Stablecoins Will Stop Retail From Subsidizing Wall St Ft. BitGo CEO Mike Belshe

Unknown Speaker  0:00  

Simon,

Sy Taylor  0:10  

welcome to tokenized these show focused on stable coins and the institutional adoption of tokenized real world assets. My name is Simon Taylor, your host, author at FinTech brain food and head of market dev at tempo. And for those of you watching coming to you live from a certain Disney themed hotel room, I hope that you know I never want to miss this show. And I'm joined, as always, by the unbelievable Kai Sheffield, head of crypto at visa. How you doing, Kai?

Cuy Sheffield  0:35  

I am fantastic. There's a lot going on. We've got some amazing guests today, some legends in the industry. We got a lot to talk about.

Sy Taylor  0:43  

We're speaking the legends making a return is the one and only. Sam Bronner, now founder of better money, former partner at a 16 Z and for a long time, a guy who spent just an incredible amount of experience in trod fi, welcome back, sir. Congratulations. We'll get into your story in a little bit. How you doing? I'm doing great.

Unknown Speaker  1:00  

I'm happy to be back on the show. What an honor.

Sy Taylor  1:03  

And last but by no means least, making a debut is the incredible Mike belshey, who is the CEO of bitgo, genuine pioneer in the digital asset space. Thank you so much, Mike.

Speaker 1  1:15  

How you doing? I'm great. Good to see you both. Thanks for having me.

Sy Taylor  1:19  

Alrighty, just before we get on with the news, I gotta remind everybody that views and opinions 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. Always do your own research, folks. And with that, let's just get into this first story. And there's a company Sam, you may have heard of them, called Better money. They raised $10 million in seed funding to be a stable coin clearing house. Do you want to explain, Sam, the problem that's in stable coins right now, and how a clearing house might solve that?

Speaker 2  1:54  

Yeah, I do. I think stable coins are happening. People have started to realize this. It's not really a question anymore of if or when it's today, but stable coins don't operate like payments traditionally do. We all probably know the experience of having a Wells Fargo account and sending money to someone else's Bank of America account. You know how much money you're gonna get the other side. You know when it's gonna be delivered. But with stable coins, they're built around traditional crypto trading infrastructure, and so things like slippage, non deterministic money flows. And we solve that. We make it easy for any person to send anyone else money, but where you can send one stable coin receive another, and do it with a guaranteed settlement time and a guaranteed price. And that's what our enterprise customers and clients expect out of payments, and it's what we can help

Sy Taylor  2:45  

them do on top of stable coins, and that's such a clean description of a challenge. But I'm wondering if, Mike, you have clients that have been transacting in stable coins, that have been trying to use some of this stuff from a trading side, and increasingly in payments that have experienced some of these frictions. And how do you think about payments more broadly, and the emergence of stable coins as a payment solution? Yeah, well, look,

Speaker 1  3:10  

I mean, stable coins are so incredibly exciting, we are going to see payments completely upended. So I know the folks at Visa and MasterCard are like, looking at this and seeing, like, how does the world change? But obviously, like, this is digital money. You can move. It's programmable. All that, as Sam said, yeah, exactly right. You know, this all emerged initially to solve a basic use case of, how do you trade Bitcoin, 24/7, in a digital world when money just doesn't move that way? In the early days, we had, you know, silver gate bank stepped up with an API. So what you really wanted was you wanted DVP delivered versus payment, where the Bitcoin goes one way and the dollars go the other way. But there's no way to do that. So silver gate stepped in, created an API, and you can kind of send the dollar semi fast, as long as everybody had an account at Silver gate and the Bitcoin moves separately. These days, we're using stable coins for this transaction, and it happens super fast. Now, all of these are running on blockchains that created a business model around having fees for the blockchain. So Ethereum, of course, every time you move a tiny amount of USDC, usdt, USD one US Sofi, dollar, whatever you know, you have to have, like, a little, tiny amount of ether. And like, people like, wait what I mean? So imagine you go to pay for a burger at in and out, and they say, Great, that'll be $3 and, oh, by the way, you need, you know, 25 cents worth of euros in order to complete this. It wouldn't work very well. So the friction that Sam is describing is absolutely real and has to be fixed in order for us to take payments all the way down to kind of the basics, it confuses still retail, I think we've made inroads as an industry at making digital assets and crypto more usable, but getting all the way down to these level of details needs to be fixed. So this is why you've got some of the stable coins coming up with the new blockchains for themselves. Of us that have fees that are either paid in stable coin directly or don't have fees, et cetera, kind of there's a little bit of a friction between the way the rails have been built so far and what's going to be needed in order to just make it super easy to use. So this is a real issue for how things are moving forward. On the bit go side. You know, we help people build stable coins, there's friction from our regulators and our legislators right now in terms of, can you create interest, which is making it so everybody wants to issue a new stable coin. So we're going to see this proliferation of stable coins for a little while, which creates more headache, because now you got to convert between them. So you can do that at bitco. Of course, each one of these does have a market price pegging it to the dollar, the $1 value that people expect it to be is, is a little bit tricky. You can go back to the issuers. Then you got the issuers creating friction, by way of mint and burn fees, in some cases, creating a different type of friction. So look, there's a lot of problems to be solved here, but I anticipate that this gets solved in the next 12 months pretty, pretty smoothly from multiple vendors.

Cuy Sheffield  6:03  

Yeah, I want to come back to the interest debate, because I think it's an important one that's driving a lot of different discussions and impacts on market structure. But congrats, Sam, and I feel like this term stable coin clearing house is going to become more and more of a theme in 2026 that again, as more stable coins emerge. Like, how do you do that interoperability? But we're it seems like we're in this interesting period where, last I checked, 95 plus percent of all supply is still USDC or usdt. And so how do you think about like, what have you seen from customers around the need for a stable coin Clearinghouse gets stronger and stronger the more stable coins that exist, and you have more launching. But are they being used? And so I guess, which stable coins are you supporting today? What demand are you seeing from customers? Like, how do you see that landscape playing out?

Speaker 2  6:55  

Yeah. So we support a bunch of stable coins today, and we do it in partnership with issuance platforms, issuers, sponsors and so forth so USDC, usdg and SBC, a variety of others. But specifically the question is, when will we see the diversity of stable coins, and what's going to drive it? I think that's kind of the core of your question. Kai, we see every day that a large enterprise payments company, bank, FinTech, wants to launch their own stablecoin, because, as Mike is saying, maybe it allows you to have differentiated access to the underlying yield, which is a new line of revenue, but also just gives you more control. You get to run part of the compliance process, you get to choose the branding. You get more control over the experience altogether. And so genius bill got signed in early July. It's been now, what is that? Seven months that's about breakneck pace for change in the payments industry, like people are bringing these to market today. I know in startup land visa moves very fast. You know, startups we all talk to, they they move maybe quicker than that. But that is absolute break neck pace for these larger companies, and we're beginning to see them move to market. It's not always for that very consumer y scenario. It's often for treasury management, it's for bill pay. It's for things that sort of look like ACH today. Those are scenarios that we're starting to see come to market first.

Sy Taylor  8:19  

Actually, I know it's interesting. Sam, I always think about the clearing house solving the many to many problem. I think it's Tony ubix that says that as one of his taglines. And there are many stable coins. There are many ways networks to send them on, and you might not always like the credit risk of that stable coin issue. Maybe you want to receive USDC, but somebody wants to send you Simon coin. And Simon coin has just been made up and vibe coded. So do you really want to accept that? So to have a clearing house that steps in and says, Well, I'll take care of that, you'll just get whatever you prefer on whatever network you prefer, is a problem we've solved in the past. So how far down the line of that are you? When are you launching sort of like, Give me, give me some roadmap stuff here.

Speaker 2  9:03  

Yeah. So we're moving our own money now, part of making sure that it's a great product to use for our customers. We launched with, with a bunch of what we call builder partners, people who are we're in the process of of onboarding. We're working with them to make sure they're able to the clearing house that's ramp modern Treasury mesh, you know, and a few others. We are moving the simplest version of money moving to the clearing house towards the end of April, and then we'll continue to expand our future set throughout the spring, which is great. That's exactly the timeline these folks need as they're beginning to go from proof of concept to more serious deal coin money movement.

Cuy Sheffield  9:38  

And then, Mike, can you help us unpack, like, the current debate around interest in yield on stable coins? I feel like you have like, a deeper understanding of this than most people in the world. I know you also spent a lot of time in DC. What is all the excitement and kind of controversy about in this kind of bank lobby versus crypto lobby, where. Do you see things playing out like, how does that impact the market? In your view? Yeah, I think we've

Speaker 1  10:04  

got three different parties vying for slightly different things. A, there's a banking group that doesn't want to see stable coins be able to give interest because they're fearful that it will affect their business. B, there's crypto companies, stable coin companies, that do want to give interest out to retail, because it makes better money and it's better product, by the way, the crypto companies are on the right side of history. It will eventually be interest out to retail. And then C there's a few parties that are just kind of scared and skeptical about crypto, and they think that somehow it's kind of a systemic effect on the US economy or whatnot. Those are just people that are afraid. And that's education that we should get out there so that people understand how this works, but we'll get past that so to address it. So Bico, yeah, we're an OCC chartered National Bank. That means we are 100% reserve bank. It's actually the type of bank you wish you had you want, but you didn't know about in general, we've had reserve banks for a very long time here in the US, but most people use depository banks. And I'll give you a quick question. I've been using this a lot, so if you heard this before, I apologize. But Kai, which one sounds better to you? An insured bank or an uninsured bank? Where would you like to put your

Cuy Sheffield  11:18  

money an insured bank? Yeah, I feel like has become the expectation, yeah, of course, right.

Speaker 1  11:23  

And when we're talking about insurance here, we're talking about FDIC insurance, federal, depository insurance, Corporation. And, you know, insurance sounds better. Well, wait, but why are they needing that insurance? What is that insurance for? Well, that's depository insurance. So a depository is one type of bank where they take your money and then they lend it out. And when they lend it out, of course, they're taking course, they're taking some amount of risk. And because there's risk there, we developed decades ago this thing called FDIC, which is basically a federal insurance package, is uncapped insurance package, and I know it's got 250 K limit, but it's uncapped on the number of clients, so it's effectively an uncapped insurance policy, meaning only the US government can can issue that thing, but you need it because you're taking risks. So bit goes a different type of bank. We're 100% reserve bank. We hold all of the assets. Now, both traditional banks and our bank have operational risks and those types of things, but bit go as 100% reserve bank does not have depository or lending risk with your money. Your money is held in 100% reserve, and that's very easy to audit, very easy to do. By the way, with our stable coins, we audit twice a month. Show me a bank anywhere that audits twice a month, nobody does right? So that's what we do. Now, on the interest side, of course, you should be able to get interest all the way back to retail. What people don't realize in the banking industry is that retail is once again subsidizing institutional by way of what's going on with lending. And you'll hear different arguments as to whether this is good or bad. So some things we probably all agree on, lending is what makes the economy go around. You need liquidity, right? When liquidity dries up, the economy stops. So those folks that are fearful of systemic changes due to stable coins are wondering like, Well, wait a minute, are we going to create a world where banks don't have money to lend out, and therefore the economy dries up? It's a legitimate concern, but it's not actually very real. What's really happening is kind of retail versus institutional. And for me, I'm in crypto because I want to see retail have all the exact same privileges that institutions have. This is hard to do. It's hard to maintain. Peer to peer. Systems are what create this. But the reason it's hard to maintain is because, as business comes into play, the biggest guy is always the institution. He's got more money, right? He does 100 million dollar loans. I would rather have like that $100 million loan than have to go get $100 million loans right? Much easier. So he's always got more power. And this is what's happening with interest rates at banks. So the banks take money from depositors and then they lend it out. So they lend it out, if they're lending out cash, I believe the depositor should get at least the risk free rate, because you could just stick it at the Fed. You get 4.1 you get four point what? 2% right? Now, right? Like, why? Why on earth can a bank only give you 0.1%

Speaker 1  14:08  

Well, the reason is, is because they are subsidizing that loan to institutions. So the institutions are borrowing, let's say they're borrowing at 6% right? Well, the bank is keeping that 6% most of it, and paying you 0.1 right? What they could have done is they could have paid you the risk free rate and then charge that guy 10% but they didn't. Why not? Because the banks are competing for institutional business. And what happened is they said, We're going to compress down what we give out to retail so that we can give a lower rate to this big institutional guy, and we'll get that business all right. Now some people think this is going to affect liquidity in the overall markets. I would say banks are not really doing their job, as was originally set out 100 years ago. Banks do a few different types of lending, mortgages, the sort of known for this. But at this point we have computers. We like securitize these things. We make them much. More liquid than they would be at private banks. So pretty much all mortgages are sold out and securitized. You know, the moment after you make it, the bank is really left as kind of the the initial underwriter, the paper checker, etc. It's a very limited role ultimately, by the way, most mortgages land at Freddy and Fannie here in the US anyway, all right, so mortgages, we don't need banks for that anymore. Small business loans is the thing you hear about. That's true. There are small business loans done from the banking industry. However, it's been a shrinking business, I think, as a percentage, for a while, this could very easily be moved into some fair price packages and on chain lending programs, et cetera. I would say the banks are doing very, very good job of that. And third, you know, they're servicing clients for doing payments and safety their money. Now they're not very good at the safety part, which is why they need FDIC insurance. All right, stable coins don't need FDIC insurance because they're held in 100% reserve. They'll always get you the risk free rate, which is way better than what banks are doing. They work 24 hours a day, seven days a week. We can build them with no fees. We can convert them all that kind of stuff. All right, so stable coins are simply better payments than banks ever were. And the one last proof that that banks were never good at payments is the fact that PayPal, that Venmo, that cash app, exist, because if banks had been doing their job on payments, of course, none of those, those would exist. So, all right, sorry if that was too long winded, but that's my it was a masterclass

Sy Taylor  16:25  

and a thesis in its own right, and I think it's phenomenal. I would love, at some point to play devil's advocate and point out some of the teetering going on in the private credit markets at the moment, around blue owl and many others in the private credit space. But I do think that's a temporary phenomenon, and over time, private credit's still there, although let's see if the banks get their Basel cap removed. Sorry for the inside baseball listeners, but I do have to move us to the next story. And there was a big bit of news this week. I think this. This raise had happened a while ago, but open FX announced their $94 million raise at a $500 million valuation. Prabha, who was the originally co founder of Falcon X, was invested into by folks like a cell Atomico and Pantera and many others, and he talked about pain he'd found, whilst living and working in Dubai that the $200 trillion annual FX market still settles on correspondent banking infrastructure that in many cases, in non G 10 currencies can take two to five business days, and conversion to Mike's point for Retail and small businesses tends to run in the 50 to 150 BPS range versus what institutions would get open. FX, by contrast, charges at one basis point to 30 basis points and 98% their transactions settle in under 60 minutes. So Sam, I'm going to come to you first again on this one, because I think a lot of folks get caught in the debate, but now it's largely agreed stable coins are quite good for non g20 currencies, especially when you're going exotic to exotic. Have you seen that go beyond that at any point in the future? And your thoughts more broadly on open FX and the business model that they're trying to build around the liquidity side of the market, and maybe you can unpack that for me.

Speaker 2  18:26  

Yeah, happy to first of all, probably is great. Really impressed the open FX team, but as an investor, and as you can see, we saw hundreds of stablecoin companies, and really developed a thesis partially around the fact that FX is different than payments, because FX does involve a trade. You do need to develop markets. You do need to develop liquidity. Today, the majority of FX liquidity is sitting basically at Barclays in London. That's really where you're trading FX, and you're doing it with these huge credit lines, because you're chasing after small bips. And so you need to be using not just your balance sheet, but the balance sheet of large scale institutions, in order to find that edge there. But what you see when you unpack FX and move it into stables is that you just cut out so many intermediaries, and you have this capital velocity that's really helpful. So instead of relying on lines of credit, you can just move faster and turn over the same amount of money many more times in a day, and you can cut an even smaller edge and turn into a larger annual profit if you're if you're a trader in the FX space. And so that's an exciting thing that Prabha XFX also is doing a great job here. There's many companies that are going after it. It's a huge opportunity, and it's pretty easy to imagine a world where, if you're building a remittance company, it's really you have a relation with a consumer. Maybe you've got a great custodian, like a bit go. Maybe you talk to some issues, and you talk to the better money company, Clearinghouse, to move between stables. But ultimately, you only have one more leg, which is an on chain FX provider, like an open FX in order to get them. Money wherever it needs to go to make your you know, your consumers happy, your business partners, beer taste better, and so forth. So that world seems very likely to me, but we do need to really grow liquidity in order to make the large scale currency transactions that people expect to work. I'll just add one more thing, which is there's a ton of scenarios that actually don't require a trillion dollars liquid, because a lot of times people want to do or admittance of $1,200 from New York to Columbia, something that today might cost you not 150 bips, Seven 8% as a consumer, and it might take an indeterminate amount of time you don't know the banks that it's sort of being routed through. And by offering this very simplified, streamlined and effective stack of a wallet, a payments clearinghouse and then an FX Clearinghouse, you can make that better product much more quickly and much more effectively than you could before.

Cuy Sheffield  21:01  

I think the rough progression that we've seen over the past few years is that first people started to realize, you know, stable coins are pretty useful for cross border payments. You could transfer them, 24/7, cross borders. Like, it arrives instantly. Like, that's pretty cool. And so you had a whole new class of companies pop up and say, how do we enable stable coin remittances, and stable coin B to B and cross border has been one of the main use cases. And then the second piece is that, okay? Well, not everyone in the world has a stable coin wallet, and any cross border payments business has to deal with FX in some way. If you want to break out of like just crypto native users, there are mainstream customers and businesses that need local Fiat. And so how do you solve FX as part of the cross border payment? And I think traditionally, what's been really interesting is there were crypto exchanges and seeing businesses like bitso Yellow card, who really like many years ago, their business was selling Bitcoin, and so it was selling Bitcoin for pesos or selling Bitcoin for Naira, now really morphing into FX businesses, where many times they might still have some part that was crypto trading, but on the other side, a lot of their volume was just going from stable coin to local Fiat. And then now it feels like we're in this next phase where as those exchanges grow and scale, and as the demand for liquidity of stable coins, FX continues to increase. There's a whole new class of specialized businesses are saying, we're not building a crypto exchange. We're not going to be relying on retail flows. We got to figure out, if you want to move $10 million in one transaction from the US to Mexico, like, how do you get a good rate going from USDC or usdt to MXN, and I think that that is still one of the challenges, that it really depends on the corridor, depends on the direction, depends on the time of day. But I think that in many cases, you might get worse rates going stable coin to local Fiat than you would going USD to local Fiat at certain liquidity sizes. And so there's this trade off of, okay, maybe it's faster if I go the stable coin route, but I pay a worse rate, or it's slower if I go the bank route, but I get a better rate. And over time, our view is that that should converge and there should be the same rate, whether you're going from traditional dollars to pesos, or whether you're going from digital dollars to pesos, that's a question of like, how do we get there? What role do banks play? What role do these next gen FX platforms play? And it's really exciting to see this competitive ecosystem emerge, where we think that this can be a massive market. There's room for a lot of folks to play

Sy Taylor  23:38  

in it, indeed, and I know that will likes and wise have said, I think I spoke to harsh sinner, the wise CTO at FinTech nerd con, and their daily volume from us, dollar to MXN would blow the liquidity in the stable coin market in a single day on an annualized basis. So the scale of stable coin FX is still incredibly small, but that convergence is going to be really key. Mike, I wonder about your thoughts on the role of stable coins for cross border and the sort of value to the US dollar of stable coins in that cross border role, and how that fits together.

Speaker 1  24:15  

Sure, look and I know, I guess, to some degree, like Sam and I compete against each other. I mean, this is stuff that we do inside the bank today. You can convert all of these stable coins at size, institutionally or retail, whatever you want, and it's trivial to do. I think the way this is going to unfold is, you've you've got banks, and so bitcoins a bank, right? We are 100% reserve bank, and we do this not just in the US, but, you know, we're licensed here. We're licensed in Germany, licensed in Dubai, we're licensed in Singapore. There will be more over time, but I think the tech forward banks are going to take this over from the traditional banks. So the hard part for like the traditional guys, is twofold, a they're not used to dealing with digital assets. Yes, they're a little bit worried about their regulators. It just kind of doesn't fit within their their current DNA. But then secondarily, they've got a huge business that works on something different, and they're afraid to cannibalize it. And this is, by the way, of a curse of the innovator's dilemma. It's happened, you know, in technology for like forever, and all of a sudden, we have, in the last 10 years now, a crossover between tech and finance, and so tech is starting to do what tech does, and it's invading finance. And as we build these things safely and correctly under the right license and regulatory components, of course, it's just going to take off. So anyway, this is all starting to happen. I think stable coins were the place where everybody that couldn't participate in crypto, because it was just, I don't know what that Bitcoin stuff is, okay, it's $1 okay? We can get that part. So I think this is going to go for global payments. It's so much easier than using banks. I mean, correspondent bank is just gone, right? You don't need that bit go for a long time, we've offered invoices to our clients globally in either Bitcoin or dollars, and generally, everybody wants to pay you in dollars. But what we saw all the way dating back to 2014 2015 anybody International, they all switched the Bitcoin bullets. And they didn't switch because they wanted to spend their Bitcoin. They did it because, Jesus, the banking system is just so cumbersome and so so bad. It's so backwards. So the opportunity is just huge. The business models of the existing banks that are doing this behavior depends on it, and they are going to be reluctant to move and so the tech forward, regulated entities are going to just take this over. I think it's going to be pretty fast. I think it's going to involve the 24 months. This is the biggest move that's happening soon in digital assets. All righty,

Sy Taylor  26:47  

I just have to take a quick pause here while we hear from our sponsors, and we'll be right back.

Sy Taylor  27:09  

This episode, if it's not obvious, is brought to you by our friends at visa, a global leader in payments. Visa's tokenized assets platform vtap uses smart contracts and cryptography to help banks bring fiat currencies on chain. Vtap allows financial institutions to issue Fiat back tokens, improving financial efficiency and enabling programmable finance. You can check out the links in this episode's description to express your interest in vtap. This episode is sponsored by stripe. Here's a problem. So many businesses are up against money still moves like it's the 1970s on financial infrastructure that was designed before the internet was even a concept. It's slow, it's expensive, and it's tied to borders. That's all changing now. Stable coins are fundamentally a better way to move money online. They're affordable with payments that take minutes rather than days. They work across borders, and they're easy for anyone to use no matter where they are in the world. Stripe allows you to unlock those benefits for your business. One integration, and you can accept stable coin payments, pay out globally and manage your money with stable coins. No blockchain expertise required. Learn more about how you can use stable coins and expand your reach@strike.com forward slash crypto tokenized is also sponsored by fire blocks. Fire blocks is the stable coin infrastructure of choice for global businesses, from visa to world pay to bridge to Revolut with over $100 billion in monthly stable coin volume. Fire blocks powers stable coin strategies at scale with infrastructure that enables PSPs, fintechs, remitters and banks to issue, move, hold and manage stable coins. It's all done securely at scale with secure built in compliance with fireblocks, you get complete control to build your own stablecoin orchestration layer, create payment accounts, manage liquidity and access on and off ramps in over 60 currencies. Makes it easier for you to build and scale and expand your business globally. Learn more@fireblocks.com Tai All right, thank you so much to our sponsors. We are back, and there's a big story this week about Midas raising $50 million to build a liquidity layer that tokenized assets have been missing. So the brand was led by R e and creandum, but includes Coinbase and Franklin Templeton Anchorage and money more and they also announced the Midas staked liquidity, a facility with up to $40 million initially that settles redemptions of tokenized assets instantly, without counterparty or supplement risk. Liquidity proved. Providers compete for the execution, which compresses a lot of the cost of existing tokenized positions over time. To give you an idea of some of the current scale, they have one point of the 1.7 billion total assets minted and $500 million in total value locked. And they've distributed $37 million in yield to date. So want to talk a little bit about this kind of emerging set of infrastructures that are happening in more in the capital market space. Sam, we think about stable coin settlement being for retail. We've talked a little bit about it being for B to B. We've talked about it being cross border, but there's this whole other settlement type. I was talking to just earlier today, one of the largest kind of exchange groups in the world. That sort of ability to settle in the weekends 24/7 is extremely powerful. That ability to build liquidity for it, bit of a theme coming out. Sam, your thoughts on this story? Yeah, I'll just say the

Speaker 2  30:59  

innovator's dilemma is very real here, like there are ways of managing your treasury today, and they do scale today to larger dollar values than we can do on crypto rails. But what you have to think through is, what are the scenarios that are not being serviced? And it is 24/7 settlement. It is doing it internationally. It's finding those unused, or certainly unsupported use cases where stable coins and products like mid is can help companies really grow until they have maturity to compete, sort of face to face. We actually saw this with like spinning disk hard drives and SSBs. This is the classic innovation S curve, and you got to find those use cases where did service customers go to today? And I think Midas is really showing that for a lot of people, the Midas product is doing exactly what they need, and it get right to the sort of like better zone, better better treasury management and skip legacy providers. I think that's

Sy Taylor  31:57  

such a great point, because I speak to a lot of institutions who say, Well, this isn't more efficient for me today, and to that point, yes, it's not. But for somebody, it is more efficient than their on chain business, and because it would work at the weekends. As it scales, there may come a point in the future where this is very valuable for you, to exactly your point. Pretty much most stable coin settlement we think about today. People think about sort of gross settlement, pre funded. They think about like, some of the netting that they have in their existing world, and some of the liquidity and credit facilities they have institutional scale is like, incredibly efficient with financial compression already, so maybe stable coins don't work for you? Some great

Speaker 2  32:42  

points, yeah. And I'll just say, like, yes, stable coins might not work for you today, but we talked to a lot of these enterprise CFOs. They don't love having a staff of 60 people making it run smoothly. Yes, like, they get the capital efficiency they want. But, and I'm not saying those people aren't doing a great job, but they're doing it on top of legacy reels that are complicated to manage. I had one conversation with a fortune 500 CFO, who said, I actually don't know how much money I have right now. I don't know where it is now, of course, they know broadly where it is. They can do the end of day book close, and they'll know it then. But at whatever it was, 1237, that day, they couldn't have pointed to every dollar, and if they wanted that, well, they'd have to upgrade the technology stack, which is something that's happening live, and is a new capability that stable coins and on Chain Finance

Cuy Sheffield  33:29  

broadly can provide. Yeah, that's fascinating. I think of this story with widest it seems like a lot of the momentum and activity over the past year, even going back the past two years, I think about the time when Blackrock launched Biddle as like a major turning point of you've got a major institution coming in and creating a tokenized money market fund on a public blockchain. Like that was a turning point for the space. And now we've seen more and more. Every major asset manager has tokenized money market funds, tokenized Treasury products, and you're seeing this become more normalized, as you could take an existing security and you can issue it on chain as an asset. Now there are many different types of ways tokenized securities are happening, but it feels like there's still a big question around the liquidity for those assets, that it's one thing cool you could put it on chain, but if you can't easily trade it on chain, like it's not that useful. And so now that we've figured out, okay, we could put these things on chain, it seems like there's a whole ecosystem that needs to emerge blending traditional capital markets and next gen players to say, how can you get enough liquidity that enables any meaningful participant to move between a tokenized money market fund and a stable coin, 24/7, or a tokenized security, you're not taking a hit on the liquidity and not being able to get out but Mike, how do you see this? You've been, I remember all the way back to Days of harbor. You've been on the forefront of tokenized securities for probably, what, close to a decade now. Like, what is the. Like the state of tokenized securities and where is liquidity right now?

Speaker 1  35:04  

Well, look, it's it's also an exciting area that's emerging quickly. The big thing that had to happen is we had to have a regulatory unlock. So basically, prior to 2025 all conversations were just stopped. So yeah, we bought a company called harbor. I think we bought them in 2020 but they had, they had set down the path of trying to do tokenized real estate, and they're one of the early parties that tried to do, you know, tokenized RWA type of stuff. And they ran into a number of complexities, but basically they discovered that they had to build much more than a startup budget had. And so they're just kind of too early. We did take some of that technology. We do, do use that in various parts, but we kind of, we put most of what Harvard did on pause because it was just it was too early. And then, you know, I think if you look from 2020 until 2024 I don't know, there's a half a dozen really good venues that got created where somebody comes from traditional finance and says, Hey, I'm going to put together the ATS. So I'm going to the ATS, I'm going to put together the broker dealer, I'm going to build this whole market. It's going to be compliant, and everybody will use it, and then nobody uses it. So now we get to the next leg of difficulty of building markets, which is, guess what? It's really hard to get the flywheel spinning. So the place where people, I think, miscalculated, while it's true that crypto digital assets are more efficient at the unit basis price, it's not true that the legacy markets, in spite of all their overhead, are inefficient. They're not inefficient because they've got so much volume. Remember, efficiency is cost divided by volume, right? And the volume on official markets is massive. So it was very difficult for these digital assets to get started. Typically, what would happen is, you know, the broker on the seller side it's like, okay, I'll hook you up. And the broker on the buyer side is like, I'll hook you up. Each one of them needs 10% in order to make it worth their time, and then the exchange needs a couple percent. Next thing you know, you're looking at like, 25% fees. Like, you don't pay 25% fees on traditional markets. Is it super hard to get things going, all right? 2025 fortunately, finally, we have a regulatory environment where people are willing to start to talk about these things. And are tokens actually the same as the underlying equities, and can they be traded in different models? Et cetera. So look, we helped figure markets with their model. I love what figure is doing. Aspirationally, they're taking off the hardest problem to get to the best product, which is a fully direct on chain equity. So they issued for figure, they issued a separate class of shares, and they market make and take it back and forth from tradfi to blockchain you know, at any time that you want, but they have a fully on chain tradable through their ATS, and they're trying to get rid of all the all the middlemen. Bitcoin helps with that on some of the custody for the institutional side. Then there's another model, which is like, Hey, can we just wrap all these assets? And these have started to emerge. I think over the last 18 months, the early variance of these are like, they're called special purpose vehicles of a single asset. Typically, they trade outside the US. They're rappers. They are the underlying asset. They do work a little bit, but they're pretty limited in what they can do. I do think we're going to see some form of wrapped NMS securities that can start to be traded on blockchains in the US, but they are going to require broker dealers and ATS is in order to trade them. Nonetheless, having them tokenized starts to open up new use cases. So the excite the case I'm excited about is collateral for lending. We do a fair amount of lending against Bitcoin. So imagine you have $25,000 worth of bitcoin, and you want to take a 5000 want to take a $5,000 loan, no problem, we can do that very easily. Problem is not that many people actually have $25,000 worth of bitcoin. We're all in the space, so we probably all do. But in the general public at large, they don't. However, a lot of people have $25,000 worth of Tesla or Microsoft or AT and T or who knows what, and maybe they need to do something with a college loan or cyber that can use and that's all legal. And so we could do that through bitco. That can start to bring assets over into the digital world. Once the assets are over in the digital world, you can start to see ways to prime the pump of getting the markets going. And when they are on chain, they're going to be strictly better than the traditional markets, because they're going to be so much more transparent. You're gonna be able to see where things happen. Bitcoin just went public this year. Get to see a little bit of a new side of how things work, looking at short interests, who's shorting the stock versus long? The stock look short and long. It's all valuable stuff for markets. Interesting thing here about the shorts, though, is the short interest is apparently published about twice a month by the exchange. So New York Stock Exchange, NASDAQ, they publish the short interest roughly.

Speaker 1  39:53  

Anytime you see something that's like, it's got a two week cadence of like, we're going to publish the short interest. I mean, you just know this is. Rife with corruption and abuse and all kinds of stuff. It makes no sense that you would only publish this twice a month. And of course, there's some legacy thing about fear of like triggering bad stuff with shorting. I don't buy this at all. Move it all onto chain, and you should be able to see this. You'll still have shorting, but you'll be able to see who's doing it. You'll be able to see in real time, we'll get to better markets. All right. Anyway, probably went off topic a little bit

Sy Taylor  40:25  

there, but not at all. I think the experience of having sort of a regular class of stock on traditional markets is very relevant to, as you say. Figure, who did it quite different and kind of really did it the old fashioned way. We had Michael Tannenbaum, the CEO figure, on episode 66 if anybody's listening or watching wants to check that out. They went into a lot more detail. Mike Cagney, we didn't Cagney, I think at the day was sick or there was some challenge there. So I hope he's all better now and all put back together. We will have him on the show in the not too distant future, for sure, but great example, because then there's what the DTCC is doing, which is a little bit different, you know, sort of with the ownership claim rather than the actual bearer stock itself. And then there's the kind of the other versions of wrapping that, say Robin Hood and others are doing, where they create SPVs and your your risk profile varies quite dramatically on those But Kai, as Mike was talking, I'm reminded of like your wish from the market, which is to just have the one wallet that rules them all, where you can have your stocks and everything. Why don't you talk about for a second about that and your thoughts on this story?

Cuy Sheffield  41:38  

I think I've said this every show for a while, and actually, thank you to those who have reached out. It sounds like there are a number of companies that are now in the process of building this, but in my opinion, it is a great thing for society if more people own assets, like just in general, like we should all want more people to own assets and have more participation in markets and all types of assets, and not just crypto assets, but equities and bonds and treasury, anything just like people should own assets. And I also think that over time, the amount of working capital that you need is going to decrease as it becomes easier to convert between assets in cash like right now, whether you're on a individual basis or a company basis, you have to keep a certain amount of cash because you have bills to pay. And if a bill comes up, you don't have time to go and sell an asset and wait till the funds get there to be able to pay that bill. And so you're sitting on some amount of cash that you'd probably prefer not to be sitting on because that cash is effectively losing money through inflation versus you could be holding an asset. And so like my dream would be that 99.9% of my money would be in assets. I have no reason to just sit on cash. And so I think that you'll see, in general, it's a great thing if more people can own assets, if they can have more of their wealth and net worth in assets and less in cash, I think that that's positive. But then you also get to this question of, okay, well, when you do need cash, do you have to immediately sell an asset? And if it's an asset that you believe in over the long term, and you had an unexpected expense come up. It sucks to sell an asset, like partying with an asset, you're like, Ah, I like this. I don't want to sell it. Maybe it's not a great time in in the market to sell it, having the freedom and the opportunity to say, I want to own this asset long term, but I need cash. Let me lock that asset up as collateral and let me borrow cash against it at a safe loan to value ratio. I don't think it makes sense to do that to where it's you know, if the price goes down 5% you get liquidated. I believe that that should become a mainstream financial product like I think that many people across the world, billions of people, should be able to access that same type of product that today billionaires access by being able to lock up assets and borrow cash. And so that's something that if you could create whatever the type of asset is, you have a portfolio, and then it's even lower risk. If you've got a little bit of Bitcoin, some gold, some Tesla stock, you have some treasuries, and then to cross collateralize that portfolio and say, let me get a credit line against that portfolio that I have to be able to spend. And at visa like, we want to make it as easy as possible to spend whatever you just were able to borrow. And so we have asset backed credit cards today. We have HELOC backed credit cards right now. We've got some crypto asset backed credit cards. Like the request for a product is, I believe there's a massive opportunity around cross collateralized how do you enable someone to own multiple types of assets and get one credit line on a card accepted everywhere against them? And I think that's fundamentally a good thing for the world, and would love to work with anyone that's building it. How did they go? Yeah, Heck, yeah. Do it? You. We should work on this. Mike, let's do it actually. The thing, I think,

Speaker 1  45:03  

which is hidden in there, which is the hard part, is like, where's the risk? You know? So all of these financial systems that we have, whether you're talking about the traditional financial world or crypto, have different types of risk the traditional world. The thing that's different about it is it's evolved over 100 years, decades and decades of established foundations and inside the crypto world, we're still building the foundations. So this is why Bitcoin started with, okay, how do you do the security? Then how do you do the regulatory on top of that? Okay, we got the bank now. Now you can start to build the financial service up on top of that. It's 100% reserve bank, which I think, completely different from the way traditional banking has always worked. It actually does give you what you want. You want all of your assets there until you decide to lend them out. Oh, you want to take a loan against this thing and borrow 5000 bucks in USDC, usdt, USD one, whatever, fine, great, and you can pay it back on your terms. Maybe you're just paying a bill right now, because you know that asset. You want to hold it for another six months. Maybe you want to hold it for another year. These things all come into play. The traditional banks can't, can't do this stuff. But of course, the digital ones can, and I

Sy Taylor  46:07  

think that's a great point that we've come back to as a theme is like the innovators tend to move the industry forward, and five years later, the banks copy paste those features, and if that means that everybody else gets those features, then that's a net positive. I just want to shout out a couple of other raises that happened this week. Valinor raised $25 million to bring private credit on chain, and this is the next Blackstone team. So keep your eye on these guys. They're going to be very interesting. And some former stripe and Coinbase execs raised $8 million for latitude, startup whose core product is stablecoin based global payouts. Keep an eye on latitude. Shout out to Cyril and the team. Definitely, industry veterans and operators many of us know well and unblock raised 5.2 million to unify architecture infrastructure across 300 different blockchains. Again, definitely the integration problem is being solved by third parties. We've only got a couple of minutes left, and this last story could be an entire show, but I do want to bring it up, which is Google warning that quantum computing may break key bits of cryptography like ex DSA keys within minutes, they proved that their 500 qubits chip was able to do that they believe by 2029 and friend of the show Hasib from dragonfly said, this brings in the date of what we thought was going to be something in the mid 2030s to three years away. And that changes the urgency. And as many of you know, of course, these keys are used by Bitcoin and many other blockchains to secure their networks. Mike, I'm sure you've heard the quantum encryption Doom or take a few times in the past. What are your thoughts on this? Is it a real threat? How are you thinking about it? At bitgo, is this something that we

Speaker 1  48:00  

should be worried about? We should all be taking quantum very, very seriously. I think the numbers are only going to come in. I don't think they're going to go out. There's a lot of parties that seem to have, I don't know, somewhat of a vested interest in their investments and denying that this could be like a real threat. It's a real threat. And even if you don't believe that it's going to happen in 2029 it's preventing people from buying and participating right now in 2026 so we were just on this road show going public. We met with all kinds of investors. I was shocked. I mean, the quantum question I got so many times, it was definitely a top five question, even though it's not directly related to our business. Let's see a couple of things. What needs to happen all of the various blockchains need to be looking at each their blockchains and figuring out what does it mean for them. Obviously, this hits Bitcoin. It hits Ethereum. The Ethereum team started to make some good, good moves. I think six plus months ago, the Bitcoin team operates a little bit more silently. I think they are taking it very seriously, we're going to end up probably with another block size war type of debate in terms of, should we use large signatures on chain, and what sacrifices do we make? I saw Jonas Nick put out some good proposals this week. We will get there, but there's a long lead time for fixing this stuff. So three things have to happen. First, you have to update on chain. Probably takes a year and a half two years. Number two, wallets have to integrate that. Number three, all of the users need to move to those wallets. Then number four, we need to deal with Satoshis coins, which is maybe the non technical and yet existential debate for what is Bitcoin at its core at bitco. What have we done on Bitcoin today? We already use the most resistant techniques you can use. If you don't expose your public keys, you're as safe as you can be. So we never use addresses if you just use our wallets, the default way that you will be safe. Ish. We still want the on chain stuff to be solved, so we can actually use quantum resistance signing. Which will fully take away everything. One other part that people got scared about with the Google announcement is this potential that they could be able to crack ECDs a keys in sub 10 minutes. Now that wasn't for 2029 that was still in need of, I think, a few 1000 qubits. I forgot the exact number that they had, but still quite a bit down from what previous estimates were at. And then, if you could crack an ecsta key as it's being used on chain, takes 10 minutes to confirm on chain. So you could imagine you publish your transaction, somebody immediately sees your public key as part of that. You've got 10 minutes to crack it and then create a new transaction before the block is mined. That would be scary. I think this is probably more FUD, but look, I mean, I think it should increase the urges for every I don't think we need to panic, but yes, we need to be working on this. Need to be one of the top priorities for every single blockchain that uses CDSA. I think it's

Speaker 2  50:53  

interesting that, like for each new paradigm, whether that's like the browser or mobile or any other technology, we end up coming up with solutions, and that's necessary because we have demand pulling on the scenario and requiring people just to apply innovation to it. So Mike and bitco, I completely trust them. They're going to be well ahead of the curve here. And the question just becomes, would you rather have these new scenarios with real innovators building blockchains that are quantum resistant. So we could service agentic payments, this, that and the other. Or we want to be relying on sort of legacy providers who haven't spent as much recent time innovating be the ones that are doing this kind of security. I think we'd rather put our trust in the people who are doing the active research today, so we could just see these new scenarios blossom broadly.

Sy Taylor  51:40  

I think that sort of speed of change is you're hitting take off mode, and you need upgradable infrastructure at every layer of the stack. And actually, sort of the old, trusted way of doing things has a lot of value, but upgradability and your cycle time is so, so critical to stay ahead of the threats as they're coming ever faster, as I think both chatgpt 5.4 and Claude Opus 4.6 was released. They also released security pen testing feature in those and pretty much every tech team I know started using those to like Battle test their own infrastructure. How many times did that happen inside a tradfi, and how exposed Are they over time, if they can't improve their cycle time? So I think it's such a great point. Look, I'm conscious at the time I said this one could run and run, and I'd love to do a show. Sometimes we'll go full tbpn And we'll start doing the three hour shows. I think there's that much stuff happening at the moment. Gotta do it, but I'm just going to shout out. Ramp launched their stable coin accounts in public beta, so the CFO can now see stable coins and regular dollars in a single pane of glass. And I think that's kind of the constant normalization of stable coins in one of the fastest growing kind of accounts and B to B payments companies that there

Unknown Speaker  53:01  

is, we're happy to have rev as a design

Sy Taylor  53:03  

partner for those kind of features. Heck, yeah. Shout out to Andrew and the team over there building that stuff. We're going to get them at FinTech node COMM This year talking about how they did it. Plume is piloting a payroll system allowing employees to receive salary in wisdom trees, tokenized fund. Fascinating, that salary can go directly into a tokenized fund. Bitgo, of course, Mike expanded Canton coin services with trading and on chain supplement, and not to be left out, Franklin Templeton launched Franklin crypto. And I'm sure there's a bunch of stuff we're missing as well. We just cannot keep up, but we try our best look. Speaking of keeping up, I want to thank viewers and listeners for watching. I want to thank Mike as well. Thank you so much for being on the show. So if people want to find out more about you and bitgo, where do they

Speaker 1  53:48  

go to do that? Super easy. It's bitgo.com. Send us any questions, any feedback. We're always trying to make our products

Speaker 2  53:54  

better and stronger. Sam, how about you? You can reach out on Twitter, LinkedIn, anywhere. I can't wait to work with him. Kai on x at Tai

Cuy Sheffield  54:02  

Sheffield and visa comm slash crypto.

Sy Taylor  54:05  

You'll find me at sy Tai la on all the socials screaming into the void at FinTech, brain food.com and, of course, over at tempo dot XYZ, building the future of on chain money movement, please, please, please. Viewers and listeners hit the Like buttons. Leave us a review, subscribe and spam all of your friends for this show, because the quality of conversation that these gentlemen brought was exceptional, and I think more people should hear it. Do check it out, and we'll catch you next time.