But became very difficult to really run a digital asset business over and beyond just being a proprietary trader. Even then, it was difficult to interface with counterparties because counterparties didn't

want to deal with you on the back of the bit license that came in fairly early in New York, right? We're talking 2014 here. So New York, in a way, was kind of at the forefront, but also a little bit jumping the gun on regulation. I think it scared a lot of players. So I had the chance to meet with the Premier in 2017 in New York, came to. to visit us and he had an idea that he wanted to create sort of new vertical for the island that

would be digital asset friendly, you know, add to the insurance and banking sector and sort of diversify the island's economy and I thought that was a great idea. The island has one regulator so makes things very easy if you need some if you need to do something that falls under regulation, you just have to deal with one counterparty. And that was very, very interesting. So I told him if I can be, if I can help in forming a legislation, I'd be happy to move my team to Bermuda. And and so it happened. In 2019, I moved full time to Bermuda. And my CTO moved here and we started building a team. And now we're, you know, about 15 people here.

Amazing office. Thank you, thank you. Yeah, so we've made it. We've become Bermuda first. We have offices in other places. You know, we still have our office in New York, Miami, and Paris and London, and we're doing Abu Dhabi and we're trying to be regulated in all these places. But we are Bermuda first, and we're, you know, we're committed to the island.

We're committed to the economy. and there's just a lot to do. And, you know, just like anyone else in the space, it's a space that's constantly evolving. So you need to have a regulator that works with you and is fairly nimble and quick to react. And that's what we found here. Yeah, I was on a panel yesterday,

or I moderated a panel with representatives from Coinbase and Cracken. And the gentleman, I think at Coinbase mentioned the quote unquote Bermuda triangle as to why Bermuda is a decent place to do business as a crypto firm. And I think the prongs or vertices, what do you call the edge of a triangle, whatever. Angles, yeah. The angles in the triangle are BMA being a sophisticated regulator with the mandate to regulate digital asset firms. the tone of the top, you know, Premier,

Burt being explicitly pro-Crypto, he's appeared on this show before. And he's constantly doing the crypto conference circuit, you know, he's actually promoting Bermuda. Super committed to his space. How many heads of state do you see going to crypto conferences to actually directly reach people and, you know, appeal for them to do business in their country?

It's remarkable. And then I think also an overlooked factor is like market and enabling infrastructure. So banking, legal, tax, audit that is sufficiently advanced and sophisticated so you can actually do business here, which I think is another very important piece and why the existing insurance base being robust here means that it's easy enough to do crypto. I think that's the Bermuda Triangle. If I'm wrong, you guys tell me. I agree with that.

I think so our story, we kind of had this vision about doing Mountain Protocol. We wanted Mono Protocol USDM to be the safest asset you can have in crypto. And that means also being potentially regulated because as an issuer, you always have an incentive that sometimes won't align with the holder and having a lot. a regulator being like a second buyer of defense where they have to approve and be okay with your product really makes a difference and we we did a big search globally of like what were the

best regulators and we were surprised by how open bermuda was to even before doing a formal application sitting down and discussing the business model discussing the product highlight the how we were planning on executing the product and getting early feedback, which no other regulator is willing to essentially sit down and have those types of discussions. And we applied, we got a license, but even as you mentioned, Phil, things evolve, right? Like new blockchings come up, there's new ways of getting in and out, there's expansions to the business plan. The discussion is always substance over form, and it's about like, how do we make sure

that the customer is protected, that we comply with. with global compliance requirements, and we comply with the law, but inside of that, how do we properly build a product that actually complies with that? And the quality of those discussions, I think not many places you can have

those types of discussions and actually discuss content and actually get things done. So to me, that was the big thing about Bermuda. The second is you have a history of regulating an industry that not many people touch reinsurance, like most people don't even, know when they buy a policy who's their insurance on the back. But reinsurance is an industry

that requires very clear laws and very good courts. These are sophisticated institutions, putting billions of dollars in capital, and they want to clearly know what happens in the case of bankruptcy, what happens in the edge cases and so on. And Bermuda has kind of served that industry with clear laws and then sophisticated court system to adjudicate any issues. And I think that, that experience and that expertise translates very well into crypto, where you also want to have the same type of guarantees. You're building a product. What happens if the product goes wrong? What are the actual claims that I have if I'm the holder of a specific asset? And I think Bermuda has a long history of showing that that is not something that they say, but also something

has been proven in court many, many times. And for a sophisticated actor, that's critical. So one question regarding, obviously, Bermuda is known as a hub for re-enact. insurance, I think maybe the second largest worldwide after London. What would you say has been the overlap historically between that sector and crypto? Like, is there a convergence that's possible? Are there mutual interest possible? Yeah. So I would say the convergence is still low, but happening.

Reinsurance, there's a company called Names. They are like an insurance marketplace. They are licensed as a digital asset, a business and also as an insurance business. And they're a marketplace that allows, usually if you want to participate in reinsurance, you have to be the Teachers Union of Ottawa. You have to be like a very, very large fund that gets access to these deals. They're looking at ways to make these deals more accessible to people. And crypto is a great way of reducing the operational cost of doing that.

And actually, by reducing those costs, you can open to lower check sizes. So that is happening in crypto. And then the collateral for those insurance claims is now, happening in crypto again and USDM naturally is a very good fit there because you're earning yield on that collateral those policies are still small in amounts but these types of traffic industries start with half a million dollars and they expand to 10 million dollars there's hundreds of billions of dollars to be to be deployed here and I would be surprised if if this industry doesn't move more and

more into crypto to open to essentially new buyers so there's like a native interest from every party to actually bring more capital in and Crypt as an enabler to do that. Blockchain is permeating every industry at the end of the day, and reinsurance is going to be one of them. Names is actually a portfolio company of XPTO. We're supporting the local ecosystem as much as we can. We think it has a lot of value.

Of course, you know, the tenets of a good blockchain is security, transportability, you know, ease of transfer, cheapness of transfer, you know, it's, it's, so all these things at the end of the day can serve any industry and we basically are using it for all of these purposes, either directly or indirectly. Recently, we just did a tokenized bond offering that's based on USDC, right? So USDC is a stable coin, and it basically goes through. through the smart contracts and there's the interest, there's the principal, there's the relationship between the issuer, the underwriter, all of that is codified. And I think that's really exciting.

And so capital markets is also going to be reinvented, I think, in a way where you have things that happen faster in more nimble amounts, smaller amounts that can, where smaller firms can participate, whereas before it was cost prohibitive for them to get a loan of a couple million bucks now you can do it. And it helps with an administration, of course, of the loan, right? I mean, everything is automated and payments are transparent and clear. So we're very excited about this. We're going to be doing a whole lot more of these. And I think it unlocks a certain value proposition, both for the buyer and for the seller, in the sense that the seller is a little less sort of costs, sensitive on the interest, for example, because it's smaller, so they're willing to pay a little bit

more on the interest. And the buyer, of course, is getting sort of the benefit of it. And the intermediary doesn't get as much of a cut. So at the end of the day, you know, everybody wins. And I think that's going to really unlock a whole lot of volumes. That was the tokenized issuance for Bermude Air. That's right. That's right. I have a funny Bermude Air story. So when I first came to Bermuda last year for the conference. They had only just started flying the route from Miami to Bermuda. And I booked it. I booked the flight. And I was like certain that I'd fallen victim to a very sophisticated scam with a fake made-up airline. Because I couldn't really find any evidence that they were real or that they existed. And I think I tweeted about it. And then a few

people were like, no, they're real. I might have responded to that tweet. You might have been on that. I think you told me that they were real. And that, yeah, the plan showed up. You made it to Bermuda. I did. You didn't get lost in the triangle.

Yeah, no, I was, I didn't know you could just create a new airline like that. Just a startup airline. That's the thing you can do. It's remarkable. And issue tokenized bonds, too. Yeah. It's amazing. What a story. So Mountain and XPTO, you guys are not just friends, but you also have a partnership.

You guys want to talk about that? Sure. Do you want to start? Yeah. So, Expedio naturally as an exchange, folks have stable coins in that exchange. I think any exchange will have a percentage of stable coins. and USBM is naturally a yield bearing stable coin, we believe that the margin that the stable coin issuers, traditional stable coin issuers, get is too high, and we pass that through as rewards to holders,

which in the end are XPTO customers. And you guys saw this very early on. Obviously, if you're like BMA regulated, backed by very safe assets, It's kind of like a no-brainer to essentially offer this to our customers. So, yeah, very early on, Phil, you saw it. And, yeah, we're excited that you actually went in on it. And I believe you also have some of the company's funds with USDM, if I'm not wrong. We have some of corporate funds in USDM.

I mean, it's an easy product to understand. It's pretty, it's fairly, it's liquid, right? So you can get daily redemption. You're earning short-term treasury maturities, right? And the blend. You get your audited reports regularly and attestations and all that. So you feel good that you've got a portfolio that's managed actively, or at least systematically.

And, yeah, you're getting a pretty good yield right now because the Federal Reserve is paying 5% plus. So it makes little sense to carry anything else. If you're going to carry dollars, you should carry at least USDM. If you want to go up into the risk tranches of things like Athena, Athena, you know, sure. It's a sort of different value proposition, right? For us, we're looking for stability and making sure that we're not, you know, our treasury is getting a little bit of return as safe as possible.

Other parts of the business may take on more risk and try. to get some of that basis yield that's out there. Not really right now because we're a little bit of a, and that's the thing about Athena. So that's the thing about basis is that it's quite volatile and it can last for a couple months, but then it can disappear and something can go negative on you. And so Mountain Protocol provides more of a stable yield that you can bank on for, you know, at least six months to a year.

You know, it's basically, uh, depends on, on the pace of change of the federal reserve right now. It seems like that yield will stay, uh, the same for, for a while.

So, uh, I like the fact that they're paying that yield back to the holders. Um, you know, other stable coins are more payment, um, stable coins.

Like we're talking by USC and US, um, um, um, the USDT, you know, obviously they command the lion's share of stable coins. It's a different proposition. You know, they use it just more for sort of collateral and payments. And, but, you know, I think they're going to probably be looking at sharing yield at some point

because that makes sense to the degree that it doesn't become something that poses a regulatory problem. And that's always the concern. And we're here in Bermuda, we don't really have this issue. And so, yes, so you benefit from, from, from USDM. You earn 5%. You can get it directly from XPTO's platform, or, you know, on ramp and off ramp, and just manage your portfolio, get in and out of assets. And if you want to go up into risk tronch, you can buy tokens like corporate bond tokens like Bermude Air,

which is going to be trading in the secondary next week. You know, so it's pretty exciting stuff. Yeah, we're in the only patch of land, which is a pretty small patch land, I think, on the planet where there's a nationally regulated yield-bearing stable coin. So we're in a pretty special place right here. Pretty special place, yeah. But I think it's the, I think naturally Bermuda is forward in the sense that they can, they have the reputation to take the regulatory stance of doing something they believe the future, how the future looks like. I think more and more, I've been talking to other regulators as well, and they are all considering yield-bearing stable coins is something that should happen. The risk of yield-bearing stable-gles

versus non-yield-bearing stable coins is essentially the same. It's the same collateral assets, the same management. And I think the fact that Bermuda has taken the stance, other people will start to take this stance as well, because in the content, it kind of kind of makes sense, right? Yeah, I mean, it's like a checking account versus a savings account. Yeah. Is the savings account that much more risky than a checking account because it pays you, whatever, like some fraction of the risk for your rate? It always does, it did amuse me a lot that people had so much angst over Mountain.

And not even Athena, you know, forget Athena. People were worried about Mountain. Yeah. Literally just passing on the rate that you're getting from treasuries. You know, that's astonishing. Yeah, I think that that's changing. I think people, we've been around for almost a year now. I think people are starting to get comfortable that the operation works, the attestation works,

the regulatory process is working. Mountain has processed purchases and redemptions at scale, and those have been working well. So I think that risk perception of a new stable coin issue is always there. I think people in crypto, we've learned to be very paranoid and not trust anything that's new. I think we're getting that chasm of being new. And more and more treasurers specifically on crypto are getting comfortable with holding USDM on their balance sheet. And I think they are the example that everyone else in crypto is waiting for to say, okay, this very big buyer is comfortable with crypto.

if they did their analysis and it works, maybe I should consider it as well. And that chasm is kind of getting crossed right now. And you told me today the mountain has settled, what was it, $1.5 billion? $1.5 billion in trading. Yeah. I mean, in crypto we talk about trillions,

like Stablecoin settle around $10 trillion a year, which is really, really remarkable, but I mean, still for a young protocol. Yeah. It's very impressive. The Stablecoin space is, I was looking at this new dashboard, RWA.XYZ, very good stablecoin dashboard.

The stablecoin sector is just up into the right, always, no matter what the market regime is. Even during the extended sell-off of 22, 23 stablecoin usage metrics, we're still trending upwards. So we're not at the all-time high for stable coin supply. It's $160 billion. We're close. As opposed to $180-ish.

Depends if you count the $18 billion from U.S. which you might have said it was an illusory number because that's maybe not a real stable coin, quote unquote. But so we're not at the all-time high in terms of float, but we're comfortably at all-time highs in terms of active weekly addresses, monthly actives, value settled, although that's a little bit ambiguous. It's hard to measure the value settled. Transaction count, addresses that hold a stable coin. Do you know that we're trending very quickly to 100 million unique blockchain addresses that hold a stable coin? 100 million. Cryptos eating the world.

And so to me, it became clear actually a couple of years ago that really blockchains are becoming dollarized. So we're not really going to settle in Ether, Bitcoin, probably just going to settle in dollars. And the architects of the blockchain is going to have to make their peace with that. They're going to have to figure that one out. It's a problem for them. And then also the world is becoming crypto-dollar. It's like all these emerging market economies. To what extent, you know, I don't know if you guys have a better sense on the ground.

Like, where are you seeing this crypto-dollarization occurring? Martin, your Argentine, for instance. Like, how significant is it today? And, like, do you see it actually disrupting, like, fiat? I think, I don't think fiat will be disrupted because the dollar is fiat. but I think local currencies I think of stable coins

as you used to have the ability to shop before Amazon but it was you had to get on a car go to a shopping mall by the return experience was hard and then Amazon came through and you probably are shopping a lot more there's a lot more people buying stuff

because it's so much easier with Amazon stable coins are kind of similar right so if you really want to get your hands on a dollar, you can anywhere in the world. But stable coins just reduce the cost, the transactional cost of that happening, the security, the risk of getting a counterfeited piece of paper with the dollar, the ability to move that dollar. So it reduces those frictions so much that naturally it becomes the winner, right? Like an Amazon, it took 20 years for it to clearly become the winner. I think stable coins will follow a similar trend. Like the experience

is so much better that they become winners. A hundred million addresses is a hundred million addresses, a lot, but it's also nothing compared to 8 billion people, right? So we're still in the early innings. This dashboard that you mentioned on real world assets, XYZ, they have a percentage of M2. So they have stable coins as a percentage of M2. I think it was 0.76%. So a little bit under 1%. And I did the math the other day. The number of Tesla's been driven in the US as percentage of the automobiles being driven is also 0.76%. So you're talking about the electric car revolution in Tesla is clearly the future, but the penetration is still sub 1%, but the trend clearly shows you that that's the future.

I see stable coins as the same way, right? Like it's still minute, but the trends show you, like we're clearly going to be selling value on stable coins. And naturally the markets where the stable coins are adopted are the markets that this efficiency is the biggest delta to the current state. So if you think about Europe, for example, Europe has a pretty stable currency, the euro. They have SEPA, very fast settlement. So Europe is not adopting stable coins too quickly because the delta with the Fiat world is kind of good.

There's no problems with accessing a bank account. On the other side, if you go to Turkey, if you go to Argentina, getting a bank account in dollars is very, very, very hard. Like, you might get an account in dollars with some bank. if you are above a certain income threshold, but the average Joe won't get an account. So you have to go to a P2P marketplace and exchange your pesos for dollars in Fiat.

And you have to, that is, of course, of market transaction. There's no regulatory framework around that. You don't know if you're going to get out and you're going to get robbed, if the dollars are counterfeit or not. Versus buying on chain, you know, the smart contract, this is a much contract. The money you're getting is the money you're getting.

So it's so much better. And I believe innovation starts at the edges and then kind of goes to the center. And that's what we're seeing, right? Asia and Latin America and Africa is where everything is happening. And the other, I think the big drivers from $100 million to a billion to billion is fintech. Right. So crypto is amazing from an infrastructure perspective. It is very cumbersome still to use blockchains.

I think for my grandma to directly interact with the blockchain, I think we're still far away. but there is intermediaries in the middle that are building the traditional fintech models that you could build before but instead of having 20 people getting a bunch of licenses having to work with banks and so on it's three people in a garage

building an app that essentially makes it simple to access local payment rail and crypto and they can replicate what before was a very expensive and like venture-backed company and so on just with a couple people with a grant that they get and I think that's what's expanding stable

on usage so much today. And there's the trillions of wealth through generations that's coming. And you know that's inevitable. And you know the younger generation, of course, are more computer savvy and more willing to use this new technology. So it's just trickling. And in a way, I mean, it's going to be, it's going to accelerate because the Boomer generation is, you know,

going to start transferring wealth down very, very, very, very, soon already happening of course but it's going to accelerate and there's so much money at that level so um that that can only really end up benefiting bitcoin and and stable coins i think um that's why stable coins keep going up also if you have stable coins you don't want to off ramp because the friction and the bank is so big right first of all you're always scared at your bank's going to shut you down because you're interfacing with with like an exchange of some kind And you're like, so when you're in, you're kind of like, all right, I'm in unless I really need that money to pay for something in the real world, which is starting to become consumed anyways by crypto. So it's pretty exciting times.

We ask all of our vendors if they take payment on crypto. And we tell them that if not, our payment is going to be delayed by 30 days to push them to take crypto. So you just harass your poor vendors. Yeah. So we, if they say no, it has to be like 30 days is a pretty good period of time for them to find some alternative. So we really put push. And for us, there's real costs, right? Like a swift transaction is 50 bucks.

Whereas a crypto transaction is like one cent. The auditing is a lot easier. Our auditors love crypto because they can just bring everything in. So it's so much better in any dimension. It's funny you say that because the auditors hated crypto. They didn't used to. Yeah. They didn't use to.

we can't do that. Yeah, imagine a public ledger that is immutable where the transactions can all be indexed very quickly. I'm scared. Yeah, but try being a public company in the U.S. or a large private company in the U.S. getting a big four auditor to look at your books if you're a crypto firm.

I mean, Coinbase, I think they have Deloitte now, but it used to. For many years, the big four were religiously anti-crypto. And after FDX, a bunch of them. also left. Yeah. Arminino and Mazars. Yeah.

Now we've crypto-native auditors. And I work firm. I'm going to do a call out. Shout out. Shout out to the network firm or statutory auditor. So very happy to be working with them. They're great. They've been on the show before.

So, you know, one thing that also does occur to me with regards to stable coin penetration is stable coins are a great product, but they are also inferior in many ways because because you had this, you know, how physical cash has convenience yield of cash. So like there's no yield associated with cash, at least, well, historically in some periods of time, certain countries there was. There were coupons associated with cash, but we won't get into that right now. Because there's no yield with cash. There's a convenience yield whereby it's useful to have the cash.

So you forego the lost yield. That was the same with stable coins because. For regulatory or technical or business reasons, there was no yield. Or the risk-free rate was zero. And so then to use a stable coin, you had to forego, you had to have this opportunity cost lost yield. Now you no longer have to make that choice, which I think is a huge difference. Yeah.

So just to put numbers to that, in crypto, the ecosystem is bleeding $8 billion a year in this convenience yield being paid to essentially tether and in smaller percentage circle. And the reason for that, I think, is historic, right? Like, Stable Queen started during the ZERB era. I think no one was asking during the ZERB era for, like, 0.5, like 5 bibs, 10 bibs of, yield. And also, if you think about like cash in the technology of having cash in a paper, the $5 bill cannot turn into like 5.01. You don't have that technology to be able to do that. But in crypto, we already know how to do this. There's a $30 billion dollar asset called Lytostaked ETH that is already rebasing in your pocket. And it's been around for a while.

So we do know how to solve the problem. Actually, that's what we use that mountain protocol to solve the problem as well. So the cash that you have in your pocket on your wallet, actually, is yielding that 5% natively. And it's quite magical. You open your app, you refresh, and you're going to see a higher number of tokens. So this convenience yield, you can still have the convenience without paying the convenience yield.

So it's like technology pushing the efficient frontier of money, which is quite interesting. Tether they don't pay and if they don't do any rub share nothing even under the table like USC does it's kind of not a not a hidden secret or anything I don't think Tether ever will actually I spoke with Paolo in Dubai two weeks ago and he was like I think you guys referring to ourselves itina and other players that are coming in like you guys are going to take the larger buyers where this yield is large. And he's like, the investments that we're making from a tether perspective are very low volume in the edges, right?

Like he's like, I'm getting tether into the ATMs in Brazil. That is an investment that in order to make, I need to justify by getting the full yield from the user, but that allows to push table coins even closer to the user. So that's where the strategy of tether is going. I think it's great that they're doing those investments because in the end, the more stable coins, the more we all win. So I think their strategy is we're going to stay getting the full yield

and then do the investments in order to grow the market at the edges and continue to create convenience that is stether only to continue to charge this convenience tax and justify this convenient tax. I think if you are holding more than X, right, whatever that X number is, and you're not using this convenience that only Tether can provide, it's a no-brainer to switch over. And I think we'll see the stable coin market shake where Tether goes to like 10, 20%,

where they have the economics of the iPhone, right? So they have a small market share, but a great share of the profits. And then 80, 90% of the stable gains are yield-bearing stable coins like Mountain Protocol, but we're more like Android, right? like high volume stable coins with a lower margin, but still generating a great business. Do you think it basically transitions to the M1 versus M2 versus M3 effectively in crypto? I think in terms of like the levels of money, Tether and USDM fall into the same category, right? So we are both backed by Tibles essentially.

So Teter has a couple other assets with their overallization, but most of the same category. but mostly T-Bels, we have the same thing. So I think the quality of the claim is similar in terms of collateral. Of course, Mountain is, the claim is more explicit because we're regulated. There's a regulatory framework. I think if any mountain becomes kind of like more base layer money than USET, and USAT becomes more convenience money. You were referring to that like convenience money more higher level in the...

Yeah, I mean, if we were to consider that, a stable coin is an IOU, which is a check, but on the blockchain, because usually you have your money somewhere, so, so Tether or USDA to have the money in a couple of banks. And so when they're moving money around, well, you're basically taking the credit risk of that institution and that corporate, right? So you're taking, you're an unsecured creditor. Yeah, you're an unsecured creditor, right? So moving those checks around, what's good about it is, of course, you can tell

that check is a good check. in the sense that you're not taking counterparty of the guy who wrote the check where it's telling that's good, but you're still taking the risk of the bank and of the issue or of the stable coin. So that's actually a great thing, and that's why stable coins are very successful, is because it's a lot more convenient than a check, than a paper check. It can move borders. it's super cheap to move and it's you know it's transparent immutable it lives on an immutable blockchain of course you're taking the blockchain risk also we we we think about blockchains like

they're kind of um implied but you know when you when you move money around on the blockchain then make sure that that blockchain itself is is a secure blockchain right that can't be reorganized or because then you're the sort of layering risk without even knowing and so If you're dealing with a stable coin on Bitcoin or in Ethereum, you know, the assumption is that that risk is pretty low, right? Solana is probably also, and there are others, right? I don't want to make any sort of qualifications there. But I think it's important for people to understand that

because, you know, a lot of people just still don't understand what stablecoin is. And I think there's a lot of education that needs to go there in terms of telling them, hey, you know, it's crypto, but really, it could completely be obfuscated, right? It could kind of be like a SEPA or a Feduar. People don't even know these terms, right? Swift or they don't care, right? So long as it gets, you know,

they send the money and gets to the destination, that's all they care about. And so Stablecoins completely be obfuscated and be like, you don't even know you're using a blockchain. You don't even know you're using, you know, crypto. That's why Stablecoins is a step into more crypto-native tokens like Bitcoin, I think,

more and more, is that you go from dollars or euros into a stable coin, which is their crypto-dollarization. And it's always kind of been that way. I mean, dollar has always been the base currency to getting into all kinds of products in crypto. And so when you're into dollars into crypto, whether you're in Tether or you're in USC, which have the largest network, then you have access to the largest amounts of products.

And then you can get into meme coins, a perp, um, protocol, whatever, right? So, so that's sort of like, that's the way I look at it is like this sort of transition into deeper into, uh,

the crypto layers. I would say two, two small corrections there. I agree with USDC and UST being, uh, counterparty risk to, the issuer. One of the biggest advantages of the Bermuda regulation is they dealt with the counterparty risk of the issuer and they actually segregate the reserves by law. They recognize

the reserves as customer assets. So if we ever want to, were to go down, the assets essentially get returned by a provisional liquidator that the BMA chooses. So essentially kind of solving bankruptcy remoteness. So that's really important. And that's a term that a lot of people don't, don't know, and I didn't make, I didn't mean to make a generalization that, you know, they're all the same. They're not all the same.

They all have different, they're regulated by different bodies. Some of them are more regulated than others. And so, but you still have to realize, you know, what risk you're taking when you're, when you're holding that particular stable coin.

Yeah, here in Bermuda, everything has this ability to be bankruptcy remote, including, you know, XPTO unstable house, you know, we take advantage of this bankruptcy remoteness, which is great, which means if a bankruptcy were to happen, you know, the depositors are completely secured and the corporate can have its all insolvency. And the clients are not like unsecured creditors or they're, like, that is amazing. Yeah. So it's kind of nice to have that, you know, it would have been

nice for FTX. I'm still waiting for something like that because these lessons are written in blood. Yeah, I'm still waiting for my Mount Gox money to come in. I thought they were doing the payouts from Fox already. So I didn't sell my claims. It's been 12 years now waiting for that money. So yeah, bankruptcy processes can be very underestimated. They're very long.

Usually there's one creditor that requests something so the payout gets pushed for six months. Microcermonies is critical. So that's the first one around being unsecured creditor versus a secure creditor to the assets being collateralized or fully secure. So I think that's one of the big things that BMA did. The other one in our case is counter-party risk to the custodian or the bank, right, what we saw with Circle March 23. So we made the decision to not to hold nominal amounts in bank deposits to avoid that, like banking, especially the banks that you can get to work in crypto are usually not the G-sives.

you work with whoever you can, not who you wish. And that means you're working with the banks that are kind of neat those deposits. And the banks that need those deposits are probably not the most robust, talking about mostly U.S. counterparties. So what that means is you want to minimize the exposure to that and maximize the exposure to U.S. Treasury. There's risk of default there as well. But if you're in stable coins, you kind of in dollars,

or even if you're walking around, like you're taking the risk of the U.S. government, the default. So that's kind of systemic risk you cannot avoid. So I think the construction of the products, there's unsecured risk to unknown counterparties. That would be more of like the USDT model. And then kind of Bermuda really pushes to go to the other side of the edge and say this has to be as safe as you can. And not all stable coins are kind of created equally. The second thing is around like blockchain risk. I agree with you. Not all blockchains are pretty equal, right? Bitcoin, in Ethereum, they've been proven. It's very, very hard to attack them.

However, centralized assets have an advantage, which is it's a check that has to be redeemed. So you not only have the blockchain, which is a ledger where you move the check around, but also you have the redemption of that check. So let's say there's a governance attack on Bitcoin, and there's a 51% attack, and essentially the blockchain potentially forks.

And there was stable coins on Bitcoin. The issuer can choose which fork is the valid fork. So centralized assets have a number of trade-offs, but this is one of the big advantages in terms of mitigating blockchain risk and choosing what is the right state and what is the malicious state of a specific blockchain. And issuers like us, like Circle and Tether,

you're always monitoring forks and these types of things to essentially prevent these things from happening. So the risk is there, but definitely highly mitigated versus trading Bitcoin. If you're trading Bitcoin or ETH, that's kind of like, you have no centralized issue to kind of go ask for these changes. So yeah, those are two clarifications. Talk about banks.

Let's talk about banks. Well, I was going to say it's ironic that because the U.S. banking system and the financial regulators are so hostile to crypto, they push crypto firms into the margins, whether it's regional banks that are willing to take the business or they were historically now they're basically not or into even less regulated payment processors or bad things happened everybody knows about what happened with tether they were being chased around by basically the u.s government for years and they had to use sketchier and sketchier payment processors and they were effectively the victims of 850 million dollars fraud and then it was

their reaction of that that got them into hot water with NYG, I guess. It was it. So I find it to be very ironic. It's like the government is the arsonist and the firefighter here. They chase crypto firms away from the banking system. And they disincentivize any, the most credible firms from dealing with crypto. As a consequence, crypto firms have a worse array of choices.

And they're systematically unbanked. Then you end up with situations. situations like Circle has $3 billion in SVB, relatively smallish bank, SVB, you know, I'm not going to apportion blame for the bank run, but I think, you know, I'm laying the blame at the feet of a certain Massachusetts senator

that wrote some very nasty letters. And then Circle is, you know, under reserve for the weekend. By, you know, I don't know. A few percent. Yeah, meaningful percent. U.S.TC actually traded well below that, which is interesting. So I don't know, that's just a general observation is

crypto is perceived to be risky, but a lot of the risk is created by financial regulators harassing crypto firms. Yep. And if you cannot separate the good actors from the bad actors, the consumer, how are you going to figure out who you should go to? Right. Like if Coinbase and FTX essentially are standing in the same

as a consumer, yeah, Coinbase is public, but they're not regulated by the SEC. It's just disclosure requirements. So how do you pick between Coinbase and FTX? And you cannot blame a consumer for going for FTX if they look exactly the same. And I think Bermuda giving licenses is great, but it would be great if the U.S. also started separating good actors

from the actors that choose not to be regulated. And there's many reasons why you will choose not to be regulated, but at least you can tell and you can choose. No, the U.S. is a particularly complicated place. And the IRS treats it, you know, Bitcoin one way. The commodity, the CFTC treats it another way, the SEC. Then you have the state regulators. It's like a minefield.

If you're a crypto company based in the U.S. We're serving the U.S., you really have to know what you're doing. And it's really hard to know what you're doing when you don't have any guidelines or any guidance. And so I think that really needs to be clarified. You know, hopefully we get a little bit of stable coin clarity. We'll see if that's, if that actually provides clarity or more confusion. I'm always concerned about there's good regulation and then there's a bad regulation.

And you know, you have to make sure that you have the right people drafting those legislations in place and that they're sort of working with the right people in industry to get those rights. regulations or sort of legislation in place yeah clarity but with regularly capture would be bad yeah and there's a risk that that's where the stable coin bill goes i think it's very likely and in contrast to that shout out to the bama december you were part of a proof of reserves panel the bma wanted to hear what people had to say about proof of reserves so essentially called all of the regulated entities and say hey let's discuss what's your opinion this is what you're the outside has to say, what have you been looking at in terms of proof of reserves and kind of

this specific topic before we regulate it, let's listen to what the industry has to say and how do we regulate it accordingly to the best practice that we gather from our regulators. So it feels like the solution of how to do proper regulation is out there. It's just a matter of like actually choosing to actually use it. Last thing before we wrap here, you guys have been very patient with me. BlackRock's Biddle product. So everybody's very excited now, BlackRock is the ETF sponsor, although they did have outflows yesterday from the ETF.

There's a bit of a catastrophe, frankly, on the ETF front this week. With a Hong Kong as well. The Hong Kong launch was a flop. Outflows from all of the U.S. ETFs. I don't know what's going on. Anyway, BlackRock is in market with a tokenized treasury product. They're actually now the largest. They have surpassed Franklin Templeton, their Benji product.

What does this mean to you? How excited are you about tokenized treasuries? Obviously, that's kind of similar in some ways to mountain different piece of interoperable infrastructure. What would you say either of you is the significance of sort of black art coming to the market with this tokenized product? I can go first. So we definitely are very happy that this is happening. it allows us to interface more crypto-friendly counterparties. We usually, I actually use the BlackRock EDF as part of the USDM reserves.

So if you hold the USDM, partially you're collateralized by this asset that they issued. And the size of BlackRock... Do you mean the Biddle product, not the ETF? No, no, not the ETF, sir. Yeah, USDM is not backed by Bitcoin. Bitcoin ATF. That would be problematic. Maybe one day.

Maybe one day, yeah. I think with the over-clarization, you can play a little bit more with. So, yeah, for us, it's very, very good for several reasons. A, those products are structured with stable coin issuers in mind. I think the biggest buyers are and will be stable coin issuers. What that means is the onboarding and the, the, onboarding, and the, The compliance is stable coin issuers first. So they understand our use case.

They're actually talking to us. Like we chat with them very often. The redemption capabilities support stable coin liquidity, which is great. And their fee schedule is also adapted to a stable coin use case at the scale of stable coins. And finally, not to be dismissed is they are a crypto-first product. It's harder to shut down black, Crox's crypto product and I think BlackRock has a lot more power to push back if there there are kind of sneaky regulatory apparatus going after this because it's like shutting down

the whole product. It's not even shut down a portion of your of your business. So that gives us a lot more comfort around the length and the ability to rely on this product over time. we see other products coming to market. Wisdom Tree is soon going to be launching a product of their own. Franklin Templeton is going past Benji to issue other products to players like us. So I think all of the big asset managers are looking into the space. And clearly, stable coins are going to be a large market

and they want to play in this market. The advantage, I don't think they want to get into stable coin issuance. Prudential regulation, compliance, compliance of a secondary market traded asset. I think all of that is very complex and not their expertise. So they're going to be providers to players like ourselves. And for us, it's a lot better to interface these guys. And we're very excited that they're coming.

And our job is to support them so that more of this sophisticated players can jump into ship. Well, look, when we start in 2015, BlackRock was very far from doing anything in crypto. I'm super happy to see all those big sort of traditional finance firms really entering defray and backing companies that are innovating. And again, I think crypto is eating the world. Every product out there, whether it's a money market, a treasury fund, corporate bond, inequity is all going to end up in some tokenized form. We call RWAs. And, yeah, we're there for that. That's what we're supporting.

We're supporting that growth in all of these products. And we're going to be listing a lot of these products on XBTO. All right. Well, Martin Philippe, thank you for having me. Remember me. All you guys, thank you.