Compiled by Waiwai Y.

Guest:

Guy Young, founder of Ethena;

Arthur Hayes, CIO of Maelstorm;

Omer Goldberg, founder of Chaos Labs

Host:

Robbie;

Andy;

Podcast Source: The Rollup

Original Title: How To Position For The Institutional Crypto Frenzy with Arthur Hayes, Guy Young, and Omer Goldberg

Air Date: April 4, 2025

Highlights

The competition for stablecoin market share is more complex than most realize, especially as institutional adoption heats up.

In today's episode, we’re breaking down the nuances of this battle with Guy Young, founder of Ethena, Arthur Hayes, CIO of Maelstorm, and Omer Goldberg, founder of Chaos Labs. We mostly explore the macro landscape, which is now plagued with tariffs, and how Ethena's Converge announcement positions them at the intersection of DeFi and institutional finance.

Guy breaks down Ethena's journey from USD+ to building their own purpose-built chain, explaining that "if your product is not thinking about how it's trying to benefit from institutional capital flows, you're slightly dead in the water." He reveals a forthcoming $500 million seeding of their new iUSDE product.

Arthur Hayes doesn’t hold back when talking about Circle vs. Tether. His take? "Circle has no distribution. It's pretty much Coinbase and they have no defensibility on their net interest margin, unlike Tether." He also shares his thoughts on how the West and East approach trading differently, and how that’s shaping the institutional side of things.

We also cover the macro environment, Trump's tariffs, and Fed policy, with Arthur explaining why he's reallocating to Bitcoin as he sees liquidity coming back into play.

Guy and Omer’s Backgrounds

Andy:

Welcome back to The Rollup. It's America's Liberation Day. Not sure if your portfolios are feeling liberated, but we have Guy from Ethena, the man who makes centralized stablecoins look like relics from the first era of crypto. We've also got Omer, who’s protecting your DeFi bags on-chain, and Arthur, the guy who makes other investors look normal. Welcome to the show, guys!

Guy and Omer, it’s your first time here. How are you feeling today on America’s Liberation Day?

Omer Goldberg:

Not feeling too liberated yet, but hopefully that kicks in later today.

Andy:

Fair enough. At the end of the day, we do have a volatile president—let’s just put it that way. But Omar, Guy, welcome to The Roll Up. We’ve had Arthur on once before. Great to have you both here.

Let’s start with a brief introduction. Guy, maybe you can share what you’ve been working on with Ethena and now Converge.

Guy Young:

My background before Ethena was in traditional finance. I used to work at a hedge fund, focusing on financials—investing in banks, payment companies, lenders, that sort of thing.

I got involved in crypto back in 2020, initially as a retail speculator during the last cycle. Then, at the beginning of 2023, I decided to make the leap into building Ethena after reading a blog post by Arthur called Dustin Crust. The post was essentially a call to action, outlining why he believed there was a big opportunity for the space to have an asset like this.

Before Ethena, I had been working on backing similar products on the side and always thought it could be turned into something bigger. After reading Arthur’s piece, it felt like a calling. I quit my job, assembled a team, and launched Ethena about 13 months ago. Since then, we’ve grown from zero to over $6 billion in assets, making it the fastest-growing dollar asset in crypto. That’s our story so far.

Andy:

By the way, I used Notebook LM to listen to a podcast about Arthur’s latest piece. I was excited to join the bullish camp, but given today’s Liberation Day, things seem a bit uncertain with the macro environment unfolding.

Omer, could you give us a quick introduction to Chaos Labs and what you specialize in? Then we’ll dive right into the discussion.

Omer Goldberg:

I founded Chaos Labs about four years ago. Today, we’re a leading risk platform powered by AI and simulation engines.

Our technology supports applications like Aave, GMX, Jupiter, EtherFi, Renzo, and Venus. We handle everything from real-time funding rates and interest rates to liquidation thresholds and balances. Chances are, you’ve interacted with our products through your favorite DeFi applications.

Recently, we’ve had the pleasure of working with Ethena and supporting new products like the Proof of Reserve Oracle.

Do Tariff’s Matter in Crypto?

Robbie:

Arthur, you’ve written extensively on this recently, particularly in your latest article discussing the fiscal domination of the Fed by the administration, and the office’s control over Powell. You also argued that tariffs don’t matter as much in the crypto markets compared to the stock markets. After seeing today’s developments, has your thesis changed? How are you viewing the macro backdrop these days?

Arthur Hayes:

No, my thesis hasn’t really changed. Looking at the charts right now, Bitcoin was around $89,000, and now it’s dropped to about $82,000. This is clearly a reaction to the across-the-board tariffs.

Speaking with friends in traditional finance, there wasn’t a clear expectation for specific tariff numbers, but it seems that what the Trump administration rolled out was worse than the worst-case scenarios people imagined. That’s reflected in the markets.

However, crypto, specifically Bitcoin, is driven by a simple equation: are there more fiat dollars, euros, and pounds in circulation today than yesterday? If so, we go higher.

I see this as short-term pain. Bitcoin might retest $76,500, and we’ll see what happens at that level. Even if it breaks, I’m still buying. This is a great buying opportunity.

At the end of the day, every central bank is going to print money to offset the negative effects of these tariffs—whether it’s inflationary pressures or struggling companies in the U.S. and Europe. If companies can’t sell goods as effectively due to tariffs, central banks and finance ministries will use it as an excuse to print more money.

They’re already hinting at this in publications like Bloomberg, signaling that tariffs are harmful and require fiscal and monetary accommodation. I expect significant fiscal and monetary measures from countries worldwide as they respond to Trump’s tariffs on various nations.

Andy:

I’ve been reflecting on how the U.S. has begrudgingly accepted tariffs over the past few decades, imposed by many of the nations Trump targeted today. This has been a form of soft power tied to the USD’s role as the global reserve currency. There’s been a range of opinions on this.

Passing it over to you, Guy—how do you see the potential for lower interest rates over the next 6–9 months, especially with Goldman predicting three rate cuts? How might this affect the stablecoin landscape, Ethena’s business model, and the broader crypto market?

Guy Young:

Lower interest rates have a dual effect. Generally, when rates drop, speculation in crypto increases, and demand for bubbles within the ecosystem rises.

During the last cycle, when rates hit zero, we saw an additional $100 billion in stablecoin supply. However, there’s a balancing factor that works both ways.

Ethena differs significantly from Circle. The rates on Ethena’s products tend to exhibit a negative correlation to real-world interest rates, which is one of its most powerful qualities. When rates decrease, speculation on crypto coins increases, driving demand for leverage within the ecosystem.

It’s worth noting that Ethena launched during one of the worst rate environments in the last decade, with hurdle rates at their highest in 20 years. In Q4 of last year, rates dropped by about 70–75 basis points, and crypto funding rates rose by roughly 14% on average for the quarter.

This is Ethena’s moment to shine. While Circle loses $400 million in annual revenue for every 100 basis points of rate reductions, Ethena’s rates are likely to increase due to expanding demand for stablecoins and lower hurdle rates.

If Goldman’s prediction of three rate cuts materializes, I’d be thrilled. It’s a promising outlook for Ethena and the broader crypto market.

Circle’s Distribution Problem

Andy:

Are we bullish or bearish on that conflicting data?

Guy Young:

I was pretty shocked by the numbers, personally. There’s this guy, John Brown—I think that’s his name—who made a graph comparing the supply and profitability of Tether versus Circle. Tether is at around $14 billion in profitability this year, while Circle is at just over $100 million. Even though their supplies are relatively close, with Circle being just below half of Tether’s, the profitability is literally an order of magnitude different.

Arthur Hayes:

That’s quite staggering. I think Circle has a distribution problem—it’s a very American-focused product. Americans don’t really need a dollar stablecoin; they have Venmo, Cash App, and other tools, plus they already have access to the dollar. The real demand for a dollar-backed stablecoin comes from people outside the U.S., like in China and emerging Asia, where Tether is dominant.

Circle, being an American company, primarily relies on Coinbase to distribute its product. But for Coinbase to attract users, they have to offer yield to compete with Tether, which has a superior distribution network and doesn’t need to offer yield. Circle essentially passes much of its revenue to Coinbase, which then passes it on to users who hold Circle’s stablecoin. This is why Circle’s profitability is so weak.

At some point, I believe Coinbase will just buy Circle—they’re likely waiting for the right moment when the price is low enough. That’s why I think this IPO is a joke. Circle doesn’t have standalone distribution; it’s essentially reliant on Coinbase. They also lack defensibility in terms of net interest margin compared to Tether.

Tether’s product is vastly superior—it serves global demand for dollar-backed stablecoins, whereas Circle is mainly focused on Americans, who don’t really need it. That’s why I think Tether will continue to dominate and outperform Circle.

Andy:

Omer, anything to add here?

Omer Goldberg

I think what we’re seeing is a rapidly evolving stablecoin market—not just in terms of supply but also in utility and application. The pace of change is much faster than anyone anticipated.

For example, it’s surprising to realize that Ethena has only been around for 13 months—it feels much longer. We’re witnessing a shift in market share for stablecoins that were once considered the "Holy Grail" of distribution, liquidity, and utility.

This highlights the need for continuous innovation and finding better use cases for stablecoins. Companies need to focus on delivering products that truly meet user needs. Circle’s IPO is interesting because it represents an opportunity for them to push boundaries and try new approaches, but they’ll need to figure out how to overcome their distribution challenges and redefine their value proposition.

Tariff Fallouts

Robbie:

Quick follow-up on the business model, and tying this into macroeconomics: one potential fallout of these tariffs is massive inflation. If we don’t couple that with rate cuts—maybe they do cut rates—this might push them to act. However, there’s a theory that more pain is necessary, and longer-term Treasury rates could rise. So, Arthur, what do you think the probability of that happening is? And if it does happen, Guy, how would Ethena react if Treasury rates significantly increase?

Arthur Hayes:

Paul Laurie shared the Fed’s baseline view when asked about tariffs. He said they believe any inflation impact from tariffs is transitory. That suggests they’ll ease monetary policy even if inflation hits 4%, 5%, or 6% due to higher import costs in America. They see this as a short-term effect, so they won’t change their bias toward easy monetary conditions.

The fact that they’re still using the word “transitory” after being burned in 2022—when inflation hit 40-year highs—shows how entrenched their view is. They want to ease rates. If Treasury bills, notes, and bonds start falling and yields rise, they’ll have even more reason to end the supplemental leverage ratio for banks. The Fed may need to start quantitative easing (QE) for Treasuries because the U.S. government can’t afford yields of 4.5%, 5%, or 5.5% on the 10-year Treasury with a $36 trillion and exponentially growing debt pile.

Guy Young:

From our perspective, we saw growth last year even when rates were 75 basis points higher than they are now. If rates rise slightly from here, I feel confident we can continue growing—though perhaps not at the pace I’d hope for if rates were declining.

We’ve also added a key feature to our product in the last six months: the USTTB product. It’s essentially a wrapper around BlackRock’s Biddle fund, and Ethena is now the largest holder of Biddle in crypto—about 70% of the beta product is held within our vanilla stablecoin.

This gives us flexibility in rate cycles. We can adjust the proportion of USD that’s backed by yield-bearing assets versus stable assets. Right now, funding rates across the market are at their lowest in almost 18 months, so we have the option to lean into a yield-bearing stablecoin model. This flexibility lets us match market dynamics, and if crypto rates rise, USD is well-positioned to capture that upside.

Andy:

It seems pretty clear that if rates come down, we’ll see more speculation, and Ethena is strongly positioned in the stablecoin landscape by design. Is that fair? Am I missing anything? It seems almost too obvious.

Guy Young:

Yeah, it’s painfully reflexive by design. Ethena’s growth profile swings wildly—it’s not a steady upward trajectory. For example, USD’s growth shoots up vertically by $3 billion, then flatlines for a few months, and when rates come back, it grows by another $4 billion. It’s a strange pattern of aggressive growth followed by plateaus.

Even in Q4 last year, when we weren’t integrated into many platforms, we still grew significantly. At the time, our centralized exchange listings were limited to Bybit. Since then, we’ve added four more exchanges.

We worked with Omar on the RB piece to list USD and saw a huge levered looping strategy emerge, but we capped it at a safe level. While the market could’ve grown to $3–5 billion, we kept it responsible at $1.5 billion. Now, with broader integration and a more diversified setup, I think we’re positioned to grow even faster when the market rebounds.

Omer Goldberg:

I also think we’re better positioned now because, back then, most of the industry—including Aave—was doing everything manually. Updates took time, which limited our ability to react quickly. Today, we use a risk oracle, which allows us to respond in real-time or at much higher frequencies.

This lets us capture opportunities as they arise while staying secure and risk-averse when necessary. Previously, we had to prepare for worst-case scenarios because it could take a week to implement changes across protocols.

Since launching Edge with Aave, we’ll soon have PT markets that are more flexible on Ethena’s core markets. The same applies to derivatives markets, which are also moving on-chain. This evolution gives us the agility to adapt to market dynamics and better manage risk.

Market Volatility Reactions

Robbie:

Omar, when you see massive volatility in the market, what is the chain reaction within the mechanism you described—the risk Oracle? You also mentioned AI being utilized in that process. How does the chain reaction unfold during such periods of volatility?

Omer Goldberg:

There are a few key aspects to this. First, let me set the stage for how AI plays a role here. Early on, when we started the business, all of our risk models were primarily powered by quantitative signals. We analyzed metrics like volume, price action, liquidity depth, and similar factors across various markets.

But most of the time, the driver of price action and volatility is news itself. When news breaks, it creates waves in the market, and now we can react to it much faster.

Take stablecoins as an example—specifically the USDC depeg that occurred during the SVB collapse. The moment the news broke, the chain reaction was clear: everyone started dumping USDC into Swap and withdrawing USDT. There was massive uncertainty surrounding the stability of the peg and whether Circle would be able to make users whole.

These types of black swan events are always on our radar as risk managers, even if they’re tail risks. Our ultimate responsibility is to protect users and ensure the protocol remains solvent during such crises.

Two years ago, we realized that relying on governance to adjust parameters for every situation was not sustainable. That realization led to the creation of Edge, our Oracle protocol. During periods of volatility, Edge truly shines.

To tie this into Guy and Arthur’s earlier points: consider Trump’s tariff announcements today. Interest rates go down, speculation increases, and volatility spikes—particularly in mid- to small-market-cap tokens. Without secure real-time infrastructure, many applications have to shut down operations entirely to avoid risk.

Edge changes this dynamic. It’s not just about providing security for platforms like Aave, GMX, and Jupiter—it also enables them to be more lenient, capture opportunities, and respond to market flow, volume, and fees. In the past, these actions would have compromised security, but Edge allows protocols to balance risk and opportunity dynamically.

This flexibility is critical during volatile periods, as it ensures protocols can operate effectively while maintaining user and protocol safety.

Ethena’s Institutional Relationships

Andy:

Guy, I assume this has been highly impactful in shaping your risk strategy to design something resilient and sustainable. You recently announced Converge, which gained significant attention, especially around Trump’s World Liberty Finance and the institutional push from New York and DC. Before diving into Converge, can you share the state of Ethena’s relationships with institutions and regulators in DC and New York? What’s happening on the ground with projects like World Liberty Finance, stablecoin initiatives, and DeFi oracles that are engaging with these institutions and regulators?

Guy Young:

We’ve been spending slightly less time with U.S. regulators and focusing more on creditors and professional institutions. From a macro perspective, this cycle hasn’t seen significant inflows beyond BTC ETFs and a slight increase in Tether’s supply. If you look at DeFi TVL, it’s mostly been a reshuffling of assets—moving funds from Ethereum to Solana, then to Parachain, and so on. There hasn’t been a substantial influx of new capital into on-chain products.

Ethena’s product is uniquely appealing to TradFi because it offers close to zero volatility and an 18% annualized return. This isn’t just a $5 billion opportunity—it’s potentially hundreds of billions. We saw a glimpse of this with Terra last cycle, though it ended poorly. The key takeaway is that a stablecoin offering structurally higher returns can appeal to everyone—from retail users in Southeast Asia to institutions like BlackRock in New York.

Institutions are now asking, “What’s next after ETFs?” Many have built 30–50-person teams dedicated to exploring crypto opportunities. On-chain treasury products are being brought into the fold, and we’re actively engaging with these developments through our stablecoin offerings.

The bigger opportunity lies in asking: what uniquely innovative crypto products can we export to TradFi, instead of consuming their products? We’re introducing IUSD, a tokenized security version of USD with basic KYC and permissions. This makes it exportable to TradFi. Within the next 10 days, we’ll announce our first distribution partner for IUSD, who will seed the product with $500 million. That’s a substantial starting point for this initiative.

This illustrates the scale of the opportunity under the right conditions. If you’re not thinking about how your product can benefit from institutional capital flows into crypto, you’re likely falling behind. Simply shuffling assets within DeFi isn’t enough. We believe we’re in a strong position to offer compelling products to institutions.

Andy:

Arthur, are you concerned that institutions might enter the space and make it more efficient, mature, and harder to execute profitable strategies like basis trading? Could their presence erode your edge and the edge of others with shallower pockets or fewer resources?

Arthur Hayes:

At the end of the day, institutional players operate with a “cover your ass” mentality. Take the Bybit hack as an example—they lost $1.5 billion, but Ben was wealthy enough to cover the loss. If you’re a risk manager at a U.S. or European hedge fund running a basis trade and your exposure is tied to an exchange in “spooky Asia,” you’re going to panic. Convincing your boss to let you engage in crypto basis trades is risky enough—if an unknown entity loses billions, you’re in trouble.

Institutions will only trade on select venues they trust, like CME, Coinbase, or other regulated platforms. This might compress opportunities on those platforms, but it creates immense arbitrage potential between “spooky” exchanges and trusted venues. The price discovery retail drives in crypto versus TradFi’s comfort zones will lead to more opportunities for arbitrage and liquidity. I’m optimistic about this dynamic—it will make crypto trading even more exciting.

Guy Young:

To add to Arthur’s point, institutions vary in their willingness to take risks. Comparing CME to crypto-native venues highlights this spectrum. For example, the basis on CME versus Binance shows a 700 basis points difference over the past year, reflecting how much institutions avoid credit risk.

There’s a range—from sleepy asset managers overseeing $10 trillion to hedge funds managing billions—that understand the risks and are willing to take them for higher rewards. The largest, slowest-moving players won’t be the first to dive into crypto risk-taking.

Guy Young:

Regarding concerns about more money reducing inefficiencies and interest rates: it’s a natural outcome in any maturing market. The correct response isn’t to ignore it but to ask, “How can I profit from the closing inefficiencies?” That’s precisely what Ethena is doing.

For example, you can pay too much for leveraged cash-and-carry trades in crypto—returns shouldn’t be 18% annualized; they should be below 10%. Institutions will inject billions into space, and we aim to be the vehicle facilitating this transition while creating value along the way.

Omer Goldberg:

Echoing Arthur and Guy, having the agency and ability to take risks as an individual trader remains overlooked by large institutions. However, this cycle introduces more sophisticated players on-chain. Advances in AI and real-time data access empower average traders in ways previously unavailable.

While this doesn’t apply to every trade, it levels the playing field for many. Ultimately, it boils down to risk tolerance and the willingness to act. Despite the influx of institutional players, there’s still significant opportunity in crypto markets, and this cycle will likely highlight that even further

Eastern vs Western Trading

Robbie:

Arthur, you’ve mentioned that you align more with an Eastern Hemisphere mindset when it comes to trading. Can you elaborate on the philosophical differences between Eastern and Western approaches to market risk? How do these differ in how they approach risk-taking?

Arthur Hayes:

The difference largely comes down to how institutionalized the framework is. If you look at capital formation, it’s predominantly a U.S. and Western Europe phenomenon. The largest and most successful hedge funds in history—like RenTech, Millennium, and Point72—all come from the United States. Western investors and institutions tend to follow these models, prioritizing low volatility and steady returns. For example, Millennium manages tens of billions of dollars and delivers annualized returns of 7% to 15% with low volatility, which is considered a huge success.

As a result, large Western institutions are generally reluctant to take on high-risk ventures like crypto. Their investors demand stability and transparency, and it’s nearly impossible for a fund manager to justify losing $1 billion on an obscure commodities market in Dalian. They prefer to stick to liquid, well-established markets like New York, which align with their investment frameworks.

What Guy is doing with Ethena is creating simple, low-risk products for these institutions—offering something like 15% annualized returns with clearly defined risks and mitigation strategies. This approach fits neatly into the Western investment mindset.

In contrast, Eastern traders and institutions are often more willing to take risks in pursuit of higher returns. For example, in crypto, latency arbitrage between DEXs and CEXs might yield 30%-50% annualized returns, but it comes with the risk of losing 30% of your capital if an exchange fails. This level of volatility is simply unacceptable for Western institutions, but it’s a calculated risk that Eastern traders are more likely to embrace.

In summary, the success and institutionalization of Western markets have constrained their appetite for risk, while Eastern traders thrive in global markets by seeking high-return opportunities. This creates a wealth of arbitrage opportunities for smaller players in crypto, as large institutions are unable to participate due to reputational and structural limitations.

Andy:

Let’s talk about Converge. This announcement has generated a lot of buzz, especially with Ethena’s partnership with Securitize. Why did you decide to launch your own chain instead of continuing on Ethereum? Some Ethereum maxis are calling this a “vampire attack.” What was your decision-making process?

Guy Young:

At a macro level, there are currently two primary use cases for blockchains: speculation (e.g., meme coins on Solana or leverage trading on Hyperliquid) and settlement (e.g., stablecoins and tokenized assets). Ethereum has already lost its dominance in the speculation use case, as most of that activity has moved to other chains like Solana. However, Ethereum remains dominant in stablecoins and tokenized assets, which is where Ethena started.

The idea that “institutions are coming to Ethereum” is a weak narrative. While institutions may begin on Ethereum, their assets quickly migrate to other chains like Solana. This isn’t because Ethereum is particularly special—it’s driven by decisions made by stablecoin issuers and tokenization platforms like us.

Securitize is currently the chosen tokenization partner for BlackRock, and their ambition goes far beyond tokenizing Treasuries. They aim to bring every asset on Earth on-chain and build financial infrastructure around it. This aligns perfectly with Ethena’s product, IUSD, which is designed specifically for TradFi. By launching our own chain, we can create a purpose-built environment that maximizes value while capturing institutional flows into crypto.

Institutional Chain

Andy:

Arthur, do you think this is going to be the institutional chain? Is this where institutions will come to go on-chain?

Arthur Hayes:

I hope so. My bags would certainly appreciate it. Ultimately, though, we don’t know where institutions will go. It’s impossible to predict how this will unfold. I do believe that Larry Fink wants to tokenize assets, but he doesn’t like the current distribution and trading methods for his products. He’d prefer to control that flow and capture the revenue that traditional exchanges make, bringing it into BlackRock or completely disintermediating those exchanges altogether, so they cease to exist.

If Guy and others’ visions and products are successful, there should be no more TradFi exchanges—they should all go to zero. I hope they do, and that everything moves on-chain into a crypto or blockchain-enabled space. With the internet and computers everywhere, why are we still shuffling paper in New Jersey or running outdated systems with fragmented infrastructure? We have the opportunity to decentralize globally with the infrastructure being built.

Asset managers like BlackRock will likely move in this direction because, while they benefit from the current TradFi system, they also want to eliminate the fees they pay to intermediaries like exchanges, which act as gatekeepers between trading volumes and product distribution. BlackRock could spin up their own DEX, achieving complete vertical integration from product origination to trading. This is the real driver for an asset manager like BlackRock. Hopefully, we can invest in the technology powering this shift and own the tokens of the protocols enabling them to disintermediate their competitors in the TradFi space.

Guy Young:

I think we often assume institutions are more opinionated than they actually are. These businesses are simply trying to sell products. BlackRock, for example, is offering a Treasury-backed product and asking, “Who wants this?” If buyers want it on Solana, BlackRock will deliver it there. If they want it on Avalanche, they’ll deliver it there too. They’re just selling products, and these products are completely centralized. If something goes wrong on one chain, they’ll reissue the product elsewhere. Decentralization isn’t their concern because the products themselves are centralized.

However, it’s a different story if BlackRock is putting their own money and balance sheet into a crypto-native product. In that case, they care deeply about where the money resides. If they can’t roll things back or control compliance with OFAC sanctions, North Korean actors, etc., it becomes a very different proposition. For now, institutions are primarily selling new products, and the decision about where these assets reside is made by the issuers and creators of the products. For instance, if Ethena decides to hold the $1.5 billion backing its stablecoin on its own chain, that’s their call. Issuers and stablecoin creators ultimately make these decisions.

Omer Goldberg:

With the emergence of Converge and other L2s and stablecoin environments, we’re entering a new phase of fintech innovation. Over the past decade, fintech hasn’t seen significant innovation because it’s built on outdated rails. Most successful fintech startups are just better wrappers on poor infrastructure.

In the last three years, stablecoin infrastructure has exploded. Even in the U.S., it’s now easy to connect your bank account and move funds across chains. This opens the door for new consumer experiences beyond crypto speculation. For example, you could build a smarter savings account today, something that wasn’t possible three years ago. Converge could be a strong candidate for this, but it could also be built on any chain. This cycle offers fewer excuses for not building real products that appeal to people outside the hardcore crypto community—those who simply want better alternatives.

Robbie:

The market seems to agree. There was an announcement today about a new app chain from DTCC, the Clearing House, aimed at increasing collateral mobility and velocity, improving capital efficiency and liquidity, and facilitating the convergence of traditional and digital assets. DTCC processes settlement volumes in the range of $3 quadrillion annually.

They’re moving in the same direction, but you’ve beaten them to the punch. Do you see them as competitors? This TAM is massive, on the order of quadrillions of dollars.

Guy Young:

You’re right—they’re heading in the same direction, but the optimal setup is still undefined. I think the base-level infrastructure needs to be permissionless enough for anyone to interact with it. If it’s completely permissioned, then what’s the point? Even if you look at systems like Base, in some respects, it’s a permissioned blockchain. If the sequencer on Base decides not to process a transaction, it won’t go through. That’s a single entity controlling the flow.

One idea we’re exploring is a system like Base, but with validation of the sequencer by 10-20 parties. These could be the largest asset managers, centralized exchanges, or other entities. The goal would be to handle extreme situations—like a $1.5 billion hack by North Korean actors—where the sequencer could roll back transactions under certain conditions. Purists and idealists dislike this idea because it introduces centralization, but if we’re honest, similar assumptions already exist across the space. Single sequencers are present on most L2s today. We’re trying to find a pragmatic middle ground: an open, permissionless system where intervention is possible only in cases of clear criminal activity, like stealing funds.

General Market Trajectory

Andy:

I think the beauty of building a chain is fascinating. You've built an app that's done incredibly well, and now you're shifting focus to infrastructure, which opens up a lot of options. Part of moving away from an L1 and launching your own chain is to build exactly what fits your use case. There will be other extremely permissionless, fully decentralized, censorship-resistant environments, and that's great.

Maybe you'd want to hold some of your long-term capital there, like Bitcoin is a good example. But you're not trying to build a Bitcoin or Ethereum L1; you're aiming for a specific idea with custom technical design. It seems like you're working toward a bifurcation between permissioned and permissionless layers, where each part manages risk and rollbacks differently.

Guy Young:

That's correct. Additionally, I encourage people to reflect on what we're actually doing on-chain. We're moving centralized stablecoins around and trading meme coins—these aren't use cases that require nation-state levels of decentralization. A server with 10 validators is sufficient for both of those.

There’s this obsession with pure decentralization, but if you look at the products that have performed well this cycle: Hyperliquid, which essentially feels like a centralized exchange; Ethena, which constantly interacts with centralized exchanges and custodians; and Pump Fun, another centralized exchange that settles on-chain. All of these examples show that the market consistently makes trade-offs in decentralization for better products. That’s what we should focus on—creating better products at the outset.

Andy:

Zooming out to the broader state of stablecoins, crypto, and speculation, Arthur, I was on a podcast with Akshot two months ago in Hong Kong. He mentioned that you were gearing up for the "Trump Dump," which eventually happened. You’ve recently written about reallocating to the space. What triggered your renewed interest in the market? Was it institutions, macro factors, or something else?

Arthur Hayes:

It’s very simple: fiat liquidity. I was skeptical about the pace of liquidity emissions between Trump’s election and January 20th, when he assumed office. Now, the market doesn’t think they’re going to print any money, which I believe is the wrong view. We’ve seen signals from the Fed suggesting they might start QE sometime this year, at least in the Treasury market. Europeans will print euros to fund weapons; the Chinese are waiting for the Americans to print and will then print more; and the BOJ is cornered—they’ll likely return to buying bonds when the JGB market collapses in the near future.

My bullishness stems from changes in expectations around fiat money creation. Right now, we’re mostly buying Bitcoin. Bitcoin dominance is creeping up, but altcoin investors aren’t ready to allocate to the altcoin space yet. Let’s see Bitcoin at $110,000 or higher—then animal spirits will return, and people will start throwing money at any coin out there. We’ll participate in that too, but for now, my optimism is rooted in Bitcoin’s positive response to fiat money creation expectations through the end of the year.

Robbie:

You mentioned QE as a big part of this shift. Powell signaled that during the last Fed meeting. The next meeting isn’t for another month or so, where he may or may not cut rates. You also brought up the strategic leverage ratio exemption. Is that something he can issue between Fed meetings, or do we have to wait for the next meeting?

Arthur Hayes:

He can act whenever he wants. For example, the Bank Term Funding Program was announced during an emergency Sunday night meeting, where Powell and Yellen issued a statement to print $4 trillion. If circumstances demand an emergency policy change, they’ll act between meetings. That’s the point. If something like the tariff situation escalates and the S&P drops by 40%, or a major institution is on the brink of bankruptcy, the Fed will step in. So, people shouldn’t be overly fixated on the meeting schedule. But absent an emergency, the next meeting is in May, and I expect further clarification on their tapering of QT, roll-offs of mortgage-backed securities and Treasuries, and their view on inflationary impacts of tariffs—assuming those tariffs continue and aren’t rolled back due to Trump negotiating with various nations.

lnstitution-issued Stablecoins?

Robbie:

I got one more macro question. Is it net new liquidity to the system or is it net subtractive of liquidity? And one thing that's looming besides the tariffs, besides Doge and Elon cutting is this $10 trillion of Treasuries that were issued at the end of Biden's term to try to pump the market and are now need to get rolled over. So when we refinance that $10 trillion of debt, is that positive or negative to the state of liquidity in the system?

Arthur Hayes:

This is neither, right? It's sort of net neutral. They have to do it. The New York government is not going to default on their obligation. The question is about what rate are they going to do it? If the rate is so high, do they need to have help from other agencies, the Fed or the banking system, to buy more Treasuries to get the rate down so when they refinance, it's not at a higher rate. Right now, the average rate on Treasuries is like 3.3%. And what's the tenure now? Like 4.2 or 4.1, whatever. So if they refinance the entire debt load today, they would actually increase the interest expense, which is not good for the deficit. And the plans that Trump invested have for the economy, which goes to tell you that something needs to happen. Either foreigners need to buy more Treasuries, the Fed needs to print money, or the banking system needs to buy them. One of those three entities needs to do something. And so what are the policy options that are available to them to influence somebody to buy these things at negative real rates, in my opinion.

Robbie:

Got it. And generally, the liquidity injection, money is pretty much created at the top of the system and then tends to flow down, get loaned out and reoriginated and extended. Right now, stable coins are somewhere towards the bottom of that list. The issuance of stable coins, even if Blackrock is still relatively high, but towards the bottom of that general hierarchy.

Is there a world in which stable coins could move higher up that hierarchy and we could see some larger institutions issue stable coins on chain?

Arthur Hayes:

That would be like a bank issuing their own form of dollar stable coin on chain or something.

Robbie:

Like World Liberty Finance said they're going to issue, Wyoming said they're going to issue their own stable coin. Whether it's state or national sponsored or Federal Reserve sponsored, how could that look? Is there any possibility or reality to that?

Guy Young:

Definitely think it's a possibility. I think I'm just slightly more bearish on their ability to take entities that sit outside of crypto to push stable coins and make headway in terms of grab and share within crypto native venues, if that makes sense. Paypal here is an economical example where you can actually think of Paypal's existing product as basically just being like a private blockchain where they're just moving PYUSD within their own accounting system. They’ve done a pretty good job of growing to the size that they are, but at the scale they are now, it’s less than a hundredth of the size of Tether. They found how difficult it actually is to integrate into the moats that people have built up within crypto native venues.

People can go build their own stable coins. Thousands of entities are going to try, but they’re just going to be used within their own sort of closed loop system rather than penetrating within crypto. The real reason for that is market structure reasons, which people don’t understand and I didn’t fully understand before I started Ethena. You’ll never unseat Tether until every centralized exchange that exists right now in crypto goes bankrupt because every single trading pair on Binance, which is the most liquid, is denominated in USDT. No one cares if you’re paying them 4% T-bill yield when a market maker or an HFT entity is trading in and out of the BTC pair with USDT and saving a basis point every time that they do it. That’s really the moat, which is the most liquid, and there’s no other real access for you to compete. You have to be $1. You have to be liquid, and you’ll never be more liquid than Tether or pay more yield. That’s the only way you can compete within this market. That’s the view Ethena took, which is we’ll never win those first two categories, but we can try to have a real shot at the third one and create a wedge over there. I’m extremely bearish on anyone’s ability to compete with Tether. If you’re funding or starting a new stable coin issuer backed by T-bills, I think it’s just a colossal waste of your time, energy, and money. I would recommend against that.

Omer Goldberg:

But I think they’ll try. Today we even heard the CEO of Bank of America saying that they would issue a stable coin as soon as it was legal to do so. From the discussions we’re having with large financial institutions, everyone’s at least thinking about it. If Bank of America says they’re going to do it, everyone else is at least thinking about it. For them, it makes sense for a lot of these accounts because you could just do it cheaper. It’s a better UX. You already see users, especially in America, going to other alternatives like Venmo for payments. That’s just business you’re losing out on. It’s something they’re going to try. Whether or not they have a good shot at doing it for the reasons Guy said is a different question. But from what’s in the news and what we’re hearing, everybody has some type of stable coin strategy internally that they want to take a shot at because if you win, it really is the Holy Grail.

Arthur Hayes:

I think it’s a very American thing. It’ll be great for Americans who have a cheaper way, in a more convenient way, to send dollars around. But again, that’s not Tether’s bread and butter. Tether’s bread and butter is in Shanghai and Hong Kong and Buenos Aires and other places. JP Morgan and Bank of America can’t use it anyway. It’s great for America. Americans will have a cheaper alternative if there are stable coins running around. But I don’t think that’s going to alter the crypto and non-U.S. landscape in terms of how digital dollars are moved around.

Robbie:

And it’s also not net positive for liquidity conditions unless it exits that closed loop system.

Arthur Hayes:

It’s still a bad thing. If there was a loan that they were creating to create the stable coin, there’s some sort of issuance of credit to do it, that’s fine. But it’s really not. If you were using Venmo, now you’re using a stable coin. Who cares? It doesn’t really impact us one way or the other.

Robbie:

SLR exemption, like fractional reserves for stable coins.

Arthur Hayes:

The SLR exemption basically just allows a bank to buy a treasury without having to put any equity capital behind it. It has nothing to do with stable coins. Stable coins and SLR are two distinctly different things in terms of what it means for a bank. A bank with an SLR exemption can buy a treasury regardless of the price because they have infinite profitability. Even if the tenure yield is 1% versus 5%, now I have no capital charge. I can buy as many treasuries as I want and create credit to do it. Therefore, my profitability goes up. If the rates rise and the bonds go down, I’ll put them in the held-to-maturity bucket and close my eyes to the losses.

Guy Young:

I saw an interesting research piece last week on what happens if all bank deposits in America left banks and went into stable coins. That’s actually a very scary question because everything works on credit and the whole fractional reserve system requires deposits in commercial banks. It’s not the same when a deposit leaves a bank, which can be lent out hundreds of times, and goes into something backed 1-to-1 within a stable coin. It’s extremely dangerous for the normal functioning of credit within the U.S. system if significant bank deposits move into something like that.

Arthur Hayes:

Which is why the Fed has denied it. They call it a bank that doesn’t do lending. Caitlin Long tried to get one passed, but they don’t want it to happen because it’s fundamentally detrimental to how fractional reserve banking works. If you have people who essentially create a bank, which is a stable coin that doesn’t do any lending, it’s detrimental to the system.

Andy:

That was a big part of the Stablecoin Act, which is getting pushed through this month or later in May. It’s pushing back against that aspect because of exactly this problem. I don’t know if you guys have paid much attention to what’s happening there, but Paula was in DC trying to push for Tether there and get on the right side of the book. It seems like it’s going to be a net positive for stable coins, but it seems more favorable to USDC than Tether. But to Arthur’s point, I don’t think Tether really cares.

Arthur Hayes:

It doesn’t really matter. It’s an American thing, and stable coins are not for Americans. Stable coins are for everyone else who wants a dollar bank account but can’t get one. Stable coins in America just make transfers cheaper. It’s great for the voting constituency. But for crypto traders, whether it’s the Genius Act or some other act, yield or no yield, it doesn’t matter. It’s something to help Americans save money on transferring dollars within their system. It doesn’t impact the broader crypto landscape.

Robbie:

Andy mentioned this barbell of speculation on one side and payments on the other side. Are stable coins not also a mechanism for leverage? If we can use them to extend credit further, are we able to leverage stable coins as a mechanism to extend credit and further leverage the system? Is that also a use case?

Arthur Hayes:

Who takes the loss? The great thing about being a fractional reserve bank is that when you mess up, your national government bails you out. It doesn’t matter how bad you are at originating loans in your domestic fiat currency. When you fail, and you will because you’re a profit-seeking entity, your government prints money and plugs your hole. But if I’m a private stable coin issuer lending out money and I go bust, no one bails me out. I lose money. I don’t think there’s going to be reckless credit extended in the way you’re hoping generates bags pumped by stable coin credit.