On The Brink with Castle Island - Martin Carrica (Mountain Protocol) on creating an interest-bearing stablecoin (EP. 450)

Episode Date: September 11, 2023

Martin Carrica, cofounder of Mountain Protocol, joins us to discuss their launch of their USDM, permissionless interest-bearing stablecoin. In this episode:  Martin's story and origins of his desire to create a stablecoin Obtaining a registered digital assets company in Bermuda Martin's review of regulatory options worldwide and how they ended up in Bermuda How Bermuda has distinguished itself from other financial hubs in the Atlantic How reinsurance is like stablecoins What it takes to get licensed as a digital asset business in Bermuda How Mountain Protocol's USDM stablecoin works How rebasing stablecoins work – and how they integrate in DeFi How USDM differs from on-chain T bills and other interest bearing stable products How USDM was able to achieve a permissionless structure How Mountain avoids US clients Why the market for stablecoins is mostly ex-US Stablecoins as a backend for emerging market fintechs Different exchange rates in Argentina How Argentine firms use Argentine ADR stocks to manage their corporate cash How street moneychangers on the street in Argentina work Milei and the prospects for dollarization in Argentina The importance of a stablecoin being issued out of a bankruptcy remote structure Disclaimer: USDM and other Mountain Protocol products and services are not available for U.S. persons as well as other restrictied jurisctions.  For more information and disclosures on Mountain Protocol, please refer to the Terms and Conditions.

Hi there, this is Nick Carter reporting in from Singapore. Today I sit down with Martin Carricka, the founder of Mountain Protocol. Mountain Today announces around financing led by us, Castle Island Ventures, and with participation from Coinbase, New Form Ventures, and many angels. Mountain Protocol is a Bermuda registered, interest-bearing, permissionless, stable coin. So we'll dig into each piece of that and what it means. suffice to say, I think the move from non-interest-bearing to interest-bearing stablecoins is one of the most important shifts that has happened in the history of the stablecoin landscape, and I think it'll be dramatically reshaped in the coming years. Martin is an expert on stablecoin regulation, having been through this process, so he tells us what it's like to get that first stablecoin license in Bermuda. He discusses other regulatory domiciles for stablecoins, and then we talk about

what it means that the world now has a permissionless interest-bearing stable coin that anybody can utilize if they have some kind of dollar float in their fintech, neobank, or any other kind of application. Martin is also Argentine. We also talk about what it's like growing up in Argentina under hyperinflation and the various ways that corporates in Argentina manage their cash and avoid inflation. This is a fascinating conversation. I have quite a few more episodes on Stablecoins 2.0 coming out. This is the first of the series. Let's dive right into it. Hi, everybody. Welcome back to On the Brink. I'm very excited for this episode. I'm sitting down with Martin Carricka, the founder and CEO of Mountain Protocol, a interest-bearing stable coin registered in Bermuda that is officially announcing their launch today.

Martin, thank you so much for joining us. Thank you, Nick, for having me. And before we get started, I wanted to issue a short disclaimer. So USDM and other Mountain Protocol products and services are not available for US persons, as well as other restricted jurisdictions. For more information and disclosure, it's a Mountain Protocol, please refer to terms and conditions. With that, we can get started.

Thank you for having me. Yeah, of course. Yeah. So Mountain not available to US individuals, to be clear. Okay, unfortunately, that's the way of the world today. We'll dig into that for sure. So I don't even know where to start. Obviously, we're backers.

Castle Island is a backer. So that's the disclosure on my side. And just tell us about your journey to creating a stable coin. What led to your awakening and your desire to do this? So first of all, I'm from Argentina. So I bought Bitcoin long ago to be part of the Mount Gawks process. My first salary, the local peso, has an inflation that everyone knows about. So Bitcoin was stable for us.

That got me hooked into crypto. I later kind of continued with a traditional finance career in McKinsey, working a lot with banks, launched a I-yield checking account, which is basically a traditional finance version of what we're doing here. And after Luna collapsed last year, rates went to zero. in crypto because there was no more appetite for leverage, while at the same time the Fed started increasing rates. And for me, it was like, there's an opportunity to create this high-old checking account experience that people in the US enjoy, and high-old checking accounts were starting to

become a thing again at that point in time. We can create this for the rest of the world. So like my family in Argentina, companies, everywhere can now access stable dollars with the additional benefit of having that yield. It was a long journey. The main challenge, the main challenge of building Mountain Protocol is how do you build a stable coin that preserves the ethos of stable coins as people are used to them today, while at the same time being able to provide that yield, provide that permissionless feature, and be able to connect to a traditional financial system. And that requires being licensed and being regulated. We shopped a bit. I think we're going to talk a little bit about that. So I became an expert for a couple of months.

on regulation externally. We ended up setting in Bermuda and we can talk a little bit more about that. And we're proud we got our license about a little over a month ago. And that allows us to be a regulated issuer of USDM. So yeah, tell us about your journey here because we've looked at interest bearing stable coins in the US and we being Castle Island. We actually decided it wasn't possible to have a non-security interest bearing stable. Over the last year, in 2023, things became very hostile. Banks were discouraged, effectively banned from touching stable coins in any capacity. And so we had a kind of a similar awakening where we realized you have to look offshore. But tell me about your journey investigating all these different possible jurisdictions.

So the U.S. has a challenging feat on regulating this sector. On one hand, whatever rule passes needs to be a clear set of rules where a broker can then give a license or not. And that is a very complex process. The coming and register is a very hard approach for the U.S. And we're still trying to find out what that process is in the U.S. When I started doing this in 2022, it was clear we were far. from having that clarity.

And I think today, although some bills are in Congress, we don't know when that is going to come through, hopefully soon. So for us, we started looking offshore. The first place we looked at was Switzerland. Switzerland has a DLT law that they passed a couple of years ago. That one embraces the innovation of blockchain, so they understand that blockchains require no intermediary, and you can pass on IOUs in a permissionless manner,

and those can be recognized as, claims on underlying. So Switzerland, the problem they have is they have a very unfavorable tax regime for fixed income. And not only for stable coins, this is applying to their bond issuance that market is getting reduced by the day. They did a referendum in September, which we thought would eliminate that withholding tax. It didn't. So we decided to like elsewhere. And that opened the menu. We looked at countries in Asia, we looked at some of the islands in the Caribbean, we looked at the Middle East. We even looked at South Africa. South Africa is doing some interesting stuff.

We landed in Bermuda by a recommendation from one of our legal teams. They have passed a crypto regulation. They called Digital Asset Business Act a couple years back. That Digital Asset Business Act is very stringent in terms of what types of companies it will pass. because it only looks to license high quality but low volume companies. So they have, I think, a total of 20 companies today. Coinbase is the most recent one that made it in the news back in April. But Circle is also licensed there. Cash App has a license there.

There's a couple known brands that are starting out of Birmingham. And I think a lot more will start coming there. Yeah, it's interesting. People think of the Caribbean islands as all. tax havens all equally kind of shady, but that's actually not the case at all. You know, like people are souring on the Bahamas post-FTX. Cayman has a reputation. BVI has a reputation.

Tell us about the differences between Bermuda and those other places. Yeah. So all of these are islands in the ocean, right? And small countries with strong financial systems. And I think that's where the similarities end. All of the places that you shared are more of like offshore centers for like high net worth individuals to do better estate planning for banking and so on. Bermuda has focused on high complexity business, like financial business structuring. So in a couple of decades back, they decided to go all in on reinsurance.

Reinsurance is a very complex industry that requires a very strong legal. system and predictability. Today they have a third of the whole insurance market. So it's a very sophisticated market for large enterprises looking for regulatory clarity. And Bermuda gave them that. They are, their Supreme Court is in the UK. They're a UK offshore territory, so that gives a lot of clarity. And they have a very strong financial regulation entity called the Bermuda Monetary Authority that started in reinsurance today. They regulate everything financing in the island. including banks and now including digital assets. Yeah, and Bermuda, I think, is one of the top hubs for reinsurance globally.

So they have that level of sophistication, understanding what it takes to be a tier one financial regulator. Reinsurance is very similar to stable coins, if you think about it. You have a claim on one side, and then you have collateral that has to be bankruptcy remote on the other side. With reinsurance, it's a little bit more complex because inside the same entity, you might have multiple policies that you issue, and you want each of them to be bankrupt or remote from each other. So the comparison between reinsurance and stable coins, it translates very well. The biggest difference is where that IOU or that asset lives. And in the case of Daba, it lives in the blockchain.

So what does it take to get license in Bermuda? I mean, clearly it's not easy. What are they looking for in terms of licensees? So our process took a little under a year. They are looking for a very sound business case, right? So what you're doing needs to be very, very clear. And the disclosures of what you're doing need to align very much with what you're actually doing. So they request a lot of proof.

So that's the first one. The second one is they require people that know what they're doing and that have, they call it fit and proper. So are you well set to run this? business and they will assess that not only during the licensing process but they also follow up with meeting with them you have to have a senior representative that's a local person that is that is liable to update them in case something happens so there's that other check and balance they require independent directors which is something that after last year we we we learned that is very important

they require bankruptcy remoteness. So the law is very clear about customer assets and you need to set it up so that it is bankruptcy remote. And then the last one is KYC. So your compliance program needs to be very tight. This is an island that lives out of financial services. And if you look at their rankings in terms of FATF, they rank on the top. I think they are 16 out of 200. So it's one of the top entities in the world in compliance.

Yeah. I mean, actually, they have a higher ranking than. US in terms of Fadoff, right? I think it's 39 out of 40 questions they have compliant. I think the US is like 32, probably somewhere in the I don't remember the exact number in the US, but it's a lot more compliant than the US is. Yeah. So where so mountain protocol is live, right?

I mean, it's actually operable. You know, you can create US DM now. It bears interest. Where can you do business? Who are, who, who are you looking? can you do business with? And is it B2C, B2B? What are you thinking there? So the product, it works very similar to other stable coins. So the primary market is exclusively for registered businesses. You sign up in our website. You'll do your K-WAB.

And once you have that, you have a portal where you can deposit Fiat or USDC and withdraw USDM. The objective is that that USDM starts getting its way through in DFI. So we're planning on integrating USDM as collateral for loans and thinking of a self-repaying loan into Dexas. So now your liquidity pools are yield-paring and therefore liquidity providers enjoy kind of like two bites on the apple, right? You have your basic yield and then you have your transactional fees. So that's on the defy side. Another part that we're excited about that we're expanding on is centralized exchanges.

So lots of sectorless exchanges have seen the Binance playbook. of transforming stable coin violence into their own to capture the yield from those stable coins. They did that with Paxos. That's a long process, has to go through NYDFS. With us, centralized exchanges can wrap USDM and create their own stable coin, uses for their earn programs. So there's a lot of flexibility on what centralized exchanges can do with that. And the third one that we're excited about is SMEs. So historically, SMEs have not been able to access crypto too much because no one had an incentive to actually go and serve them with crypto because

SMEs won't buy ETH or Bitcoin and most centralized exchanges make money through swaps. With a yield bearing coin now, you can offer a high yield checking account to an SME in Argentina, and we're working with centralized exchanges to actually do that, and now there's a business case to actually go after these businesses. So very exciting. I think we're going to, hopefully we're going to help be part of the revolution that takes stable coin market cap to the trillions with a T in balances. So the way it works mechanically is it's a rebasing stable coin. So your balance grows as it

accrues interest, right? Correct. So the token is an ERC20. It's the integrations with most protocols work this exact same way as any other ERC 20. The only difference is it rebases daily. If you're familiar with Lido's state if the rebasing feels the same way as Lido's stake teeth. Instead of looking at the beacon chain, that's an oracle where we send an interest number based on the yield that we're having on the USDM reserves, right? Basically, the treasury is on the bottom. So as a user, you buy 100 USDM, and then by the end of the year, your wallet will see 105 USDM. They're still worth one. So it's very easy to transact with them, to pay with them. The price discovery is very simple. And in terms of integrating into DFI,

I actually didn't know this. Turns out rebasing coins work with some DFI protocols, not others. So to accommodate that, you're going to have to also have a wrapped version of the token, right? Tricky question. So the DFI was built on the assumption, most of DFI historically has been an assumption that balances of tokens are constant. So if you have 10 Bitcoin and you put that in exchange or a collateral, the assumption is that balance is always going to be 10.

So in uniswap, whenever you do a swap on uni V3 or V2, the state of the pool will be the final state of the previous swap. With revasing tokens, state this being the biggest one and now yield very stable coins in dollars. Those models are challenging because the yield that accrued in the middle between those two swaps is captured by someone else, right? Usually a prop shop or traders, sophisticated players that will capture that yield. So the answer that Staked Thief got to is wrapped Stake Thief.

So you wrap the token and it starts accruing value as opposed to accruing balance. And that segregates equity. So there's a challenge there. The advantage is a lot of DFI knows that rebasing stable coins is where the puck is going. Stake Thief did a lot of work on doing that. Unib4 is exciting with hooks that now gets solved. So UniB4 will be rebasing compatible. And I think more and more DFI protocols are going to start supporting,

revasing tokens just because that's where the, where the TVL is going to start going. And so I think we saw much of DFI moved from generic ETH to Stake Deth as the collateral. Your view is that stable coins, obviously the vast, vast majority of stables are not interest bearing. Now that permissionless interest bearing interoperable stables exist, the same transition will happen with stables, presumably. Exactly. Stake Dith is a you can, there's some technical risk associated to state Dith, but at this point, I think we can assume it's close to zero, not financial advice. So all of DFI is saying, why should I use RAPDith or plain ETH when I can use Stake Dith and can like get the rewards from the from the issuance of ETH and play play with DIF? I think the same is happening with it's going to happen with USD.

So all of the LSD-Fi revolution that has happened in the last couple of months or maybe in last couple of years, last year, I think that's coming to USD yield very stable coins. So the same thing where you can do interest rate swaps with ETH, where you can put self-repaying loans. All of that infrastructure that was built for state teeth and similar tokens will now start to be applied for for U.S. dollar, yield-bearing tokens. USDM being one of them. So let's take a look at the existing market, both for tokenized treasuries and interest-bearing stable coins. I mean, what else is out there? I think we've seen the tokenized treasury space grow from virtually nothing at the start

of the year to maybe 600 million roughly in market caps, so growing at a pretty hefty clip. People are attempting to create yield-bearing stables. So talk us through that transition. The different structures that people are trying. there and then how you differentiate USDM from the rest of the cohort there? Yeah, yeah, good question. So there's the first attempt to do a TBL on chain was build a fund and have that fund of the subscription being USDC. Essentially the value that you're providing to users is instead of having an off ramp, a bank and a brokerage account, you condense all of those three

into one and then you can subscribe into the stable ETF essentially via USDC only with one kind of crypto-friendly K-YC. So that one, there's a couple, there's one in the US, there's one in Singapore, one in BVI. Those are getting a lot of traction. They were essentially they were using existing laws. The challenge that they have is they have to be permission because funds, fund shares are not bearer shares so you cannot transfer them freely and you need to ensure that they are accredited investors there's a bunch of rules that you need to follow what some of them are starting to do is say i'll use this permission share as collateral for a lending protocol and therefore the providers of capital in that lending protocol can access i would call it 80 percent or 85 percent of the yield

from the collateral because the people placing that collateral can borrow that usdc or usd t to purchase more T bills. So essentially you can do a margin loan where you do an interest rate arbitrage. And there are a couple of those protocols out there. The challenge there is a you don't get all the yield, right, because you have liquidity that's sitting in the protocol in case people want to withdraw. And you have variable interest rates and additional in counterparty risk, especially with the lending protocol. But that's one approach. I think that's the biggest one that's out there. The second approach is a company out of Switzerland called Back Finance that I know. I think they're the only one that's doing this and then Mitas.

Dot app is going to do it out of Germany, a similar approach, which is literally tokenizing the assets. So the IOU that you hold is not a share in the fund. It's redeemable for the underlying asset. And that one-to-one makes it trade at the price of the underlying asset versus the share in the fund. They are you both using DLT laws out of Switzerland. And they issue a prospectus, I think, at Alicia Stain.

I don't know where MEDAS is issuing theirs. The advantage is by using Swiss DOT, you can now do a permission list. So there's a protocol called Angle Protocol, AG, Euro. They're using the tokenized euro bill from back finance as collateral for a guildbearing stable coin in euros in that protocol, which is very interesting. So that's that approach, and that's the first one that's kind of permissionless that you can actually use, and it's a token-is bond. The difference that we, that Mountain Protocol did is early on we figured out we need to be a stable coin, which means this doesn't have to be a security, it has to be a payment token that is worth one, and that the right that you get with the token is, I can redeem this for $1, right? So that is not a security percent.

And in order to do this table, we need to go to a place that can regulate this properly. And that's how we landed in Bermuda. By being licensed as a stablecoin issuer, we're able to issue this IOU for $1, which is the stable coin. And that is permissionless and anyone can use it without other restrictions that come with that product. And then the million dollar question is what happens with the U.S., right? So how do you comply with US laws? And what we did there is do extensive work with our legal team in the US on reg. So reg.S is an exemption to registration.

Think about before we had electronic trading, shares were pieces of paper. They were bare assets. If a company in Argentina issued a share and someone flew to the US and did a secondary market transaction in the US with a piece of paper, that doesn't mean the Argentinian company needs to register with the SEC. So the Regis exception was issued for foreign issuers that are looking to issue outside the US or for a non-U.S. market to create a clear rule of like when you do need to go to the SEC and when you don't. Essentially, that same rule applies to us. We don't issue the coin to US people. We don't advertise in the US. We monitor the secondary market for known US addresses and make sure that it's not trading in those venues. That's the key of how you can be permissionless compliant in Bermuda, but also complain in the US,

which is today the biggest barrier for most of these projects. Yeah, I mean, it's interesting. Obviously, the U.S. is the deepest and largest capital market in the world. I think there's something, the U.S. is around 20, 25% of global GDP and I think 40 to 50% of public equity market cap, actually. But in the case of stable coins, Obviously, there are large onshore stable coin issuers here, but stablecoins found product market fit outside the U.S. I mean, that's where they're most useful.

And that's where something that passes along treasury yields is also most useful. U.S. entities have access to this stuff natively. We obviously have access to dollars. Where there's a paucity of access is emerging markets, Latin America, Africa, Asia. So in a sense, not operating in the U.S., it doesn't harm me that much because ultimately, your target market is actually elsewhere. Exactly, exactly. So if you're a company in the U.S., your treasurer will most likely be using a sweep account, then purchasing a money market fund, and then doing a typical ladder. So you already have access to all those products.

If you're a consumer, you will go to a high-yield checking account. Goldman Sachs with Marcus was the first one, couple of things. years ago, but today you have dozens of those that you can choose from. And essentially, that allows you to get yield and then also use it for payments. So it's very similar use case. So the US is mostly covered with those products. They are FDAS insured. They're integrated with the financial system locally. So people in the US usually will go there. And you can see it with US DC, right? Jeremy Aller estimates 70% of USDC, despite them being a US company partner with Coinbase, which is strong in the US, etc. 70% is offshore, right? So the market for stable coins is the rest of the

world. If you go think about a company in Argentina, right, an SM in Argentina, the access to these types of products, accessing dollars is already hard. Accessing yield-bearing dollars is even harder. So that's the market that we're going after. Yeah, I was just thinking about this this morning, you know, it depends on the, you know, people think of Latin America as a monolith, but it's very different on a country to country basis. People have different needs. They have different monetary systems. Tell us a little bit about what it's like as, you know, depending on the country, where's Argentina, Mexico, Brazil. Like, how do these people get dollars actually? Can they get them through the banks? How do they get yield? And, you know, is this something that's just been reserved

to basically elites historically? It's what you say, right? So if you're Mercado-Libre, right, like you're a multi-billion dollar company, you have Citibank or JPMorgan offer you this product. So you do have access to this market. If you go to the SMEs or to retail, accessing dollars is already pretty hard. Accessing these types of products is not impossible, but like it's going to be so expensive. It doesn't make it worth it. So specifically about different countries, right? So Argentina, where I'm from, is experiencing over 100% yearly inflation.

So my mom purchases stable coins when she gets her salary for the expenses she's going to make on week three and four before her next salary. Because it's worthwhile for her to swap to the dollars and then swap back. Those two fees are lower than what the inflation is. So in Argentina, there's a huge opportunity for use dollars. And you see by the number of exchanges that are operating there. An interesting thing for people outside. of Argentina is going to the newspapers in Argentina. One is called la Nation, l-a-n-a-c-o-n-c-o-n-com. In the top of that newspaper, that's the biggest newspaper in Argentina, you're going to see

how the dollar trades and you have official, you have blue, which is what most people get, and you have dollar MEP, which is purchasing an Argentinian share that also trades in New York, transferring to New York and selling it there. So that's how people are getting access to dollars. Yeah, actually, I want to dig in of that because you walked me through all the different exchange rates and there's like 10 different ones. There's the dollar blue. There's the dollar crypto. And then this one, you just mentioned, relies on using ADRs in the US. Is that right? How does that work? That's the craziest thing I've

heard of. So YC companies, I have a couple of friends who went through YC and they were trying to explain this to their investors. So how do they fund the expenses in Argentina without going through the official market, which is give or take 50% cheaper in terms of pesos. So it's like paying a 50% tax if you use the official market. So it's very, very expensive. So what they do is they'll buy, call it like the local oil company called YPF or Telecom, the local Telecom company. In New York Stock Exchange, they will transfer those stocks into Argentina,

and then they will sell those stocks in the local exchange called Marval. And then that's how they get pesos at this. rate, which is arbitrageable. So it's closer to the blue rate, which is the biggest market. Blue meaning the black market rate. Yeah, we call it blue. So there's also official or unofficial like money changers that exist, like on the street kind of thing in Argentina, right?

Correct. So if you're a tourist and you go to Argentina, I highly suggest that you find someone local who will introduce you to what we call Arbolito, which is, means like, tree, or Cuverero, which means like person from the cave, these people, like, you'll send a WhatsApp, I want to exchange $500. They'll have a guy getting to a scooter with a bag, go to your home, hotel, whatever that is. They'll step whatever, like outside the street, they'll take a piece, like a bag, like a paper bag with like a bunch of pesos in there. You'll transfer USDT on Tron to the person, and that's how the exchange happens. And that's how a lot of retail accesses their dollars in practice.

market. Yeah, I mean, it just occurred to me like it's such a drag on productivity that, as you were saying, everyone is a CFO, right? Exactly. Exactly. If you're a CFO, negotiating with managing your treasury with US dollars and pesos and interest rates and so on, and negotiating price increases are your two biggest variables. And then everything that a traditional CFO would do in developed markets with like stable inflation is, can like 20% of the time and then 80% is in these two tasks. Hopefully, if we're successful, we'll build tools so that CFOs can like practically start operating in US dollars. With USDM, you can auto convert sales into USDM, start earning that

yield, the treasury management is built in, and then whenever they need to pay an expense, they can pay that expense in pesos at that point. I think the Argentina economy is getting more dollarized by the day. We saw that in Venezuela. So at some point, USDM might become that medium of exchange. That would be awesome. But in the meantime, we can help those SMEs abstract themselves from the peso volatility. Yeah, we'll see what happens with Millie.

Although you were telling me you think it's unlikely he's able to actually push dollarization through even if he wins the election. Yeah, I think it's a grid luck, right? because you can win the presidency, but you still have the Senate that you need to push things through. So I think it's going to be like great luck where not much happens for four years, if you wins, which arguably it's not that bad, right? If the alternative is like value destruction, zero is like pretty good, right? So just staying on the Argentina topic, I mean, it's just, I feel like it's such an interesting petri dish to learn about these monetary concepts, you know, going back in time, like there was a time when you could hold dollars in the

bank in Argentina, you know, pre-2001, right? But those dollar claims were not stable claims because the banking system itself wasn't solvent, right? And of course, we had the Corralito, you know, there was a time when the bank shot overnight, devalued by, I think, 40%, and everything was forcibly converted into pesos. This is also the case, I think, in Lebanon. on historically in Turkey, like, yes, you can hold a claim in a bank that is dollar denominated, but it's not a claim on an actual dollar if the banking system and the central bank is insolvent on the back end. So there's a huge difference between having a dollar bank account in EM and having an actual true claim on a dollar as you get with the stable coin,

right? Correct. Correct. So when you have money in a bank, essentially you have a money on a on a hedge fund that's regulated by your central bank. And that hedge fund will issue credit cards, like auto loans, mortgages, et cetera. So you have a claim on that portfolio that the bank has assets on. When you have a claim on a USDM,

you have a claim on the USDM reserves, we have a public investment mandate, you can go to our dogs, see what we invest on, we have monthly attestation. So that's what you have a claim on. Essentially, it's all short-term use treasuries. So the quality of the collateral is very different, even though both are in the assets,

the I used looks like $1. In a stress case scenario, the outcome is very, very different. I was a kid in 2001 when the Coralida happened, but it was a total, it was weeks where like no one could take money from the bank, no one could get paid. Like bank failures are a total disaster. And like today, people in Argentina, you can open a US dollar bank accounts,

but most people still prefer to keep their dollars under their mattress in a safe outside the bank because they have opened safe before. So crypto is an amazing alternative to those value storage systems. You go back to the scooter guy, how are you going to count your pesos, right? So crypto solves a lot of the issues that people daily in Argentina face. And it's not just Argentina, right? You said Levin and Turkey, it's a bunch of emerging markets that have the same problem. Yeah, I think people, you know, they see stable going, they're like, oh, well, you know,

You already have dollar banking in these places, you know, to a certain degree. But it's about the quality of the claim, you know. And in the case of a bank, these banks are not reliable. There's just not property rights attached to them. In the case of a stable coin, you're operating out of a jurisdiction with very stable property rights, common law, part of the UK, and it's bankruptcy remote. And the asset portfolio is short-dated, short-maturity, high-liquid treasuries. There's just no comparison between a sketchy bank system and a stable coin like USDM.

Exactly. So I hope at some point we get a rating on USDM. And I hope that rating is very close to the rating that the US treasuries are getting. If you went and rated those banks, that would be the quantifiable. difference. Most of these banks are not rated because they're offshore and like rating agencies won't go there. But that's the difference, right? Are you holding a double A, triple A, or are you holding non-investment grade? Yeah. Triple C are not rated. Yeah. Now talk about so it's interesting. You know, other major stable coin incumbents, they're not necessarily bankruptcy remote or it's very unclear.

But it seems to me like people haven't historically cared about this. Do you think they'll start to care about the underlying structure of these stable coin systems? I think new stablecoin issuers or in general new real word asset issuers, we're going after large holders of assets. So whether that's traders, whether that's large centralized exchanges, large dows, they are more sophisticated than your average crypto user. And they are looking at this bankruptcy remoteness with a finer scope. So I'm getting that question a lot.

and sending the law where it says customer assets, liquidation, and what happens in that case, is helping a lot in those conversations. I still think the Lindy effect that some of the current stablecrown providers have is strong and will continue to be strong. Hopefully we never have to learn the bad way, but I think if that were to happen,

that would be the lesson on bankruptcy remoteness that we need. We learned to turn exchanges right after FDX, but unstable coins, we, we have not seen what happens. So it's not just that the assets are held in a segregated trust. It's also that the law in Bermuda specifically contemplates what a digital asset is and specifically assigns property rights to digital assets, right, which is different from

many other jurisdictions, right? Correct. So the Bermuda law has on, they have accounting standards that include digital assets when you're doing your accounting, so it's recognized there, and you have to put them in your balance sheet whenever you're submitting accounting to the regulators. You have property rights in terms of segregating what are customer assets versus company operational assets, and there's various ways in which you can do the bankruptcy robustness, but they do recognize the fact that customer assets are customer assets and not company estate. And that's the critical test

for the courts in case of a bankruptcy. So they have that. I think what Bermuda did is look at the power of blockchain and what it does at face value and say, what do we need in order to have these as a means of transferring value that people want to build them? And I think we all agree that bankruptcy remodents and recognizing customer assets versus operational assets is important

and that the regulators force you to have those segregated accounts. I think no one's going to say that that's a bad law. And I think other countries should copy it. Proof of reserves, right? So they incorporated that as part of the law. I know you like that. Back in, yeah, I know, you know how to make me smile. In 2019, Bermuda mentioned proof of reserves.

I mean, not a lot of jurisdictions have done that. Exactly. So they know how to do the research. They're advanced. They talk to all the major providers. The other thing that's interesting is Bermuda understands that permissionless blockchains have same or even better compliance properties than K. YC permission blockchain.

So if you can see everything without chain analysis, for example, and track the funds, what we've seen in practice is most of the hackers, most of the attacks in crypto have not been able to exit. Like we've caught the bad guys. Permuda can assist that and they realize that traditional banking system, you see only a small part of the transfers and then you need to hop to another entity. That is very slow. And they recognize, yes, you can do a strong compliance program with permissionless blockchain.

That is amazing. Yeah. I mean, that's the essence of mountain, right? I mean, the ingress and the egress is permissioned, right? You have a relationship with the authorized participants. And then there's the permissionless composable nature. in terms of the P2P transactions on chain, but you still have a really good degree of visibility

into what's happening there. Exactly. It's like cash by tracking each paper bill across everyone who owns it. You don't know the name, but you know the pseudonym, you know where they came from, where what other exchange they took money from. And I think one of the things that we don't talk a lot in crypto is the bad guys know this.

So if you're talking about a terrorist group like Hamas, they stopped taking crypto donations because all of their donors were getting caught by the police. So the bad guys are not operating in crypto anymore, right? Like it's only a couple of hacks here and there, but like the systemic terrorist financing, money laundering is not happening in crypto or it's happening to a lower degree for this reason. And I think it's going to go down as these tools get better, it's going to go down a lot more. Yeah, it's the worst place to be a criminal. Because there's a permanent record of your actions, and so it just takes someone, you know,

you have a very long, permanent window of opportunity to identify that entity. So just changing the subject a bit, you know, we've been talking a lot about neobanks and fintechs specifically in Latium, adopting stables on the back end and providing conventional fintech style, you know, money app, neo-banking style experiences on the front end with the stable coins serving as the back end. The breadth of companies I'm seeing there is astonishing. You know, what are you seeing there

and like how real is this? Like how penetrated our stable coins in the sector? It is. So blockchain in the back, the fintech in the front, that is something that is big and will continue to grow because blockchain has,

open APIs, they are easily compatible, you have one provider tokenizing an asset like us in Bermuda, we can serve all of those countries. So it has a lot of simplicity that makes developers in each of those countries select stable coins or blockchain assets in general over Tralfi every day, right? You have instant settlement. There's a bunch of advantages that we know. In practice, the biggest product market fit today for these assets is US dollars, right? So, What all of these syntax will do is they connect with the local payment network. They'll comply with local compliance regulations and they will integrate stable wins in the back to give you access to dollars and payment in dollars between

parties. And in many cases, people don't realize they have a stable coin. They just see a US dollar balance and it's currently mostly USDC in the back. One interesting launch that happened last week, Lemon, which is a large CIFI exchanging in Argentina, they launched a US dollar account in the US. So you have a sub account in a US bank. You can transfer ACH there. They transfer it with US DC to your account. And now you have it.

And you can do the opposite trade and send money out of the US. So the infrastructure that's developing is awesome. The other one that I think is interesting of real use cases of stable coins in the back is Zulu transfer. What they're doing is instead of going to the SWIFT network, which takes, I don't know, depending, on the route can take it could be very quick but it could take days they use the let's say you want a a Nigerian company wants to pay for jet fuel to the US refiner they will send money from that

Nigeria entity to the centralized exchange in Nigeria they will do a US DC transfer to the US and then use a local exchange in the US to the final leg of payment so the company doesn't even know their stable gains in the back they just see the money getting there an hour later and USC in that case is powering everything. Yeah, and I think people haven't understood how important this is because it just kind of spontaneously emerged. We have, so there's the existing correspondent banking system, which is how these cross-border transactions settle.

There's latency involved there, settlement risk. It's a very hierarchical system. You have to go through a couple big hubs. And the further you are away from the hubs, the more on the periphery you are, the more expensive it is. And the less widely utilized your remittance channel is, the more expensive it is, because it's more hops. Meanwhile, we have this completely independent system, which is crypto exchanges on the ground in virtually every country in the world. So if Fiat liquidity, the last mile, then of course the stable coins are the clearinghouse, the settlement network.

And then you have Fiat liquidity at the other end. So it's a three hop process instead of a 10 hop process. And you've completely disintermediated the corresponding system. It's just fundamentally cheaper. Exactly. And the other thing that you do is you have the Forex component in that three step process. So the local centralized exchange will do both the Fiat on ramp, but also the Forex from your local currency into US dollars.

So and because they're competing in that marketplace, that is a very fair Forex rate versus the bank which might have the monopoly locally in your country. Yeah, I mean, it's remarkable. And I think crypto people kind of thought this would happen a long time ago with, you know, native tokens. Like the ripple people, the ripple people were like 95% correct. They thought, okay, well, you know, we can use these exchanges as the points of ingress and egress to fiat. And then we'll use XRP as the bridge currency. They were so close to be in correct, it's just nobody wanted to use a free floating native token as the intermediate currency. Now stable coins are playing the role. It's much more suitable to use the stable coin. And now it's

just driving down remittance costs goably. I think it's going to have a very material effect on the on the cost of remittances. It's not just a direct cost of the remittance. If you're a large company and you're doing a $10 million payment and that takes five days, you spend $5,000 dollars in float opportunity cost. So Swift is not only expensive on the operational side and on the like direct cost of the bank. It's also the opportunity cost of like not having that be yield bearing for those five days. So yeah, I think we're going to see Swift continue to compress and the stable coins settlement continue to grow. So you've been generous with your time.

But so maybe last question. When you think about what it means globally to externalize treasury yields and give anybody on the planet, you know, caveats obviously applying, anyone on the planet access to effectively high quality tokenized treasury to those high quality yields in their own blockchain wallet, not necessarily through a centralized intermediary, What far-ranging effects does that have? I think, first of all, we're going to see there's $20 trillion, give or take, that's the M2. I think we're going to see a lot of that start switching into yield-bearing tokens like USDM, especially what's held offshore, right, all of the offshore holdings of that. I think we're going to see SMEs start to get dollar yield-bearing banking,

and it's going to be a net new inflow into crypto. because there was a client that we could not serve in the past profit of you. I think you're going to see exchanges launching their own tokens, similar to what finance tried to do with Paxos. We're going to see an explosion of that because now it's permission. You can do it very easily, and USTM will handle the backend. I think you're going to see dollarization get even stronger because it gets easier and easier to use dollars.

Like my mom is 60 years old. I've seen 70-year-olds use dollars for non-speculation purposes, right? They use crypto just to hold dollars, right? And overall, I think at some point, we're going to see that every dollar that's sitting somewhere is earning the risk-free rate. Because now with a permission to stable coin that you can program, you no longer have to do that trade-off between earning the risk-free yield or transferring value. You can have both in one seamless token. So it's going to be quite transformative. So from my talk next week, I think I make the prediction that something like 20, 30% of

stables will become interest-bearing within the next two years. What do you make of that? Are you more bullish, more aggressive? Where do you place it? I think money has a lot of lindy. I think you have to be conservative in how fast people build trust on a new token. And we have the, as Mountain Prove, we have the challenge of showing people, hey, this is a trustworth. the token, it comes from a trustworthy jurisdiction, the protocol is still right. Some people are jumping

in, especially people who trust their own underwriting on how to understand the token. People that delegate underwriting to key opinion leaders and to the mass will be a little bit slower. I think 30% is fine. If I were to say in five years, I think it's going to be more like 80%. It's just a question of time, right? Like when is everything going to get there? because with rates where they are, there's just such a huge opportunity cost. And it's just going to be a market mechanism compressing the non-interest margin for the existing issuers. So I think they'll have to react. I don't know whether they'll just sit on dwindling market share and just try and hope that they can retain those large margins

or if they'll themselves try and move to interest bearing. But I think it's absolutely prime for disruption. Totally. Totally. If traffic is any indication, probably they won't, right? If you see JPMorgan, Bank of America, they pay zero percent interest even today and they're seeing inflows of deposits. If you go to Argentina with 100 percent interest, right, Banco, Alicia, which is the Bank of America locally, also pays zero percent interest, right? So I don't know. We'll have to see. These are a lot more sophisticated players. But I am, I think there's a lot of challenges and economics that go into like doing this type of strategic strategic shift. I think it's going to be more new entrants like

ourselves participating in this market. Well, Martin, congrats on launch. Excited to see where this goes and thanks so much for joining us today. Thank you, Nick.