Technology
Benjamin Sarquis Peillard: Cap Labs – Insured Yield & the Future of Stablecoins
In this episode, Sebastien Kuchio interviews Ben Benjamin, founder of CAP, a stablecoin protocol offering insured yield. They discuss the evolution of stablecoins, the importance of caution in crypto ...
Benjamin Sarquis Peillard: Cap Labs – Insured Yield & the Future of Stablecoins
Technology •
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Interactive Transcript
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Welcome to the Epic Center.
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The show is talked about the technology projects and people driving decentralization and
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the blockchain revolution.
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I'm Sebastien Kuchio and I'm here today with Ben Benjamin who's the founder of CAP and
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CAP is a stablecoin protocol that has insured yield.
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I know insurance can trigger some people but we'll get into all of that and how the
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proco actually ensures it's the positives and how it generates yields.
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We'll talk about the restaking component here, how it uses symbiotic to secure the
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deposits and a whole bunch of other stuff.
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Hey Ben Benjamin, thanks for joining.
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Thanks for having me, man.
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Super excited about this.
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So you're currently in China.
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I'm curious what's your impression of?
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What's your high level impression in China?
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Is it the first time you've been there?
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I've been to China many times.
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I speak Chinese so I come every year to practice Chinese actually.
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And so this year I kind of combined my language practice with meeting some crypto people.
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I love China.
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It's a wonderful place.
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Did you live there for a while?
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I studied here for a year in Beijing during college.
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What's your sense of, because I think for a lot of people in the West, it's kind of hard
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to put a finger on what Chinese life is like.
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I recently listened to a select freedman episode of this woman who is Chinese and sort
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of like a Chinese economic and policy expert.
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And she gave like a really sort of like, she gave me sort of an eye opening look on what
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life in China is like.
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What people's aspirations are like, how people sort of deal with the things that sort
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of in the West we see as like state control and sort of bad, right?
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But people actually thrive in these conditions.
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Like, what's your sense of like what life is like in China and what are the biggest kind
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of misconceptions that people have about China?
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Yeah, I mean, I think there's like the people that have been to China and the people that
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haven't.
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And I love you that haven't have a very macro view of China.
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So like politics, economics, world power, like struggles, right?
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But I'm from a small country.
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I'm from Chile.
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From my point of view, China is the same as the US, right?
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They remind me very much of the US, like big country type of culture with a lot of diversity,
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obviously, big economy.
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You know, I was just in the rural China last week or like early this week, which is, you
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know, very different from Shanghai where I am right now.
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But they're miles ahead of everywhere else, man.
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Like all the cars are electric, super clean.
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It's very safe.
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You know, the absorption of technology or the adoption of technology in everyday life,
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I think it's higher, at least consumer technology compared to the West, especially Europe, right?
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Like it's not even close.
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They don't use cash.
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They didn't use cards.
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It's all like we chatter, Ali pay.
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So it's the digitalization of the countries.
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It's already there.
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It's been there for many years.
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Yeah, it's super impressive.
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I think that's probably one of the things that I've not been to mainland China, like I'm
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in Hong Kong, but like adoption of technology, I think like in Asia, it's a very different.
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I think Hong Kong is like, it's amazing.
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I love Hong Kong.
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My first startup was in Hong Kong.
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But mainland China is a different thing.
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It's a completely different place in my opinion.
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From a living standard, obviously not from a political point of view.
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Yeah, it's crazy how like, you know, being in Europe, I don't want to make this all about
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this, but it's just interesting to kind of get your perspective on this.
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How like in recent years there's been kind of reversal in a rejection of technology almost
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in Europe.
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And I wonder if that has to do with the fact that like a lot of technology in Europe is
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owned and operated by US companies.
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If it's more of a kind of geopolitical rejection than an actual technology rejection, but it
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is worrying to see like European people and European kind of political discourse be like
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super anti technology.
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It's like, it's just so weird.
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Europe is at least 40 years behind China.
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At least.
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Yeah.
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Like if you go, if you compare Berlin, oh my god, like they're used to use cash.
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We don't know what elevators are.
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You know, I mean, like like Trist, like it was like all the AC's, not in most places.
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And then you come to like Chahay.
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I just shared a elevator ride with a robot, you know, that was delivering something to
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a really mental hotel.
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So it's just like, you really can't compare the, I mean, love Germany.
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I actually came up with the idea of cap in Berlin, but no, man, it's just like crazy
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how different.
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And people really don't think about that because again, people's idea of China is very
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like macro about politics, low economics.
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Cool.
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Well, let's set that topic aside.
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You know, you know, you know, put a clip for me like, it's funny, funny, Germany is fine.
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Yeah.
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Yeah.
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We'll use that as a hot take clip.
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But yeah, like what tell like, you know, we know you studied in Germany, sorry, you
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studied in China and you came up with the idea for cap in Germany.
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But what, like what's your journey and how did you end up here?
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Like how did you end up in a podcast talking about your talking about your, your, your
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China journey and your, your founding of this company?
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You know, life is crazy, right?
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Who knew we would be here together talking about cryptocurrencies in a podcast.
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No, so I mean, I've been in crypto for quite some time.
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I started, you know, in the head there, a hash craft space doing some infrastructure
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there.
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Oh, yeah.
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Okay.
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I started a stablecoin four or five years ago on polygon.
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So I've been in the stablecoin space for a while.
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And then obviously most recently I started cap about a year ago, a little over a year ago.
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And yeah, that's kind of my little, my little short spiel about crypto.
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What was the stablecoin project you were doing before?
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Chi Tao QI DAO.
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Oh, yeah.
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It was like very, very different, right?
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It's like a, the height of the five summer type of project.
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No, no fundraising, you know, max allowed to the community, air dropping strangers.
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I don't, I don't even know who owns the token.
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Like the largest whales is like random people.
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But yeah, it was wonderful project.
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It was the first cross-chain stablecoin.
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Okay.
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And this was on polygon.
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Yeah.
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Well, polygon started in Phantom, avalanche.
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Before you had OFT or ERXRC, we invented this idea that the token when you bridge it from
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different chains should remain the same, it should be fungible.
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Before us, that wasn't the case, right?
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You would have wormhole avalanche, USDC or, you know, layer zero wormhole, avalanche,
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USDC, the area.
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Like some long string like that.
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And so you had some crazy pools on Salana, for example, with all the different versions.
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So before the show, we were, I was asking you about your hot take and you said that you
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think that stablecoins are less safe than what people think they are.
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Can you expand on that?
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Why should people be worried about their stablecoins?
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I mean, I don't, I want to say you should be worried.
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But I do think you should be cautious about, you know, where you put your money.
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Because what happens every cycle is that, you know, we learn certain lessons about, you
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know, what is safe and it's not safe.
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But it's usually the people that get burned that actually retain the lessons.
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Because if you lose money, you really remember, you know, these kind of lessons.
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If you don't lose money or if you weren't there, then you don't know what to look for.
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And so there are a few things that are kind of being done again in the cycle that I'm worried
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about that have been done in the past.
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For example, over trusting third party bridges, right?
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Even though we have these token standards, that's supposed to have ninting limits.
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The ninting limits are the size of the market capital tokens, right?
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So there's like not really any like, you know, protections there.
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When it comes to D5, we're rebuilding Celsius and have and all these different, like,
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what's it called?
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Like C D5 lending platforms that we're building in on chain and they didn't suddenly become safe,
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right?
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It's the same issue of unsecured lending to teams, but now we're doing it on chain.
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And I think that's very unsafe.
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And I'm worried about how that's going to end up.
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So yeah, in general, I just think we should be very cautious about money because it's money
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in the end of the day.
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It's not a game and people can get hurt.
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So we used to talk about stablecoins in three buckets, or at least, I think around 2021,
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people would talk about stablecoins as like there was the algorithmic,
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you know, the likes of...
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Overcolliberals.
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Over, you know, and then you had sort of CDP overcollateralized and then centralized like USDC
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or something like that.
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Do you think those categories still stand today?
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Or do you think that we're sort of finding new types of stablecoins?
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Yeah, I think that definitely one of those kind of died, or it's like not very big anymore,
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CDPs are not big anymore.
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I think in general, synthetic stablecoins, at least in number, they're not that big.
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Right? Like there's one big synthetic stablecoin right now that's extremely successful in
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this Athena, right?
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Synthetic meaning is not fully backed by dollars.
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It's partially backed by other things that are not dollars.
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But by and large, more stablecoins, most stablecoins today are eventually redeemable for the
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dollar, whether it be T-Bose, etc.
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So yeah, CDPs have definitely gone down in size.
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Obviously, algorithmic ones are gone.
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So really now we find ourselves in a world where there's two main buckets, I think,
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where you have yield bearing stablecoins, and there's many different kinds of yield bearing stablecoins.
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And you have these like non yield bearing stablecoins that are backed by bank deposits,
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and they're a genius at complying like PYUSD, like USDC, etc.
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Why do you think the over collateralized model didn't work so well?
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Because I think the starting principle of say something like MakerDow was to have a highly
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decentralized stablecoin with no USD collateral, or at least no reliance on centralized stablecoins
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as collateral. And I think for a lot of people in crypto that got into crypto as a rejection
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of the Fiat system, that's a very powerful idea. Today, size may be in the top five, but certainly
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USDC and USD, and then we have projects like FX that claim to be super decentralized, but I
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talked to them on the last episode and it turns out that the dollar peg is actually based on
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this sort of relies on USDC. Why do you think those haven't really taken off? Do you think they
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should? Do you think there's a space for highly decentralized stablecoins that are over collateralized?
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I mean, we have to acknowledge what the discourse is today in D5, right? In the last cycle,
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it was decentralization, right? How can we stay away from the traditional banking system?
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And this is largely due to how regulators viewed crypto. They did not want to engage with us.
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You know, they were going after teams. And so you saw the rise of projects like liquidity,
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which is arguably the only decentralized stablecoin right in crypto. Now it's different.
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What is, what everybody cares about now, institutions, institutions, institutions, right?
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How can we partner with banks? How can we connect to the traditional finance system?
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And these traffic guys don't want to play any games, right? They don't want a stablecoin that's
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not backed by dollars because that is risky. Objectively, it's very risky, right? Because we're not
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the US government. We can't print dollars. And so this kind of push to be compliant or at least
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adjacent to Tradify has pushed our whole industry to forget about decentralization and focus more
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on scalability. You think the industry is really forgetting about decentralization?
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Yeah, yeah. I mean, yeah, I mean, I don't, I not sound like a devi-downner, but like for me,
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I think like people just don't, they don't value it as much as they care about scalability, right?
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If you're looking at centralized L2s, if you're looking at every single stablecoin that's coming out,
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right? Is centralizing nature either because of their collateral or because of the teams
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administrative power over the protocols. We're no longer counting how many multi-six signers there are
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on these multi-six. We're no longer worrying about time logs, right? The idea of fully open-source
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in your code base is no longer the standard. So just as like a review of where we are as an
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industry, it's just factual to say that decentralization for for defy protocols in general is not at all
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at the top of mind. Do you think that's a positive development? And if that's the case, then
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why do we still why would we still call it defy? Like what is the distinction?
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Yeah, I don't know why we say that. Is it just like, is it just FinTech with BetterTech?
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Is that like the direction we're going in or like is there still some viability in the D part of
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Biosphere? Well, I think blockchain is not just decentralization, right? There are many things
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around about the blockchain that are good for finance. Compossibility is one that really comes to
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mind. A lot of people talk about rebuilding Swift. We already have it. You know, literally any chain
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in the world with tokens can just can be Swift, right? It's just send and receive between wallets
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and there you go, it's done.
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And so that's very powerful.
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That's interesting.
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I've never heard it.
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I don't think it's negative.
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I just think it's part of any industry, right?
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Right now, AI probably is in a moment of high romanticization
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of what you can do with AI.
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Whereas crypto, we've definitely
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gone through this solution, then.
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And now we're looking at mass adoption.
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And when you look at mass adoption,
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you have to get rid of the things that most people don't care about.
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You have to focus on the things that most people care about.
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And for us, boomers in crypto that maybe we
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carried a lot about maxed decentralization in the past.
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If we want the world to use crypto, maybe we
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need to think about what everybody else cares about, too.
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What do you think is, if there's one thing
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that the industry needs to maintain as a core principle,
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when interacting with the Tried Fire world or traditional finance
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kind of regulated world?
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What is the one property or the one thing
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that we can't deviate from in order to remain successful
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and have a future where this whole project has not been in vain?
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Well, part of us maturing us in no-tree
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means that we are no longer sort of unified in values.
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We're definitely in a multipolar world within crypto
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where different groups have different values,
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things that they think we should keep.
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Personally, the group that I find myself in is that of safety.
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I really think that the transparency of smart contracts,
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the immutability of smart contracts can provide a lot of safety.
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If we can maintain that, then we can make finance better
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than it is today.
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I want to kind of come back to what you said earlier
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where decentralization is a value that is not as coveted
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as it was perhaps previously, that we're moving more towards.
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We're moving away from the decentralized aspect of crypto.
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Do you think that, isn't it true that the infrastructure layers
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need to remain decentralized otherwise?
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They're just databases, right?
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And this entire project has been useless.
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We could have just built new data,
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we could have done this on databases.
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Is there some amount of value?
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Is it like that maybe the higher layers of the stack
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are less decentralized, but the lower end of the stack
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are still pretty general?
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I'm talking about like BFI.
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I'm talking about stable coins, right?
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Stable coins, DFI, people don't care about decentralization
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as much as they used to.
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For base layers, they do.
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And the writing's on the wall,
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who has the most stable coins in crypto?
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It's Ethereum.
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And nobody comes close, right?
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We've seen so many people try to make their own stable coin chains.
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For many years, there have been many.
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And they really haven't kicked off, right?
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The L2s don't have a lot of stable coins at all.
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And it's because at scale, money's not dumb, right?
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At scale, people care about principle protection.
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And so that's why they're on Ethereum,
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using the applications on Ethereum.
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And some of those applications might be, you know,
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less decentralized than we would want them to be.
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But at least as you said,
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people care about the base infrastructure being decentralized.
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Hmm.
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Well, I think we'll come back to this maybe a little bit later.
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But let's talk about Caps design.
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And so, you know, broadly speaking,
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there's different participants within the protocol.
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We have also sort of like different technical modules,
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different smart contract modules.
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And Caps utilizes restaking to ensure its deposits.
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So give us a high level and maybe we can kind of
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drill down into the different parts.
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Yeah, so Caps is a stable coin protocol to generate yield
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for users in a way that we can want to ensure
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the peg at all times and two, we can protect users
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from the activities that must be done to generate yield,
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right?
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And the way that we do that is by two products.
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One is CUSD, which is a digital dollar.
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And this digital dollar, you can mint it
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with others' stable coins like USDC or money market funds,
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like Benji and Biddle.
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What's great about that is one, you don't need liquidity,
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right?
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Because at any point you can just redeem 100% of the market cap,
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no slippage and then you're good.
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So you don't need to spend money on curve
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or any sort of AMMs, which is quite nice for us.
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And it also means for users, they can leave whenever they want,
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right?
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They don't need to be worried about the peg.
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The other product that we build is the staked version of it,
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which generates yield.
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And this yield comes from two sources,
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primarily at the beginning from the base yield of each asset.
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So for example, all the money market funds
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earn the US Treasury's yield.
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And then the stable coins, which are not
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allowed to share the yield because the Genius Act,
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we use some different strategy for each of them
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depending on their circumstance.
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For example, USDC would put it on Ave,
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because it's an over-collarized lending market.
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But that's not the exciting part.
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The exciting part is the other source of yield.
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And we built this sort of allocation engine
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where third parties like regulated financial institutions
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or defy protocols can compete with each other
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to generate yield for our protocol.
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And the way they do that is that they provision loans
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from our reserve and pay some sort of fee
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in exchange for the loan.
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And they go off and they all execute their own strategy.
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So there could be a thousand, 10,000 of these kind of yield
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generators competing at one time to generate yield
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on the stable coin.
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But we don't trust any of them.
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And so before they can come to our protocol and generate yield,
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they need to convince a restaker on symbiotic or eigenlayer
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to vouch for them with their cryptocurrencies.
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And if the yield generator were to default and now pay back,
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we can slash whoever vouchs for them.
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Yeah, I'll stop there.
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There's a lot you can go into, but that's the high level.
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Yeah, that's great.
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Thanks.
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So there's two products.
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There's the CUSD, which is the non-year yield bearing
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stablecoin, and you have SDC USD, which generates yield.
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Like, why would someone hold CUSD over USDC?
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What's finally different?
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What's all about integrations, right?
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In a lot of integrations in DeFi, like Perp Dexas or pools,
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et cetera, you can't use yield bearing assets.
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You need a pegged asset.
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And so if you look at some of the larger yield bearing
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stablecoins today that have a staking or a module,
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they all have lower than 70% staking rates.
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And that's because of these integrations.
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Yeah, OK, that makes sense.
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And so if we just kind of recap here,
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the user deposits some collateral.
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And in this case, it's a stablecoin.
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So USDC or USDT, that goes into the protocol.
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And then you have the operators that
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are hedge funds, primarily institutions that
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will use those coins to go and generate yield.
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So they're implementing their own strategy.
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And some of those might be implementing
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like super high-risk strategies, others may be implementing
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like lower-risk strategies, but there's
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like a basket of strategies there.
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And then we have restakers that are acting essentially
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as the backstop as the insurance fund
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for against those USDCs, against those deposits.
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Insurance fund is a very passive term.
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I would say they're sort of the decision makers.
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So instead of having a Dow, say, we're
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going to put our money here.
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We're going to put our money there.
spk_0
Restakers say, you know, Susquihana,
spk_0
you get to generate yield for cap on $10 million.
spk_0
Or Amber Group, you get to Delegue,
spk_0
you get to borrow 20 million to generate yield.
spk_0
And so they decide who gets to make yield.
spk_0
But in order to do that, they need to vouch for them.
spk_0
And so it's a bilateral relationship.
spk_0
It's not like I as a restaker, I vouch for Wintermute.
spk_0
And now with Amber Group defaults, I'm getting slashed.
spk_0
I'm only exposed to whoever I vouch for.
spk_0
And why is that important?
spk_0
Because these yield generators, what do they want to do?
spk_0
It's not their money.
spk_0
So they want to generate as much yield as possible
spk_0
so that their spread is very high.
spk_0
Restakers, what do they want?
spk_0
Well, they want yield, right?
spk_0
Because Bitcoin and E don't make yield compared to the dollars.
spk_0
Not even close, you know, the cryptocurrencies
spk_0
are not productive assets like the dollar.
spk_0
And so they come to restaking land
spk_0
to get some sort of yield.
spk_0
They don't want to get slashed above all else.
spk_0
And so they're never going to underwrite
spk_0
extremely risky strategies or extremely risky third parties.
spk_0
And so that kind of balances out the system.
spk_0
I don't know if you're familiar with this protocol.
spk_0
I mean, it's still like in the early phases of development.
spk_0
It's not released yet.
spk_0
They have like a website, but mezzanine,
spk_0
where they have like kind of risk trenching.
spk_0
Yeah, the trenching stuff.
spk_0
Yeah, I mean, there's a big need.
spk_0
So it makes sense to have like risk trenching here.
spk_0
So where you know, you might have like low risk, right?
spk_0
Where you're getting kind of like the treasure yield.
spk_0
And then maybe some higher risk
spk_0
and then like some very high risk.
spk_0
And then that all those different sort of yield sources
spk_0
are being combined to provide the yield to the end user.
spk_0
But there is some amount of like kind of backstop
spk_0
where the higher tranches are protecting the lower tranches.
spk_0
Yeah, so here's the thing.
spk_0
I don't think retail has the mind
spk_0
to be making these decisions.
spk_0
And so we have stracked it away.
spk_0
You're right to say, you know, we have all these strategies,
spk_0
but the dollar holders don't get any exposure to the risk.
spk_0
Right? If you're holding stake, CUSD,
spk_0
you are not exposed to the risk of the strategies.
spk_0
Who is exposed?
spk_0
Is there restakers, right?
spk_0
And so it doesn't really matter.
spk_0
You don't have to trench it.
spk_0
Because what would you tranche?
spk_0
There's no risk to tranche.
spk_0
The tranching is on the other side
spk_0
where restakers can choose like, hey, I am super risk averse.
spk_0
I'm either fine.
spk_0
So I'm only going to delegate to Bank of America
spk_0
just to give you a random example.
spk_0
Or maybe a restaker XYZ.
spk_0
And I want to get as much yield as possible.
spk_0
Let me delegate to a crypto native market maker.
spk_0
spk_0
And so you'll have these different tranching on the other side.
spk_0
And it's important to keep it on the protocol
spk_0
or B2B side of the strunching
spk_0
because there's a lot of complexities.
spk_0
When etherify delegates to institution,
spk_0
they're not just trusting them.
spk_0
They're signing some legal paperwork on the side
spk_0
to arrange what will happen if they get slasht, et cetera, et cetera.
spk_0
Who is in a good position to sue Bank of America?
spk_0
Right?
spk_0
It's not some small farmer at all.
spk_0
It's these big projects that have raised millions of dollars.
spk_0
They're in a good position to sue.
spk_0
And so we're kind of shifting a lot of the burden of these decisions
spk_0
and management to the restakers.
spk_0
Obviously, not for nothing.
spk_0
They get more yield than ether and Bitcoin have ever seen.
spk_0
Okay, right.
spk_0
So the restakers have legal agreements with the operators,
spk_0
the market makers, the crypto private equity funds, et cetera.
spk_0
And those agreements lay out the types of strategies
spk_0
will have kind of like risk management, provisions, et cetera.
spk_0
And the restakers are on the hook for those operators doing their job right.
spk_0
Exactly.
spk_0
And the operators are on the hook to the restakers.
spk_0
So you could put it like this.
spk_0
The stablecoin holders are protected by smart contracts.
spk_0
They don't need to trust anybody.
spk_0
The restakers are protected by the law.
spk_0
And so then they should only delegate to good counterparties.
spk_0
Right?
spk_0
So screen hat may lose money sometimes.
spk_0
Like everybody can lose money.
spk_0
But they are a good counterparting.
spk_0
spk_0
If they owe you money, they'll pay you back.
spk_0
Right?
spk_0
And so that reduces the risk for the restakers.
spk_0
So what constitutes the slashing event then?
spk_0
And how are like, what's the flow of capital for end users to be made whole
spk_0
if like one of the operators, you know, loses all the money?
spk_0
You know, like, yeah.
spk_0
So we are a completely on-chain platform.
spk_0
Everything's smart contracts.
spk_0
And so we don't really know if the borrower lost the money or not.
spk_0
Right?
spk_0
What do we know?
spk_0
We know how much money they borrowed.
spk_0
And we know how much money they've been delegated.
spk_0
And so we track the collateral to that ratio.
spk_0
So how much delegated value is compared to the amount of loans?
spk_0
And if that ratio falls below a certain threshold,
spk_0
then that's when we liquidate.
spk_0
Sort of how over collateralized lending markets track loans,
spk_0
like Avian Mordful.
spk_0
Right.
spk_0
Okay.
spk_0
So I guess one way to look at it would be
spk_0
that it's under-collateralized lending
spk_0
where the trenching happens between the operator and the restaker.
spk_0
And it's kind of like abstracted away from the end user.
spk_0
Sort of.
spk_0
Yeah.
spk_0
I mean, it's like, it's a three-sided marketplace,
spk_0
which allows for three different interpretations of the model,
spk_0
depending on where you're looking at it from.
spk_0
From the point of view of the stable-conholder, it's a miracle.
spk_0
spk_0
You're having an over-collateralized lending market
spk_0
that's giving you three times the rate of avian.
spk_0
Right.
spk_0
And you're like, what's going on?
spk_0
And it's because you have this coincidence of once and needs
spk_0
of these three different parties coming together.
spk_0
Yeah, I love a good cow.
spk_0
Consumption of once.
spk_0
Yeah, cool.
spk_0
Okay.
spk_0
So, and so who are the operators, like,
spk_0
practically speaking, who are you working with?
spk_0
And like, what kind of strategies are they implementing?
spk_0
I mean, if you, I guess like, you don't know
spk_0
unless you're talking to them, which I suspect you are.
spk_0
We know.
spk_0
But yeah.
spk_0
We know because they tell us things, which is nice.
spk_0
So we launched a month ago.
spk_0
And for the first two weeks, we focus purely on setting up the risk,
spk_0
right?
spk_0
Boost trapping in with USTC.
spk_0
We got just over 100 million in organic user deposits from,
spk_0
in USTC.
spk_0
And recently, we started onboarding the restakers and the operators.
spk_0
Now, in terms of the operators, there's ample demand for liquidity.
spk_0
Right now, there's a lot of market volatility.
spk_0
There are a lot of opportunities to make yield.
spk_0
And so, demand for loans is pretty high.
spk_0
We have operators like Amber Group or like GSR, who are,
spk_0
you know, blue chip market makers in crypto.
spk_0
We also have Susquehana, IMC and flow traders, which are,
spk_0
they're counter parties in the track fire world.
spk_0
You know, these are huge enterprises, over 200 billion in AUM.
spk_0
So it's not just some random, you know,
spk_0
companies that we've put together.
spk_0
And then finally, we also have some, um,
spk_0
definative names, right?
spk_0
Like gauntlet soon to have RE7 as well.
spk_0
So there's definitely a mix.
spk_0
And that's the goal, right?
spk_0
Because right now, you have all these stable coins that are just making yield
spk_0
from treasuries or maybe basis trade.
spk_0
I can come to you and say, well, we're going to make yield from anything that the dollar
spk_0
can touch because we can have a theoretically unlimited amount of operators
spk_0
to extend our restakers are willing to, on the right,
spk_0
a theoretically on the mid-air monolopperators.
spk_0
Okay. So this is kind of like where that kind of like
spk_0
insured or covered loan
spk_0
component comes in where like the restakers are covering the loan.
spk_0
In a public perspective, we look at it as guarantees.
spk_0
Right, right.
spk_0
Okay.
spk_0
Has there been a sloshing event?
spk_0
I mean, I guess you like you launched a month ago,
spk_0
but, um, so I suspect not.
spk_0
No, and, you know, we're going through great pains to make sure that there's no sloshing
spk_0
events within at least the first year, um, because that would be bad, right?
spk_0
You know, people get spooked for all sorts of reasons in crypto.
spk_0
And so at the beginning, we are white listing who gets the borrow.
spk_0
So even though the final say is actually at the restaker level,
spk_0
Cap as a team is can can block certain people from borrowing even if they have delegations.
spk_0
And this is because the last thing we want is for somebody to start up a restaking protocol
spk_0
and delegate to a memecoin trader and lose all their money and get slashed.
spk_0
Because then all the other restakers are going to look really bad and their users are going
spk_0
to start getting scared like, are we next?
spk_0
Even though, um, you know, a memecoin trader has nothing to do with Suscrihana.
spk_0
It's completely different risk profile.
spk_0
So which restaking protocols are you integrated with?
spk_0
Right now, every single major restaking protocol is either delegating or is in the process
spk_0
of delegating to Cap.
spk_0
Some of them are faster than others.
spk_0
We're very happy with, you know, Renzo as our first, uh,
spk_0
delegator on symbiotic and concrete the next one.
spk_0
But then Stakeston and Hyper-Dum have already delegated this week as well.
spk_0
So very happy with them.
spk_0
And obviously excited to work with all the other ones that are on the way.
spk_0
Yeah, I know you guys are working with symbiotic.
spk_0
Well, like, what's unique about symbiotic that kind of like, uh,
spk_0
makes this all work as opposed to say like other protocols like eigenlare?
spk_0
I have to be political here.
spk_0
Um, you know, they're both great projects with great teams and we are integrating both
spk_0
eventually right now.
spk_0
We're in audit for, for eigenlare.
spk_0
But we started with symbiotic.
spk_0
We actually finished the coding FAB and we've audited five times with like Trello Bitts,
spk_0
PureBitt, um, recon, Sherlock, a bunch of, uh, top tier auditors.
spk_0
Um, what do I like about symbiotic?
spk_0
Well, it works, right?
spk_0
All the, uh, all the kind of, uh, features that we needed are, we're live when we
spk_0
needed them.
spk_0
And so we were able to launch there.
spk_0
Um, the team is very, um, you know, high quality.
spk_0
They know how to ship.
spk_0
And so everything kind of worked the way we wanted it to work.
spk_0
Uh, and then finally, obviously the modularity is actually pretty interesting.
spk_0
Uh, because obviously, Cap is not the original intended use of restaking, right?
spk_0
It's not the original intended use case of, of, um, shared security as a whole.
spk_0
Um, what could argue is one of the best, in my opinion, uh, but we can go into, uh, what I think
spk_0
about shared security later.
spk_0
Um, but yeah, that's, that's why I like symbiotic.
spk_0
Yeah, what, what do you think about shared security?
spk_0
Like what are the really valid use cases for shared security other than like
spk_0
this guarantee, this, this low guarantee, which I agree.
spk_0
I think it's like a really cool implementation and like, uh, use case for restaking.
spk_0
Yeah, I mean, I think it's, it's interesting that, you know, when I read Eigenlear's white
spk_0
paper, I saw Universal a marketplace of trust, which I interpreted as, you know, you have people
spk_0
with money, which is eth, right?
spk_0
And they have nothing to do with it because ethos and have as many use cases as the dollar.
spk_0
And then you have people with skills, right?
spk_0
And there's some sort of trust economy where the people with money can guarantee the actions
spk_0
of the people with skills.
spk_0
But then in practice, everybody was starting to build these POS, uh, like networks, where, um,
spk_0
they were just validating off chain data.
spk_0
And I thought to myself, why are we limiting, um, this technology to just validating off chain data?
spk_0
If you think about it, validating data is not a very high margin business, right?
spk_0
So can you really pay, um, the high cost of shared security just to validate data?
spk_0
And the answer is no, right?
spk_0
Right now, these, um, validation systems are generating zero dollars in fee.
spk_0
Not a cent, not ten cents, they're generating zero.
spk_0
And that's because, you know, you have to constantly validate a state,
spk_0
but you don't constantly generate fees.
spk_0
And the only way to make up for that, um, imbalance in the accounting is to issue incentives.
spk_0
And that's why Ethereum has inflation sometimes.
spk_0
That's why, you know, Bitcoin gives the token, right?
spk_0
At the whole point of eigen layer and symbiotic is that you don't need to have another token.
spk_0
And you just reuse the value of these tokens and have real value.
spk_0
But if you, if you don't generate yield, then how do you pay?
spk_0
Right? Um, anyways, so I, I was not very happy with most folks focusing on validating data.
spk_0
And I thought that we should really expand the use case of these guarantees to any sort of activity.
spk_0
It's just so happened that I'm using it to allocate funds of the stablecoins,
spk_0
collateral to generate yield, but it really can be anything.
spk_0
You know, earlier, we're talking about, like, decentralization and
spk_0
um, whether or not, like, you know, it continues to be relevant.
spk_0
Do you think that this particular use case for restaking that is using a decentralized
spk_0
validator set and the, um, the assets that gain value due to that decentralization
spk_0
to secure or act as kind of like on-chain insurance?
spk_0
Do you think that that's a use case that can grow and kind of scale and become,
spk_0
you know, the, the reasonable debts for, for restaking?
spk_0
Because like, I agree this whole like data validation, like, doesn't seem like a really good
spk_0
business long term.
spk_0
Yeah, I think guarantees in general are definitely the way that restaking will survive and will
spk_0
thrive. Um, if you look at a lot of, um, you know, asset managers,
spk_0
bull, bullsh bracket banks, um, one thing that they really like about crypto is obviously the
spk_0
composability. The other party is smart contracts, right? Because a big problem in TriedFi is having
spk_0
to trust other people. Trust is the biggest issue with finance. And so smart contracts can
spk_0
alleviate that and organization systems like symbiotic can alleviate that. And so I think there's
spk_0
ample PMF for it. And that's one like the, um, the demand side on the supply side in terms of like
spk_0
eth and, and Bitcoin. These assets have a lot of value. And I don't think we're paying taxes
spk_0
in Bitcoin anytime soon. And so there's not going to be a lot of use cases for Bitcoin compared to
spk_0
the dollar. So this use case of restaking or using your assets to delegate to other people,
spk_0
I think it will have a lot of PMF for a long time.
spk_0
So we touched on this a little bit, but you mentioned the Genius Act. Um, and, you know,
spk_0
that some stablecoin projects were like, Genius Act compliant and others probably won't be.
spk_0
Um, what do you think will be the dividing line there? And, you know, for those projects that are
spk_0
Genius Act compliant, um, is it mostly then just kind of like having access to the US traditional
spk_0
financial system? And maybe that's the dividing line between what we consider to be kind of like
spk_0
the D Gen projects and those that are not D Gen. Um, yeah, what's your, what's your kind of like long term
spk_0
take on that? Yeah, I mean, I think we definitely live in a multipolar world outside of crypto as well.
spk_0
So there's, there's is not the case that, you know, the US says this is what we need to do when
spk_0
everybody does it. Uh, there will be folks that are not compliant and they're just maybe,
spk_0
you know, putting their foundations into K-Mass and living in another country and, and kind of like
spk_0
just not paying attention to American loss at all, you know, changing their UIs to block American.
spk_0
So they can say, you know, we don't have to follow the laws. Um, Cap is our first round was with
spk_0
Susquehana and our last round was with Franklin Templeton to great American institutions.
spk_0
There's no hiding from US regulations, right? We're also American. Um, and so the way we're going
spk_0
is the way of compliance, right? And if regulators have a problem with us, we're prepared to, um,
spk_0
to change things, right? Um, and I think if you want to get big, if you want to be a large financial
spk_0
institution in the future from the landscape of crypto, um, complying with American regulations
spk_0
is key because that's where all of the world's money lives. Yeah, I agree. I think like
spk_0
this change, this change in administration, um, really has opened up the gates for a lot of capital
spk_0
to come into the space. And I think like a lot of people see it as like, oh, like this legitimizes
spk_0
crypto in the US, et cetera. But the offshoot of that is that it's just like potentially hundreds
spk_0
of billions of dollars that can flow into the ecosystem. And, um, and that's not going to happen
spk_0
in probably not in places like Europe where the political discourse is very different. Um,
spk_0
although I think there has been some, there has been some departure a little bit like at the E
spk_0
level from the CBDCs, now that they've seen kind of like what the Genius Act includes and what
spk_0
it can mean for US companies, there is a little bit, at least I've, I've kind of seen on Twitter
spk_0
as of some backtracking, uh, to, to something that looks more like the US system. Um, yeah, what,
spk_0
what are your thoughts on the kind of like, yeah, you mentioned multi polarity. Um, where are you
spk_0
think things go from here if we look at like, you know, the big polls, right? So like US, Europe,
spk_0
breaks, and China. Well, I'm not worried about Europe too much from a capital markets perspective.
spk_0
Most of these large institutions that are involved in crypto within Europe are invested in us.
spk_0
So I am see flow traders, edge capital, flow desk, they're all not only investors in cap, but
spk_0
they're also operators, meaning they are prepared to borrow and generate yield for stablecoin protocol.
spk_0
And so that's, that's all you need to see, right? The, the people that need to be involved are
spk_0
involved and we'll have to see what regulators do about that. Um, obviously there's nothing to say
spk_0
about South America, right? Because they're having fun. They use crypto, they don't care about,
spk_0
you know, the tokens, they, they've been using stablecoins for a while and they're continuing to use
spk_0
stablecoins in the future, because they're a wonderful use case down there. Um, our, our job is
spk_0
going to be to try to tap into as many of these regions as possible. And the way that we're doing
spk_0
that is by accepting collateral assets that are integrated in each area. So, you know, America will
spk_0
have the stablecoins that are popular in America. Europe will have, you know, the money market funds
spk_0
and the stablecoins that are popular there. Our job for USDB is to add all of that as collateral.
spk_0
So if you want to enter our yield system from Singapore, you can do that maybe through UOB,
spk_0
or if you want to enter our system from Germany, maybe you can do a via Deutsche Bank's,
spk_0
you know, money market fund. And so no matter where you are, capital will be able to connect via
spk_0
these kind of integrations with the money market funds and with the stablecoins.
spk_0
Yeah, I think my, my kind of high level view on the Europe US situation, so that the US very early,
spk_0
I mean, even, like I think US institutions, maybe the government, like the previous administration
spk_0
didn't see it this way, but at least like institutions saw crypto and stablecoins as a,
spk_0
as like a technology that could improve, uh, composability, improve,
spk_0
reliability and, and, um, and security of the system as like something that needed to be adopted
spk_0
by the industry with the administration kind of giving that a green light and it feels like it's,
spk_0
you know, a full steam ahead. I think European banks and European financial institutions,
spk_0
at least like the most more traditional ones, are more risk averse. And I think there's,
spk_0
there's like regulators and policymakers are kind of a, um, sitting in this really uncomfortable
spk_0
position where pushing stablecoins or the advancements of stablecoins in Europe kind of
spk_0
undermines the power of traditional banks. Um, and probably it will take a really long time for
spk_0
stablecoins to be kind of fully adopted in Europe. In the same way that it, you know, Europe was
spk_0
kind of behind the US in terms of its adoption of e-commerce, any technology in Europe just
spk_0
takes a long time because institutions have so much political power and at the same time,
spk_0
I mean, not that they don't have political power in the US, but they're very risk averse.
spk_0
They're very adverse to change. They're very comfortable in their position. They're not pro-innovation.
spk_0
I mean, all traditional industries are true, but I think I think in Europe there's an even stronger
spk_0
sense of, uh, wanting to sort of like sit on your laurels and, uh, sit on your established, uh,
spk_0
uh, uh, rule, like position as an incumbent, which, um, kind of informs policy.
spk_0
Yeah, I don't want to have one of these too much about politics.
spk_0
I might, um, my, my, my, Chris is going to be looking at this interview and, you know, pulling their hair out.
spk_0
So I, I wanted to maybe like, let's, let's just kind of do a thought experiment here and,
spk_0
you know, let's kind of overlap stablecoins on the traditional finance system.
spk_0
Um, so, you know, if we look at, if we look at, kind of, track fire, right, like, let's, let's,
spk_0
let's take a country like France. Um, you know, the central bank, or at least the European
spk_0
capital central bank, like issues, euros, flows down to the French central bank, the, the French
spk_0
central bank, um, then lends those, those euros out to, uh, lends out those years out to, to, to,
spk_0
banks, right, regulated banks. And, um, and then those banks, and then like issue their own,
spk_0
kind of stablecoin, right, their own, uh, version of the euro, uh, to, to depositors, right, to,
spk_0
like, their, their, um, uh, to their customers. And, you know, we have like, you don't, you don't
spk_0
see it as a, as a user of the system, but in reality, you, you have like a, sociatization, it has,
spk_0
uh, uh, eurocoin. And you have like an LCL stablecoin and like, you know, for Americans,
spk_0
these bank names are not going to mean anything, but like, you have the banks, right, like,
spk_0
that are issuing their own version of the euro. And that's kind of abstracted away. Um,
spk_0
but it works because you have this really good interoperability between all of these systems,
spk_0
because we have like, kind of nationwide payment systems. And, and, and there's the backstop,
spk_0
and it's underwritten by the central bank, which itself is underwritten by like, trust in
spk_0
institutions and our ability to lock people up, right? Um, and crypto, it's a little bit more
spk_0
complicated because, um, we don't have this kind of like institutional backstop. And the
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interoperability is, is also, there's, there's, there's kind of sort of complexity in the
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interoperability aspect as well, where like, you know, your CUSD is not, um, as fluently
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interoperable with any other stablecoin because the risks are kind of like different.
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Do you, do you kind of like see this parallel as kind of being relevant? And where, how do we get
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to a point where anybody can just be using any stablecoin and they're, they're not kind of
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encumbered by this, um, uh, this problem that like the different risk profiles of the protocol
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introduces where these different coins are not interoperable. Yeah, I think it's a matter of, um,
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like the design of the mechanism, right? Cap works with every single on ramp or off ramp or
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every single payment provider, you know, every single bridge. Why? Because we're instantly redeemable
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for USDC, right? And you can, within our reserve, you can sub within all the tokens right between
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the money market funds, between the different stablecoins. So, you know, you tell me there's
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an issue of interoperability, certainly not a cap, right? Because that's how we've designed the system.
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And you'll see that happen with larger companies like Coinbase, for example, you know, they take
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PYUSD deposits, um, as USD, just like they take USDC. And so it's just a matter of who trusts who
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cap trust Franklin Templeton and also they trust BlackRock. And so now we can act as like a bridge
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between them Coinbase Trust Circle and they trust PayPal. So now they connect us, they can act as
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that bridge between them. And so as long as you kind of grow this pie of trust, you can start seeing
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these connections. And it's very similar to the banking system where overseas banks can connect
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to each other via, you know, this wire system that we have in TriedFile with the added benefit of
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of how elegant crypto is, right, for organizing token transfers. But it's not a very difficult
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problem. So I just, I just think we need is if you have a good design, then interoperability is pretty
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easy. One of like kind of zoom into this trust aspect and this kind of circles back to what we're
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talking about earlier, like, you know, a lot of people in crypto got into crypto because of kind of
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this rejection of the fiat monetary system. So if you talked to early Bitcoiners and like early
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Ethereum folks, like this, this, this idea that fiat, which actually, the etymology of that word
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kind of comes from the word trust, right? It's a monetary system where you, where you trust others.
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Crypto kind of felt like it was a rejection of that. I mean, didn't feel like it was a rejection of
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that of that of that idea. And, you know, hearing you speak now, it sounds like you're talking like
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we're going back into kind of a trust-based system. But with one kind of one distinction is that
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because risk is now kind of spread across different restakers, different funds, etc. in the case of
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Cap, it creates a more opaque central kind of like authority to who is responsible, right? So
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it actually makes things more complicated for the end user who has like suffered some damages
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because of misconduct, right? Well, the person how you do it, like for example, like with us,
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you know, we take Benji, we take UCCS collateral and you can track and see, you know,
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these are the collateral we take. It gets more complicated if, you know, you're backed by EVE,
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but then you also put money in AVE and then who knows where AVE is putting that money and you have
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like these more complicated systems. And there are such stable coins where you don't really know where
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the money is being put. And so I agree with you that the question of, okay, I lost money,
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who's fault was it will become more complicated when you have these stable coins that are kind of
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acting like hedge funds and putting their money in all sorts of places. But it's certainly not
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the case of Cap because we're all D5 PTSD, you know, survivors. And we've built Cap in a way that
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you're able to track what you've just described, right? Who is responsible for maintaining the
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quality of the collateral? I guess it's not a reflection on Cap, but just kind of like for the
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industry as a whole. So where the risk is more spread, perhaps it means that the chances of
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something happening that yeah, the chance of something happening is reduced. But you know,
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it's increased, but it's like the penalty of it happening is lower.
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Sorry, the penalty, the penalty may be less, right? But also like the crypto world operates in
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space where, you know, there is a lot of opacity around like where operators are situated. And
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certainly like I think regulation kind of kind of like help with that where, you know, there may be
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like clear paths to litigation when that happens. But yeah, I mean, look at what happens to
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multi chain the bridge. They got hacked by the Chinese government or like a local government.
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And all the money got stolen. So Binance, Frosted, Circle Frosted, Tether Frosted,
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they haven't returned that penny to users. And the Phantom Foundation has been suing Binance and
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all these teams to give them money back. And they've refused to do it. And they haven't been able
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to get the money back because you know, that's just how regulations are. And so you're right.
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And that's kind of why we built Cap the way we built it because I really just don't think that
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users are in a place to get any sort of recourse. If your favorite yield bearing stable coin at
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the pegs, you're going to be suing some random Cayman entity, right? With, you know, director
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who is the same director for every other Cayman entity in crypto. And you're going to find yourself
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without a nickel of recourse. Yeah, I think I think this is where like regulation will play a huge
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role is where these entities need to be kind of like local in their jurisdictions where they're
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situated and where they become highly sort of entangled with the traditional finance system,
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central banks, etc. But I think we're like really long way until that happens. Yeah, that's why
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you have to choose like do you want to trust the government or do you want to start trust more
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contracts? And I think any project that's in the middle where you're not trusting smart contracts,
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you're not trusting the government, you actually trust some random developer team. I am very
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because I know I can trust the government somehow a little bit and I know I can definitely trust
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more contracts. I know darn well I can't trust random developer teams. Yeah, well some
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some people would definitely not agree with you that you can trust the government a little bit.
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But that's a conversation for another trust like regulators more than I trust a random, you know,
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start up in general. Yeah, yeah, I think some people might have agree with that. But yeah,
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obviously, yeah. I guess like where the kind of proliferation of stablecoins
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does excel is offering these different trust assumptions. So you have like stablecoins that are
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fully centralized where you don't have to trust anyone and then you have stablecoins that are
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fully centralized and then you have like sort of things in between where you're relying on
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centralized stablecoin deposits, but those deposits are backed by a decentralized asset in the case of
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cap, right? So like you're backing the centralized stablecoin deposit in the form of USDC USDT
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with an insurance or a guarantee that is secured by a decentralized asset and that might be like the
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the middle ground that we need to scale but then also remain decentralized.
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How could I disagree with such a beautiful explanation?
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Well, Benjamin, thanks for coming on. Anything you want to share before we wrap up?
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Nothing. Actually, I would say that a lot of people have said recently that the stablecoin space
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is extremely crowded and there are too many stablecoins, but I think they're wrong. I think
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they're not that many stablecoins that are differentiated in crypto. And so if you are,
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you know, a founder that's trying to make a new stablecoin make it, you know, I want there to be
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100 new stablecoins, 1000 new stablecoins because the more innovation that happens,
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the more liquidity we're going to get on chain and that will benefit everybody because it's much
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easier to convince somebody that's using another stablecoin to use yours than it is for you to
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convince somebody that has money like Bank of America to use your stablecoin. And so yeah,
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I just I will have a call to not be discouraged by how many stablecoins there are in crypto.
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Cool. Well, thanks for coming on and enjoy the rest of your time in China and good luck with this.
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Thank you.