On Ep. 84 of Tokenized, Simon Taylor, Head of Market Development @ Tempo is joined by Kim Hochfeld, Global Head of Digital and Cash @ State Street Investment Management and Dan Romero, GTM @ Tempo to discuss banks moving on chain, the GENIUS Act impact, stablecoin settlement for remittances and more!
On Ep. 84 of Tokenized, Simon Taylor, Head of Market Development @ Tempo is joined by Kim Hochfeld, Global Head of Digital and Cash @ State Street Investment Management and Dan Romero, GTM @ Tempo to discuss banks moving on chain, the GENIUS Act impact, stablecoin settlement for remittances and more!
Timestamps:
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Just like the internet made information global, stablecoins are making money global. And Bridge, a Stripe company, is the infrastructure powering that shift. Built for speed, scale, and simplicity, Bridge helps businesses send, store, convert, and spend stablecoins instantly, all without borders or having to navigate the complexities of crypto. Learn more at bridge.xyz
Tokenized is presented by M0
Stablecoins are becoming global financial infrastructure. It's time for that infrastructure to mature. If you're a brand, you should have your own stablecoin set to the behavior of financial flows moving through your product. If you're an issuer, you want to be the stablecoin partner for the most valuable brands. M0 is the only platform where issuers and brands get together to build digital money products for the world. Learn more at m0.org
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Music by Henry McLean
Dan Romero 0:00
There's a version of the world where people could start paying people out every day as an employee or or hourly, right? Like it sounds kind of crazy today, but I I do think in a world where transaction costs effectively go to zero and money is really programmable, I think it just unlocks a lot of new avenues that could be very responsive to what customers and market are demanding, and so I think payroll companies that are like Deal that are kind of getting to the forefront here are just setting themselves up to be able to respond to whatever the market is asking for.
Sy Taylor 0:43
Welcome to Tokenized, the show focused on stablecoins and the institutional adoption of tokenized real-world assets. I am, of course, Simon Taylor, your host, author at FinTech Brain Food, and head of market dev at Tempo No Kai today. We're TikToking and swapping around, but I'm sure he's very busy doing interesting things. But my goodness, do I have some incredible guests for you! First up is Kim Hotchfield, who's global head of digital and cash at State Street. Kim, how are you doing?
Kim Hochfeld 1:10
Very well, thank you. Thrilled to be here, Simon.
Sy Taylor 1:13
No, thrilled to have a fan of the show on and to learn more about what you're doing at State Street. And of course, joining us is Tempozone Dan Romero, GTMate Tempo, formerly co-founder of Farcaster, industry legend, and just an all-round good dude. How you doing, sir? I'm great. Thanks for having me. Excited to dig into this one, but before we do, I've got to remind viewers and listeners that views and opinions of our contributors today are their own and might not reflect those of companies they represent. Please don't take anything we say is tax, legal, or financial advice. Always do your own research in your own market and look up those regs. People, stay safe. The first story this week: State Street and Galaxy launch a tokenized fund to bring cash management on chain. It's called the State Street Galaxy On Chain Liquidity Sweep Fund, aka Sweep. I'm loving the titles coming out of banks recently. I am M O N Y by J P Morgan Money. Just amazing. So it is a tokenized private liquidity fund designed to enable 24/7 on chain cash management via stablecoins, subject to the availability of stablecoins in the fund's portfolio, so Kim, I'd usually read out a press release here, but I want to ask you: Why have you chosen to launch an on-chain product at this point in State Street's history?
Kim Hochfeld 2:31
Well, we have been managing liquidity and cash since the early 1970s We have about half a trillion dollars worth of cash under management here at State Street Investment Management. It's the backbone of our investment management franchise, but the more we delve deeper into the world of blockchain, we realized that cash is rapidly moving on chain, and that's everything from stablecoins, CBDCs, tokenized deposits, and tokenized money funds. And we are firm believers in the future being an on-chain future, and we wanted to ensure we had product that could meet the investors that are moving on-chain.
Sy Taylor 3:08
And why with Galaxy in particular?
Kim Hochfeld 3:10
We have a very well-established partnership model here at State Street Investment Management, and we've actually had a relationship and partnership with Galaxy Digital since 2024, where we joined forces with them, and they subadvised 3u.S domicile ETFs, which give investment exposure to the emerging on-chain ecosystem. We recognize they're best in class in this space, and it's very, as I said, very well established for us to partner with best-in-class investment managers to offer our own investors the expertise that they're looking for with the wrapper that is provided by State Street Investment Management. So, our relationship with Galaxy dates back to that time, and as I said, they are the deep experts in this space. And it seemed obvious to us to partner with them to launch our first on-chain product.
Sy Taylor 3:58
Dan, did you ever think you'd see this in your Coinbase days that banks are talking about going on chain. What do you think about the movement of banks into the space more broadly?
Dan Romero 4:06
Yeah, I mean it's it's kind of wild. I've been in crypto for 12 years to think that State Street has a on chain product, and then with a cheeky name, by the way, right? I think to Simon's point, Sweep and all these feels very native, which is a good thing. I think it's underrated how much the Genius Act has unlocked. In that now you have these established institutions that move a lot of money, feeling comfortable for the first time to actually do stuff on chain that can be practically used. I think we've we've seen a lot of pilots over the last decade where oh we're we're trying something, or we're doing something on a blockchain, but for all intents and purposes, it didn't matter. Whereas, I mean, this is going to be a live product that institutions, companies, enterprises can go use, right?
Kim Hochfeld 4:51
Yeah, you know, I think it's a it's a great point. You see the explosion in stablecoin issuance, and it's now meaningful money, and you look at the projections. For that, and it's something that a very traditional asset manager can't ignore. There is a demand from investors to be managing liquidity on chain, and we want to be part of that ecosystem.
Dan Romero 5:11
Yeah, I think that the other thing that I always, because I spent a lot of time pitching TradFi on crypto, I think that the fair feedback was always if our customers were actually asking for us, even with maybe some of the regulatory uncertainty, we could go figure stuff out. And I think in a combination of both, there's now regulatory certainty around stablecoins, and customers are asking for it. Institutions move pretty quickly when it's it's customer driven.
Kim Hochfeld 5:37
Totally, you've hit the nail on the head. It's we will move quickly where we see demand and where we have regulatory clarity, and and that going back to your comment about we cannot underestimate the impact that Genius has had on this space, and that's really propelled our own efforts and our own conviction in moving on chain.
Sy Taylor 5:55
It's so interesting to me that people confuse financial institutions as anything other than doing what their customers ask them to do, and and being commercial businesses that will go after the market demand. So, what have you learned from launching on chain products, and and what are your hopes from doing more on chain in the near future at State Street?
Kim Hochfeld 6:13
Wow, that's a that I need a long time to answer that question. But I think if I bring take as long as you need, honestly, like
Sy Taylor 6:20
I'm, I am curious, genuinely, and take and take a small chunk out of it, whatever you like.
Kim Hochfeld 6:26
Well, I'd distill it down to two themes. Firstly, it's complicated. This was not a quick or an easy lift, so it is complicated to learn to launch on chain. We had it was a learning process for us. There's so much that we had to wrap our arms around, and then we had to bring the whole organization with us. The risk, the governance, the cyber security. This is all new new ground for an institution like ours. So there was a huge learning process and a huge education process internally, as well as externally. I should add. So a, it's complicated, and b, I know we all talk about how efficient DLT technology is and how we're going to cut out intermediaries. We're not seeing that yet, and I appreciate we're at the very beginning of this this journey of moving on chain. It is definitely not quicker or cheaper yet to launch product on chain, but I can see a day not very far off in the future where that will come to pass.
Sy Taylor 7:21
Yeah, almost certainly so. There's so much governance and internal stuff that a bank has to do to launch any product. Never mind something on new technology. Never mind something with emerging regulations. It's like hard mode plus hard mode plus hard mode. Like it's there's a lot going on, and there's a new language to learn because crypto changes the name of everything to what it means internally, and what the term a banker would use is is often different on on chain. So so fascinating to watch. Any other thoughts, Kim? I'm
Kim Hochfeld 7:50
looking forward to the next one because it's got to be easier than the first.
Sy Taylor 7:54
Yeah, heck yeah! All right, I'm going to move us to the next story. MoneyGram have been named an anchor remittance validator for Stripe-backed Tempo's blockchain, and there was a company called Deal who also launched salary payouts on Polygon and on Tempo. So MoneyGram, one of the world's largest payments network, is joining Tempo as its first remittances validator, and the goal is to advance stablecoin-based settlement across its network, covering 200 countries and territories. It's the first remittance validator. Of course, Visa is already a validator, and there are a handful of others like Stripe and Tempo, and select other institutions joining it. But on settlement as well, MoneyGram, Tempo, and Stripe plan to bring stablecoin settlement into live flows with Stripe and settle those on Tempo infrastructure as well. Dan, perfect person to speak about this. What is the role of a validator in Tempo, and what's the partnership with with MoneyGram mean for you?
Dan Romero 8:51
Yeah, so maybe just to level set for the audience, Tempo new l1 focused on stablecoins and payments, and it's an EVM-based chain, so it's it's kind of compatible within the Ethereum ecosystem, but it is a distinct chain. And unlike a chain like Ethereum, where anyone can go and participate in the governance and and be a node, because we are approaching with a crawl, walk, run, enterprise friendly, be mindful of a lot of our customers are regulated, we are restricting who can be a validator and kind of participate in the governance of of the chain to start. I think our aspiration and very much where we will get to will be a permissionless set of validators, but we are going to do that thoughtfully and make sure we bring partners along. And so during this kind of initial stage, we're being extra thoughtful on who is actually participating from the validator set. You mentioned so obviously Tempo runs a node, but Stripe, Visa, Standard Chartered actually runs a node. So again, going back to my point of I've been in crypto a long time. To think that this set of companies would be. Participating in in a public blockchain, we've come a long way, and I think a lot of that comes because of genius. But you can think of it as ultimately there are blocks on this blockchain, and they need to be processed. And MoneyGram will be running a validator processing blocks, and you can think of it as a round robin.
Sy Taylor 10:18
Makes complete sense. And then talk to me about the settlement as well, so stablecoin settlements coming to live flows using the on-chain infrastructure. I think it's so fascinating to me that the remittance businesses maybe two three years ago were seen as the sitting ducks that stablecoins were going to obviate, and now actually they're some of the fastest adopters. Western Union's launched its own stablecoin. MoneyGram has a wallet. Can you take me inside some of this settlement partnership and and why that's valuable to somebody like a MoneyGram?
Dan Romero 10:48
Yeah, so I think there's kind of naive assumption is that the remittance companies kind of are just purely extractive, you know, middlemen in terms of okay, I want to send money from the U.S. to Mexico, and then these remittance companies are just there to take a fee. Well, turns out there's actually a lot of stuff that needs to happen on both the regulatory side of things and actually liquidity side of things that the fee is probably justified. And I think these companies are extremely sophisticated in one knowing what those requirements are, and then two, which I think is underrated, is most people around the world still want to get physical cash out at a physical location. I think most people wouldn't appreciate this, but MoneyGram has 500,000 physical locations around the world in in over 100 countries, and has to deal with all the local regulations and requirements. But the ability for you to send money from the U.S. to that local market and then have your relative who who may be receiving that remittance instantly have cash to go purchase something at the farmers market-that is a pretty sophisticated system. So that those 500,000 physical locations-I know there was that Satrini article about AI, how you could just like vibe code DoorDash is like turns out you can't vibe code 500,000 physical locations. So while stablecoins are actually going to be providing something important here, which I can get to, I do think it's worth appreciating that the remittance companies are not just the move money from point A to point B and take a fee. That they actually provide a lot of value, and thus why people continue to use them, but in terms of the specific use case we have here, it's just bread and butter payments where Stripe helps take money in in a variety of different channels, and that money needs to get to MoneyGram, who then can move it within its network to kind of get to those physical locations, rather than doing that with a traditional kind of bank-based payment method, they're using stablecoins, which means instead of having to batch it and wait on bank hours and even with real-time payments, all the nuances of that, you could conceivably every single time a customer is loading money into the MoneyGram network, if you think of it, it can actually just be streamed directly from Stripe to MoneyGram in a instant with settlement payment,
Sy Taylor 13:05
and that's something that my co-host, who's not here today, I'll play his role. I'm Kashyapult for a second. I do not believe in bank holidays. Bank holidays should be banned. That's that's his his drumbeat that he he bans because they're as painful for banks as they are for remittances, as they are for anybody else, it doesn't matter how good your internal systems are. You're reliant upon the correspondent banking network and the market structures that have evolved over that way for decades. And regulators often need to change that. Central banks often need to change that. And I think that reframe is really powerful. And I'm so interested in seeing these institutions adopt on-chain technologies. Kim, have you any observations as you've seen the banks and your colleagues internally start to adopt on chain and and some of the some of the change of hearts and minds that are happening on on the inside? Can you take me inside that?
Kim Hochfeld 13:51
Yeah, I mean the speed of that blockchain can operate at, and this 24/7 nature is obviously what is hugely appealing to us, and particularly I would add in a collateral context, and I think this is where we've really seen the value of a tokenized money fund being used as a much more efficient instrument when you're trying to move collateral 24/7 in a programmable way, in a seamless way, and taking out a huge layer of operational risk. So that's that's clearly a use case that's very much rooted in in tradfi but where we see a massive opportunity for DLT to really make the system more robust, and the regulators have recognized that too. I often talk about the gilt crisis in in 2022 here in the UK, where the clunkiness of redeeming cash out of a money fund, moving that cash to a collateral receiver, who then possibly just reinvested that cash into another money fund, and in the interim you had forced selling into the gilt market. That caused systemic pressure that would have been totally avoided if you'd been using tokenized money fund units. So clear use case and benefits of DLT technology, but on the. Flip side. I'm going to add. I think there's a growing realization too that as you start moving equities on chain and looking at the speed at which that's going to move, and even FX on chain, and thinking about the netting that tends to happen or that does happen in tradfi at the end of the day versus what's going to happen on chain when things are settling instantaneously, and then what ramification that has on balance sheet and the requirement for intraday cash? I think there are a lot of challenges that the system still needs to work through here. So, in the use case, the the retail use case on moving money around the world, particularly in third world countries, absolutely the speed is phenomenal and hugely attractive. When you start taking those same rails and applying them in a more traditional context, and the massive capital ramifications that that will have, it becomes a little more complex, or extremely more complex, I should say. Indeed,
Sy Taylor 15:58
stablecoins don't yet have a liquidity savings mechanism, one for the bankers out there. But another story here, Dan, that we should probably give some airtime to is Deal announcing they're extending their stablecoin payouts to fully salaried employees. So they've already got 10,000 contractors who are paid out in stablecoins, but now salaried employees will be able to do this. Is on Polygon and Tempo as well, and at the same time, Deal announced the formation of a dedicated crypto division headed by Tairi Eddy as now head of crypto at Deal. So this feels like the canonical stablecoin use case is is payouts, but moving to salaries is is a little bit more complex than contractors.
Dan Romero 16:37
Yeah, I think that the way to think about the magic use case for stablecoins, as you point out initially, is the Starlink for Money thesis, where you really can have one asset that you can stream effectively anywhere in the world. That you, assuming you deal with your regulatory requirements, you could just make it work, right? Whereas instead of having to kind of go long tail and work in every country, now obviously Deal has done the work to do that. I mean, that's what's made them successful as being this kind of global network where you can pay whether it's a contractor or an employee. That said, I think that they're thinking about the future. So, just like MoneyGram thinking about where the world's going, is Deal's like great. We already built all this fiat infrastructure. We need to stay relevant. We need to continue to push the edge, and so making sure that you have the stablecoin capabilities, both in contractor payouts, which, to your point, I think are much more straightforward in most cases, whereas salaried employees, that's a lot more complex. You have a lot more regulations around payroll, especially in a country like the U.S. And so the fact that they're at the leading edge of doing all of this across their lines of business, I think is a very bullish signal for them in that they don't want to be at risk of finding out three or four years from now that there's some new competing company that is doing everything in stables and the functionality that could get unlocked, right? And so, not saying this is specifically, but there's a version of the world where people could start paying people out every day as an employee or hourly, right? Like it sounds kind of crazy today, but I do think in a world where transaction costs effectively go to zero and money is really programmable, I think it just unlocks a lot of new avenues that could be very responsive to what customers and market are demanding, and so I think payroll companies that are like Deal that are kind of getting to the forefront here are just setting themselves up to be able to respond to whatever the market is asking for.
Kim Hochfeld 18:34
It's really interesting as you talk because one of the issues that we're grappling with is how do you pay interest on a minute by minute or hour by hour basis, so it's the flip side of okay, I'm going to get my money on an hourly basis. So how would I invest it, and how would I be able to be remunerated for sitting on that excess cash for a period of time? So it's just the other side of the the same equation.
Dan Romero 18:56
Yeah, and I think I think to be clear, I don't I don't think that that's happening tomorrow. But but my sense is that if you don't have the internal muscle of just knowing how to deal with stablecoins, how does this work within our regulatory stack? How does it work within our technical infrastructure? Should the world start to change, and I think AI always shows like how fast things can change now. If you're caught flat-footed there, I think it just can be very hard to respond.
Kim Hochfeld 19:21
Completely agree.
Sy Taylor 19:22
Yeah, it's it's so interesting to me as well that this trend of payouts also allows both parties to start to monetize the beneficiary in a unique way. Whether it's MoneyGram or Deal, if they're paying out, they can pay out stablecoins, and you can take that to any wallet. But what MoneyGram's done is is they put an app on the other side of it, and when there's an app on the other side of it at the payout sun point. If the user receives that stablecoin into a MoneyGram app, then they can also have a card associated to it. Now you're generating revenue from the swipe fees, and maybe they've got a card. Maybe they're also going to be generating yield, and maybe you could stick a money market fund in there, and that's. Now that person being paid out in another market is not only got like a sort of cash account and a card, they've also got like a savings light type of product, which is actually a U.S. money market fund, which might be hard for them to get locally. So there are all of these new revenue generating opportunities that sort of come off the back a bit that I think people are starting to to walk their way down. And you know, you would think about a gig economy worker, low income populations. They want to get paid as soon as possible. It's quite common for Uber drivers and and other ride-hailing companies and delivery companies to offer that instant payouts feature. Today, they'll do it with something like Visa Direct and kind of pay out to a card as fast as they can. But there are markets where that's a little bit harder to do or not preferable, and so this again gives them another tool in their belt. So I think we're going to see a lot more on payouts because there's there's a business case there. It's going to be super interesting, but lots of questions to answer.
Dan Romero 20:54
Yeah, I would say the macro trend is consumers, individuals, businesses. If they're waiting to get money. They want the money as fast as possible, right? And I think in a world where stablecoins offer 20-four-seven, three-60-five rail that's cheap and global, that is going to put pressure on every payment method, regardless of stablecoins, to be competitive with that. Because ultimately, it's it's a good story, right? It's a very customer centric story. It's from a regulator standpoint. It's like okay, great. People they've earned money, and now you're getting them their money sooner. I think people really resonate with that. And so, whether it is stablecoins or or stablecoins putting market pressure to just improve the general experience for the individuals and businesses, I think is a huge netwin.
Sy Taylor 21:39
Yeah, I think about that with neobanks more broadly, like New Bank and Revolut and all those guys and Chime. They made mobile the default, and then a lot of the incumbents built better app experiences as a result. And so the bar got raised across the industry. And it's not like any of the incumbents have gone out of business. Far from it. Some of the franchises have really, really grown, but the bar got raised for consumers, and I think that's a great point. And on that point, I'm just going to take a quick pause here while we hear from our sponsors. This episode, if it's not obvious, is brought to you by our friends at Visa, a global leader in payments. Visa's tokenized assets platform VTap uses smart contracts and cryptography to help banks bring fiat currencies on chain. VTAP allows financial institutions to issue fiat-backed tokens, improving financial efficiency and enabling programmable finance. You can check out the links in this episode's description to express your interest in VTap. This episode is sponsored by Stripe. Internet commerce is evolving pretty rapidly, and agents are now becoming economic actors. They're managing spend and transacting autonomously, and stablecoins are becoming the default for them to do so, thanks to their programmable, instant, global, and low-cost nature. With Stripe, your business is ready for this new agentic economy. Accept stablecoin payments from agents, equip your agents with wallets, and issue stablecoin-backed cards so they can spend. All through a single integration, from Shopify to RAM businesses, trust Stripe to get ready for agentic commerce, learn more at stripe.com/crypto. This episode is sponsored by M Zero. Stablecoins are becoming global financial infrastructure. It's time for that infrastructure to mature. If you're a brand, you should have your own stablecoin set to the behavior of financial flows moving through your product. If you're an issuer, you want to be the stablecoin partner for the most valuable brands. M0 is the only platform where issuers and brands get together to build digital money products for the world. M0, make your own money. Get started on M0.org. Thank you to our sponsors. We appreciate you so much. Story number three today is the Keyvalis Group of Banks has added 20-five new banks to their consortium. So this is a European consortium that now has 30-seven banks in 15 countries in the past eight months. The new member banks include the Bank of Ireland, National Bank of Greece, Rabobank, BBVA, BNP Paribas, Danske Bank, ING, Rifeson, many many others, and of course their goal here is to solve a number of different problems. Europe has 36 central securities depositories, 13 central clearing counterparties, no sovereign bond market, and every country has its own government debt, CSD, and market conventions. Compare that to the U.S. where you've got one treasury market, the DTCC, and Fedwire. So it looks very, very different. Kim, could you help me understand that European problem space a little bit better, so that listeners might understand what challenges that. Might cause at a pan-European level,
Kim Hochfeld 25:02
Simon. I think you've outlined them brilliantly. You know the complexity of operating in Europe in a multi-jurisdiction, multi-country, multi-linguistic, and multicultural framework versus operating in the US, which is much simpler, more harmonized, and with huge deep pools of capital. So, you know it's the depth of the pools of capital to which one has access in the U.S. versus the fragmented nature of the pools of capital, as well as all the complexity in operating in Europe. So I'm not sure what else I would add, other than it's very encouraging to see consortia because that's starting to address some of the complexity for operators like State Street in this space, but it doesn't change the nature of the fact that it's much harder to find product market fit across such a broad population and a broad range of countries versus operating in the U.S.
Sy Taylor 25:55
Yeah, Dan, I'm so interested in that sort of narrative violation of like banks doing things, especially in Europe, there are banks that issue their own stablecoins. Now there's 37 banks doing a stablecoin together. Sort of builds on that theme a little bit.
Dan Romero 26:08
Yeah, Simon, I'm curious. Do you do you have an understanding of what the backing asset is? Is because I I do think that the underrated component of U.S. dollar stablecoins, and now especially post genius, where you've really tightened the rules on what can back a you know genius compliance stablecoin, ultimately it's U.S. Treasuries, right? So it's a very simple concept to understand. You have $1 that only thing, for the most part, that it can be invested in is U.S. government debt. That's an easy concept to understand. And and frankly, if if you're in a country with maybe high inflation somewhere in the world, you may say, "Hey, great! I'm happy to sit in U.S. dollars. That that works. Whereas I I think with the euro, it always gets challenging. Is that there is no sovereign euro debt that you could easily just kind of one to one map to a euro stablecoin?
Sy Taylor 26:56
Yeah. So under Mica, you can't do it quite the same way because there isn't a U.S. Treasury, so it's not as easy. So, what do you back it with? Do you back it with all the local sovereign debt, and how do you price that? How do you account for it? So, I think the goal of Kivallis here is to build really just a mix of high-quality liquid assets across bank deposits and the local sovereign debt to sort of give you that equivalent backing in a way that it would be very difficult to otherwise do, and that's seen as one of the reasons why, for example, Circle's Euro stablecoin hasn't really gained much traction. Is under Mica, it's not nearly as profitable for them versus the stablecoin model that they have over there. So I'm not familiar with the exact backing assets, but the general principle I think does hold. And of course, euro stablecoins therefore represent less than 1% of stablecoin issuance, and and that's perceived I think quite a bit by the Europeans as a threat to monetary sovereignty. And of course, whenever the Europeans feel threatened by monetary sovereignty, you see a counteraction to that. The last time they felt that was during the the initial Libra announcement in 2019, and they they didn't have stablecoin acts on on legislation there. And I think domestically, there's probably no threat to the euro itself. But if money is going on chain and stablecoins are how they're going there, you need something that's going to move a little bit quicker, I think, now than central bank issued euros into markets. And Cubalis is an interesting private sector kind of alternative to that. Then I kind of want to throw it back to you on the like your perspective on that 99% is dollars. Do you think that's realistic? Are you seeing any other local stablecoins, or what role do you think they might start to play?
Dan Romero 28:44
Yeah, so I think dollar dominance in stablecoins is where we are right now. I don't actually think that that is necessarily healthy for the ecosystem because I actually think it removes the ability to do FX, which becomes I think a really good use for stablecoins in the sense that now you kind of have deep pools of capital in different markets, and to the cases we talked about before, if you want to send $1 to Mexico, if you're going to be able to do it on chain, you need a you know an MXN stablecoin, and so I I do think figuring out this hard problem of U.S. dollar stablecoin maps to U.S. Treasury-that's easy to understand. Okay, how how do you replicate that in markets all over the world where there's varying degrees of demand for local country debt, and then to the the specific case of the euro, how do you deal with whatever number of members and they all have different debt? So, I always harp on genius, but I but I think you know. Obviously, Tether created the concept. USDC took it, I think, a bit farther in the U.S. and then I think Genius really crystallized. $1 stablecoin is really just a treasury, and and people feel very comfortable with that construct.
Kim Hochfeld 29:54
I would add, we actually manage a range of money funds available to European investors off chain. And one of those is a money fund that only contains euro-denominated government bonds issued by eurozone countries, and we've had quite challenging conversations with some investors that would say, "Well, hold on, and I don't want to name any specific countries in there, but do you hold the countries that might not be quite as well capitalized versus the ones that are highly capitalized and very liquid, and again, you're looking at there's some very highly rated European government bonds, but they don't have the depth and liquidity in those markets that we would typically look for when we're buying securities, government securities for a money market fund. Because clearly, for us, the depth and liquidity of the securities that we hold are almost as important, if not as important as the credit risk that we're taking in holding those bonds. So it's just reflecting the same issue in a stablecoin. So it's something that we've grappled with for many years now. And again, investors investors are savvy around that. Certainly, the institutional investors that we speak to will look under the hood of a European government bond fund to see exactly what's in there. It isn't the same one-to-one peg that Genius gives of you buying a U.S. dollar-denominated stablecoin. You're getting exposure to $1 of of treasury issuance.
Dan Romero 31:12
Yeah, I don't. I don't think U.S. dollar stablecoins would be successful if it was a basket of 50 state debt.
Kim Hochfeld 31:17
Yeah, there you go.
Dan Romero 31:18
There are certain states people would be like, "Wait a second, I don't want exposure to that state.
Kim Hochfeld 31:21
Two shapes, and yeah,
Dan Romero 31:23
I think that it's it's underrated that you just have a single asset and happens to be the asset that people define as the risk free rate, right?
Kim Hochfeld 31:30
Yeah, and very interesting in a country with a federal banking system. So yes,
Sy Taylor 31:35
oh how the riddle of financial markets just keeps on being fascinating to me. It it just the more you learn, the more curious I get about it. I love this stuff. I really do. On last week's episode, episode 83 Noah Levine from Andreessen Horowitz was talking about how the Argentinian peso is actually seeing the beginnings of Argentinian peso stablecoins, and you would immediately think, why aren't most people trying to escape the peso to get into the U.S. dollar. Well, of course, the Argentinian treasuries are offering you about 15% yield. So, if you wanted to hold on to that for a little bit, the yield there can be quite significant. So, maybe I hold most of my stuff in dollars and as a stablecoin user in Argentina, but I might have a percentage of it in pesos for a short period of time because that's collecting the 15% and that's more so than the issue you would have with the volatility. Like you can offset it with with timing. So I don't think it's one size fits all. It's going to be no size fits many. Like you're going to need custom tailored stablecoins for sure, and harmonization is going to be a tricky challenge. All right. The last story this week is the CME and ICE have pushed U.S. regulators to scrutinize hyperliquid over market manipulation risks. They've reportedly warned the CFTC and Capitol Hill that hyperliquid's decentralized perpetual futures platform could enable market manipulation and sanctions evasion. Hyperliquid has seen four to 12 billion in daily perps volume over the last three months. And then, before we get into the specifics of this, could you just explain at a rough high level what hyperliquid is and what a perp is to your understanding, and and how this DeFi exchange and marketplace and l1 is different to the CME or ice or anything of that nature.
Dan Romero 33:25
Yeah, so maybe we'll start with what a perp is, and then specifically hyperliquid. So perps are actually-I don't know if it is exactly a crypto-native invention. I think they may have existed theoretically, but crypto very much popularized specifically Bitcoin perpetual futures, which people call perps, and the way to think about it is, it's a very clever mechanism where you have a marketplace where you have people who are long Bitcoin, and then short Bitcoin, and then based on the demand, one side is paying the other, and now as the price moves, people have to kind of top up their collateral essentially to make sure that they're kind of in ban, and if not, then they get called on their derivative, and and you could lose money. The other thing that perps in crypto, because that market has traditionally been outside the U.S. so it's not been available to U.S. investors, although that's changing, is there was a lot of ability to have a lot of leverage. So the the primary reason people were interested in these products was they wanted to be levered long Bitcoin or something like that. What ended up happening was a lot of market making firms, so people who trade a lot of derivatives in the U.S. They have crypto trading arms, and this is the product that they trade. So they're very sophisticated. These are these are the folks who trade the CME today with equity futures, like they are also trading crypto perps, and there have been a couple of iterations on the kind of leading exchange and hyperliquid over the last couple of years. Basically, has just built the best engine to make this work, and it's a kind of a unique structure where they have both a blockchain, but. Also, a platform, so it's very vertically integrated, and so just from a performance and product standpoint, the feedback in the market is that it's really good. The other thing that's important is the the ability to do cross margining across all of the different assets that they support. Which for Tradify, people are like, yes, cross margining is important. Traditionally in crypto, that was a little bit more siloed. So, hyperliquid has been phenomenally successful, and I think what you're seeing here is the natural tension, which, by the way, has happened across a number of verticals with crypto, where the incumbents are seeing this and saying, "Hey, like we have a set of standards in the U.S., and now to be clear, hyperliquid is not available in the U.S. But I think that there's that natural tension of, in order in order for this to exist, they should have to be on the same playing field as us, and vice versa. I would imagine I don't have information here, but I think hyperliquid would love to be in the U.S. assuming that there was a path to kind of like get regulated in a way that they feel like they're on an equal playing field. So it's a bit of people pointing fingers at each other and saying like, "Well, if if I only got the same rules as you, I would be able to do as well. Type
Sy Taylor 36:07
thing. Yeah, it's kind of that classic Spider-Man meme. Hey, you're not regulated. Hey, I want to be regulated. You're not letting me be regulated, and the regulator is in the middle, pointing at both of you, going, "You guys figure it out. Something along those lines for sure. What I find so interesting about this is in the last three months or so, we've seen quite a bit of geopolitical volatility at weekends. I think there was a story in the Wall Street Journal or Bloomberg, I can't remember which, and they captured a picture of oil traders in one of the exchanges using Trade XYZ on Hyperliquid as a real-time pricing feed because that's able to move over the weekends, and there's quite a lot of geopolitical volatility for commodities over a weekend lately. So I can imagine if you're CME and your ICE and you can't settle over a weekend, you can't be open over weekends, largely because of your regulations and because your market structure doesn't allow it. To have this out there and to have your clients asking for it could be extremely frustrating, but if that does want to come into market, then surely they should be held to the same standard as you. But Kim, I'm interested in that cross-margining dream. Do you see this almost as like a petri dish of where we could be if we get on-chain right? And do you think there would be demand for something along these lines on-chain, like the cross-margining features and so on, and or even perps, if they were properly managed,
Kim Hochfeld 37:27
we have so many hurdles before we can get to that point. I think you're describing the end of the rainbow here, but there's so many pieces for us to get right, and the regulatory clarity and all the investor protections that institutional investors come to expect would need to get solved for along the way, but I believe in the vision. It's just how we get there and how quickly we can get there.
Sy Taylor 37:49
Going to be fascinating.
Dan Romero 37:50
Yeah, I think one one thing to observe again here is the Genius Act created a lot of regulatory certainty and is now allowing a lot of innovation to play within a kind of playing field that traditional institutions feel very comfortable,
Kim Hochfeld 38:03
or starting to feel comfortable.
Dan Romero 38:05
Yeah, but if I think Perpetual Futures is a great example of this is a product that crypto has popularized, it's a global market. Anyone who trades it, who's sophisticated, says, "Hey, actually, this is a genuine financial innovation. This should exist in other markets. Like, I want this product for everything. And so I think now you just have this tension of whether it's oil or I mean there was even a screenshot of the Cerebrus IPO, and the trader on the desk for the IPO day had Trade XYZ up on top of his Bloomberg terminal. So the the efficient frontier on the pricing was again this market. So clearly this is serving some need that is not just the classic. Oh, it's just a bunch of retail gambling. It's it's like no sophisticated market participants are finding this useful, and so I think it is forcing an improvement to the system that is better serving the needs as a result of of crypto. Now I think this one's a little trickier because you don't have the nice genius act structure that's been provided.
Kim Hochfeld 39:01
Yeah, and you could have been describing the journey of Bitcoin and how how that has propelled us to where we are today. So exactly the same thing, just a different instrument.
Sy Taylor 39:10
Things are different points on the timeline. Like Bitcoin's all grown up. It's left college. It's got quite boring now. It's a lot less volatile. It drinks chamomile tea. Like it's it's a it's a whole different asset, and then meanwhile you got perps out here. You know they're still raising hell. They're still drinking too much at college. You know they they need to go out and get that job, which I'm sure they definitely will. Especially if that well named market structure bill ever does pass, I think that would be very very helpful for regulatory clarity. All right, a bunch of stories we didn't have time to cover this week. Standard Charles said are going to acquire the remainder of their subsidiary Zodia custody, so they're bringing digital asset custody in house. MoonPay announces a fourth acquisition of the year with Decent as it launches MoonPay Trade. Decent descent. I don't know. I could never tell. Catena Labs lands a $30 million Series A and files for a national trust bank charter to underpin Agentic Finance. Something Dan, I know you've spent a lot of time looking at. Shout out to Sean and the guys over at Catena, and the European Commission launches a Mica review as the global crypto regulatory landscape shifts probably long overdue. Very interesting conversations this week at Stablecon about that European Commission work. I think it's going to be really want to pay close attention to. And speaking of regulators, this side of the pond, the Bank of England Deputy Governor Sarah Breeden gave the speech saying the UK is open to reconsidering how systemic stablecoins should be governed and backed, and clarified that banks can issue stablecoins provided they do so from a bankruptcy remote entity. So real movement on the UK front. I think there's also a review coming soon and a comment period coming soon. So here's hoping we get there in the UK as well. All right, that's all the stories we had time for this week. I want to thank Dan and Kim so much for for joining us. Dan, if people want to learn more about you and Tempo, where do they go to do that? Twitter DWR, possibly the most shorthand handle that anybody has. It's it's it's universal. You should just like actually change your name to that. That would be cool. Kim, how about you?
Kim Hochfeld 41:22
I'm going to go for the flip side for the longest name ever, which is StatestreamInvestmentPanagement.com, or I'm available on LinkedIn, Kim Hochfeld.
Sy Taylor 41:31
Thank you so much. You'll find me at SY Taylor on all of the socials, screaming into the void at fintechbrainfood.com, and of course at tempo.xyz, and you will hear a lot more from us, and you'll find a lot more of this podcast if you hit subscribe, if you hit like, leave us a review. It helps us out so much. I have to do that annoying host thing and beg you to do that. But that's how you get more of this show, and it keeps us sponsors happy. And you want to do that for us, don't you? After this conversation, you definitely do. All right, that's all we got time for. We will catch you next time.