Unchained - Bits + Bips: The Interview — The $16 Trillion Repo Market Is TradFi’s Central Nervous System. Its Finally Coming Onchain

Episode Date: May 16, 2026

The repo market is $16 trillion globally and most people have never heard of it — until the plumbing breaks. Craig Burchell of FalconX and Matteo Pandolfi of Pareto explain how it works and why bringing it on-chain is the next big unlock for DeFi. --- Heads up! If you haven’t yet, be sure to subscribe to Bits + Bips, since the show will migrate there in a few weeks. Follow us on ⁠⁠⁠⁠⁠Apple Podcasts⁠⁠⁠⁠⁠, ⁠⁠⁠⁠⁠YouTube⁠⁠⁠⁠⁠, ⁠⁠⁠⁠⁠Spotify⁠⁠⁠⁠⁠, ⁠⁠⁠⁠⁠X⁠⁠⁠⁠⁠, ⁠⁠⁠⁠⁠Unchained⁠⁠⁠⁠⁠ and wherever you get your podcasts. ---- The repo market is $16 trillion globally and it is, as Craig Burchell puts it, the oil that makes everything go. It is also almost entirely absent from on-chain finance — and that gap is creating real problems for RWA liquidity, stablecoin swap desks, and DeFi protocols trying to manage redemption queues. Steve Ehrlich sits down with Craig Burchell, head of lending at FalconX, and Matteo Pandolfi, CEO of on-chain credit infrastructure provider Pareto, to map exactly how repo works, what broke in 2019, why it translates extremely well into onchain finance. Matteo puts a $1 trillion figure on where on-chain repo gets in five years. Craig gives you one reason it gets there and one very honest reason it might not. Host: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Steve Ehrlich, Head of Research at SharpLink and Host of Bits + Bips: The Interview - https://x.com/Steven_Ehrlich Guest: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Craig Burchell — Head of Lending, FalconX; previously Head of Lending at Membrane Finance. @_CraigBirchall ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Matteo Pandolfi — CEO & Co-Founder, Pareto (on-chain credit infrastructure). @pan_teo_ Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi everyone. Welcome to another episode of Bits and Bips, The Interview. My name is Steve Ehrlich. I am the head of research at Sharplink and also your host for today. Really excited to be back with all of you. Sorry I missed last week. I was a little bit under the weather. But we have a terrific show. But as always, before we get into it, let's just take a brief moment to hear from some of the sponsors who make this show possible. If you've been loving bits and bibs, don't forget that the show is transitioning to its own fees on X, YouTube, and your favorite podcast. If you're not already subscribe to Bits and Bips on its own channels, go there now and hit that subscribe button so you can keep up with our twice weekly live streams and Macromy's crypto breakdowns. Bits and Bits and Bits will only be on the Unschymp feed for a few more weeks.

So subscribe today to be ready for launch. You can get all the links at Unchained Crypto.com slash bits and bits. Welcome back. Now as always, before we actually begin, a brief disclaimer, nothing that you hear on the show should be considered financial or investment advice for full disclosures. those yours, please see Unchained Crypto.com backslash bits and bibs. And let's begin. Today, we're going to be talking about the repo market and trying to bring it on chain.

The repo market, as my guest, who I'm about to bring in, will tell you, is widely considered to be the central nervous system of basically the entire financial system. It's one of these giants that many people don't think about until things potentially go wrong, but it's really the oil that makes everything go. So it's only natural to try to bring it on chain. And my guest today have found a clever way to try and do that. So let's bring them in. First, we have Craig Birchall.

He is the head of lending at Falcon X, one of the top prime brokers in the crypto industry. So welcome, Craig. Thank you. Great to be here. And second, we have Mateo Pendalfi, who is the CEO and co-founder of Pareto, an on-chain credit infrastructure provider. So welcome, Mateo. Thank you.

Thank you. Glad to be here as well. Thanks. So I've been really excited to have this show. I know we've been working on it for a couple weeks. For one, it was a great opportunity for me to really kind of dive in to see how repo could work on chain. And it's not quite as simple. There's a lot of overlap, but it's not quite as simple as it may seem.

And we're going to get into all of them. But before we do, just very quickly, Craig, maybe I can start with you. Can you please just explain to people in the audience who may not know what the repo market is and sort of contextualize its significance in the financial industry? Yeah, it's interesting. So repo is, I mean, technically just repos are just repurchase agreements. It's an agreement to essentially say, hi, I'm going to, you know, sell you something today, but I'm going to be buying it back at some at some future point in time. But the interesting thing is, it's secondly a derivative. But it's evolved into a market that spans, really is at the heart of the global financial. system generally. It's one of the core ways that institutions and financial institutions manage their balance sheets. It's also a core way that the government interacts with financial institutions and is essentially a way to give short-term lending in a way that's not a not a traditional loan. And so what you can do in the repo markets, and you can also do long-term repos that you'll go

into. But it's a way to say, hey, I have cash. Maybe I want bonds. Someone else's bonds. Maybe they want cash or some other asset. And we can go and quickly just swap them together knowing that this is only temporary. And you have one side of the repo that essentially serves as the collateral for the other side of the purchase. And this is evolved. You can think of them akin to loans, really, but from more of a short-term liquidity basis, sometimes even a lot of times. A lot of times, intraday repo is common. But it's a way to kind of facilitate and grease the wheels of the global financial system. And, you know, like for instance, at the end of 2024, there was approximately $16 trillion in government bond-backed repo that was outstanding globally.

And that's about 80% of the total repo positions that are out there. So this is a massive, massive market in the traditional financial world. And what we've seen is we haven't quite gotten there yet in the on-chain markets. And these are starting to develop as we'll go into. here. But the long story short is there are effectively forms of short-term loans and they're a way to provide liquidity and optimize balance sheets throughout the financial system. And I mean, from my understanding in Mateo, I want to bring you in on this too. I mean, like you said, Greg, they can be for varying durations. They can be rolled over from day to day and you just pay an extra day's interest if necessary. But they're really a massive way for

everyone from like hedge funds to banks, to money market funds, whoever, to get access. to cash over very short-term durations when the necessary. And they're key congs because if you look to different types of players, I mean, it involves like clearing banks, like B&Y Mellon, investment banks. I mean, this all kind of works together. And if something gets kind of jammed up, it can be calamitous. Matea, maybe you can, because I would think a lot of people who perhaps don't know repo, remember what happened in 2019 when the repo market kind of closed up.

government had to step in with some superpowers. Can you kind of explain what happened there and how the repo market has changed over the last five years? Well, yeah, you know, the September 2019 episode has been, you know, quite a misstractive stress test for the repo market, you know. What happened is that the over-net repo rates in the US spiked from around 2% to over 20% in a single day, pretty much. So, you know, as you mean, mentioned the Fed ad to intervene with emergency cash injection for kind of, if I remember correctly, it was the first time since the financial crisis. And, you know, the subsequent, like, what happened after that is that created this, is what created the standard repo facility as a permanent backstop.

So essentially what happened is that a large corporate tax payment drained reserves from the banking system and at the same moment that a large treasury settlement hit and, you know, reserves were more concentrated at a few large banks that anyone had modeled. So, you know, the banks with XX reserves were reluctant or even unable to just lend them into the repo market fast enough. So partly because of banish constraints and from post-crisis regulation, partly because of settlement timing. So, you know, the key insights here is that the problem was not a lack of cash in the system, but it was an inability to redistribute cash quickly or quickly enough through existing infrastructure. So, you know, the plan being in general couldn't move liquidity where it was needed.

At this speed, the market required them. And this is kind of a parallel launch in credit, which is quite direct because, you know, fragmented infrastructure. structure and even liquidity distribution across protocols, no standing backstop mechanism, limited ways to redistribute capital under stress. Those are the same structural gaps. Repos evolution was designed to address. So the lesson is that the market structure has to be designed to favor and to function when conditions deteriorate, not just when they're favorable.

So, you know, you have to build the plumbing before you need it, not when you need it. Yeah, and we're going to get into that a lot later because I'm not an expert on repo like you guys are. But one thing I do remember from that time period, and please correct me if I'm wrong, is that the Fed basically, there were limits to how much banks and I guess whoever could borrow from the Fed through overnight repo. And the Fed basically from then on just eliminated those limits. So there's kind of like an unlimited amount of money they could borrow. And that would help anyone arbitrage like the peer to peer repo markets back to par. And that's a critical backstop to help make sure that these markets remain fluid during times.

Like you said, Mateo, when there may be enough cash, but there's not enough liquidity. Is that fair? Yeah. That's pretty much fair. I would say. All right. So one other very quick question I had before we get into on-chain credit is how, how repo is being used today, I hear a lot about basis trade and in a lot of ways, like some

hedge funds, other groups, like really levering up using repo to, I guess, exponentially grow the size of returns they can generate from small discrepancies in basis trade. Craig, maybe you're the best one to answer this, but could you just talk a little bit about what's happening there and how that plays with the way repo markets operate today? Yeah, just the repo market generally. I think there's a few different use cases for repo. And honestly, like, if folks think about, like, if you're familiar with like the CFI lending markets in crypto, for instance, like if you hear like about open term loans, for instance, it's like those are essentially very similar to overnight repo.

I think there's a few different situations. One is if you need short term cash for any kind of liquidity, whether you're a, a firm or you're trying to bridge some kind of liquidity temporarily or you're outright trying to generate liquidity for leverage. You know, you may want, okay, short-term cash or cash that you know is going to be constantly kind of re-rated. You can pay it back any time. You know, it's only expected to be, you know, like you hear about overnight repo. Like, it's really just kind of these like ongoing one-day loans. But then you also have, if you're a cash lender, you know, and maybe you're running a ladder Treasury's portfolio or you have some commercial paper.

You know, you can utilize repo as just a generally considered to be a low risk way to kind of deploy capital. It's sort of set it and forget it. And then the other thing is not only does it finance bond inventories for dealers and market participants, but it also is a, what's become extremely popular in, at least in the US is because of regulations that have come as a result of Basel and bank risk-weighted assets treatment. The long story short is sometimes it's actually better for the bank and actually makes the bank money in a sense to have certain assets on their balance sheet, you know, at the

end of the day. And so they may actually be incentivized to swap cash into treasuries or bonds or trade out bonds for cash. And so it's actually created just this balance sheet. I mean, gimmick would be the wrong word, but sort of the dynamics of banks maintaining their overall balance sheet of risk way asset portfolio has been a massive driver of especially like centrally cleared repo in in the in the traditional lending markets. It's so it's all the reasons why someone will want to borrow generally and all the reasons why someone may want to lend on a short term basis. But there's also this massive balance sheet management game that's being played. Gotcha. Yeah. I mean it's maybe it reminds you a lot of like staging a house or something before

you get ready to sell it the stage of the books for the end of the week. You touched on one quick issue and then I promise we'll get to the on chain stuff. But there are. two forms of repo. I guess like centrally cleared or like I guess quote-to-quote like tri-party repo and then there's also the bilateral nature of it. Matea, could you just briefly sort of explain the differences between the two? And as far as I can tell, again, I'm not an expert. The central, the central clear repo appears to be much bigger and that has the added benefit of basically the other parties not having to sort of take counterparty risk to each other. Yeah, well, so yes, we have the first kind of repo that you mentioned,

essentially, their government backed. So the liquidity pool, where you can talk for this kind of like repo loans, is definitely more solid and, you know, provides a better and more confidence to, in general, the players in the repo market.

When we're talking instead about the Craig Party or bilateral kind of infrastructure, you know, that's kind of an answer of the repo, volumes growing over time and also the operational burden of managing only with central clearing becomes unsustainable, you know. So you allow also to have collateral by custodians like BNI or Mellon or even JPMorgan's, you know, stepping in as a tri-party agent, handling collateral selection, substitution, you know, daily valuation, settlement on behalf of both parties.

So you make the entire process more streamlined in this way because it's at capacity in terms of the map. And neither side manages, you know, the operational complexity directly. This layer didn't change the economics of the repo, but it dramatically reduced friction and created the standardization. You know, collateral was managed that, you know, made it easier for new participants to enter the market.

So, yeah, that's similar. kind of similar scenarios with like bilateral, bilateral, which adds an additional layer of efficiency for the participants that are in the repo market in general. Okay. All right. So let's go to. Okay.

Hey, Craig. I was just going to say one thing I'd add for like folks that are familiar with the crypto markets, I think that the analogy that someone could look at is like, let's say you're trading bilaterally through an ISDA with derivatives. And there's, there's benefits. to that in the sense that my firm can customize the exact terminology that may go into something. You can have more bespoke traits. You can choose where the collateral is, whether it's a tri-party or not. You have a lot of flexibility based on your relationship with that counterparty, your

judgment of their credit risk profile, things like that. But the downside to that is you have to go through that process and that papering and that negotiation with every single individual provider. And unless you have the systems and things to keep, you have to keep track of all those little things that you negotiated over time in between. there's benefits to that in some cases. But a lot of times if the, you may, and this happens to derivatives, people may go, hey, let's just trade it on paradigm

and block it to derivative. Well, what's actually going on there is basically everyone, okay, we'll agree on a price, but everything else is standardized. The settlement is standardized, the collateral management is standardized. All of the different, you know, the marking time and the pricing sources

and everything is sort of in this unified piece. So that's, that exists in the repo markets too, centrally cleared in the sense that that all that is set and you're just kind of trading on a price with someone versus bilaterally where you're really kind of customized the configuration. You can understand why people would be excited about the centrally cleared side of it because it makes things just a whole lot easier. Yeah. Gotcha. All right. I think that's kind of a, sorry, that's a kind of a good briefing for everyone, make sure we're on the same page. Let's turn to the on chain markets.

So, Mateo, this is your area of expertise, although I guess that would obviously apply to Craig as well. But can you just kind of like level set for us? What does online, what does on-chain credit look like right now? Yeah, that's a really great question. I think that we can have, you know, a lot of like parallels that we can, we can draw with repo markets in general. The current state of private credit on chain is that we see real progress at the moment, but still, I would say we're still early as a market structure itself.

You know, as of today, we see that. we have more than $5 billion distributed across 2,000, more than 2,000 different, on-chain credit assets. And that's a meaningful group. But it also points to a market where there's still infrastructure building phase and not the scaling phase. You know, what actually, what's actually working at the moment is that the borrower side has mature significantly, significantly. Institutional counterparties like Falcon X are accessing credit on chain with clear terms,

define collateral arrangements and legal structures that hold up to institutional scrutiny. That's a real change from the first generation of function credit, and where the borrowers were often, you know, crypto-native entities with deep in credit history and limited accountability in general. So I would say the current state, regarding the current state of credit, also the underwriting layer, as also professionalized, being professionalized. You know, there's multiple professional writers now that do, from a credit and reporting perspective, do bring traditional credit underwriting incentives or, you know, discipline to on-chain products, which is quite significant for the, for the, for the, system in general. And, you know, apart from this or like the better infrastructure, the better underwriting methodology,

more legal clear certainty for the final borrower and enforceability, even composability is starting to demonstrate real value. And that's exactly the parallel with repo market, because the fact that you can use an unchain credit facility or even an RWA asset in broader terms as a collaboration. in a different over-ilateralized protocol in a defy protocol. Well, you know, that is that something that is beyond sitting in a bullet-term yield. You know, it's meaningful proof of concept for what the next phase for on-shane credit looks like. Yeah.

So there's definitely like improvements from what I see looking at even like two, three years ago on-chain credit. There's still room for improvement, I would say. There are still like aspects that needs to be improved from a market structure perspective, but that would be the current state of, honestly, I would say. I'm looking at RWA.xYZ right now. I mean, like you said, the number is about $5.13 billion. It looks at by far the biggest is Sierra USDC. That's Maple Finances, I'm lending coal for stable coins.

And I mean, Craig, I see Falcon X has one. I'm familiar with Is Acred? Is Acred considered here one of these The Hamilton-Lay securitized one? Does that fall under this category? It should be. So, I mean, how is this stuff being used today?

Because this type of credit, I mean, this is different, obviously, than like taking out margin for like a derivatives type of trade and things like that. How is this being used today? And do you mean from like our perspective as an issuer? Both. I mean, if you could talk about specifically how people are using your credit vault, I'd love it. You don't have to mention names, but just even more generally, like, how is online, how is on-chain, like, private credit being used today? Yeah, it's interesting.

And I think there's a few different buckets of use cases. And so, like, you mentioned CRP USC. And that's why, like, there's kind of these different flavors. And depending on the metric, you know, it's, we have to make sure usually that we're talking kind of apples to apples because there's a lot of flavor now of on-chain private credit. So there's there's somewhere it's essentially, you know, folks that are delegating or investing in some kind of a yield strategy, but with the idea that it's going to be, you know, you're going to have like a receipt token or something that's going to be generating yield or you could stake it and generate yield. So that's like, if you think about like USDAE with Athena or USDAS with Spark or Syrup, USDC, you know, it's essentially someone's going to go run a yield strategy, but there's kind of these like, it's, you know, it's, quasi like peg to a stable coin and sometimes people will consider them stable coins. It's a separate debate. But it's kind of a receipt for your yield generating strategy.

Then then you have more like traditional private credit strategies that have come on chain. You know, there's like JSTRY, a lot of what the securitized and senderfuge folks have done. There's a credit, Apollo's ACRED, you know, even, you know, to some extent, you know, Fasanares on-Chink credit facility, like kind of folks that are running these strategies in. the traditional tradfai world and are actually finding a way to sort of bridge it on chain. As for them, it's a way to access, obviously, additional AUM. And for, you know, the on-chain community, it's a way to actually invest in private credit through some kind of an on-chain vehicle.

Those tend to be, have, you know, stricter permissioning, but not, you know, not always. There's interesting evolutions that are going on in that. But so then there's, so there's kind of folks that, okay, I want to get into a traditional private credit strategy or I want to get into a traditional treasury bond strategy or a triple A CLO or something like that that I would normally do through a brokerage, but instead I'm going to be able to now access that on chain. And that tends to be a different profile. And then, and we, you know, it's interesting.

Like with our facility and some of the others that have come out, it's a bit of a mix in a sense of kind of both concepts, actually, is where I'd look at it. You know, we don't have a daily liquidity concept. We don't necessarily have a stable coin or anything like that that's going to be involved. But what you can do is you can effectively participate in the yield generated through a portion of our loan book that's been that's been tokenized. And so, you know, this, it's an interesting merger because what we like about it is you can have these facilities and we do bilaterally with folks or through kind of the traditional financial rail. Leden had a big ABS just through traditional rails.

But there's actually a lot of capital, a lot of interest and a lot of unique utility that comes in when you can access the on-chain markets too. And we've experienced that, frankly, in some cases, by accident, where we've realized that, hey, folks go, well, maybe I can borrow against this token. Maybe I could do a repo type facility. Maybe someone will lend. That's outside of Falcon X folks that may want to go do that. But it creates benefits for us, too. As you sort of have this secondary market that's evolving, that you didn't have. have as much in traditional finance. You had a secondaries market. You could, but it would be hard

go and like borrow against your private credit. But the own chain markets at some ways are a lot more agile in that sense for lending against these assets, even the traditional ones. So I certainly see a lot of the overlap. I mean, the idea of people being able to put up assets, borrow against it, you can smart contract everything so that there's like sort of like liquidation prices and and ways to roll things over. You can even create like a digital. escrow account, the whole things to release funds when certain conditions are met, a lot of overlap. But I do want to talk about a couple of things that make the repo market in traditional finance very unique. And I'm curious how you think they apply to crypto. I mean, for one,

repos, I mean, they stand for repurchase agreements. They have a very specific sort of like legal so we're looking for. They operate a very unique legal space. I'm not sure why Craig's smiling, but I'm excited to hear. I guess maybe you know where I'm going, where the owner, or I guess the lender can actually has right to those assets and can sell them directly, don't have to go through some sort of laborious bankruptcy process, like in case there's a default, which is unlikely because these are very short-term loans. But smart contracts, we all know they're called smart contracts, but they're not necessarily smart and in the legal sense, they are not contracts. So how does that

apply here? Craig, but you go ahead. Oh, yeah, I, I, I, I was just going to say, I think, so this is one of the, like, what you were alluding to is kind of one of the, so I would get asked questions all the time by people, especially like in my former role at membrane where we would end up talking to a bunch of different lending tests that are getting established. And if you ask anyone, the question of, do I do it in a repo agreement when you're first, like, where you're signing a business or do I do it in a master lending agreement is a big question. The answer is because, like, you're, there's a few different. reasons why you might want to do repo, but like bankruptcy, um, the avoiding a bankruptcy stay is actually like one of the core components of that as well as sort of its classification on your bounty and how it's considered like from a risk perspective. But, um, but because of that, the reason I was smiling is you have to document it in a very specific way as a repurchase

agreement, um, for it, for it to, you know, truly be considered a repo and not just alone. Um, but it's been interesting in my experience, having seen repo agreements, in the crypto space and we can do either. But you find folks, you have to kind of play this translation that goes into it. And to translate a loan into a repo agreement, like we've seen term repos. Now, there's, there's an argument that, you know, you have to really watch how that's papered up to not just be considered a term loan and truly be considered a repurchase agreement. So it's been very interesting to kind of see a lot of that more than I, you know, more than I had in the

past in my career and see how different. financial institutions, especially folks coming in from traditional finance, who tend to like repo a little bit more. They feel that it's safer. We'll come and try to adapt it to the crypto markets. But then there's other reasons, taxes, et cetera, why sometimes someone may want to do something as a loan instead or regulatory status or something like that. To answer your question, though, about the, how do you actually go and effectuate this on chain? I mean, I'm a C-5 person, I'm a high five person in the sense of defy and and CFI in a sense. And so I'm going to steal that term.

I like that. Yeah. Yeah. It's actually my old CEO, Carson Cook, yeah, used to. You coined it for me. But it's a, I think that, you know, I am, I think that it doesn't all necessarily have to be done in a smart contract basis. I think you could probably have a pretty robust repo market that touches the onchance.

ecosystem that doesn't it doesn't have to all be programmatic like I think I think if we like what you need is a product that's going to work and scale and make sense for the people that are going to be deploying liquidity into the ecosystem if that can all be done on chain and people can be comfortable and and then great phenomenal like then people will do it but if you have some component that has to go off chain for some reason or everyone has to sign a piece of paperwork and then it can all be run by smart contracts or something like that like that's fine too and And I think that is going to kind of be a nuance. Like, because there's like to have a lot of the larger pliers, like they may touch on

chain us included, but a lot of times you want some kind of a paperwork piece that's involved to, to some extent and possibly to reap some of the benefits that come with why folks do repo generally. So it was a long winded answer, but I just like, I don't think we have to like have a one size fits all model as this space evolves. Gotcha. Makes sense. And Mateo, just in light of everything that.

how the repo market in tradfai has changed in the last few years. The natural question to ask is whether we need some sort of central bank backstop or some sort of big liquidity pool. Do you see the need for that or is there a way to handle this on chain without a quote-unfoot lender of last resort? Well, that's a really good point because, you know, liquidity is one of the most visible gaps at the moment, I would say. So, you know, tokenization improves transferability, but, you know, it doesn't automatically create

an active market around it. So I actually agree with Craig in the sense that there's a line between DFI and CFi that is kind of fading over time. And we see more and more overlaps, hybrid models between DFI and CFi, which it just makes sense because we don't need to force adoption of smart contract application, but it needs to make sense for the market itself. To answer your question regarding having a central authority that backstops the liquidity, I would say that it becomes less important in a market structure built on chain that allows

participant to provide secondary liquidity and tap from a global pool of liquidity. So in a sense, these expand also the audience that can be participatory, can participate into these kind of markets. So it makes less important the participation of a central authority that provides backstop liquidity, but I would say it doesn't completely eliminate the need of that. So you still need to have, you still, like, it's good to have a central authority that allows to have backstop liquidity. And I think that if we look at from an own-chimp perspective, with more composability and also

global kind of infrastructure that can be available. Each coordination effort from different central authorities to make sure that they can provide all together at the same time a backstop liquidity. So I would say it becomes less significant from an on-cham perspective, but still it doesn't eliminate the need of it. I think in this point it would make sense that just have you, maybe Craig, you could start to success.

explain the setup that you guys are rolling out with your version of sort of like on-chain repo. And I have a few more questions there for that. But yeah, please just sort of paint a picture for the audience. Yeah. And maybe I can and maybe I can set the stage and give it to Mateo to kind of go into the productization. But I think one of the core reasons that this is really interesting, I think, at this time in the crypto ecosystem. Because repo's been around forever.

Like, this has been a, like, there's always been this dynamic that there's repo in TradFi, not necessarily as much in, in deep, in, you know, crypto. But I think what's interesting is now you have, like, stable coin repo is something that I've been hearing a lot about, which is folks want to swap out their PYUSD for USDA or, or I need, I mean, we run into this all the time. You know, my desk doesn't want to go in and burn something. We have something coming along the way, but we have to go settle USDT with this client right now. Wouldn't it be great if we could, you know, access a repo market to just quickly swap our

USDC for USDT and then, you know, we'll handle it afterwards. Like, especially as all these new stable coin products are rolling out, there's a lot of, and no one wants you to go and burn stable coins and you may not want to. And so, though, like, you kind of have an interesting dynamic, actually, where a robust repo market could be actually extremely valuable for those types of things, that type of activity. And it's all a lot of times kind of the short-term stuff as well as the long-term stuff. So with the abundance of these new stable coins, I think it's been, it's been, that's one driving factor.

And then the other driving factor is the illiquidity, like the liquidity profile of a lot of these new RWAs. And this is something that we've gotten especially involved in. And again, you know, Mattel will go into a bit here with what we're rolling out is you this gigantic problem right now where folks want daily liquidity, especially folks that are going in levered looping or as part of just their overall treasury management strategy, they need the peace of mind that this is a temporary deposit. Well, but the problem is that's not really, and ourselves are included in this, as there's huge pain to go and offer a lot of times. And it

might just not work in your fund strategy of how you're deploying. You may have quarterly liquidity and maybe it's gated and, um, and, uh, and, uh, and, uh, um, and, uh, and, uh, and, uh, You just will have a different profile on what you can offer. Well, does that mean that those folks just can't get invested in those products anymore? Maybe not. Maybe you can create different bridge facilities, repo facilities, lending facilities, as ways to create this liquidity or even de-leveraging facilities. There's a separate thing we could go into for things like if the morpho markets are blowing out,

you may temporarily want to de-lever. You could do that in a repo. And so, like, that I think is another big, driving factor for why these markets make sense because a lot of people are trying to solve this illiquidity problem with these new RWAs. And Batao, I'll hand it to you on the product. Yeah, absolutely, absolutely agree on the, like there are definitely a ton of different like projects and teams that are working on the secondary liquidity problem in the sense that it's definitely tangible for an allocator perspective that with the tokenization of

of the credit facilities, you need to have also this kind of like instant available liquidity. I mean, in some forms, decomposability again, of these kind of products helps us in some ways in the sense that I'm seeing like different flavors, different models applied to being able to provide this instant liquidity. You can have like coordination mechanism that allows to coordinate a callback with the borrower itself, which if you look at that traditional credit facility, it would have taken like days and days of structuring legal reviews and everything, but from a non-chain perspective instead is just a contract call,

a non-chain transaction that appears. But that's just one methodology to undo this kind of Eastern liquidity. You can have repo markets on Morpho, for example, where you can post the position that you have, the collateral that you posted on Morph already again. So you are reputicating that collateral into another market, which effectively gives you instant liquidity that can allow the leveraging for other operational purposes.

And in general, like, having been market, this one has a probate and you know, even on a simple use what allows to I'm sorry,

Mateer, we're having a little trouble I'm sorry, Matt, I think we're having a little trouble hearing you.

What, let me try one more time. Can you hear me now? It's a little better. It's a little better now. Yeah. Sure, sure, sure, sure. Okay, okay.

Yeah, I was saying that also having like participants in the market that can provide directly secondary liquidity and, you know, beard the counterparty and duration risk, which, you know, in traditional finance, there's many different firms that do these kind of role in the market. Well, what I'm seeing in the on chain finance in general is that the combination of all these kind of projects and teams working towards this kind of goal of providing instant liquidity for our WAA assets is quite significant. And I think that in the next couple of years, we're going to see quite a lot improvement

that would kind of make, you know, quite a non-brainer for an originator to just use an on-chain structure instead of a traditional structure. Okay. Great. We're almost out of time. I have a couple of quick follow-ups or things to finish up with. Craig, one thing you mentioned, I wanted to ask you. about sort of how repo could help with like de-leverging moments, especially during periods

of market stress. Immediately made me think of Ave and everything that's happening there, are trying to restart those markets. How do you think like a mature on-chain repo market would help in a situation like that? Yeah. No, absolutely. I mean, it's a great example. Like, for instance, because you had this sort of whole secondary market that started going around with with the debt tokens and the swaps, a lot of like what fluid was doing. But that was fundamentally built on trading out of your position. There's a lot of situations where you don't want to trade out of a position. You want to keep the same position.

You just need the liquidity right now. And so that a mature repo market or a mature repo facility would have let you do that. Okay, I've got, I need my eth right now and I'm willing to go and post, you know, whatever it may be. either off my balance sheet or that's even in in aves some other debt token, whatever it may be. I'm willing to go and repo that to get to get the ETH that I need for my for my obligation over here or to post this additional collateral or to pay this loan back so I don't get liquidated or whatever it may be. There were a lot of, you know, a lot of folks on the different sides of that.

Like it's that that's a prime example. Everyone was happy with their positions. Then this Black Swan situation comes about. And folks met like, if. folks had the option, everyone probably would have loved to have kept their positions and maybe paid a little bit of interest for it or something, but just kept things going. But you have a general liquidity dynamic, which then causes all sorts of problems where people are selling, now you have assets that are selling off. Now you have interest rates that are spiking. Now you have people

that are getting liquidated that otherwise would have never been liquidated. Like you have this whole kind of cascade. You have a deep pegging risk that's going on. And now you pressure on all the LSTs and the execute and things like that. Like none of that had to happen. not the repo solves everything, but it would have solved the whole lot in that situation. And you run into the same thing with like these short term liquidity facilities, like with the ETFs. There's a lot of interest with ETFs, with folks that are managing large treasuries of Heath, Solana, stakeable assets that would love to have all of that stake, but they need some kind of repo facility essentially that's going to go and guarantee them that they'll be able

to have the liquid right away, even if something's in an unbonding period. And you can take the same thing in the redemption cues in RWA. It's the same thing. It's something's in a redemption queue somewhere. It's either being unstaked or it's being redeemed or you're waiting for the AVE situation to play out. But you need the liquidity now and you're just going to pay a little bit of interest for it as opposed to selling out of your position on a secondary market. And so I think the last thing I I'd say is this, this, because of how morpho is designed, it's where I've seen this kind of de-leveraging content outside of obviously the AVE situation, probably the most, because you have situations where you may have vault curators that are going and, you know, they have to balance

their liquidity situation. And they have to assign LTVs that like, like liquidity is a massive thing in the back of their minds in addition to the riskiness of these various vaults. And how much they can allocate is all dependent on the liquidity profile of different assets. And so they can give a higher LTV and they can do a higher allocation in the morpho markets when the liquidity profile increases. And so because what will happen is the liquidity situation dries up and the morpho markets are doing the ticking interest rate situation that they do. And now people's trades are blowing up and people are at risk of liquidation. And they need to be able to deal. And they need to be able to de-lever that situation. They need to be able to get their liquidity, they're out or get additional

capital in. And so how would you do that? And so like we currently have like within our products that offer de-leveraging facilities for folks, not just necessarily against our credit token, but also for other other assets because of this dynamic. And what that'll do is it'll actually increase the capital efficiency of the market overall. Because now the Morpomart, because the vault curators feel confident in what they're allocating to in the liquidity profile thanks to repo, they can now actually extend more liquidity into the system. It doesn't have to stay trapped because of the difficult redemption windows and so on and so. Gotcha.

So, I mean, the traditional repo market measured in the trillions. Mateo, how big do you think on-chain repo could get in the next, say, five to ten years? Well, in the next five years, I would say, I'm pretty confident to say Danny Woodrow. reach the 3-ium figure, at least one 3-ium figure. It's something that it just makes sense with the current pipeline of, you know, firms and traditional players that are looking into on this kind of online application. So I wouldn't be surprised to even see it like before the next five years. And that's going to be, as I mentioned before, it's going to be kind of like an hybrid approach.

We're going to see more and more, you know, kind of like less deep. differences in BELFSI and D, but more a united approach to work together on improving this kind of situation. And so, yeah, I would say it's something reachable within the next five years. Okay. And Craig, for you, give me one reason why it will get there and one reason why it will not. I think it will get there because of those dynamics that I mentioned and things that are already happening. You're already seeing a lot of these platforms go and release these types of facilities. You're seeing people like us and other market participants be involved. And so that's the bull cases.

This is necessary and it's already kind of begun to happen. And these facilities are being offered. Why it won't happen, I think, is because is that necessarily actually, I guess, repo in all cases? Or are people going and implementing this? in a variety of sort of different ways. I think one of the benefits of centrally cleared repo for the banks is that it's like something you can do like clockwise and you can automate it to an extent and you can use it as part of your treasury management strategy and capital's flowing.

It's all governed under the same agreement and there's standardized terms. And that's to get our industry on that and I'm not sure like that is a gargantuan challenge. I know that there's so. It's actually my alma. at membrane, they are, I know they worked on this to try to get folks on a standardized Jimra repo form to try to kind of create this. But to create this sort of like standardized market in general right now is a extremely difficult thing to do. On chain's probably one of the best places to start, frankly. But that's standing up and getting an entire ecosystem. You're basically

starting a new exchange or you would have one of the exchanges that would need to do it. That's a massive barrier to entry. Yeah. And well, I guess we'll have to have you guys. back on in five to 10 years and we'll see what we'll see what plays out but thank you both for joining we're going to have to end it here but everyone thank you for watching and listening stay where you are this is it this is it for bits and bits the interview this week but in a moment laura's coming back to do an unchained interview with Alex Wesley of Artemis who's been making the boldest call we've seen it a while for repricing coinbase circle and crack in as AI native finance infrastructure. You'll want to stick around.