189 - Taking Treasury Bills Onchain with Martin Carrica

you look at like last seven days ethereum versus run rate for a circle it's the same amount of money it is equivalent to Circle it exactly exactly holy Vegas like that amount of gas that's um the same amount of money that circle is making together is three times that tether alone is making more money than the whole rest of the crypto ecosystem outside centralized exchanges oh that's your margin that's your your margins my opportunity it's exactly what you're saying Martin exactly

welcome to bankless where we explore the frontier of Internet money and internet Finance this is how to get started how to get better and how to front run the opportunity this is Ryan Sean Adams and I'm here with David Hoffman and we're here to help you become more bankless this is certainly a money opportunity to front run on-chain t-bills is the topic today the overnight fed fund tray is 5.3 right now and that's some pretty good yield but how much are you getting in your bank account probably not very much of that uh how much are you getting from

your stable coin is maybe a better question for crypto Natives and if it's an instrument like usdc and your ethereum address the answer is probably nothing you're not getting any of that yield but what if we could tokenize try treasuries instead of just dollars what if we could create a usdt and the T is for Treasury and that tokenized treasury yielded five percent just for holding in your eth address that is the promise of tokenized t-bills and it's gearing up to be a major theme over the next 12 months and I think another Force for democratization worldwide we have Martin

carica here he's the founder of a tokenized Tebow company and he's here to get us up to speed a few takeaways for you on the episode today number one why don't we already have tokenized treasuries why doesn't that product already exist number two we talk about why on-chain treasuries are a force for democratization worldwide especially in emerging countries number three we talk about why the U.S government actually wants this even though they may not admit it number four in this weird Paradox we talk about why U.S citizens will probably have a hard time getting tokenized t-bills as well David you're

laughing right now um because man it is hard being a U.S citizen in crypto these days isn't it yeah really the irony of U.S citizens being the people that are going to be the hardest people hardest population people to access the yield from their own government's money Printing and in fact no we're going to just export it straight to the foreign countries of the world uh bankless listeners you'll just have to listen to the episode to understand understand the punch line there but Martin not the guests on the show does a really good job laying it

out for us I think um Ryan presented this as the promise of of uh tokenized t-bills tokenized treasuries on chain t-bills whatever you want to call these things um I'll also I'll add that there's an economic weight here there it's kind of Destiny you know like maybe we don't get there from some reason that I can't understand but incentives will produce this outcome eventually stable coins will be replaced by tokenized treasuries it's kind of in the same if you accept

that eventually all vanilla eth will be replaced by some liquid staking token uh alternative eventually like why would you just hold vanilla East and Ave when you when you can do our eth in in Ave instead if you accept that then it's kind of the same thing eventually all vanilla stable coins will just re be replaced by tokenized treasuries and you will get the yield natively there's a gravitational pull right it's like water goes downhill and liquidity finds a way and it'll find it the yield will find its way in a tokenized form on chain yeah so there's been just growing demand

growing an interest about this topic of on-chain treasuries and real world assets so bankless listeners you can consider this the first of a few steps into the world of real world assets on chain that we want to explore here on Bank list starting with tokenized treasuries yeah I'm looking forward to uh discussing this with you a lot of interesting implications here and David uh and I are going to discuss that in the debrief of course if you're a bankless citizen you already have access to that on the bankless premium feed so go check that out right free Bank list premium fee ad free it's a beautiful

thing but before we get into this episode first we disclose end the disclosures are there's nothing really to disclose here of course we hold crypto no we didn't crypto assets that we do hold stand to benefit from tokenized t-built transactions but of course you know that and we are long-term investors we're not journalists we don't do paid content there's always a link to all bankless disclosures in the show notes you can access that at bankless.com disclosures all right we're going to get right to the conversation with Martin on tokenized t-bills but before we do we want to thank the sponsors that made

this episode possible Bank location I would love to introduce you to Martin karica the founder of mountain protocol a native yield bearing stablecoin projects and Martin himself is alleged to be extremely knowledgeable about Stables especially from a regulatory perspective at least that's how he was introduced us by our friend Nick Carter who is also extremely knowledgeable about sable coins lately in the crypto world the conversation around real world assets and on-chain t-bills has been growing in interest so we're hoping Martin here can help us help guide us in our understanding about what is next in

this new Evolution of stable coins from on-chain dollars to on-chain t-bills Martin welcome back Douglas thank you guys thank you for having me well Martin uh this is your first time on Bank list tell us a little bit about yourself your background and why this story of stable coins is so important to you awesome so I'm originally from Argentina uh lived through high inflation for a long time started in crypto got my first salary like a truck fight company oil pipe company purchased uh Bitcoin going to a minor in

a McDonald's and exchanging cash for Bitcoin and having to wait for the two blocks so we had lunch together a minor in a McDonald's that's how you got your first Bitcoin correct so that is cool so how did you find this person there were groups I don't remember exactly uh what app it was because this was uh early on like that this was before Mount Cox right so um we would pull all of my friends money and like someone would go and we would rotate who it was wow this is like a little bit of Beast I

think very cool yeah all right continue so yeah I mean so I hope you enjoyed the meal at McDonald's as well yeah it was like two blocks so uh it was enough to like do everything you needed to do you had time to to count the money and then we it was like super cheap we would like distribute the Bitcoin afterwards um just to give you a sense that was like our internship salary like 150 bucks each right like it was like minor purchases um so so that got me interested in Bitcoin initially I thought Bitcoin was a Emerging Market thing right like in Argentina makes sense in China makes

sense in Turkey it might make sense uh I I study engineering I got into traditional banking uh work I did a lot of work with failed Banks launching new products for banks I did a high yield check-in account with banks and that is relevant to this story and with stable coins came in I was like okay this is exciting now you have a product that meant like my mom uses like she actually uses stablecoin today um and in Argentina if you go now like people will purchase a stable coin when they get their salary you use dollar

stablecoin and then they will swap it out two pesos to pay for their last week or two weeks of expenses and that's they will hedge against inflation doing stuff like that right so the the applications of this in in Argentina are massive um basically back to the to the yield bearings to the high yield checking account side I did that prior like 20 the prior cycle after Goldman Sachs did Marcus and when Luna exploded and appetite for uh leverage and therefore interest in D5

went to zero I was like how is it possible that the risk-free rate is higher than what we're getting in D5 someone has to have built a product that Bridges these two things and that allows everyone in the world to access dollars and now with a native yield of the dollar turns out it was hard yeah when you say risk-free rate can you just Define that for people yeah so if you lend money to the US government uh the U.S government can print money and they do that every day so therefore it is assumed that U.S

government is not going to default if a default had were to happen usually they will print more money so you're gonna see it via inflation rather than an actual default so that means if you lend money to the government you're guaranteed to get that money back and then that time value of money is a restrict by the full faith power and credit of the money printer is because because there's a money printer there's no risk we'll just print the answer exactly this is basically the Fed rate that we talk about so often and the whole economy is like what five point something percent right now five point

five point two or five point three percent it varies a little bit uh every day um usually you take the overnight the secured over net funding right so a bank will leave a treasury bill they will take cash in exchange and then they will do a repurchase agreement on the RSI uh the next day so that's usually what's considered the risk-free rate you still have risk-free rates in in other currencies so for eth that is the liquid staking yield that would be the risk-free rate for each because you know you're not going to get defaulted on

that eth in Argentina you also have the risk-free rate in Argentinian peso that's a hundred percent you know the government is going to pay you but they're going to pay you in pesos right so each currency has their own uh risk-free rate I would say most assets have their own risk-free rate uh Bitcoin doesn't Bitcoin doesn't have any native source of yield but most of these assets do have some some kind of risk rate and it's independent press it so I'm sorry I interrupted you uh Martin you're talking about the the risk-free rate you saw that creeping up in and you're talking

about the Fed risk-free rate you saw that creeping up and then what happened so it was about 1.5 percent I was presenting to a bank they wanted to learn about crypto and I was like if I were a bank what would I do and I was like this is an amazing deposit strategy and I calculated the revenue of of a couple other stablecoin providers and the number was like massive and I presented to them and they were like yes but it's very very hard for us to do there's no framework for us to issue this and so on and I sorry is it uh

borrowing stable coins in D5 because you said they were at a lower yield than the risk-free rate so what you're saying like it's hard for us to do it it is borrowing stable coins and defy at like the very low post Terra post FTX rates of like point three percent I think if I remember correctly while you're saying the risk free weight was 1.5 percent so you're saying like hey there's this free Arbitrage people are leaving money on the table and Banks were saying to you sure we see that free Arbitrage but it's hard so we won't that's what that's what you're saying correct yeah so the the argument drugs that I was supposed to

name is go acquire deposits in this market so if you go and acquire deposits in trotfway markets you open a branch and people start depositing and you give them an IOU in stable coins that are you is the stable coin so you can issue a bank stable coin imagine a Wells Fargo staplecoin and you could start acquiring assets basically at a very very low rate and you wouldn't have to pay much and then you can lend that on the other side to the US government and there's an infinite amount that you can lend to use government in the order of trillions mm-hmm

and so take us further in this story so you see you see defy yields at zero while the risk-free rate is 1.5 percent what do you do about that so I started looking like someone has to have built something that solves this problem and no one had the the Big Challenge here is how do you bridge these two worlds giving Clarity on the real world asset side so someone has to hold a treasury a treasury bill and that person who's buying those treasury bills at small scale you can buy but if you're

starting to buy anything at meaningful scale you have to show where the money came from and that where the money came from the compliance AML kyc component was hard to do so we said okay if we want to offer this you have to be regulated to do this at scale if you are not regulated you're never going to have a framework to bring this pipe and have it be wide enough to bring money and show where they come the money is coming from and still have sustainable banking brokerage custody relationships in the

traffic world and that is the biggest challenge uh that everyone in this industry faces is how do you answer or that regulatory or legal structure in question it sounds like what you're trying to build is the largest pipe possible between the government United States Government risk-free rate and defy and right now you're saying that this pipe is actually constrained by our current stablecoin uh Paradigm or the Met current meta of stable coins because you go through it vanilla dollars first when really you can just go more let's get

right to the punch line of this whole thing which is like let's take the yield of the risk-free rate and get it into D5 exactly exactly what you're buying today when you buy a stable coin on the back end it's cash and cash equivalent that's accounting term to say treasuries repos and some cash in Banks so if you look at the disclosures of all major stable going holders most of it is treasuries already so we are already doing this the the thing that is not like flowing through is the yield component so you're

getting a zero percent yield on your stable guns today so Martin this is uh we actually don't usually ask people about their background and their story about how they came to build what they are building in crypto but in this particular moment um especially we just did the weekly roll-up last week uh recorded it went out yesterday and we talked about how increasing inflation in turkey has led to 12 of population of the Turkish population adopting crypto in the last year and a half and uh you you come from

Argentina Argentina is uh very familiar with inflation uh we've had plenty of argentines previously on the show Mariano Conte just talk about the the role that inflation played in in their lives and just the happenstance of Argentina also being a very Internet connected uh country you mix inflation and internet connectivity and all of a sudden you have a a entire country that is pushing forward crypto adoption and this is the story I see playing out with you right like born in the world of

inflation uh Tech enabled now you now you live in in the United States and want to build in the world of crypto because that that is your Genesis that is your upgrading bringing upbringing and so I wanted to take this moment to tell the story of like showing how inflation leads to people Builders building stuff in crypto to help progress forward this new Financial Revolution and so I just wanted to I do the thing we don't usually do which is have people explain their background because that is how you've gotten to be where you are today and any comments or

Reflections on that I would I would add to that Capital controls right like that's the other big thing that has made Argentina so strong in crypto I couldn't buy a dollar even if I wanted to right so the the experience of buying a a crypto asset like my mom she's 60 years old she buys stable coins because she cannot access them through the traditional Financial system their alternative is to have someone bring her like uh we call it the blue Market it's called the black marketing practice someone comes on a

scooter brings pesos or or brings dollars and you exchange everything in a very informal way that's the alternative today I am I I want to put this through the lens of something you're saying when we were going through your your background is you said at first um you discovered Bitcoin in kind of that that McDonald's uh transaction um and then later you discovered stable coins and you said you were very excited about sable coins and I think a lot of our listeners today uh in people in

crypto maybe in the west they look at stable coins and they don't get very excited you know what I mean like they're more excited about the speculation they're more excited about the gambling but but you see in stable coins um you know probably as a result of of kind of growing up in Argentina in a high inflation environment and you see a killer app and a kill killer use case and you're at this fantastic article I really liked back in uh December of last year called stable coins are cryptos hidden money printers and you talk about

how great usdc is the stablecoin how that is the definition of product Market fit and you you brought the receipts into this post where you kind of saw the charts and you know hey this is crypto's killer app it's called stable coins I uh I want to get to more of that story but you know before we do let's talk about this this t-bill thing and I have kind of a simple maybe crypto native type question for you that we've sort of gotten to the edges around but it's like more directly I tweeted this out usdc

and tokenized dollars are fine but with rates over five percent I want tokenized treasuries where's our usdt I'm not talking about tether here I'm talking about the t as in t t for T bills okay so the simple idea and it feels like we should be able to do this I think you were kind of like uh you know hinting about this is rather than have an erc20 fungible um you know stable coin that is just one to one backed by a dollar why not have an erc20 a tokenized form of a t-bill

call it usdt I guess we've tried that one USC uh treasury right and like make that the same thing except it gets me that five percent yield or wherever the FED rates goes next maybe it's down to four percent maybe it's up to six percent maybe it's up to eight percent who knows wherever wherever it ends up I still get that yield to me that would be like the perfect uh instrument and completely right for for crypto so let me ask the really dumb simple questions like why

don't we have that already I mean Kim it's not just the three of us making this connection I'm sure the people at coinbase we're not Geniuses here yeah all right this is a pretty simple instrument why don't we have it yet the answer is the regulation is not easy to there's no regulation where you can plug this in and it's ready to go the there's various we're not the only company doing this there's at least 10 that I know of and most of them have gone through the path of let's literally tokenize the treasury bill the treasury

bill is a security and then the claim that you have is a share like it's the T bill or a share of a fund or something like that the issue with that path is you run through Securities laws and it kills the compost ability right I cannot transfer it to you unless you also white list unless you're also an a created investor how do you whitelist uni swap right or a curvepool so you start getting into into those issues down the Securities path just to re-articulate why that's such a big issue so you're

saying like the the token the erc20 token on ethereum would come with a white list and so by default every other address on ethereum is not allowed to touch that contract address until their specific ethereum address is approved on the whitelist which is like what's the effing point at that point right like one by one by one automatic yeah there is no composability there there's no permissionlessness there there's plenty of risk there yeah that's a huge barrier so so that's a Ryan you have a yeah yeah

I just want to back up so so is what you're saying that um the dollar right a dollar's gonna count and so therefore usdc that is not a security despite against Gary Gensler might want it to be right that's not a security as of now it's just like a currency it's something different okay but a treasury our treasuries Securities then in all of their forms and flavors like I'm talking in the Trad five Market uh they're all Securities and so they come attached with Securities laws when what are those Securities laws is that

um I mean I'm more familiar with with kind of Securities laws as they pertain to like stocks but what is there specifically for like treasuries so treasuries are considered that right there are U.S government debt and by that they are a security the the thing that you're you're going to is usdc is a wrapper on those Securities today so usdc is a wrapper and a bunch of of t-bills you can uh they have a fund in BlackRock I forgot the ticker but you can go and check and it has a bunch of

Securities and repos and so on so you're already wrapping that and creating a non-security a payment token so there is a a gap that the US still needs to address for this law right this is a gap that Bermuda where we've gone Switzerland or Singapore is soon to be to address the UK every other jurisdiction is starting to address this Gap so this this question that you have is is very U.S Centric in that that

model doesn't work there are other models and which is one that we went down with but we'll get to that in a second and let's finish this so what you're saying saying is right now usdc is sort of effectively um a middleman kind of a go-between so all the dollars that that back usdc it's not actually dollars like we use that in short for me so there's one dollar here there's one dollar in the bank these are actually like treasuries and that is why you can go to um coinbase and you can press a button

or I don't even know if you have to press a button anymore but there's some sort of setting inside of coinbase where you park your usdc there and you get I think it's like 4.75 yield the reason they're able to give you that yield when the usdc is sitting in coinbase is because it's there's actually treasuries behind this and so I think am I am I right here where does the yield come from Martin yeah so coinbase and circle are different entities where the yield for coinbase specifically comes from I

don't think it's just closed they own a portion of circle they might have a commercial agreement some uh some centralized exchanges that don't have Direct commercial agreements with stablecoin insurers will also pay you so that you have money for swaps and they make money in the swap so it also be a marketing expense so coinbase I think is probably not the best example in this yield because it could be a marketing uh component rather than them passing through the yield okay but regardless the US sort of inserts this middle

middleman type function I suppose that that's kind of in between the you know the the treasury and and the retail market and you're saying other jurisdictions do not have this other jurisdictions so we talked about the traditional Securities Law model where you build a fund and the token a stable is a share of the fund and that is today the market cap of Treasury Target treasury 600 million most of that follows that path there's a second path which is the Suez DLT low path where the

source DOD has said a stock before we had electronic system stocks were Bare Assets I could change a piece of paper with you and you would be the owner of that stock so why don't we do that with Securities again so there's a a company out of Switzerland that did a prospectus and they have a tokenized security but that's permissionless so essential is very similar to like an ETF like a gold ETF they put a bar of gold in a safe they give you a piece of paper that piece of paper moves around and if you

want to claim it back you have to do kyc and you take the power of gold this is the same but for that treasury bill or that fund and they were the first ones to be able to do permissionless uh treasuries well I was going to ask a question about um whether the US actually wants this so so one thing one one thing that's notable about a treasury is that it's a it's kind of a product of the US government right and so um is the system that you're describing in kind of Switzerland and our scheme

here to like um you know just create a tokenized version of treasuries and call it us usdt or something and uh get the you know five percent yield is that contrary to what actually like U.S monetary policy and kind of Treasury Department and the FEDS actually want like is is there a reason that that product doesn't exist and so what I'm wondering is like whether these regulatory kind of Arbitrage opportunities and say Switzerland or elsewhere whether they

might be closed at some point in time because was like maybe this is counter to what U.S monetary and and you know Financial policy actually wants and so they'll try to put the kibosh on it in another way do you have any insight into that I I have to I think if I were the US government I would be I would do a 180 on this if I could have all argentinians transacting US Dollars it means I have four buyers of my treasuries that means I could sell my treasuries at a lower

rate I lower my interest expense so therefore my budget closes nicely and if you do that with Argentina and turkey and all other Emerging Markets you can export dollars globally and those dollars are going to be stable coins that are holding treasuries that is like forced buyers they they cannot take more risk so you have when you're doing those auctions the interest rates that you're gonna have to pay are gonna be are going to be low so I think it's against U.S interest to stop this Market

against U.S interest to start this stop this Market one of the things that we say on Bank list is like D5 is exporting the power and the brand of the United States dollar and I think that that's what you're saying in agreement too right like actually we are just again we're just connecting bigger shorter pipes between Ave and the United States Treasury and so like Ave so say reseller of United States treasuries and that is like the United the if you're the dollar that makes you happy correct correct correct and I think going a step

further going on top of treasuries if you can bring any stock that's trading in the US and put it in crypto now you have your expanded NASDAQ or the New York Stock Exchange globally you should have an interest to do that too I have Robin Hood be in 180 countries so I think there's an interest to export the U.S financial system if your objective is Capital Market capital information so your argument here is to you know to answer the question of um you know but but won't the US try to kill this uh your answer is well if they're rational

and they actually want to export the dollar what better way to do that than to have a a tokenized version of a Dollar Plus yield plus risk-free rate and uh have that be kind of the ultimate you know dollar stable coin it's just and the ultimate form of that is clearly a treasury rather than rather than just the dollar because you get the yield uh embedded in that exactly and in a world where let's imagine this this world might be close too the US runs out of countries or Banks or like buyers

Pension funds buyers in general of its treasuries it's gonna need to find new markets for this and you're saying hey Emerging Markets like Argentina uh like turkey maybe it's really alluding to the global emerging markets for for them the dollar is still a pretty strong product and you'll have net to demand from these uh from these markets in these countries and hey isn't that in the U.S interest that's what you're saying exactly exactly and if you think about it today that demand exists it's called the euro dollar complex so right without

the US promoting it this euro dollar complex form and it continues to expand despite uh it being outside of the purview of the of the US government we now have swap lines and so on so it's starting to connect um but this euro dollar if you add stable coins on top you you can grow it a lot more yeah we call them stable coins but really we should call them crypto dollars like you have Euro dollars you have now you have crypto dollars but we're stuck in the stable coin terminology Martin one thing I I want to

ask um is like uh intuitively yeah like we get we dollars produce yield let's get the yield into D5 but like kind of don't we already already have the value of yield from the United States Treasury markets in defy not in a direct way but in a roundabout way just like because overall like slowly over time the efficient market hypothesis does play out and then all of a sudden whatever yield that is being offered by the United States Treasury is through the market being offered by Ave and then Ave

turns die into a die or usdc into a uscc and then the power of the yield of the treasury market does actually become expressed in an erc20 token albeit in a roundabout way but eventually for the end user who they don't care what happens in the background so long they get their yield so like we don't we already have on-chain treasuries at least implicitly and how it is actual on-train treasuries differ as a product yeah so there's a couple things there the first one is

it requires not only holding a stable coin but also participating in a D5 protocol if you look at the percentage of stable coins that participate in these protocols it's always about 20 even in the in the bull market most table coins sit in the sidelines so and the reason for that is it's either cut it like experience because getting into its protocols can be risky it's complex it requires management it could be technical risk and adding counterparty risk to your holding right really really kind of neuters the whole risk-free rate

thing doesn't it exactly exactly right like we saw curve get hacked recently so even Blue Chip Protocols are not totally risk-free so you're adding additional layers of risk that you're taking it might be worth it if you if they're paying you an interesting I need an additional interest on top of the risky rate but for the risk-free rate you wouldn't want to add counterparty risk so taking another example of this in D5 Martin is uh maker uh mkr token so they have die of course David is just talking about the stable coin and they have this function and their contract called the

DSR right and that that is if you park your die inside of the DSR then you get uh yield effectively and I'm not sure what the yield rates are uh lately but I recall recently they were like eight percent uh for instance right so that was above the risk-free rate and then kind of governance uh changes them they go up or down I guess my point about that particular product is um there's not really the certainty of like you you don't know whether it's going to be above you know the treasury risk-free