How Crypto Neobanks Work: Frax, Cards, and Visa’s Role | Sam Kazemian

Sam:
[0:00] People prefer to hold their dollars where most of their net worth is located. A lot of people now, especially younger people and crypto native people, most of their net worth is on-chain. And so things that interact with assets on-chain, whether it's Ethereum, Bitcoin, it's stablecoins. You need stablecoins to actually interact with these things. It's a hassle to move it over to banks. Some people just only off-board stablecoins to banks because they need to spend stuff, right? But then the neobanking stuff, like you said, fixes that problem, the situation will reverse. People will be like, why would I bring my cash back to a bank, right? And it'll be the opposite where right now it's like, why would I bring my cash into stablecoins? What can I do with it? But it's actually the opposite of most of your stuff is here on chain, right?

David:
[0:53] Bankless Nation, we're talking about neobanking today here on the podcast. This has been a word, all of a sudden neobanking and neobanks has just cropped up across crypto Twitter, across crypto, all of a sudden for some reason. We got Sam Kazemian from Frax to come on the show today and talk to us about neobanking and why all of a sudden crypto is focused on neobanking. Sam, welcome back to Bankless.

Sam:
[1:14] Always happy to be back.

David:
[1:16] Maybe we can just start by defining things. What's a neobank and why are we talking about them all of a sudden?

Sam:
[1:23] Yeah, I mean, it's funny because they weren't at all a part of like crypto, right? Neobanks are basically just things like Mercury, Revolut, right? Some people or startups might use them. They're like a bank wrapper, right? Like if you think of what a lot of AI companies are, they're chat GPT wrappers, right? They don't actually do the foundational model. Same thing with banks, right? Neobanks are like this wrapper. They have better fintech applications, easier stuff to wire rather than the crazy paste, the iBand number, all this stuff.

David:
[1:50] Like a utility extension of a bank. So a bank has the licenses, but banks are just terrible UX and terrible innovators. And maybe the neobank doesn't have the licenses, but they just wrap on top of the bank and then do more things. Is that right? Exactly.

Sam:
[2:09] And a lot of people always said crypto is super confusing to use. So when can my grandma use it? When can my friends that don't know anything about private keys use it? And like, here's the point where it's the inflection point. And it's because of, I think, stable coins and honestly, the Genius Act, right? Because without that, all these banks would be too scared to even actually bank companies that are building these features, right? Right. And like Visa wouldn't want to be settling in stable coins and USDC and these other stable coins, they're onboarding. Right.

David:
[2:40] Okay, so what's a crypto neobank? Is that a thing? Because Frax, as I understand it, is a neobank. We have things like Etherfy. We have some of these banking, maybe not banks, but banking platforms around in crypto. So what is a neobank in the crypto context? What does that mean?

Sam:
[2:58] Yeah, so basically, Frax, as a lot of people probably know from listening, originally we issued a totally decentralized stablecoin with unique yield mechanics. We actually have upgraded that to FraxUSD, which is a Genius-compatible stablecoin with Genius-compatible backing, and then a SFRXUSD, which is a yield-bearing stablecoin, which does all of those innovative yield strategies there. But they're two separate products. The thing that Frax is moving towards, as with a lot of big protocols like you might have seen, Athena, they announced their USDTB, which is a genius compatible stablecoin and their issuance platform, which I think is a really important neobanking feature. and we get to that. I think everyone that has large TAM ambitions for how their stablecoin is used, especially as payments and then as a savings account for like saving features as a yield bearing stablecoin, will have to have these integrations with neobanks, have their own issuance or platform. We also have that that we're rolling out called FraxNet. The essential thing to think about is basically how can these stablecoins get off chain and interact with the classical financial system and actually make it so that they're essentially one-to-one with digital cash, right?

Sam:
[4:14] And that's the thing that I think neobanks solve essentially. They're the actual bridge between the off-chain traditional financial system and the new emerging.

Sam:
[4:25] DeFi, but also stablecoin system. Before it was just centralized exchanges, right? If you think of a couple of years back, right? The only way to come in and off was these central focal points where everyone exchanged their cash for digital assets. And then you had to use like MetaMask or like a specific wallet. That was a huge bottleneck, right? To get on and off of the blockchain was a huge thing. Now the lines are basically being blurred. If you want to think about it, like There are going to be hundreds of thousands of on-off ramps, and they're going to be very, very smooth. They're going to be very simple. All of these things, branded stablecoins, are essentially a hidden on-off ramp, right? If you have a branded stablecoin, you could withdraw it if Starbucks issues their own or these neobanks issue their own. They're all new ways to bring people's net worth and their assets on-chain if they want to participate.

David:
[5:14] Okay. So is it the moment that we're having right now in crypto and the moment being everyone's talking about neobanking right now? Is that because things like the Frax stablecoin or the Athena stablecoin are all working to become Genius compliant so that they can be the dollar digit integer that is showing up in neobanks like Revolut or like any of the other ones?

Sam:
[5:40] Is that what we're fighting for?

David:
[5:42] Or are things like Athena becoming its own neobank and it's actually building out its own fintech app? Or is it both?

Sam:
[5:50] Yeah, that's a good question because I think different ones will have like different strategies. So like for us at Frax, we're going to announce some big partnerships soon with EtherFi, a few other ones that we haven't said yet, but we will be rolling it out. And our view is that Frax USD should be one of the digital dollars that have the highest TAM, right? There's going to be tons of stablecoins, branded ones, USDC, USDT. These are used as payments and real money. The way that I like to think about it is that there's going to be essentially a long tail branded stablecoins closer to, I call them stablecoin gift cards. Because think about it, if Starbucks issues like Starbucks USD, you're not really going to use that for cross-border settlement. Because it's not like a lot of people are going to accept Starbucks USD necessarily.

David:
[6:40] It's not going to be a trading pair on Hyperliquid.

Sam:
[6:42] Exactly. Or maybe you can go on Starbuck. But the thing with these is they're like programmable gift cards, right? But the short tail of them, right? Like USDT, USDC, hopefully Frax USD, Athena's USDTB.

Sam:
[7:00] They're playing for the money TAM, which is multi-trillion over the next five years, right? Even Secretary Scott Besson said about $3 trillion of expected payment stablecoin issuance over the next five years by 2030.

Sam:
[7:14] And that's very important because these stablecoins will do different things, even though they're digital dollars, even though most of them are Genius compatible. Some of them are just fiat coins that are very liquid, right? And the important thing is, depending on where on that spectrum that your issued

Sam:
[7:31] stablecoin falls, you will have a slightly different GTM, right? If you're Starbucks USD, what you want is you want to get it out to people in your distribution channel that buy coffee from Starbucks or maybe adjacent partners, right? There's no reason to try to get cross-border payments or large banks to accept it as deposits. We're trying to actually do that and that there's going to be some things that we're going to announce in the next four to six weeks because we want Frax USD to be like real money, right? Accept it as deposits, one-to-one with ACH and banking. Whether we build that only in our platform or allow people to do that everywhere is, I guess, a different GTM for each. We take an agnostic approach. That's why we're working with really, really good neobank or card teams like EtherFi. There's also Pay, which is a privacy focused version of these spending cards. I think that depending on what the stablecoin is or what the actual GTM is, it's going to look a little bit different. But the main thing is, is it a stablecoin gift card or is it a real digital dollar? Okay.

David:
[8:35] Okay. I understand. Is the, okay. So from what I hear from your answer, Frax is not trying to build the neobank. You are trying to be the pipes that EtherFi, which is trying to be a neobank runs that uses, uses Frax piping in order to supply EtherFi with a stable coin. But EtherFi is the neobank in the sense that it is the customer facing. It has the card. It has a, as I understand it, it gives you like an IBAN number for you to wire fiat into, converse it to stable coins on the flip side, on the crypto side of things. Maybe that's your stable coin. Is that kind of how it's working?

Sam:
[9:10] Yeah, exactly. We'll have API endpoints and SDK and also the FraxNet platform panel where you can convert and move in and out, but we won't be issuing our own Frax card. We want to power, for example, all of these very important good UX consumer-facing cards and then also work with banks. Like for example, we work with LeadBank, which is also the underlying settlement pipes for Stripes Bridge, which we're also very close with. And so we want to actually be the underlying digital dollar. We don't want to actually issue our own card or have a specific bank exclusivity or anything like that.

David:
[9:48] You just want to whitelist your stablecoin to the neobanks.

Sam:
[9:52] Yeah. And when we do that, actually, one thing that's very important is we will also actually have coming up a white label issuance platform for all of this infrastructure that we've already built and are building. And so if you think about it, we've built this for FraxUSD. There's no reason why if someone doesn't issue with us, right? Like if we have a issuance platform and your branded stablecoin is used and issued through like the FraxNet platform, you should be able to have one-to-one with LeadBank and Bridge. And you should be able to have a one-to-one mint and burns across all the 20 chains that Frax USD is on. It's the exact same infrastructure, right? You don't have to reinvent the wheel. You can just.

Sam:
[10:31] A different branded stablecoin in there and have this one-to-one infrastructure. And so I think we'll see a lot of that. And one of our interesting, unique aspects of issuing with us is that we actually are going to try to connect all the different issuance platforms like Braille, M0 is a big one. Athena also has announced their own issuance platform. And right now, if you issue with one of them, you're interoperable with only them, right? Like only the Athena-issued ones or only the M0-issued ones. And so the important thing is, if you can be interoperable with as many of these pipes as possible, that's the real value for a new stable coin coming into the industry, right? And so that's the thing that our issuance focuses on and also focuses on the full yield redistribution overall.

David:
[11:24] Why, what makes you, Frax, able to be interoperable? Like what's the secret sauce there?

Sam:
[11:30] Actually, that's a great question because I think, and obviously I'm biased, but I think FraxUSD is probably the most interesting designed Genius-compatible stablecoin. And to be clear, I know that everyone throws around the word Genius-compatible, but the point is no one's actually licensed right now for Genius. The OCC hasn't opened up licensing, but the collateral that backs FraxUSD is money market funds with qualified custodians, RWA tokens that actually represent those accounting entries. What we've done is we've actually built FraxUSD, where those RWAs that account for these liquid assets, money market funds, treasury bills custodied by BlackRock, WisdomTree, Fidelity.

Sam:
[12:16] Superstates, USTB with BNY Mellon. These are all on chain. And anyone that has accounts at these places can actually mint and redeem FraxUSD without ever even having to log into, you know, FraxNet or any platform. They can, but they don't have to. And so what's actually happening is as FraxUSD grows, we're actually one of the underlying like liquidity, you know, stable coins, de facto, for a lot of these RWAs. And so just like the same way that for the original Frax stablecoin, we had this really powerful curve pool system for all of the people that were in the DeFi cycle. We're rebuilding this infrastructure in a compliant, compatible way while connecting these RWA tokens that are going to be powering all of these Genius compatible stablecoins, right? And so that's really important because the design space for like a genius-like stablecoin is not very large. You can't do these crazy CDPs and then loops, yields and things like that, and then output a safe stablecoin. So the design space is very, very thin, right? Right.

David:
[13:28] There's only so many different types of collateral that you can pick from the shelf and compose your stablecoin with for it to be genius compatible. So you have like a limited set of options.

Sam:
[13:38] Exactly. And so in that limited set of options, right, if everyone kind of looks the same, The innovation is really important because if you can have the same riskless economic backing and you can have the same type of digital dollar that's redeemable for its whole supply, but it's also on-chain and liquid between all of these, or it's like the backbone of part of the RWA system. And so like, for example, you can actually liquidate RWAs on Aave's horizon into FraxUSD custodian contracts as we accept the compatible ones, right? And so you can get out this liquid stable coin on chain. These features are really innovative because they set apart things that look almost identical, right? And so as time goes on, we're like designing how we can actually be the underlying backbone with FraxUSD rather than just kind of this inert fiat coin that looks the exact same. And I think that those small things will have really, really big impact over time.

David:
[14:41] Interesting. I'm getting the notion of like build a stable coin workshop, like you build a bear workshop. Is that kind of what you're doing? Of just saying like, okay, so if you're connected to all of the collateral, you have the integrations with the collateral. And... It's like some genius-compliant stablecoin over there has this composition, and some genius-compliant stablecoin over there has that composition. Well, you've got the pipes everywhere. And so if you need to go and interoperate between A and B and C currencies, which, again, only has a finite number of collateral backings that are all making it genius-compliant, if you have the integrations everywhere, you can route all of the collateral, unbundle it and rebundle it into a different stablecoin because you have all the pipes? Is that what it is?

Sam:
[15:26] Exactly. And then also the additional thing is the economic alignment, right? Because we actually work with multiple parties here that are large, like Securitize, Superstate, payment providers like WorldPay and Stripe and Bridge. It's also in their interest, the bigger this grows, because we route, for example, our fiat on off-ramping through Bridge and Stripe, right? And then we also, as the supply increases, BlackRock's Biddle or Superstates USTB or Wisdom Trees WTGXX and others that are passing RDD that are compatible, increase their AUM, right? And so it's in their interest to see this grow as well. Whereas if you think of kind of, for example, USDC structure, there's one fund, right? It's like the Circle Reserve Fund, right? And so everything that.

Sam:
[16:14] Mint's USDC goes into the AUM of this single fund, right? And so it's a different economic alignment as well. And I think there's going to be a lot of these games where the most aligned and positive sum stablecoin with multiple important parties is the one that in the long term wins, because there's going to have to be a lot of decisions made about which stablecoins these payment processors support or which ones will a bank support and things like that. Like if you think about, for example, BNY Mellon, right? They actually are the qualified custodian for some of these RWAs, right? And if they're going to think about accepting a specific type of stablecoin as deposits, right, as the genius guidance rolls out, well, which ones would they accept? The ones that, for example, are issued and completely orthogonal to the assets that they hold, or the one that is actually liquid and they also custody part of the assets itself.

David:
[17:09] Right? And so like the bet here is that Athena's got this issuance platform, M0's got this issuance platform, but they're all, again, they're all just connected to the, there's not a large variety of collateral. And so there's got to be a bunch of like assets, the collateral assets that back up the genius compliance stable coins, kind of being traded back and forth, composing and decomposing and Recomposing the collateral backings across all the different stablecoins. And if we're betting that, like again, going back to the Scott Besant quote that is now like ricocheting around the crypto industry, like three, two or three trillion dollars of stablecoins coming on chain. All of a sudden the volume on all of that collateral backing of Mika, not Mika, Genius Compliance Stablecoins, you're making a bet that there's just like a lot of volume there. I'm assuming you take a fee on the volume, right?

Sam:
[18:00] Yeah, right now we don't. But I think the end aspect is that we can. And also, obviously, there's a lot of float of FraxUSD in DeFi and all of these things. And then that is a lot of income into the FraxDAO, right? And so that's exactly right. I think what's going to happen is a lot of these things will look the same, but some critical factors like the alignment and then the liquidity will be the critical distinguishing factors that lead to more distribution channels opening up for these stable coins and then being used as money overall. Okay.

David:
[18:34] So what do you think about the quantity of stable coins coming online? Because now it's starting to sound like if, I mean, EtherFi is using FRAX to use FRAX USD or issue their own stablecoin? Which one?

Sam:
[18:45] I think that's probably a good question for Mike, but I can say that they currently allow USDC spends, right, on the E3-5 card, which is mostly always ranked as the best experience, right? Most people love it as an S-tier neobank card, and then soon we'll have something big to announce with them. And so the important thing is right now when people load these cards with USDC, there isn't underlying yield that's like risk-free, right? Because then that can add up to the cashback, right? If you think about it right now, 4% risk-free yield on top of these cashback rewards could be extremely, extremely lucrative, right? You could get like 7%, 8% back. And then you can also augment it with token rewards. So you basically create this programmability of a spending bank. And so it's very difficult for classical credit cards or debit cards to really compete if they only have that one layer of cashback rewards with it, right? Huh. So they have the cashback rewards.

David:
[19:44] Which where's the value of that? Like the Apple card has 2% cashback, Robinhood card has 3% cashback. Where do they get that money?

Sam:
[19:53] So that money usually comes, and I don't know specifically about Robinhood or Coinbase, but usually on the underlying comes from the Visa network, right? And so this is actually a really critically subtle, but important thing where when you swipe all these cards, they're either getting settled in Visa net, or if it's an Amex card in American Express's network, They're not actually right now peer-to-peer, like to the merchant holding the stablecoin, right? The merchant doesn't actually even know that the customer is paying with a stablecoin that then gets converted into settlement media on VisaNet, for example, or American Express. What is really interesting to me is that these cards essentially solve the coordination problem for eventually allowing people to do just peer-to-peer direct-to-merchant stablecoin payments in two to three years from now. So let me give you an example of what that means. A lot of us originally, and you as well, always have been thinking, what if we can just pay directly, right? Like with stablecoins or Ether or BTC or something like that. The issue is everyone's debt and everyone's downstream costs are denominated in bank deposits, right? Like USD, right? If you're going to be a company that accepts like USDC or USDT, when you go to pay your employees, they probably just want bank deposits, right? They want money in their bank and not like USDT yet or FraxUSD or things like that.

Sam:
[21:19] In order to actually get everyone to accept USDT or USDC or FRAX USD and all of these, all of them at the same time have to essentially accept this at once, right? Because otherwise, you're going to have all of these conversions back down to bank deposits. And I think the neobanking cards and all of these things are essentially silently the coordination mechanism where most people on board to these, if there's tens of millions of users in the next year or two, right?

Sam:
[21:51] They're actually spending stable coins, even though the merchant doesn't know it, right? And then eventually the merchants will be like, well, I can just accept the stable coins, right? And all of my users also are paying with it. There's no reason to abstract it out for unnecessary reasons, right? And so I think the most important thing is these are coordination mechanisms to actually just blur the abstraction between the traditional banking system and the crypto system. And so I actually think that they're one of the most important things to happen in crypto because in the next two to three years, they'll coordinate a lot of people starting to pay in stable coins. And then the people that aren't paying or receiving stable coins, they don't even need to know it until they learn about it, right?

Sam:
[22:41] Okay.

David:
[22:42] I want to make sure I understand what I think you just said, because I think if I'm understanding correctly, it's kind of profound. So Etherify card, you swipe it, you spend stable coins. Pay card, you swipe it, you send, you spend stable coins. There are a few of these cards. There's a handful of these cards. Metamask has a card. Metamask has an incoming stable coin, which is probably relevant. And so what you're saying, and so I think the way that Etherify works is you swipe your card, you send your stable coins around, and they make a transaction on the Visa network with their banking partners so that your stable coins are interoperable with the Visa network so your card actually works and you can actually pay for the thing and it works in real life. And I think what you're saying is like, okay, as these cards proliferate and they have competitive advantages because they have extra yield on them, so they're truly just a better product. So therefore, we're going to be adopting these cards, these Visa network cards, where you send stable coins to EtherFi and EtherFi makes the Visa transaction and then you get your coffee.

David:
[23:40] And then we're going to just have more of those people doing that and more of those people doing that and more of those people doing that. And all of a sudden we have a large population of people sending and swapping stable coins. And you're saying once we have a critical mass of people paying with stable coins, we don't need Visa anymore. We can actually, because like all Visa is, is a, it's a, it's a ledger of who, of credits and debits. And it settles up at the end of the day and then it goes down to the banking

David:
[24:06] layer and then the banks kind of net everything out. And if we have a critical mass of people playing with stablecoins, we can just start swapping the stablecoins directly rather than talking to Visa at all. And all of a sudden, the commerce stays on chain and we just rip Visa out of the whole system. Is that what you're saying?

Sam:
[24:24] That's exactly what I'm saying. I'm saying that is exactly what I'm saying. And before this, if you think about it, it would be nearly impossible to do that, right? Because you would have to coordinate everyone accepting stable coins and owning stable coins.

David:
[24:41] Yeah, USDC accepted here. Yeah, everywhere across the world. Yeah, exactly. Okay, well, this makes me think of Tempo. It's like, oh, well, Tempo just wants this. Tempo sees the value in this. Isn't this the entire thesis behind Tempo?

Sam:
[24:55] That's a good question. I think that is the long-term view of it is that when most of, like you said, when VisaNet can be torn out, there's going to have to be the flows, right, of these payments have to go through predominantly, not just one place, but predominantly in a short list of chains. For example, Stable is doing this for the Tether chain, same with like Plasma for USDT. We also obviously have Frax still for Frax USD, unique chains and things like that. But then Tempo is just an agnostic neutral layer for all of these kinds of payments. So they have payment channels, they have fast lanes and other things. And we are actually exploring how to have certain unique features in the Tempo chain. We're a launch partner there. And so we're looking at how to design something that's very new so that they can actually highlight some of these unique features.

David:
[25:43] Yeah. So all of these stablecoin chains, like Plasma, Stable, even Fraxtel, and then also Tempo, and then there's even more. Pay is a Celestia roll-up, I think. And so they're on their own chain. Aren't all of these stablecoin chains just basically trying to be the standard that, like, hey, we're going to coordinate with stablecoins and we're just going to rip out Visa, but then we implement our stablecoin chain and their only problem is there's like 15 of them. There's also Codex, that's the Ethereum layer 2 one. Wait, so aren't we kind of running into another standards issue? It's like, sure, we're ripping out Visa because we have this critical mass of people that's paying with stablecoins. But now like, okay, but now which blockchain do we use? Is that what's going on?

Sam:
[26:26] Yeah, it's like, well, it's like that famous XKCD cartoon. You know, like I think a lot of people have seen it. It's like there's 14 competing standards, right? We have to unify them all. Well, now there's 15 competing standards.

David:
[26:37] Yeah, yeah.

Sam:
[26:39] I think there's going to be a short list of them, not 15. And I think that the most important thing is the distribution, like an acceptance of where you're paying. If you kind of look at Tron and Tether, this is like kind of the proto demonstration of this inaction, which is wherever these networks are widely accepted for direct payments, they have this sticky network effect that is, again, it's a coordination problem, right? You can't tear them out because they're accepted everywhere. Everyone has to change what they accept at the same time. Otherwise, you won't be able to do it. And so a lot of it has to do with how fast, cheap, and good the technology is. And then if you're honestly first to market in all of these places that accept it.

David:
[27:22] Yeah. So I do see a little bit of irony in the sense there, where what you're saying is these neobanks with the cards, where these are the coordination tool for us to use to actually ignore Visa and then get rid of the banks. And I like that. And I take that argument. But we're also just introducing a new coordination problem of like, yeah, but now we have like 15 different blockchains to coordinate around. Granted, it's the market. So like, you know, let the best blockchain win. But like, it is a new coordination problem, right?

Sam:
[27:53] Yeah, I think that there's basically two things when it comes to stablecoins.

Sam:
[27:59] Issuance and the stock of stablecoins, like the TVL, and then the flows of stablecoins, right? The volume of payments, right? And I think chains like Ethereum will always, always win in terms of the stock or the TVL and the issuance.

David:
[28:17] Right? Because Ethereum is the savings chain. You save your money on Ethereum.

Sam:
[28:20] Exactly, exactly. And the savings chain and the issuance chain, the root chain, essentially, is where it's like the final source of truth, essentially, for large types of assets. And the flows, which is a totally different thing, sometimes people confuse them, but the flows are the volume of payments between everyone. And so those kind of require different kind of specialization of both chain technology and also GTM and distribution, right? And so it'll be interesting to see, I think Ethereum will still remain king of like the issuance and the savings, right, of where people hold very, very large amount of money. But it'll be interesting to see if like stable, tempo, fraxtile, you know, plasma, codex, which ones differentiate themselves and how.

David:
[29:08] Yeah. Yeah. You can start to see the whole stock. I love the stock versus flow, but not anything related to Bitcoin. The stock versus flow, like Ethereum being the payments chain is like, where is the vast majority of BlackRock's bill fund? It's like 95% on Ethereum, something like that. Maybe 87%. Some are very, very dominant. And like, yeah, you save on Ethereum. And like, where does EtherFi hold its biddle on Ethereum? So like the slow DeFi- That's where we

Sam:
[29:39] Hold all of ours. We hold all of our BBAs on Ethereum.

David:
[29:42] Everyone holds their TVL on the bunker coin, the bunker chain, Ethereum. And that just makes sense. You know, put it in the safe place. Put it in the place that's supposed to, you know, preserve your assets amongst all costs. And I guess at the higher level, whether it's like a payments alt layer one or an Ethereum layer two, then that's where the flow, that's where the low latency is. That's where the payments are. That's where the high churn is. That makes sense to me. And I think you can see that across Ethereum DeFi is like the Aave implementation on Ethereum dwarfs every other implementation on Ethereum. Things like that. Although I wouldn't discount a payment chain growing in such efficient volume that it starts to like eat into stock. I think that's like kind of the bull case for any payments chain is like, yeah, we start with payments, but then we become adopted and robust and trusted. And then you start to work your way backwards into stock. I think that's how it would work.

Sam:
[30:33] Yeah, it's possible. And it's important to take a look, but I'll give you actually a real life example from last week. We were talking to a pretty large investment bank in New York to actually move a lot of their cash into FRAXUSD and make investments with private equity and public investments in FRAXUSD. Similar to if you've seen some IPOs and stuff, they've been done with stablecoins recently. And they all have very rigorous kind of DD process, right? Because they have to file these, especially if they're like moving nine figures of cash into, you know, stablecoins, like a new digital asset, and they have LPs of the investment bank and everything. And so one of the things was, What happens if the chain that you have the RWAs on goes down or anything like that? And obviously, the answer is Ethereum and Bitcoin don't really go down, right? And there's not a really a credible question, whereas almost every other chain has had a history of issues in that way. And so it's just much easier to be like, it's on Ethereum the same way like Bitcoin and Ethereum just don't have this problem, right? That's not a relevant question. it's.

David:
[31:38] Like it's cool to hear an anecdote of that whole thesis of like you know ethereum doesn't go down actually showing up where the rubber meets the pavement how did they react to to hearing that were they're like oh thumbs up like

Sam:
[31:48] Yeah i mean that's a checkbox there was a lot of checkboxes and then what's funny is after the the crazy friday crash i don't know if we call it like black friday or or crash friday yeah that one i think since everything like frax usd was totally fine and everything that's like a total fiat coin and totally redeemable and liquid was fine, We talked to them on Monday and they're like, okay, we're sold because anything else that we're like considering, we think it's a much harder sell now to the investment committee. So I preferred the crash wouldn't happen, but it was actually pretty good for us in terms of like clearly showing the assets are on Ethereum. It's genius compatible, safe and redeemable. And if you want a real world example, you could look at it on Friday.

David:
[32:32] Okay, so what kind of growth in this whole world are we kind of expecting? We know, again, Scott Besson's $2 to $3 trillion of stablecoins expected to come on chain by 2030. So trillions of dollars of growth in stablecoin supply in five years, but that's just stablecoin supply. What about the neobank layers, the EtherFi's, even your layer, the Athena? Is that where we expect to see growth? Or do we expect to see growth at the chain layer? Because that's also pretty robust even already. There's plenty of options there. But kind of maybe simulate how you think this plays out for the next five years.

Sam:
[33:05] Yeah, I think it'll be in big chunks. And it's actually happening faster than I think a lot of people probably would have thought, right?

Sam:
[33:12] Everyone knows how slow banks are and like credit cards, these institutions. But after the Genius Act, it's almost like they're all like, okay, we need a plan to get involved in all this stuff. And it expedited it 10x. And so I think it'll happen in big blocks, right? And one of the things I actually want to say is that not all volume and not all like flows are equal, right? And so right now, for example, Athena's cash card has about 1 million daily spend. If you compare that to like an AMM of 1 million volume, you might be like, this is Trump change of 1 million volume. This is nothing like you need to hit a billion for 24 hour volume. But these aren't just token swaps, right? These are literally people with loaded stable coins buying stuff on the real, like...

David:
[34:01] Yeah, that's a million dollars of people buying goods. That's GDP.

Sam:
[34:05] Exactly. Exactly. Every single day.

David:
[34:07] I don't think a billion dollars of AMM swap contributes to GDP numbers, but a million dollars of goods being purchased, that does contribute to GDP.

Sam:
[34:14] Yeah. And I think it's, you could even say like, those are potentially like equally impressive, like at least 100 million, right? I think 100 million per 24-hour AMM is probably as impressive as like 1 million per day of real-world spending card, right? And as those things grow in real spend, they're gonna be very valuable. Not all volume is the same. And so I actually wanted to write like a comparison to this because like you said really well, they're GDP numbers, right? And so they're not just on-chain smart contract like transactions.

David:
[34:49] Yeah, it's not just internet magic money anymore. It's actually just the economy.

Sam:
[34:54] Exactly, exactly. And I think that as that goes up, the amount of stable coins minted goes up. And then as each of these large institutions, banks, companies, they bring their cash on chain, it'll kind of be like a step function. It'll be half a billion here, a billion there, and then the retail will be more smooth. And so we're seeing it ourselves. Right. Like we we see like 10 million like Fraxio SD minted, but then, you know, just small growth every day with some like users or people in DeFi. But then you would go like a month and then we'd onboard a partner and then you would sign a deal and then they would move their cash over and start using it. Right. And so I think those things will pick up much more and it'll be very quick and like stepwise type of function.

David:
[35:45] Yeah.

Sam:
[35:46] I think the.

David:
[35:46] Reason why I'm getting excited about this is it feels like the last kind of link in the chain to link the chain into a circle. And what I mean by that is like, we have the complete end-to-end life cycle of money, of I'm saving my money on Ethereum. I'm getting my four to 12% APY, saving my stable coins in my Neobank. I spend, now there's plenty of Neobank cards out there. We've already listed off a handful of them. I can go and I can spend my money. I can spend my crypto. I can literally go buy coffee with my crypto right now. It's finally been possible in the last two years to make that happen. That's great. And now with the growth and the maturity of the neobank plus the idea of

David:
[36:32] Stable coins just intercepting Visa and us being able to rip Visa out of the system. Once we rip Visa out of the system, all of a sudden we have a self-sufficient ecosystem where the money and value doesn't leave, where we are spending stable coins buying goods and those vendors receive stable coins. And when they spend their money, they keep on circulating it back into the system. And so it starts to feel like ultimately at the end of the day, economies or perpetual motion machines. The energy going into an economy is just the value of the goods being produced. And we have that system. It's a closed system inside of crypto and we can actually recirculate the value without actually really like leaking it back into TradFi. And so you can actually have a fully bankless person, never have a bank account and still buy goods, participate in the economy, save their money on Ethereum. You kind of have a complete life cycle of an economy now with the growth of

David:
[37:28] neobanks and stable coins as settlement layers between neobanks. That's what's exciting to me. Check me on that. That's what's happening?

Sam:
[37:37] Yeah, exactly. And even more, I actually have this theory called like the net worth theory, which it goes even a step further, which is like my view is people prefer to hold their dollars where most of their net worth is located. If their net worth is located in the traditional system, like 401k or like some brokerage on like Charles Schwab or whatever, or interactive brokers.

Sam:
[37:59] Obviously the dollars that interact with those are just bank deposits. And so it is actually a big lift to be like, why would I convert my dollars to some other thing that doesn't interact with where my net worth actually is? It's a big lift. But a lot of people now, especially younger people and crypto native people, most of their net worth is on-chain. And so things that interact with assets on-chain, whether it's Ethereum, Bitcoin, whether it's new RWAs, right, like safe funds and all of these things, it's stablecoin. You need stablecoins to actually interact with these things. And so it's almost like it's a hassle to move it over to banks. Some people just only off board, right? Stablecoins to banks because they need to spend stuff, right? But then the neobanking stuff, like you said, fixes that problem. And then as more and more people's net worth come on chain, the situation will reverse. People will be like, why would I bring my cash back to a bank, right? And it'll be the opposite where right now it's like, why would I bring my cash into stable coins? What can I do with it? But it's actually the opposite if most of your stuff is here on chain, right?

David:
[39:12] Yeah. Yeah. I think we're just missing tokenized equities. Because that's the last, which is definitely coming. But that's like the last amount of like part of my net worth that I have in Robinhood. It's just like, you know, Robin, clearly hood stock and coin stock. I mean, like if I could just get those in my Ethereum wallet, that'd be the last thing for me. That'd be, that would be it. I'd be done.

Sam:
[39:32] Exactly. Except for my.

David:
[39:33] Goddamn 85 year old landlord who only takes checks.

Sam:
[39:37] Well, as soon as.

David:
[39:38] As soon as he dies, you know.

Sam:
[39:42] Or onboarded to some neobank platform.

David:
[39:44] Yeah, I don't think he's getting onboarded anywhere. Sam, this is great. I've learned a lot. Is there any other part of this conversation that we haven't, like whatever stone we haven't turned over?

Sam:
[39:55] I think like basically for now, the most important thing is to see which institutions move quickly on this and which stable coins are getting integrated, right? Because there's two important things going back to this spectrum of different stable coins. There's going to be a lot of issuance and some of them will act like gift cards. You won't see them accepted as like deposits or important things in institutional flows. But then there's going to be the short list of real money, digital dollars, right? And seeing which ones kind of break through that barrier is the winners in two to three years time, basically.

David:
[40:33] Yeah, maybe talk about that a little bit more. Like what are you paying attention to? I mean, you literally just said, but just maybe expand on that. Like what signals are you paying attention to? Where are you looking? What are you looking at? Just to kind of like understand the trajectory of this growth and the contrast of the growth. Like what metrics are really important?

Sam:
[40:50] Yeah, I think the metrics for things like FraxUSD, these other stablecoins, USDT, Athena's USDTB, is what can you do with them going forward? Can you spend them on as many cards as possible? Can you actually deposit them in a few of the banks that are coming out and saying we're actively looking to accept different types of stablecoins as deposits? And for a bank, that's actually really, really fast, right? Like banks take years to do this, but they look like they're really getting on it, right? Which ones are those stable coins? And so the most important thing is just seeing which one is money, which one is most liquid, which one is accepted one-to-one between all of these places, and then which ones are more like digital gift cards. And I think we'll see a little bit more like...

Sam:
[41:42] Which stable coins are issued on the most important chains, like FraxUSDs on 20 plus, you know, different chains. And it'll be, for example, on Tempo on day one, because they will have unique features and we're building stuff out. The important thing is the ones that are money will be in both the most important flows and the most important stocks, right? Held as cash. And so those are the unique aspects to look for. Is it being moved? Is it being used as payments? I saw this really, I forget who wrote it, but it was stable coins move, not held. And so that I think is good because most of the stable coins that are like money, they move a lot. They move either between chains, between cards, payments, all of this stuff. And I think that's a really good way to think about it is that if you're moving, if people are moving your stable coin, they're probably paying for stuff or they're loading it in different places. Whereas if you're if you're holding a stable coin, usually it's because it's either yield bearing, so it's like a good savings account, essentially, or it's just getting used in DeFi somewhere that essentially, again, it's getting some kind of yield, which is the same thing.

David:
[42:51] That's kind of how I've understood Athena to be a very big savings stable coin, much less of a consumer spending stable coin. And then the dollar back stable coins like Tether or USDC, these are probably as i would guess the higher velocity stable coins higher churn like higher spend and then like saving athena and then you know frax i would actually categorize frax as also a savings stable coin simply because you you get if there is an intrinsic yield there that doesn't exist for tether or uscc and there's an intrinsic yield in athena that is that correct is my intuition correct here

Sam:
[43:27] Yeah, overall, I think that that's why the new model that we have is two. Like we have FraxUSD, which is just redeemable payment stablecoin essentially, and S-FraxUSD, which is a vault. You stake it in there and then we have these yield strategies, including partnership with Athena for carry trade, including like USCC we can deploy, which is super states, carry trade, obviously the CDPs and protocol on liquidity. So we actually have the same exact structure you're talking about in terms of like a checking account or payment type stablecoin and a savings. And the thing that I think is the important architecture is that in order to be a good payments stablecoin, you need a wide range of places to accept it. And like the first acceptor is very costly, right? This is true with all money. The second acceptor is like slightly less costly, but it's still costly. And then the third one is a little bit better, fourth one. And then each additional place that accepts it, right, they essentially, it becomes more useful, right? And if you think about what kind of stablecoin is ideal for everyone to start accepting more and more, it's one that you could say this thing doesn't have risk, right? It's like, it's very, very low risk. The most saleable good.

David:
[44:40] Yeah. Exactly.

Sam:
[44:40] Imagine if every single net acceptor of like decentralized stable coin had to do a risk analysis, like understand what kind of CDP it is or like what kind of carry trade. It becomes very costly to make this thing a payment stable coin because every net N plus one acceptor, they have to be okay with it. They have to be able to understand the risk. Whereas if you just say, this thing is a digital dollar, like you don't have to even think about anything. It's just a redeemable, compliant digital dollar. It becomes easier to make it a payment stable coin. That's why the most widely accepted payment stable coins are the safest, right? And then the savings or yield bearing stable coins like our S-Frax USD Vault or Athena's S-U-S-D-E or Maker Sky's S-U-S-D-S, people don't pay in them, they save in them and you hold them because they're good risk adjusted yield and you're not convincing, the issuer is not convincing merchants and stuff, hey, accept this thing, because that's a very heavy cost to do that. And so that's why having these two things are very important. In fact, I used to think this was like an artifact of like the traditional financial system, checking accounts and savings accounts.

David:
[45:56] I was just about to ask, why do we have checking accounts and savings accounts? Because it sounds like the same goddamn thing.

Sam:
[46:01] It's so, so like, I used to think like, this is an artifact because the traditional financial system is like, so like, you know, not efficient or whatever. Right. I actually now think it's like a like physical law of economics.

David:
[46:14] It's fundamental.

Sam:
[46:16] Exactly. Exactly. Like we, the fact that this new system has the same architecture just proves that there's an underlying like physics of the economics. Like I'm saying where the payments is very optimized so that more and more places can accept it. And there's no risk profile. And so you can add N plus one acceptors very, very quickly and costlessly. Whereas the savings, you do not want to optimize for that. You want to offer different kinds of savings accounts and things like that.

David:
[46:46] The savings account is opinionated yield strategies, which accepts risk that needs to be audited by the market. And checking accounts is just like, no, it's just a fucking dollar, dude. Just take the Exactly, exactly. Interesting, interesting. Oh, I didn't expect to learn why we have checking and savings accounts in this episode, but here we are.

Sam:
[47:07] It's an interesting thing because I think in DeFi, there was a lot of talk before about, I think it was Rune, the maker and Sky founder, that I think there was this view that I found compelling actually for a while where it was like, we should just replace a bunch of things with yield bearing stable coins because DeFi is programmable. So there's no reason why everything like AMMs and stuff shouldn't just have like yield bearing versions so that LPs don't lose out on yield and things like that. And I actually found that compelling for a while until I realized that actually there's.

David:
[47:43] A yield as an encumbrance.

Sam:
[47:45] Yeah, that's actually a costly structural change because LPs just want a safe, LPs have like AMMs, right? They want a safe unit. It's easier to coordinate around. And then the action of LPing has its own risk profile. So you separate it and then you just go into your preferred yield bearing stable coin, whether it's S for X, USD, S, USD, S, USD, S, whatever they're called, right? It doesn't matter. You just do it when it's idle and you're saving in that. And the fact that this architecture started again in the new crypto financial system, I think is good proof that it's like a fundamental law of physics of like, of money.

David:
[48:23] Interesting. Interesting. Sam, I've learned a bunch on this episode. If people just want to learn more about what you guys are doing or just learn more about the subject. Where should they go?

Sam:
[48:30] I think everyone can reach me pretty easily on X and follow Frax at Frax and add Frax Finance for the DeFi news. And I'm happy to be on anytime and talk with anyone that takes me up.

David:
[48:42] Awesome. Well, I'm excited for us as an ecosystem to finally close the loop so we can stop going backwards with our money and we can just stay on chain. Sam, thanks for coming on today and teaching me about new banks.

Sam:
[48:53] Thanks.

David:
[48:53] Bankless Nation, you guys know the deal crypto is risky you can lose what you put in but nonetheless we are headed west it's not for everyone but we are glad you're with us on the bankless journey thanks a lot