Speaker 1: Hey, folks, we are recording at the Injective Policy Summit
in Washington, d C. Joining me is Max Barce, who's
the head of lending at Galaxy.
Speaker 2: Max. Great to have you. Thanks for having me Tony.
Speaker 1: Max excited to chat to learn about the institutional adoption
of crypto that you, guys would trends that you're seeing
on your end. I would love to start with your background,
where you're from and how'd you make your way into crypto?
Speaker 2: Where am I from? I am from Chicago, Illinois. I
grew up there, went to school at the University of Texas,
moved back to Chicago, moved to New York in twenty twenty.
I've been with Galaxy now four and a half years,
been in crypto since twenty nineteen. I was a Deloitte
prior to joining Galaxy. Galaxy was a client of mine.
It was sort of the natural progression to move over
there because I was enjoying digital assets a lot more
than what I was doing on the tax consulting side,
and moved over and took the full plunge into digital
assets in WUS twenty twenty two.
Speaker 1: So Galaxy offers crypto lending to institutions what are some
trends that you're seeing, especially during this bear market time.
Speaker 2: Yeah. During the bear market time, one of our hottest
products has been the collar loan. You can sell a
call and buy a put and get zero percent APR financing.
There's no margining on it. It's a non recourse loan
because you have the put protection. That's been one of
the most popular products during the bear market because it
allows for you to have that downside protection you don't
have to worry about the margin calls. We also have
done a couple of new product launches this week that
I think it's worth talking about because it's topical. We
launched the Galaxy on Chain Financing Rate. We're calling it Gopher,
which is a play on SOFUR. It allows for institutions
to or high networth individuals to access DeFi without having
to go directly to DeFi. You can take your crypto,
whether it's bitcoin, ether or whatever. You can post native
bitcoin directly to us. We'll to go through the operational
produm of wrapping the bitcoin on your behalf and then
we go to the DFI protocols. Right now, we're live
with ave Morpho sparking Comino, where we then take the
wrap bitcoin, post it to any of those four protocols
that I mentioned, and we send back stable coins at
a blended rate based on the weighted average that we're
borrowing from the different protocols. That plus, we also just
closed a five hundred million dollar warehouse facility with Grove,
which is a part of the sky ecosystem that will
allow for us to really ramp up our lending activities
in the non reapothecated segment of the lending markets. Are
really trying to attack both vectors of the different opportunity
sets out there, depending on counterparties what they want to
want to do from a risk standpoint, and then also
trying to optimize for some of the complexities that people
face with on chain and DeFi protocols today.
Speaker 1: That's really great. I'm a big believer in DFI believe
it's certainly the future. Sure, However, it feels like we're
in version one point zero DeFi where there's still some exploits.
Are the institutions, how are you feeling about those things?
Are they? It doesn't make it hesitant that they how
much capital they put in and things like that.
Speaker 2: I think there's a decent amount of hesitancy, especially with
the adoption of AI. I think one of the way
I'm looking at it is a little bit different. I
feel like right now on chain and DeFi is being
pen tested because people have access to it right away,
and so you have these honeypots across all the different
places across all of DeFi and on chain where it's
getting tested in real time, and I think it's actually
getting hardened in real time. You saw as some of
these AI models were coming out earlier this year, you
had a lot of those exploits. I think there's a
lot of institutions who took note of that and have
definitely taken a step back. But I also think this
is exactly why somebody like a Galaxy bringing some of
these products to light, because we have thought through a
lot of the different security measures, a lot of the
risk measures, putting ourselves in a position to trade the
risk make sure we're in the room to utilize on
chain because like you said, I'm also a huge, huge
believer in DEFA.
Speaker 1: Now, from a regulation standpoint, we know the Clarity Act
is that the custom of being passed, but it's more
of a macro bill that just solidifies the rules that
have been put out by the agencies like the SEC
and much more. Are there rules in place for crypto
lending or are we still waiting for that.
Speaker 2: I think crypto lending for the most part is pretty commoditized.
I feel like there's a lot of the information I
already need out there where I don't know if Clarity
is really going to change my business much other than
the fact that I do think it's going to be
a great thing for the industry as a whole, and
as the industry as a whole gets larger, that obviously
helps me grow my book. It helps bring in new
liquidity pockets. It allows for institutions to come in with
different sources of capital. You can start to see things
like duration trades. I think we'll start to pick up
post Clarity because there's going to be liquidity curves as
five comes in. Those are some of the things that
I'm looking at with Clarity, and probably some of the
things I'm most interested in over the next two three years.
Speaker 1: What type of institutions are using your crypto lending services?
Is it family offices, hedge funds, banks, things?
Speaker 2: I got, Yes, it's anybody with crypto Okay, every single
person could be a client of ours. I think it's
if you have any digital asset, you're looking to get
leverage against it. We're looking to underwrite what the assets are.
We take risk practices pretty seriously, so don't take in
an asset more than ten percent of the average daily
trading volume of an asset. But we do look at
all different digital assets across the ecosystem. That allows for
if there's an event, and let's say it's one hundred
million dollars of average daily trading volume, the most amount
of that asset we would take is ten million dollars,
But then we would take a LTV on it. So
maybe we're lending it a forty LTV against something that's
a little bit more daily if it's only got one
hundred million dollars of average daily trading volume. But I
think I want to make sure that every single person
can come to us and we can help them out
and help them with any kind of financing situation they're
looking for in digital assets. That's exactly what we do,
and that's exactly the type of business we run.
Speaker 1: Any assets that you provide lending on, is it like
the top assets by market cap? Let's say the top
fifteen or twenty. Obviously bitcoin the easiest, most liquid eth
in a second, but are you branching out to like
all coins and things like that.
Speaker 2: I would say bitcoin, eth and solana make up ninety
nine percent of what we do, But I don't think
that that necessarily needs to be the case. It's just
that's where you have all of the market cap.
Speaker 1: Sure, maybe over time, as let's say clarityx passes, the
ecosystem grows even more, there's certainly more coins will grow
in market cap and liquidity.
Speaker 2: Yeah, and I think there's more than lending dollars against
the different digital assets. You could lend digital assets against
digital assets, people taking directional views on things. They could
be borrowing something like a bitcoin to take a directional
view where you could sell it and buy ethereum, so
you could trade that cross. There's a lot of different
things that you can do within the lending market.
Speaker 1: Rookie question, when someone is lending or borrowing against their
crypto assets, is it just like getting a loan from
the bank, where it is a fixed term and a
certain rate and things like that.
Speaker 2: No, that's not a rookie question. I think that it
really depends and so We have a lot of white
glove solutions where we come to counterparties, we try and
help them out, try and understand what they're looking for.
We can do fixed rate, fixed term, that's definitely something
we can do. With the galaxy on chain financing rate
that's more of a reflection of the real cost of
capital in crypto at a certain time, so it does
float with the on chain rates that you're seeing across
those protocols that I mentioned earlier. And then one of
the things that has been incredibly popular just given sort
of liquidity profiles is a thirty day evergreen loan where
it stays open in perpetuity forever with a thirty day
recall that'symmetrical for borrower and lender. So we've had some
of those out there for three four years now where
it just stays open at thirty days and then if
either side wants to recall, then it's thirty days to completion.
And so that allows for a really good smoothing in
terms of your asset liability planning, so you can always
make sure that you have access to that liquidity on
the borrow side for thirty days, which is much cheaper
than borrowing for a year out or something to that effect.
Speaker 1: Very interesting. I have crypto asis. I need to talk
to you guys about how we can do that.
Speaker 2: We can talk after this for sure.
Speaker 1: You know, what is your outlook on the crypto market.
It seems like we're nearing a bottom. If the bottom's
not in already, do you anticipate later to see your
mark would be maybe in a bowl uptrend that type
of thing.
Speaker 2: I'm an internal optimist, so I've constantly been thinking the
bottoms in. I still think the bottom's in. I think
that we're prime for growth. I think that I'm more
asking who's selling, because why would anybody be selling at
these levels? I have such a strong outlook on digital assets,
but I mean I'm also running a lending desk. I'm
not a trader, so I don't really take directional risk.
Sure for Galaxy, I have a little bit in my PA,
but yeah, I'm definitely bullish.
Speaker 1: Yeah, and you know, we talked about the CLARITIAC. Hopefully
that passes. When it does pass, what impact will that
have on the crypto industry and even galaxies business.
Speaker 2: I think it helps grow the digital economy, the digital
asset economy. You're going to have so many more institutions
and people who maybe been sidelined because they're waiting for
regulation to come in, and then once that comes in,
you're going to start to see the boom of everybody
coming back into digital assets. Trying to make sure that
they understand the blockchain rails, because there's a lot of
things that could be better if you just actually use
the blockchain rails as opposed to what we have as
the history rails for a lot of the securities that
are trading today.
Speaker 1: So max there's a race to tokenize assets. You have
stock exchanges, the biggest investment firms on Wall Street doing this.
Is it too early maybe to ask this question, Are
any of them looking to do any type of lending
or barring off of tokenized assets.
Speaker 2: It's definitely a hot topic. I have had a number
of conversations about it. That's probably where regulation helps the most,
because it really comes down to the operational process. It's
great when you have a tokenized equity, for example, but
you need to be able to if you're taking it
as collateral, sell it if somebody misses a margin call.
And that's one of the things that's incredibly complex because
you need there to be a liquidity Saturday, Sunday, holidays, nights, weekends,
et cetera, before that market really takes off. And I
don't think we're that far away from it, but we
do need some of those things, like you mentioned some
of the large exchanges to actually have that twenty four
x seven trading for those tokenized assets when you're going
to start to see something like that really take off.
I will also say that you're gonna get with clarity
the distinction between digital asset commodities and digital asset securities,
and with that, you need to make sure that you
have the price proper licensure to take those assets and
be able to lend those assets, or lend against those assets,
or do whatever you need to if it's better to
do it as a swap, making sure that your securities
based swap dealer, for example. There's a lot of different
ways to finance some of these assets, and just making
sure that you're in a position to do it. It
takes a lot of the legwork up front to make
sure that you can be in a position to capitalize
on that when people are ready to go.
Speaker 1: Yeah, because in initial phase of rolling this all out
and building the infrastructure you're gonna have two markets, the
tokenized version of a Tesla stock and an analog if
you want to call it that version right the traditional
way of the set? Then how do you avoid imbalance
with liquidity? And one can train twenty four to seven
on the weekend, something happens on a Friday evening and
I can do it to test.
Speaker 2: I think there's a ton of opportunity there. Yeah, in
taking lending aside from a trading arbitrage standpoint, you're going
to start to see some of the big time players
come in, make sure that they have the operational rails
set up and if there's ever a discrepancy between the two,
you can make a lot of money just making sure
that you can capitalize on that arbitrage. And I think
that you're going to start to see that well hopefully.
Speaker 1: I know the SEC is working on token ized guidance
and they come out with something that helps avoid any
issues I should say, not with the arbitrary but rather
mispricing and all kinds of things that happened there. You
know what's on your own map that you can share.
Speaker 2: Well, the two products that I mentioned, those are have
taken up a ton of time and effort and so
very proud of those I think right now making sure
people understand that these products are out there, and trying
to get as many people in the door as possible
to start trading some of these products. I think looking
for some of the things that we're looking to do,
interested in the private credit space, the RWA space, thinking
about ways of putting debt on chain. So tokenized debt
is something that I'm incredibly interested in. I know everybody
talks about tokenized equities because that's something that's pretty easy
and simple to understand, and debt's not as interesting or
maybe as sexy as something like inequity. But I do
think that it's sort of the natural evolution. You talk
about stable coins first, then you saw tokenized treasuries, tokenized
money market funds. The next evolution is bona fide tokenized debt,
and then I think we're going to see tokenized equities
as sort of the fast follow after that.
Speaker 1: What about tokenized deposits. They're kind of along the lines
of stable coins, but a bit different, maybe more on
the commercial side. Would that be something you'd be involved
that's more in the banking ecosystem.
Speaker 2: I think that's a topic in Clarity, I think that
it doesn't necessarily touch my desk as much. I think
that's probably more our tokenization group that we have at
the firm, and or our treasury function and or our
asset management function. I do have a lens into everything
that we do from like a treasury standpoint. However, that's
not really my remit. But I do think it's a
super interesting topic, and I think that that is one
of the things that Clarity will actually allow us to
understand more about how that's supposed to be treated and
how you can design the products around that.
Speaker 1: Yeah, that absolutely makes sense. Well, Max, thank you so
much for taking the time. Looking forward to our next
interview as we dive into the latest and grace around Galaxy.
Thank you som racing the time.
Speaker 2: Appreciate it.
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