Speaker 1: What's it like looking back to and seeing the firms
Speaker 1: that you worked on, like City and JP Morgan, now
Speaker 1: they're all in.
Speaker 2: They're definitely not. I would say it's far more theater
Speaker 2: than actuality. And this is something I think it's important
Speaker 2: for crypto people to understand. The power structure at banks
Speaker 2: and tech companies is basically reversed. At banks, the tech
Speaker 2: teams don't matter. They are far down the stack. They
Speaker 2: are not the important people. The revenue is the commercial bankers,
Speaker 2: the people running the credit card platform, the investment bankers,
Speaker 2: and the traders. Because I look around at the street,
Speaker 2: what I'm seeing is a lot of science experiments by
Speaker 2: people who don't have P and L.
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Speaker 1: welcome into the Thinking Crypto podcast. I'm your host Tony
Speaker 1: Edward and we are recording at Station three in New
Speaker 1: York's Financial District. And joining me is Austin Campbell, who
Speaker 1: is the founder and managing partner at Zero Knowledge Group
Speaker 1: and an adjunct professor at NYU Stern. Previously, he ran
Speaker 1: Stable Value Trading at JP Moore, was the cohead of
Speaker 1: Digital Assets rates trading at City, and was the head
Speaker 1: of portfolio management at Paxos. Austin, great to have you.
Speaker 2: Good to be here. I'm looking forward to this one.
Speaker 1: Yeah, absolutely, Austin I appreciate you a lot. I'm not
Speaker 1: saying that to make you feel good, but you have
Speaker 1: a plethora of knowledge. You're very, very knowledgeable in digital
Speaker 1: assets and what's happening in the crypto industry. You've testified
Speaker 1: before Congress and much more so.
Speaker 2: I think it's a.
Speaker 1: Great time for us to be talking to get your
Speaker 1: perspective on what's happening, get the lay of the land.
Speaker 1: I think I want to start off with, are you
Speaker 1: planning to leave crypto to go into precious metals.
Speaker 2: I'm planning to bring precious metals to crypto, right, Like,
Speaker 2: hold on, Like, let's figure out the pathway here. I mean, so,
Speaker 2: one thing I would say that I think is very
Speaker 2: important when you're looking at things is if you're a trader, right, so,
Speaker 2: if you're at like Go Anywhere type fund, if you're
Speaker 2: engaged in certain strategies where you're providing liquidity, they have
Speaker 2: to follow essentially the hot ball of money wherever it
Speaker 2: moves between markets, right because that's going to drive interests,
Speaker 2: that's going to drive trading volume, that's going to drive premiums.
Speaker 2: So some of the discourse that you're going to see
Speaker 2: online moving from crypto to precious metals right now, or
Speaker 2: you know, move from game stop to crypto. In the
Speaker 2: first place you've got to understand is there's a whole
Speaker 2: business model of like liquidity, provisioning, trading, like all of
Speaker 2: these sorts of strategies that work on where the money
Speaker 2: goes and money and markets just flows around.
Speaker 1: Right.
Speaker 2: Great, it's a totally different thing to be a long
Speaker 2: term investor and builder, right Those people are kind of
Speaker 2: agnostic to market cycles or maybe even in some ways
Speaker 2: countercyclical to those. And so one of the things that happens,
Speaker 2: and this is true of all markets, like we talk
Speaker 2: about it in crypto some, but this is actually true
Speaker 2: of all markets, is that when the tide goes out
Speaker 2: and the hot money leaves and the attention leaves, there
Speaker 2: are people who are the long term thinkers left behind
Speaker 2: who continue building things. And the question of when the
Speaker 2: next cycle shows up is fundamentally a question of are
Speaker 2: the things you're building things that work and have any
Speaker 2: value and capture people's interest again, or are the things
Speaker 2: you're building kind of crappy and don't work and aren't valued,
Speaker 2: in which case they're going to get washed out and
Speaker 2: then people are going to try again. And if there's
Speaker 2: really no there there, you could have an entire sector
Speaker 2: die like good example, like can anybody point me to
Speaker 2: a horse and buggy company in the s and P
Speaker 2: five hundred right, Like that's a thing that just got
Speaker 2: wiped out by the forward progress of technology. But there
Speaker 2: are consumer package goods companies, There are banks, there are
Speaker 2: insurance companies, and some of them are very new if
Speaker 2: you look at like SOFI, very recent. But if you
Speaker 2: look at like JP Morgan, like hundreds of years of
Speaker 2: history and so each industry. As you look at that
Speaker 2: hot ball of money phenomena, you've got to differentiate between
Speaker 2: call it the trading and short term investing and like
Speaker 2: the long term ability.
Speaker 1: So Austin, A couple things I want to peel back
Speaker 1: from that is is it the idea of you mentioned
Speaker 1: traders and market makers right, they're looking for markets where
Speaker 1: they can get the best returns. But also there is
Speaker 1: a cyclicality with the macro, the FED liquidity and all
Speaker 1: these things. So you think it's a combination of factors
Speaker 1: as affecting crypto right now?
Speaker 2: Oh one hundred percent. I think you know the right
Speaker 2: way to look at this is assets have value from
Speaker 2: a number of different perspectives. One of them is like
Speaker 2: call it fundamental value value investing, right, like the classic
Speaker 2: if everybody else hates this, right even at that level,
Speaker 2: like what is this thing worth if I just strip
Speaker 2: it down to the studs? Right? So, like the classic
Speaker 2: example is like buying bankrupt companies for less than the
Speaker 2: value of their inventory because you could just go liquidate
Speaker 2: the inventory and things like that. Okay, you know what
Speaker 2: that is a floor that you're going to find out
Speaker 2: value for a lot of things. One of the problems
Speaker 2: you have in crypto and maybe large is there's often
Speaker 2: no real floor value, or if there is, it's very
Speaker 2: very low, because like what's the floor value of doge coin?
Speaker 2: Right exactly?
Speaker 1: I mean I guess my initial thought would be because
Speaker 1: I thought about this a lot would be network effects
Speaker 1: metchaps law. Could you say, the brand to reach the affinity?
Speaker 1: But then is that tangible?
Speaker 2: Doze is not Like Doze is not a brand you
Speaker 2: can buy, Like how do I buy the doge coin
Speaker 2: intellectual property? Right? Like that's not how that works. And
Speaker 2: so there is like no or very little fundamental value
Speaker 2: for a lot of crypto. So then you get to
Speaker 2: the second level of potential value here, right, which is
Speaker 2: future expectations of growth. This has been the driver of
Speaker 2: many tech companies. If you look at the valuations historically
Speaker 2: of tech companies, they've traded vastly above current earnings. And
Speaker 2: that's totally rational if you think future earnings will be
Speaker 2: very big, right, and so so long as there's a
Speaker 2: belief in like future platform, future earnings, future scale, then
Speaker 2: you would expect those values to hold up. Number three
Speaker 2: is sort of what I'll jokingly call the mimetic or
Speaker 2: trading value, or just people are buying it because other
Speaker 2: people are buying it. Like, whether you like that as
Speaker 2: a concept or not, it's real. We see bubbles and markets,
Speaker 2: We see people who are buying things, especially in like
Speaker 2: meme coins or collectibles because they think other people will
Speaker 2: buy them, right, sort of greater fool theory is one
Speaker 2: way of describing it. And so all of those forces
Speaker 2: right now have been working against crypto. If we're being
Speaker 2: totally honest, you're seeing very little like core fundamental value
Speaker 2: for some of these things, especially non RWAs RWAs live
Speaker 2: in their own world, but like for crypto native assets. Two,
Speaker 2: you've got to ask about future adoption. And here's where
Speaker 2: I think there's been a real problem, which is with
Speaker 2: genius passing with more institutione utional people coming into the space.
Speaker 2: Something I've actually been talking about for a while. I
Speaker 2: think I said this like two years ago on odd
Speaker 2: Blots and it kind of shocked Joe and Tracy at
Speaker 2: the time. Was just because people adopt crypto, I don't
Speaker 2: know that the value accruise to the current platforms are tokens, right,
Speaker 2: So like when JP Morgan or Fidelity Right or Stripe enter,
Speaker 2: is that value going to a crue, to etherorium in
Speaker 2: salata or are they going to do something else to
Speaker 2: capture the value for themselves. Like it was never obvious
Speaker 2: to me that growing adoption equals token price go up,
Speaker 2: and I think other people are seeing a little bit
Speaker 2: of that, and that's been weighing on tokens because if
Speaker 2: you look at the divergence between bitcoin and alts.
Speaker 1: Yeah, yeah, to your point usin we've seen over the
Speaker 1: past quarter or so or even more incredible adoption things
Speaker 1: we would have never thought of back in twenty fourteen
Speaker 1: or twenty fifteen, Banks using bitcoin and crypto's collateral, incredible
Speaker 1: tokenization happening on eth and Solona and so forth, and
Speaker 1: then you have more ETFs than ever I mean on
Speaker 1: rams being built, and it's not just the United States
Speaker 1: but across the globe. But yet something seems broken. How
Speaker 1: do we get out of this? How do we recover
Speaker 1: from this?
Speaker 2: Well, the first thing I would ask is is something broken?
Speaker 2: Or were things broken before? And now we're discovering that.
Speaker 2: What I mean by that is it's the classic where
Speaker 2: is the value captured? And what was the valuation? And
Speaker 2: so if you compare like crypto market caps to public
Speaker 2: company market caps, there have been some highly aspirational market
Speaker 2: caps in crypto where there were times where like you
Speaker 2: look at ethereum and you're like, this is worth more
Speaker 2: than almost all the banks. Do we think that's correct?
Speaker 2: Like I would genuinely ask that question, like the reality
Speaker 2: as token prices may have just been too high and
Speaker 2: the correction is healthy because that will bring us back
Speaker 2: down to more realistic expectations. The other part is if
Speaker 2: they weren't too high, the way you fix it is
Speaker 2: by building much better platforms to capture more of the
Speaker 2: economic value when people adopt. But again, crypto has this
Speaker 2: magical way of like speed running history, and there was
Speaker 2: the whole fat protocol thesis, which was similar to the
Speaker 2: idea that the rails are going to capture a lot
Speaker 2: of the value in finance, and it turns out no
Speaker 2: whoever has the customer relationship captures the value right like DTCC, Yes,
Speaker 2: is less profitable than like being one of the global megabags,
Speaker 2: even though every single global megabag uses DTCC to settle securities.
Speaker 1: Hmm, that's so interesting. I feel like, Austin, you're kind
Speaker 1: of breaking my mental model and crypto to have had,
Speaker 1: not in a bad way, but getting me to think
Speaker 1: outside of that boss.
Speaker 2: This happens a lot. And what I mean by that
Speaker 2: is and this is something I would urge people, not
Speaker 2: just in crypto, but also traditional finance to think deeply about,
Speaker 2: which is we're at a point in time where you're
Speaker 2: having a collision between two traditional forces. Right. You have
Speaker 2: traditional financial practices, which has centralized lots of intermediaries, and crypto,
Speaker 2: which is decentralized with few intermediaries excluding maybe centralized crypto exchanges,
Speaker 2: which somehow are even more consolidated than finance. But ignoring those,
Speaker 2: these two are like slamming into each other at high speed.
Speaker 2: That is a chaotic situation, and you need to think
Speaker 2: deeply about where is value going to accrue and what
Speaker 2: are future systems going to look like. And what I
Speaker 2: would tell you is that I think the crypto community
Speaker 2: has had a lot of incorrect beliefs about how things
Speaker 2: work that have led them to value things that quite
Speaker 2: frankly don't have much value. However, I would level the
Speaker 2: exact same critique against the traditional financial industry, Like, if
Speaker 2: you think a lot of your centralized intermediaries are going
Speaker 2: to retain their value ten twenty thirty years from now,
Speaker 2: you guys have no idea what's coming, and so it's
Speaker 2: sort of going to like scramble everything on both sides,
Speaker 2: not just one side or the other. And so this
Speaker 2: sort of psychic shock that I think people experience sometimes
Speaker 2: when I talk about these things is because I've lived
Speaker 2: in both of them and like tried to pay a
Speaker 2: lot of attention to the actual market structure on the
Speaker 2: ground and where the value accruise, and I think that
Speaker 2: leads you to some surprising places.
Speaker 1: Pardon the interruption. Hi, I'm Tony. I'm the host of
Speaker 1: the Thinking Crypto podcast. I wanted to ask you if
Speaker 1: you can please support the podcast by hitting the like
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Speaker 1: the content. Thank you so much. So, speaking of the collision,
Speaker 1: do you see that this convergence over time will blend
Speaker 1: the markets where it won't be the tratfi markets and
Speaker 1: the crypto markets, it will just be the.
Speaker 2: Market, correct, Yeah, Because like, let's zoom out here for
Speaker 2: a moment, right, what is the value of a blockchain?
Speaker 2: So not Bitcoin specifically, but like any blockchain, all right,
Speaker 2: it is more decentralized for some definition of decentralized than
Speaker 2: central ledgers, because if it's a single company running a blockchain,
Speaker 2: that's not a blockchain. It's a database, right, you have
Speaker 2: unilateral control. So to be a blockchain I'm going to
Speaker 2: subscribe to. You've got some theory of call it credible neutrality. Now,
Speaker 2: is that completely decentralized anonymous validators like ethereum or hypothesis?
Speaker 2: What if the five hundred largest financial institutions in the
Speaker 2: world all just ran a blockchain right where none of
Speaker 2: them had the power to unilaterally change. That's actually still
Speaker 2: quite decentralized. Fine, but those are blockchains. Two, they tend
Speaker 2: to be open access, and this like, we talk a
Speaker 2: lot about decentralization, but I actually think the open access
Speaker 2: part is more important in the long run. And what
Speaker 2: I mean by that is the traditional financial system. It's
Speaker 2: a little bit like getting into this building. You have
Speaker 2: to go to the front desk, you have to check in,
Speaker 2: they look at your ID, they let you in. If
Speaker 2: you're on the list, you come up here, you do
Speaker 2: the podcast. Okay, fine. Blockchains are more like a public park.
Speaker 2: The default is you're allowed in, and in many cases
Speaker 2: you could be kicked back out for bad behavior, especially
Speaker 2: with RWA's or permissioned protocols and things like that. But
Speaker 2: the reality is in many bitcoins a little different. But
Speaker 2: certainly for like stable coins, token is stocks, tokenied gold,
Speaker 2: there's not infinite tolerance for bad behavior, but the default
Speaker 2: assumption is yes instead of no. That change is huge.
Speaker 2: The other part is it's an omni ledger. That means
Speaker 2: we can put all this stuff on there right if
Speaker 2: you live in the United States right now and You've
Speaker 2: got a Fidelity account, a bank account, and a coinbase
Speaker 2: account getting money from here to here to just kill
Speaker 2: me now, it's crazy, right, Whereas what the blockchain instant
Speaker 2: or at least close to instant. And so it is
Speaker 2: these open access and omni ledger components that I think
Speaker 2: are more powerful for financial markets in the long run
Speaker 2: than the decentralization.
Speaker 1: And then we see institutions like JP Morgan, for example,
Speaker 1: they're building their own private permission version internally, but they're
Speaker 1: now bridging to public. So do you see that being
Speaker 1: the model institutions have the internal chain, but settlement and
Speaker 1: you know the transactions have to happen on public.
Speaker 2: Yeah. Private internal blockchains are a bridge to nowhere. Yeah right,
Speaker 2: because yeah, like look, I was at JP Morgan. I
Speaker 2: think very highly of that bag from a skills and
Speaker 2: competence standpoint. But Onyx or Connexus, I guess they're calling
Speaker 2: it now is a doomed project. And why do I
Speaker 2: say that. Let me make you a pitch, Hey Goldman Sachs,
Speaker 2: I'm at JP Morgan. Come put all of your trading data,
Speaker 2: all of your technology, and all of your customer activity
Speaker 2: on a ledger that I unilateral culture, right, okay, obviously
Speaker 2: held out, But then imagine that pitch in reverse. So
Speaker 2: Goldman builds their private chain and now they come tell
Speaker 2: JP Morgan, why don't you use this? JP Morgan is,
Speaker 2: of course like no, and so there's no mutual meeting point.
Speaker 2: And all we've done is everybody's running their own private
Speaker 2: ledger and then you're somehow having to get information between them,
Speaker 2: and you don't trust what's going on on the other side.
Speaker 2: Same situation that led to the creation of DTCC. Okay,
Speaker 2: and so if you're trying to build a private blockchain
Speaker 2: like product, I would tell you it will not work
Speaker 2: if you're the only one doing it. If you look
Speaker 2: at financial markets, there's two consortium models that historically have
Speaker 2: done well over time. One is what DTCC did, which
Speaker 2: is to say you get all the big guys in
Speaker 2: a room on day one, and it's got critical mass,
Speaker 2: so other people have to use it. So if somebody
Speaker 2: came to me and said, hey, I'm launching a blockchain
Speaker 2: in the US and it's a permission chain, and as validators,
Speaker 2: I have all of the top twenty banks and a
Speaker 2: bunch of the asset managers, I would say that's probably
Speaker 2: gonna work, right, that has the scale to force other
Speaker 2: people to use it, right, Okay. Two is something like Visa,
Speaker 2: which is to say, we've built a platform that people
Speaker 2: can join, and when they join, they basically get the
Speaker 2: same economic terms as the people who are already there.
Speaker 2: Because the thing that will not work is I built
Speaker 2: a platform and I gave a really favorable deal to
Speaker 2: the early adopters, and everybody who comes later on gets
Speaker 2: a worse deal because they're going to look at that
Speaker 2: and rationally be like, well, why don't I just build
Speaker 2: my own thing to compete with you unless you already
Speaker 2: had critical scale, which is DTCC. So this explains, like
Speaker 2: I've been very skeptical, for instance, about like Tempo and
Speaker 2: Canton and things like that. It's because they don't fit
Speaker 2: into one of those two buckets. Interesting, right, Like and
Speaker 2: so what like the history of fighting like zoom out
Speaker 2: from blockchain bock chain parts not relevant here. The history
Speaker 2: of financial products would tell you those things don't survive,
Speaker 2: got it?
Speaker 1: But do you think the banks attempt to do it
Speaker 1: given that they may feel threatened that hey, let's all
Speaker 1: come together. I don't know whoever, JP Morgam City Bank
Speaker 1: of America, all of them. They come together in a
Speaker 1: form of consortium. They said, hey, let's launch our own
Speaker 1: public blockchain, kind of like what you're talking about. All
Speaker 1: be validators, everybody gets a fair stake. Do you think
Speaker 1: they might do something like that.
Speaker 2: I think if it's only the banks, that won't work, right,
Speaker 2: because all markets need to have two sides. And now
Speaker 2: you're going and pitching the entire asset management community. Hey,
Speaker 2: you don't like that we have so much control over
Speaker 2: this system, So we built another system that we have
Speaker 2: total control over that we want you to use, and
Speaker 2: they'll just be like right, Like Larry think is not
Speaker 2: going to be down with that. It would be my prediction. Okay,
Speaker 2: I think if you did that but added in asset managers,
Speaker 2: payments companies, large insurance companies, now you might have something.
Speaker 2: But that's how you get towards credible neutrality. Hey, we're
Speaker 2: all one kind of institution and we're going to control
Speaker 2: this is not credibly neutral.
Speaker 1: Yeah, that absolutely makes sense. You know, you mentioned Canton network,
Speaker 1: so that is backed by Goldman, Sacks, Citadel, and a
Speaker 1: bunch of others. So you don't think what they're trying
Speaker 1: to do kind of you know, having the backing of
Speaker 1: these wallsheet firms will necessarily work.
Speaker 2: They don't have enough of them. It's back to the
Speaker 2: DTCC thing. If you told me that Canton, the founding
Speaker 2: group who all got the same deal to join was
Speaker 2: Goldman Morgan, Stanley, JP Morgan, City, b of A, Wells, Fargo, Blackrock, Fidelity, Vanguard,
Speaker 2: sit it, I'd be like done, You've got it, Like
Speaker 2: you have critical mass, but you just named one bank
Speaker 2: and one trading firm. Yeah, that kind of feels like, uh,
Speaker 2: Goldman Chain as opposed to ONNYX, Like why would JP
Speaker 2: Morgan favor Canton over just using their own thing? Right?
Speaker 2: This is that mutual like conflict that we were just
Speaker 2: talking about. By the way, Okay, now both of you
Speaker 2: were doing this, go pitch HSBC. Good luck both of you. Right,
Speaker 2: And so you know again it's the if you want
Speaker 2: other people to join over time, you need to have
Speaker 2: given them the same deal. Right. So if you've got
Speaker 2: something like a Canton where you know they'll argue, well,
Speaker 2: there was no pre mind. It's like no, but you
Speaker 2: had an inner circle doing the permitted activity, piling up
Speaker 2: a ton of tokens, and now they've got it and
Speaker 2: you want other people to join. That's no, like I
Speaker 2: would tell you bluntly. I used to be the cohead
Speaker 2: of digital assets at City within Global rates. If somebody
Speaker 2: brought that to me, I would be an absolutely not right.
Speaker 2: I would just look at that and be like, this
Speaker 2: doesn't work economically, get out, We're not using it. And
Speaker 2: so I if there are even semi competent people right
Speaker 2: at many of these other places, I don't see future
Speaker 2: adoption there.
Speaker 1: What's it like looking back to and seeing the firms
Speaker 1: that you work on, like City and JP Morgan now
Speaker 1: going all in in crypto, it seems like if you
Speaker 1: don't have a crypto strategy or you know, hiring Guessada,
Speaker 1: it was announcements of different folks hiring at Morgan Stanley
Speaker 1: and that now they're all in and races on.
Speaker 2: They're definitely not I would say it's far more theater actuality.
Speaker 2: And this is something actually something I think it's important
Speaker 2: for crypto people to understand. The power structure at banks,
Speaker 2: at tech companies is basically reversed. So if you work
Speaker 2: at Facebook, the people who are going to be powerful
Speaker 2: are people in the product and engineering group. They drive
Speaker 2: your platform, they're going to drive things like ads monetization.
Speaker 2: That's where all the revenue flows through. And the finance
Speaker 2: team at Facebook is like in a back room, right, Like,
Speaker 2: imagine trying to get something major at Facebook done, like
Speaker 2: as a product by going in through like their treasury
Speaker 2: cash management team. It's not going to happen, right, Like,
Speaker 2: could you get them to change their local cash management strategy? Maybe,
Speaker 2: but could you change like Facebook or Instagram? Absolutely not. Yeah, okay,
Speaker 2: So here's the problem at banks that's reversed. The tech
Speaker 2: teams don't matter. They are far down the stack. They
Speaker 2: are not the important people. The revenue is the commercial bankers,
Speaker 2: the people running the credit platform, the investment bankers, and
Speaker 2: the traders. If you're not talking to people in those groups,
Speaker 2: nothing is happening and it doesn't matter. So as I
Speaker 2: look around at the street, what I'm seeing is a
Speaker 2: lot of science experiments by people who don't have P
Speaker 2: and L. Right, That's mostly what I'm seeing. The outliers
Speaker 2: for that are probably Standard Chartered and JP Morgan, who
Speaker 2: are doing a little bit more. But in general it's
Speaker 2: much smaller than people think. And the other part is
Speaker 2: banks don't really have the best personnel here right, they're
Speaker 2: going to need to wrap their head around how to
Speaker 2: build like tech divisions and blockchain talent, and like get
Speaker 2: the people who know how to trade these twenty four
Speaker 2: to seven systems. And like I'm not seeing people from
Speaker 2: winter Mute going to Morgan.
Speaker 1: Stanley could be passing of the clarityac change that where
Speaker 1: banks try to acquire these cryptonative firms.
Speaker 2: I'm not even sure we need clarity for that to
Speaker 2: start happening. I just think we need the SEC and
Speaker 2: CFTC to write some rules down, which they're working on. Right.
Speaker 2: So I was a big critic, despite being a democrat
Speaker 2: of Biden and the Gensler SEC, And a lot of
Speaker 2: my critique came from, could you just write stuff down
Speaker 2: right that makes some degree of sense and then have
Speaker 2: like a first principles approach, because there's two big things
Speaker 2: that got wrong that held this back so far. One
Speaker 2: they didn't write anything down and by the way, if
Speaker 2: you look at some of their court filings, like they're
Speaker 2: arguing mutually contradictory things in different cases, Like I have
Speaker 2: no time for that, Like that's not okay from a
Speaker 2: rule of lost standpoint, And I actually want to pause
Speaker 2: for a moment and say this. There are a lot
Speaker 2: of very good people at the SEC. When I say
Speaker 2: I have problems with Gensler's SEC, I largely mean the chair,
Speaker 2: his policy people, and a few people in enforcement who
Speaker 2: were driving those actions. There's actually a lot of very
Speaker 2: hard working staff at the SEC who I think were
Speaker 2: kind of victims of this whole thing in many ways
Speaker 2: because they are very well intentioned. Fine, but so to
Speaker 2: be very specific, it's, hey, you can't argue two different
Speaker 2: theories in two different courts on enforcement. That's crazy because,
Speaker 2: by the way, that's a super highway to the Supreme Court.
Speaker 2: Two write things down, Like why is this hard? We
Speaker 2: can't be like we're not going to tell you what
Speaker 2: the speed limit is, but then I'm going to ticket
Speaker 2: you for speeding. No, And because they didn't write it
Speaker 2: down or have first principles. If you look at their
Speaker 2: enforcement record, it's like the work of a madman. Okay,
Speaker 2: they were going after coinbase and binance and cracking and
Speaker 2: like this project doing a decentralized library and like stoner
Speaker 2: cats and like all of that stuff. Do you know
Speaker 2: who they didn't get in front of before bad things happened?
Speaker 2: FTX three Arrows, Capital, Terraform Labs, Celsius, even Block five. Right,
Speaker 2: they just missed everything that was bad and hit everything
Speaker 2: that was good, like random dessic. Putting all the names
Speaker 2: on a wall and growing darts at them would have
Speaker 2: produced a better enforcement outcome.
Speaker 1: Well, maybe that's on purpose. Gencer wanted those things to happen.
Speaker 2: Well, I do think it was on purpose, not that
Speaker 2: he wanted them to happen, it's that he was going
Speaker 2: after the biggest names in the press to try to
Speaker 2: Like I think this was purely somebody reading social media
Speaker 2: driven strategy as opposed to good governance, and so everybody
Speaker 2: in traditional finance just stayed the hell away from that
Speaker 2: clown show, as they should have. I was giving people
Speaker 2: advice to do that. That was a good decision. Fine. Now, look,
Speaker 2: I know I'm an outlier opinion on this, but I
Speaker 2: think whether clarity passes or not, a good bill would
Speaker 2: be helpful. A bad bill is harmful. I don't think
Speaker 2: it's as important as people think if the CFTC and
Speaker 2: SEC just write rules down. Right. We know how securities work,
Speaker 2: we know how commodities work, we know how derivatives work.
Speaker 2: There are some novel questions around crypto because let me
Speaker 2: pose you a question in nineteen seventy that was unanswerable,
Speaker 2: which is how do I do clearing without a centralized counterparty?
Speaker 2: Now we could do that, So there probably needs to
Speaker 2: be some interpretive guidance exemptions. But like the SEC has
Speaker 2: done this before. I will remind everybody electronic trading is
Speaker 2: not mentioned anywhere in the forty Act named that because
Speaker 2: it was written in nineteen forty. And the ABS regime
Speaker 2: for like registration and reporting and all of that was
Speaker 2: just created by the SEC because like essentially SPV that
Speaker 2: just exists on paper to hold assets is not an
Speaker 2: operating company. They're capable of these things. As I said,
Speaker 2: there were some very good staff members at the SEC.
Speaker 2: They were just prevented from doing any of this. Man.
Speaker 1: So, you know, I'm surprised by your take where you said,
Speaker 1: like the Clarity Act not necessarily important. But the regulatory agencies,
Speaker 1: the twin towers so to speak, the SEC and CFDC,
Speaker 1: you know, they are the ones that need to put
Speaker 1: out the guidelines and the rules. But do you think
Speaker 1: the CLARITYAC allows more capital and could to come into
Speaker 1: the crypto industry and acid class and could it be
Speaker 1: a catalyst that sparks a rally, not price predictions, but
Speaker 1: just curious.
Speaker 2: You know, the answer is, it would really depend what's
Speaker 2: in the act. I think the important one was Genius. Okay, actually,
Speaker 2: as we think about this, because I know this is
Speaker 2: very basic, but like I'm a college professor, so I
Speaker 2: think about these things. If I have goods and services,
Speaker 2: I need money to exchange for those. Otherwise we're just
Speaker 2: using the barter system. And the number one thing that
Speaker 2: happened with Genius was you've given a formalistic definition to
Speaker 2: what money looks like on a blockchain. It was a
Speaker 2: good one because they basically took two thousand and eight
Speaker 2: money market reform and there's a straight line from that
Speaker 2: all the way to Genius. Like I'll tell you the
Speaker 2: reserves and design of Genius stable coins I have very
Speaker 2: high confidence in. And that forced the banking regulators to
Speaker 2: get out of their box and start writing rules for
Speaker 2: all these things, which means now the banks can do it.
Speaker 2: So I don't think clarity is nearly as important because
Speaker 2: Genius passed. If Genius had not passed, I think clarity
Speaker 2: becomes vastly more important because he needs something to force
Speaker 2: the regulators to get off zero. But we've already got that.
Speaker 2: And by the way, there was a rally after like
Speaker 2: Genius was passed and then Trump was elected, so I
Speaker 2: think we got that rally. So clarity passing, I think
Speaker 2: is a neutral right for the industry in the sense
Speaker 2: of like, okay, now, what are you going to do
Speaker 2: with it? Becomes the question because we already got off zero.
Speaker 2: So now it's much more a question of is this
Speaker 2: legislation effective or not? Because clarity is very complex in
Speaker 2: financial terms, the answer to that will be checked back
Speaker 2: in five years, which makes it hard for there to
Speaker 2: be an immediate rally.
Speaker 1: What are your thoughts on I think you had mentioned earlier,
Speaker 1: but coinbase in certain firms pushing back on the current
Speaker 1: version of the Market Structure Bill, and the banks are
Speaker 1: trying to add the removal of stable coin yield to
Speaker 1: be issued by these platforms in this bill.
Speaker 2: I think it shows how little people understand about that
Speaker 2: collision that I was just talking about, because allegedly, and
Speaker 2: I say allegedly, but I've had some first and second
Speaker 2: head sources like confirmed some of these details. For me,
Speaker 2: it's the big banks pushing back against stable coin yield
Speaker 2: So let me just say this, if you are at
Speaker 2: one of the big banks, like in an operating group
Speaker 2: and a trading group and a policy group, one of
Speaker 2: the executives, this is incredibly stupid. You were some of
Speaker 2: the biggest beneficiaries of yield peg stable coins in the
Speaker 2: entire world, and you were shooting yourselves in the foot
Speaker 2: and reloading. Now, why do I say that stable coins
Speaker 2: are crypto euro dollars? Okay, something like eighty to ninety
Speaker 2: five percent of holders of stable coins are non US persons,
Speaker 2: all right, So the flow of funds to get there
Speaker 2: is you had a local currency, you exchanged for something
Speaker 2: on chain off in bitcoin, and then you exchanged that
Speaker 2: for a US dollar stable coin. So this is reducing
Speaker 2: the demand for foreign currencies and increasing the demand for dollars. Right.
Speaker 2: It's also going to systematically take money out of the
Speaker 2: euro dollar system that was held in deposits at foreign
Speaker 2: banks or literally physical cash in some cases, and bring
Speaker 2: it back formally into the US dollar system through a
Speaker 2: US domiciled US dollar stable coin. Now, what do most
Speaker 2: of the stable coins do with their reserves? Look under
Speaker 2: the hood, bank deposits, T bills and overnight reverse repo
Speaker 2: that last one is the key. And by the way,
Speaker 2: go look at Black Rocks fund that they run for Circle.
Speaker 2: There's a lot of that in there. Reverse repo is
Speaker 2: funding for the large banks. So these guys are taking
Speaker 2: money out of the Euro dollar market to lower your
Speaker 2: cost of funding. And it's mainly non US users, and
Speaker 2: you're freaking out about it because you have uninformed people
Speaker 2: who think it's like sixty five year olds in the
Speaker 2: US using this stuff, which it is not, and you
Speaker 2: are I'm not kidding, Like, if you're Bank of America,
Speaker 2: you're currently in DC arguing I want my funding costs
Speaker 2: to be higher and I want to be uncompetitive in
Speaker 2: non US dollar markets. That's insane, Like really, this is
Speaker 2: what I mean by like the collision is not well
Speaker 2: understood and people have the story totally backwards in some cases,
Speaker 2: but is part of it.
Speaker 1: Also, the banks are trying to maintain the amount of
Speaker 1: revenue they're making those big bonuses, right, this is a
Speaker 1: complete change. Instead of being competitive launching their own stable
Speaker 1: quin and offering the yield or boosting the interest on
Speaker 1: savings accounts basic ones, they're just like no, no, we
Speaker 1: want to keep They parked their money at the fed
Speaker 1: and whatever, and they keep the majority of that.
Speaker 2: So one not quite right for how bags operate. But two,
Speaker 2: to go back to what I just said, guys, if
Speaker 2: you lower your cost of funding, your bonuses are even bigger.
Speaker 2: Right again, banks do use repo markets, can use repo
Speaker 2: markets to create capital for themselves, right or if they
Speaker 2: think the repo market is really hot, they can provide funding.
Speaker 2: Like banks can be on both sides of that trade.
Speaker 2: But here's the key right now, US banks have dollar
Speaker 2: deposits from US persons. Okay, that's mainly what's in there,
Speaker 2: so to speak from a consumer franchise deposit perspective, all right,
Speaker 2: And there's kind of two things going on here. Number
Speaker 2: one is that the big banks have already been the
Speaker 2: big winners in the system. If you look at banking
Speaker 2: deposits in two thousand and eight to present, it is
Speaker 2: a one way flow into the big four. Right. It
Speaker 2: does not seem to matter that they're paying zero interest
Speaker 2: because the money keeps going there anyways. And a lot
Speaker 2: of that is that they provide all kinds of other services.
Speaker 2: Like if you bank with b of A or Chase,
Speaker 2: you have a bank account, you have a savings account,
Speaker 2: you have a card, you have a brokerage account, you
Speaker 2: have a mortgage. Right, Like the interest on your checking
Speaker 2: account is probably not even close to your biggest consideration
Speaker 2: in the relationship. The people that's been hurting are community banks,
Speaker 2: who are now down to like low double digit percentage
Speaker 2: of the system, right, And a lot of that is
Speaker 2: because for community banks, every year your average customer gets
Speaker 2: one year older, which is to say, young people are
Speaker 2: not using them. Right. If you're your local community bank,
Speaker 2: I have bad news, which is basically it is likely
Speaker 2: that the fastest growing bank in your locale is so Fi.
Speaker 1: Yeah, my wife recently went to so Far.
Speaker 2: There you go. I have a good friend who works
Speaker 2: at one of the big four banks who banks with
Speaker 2: so Fi. Okay, point is, younger people want tech forward
Speaker 2: platforms where they can bank online, and you could prove
Speaker 2: that because there are some banks that have a great
Speaker 2: core value prop and young people don't use them. Good example,
Speaker 2: Apple Bank, not just to be clear, not affiliated with
Speaker 2: Apple Computer. In fact, I think they've sued each other
Speaker 2: in the past over the name, which is just funny.
Speaker 2: But like Apple Bank is a bank here in New York.
Speaker 2: An Apple Bank will pay you two percent on your
Speaker 2: check account. But the problem is they are psychotic. And
Speaker 2: what I mean by that is if you go look
Speaker 2: at their technology, there's a separate app for your bank
Speaker 2: account and your debit card. Whoever at Apple Bank did that, please,
Speaker 2: for the love of God, stop right. Yeah, it's if
Speaker 2: you're under the age of sixty five and you see
Speaker 2: that happen, you're gonna throw your phone out the window, right, Like, no,
Speaker 2: I looked at Apple Bank and said no because of that.
Speaker 2: So just to be clear, here's one potential customer you lost,
Speaker 2: and so like you got to fix those things. Stable
Speaker 2: coins are a way out for them to fix their
Speaker 2: technology problem and for the big banks because most of
Speaker 2: the users are non US, it's a giant source of funding.
Speaker 2: By the way, they can also do all the trading
Speaker 2: for the bills and the refo, They could do the
Speaker 2: custody of the assets. They can process pavements between the
Speaker 2: stable coid and traditional banking rails, so you could capture
Speaker 2: international wire business. Like, there are infinite reasons where you
Speaker 2: could grow your bonuses by doing this. This is a
Speaker 2: little bit like everybody in nineteen ninety eight, like, let's
Speaker 2: ban internet commerce. Yeah, it's just not going to work.
Speaker 2: If you stand in front of that train and shout stop,
Speaker 2: you're just gonna get run over.
Speaker 1: So, Austin, how do you see this resolving with the
Speaker 1: sausage making process of the bill? Because the banks are lobbying, right,
Speaker 1: how do you think they come to a resolution? Is
Speaker 1: it they do get a ban or no, it's off
Speaker 1: the table.
Speaker 2: I actually think the answer is the bill's not going
Speaker 2: to pass. Right. When you get into political fights between
Speaker 2: large constituencies who have mutually oppositional views, they tend to
Speaker 2: just not happen. So look at the Credit Card Choice Act,
Speaker 2: which has been a huge fight between the pavements companies
Speaker 2: and the retailers. It is just paralyzed all kinds of
Speaker 2: financial legislation because the Senate does not want to get
Speaker 2: up there and give the middle finger to Visa MasterCard
Speaker 2: in the banks. But they also don't want to get
Speaker 2: up there and give the middle finger to like Amazon, Walmart, Target,
Speaker 2: et cetera. So what do they do. They just back
Speaker 2: out of the room. Right, It's like the homer backing
Speaker 2: into the hedge meme is what's going to go on here?
Speaker 2: And so you're just not going to have anything happen.
Speaker 1: Oh, Man Austin. I hope that's not the case. I
Speaker 1: hope you're wrong, that they somehow get something through.
Speaker 2: Well, I hope I'm wrong too, But again it's because
Speaker 2: I think the American banking industry is lobbying against its
Speaker 2: best interests because they don't understand how things work. Like
Speaker 2: I would tell you, I think the big problem is
Speaker 2: if you look at like the Bank Policy Institute, the ICBA,
Speaker 2: which represents the community banks, they have leadership who are
Speaker 2: not informed on these topics and not up to speed
Speaker 2: on how things work like in actuality on the ground,
Speaker 2: and therefore think this is a competitive threat to their
Speaker 2: membership when actually it's a huge benefit to their membership.
Speaker 2: This would be a little bit like Ford Motor Company
Speaker 2: arguing for very restrictive rules on autos and letting horses
Speaker 2: and buggies operate untaxable. Like they're just wrong. So I
Speaker 2: do hope it gets fixed because they're damaging their own
Speaker 2: industry with what they're doing.
Speaker 1: Our question, do you think it's within a couple of
Speaker 1: years they finally have that awakening aha moment like oh shit, yeah,
Speaker 1: we need to do this.
Speaker 2: I mean, certainly it's a matter of time because the
Speaker 2: biggest divide on do you get this or not is
Speaker 2: how old are you? And actually, in kind of a
Speaker 2: weird way, which is to say, it's not like sixteen
Speaker 2: year olds get it, and like sixty five year olds don't.
Speaker 2: I would say, ironically, it's like sixteen year olds don't
Speaker 2: get it because they don't know anything about how stuff works, right,
Speaker 2: and sixty five year olds not all. There are some
Speaker 2: who clearly get it, So I'm speaking in generalities here, right,
Speaker 2: but sixty five year olds on average don't get it
Speaker 2: because they didn't even grow up with the Internet. And
Speaker 2: all of this is still a little bit weird. It
Speaker 2: is the body of people between like call it thirty
Speaker 2: to forty five point fifty somewhere in there, depending on
Speaker 2: how tech savy you are, that get it because like
Speaker 2: they've learned how things work, but they also grew up
Speaker 2: with the tech. And so as that body of people
Speaker 2: pushes further and further into management, I would expect this
Speaker 2: problem to say of itself, the question is how many
Speaker 2: dead bodies are there going to be on the road
Speaker 2: in the process. And also do we fumble in the
Speaker 2: United States the edge to a lot of international banks, right,
Speaker 2: And so this is part of why I'm so agitated
Speaker 2: about the lobbying in Washington is I'm an American. I
Speaker 2: want America to win. Yes, right and right now many
Speaker 2: of the banks furthest ahead here are non American because
Speaker 2: of this stuff.
Speaker 1: Do you think Coinbase and half of the industry, because
Speaker 1: there's I've been seeing comments and opinions on both sides.
Speaker 1: I'm saying, let's get this bill through even if it's
Speaker 1: not perfect. Well, you know, folks at Coinbase and others
Speaker 1: are like, no, no, no, no, no, we need to
Speaker 1: have this. You kind of answered this earlier, but by
Speaker 1: saying the bill may not pass. But do you think
Speaker 1: that some folks capitulates that, you know, we got to
Speaker 1: get something through because the midterm elections are coming up,
Speaker 1: with worried another Genser may come in.
Speaker 2: Well, I mean certainly that's not going to happen in midterms,
Speaker 2: right right. Twenty twenty eight Item one, It's much harder
Speaker 2: for a Guenstler to come in with genius on the books.
Speaker 2: This is why that was important because, like just to
Speaker 2: remind everybody, the way it works in the United States
Speaker 2: with legislation is Congress writes down what it thinks the
Speaker 2: law is, and while it can delegate certain amounts of
Speaker 2: interpretive authority to agencies, it can't delegate the law to
Speaker 2: the agencies. There's a thing called the non delegation doctrine.
Speaker 2: Like Congress can't just pass a blank sheet of paper
Speaker 2: that says, hey make rules for stable coins, like that's
Speaker 2: not constitutional. They have to write down what they think
Speaker 2: they mean. And over time, especially the current Supreme Court
Speaker 2: has been getting more and more skeptical of agencies taking
Speaker 2: aditionative themselves and kind of like, if I could summarize
Speaker 2: the Roberts Court in one sentence, it would be it
Speaker 2: means what it says, right, and so genius is already
Speaker 2: written down. You could put somebody relatively like strong armed
Speaker 2: in there, but they can't undo the fact that these
Speaker 2: things can trade on blockchains. There's also some court to
Speaker 2: decisions that because the Gainstler sec grossly overreached, they kind
Speaker 2: of blew themselves up on like the ETF decisions. So
Speaker 2: they're stuck with those two. I don't think another Gaenstler
Speaker 2: sec is possible. Would you have somebody restrictive, Yes, but
Speaker 2: I think Againstler sec would get run over in court
Speaker 2: immediately and it would just be a disaster. Honestly, it might. Like,
Speaker 2: what's the best way to say this. If I were
Speaker 2: advising the US financial regulators, I would be super cautious
Speaker 2: about taking anything to SCOTUS right now, because you do
Speaker 2: a lot of things that are based on you thinking
Speaker 2: you have a lot of agency powers that they might
Speaker 2: disagree with. So this could be one of those not
Speaker 2: only can you not do the crypto thing you were doing,
Speaker 2: but like, here's eight other things you're doing in regular markets,
Speaker 2: you also can't do those, right, I would be careful,
Speaker 2: So I don't think that's going to happen. Now, do
Speaker 2: I think it's good or bad that clarity doesn't pass?
Speaker 2: That becomes a question of craftsmanship. Our best outcome is
Speaker 2: a good clarity bill passes, Our worst out come as
Speaker 2: a bad clarity bill passes. Because then, based on what
Speaker 2: I just said, and that's why I did that whole
Speaker 2: lead up, it means what it says. So if you
Speaker 2: write something stupid, that's what it means. Yeah, right, So
Speaker 2: you're better off not writing anything at all than writing
Speaker 2: something dumb, But you're better off writing something good than
Speaker 2: not writing anything at all. And if I were steel Manning,
Speaker 2: coinbases position on this who you brought up. I think
Speaker 2: their view was enough had gone from the good to
Speaker 2: bad that they thought nothing was a better outcome. And
Speaker 2: I want to be clear, you may agree or disagree
Speaker 2: with them, but I think that was a genuinely held belief.
Speaker 2: I don't think they were bluffing, right.
Speaker 1: Yeah, no, absolutely, And I think we want to get
Speaker 1: this right where we protect consumers, we allow innovation to flourish,
Speaker 1: and you know, the crypto ecosystem grows. You mentioned earlier
Speaker 1: that a lot of the token isition and these initiatives
Speaker 1: from these financial institutions like banks are kind of fugazi.
Speaker 1: It's maybe some marketing is f do do you think, though,
Speaker 1: that changes over time?
Speaker 2: I do think it changes over time. I do agree
Speaker 2: with that characterization right now, because like, who's really doing
Speaker 2: stuff at scale that's moving around you don't see it?
Speaker 2: And also who's addressing what's the right way to say this,
Speaker 2: like the core frictions in the system where the money
Speaker 2: is to be made, not a lot of people. Yet.
Speaker 2: In fact, maybe the people who've done the best job
Speaker 2: of that for as many slings and arrows as they
Speaker 2: catch is tether, right, because tether understood the problem. If
Speaker 2: you are a non US citizen who is not rich
Speaker 2: enough to have a Swiss bank account, how do you
Speaker 2: securely get dollars in your own country? If you're the
Speaker 2: average Argentinian or Venezuelan or Nigerian or Indonesian and you
Speaker 2: had to pay an egregious FX rate to get dollars
Speaker 2: in your local bank, that they'll just steal from you
Speaker 2: if they don't like you, or you had to hold
Speaker 2: physical dollar bills and hope they don't get stolen or destroyed.
Speaker 2: You now have the option of a let's go back
Speaker 2: to what we were saying earlier, open access, credibly neutral
Speaker 2: ledger where you can keep your dollar bills. You could
Speaker 2: think of like US dollar stable coins as globally people
Speaker 2: being able to opt into blockchain technology and US rule
Speaker 2: of law, and that's a huge expansion of human rights.
Speaker 2: So if you saw like a JP Morgan right, or
Speaker 2: a Bank of America, like if Bank of America launched
Speaker 2: America Dollar like the Bank of America stable coin and
Speaker 2: shotgun to that into the world, that is a real
Speaker 2: like effort. And by the way, BFA, if you're listing,
Speaker 2: you probably should do that. But right like that would
Speaker 2: be big, and that would be hundreds of billions to
Speaker 2: trillions of dollars because they will have way more trust
Speaker 2: than the current crypto companies who are in there in
Speaker 2: much better rails underneath it. But we're not there yet.
Speaker 2: That's why I say all of this. What's the right
Speaker 2: way to analogize this? We're like in the early to
Speaker 2: mid nineteen nineties in tech terms, right like, still sounds
Speaker 2: like an electronic goat is being tortured when you get
Speaker 2: on the internet. We've got all these spare coasters, Sorry,
Speaker 2: I mean CDs for you young people, right but AOL
Speaker 2: keeps mailing to people and I was alive for that,
Speaker 2: so I still remember this. But we're not yet. There's
Speaker 2: no Facebook, there's no Google, there's no tiptop, right like,
Speaker 2: it doesn't just work right like. Stuff is still janky.
Speaker 2: And you'll know we're getting there when people start building
Speaker 2: at scale the stuff that just works.
Speaker 1: The US in it's twenty thirty five. Given everything we've
Speaker 1: just talked about, where do you see these markets? We
Speaker 1: talked about the convergence and it being one market. Are
Speaker 1: we seeing all assets on the blockchain? Are stable coin's
Speaker 1: powering payments? Are people using more tokens from brands. Companies
Speaker 1: like Amazon have tokens. I can go spend it different places,
Speaker 1: I could stake it, or all these things part of
Speaker 1: the ecosystem.
Speaker 2: So one, I don't know if there will be one
Speaker 2: blockchain because transaction preferences are not monolithic. The amount of
Speaker 2: security I need to buy like a five dollars coffee
Speaker 2: is very different than the amount of secu I need
Speaker 2: to clear like a five hundred billion dollar repo trade. Okay,
Speaker 2: so you may want different blockchain architectures, but I think
Speaker 2: they will be able to talk to each other through
Speaker 2: the money object, which is stable coins, Like it will
Speaker 2: be faster to move between those kinds of things with
Speaker 2: stable coins. But I also don't think we're going to
Speaker 2: have like five hundred blockchains, like I think there will
Speaker 2: be some consolidation. I do think many assets will be
Speaker 2: on blockchains, and more importantly, kind of the call it
Speaker 2: unexplored quadrant is I think a lot of information will
Speaker 2: be on blockchains, right, that is to say, like driver's licenses,
Speaker 2: housing title and leans. All of these things are going
Speaker 2: to move off of paper ledgers and fragmented stuff and
Speaker 2: out of the shadows where quite frankly, there's a lot
Speaker 2: of corruption and an efficiency and on chain over time,
Speaker 2: the gravitational pull is too strong and it doesn't happen
Speaker 2: all at once. It's debris being sucked in, right, But
Speaker 2: it will be happening by twenty thirty five, I would
Speaker 2: expect to see at least some of that right. At
Speaker 2: least one US state will likely have figured out, wait
Speaker 2: a minute, if we just put everything we're doing on
Speaker 2: a blockchain from an information and like money standpoint, that's
Speaker 2: probably better and more secure than our current systems that
Speaker 2: get hacked and break constantly, and it'll be very good
Speaker 2: for transparency and corruption. It's probably a small state that
Speaker 2: already hates the government, so like keep your eyes on,
Speaker 2: like Wyoming or Idaho or something like that. But the
Speaker 2: problem is when they do it in works, it starts
Speaker 2: becoming pressure for everybody else to do it right. Right two.
Speaker 2: I think by that point we're going to have rules
Speaker 2: and a lot of jurisdictions globally about how you do
Speaker 2: this stuff, and those rules will at least have become
Speaker 2: somewhat technologically savvy. Because back to the age thing, however
Speaker 2: old you are right now, ad ten, that's how old
Speaker 2: you are then, which means a lot of people who
Speaker 2: are currently like junior to very early mid career are
Speaker 2: now the senior people at these regulars and have a
Speaker 2: much better handle on how this stuff works. So the
Speaker 2: changing of the guard basically to be blunt the boomers
Speaker 2: aging out, I think will change things significantly from a
Speaker 2: technological adoption standpoint, because from gen X onwards nobody wants
Speaker 2: to be using paper banking in person. Right, The big
Speaker 2: divide is between gen X and the boomers. Three, I
Speaker 2: think a lot of small currencies will be under extremely
Speaker 2: severe pressure or collapsing at that point because of dollar
Speaker 2: stable coins. Right. Again, if you live in a third
Speaker 2: world country with a corrupt government and an abusive banking
Speaker 2: system and you could just use a dollar stable coin,
Speaker 2: it's going to be very hard.
Speaker 1: Like.
Speaker 2: One of the things stable coins do right, and thus
Speaker 2: blockchain technology does, is makes the cost of locking people
Speaker 2: in your system go from low to very high, because
Speaker 2: before you could lock them in by controlling the choke
Speaker 2: point at banks. Now the choke point is the Internet.
Speaker 2: Right when I was at Paso's the only country in
Speaker 2: the world where I was confident the average citizen didn't
Speaker 2: own any of our stable coins was North Korea. You
Speaker 2: have to turn the internet off, right, so capital controls
Speaker 2: are going to get broken, which means that a lot
Speaker 2: of these places people are just going to defect to
Speaker 2: the dollar. So I think like over time US dollar
Speaker 2: stable coins are going to dollarize not just informally but
Speaker 2: maybe formally huge parts of the world.
Speaker 1: And it feels like that's part of a changing world order.
Speaker 1: I know that's like the cliche thing, and people get
Speaker 1: conspiratal about it and so forth, But just this naturally
Speaker 1: happens maybe every one hundred years, I don't know, with
Speaker 1: industrial revolutions and technology and changing of the guard, that
Speaker 1: shifting a world powers and consolidation. It seems to be
Speaker 1: like something that's happening, just like what the United States
Speaker 1: is doing with Venezuela Greenland. It seems there's a big
Speaker 1: shift happening.
Speaker 2: Yeah, And I would say I think people kind of
Speaker 2: have it wrong thinking about like cycles based on time
Speaker 2: that doesn't hold up historically, right, Like anybody who thinks
Speaker 2: that not does. My answer to you is expand your sample, right,
Speaker 2: like zoom out right, Like you've had dynastic cycles in
Speaker 2: China that were much longer than one hundred years. The
Speaker 2: Roman Empire was not one hundred year cycle type thing, right, Like,
Speaker 2: zoom out, right, anybody's like this happened three times in
Speaker 2: a row. I'm like, I can flip a coin and
Speaker 2: get heads three times in a row, and it's not
Speaker 2: totally improbable, like too small, so zoom out. What it
Speaker 2: really is is transformational things in the world. And if
Speaker 2: you look at things that tend to be really disruptive
Speaker 2: transformational technologies, it's usually new ways of harnessing energy, right,
Speaker 2: So like, for instance, here's a big one that was
Speaker 2: globally transformative that like the people who talk about these
Speaker 2: cycles ignore all the time, which is just deep water
Speaker 2: sailing ships. Right once it went from I can only
Speaker 2: sail on rivers or take a horse to I have
Speaker 2: a giant ship that can move a ton of cargo
Speaker 2: with wind across an entire ocean, world changing. Like if
Speaker 2: you want to know why the Spanish Empire existed, it
Speaker 2: was deep water sailing. They had the ports, they had
Speaker 2: the boats, they could get around faster and more efficiently
Speaker 2: than everybody else. Huge win, And that's harnessing a form
Speaker 2: of energy. The Industrial Revolution, steam coal, all of those things, right,
Speaker 2: like similar so that's one. The other one is new
Speaker 2: forms of communication, right, Like obviously, probably the biggest invention
Speaker 2: in the history of humanity is writing stuff down right,
Speaker 2: because suddenly generational memory becomes infinite or at least as
Speaker 2: long as you can preserve your records for as opposed
Speaker 2: to Hey, a guy told me, right, And so those
Speaker 2: sorts of communication things are big changes. Well, guys, the
Speaker 2: internet only hit in the nineties. We are in one
Speaker 2: of those periods, like, hey, pure to pure communication instantly globally.
Speaker 2: That was not a thing in nineteen seventy, not a thing.
Speaker 2: Now it is super a thing. Like Elon Musk is
Speaker 2: trying to make that a thing globally with starlink right now,
Speaker 2: even if people don't want it, He's like, no, you're
Speaker 2: getting it. And so I think that's the thing that's
Speaker 2: causing this disruption, because if you look at a lot
Speaker 2: of what's causing the change in global order. In the seventies,
Speaker 2: you got your news from a newspaper. You probably spent
Speaker 2: fifteen to thirty minutes a day on it. You didn't
Speaker 2: think deeply about this. Now I can see live as
Speaker 2: an American French people talking mad shit about me online
Speaker 2: while at the same time, they have no economy and
Speaker 2: they're not paying for NATO. And this is why the
Speaker 2: right gets all agitated. Right, And by the way, the
Speaker 2: reverse happens to like the French are very angry with
Speaker 2: America now in a way they probably weren't before, right,
Speaker 2: So like that's just one of many examples. But like,
Speaker 2: we're not gonna understand how that like shakes out until
Speaker 2: we see it happen. So I think the reason things
Speaker 2: seem so unstable and why the world is like reordering
Speaker 2: is we've had one of those transformational things hit, which
Speaker 2: was the Internet.
Speaker 1: Oh absolutely, And to your point, like we're in another
Speaker 1: industrial revolution. You have all these different technologies of the internet, crypto, AI, robotics,
Speaker 1: electric cars. I'm so curious to know what the future
Speaker 1: looks like with all these things and how it changes
Speaker 1: and even solves some of the legacy issues, right, And
Speaker 1: maybe the debasement of currency does it help solve that?
Speaker 2: Which is it.
Speaker 1: Seems to be what helps collapse the empires and much more.
Speaker 2: Yeah, so, to quote one of the greatest American philosophers,
Speaker 2: predictions are hard to make, especially about the future. But
Speaker 2: the debasement thing, I think is really misunderstood. And what
Speaker 2: I mean by that is this money supply being static
Speaker 2: one is just not a thing historically because even if
Speaker 2: you're like, oh, we used gold, it's like yeah, but guys,
Speaker 2: new gold does show up sometimes. There have actually been
Speaker 2: some really destabilizing events and commodities markets. Like anybody who
Speaker 2: wants to go to a gold standard, you're in great
Speaker 2: shape until SpaceX lassos an asteroid and they have more
Speaker 2: than all the gold on earth. Again, right, be careful
Speaker 2: what you wish for. But two and like this is
Speaker 2: an interesting thing that came out of two thousand and eight,
Speaker 2: and like, actually bernanke right place, right time for a
Speaker 2: guy who had studied this. Fixed money supply can be
Speaker 2: a real problem in a downturn. And what I mean
Speaker 2: by that is when demand for money is falling and
Speaker 2: you're having deflation, you should hold onto currency. And when
Speaker 2: you hold on to currency, there's less buying of goods,
Speaker 2: which causes the economy to slow down, which causes deflation.
Speaker 2: Like that's the death spiral problem. And just like there
Speaker 2: are hyperinflationary spirals, there could be hyper deflationary spirals and
Speaker 2: both of those kill currency. So the problem I think
Speaker 2: is not inflation or deflation, which is what people fixate on.
Speaker 2: It's more magnitudes. Lots of inflation is bad and lots
Speaker 2: of deflation is also bad. Right, And what you really
Speaker 2: want is a way to keep it bounded between those
Speaker 2: two things so that you're not having wild swings in
Speaker 2: either direction. And a fixed money supply doesn't do that. Now,
Speaker 2: could you have a programmatic money supply that follows rules,
Speaker 2: so not human subjective but literally, like if inflation's high,
Speaker 2: there's less, and if inflation's low, there's more. Yeah, that
Speaker 2: might work, but that's not bitcoin. But again, this is
Speaker 2: what I mean, Like we're going into the future, Like
Speaker 2: tell me who in nineteen ninety four was like TikTok. Yeah, right,
Speaker 2: Like we just don't know.
Speaker 1: We don't know. But maybe to your point, a blockchain
Speaker 1: and AI could help do that where human error. Humans
Speaker 1: have to sleep and eat and all that. But it's
Speaker 1: there saying hey, Austin, I think you need to do
Speaker 1: this suggesting ideas.
Speaker 2: AI makes plenty of errors too, like I don't know
Speaker 2: that it's an assistant.
Speaker 1: Yeah, now that it's in control like skynet or something.
Speaker 2: Yeah, I'll say this, I'm skeptical about that. Part being better.
Speaker 2: What I'm not skeptical about, though, is the coordination and
Speaker 2: ability to create programmatic, like credibly neutral money that I'm
Speaker 2: more optimistic con so like from a monetary perspective, AI
Speaker 2: is good for many things. I have doubts about the
Speaker 2: money side, though. I think we'll be more useful on
Speaker 2: the money side crypto will be less useful on some
Speaker 2: other things that AI is much better at.
Speaker 1: So Austin Tether launched their US base stable coin this
Speaker 1: week USAT. So distable coin race is heating up after
Speaker 1: Genia's pass.
Speaker 2: What do you think the.
Speaker 1: Stable coin market may hit one trillion?
Speaker 2: So a couple of points on that. Resting balances versus
Speaker 2: transaction volumes are two different things in markets. Most of
Speaker 2: the resting balances and stable coins are people converting euro
Speaker 2: dollar like holdings into literal dollars or trading collateral. I
Speaker 2: think that trend continues, so I think we're probably going
Speaker 2: to get to a trillion in stable coins in the
Speaker 2: next like five to ten years. I don't think that's
Speaker 2: a shocking opinion. We're already at like three hundred and
Speaker 2: ten billions, so if it happens in two years, within
Speaker 2: the realm of possibility, but I would like make a
Speaker 2: market at five to ten right now, and there's a
Speaker 2: lot of volatility on that two and I'm really watching
Speaker 2: for is the transaction volumes on this right, So it's
Speaker 2: less about just the resting balances. But when does this
Speaker 2: start replacing like international wires, right, like consumer payments? When's
Speaker 2: it use to settle trades? That will really start accelerating volumes.
Speaker 2: And while you know you may not end up with
Speaker 2: like tens of tens of trillions, there's only like, you know,
Speaker 2: twenty trillion ish bank deposits, right, Like, it's not that big.
Speaker 2: You're going to see a lot more transaction volume. Because
Speaker 2: I'm going to give a number that is so large
Speaker 2: it sounds like my daughter made it up. But there
Speaker 2: are one point twenty five quadrillion dollars annually of wire business.
Speaker 2: So that's why that's what I'm really watching. Like, the
Speaker 2: volumes there are so large, the numbers are almost like fantastical,
Speaker 2: and that's when that starts getting breached by stable coins.
Speaker 2: That's when you know their mainstream.
Speaker 1: Oh absolutely, what's new with zero knowledge group?
Speaker 2: Oh boy, it's okay, So genius past institutions are coming.
Speaker 2: I think what we're finding in the world right now. Well,
Speaker 2: one what I'm finding is like I probably need to
Speaker 2: clone myself three times or hire some people because we
Speaker 2: have a ton of business coming in. But it's people
Speaker 2: in the traditional financial world are starting to take this seriously,
Speaker 2: and as they do so, they're realizing they don't have
Speaker 2: the talent internally to do a good job. And that's
Speaker 2: not just the business people. They're actually I think business people,
Speaker 2: there's probably more. It's more like risk legal, like senior management,
Speaker 2: Like these people need a lot of help, and they
Speaker 2: also have a structural problem where they can't just listen
Speaker 2: to the business people because they get paid on volume, right, right,
Speaker 2: So this is a governance thing. So you're gonna have
Speaker 2: a lot of firms, the broker dealers, the asset managers,
Speaker 2: the banks, the insurance companies who are needing help on
Speaker 2: this front. And so people are starting to come into
Speaker 2: the door. There's gonna be even more. I could see
Speaker 2: the trend coming, and you're going to have people trying
Speaker 2: to make professional efforts. This is why I analogize to
Speaker 2: like the nineties in the Internet, that's when it stopped
Speaker 2: being like, oh, we have one weird guide cares about
Speaker 2: internet commerce to start being like, what's our internet commerce strategy?
Speaker 2: And once that happened, you needed a lot of help
Speaker 2: and it started professionalizing. So I would tell everybody right now,
Speaker 2: the real thing I'm seeing is if you're a trad
Speaker 2: FI firm and you're starting the race now, one call me,
Speaker 2: But two, you need to do it in the next
Speaker 2: yearish or you're going to be behind your peers. Right.
Speaker 2: It's not a problem that you're starting now, but it
Speaker 2: is a problem if you wait.
Speaker 1: Well, the race is certainly heating up, and I'm sure
Speaker 1: people are going to be calling you, especially if the
Speaker 1: Clarity Act passes. I feel like, psychologically right, maybe it's
Speaker 1: one of those psychological bearers.
Speaker 2: Oh yeah, we're good to go. We'll see. I mean,
Speaker 2: I think it could also help if the SEC and
Speaker 2: CFTC formally write down the rules. It will be sooner
Speaker 2: of those two items, let's put it that way.
Speaker 1: Oh absolutely, Austin. Always a pleasure. Appreciate your knowledge and
Speaker 1: your perspective. Thank you so much for joining me.
Speaker 2: Yeah, thank you for having me, and I hope people
Speaker 2: find this one interesting.
Speaker 1: Yeah, we'll definitely have to do round two at some point,
Speaker 1: definitely later.
Speaker 2: It is here. See what angry questions you get.
Speaker 1: Thank you so much for tuning in. Please hit the
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Speaker 1: so much.