Spaces IPO Broke Tokenized Stocks

Sy Taylor  0:00  

Welcome to Tokenized, the show focused on stable coins and the institutional adoption of tokenized real-world assets. My name's Simon Taiyor, I'm your host, author of Fintech Brain Food, and head of market dev over at Tempo. And back in the saddle is the one and only Kai Sheffield, head of crypto at Visa. How you doing, buddy?

Cuy Sheffield  0:16  

I'm great. We got a lot of shows coming out, I feel like that the content is moving. Let's get into it.

Sy Taylor  0:22  

There's a lot to talk about. Making a debut on the show is the Chief Legal Officer of Century Refuge, that is Eli Cohen, formerly of CME, SGX, and Euroclear Hong Kong. We've got a story for you later on, Eli. I'm so glad to have you with us to make some sense of that. How you doing?

Eli Cohen  0:39  

Good, good, Simon. Thank you for having me. It's like great to be here.

Sy Taylor  0:41  

We're very excited to have you, and also making a debut is Ross Basri, co-founder of Up Top, which was recently acquired by Rain. And well, welcome to the show, Ross. We'll talk a little bit more about that in a minute.

Ross Basri  0:53  

Thank you.

Sy Taylor  0:54  

All right, just before we get into the content, I gotta remind viewers and listeners that views and opinions of our contributors today may be their own, and might not reflect those of companies they represent. And please don't take anything we say as tax, legal, or financial advice, or fashion advice, or office advice, or anything of the sort. And with that, let's get to the first story. This comes from Zell. They're launching a ZL USD stable coin, and separately announced an India expansion, so Zelle, for those of you who don't know, is the peer-to-peer money transmission app, is founded by a consortium of banks under early warning services, that's got banks like Bank of America, Capital One, JP Morgan, PNC, and many others as its shareholders, and what's impressive about Zelle is they've got over 150 million users, it's offered by 2400 different banks and supports 1.2 trillion in domestic payments annually. It's quite a bit larger than Cash App or Venmo, and they are now doing a stable coin. It's live, but it won't be supported until the end of the year. They are launching separately in India, but it's not with the stablecoin, and I think we can get into a little bit about why. Kai, I'd be remiss if I didn't come to you first on this, because I think we've been talking a while about the banks will use stablecoins. This is very much of a bank project using stable coins, but it seems to be for a cross-border use case. Your thoughts there? Yeah,

Cuy Sheffield  2:26  

when, when I first saw the headline, I saw Zeal USD in India, and I was like, 'Whoa, like that, that's a huge deal of like stable coins here coming at day. I think there have been a bunch of people trying to figure out what does that landscape look like in the regulatory environment, but good to know that is is not connected to separate pieces in the same press release. Yeah, I think Zelle has built a really effective product in the US, and the question is, how easily are they able to take the model from the US and be able to scale it globally, and what role stable coins play there, and is ZL USD going to be an explicit consumer-facing product that consumers know that they have and that they hold, and is Zelle the embedded wallet inside of a bank, or is ZL USD like a back-end settlement mechanism that moves between banks that are on the Zelle network, but consumers don't really know what chain is it going to be issued on? Is it multi chain? Like, there are a bunch of questions that sounds like we don't have a lot of details yet, but I think it's consistent with anyone who's in the cross border remittances or B2B payments game, is looking at ways that they can incorporate stable coins to some degree, but there's not really that much else until we know more details about how it's actually going to fit in to the product and the international expansion.

Sy Taylor  3:48  

Fully agree, Kai, and there's a lot we don't know, but I do believe they've sort of talked about opening up to more markets. Zelle, as we know, is very domestic. Ross, have you used Zelle? Have you got family members that use Zelle, and can you imagine who the customer of this might be of the banks today?

Ross Basri  4:07  

Yeah, I mean, I definitely use Zelle. I think it's a great consumer product, you know. This is just this is more of more of what we've seen with institutional stablecoin adoption. It's clear the direction this is going. I think the interesting point that's buried in here is that you know the big banks have truly woken up to the fact that these crypto rails pose an existential threat to them in the sense that I think where we were before was you know the banks were kind of pursuing an agenda in DC to slow down non bank innovation efforts, in some sense, whereas now they're actively launching a product on stable coins, so there's two interpretations. The charitable one is that this is functioning capitalism, in the sense that you know it's arrival of the fittest, the banks are the apex predators at the top of the food chain and. And they're going to do everything that they can do to not go extinct, I think. All very natural. The other interpretation is that this is, you know, something of a regulatory capture agenda, and you know, I think if genius compliance stable coin issuers were allowed to pass through yield cleanly, the big banks would be facing a lot of, you know, really, really tough competition, but I think, you know, I think the rub of all of this is we're entering a new phase of this war where the big banks are going to be launching products on crypto rails, and I think we're going to see a lot more of this coming, so to me that's that's kind of the paradigm shift that this is this is signaling

Sy Taylor  5:45  

interesting thoughts I find it so interesting as well that this is like not scary deposit leakage because it's cross border payments which Zell wasn't doing before they didn't do it was domestic only so this expands their market it's a business case that's easy to write versus peeling deposits away domestically, because what was that user doing today? They were using Revolut or Wise or some other product to go international, Zelle. You might as well use that, but also contrast that with the Clearinghouse TCH, an entirely separate consortium that decided to do tokenized deposits for b transfers, so it's like a horses for courses thing, and Zell being an example of where banks did an innovation thing and won versus the innovators, like I think that's such a narrative violation of what banks can do, and such a powerful one. I'm not going to bet against this for one second. Eli, your thoughts on this story?

Eli Cohen  6:46  

Yeah, I mean, I think it's.. I think Russ is exactly right. I mean, I think if there is a lot of adaptation that the banks are working on, some of that is stablecoin related, some of it is regulatory related, some of it is just automation that should have taken place a long, long time ago. I mean, obviously, Zelle is a great service, but it could have been launched, you know, 10 years ago, and it wasn't. So, you know, the banks are being forced, I think, into technology changes due to a lot of things happening in our industry that they probably would have resisted in the past, or had resisted in the past. So, I mean, I think that, that the, that the rise of Tether USDT for remittances is cutting into a lot of their margins, and they have to compete somehow. And if they're opening something like Zelle in India at some point, obviously not immediately, that would be an easy way to do it. There's a lot of, you know, cross currency issues with that. India is a really tough market. It's a, it's got currency controls on the IDR. It's not going to be anything that's simple at all to do, but maybe they could do things there with the local banks to give them a leg up that will be able to let them compete against Tether. Yeah, banks don't

Sy Taylor  7:58  

like breaking laws, as I

Cuy Sheffield  8:00  

say. Well, one, you know, other, yeah. interesting element of this is that my understanding is Zell actually had a pretty significant amount of adoption and usage outside the US in an unintended way in Venezuela in 2021 There were a bunch of articles about how Zelle was kind of going viral, where people in the US were giving their Zelle accounts to people in Venezuela to use to be able to pay each other in dollars, and so it sounds almost like Zelle has been used against its terms of service, against kind of what it was intended as a pseudo stablecoin in some of those markets, and then it was a challenge around how do you prevent that, you know, from happening, and obviously that wasn't, you know, what the product was supposed to be. Now, kind of going full circle to, is ZL USD, you know, going to be a product that actually enables usage in emerging markets, and are banks going to be comfortable with that structure?

Eli Cohen  8:59  

Yeah, I mean, I think that the big, the big thing that they can do, which, which tether cannot, is they can embed an FX service into that product, right? So, if you can, if you have IDR, for example, or, or you know, other currencies, you know, remittance currencies, you know, Philippine peso, they can embed an FX directly into the remittance service, which is going to be very difficult for a tether to be able to do, you just, you know, like you can today go to, you know, you, when you use your, your, your Visa card, your Mastercard overseas, it'll say, do you want to pay in local currency, do you want to pay in your currency? They've embedded a FX service where they can make quite a bit of money,

Sy Taylor  9:39  

powerful ideas there that I think, as just sort of reframing stablecoins as a business case opportunity for the banks and finding the different places they play, and the narrative violation there really, really does stick in my mind. One of the thoughts that sort of struck me. From this is how consortia of banks can actually execute here, like you don't think of early warning services and Zelle as being like the most well-known fintech startups in the world, but arguably one of the most successful. What they do around fraud as well is particularly successful, and then you link that back to stablecoins, are informally used as Cai says, and the market is trying to pull it into existence. You've got all of this sort of stablecoin cross-border activity kicking off with remittance companies. Why shouldn't the banks go compete there? And why shouldn't it be a business line? And why can't they compete with Wise? And why can't they go international? There's a lot of folks now, like, whatever, Sling Money, and many others trying to build the on-chain Venmo. Why can't Zelle be that? Russ, any, any closing thoughts on this one?

Ross Basri  10:52  

Well, I think the other thing here, so Eli brought up the FX piece. I think the flip side of that is also going to be interesting, which is to see if the recipients of remittances end up wanting to hold, like, $1 $1-based product, right, and this could be a really interesting story for, you know, dollar adoption abroad as well. So, yes, I think I think Eli's 100% right about the embedded services and FX piece, but it should be interesting to see if this is also a way for folks in those other countries to hold and save in dollars if they want to choose to do that as well.

Sy Taylor  11:28  

Excellent thoughts. All right. Well, let's move to the next story, because it's been a big news week, and since we got you, Ross Rain launched a native loyalty for stablecoin programs capability, it's called imaginatively rewards. It's a program that allows stablecoin card issuers to offer branded loyalty programs with points, travel rewards, and statement credits directly within their own apps, and it builds on the 2025 acquisition of a company called Up Top that was behind Cleveland Cavaliers, Detroit Pistons, and LSU Athletics loyalty program. So we've seen card affinity programs, we've seen loyalty work in traditional card programs for a while. Ross, what's different here about this capability?

Ross Basri  12:15  

Yeah, well, I should just, I should just point out, because you mentioned it, that the platform is called rewards, but the tokenized on-chain points themselves are called raindrops. So, there are.. there is some interesting creativity there's, you know, our rewards

Sy Taylor  12:31  

for that. Yeah,

Ross Basri  12:32  

our marketing team does a pretty good job. No, but look, I think you know personally, this has been the culmination of a lot of years of work, I launched Up Top in 2022 with the idea of bringing loyalty and rewards on chain, and you know, we worked through, obviously, through a full cycle, ups and downs. We spent a year with Mastercard and their Start Path program, kind of, you know, building on this idea, ideating, we kept running into the same problem when thinking about how do you, you know, how to do loyalty and rewards on chain, which is that your average consumer who shows up for a transaction and swipes a credit card doesn't necessarily have a crypto wallet. With rain, you actually, you know, start from the first principle that because it's a stable coin, or you know, more generally digital asset based card, that there's there's a crypto wallet present, so it sort of just opens up our universe in terms of what we can do. I think to answer your question directly about what makes this different, I think you know in the short term, what are we trying to do is we're trying to offer a platform that allows our fintech partners to get to feature parity with, you know, the best rewards programs in the world. Think about, you know, Amex Platinum, Chase, Sapphire, built rewards, all that kind of stuff, but have it be built on, you know, on a flexible, extensible, you know, platform where you know in the future, and this is particularly relevant to rain, because we are a platform and not, you know, launching card programs ourselves, but if one of our fintech partners wants to launch a rewards program on our platform, we can get them set up, we can get them, you know, a white label travel portal where you can do, you know, hotel and you know rental cars and airline airline flight based rewards, but then they can do whatever they want with those tokenized points after, right? So we can, we can get them, we can get them a foothold in the rewards ecosystem and get them up and running, which crucially in the US is, you know, 90% plus of credit card spend is on rewards cards, so if you don't have that, you're not competitive, so we can get them to the point where they're competitive, and then we can say, look, this is you, like we give you guys the keys, the admin keys, we get it all set up, we get the infrastructure stood up for you, and then it's your ecosystem, right? You can really do whatever you want with it, and then the kicker, which this is, you know, this is a little bit further down the. Road, but we've put the pieces in place for this. Is we're going to have sort of like a centralized liquidity facility for all of those tokenized points between our programs to interoperate with each other, so you know, whereas if you're a small fintech and you issue an on-chain point, may or may not be a whole lot you can do with it, but if you're part of the rain ecosystem, there's potentially a lot more you can do with it, so that's that's in a nutshell how we're, how we're kind of thinking about this from a, from an architecture perspective.

Cuy Sheffield  15:31  

Yeah, I, I love this, and I think tokenized loyalty is is a fascinating space right now. So, I think there are two things that come top of mind, is one is as stablecoin link cards start to really become table stakes and get adopted of every stable coin wallet is at some stage in the process of rolling out a stablecoin link card. The question becomes, how do you differentiate and how do you compete? It's a very competitive market, and so I think a lot of people are starting to look towards rewards, benefits, loyalty, like what are creative ways you know that you can have a product experience that isn't just like every other stable coin like card, and and I feel like a year ago or two years ago it was like there just weren't that many stable coin like cards, and so that was the thing, is you could spend a stablecoin, now it's just becoming a new category of fintech that what are the other components that you can provide, so I'm really excited to see different approaches. I think the other piece that's really interesting here is like what the pools of economics will be to fund some of these reward programs, and I think that with the debate happening around clarity and the latest version that made it out of the Senate Banking Committee. This idea of paying out yield not passively, but only through active mechanisms like transactions. It's possible that we could be in a world where you have a bunch of stable coin wallets who are earning yield from stablecoin issuers that don't have the ability to just pay it out as earn 3% you know on your balances and they're going to be looking at okay how do I deploy that you know towards rewards on active things like card spend and so if you think about you know that the yield that those issuers are earning coming back into the ecosystem and going to be paid out on transactions combined with very interesting type of loyalty and reward schemes like you could end up in a world even in the US where you have a debit card that pays you two or 3% back, we haven't seen that, and so I think that we're really excited to see many different approaches and experimentation and competition around, you know, ways to reward consumers and and provide differentiated products, and and we're just at the beginning of that.

Sy Taylor  17:54  

Do you like thoughts?

Eli Cohen  17:56  

I mean, I think it's a great idea, and I would love to see that too. I mean, there's a lot of space to grow, for sure. The industry, I think, that I mean, I think that everybody who's thinking about stable coins is thinking about different kinds of mechanisms to pass on yield, and it's not going to be too difficult to do, even with the GPS Act requirements, or assuming the Clarity Act passes some, some of the requirements within the Clarity Act, that you know, a sweet mechanism like the broker dealers use today into a money market fund is obviously something which is definitely possible. You can do the same thing with stable coins. We've got our own basically money market fund, you know, US Treasury fund that we've built on a tokenized form that takes stable coins on subscriptions, pays stable coins on redemptions. It's very easy to see that you could take a product like that, and you could just build it into your, your stable coin issuer, or your stable coin wallets, wherever people are holding their stable coins, they should be able to sweep that into into money market funds, just like you can do that today in a broker dealer account in the US. So, yeah, I mean, maybe, maybe there will be certain kinds of rewards that will be more valuable than the than an interest payment, or there'll be certain mechanisms that that will be better, you know, maybe more tax advantage, because you do have to pay tax on interest to the US, so you know that you can definitely see that there are some types of rewards programs that could be even more interesting or valuable to certain types of consumers than just getting a plain yield on a money market fund.

Sy Taylor  19:24  

Yeah, that's interesting. Eli, my understanding, you'll know more about this from your kind of Euroclear days, but in the derivatives world, it's quite common for off hours for the broker dealers to be using money market funds and bank accounts to be moving value between each other. This exists in the institutional space in TradFi, but it doesn't exist at the consumer or the small business level, and we've sort of got there with tokenization that the stablecoin itself might not be able to have any yield, but everything around it can, and my understanding of. The way the Clarity Act is architected is designed to follow the same model as cashback cards and rewards cards, which is like that, is not yield on an underlying product, it is a funding mechanism, it is marketing, so where where rain is going here is kind of very, very similar to those traditional cards, but your competitive dynamic in that type of card historically was like, I worked at Barclays for a little while, I worked at Thesis, you had big programs and big brands that were doing loyalty, you know, the airlines would pre-fund this for multiple years, everybody would compete for that product, and it only made sense if you were massive, but the Cleveland Cavaliers and the Detroit Pistons, very different scale of business and very different scale of customer base, and so I think the type of hyper personalized loyalty, if you bring down that cost, is really interesting on top of all of the points you made there about like actually there's a whole bunch of yield mechanics that can manifest as rewards in a way that, like, that actually makes sense, as per the Clarity Act reading of it, and it creates an entirely new dynamic. So, Ross, I'm interested in your perspective now on, like, what's this going to look like? Are you got more clients coming? What do people do to get the most out of a program like this, what are you seeing people do to be successful?

Ross Basri  21:24  

But yeah, absolutely. I think you know, in terms of where this is going, I think you know similarly to how you know in traditional rewards and loyalty, the first, the first thing you saw was the airlines kind of launch these points and that take off the next iteration with the co-brand, the co-brand card, I think that's where we're headed. I think we're going to see stablecoin co-brands with, you know, kind of kind of like brands that have a ton of affinity, you know. You mentioned the Cleveland Cavaliers and Detroit Pistons. Co-brands in the world of sports have been, has, has been a tried concept. It didn't work for many, many reasons that we've studied, you know, very, very closely, but I think there's reasons why the stable coin version of that could really take off, and that's where I'm excited about this whole stable coin card rewards sort of paradigm going. I think once you once you build the economics and efficiency of stable coins into the distribution that some of these consumer brands have, I think you get something really, really, you know, just primed for takeoff.

Sy Taylor  22:33  

I think about a consumer brand like Manchester United or Liverpool, and producer Petra will hate me for this, but definitely not Arsenal, but consumer brands that have massive presences in Asia Pacific and Africa, hundreds of millions of people who are fans of what they do, that they have no direct way to monetize today, but could have a stablecoin linked card, but try and launch a card program in those markets would be really, really hard, stable kindly cards, little bit easier to do, not completely easy, but much more cost compressed and kind of affordable. Kai, Eli, any other thoughts on this one?

Eli Cohen  23:12  

Yeah, I mean, the other thing.. sorry, go ahead, but the other thing I think would be very interesting, that I think maybe we're going to see some of it. We've had some discussions about are some charitable institutions, some big charities launching their own stable coins. So, one of the things that people, consumers in the US worry about are that the tax complications with taking yield on a stable coin, or the tax complication with even getting rewards on a stable coin, you know, the both of those things are still quite murky from a tax perspective, but you can see maybe a charitable institution launching its stable coin and basically saying we're going to take yield and we're going to, you know, use that as a charitable contribution, your charitable contribution to our to our charity, and they're therefore instead of having a tax difficulty, you've got a tax advantage where you can take that donation at least to the US and use that as a offset to your taxes.

Sy Taylor  24:11  

Kai, any thoughts?

Cuy Sheffield  24:15  

No, I think I'm excited to see more rewards programs, particularly in emerging markets, where stablecoin link cards are getting adoption, and then I also just, I love the idea of blockchains as ledgers for reward points, and if you think about, like, what is a standard ledger that a reward point sits in, and when was that built, and how programmable and flexible is it? Like, probably not very much, and so I think you can have a lot more interoperability between rewards points across the world, and people have talked about it for many years, and it feels like it's getting closer to finally happening.

Sy Taylor  24:50  

Final observation for me is like, how different Raiden looks as an issuer processor than my alma mater thesis or a. You know, I to see, or any of those businesses that operate at scales, a lot of the card programs that exist today, they would have a rewards module that has done everything an airline needs to do, and they'll show you all of that stuff, if you're another airline, they've got a great product, they can do that for you, but Rain is this quite different sort of economic opportunity, because my understanding, and Ross correct me if I'm wrong, here is you guys can do credit cards, so there's more interchange going around, and you're sort of on chain by default, so you bring down a lot of that initial setup costs, a lot of those bits of books and records and rewards stuff can be seen on chain, so there are ways you can start to remix that and do imaginative things with that, with your own internal systems, with your own front-end interface, and with embedded wallets today, which we didn't have maybe two, three years ago, that sits right inside the consumer brands app, and in a way that feels really natural and distinct, in a way that was probably harder than before,

Ross Basri  26:02  

absolutely. And I think one, one other observation that you know, maybe, maybe folks haven't thought of is, I think, I think in a post-AI world, extensibility and malleability is going to be even more important, which is to say that, you know, a lot of times stuff wasn't fully featured, but it didn't matter, because you didn't really have the resources to customize or build things out or build on top of things anyway, but when you have, you know, essentially infinite, you know, software engineering resources at your disposal, like having something that you can really shape to do whatever you want to do, is really is going to be really important, and so I think there's an AI theme embedded in here as well,

Sy Taylor  26:40  

and a golden source as well, that's externalized and impossible to edit, that might also be useful in case that the engineers YOLO delete a bunch of stuff, which has happened, unfortunately. All right, before we get to part two, we're just going to take a quick pause while we hear from our sponsors. All right, thank you to our sponsors. The big story this week is a bunch of crypto exchanges that cannot fulfill SpaceX IPO orders. This is Binance Wallet, Bybit, Bitget Wallet, all canceled SpaceX pre-IPO offerings on Friday and refunded customers after failing to secure shares promised through X stocks, Kraken's tokenized equities business. One person familiar with the matter told Coinbase, the Coin Desk that X Stoxx and its distribution partners gathered more than a billion dollars in customer orders, but when the underwriters finalized allocations, many of those requests went unfilled, so Eli got to come to you first as our, as our lawyer on this one. Thoughts on this story,

Eli Cohen  27:50  

it's a really interesting story. I mean, I think it's a really interesting story on a number of different levels, and it's, you know, it's a very interesting story for us. For Centrifuge as a business in the tokenization space, you know, we've been thinking a lot about equities and how to get into the equity space, and even the pre-IPO space. It's a challenge, and you can see this is a great example of why it's a challenge. So, I think there's two things that are happening here that one is that there is a an expectation gap. I would say they're the people you know that the equities market in the crypto space is not like the equities markets in the traditional finance space. In the tradfi space, you have a broker dealer, the broker dealer gives you investment advice, can give you investment advice, should be giving you investment advice. So, if you're going to go into a pre-IPO SPV purchase through your broker-dealer. The broker dealer is going to give you like pages and pages of risk disclosure and information, and maybe, maybe you read that, maybe you don't, probably you don't. But there will, they will have some obligations to make you check a bunch of boxes. I know what I'm investing, I understand this product, I know what it means, that, and I think everybody who went through this process in the traditional finance space through their broker dealer had different expectations than the X stocks holders. Nobody, everybody knew well, everybody should have known that this allocation from SpaceX was never going to be 100% you know, that they were always going to be oversubscribed. Now it turned out that the allocation for the SpaceX IPO was even smaller than expectations, so here there's a big gap, but I think you know when you buy an X stocks on a DAX or you buy X stocks through through Kraken or through Binance, you don't get any of those risk disclosures, you don't get any of that information, you're buying something that you maybe don't understand. I mean, probably traffic purchases, maybe not either, but I think there's a bigger gap in expectations on the X stock side than they would have been if you bought through your broker dealer, so that's one. Thing, the other thing is that there's clearly in the crypto space a concentration risk issue, and it's a concentration risk issue, not just on X stocks, or rather not really an X stocks at all, but that the point is that everybody doing the equity conversions, these equity wrappers in the in the crypto space are all pretty much using the same broker dealer, they're all using alpaca, so every, so that's that's where the concentration risk is. The concentration risk isn't on crack and back X stocks as much as it is on Alpaca, because every broker dealer is going to get their own allocation, so Fidelity got an allocation, Schwab got an allocation, alpaca got an allocation, but alpaca is 100% of the market, you know, so not just X stacks, but all the rappers go through it, so that's an issue, and I think, you know, if I think you know, when Kraken, when the guys who are very smart guys, you know, Adam Levy, and the guys behind back to then get acquired by Kraken, who've launched X Fax, are super smart, and I think they got to understand that they need more broker dealers, that they need to be working through more broker dealers. I think that's a challenge, because not many broker dealers want to work in this space. It's a challenge that we found. It's gotten better since the last administration, since two point 2.0 is is no longer with us, but it's still a challenge. So they need to diversify. That's the other, I think, lesson behind this. I do wonder also whether some of the exchanges think a little bit about their reliance on essentially a competitor, you know, this is a crack in product now, and you've got Bytedance and Bybit and OKX, and everybody essentially relying on a competitor's product for their own users, which I think is a challenge for them too, that they have to think about

Sy Taylor  31:53  

it's very different sort of market structure you'd see kind of emerge in the separation of concerns that you see in traditional markets, where all of those players are sort of different layers in the stack, whereas at the moment we don't know where everybody fits. I think Kraken would say this is a pay word business and separate to their exchange, and they are like trying to, trying to, they are separate entities with different management teams and whatnot, which is kind of understandable, and you see that in TradFi, but Ross, so interested in your thoughts on this one as well, given your background.

Ross Basri  32:26  

Yeah, look, I think I think there's actually a really, really important story in here to me, and that's the equal access to the engine of wealth in America, which, of course, is capitalism and the compounding returns of outlier businesses like a SpaceX. The IPO process clearly just serves a handful of insiders at the exclusion of ordinary folk, and there's two other factors that make this worse. One is the accredited investor laws, which means you know if you're not a wealthy person, you can't access certain private investments, and the second is the trend of companies staying private for longer, so you put all this in a blender, and what does it mean? It means that for the ordinary American, your first shot at SpaceX stock is at a $2 trillion valuation. So clearly a terrible system. I think there's a silver lining here, particularly for us in fintech, and particularly with a crypto mindset, which is that in this broken system, particularly as we get additional regulatory clarity around what you can do with securities on chain. I think the door is wide open for some kind of innovative blockchain solution for democratizing, you know, capital access to capital formation, and, you know, funding of companies, and I don't, I don't necessarily know what that solution looks like just yet, but I'm sure the market will figure it out, because it's a big opportunity.

Sy Taylor  33:49  

Tai,

Cuy Sheffield  33:50  

yeah, it's, it's fascinating, just see like the demand for these products and exchanges as distribution channels of people all over the world, you know, that want, you know, access, and they find that the easiest way that they could even have a shot at some sort of access, you know, to this is, is through their, their crypto exchange, and I would imagine if, if there are other ways that those, you know, many of those customers thought that they could buy the SpaceX IPO, like they, they probably would have done that, but I think the exchange is evolving in a lot of the retail investors, it feels like it's the habits that have been built of having modern interfaces that you can trade 24/7 from anywhere in the world, like that expectation is now being applied to equities in many ways, equities is like equities are demanded in this cycle with AI and space, and emerging tech are more interesting and exciting than some crypto assets, but the existing system just doesn't work like that, and so it feels like there's this gap between like massive global distribution. In consumers who have had expectations that products work a certain way, that Bitcoin or adult coin works with the traditional financial system, you know the multiple layers that exist, you know, the processes, the regulations, the disclosures, and it feels like over time, like when there's enough demand and there's momentum around new technologies, like I'm optimistic that a few years from now it should only be easier to have some form of tokenized stock, and in a more competitive market with more broker dealers that have the right kind of balance of disclosures, but it's clear that we're not there yet, and like the demand is here much faster than like the supply and the ability to actually execute in an offer these these products,

Sy Taylor  35:44  

when you hold that token, what do you actually hold? I think is kind of what people are finding out the hard way, right? Like it's a token and it says SpaceX on it, but like it's not actually backed by a real stock, and this is kind of why we have so much of the market structure we do in TradFi, is like all the way down to the custodian, there should be people checking that and making sure it's a real claim, and then the DTC and the DTCC, they record the ownership, and then they match that throughout the whole market, and so it's so interesting to me that there's now these two approaches, you've got figure and Superstate that are bringing real stocks directly on chain, that is the actual ownership certificate. So, when you hold that stock token, you actually hold the stock. When you have stocks in your brokerage account, what you have is like the legal obligation. My understanding, Eli, you're a lawyer, you'll correct me, I'm sure that is you are the legal beneficiary, and you have a receipt that says that, which is recorded then at the DTCC, which holds the actual stock certificate itself, going back to the to the 70s. So that market structure needs to get figured out, number one, and I wonder post clarity if that happens. But the other thing I saw this week, Eli, I want you to react to two things. One, Hyper Liquids derivatives speak sex contract had $1.4 billion in volume, so derivatives are in this slightly separate space where just giving people exposure for the most part, people are actually fine with. So Hyper Liquid, a big win for and then Coinbase launched tokenized stocks that they said are real one to one actual tokenized shares of US companies, which I've read as being competitive positioning against what Robinhood did, which for their European user base they had their own l2 on Arbitrum, I believe, where they were trying to tokenize stocks, but really what you owned was a claim on an SPV that where Robinhood had that, and so could you, could you unpack, pick all of this for me, and help me make sense of

Eli Cohen  37:51  

it. There are a lot of different models out there. I think the SEC guidelines that they came out with, it back in March about the securities token market, and four different models of types of different securities tokens in the market today. So, there's like this in what they call the synthetics, which is the X stocks. Those are wrapper tokens, which are exposures to somebody who holds an underlying security. There's what they call the digital twin model, which is, I think, what Robin Hood was trying to do, but I haven't seen a lot of in the market. This is an actual broker dealer or bank who is considered to be a securities intermediary under the US laws. They are creating a tokenized form of a security entitlement, so basically, when you talk about, like, tokenized deposits, this is an equivalent for a broker-dealer, tokenized claim against the broker-dealer. Then you have the actual, you know, recording in the share registry with a, with a digital replication of that. That's what figures doing, that's what Super Saiyan is doing with Galaxy. Those are those models work to a certain extent, but the the actual legal ownership is what's recorded in the share registry and not the token at all, at all. So we don't have a system in the US where the token itself is the is an ownership that would be what we call a bearer form security, which have been banned. They've been banned in the US since 1973 so that doesn't actually exist in the market, it exists in some other countries where they do still have bear reform securities, so there's a project in Germany called Midas, which can use an old German bearer form model for their tokens, but it doesn't exist in the US, it can't exist in the US, so there's a number of different challenges, and a lot of people in crypto space. Everybody likes to focus on the SEC, and for lots of reasons. In the last administration, we had to, but the actual securities rights themselves are a matter of state law in the US. It's a property right, which is dictated by state law, and the way that it's been managed is through what they call. A uniform commercial code, so the UCC, UCC, Article Eight, Article Eight of the UCC is actually how we manage ownership of securities in the United States, and that, of course, hasn't been adapted at all to tokenized form, and it's a challenge because it's 50 different laws, well, 51 different laws in all the different states, supposedly done in a uniform way, so it's a huge challenge to be able to make amendments to that. So, it's, it's, I think there's going to be a number of different models going forward. I don't know exactly what Coinbase is going to do. They didn't actually give out any details yet, so I'm very interested to see how that's going to work, but I think you'll see a number of different models for a number of different types of consumers, some people with different risk awareness or risk appetites, who will continue to be in the X stock synthetics. We'll see whether the SEC decides to do something about that on the enforcement side. They've hinted that they might, but they'll probably exist outside the United States, even after that happens.

Cuy Sheffield  41:03  

Yeah, it's, it's a great framework, you know, super, super helpful. Like, it's so much more complicated than stablecoins, like the arc of stable coins, where you had, like, anyone could create anything that they called a stable coin. Some of them were backed, some of them weren't, and people just kind of had to figure it out towards moving towards where we are right now, where it's there will be a set of rules with genius going into effect around what a stablecoin is, and as a consumer you should know if someone has issued a stablecoin that genius compliant, I don't have to think about what's actually under the hood to eventually maybe there's a world where just $1 is $1 and the distinction of a stablecoin and fiat kind of moves away with equities, like, is there a path where it to where it goes there? Like, I just don't know how a retail investor is going to like wrap their head around that, the framework of all these different types of products, and when people aren't reading the disclosures in general, like, how are they going to know the distinction between should I buy one that is model two or one that's model three, and so do we expect, like, is there going to be some convergence together where, like, the market realizes, like, this is the model that makes the most sense, and then I don't have to think about it, of a share of stock is just a share of stock, or it's just too complex that you're going to have many different products that exist in the market for an extended period of time, and they're just going to have like people learn trial by error of of when they don't have what they thought they had.

Eli Cohen  42:33  

Yeah, I mean, I mean, think about the stable coins, how long has it taken to get to even this, this place with the stable coins, and even now you're going to have regulated stable coins and not regulated stable coins, you're going to have tethered, you're going to have circle, and they're going to be different types of stable coins, so you're going to have yield bearing stable coins outside the United States who are not genius compliant, so I mean, even that space is still fragmented, I mean, I think it's going to take us at least 10 years to get to some sort of convergence in the securities token space, where you know the UCC is actually amended, and this, the SEC is on board, and people can actually do like a full IPO in 100% tokenized form, where then it can be traded on NASDAQ and settled with DTCC, so you've got a number of all kinds of different layers to be toke to be adapted to tokens, adapted to the tokenization wave that are just starting the process now.

Sy Taylor  43:28  

The risk of kicking off a whole other conversation as well. I saw that the SEC moved to kill rule 611 which does a lot of stuff. Let's be honest, but one of the wrinkles there is that I think a lot of tokenized stocks initiatives were staying offshore and we were staying away from the domestic nature of the world, so there's so many moving parts here. I think we will have to come back to this, Eli, and have you back on the show, maybe do an explainer on this, because I think we're all kind of lost in it. But Ross, before we close out today, I wanted to ask your views on what should we look forward to in the tokenized stock space, and how does that fit into the consumer world, and is there a world where rewards and stocks and everything all fit together in the consumer wallet of the future?

Ross Basri  44:14  

Yeah, I mean, I'll share one thing I think about a lot at Rain, which is if we can figure out this, this tokenized stock thing, you know, Rain is built to work, you know, stable coins is kind of the like emergent use case, but it's built to work with digital assets. Imagine that you can, you know, you can store your wealth in name your favorite stock and spend it anywhere major credit cards are accepted, that that's essentially what we, what we do at Rain. That's what our system is built to do. And I think I think I see a future where that is going to be a very, very interesting use case.

Sy Taylor  44:51  

What a great place to leave it. And foreshadowing, bunch of stories we didn't have time for. We could have probably even have just gone a whole show on the last story, but. Ripple have invested into Flutter Wave Series E at a $3.2 billion valuation, and they're going to integrate RL USD. So, Flutter Wave, major player in the sub-Saharan African region. State Street launched a genius compliant money market fund for stable coin issuers. Lot of banks chasing those stable coin issuers around as clients, Coinbase launched an AI agent account that can trade on your behalf, and now I believe they've registered that as an RAA registered investment advisor. Super interesting legal work they did there. Alchemy has unveiled Visa powered virtual payment cards for its AI agents, Kai, doing day job things again. Zama Morpho and Steakhouse have launched the first confidential DeFi yield vault on Ethereum. Privacy just keeps coming as a theme, so, but like, we could probably do like a full five hour show on all of those things, but I've got to stop us here for all of our sanity. So, I want to thank everybody so much for listening and watching, and Eli, if people want to find out more about you or Centrifuge, what are they going to do that?

Eli Cohen  46:09  

Yeah, I mean, just to our website, centrifuge.io is a good place to start. We've also got a fun tokenization platform called Animoying, and animoy.io can take a look at that as well.

Sy Taylor  46:20  

Amazing, Ross, you and Rain.

Ross Basri  46:23  

Yep, we're Rain dot XYZ. We've got, you know, we've got LinkedIn X accounts, me personally on X on Basri Ross, and people can also find me on LinkedIn as well.

Sy Taylor  46:35  

Kai

Cuy Sheffield  46:36  

on X at Kai Sheffield and visa.com/crypto

Sy Taylor  46:40  

You'll find me at all the socials at S Y Taylor, screaming into the void at Fintech Brain food.com where I just wrote a whole piece about why Zelle launched a US dollar stablecoin. If you want a longer take, and of course at Tempo dot XYZ, gradually tempo pilling the universe one conversation at a time. And you'll find a lot more of this show if you subscribe to it, and if you like this show, and I think Ross and Eli were amazing, I definitely did, and you want other people to hear it too. Why not tell everybody about it? It really helps us. And while you're there, leave us a review. It means a lot, and it helps others find the show too. We'll catch you next time. Bye for now.