The Hidden Costs of USDC | Nathan McCauley & Charles Cascarilla

The problem that they saw is that they're holding USDC and deriving no revenue from that. In fact, growing the network in meaningful ways and then directly deriving no revenue from that. Imagine if the dollar, the dollar could be held by dozens or hundreds of banks, but there was only one company that was earning all the interest from those dollars that were held in everybody else's banks. It would be a preposterous notion.

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All right, everybody, welcome back to Empire. Uh, two very special guests, uh, Chad from Paxos coming back on the show after a long hiatus. I think, Chad, you're on a couple of years ago. And then Nathan from Anchorage, I'm pretty sure first time on Empire. So Nathan, Chad, welcome to the show.

Happy to be here.

Thanks. Likewise. Excited to have you.

So this is a big stablecoins conversation that came out of a conversation that I had at a bar with Nathan in Singapore, where he kind of 180'd my views on what I think the stablecoin landscape will look like. So a lot of my predictions and me trying to— my pithy thoughts and trying to sound smart, they oftentimes just come from Nathan. I just steal his ideas. So I just wanted to bring him onto the stage. But maybe actually, Chad, we have something in common. Yeah, exactly. I would love for actually both of you guys, because maybe Anchorage and Paxos people, some of the listeners don't know as much about. I would love for you guys to explain the business models of both of your businesses. I think people know what you guys do. Paxos, you help with stablecoins. Anchorage, maybe you do custody, but what are the business models of both of your businesses?

Uh, sure thing, I can, I can start. Um, so Anchorage is a digital asset platform. Our biggest product and our main source of revenue right now comes from custody fees. The way that works is we have institutional investors hold their assets with us, and we charge what's called basis points on custody assets under custody. So they hold, say, a billion in assets with us, and then there's some rate they pay annually based on that. This is not new to crypto. This is how the traditional financial custodians like BNY Mellon, State Street, Northern Trust charge into this. In addition to that, we have a growing trading business where we are allowing those clients to get into and out of their positions, and we charge a commission on those trades as well. And so that's the basic model of revenue for us. Yeah.

And so our business model is a little bit different, but in some sense, maybe similar. We have two two facets of the business. One is the infrastructure part of the business, or the utility side of the business, where we enable firms to be able to offer crypto products to their customers. And so an example of that might be PayPal being able to offer buy, sell, hold, uh, so it's called crypto brokerage. Um, or it might be Stripe being able to enable, um, payments in crypto and stablecoin, uh, specifically stablecoin, for their customers. And so we're providing like a wallet and, uh, and sometimes a custodial infrastructure. And, um, uh, but really not trying to acquire the end user and end fund. Um, uh, this is really, uh, an intermediary that's using us. And again, the customers like that— PayPal, Venmo, Interactive Brokers, MercadoLibre, uh, etc.— those are perfect examples of that. And then we have the tokenization part of the business, and that's tokenizing dollars. We've tokenized equities in the past. We tokenize gold. We have a bunch of different types of products. We do it in different jurisdictions, both in the US and from outside the United States. And in those cases, we're usually charging— it could be a basis point fee like Nathan is, or it might just be a usage fee. So every time someone's making a movement, we're charging a fee off of it.

Chad, I would love to get your take on just the stablecoin landscape right now. It feels like in everybody's 2025 predictions, it's like this is the year of stablecoins. You've been at this game longer than most. What is the stablecoin landscape as you see it today?

Yeah, well, I think we've gone through so many innings here. I don't know what's the right analogy here in terms of innings.

I mean, I remember there was an episode you did on Invest Like the Best with Patrick back in 2018 or '19 where you were talking about stablecoins, actually. And I remember that being one of the first times I was like, this Chad guy seems like he's onto something here.

You know, there's plenty of examples maybe where I wasn't. In any case, I think we're at a pivotal moment, ending TBD, but a pivotal moment for stablecoins because we're just maybe hitting the phase shift where you're going from crypto mainly users or early adopter users to mainstream. It hasn't happened yet, but when you get to these moments, they tend to not just be linear, they tend to go nonlinear. And so it's always hard to extrapolate when you're on the S-curve, but I think we're getting to a really critical inflection point. And you're starting to see it, it's leaking out into all kinds of places where people are now using stablecoins for remittances, they're using it for B2B payments. And I think what's also fascinating about the market right now is that we're kind of in a stable disequilibrium in terms of how the market structure is set up, where you have Tether, you have USDC, and then you have a number of other players, including some of our stablecoins that are beneath that. And I think that that shift to mainstream is going to put a lot of pressure on that stack ranking, and it's going to really maybe expose, uh, business models that haven't been constructed either from a regulatory standpoint or from an economic standpoint to be able to scale to societal-wide level. And that's what we're constantly thinking about. That's why we're so excited about the partnership that we have together around the global dollar, USDT, is How can you scale stablecoins to having a global societal impact? And I think we're very close to making that happen. The product market fit is like very clear. It's cheaper, it's better, it's faster. We can go into all those different ways of what makes it important. But that's the, I think, the very interesting place we're at right now in the market.

What is the— I mean, the two stablecoins that people know most are obviously USDC and USDT. I'd love to just hear your take on what has happened with both, focusing on both of those right now.

And then we can—

I know you guys have launched USDG and Chad, you guys have a lot of other ones, obviously. What is your take on just what has happened in the USDC versus USDC, USDT versus USDT market share? And if you pull up a chart of this, I like the story was that it was really just Tether. USDC came to the market, USDC was really kind of eating into Tether's market share. And then it feels like Tether has had a massive last kind of 18 months here and USDC has not picked back up in the market share. So I would just love to see like what is actually happening behind the scenes of this. How do you explain this chart?

Well, you know, lots of articles have been written about stablecoin wars. What you're maybe missing here on the right-hand side, sadly, of course, is BUSD, uh, the Binance stablecoin, right? And, uh, so if you really thought about it, there was a period in time when, um, uh, there was really 3 very large-scale stablecoins. And then as FTX, um, uh, collapsed, it— and of course Silicon Valley Bank and some of the other banks, Silvergate, Signature Bank, also collapsed or went under— it created a complete shift in your ability to access stablecoins and being able to uh, move dollars around. And that has precipitated a lot of what happened here because USDC depegged. Um, it was the largest creditor of Silicon Valley Bank. If the government hadn't bailed out Silicon Valley Bank, USDC, um, may not have survived, uh, or would have required a very large bailout in the orders of billions probably. And so it's been a very difficult position, and that had it lose its place in the market. At the same time BUSD was wound down, and so that was about $25 billion at its peak as well. And so you had market share loss of $25 billion of BUSD and about, I think it was $15 or $20 billion out of USDC that had to go somewhere. And it partly went into USDT, um, and it really benefited from, in fact, um, some operational issues, some regulatory issues that they weren't exposed to. Um, and by being offshore and being, um, unregulated from the banking regulators, when they decided they wanted to crack down on crypto and crack down on stablecoins, they ironically, um, were not able to go after the unregulated player. And so in some sense, kudos to them for that market positioning. And they were able to take advantage of the current administration's, I think, short-sighted attempt, uh, to put the industry in a box or even kill it, uh, which was not possible. And you ended up hurting the regulated and, um, I think the, uh, actors that had really spent a lot of time trying to build up scalable businesses. Um, and that's what drove the shift. And Tether has taken advantage of that and I think done some very smart things in terms of going out into retail users, non-US users, the global south, people who are unbanked. And Tether is becoming the stablecoin that they all use because they are really concerned about getting access to dollars. The number one thing people want in the world is US dollars. That is a product everybody wants all over the world and they can't get it. And guess what? With USDT, they can. And that's been a very powerful tailwind once we went through all of this kind of brain damage and unraveling that happened. And they, and they were in the position to take advantage of it.

Yeah, the— I mean, I feel like there used to be a lot of Tether FUD in the industry, and then probably, probably the Wall Street Journal articles showing how much money Tether is printing have probably squashed those. But I don't know, I'm just curious to get your guys' general takes on Tether in this market.

The, the biggest thing, and, you know, Chad spoke to it a little bit there, the biggest thing that a stablecoin must do is stay stable. It needs to one-to-one be worth a dollar. And we have a little bit of a Lindy effect going on with Tether. Where despite the FUD, maybe even you could even call it antifragile in the way that it has survived in spite of all the FUD going on. It hasn't broken the buck. It has, has stayed pegged at $1. And so we've got a history now of pretty significant market displacements. And it has, it has overcome those. And so at a real basic level, it has understood the assignment, if you will, to use that framing. And so I think that is one of the things that over time increases trust, is it kind of trust is, is it good and does it persist over time? And Tether has that, and we all have to kind of give them credit for having done that well. And then I think on top of, you know, continuing to manage to keep that peg, they have, I think, been pretty shrewd in how they have spread the popularity of Tether globally. The, the dollar is the greatest product that has ever come out of America. And right now it is not available to everybody on Earth. And so merely packaging a dollar and making it available to everybody on Earth has driven a huge amount of demand that was was previously unable to get access to the dollar. And that trend will continue. Um, the— I, I like to say that currencies are natural monopolies, uh, in that, uh, the currencies want to be monopolies. They want to grow as more people get access to them. And so the, the natural trend that you will see here is more and more people will adopt, um, a currency, and then that currency will get more and more popular. And so Tether is Tether is filling that need that is inherent demand for the dollar because there is effectively a dollar monopoly effect that is available and Tether is filling that demand.

Yeah, I would love to hear about USDC and Circle and specifically the probably complaint I hear from other operators and founders and executives running exchanges and custodians in the industry and other things are that probably twofold. One is that USDC keeps a lot of the yield, or keeps— I don't know if the yield is the right word— the fees, whatever, whatever word you want to use there, keeps it for themselves. And then the second is that because of the partnership with Coinbase, everybody in the, in the industry competes with Coinbase, right? If you're an L1, you compete with Base. If you're a custodian, you compete with Coinbase Custody. So by holding USDC, you are inherently funding your competitor. I would love to talk about this dynamic and kind of pull this out and I think it's not really something that folks think about too much, but I would love to pull this out into the, into the kind of conversation.

Sure, I can start. And Chad, I think we both have a lot of thoughts on this. I think exactly what you're saying there is that idea is the primordial soup from which USDG was formed. And it wasn't even— it wasn't even necessarily Anchorage or Paxos probably was thinking this. I think at least on my side, I probably had 6 or 7 crypto company CEOs come to me directly and ask me to launch a stablecoin. I was like, I don't want to launch a stablecoin. Why? Why would I do that? And kind of in conversation with them, that was specifically the problem that they saw is that they're holding USDC and deriving no revenue from that. In fact, growing the network in meaningful ways and then directly deriving no revenue from that. The way, the way I like to analogize it is imagine if the dollar, the dollar could be held by dozens or hundreds of banks, but there was only one company that was earning all the interest from those dollars that were held in everybody else's banks. It would be a preposterous notion. And so the industry idea that kind of a lot of people were talking about is like, okay, this, this doesn't work. This doesn't work as a, as a revenue model for us. Can there be an alternative? And it was from that kind of core idea that I think we got sent down this scent that eventually led to Global Dollar.

Yeah, I think there's the two components maybe to think about with a stablecoin. One is, you know, kind of how regulated and trustworthy is it? You know, how much oversight is there? And you know, with USDT, it doesn't have oversight. It's not regulated. That's, you know, deliberate, I think. And, um, in, in some ways, that's actually been a benefit to— a real benefit. Um, USDC isn't regulated either. It just has money transmission licenses. It doesn't have a primary prudential regulator. Uh, in the case of USDG, the monetary—

Chad, what does that— what does that mean, it's not regulated? I, I thought it was a regulated product, or—

I know, it's fascinating. It's absolutely unregulated. Uh, it has money transmission licenses So you have an issuer that is a Delaware C-Corp. There's no one who regulates the C-Corp. Their activity in certain states, in certain jurisdictions is regulated, but they themselves do not have a primary regulator. So in other words, I give an example. We issue USDG out of Singapore. The Monetary Authority of Singapore has licensed us to issue USDG. There is no one who licenses Circle to issue USDC. Nobody. They're not licensed to do it. They are— they have licenses to give the USDC product to people, say, in Oklahoma. And that's a form of having a regulatory oversight in a state that your product is operating in. But the product itself is not regulated by a primary direct regulator.

Got it. So they have money transmitter licenses, but there's not a regulator overseeing the issuance of USDC. That's what you're— okay.

And so we have— I'll give you an example. USDG is a ring-fenced entity in Singapore that can do nothing except issue dollar stablecoins today. Someone sends dollars in, they can stablecoin out. You send a stablecoin in, dollars go out, whatever it is. That's it. They can't do anything else. I actually think it's the safest way you could hold a dollar in the world because it's in a bankruptcy-protected trust-like entity in Singapore follows common law. So it's basically, it's the same thing.

So why, why can you guys do this but then Circle can't?

Like, if you guys can do it, they could, but it just restricts your activity. And just like Tether would be restricted if they were regulated, so would Circle be restricted if, you know, they had a primary regulator. You know, we've had a lot of restrictions we've issued out of New York, and it took us years to get approval to issue on our second chain. So it slows you down. Being regulated slows you down. It changes what you can do. And certainly you can also, um, uh, I think the audience, the consumer of these products, as you didn't know— you're very sophisticated, um— I know regulators who don't even realize that this is the case. So in some sense, you know, you can dominate the information space in a way that doesn't make it very clear that this is the way it is.

Do you think people care? It reminds me of, um, like this focus on decentralization in Ethereum right now, where maybe people focused too much on this one idea, but maybe not enough on product or distribution or things like that? Like, I mean, yeah, yeah.

I mean, look, scale, um, uh, creates a lot of, um, uh, trust in its own way. Um, but I can tell you, if the government hadn't bailed out Silicon Valley Bank, uh, everyone would have really cared that it wasn't regulated, because you are a creditor of Circle, just like you're a creditor of Tether. You are not a creditor of Paxos if you send us a dollar. Your money is held in your name. If we fail, you get your money back. If Circle fails, you're a creditor of Circle. It's not a problem. I mean, if you go look on Coinbase's financials, you— it shows a loan to Circle. You are loaning money to Circle and you're loaning money to Tether. That is the actual accounting legal treatment for what you do when you hold a Tether and USDC. Now, we've obviously stated in our own heads, just call it a dollar, but it's not a dollar. It's actually a liability of Circle and Tether. And that liability is only as good as their ability to pay it back. And I'm not saying that they can't pay it back well, but, you know, if you're regulated and you issue a liability that is actually not of our company but of your own, just we're holding it in trust, that's by de facto far safer than if I as Paxos gave you a stablecoin, um, because you'd be a creditor of Paxos, uh, because that's really just a dollar debt. it's denominated increments of $1, uh, that you hold. And so when you think about a stablecoin, there's one component is how well can your stablecoin scale because of how regulated you are. Can large companies use it? Can large companies hold on their balance sheet? What would be the accounting treatment? We don't think about this stuff. If you're a consumer in Argentina and you want a digital dollar, you don't care about that. Why should you? But if you're a large company, you absolutely will care. If you're in part of the payment system, if you're a bank, if you're all these you care who is your counterparty. In this case, your counterparty is Tether or Circle. Um, it's not, it's yourself held in a trust. And that's why these things are created. Like, we're not going to the moon here in the financial system. What we're creating is an awesome technology that allows us to change the distribution and the cost curves, and we'd be able to make things very dynamic and programmable. But, you know, these underlying issues could have reared their head with Silicon Valley Bank failing. It could have reared their heads and other times when Tether, uh, wasn't fully backed because there were issues that had happened. You're— I'm sure they're fully backed now. They make a lot of money. But, you know, that's why you want regulatory oversight.

Yeah.

And it operates as accounting. The second component to this is the economics. So one is, did I— if I created a product that is like an all-weather, truly like safe product, and the second one is, how did the economics of it get apportioned? And in the case of Tether, they're keeping the dollar. And in the case of Circle, they're keeping it with Coinbase plus whoever else they give it to. But, you know, if you go to the Coinbase financials— I think everyone has done this, it's not really, you know, hard to calculate— they're getting about 65% of the economics. And that was Nathan's point, you know, why should, you know, Charles Schwab hold a balance and pay JP Morgan the interest on it? Why should Nathan hold a dollar custody for his customers and pay it to—

can you remind us of the backstory of the, um, the consortium? Right. Cause my understanding is like, there are probably like, I don't know, 20 companies who came together to create USDC and then, uh, one by one folks dropped and it became Circle and Coinbase, but maybe that's not the right story. So can you just remind us of how this, of how you kind of, it came to be, or maybe this is a question for Nathan.

I don't know who knows. I'm a little murky on the exact details of how it was. Ultimately when it launched, it was only Coinbase and Circle and they had Center and that ended up dissolving. There might have been a lot of other companies that were kind of working in the background and maybe Nathan knows more of it, but I think it'd be a little bit hearsay for me to get into it.

Yeah, I think the, the, the theory early on was to create the Center Consortium and that that would be kind of the neutral overseer. I think there was Center, as I understand it, was staffed with a number of people either from the Coinbase side or the Circle side that actually joined and ran it independently. And at least now Circle and Coinbase have dissolved Center and it's effectively run by them now. I think there was potentially a theory early on that maybe more people would be able to join that consortium and it could look more like common infrastructure. But that, that reality has not played out. And now it's, as Chad said, revenue. Most of the revenue is going to Circle and then, well, I should say all the revenue is going into Circle and then the majority of that is actually getting sent to Coinbase.

Got it.

Sorry, Chad, I cut you off earlier too on the, on the economics. You want to keep going there?

Well, I think what's, you know, what I think is interesting about dollars, there's so many interesting things, but one of them is that Stablecoins in particular is democratizing access to dollars. I mentioned before how everyone wants a dollar. This is a product everybody wants. Stablecoins are great because they're democratizing access to dollars. That's good for the US. It's good for the world because so many currencies are unstable, certainly relative to the dollar. But what's even, I think, more interesting is being able to democratize access to the risk-free rate. You know, in some ways, you know, it's just a normal banking business model for someone to give you a dollar, you give them no interest, and they— you keep the interest. And like, instead of investing that in like loans, you invested it in T-bills, which is just a loan to the US government. This is the math. Bank, uh, right? Um, if you do it that way, um, and it's not a bank if you hold it in trust for some— in someone's name, and you know, you give them back the interest, um, or even if you hold it in trust, uh, and you might have to keep the interest because the SEC makes you But this is the opportunity here, is can you start to return the economics on a broad basis to the users, not just to the issuer? There's a real tension between what should the issuer collect, what should the users and the distributors get? And I actually don't think that tension is all that complex to figure out. It'll look like a money market fund or other products where, you know, Paxos as the issuer just keeps an asset management fee. And in order to really grow and, uh, have everyone from, um, uh, Anchorage to Robinhood to Kraken who've joined, but, you know, all kinds of large companies want to come on and other institutions use it, they have to be rewarded. And so I think that the long-term business model has to be about having the right regulation so that you can get widespread adoption. It has to have the right economic model so you get widespread adoption. And that's the concept of having USDG, which is the token that we issue, right, in the global dollar network, which anybody can come be a part of.

So, okay, so we'll get a pause on USDG for a second. We'll get into that.

I have one or two more questions on how this works.

So the, um, can you, one of you guys take me into the, how, take me into a conversation with like Circle about the fee split? Because The— if I'm— let's say I'm an exchange. Let's use an example. Let's say I'm an exchange. I'm sitting on like $5 billion of USDC. I imagine how that goes is something like this. I'm the head of an exchange. I call up Jeremy and I'm like, hey, Jeremy, I'm sitting on like $5 billion of USDC. Give me some of the yield. Jeremy's like, no, sorry, I don't have to do that. And then you're like, no, no, no, I'm sitting on like $5 billion of USDC. Give me some of the yield. He's like, fine, I'll give you 1% of the yield. And you're like, well, I need more than 1%. He says no. I'm completely making this up. I have zero idea how these conversations go, but like, is that kind of right? Or how does, how does that work? Or no fees get split with the exchanges and the custodians? Like, how does it work today?

So I can, I can harken back to what I was talking about earlier where I had as I mentioned, 6 or 7 crypto CEOs come to me directly, I think probably after roughly the conversation that you just laid out, and say, we need a new solution. And so the consistent pattern across leaders within the industry is that, that, that conversation kind of ends up in a dead end. I can't speak specifically to how it goes with every, every particular counterparty. But the net-net conclusion is that something new is needed there and that there's not a, there's not a version of that conversation that has a, say, fulfilling outcome.

Okay. Is the idea— is the dream model— as I actually really like what BitGo did with USDS, I actually, I don't really know the mechanics of it very well, but like, I really like that USDS lets the exchange or the the— I don't know what we're calling exchange or custodian or whatever, the holder of the USDC decide about the yield. This feels like a good model.

Yeah, we in this model, we think of them as distributors. A distributor could be an exchange, could be a custodian, could be a, could be a fintech. And so that's the, that's the whole idea here is anybody who within their platform is promoting and is kind of driving adoption of the, of the particular stablecoin should be able to share in the economics there, not dissimilar to the way Chad described the money market funds. So any of the distributors should be able to participate. And that's just like a more sensible model, matches more with what happens in dollars and is something that's actually going to allow a stablecoin to reach real scale.

So you think the dream stablecoin model here is the stablecoin takes like small bips probably on fees. The distributor has the rest of the yield or the fees, and then they get to make the decision on how much gets passed to the user. They could pass all 5%, they could keep the 5%, they can move it up and down based on, you know, marketing campaigns. That's what you think is the vision?

I think so. Chad, you want to add anything there?

Yeah, I mean, I agree. It's— in another way of describing this, if you said there's 100% of, uh, uh, of the interest that's earned on balances, um, maybe some small percentage, 3, 4, 5% is going to the issuer. 95, 96, 97% is going to the network, and it's going based on balances and activity, etc., that help to grow the network and incentivize the behavior that enables the pie to grow for everybody. And so the whole point is take all of that, put that into, um, a really transparent model so that people can come in and be able to benefit from growing the network together. Because it's very hard growing networks. Uh, everyone understands like 0 to 1 is very hard. Uh, 0 to 1 networks are hard. Um, and, uh, how can you make sure that if people want to come in— by the way, people come to us all the time to launch white labels, just like they were coming to Nathan. You know, we launched PayPal's white label stablecoin. We're familiar with this. It's hard to do. It's not easy to launch white-label stablecoins. It's not easy to launch a stablecoin period, whether it, you know, you're using someone else or not, um, because you have a zero-to-one either within your own company— if you're a big company, it's like, well, how do we make this a big enough priority to embed it everywhere? And then you have a zero-to-one within the broader ecosystem. And the point of returning all the network's, uh, rewards, uh, to the users as opposed to the issuer is This is in everyone's interest to grow.

Can we double-click on PayPal? Um, like for instance, like why wouldn't they— like, I understand like inertia within the organization, but like, don't you take the view that every company is going to want to launch their own stablecoin as opposed to use USDC? Because then they can capture more value and it's like a rewards program for them, right? If it's out of the box, then like, why wouldn't you want to have your own stablecoin versus use something else.

I mean, you may very well, may very well want that, uh, because you're going to be able to have a reward program. Yeah, but on the other hand, and make more money, you know, like you would make more money. But I think if you basically set up something like USDG, the economics won't be materially different. The way the economics really would be different is if you're able to grow it so that people off of your platform want to use it.

Like PayPal, right? Like a company like PayPal. Yeah, like Starbucks, maybe not so much, right?

And so you have PayPal would have to basically say, okay, and we're going to grow this in the crypto ecosystem, we're going to grow this in whatever ecosystem. It's not just the, uh, the customers. And I think of course they're committed to this, that's what, what they're doing. Um, but that's what you have to do, otherwise you're— it's very hard for you to earn more economics than you would in the correctly constructed, uh, network model that we're describing here. Because really, where the— where is the interest coming from? It's coming from the balances you have on your platform, and they're coming from the balances that you have off the platform. If you have no balances off the platform, they're all on the platform, um, you know, what you're really getting is control. And in, say, a USDG model, you might get all the economics, everything on your platform anyways. So you're not getting a difference in the economics, you're getting a difference in control. And that can be useful, but you're not going to really generate a lot of economics unless off-platform balances are significant. And that's hard to do. That's what's hard to grow. If you're a big company, uh, you might be able to pull it off. If you're a smaller company, it's pretty hard. We've seen that with a lot of different, uh, newly issued stablecoins. That's the tension here. And what we're trying to do is resolve both of those, which is you can get the benefit of having the economics for what's on your platform, but you also get the economics of everything that's off platform as well.

Yeah, I think one of the— I think, Satya, the way to think about that one is if literally every company comes to that conclusion, we all must launch our own stablecoin and you end up with Kraken USD, Anchorage USD, Walmart USD, Robinhood USD, every single one of these over time. And then you just kind of have this balkanization of all the, all the different stablecoins. The winning sweet spot is can you give each one of those companies exactly the same economics as if they launched their own, but in a consortium model so that they benefit from the network effect and distribution that can come from liquidity passing to all of them. And so that's basically the way that this plays out. And anybody that we're talking to about USDG, many of them come in with the same starting thesis, which is we want to launch our own. And then it only takes about a 15-minute conversation to realize that like, oh, if we can get all the economics with something that's already popular, that's the right move.

And how do you, uh, manage that tension with the economics? Is it, hey, we're a better model than the current construct, um, and maybe have a bigger player like Walmart and PayPal, but then you have a smaller company? Like, working through those economics, like, has there been tension? Do you anticipate tension, uh, detractors? Like classic game theory.

Um, so in that case, by the way, those are just, uh, kind of examples. I wouldn't— I wouldn't— didn't mean to say there's any kind of conversations going on there, but the, the point is, is that, um, the, the stable equilibrium is effectively for distribution of the rewards as much as possible to the distributors, and then the distributors can then decide how to pass those back on. And you can actually get fairly close to idealized version of that such that it doesn't— they don't feel like they're leaving something on the table and there's not a net increase that they could have gotten from doing it themselves.

Yeah, can we touch on the—

we have run the economics on this for people, uh, just so you know, and it's actually— you get more economics from joining this than you do from launching your own white label in almost every scenario.

Yeah, Charles, you read my mind.

I want—

I wanted to, uh, to discuss the cost structure, right, from an LTV, like just from a unit economics, like if you're launching your own versus using consortium model, like that— that's— is that what you mean, Chad? Like, like, um, net—

yeah.

More economic to go through the consortium model.

That's right. I mean, you can, you know, get— dive deep into like these models and how it works, etc. We've done this. I think we've now issued like 5 regulated dollar stablecoins, um, and, uh, we're very familiar with what it takes to issue different types of stablecoins, different jurisdictions, different models, different costs, what the benefits will be. And I can tell you the USDG model is the best model.

Okay, can we, can we talk USDC? Or go ahead, Santi, you wanna—

well, maybe that— yeah, that's the same. I want to just like get your thoughts around USDC and then like how does the stablecoin market really, um, like evolve, um, and how do you see it kind of materially shaping out over the next couple years?

Let's talk USDC. So there's two things here, right? There's the global dollar network and then there's the stablecoin itself. Um, and the global dollar network is these It's these 7 folks, right? So one thing— so maybe I'd love to hear how this came to be because these names are all— there's— yeah, I'd love to hear how, like, you pulled these 7 names together to do this.

Well, maybe let Nathan take it away. It involves another bar and another drink.

So, yeah, I mean, I think the general idea here was maybe, maybe something could happen. There was general dissatisfaction with the existing options, both from a, like Chad said, economics sharing mechanism and from the fact that there wasn't like a solid regulated stablecoin that was getting popular. And so that's basically the theory was, okay, let's get something together. There are a lot of brainstorms between the Anchorage team and the Paxos team. Kind of convinced ourselves like, okay, there's something here. We're not kind of on our own with this. And so then started socializing this idea to some of the names that you see here. And the idea got legs and so kind of got increasing validation that this is a real thing. It makes sense. There were some folks here probably thinking about launching their own who looked at it and were like, oh no, it's actually a better idea. To join the, the global dollar network. And that's where, um, the kind of snowball effect, uh, kind of got going.

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What is the unique thing that each of these folks brings to the table? Like, why did you need this many names?

Well, there are a couple of components. Certainly people bring different things, um, You have exchanges, you have brokers, you have custodians, you have payment companies, uh, you have different types, uh, market makers. So lots of different types of players, um, and that's what you need for an ecosystem. That, that's important. Uh, but the fact is it's not limited to these number of players. These are just the people who, uh, signed on initially. Uh, we have a lot of people who are joining. This is an open network. Anybody can come join. The doors are open. People want to come in, please. We want you to join. So it's not limited in any way. You're a company, you can join this. And that's a very important concept here. We haven't tried to put up something that is either opaque or closed or a closed garden. This is open for everyone.

What are the fees that this network takes on the stablecoin?

Well, the interest you get on the balances. So let's just say the interest is 4.5% to make it easy. We earn some fee as the issuer from an asset management perspective. The rest of it gets returned to the network.

So it's not like Robinhood is making some percentage of every USDG out in the world.

So the way we get paid, so let's call it like 25 basis points just to make it easy.

Sure.

We earn 25 basis points. That means there's 4.25%. That is what's accruing on all the balances. And that's going to get paid out based on balances that someone has on their platform versus activity that the network participants are bringing. And that activity would be, you know, essentially, uh, net minting, growing the amount of USDG that exists, and receiving, being a recipient of it and using it. And so we incentivize that behavior because you're growing what's on your platform and what's off the platform. You're growing the utility and you're growing the, uh, the movement and usage. That's what we want. And so you can absolutely earn more interest than your balances would earn you if you— by having USDG. That's positive. And that's really what we want to incentivize because it should be something that's valuable for everyone to use.

Yeah. Yeah. Why did you guys issue this over in Singapore instead of the US? And is there, is there any regret now that, you know, we're moving into Trump's admin? It's like, oh crap, if I just waited a couple of months, we could have probably done this in the United States?

Well, look, you're never going to get like a perfect timing and like—

yeah, of course, perfect regulatory environment.

We've issued in from 3 different regulatory regimes now, uh, both New York, uh, Singapore, and Abu Dhabi. I think there's a lot to be said for each one. They're enabling you to do different types of things. Um, and you know, still right now the US doesn't have a stablecoin— stablecoin legislation or stablecoin framework that it can use. Um, but there are really credible regulators in the world where that exists. Singapore is one of them, and Singapore is one of the biggest dollar trading hubs in the world. It's the home of the Asian dollar trading market. Um, you know, dollars traded in London, uh, that's why the LIBOR existed— London Interbank Offer Rate. And, um, uh, the euro-dollar market, uh, that's not euros trading in, uh, against dollars, that is dollars that trade in Europe, trade out of London. That happened for 70 years, you know what I mean? Like, you can have large financial centers, they don't have to be in the US. We're US-based companies, I want the US to succeed, this is great for the dollar. Um, what we want to make sure is we have the certainty, the clarity, and the consistency from a regulatory standpoint to be able to build, not for just the next year or the next 3 years, but the next 5, 10, 20 years. And there's going to be a multi-regulatory regime that happens we already saw this with Europe, where you're going to have to follow different rules in different places. And that's going to make it so that there's clear trans— uh, portability over time and a clear set of standards. So I don't look at it as like, oh, we're in Singapore, we can't operate out of the US, or, you know, if we would have done the US, that would somehow put us in a different position with the, uh, how we could grow the businesses. I look at this as all an and, not an or.

Yeah, yeah.

I'd say I'd just add something there that's, I think relevant to that conversation is in talking with even current administration in Treasury Department and other parts of government. And then I think the, the new administration that is going to come in, I mean, Trump in Nashville talked about this idea that stablecoins should be treated as a strategic asset of the United States and the kind of the core premise of treating stablecoins as a strategic asset is the core of that thesis is a US-based stablecoin should get popular and that should be something that is kind of in the US interest, if you will. And core to that is having a model that can actually scale, that can actually meaningfully act as true infrastructure for the industry. And I think it's, I think it's pretty clear to folks in government that they, a popular stablecoin does, the currently popular stablecoins do not have a chance to be global scale because of the economic model, because of the lack of regulation, and that there is basically a greenfield for creating one that has the right mix of things to actually be a strategic asset. Yeah, we're currently lacking a stablecoin that could be a strategic asset to the United States, and we're hoping that Global Dollar and USDG can become that.

Yeah. At what scale does the, does the model become profitable? Because you guys aren't keeping much of the, much of the money, right? Chad, you're muted.

Sorry about that. When you mean profitable and you're talking about Paxos as the issuer or the network itself, because the network doesn't have costs per se, of course, people are changing their systems so they can make them compatible with USDG or maybe want to preference USDG over other stablecoins. So there's work to be done. But, you know, this is just in some sense found, found money for people.

Oh, okay. That just clicked. Sorry, I wasn't getting it before.

I get it. I get it. Yeah. So you just said it.

I mean, for us at Anchorage, it's very clear, like, we encourage our clients if they, if they're into it to change their USDC into USDG, and then it's immediately more revenue for us and more.

Have you already done this with the clients?

Yeah, yeah, we've got this. It's live with—

what's the reaction been? Do people— what percentage of the clients want to actually do that?

It's totally obvious. It's like, like Chad said, it's found money. They're like, they're currently making nothing off their USDC deposits. So it makes all sense in the world to translate into USDG.

And what's—

that's going to be the case for every single distributor to every global exchange, every fintech, every custodian. It's going to be the obvious choice for them to move into this.

What do you predict will be— I mean, if this keeps happening, obviously USDC will lose market share this year. So I mean, Circle and Jeremy and stuff aren't dumb. Like, I consider them to be very good operators. They've got to react, I would assume. So what do you imagine is the reaction here?

You want to handle that?

It's hard to say what a reaction could be. I think the— it is a, in some ways, a fundamentally different business model that we are saying is the stablecoin business model. And so it's kind of difficult to have a response if like if the The goal with USDG is basically to give away all the economics.

Yeah, well, it's, it's a very interesting thing because it's alongside this backdrop of a Circle IPO that people are talking about.

Right.

So there's a— it's like, do you want to keep the fees high but lose market? It's kind of actually like what Grayscale went through. Right. Do you keep these fees really high, but you're going to lose a lot of users and lose market share? But you'll still make a lot more money in the short term. It's a, it's a very interesting question.

Yeah, well, in some sense they are much different business models, um, because in one case you're lending money. You are lending money to Circle or lending money to Tether. You're not lending, uh, money, uh, to us from a regulatory standpoint. So that's one way it's different. The second way it's different is if you do call— think of it all as a loan, you're getting $0 back on the loan that you're making. Zero interest. Hmm. Does that make sense? Like, you have more risk, you know, because it's like you have a counterparty risk and you're not getting paid anything. Here, you're not taking any risk, or very little. It's just operational risk because the assets are held in your name ultimately, and you're getting all the economics back. That's a radically different business model. I do think that they can exist side by side. I do think that there is a lot of value for people in certain parts of the world to use Tether. and they'll keep using Tether. I think there's a lot of value, um, in being able to use a payment asset that doesn't have any yield to it. Um, but if you thought about like the way the banking system works today in the financial system, again, it's always going to be different because you have a different distribution mechanism, a different substrata now is possible. But look at what happens. There's, I don't know, $20-some trillion of deposits in the U.S., or I think it's more like $17 trillion. Um, there are $6.6 trillion in money market funds. Uh, what percentage of them yield zero? What percentage of them yield zero? Basically nothing. Yeah, let's call a couple hundred billion, a bit, whatever. Even if the trillion dollars, it's like less than 5% of money yields zero, you know, definitely well less. Uh, hard to always tell with bank money, uh, non-interest-bearing deposits. That's not what— that's not going to scale. Like, you're going to have to have something that can move around where you democratize essentially the risk-free rate here, and that will completely transform the financial system at its base level. And that is a different product. And it's not an— I do think that is an and, but we should really think about traditional stablecoins as having a natural ceiling to them when they're constructed this way. It doesn't mean it's not a good business. There are people who run— there's lots of banks that give you zero interest and they're successful businesses.

Yeah, yeah. The counter is probably actually not about the product at all. It's that USDC has Coinbase's distribution and Tether has offshore volume and distribution. That's probably— it's probably not even a product question. It's a—

but I think that's— I think that is the core of one of the other aspects that I think is going to be a kind of a theme that plays out for the next few years. Which is one of the, one of the things we do at Anchorage is we talk to a lot of the, a lot of the protocol teams who work very closely with a lot of protocol teams. And many of the protocol teams are catching on to this idea that USDC coming onto their chain subsidizes the development of Base. And so literally the, the Coinbase distribution is an anti-feature of USDC. Because any, any particular chain looks at this and the base is the, is the main competitor to most of these new L1s and L2s. And so why would you as a protocol founder or a protocol foundation that is looking to, to grow on-chain activity decide to list an asset that is going to subsidize your main competitor in base? And so more and more of the protocol founders are looking at that and saying, Why would I do that, particularly when they are being asked to pay to get the asset listed, pay to get USDC brought to their chain? And so that's, I think, another trend where specifically that association is going to be one of the things that leads more, leads more chains and more protocols to decide, hey, we actually don't want USDC in our ecosystem.

Yeah, I mean, another way of also thinking about it is Coinbase has done a great job of building a business that's quite expansive.

With.

It's a broker, uh, on a retail basis, institutional basis. It has a prime brokerage business. It has the exchange. Uh, it has a custodian. It has a self-custody wallet. It has a chain. It has a bunch of other things too beyond that— payments and so on. Um, that's a lot of things that it's doing, and it's a lot of people competing with. And it's getting paid, you know, 65% of USDC's revenues. And so anybody who's competing against Coinbase in any one of those lines by using USDC is paying them. And maybe that's worth it because the network effects and the simplicity of using it is worth the fact that you're paying your competitor. But ultimately, that's, I'd say, something that the consistent feedback has been that it's intolerable.

Yeah.

To do that on a long-term basis.

Yeah. Well, switching gears a little bit, one thing we haven't talked about at all, we've been focusing on Tether and USDC, is Athena. So Athena's obviously had just a massive last 12 months, right? They're now the third biggest stablecoin, USDE is. I'd love to just get your guys' take on Athena as a business model and as a stablecoin.

I'll go real fast. It's not a stablecoin. It's a great— it's a great way to do a basis trade. And I think that's completely reasonable. I think it's very good. Like, you want to earn, you know, but it's not a dollar stablecoin. It's not basically buying a dollar and giving you a dollar, uh, holding a T-bill. It's the liability on the other side is not a US government short-term liability that matures in like, you know, 4 weeks or less. It's the basis rate. And that is a completely, to me, that's a totally fine thing to tokenize. You tokenize the basis rate, but you can't call it a dollar stablecoin.

Do you, what are the sec, like, how do you anticipate that evolving over time? Like, is it scalability issues or just adoption issues in, into the real world? Like, obviously, Nathan, in your opening, like, yeah, you need to have distribution for a stablecoin to really scale and have stability.

But yeah, look, I think the, the, the incredible trend that's happening in, in DeFi and crypto broadly is what I would call financial experimentation. And so I think we are— the industry at large is kind of at the forefront of doing some of the most interesting financial innovation, even just the idea of perpetual futures, these auto-rotated futures contracts, is a really, really neat idea. And I think we're just going to have a whole host of very interesting products and services built within the DeFi ecosystem. And so there's a, there's a lot of history of hedge funds and trading strategies that are, like Chad said, intend to be neutral in terms of their value and then kick off some income. I'm part of that. This is— there's a whole group of strategies that are like this. We typically put these strategies into hedge funds. So the typical way to get access to basis trade yield is through a hedge fund. And so doing those kinds of trades and putting like neutral strategies into a product and making that available, that's cool. People should know what they're— that they're getting into. And yeah, I think those are going to be popular. The reason it's popular is because it is economic sharing. It is taking the yield that comes off the basis trade, sharing those economics back with the holders of it, which is one of the core issues with the existing popular stablecoins. So in our view, the value of Athena or the kind of the popularity of Athena is a reason to think that a regulated and economic sharing stablecoin ought to be able to have some growth. So big fan of the Athena team, big fan of the experimentation that's going on there. And I think it's going to be one of many experiments like that.

Yeah, yeah, I think it's great to buy the token as a basis trade. I just want to be really clear, I just don't think we should call it a stablecoin. I think that is like doing things a disservice because it's going to have fluctuations up and down. You can generate really good yields in certain times, less yields at other times. It's even possible it can go negative. Whatever happens, that's all fine. Um, like, you know what I mean? Like, there's a good way to make it very easy for you to be able to get in and out of, um, a specific type of action that you might not want to do for any number of reasons.

Yeah, yeah, that makes sense. Um, guys, as we think about kind of bringing this conversation home, I would love to just hear your big ideas for what you think will happen in, uh, In 2025 with stablecoins, probably the two big questions on my mind are, will we actually see stablecoin legislation? And then the second thing is, one of my predictions for the year was we're going to see exchanges and custodians and fintechs and tech companies and banks all launch their own stablecoins. I think now after this conversation, I know your answer to the, to the latter one, but I'm curious maybe about the, the former stablecoin legislation.

Well, you know, The thing with legislation is it's very hard to predict because there are so many things that are in flux with the new administration. And you have immigration and you have tax policy and you have the border. And maybe it can all pass with one big beautiful bill, so to speak, but it might not and probably doesn't. But you never know. And so it could be that you clear through a backlog of things that are the top priorities. And I think crypto is a very high priority, but it's not like the top 3. And it's bipartisan. You know, there are good bills that passed out of the House and House Financial Services Committees on market structure and on stablecoin and things that have passed through both houses like SB 121. And it's bipartisan all the way around. And so I think it'll get through. It's just a question of you got to get time in the calendar. There's all these different mechanics that we don't necessarily think about that allows it to work operationally. My understanding is, like, the best guess is that's the end of this year is the soonest. It could actually end up being next year. And by the way, that's easier to get through than a crypto market structure bill. Um, again, I, I could end up being off by a matter of quarters because you just— there's so many variables that we can't control. But I would say best guess, end of this year would kind of be a relatively happy path.

No disagreement there. I think Chad's right on that. And I would just underscore this is a big reason why we decided to go ahead and launch Global Dollar and USDG last year, because we didn't want to wait for legislation. It's kind of hard to know exactly when legislation will happen. It does seem like there's a good amount of interest in this across both, say, newly elected folks existing Congress and new Congress. And then also I would say kind of career folks within Treasury, Fed, and other areas. So I do think there's a lot of tailwind here. But, you know, bills are hard and our system of government is kind of set up to make bills hard so that only stuff that really everybody agrees on comes through. So I think we got the raw material to make something happen. It's just going to be a question of timing and calendaring and priorities.

Yeah. All right, let's, uh, let's wrap with, uh, would love to hear your guys's, uh, craziest, maybe most bullish, uh, stablecoin prediction for the year. Chad, your face tells me you have about 7 of them.

So I mean, I, I have a bunch. I'm gonna think about, you know, how to organize those together. The other thing is, you know, it's a stablecoin market. It's not crazy market. At least it shouldn't be. It should be a very stable market. Um, I think that, um, you know, I think, you know, there's a couple different ways to think about like what could happen crazy. One is market cap and one is who has driven the adoption. And, um, uh, I think you could end up seeing something like pretty remarkable in both. I think you could end up in a world where stablecoins, you know, get over to over half a trillion dollars in market cap by the end of the year. Um, you know, just really big. And I think that can be driven by some really, uh, large adoption by some of the, uh, big, um, payment and wallet companies. We've seen PayPal do it. Um, we haven't seen a lot of others do it. I think everyone's taking a look, and it wouldn't be surprising to me if you see big payment companies well over a billion people using stablecoins and half a billion, half a trillion dollars of stablecoin balances. Now, it's also possible that doesn't happen. Like, you're trying to come up with like a big crazy prediction that is possible. But I would also put like, you know, it's hard to have more than like 25 or 30% confidence that happening in 12 months or 11 months now.

Yeah. Nathan, bring us home.

Yeah, I think certainly the market cap would be the easy one. I think that the thing I would maybe analogize to is the last couple of years with large public companies adopting Bitcoin as a treasury strategy, we will see something equivalent to that notion where it's large, maybe surprising public companies that will decide that stablecoins are an integral part of either the payment systems they build, the forex systems that they use and operate, or maybe even potentially the, the treasury strategy. That they look to go forward. And so I think that's going to be the big one is the validation by large conservative public companies adopting.

Nice. Chad, Nathan, appreciate you guys. Congrats on everything.

Thanks so much for having us.

Yeah, a lot of fun.

Hey everyone, just wanted to give a quick thanks to today's title sponsor, Geodnet. By setting up a base station, you can get involved with this ground-based groundbreaking Web3 ecosystem. Learn more by heading over to geodnet.com or just by hitting the link in the description of today's episode.