On Ep. 3 of Stablecoin Stats, Anthony Yim, Co-Founder @ Artemis and Andrew Van Aken, Data Scientist @ Artemis discuss the impact of the Genius Bill on stablecoin regulation, surge in yield-bearing stablecoins and more!
On Ep. 3 of Stablecoin Stats, Anthony Yim, Co-Founder @ Artemis and Andrew Van Aken, Data Scientist @ Artemis discuss the impact of the Genius Bill on stablecoin regulation, surge in yield-bearing stablecoins and more!
Timestamps:
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Music by Henry McLean
Anthony Yim 00:00
Steve, welcome back to tokenized stablecoin stats. The show focused on stablecoins and the institutional adoption of tokenized real world assets. We are back again this month to dive into the stats behind the stablecoin market. My name is Anthony Yim, co founder of Artemis, a crypto analytics startup. Joining me today is my colleague and friend Andrew Van eycken, data scientist at Artemis. A quick reminder, before we get into things, I need to remind you that views or opinions of our contributors today are their own and do not necessarily reflect those of the companies they are representing. Nothing we say should be taken as tax, financial, investment or legal advice. Do your own research. And lastly, before we get into the stats, I'm thrilled to remind you that this podcast is made possible by Visa and powered by Artemis. Andrew, how's your weekend?
Andrew Van Anken 01:01
It's great now, because how does it feel to be just called a genius all the time? You know, the industry that we work in, you're just referred to as a genius. It's great. I wake up every day. I always knew it, but I just have to have the United States Government confirm that for me. So
Anthony Yim 01:15
yeah, better than the other bill, stable, right? You're stable. Andrew, nobody
Andrew Van Anken 01:19
wants to be stable. We all want to be geniuses. So it's been a pretty remarkable two weeks. Actually. I really can't believe how quickly the genius Bill moved through. And finally, get some clarity in the United States. And it seems like earnings season, which we'll get into a little bit more. But everybody was talking about it. Every analyst was asking, every company under the sun that does anything financially related, what are you doing with stable coins? And so this will be exciting to go forward. How are you doing? Sarah,
Anthony Yim 01:45
good. I like how you worked in that little unintended pun of clarity in there. I'm excited for more clarity too in crypto. And I was telling a friend of mine earlier, like, I wish we hired even more people this year, because that's just how quickly things are moving very bullish.
Andrew Van Anken 02:01
So politics is just a bunch of puns on puns. So with that, let's talk some data. Shall we? Because we have a lot to go into, because now that genius has passed, we thought we would start this section by doing sort of like a post genius state of the crypto world. And what we're doing here is we're looking at stable coin supplies since genius passed. So genius passed on July 18 in the United States, and it's been amazing to get clarity on stable coin situation United States. But the three things that genius is trying to limit or almost ban is we see the exact opposite in the data. So yield bearing stable coins, since genius has exploded, tether continues to go on, a surge of stable coin supply, and the stable coins that are backed by things other than short term Treasuries are also exploding. And so here we're looking at a change in supply and genius since the 18th and Athena USD adds $2.7 billion in supply a yield bearing stable coin. And second on this list is tether at 2.4 billion. Anthony m this is exactly what you expected, right? All the things in genius that were controversial are now increasing even more.
Anthony Yim 03:17
Crypto never ceases to surprise me, and I think that's the fun part of working in crypto,
Andrew Van Anken 03:22
exactly. And we have to add, yeah, USDC, the US regulated stablecoin supply, has lost $800 million in supply so well, it's only been a few weeks. It is interesting though, that these and Falcon finance, too is a yield bearing stablecoin. And we thought we'd start by just kind of going over, how do some of these yield bearing stable coins work, and what actually do they do? And so if you look at a few yield bearing stable coins, including Athena, Falcon finance, Sky and usdx, most of these yield bearing stable coins are actually what we call synthetic stable coins. And so while it might sound very complicated, the way that these stable coins are becoming synthetic, if you will. They don't actually hold any dollars or treasuries or anything like that. They are almost completely made up, and they have been growing very quickly. So they surged past the $10 billion supply in the beginning of July, just as genius passed, and now are working their way toward 15 billion. So the question is, how the heck do these things work? So Athena comes from a very simple design that actually originated on the bitmex exchange a while back. And what was happening there was bitmex was not allowing people to host stable coin. They could only hold Bitcoin. And so this is almost before stable coins existed, and so you had to hold Bitcoin on the platform. And in order to essentially reduce your Bitcoin exposure, let's say you wanted to go on vacation, you wanted to take a day off, you would have to go short an equal amount of bitcoin. So you would hold $50 of Bitcoin. And you would short $50 Bitcoin. So essentially, no matter what happened to the price of Bitcoin, you would always maintain this $1 if you will. And Athena decided to take this concept and now has almost institutionalized it, if you will. So they work with many leading exchanges, and they do exactly this. They have a lot of short positions open on different exchanges, and they own a lot of spot crypto. And so the amount that's available through yield, through staking, and what they collect in what's called funding rates, from being able to short things, they get a yield. And the yield is very high. So just this past month, the yield on Athena, while it started out very high at almost 25% trended downwards, but now is over 10% and we've seen this huge rush of people back into the stable coin, and so Athena is now near an all time high of yield. Anthony M, what do you make of this? It's almost kind of counterintuitive to how yields work, actually.
Anthony Yim 05:56
Yeah, I think it's kind of perplexing, because in traditional finance, right? The more demand there is for a fixed income product of some sort, the lower the effective yield is. But in this case, seems like as there's more demand for stable coins, the yield is going up. So what do you think is going on here?
Andrew Van Anken 06:17
Yeah, it's certainly not correlated to the broader market, macro market, macro market, if you will. A lot of times these rates are determined by how many people are using exchanges. So if the exchange lacks a lot of short positions, they might pay out a higher short rate for people to incentivize to come in and short a product. And so the yield may go up there. And so there's definitely a lot of factors at play here. What do you think of this, like, synthetic design of a stable coin of you know, not holding any government yield or anything like that. Like, do you think that has this staying power going forward?
Anthony Yim 06:51
Yeah, it's interesting, because I've been thinking about why would say, like an institution want to hold something like USD over, say, like a Fiat backed stable coin. I think one thing that came to mind is like it comes from very novel source, and so as say, the confidence in the US government and its ability to pay off its debt, let's say that wanes the global confidence of that wanes like maybe institutions want to have exposure to a different type of yield product that is less directly tied to, say, the US government, USS government's ability to control inflation or to issue more debt. And so I think it's early, you know, I think the US still, as you can see from 99.99% of stable coins being us all denominated, the overall confidence the US government's still quite high. But I don't think it's controversial for me to say that's like the world order in the next 1020, 30 years can be very different. This world is very different than the post World War Two world, you know, China is. I think there's gonna be some kind of like duopoly going on. Who knows, right? And so I think that's the really interesting part to me, where I think if you can be this very different source of yield for people who want to go safe haven product,
Andrew Van Anken 08:04
yeah, exactly. And we're even seeing this now getting mainstream adoption. And just recently, the telegram native wallet introduced us D right into the almost the homepage of the wallet. So this is actually an image of my telegram wallet, where now I can earn 20% APY by using usde. They might be paying out incentives here, but the reality is, this type of product is not just reserved for crypto degens, if you will. It's being put into these highly utilized channels, and I'm serving on the front page of telegram. And so I have to laugh once again, you know, I live in the United States, and under genius, you know, I probably won't have access to tether or yield bearing stable coins. And here on the whole gadget of Telegram, I can access both yield bearing stable coins and tether. So while genius will take a long while to go into effect, the market has clearly said we want these types of things.
Anthony Yim 09:00
Yeah, it's almost like crypto does its own thing, regardless of the genius bill. And I think there's kind of like this dichotomy that happens where it's like crypto, it's just like global, you know, it's like, I think we, as an American company, I thought it's like, oh, you know, genius bill passing. Is all these, like, genius related things gonna happen? But actually, like, crypto just does its own thing.
Andrew Van Anken 09:20
Yeah, exactly. These trends have been going on for a long time, and so it's almost like, Well, I think it'll be another leg up for the American based stable coins. So companies like Fiserv, companies like Jack Henry, can start to investigate, you know, how do we actually use stable coins in a compliant manner within the United States? But if you live in a country outside the United States, and you're using tether and you're using Athena, you don't really care about genius, because these products are serving you very well, and you're very happy with them. So it definitely opens up this new corner of the market, which we haven't quite seen yet. Companies are still obviously validating what to do, but the market. It just keeps moving on, and we continue to see stablecoin adoption.
Anthony Yim 10:03
And for the audience members who are not familiar with Jack Henry, can you say like a 10 seconds intro of what Jack Henry is? Yeah, so Jack Henry
Andrew Van Anken 10:11
provides a variety of products for almost like these community banks. And so it's pretty amazing. The company, I believe, was started in almost 50 years ago, and have just continued to innovate and provide this one stop solution for community banks from a range of AML, KYC, all sorts of innovative banking products. So I could see them moving into this space and allowing community banks to access this and it's a good segue, because why is genius so against yield to begin with. And I thought this quote from alchemy CEO Alex Schuman really demonstrated this very well, where he said the possibility that stable coins could just blow up the entire community bank and credit union system. And he talks about this from a question that he got from an analyst, saying, Yeah, stable coins could possibly just blow up the entire system. And what he's really referring to here is he's afraid that stable coins that offer yield, people would just leave their savings accounts that are earning a half percent, 1% 1.5% because they can just go and get a treasury yield. And so while this may be overblown, it is something that is coming up more and more of why companies aren't offering yield, and it's to protect these small banks. What are your thoughts on this? Do you think that the community banking system is just gonna implode
Anthony Yim 11:32
tomorrow? I don't think so. You know, I think at the end day, there needs to be some physical presence for a bank, right? It's like, you know, I'm not the biggest fan of, like, the banks I use. I mean, it's not Instagram or Tiktok, like a fun app, but in the day, right? I rely on my bank to get a mortgage, or, like, if I'm a small business, like, get a small business loan to get my business started. And I think at the end of the day, like these community banks would know their communities the best in terms of underwriting. Like, hey, let's say Bob wants to open Bob's Burgers in this small town in Nebraska. Like, can a purely on chain? Or, like, centralized business builder underwrite that? Well, I don't think so. I think it requires, like, a local touch, right? And that's why you see, like, you know, I think real estate investment is a very local phenomena. Like, it's hard to invest in property, you know, I live in New York. It's hard for me to invest in property in Barcelona. I don't know anything about Barcelona. And so I think there's always this component that it's gonna be very local. And I know we were big fans of the state porn sandwich on the tokenized podcast, I do believe that a lot of these community banks have an opportunity to leverage this stable coin sandwich and again, like offer what they're really good at, which is knowing their community members really well and using stable coins and technology to operate a lot more efficiently.
Andrew Van Anken 12:55
Yeah, I know. I absolutely agree, and there's definitely localized knowledge that, yeah, people need within banking, and it's not just people aren't just going to leave for stable coins as many advantages they provide. The second thing we want to talk about is the number of stable coins by backing have been increasing very much. So if you're on the go listening, the number of stable coins above $10 million in supply that were backed by Fiat. So just holding dollars, euros, et cetera, versus stable coins that were collateralized by Ethereum, Bitcoin used to be growing relatively at the same rate. So in the beginning of 2022 there was about 15 stable coins that were Fiat backed and 15 that were crypto backed, that were above 2 million in supply. Fast forward to today, and that gap has significantly widened. So we estimate there are about 50 stable coins that are above $10 million in supply that are crypto backed, versus about 30 that are Fiat.
Anthony Yim 13:54
Oh, wow, that's quite surprising, right? I feel like all we hear about it's like circle and tether and what type of crypto, what tokens are in these crypto packed stable coins? Yeah. So a good example would
Andrew Van Anken 14:06
be Ave go, which allows you to deposit different types of Ethereum. You can actually deposit stable coins in and that allows you to mint a stable coin for yourself. And so you're kind of taking a loan out on your crypto collateral. But as we know from genius, stable coins can only hold a certain type of short term Treasury asset and crypto backed stable coins have continued to grow at a rapid pace. But when you look at the total supply of stable coins, it still is 90% Fiat dominated. So here we're looking at our chart of Fiat versus crypto backing by supply. And there's over two $30 billion of stable coins in Fiat, primarily tether and USDC. And so while people like to experiment with these different types of stable coins, the reality is the market wants Fiat stable coins. And so we see this very well here. Uh, Anthony, would you ever hold a crypto backed stable coin? Or what would it have to be backed by for you to hold one? Hmm,
Anthony Yim 15:06
for sure, like Bitcoin, I would say, um, maybe Ethereum at this point, but especially with all the Ethereum DTS coming online and and s bet. But I am a more conservative investor, and so I, especially as a startup founder, where I don't have that much liquidity, I try to not lose too much money. Made a way to make rent. And so that this life of a entrepreneur, what you what would
Andrew Van Anken 15:34
you hope so say it's just say we won't see an sbat back stable coin release from you anytime soon.
Anthony Yim 15:41
For now, no, we'll see you one day.
Andrew Van Anken 15:43
Yeah, probably the majors. I know. I think JP Morgan recently announced that they're allowing clients to take Bitcoin loans out at least. So we could see this market widen, depending on how regulation plays out and what exactly is a loan versus a stable coin. But yeah, we'll continue to keep monitor this. And then touching on the yield point again, Treasury, it also seems like people agree with you, Anthony, in that people really just want the safest assets to be in their stable coin. And so here we're looking at a chart of tokenized treasuries over time from our Artemis dashboard, and you can clearly see that treasuries used to be, I remember when it was a billion dollars market cap, and, you know, late 2023 and now it's grown over to 5 billion. And so while genius says, Yeah, you can only hold short term, you know, duration treasury bills, like the market is also saying, okay, yeah, we also want that as well. And so you can clearly see this beautiful growth of treasuries. And so I was very jealous of all the tokenized people talking about the stable coin sandwich, and I needed a food analogy of my own. And so here we introducing the yield cannoli. The yield cannoli works like this. You have tether and USDC making a good amount of money eating the best part of the cannoli. On one end, they're earning a lot of money. And in the middle, I'm not discounting, you know, the exchanges, because some of them do pass on the yield to consumers. But and the cookie part of the cannoli is still pretty good. But if you're holding, you know, these USDC usdt products in exchanges or self cost deal wallets, sometimes you don't earn a yield. And so while you do get the good cookie part, and you can send stable coins everywhere in the world. You're not getting the best part, but all the way at the other end of the canola, you can take those and put them into Ave maple, et cetera, and earn a good amount of yield. And so I know our user base is just salivating over the cannolis right now. So yeah, there we go.
Anthony Yim 17:35
Also. I mean, back to the cannoli like, that's why I think our friends at m zero and agora are are doing what they're doing right to let builders have control over how the yield is divvied up amongst different players in the space, unlike, sort of the more traditional model, where circle holds on to, well, I guess it depends on who they're working with, exactly. I think circle passed a lot of the yield to Coinbase were Coinbase example, but, but there's no, like programmability into how the yield is shared amongst participants.
Andrew Van Anken 18:07
Yeah, so it's almost depending on your use case. You could pass the yield on in different amounts depending on different incentives, et cetera. Yeah, absolutely.
Anthony Yim 18:18
So, Andrew, what are your reflections, sort of in this post genius world. Are you seeing the after effects in the data? Yeah. So I
Andrew Van Anken 18:26
think our three takeaways from genius are really opposite of genius, and it's great to get us clarity on genius, but in reality, we're seeing yield bearing stable coins explode. Their supply has gone parabolic recently, and we also see tether, which debatable. If tether can operate in the US Post genius, they continue to lead supply increases, adding billions of dollars each week. And honestly, we're not seeing the direct effects of genius yet. It's probably still too early for a lot of these companies. But yeah, I'm curious, Anthony, you know, why haven't we seen that yet? Or when do you think, or who do you think will even capitalize on this opportunity?
Anthony Yim 19:02
Yeah, I mean, I think at the end technology deployment, especially like novel technology, like stable coin, just take a while to proliferate in incumbent businesses like Jack Henry or Paypal or or visa. I mean, those are large companies with with existing infrastructure already, and it's just not gonna be overnight to be able to, like, switch your back end, to be using Swift and ACH to leveraging the same coin sandwich and and so with that in mind, like, I think PayPal actually announced some really interesting developments last week. Post, genius. Yeah,
Andrew Van Anken 19:36
so PayPal announces PayPal world, a global platform that allows interoperability of PayPal, Venmo UPI, all these Mercado Pago, all these regions around the world. And it's funny, because we've always been saying stable coins are global Venmo, and here you have PayPal introducing global Venmo. Anthony, were you surprised over that this? This makes. Science, right? Global Venmo.
Anthony Yim 20:01
I didn't really see this announcement circular amongst sort of crypto Twitter, but I think it's especially as somebody who wrote a lot of the Venmo backend code, the payments code and the ledger, it is extremely instrumental. Actually, I think it's a holy world, because for the longest time, especially early days in Venmo, like there were just so much demand. Every time I traveled and I told people, like, oh, you know, they asked me where I work. I was like, I work at Venmo. And these are folks like, in Spain or Italy or or even Hong Kong. They're not Americans. They've never used Venmo, but they somehow heard of Venmo. They're like, Oh, I wish I have Venmo in in my city or in my country. And I'm like, sorry, I can't help because Venmo is built entirely on on Ach, but like that day is over, like that now, with this PayPal world announcement, anybody on Venmo can pay anybody else on the entire like PayPal network. And so it's really cool to see PayPal leading into its strength of having built this two sided network, essentially consumers and merchants, and actually, like leveraging the beauty of crypto and stable coins, which is borderless finance, or, as Patrick Collison likes to say it, and actually, like turn that into a product. And so I'm really excited to see where this goes, given, especially like the sort of brand reach of Venmo,
Andrew Van Anken 21:19
yeah. And we actually see this. A lot of trends in the data to indicate that this is a really great idea of PayPal to move forward. The first is weekly card volumes on crypto Rails has been growing at an astonishing rate. It was about zero in June of 2023 and now weekly volumes are about close to $11 million between a handful of providers. So there's definitely this demand of now people getting stable coins. You know, what do you do with them? And like you've said before, the card factor is like this perfect way to off ramp crypto. And so we've just seen this explosion of crypto volumes. And also PayPal was probably looking at the data themselves and saying, hey, you know, a lot of people are starting to use this for PDP transfers. So here we're looking at a chart of p, y, u, s, d, what we call P to P transfers, or blockchain address to address transfers. And it had hit a new monthly high in July, about $3 billion between Solana and Ethereum. PayPal has also recently expanded to arbitrum and stellar, and so both low cost chains stellar, which is really prioritizing these P to P payments. And so clearly, all indications and data suggest that PayPal is going towards this global Venmo system. And I think they're really leaning into their strengths here. And when you look at pyusd across on chain activity, and here we're looking at pysd houses divided in between defi, centralized exchanges and bridges. And when py USD first came out, and it first crossed over the billion dollar mark, there's this huge defi surge, this green in the middle, which since came down through incentives, but now you can see this purple here of huge volumes of pyosd Moving on to centralized exchanges, and so another indication that PayPal is really leading to restraints of working with these payment processing companies, exchanges, et cetera, to really provide liquidity and the ability to transfer by USD. Does this surprise you at all? Anthony,
Anthony Yim 23:21
no. I mean, I think it makes a ton of sense that they would leverage sort of the centralized exchanges. Because by using centralized exchanges and in a hybrid solution where they also use an internal ledger to settle between your Venmo paying somebody at PayPal, it's all within the same system, you can actually probably outperform the performance of just a pure blockchain solution, because I think people forget that an internal update to a SQL database for debiting one user and then crediting another user. That's even cheaper than using stable coins. The electricity cost to update a row in a SQL database and AWS server, which is orders of magnitude less than to execute a transaction on a blockchain. And so again, I think to our point earlier, where it's like PayPal is now really leading into their strengths. I think that's a hybrid solution, where it's, you know, they use their own centralized ledger. They use some their own or partner with sex to facilitate these transactions is the way to go. And one more thought popped up in my head as you were talking about PayPal that I think, again, is very underappreciated, is that the reason why people use Venmo, especially early on, is that you don't have to know the other person's email address or phone number. You actually just look them up by their name, and it's a pain in the butt to even remember. I don't know what your Gmail is, Andrew, I don't know, right, but I know your name. And so crypto has an even bigger problem where it's like, I need to know your wallet address, which is like, I can't even memorize that, right? I can remember as your email. And so if PayPal can lean into that feature of Venmo where I. Type your name up, I can see that, hey, Andrew has like, two mutual friends with me. This the right Andrew, as opposed to the other Andrew. And then just to use the back end, and the back end is all just stable coins. The front end is this very user friendly experience. I think PayPal can win in this new world. And so I'm really excited to see sort of PayPal leading in, into this new world and being very, sort of innovative here. And, yeah, I'm excited to see where things go.
Andrew Van Anken 25:23
Yeah, and the growth clearly looks up. They started, they're a little bit of a late comer and but now they're one of a handful of companies, and now have over $1 billion in circulating supply. So congrats to PayPal. Finally, on our we have a new segment, the lightning round stats, and this is from Andrew spending way too much time pouring through company earnings, looking at slides. And so this past earning season, there were over 40 companies in the United States that mentioned stable coins. Visa disclosed that since 2020 they have processed $25 billion plus in car length stable coin volume, wisdom trees, assets under management, I believe they double to about two $50 million Coinbase makes a lot of money from stable coin income and cubics, the customer bank platform, but it's almost a replacement to send and Signet. They claimed that they processed over $1.5 trillion in volume, mostly coming from the digital asset company in 2024 and so pretty fascinating to see that cupix really just replaced send and Signet, and it's really going all in there. And what I thought a very interesting slide coming back to PayPal one more time is on the slide from their investor day, PayPal lists the three strategic growth drivers for the company. First, of course, is AI, you know, which will everyone's talking about. Then comes advertising. But third is crypto and stable coins. So stable coins have really become almost equal footing with AI for a lot of these financial companies. And I think we kind of alluded this to this earlier, but post genius, we're still in this almost like talking about it. Phase where, here's what we're looking at is the number of times that stable coins were mentioned on q2 earnings calls of different companies. And so actually, Visa took the lead with they mentioned stable coins 31 times. Oh, wow, more than Coinbase, more than PayPal, more than MasterCard. And so they're clearly trying to be the leader here. And every company gets accessed about this by investment analysts. You know, what is your stable coins strategy, almost, and so some companies had better responses than others. But you know, you can clearly see by this chart who's really leaning into stable points.
Anthony Yim 27:35
You're almost giving away the sales pipeline, that stable income should be, should be going after we should get paid for the slide
Andrew Van Anken 27:42
exactly, if you're, you know, if you're a circle, if you're issuing your own stable client, you know, here's the companies to go to, because they are, they are eating it up. And so lastly, I thought I'd just highlight one more slide here. This is the cubics platform that we talked about earlier, from customers bank. They, for the first time, disclosed their payment volumes via cubics, and they say that they're doing about $1.5 trillion annualized per year. And this is a 24/7 network similar to send insignet to move cash from stable coins to cash. It's run both their own API, and this was the first time I saw this, and I circulated it to a few people deep in the stable coin industry, and they This was actually the first time they saw this too. So we want to tip our hat to our we don't know any friends at customer bank, but hopefully we'll, we'll get to know them someday, because they're really doing something interesting
Anthony Yim 28:32
here. Well, thanks, Andrew. That is all the time we have for today. So thank you again, so much for listening and watching, Andrew. Where can people find out more about you?
Andrew Van Anken 28:42
Well, they can follow us at Artemis. We post a lot of interesting stablecoin insights there, and try to push good content onto our readers. We have our monthly stablecoin report coming out soon, so we'll be sure to put it there first.
Anthony Yim 28:55
And you can find me at Anthony Yim on X or LinkedIn. And if you haven't already, please subscribe to the tokenized podcast on Apple Spotify, or whatever podcast platform you prefer. Finally, if you enjoyed this and you want more, leave us a view. It really helps others find out about the show. Stay stable everyone.