On Ep. 94 of Tokenized, Simon Taylor, Head of Market Development @ Tempo is joined by Rob Hadick, GP @ Dragonfly, Stephen Sikes, COO @ Public and Ethan Chan, Co-Founder & CEO @ Allium to discuss Tokenized stocks as a global expansion strategy for US fintechs, prediction markets surging and more!
On Ep. 94 of Tokenized, Simon Taylor, Head of Market Development @ Tempo is joined by Rob Hadick, GP @ Dragonfly, Stephen Sikes, COO @ Public and Ethan Chan, Co-Founder & CEO @ Allium to discuss Tokenized stocks as a global expansion strategy for US fintechs, prediction markets surging and more!
Timestamps:
Tokenized is sponsored by Visa
A world leader in digital payments, Visa is bridging the gap between traditional financial institutions and innovative blockchain networks, helping players in the payments ecosystem navigate the ever-evolving world of tokenized fiat currencies with confidence and ease. Learn more at visa.com/crypto.
Tokenized is presented by Bridge, a Stripe company.
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
Sy Taylor 0:10
Welcome to Tokenized, the show focused on stablecoins and the institutional adoption of tokenized real-world assets. My name's Simon Taylor. I'm your host, author at FinTech Brain Food, and head of market dev at Tempo. No Kai this week, but thankfully stepping back in for me is a is a wonderful co-host. The one and only Rob Haddock, GP at Dragonfly. How you doing, Rob?
Rob Hadick 0:30
I'm doing good, and I'm glad to be on this side of the camera this time, where I'm the you know sort of co-hosting, and I don't have to have all the hot takes. So I'm excited to see what Stephen and Ethan say.
Sy Taylor 0:38
Yeah, no. Speaking of hot takes, if you could have heard before we hit record, it would have been amazing. But we're hoping the show brings that energy, and I think it will because making a debut is Stephen Sykes, who's COO at Public. How you doing, Stephen?
Stephen Sikes 0:51
I'm doing great. Thanks for having me.
Sy Taylor 0:52
Thank you for being on the show. And returning is Ethan Chan, co-founder and CEO at Allium.
Ethan Chan 0:59
Thank you for having me, Simon. Nice to be back in the show.
Sy Taylor 1:02
All right. Before we get on with the show, just a couple of quick notices for everybody. The views and opinions of our contributors today are their own and might not reflect those of the companies they represent. And please don't take anything we say as tax, legal, or financial advice. Always do your own research, especially for this one, because I think we're going to get some hot takes. But let's start off. Let's warm up with an easy one, guys. This is about the Kraken parent Paywood acquiring Magic Labs embedded wallet business. So they acquired it in an asset sale announced on the 27th of July. Price was undisclosed. Magic has created more than 60 million wallets for over 200,000 developers since 2018, and it's rebranding as Newton Labs to focus on the Newton protocol. I didn't know this, and the deal extends Paywood's acquisition run. They've been on a real run lately. They acquired Ninja Trader for one point 5,000,000,025, Bitnomial in May 26 for 550 million, Reap for 600 million. Oh my goodness! But I think I should start with Ethan on this. You know, like seems like anybody who's doing embedded wallets, whether it's dynamic or privy, is getting acquired at the moment. Why is this stuff happening? What are you seeing in the data?
Ethan Chan 2:16
So I think for us, quite a few of them are customers actually. So I think in terms of the data for why we think they're getting acquired, I think a lot of these solutions belong in a in a broader platform and suite, right? And like I think the consolidation, Fireblocks acquiring dynamic is part of that. Stripe acquiring Privy to me, it just makes sense that they live together. I think living by itself it's hard, and being an independent company is always difficult, especially in this market. So, I think it's a combination of the macro and the fact that it's just it's better as as part of a whole platform versus standalone.
Sy Taylor 2:50
Yeah, I guess it does make sense as a bigger piece. Stephen, have you been looking at embedded wallets? Is it part of the public platform?
Stephen Sikes 2:57
We don't have embedded wallets today, but I think as we look at sort of crypto, sort of like self custody versus centralized and custodial business, like obviously has a ton of advantages, particularly in the U.S. where it is an approach to avoiding some of the ambiguous regulation and maybe even onerous regulation. And so I think, like you know, as we've seen adoption of sort of these self custody wallets, I think it's mostly in service of delivering a very similar service model, but probably with a lighter touch of the regulatory aspect, right? Like you can make a clear argument that you are a technology provider facilitating access to you know decentralized finance assets, and the customer is the one who's conducting all of those transactions, all of those decisions on their own self custody wallet, and like I know we've seen an explosion in that sort of model. Again, it also gives you sort of turnkey globalization, internationalization of a U.S. based product, right? It makes it easier for you to move abroad and not have to think about sort of how do you port it across regulatory regimes. So it's something we've looked at in the context of like those sorts of opportunities. Not something we've prioritized to date, but you know, I think as we see DeFi continue to grow and more use cases where people actually want to use crypto as a currency rather than as an asset class, I think that becomes a really a really obvious approach.
Rob Hadick 4:12
Stephen, maybe I'd be interested in following up here a little bit on on one point, which is a lot of the conversation, and I as from the VC side, I see this a lot, which has been that the embedded wallet providers are building incredible technology, but they've been struggling to monetize at times. It hasn't necessarily been the best place of the stack to be able to accrue value, and Magic specifically-I mean, they were sort of a high flyer back, especially in like 2122, I think they raised at the max, at close to a $500 million valuation, I believe still they have Poly Market as a customer, but I think that might still be the only big customer. But like, how do you think about this M and A transaction with regards to the rest of the embedded wallet space, with regards to where how value accrues, and maybe how public should think about building their business for you know maximizing.
Stephen Sikes 5:01
Yeah, I mean, I think you hit the nail on the head. I think in any category of consumer finance or consumer fintech, or I mean, arguably in most consumer businesses, value is going to accrue to the firm that owns the customer and the relationship, right? And I think as you look at businesses that are sort of providing services at the infrastructure layer, you know those can have tremendous economies of scale and great margin profiles. But and you mean then you like apply that to DeFi specifically. Like, what is the monetization scheme? How are you charging right? Like you're sort of on this like, you know, I don't know if you're like cents per wallet per quarter paid by the provider, like you know, and you just start to slice that onion really thin, and like I don't know what's left. Which, by
Rob Hadick 5:44
the way, would you even would you even pay that? Would you pay per transaction?
Stephen Sikes 5:48
You even need to, right? Like that. Effectively, like one, there's a lot of competition in platforms you can use from a self custody MPC wallet provider, and like listen, there could be various differentiation levels of differentiation, levels of service model, helping managing staking, and you know there's a bunch of stuff you can bundle in there that does bring economic value. But like your best alternative is like turning your engineering team towards building atop sort of the natural DeFi primitives and doing it a little yourself. And like as long as your best alternative is like a quarter of a dev team's effort, like it's really going to keep a cap on what you're willing to spend for any vendor-driven infrastructure. And I think you know that's sort of again, I don't know the magic story all that well, but I think that's sort of what we're seeing come to bear here. It can make sense as a part of a broader platform like Kraken and Payward, right? Like it fits very nicely, especially if they're thinking about wanting this technology to to move abroad to bring more of their disparate services together in a self custody model. Like that all makes perfect sense. But I think as an independent business, it's really tough.
Ethan Chan 6:55
And Stephen, actually, I'm kind of curious since your your background in fintech as well. Like, what is plat? You said that consumer companies in in fintech need to own the the the customer, right? Where does Plaid fit in that?
Stephen Sikes 7:09
So I mean, like think about it this way. Again, what I was what I was positing earlier was like the your best alternative as a platform, like us, is like to build it yourself. Rebuilding Plaid is more than one team, one quarter sort of effort. Like Vlad has invested an enormous amount of time in integrating across 1000s of financial institutions and dealing with all of their various APIs, data schemas. Some of them they still scrape from the front end. Like it's wild. And then like not only that, like there's a major investment in doing those integrations, but like the maintenance of those integrations and connections over time is like non-trivial. And like I do think it's actually like probably three years ago I would have said it was inconceivable to think somebody would rebuild Plaid. Now I'm like, you know, Claude's making it a little easier to do some of this stuff, but like just the breadth of of integrations required just puts it beyond what any, in my opinion, any rational sort of consumer platform want to choose.
Ethan Chan 8:06
Okay, because a lot of these embedded wallets, they also have infinite integrations as well, right? That's why I'm just kind of yeah. But again, I think I think on the
Rob Hadick 8:14
maybe on the embedded wallet side though, the thing that is happening is that yes, they they talk about how they have you know infinite integrations, but those are actually like them piecing together a bunch of service providers too, and so we're still seeing you know like like our friends of the pod mesh like they're a big part of that and like you know a number of others right, and so it is still this case where I think in crypto and for anything that's happening on chain, it's much more disaggregated than like Plaid has made it, and so maybe somebody can rebuild a platform, and I know that's what Bam is trying to do at Mesh and a few others. But it is it is not yet like one solution. But and I think that's also why Kraken bought Magic, right? And that's also why Stripe bought Privy, which was this idea that you can build a more consolidated solution that you can then go and sell to a customer that has more value and is synergistic relative to just selling the embedded wallet itself.
Stephen Sikes 9:05
Makes sense.
Sy Taylor 9:06
You can go further down the stack, and and I think that vertical integration for these things is is really really hard to do consistently. And I mean, imagine Stephen in your business, you had to look at where do you vertically integrate and which bits of the licensing do you want to take on, and that's harder when you're an embedded wallet business with less margin and less revenue, no matter how many things you've integrated to. And and a lot of this, as well as a is kind of as I think about Paywood's business, they're increasingly as Paywood going B 2b. Like so, they've done all their consumer stuff with Kraken, but so much of what they're doing is like helping other people launch wallets and helping other people get into stablecoin acceptance, a little bit like MoonPay, like they're all trying to become these everything infrastructure companies in a really fascinating way.
Stephen Sikes 9:49
Yeah, and I think the thing I would add that's a little different between crypto and Plaid and traditional financial services and crypto here is like for a platform like ours, and I think you could take even the Robinhood example. With their sort of morpho integration on top of USDG, I think the point is like as you build out a self custody wallet, the number of features and services you need to provide to really get the vast majority of the value for your customers is pretty small, in my opinion. Right, like you need a Dex, you need a yield generation platform and like you can get most of that. I mean, like I think five to 10 integrations, and you can get the vast majority of the value that you would ultimately do. And you're sort of you're limited by shelf space anyway. Whereas on the other side, when you talk about Plaid, like I need to be able to serve customers that bank across all 3000 of those institutions, right? Such a long tail, and like for our business, like every customer whose bank you don't serve, like you lose as an opportunity, and like that's meaningful revenue driving it.
Rob Hadick 10:47
I do think the the the difference there, or maybe the the one corollary, I think that's a little bit closer, is that you need less integrations into the service provider. So you know, Robinhood has Lighter and Uniswap and Morpho and Athena, like a few people, right? Yeah, but but then what they have is beyond that. They have people who potentially want to on ramp from you know maybe 1000 different sources because they're banked in 1000 different places, right? And they're banked, and I use the term banking here, but to mean hey, I I finance versus Kraken versus Coinbase versus you know name me all all of your different on ramps. Yeah, I have my
Stephen Sikes 11:19
USDC on ETH, but now I need to go to
Rob Hadick 11:21
correct.
Stephen Sikes 11:22
Yeah, exactly.
Rob Hadick 11:22
And so that's where I think maybe the integration ends up being a little bit more cumbersome than for the applications themselves.
Sy Taylor 11:30
I can certainly see that too as well. The DeFi ecosystem does introduce you some new product applications, Stephen, as you were sort of alluding to. Like I think what Robinhood's trying to do with the X stock side, it's really really interesting where you can use sort of tokenized stocks as collateral to borrow against to do other things. Now, you know, does a consumer want to be doing that? Is is that the right thing to do? Separate set of questions, but this design space that opens up when you have this additional composability that comes in DeFi is kind of interesting, so I can see why Paywood as a service provider here wants wants to get into that. I mean, what would you be thinking about as you look at Paywood and MoonPay and Stripe and all of those guys, and they're all probably like swarming around you at the moment? What does what does somebody good look like when they're coming at you? What do they need to demonstrate? Because you're quite a bit different business to Robinhood in a lot of ways, but I imagine there's a few other things they need to get right.
Stephen Sikes 12:26
Yeah, I mean, yeah, it's a pretty simple conversation for us, right? I think as we think about on-ramps, payments, bringing money into the platform, it's very much like a. I mean, there are two major things, right? There's like one conversion level, like, hey, how how broad and what kind of adoption are we going to get from a given user base trying to convert like I think like the corollary is the number of pitches I get to do stablecoin funding for U.S. brokerage accounts right and that's become a really hot conversation. But like we've asked our customers many times how many of them would prefer that versus a bank link to their core bank. I'm like almost none, and then we ask them like, "Hey, for the people that do, hey, what percent of your assets are in USDC that you would move over versus in your checking account or savings account? And it's a small portion, and you're just sort of like, "Where's the sort of, you know, where's the the natural adopt, you know, stablecoin adopter in the US market, right? I think outside the U.S. as we talk about crossing borders, the the opportunity is more obvious. In the U.S. I think we have not. Again, every time we've asked, and we've done it a few times because it keeps coming up. Every time we've asked, it's like this isn't really going to add incremental value in terms of bringing new customers on and allowing them to convert their dollars into their brokerage account more easily, so it's a it's that and like it's that level of adoption, and then it's like, hey, what's the cost to do that, right? I think I've seen stablecoin funding pitches from five bips up to 50 bips, and it's like you know when you're talking about things in you know half a percent fee to move U.S. dollars, you're like that's that's like now we're in like debit card territory, which is like a really inefficient way to move substantial dollars around the economy. And so, like that's the other piece is like you're competing with fundamentally ACH, which is effective. I mean, it rounds to free in most businesses like ours.
Sy Taylor 14:17
Yeah, the scale you're operating. Even one last question for you though, it's like, do you see any domestic users of stablecoins, and is there a possibility that they're just not in Stephen's customer portfolio base? Like, are there domestic users out there that you can see?
Ethan Chan 14:32
So actually, today we're gonna publish a report about cross-border payments, so it's quite timely. I think for most of the stablecoin usage right now, it's more for like outside of the U.S. today, right, and then I think anything that's used within domestically in the U.S. would be more B 2b use cases between institutions. I don't have the numbers at the top of my head, but that's what my my intuition tells me.
Sy Taylor 14:52
It's a good summary, and I think probably pretty validating. It's also kind of an interesting segue to somebody who does have their own state. Coin, who has been pushing it at customers and has their own chain. This is, of course, Robinhood. Their real-world assets have jumped fivefold as tokenized stocks take the world by storm. Was the headline from CoinDesk. Not one to miss a bit of hyperbole, but their real-world assets hit roughly 70 million in volume in under two weeks, which is not nothing. GameStop, wonderful stock, leads daily volume at 26 point 6 million, and ahead of Nvidia and SpaceX. The total value locked on the chain has tripled since mid July to 312 million, with over 600 million in daily Dex volume. Of course, this went public on the first of July, so they've been pushing it pretty hard. And of course, a cheeky plug: check out our exclusive interview with Robinhood's Johan Cabrat on the 7% Earn product on our YouTube. It's a YouTube exclusive, so you can go check that out. I'd be foolish if I didn't say, Stephen, what do you think about this? Let's just stop there.
Stephen Sikes 16:05
I have a few bucks. The, I mean, I think like the numbers are small right now, right? You know, we're talking about a platform. The Robinhood last night just published their earnings, right? I think call it $370 billion. So when we're talking about there's 70 million on chain in the sort of tokenized assets offshore. Again, even though though it's been a few only a few weeks, that's still that's still quite small, right? We're talking about, and I think
Sy Taylor 16:36
sorry to interrupt, Stephen, but I think that's so interesting how like the the X and the crypto press is like, oh my god, it's up fivefold, and I'm like, yeah, you just launched it, and you have 28 million customers, and you've been pushing it at them. So of course,
Stephen Sikes 16:54
yeah, and that's the thing is like, I actually think they're most of their distribution, their 28 million customers, the vast, vast, vast, vast, vast majority of those are U.S. customers who don't have access to these products, right? So I'm not, I'm not surprised, frankly, but I do think that's the frame and the lens through which to look is like, how does this represent Robinhood's internationalization, their ply at non-U.S. customers building their brand outside of the U.S. and accessibility of their sort of features and products outside of the U.S. and like you know, it's a challenge for any financial services brand to move around the world. Every individual country has their own securities and financial regulators, and they're all a little different. And like genuinely, like you can't, you know, I'm gonna. This is maybe a take, but like as a firm, even even with the resources of Robinhood, you can't justify running separate businesses in 180 markets in the world. It just doesn't make sense. Most of those markets are not big enough to justify your team's time and the resources required to go in and engage at an individual level. And so we see platforms like this going and finding ways to sort of globalize without having to do that on the ground engagement with every regulator, and it's like a little bit of its own regulatory arbitrage. It's, you know, it's somewhat rational in its own right, but like, you know, it is what it is, and it's while it's understandable, we we shouldn't be bowled over by the numbers in the short run because they represent sort of again a large portion of the X U S opportunity, and right now it's pretty small. They did Robinhood did almost $1,000,000,000,000.09, 150 $6 billion in equities trading last quarter, right? And so we're talking, you know, and then when you when you put that within context of like, all right, what are we seeing from the real world asset, the tokenized stock trading on the chain? I mean, it's you know, again, it rounds 70 million.
Ethan Chan 18:41
I think um, I think the total tokenized equities market cap now is about 2.6 billion. So it's about two to 3% of the all the tokenized equities today. Just to give you a scale,
Rob Hadick 18:52
maybe Stephen, I I want to ask a question because your tone to me strikes it as like very bearish, maybe longer run as well, because you're talking about where they are today, but you know, obviously, this is the start. Like we had just said, you know, we're four weeks into it. So, can you talk a little bit about like what you think this means for the future of Robinhood, but maybe also for future of Public and other fintechs who are going more global, and like how we should think about that?
Stephen Sikes 19:14
I guess what I'm saying is like I'm not bearish at all on the long run. I think this is an objectively correct and very understandable approach to XUS growth for them, and I think that's a large. I mean, as they've reached pretty high penetration in the U.S. if business continues to grow really well in the U.S. I do think you know a big part of their growth story. I mean, Vlad has said it many times over the next five years is going to be XUS, and they do want to be the largest global fintech brands. I can't. I can't remember exactly what his words are, but like that's one of his three big priorities that they talk about every quarter. And I do think this is like an understandable and really rational way to approach that X U.S. growth now. And again, I can see the use case for things like tokenized securities outside the U.S. Again, accessing the U.S. market for people that don't live in the U.S. is quite. Challenging. It's quite expensive. It's gatekept, and and that's that's a terrible shame. It's bad for the U.S. It's bad for those markets, and I'm excited to see people trying to push on it. Now that's I need to you know also say I don't see a strong use case for tokenized stocks for U.S. investors, where we have an amazing equities market, the best in the world, the best it's ever been, continuing to get better in its own right without having to go down these like pseudo synthetic tokenized routes.
Sy Taylor 20:29
And I think that's the interesting thing: is this like global by default? If that is what you're going for, and you are trying to expand internationally, then this is a great use case for you. If your growth is primarily domestic in the near term, then it's a different conversation quite entirely. But like, I'm also interested in some of the tokenized stocks in particular that are performing. Like, I see GameStop, and I have 2021 flashbacks. Like, this is obviously skewing very, very retail here. What what is your take overall on tokenized stocks outside of the U.S. market? Like the if you were to steelman that argument about who's going to buy these things, who's going to get access against them, and then sort of straw man it, and where do you net out on those two positions? I
Stephen Sikes 21:17
think right now, like you know, I think I would expect adoption of tokenized tax outside the U.S. to heavily intersect with international crypto users, right? And so I think you're going to see a lot of the same behaviors.
Sy Taylor 21:32
Yeah,
Stephen Sikes 21:32
you know, a lot of the same sort of proclivities. A
Sy Taylor 21:35
little bit of YOLO.
Stephen Sikes 21:36
The ex-US crypto trader and investor you're going to see porting over, right? This has not these opportunities. They have not crossed the chasm into institutional and high net worth and genuine long term investors outside of the U.S. Now, I think over time that's the goal, right? But I think in the short run, like imagining a hyper liquid esque tokenized stock market outside the U.S. is like sort of the dream. I think if you probably ask Johann to to really try and you know pin down what the ex-U.S. dream would look like, I think it would be something along those lines for the tokenized stock market, and like that's the path. But I think it's again, it's just the two user bases are you know
Sy Taylor 22:18
wildly different. Yeah, Rob. I'm interested in your views on this because I know I've certainly spoken to some very large financial market infrastructures in in the past couple of months, and Stephen mentions hyperliquid there, and it feels to me like that's put the cat amongst the pigeons, especially with the volatility over weekends that we've had from the the geopolitics, and been having very interesting conversations with clearing teams about how would we do off-hours cash with tokenized money market funds, and what does off-hours cash look like, and how can I get my banks to to settle this stuff? And this is this feels like it's it's in a different gear on the institutional side. Does that resonate for you that that that like in more in the institutional side, there's an onshore case?
Rob Hadick 23:00
Yeah, I think there very clearly is. It's you know I understand Stephen's point around okay. Well, there's not necessarily a domestic use case today for because especially with the products we have, the X stocks of the world, and you know there's a few others which are sort of like wrappers on wrappers of things in different locations, and you still can't actually buy the underlying during those off hours. You have to have someone to hold risk, you know, over the weekend. You know, et cetera. Those products are really tough, and what you need is you need the infrastructure to change, and that's what you're talking about here, which is okay. Well, like, do the actual, you know, maybe the clearinghouses do the potentially, you know, some of these. How do we think through what happens on? Is it derivatives versus spot? How do we think through potentially what's going to be collapsing of the DCOs, the DCMs, the FCMs, right? Versus you know having this aggregated type of market structure, and so that's happening right now. It's very clear to me that the makers want there to be 24/7 trading because they're going to make more money, and their Citadel is probably the single best U.S. lobbyist in the world, and then you have the takers who a lot of the their infrastructure from an accounting perspective, you know, still in cobalt. Like you know, maybe they don't know why they can't settle on Saturday. It's been there like that for like 40 plus years, and so they're starting to figure it out right now as well. But the market participants want it in mass because it is just better. It's GDP enhancing, and GDP enhancing means somebody's going to figure out a way to do it. And right now, at least from my perspective, and from a lot of the people I talk to, there is no way to manage risk on the weekend without a tokenized asset, which includes a tokenized, you know, like a stablecoin, and then you know those assets themselves being tokenized because you had to be able to move collateral. Though overnight, your people are trying to figure it out with like dirty hedging and moving with the sun and all these types of things. During the weekend, I think like we almost certainly have to go to that direction.
Sy Taylor 24:51
Yeah, no, it's fascinating. I think the only exception I can think about is off hours clearing and derivatives in LCH in the in the UK does use money market funds and has been doing that. For for a little while in the European market, and so there is a precedent here for using money market funds as cash off hours. Like I don't think it's beyond the winner, man. And thank you for my little segue into capital markets land, Rob. I'm going to take a quick pause here while we hear from our sponsors, and we're going to come back to the next story. 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. I've worked in payments for more than 20 years. You can probably tell by the gray hair if you're watching. But the thing with payments is people think that they're easy. It's kind of under the hood, a little bit like sending an email. But the problem is the 1000s of things that can go wrong: things like fraud, things like chargeback, things like dealing with compliance or reconciliations. And stablecoins fix a lot, but they don't necessarily fix those particular problems. That's one of the reasons I joined Tempo is because they thought about things like reconciliation and compliance, and they've aimed to fix those hundreds of little paper cuts that developers have to deal with when trying to go on chain. Tempo has things like native account abstraction, block lists, allow lists, and fast, predictable fees, and that really matters if you're sending large volumes of payments or you're dealing with payday, you really want those fees to be predictable. You can't have them changing on you during peak volume, so that's one of the major reasons enterprises choose Tempo, and it's why I did too. You can find out more at Tempo.xyz. This episode is sponsored by M Zero, launching a stablecoin used to mean accepting somebody else's technology stack. One fixed provider, bundled layers, no flexibility when your business changes or the market moves. M zero is modular stablecoin infrastructure that keeps every single layer independent. You can choose your unregulated issuer, design how your stablecoin behaves, and even tap into shared liquidity from across the network. Your stablecoin becomes built around your business, and it's configurable, so you can optimize the tech as you grow. Make your own money. Get started at mzero.org. All right. Next story is Remitly launching their global card, which is apparently one account to get paid, spend, save, borrow, and send across borders. Eligible customers can hold balances in US dollars or USDC and pay via Apple Pay and Google Pay and receive funds directly into the cards. There's no FX fees, no fee every day spending. You can do the direct deposit and instant transfer between all those cardholders worldwide. And it's an open end credit line with no credit history required. Quite brave. Phased rollout starts on the 30th of July with expansion planned into the UK, Europe, and 10-mile markets, including Pakistan, Philippines, and across Africa, CEO said the wants the card to disappear into everyday lives. Rob, I think you and I have batted back payments a bit, and if Kai were here, he's been talking for a while about remittance companies couldn't monetize the beneficiary before, but Remitly is quite different to MoneyGram and Western Union, and this is a business that's been kind of growing in its core business versus those other two that kind of were seen as struggling in their core business adopting stablecoins. So, in that context, how do you see Remitly versus the neobanks adopting stablecoins versus the remitters and and the opportunity for them.
Rob Hadick 29:02
Yeah, I think for Remitly, I mean, to your point, we talked about this with Western Union and MoneyGram, who you know they are also launching things like this, where it's hey, we we currently monetize the sender, but we don't monetize the receiver, so let's put a wallet and a card at the receiver, and we can become their neo bank. Remitly as has a better relationship with their a lot of their customers, both on the sending and receiving side, than MoneyGram and Western Union have in in the past. But it's very clear that, and I think some of this is really driven by the public markets. Remittly trades at like two times net revenue, and you know it's a billion dollars of revenue, and it's a $2 billion company, and they very clearly have figured out that they need to be a higher margin business. They need to be a business that does more things with their customers. They need to be able to have better retention, which means not just you know fighting over the FX fees and fighting over the costs, but also fighting over other parts of the wallet. And to be able to do all of that, to be able to trade better, to be able to accrue more value, the e. Easiest way to do it globally is stablecoins. Like that is to the point we talked about earlier. Ethan mentioned it going global is you know cross border and stablecoins is growing very quickly, and now with the card products, you know the reins and and the stripes doing this like that has become much much easier for people, and so I expect that that continues to grow for all types of financial products and financial companies, whether they're neobanks or not, because everyone wants to become the bank, and it's easier than ever, it seems, to be a neobank.
Sy Taylor 30:30
Yeah, no, certainly. And if you compare this to Wise, I saw it was interesting as a comp set, right? Wise does a lot, lot more. They're somewhere in the fall, four and a half x versus Remitly started in a very similar place. It was that consumer direct, and I think remitly is now trying to get into SMB and the B 2b flows and some of that sort of stuff. So, and then interested in your views on like you've just looked at cross border, you've probably looked at remittance. Like, where are the promising opportunities in stablecoins for a business like that.
Ethan Chan 31:02
Yeah. So while B 2b payments accounts accounts for 79% of all cross border payments using fiat rails, it accounts only for 49% of the money using stablecoins. So about 0.6x of the share, about 60% of the share. And then for C 2c payments, where the stablecoins see the most outside adoption relative to the value over overall share of the market, it accounted for 15% of all stablecoin volume compared to 5% for fiat, and over index of about 3x. Right, so there's this chart that shows that in terms of like so stablecoins are more consumer tilted for fiat for cross border flows versus fiat. So that's one of the insights that we just did together with FXC Intel, right, and does a whole entire deep dive into how we how we got that result. So
Sy Taylor 31:47
lovely stuff. I I was going to say I guess it's led by consumers in the smaller dollar amounts, whereas cross border, you know, you really are skewed in fee up by some of the institutional movements between banks and whatnot that are you know really dragging that up, if you think about what Citi or J.P. Morgan's book looks like and the size and scale of some of those transactions, that's going to drag the the averages up a whole bunch. Stephen, interested in your view on this, if you have any on on payments companies doing more with stablecoins, do you think they're the natural early adopter? I
Stephen Sikes 32:18
mean, we talked earlier about the cross border benefits of sort of taking of stablecoins, reducing sort of you know again the FX views and making it actually simpler to move money across borders. I actually think the most interesting thing here is just thinking about remotely as a consumer fintech company, thinking about the monetization problem that Rob mentioned earlier, which is like you know they've got two customers in every transaction, they're monetizing one side per dollar. I think they're you know my guess would be it's somewhere in the 10s of basis points of monetization per dollar that moves. And so if you're running that business and you're thinking, hey, how do I increase that most linearly with the minimum amount of friction with the highest conversion and adoption? It's like putting a spend card on the other side, right? I think you said earlier a lot of these are small dollar consumer remittances. The receiver, again, the ingoing assumption is that money is to be spent, right? If you can then monetize that on the card side, and again, internationally, the interchange rates vary widely. But let's say it's something again, another 10s of basis points. Like you have an opportunity to meaningfully change the unit economics on every dollar transferred, and like again, you're doing that without, you know, without having to go far afield of the core platform that you're building. Right? You're going, you're adding a card to a store of value that you have on the other side, and like again, and capturing up to double the economics of what you saw in the initial transaction, so like that's sort of like you know I think the business opportunity there is is obvious and like you know we do see whys and some of those going into things like investing and competing with folks like us and it's like well that's like now you're getting a little far away from the point right the point of remittance platforms is to move money across borders you know in relatively small amounts for the purpose of spending in the receiving country, and like somebody else is monetizing that spend on a card or a portion of it, and you might as well be in that flow.
Sy Taylor 34:09
I wonder about these businesses as distribution for somebody like a public and somebody else that does U.S. stocks, and because like you're going to potentially have what 30 million customers there or wallets at the recipient end, and that's a that's a whole chunk of people that aren't currently accessing the U.S. stock market, looking at a remotely mobile app that could be accessing that stock market.
Rob Hadick 34:32
Steve, I actually just wanted to kind of pull on that thread a little bit, which is that somebody like a remotely who has this relationship is now you know trying to monetize the international relationship as well as the domestic with you know stablecoins, and you know as you think about your business, which as I understand is primarily domestic today, what or how does public and whatever you're able to say think about that international opportunity and how does that relate to stablecoins? Because when I see it from our relationship with Rain, the. The pipeline has gone from you know very crypto native to many of the most traditional and biggest fintechs in the world and technology companies in the world, and it seems like that is a topic of conversation everybody is having. So how does public think about
Stephen Sikes 35:14
it? Yeah, I mean, I think like again to answer a little bit of Simon's question too. I think as as we think about like these investing businesses, one thing we've learned is they're definitionally best viewed as like disposable income, right? Excess surplus savings, right? After you've gone through all of your tax advantages in the U.S. or in your home country, right? Like you're sort of like getting to a top half, top quartile of the of the sort of of any individual customer base of any individual country base where you like ultimately want to be serving, and where you can have sustained positive unit economics. As you start to dip a little too deep, it becomes really difficult to sustain the service model without having to charge meaningful fees or really being regressive in the sort of platform design. So again, that's sort of where we've arrived in the U.S. I think, as we look abroad, I think the same story is likely to be true, and it's a little bit of like what I was saying earlier about the sort of Robinhood and the tokenized stock-based opportunity. The U.S. is the largest market for investing in the world. As you get further down the stack of other markets, it becomes harder and harder to justify the expense of localization and serving those customers. It's like, again, it's localization. Localization goes all the way down to the metal. It also goes to customer support and translation, and like there's quite a lot of overhead in making that work. And so it's it's one of those things that we have in our long term plans. But I wouldn't say we see it as being as attractive as the U.S. market. Now, a big part of the challenge of moving abroad is again we've talked about regulatory already, but the the payments rails is a huge part of it, and I think this is the strongest case for stablecoin adoption and the FX blows. I think it can meaningfully bring down the cost to serve from a payments perspective through international expansion, and like importantly, I think you can do it with stablecoins in a way that actually still preserves some of the FX revenue that is really important to serving sort of international markets as a domestic company. Like you do, kind of need you know to justify the business of revenue
Sy Taylor 37:19
for for anybody playing in that space, so as a as a UK based person with a UK based app, like that FX stuff always bothers me. I know that the stuff hiding in the margin versus what I see on the ticker coming from the exchange versus what I'm going to pay. But you haven't told me what the fee is or the spread is here. That's that's silently hurting people across borders all the time.
Stephen Sikes 37:39
And the reality is like that's you know I don't know the best rate. I don't I haven't looked this in a couple years, but like hey, if you're paying less than 25 basis points to change between pounds and dollars, you're doing really well. And if you're a brokerage platform earning 25 basis points on an equities trade is incredibly lucrative. Like that is amazing revenue generation opportunity, right? Like, like you know, again, it's it's all of a sudden you're like, that's you know, that's orders of magnitude more than what we earn in the U.S. You know,
Sy Taylor 38:07
and that potentially goes away if everything's dollarized and stablecoin. So yeah, it's about the revenue opportunity. It's about going into the new markets. I know a lot of folks, as as I'm a fintech nerd, have tried to come into the UK, got so far, and then there's the culture difference as well. People just don't invest as much naturally. They're not as invested in the stock market anywhere near as much as the folks in the U.S. anywhere else in the world. So big, big, big changes. I got to move in Korea.
Rob Hadick 38:32
So maybe in Korea, East Asia. I
Stephen Sikes 38:36
think like again, China, Korea, Japan is I think where we see
Sy Taylor 38:39
SK Hynix, Samsung. That's that's all I'm going to say, and we'll leave that one there. That's for sure. That's for sure. All right, I got to move us to the last story though, because this could be a fun one. So Robinhood and Crypto.com are exploring a prediction markets deal that would allow customers to trade yes or no events contracts from Crypto.com prediction markets without even Robinhood, per the Wall Street Journal exclusive today, Robinhood sources contracts from Kalshi, Interactive Brokers Forecast X, and of course Rivera, which is the exchange it backed alongside Susquehanna in 2025. And I think a lot of their volume now goes through that platform rather than to Kelshi. Kelshi's CEO Tarek Manso called Robinhood its leading competitor recently, and I think Ethan, what does the data look like in this space? Because prediction markets data and crypto data-they're all kind of coming together. How seriously should people listening to tokenized be taking prediction markets.
Ethan Chan 39:43
So I I think we covered on on this podcast earlier that one of the biggest use cases for prediction markets data it's it's like price discovery and also finding key events on events on a weekend right I think that's the use case that I I care about right I I think we can talk about sports and all that later. Right, and in terms of like volumes in the month of July, the notional volume is about 50 billion across most of the venues we're tracking: Kalshi, Polymarket Crypto, Polymarket US, of which about I think right now about 39 billion of that came from Kauchi. I think they grew about 53x year on year, and then Polymarkets grew about 6x year on year. So, other Polymarket US just launched, so the the growth is humongous, and it's undeniable that almost every single. I think that the interesting thing about prediction markets for me is that most of our new customers coming into the space they they never cared about crypto before, right? And prediction markets is drawing them. So hey, I need to start looking at this more, especially because Trump does things only on the weekends as well, right? So that that has like kind of caused this this like
Sy Taylor 40:45
oh oh yeah, there's that Stephen. Before we were talking, you know, we've obviously mentioned 24/7 a bunch this week, but we though I was looking at the Robinhood QTR results and earnings that came out recently, and there's quite an interesting stat in there.
Stephen Sikes 41:00
Yeah, I mean, I think what we're seeing-I mean, I have many takes on the on the prediction markets business, but I think interestingly, last night we did get the update from Robinhood's quarter, and prediction markets for them are massively larger than their crypto business, and they're very close, if not equivalent in size, to the peak of Robinhood's crypto business. Right. So you're very, very close if you look at sort of like extrapolate out where the British markets business is for them, and I mean, if you if you project any growth, it is far more important for them than what what the what what crypto ever meant from just a revenue perspective, which is saying a lot. Like I think if we remember a couple years ago, as Robin had went public, like crypto was an enormous part of that story, and we've seen a lot of the investments they've made across crypto. On the back of that, now if like prediction markets are larger and are growing faster and appear to be more persistent and a little less volatile from a quarter to quarter revenue perspective, I think we see the big opportunity. I think if you follow that through, like for them as a business operator and this crypto.com opportunity, I think it makes perfect sense for them to view themselves as a broker first in trying to find sort of the best markets for their customers. And we at Public are looking at the prediction markets business. We expect to launch it sometime in the next few months. We will be you know sort of single exchange to start, but we recognize the right model as the broker and the relationship owner in the long run is to have sort of multiple partners because, like, it's a really fragmented market. There are many different varieties of contracts. There are different resolution criteria of very similar sounding contracts across multiple platforms, and you can see there might be meaningful differences in how you might want to play the X Y Z contract on Poly versus X Y Z contract on Kowshi versus the one that they can build themselves on Rethera, and like follow that through to you know sort of all of them. I expect to see a sort of one to many market, and that be the optimal model. Now, Robinhood has built their own. You said earlier about the DCO, DCM, and you know Confluence and and and FCMs all moving together. Like you know they are playing both sides, right? They're both operating as the broker and the exchange for you know about 20% of their contracts last quarter. It'll be interesting to see how that evolves and have more construction problems. But my my guess is we will see that sort of one to many. The last thing I'll say: this is all sports volume. It's all sports betting. We at public have been pretty clear: like gambling does not belong in an investment account, and we're not going to do the gambling stuff. But we do see really interesting markets and capital markets linked markets in the sort of prediction and event contract world, and so like I was really excited earlier this week to see pretty substantial volumes on the Fed decision on Calshy. Right, I think they hit somewhere in the $80 million range in terms of total volume, like for one Fed meeting. Like that's for one market on one Fed meeting. That's a pretty substantial business there on its own. And like right now, I think if you look at the sort of Calshi volume, I think it's about 90% sports still. And again, I think I would assume you know Robinhood doesn't publish that exactly, but I would assume it's basically the same to us. Like that's that's not optimal. It's not great. It's gambling doesn't belong within an investing portfolio. But the other 10% is really exciting and like I think over time, like we've just scratched the surface on interesting economic and capital markets linked markets. And at the end, I think like we're hoping the SEC and the CFTC actually continue to work together and you know start to roll out some opportunities to do prediction markets on things that are tied to securities like quarterly earnings and like that's where we see real opportunity.
Stephen Sikes 44:39
And again, I would expect your you know something similar from the Robinhood team, and like that's part of the rationale for having multiple partners is like as the SEC and CFTC roll out new guidance on some of these cross markets across the securities and the predictions of end contract world, we don't know which which exchange is going to be the the fastest mover there and have the best versions of those contracts.
Sy Taylor 45:00
Rob, your thoughts on this?
Rob Hadick 45:01
Yeah, I have so many and very complicated thoughts on this, so I'll try to keep it not not too long. But I think there's a point on just the story in general, which is okay. Well, Robinhood's a broker, and yes, they are you know going full stack with their own exchange with Rothera. They've moved a lot of the volume from Calci to Rothera, but they still want to have best execution. To Stephen's point, these contracts are not commoditized, right? They are not the same across all the these different exchanges. So you had to be able to to work with everybody, and I expect that they will be doing that as well. And I expect Stephen kind of alluded to it, but I expect public will do that as well as they think through this. It is also true that it is mostly sports today. It's very clear that like sports was an easy first kind of growth engine, but it is actually not. If you think about the history of of prediction markets, it is not a sports story until now. It was a it was a politics story, and so you know why did Polymarket become you know the brand that it did was because they had at the time, which was the biggest month ever in prediction markets, $5 billion of traded contracts on the 2024 election, and you know every single contract you know had the right outcome by the end, right, and which was better than polling, and you know now these guys are doing 5 billion a week or more, but that was the story at the time, and then sports grew because people saw the opportunity, and you know obviously Cassie has a lot of parlays as well, and the World Cup just happened, and so of course the World Cup is the biggest sporting event in the world, and so people want to trade it. I get it. I do expect, to Stephen's point, that these markets are going to change very quickly, both the consumer and on the on the institutional side. The consumer side, I actually think is probably less obvious. You know, I know Stephen talked about these other markets, but like I don't know. For my seat as a VC, I see the consumer behavior changing a lot, which is that they want perps, they want prediction markets, they want sports gambling. DraftKings just said that they're doing a thing with I think United Airlines or American Airlines to allow DraftKings in the air, like while you're flying, right? Like the world is changing. I mean, we're talking about what happens in SKI next. We're talking about Micron. Micron is a trillion-dollar company that has 120 vol on the stock. Like the world is really changing in the way people interact with the capital markets, and so I don't actually know if the consumers, these other markets, will take over these you know sports and you know some and politics and some of these other things on the consumer side. But I do think all of it will grow, and I think prediction markets are just going to be 10, 3040, times bigger over the next couple of years. The institutional side is a different story. Like the things I am hearing happening on the institutional side right now at both Polymarket and Calshi is incredibly interesting. Around you know, I heard about a trade that happened with with Polymarket with a broker where there was an e-commerce company that wanted to put on, you know, we're talking about a trade in the hundreds of millions of dollars, a hedge against inventory risk for a local Latin American soccer team by putting money on the other side of the World Cup, right? And that looks like sports volume, but that is a hedge and there's real economic activity on that, right? And then we're talking about things where you're being compute forwards.
Rob Hadick 48:03
You're talking about things that are happening on you know equity linked side. You're talking about things that are happening. I'm hearing a lot of interesting conversation around the tax credits related to who's in charge and how those tax credits might go away or might not go away for people who want to put capex into new energy, right? Like these types of the the possibilities are endless on the institutional side, and I think that it's just going to get so so much bigger.
Stephen Sikes 48:29
I mean, the obvious one, and and like both for our customers again, we serve again a relatively serious investor and trader, right? We we view ourselves as standing for you know working with those those folks and sophisticated people that care about having good outcomes, but I think what we're hearing from them in prediction markets is actually that there's like you know again it's the opportunity to hedge more discreetly right without basis risk. Hey, I I have a point of view on what the Fed's going to do. I don't want to go and you know make a play on TLT, which has basis risk relative to the ultimate Fed decision. I just want to make a play on the Fed decision. Or again, I've heard this on the institutional side too, especially like you know a lot of the the hedge fund world. Our hedge fund traders have points of view on basically every meaningful metric every quarter for every company they follow, and they get to conviction on oh, I might have conviction on Tesla's revenue, but actually I'm not really sure on guidance. So how do I play that? That's really challenging. And like you know, the prediction markets again. If we get to this world where we do see coordination between the SEC and CFTC, a prediction market on Tesla quarterly revenue creates a way for institutional traders and retail traders, the more sophisticated end, to actually monetize the research that they've done and the conviction and the points of view that they've built, which is exciting. I think that's societally useful in a way that's very different from you know we're going to win the World Cup.
Rob Hadick 49:49
Yeah, and and I don't mean to imply that I don't think those markets for retail are going to get very big as well. It's just not clear to me that we also don't just still see growth in in things like sports and and other. Things and so, if a market share will change, it won't always be 90. But I just think this type of option contract is just, in the way it's presented, is just an incredibly good product, and it's going to grow by a lot in all of these markets.
Stephen Sikes 50:14
Again, I think I sort of alluded to it with Robinhood's results, and I said, you know, we've seen a more persistent growth curve with their prediction markets business than where their crypto business was, and I think that's interesting. It's certainly less volatile from as a revenue stream, which is interesting. I agree. I think the mix will change. The one big question is like the regulatory risk. It's funny. It's the same question we had in crypto, but like now it's ported over to prediction markets, which is like, do we see a backlash if there are major changes that come out of the midterms. If there is a major change in the next presidential administration, like does that change any of the treatment or the opportunity within this business? The reality is, like, I hope not. I think we've actually created a really great new market structure for a very specific type of information and point of view, even to include sports. Right? Like, I think it's the objectively lower cost, better model for taking a point of view on 100% sports. You know, than a sports. By the way, I don't know if you saw, but
Rob Hadick 51:08
but CME came out yesterday and said, "Hey, we actually might do sports linked futures and options. Right, and this is the CME.
Speaker 1 51:15
Totally.
Sy Taylor 51:15
If there's a train leaving the station and it's got money on it, why wouldn't you jump on that train? The only thing I worry about is consumer harm in all of this, right? Like we we got to a point with regulation with some of these products where you're taking a point of view on things, and we say actually this can be advertised in such a predatory way that people just end up in a hole and do things that are not good for themselves. And I would love to see some thoughtfulness about where the boundaries of consumer harm are here, and I respect what Stephen's saying there about well, we we want to play over here where two things can be true, and I think this conversation often gets locked into like oh it's it's all gambling, therefore it's all bad, and like no, obviously this is a very efficient hedging instrument and might be one of the most efficient financial market products that we've ever seen, and it's fascinating, and we should encourage that. But where's the consumer harm conversation in all of that? And that's obviously when you're making a lot of money, it's not the first thing you want to do is turn away the consumers trying to give you money. But I do think that's probably the one thing we could we could benefit from a little bit more, guys. We are flat out of time. We should get you guys back and do a whole show on just this because it's a debate we should have, and I think it's a fascinating one. And getting into the nuances about like how efficient it is as a hedging product versus the other traditional hedging products-that's a conversation nobody's having. And yet, I bump into people from markets, and they're like, "This is wildly more efficient than anything I had on traditional exchanges. So we will make a promise right here, right now, to do that special at some point, maybe for the holidays. Who knows?
Ethan Chan 52:52
And then blending it with the perps as well, because now most of our customers they need to blend the prediction market outcomes with the perpetual prices as well. That's it's like unifying both into the same feed,
Sy Taylor 53:02
foreshadowing we're doing right here. A couple of stories we didn't have time to cover. Binance US is going to apply for a CFTC license in August for its own prediction markets. BNY targets an $8.6 trillion transfer agency market on blockchain rails. BNY, don't bet against them. Ondo Finance are weighing an acquisition for crypto infrastructure, according to sources. Go, go, you guys! And Braille launched their Ion interoperability protocol to solve the stablecoin industry's liquidity problem. That is all we had time for this week. Thank you so much, guys, for everybody for watching and listening. But Stephen, if people want to learn more about you and public and everything you're doing, where do they go to do that?
Stephen Sikes 53:47
Hit up public.com. You can find me on Twitter, Sykes underscore, or on Reddit. We have our own subreddit R slash Public app. I spend a lot of time in both those places, so try to be the easy guy to reach. Feel free to hit me up.
Sy Taylor 53:59
Heck yeah, Ethan. How about
Ethan Chan 54:01
you? Just come to alium. So we can find me on Twitter as well, Ethanish Y I S H. So nice to meet all of you.
Speaker 2 54:07
Rob,
Rob Hadick 54:08
you can find me on Twitter at Haddock M or LinkedIn and Dragonfly.xyz.
Sy Taylor 54:12
You'll find me at all the socials at S Y Taylor screaming into the void at fintechbrainfood.com and of course at tempo.xyz. And you'll find a lot more of this show if you subscribe. Hosts always bug you about this for a reason. It helps the show. So if you've enjoyed this conversation half as much as I have, hit the subscribe button and leave us a review. I think these guests deserve it. Thank you, and we'll catch you next time.