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Speaker 1: Hey, folks, we are recording at the Injective Policy Summit

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in Washington, d C. Joining me is Max Barce, who's

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the head of lending at Galaxy.

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Speaker 2: Max. Great to have you. Thanks for having me Tony.

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Speaker 1: Max excited to chat to learn about the institutional adoption

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of crypto that you, guys would trends that you're seeing

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on your end. I would love to start with your background,

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where you're from and how'd you make your way into crypto?

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Speaker 2: Where am I from? I am from Chicago, Illinois. I

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grew up there, went to school at the University of Texas,

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moved back to Chicago, moved to New York in twenty twenty.

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I've been with Galaxy now four and a half years,

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been in crypto since twenty nineteen. I was a Deloitte

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prior to joining Galaxy. Galaxy was a client of mine.

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It was sort of the natural progression to move over

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there because I was enjoying digital assets a lot more

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than what I was doing on the tax consulting side,

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and moved over and took the full plunge into digital

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assets in WUS twenty twenty two.

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Speaker 1: So Galaxy offers crypto lending to institutions what are some

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trends that you're seeing, especially during this bear market time.

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Speaker 2: Yeah. During the bear market time, one of our hottest

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products has been the collar loan. You can sell a

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call and buy a put and get zero percent APR financing.

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There's no margining on it. It's a non recourse loan

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because you have the put protection. That's been one of

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the most popular products during the bear market because it

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allows for you to have that downside protection you don't

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have to worry about the margin calls. We also have

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done a couple of new product launches this week that

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I think it's worth talking about because it's topical. We

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launched the Galaxy on Chain Financing Rate. We're calling it Gopher,

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which is a play on SOFUR. It allows for institutions

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to or high networth individuals to access DeFi without having

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to go directly to DeFi. You can take your crypto,

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whether it's bitcoin, ether or whatever. You can post native

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bitcoin directly to us. We'll to go through the operational

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produm of wrapping the bitcoin on your behalf and then

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we go to the DFI protocols. Right now, we're live

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with ave Morpho sparking Comino, where we then take the

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wrap bitcoin, post it to any of those four protocols

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that I mentioned, and we send back stable coins at

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a blended rate based on the weighted average that we're

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borrowing from the different protocols. That plus, we also just

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closed a five hundred million dollar warehouse facility with Grove,

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which is a part of the sky ecosystem that will

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allow for us to really ramp up our lending activities

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in the non reapothecated segment of the lending markets. Are

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really trying to attack both vectors of the different opportunity

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sets out there, depending on counterparties what they want to

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want to do from a risk standpoint, and then also

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trying to optimize for some of the complexities that people

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face with on chain and DeFi protocols today.

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Speaker 1: That's really great. I'm a big believer in DFI believe

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it's certainly the future. Sure, However, it feels like we're

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in version one point zero DeFi where there's still some exploits.

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Are the institutions, how are you feeling about those things?

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Are they? It doesn't make it hesitant that they how

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much capital they put in and things like that.

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Speaker 2: I think there's a decent amount of hesitancy, especially with

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the adoption of AI. I think one of the way

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I'm looking at it is a little bit different. I

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feel like right now on chain and DeFi is being

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pen tested because people have access to it right away,

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and so you have these honeypots across all the different

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places across all of DeFi and on chain where it's

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getting tested in real time, and I think it's actually

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getting hardened in real time. You saw as some of

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these AI models were coming out earlier this year, you

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had a lot of those exploits. I think there's a

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lot of institutions who took note of that and have

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definitely taken a step back. But I also think this

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is exactly why somebody like a Galaxy bringing some of

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these products to light, because we have thought through a

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lot of the different security measures, a lot of the

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risk measures, putting ourselves in a position to trade the

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risk make sure we're in the room to utilize on

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chain because like you said, I'm also a huge, huge

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believer in DEFA.

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Speaker 1: Now, from a regulation standpoint, we know the Clarity Act

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is that the custom of being passed, but it's more

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of a macro bill that just solidifies the rules that

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have been put out by the agencies like the SEC

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and much more. Are there rules in place for crypto

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lending or are we still waiting for that.

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Speaker 2: I think crypto lending for the most part is pretty commoditized.

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I feel like there's a lot of the information I

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already need out there where I don't know if Clarity

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is really going to change my business much other than

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the fact that I do think it's going to be

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a great thing for the industry as a whole, and

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as the industry as a whole gets larger, that obviously

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helps me grow my book. It helps bring in new

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liquidity pockets. It allows for institutions to come in with

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different sources of capital. You can start to see things

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like duration trades. I think we'll start to pick up

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post Clarity because there's going to be liquidity curves as

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five comes in. Those are some of the things that

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I'm looking at with Clarity, and probably some of the

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things I'm most interested in over the next two three years.

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Speaker 1: What type of institutions are using your crypto lending services?

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Is it family offices, hedge funds, banks, things?

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Speaker 2: I got, Yes, it's anybody with crypto Okay, every single

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person could be a client of ours. I think it's

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if you have any digital asset, you're looking to get

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leverage against it. We're looking to underwrite what the assets are.

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We take risk practices pretty seriously, so don't take in

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an asset more than ten percent of the average daily

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trading volume of an asset. But we do look at

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all different digital assets across the ecosystem. That allows for

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if there's an event, and let's say it's one hundred

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million dollars of average daily trading volume, the most amount

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of that asset we would take is ten million dollars,

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But then we would take a LTV on it. So

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maybe we're lending it a forty LTV against something that's

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a little bit more daily if it's only got one

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hundred million dollars of average daily trading volume. But I

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think I want to make sure that every single person

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can come to us and we can help them out

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and help them with any kind of financing situation they're

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looking for in digital assets. That's exactly what we do,

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and that's exactly the type of business we run.

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Speaker 1: Any assets that you provide lending on, is it like

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the top assets by market cap? Let's say the top

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fifteen or twenty. Obviously bitcoin the easiest, most liquid eth

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in a second, but are you branching out to like

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all coins and things like that.

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Speaker 2: I would say bitcoin, eth and solana make up ninety

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nine percent of what we do, But I don't think

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that that necessarily needs to be the case. It's just

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that's where you have all of the market cap.

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Speaker 1: Sure, maybe over time, as let's say clarityx passes, the

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ecosystem grows even more, there's certainly more coins will grow

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in market cap and liquidity.

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Speaker 2: Yeah, and I think there's more than lending dollars against

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the different digital assets. You could lend digital assets against

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digital assets, people taking directional views on things. They could

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be borrowing something like a bitcoin to take a directional

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view where you could sell it and buy ethereum, so

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you could trade that cross. There's a lot of different

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things that you can do within the lending market.

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Speaker 1: Rookie question, when someone is lending or borrowing against their

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crypto assets, is it just like getting a loan from

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the bank, where it is a fixed term and a

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certain rate and things like that.

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Speaker 2: No, that's not a rookie question. I think that it

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really depends and so We have a lot of white

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glove solutions where we come to counterparties, we try and

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help them out, try and understand what they're looking for.

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We can do fixed rate, fixed term, that's definitely something

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we can do. With the galaxy on chain financing rate

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that's more of a reflection of the real cost of

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capital in crypto at a certain time, so it does

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float with the on chain rates that you're seeing across

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those protocols that I mentioned earlier. And then one of

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the things that has been incredibly popular just given sort

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of liquidity profiles is a thirty day evergreen loan where

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it stays open in perpetuity forever with a thirty day

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recall that'symmetrical for borrower and lender. So we've had some

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of those out there for three four years now where

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it just stays open at thirty days and then if

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either side wants to recall, then it's thirty days to completion.

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And so that allows for a really good smoothing in

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terms of your asset liability planning, so you can always

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make sure that you have access to that liquidity on

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the borrow side for thirty days, which is much cheaper

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than borrowing for a year out or something to that effect.

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Speaker 1: Very interesting. I have crypto asis. I need to talk

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to you guys about how we can do that.

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Speaker 2: We can talk after this for sure.

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Speaker 1: You know, what is your outlook on the crypto market.

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It seems like we're nearing a bottom. If the bottom's

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not in already, do you anticipate later to see your

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mark would be maybe in a bowl uptrend that type

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of thing.

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Speaker 2: I'm an internal optimist, so I've constantly been thinking the

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bottoms in. I still think the bottom's in. I think

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that we're prime for growth. I think that I'm more

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asking who's selling, because why would anybody be selling at

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these levels? I have such a strong outlook on digital assets,

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but I mean I'm also running a lending desk. I'm

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not a trader, so I don't really take directional risk.

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Sure for Galaxy, I have a little bit in my PA,

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but yeah, I'm definitely bullish.

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Speaker 1: Yeah, and you know, we talked about the CLARITIAC. Hopefully

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that passes. When it does pass, what impact will that

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have on the crypto industry and even galaxies business.

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Speaker 2: I think it helps grow the digital economy, the digital

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asset economy. You're going to have so many more institutions

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and people who maybe been sidelined because they're waiting for

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regulation to come in, and then once that comes in,

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you're going to start to see the boom of everybody

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coming back into digital assets. Trying to make sure that

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they understand the blockchain rails, because there's a lot of

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things that could be better if you just actually use

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the blockchain rails as opposed to what we have as

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the history rails for a lot of the securities that

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are trading today.

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Speaker 1: So max there's a race to tokenize assets. You have

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stock exchanges, the biggest investment firms on Wall Street doing this.

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Is it too early maybe to ask this question, Are

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any of them looking to do any type of lending

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or barring off of tokenized assets.

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Speaker 2: It's definitely a hot topic. I have had a number

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of conversations about it. That's probably where regulation helps the most,

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because it really comes down to the operational process. It's

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great when you have a tokenized equity, for example, but

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you need to be able to if you're taking it

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as collateral, sell it if somebody misses a margin call.

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And that's one of the things that's incredibly complex because

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you need there to be a liquidity Saturday, Sunday, holidays, nights, weekends,

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et cetera, before that market really takes off. And I

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don't think we're that far away from it, but we

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do need some of those things, like you mentioned some

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of the large exchanges to actually have that twenty four

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x seven trading for those tokenized assets when you're going

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to start to see something like that really take off.

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I will also say that you're gonna get with clarity

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the distinction between digital asset commodities and digital asset securities,

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and with that, you need to make sure that you

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have the price proper licensure to take those assets and

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be able to lend those assets, or lend against those assets,

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or do whatever you need to if it's better to

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do it as a swap, making sure that your securities

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based swap dealer, for example. There's a lot of different

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ways to finance some of these assets, and just making

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sure that you're in a position to do it. It

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takes a lot of the legwork up front to make

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sure that you can be in a position to capitalize

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on that when people are ready to go.

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Speaker 1: Yeah, because in initial phase of rolling this all out

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and building the infrastructure you're gonna have two markets, the

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tokenized version of a Tesla stock and an analog if

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you want to call it that version right the traditional

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way of the set? Then how do you avoid imbalance

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with liquidity? And one can train twenty four to seven

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on the weekend, something happens on a Friday evening and

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I can do it to test.

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Speaker 2: I think there's a ton of opportunity there. Yeah, in

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taking lending aside from a trading arbitrage standpoint, you're going

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to start to see some of the big time players

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come in, make sure that they have the operational rails

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set up and if there's ever a discrepancy between the two,

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you can make a lot of money just making sure

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that you can capitalize on that arbitrage. And I think

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that you're going to start to see that well hopefully.

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Speaker 1: I know the SEC is working on token ized guidance

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and they come out with something that helps avoid any

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issues I should say, not with the arbitrary but rather

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mispricing and all kinds of things that happened there. You

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know what's on your own map that you can share.

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Speaker 2: Well, the two products that I mentioned, those are have

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taken up a ton of time and effort and so

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very proud of those I think right now making sure

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people understand that these products are out there, and trying

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to get as many people in the door as possible

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to start trading some of these products. I think looking

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for some of the things that we're looking to do,

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interested in the private credit space, the RWA space, thinking

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about ways of putting debt on chain. So tokenized debt

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is something that I'm incredibly interested in. I know everybody

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talks about tokenized equities because that's something that's pretty easy

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and simple to understand, and debt's not as interesting or

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maybe as sexy as something like inequity. But I do

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think that it's sort of the natural evolution. You talk

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about stable coins first, then you saw tokenized treasuries, tokenized

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money market funds. The next evolution is bona fide tokenized debt,

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and then I think we're going to see tokenized equities

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as sort of the fast follow after that.

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Speaker 1: What about tokenized deposits. They're kind of along the lines

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of stable coins, but a bit different, maybe more on

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the commercial side. Would that be something you'd be involved

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that's more in the banking ecosystem.

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Speaker 2: I think that's a topic in Clarity, I think that

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it doesn't necessarily touch my desk as much. I think

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that's probably more our tokenization group that we have at

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the firm, and or our treasury function and or our

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asset management function. I do have a lens into everything

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that we do from like a treasury standpoint. However, that's

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not really my remit. But I do think it's a

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super interesting topic, and I think that that is one

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of the things that Clarity will actually allow us to

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understand more about how that's supposed to be treated and

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how you can design the products around that.

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Speaker 1: Yeah, that absolutely makes sense. Well, Max, thank you so

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much for taking the time. Looking forward to our next

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interview as we dive into the latest and grace around Galaxy.

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Thank you som racing the time.

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Speaker 2: Appreciate it.

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