Terra vs Jane Street, Circle Earnings & Robinhood’s Venture Fund | Weekly Roundup

Nothing said on Empire is a recommendation to buy or sell any investments or products. This podcast is for informational purposes only, and the views expressed by anyone on the show are solely their opinions, not financial advice, or necessarily the views of Blockworks. Our hosts, guests, and the Blockworks team may hold positions in the companies, funds, or projects discussed. Hello, world. Are we live, Ram?

We're live. Let's rip it.

You look different, man. You get a haircut? Is it because you—

you know, I've been in Miami. I'm getting a little bit of tan, you know. Got— get the haircut. I'm just, um, trying to avoid the blizzard, so living my best life right now.

There you go. What's going on this week?

It's— well, you know, for a second yesterday the market was back, uh, and now it is— now it is dead again. Unfortunately. Otherwise, it's been, you know, kind of an interesting week on the stablecoin side, right? So we've got, you know, Facebook and Meta saying that they're going to get involved in stablecoins again. We have the Luna, Jane Street drama. Then we should talk about that. That's a little bit interesting. Yeah. And then Tether investing in WAP. That's pretty interesting too. So like most weeks, it's stablecoins and And not a lot else, uh, feels like.

Yeah. Promise you folks, we're not having an existential crisis here with, uh, lack of news. Honestly, this is where it's like, gets really interesting to build. No one pays attention to the state of the news. But why don't we run through that? Like, uh, where do we wanna start first? Terra, Jane Street.

Uh, Jane Street stuff is probably the most interesting and that's been all over the timeline, but I don't know if you've, uh, you've been keeping up on it.

Oh well, it reads like horror/thriller, so I figured you'd pick up on that one. So why don't you walk us through that? I, I did read some of that, not entirely new because there had always been, you know, rumors and hearsay about what had happened. But yeah, why don't you start and then I can layer in my thoughts?

Yeah, so for context for the listeners, there's a couple of things that, that are happening here, but it started, to your point, with at least coming back, uh, to the public consciousness around the, um, the bankruptcy administrator for the Terraform Labs bankrupt— uh, their, um, that guy who, uh, who is doing that administration, it basically filed a lawsuit against Jane Street alleging that, you know, they improperly used inside information to front run some trades. and accelerated the collapse of USDT, uh, and that they like illegally profited off of it. And so they're trying to claw back for, you know, all the creditors, you know, some amount of, of, you know, ill-gotten gains essentially, right? And so that was what kind of brought it back to the public consciousness. There's a— I have an opinion about that, but then following that, there's been like all of this stuff on the timeline about how 'Oh, well, there's like a sell wall at, you know, 10 AM every day, and it's definitely Jane Street, and they're artificially, you know, keeping the price of Bitcoin down.' It's, um, which is something else entirely. And I think, as I put it to one person who asked me, kind of completely misunderstands the role of, uh, APs and of, you know, how derivatives work. But, uh, you know, I think people just want somebody to blame for you know, not making more money and Bitcoin not being higher. Um, so I have opinions on both sides of this, but, um, I think that on the, you know, insider information, uh, stuff and being a— and doing insider trading, there's a couple key points that I think are worth pointing out, which is one, that this is not new. This has been part of some of the public record for a while. And if you actually look at the filing, which I tweeted out there's the vast, vast majority of it was redacted, actually. So there's basically, I would bet, maybe only 30 to 40% of it is actually able to be read right now. And if you look at what is able to be read, the main allegation is that, uh, at one point Terraform Labs pulled $150 million of UST out of a Curve pool, and then 10 minutes later Jane Street also pulled a significant amount of UST, I think it was $80 million or so, out of a Curve pool as well, and markets sold it. And that, um, they— and then I think they, they also maybe like shorted it as well. And so maybe they profited from, uh, the short, and then they also, by selling the long, um, you know, contributed to the collapse of, of UST and Terraform. And also, uh, I guess, you You know, they did this before Terra went out and made like a public announcement, but it was 10 minutes after they had, you know, taken the capital out of the Curve pool. And so that brings to question, you know, whether or not the fact that they did this 10 minutes later on a public blockchain when anybody could see it, and they were obviously sophisticated enough to have, you know, been able to have the right notices in place when something like this was happening, whether or not that could be insider trading. I guess it does depend on, you know, what they were told beforehand and were they like ready for this. Uh, but it, you know, based on what we know, uh, that's very clearly is not. The other problem here is whether or not, you know, there's insider trading outside of securities laws, but, um, you know, UST is pretty obviously not a security. I think there was an SEC lawyer in a, through a court, one of the, the judges said that UST with being in Anchor Protocol and guaranteeing you 20% was an investment contract, but, but by itself, uh, it is not. And so, um, there's a lot to, to kind of go through here, but it seems to me like it's a little bit of people looking for a boogeyman at a time when markets aren't doing what they want.

Yeah, I mean, there's a lot of tempac. Like, I think it's not the first time that I think this administrator has gone after some people, because obviously, like, it was a spectacular collapse. I think there was like a— for his— he's, um, there's a $40 billion wreckage. And a lot of that, you could argue, retail got hurt. Um, so someone's going to go and, and go after it. So for context, again, I think you mentioned it, but it's worth highlighting, it's the Terraform Labs bankruptcy administrator, this guy Todd Snyder. He's saying, hey, what can I recover? How can I improve the recovery rate? Um, and of course he brought in this suit against, uh, uh, Jane Street, right? Um, And I think the observation you made, which is, is this insider trading or not? And what constitutes it is, is pretty important. I don't think it, I mean, this is obviously a pretty interesting one because let's just play this out. What would Jane's, was it Jane Street or Jump?

It was Jane Street in this case, but I mean, Jump obviously has also been entangled in this.

But if, if you're Jane Street, what could you say in your defense? You'd say, well, this happened in a public blockchain. We saw that. And then even though we were contacted. Anyone out there could have seen that and done the same thing that we did. And you know, we're sophisticated because we have alerts and we're, you know, quant shops, so we're on top of it and we move fast when we saw that. Um, and, and I think that's like a credible defense, right? I mean, these are all things happening in the public, um, you know, blockchain, anyone to inspect. Where I think it gets a little bit messier is like the communication that Do had directly with them. I don't know what you make of that. I'm actually curious in your perspective, because from your seat, you're in touch with the founders of these protocols and you also have a liquid instrument, a token that you can buy and sell. And how do you guys, I guess, handle that internally? For instance, if you have a huge stake in Athena or Hyperliquid and you then have a conversation with, uh, the team. Uh, I presumably think, do you guys have like some sort of policy around like determining what is MMPI? Do you take the position it's commodities? Like what I've, I've seen like it all when it comes to compliance in investing firms. I'm curious how you guys kind of think about this, like, and how to handle this kind of like sensitive information.

No, I mean, it's worth noting by the way that even in commodities or the CFTC, there is insider trading, right? Right? Um, and you know, the definition is slightly different. It depends a lot around, um, you know, information, um, and how it's been disseminated. And then are there things that are certainly carved out, like, you know, like land deals, of course, like, you know, there's a— there's like a set of things that you have to— you have to tell everybody, but then there's a bunch of things that you can technically insider trade, uh, and land. And so there's— it's a— it's a lot of it is around what the agreement is and what you owe to your, uh, your, your place of employment. Um, and then there's also— so, so that's the legal point. But then there's also— we consider a lot like, okay, well, how do things look, right? Like, what would people think? How would that— what would they say if we were doing it? And so for us, we take a very conservative perspective, which is that, you know, if we know of something that is going to, you know, happen with the protocol, uh, which we, we do of course, right? Because we invest in these companies and these protocols that you know, are going to launch new products, and theoretically the market's going to react well to those products. Um, but once we know those things, we, we put them on, um, you know, basically like a blacklist, uh, and we're not allowed to trade them. So we won't trade them at the fund, uh, and then we also restrict everybody at the firm from being able to trade those things personally. So we're very strict about that. Uh, typically also, if we own really large positions of a single token, we just don't let anybody at the firm own them anyways. So like for ENA, for instance, people at the firm shouldn't be buying and selling ENA. And we, you have to go through an approval process with our compliance team and all that kind of stuff, um, because we don't want there to be any kind of, you know, um, show of impropriety. I think the Jane Street example, to your point, uh, you know, they had this, they had a, uh, chat set up on Telegram with the, you know, the Terraform Labs team, and one of the interns had kind of worked at, uh, it worked at— interned, I think, at Jane Street, and it worked at Terraform. And so it's like very unclear based on the filing what was being said back and forth. Having the chat itself is fine, right? So we have chats with a lot of people. Uh, what, what was said and how were they tipped off and what, what did they know, um, that could theoretically constitute some sort of, you know, having knowledge that they shouldn't have. And then you there is, while not set in law within commodities, there is sometimes a presumption that you should wait until information is fully, um, you know, kind of fully out there and disseminated. In securities specifically, that's more of a— it's kind of more of a settled law. And what we see for companies is they actually, um, there's this like cooling-off period for a couple days post-earnings where you're like not allowed to trade whatsoever. In commodities, there is no, call it, 2-day commonplace kind of agreement with everybody, and it's really up to like common sense whether or not you think that information has been disseminated enough, even if you knew it beforehand, to, um, to not be insider trading. I think Jane's perspective here, even if they did know that there was, you know, they were going to pull this capital out of Curve and that, you know, there was a hole in the balance sheet they might say that, listen, like, this is a public blockchain, everybody— I— we gave them 10 minutes before we did this, everybody knew. Um, and then you would have to make the, the argument whether or not that was, that was true or not, whether or not that was enough time. Um, but it's also clear— not clear whether or not anybody— they knew this going ahead. So if they didn't know, then this is definitely obviously not a problem.

I think there's a couple things like I've— that could come out of this case. One obviously is this insider definition in crypto that, well, could set a precedent. Like, you know, there's people that have strictly said, hey, this is a commodity, it's not a security. So to your point, I mean, I think you and I were both in the room when Commissioner Selig said, like, the CFTC— I think a lot of people would be surprised to hear that the CFTC also has, you know, insider trading and market manipulation rules. And I think it's both insider and market manipulation here in this allegation that I think could set a pretty interesting standard. 'Cause part of the complaint from this administrator was, "Hey, you guys like caused the collapse of this network," which to me is also pretty interesting. I think I thought about that guy who exploited, I think Aave, I forget his name was, pretty sophisticated quant says, "Look, there's a pretty faulty piece of code here or risk parameter that he exploited." I think it was like some sort of flash loan, and I forget what the ruling was on that. I think initially he was like guilty and then he got released, but I think this is pretty interesting because I thought he was just guilty.

I mean, in that case, like, it's different, right? So he, he stole capital from people who— that it didn't belong to them, right? And so he used this like flash loan mechanism to like drain the, the pools, but like the the pools had other people's money in them, right? There was not his money. Right.

And so his definition of stealing was different. I don't know. We'll have to look like as we record this, if that was the case, because I thought he was like, like they reversed the ruling, but we can maybe fact-check that while we're live. Anyways, in this case, like, I think the argument someone could make is like, hey, look, Jane Street accelerated the collapse of Terra. And that caused like $40 billion of like the depeg and the spiraling out of control. It's actually like, to me, that's like really fascinating, which is like Soros as an example. He shorted the British pound.

Yep.

And made a killing on it. I think he made over a billion dollars. It was like a trade of a century. Uh, is that any different? What, what happened here? Like you could argue like, hey, look, the. Monetary, like the, the particular currency is fragile or, you know, they're like holding the peg or whatever, and then you have an arbitrager like Soros come in and make a profit off of that. I mean, even I think there are some markets that have prohibited short sellers cuz they're like, hey, you're profiting on the collapse of a system. You shouldn't be able to do that. The argument in the US is like, no, like you should allow short selling because it just creates more like market efficiency and price discovery. And whatnot. Um, in this case, like, I think everyone— actually, my opinion is like, we've all known that like stablecoins, like synthetic stablecoins, are pretty fragile and can— one of the major risks is this, which is like the depeg and spiraling out of control. Um, the more nuanced thing is like, does retail actually understand that that's a big risk? And I think it's like if you're a platform, like an exchange or a wallet that is advertising like a risk-free, like yield on the stablecoin, well, first of all, I think you shouldn't call it a stablecoin.

Yeah.

So like, like, okay. Like I think relevant to you guys, like Athena, right? Is Athena a stablecoin? I think it's a tokenized, like it's a tokenized fund, right? It's basically like, you know, like you could take the position, like it's not a, it's not USDC. It maintains its stability.

Well, this is why— I mean, so this is why in Genius people are trying to make the point around Genius Act— or sorry, um, and within the Genius Act they're trying to make the point around like payment stablecoins and, you know, OCC-regulated stablecoins or, um, Genius-compliant stablecoins versus others. Uh, the, the, um, in the— and under MICA, the European Union actually talks about, um, 3 different types of stablecoins. One that are the equivalent of what we're calling payment stablecoins. So fully collateralized, you know, money market funds, etc. And then, um, they talk about, uh, two other types, one of which are kind of like extraneously, or, you know, differently collateralized, something by not by money market funds, or, um, etc. And so I do think it is important that, you know, nomenclature matters. Like, we can debate what, you know, the taxonomy should be. Uh, you know, clearly there's a, a lot of concern around things like Terra and others being called stablecoins when they have different types of mechanisms underneath them that are not just fully collateralized. And we do need to make sure that we, um, talk about them differently and that we put, you know, appropriate, uh, you know, kind of disclaimers in place. So I totally agree with you what exactly that terminology is. I think some people try to say yieldcoins or whatever. I'm, I'm open to, um, but But, but I'm with you. I think there's— I would make a couple of points. So first, I, uh, I'm gonna— good on you that I didn't actually know. So Avi Eisenberg was actually— he had some— he was actually convicted, and then he had his conviction for his, um, basically for the exploit actually overturned. Uh, so you were— you, you remember that, right? I actually— I did not remember that, um, because he was convicted originally of like wire fraud and market manipulation. In 2024. Uh, in, uh, '25, like a little over— a little less than a year ago, he was, uh, it was vacated because for two main reasons. One was that the judge said that there was a venue failure. So he was in Puerto Rico, so then SDNY didn't have the ability to actually go and, and try him. And then they also said that they're— they couldn't find, uh, you know, kind of reason to believe that there was actually wire fraud. But he's actually still in jail because, uh, when they went and, um, you know, executed the warrant, they found like child pornography or something. Yeah, they found child pornography. So he's in jail for child pornography.

So like, yeah, this like, so when, when I talk, when I, again, I, I met Do in the early days. There's reasons why I never invested in him because he was just never the kind of person that could furnish information. I would ask really basic questions and mind you, I'd invested in a number of synthetic, like stablecoins, a Basis. and I'd invested in Synthetix, which is Haven. So he basically copied Haven. And like, I talked to Ken, I was like, this guy's like just copying what we're trying to do. And Do is like a masterful person that he would never give you like a good response to a very basic question. Like when Chai, when he was fabricating the Chai numbers, I was going out and talking to like folks in South Korea and saying, hey, like, is this actually real? And I could never find truth to that. I think there's like a couple things here worth pointing out. One is, you know, it pays to do the work, um, around like validating what these networks are, you know, posting. A lot of the transactions that are posted on-chain cannot be fabricated. Uh, in the case of Terra, I was like very— I don't think anyone like was able to really validate that. Most of the funds, and even retail certainly, like they just love the trade. It was paying like a pretty juicy yield. And I always go back to, we don't know where the yield's coming from. Like, you are the yield. And there are, there are likely more sophisticated players in this market like Jane Street or like Jump that just know how to operate and play this game better. And playing the arbitrage game is pretty dangerous, I think. Um, I guess going back to my observation around like Soros, like he shorted the pound because he said, look, it's unsustainable, they can't, they keep defending the peg, that's got to break. I think what the, the administrator here of Terraform would say is like, yeah, but Soros didn't have like a mole inside the government that told him that like they were going to do it. And I think that's a big part of the argument here. It's just like this intern that had communication with the Terraform team and yeah, I think that's something that as an industry you can probably do a better job of information disclosures. Like, okay, like if a team is going to announce something currently, they do it somewhere along like either Twitter or Discord. But it's not like a unified method to communicate with your token holders. And I, I'm part of, I think the token transparency initiative by Blockworks. I mean, I remember calling Yana, talking to him in New York and said, someone's got to do it. Like we got to like self-regulate as an industry to like improve communication. And you know, that I think independently of our regulation shakes out, I think we can all agree that it would be hugely beneficial for the industry if we had like, in a perfect world, Terra would have communicated this to everyone and everyone had like perfect information that they were withdrawing from the Curve pool, like a huge amount or something like that, right?

Yeah, no, I, I'm with you. I think, listen, on the market manipulation point, I mean, this is also tough, right? So we've had a lot of this conversation in, uh, in crypto. I mean, like, in, again, in the Mango Markets thing with Avi Eisenberg, like, you know, he was like, he was putting like spoof transactions in there, right, to artificially inflate the price, right? Um, And, you know, clearly, like, wash trading, spoofing, like, you know, that type of stuff, like, that is market manipulation. If, you know, Jane Street was simply just selling UST that they held, or like shorting UST, right, like, that's clearly not in and of itself market manipulation, right? Even if they're just— because they're just, you know, getting out of a—

it's like if China dumps treasuries tomorrow, well, that's going to have a it's gonna have a humongous impact, right?

I mean, we've seen, you know, the, like, the unwind of the, you know, Japanese carry trade, right? Like, like, that is not market manipulation just because people want to get out of— are like, you know, running for the door.

Even 3, like, uh, 2 or 3 years ago, like, the British pound, like, suffered a pretty big depreciation because, like, there was, like, thin liquidity in the— what is it— the gilt market or whatever.

Yeah, in the gilt market. Yeah, yeah.

But, like, the obi poison is really interesting. There's 2 points here. One, Um, the judge, to your point, said we don't have jurisdiction because it happened in Puerto Rico, uh, over a decentralized protocol. So the SDNY does not have jurisdiction. That's like less interesting. What's really interesting is they basically said there's no fraud here, even though he spoofed and he manipulated the market and used flash loans, um, to enrich himself, uh, but he basically exploited a fault in the protocol And he said Mango Markets had no terms of service, no prohibition against manipulation, no requirement the loans be repaid, basically like no rules governing borrowing. And, and that I find that pretty interesting because you would argue that in traditional markets, like, this is well understood. Like, I guess like you don't need to post like what is common knowledge that you shouldn't be doing these things. But the, the fact that the, the ruling was pretty clear that like it was on Mango Markets to like explicitly have like the terms of service. Um, it's pretty, uh, I guess I, I don't know if other protocols have like adapted to, to this, right? Uh, some protocols have, you make you click through a terms of service. Uh, but I think not all of them.

I mean, most of the ones these days do, especially if they eventually want to serve, uh, you know, call it not just US, but like EU and like more like, you know, regulated markets. Um, but I also think like Listen, the— with, with Anchor and with, uh, and with UST, there was also like Do Kwon was putting out a bunch of false information the entire time, right? And he was lying to the market and they had this like guaranteed, you know, 20% return, which was clearly offering an investment contract. And so it's, to me, it it, it's— there's two different things happening here. One, which, because like Anchor was clearly not a decentralized protocol in the way that it was operated and like the things that they were doing, right? Uh, whereas Mango, you know, I think is, you know, obviously, um, you know, quite—

Mango wasn't as good. I guess the, the reason why Avi got away or just, you know, got overturned is because this is sort of like the code is law. And I think I remember like the lawyer of Avi and even Avi like publicly saying like I basically used the protocol as designed and I didn't break any rules. Like, this is the code and if code is law, then I didn't do anything that was like, like out of the ordinary. It was like, these were the rules and it's codified. Anyone could have done this. And I just, you know, I didn't do anything that, you know, wasn't, you know, I didn't act like I didn't break a term. Like there weren't terms of service, but even if there were, like I use the protocol as designed. So therefore, I should, uh, there's no, there's no wrongdoing here, which, um, is interesting for the code is law kind of camp of people that come into crypto and say like, you know, sort of if it's codified and you're working within the code, then, you know, those are the rules of engagement and call it a day, which I, I candidly don't agree with. I think like there's common knowledge and ways of operating from traditional markets that should apply to crypto. Even though you've—

it definitely can't just be like, oh, code is law. So if, you know, I steal somebody else's money but it was a bug in the code, then like, you know, whatever, that's fine. We very clearly see this in traditional markets where like if you hack somebody, right, the code is not law if you hack a, you know, centralized counterparty, right? Uh, and so I, I don't know, I, I, that's always— I also think this is probably not going to be a big of an issue in the future, or maybe as, you know, as AI continues to proliferate, right? Like, you know, you've seen all of these announcements with OpenAI and you talk to all of the security companies right now, they're all using AI to do these security audits. And I think we're not that far away from security AI-assisted and maybe fully autonomously AI security audits are far better than anything we did in just, you know, call it in the audit world before, before, we had, um, the proliferation of, of these kind of, you know, much more powerful foundational models. And so maybe this is like, you know, kind of a moot point pretty soon, you would hope.

I think, uh, hypothetically, what if you designed the AI to do not white hacking but like just exploit these systems?

Yeah, I mean, you're gonna have both, right? Which is why you need it.

Yeah, well, I mean, I think there was Claude— I think was Anthropic was only cracked down on like, uh, people using their their models for like nefarious activity and they clamp down on it.

I think they all are because they don't— yeah. And so you have to go to one of these, uh, you know, one of these models that are not censored, uh, which are, you know, not the cutting edge, uh, at the moment. But, you know, you can access them and there are people that are actually accessing them. As I understand it, there's a couple of these kind of like decentralized, um, there's also like a decentralized access point like, um I believe, uh, there's, there's one that in crypto that has a token, uh, VVV is the token where you can— I think you can use either, you know, censored or non-censored models. And there's also, you know, privacy. But if you use the non-censored models, like, most people are really just using it for porn right now, I think. Um, because like you can't use OpenAI or Anthropic for porn, uh, at the moment. Um, but like I'm sure they're being used for other I mean, I'm certain they're being used for other nefarious activities as well.

Yeah. All right, enough of this. It's going to be an interesting case. I don't know when it's going to be resolved, but nonetheless, it is one of the more like to-be-resolved issues in crypto. But on like commodities, securities, what's the rules of engagement? I think it will— if I were to guess, it's really just going to come down to the nature of the information that they received. Not so much that they withdrew from the pool. I think the argument around it causing a spiral is baseless, right? They were a big player and anyone could understand that. It was just concentrated. And, you know, I don't think that has merit or grounds, but what does is if you had certain information ahead of others and, you know, whether you were managing, you know, a billion dollars in the protocol or much less than that, you know, I think that the law is— I mean, how it gets interpreted in the court of law is going to be pretty precedent-setting for the rest of the industry.

Yeah, yeah, absolutely.

Coinbase crypto-backed loans powered by Morpho empower users to borrow up to $5 million using Bitcoin or $1 million using ETH as collateral. Loans originate in seconds with no additional credit checks competitive rates, typically between 4 to 8%. Use USDC for down payments, debt refinancing, unexpected bills, and more. Repayment anytime with no fixed deadlines. Over $1 billion in loans have been opened through Coinbase to date. With the Coinbase app, you can manage crypto-backed loans with ease. To learn more, click the link in the show notes. As always, investments in blockchain technology involve risk. Terms and conditions apply. The Blockworks Digital Asset Summit is back in New York, March 24th through 26th. We'll have top speakers from leading asset managers, financial institutions, DeFi protocols, crypto companies, and policymakers all under one roof. Think BlackRock, Coinbase, Robinhood, and more. Follow the link in today's show notes to buy tickets and make sure to use code EMPIRE200 for $200 off at checkout. What's next on the list? I mean, we had, uh, so much stablecoin news.

We've got, we've got Meta, we've got Tether investing into WAP, we have Circle earnings. I think the Circle stock price in the last couple of days is up from $60 to almost $90, uh, on that. So it's up 35%.

What's a skinny— why don't we just go to that? Uh, they posted earnings per share $0.43 in fourth quarter, beating consensus estimate of $0.16. Yeah, shares are up 35%.

It's, it's sort of interesting. I'd have to go back and look at some of the analyst notes. It's— what really surprised people is like, obviously you can look at the amount of USDC outstanding, and that is in real time. Like, you should have a really good understanding of, um, the amount of in circulation. But what people really missed was that they missed that there was a better mix shift First Circle. So a lot more of the USDC was off platform, and so they were getting a higher share of the revenue because obviously when it's on Coinbase, they have to give 50% of all that revenue to, to Coinbase. Um, or sorry, they have to give 100% of that revenue to Coinbase when it's, when it's on Coinbase. So it ends up being, um, often quite a, quite a large amount of their revenue because, um, it's 100% of that and it's 50% of everything, uh, off Coinbase. Uh, so they had this better mix shift they didn't end up having to share as much of the yield as I think people thought with the other platforms, uh, that they're on. Their expenses didn't kind of raise quite as high. And, you know, they told a really awesome story again about the future of stablecoins, which, you know, you know, I fully believe in. I know you fully believe in. And, you know, what they're, uh, I think they also surprised a little bit on the CPN side. They're doing something like, you know, $500 million a month of volume on CPN, which was higher than people had expected. A lot of financial—

for people don't know that, what's CPM? Uh, it's the Circle Payment Network, which is sort of, um, a ton of like a few institutions there.

Yeah, it's some big financial institutions. I think Standard Chartered is on there, um, a number of others. And then a lot of the, you know, the names that you would know that are like the service providers, like the orchestrators, the Conduits and BVNKs and Yellow Cards of the world.

Uh, would you say that the CPN is like one of those things that is widely perhaps underappreciated or not, not fully understood of what it will do to its, to the business model? Because I'm reading here like the company said the CPN expanded with the enrollment of 55 financial institutions and another 74 going through the eligibility process as of February 20th. So presumably like that is a pretty strong signal like, uh, you know, a lot of institutions want to get onboarded and they see as like— because I guess the criticism around Circle's model is that it's a thin moat, uh, financial institutions are going to launch your own stablecoin and, um, you know, that eats into Circle's, you know, business model. Um, but what you're seeing now is sort of the you know, a pretty interesting network effect, if you will, where you have these financial institutions just say, hey, we're going to want to use USDC and we're going to be part of their payment network.

Okay. Yeah, I, um, listen, I think my perspective here has been that there's— so there's basically two sides of the network, right? There's a quoter, uh, somebody who like is in a receiving flow coming in and they're saying, okay, I'll, I'll pay, you know, X amount, um, or you have to pay X amount for that flow. And then there's the person like sending the flow, right? And, you know, my general perspective this whole time has been that, uh, it makes a lot of sense for everyone who wants to quote, right? I think they have these terms like an OFI and a BFI, but if you, if you want to quote, uh, of course you'd want to be there, right? It's a new potential, you know, flow source, right? It's like new business for you. right? But if you're sending the flow, uh, you know, potentially you want to be on platform because you don't have the right connectivity to, you know, these different corridors or these different regions. But as you grow, as you get a lot bigger, you might want to just have direct connectivity in those regions because you're— if you're doing a lot of volume, you will probably get better pricing, right? Well, the, you know, the counterargument to that is like, well, if it maybe they were going to give you, you know, better quotes through CPN because of, you know, call it some value-added services that they put on top, whether it's identity or, um, uh, you know, account reconciliation, things like that, things that are so really hard. Or, uh, just like, we have so much flow coming through CPN, we'll give you, um, it will give everybody in the CPN network better, uh, better pricing. Today, as I understand it, and this isn't public, but as I talk to people, the pricing is not better. Right? And so I think for some of these people it's trust, right? Because they trust Circle as a counterparty and they know they can sue them if something happens, relative to some of these, you know, call it smaller companies, that they don't, uh, want to take the counterparty risk as much, or they don't know if they can trust them. Um, so the fact that they've been able to, you know, with that be able to get as much volume as they have, I think is, is pretty, um, a little bit surprising to me. But, you know, is a really good tailwind behind that business. The question for me will be, you know, how do they compete as it gets a lot bigger? Maybe there's network effects, but also maybe people want to come outside of that, outside of that. But I think it was— people were pleasantly surprised by, um, you know, kind of the, the current traction so far. They're not monetizing it today, so it doesn't really matter for, you know, at least in terms of like being a payment company. Now maybe it means that there's more Circle USDC outstanding, and so they monetize it indirectly through that. But we'll have to see how it, how it evolves. But overall, like, listen, it was, um, it was a really good quarter for them, uh, and, you know, where, where, you know, I think the market looks at this and is, you know, excited about the future of stablecoins and Circle being kind of the only pure-play way to, to play that in the public markets.

They have 55 financial institutions, up from 29 the prior quarter. These include like Santander, Deutsche Bank, Société Générale, like a lot like Standard Chartered, uh, some other like crypto companies, like including yours truly, Conduit. And they're mostly focusing on high-value, underserved global trade corridors where access to dollars is expensive and slow. So not like the US-Euro corridor or Euro or US-Yen. It's like exotics probably. And to your point, they're only facilitating the messaging. Um, But hypothetically, like I'm walking through like a practical example here. So like if a fintech in the US needs to send like $1,000 to a bank in the Philippines through one API call, like the, this CPN pings multiple BFIs in the Philippines for FX quotes, locks in the rate, the OFI, the originator selects the best quote. And it's more of like a compliance thing. I think they do a lot of the compliance data is exchanged encrypted. You're compliant with like travel rule information. And once that's approved, like the USDC is transferred and settled in minutes. So I guess this, this is not so much like it is a payment network, but it's also more the compliance piece around it and the convenience factor of doing it.

Yeah. I mean, there, there's a, so there's this thing that's happened in, uh, and this has really changed a lot over the last year, or, but you know, when they announced this, but a lot of the fintechs more broadly, this is not a crypto-specific thing, but there's this thing called nested flows versus non-nested flows, right? And so when you do, you have to have some sort of receiving bank on the end if you're going to do anything touching fiat. And if you, as part of that, you have to do KYB, that's really, at least up to some bank standards. And a lot of stablecoin companies, but a lot of also like just traditional fintech payment companies would do what they call nested flows, which is that they wouldn't necessarily know who the end customer is. There would be actually like, you know, some sort of local customer that was facing off against another fintech, who was then facing off against another fintech, who was then facing off against the bank, and the bank wouldn't be able to tell who the end customer was. And the— that type of like nested flow, I think, has gotten a lot of the banks a little bit concerned about who they're ultimately doing business with. And, uh, there's been this thing called the reliance model where, you know, essentially you're saying, well, I'm the bank, I rely on this fintech to having done the work. Well, that bank, that fintech is relying on the other fintech to having done the KYB work and anti-sanctions work. And then that fintech, you know, is the one ultimately facing. So there's a— people have different standards, and also, you know, sometimes there's bad actors, right? And so a lot of the banks in the US and a lot of the, you know, fintechs in the US over the last year, and a lot of stablecoin companies over the last year I've tried to do this quote unquote de-nesting, which is, uh, basically just make people have to onboard directly so that they can pass this information about KYB around compliance, et cetera. And so we've seen a lot of that happen in stablecoins. And obviously, um, you know, CPN requires you to do that, uh, today. And so, you know, that's, I think, helpful. But again, like, you know, as Bridge or BVNK or Condo, these guys de-nest as well. They're going to have to be able to do the same work. So there is a bit of a, still a, I think, a sort of a difference of incentives or incentive misalignment over time. But listen, you know, kudos to Circle. Like they've, they've done a great job so far.

You know, I'm going to ask the question, but like, would you rather own Circle or Stripe equity?

That's a good one. Stripe at $147 billion or $157 billion, whatever it is, uh, is kind of insane. I mean, they're growing like tremendously, but is it worth 5 times that as much as Adyen? Uh, I don't know. Yeah, it's a, you know, different business. Listen, the Carlson brothers, like, I would never bet against them. Um, you know, if there's going to be a trillion-dollar payment company, you sort of think that they're going to be the one. Clearly. Um, I do find that they are really good storytellers, uh, and, and sometimes better storytellers than they are, um, you know, they're early to things, but, but then they are, you know, enacting some of, of these things. But listen, I— it's hard to bet against them. And so I would probably rather own Stripe still because I think the, you know, stablecoin issuer market is going to get a lot more competitive, whereas— and I think Stripe is already in a very competitive market and they're just, you know, mogging people right now. Uh, so probably. But listen, they're both doing a great job.

Circle market cap $20 billion, stock is down from its all-time high of $276. I think when it hit $250, I said I'm gonna use all my newly raised funds and short the stock, and to which point I think you We're seriously reconsidering why you'd funded us, but would've been a great trade nonetheless. Yeah, I'm curious.

Absolute returns are not what matters, Santi. That's why they call it hedge funds.

Yeah, I guess sometimes I listened, by the way, content of the week with the D1 interview from Invest Like the Best talked about this exactly, which is sometimes your investors will punish you for actually having a better return. Cause they'll say you've just like gone out the far, like the deep end of the risk spectrum and you were just kind of lucky and you, they're really worried about doing that.

People would much rather have like a really good total return strategy. A lot of institutional investors, total return strategy where it's a lot more easily quantifiable and that they can more easily forecast it than, you know, do something that's like, you know, crazy and has this huge return, but like, you know, feels like maybe it was lucky or maybe it was, you know, Some— maybe it's not repeatable.

Yeah, we're in the long run, we're all dead and everyone mean reverts. And so just make money if you can.

I was, I was at a, um, like a GPLP event, uh, in Miami this week. And, you know, one of the things that we were talking about is like, why can't liquid funds in crypto raise capital? And why has it been so hard to make money as a liquid fund in crypto? And, you know, one of the, the G— or one of the LPs said, listen, like there's this idea right now around— one is like everything's too correlated, and so there's, you know, it's hard to like really pick, you know, one, you know, liquid fund from another, and you know, everything goes up and down together. But two, if everything goes down 40% and my liquid fund manager only goes down 20%, you know, that's not great. Like, that's like— I don't want to be in that fund either, right? I feel lucky. I don't feel like that's like that type of outperformance is repeatable, right? And so it, it's, it talked a little bit about the sentiment with in the LP space around the liquid funds, which is like there's just too much volatility in the space generally for a lot of the institutional LPs to get excited even if you're outperforming.

Yeah, I think, um, depends who your LP is, but What I can tell you is from my perspective, I appreciate it. LPs really want to see through-cycle performance. Of course, if you're a venture fund, you hide on the mark, you know, you don't have a liquid position. But in crypto, I think that's the challenge is that you're like, you're a venture fund with a 10-year fund, but you have locked vesting positions or, you know, part of it is, you know, still vesting and you have to mark that some way. I think you still, you could say, no, we're just going to hold it at cost, but the rules don't allow you to do that because I think there's, it's not as easy as saying, hey, it's locked, I'm just going to keep it at cost. You have to have some reasonable valuation methodology. Your LP is going to still see the volatility in his NAV report whether they have liquidity or not. I heard it from one guy who was like, I actually hate crypto funds because In many ways, I don't want you to send me the NABU report on a monthly or quarterly basis. I'd rather you just wake me up in 5 or 10 years and give me the absolute return. I don't want to understand what happened in the interim because it makes— his point was like, it just makes my life very complicated and difficult because I have to go to investment committee and report our holdings. And one quarter I'm a genius and 6 months down the road they hate me because it's just so much volatility. It's kind of an interesting game of allocators. Like, LPs would rather, would rather get a 2x than a 5x with volatility.

Oh yeah, well, this, this, this, the same event that I was at, we're talking about VC funds too. And, you know, it's funny because if you look at the, you know, last X amount of years of crypto venture, you know, only in the last like year, year and a half has like equity overtaken token investing or token project investing, right? And, you know, some of those token-forward, like, DeFi funds, etc., you know, have made a lot of money for people. But I was talking to these LPs and they were like, listen, we would rather do a crypto-focused equity-only fund, uh, if it still had decent returns, because there's this volatility laundering that people talk about with venture. But like, that's a feature. Like, we want that volatility laundering. To the point that you just made, right? Because there's all this talk about how venture is— and being private is, you know, basically just like not— it's just not reporting on the, on the volatility. But the volatility still exists, right? But it's just not— you don't have this mark-to-market all the time. And now that's a bad thing, but I think for a lot of the capital allocators, it's a good thing. And so it's— there's a bit of, um, I think this dislocation between the way people talk about these things online and the way the LPs actually care about it, because people do not like volatility. Like, it is just a human nature, they don't like it.

Yep, they ascribe volatility to risk, which is not the same thing. Um, yeah, can we talk about— speaking of, I was just looking at an announcement by Vlad, Robinhood. We've talked about it, this podcast, before, that they wanted to like tokenize shares in, uh, private companies, including Stripe. That was like a terrible miscommunication. They've now come back to, I think, raised a billion dollars for their venture fund. Um, can we just like talk about that? I think you'd find it pretty interesting.

Yeah, it's interesting, right? So they raised a billion dollars, uh, and IPO'd on NYSE, I think at $25 a share, right? And it owns Databricks, it owns Stripe, it owns SpaceX, uh, some other, you private companies and, you know, it's going to be this traditional, like publicly traded closed-end fund.

I thought it was, I thought it was so Robinhood Ventures Fund 1, it's a billion-dollar closed-end fund and it's publicly listed.

Yeah, I think it's publicly, they IPO'd, right?

So yeah, you're right. The fund is being offered through an IPO structure. It's going to have positions in SpaceX, Stripe, Databricks. Interesting.

Yeah. So, so they went and they, it's a, you know, traditional, and so it's easier for them, right? So for Robinhood, they can do this closed-end fund. They can, you know, buy these late-stage private companies, the equity in them, and then they can go and they can offer it as a traditional, through the traditional brokerage product to all of their customers because it's just a public company, right? You know, the, so it's very easy for them to distribute it to everybody. And I think they also have Airwallex, uh, Ramp, and a few others, right? Revolut. And so it's actually, you know, it's a traditional, you know, kind of structure. There's a lot of people who try to do this, right, on this, like, you know, public closed-end fund. Um, the question will be, of course, like, how does this thing trade relative to NAV, and how do you strike NAV, right? And so that's always the problem. Again, we just talked about volatility laundering in private companies, right? And so this thing will you know, have to— it'll see a lot of volatility around, you know, any sort of reporting event, etc. But, you know, they're also— for Robinhood, I'm sure they don't really care about this, but, you know, they are charging a 2%, you know, management fee, the same thing that I do, right?

I would argue, like, I mean, I, I kind of like the structure, uh, you know, it's kind of crazy, but we're like, relative to 50 years ago, like, the amount of wealth that's been created in the private markets is inaccessible to retail. And by the time company IPOs, it's like, you know, historically companies would have IPO'd way earlier. And sort of this, this vehicle, if done correctly, to your point, I think will allow retail to get exposure to companies, like names that they want to have access to. The question is, like, I, I was, uh, you know, can they source interesting companies and, and how are they marking them to market? In good times, less of an issue. In bad times, I think you might see some like very big disconnect between the holding value and what you're marking it. In many ways, it's a thing you have to deal with on the venture, like when you're marking positions for your LPs. I mean, it's, I remember spending just more time than I wanted to just with like our fund administrator, like going through like, how do you mark this position? You're like, well, you know, there's a last round and there's a secondary market trade, but there's a new liquidity discount. And marketability discount, and you kind of have to stay consistent on that. So it's, it's challenging.

Well, this, this structure is, is a good structure for them, and it clearly solves the problem that they had before, right? Which is that, you know, when they did the tokenized shares of OpenAI and SpaceX, you know, nobody actually— none of these companies actually want to sell an individual share or a fraction of a share to some, you know, call it SPV that then will then sell a fraction to a, you know, kind of an end consumer who can then do whatever they want with it on-chain. Like, the companies don't want that. But are they happy to put it into a combined fund that, you know, gives, you know, some distribution and access for a very small subset of their equity that is then entirely managed by, you know, a sophisticated actor like Robinhood? Like, probably, because these are good retail names, right? And so this solves the problem they had before with these companies because, you know, we talked about this I think over the summer. But the way they had done it before, there was no way that those companies were going to continue to sell equity to them. They were going to have to keep going to the secondary market and trying to find employees and early investors who would sell. And that was very capped. Like, there was just not—

by the way, some of these companies have like ROE first, and so—

correct, there's a lot of time for these transfer restrictions.

Yeah, transfer. And so you have these SPVs that would solicit interest in shares like Stripe. You get like, you know, $150 million of interest in SpaceX and Stripe, and then you'd have to go find a, a seller, and then the company would have to approve it. And anyone that is familiar with that process, at least for Stripe, it is, uh, impossible.

Yeah.

And so, but I could see them selling to a stakeholder like, you know, Robinhood, that is, you know, it's one counterparty they're facing with them.

And, you know, yeah, it's just the fund, right? And then the fund is, you know, publicly traded, and it's fine. And so it's much more scalable.

Yeah, you could— you see Robinhood like raise like $10 billion against this over time, right?

I mean, it depends a little bit on what happens in the IPO market. I mean, people keep staying private for so long. I mean, it's interesting, but there's been a lot of talk already this year about, okay, well, we'll have our first trillion-dollar IPO this year, right? We'll have SpaceX IPO'd over a trillion dollars. We'll have OpenAI IPO'd over a trillion dollars. Anthropic's probably more of a 2027 story, but, you know, maybe the same thing, right? Um, and so I think that amount of liquidity going to the public markets means there's a lot of activity in the private markets. And for those of us like you and I, we see like SPVs all the time of these things as well, right? Like everybody's trying to sell to their, you know, what they consider their friends who have enough money to, to invest in these things if they have a little bit of, of exposure. And so Um, there's definitely enough right now, but if the IPO market opens back up and people start going public and more easily, then we'll see. But listen, I expect they'll keep doing this. I expect this will keep scaling. This is probably the first of many. Um, and you know, we'll have to see how infrastructure changes.

So, so I remember meeting, uh, one of the larger private equity funds came out here, met with family offices. I'm in the room and they're like, this distinction between private and public is irrelevant now. And I actually agree with that in the sense of like, like fast forward 5, 10 years from now, like what we've initially thought of like private and public really historically was a liquidity difference. Like you had way more liquidity in the public markets. Now you have a ton of liquidity in the secondary markets for a lot of companies. Um, so what really is this distinction between public and private, I think it comes down to information disclosures, right? Because, you know, there's a— as I understand it, like, the reason many companies go public today is you're accessing a different buyer out there that is pretty large, uh, that comes with a whole set of reporting requirements that are, you know, are, you know, you can satisfy, and they're very clear what the rules of the road are, but you have to kind of beef up your organization, reporting, audit. I mean, like Kraken, you know, a lot of these companies like go through a pre-IPO process of being IPO ready. And that, that takes a long time. Right. Um, but like, what is your view? And like, is that going to matter? Like 10 years from now, are we going to make the private public distinction as much as we are making it today? Or will we just have like, it's just a liquidity game and like, you know, it, and you're gonna have to change some regulation on, on the private market disclosures.

Yeah, it's, it's possible, right? So there's been, there's some data out maybe a week or two ago that shows about a third of exits for VC funds are actually now secondary transactions. And just a few years ago it was like 5%, right? And there's now a really robust secondary transaction market where, you know, early-stage funds, by the time these companies become, you know, unicorns, are really happy to sell their liquidity. And there's brokers and there's kind of this whole infrastructure that goes around that. People like Stripe and we— and, um, some of these other companies like Kalshi, I think, has one, and Polymarket has one. And some of these companies, when they get to that size, they hire kind of like heads of investor relations, right, just like their public companies, because They have, you know, kind of a broader set of, um, demands and a broader set from, you know, their investor base, and they have a broader set of equity holders. And so, um, it's definitely happening. There's more infrastructure put up around it, but there's still this access question. There's still the laws around, you know, do you have to be a QC or do you have to be an accredited investor? There's still, you know, disclosure problems. And so will You know, the SEC want to wade into that market? Probably not. Will Congress want to wade into it? Maybe eventually, depending on if this kind of fever pitch around, you know, kind of access. The easier thing in my mind is that you can actually just make it, um, less costly to go public, and you can probably provide, you know, some, you know, additional sort of and some additional like infrastructure or like programs, um, that, you know, incentivize going public. But we'll see. It's, um, either way, markets correct themselves, and so we're going to continue to see more infrastructure around the late-stage privates, uh, get stood up. Um, but I, I do think that— or I don't see that the, the law is changing particularly soon.

Yeah, I want to round out the discussion. There's a couple other interesting news. You have, uh, Tether invests $200 million in Whoop. Whoop, not Whoop, the health thing. WAP. And they— I mean, the thesis there is pretty clear, right? Like, WAP is going to integrate Tether, um, so that, you know, users, creators can hold, you know, transact, like use USDT Because further solving the demand side of the house, right? Um, I mean, for context, I mean, we talked about Circle earlier in the pod. I mean, Tether has 3, 4 times more, um, you know, stablecoins in circulation, and they kind of what dominates 75% of the stablecoins in circulation are USDT. Um, so I mean, this, this investment makes a whole lot of sense, right? Using their balance sheet to further entrench the usability of the stablecoin. Um, for, for WAP.

Yeah, I mean, it's, it's a— these marketplace businesses, and they call it like, you know, micro entrepreneur infrastructure businesses, they're growing incredibly quickly. There's a, uh, a bank that kind of focuses on a lot of these, uh, people as well called Slash that is growing incredibly quickly, also moving a lot of their business to Stablecoin Rails. They've talked about it recently. I think like WAP, you know, they— I think they announced in October they were doing like 100 and $50 million of annualized revenue. It's continued to grow quickly.

That's not— yeah, that's net—

that's revenue. Yeah, no, GMV is a— is like close to $3 billion today, I think.

Yeah, their take rate is that, right?

Yeah.

So, uh, and they, they have, uh, 18 million users. They're earning from users.

It's very Gen Z focused. Like, if you're not, you know, really plugged in, you wouldn't necessarily, um, you know, know about the the business.

Um, I, I think you tell me I'm not plugged in because I can't even pronounce the name of this company.

Well, I'll tell you, a, um, uh, somebody who used to work for Dragonfly, who I, I, uh, I consider a friend, it was incredibly smart guy, actually is like an executive at Wapp now. Uh, and, uh, he was one of the— he was— I actually heard about the business first from him. And he's like a, you know, he's a, he's a younger guy, you know, in his like mid-20s. Um, incredibly smart and He was like, he's like, pay attention. Uh, and then he eventually ended up going and working there. Um, because like, you know, like the content creators and like in Gen Z, like a lot of them are using WAP, uh, and it's growing incredibly quickly. And so, but one of the things that we've seen in these marketplace businesses, so not just them, but, but, uh, a lot of them is that they have content creators, uh, in a lot of different jurisdictions who are also much more comfortable with digital money, who are much much more comfortable being entirely online, and who in some cases don't have like really robust, you know, call it, uh, like accounting and like, you know, infrastructure. And a lot of them are very, very open to taking stablecoins. And in fact, not just open, but especially if they're outside the US, they want to take stablecoins.

I mean, uh, I think that's where most of the demand for stablecoins is going to come. Like, you know, if you, if you're a content creator, you get paid in stables, you pay for certain goods and services online, like e-commerce, runs by stables. And then you off-ramp some amount for working capital needs of day-to-day expenses, but—

or you don't even need it anymore if you have a Rain card and you pay with everything on—

true, true. So I think like this, this will manifest itself certainly for younger generations, but like I've always felt like part of the thesis for me coming into crypto was seeing what was happening in Southeast Asia and, and in Korea, uh, like, you know, where like finance, like fintech is going, like, like everything apps, right? And people being so digitally savvy, uh, I think the US is like the leader in pretty much most sectors, but when it comes to finance and fintech, it's like super far behind, right? Uh, like, like, like domestic payments in the US, like FedNow kind of works, but it's pretty Yankee, like PIX in Brazil, way better. Even Mexico, way better. Europe, way better. Like the US somehow is like super, super antiquated when it comes to payments.

And, um, but yeah, yeah, I mean, the US has never been at the forefront of payment innovation, right? Not since the networks. And so it's been— so I say never, but not since the networks. It's been a long time. And, and so, um, you know, not surprising. Congratulations to them. $200 million from Tether. I think it was a $1.6 billion valuation. Uh, I think they're going to keep, keep growing, keep doing well. And I think we're going to see a lot of these types of businesses move entirely on, onto stablecoins and use things like, you know, Rain cards and things like that.

Does this make you update your thesis around like investing in other stablecoin issuers? Like, like Tether has, for better or for worse, like, like one of one, and they have dominated the distribution game and their monetization game and I would argue it's going to be incredibly hard for other people to unseat their advantage, and they're using it effectively, like, really, really well. In an investment like this one, just further entrenches their position. If you're a, you know, I know you've invested in other players, but what does this mean for that type of company? Like, you're, you know, it's pretty hard to go up against Tether.

Well, I think right now I mean, Circle is growing quicker than Tether is at the moment. And so, I mean, that's part of the, the stock outperformance.

But I think right now, double-clicking on that, they would say Tether, certain financial institutions, and will not accept USDT because they just, they just don't. And there's a place—

there's a lot of US-based businesses and financial institutions who are more comfortable with Circle versus Tether. So now, of course, the launch of USAT and the, the, you know, trying to be Genius compliant and working with Anchorage, you know, they're Focus is on, um, you know, trying to get into that market and with Boheins, but you know, it's, it's the just launch, it's very early. So, um, you know, we'll see, you have to see how that plays out. All that said, I think to your original question, it is probably hard today to launch a new general purpose issuer with no wedge, but what we're starting to see quite clearly is that Uh, if you have the ability to issue and then you can do other things, right? So Bridge obviously is very focused on this issuance, uh, being part of their business. That's why they're getting their trust charter. Um, you know, it's obviously has long been the story around Paxos. There's others doing the same. Uh, you can build probably a really interesting infrastructure business that, um, has your own stablecoin or also you know, maybe is able to white label. We saw a little bit of the OCC guidance today around how white-labeled issuers can share revenue with these platforms. Now, you can't share the yield— according to the first guidance from the OCC, you can't share the yield to the end customer, which is an issue that we need to, we need to try to figure out with, um, with the OCC. But, uh, there's so clearly like revenue share between the white label platform and the company. And so I think we're going to just see a big proliferation of people who are issuers but who do other things around payments, other things around fintech, provide really interesting platforms. And that's where we've seen almost all of the other challenger issuers move, um, over the last year. And some of them have been a little bit more quiet about it, but you'll see a lot of really big announcements, uh, about that like this year, I think.

What happened— I want to round out the discussion because, I mean, there's other news on the margin, but I— talk about Stripe again. Like, didn't they Someone flagged me earlier around the OCC is officially shutting down the creative loophole engineered around stablecoin interest and rewards. For months, issuers thought that they could bypass the statutory prohibition on interest by rebranding yield as staking rewards or loyalty tokens. Today, the OCC signaled that the game of musical chairs is over. Obviously clearly biased and whatnot, but you're all, you know, you were in D.C. earlier.

I don't think it's as clear as this, but, uh, so what happened, to be, to be entirely clear, is the OCC put out a request for comment today, right? And in their request for comment included the initial rules that they were going to, um, that they think, or that they're— they want for discussion, uh, for what they would put on, you know, GNSN-compliant stablecoins, right? Yeah. And so, you know, so everybody knows, or just for context, when Genius was passed, a big part of that law was that, hey, listen, like, there's these things that we're defining, then there's a bunch of things that we're not defining, and the OCC has until January of 2027 to— and with Treasury— to go and define what the rules will be, right? And so the OCC put out these rules, uh, and says, hey, this is— we want this request for comment. And, um, in that was a very, very tight definition around what, how yield could be passed on to the end customer, if at all. And they took out, they basically said you can't pass on yield to the end customer. So the, the issuer can pass on yield to another company, but you can't if you're a white-labeled issuer, but you can't pass on to the end customer, um, for just for holding, using, or retaining stablecoins, right? Now I talked about this before, but that is like extremely regressive because right now there is a, a lot of fintechs who are going to in some way give cash back or going to in some way give, you know, money back to their users and rebates or whatever for using their platform, right? That exists already today. This is not a stablecoin point, right? When you swipe a your Chase Sapphire, you can get 2% cash back, right? So this— I—

yeah, but that's a credit system though.

But you can— there's a lot of different systems where you can get—

I mean, I, I, I hear you loud and clear, but like, so I've looked a lot into like what is the incentive for you, like B2C payments. The, the credit card networks are so entrenched because like businesses are subsidizing the rewards to you.

But this isn't a network point. The issuer is the one giving those giving those rewards back, right? The bank is the one giving those rewards back.

Yeah, they're giving you those rewards, uh, in the way of like, you know, airline miles or cash.

67% of Americans prefer getting cash back to any sort of other type of thing. And most of the— most of these cards are now moving to entirely cash back because that's what the consumers want.

Yeah, correct. I would say definitely agree with you on that. I think the reason why there's a lot of pushback here is because banks feel threat around deposits.

Yeah, that's the whole reason.

That's the whole reason. I mean, like, I calculated if the— so if Americans were to earn the yield on their checking and savings accounts, that the entirety of like deposits sitting in America, like in these checking savings accounts, basically earning 0, 0.3%. Banks are clipping 3 to 5%. If all of that net interest income were to flow to consumers, that's equivalent to a COVID stimulus check for every household in America. People can look at our wonderful insights tab in our website, convergencap.com, and we, we look at these things and we say, yeah, that's massive. And not surprising, you have pushback on the stablecoin paying out yield. Uh, it's, it's pretty, you know, my— I think we touched on this in the discussion with Rebecca. I don't remember if she said it in the pod or I remember just having a conversation with her. It seems to me like the definition is fairly broad in the sense that, like, if you're a business using a stablecoin and Rob, I'm sending you, like, for instance, if I'm sending you money and it's via stablecoin and there's like money in transit or whatever, I can earn yield on that leg. I don't think they have an issue on that as much as an issue on Coinbase paying out yield on deposits. right? Because the endgame here is Coinbase effectively could like really use this to grow their deposit base. And, you know, who, who gains, who, who loses there? Obviously like a, you know, a large financial institution that's not paying interest to their consumer, right? But my understanding is like, if it's an idle stable, like if it's a stablecoin sitting in a wallet, they have an issue with that. If it's a stablecoin that is being used for some like business purpose, as they don't have a problem with that earning yield. At least that's my understanding.

Of course, no, no. So, so that's, that— so that's no longer true in this OCC guidance. So that's the problem, right, is the— so there's a couple things that have happened, which is that the banking lobby was completely out to lunch when Genius got, uh, got passed. And so then they were— started to catch up. And so then they said, okay, well, in Clarity, or some version of that that's coming out of the Senate, we're going to write some law that is going to remake the way we think about yield. And that— the language in that was basically that you can't pass along yield just for holding the stablecoin. And, you know, Coinbase came out and they were against it, but some of the rest of the industry was like, okay, well, that's fine because you can still give rewards for using it, or, you know, etc. Um, but, you know, that became a big hot topic because, you know, Brian tweeted about it and got everybody up and up in arms. And so we've been debating it, you know, as part of the market structure bill. Well, then this comes out today and the language is even harsher, which is that, you know, you can't, uh, pass along the yield for holding or using the stablecoin, right? And so now all of a sudden it is extremely regressive, right? And this is basically just being done to protect the banks and to protect their, you know, their interests.

As much, you know, I love stablecoins. Is this a nothing burger? Like, I get the yield is amazing to be able to pass through. I don't think it— it's marginal, but it doesn't derail the use case and the power of using a stablecoin.

Like, I, I think it does. It doesn't derail a lot of the use cases, but what I do think it does is it makes it with— and then the banks know this, right? This is why the banks are scared shitless, because with an ability to have better payment rails and to serve the customer more with better product and to pass along more, you know, economics to them, almost every fintech and digitally native bank was going to move to stablecoin rails. I see it every day. Everybody I talk to, there's not a fintech in the world that you could tweet at me, there's not a fintech in the world that isn't actively building for stablecoins right now. Okay, and a lot of the banks are starting to build for that, right? But if you can't take full opportunity of serving that customer better, right, then, you know, it makes it a lot harder for those fintechs to then go and decide that they're going to be entirely on stablecoin rails. Like, it protects is this kind of like lipstick on a pig thing that kind of exists already in banking as a service. Now, there's a question around, okay, well, it's a nothing burger because maybe what happens is, you know, you don't hold the stablecoins, but then you have a tokenized money market fund, and so you swap into that or something, right? Um, but, you know, these products are, are not as good today, and, and for a number of reasons, because most of the tokenized money market funds, um, if they pass along, are, are securities. Right? And so then there's a KYC point, and so it's not— you can't necessarily trade it non-KYC, um, at least in the US. And so, I mean, clearly what is happening here is the banks are trying to figure out a way to slow down the rate of adoption because they are losing customers, or they're at least worried about losing customers in the future. And so I don't think— listen, like, put a—

put a— no predictions or predictions, but how damning is this Does it set us back like 20, 30% of the institutions that we're now exploring stablecoins are going to say, you know what, the ROI is no longer there. Does it set us back a few years or is it just, you know, kind of curious what the impact is because it's like—

I think it slows down the rate of adoption. That's what I think happens. It slows down the rate of adoption.

Isn't that good for Circle that is already entrenched and, you know, It doesn't seem—

it's good for the incumbents and it's bad for innovation, right? It's bad for the consumer. I want— I want the— I, I'm altruistic. I want the consumer to do better, right? Um, but also, of course, like, if the consumer does better, my portfolio companies do better. But so not— maybe not that altruistic. But I will say, listen, like, they— I mean, there was a, um, Senate banking hearing on this this morning after this came out, and there were a number of of senators who asked about this. So I think Bill Hagerty asked about it, Bernie Moreno asked about it, and, and, you know, and, and, um, and Gold did say he's like, listen, like, this is a proposal, like, you know, it can be approved upon. And so the whole industry needs to, you know, kind of rally around this. And if we need to— I, I do think that if we need to be, you know, more thoughtful or, you know, negotiate a little bit more on clarity to make sure that We, um, we allow for innovation in payments in the US on stablecoins, and we allow for issuers to be onshore. Because this, as written, by the way, will push more issuance offshore again. It's actually— it's probably better for Tether than it is for Circle, uh, if this goes through. Because I don't think it's what the government wants.

For what it's worth, WAP creators will be able to earn yield. Well, Tetherism shared that anyways.

No, that's not true. So what would happen, the way it's written right now, is that Tether could pay WAP, but WAP would not allow to be able to pay their creditors. Correct.

Yeah, that's right. But Tether is not paying WAP.

Oh, no, no, they're not. That's not what Tether's business is.

I'm saying, so this is, this is the point that I'm trying to make. Like, I get that yield is important, but let's not forget that consumers have been banking the way that they've been banking for a century plus, where they have not expected they don't expect earned yield. Like, you look at consumer behavior, like, you could say rates went up and you would have assumed that a lot of those deposits go to money market accounts, but they just don't. And because people are lazy and financial literacy is low, and, you know, maybe you could say, look, the system is designed to be hard to move your money and hard to open accounts. And now you're moving to a world of like accountless fintech, which is just wallet-based. But I do think that, you know, even, even Tether is a pretty clear example of an institution that has been dominating the stablecoin game. You could argue that they were first and whatnot, but they don't pay a yield. And people use Tether because it's, it's a, in my mind, I go back to why did, to round out the conversation, why did Terra collapse? It was liquidity issue. Usability issue. Tether is dominant in like, you go to Hong Kong, you go to Argentina, you go to Africa, like just Tether is embedded. And they, you know, as long as they continue to do that, I think for them they don't, they don't care. In many ways this is great for them because, you know, Tether's market share probably continues to, you know, they have a bigger moat if other stablecoin issuers can't, can't pay out yield because they haven't and they don't pay out yield. So it's great for that.

The one thing I would say though, right, is Tether has this You know, they're competing, right? And they've built this business and they've had a great moat. Um, the, the banks are trying to protect themselves with a regulatory moat, not with a, hey, just like, what does the free market want, right? Tether is obviously just competing with the free market. And so listen, we can round this out. We've kind of beat this to death. Uh, my mind, let people compete, right? Stablecoins are inevitable. I, I fully agree with that. I was texting somebody at, um, You know, one of the leaders, uh, at a— call it a large G-SIB yesterday, who was— we were talking about this exact thing, and I, I said the same thing to him: stablecoins are inevitable. And, and I think the G-SIBs are starting to— are starting to understand that as well. But the question is, is, um, if they're inevitable, how quick is the rate of change? And who ultimately is it? You know, are the incumbents able to, you know, put their arms around it and squeeze the innovators out, or are the innovators going to win? And this is just a, something, this is a, an attempt by the incumbents to squeeze out the innovators, right? And we should always be pushing against that and be allowing for more innovation to happen in the US.

What would you say the counterargument to this is? Hey, maybe, maybe stablecoin issuers should not be paying out yield and they should not be going out on the risk spectrum of owning treasuries. They should be 100% collateralized, and the collateral should be pristine. It should be a dollar-backed one-to-one in a bank account. And, and even though they're going buying treasuries where their yield is coming from, that has risk. So this is consumer deposits. Like, what would you say to that?

I mean, the, the US already does that, right? You have to have really pristine collateral.

It tells you how the collateral—

collateral, but it's There's a, there's a school of thought that says like fully 1:1 cash, like no, that is, I mean, not cash, uh, but you can have like money market funds and other, they have other types of collateral and there is a mechanism in there for, um, looking at or approving new types of collateral.

Like banks are regulated for this reason, like they're basically rehypothecating the collateral.

Yeah, they're rehypothecating collateral and they have, and they have capital rules right now. The banks are, you know, they're fighting capital rules right now, right? They're trying to get Basel uh, um, uh, kind of, um, a rollback at this moment, right? And so like, and there wasn't a big announcement, we didn't talk about it, but the, um, the brokerages can now use stablecoins. They only have to take a 2% haircut instead of a 100% haircut, right? Which is similar to money market funds.

Is that rule or is that proposed by Caitlin?

No, no, I think, I think that, that, that rule is— was enacted. So they put that out there. So, um, so you're going to start seeing like a lot of people wanted— a lot of these brokerages and, um, FCMs want to use this as collateral. And so, like, look at this, this is happening. And so the, the, the fight right now is, do we allow innovators to continue to innovate onshore or not? That is the full fight, right? And like, right now we're seeing, you know, the gasps of the banks trying to make sure that they, you know, protect their fiefdom. And that is net bad for America, it is net bad consumers. It is net bad for all of us.

Yes, sir. I'm telling you, it's a COVID stimulus check that's in there. And hopefully, uh, yeah, hopefully round out this probability of it going back to a more beneficial treatment and earn paying yield.

If it's in there now, it's probably going to end up being in there. Uh, so we're going to have to you know, really put our apparatus together to try to figure out a way to take it out. Uh, but I will tell you, the whole industry will be focused on this. And so, and we've shown to be, you know, an industry that can get things done in Washington. And so hopefully we'll, um, we'll be able to do that here. But so whatever, I don't know what the Poly market is today or if there is one yet, but I'd put it at, you know, 60% it stays in.

Yeah. Yeah. All right, well, what's content of the week?

Can I tell you? Last week you— I said Olympic hockey. I don't know if you watched the gold— the gold medal match on Sunday morning, but the US won the gold for the first time since 1980, since the miracle against the USSR. You go to overtime, it went to overtime. It was incredible game. They scored a game winner and 3-on-3, the guy who scored the game winner had had his tooth knocked out. He was bleeding from his mouth while he scored. This is like a thing of like, you know, lore.

Movie will be made out of this. Yeah, it has to be, you know, like, look, hockey, I think, uh, I watched for the first time in, uh, in Madison Square Garden, uh, because, you know, time was—

that's where the Rangers play.

Yeah, amazing, amazing, amazing. I think it's the most fun sport to watch live in an arena.

So fun live.

Especially because I was there like banging, I got comp seats and whatever. And I was like, wow, so much fun. I would also say Olympics is, I love freestyle. Like I love skiing. And so I, one of my friends from college, her sister does aerials. And I got invited to go see her in PyeongChang, which in South Korea, like 10 years ago. And she competed back then and I was like randomly scrolling through like and I saw her and I saw the clip of her winning silver, uh, Danielle Scott. And it was like Australia, and it was like kind of Australia for whatever reason has like a super strong aerials program.

Yeah.

Um, and, uh, yeah, it was just amazing to see that. It's like they do like the nerve-wracking, but, uh, yeah, it was fun to watch the Olympics.

You know, new content for this week because the Olympics is still on, but you know, the Uh, they're, they're done. The Olympics is— oh yeah, just finished. It just finished, right? Yeah. Uh, but there's a, uh, there's a movie, uh, called Surratt, which was nominated for the Best International Feature, uh, at the, at the Oscars. And, uh, just saw it, and it's sort of, um, movie about, you know, a father and, and, and a kid looking for, uh, his son, and they kind of end up having to go and they're trying to find them at this like desert rave. And I will tell you, it is a movie, is a trip. So like, it is, uh, it is like saying that movie's a trip.

I can't imagine what other people think of it.

It's, it's, it's, it's insane, uh, but it was insane in a way that I, I liked. So, uh, I— if people like kind of weird, you know, kind of movies that will, you know, get your heart rate up, like, I would, I would recommend this.

Yeah, yeah, I, I'll say two things. One, Invest Like the Best. I was just catching up. There's two really good podcast episodes. The one of, uh, Jared Kushner—

Josh Kushner.

Josh Kushner.

It was great. I agree with you.

It was great.

It was very good.

And then, and then I— the D1, Dan Sunheim. I think he used to be a CIO at Viking, started this fund. He talked about how they kind of like— he got into kind of during COVID I think GameStop phenomenon, like their fund was like going through a hard time and just, I really appreciated like his conversation around that and how we manage that. So those two podcasts were pretty good. And then, I mean, I, there's Michael Burry's Substack is amazing. It's, I think he's making like $20 million off of the subscriptions at this point, more than most fund managers on management fees. Uh, pretty good, honestly. I mean, I, I subscribe to it. He had a— he has some pretty good content. His one on Palantir was, uh, pretty, pretty eye-opening. So, uh, uh, you know, I would, I would strongly suggest people to go and, uh, subscribe to that. It's not cheap. I think it's like $300 a year or so, but it's, uh, it's pretty awesome content.

All right, another, uh, Another great week of stablecoin news.

We somehow managed to make it more interesting than us. A lot of times the podcast, we come in here like, God, I don't really know there's anything to talk about. But, you know, somehow we managed to make it on stablecoins again. It was pretty entertaining.

Don't get me started on stablecoins. That's what the— and then we go, you know, an hour and 20 minutes.

So that was good, man. All right. Good place as ever to end it. Thanks, everyone, for joining. See you next week.

Thanks, everyone.