History Suggests LSTs, Not RWAs, Will Be DeFi's Treasuries | Manuel RinconCruz - Poolside

thank you so much uh welcome everyone um I'm Manny ringcon Cruz as we just said I'm here in dual capacity I'm the founder of poolside uh we are a liquidity Clearing House protocol uh for yield bearing assets we help you get integrated across defi by offering kind of quick unstaking for liquidations um but I'm actually trained as a financial historian so I'm also the co-founder along with Neil Ferguson the financial historian of Four Winds um so check us out if you're interested so I've been told that I'm here to provide a bit of a counter we to the rwas or the future narrative so I'm here to talk about liquid staking uh and this talk is very brief it comes in two parts uh the first part is the history of government debt and then the second part is the history of liquid staking so uh this is this is kind of the tagline is the future of crypto is native yield uh and so we'll return to that at the end uh this basically shows the share of all lsts uh you know as a share of all dii tvl um from 0 one% in 2021 to over 60% now uh which is quite an amazing Rise um just a quick recap here when I'm talking about crypto treasuries I really mean something that's yield bearing with very deep liquidity and a huge market cap uh the reason that this matters is this allows it to serve as collateral for other financial institutions and the native yield allows you to build very interesting new Financial intermediaries or protocols on Top This is basically the talk summarized in a meme um I will begin in fact with 1845 uh but I've been told that this is not Tucker Carlson so I don't have 40 minutes I have 15 so I will try to summarize this much faster for you um beginning with the history of government debt right so there's there's a lot we can talk about here um you know I did a PhD and this so takes forever um but I wanted to to talk about four main things right four important pieces of the development of government debt as kind of this massive fundamental financial piece of today's Financial system uh the first date is 1688 it's uh for credible commitments we then move on to the creation of exchanges then we move on to the creation of stable yield and then lastly Financial proliferation which is what we all love and know um this is the most tex I'll show you uh credible commitments here really refers to an innovation that began in the UK in Great Britain um up until that point most governments had been funded through kind of expropriation and extraction uh they would you know you would confiscate land or gold from people uh the loans that were in fact extended to Kings in Europe and other places were uh highly coercive you would kind of get a wink that you had to lend the king or something else would happen and you often did not get repaid or you got repaid back and a whole bunch of other stuff that you originally had not lent out uh the importance of 1688 and the Glorious Revolution is that this creates a constitutional order in Britain that secures property rights this is going to we'll come back to this much later but it's very important right it's you now have the ability to issue debt to borrow and for other people to know that you will in fact pay back so the risk-free rate up until this point in time uh had been private debt it had not been government debt it's only with the innovation of kind of the structure uh where uh you separate kind of the judicial legislative and executive powers that people begin to trust government debt as kind of this safe asset right that will be in fact paid back in the future the next important piece here is the creation of exchanges this happens in two great financial bubbles that you might all already know about uh it's happens around the 1720s the first one is the Mississippi Company stock bubble in France triggered by John Law who was the Minister of Finance basically to the king um and if you've ever thought about shitcoin and where that word might have been first coin this is a very famous print but you can actually see people defecating this is called the sale of stock basically it was considered you know it's the first shitcoin is actually Mississippi Company stock so it's it's a very old term um the south sea bubble happens at exactly the same time it's kind of uh instigated by my John Law's friend the Lord Londonberry in in in the UK um this is a very famous graph that I also really like you can be one of the smartest men in the history of in in history really and you can still get wrecked by the market if you don't know when to you know if you buy the top because you're aping in with your friends so uh you know this is also another uh story of stock that goes up during a massive bubble and then it goes down and so what's important here is really the places that Embrace Financial Innovation and the ones that shut it down so the French basically ban all financial markets after the 1720s the British in theory do too they passed something called the bubble act um and so there's only two companies that get a royal Charter to issue stock after the 1720s um but the reality the reality is that they leave the financial markets open and there's hundreds of companies that then issue unregistered security then then trade for 100 years in these markets so you start developing kind of this deep expertise uh for creating markets uh pricing them all these other things so a lot of practices get developed in London at around over this 100 years I promise this we'll all tie in together so you have these markets right that are technically not supposed to be used for a lot of things but the government is starting to experiment different ways of getting funding right so they they tried different Bond designs so they Tred Lottery bonds and a few other things the one that ends up succeeding is called a console which stands for Consolidated annuity it's a Perpetual instrument you can hold it as long as the government doesn't buy it back from you and it will give you 3% per year and that's it it's a they're all they're all fungible they all yield 3% um if that sounds familiar it's it's on purpose I think it it Rhymes very beautifully with ethereum today so these were first invented in 1751 but they really only come into play during the wars against Napoleon so there's there's a very famous article called The Tale of Two currencies by Michael bordo you should check it out it basically uh tries to explain the difference between British finance and French Finance so the way that Napoleon if you've seen the movie recently they might not discuss this but the way that Napoleon finan his Wars was basically through taxation he had to run a balanced budget because nobody would buy French debt nobody wanted that stuff because he would pay you back in paper that was worth nothing the British on the other hand had now this history of credible commitments for this 3% yielding thing right so they were able to issue massive amounts of it right money from all over Europe right dis possessed princes and kings send all their funds to London to buy these safe assets and as you can see here the Brits are able to run these massive budget deficits that nobody else is able to do and so they use these deficits to obviously Finance their own navies uh but also to subsidize the Allies on the continent who are actually also dying fighting Napoleon so they're basically subsidizing the rest of Europe um for for decades at a time and what happens after the end of the Napoleonic Wars is really this blossoming of financial activity because now you have a huge stock of these 3% yielding things and what do you do with them so they that's when they become collateral for a new class of entities that we're all very familiar with banks um as well as insurance companies and a host of other financial institutions and it's it's that native yield at least in Sterling right where you hold it you can now Finance the operations of that institution but you can then collateralize other types of risk taking and other types of liquidity uh so these these become very important to the functioning of London's financial markets and then obviously for the financing of commercial activity all throughout Europe so that's enough history so let's go to the history of the future right so we also begin with codes credible commitments right blockchains and smart contracts I don't think I need to talk about that too much we have permissionless exchanges right beginning 2017 then unisoft in 2020 and kind of there's amm Now everywhere um and then obviously the big moment I think in my mind happened around 2021 when you start actually getting onchain native yield right this is when you get your steady 3% and then obviously the last piece hasn't happened yet but that's kind of what I'm trying to say will happen afterwards so there's a bunch of T you know different types of yield bearing assets on chain you have real world assets which everyone just talked about liquid staking uh you do have two other classes that get overlooked uh you have collateral lending tokens so kind of your wrap C tokens or a tokens from comp and and a and you have obviously rebasing assets and currencies but we don't talk about those much there are now a bigger share of defi tvl um but if we zoom in you can see that the line share of growth and yield bearing assets is liquid staking real world assets are that kind of light medium light green thing right there it's almost insignificant uh rebasing Commodities are almost insignificant too um your collateral lending posision tokens were massive in the last bull run right that's where people were getting leverage uh they're a lot smaller today but really it's liquid staking that's driving most of you know the yield that goes on chain so uh this was this took a long time to do uh we did it with a team so it's not up to date just because we ran out of manh hours to do it before this presentation so again the future of crypto is native yield so if you just look at the share of uh lsts uh you know basically divide uh LST by D5 tvl you get this massive right it's now 60% it's the largest share of all defi asset classes so if we look at what the future of finances I you know I don't really think it's going to be real world assets I really do think it's going to be liquid staking but there's a couple other reasons um that rwas I think don't quite fit the the the definition of what you would want as your safe asset collateralizing the rest of the financial system the first one is that it's it's not as credible as code right code the beauty of this is that you don't need a constitution right it's in some ways blockchains are constitutions inscribed in mathematics RWS bring back all this kind of the confusion and intricacies of the legal code and kind of legal entities and what you do with Regulators so it kind of weakens that piece of the chain and then I think the other thing that really matters which is kind of counterintuitive is that the massive offchain liquidity for things like treasuries makes it really hard to then build onchain liquidity so then it doesn't quite play the same role that something like an LST will do and so this is kind of counterintuitive um that doesn't mean that rwas are not valuable it just means that I think they're just so anchored in the traditional Financial system that it's quite hard to move all that on chain and uh yeah so again I think that about wraps it up I just wanted to provide a historical perspective on the future of Finance future of money um I want to say I think the massive inflows happen in that kind of that yellow box uh that coincides with the Napoleonic Wars and the traditional piece that's where all the money kind of comes in into the system so I would expect lsts and lrts to get a lot larger before we then see a lot more new protocols built on top of them so um that's about it so thank you so much for your time um and I look forward to meeting you in person thanks Manny thank you thank you Manny that wraps up our defi programming and we're going to