PANEL: Stablecoins Connecting Institutions with DeFi Opportunities

um we're here to oh yeah it is uh we're here to talk about stable coins and how institutions can utilize stable coins with defi opportunities um I'm Tessa from F club which is Bank list Dows investment Dow I'm also the head of market research for the flash Bots team so I'm going to introduce my panel or actually they're going to introduce themselves and we'll get right at it hi my name is James briette uh I'm a co-founder and partner at a liquid fund called Flor and digital uh we focus on early stage opportuni with tokens uh previously I was a exzac at a number of I guess crypto protocols fintechs and uh deep tech companies and I think I'm on this panel because uh in in a previous life I worked with some of the biggest Financial companies on Earth my name is R hipper I work at chaining Labs doing strategic accounts uh in my previous job I worked on a couple of cbdc projects at Major consultancies and a couple of tokenization project with major Banks and trafi institutions I'm Terence uh head of growth at Arrow handle a lot of the institutional products that we're going to launch in the upcoming months uh always defi hey everyone I'm onto lot I'm head of BD at Oiler uh and we are landing protocol launching very soon that's going to be very modular flexible and efficient all right thanks for that um starting with you James what Market opportunities do you see institutional players gravitating toward word within crypto space uh I think the most obvious is is payments and I think I'll take a little contan approaches I think actually the biggest market for this is United States and so if you think about where money lives half of the financial institutions half of the money in the world is in the US uh you also have some of the biggest credit card companies facilitating the most transactions um so I think that is an area to be completely disrupted I think defi is a really easy inroad to that if you look at the banking system these are this a software that was built 30 40 years ago and we've you know massively overhauled it with this this decentralized Ledger um I think the first step there is smart regulation and allowing you know people to figure this out people to put rules on paper so companies like Oiler companies like chain link daero Etc can actually operate in these markets so I would say the largest institutional opportunity is most definitely payments um and where I would say it lives where the most money lives bro what do you think I think I would break it down between buy side sell side and infrastru rure where the cell side sees for example makeer Dow they see I know the bidle fund these kinds of places they see Dows acre a lot of money in a lot of value and they want to sell to them so they want to tokenize uh treasuries for example bring those on chain and basically do what they do in trafi but then in defi um the buy side is much more interested in earning for example the yield that exists in defi so if they feel like they can fairly safely capture yield um what they might be doing is building frankly something fairly similar like Aina for example where they capture a particular yield that exists in Defi and try to sell that to somebody else uh usually and then there's a whole bunch of infrastructure companies and often infrastructure is part of this where it's all about hey this is actually a lot more efficient than what we're doing now so how about we try to you know utilize the blockchain to settle particular transactions for example so stable coin transactions is one of those things um and frankly we work with a lot of those places often like for example a Swift and a dtcc uh which is much more about capturing basically the difference between between what you're paying now for a transaction versus what you could be paying if you use uh blockchains so there's really like three different places frankly in Terence what do you see at daero uh we kind of found that most institutions are limited to one of two options either investing in products through the ETP side of things or funds um both these products are like severely like underserving right um on the ETP side of things there's a lot of like yield or carry uh left on the table and on the funds they are super Limited in terms of what they offer uh in terms of like compliance these guys are basically just running like validators inhouse um so we're kind of trying to do is address that uh it's kind of solving like coming liquidity issues um yeah offering solutions for guys that are allocating to either like Bitcoin or eth and just leaving a lot on the table Antoine yeah I mean the I think globally um for institutions and even if for get institutions it's like crossb transactions and payments I agree with uh with James but on our side at order we see main you know institution using um you know stable coins to uh to trade so you know to yield use them as collateral to borrow more and like create some strategies and we mustn't forget that at the end of the day uh also stable coins allow these institutions institutional players to have a unit of account on which they can really um you know materialize and and translate profit in in a number that is understood by their LPS so it really it's really the lifeblood of t as well uh in that extent but overall in volumes I think it will be a crossb transactions and payments yeah so do you all agree that it's mainly a US Focus thing or do you feel like there's other geographies involved I mean not at all because if you look at uh today the the places where you know stable coin will be stable coins will be the most most used is it is definitely us and uh Europe and Asia and you know jurisdictions where there is some sort of regulatory Clarity around stable coins and where you know actors are encouraged to uh have a lot of transparency around the collateralization factors and um and onboarding uh processes Etc but we see that in emerging economies stable coins are used to a much broader extent by the population and this means that institutions there will have to follow so I think it's a pretty Global movement but I hope that all over the world the regulatory stunners that we see in the US and in Europe will become uh a normal yeah for us we're staying out of the US uh for now um mostly like Europe in Middle East North Africa but um yeah getting there hopefully yeah I mean if you look at the uh the global AUM as you would call T tbll in nor institutional language about 75% is in the US and Switzerland so if you look at just where are the dollars that's that's probably still the place and then James next question for you is is there a stable coin that institutions prefer is it just usdt or usdc or what about these other smaller algo stable coins um I mean from our perspective I guess if you're counting us as an institution we're small fun so uh we have no real preference but I think understanding the risk paramor of each is this a you know Fiat back stable coin is this something that's you know backed by lever dog or like what what actually what do I actually own um I think people use the stable coin the word stable coin uh pretty broadly but then you know people look at usdc for for stability well that dpeg 7% and you needed a stroke of God to bring it back and you know when svb failed like I think there's a lot of issues around what these things actually are but uh I would say institutions there's ones they don't prefer they they would you know go against but I can't say that anyone is like oh we're you know Die Hard tether Die Hard usdc do you guys find the same it's tether versus usdc for major stable coin dominance I do think this might change in the future especially when you look at for example uh the recent MAA laws in in European Union where one thing that's actually quite relevant to funds and institutions is if you hold a usdc it isn't a dollar you have to actually know what it's worth you have to mark it every day at the actual value which brings a bunch of accounting overhead uh well if you were a m compy fly stable coin you can just hold it on the books as though it is the fiat currency for example um so that might make that a lot easier um and we might frankly see a lot more growth of mik compliance stable coins just for that reason alone yeah uh I think it comes down to like liquidity preference um and that ends up being usdc and usdt it's the boring answer but uh they're not letting us accept like in kind and algo Stables you know so there yeah similar um how sophisticated are are your institutional investors I'll start with you Terren uh they're not sophisticated um yeah I hope they're not watching this but um yeah they're they're just like relatively um unexposed like they're new institutions our product is not so much something that I don't think anyone here would really be using so much it's not def focused like we're defi Natives and we're good at building liquidity infrastructure and yield uh that hopefully scales um but yeah these are guys that are sitting on like ridiculous like nine figure stacks of ethereum or Bitcoin um and leaving a lot of money on the table so yeah if you're an institution um they've really only been able to pun money into these funds that are like I said like running in-house validators and that's like two three points uh like two after fees so yeah what we're doing is almost twice that um just because of yeah know we took what we already had address like homing liquidity and it looks to be working but these aren't guys that uh have ever like dabbled in D5 at all these are guys like just directionally long and not trying to do much else andon what do you see so yeah the vast majority of Institutions are really not familiar with Define there's a couple of yield funds and hedge funds which are extremely sophisticated and now we start seeing more and more of these hedphones that were trading in centralized exchanges now starting to dip their toes into defi um also there's a few I would say kind of hybrid players that do a bit of VC so can you know be investing in a stable compy and then um and then um lping um and all of the various use cases around the stable coin what I would say is that there starts to be and we see it at at or there a lot of initiatives around um experts in risk or in structuring products or even regulated entities that want to build kind of like Structured Products and composer products where stable coin is a use a unit of account so basically what it means is that you deposit some Stables into a pool and a pool or whatever instrument Revolt this runs a strategy that brings yield and then this instrument can even you know you can even add permissioning around it and compliance and it can then be distributed to you know family offices we start seeing that and hear about this a couple years ago was Unthinkable um DS and treasuries that's a bit more straightforward but you know the ones that don't want to actively trade and another use case that we love to see happen closely in the future I know some of you here are looking at it is you know why doesn't the yield uh that people earn on you know their bank account or their ftech app or whatnot what doesn't it come from uh from defi right so there's a lot of composability now and and compliance solutions that can make that happen I think you touched on a really interesting point on like the the compliance rapper like we get this question all the time is like how do I know I'm not trading with like El Chapo or North Korea and like as soon as someone has that compliant rapper that you institutions are comfortable with and they're going to use like that's that's the horse you want to be behind I mean I I think that that's I couldn't tell you how many times we get that question and it's a really difficult one to answer with with real accuracy and so I think there's a number of teams working on stuff like that um but as soon as that's something there I think you're going to really see the the inflow of capital because they can understand that they're not you know facilitating terrorism or they're they're okay with it they're not going to lose their job because of what they've you know decided to do on chain in this weird defi world so you're saying people kind of prefer the Athena style where it's a CI trade coming on chain into defi I don't know if I would say that they prefer it as a uh I mean I think it's a I don't think people are thinking of it as a stable coin I think they're thinking of it as a structured product which I think is completely fair but um I I think the the biggest issue again I would say is making sure that you know who your counterparties are and if you're in a you know three poool on curve do you actually know that this is a pool where you know some militant group is you know earning some yield as well R any insights yeah I think you did see a massive uh increase in the sophistication at least defi sophistication um in 2021 and 2022 when we were talking to like central banks they were completely uninterested in any of this stuff and then suddenly money was like sprouting out of the ground across all of Thea everybody was earning 7,000 yield and oh my God you know was it like Olympus da went to like 7,000 per or whatever um that's when they got really interested because even though they were skeptical of the amounts that were being earned that's money and you know I'm trying to sell to people I'm trying to earn from people yield is basically the lifeblood of this kind of kind of industry um and they increase a lot of sophistication so that's when you for example saw central banks forking Unis Swap and forking curve and trying out for example a and talking to us about how can I get into this lending game and they wouldn't do it on public chains for the reasons that you mentioned um but they would spin up a hyperledger instance and have like four central banks collaborate on Unis swap which makes some sense somewhere but maybe not at that at that time um and what you're seeing now is they're getting more and more comfortable with these public chains through like for example this kyc AML wrapper um stuff like chainalysis frankly as well uh and they are increasingly getting comfortable with it and you see this like curve from between let's say uh oper and flow traders who are making markets on frankly dog tokens sometimes in defi uh all the way to the most Boomer banks that might even be looking at buying Bitcoin at this point in an ETF form so you're saying institutions are not air drop point farming quite yet well no probably not no um how do you think are how are they managing their risk especially their stable coin risk that's a very good question I think the um I mean this is their business like as as a bank the fundamental thing you do is I'm earning 3% yield by extending alone your risk of default is like 2 and a half% and it cost me 0.2% to actually uh do the operational okay I can clear 3% maybe that's worth it maybe that's not worth it this type of risk tradeoff is what they do so they look very deeply at counterparty risk in particular uh at least like the big Banks and the central banks and in that case there's there's only a couple real names you're going to work with so like that would be for example the circle right because the treasuries are with like what is Black Rock um and similar to something like like a Biddle fund or whatever like you need to know exactly who's holding your money and how safe that party is um if you look at you know further down the risk curve you know the prop funds and stuff that's probably going to be a little bit different but yeah the big banks that I worked with at the time if it's not Black Rock we're not really interested are you seeing something similar terance are they looking down to where like say a or even a chain link or mainly just you know regulated stable coin insurers yeah um in terms of like the stable coin hedging thing I think that uh they're already hedged right like they're stable coins are on demand liabilities and like on the other side of the table like they're just sitting on bills or whatever it might be um for us like what we see is like they don't even really sit in stable coins maybe it's just like the investors we're working with but these family offices are they'd rather like send us usdc to get into a fund than they would uh go through the bank and we can do it like uh we can take money as hard fund through like UBS wealth management right and you'd think these guys have preference for that and some definitely do but um yeah at the same time a lot of them will opt for just like let's just send them tether um let's just send them dollars um maybe it's just it's the easiest to understand like you're saying go check the balance sheet and make sure the money's there but uh yeah it's pretty boring to be honest Antoine yeah I mean it's quite similar I guess three factors are you know transparency one collateralization um compliance is one thing and then maybe liquidity as well I mean usually uh you know institutions prefer St with tons of liquidity so yeah James what about you you sitting on the the fun side um I mean I think Terence touched on a really funny Point like anytime we can take Subs in in stable coins we do it because again we're regulated entity in the Cayman like I I'm people can find me if they need to find me like we're not we're not breaking any rules regulations and we're trying to be above board with all this stuff but for us to get a wire from a US bank takes 7 days I mean people understand in this room that moving stable Quint does not take 7 days and so just from a practical standpoint it's it just makes sense um to Ro's point the the fact that it's not exactly marked at a dollar is frustrating it's really annoying going back to NLP and saying hey you know you sent us a million usdc but it's worth it's only worth $ 999,000 etc etc um but aside from that I mean we we vastly prefer stable coins I mean if our vendors take stable coins like we'll send them stable coins I mean it's just a it's a better horse it's a better mous trap um is there any opportunities for you guys to collaborate or for institutionalsales and say regulatory bodies is there anything happening in that sort of front um we're kind of doing something here so what we're doing at aner is basically we started with the LST um just like on the premise of ownership of blog space right um and the idea that it's like a very good form of collateral um so we first we launched the LST and now we've gotten into this like institutional mess with the LST um and it's boring like you mentioned like these permission rappers are just these legal rappers are just like permission tokens right so they're only mental by the fund but um once you get there you're in a really cool spot where you can start um minting like the stable coins against this like permission CDP um which is going to be the next phase of things that we do um so yeah you end up with this very cool like closed loop system uh for baring within the fund um and that's that's what how we're approaching it but yeah I mean on our side um the main collaborations that the vast majority of uh of uh stable coin issuers will want to have their assets used as Cal to be lent out on oer um which is going to be super interesting it adds liquidity can enable them for the yield bearing ones to have even more minting for example um and so on and so forth and um I mean on the on the you said on the regulatory side we've added uh the possibility to add permissioning and wrappers around the markets for people that want to have um solutions that fit any you know regulatory environment they're they're involved with so um modularity I think for us is what brings solutions to people that want to use stable as collateral as a lendable asset and for the those that want to create Market rer James anything Tad no I think I DEA with what everyone kind of said here I think the the biggest thing especially for the US market is just put put rules down I mean there's no there's no idea people have no idea what they're trying to do I mean I think crypto in general like the people are efficient at finding new ways to do things we just actually need guard rails or goalpost to to try to swing between and I think once we have that there's there's a lot of really interesting builders that are doing a lot of really interesting things um but the first step is is finding the parameters that they need to operate within so besides maik is there any sort of upcoming regulatory uh changes that you guys are saying okay this is going to be a game changer for stable coins I think all the regulations that's going to come out people are going to throw their hands up in the air and say what the hell is this um but then they'll go back to the drawing board and realize that we can comply with this we can do these things in a thoughtful way and it's not really going to limit what you can actually do with defa I think that's one of the you know really really beautiful things about it is that you have the ability to accommodate you have the ability to evolve with with the things that you're working with day in and day out where that's not an advantage that trafi has like they they can't pivot quickly they can't move and ship quickly so I I think like I said the the regulation's going to suck and then everyone's going to be mad about it and then we'll go on our merry way and it'll be completely fine yeah I mean you in normal banking you have so for example you have a very large Bank in the Netherlands they have about 50,000 employees about half of those are involved in just keeping the license so you're going to have a lot of really stinky licenses coming out over the next couple years and even M people were complaining there's some good in there there's some bad in there um but if you look at the more pragmatic regulatory regimes who are more willing to be you know well pragmatic about it um you're probably looking at like the UK Hong Kong Singapore maybe Dubai as well and I'm not saying they did it well or they did it poorly but they're more likely to keep evolving this piece of legislation over the next couple years and get to a place that's actually nice and useful and I think Mika is actually quite important because it's such an enormous Market um at least it gives Clarity like even if it's not the right Hoops you want to jump through it shows you what you need to do and it's it's clear and we have we see actual um like def5 protocols we see multiple different parties try to jump through these hoops because at least now they know what they're supposed to do so at least that gives a Clarity yeah we're we're really reliant on like asset managers that are willing to like and pet push the balance basically uh similar to like protocols that like James is saying like are willing to like move fast uh asset managers that are willing to move fast are just as important um because until there is some clarity right like you have to kind of operate Within These like pre-existing constraints um so you can do your best right you can work on identifying counterparties and comingling and things like that but um until there's some like systemic Clarity uh yeah we're really relying on these asset managers that are willing to come in and say okay if we can operate on a similar framework and Within These bounds um let's work on offering these products and I think that's like more important than anything else because that's what really Spurs like this regulatory change right I think very very quickly also touching upon that point what a lot of people don't realize is that very often when you issue a stable coin the entire Tech stack needs to be approved by the regulator so for example if you want to go to a new L2 you have to go back to your regulator and show them what you're actually issuing on how it works all this kind of stuff all these Bridges um these Regulators need to actually get comfortable with what they're dealing with because they've never seen any of this stuff like in my previous job I had to explain to a central bank what the concept of metamask is like it what is the bank who is holding this asset for you it's me like they it took multiple hours of workshops for them to even get ahead of that and as they get more comfortable with this as they've seen this L2 a couple times as they've seen this bre a couple times and understand the concepts things will move a lot faster I think yeah yeah it's really interesting right cuz like 95% I would say of like our job today is like education like dealing with these asset managers and all these instit tions especially these family offices that like are you know looking at things like okay I want crypto exposure and then they hear Define they like okay we can go one step further um yeah we end up like doing so much explaining it's like you know they don't understand in terms of yield everything's in terms of carry they don't understand a two token model it's a Junior and senior trench um it's all education um which is kind of weird right because you'd think that these guys would be in a little bit of a better place and should probably be educating us but it's actually backwards um it's really like going to zero to one in terms of what should we actually be regulating whether they rather than should we or should we not be allowing this yeah nothing to add here except um on our particular case um you know module structure will enable people to build synthetic assets on top of of the lending market so I suspect that some of these will be stable coins and then it's you know how how do they do that with confidence uh depending on their jurisdiction they're operating in right so yeah the faster we have clear and I mean p not intended stable regulation the better off will be I guess one more question that I'm kind of curious about is institutions are already investing in say things that they know about treasuries being on chain are there other world world assets that you're seeing them use stable coins to invest in like tokenized gold tokenized real estate which we talked about earlier is that something that's of Interest yeah I mean today there's like tons of solutions for um for treasuries um there's even maybe in some cases more uh service providers than than treasuries themselves and I think if you know what's the most important thing is obviously for the yield to be attractive but for you know the risk adjusted uh return and profile of the asset to be super clear um I think definitely treasuries prefer to just deploy in Stables into Solutions rather than to have to offramp to some sort of desk that you know they don't really know what's going on or you know even their their Community is not not really uh aware of even though some of these you know service providers are like super experienced companies so I think uh yeah Simplicity to access transparency and probably liquidity so with that in mind um yes there's a lot of cool stuff happening in rwas in the real estate space and and all of these other assets but I still think that we have a long way to go I mean it's still going to be T bills and more liquid uh liquid stuff that will prevail everybody else agree with that statement pretty much I think one one note there as well is when he says it's going to take a while it is going to take a while because why are you tokenizing something if nobody's willing to buy the token so if there's no demand for a lot of real estate on chain why are we going through the effort and there's a lot of talk about real estate on chain but the reality is if you actually tokenize something it doesn't instantly become liquid and there aren't like a million people suddenly clamoring to buy this particular piece piece of a house in like Austin Texas or something so if for example uh Dow treasuries become interested in something you will find people jumping through the Hoops like with us like treasuries for example um if you want something bad enough somebody's going to go and tokenize it but there needs to be somebody willing to buy the asset on the other side CU why else are you doing it um if you're thinking more practically it's not a stable coin but for example like the type of work that we're doing with like a swift or dtcc those are real world assets like that's actual cash and that's like actual security clearing on dtcc that is flowing over Chains It's not always a public chain but that is bringing on chain and going cross border with actual cash not even a stable coin so is that Aras on chain probably there is a ledger somewhere I I think that hybrid approach is kind of interesting and it's it's we've seen a few protocols doing something like this where if you look at say the structuring of like a a clo um it's it's a total mess you go pay C and cwall you know $2,000 an hour to figure out how the flow of funds actually go through this this product um it can just be done with a D5 Vault it can be done very very simply it can be encoded it can be put on chain and we're done we don't have to keep paying lawyers we we have a product that works that functions and it can be forked very easily so I think those are kind of the uh I would say the rwa like use cases if you can build a look it takes four or five days for for US dollars to clear Euros to clear and so if you can build a product that actually speeds that up with a stable coin you have a better mouse trap right like it's actually using these to make markets bigger and improve them at the same time um I'm going to open it up to questions from the floor does anybody have any questions for our panel raise your hand oh just raising your hand just to say hi okay that's cool all right no questions panel do you guys want to give your final thoughts and statements on uh stable coins and institutions sure um I think one of the big biggest misn numers that people have about this industry with with the institutions coming so I think if you talk to anybody they're going to say okay we want JP Morgan City group we want BBVA to be on chain those are the institutions they're talking about B melon um and I think people Overlook the fact that Apple has 250 billion in cash on its balance sheet that's a pretty easy convert versus a JP Morgan JP Morgan has no incentive to come on chain that's literally eating their own business away and so I think if you look Elsewhere for the institutions um there are massive companies that would love defi like yield if they can do it in a compliant way and they're going to be a hell of a lot easier than getting through a you know us regulatory regime or Singapore regulatory regime and I think that's an opportunity that's really really underexplored yeah I agree with that I think um one other things that we see institutions playing around with defi we see soci General putting a post up on like the maker Dow Forum to tokenize something for them we see uh Circle basically doing a pitch to make it di we see um central banks like forking Unis Swap and using that in a lot of different places so they are experimenting and they're getting more and more comfortable with this space like the institutions aren't coming they are here they might not be here as much as you really want to but most of these institutions are so ginormous with so many different desks and so many different things that they do like no bank is just going to shift a trillion dollars into defi or whatever but they are going to start trying it out and they're going to start offering it to users and if users demand this kind of thing if users use this kind of thing uh you're going to see it grow over time so in a couple years you're probably going to see a whole bunch of defi pools that are just for these institutions uh where they can play and meanwhile we can earn our 700% yield on our do shade coins uh in other places yeah um I think as much as like everyone in this room or this like General bubble might frequently think like it's so over right uh for most of these guys like has not even started um 95% of everything is like still education um and everything is only like going to happen as much as like people are willing to build it um like all this talk about liquidity and whatever rwas uh the liquidity is only as deep as like those are willing to provide right and uh most these like trafi institutions are very comfortable doing what they're doing now um like you know real estate and all these other things they do are very functional like offchain um and there's still like a lot of points of friction before they're actually very functional on chain so yeah until we get there you know like stable coins are the best business in defi um and that's for reason it's because we're all trapped in this bubble so yeah it's very early it's not over yeah I agree with what's been said I mean what would be really uh interesting is uh to see these institutions okay they're not going to come and deploy tradan like straight away but start co-building products with us to make money and to go and tap into a you know New Market so what I I just discussed before about them creating yield products structuring um new new things this is already possible the building blocks are there um everyone wants yielded so I think that's what we're all are working towards and it will happen sooner than we think all right well thank you so much panelists um thank you guys in attendance [Applause]