Unchained - In an AI Agent World, Do Money Markets Win Over Stablecoins? - Bits + Bips

Episode Date: May 19, 2026

USDC became Hyperliquid's stablecoin infrastructure, and the 30-year broke 5% for the first time since 2008. Austin, Ram, Chris, and Gordon Liao of Circle work through who wins. --- Thank you to our sponsor! ⁠Coinbase One⁠: Get 20% off the first year of your Coinbase One annual plan at ⁠coinbase.com/unchained⁠. 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. ---- Coinbase and Circle have moved into Hyperliquid, installing USDC as its aligned quote asset and taking over treasury and technical deployment. For Gordon Liao, Circle's Chief Economist and Head of Research, that is a liquidity supernova. For Chris Perkins, it is the moment every TVL-trapping platform was always going to arrive at.  Meanwhile, the CLARITY Act has cleared the Senate Banking Committee on a bipartisan vote, but the ethics question — whether Democrats will vote for a bill that leaves Trump's family holdings untouched — remains unresolved.  And as Kevin Warsh is confirmed as Fed chair, the 30-year yield breaks 5% for the first time since 2008. Hosts: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Austin Campbell (@austincampbell) — Founder, Zero Knowledge Consulting; Adjunct Professor, NYU Stern ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Ram Ahluwalia⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠, Co-Host, CEO of Lumida ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Chris Perkins⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠, Co-Host, CEO of 250 Digital Asset Management Guest: Gordon Liao | Master of Coin, Circle Learn more about your ad choices. Visit megaphone.fm/adchoices

All right, everybody, hello and welcome to bits and bips, where we explore how crypto and macro collide one basis point at a time. We're going to start today with the latest stories in the worlds of crypto and macro. If you've been loving bits and bibs, don't forget that the show is transitioning to its own feeds on X, YouTube, and your favorite podcast player. If you're not already subscribed 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 macro meets crypto breakdowns. Bits and Bists will only be on the Unchained 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 tips. All right, everybody.

I'm your host, Austin Campbell, now equipped with water, high scholar of zero knowledge group. And I'm here with my co-hosts, Ramolawalia, maister of wealth, leader of Lumida, Chris Perkins, the golden hand of 250 digital asset management. and our guest, Gordon Liao, Master of Coin at Circle, who I'm particularly excited to have on today, given what's going on in both the news and the rates market. So if you're not familiar with Gordon, trust me, you're going to enjoy this way.

Now, let's start actually specifically with Circle today because news came out that Coinbase Circle have essentially eaten USDA. And what I mean by that is that USDA is being sunset. USDC will be enthroned as hyperliquids aligned quote asset. So native markets, which had won the governance bakeoff eight months ago, is being acquired by Coinbase. I will remind everybody that there is a longstanding and existing relationship between Coinbase and USC. So what will happen is USDA holders will redeem for USDA during the mic.

integration. Coinbase is going to become the treasury deployer. Circle is going to become the technical deployer and is staking, I believe, 500K hype to move toward validator status. 90% of the reserve revenue will flow back to Hyperliquid. I believe it will fund hype buybacks through the assistance fund. And what this ultimately means is a significantly greater structural tie between Hyperliquid and the Coinbase and USDA ecosystem. Right now in round numbers, 5 billion USDC and a little under a 4% yield is just under $200 million a year. Some of that will be captured by Coinbase. Most of that will go to Hyperliquid.

Circle will get another outpost in order to deploy USDC on chain and continue expanding volumes as they chase Tether. So I'm going to give the Bull case, I'm going to give the critics, and then, Chris, I want to start with you as someone who's been an investor in this space. But the Bull case. Deeper books, less conversion, easier deposits, faster exits, better market maker support, hype tied to usage fees staking builder activity and stable coin liquidity now per our areas. Bitwise is also launching a spot hype. ETF at the same time, we're seeing hype starting to move more to the mainstream. On the other hand, you have people like Zach XPT arguing that sort of USC concerns around rugability, in his words, are unresolved and some questions around the native markets governance. However, the structure

publicly, I think, is one worth laying out here. So, Chris, let me start with you. As an investor in this space, how do you think about this whole transaction? Look, I think this is, one of many that you're going to see when it comes to capturing what I like to call net interest income. And so if you step back and you look at the traditional model for exchanges, you make ticket fees. So when there's transactions, you make a little fee. You don't usually make money on liquidations. Maybe that's a new innovation in our space as much as you hate innovations, but that's another, you know, business line, I guess. Sometimes you make money on data, but you make a lot of money on net interest income. And the way it works in traditional finance is somebody gives you dollars as collateral.

You take those dollars, you give them to the clearinghouse, they invest them, they keep a bunch of it, they give you a little bit back. That's your net interest income or your NIM as some people call it. That is a fundamental part of any exchange business model. And a lot of them just, you know, ignored it for a long time, not really the centralized guys, but a lot of these apps. And they were letting that beautiful revenue go to waste, but now they're taking charge of it. They're saying, listen, I should be capturing the vast preponderance of that float that's going to contribute to my business model. I'm here to tell you that every single place that traps any kind of TVL, whether it's an exchange, whether it's other sorts of apps, prediction markets, they're all

going to look to monetize that float because why would you give it to a third party, no offense, Gordon-like circle when you can internalize it yourself. That's the bulk case if you're looking at the exchange. The exchange, the lights got on. I think hyperliquid rallied on the news because now the circle is complete. Again, no pun intended, but you've now solved for net interest income, which is very important. And that's going back to the shareholders.

If your circle slash coinbase, you also have a win here because, and again, I think the devil's always in the details on. like, you know, how long is the hookup? You know, what are the, you know, how often can the rates be negotiated? I don't know if Gordon's able to share that or not. But what you get is you get ubiquity with your stable coin. You have more, and generally speaking, USDC is fungible. And so the more you flood the market with it, the more it's going to be accepted by end users as a form of payment. So I do think that USC wins as well. And then maybe in time, there'll be a difference and maybe they changed the balance.

I don't know, again, the economic terms. But hyperliquid, big win, software net interest income. Circle gets more ubiquity, you know, bigger size, more distribution, power law, and obviously, hopefully, incremental utility. I think it's pretty much a win-win. So congratulations. Yeah, Gordon, I actually, so I want to lob this one up being, you know, familiar with Circle myself.

I think there are a lot of different angles. to USDA is it exists in the market right now. Looking at this as a market participant from a market structure standpoint, in the U.S. we're used to thinking of money as being pretty segmented. What you use to buy a coffee is not what you use to settle a derivatives trade. But here we're starting to see increasing fungibility as USDC is used for a lot of things. How are you thinking about this from the circle side, but also like zooming out to your economics background from a market structure side as well. Thanks for setting that up.

Yeah, I think there's a couple of things to recognize. One is we're seeing a broad maturation of platform of infrastructure, you know, hyperliquid being the dominant perplex today. And that have grown quite a bit in size. And along with it, the USC balance on the platform has grown roughly doubled year over year. And while eight months ago and nine months ago, there was a vault and they, the governance at the time shows a different reference asset.

I think as the growth and maturation of a platform become evident that they need to also engage with more traditional institutions, using high-quality institutional-grade quality collateral asset is also a key part of that. So the choice of using USC is a testament of the underlying security, underlying promise, of one-to-one backing of USDC. And as Chris mentioned, I think this is also a point in which it's a win-win because it is a liquidity supernova event. Being the dominant perp on-chain, that means the collateral asset that's being used for

the perp is also being used and radiated out to the rest of the on-chain economy, whether it's other dexes, other type of platforms, as well as I said centralized platforms. So it's a very big liquidity event for encouraging the usage and functionality of USCC and also by association and other infrastructure. But now we deployed UCC on I don't have a liquid last September along with CCTV. So it's been there for a while, but it's a good recognition event. And as you mentioned, you know, there has been this debate about what is a stable coin more broadly. Is it a medium of exchange? Is it a slower value?

And we're seeing that it could be multiple things at the same time. It is certainly using some contacts as a medium exchange for payments, but in other contexts, in this context, for capital mobility, for collateral mobility. And that will increasingly become more and more important as the system scales, as it become more institutional grade. And just similar to that trend, you know, we're seeing a lot of sediment value.

where it was, as we're reporting our earnings recently, we sell $21 trillion of on-chain sediment in USC in the first quarter alone. That speaks to how the infrastructure expanding and how liquidity is improving along with the largest platforms, whether it's centralized or decentralized. All right. So pulling on that thread a little bit, if we zoom out and look at the ecosystem, a lot of USC flows also integrate quite tightly with Coinbase, right? Like reminding all the listeners, some of whom are not Americans. Coinbase has a huge number of products that bootstrap off the

back of USC, debit cards, you can pay credit cards, you can use Coinbase for business payments. Now we're also using it as like a central asset for exchanges like hyperliquid. Ram, let me actually throw this ball to you on the market side of things. Does this make you more or less bullish on Coinbase on Circle in terms of the stocks and on the deployment of stable coins versus banks overall. It's a win for all of them. It's an especially big win for hyperliquid. For Coinbase and Circle, they were able to neutralize an emerging competitor, very strategic move to get USCC involved and with Coinbase as essentially this collateral manager installing themselves at a very key point in this new infrastructure. For hyperliquid,

it's a major win, like 90% of the revenue here. So that's the toll that they exact for having accomplished a tremendous amount for the last several years. We've talked about hyperliquid, I think three or four weeks ago. This is one of the assets that you want to own this cycle. and it was very prophylactic of Coinbase to get ahead of that because Hyperliquid is emerging as a decentralized trading venue. Obviously, Circle generates a material amount of recurring revenue, no net interest income. So it's a win for everybody,

but it's especially a big win for Hyperliquid. I think it goes back to another point we've discussed too, which is that distribution is ultimately going to drive a lot of the gains in this system. like Gordon, you were just saying it. Hyperliquid is like the perps decks emerging in the crypto space now. So I think all of the parties sort of aligning together are recognition of you're following where the distribution and where the users are. I think that's a thread we're going to continue to follow throughout a number of these sort of situations as we look at who are the winners and losers going to be. So speaking of winners and losers and somebody with

quite a bit of users. Today we got news that Elon Musk lost and Sam Altman won, at least in round one. So an Oakland federal jury unanimously rejected all of Elon Musk's claims deliberating for under two hours in the Open AI versus Musk case. The ruling, however, turned on the three-year statute of limitations. Allegedly, or at least in the eyes of the jury, Musk knew of the for-profit shift by 2021. he sued in February of 2024. The judge said she'd accepted as her own verdict. She dismissed the case. Musk had been seeking $134 billion and, quote, ill-gotten gains. And Altman and Brockman removed from leadership based around the 2025 for-profit restructuring.

Now, the merits of this case were never settled. They did not rule on breach of charitable trust. They did not rule on unjust enrichment. none of that was adjudicated. Musk's team has already said they will appeal on this point and wired hilariously, said the closing arguments made everyone looked terrible, that both Musk and Altman were painted as self-serving by the other side. However, the read-through here is that it could be very possible,

at least in the interim, for OpenAI to go to an IPO. So I want to read a few X reactions, and then I'm going to to let all of you guys fight about who the winners are here. Chris will start with you. I know you have a related rooting interest here, but structured skeptic on Twitter legally, this is a major win for Open AI. But politically and institutionally, the bigger question remains untouched. What happens when an organization builds public legitimacy on a nonprofit humanity first mission and then becomes one of the most valuable commercial platforms in the world? The News24.com, a nonprofit machine founded to benefit humanity pivoted hard into a closed Microsoft-backed

profit machine. The trial did fundamentally expose broken promises around openness and safety. So I'm going to start with you, Chris. Did they win on a technicality? Do you expect this to stand up? But also equally so, what does this say in our modern world about what is possible with foundation models? Yeah, it looks like the statute of limitations was exceeded. It was very cut and dry. I don't know how Elon's attorneys plan to appeal, but they're very, very smart, and I'm sure they'll figure out how to do it. I just want to point out that, like, this is the time of the episode where Rob is going to say something bad about OpenAI and he's going to say nothing, Burger. But before we get to him, I think the bigger question now is in crypto land, you have a lot of challenges because due to regulatory scrutiny over the last four years, we have these situations now where many of the foundations were structured as nonprofits. and you also have labs.

And so I think I would love to get some closure here. And hopefully that this doesn't delay, which I think is perhaps more natural structures amongst many of these protocols that have the foundation labs. Everyone's confused. Who does what? What does who? I would like to see that streamlined in the future across the board. And I'm not saying that there's no need or use for foundations.

There absolutely is. And I think that there are a number of nonprofit ideals that they could invent. for their ecosystems, whether it's crops with Ethereum or otherwise. But I think many of these foundations were set up, maybe because they were a way to protect against a very aggressive regulator. So I think this case will have some far-reaching consequences in the crypto space as well. And Sam is increasingly involved in that space. So I don't know, Rob, your turn, buddy.

Well, you read me right down the fairway, Chris. Marcus did not expect anything to come of this. So nothing really happened. It is a nothing burden. So there's one for two. There you go. These are two for two. A lot of heroes and villains coming out of the tech sector.

Okay. I put Elon on the hero side. I put Sam Wama on the villain's side. Doesn't mean that they haven't created a lot of value. But I think a lot of that's playing out here, right? There are, he's got a history. and a reputation now of cutting deals that are illegal under contract law.

He even did that with Microsoft when he cut the deal with Amazon, which led to renegotiate with Microsoft, and Microsoft exacted highly favorable terms as a concession so that OpenA Act could get the funding they need, and of course Microsoft wants that

so they can liquefy their 10x investment in OpenAI by 5.5. funding its capital, right? So Sam is one of these guys who's, I think, it's clearly a villain. He was fired by a board that he appointed. He has accidentally seated his primary competitors. He's got an employee that died under his watch under questionable circumstances. Oh, come on, man. You're getting a little bit. You're going a little extreme. No, no, no. That's a fact. He had someone dying his watch under questional circumstances.

questionable circumstances. Is that it not a, that's an accurate statement. Those circumstances are questionable. Okay. I mean, that's just a fact. But look, yeah, I think they're heroes and villains in this category and I put them in the villain bucket. That's it. Does Gordon have a view? Look, I think, you know, if he uses them more broadly, right, it's, the AI space is super competitive at every single level. At the foundation, my level at the application level and this is playing out in court. But if you think about where the opportunity is for this audience of combination of blockchain and AI, I think building the rails for tomorrow, for agents,

for AI is very important. And frankly, that's a bit of what we have been building at Circle with our agentic stack release, with also ARC, which is what we call the economic OS that we're trying to build for AI agents. I think that will have enduring network effect and value, just like USC have very strong network effect, as we've seen. So, you know, while there's competition at these foundation model level, I think that shouldn't, from a business angle, there's plenty of opportunities elsewhere. I think the competition is excellent, and we need more of it. And I think that's very, very healthy for what we're getting into.

Look, done of these guys are perfect. I'm not perfect. And it's a vicious, vicious race out there. I'm hopeful that they continue to innovate. They continue to drive value. And I hope that the free markets prevail. I'll hop in here to pull on a thread we were just talking about from a previous conversation, which is we're having a huge fight in court right now over open AI because the market, well, let's be specific.

Private markets are saying that Open AI, is extremely valuable as one of the foundation model companies. But let me stress test this. I'll steal a term from ROM here and say, in the long run, will this trial potentially be remembered as a nothing burger? And the reason that I ask that is if the thesis is right, the distribution is where a lot of the market value ultimately accrues, do we think the value is going to eventually reside in a company like Open AI or Anthropic?

Or is the value going to reside in the platforms that bring those models to people and can take a toll from them? So I want to, like, lob that ball up is our what we watching here, a fist fight over something perceived as valuable, but it won't stand the test of time. Rob, you had your hand. I'm definitely all over this. It's pretty the latter. There's very limited value capture at the LLM layer. They're doing public good service for the rest of us by investing tens and tens of of billions of dollars to get more free services, but Microsoft has their IP.

And after they liquidate their stock in six years, they have all of their IP. They can do whatever they want with it. They can even deploy the internet. I'm not saying they would do that. But the value in LM is the model of weights. That is called IP. They will have it in the hands of a direct competitor. We'll not have this unaligned interest.

So I'm rooting for the AI labs to raise more money and invest more. more in the future of humanity. But there's no value capture in those kinds of business model. Now you've got meta. So meta brought in like the 18, for those that have 80s movie references like Airwolf and 18. But they're rolling out new models are quite compelling. They're powerful and they are spending a lot of Nvidia GPUs.

So it's still early days in this race. And collad is in pole position, growing revenue. substantially. I also read today that Dell, Michael Dell, showed that signed up a thousand new enterprise customers. How amazing is that? So we've gone from a world where it was the hyperscaler spending a lot on GPUs and the AI labs to real commercial adoption and are still early days. So pretty exciting, pretty exciting. I think it is whoever owns the end customer delivers the most value, primarily going to be the application layer and these cloud businesses on other AI enablement service providers like the accentures of the world that are going to do really

well. Yeah, I think it's maybe a barbell. I agree with you on distribution, but I think the other end of the barbell is energy. You know, he who has access to unlimited energy and effectively cheap compute, probably get a win. And I think it's pretty fair to say that Elon has an edge there. I know that we're talking about this morning. The physics, the science of getting your energy pretty much for free in space ain't easy.

But if anyone can do it, it's the guy who has the, you know, I don't want to say the M word, but he has a very, very robust capability across the globe in getting things into outer space. So I think that's Elon's unfair advantage, you know, at the very back of the stack. but yeah in the front distribution wins we also rob haven't seen apple really come forth with its plan and how often have we seen apple come coming out of the top ropes really late and dominate and so obviously there's been a bit of a shake up there that's the other one that we need to watch i'll hop in and say you know i think apple is a very interesting story in this space because as most of their competitors in the mag seven have started to earn a huge amount of money on

CapEx and building the models back to our discussion about is the model layer where you capture value. Apple appears to be sitting on, we are a vertically integrated hardware company, right? Like from front to back, we can build everything from an iPhone and a MacBook Neo all the way to like servers, Mac studios. We can distribute. We are going to be the end point for you to distribute your models and we're going to take a toll. You can look at the same thing they've done with the App Store. you can look at the same thing they've done with ecosystem tie-ins. By the way, Chris, to another topic near and dear to your heart about identity, they're one of the few companies that's done at least an adequate job of that in privacy,

right, of the big tech companies. So they might be more trusted about some of these things. I think one of the things I'm watching is an increasing divergence between, am I trying to build AI myself, or am I trying to implement other people's AI and charge a toll for that, which means you're going to be a distributor? And so with that comment, I actually want to throw the ball back to Gordon on that front and ask, you're obviously currently at a company that does a lot of work with a form of money at Circle. And you've been watching not just agentic commerce, but call it finance companies writ large,

tangling with the AI side of things. I want to ask how you think that plays in with the modernization of the U.S. financial system writ large and adoption of these new products because, you know, for those again who are looking only at the United States, I will remind everybody that Asia has had real-time gross payment 24-7 systems since like the late 90s and early 2000s. So we're currently two decades out of date, and I'm curious if you think this will accelerate other parts of the financial economy, not just, you know, essentially the AI sector. Yeah, absolutely. I think, look, the, currently most of the transactions are, you know, human mediated. And there's no surprise by many

predictions that machine-to-machine or machine-initiated payments will dominate. And while today, the large L-M models and companies are quite large and important, as others pointed out, that these models are changing really quickly, and even the open-source models are not so far behind. So more and more will accrue, the value would accrue to, I would believe, both the commodities and hardware, but also the rail on which these agentic commerce happens. So for instance, what type of agent commerce? Nanopayments is something that we have done some work on.

We release our nanopayment protocol. Having an agentic marketplace where agents could scroll through and fund the other agents even without human being around using the best tools, that is also something that's deeply valuable. for just more machine-based commerce. And all of that, I believe, will be built on the Washington Rail. This is what we have done quite a bit recently with ARC, with our eugenic stock. And I think that would be a huge growth area, and that will integrate very closely with finance,

which I know we'll talk a little bit in a little bit about clarity and all those stuff. I think it actually quite closely relates to, you know, activities that are being discussed versus more traditional balance sheet base intermediation. All right. So I want to give a counterpoint there on that one. So I have heard often the agentic payment thing going through blockchain rails. I also think they're just going to use traditional rails. And what I mean by that is it's pretty easy to have the agent have a credit card.

And I think the winner of this space will actually be the one that can flow between systems. So going back to like the Coinbase Circle Partnership at the center of things, or if you look at some of the announcements starting to come out of companies like Fidelity, where they're building money market funds, they already have a brokerage cash management product, they're going to have a stable coin. Agents seem to demonstrate so far less call it loyalty than human consumers, but they seem to be good at optimizing through flows. And not all flows have the same framework.

So sometimes you want a blockchain payment. Sometimes you want to pay with the card. Sometimes you might want to pay with bank details. I'm going to hypothesize that the winners there for agentic commerce are the ones that make it easy to flow between all of those in integrated fashion. So I think things that are trapped either purely on-chain or purely off-chain potentially lose to things that are very good at spanning both of those as a theory. But that also does lead us towards having a discussion about potentially clarity and what the rules for these sorts of things are.

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All right, everybody. Welcome back. We are going to be hopping momentarily into clarity and then interest rates. But before we go, Chris, you wanted the baton next. So go for it. I mean, you're talking, Austin. You're talking about how agents hyper-optimized. And that's one thing that we've learned.

If there's anything that they're awesome at, they almost over-optimized. And I guess my question would be, that world, and I think you alluded to it, do money markets win? And the reason why I'm asking that is because if I'm an agent, I want that, I want that interest to come to me not to go to the stable coin issuer. And do they start, you know, like what prevents that? And then I guess the second question is, what's the freaking difference between a money market fund and a stable coin when you step back for a second and you ignore rappers and other stuff?

And you're saying fundamentally, if it's the same risk and I get interest in one, I don't get the other, why would any agent go into the stable coin space? All right. So I'm going to pile in on that one and say, this is something that clarity is actually quite important for, Chris, because the distinction between payments products and investment products has a lot to do with the legal structure in the United States, right? So like, rewinding the clock for people, you know, and putting on my business school, Professor Hat for a moment here.

we had the 1933 Banking Act, we had the 34 and 40 Act in the security space, we subsequently had the BSA, which is technically handled by banking regulators, not the securities regulators, and we have this proliferation of agencies in the United States. If you're in a place like Japan where they have the FSA and you go over there and explain to them, we have somewhere around 19 regulators who touch all this stuff, they look at you like you've grown a second head, because it sounds kind of crazy. But here in the the United States, we do have like this divide in our regulatory apparatus. You have the SEC and CFTC on the investment side, which helpfully aren't even the same agency and often don't agree with each other. Then you have all the banking regulators who don't agree with each other or the SEC or CFTC and vice versa. So, Chris, I think we've had this market fragmentation because of the structure that Congress has created. And one of the interesting parts about clarity to me, and we'll talk about whether it's going to pass or not, is as we're having the discussion around digital assets, as we're having a compromise around yield, and Gordon, I would love to get your opinion on that in a moment.

One thing that I'm seeing about this whole thing is that inadvertently, we're probably highlighting how weird the U.S. framework is and giving a big advantage to the people who can move between the different aspects. Because here's the honest answer. An agent probably wants a money market fund that pays incrementally if the money is at rest. But the moment it wants to pay somebody, it wants that thing wrapped into a stable coin to make a payment easy just because if nothing else, the paperwork implications of paying for things with securities and who can receive them is awful. So because we have this weird fragmentation, I actually think it's going to be the people

who are transformers, aka people who can move between one state to another. Like now I'm a stable coin, now I'm a money market fund. Now I'm a bank deposit. Wait, I'm a money market fund again. No, I'm a stable coin who will ultimately be the winners here because you can optimize across all of those channels, which is why I'm paying increasing attention to integrated stacks like, say, on one hand, to go crypto native circling Coinbase. And on the other hand, say, what's JP Morgan going to do? So Gordon, let me throw that ball to you. I know you have some. Yeah, I think you're doing the selling for Circle almost. We have the largest regulator stablecoin, but we also have the largest tokenized mine market fund, USYC. And people could go between them. And, you know, as you rightly pointed out, one is a payment instrument. Other one is if you want to get the money market yield and you go through the typical type of requirement.

then you get the USYC yield. And moving in between them, we offer a seamless process. And perhaps aging some days will make that even easier. But you know, there is also some friction at the end of a day. It's why is there $3 trillion of physical cash in the world? Why is there non-interest bearing deposit accounts alongside with savings accounts? There's always some type of delimination. even if it's offered by the same institution.

And I think you're always going to have both, not just one versus the other. Chris, what do you think to throw that ball right back to? No, I think you're right. I think you're going to see an interoperable capability. I do think you'll see there's a lot of, there's a network effect when enough people have accounts with money market funds that you'll see more, I guess ability to to, I don't say pay, but exchange them for value and goods or whatever. But yeah, I think that intersection is going to be very important going forward.

And the agents are going to be very good at it. All right. So let's talk about clarity then, which is part of the key to unlocking this. Senate banking advanced the Digital Asset Market Clarity Act to the floor on a 15 to 9 bipartisan vote. it would need 60 votes on the floor to proceed. Also an open question on if we're going to get more amendments as we land on the floor. There are many core mechanics in here. We've talked about this before.

Decentralization tests, assigning duties to the SEC and CFTC, what tokens or what kinds of entities. I think everybody has agreed that this bill is not perfect, but it is at least decently good. And I want to throw two things out here to discuss for the group. Let's start with the first one. There's still an ongoing fight around stablecoin yields, which I think consumers, retailers in the crypto industry are calling working as intended. The bank lobby is still calling a loophole. But Senators Tillis and also Brooks have cut a compromise where a strictly passive yield is

banned, but activity-based rewards are allowed. the ABA is upset about this, but several others seem relatively happy with it. And the senators have indicated, quote, we're not open for renegotiation. So I want to start with that issue, which is what do we think of where it's landed? Let's assume that what Senator Tillis and also Brooks said is correct, that there will not be renegotiation. How do we feel about where that is if the bill passes with the exact language in it? I can jump in there. I think the to us and also broke compromises.

It's actually, you know, it has an academic nature in it, right? At least from a economist's perspective, there is multiple facets of money, as I mentioned. It's a settlement instrument, but it's also store value. In some ways, it's separating the store of value component from the settlement value and from the union account. And it also speak to a larger, I think, movement about how intermediation happens in finance. Traditionally, we think about intermediation being very balance sheet heavy. That's why we have all the banking rules that is focused on stress testing, the balance sheets of banks. In that world, it is about growing the size of the balance sheet and making it as big as possible

and having the right regulatory structure around it. But if you look at how even just decentralized finance of evolve, on-chain finance that evolve, quite a bit of it is activity-based. It is not necessarily about having a largest balance sheet, but having the set of intermediaries sometimes are mediated by smart contracts, and that's a set of activities. So I think this compromise is actually speaking very well to that divide between the old and the new,

the tri-five view of balance sheet, intermediation to the newer world of smart contract, agentic-mediated intermediation in finance. And I think there's tremendous opportunities for those who want to focus on the activity-based type of rewards, activity-based services, newer form of intermediation that will take over the older form. Let me start by saying Senator Tim Scott, Senator Loomis, Republican side leadership has been amazing. And I also wanted to give a special shout out to Senator Gallego. And also Brooks, of course.

But Senator Gallego is a Marine. And the dude fought in Haditha when I was in Ramadi. The guy has some courage. I just thought it was awesome for him to make it bipartisan coming out of committee. I see that we're now like, you ever climb Everest, Austin and Rahm, Gordon? It's like we're approaching Hillary's step on this bill, right? We're approaching Hillary's step. You still got commissioner issue.

I'm sure you're going to talk about. that Austin. You've got ethics, which is going to be really hard to overcome. And then you've got the interesting where the banks aren't really happy. So what's going to happen? Like the banking lobby was pulling on the national security string today because maybe they're not happy about other aspects. So it gets really weird towards the end. I'm still in the camp that it gets done. I would love to know where you guys are because I think we divert we've been diverging for a while. I think it gets done barely. It gets really weird between now and and when it gets. done. But I still think it gets done because when Epic Fury started and the bullets were flying,

what did Trump do? He tweeted out about the Clarity Act saying he's going to put the chips on the table to get this thing done. I also think as midterms approach, there's not a lot of upside for not making this happen. There's more downside than upside. Right. And I still think it squeezes by. So I guess I would say I remain more skeptical than average. I'll say obviously getting to the floor is a very positive sign. Whatever your previous estimate was a probability, you need to have moved it up based on that happening. To me, Chris, the one that I have not heard somebody give me a truly credible solution to yet is the ethics part. And I think there's two potential ways that that ends up.

One, which is probably a temporary good, but extremely long-term bad, is you would not want clarity passing on a purely partisan vote in the House and the Senate. And that is possible with the current framework if you can get to a vote. But I think if it's Republican only, this probably ages like the Affordable Care Act, where the other side just takes it apart over time. When you jam through something transformative on purely partisan lines, the history in United States legislation is pretty poor. Now, the other hand is, do we just crash on the ethics rocks completely? If it dies, that's where it's dying. I think every single other issue we have,

there's a solution to, and many of the arguments being made, like with the bank lobby around yield, are quite frankly special pleading by industries. It's not in good faith for the average consumer, the American economy, the national security apparatus who is growing more and more, interested in positive on digital assets as they see the capabilities. The ethics part is the one that as I've talked to people on both sides, I still have some doubts about. So I guess that's why I keep pumping the brakes. What are the specific issues on the Essex side that you're reading to? I think basically here's the question. Are the Democrats going to vote for something that doesn't force Trump's family to divest world liberty, the meme, including, et cetera? And would the

Republicans send a bill to the president that forces him to do all of that. That to me is like the break point right in the middle. I don't see a great answer, but also as Chris said, now that it's on the floor, things get weird at the finish line. Like there is a non-zero chance that it does move. It can compromise somewhere like totally away from from crypto. Right. There's chips.

That makes sense. I guess the distinction between paying interest and I can is a very clever distinction. It's a good principle. I like the principle. The question is going to be like how many edge cases come on of activity-based regulation? It looks like a duck. It cracks like a duck.

Well, it starts looking at interest again. So this is the problem. So we're living now, and we're living in a post-chevron deference world. And so in the past, they'd be like, hey, you know, Ty goes to the regulator. Regulator, you figure it out. We're going to give you a little bit more lee. way to kind of fill in the gaps. Now you have legislation as to be much more rigid and prescriptive, which makes the legislation worse, frankly. So it's going to be, and then it just

goes to the court. And like, in a way, we needed the Chevron deference to come away, but there were some of the benefits to it. I'm not saying it's time to bring it back by all means, but it's some of the complexity we're dealing. I'll go back the other way, though, and say the original problem with this is the, call it Gordian, not of financial regulation writ large, because if you want to prevent money market funds from paying yield, you're going to have to rewrite the 40 Act, because I will remind everybody they are legally obligated to pay people yield right now. You can't hold that money inside of the vehicle and just compound. So, as long as we have tokenized securities on one side and stable coins on the other side, reserves that look like

the tokenized securities, there's kind of no way to close this door. It's more a question of form over function. Otherwise, you're rewriting the Banking Act and the 40 Act. And I don't think Congress has the appetite or willingness to do that right now. I mean, they could barely confirm Warsh, right? And that's like getting a guy in a seat to do one specific job. And we think they're going to rewrite the fundamental structure of U.S. securities regulation. No. So this is part of why I thought this fight was quixotic for the banks in the first place, is like, what do you guys get out of this. Like, are you handing essentially a giant wind to asset managers by stabbing each other to death?

You might have done that. Yeah. I think Senator Gillbrand is probably one of the most important people to watch right now. She's pro-crypto. She's very involved in the formation of legislation from the very beginning. She's also been adamant against ethics. So I'm watching her. And I think if there's a way that folks can reach a deal with her, I think it's going to be really impactful.

All right. So I would be remiss not to talk about a segment we've titled Bond Vigilantees Box Warsh, if we have Gordon here. And the reason I say that is Warsh was confirmed. So 54 to 45 vote. The closest Fed chair vote in the modern era. The only Democrat to cross the line was Senator Federmick on this one. So not the people crossing the line around clarity. The first after FMC is in middle of June. But hours after his confirmation, the 25 billion 30-year auction broke 5%. We had 30-year yield hit 5.12 at the high, the first five handle since before the financial crisis of 2008. The 10 year is currently sitting at 4.59. The two years at 4.08. CME Fedwatch has 50% odds of a hike by later in the year, which is a complete inversion of the cut narrative, though I think there is a lot to be said about how to interpret that data that we can get into. It is not purely one linear cut. So let's talk about commentary.

So Ed Yardinney, the man who coined the phrase bond vigilantes, I believe, said they are now setting policy. And the Fed may be forced to raise in July to appease the long end. Vincent Aun of Wisdom Fixed Income said Warsh wanted the, the option to cut on day one. The bond market just took that option off the table. Morgan Stanley is saying rate cuts are off the table until 2027. And Ryan Swift of BCA is saying if Warsh pushes Dovish during this bloodbath, inflation expectations will break out and the Fed loses control of the long end. There are some who view this as a good thing. Phil Blacanto, Reuters breaking views, basically saying vanishing.

cuts by time and that stripping power from an over-interventionist Fed might be a good thing. But this is a very complex space, like interest rates are a very misunderstood thing in traditional markets. And there's a lot of complexity to these dynamics. So I want to lob the ball up Gordon first. Just as an economist, a market observer, somebody who obviously has deep experience with the Fed, what do you make of what the market is saying about U.S. interest rates right now. Sure. I'll give you, you know, answer from my background. I used to work at the front board in D.C. And, you know, one of the first things you look at in those positions is what has driven the interest rate move. Is it the term premium or is it the expected rate change?

If you look at, if you take the iconic ACM model and break it down, most of the 30-year rise in yield is driven by the term premium. is term premium right now is, I think it's like in the 80 bibs or so, which is quite high relative to a couple of years ago as negative. What does it mean? It means that the term premium is basically reflecting supply demand, whereas the expected short rate is market expectation of how much a fat is actually going to hike or not over time. So much of the increase in the yield being reflected in term premium means,

that what we're observing is a market reflection of perhaps a few things with regards to supply and demand. One is, you know, continued fiscal issues, continued expansion in fiscal aspect. And perhaps over a long-term loose of credibility of the ability to control inflation. And also perhaps some lack of foreign demand, as it was, I think if you look at just the balance of payment has changed quite a bit over the last year or so. So that's on the kind of the demand side. And in terms of supply side, this is where it's also quite interesting. Soon-to-B governor wars has also been a proponent of actually shrinking the Fed balance sheet, meaning that kind of reversing QE, which essentially since 2008 has been an expansion in balance sheet, other words,

ebb and flows in overall size. that comes at a time when you're getting this pressure on the long-term yield as well. This narrative that others have put out, I think that even the U.S. treasurer has mentioned in the past of stable coin being the marginal buyer of treasury, I think actually has a bit more meat than, you know, people get credit to. Not only because the stable coin circulation is increasing, but also because of the maturity, aspect. Statistical immaturity is the asset that's held is generally very short, short-term T-bills and reverse repulse, which free up the opportunity, give up the opportunity for the U.S.

Treasury to issue more in the shorter term versus longer term. Now, if you actually do the duration waiting, that actually could mean a significant shift in the dollar duration, kind of reduce the supply of long-data dollar duration in the market, and hence perhaps held moderate the current rate pressure upwards. So in a way, it's all kind of linked together. But I think it's not to think about the rates in itself as a single number, but you should break it down into two, but I also think about the balance sheet aspect, how they're playing with the expected changes in both the Fed balance sheet, but also the private sector demand. I think an important part of that that people often don't think about is exactly what you said,

which is not just who is buying treasuries, but asking the next more granular question of who is buying which type of treasuries specifically? Because exactly, as you just said, stable coins are going to have a preference for T-bills, thanks to the Genius Act and the restrictions there. But also, even if they're not, they're doing reverse repo, which is a form of funding that can take treasuries as collateral, but you have larger haircuts on longer dated versus shorter dated. So there's some preferencing there as well. The same time, that's going on, you know, back from my days on the street, some of the biggest buyers at like the 30-year point are both insurance companies and sovereigns, right? And the preferences of those

are shifting over time. Sovereigns just towards holding less long-dated U.S. debt, you know, a lot of geopolitical concerns potentially moving around in there. But also insurance companies roll with the, call it, demographic profile of the country that they're serving. So as the boomers age out and the next largest group of people is probably millennials and we see sort of like a curve transformation for insurance we can see less demand for the 30 year. So I'm watching term premium. Gordon, it's funny to hear you say, hey, term premium at 80 bips is pretty high compared to recent because conversely it's pretty low compared to at least some truly historical measures where you can see like 1.5 or more. So I think the curve itself changing shape is part of the story here that

people should not miss. So, Rom, I want to ask you that on an investing standpoint, how are you feeling about the long bond right now? Yeah, a few things. So first off, yeah, I agree. It's supply demand driven. Investors are saying, I need more compensation for greater inflation risk. That's it. And they know the Fed isn't biased to cut rates. So they're saying something's got to give. And what's going to give is rates are going to go up. That's what's happening. So you see it, because of oil impacting memory prices, gasoline, a lot of different areas. You're seeing in inflation like a comeback.

I did find it kind of ironic that Warsh was approved in such a lopsided manner. Elizabeth Warren, her litmus test is, will you cut rates? This guy wants to cut rates. He should be a shoe in. So he fit the profile perfectly, which is kind of uncanny.

It's more about sending a political message more than anything else. Overall, though, I would say I expect that the rates are topping out right around here. And if that's the case, then rate sensitive names, which have been hammered. You mentioned insurers, Austin, for example, right? Insurers are a balance sheet business like a bank. So when rates go up, the value their holdings drop. The value of their bonds drop. the value of assets to fund their future liabilities drop, right?

So they've been hard. But what we're starting to see in the most recent, even two or three days, is that long duration high free cash flow assets have rallied. There's been a pullback of over a point in the major indices. The last two days, pick an index, all of them, except these long duration high free cash flow assets have been rally. So the equity market. are saying that they believe the long rates are going to come in, which is kind of funny,

because you usually think of the bond market being smart on the equity market. I think the equity market actually is right here. I think Kevin Warsh, his confirmation was a kind of a capitulatory event. The only thing we haven't seen here is a Ray Dalio video that's gone viral talking about the end times. I'm missing around the bond market. So I'm going to say, we'll know. Yeah, let me chime in. I think long term, there's a number of very deflationary pressures coming to hit the economy,

starting with AI. And then on top of that energy prices, the amount of investment going into cheap energy is profound right now. Elon's going to channel it in space. You're going to get compute coming out of that that you've never seen before. So I feel like in the long term, that's going to be quite deflationary. And Warsh talks about that, particularly around AI. It's the near term that's the problem. You've got sovereigns selling treasuries.

Why? Because in certain cases, they want to decouple. In other cases, they need the money. Oil prices are high and we know why there. Now, the difference with this administration in the post-warish era is, number one, he's re-evaluating how we should be looking at inflation in the first place. We've spoken to the true inflation guys in the past. I think we're going to get much more thoughtful on what inflation is.

Second, you know, the cooperation between treasurer. and the Fed is going to be like you've never seen before with Besson. And I think that coordination should help arrive at better, just holistic policy responses. And that doesn't mean that worse isn't going to be independent. I think coordination, you can be independent and be coordinated at the same time. And I think you should be. So I'm very positive there. So the last thing is like this geopolitical stuff, it can get worse very quickly or it can get better

very quickly. my sense is that it's going to get better because midterms are coming. The American people don't love it. And it's a matter of, it's a tough, tough problem. But I think Trump has axed to de-escalate, not escalate, if you can. All right. All right. Well, we're right up on time.

So I'm going to leave it right there. First, I wanted to say, in particular, Gordon, thank you for joining us today. The timing here was excellent to talk about these particular subjects, so I hope our viewers benefited from your knowledge. Thank you for watching and hope you enjoyed this episode of Bits and Bips. Just remember, nothing we say here is investment advice, and please check UnchainedCrypto.com slash bits and bips for more disclosures.