On The Brink with Castle Island - Wyatt Lonergan and Juan Lopez (Vaneck Ventures) on Stablecoin Adoption and The Institutionalization of Crypto (EP.611)

Episode Date: April 9, 2025

Wyatt Lonergan and Juan Lopez of Vaneck Ventures join the show to talk stablecoins and institutionalization. In this episode, we cover:  The landscape of stablecoin growth and activity A world with many stablecoins vs few stablecoins Winning/losing companies in the new stablecoin era Impact on the longer tail of altcoins

This is Wyatt from Castle Island, and today on the podcast, I was joined by Wyatt Lonergan and Juan Lopez of Vanek Ventures. Vanek Ventures is the crypto-focused venture capital arm of Vanek, a major global asset manager, and Wyatt and Juan bring deep experience in the crypto and stable coin space having spent previous years at Circle Ventures. I hope you enjoy our conversation. Matt Walsh and Nick Carter are partners at Castle Island Ventures. All of these expressed by them or the guests on this podcast are solely their opinions and do not reflect the opinions of Castle Island Ventures.

Guests and hosts may maintain positions in the assets discussed in this podcast. You should not treat any opinion expressed by anyone on this podcast as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of their personal opinion. This podcast is for informational purposes only. Brought down by bad mortgage investments, Lehman, which has 25,000 employees, will be liquidated. The federal government loans American International Group, AIG, $85 billion. This is a different kind of market, and the Fed is asleep. The federal government is stepping it to stabilize Fannie Mae and Freddie Mac.

the two mortgage giants that have been threatened by the housing crisis. The Bank of England has pumped 75 billion pounds more into Britain's ailing economy with a new round of quantitative easing. You print a couple trillion dollars and all of a sudden people start to worry. So out of this worry, we have something called the Bitcoin. Bitcoin. All right, Wyatt and Wan from Vanek Ventures. Thanks for joining.

Excited to chat today. I think the only two Wyat's that I know in the crypto space on the call. I'd be awesome. I'd start with backgrounds. We'd love to hear out what you guys are up to today and then maybe touch on what you've done in the past. industry. I'm bigger cough and I'll pass it over to Wyatt. He could share more about Van Adventures and sort of the origination story. I'm Juan. I've been working together with

Wyatt for the past three years. Start my career in corporate finance. I worked with an IBM on corporate treasury. I've been in crypto since 2017-ish or so, but the bug really didn't hit me until I was there and saw what the opportunity was in replacing the entire back end of a corporate treasure organization with stable coins. So I joined circle in 2021, moved around a little bit. I got to meet Wyatt as he was getting Circle Ventures off the ground. And yeah, the rest was history. So Kimmer-O-Vannock earlier in 2024 and June. And it's been exciting and a while drive.

So I could have Wyatt for a little more about that. Thanks for having us. My career has been a hush-posh of being a founder, being really fortunate in terms of my timing and entrance into the fintech world, which really coincided with a lot of the themes that Juan and I are still really passionate and thinking about today, which is really fintech on crypto rails. I was working at a company called Seed Invest, which was trying to tokenize startup equity, as well as be a primary issuance platform for tokens in 2018.

And I rolled right into Circle, which at the time, we owned Polonex and Exchange, a brokerage app, we had a trade desk, we had a payments app like Venmo on CryptoRail's and got thrown right into just trying to solve all these really complicated problems of how do we move Pintech onto Crypto Rails. But it was probably the worst time in market history to do that, which we got integrated in circle in 2019, nearly got hit with a bear market. the regulators were really aggressive in terms of preventing any type of fintech or securities. And we quietly launched USDC, which within two years became this huge thing.

USDC went from $2 to $33 billion in market cap in one summer, thanks to DFI summer. And we pivoted the entire business around USC. At that point in time, there were talks of maybe starting to invest in the ecosystem. So I spun up Circle Ventures, and Juan, who I did not know at the time, reached out to Jeremy layer with a very similar idea and said, you know, we really should invest in this ecosystem. He said, why don't you give Wyatt a call? He's already working on this. And Juan was the first hire. And as he said, the rest of history, we've been working together really on all things fintech since. And then we met the wonderful team at Bannett and decided to come over and launch

this fund, Bannock Ventures, which is a $40 million early stage fund. There's a little backstory in Bannock. It's an asset management firm. It's been around for about seven years. Family owned, $120 billion under management. In the crypto side of the house, there's really four components to what we do. We have our passive investment business, the ETF mutual fund business. We have a research team run by Matt Siegel. Matt Siegel also has his own fund. We have another liquid hedge fund. Think of it more as liquid growth venture run by Pranav Kanade. And then you have our early stage fund. So we touch every part of the entrepreneurial stack in crypto. And it's been absolutely awesome working with everyone there. Great move from my perspective, at least from the Van Neck guys,

to bring you guys over and create that in-house. Could you speak a little bit more to the the investment approach that you guys had under Circle Ventures and then how that has evolved into what you're doing at Vanek today? The approach was really initially how do we just invest in and further support USDC ecosystem by becoming an early stage fund ourselves? We did a bunch of different things. We did some larger growth rounds. We backed a lot of precede and seed stage startups. We even invested in some venture funds during our time there. So we had a pretty large permit, but I think what Juan and I love the most was that zero to one product investing. And what was cool about that period of time is that a lot of categories, whether it be

tokenization of securities or B2B payments, were not largely hot categories two or three years ago, because they were the toughest categories, because we couldn't envision a world in which U.S. regulators would welcome crypto. And that world did not exist until really six months ago. So that's what really excited us was tackling all these hard problems of how do we create these new over-the-top protocols, How do we create these new fintech rails? And stablecoins are at the heart of that. And USDC in that community has always been really focused on building the next generation of these products.

So it was cool. We got to invest globally. We invested in companies in Africa, in Latin America, Europe, the United States, across all these different blockchain ecosystems as well. So it gave us a really cool 30,000-foot view, but we knew if we wanted to create our own fund, we wanted to do stuff really at the early stage, precedency. And we wanted to follow the money, follow the stable coins. and therefore, you think we could find the next generation of middleware and apps.

Yeah, if I can add a couple of things to that. I'd say our approach was very much strategic in nature. It's funny because while we were there, we had a hypothesis, but it wasn't clear that stable coins would have a structural advantage in many of the categories that we've explored today. And it wasn't until a couple of years in, and as we were getting signals from the rest of the market, people coming to us for deal flow and getting a sense for what companies we were looking at,

we're building on top of USC that we started to notice. Maybe there's something here. So taking that over to our approach at Vanek, we would have observed both the venture funds that we highly respect and that we had invested in alongside many of the companies that had been building over the years and that were part of our portfolio and wanted to make higher conviction discretionary bets on a much higher concentration portfolio that was the best example of our thesis, which is really to see ourselves as a fintech fund, but building on top of stable coins that this perfect storm of what blockchains represent highly today, which they've been, at least in our opinion, are somewhat commoditized, at least the technology layer, but with stable coins really taking off in the way that they have really lend themselves to build all sorts of compelling fintech products, which we can talk about. So that's been super exciting to bring over and some of the investments that we can share more about. Yeah, I'm sure it's been refreshing for you guys, having followed the growth of stable coins, stable coins for payroll for cross-border payments

going back three, four years ago at this point to see that uptake happening now. Obviously stable coins now over $200 billion in supply, growing quickly month over month. Do you think a lot of the infrastructure that will capture value, the companies that will benefit from stable coins growth exist already? And I've been funded over the last four years or for people who are more recently getting excited about stable coins, do you think there are a lot of new companies that will benefit from the types of growth that you're seeing? I think it's still early. You can't say that there's one single category winner. One thing we have to be conscious of when investing is who already has that distribution. So obviously, if you're coming up against a player like Stripe or a

fintech application like Robin Hood, layering on a stable coin to that business is super logical. You get the net interest margin benefits of running a stablecoin and it's your own proprietary network. So distribution is certainly king, but I think this is the top of the first inning. I don't think we've cracked a lot of the major use cases, even though the supply and the transaction volume is trending towards something like $3 trillion on a monthly basis or 30-day lagging metric, I still think we have yet to see anyone crack, for example, B2B payments at scale, which is something close to like a $190 trillion category. So Stripe has less than 1% market share and they're valued at $80 billion.

We're going to see crypto companies that leverage stablecoins that should reach that type of scale. And I think stable coins will increasingly eat away at that market share on the B2B payment side. But again, we still have even gotten regulation. So I think it's early. There's certainly some emerging winners, but I think the best is yet to go. I would agree with that. There's a number of companies that are starting to emerge today, perhaps coming from traditional fintech, that are starting to apply a different lens to the stable coin opportunity, whereas maybe 12 or 18 months ago, many of the companies that were building in

the space were still thinking of themselves as, say, on and off-front providers. I think the ship that we've seen over the past six months is they've started to market that and package that as, hey, we're a cross-border payment solution and we're fast. and more effective, and it just happens to be we use stable coins in the background. And I think it takes a type of leadership and type of entrepreneur that zooms out of crypto and zooms out of the crypto echo chamber to start to product tax that and market that in a different way. And that's why it mentioned, even a monster like Stripe runs less than 1% of the market, the opportunity to serve the small, medium-sized businesses and some of the banks and many financial institutions that are

struggling today to innovate and onboard more payments flow is huge. So I think many of the players that are here today are quite exciting, but I think the best is yet to come. We've also had a lot of companies that have been building for two or three years, building during, I don't want to say it was like a bear market, but one in which there was a ton of regulatory uncertainty. We've actually went back and invested in a few portfolio companies as well as companies that we've been tracking during our time at Circle that struggled to get that mainstream adoption for the past two years because they had to really go outside the U.S. to try to find that customer base. And now it's wide open again.

Stable coins are top of mind for most people in financial services. and that, again, extends itself to payments, to tokenize assets. Those are two of the core buckets that we look at. So it's totally changed. From a tech perspective, I think blockchains have been battle tested and ready. Stapakoint metrics are a great example of that. It's been the regulatory unlock. So we've had a complete 180 in the last six months, and it feels like it's off to the races.

Yeah, could you talk more about how you guys view the regulatory unlocks that we're seeing and what companies or actors benefit? What do you see as being now somewhat low-hanging fruit that was really, not feasible before. Well, on the security side, leveraging the blockchain to be the primary ledger and not the secondary record of ownership is probably the biggest unlock. Because at that point, and Hester Pierce and the SEC have started to suggest this, at that point, you can look at certain licenses that were created in the 70s and 80s, like the transfer agent license. And say, like, what's the point? The blockchain can take over that responsibility and it's just a

better record keeping system. So six months ago, I probably would have said that's a pretty far-reaching expectation for 2025. Now what we're seeing within our portfolio is that they're having engagements with regulars like the SEC who are actually requesting no action letters so that that type of activity can actually occur. That's a huge unlock. That means we don't have to have this digital copy. What's the point? Now it can be the primary record of ownership. That is probably, I think, the biggest unlock on the tokenized asset side that is coming out today. It just signals their willingness to work with startups to not regulate by enforcement, but instead to have an active dialogue and make suggestions that actually help them innovate. It sounds crazy, but it sounds like

it should be table stakes from U.S. regulators, but you just couldn't have those conversations prior to the Trump administration coming in. And on the Stablecoin side, obviously the Genius Act has been probably the largest topic of debate and where most of the spotlight is. I mean, I think the biggest unlock for that could be what is a federally approved non-bank issuer. look like in today's age, it's clear that there will be capital requirements, licensing requirements, and the bar is not going to be low, but it will be defined. And that invites participation from a new type of participant that we have yet to see in crypto today. So I think it's totally up in the air and totally possible for someone like Apple or Amazon to start to participate just because they

can monetize net interest margin off of the GDP that runs within their ecosystem. And that will open up various opportunities, for example, their developers to build products on top, I would imagine. And I think much of what we've seen in DFI around lending products, around extending margin, and tokenizing those deposits to build structured products on stop, I think that's totally up in the air for some of these players to come into the markets, start to take the best of what they've seen on DFI on top of their respective ecosystems. So obviously, they could be some of the major winners here, but be a whole developer ecosystem that could tap into that as well, which is pretty exciting.

And with that in mind, post-stablecoin bill, do you guys think that Apple, Amazon, Ben, Fidelity, all become issuers? Do you think they strike agreements with the circle and there's net interest margin share, or do they take most of the profits there? Or how do you think this plays out? Honestly, I don't know.

It's clear that today some players have network effects at the scale in which the market is in, the $200 billion in the personal and stable coins. But this type of participant just invites, a completely different sense of scale like a dwarf the current ecosystem. So in one hand, the hyper-stable coinization, if you will, of all these players releasing their own stable coins, and in many ways helps USDC, I would think, just because to tap into certain utilities, Defy and Market Maker liquidity or exchange liquidity, you almost have to rely on some of these

players at first and build on top of them in order to reach the existing user base. So that's a world that could totally occur and it could be built on top of the circles of the world where maybe there is a stablecoin service insurance model that's backed by USC, but it's branded as these different stable coins in their respective ecosystems with a net interest margin share like you mentioned. But there's another side to that coin where some of these players just don't see why they would share anything with the circles of the world. And all this infrastructure is open source. They've seen it get built over time.

The whole industry is open kimono ready for some of these participants to come in. and I think we'd be very excited to see them come and participate in any way, shape, or form at least I would. So unclear, at least. It'll be excited to see how that works out, but all then, it's just pretty bullish dollar stablecoins. I also think it's a little comical to me that folks are claiming Ripple or Circle

or pushing for regulatory capture. Do we really think Jamie Diamond sitting around going, oh, man, I hope Circle doesn't get regulatory capture on stable coins? There are players that I could Wharf Circle and tether overnight. So we expect competition to come from the largest tech companies, from banks. How they go and approach that? Let's see. On one hand, you have the global dollar consortium model,

which you have with folks like Axos, Robin Hood, Cracken. And then you have the circle Tethers of the world. Somewhat in between, you have companies like Agora, who are the issuer, but also running a model, which they handle the compliance, they pass back some of the yield. Do you get the benefits of that, but you're running their stable coin under the hood? One thing I think we do expect is that the stable coin themselves,

especially in markets like the U.S. and Europe, they'll probably be abstracted away. I don't think you're going to have companies being, oh, I'd like to pay with this stable coin. It's just going to have U.S. dollars. Behind the scenes, you're going to have businesses construct those deals with really the goal of how can I get the net interest margin myself. Something makes me believe that the compliance side of this, even with regulation, is not going to be something that every tech company wants to manage. So you've seen that even with things like Apple Pay.

Apple doesn't necessarily want to run everything in the payment stack. They want to have that in consumer relationship. I think you could see that with stable coins as well, or maybe they have Apple, USD, but maybe it is issued by somebody else. It's managed by somebody else. And that could be a bank or that could be emerging fintech company like Circle. I love talking about all these potential use cases or where stable coins would fit into these businesses.

When I'm talking to my non-crypto friends, I think my favorite example to use is Starbucks's deposits model where you deposit $25 if you want to order ahead. and Starbucks has over a billion dollars or some of those lines in deposits now that they aren't interest on. How should people think about what the benefit is of businesses to use stable coins over just say a Starbucks deposit model? I think people have different answers to this, but would love to hear your insights. I always explain merchant payments as it's a win, win, lose scenario. So a lot of these payments are running through the banking system just to make it very simple. But for a consumer, I go and I tap my phone, that payment feels instant. The banks win

because they control the flows, but then the merchants at the end lose. So that Starbucks model is a really innovative way to get around that by saying, just give me your money now. I'll manage it and then I'll spend it for you. It's like a quasi-stable coin that isn't a stable coin. In the future, if you paid with stable coins on crypto rails, then the merchant would get the money instantly. And right now, merchants have to pay high fees for a variety of reasons, including fraud, chargebacks, et cetera. I think naturally over time stable coins should start to help solve for some of those problems, specifically, I think, around fraud. But you can imagine that the selling point to a merchant would be you just get your funds immediately. And when you don't have regulators and

specifically bank regulators pushing against crypto companies, you can start to feel the magic of what that crypto experience could be. So as an example, today, I can hold a stable coin at Robin Hood and I can RTP a payment directly to my bank account. That feels magical. I can move. money anywhere around the world, but I can still get it out to my bank account using some of these payments systems. Places like Brazil and other parts of the world, we have amazing payment systems already. So stable coins become that inter-country or inter-business payment rail then allows you to go draw down directly from your bank account. So merchants are going to pay less over time, and they're going to always have instant access to their funds, which is very different than how most of these merchant

payment systems work today, where they might have to wait weeks or pay additional fees to get access to their funds now. So it puts the customer. be right in their hands, and it becomes a win-lose-win where the banks get removed, and stable coin payment providers basically take over that process. I think a slightly more macro angle to that when it comes to explaining the benefits. And that's, since most countries really don't have an incentive to build a cross-border really effective payment system for various reasons. And you have a set of private actors that are building a product in the open that's incentivized to make that system very efficient, you actually end up with a product that collapses the supply chain of moving value.

So you end up with a common denominator, which is in this case a stable coin that collapses the supply chain of what it means to move value from point A to point B, whether that be a payment or whether that be access to a financial service. So stable coins really, at least in my view, transform consumer access to financial products, not just in the U.S., but in many parts around the world. That's where you're really seeing most of the benefit is their access to dollar savings. But on the other side of that, they actually transform how asset originators, in this case, it could be stable coin issuers, but in the future, other tokenized securities, how those asset originators can actually reach consumers at scale globally, internet scale on day one.

So it's interesting because you could explain it from many multiple angles, from a developer standpoint, you could say that it's this one API to reach anyone in the world at scale, but really the most succinct one and the reason that I think many of us get excited is it doesn't seem like the world is incentivized to build a really effective global cross-border payment system, and stable coins seem to have that appeal of ushering a whole open source ecosystem to build on top of it to make that happen. Yeah, the funny way, I think it's easy to forget some of the inefficiencies in our current financial system, that Robin Hood or brokerage example, if I want to move funds today from, say, a Robin Hood account to a broker, that can take a week, perhaps longer.

And then if there's a merchant payment involved, end-to-end, we're talking about, actually a month. People don't see it all the time. I think people see it. They're just not aware that there's something that works that's going to be materially better. Funny story, I was moving my 401k from my prior employer now over to Van Egg. It took months. They actually have to cash out a check to you. Then you have to deposit the check elsewhere. And it takes a while and it might be in times where you actually want to be in the market. So this capital sits there aimlessly. and we often forget the inefficiencies, but that's, I think, increasingly why all of us here are increasingly excited.

I think the inefficiencies are also, and sometimes intentional. They make money by moving your money slowly. So, funny story here, but when we were exercising our circle shares, I had USC available, and so I sent Circle USDC on base. That whole process, because I did it through, I uploaded my dollars to Coinbase, and then sent it to my wallet and sent it to Circle. That whole process was free,

because it's completely subsidized on base. And Juan actually sent a wire and it got lost. And I think if you actually go through that process, which a lot of people haven't. They haven't had the stable coin process yet. But even recently, funding into our fund, I sent a wire. I had to go down to the bank to get approval to get access to my funds, whereas I could have just initiated a transaction in a few seconds.

So once you have that experience moving money with stable coins, I think it becomes really hard to justify going down to the bank to send that wire. And I just think most of the world, they haven't woken up to that factory. Yeah, it makes sense. That lost wire story. So good. Funny that we keep doing that in crypto, too. You still have to send wires in time. So as we see stable coin payments take off and usage generally, you hit on this a little bit. Who are the winners and losers? And I would say, in part, what blockchain or ledger do these systems run on eventually? Do you think it's a decentralized blockchain network? You think we'll hit on a permission blockchain network of some sorts? That's

really just the same institutions governing? Or what do you think we land on? It's an interesting question. I mean, it's clear that some of the losers will be the existing financial institutions, specifically the non-G sets, if you will, that just struggle to offer more competitive products to retain deposits and offer the same set of payment services. It's clear to us that the non-bank participants of the world that we're seeing come out at the dollar apps, Felix Pagos, that are able to move value and offer more compliant products and services at a materially higher scale than incumbents in terms of their growth, it's basically here, and I don't think it's stopping anytime soon. Yet, it's clear to me that when you're

seeing consumer deposits be taken out of traditional institutions or remittances that are not being done by Western Union and are now being done by some of these services, where we're starting to disrupt. So it's an interesting observation that we're seeing, and I think that'll continue to accelerate. In terms of the other question of what ledgers might this occur in. Unclear, I think we've seen waves of what the private or permission blockchain system looks like. We've seen that come in waves initially. So the hyperledgers and quarters of the world, now there seems to be a whole other wave of those that are coming about. And in many ways, there's flavors of that in different roll-up systems that we're seeing. I'm personally a lot more a fan of the public blockchains and how different types of

infrastructure that can add either pre-transaction, like approvals or compute to the transaction such that something's not moving publicly unless it goes through certain prerequisite. Because it's clear we're going to need compliance to be baked into all this. I just see a lot more innovation happening around the utilities and applications that are built on top of public chains. And that's the ecosystem that I think got us to this point. So building on top of private chains or chains that have that type of appeal, I think doesn't necessarily invite the type of developer that has ushered this industry up to this point.

And if we want to continue to build on that momentum, I think I'm personally much more of a fan of the types of companies that are trying to be compostable with public chains, but are trying to cater to the needs of enterprises and consumers to meet that mark. So I probably had some thoughts here as well, but I find that to be pretty interesting. Yeah, I'm very bearish permission chains. We just haven't seen it win. Meanwhile, open source and permissionless continues to thrive. So it's clear that that can generate the greatest network effects for blockchains,

and I think that's what we're excited about. That's what we like to invest on top of. That said, I think you're going to see permission chains. There could be different flavors of this. So, for example, if Stripe is moving money in a more custodial manner, they could run an Omnipus account that sits on top of their own private blockchain, and they could get the efficiencies of doing that. But any time money needs to move away from Stripe, that's going to be really

challenging, and I don't know why you would want to do that. So you could see these maybe on-chain private businesses that have to then go interact with public blockchains. For example, if a customer wants to go pay using USC on Salana, Stripe still has to ingest that. Again, they might run their own internal operations. You've seen flavors of this already with companies like Circle and Coinbase that already do this. I think there's going to be a lot of MNA, which is going to enable these companies. We've started to see it. I think it's going to ramp up quite a bit, because to Juan's point, there are plenty of these B2B payments companies that are exploding, and they've been exploding over the last 12 months. So I think it's eventually going to catch the eye. I think you're going to

see probably larger acquisitions to they stripe and bridge. That could take years, because again, this is such a big market. And we have to also add the context that payments are incredibly broad. So it depends on what type of payments we're talking about here. But for us, the biggest category in the Holy Grail is the B2B payment side. So I think you could see geospecific acquisitions or geospecific winners in the same way that we've seen that immersion financial services with players like New Bank, for example, in Latin America, or Revolut in Europe, or strike in the United States or Robin Hood in the United States. So it's still very early. Yeah, that makes sense. I generally agree. I also see potentially an economic structure or business flowing on both sides of that. But without

a doubt, you'll have both private and public businesses that sit on top that are beneficiaries. I want to touch on the things in the ecosystem besides stablecoins, both talking about the businesses that do business and stable coins that are not directly issuers and other crypto players. As we see the rise in prominence of stable coins, and I would almost put Bitcoin as being somewhat similar to stable coins in the sense that it's more of a proven asset and understandable, tangible asset for non-crypto people, what role do you think? longer tail of altcoins will play over the coming years. And Wyatt, I know you've been vocal on crypto capital markets and capital formation. So I'd also love to hear your insights on what you

see in that side of the market currently. Well, I think there's going to be an explosion of tokenized assets that begin to replace what we typically know of as funds. So we're seeing this, we announced a company yesterday called Manifest that we invested in. They have a really interesting product called USH or US Housing Fund. It's a tokenized basket of thousands of home equity investments that are now represented in a single token. Permissionless, DPI compatible, feels like a stable coin, but it yields 13%. We have another portfolio company Superform that created a tokenized product called SuperUSDC. SuperUSDC, you deposit USDC. They take that and spread it across four lending pools or the deepest liquidity lending pools for USDC. And it auto rebalances for you, so

you always get the best yield. We've seen a lot of people talk about defy and AI. This is the best version of that, in our opinion. And the user just deposits money, and their protocol in a non-custodial manner, always seeks the best yield. Those are products we're super excited about. It plays off a little bit of what Athena created with the cash and carry trade, but primarily non-custodial.

And I'm very interested to see how we regulate that non-custodial defy market. Because I don't think we want to get this wrong. We don't want to have these products be registered funds. Because then you just, again, it's like a terrible process. You have to eat glass basically to month. blog subscription processes and KYC processes versus anyone with a smartphone anywhere around the world can, in a few clicks, get access to best in class yield. That's super exciting to us.

So those are the types of companies we want to back. In terms of the capital formation question, yeah, I think we're in a moment where we're having a little bit of our own ZERP VC capital formation issues in that. So many companies are doing this low-float, high FDB on 24 months old, put a token out before we actually have a product, listed at a multi-billion dollar valuation, and then blame it on the lack of downstream buyers because we don't have enough liquid funds or something like that. That's not the problem. The problem is that nobody wants to buy your shit, basically. No one wants to buy your token that shouldn't be listed at that price. And it's never been easier

to create a unicorn in crypto. You can literally go list your token at any price, hire a bunch of market makers to prop it up. That's not innovation in my mind. And it gets really confusing for retail. And if you look at a lot of like the retail coins that the market is excited about today, it's unfortunate. That's why I think when Trump mentioned the strategic stockpile, the market nuked. Because everyone was like, this is what they're buying? That's sad. So I think we're seeing this healthy reset. Vc dollars are down. And therefore, you're seeing more of a contraction on the private side. I'm sure you're seeing this as an investor as well. The asks for the amount that companies are raising is a healthier number. The valuations are a healthier number.

and thanks to things like hyperliquid and the whole fair launch model, as well as platforms like Echo and Legion, you're starting to see this reversal where now the crowd and the VC can cooperate. And therefore, they're going to list at a better price. You're going to have more marginal buyers in the retail side. You're going to have liquid activity. You still have to deliver a fundamentally great product and have a great business, but it's not this down-only environment that we've basically been witnessing

for the past year or two years for most tokens. So this is a big reset, and I think it's going to continue to, to be a big topic. When we coach our portfolio companies, we're telling them to engage the crowd, to list at fair prices, and then build your business. The token is not the product. And I think that's been too much of the focus for much of the industry. I would echo that, although sometimes the token is the product. And I think that was actually going to be my point in terms of what is the role of all coins or the non-Bitcoin, non-stable tokens. It almost begs the question of what are commodities or what are securities that we couldn't necessarily construct.

in the traditional world because we couldn't necessarily prove that there was demand or enough resources to actually construct those assets. And, you know, there's a lot of answers to that in crypto, at least semblance of an answer, a lot of the deep in space. That likes the question of, hey, if we could, from first principles, think about what asset would be most asymmetrically correlated to either energy consumption or bandwidth or internet consumption? What could those utilities actually look like? And could they be tokenized in a way that different market participants could either go along or hedge their exposure, so on and so forth. So I think we have a new set of commodities that's being traded in bilateral agreements today in AI, whether it's data or storage

or bandwidth or compute, that could actually be tokenized and could be made accessible on chain. So I think we see some flavors of that with many tokens that perhaps represent the purest form of, hey, if I'm long storage, I just go and buy this asset and I don't necessarily have the overhead of a particular tech company past in the public equities market. So there's a lot of that and why I was alluding to using platforms like Accor Legion and potentially more in the future, many companies could see public asset ledgers as ways to raise capital in a much more efficient way. And I think that will invite a new set of industry participants, perhaps in the private equity

world that just had a thesis, wanted a way to express that thesis. And here they just have a much wider inventory of things that they go out and get exposure to in the form of a company that's perhaps pretty. producing real revenues and has a real business, but operates their cap table in a slightly different way and is able to form their cap front fund themselves in a different format as well. We're big fans of asset light platform businesses, and I think that crypto can create scale for very small teams very quickly. That's great. The token piece is more, I think we struggle as an industry to communicate how to value these things on a fundamental basis, and we're still

figuring that out. And that's where you can get companies that are very good at marketing. and focus all their time on selling that token. And it's hard for investors specifically retail, as I'm sure we all get the question of should I buy XRP, it's hard for them to understand what is different between XRP and Bitcoin or Solana. Those are the types of problems, though, I think just get naturally solved over time as new participants come into the market. So these conversations are happening today,

but if we as investors can help solve them at the earliest stage of the company, then I think we're just going to have bigger outcomes. And that market cap is going to go into more productive. assets, more productive tokens, and those are going to be from companies that have fundamentally good businesses. Yeah, I completely agree. I think there's a natural continued efficiency growth. It just takes time. In closing, I wanted to ask you guys, what are you excited about? What are you hopeful for? And then on the contrary, what keeps you up at night? Excited about, I think a lot of what we covered, just this idea that you could have non-traditional,

non-bank financial products and services that reach the masses at scale on day one that can build on top of themselves. It's just very cool. I think over the past few years, we built the foundations of that through money market platforms, stable coins, and exchanges that operate on top of public blockchains. And what you can build on top of that from the perspective of this net new founder that perhaps knows nothing about crypto, but can look at those utilities and say, hey, I can objectively build something better for the world. Using that, it's just very exciting. And I think we're seeing a lot of creativity, both at the application layer as well as the orchestration layer that sits underneath that for people that just say, hey, there's a set of utilities that's missing, whether that be in confidentiality and privacy or in compliance or in just overall orchestration of all the different endpoints that need to be connected for you to actually distribute a financial product globally. Both of those layers are extremely exciting to us. And we're spending a lot of time thinking about what it takes to really get those to market and include this beautiful element of community. ownership. I think that's one of the most important parts here that it seems contributors to a

particular product or service should be entitled to at least some of their success in those angles. The ownership thesis, as well as the non-bank, non-traditional financial service product thesis, those two are coming together very nicely, and I think we're going to see a lot there. In terms of things that I think keep us both up at night and why I'm curious to hear her thoughts, there's definitely concerns that now seems like the pendulum swung very much towards being very pro-crypto and it seems like the administration is very public and very vocal about all these positive things that are happening in crypto. But I guess my deep concern is that we, as an industry when we zoom out, I wouldn't say we

have the best reputation. We probably have a pretty poor reputation on a relative basis to other industries. And I think there's a very fine line that starts to get crossed when we start to be too aggressive. And my biggest fear is that, at least in this cycle, we cross that. And it could really whip back in a negative way in just a few years' time. So that's my concern. But curious to hear other stuff.

I would echo that. I think two main concerns for me. One, as Swan was alluding to, in four years' time, we pay the price for maybe the sins of the next four years. And if you take a super light approach and you welcome the Grifters in, and I think there's pros and cons to being completely permissionless and open source. And I think you could have one of those situations. That would be a bummer. So I think we need to continue to have active conversations with regulators and lift up the best voices to represent this industry. Not really as much of a concern, but I do think when we have regulation, you could see a bigger reset, depending on what comes out in the market structure bill. Maybe we're starting to see that priced in right now, but I've never thought that

regulation means that things are going to rip. I think it means it's going to be challenging because a lot of companies should fall into that quote unquote sandbox and they're not a commodity yet. They're probably still security. And that could be a painful process. So let's see. But yeah, Ultimately, I think we're super excited about the internet capital market thesis that wound outlined of distributing products at internet scale and letting everybody have shared ownership in that. It's just one of the most powerful things. And stable coins are certainly leading to charge, but there are tons of really,

really innovative companies that are building on top of that. So now anyone, anywhere in the world who has a cell phone with internet connection can access this. Just the pie and the distribution and the size of that scale is enormous. And we're really, really excited to invest in it. global finance and digital dollars. Well, awesome, guys. Thank you for coming on.

It's been a pleasure. Really enjoyed it. Thank you for having us. Thank you for having us. Thanks for listening to another episode of On the Brink with Castle Island. To find out more about Castle Island, visit castle island. To listen to all of our podcast episodes, please go to On the Brink-Podcast.com or just click on the tab in our website.

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