Panel | Deploying Capital Across Stablecoin and Onchain Finance Infrastructure

Uh hi everybody. Um welcome to the last panel of today. Uh deploying capital across stable coin and onchain finance infra. Uh I will have these two amazing panelists joining me today. Uh but before that I just briefly introduce myself.

I'm Petra Luzer from Namu Capital GP there. Uh we focus on early stage projects across stable coin infrastructure and projects. Um,

okay guys, can you just briefly introduce yourself before I frame the panel and we jump into the questions?

Of course, happy to. Thank you. Hello everyone. I'm Selen Sai. I work as a venture manager at BPI France.

Um, BPI France is the French sovereign fund. uh they have uh 72 billion assets under management and 300 million of it is over blockchain and crypto.

Hi, I'm Danielle Pina. Uh I'm an investment partner at Nosis VC. Um we invest across um a three stack vertical of uh involving decentralized infrastructure, real world asset issuance and um we call it payments middleware which kind of captures everything between payments rails on on ramps off ramps uh heavily focused on emerging markets.

Okay, perfect. Uh and just to frame the panel a little bit in the beginning uh I think both of you but everybody in the room also is well aware of uh that last year was quite clear a proof that stable coins and onchain finance is here to stay and I mean we saw 35 trillion in transactions and stable coins. We saw I think over one billion into investments into stablecom projects um regulatory clarity uh increasing for sure uh enterprise is going into into the um ecosystem as well. So that's clear what's maybe less clear is where the where the value is um going to acrewue or is occurring at the moment and when it's going to occur in the future and that's something we uh will try unpack here together. So we talk about uh yield, we talk about stable code stack um and about regulatory allocation and which is influencing everything basically.

So let's uh start with uh with uh that value acroal and stable const uh so for me because investing also like uh it's quite clear that um for now the value is accured heavily into uh still into issuer side uh but it's slowly changing middleware uh orchestration layer applications it's capturing more and more and so my question on you guys it's uh where do you deploy capital now uh what do you avoid and is it going to change in the future?

Yeah, I guess I mean I'll go I'll go first. Um so the the yield sources I mean are are quite heterogeneous uh onchain although the the last year has clearly shown that um trad um yield origination is growing incredibly fast just just purely by virtue of the stable coin market becoming bigger and bigger and bigger. Um to answer your question where would the where should the money be deployed it should be I mean who can capture that flow because even though the yield is being generated offchain I would argue in the real world where humans live where where you know the economy lives and um you know where credit lines are originated in in in partnerships and business partnerships and business dealings. Um however the distribution of this yield does get onchain where where u products can be packaged very dynamically um and permissionlessly obviously yeah we can add the whole layer of smart contract risk but let's ignore that for a second that's not the scope of this panel um so I would say I would invest in whoever can capture uh the the these flows as they they trickle on chain and get repackaged.

Okay, makes sense. Um yes I

we are a very specific investor I would say being uh stateowned and and and public uh or mandate is is is obviously a big

um so on on on the issuance we've looked a lot internally also at the time there were works around us launching our own stable however uh as you know as a bank we are regulated by the ECB and the work has been um fortunately taken by by by by the CB as well. So we have stopped and but still very convinced that this is the path to go and today as you say we see issuers everywhere in France however in the market of of in issuance per se the reference today still remains so general forge uh who has been upfront in into the issuance landscape but obviously we haven't invested in in so general it's just a good partner we have um However, I would say that there are different phases that we've taken how it but it hasn't been only focused on you know uh infrastructure or orchestration of course it has been covered but we have had investment from ledger so very B2C hardware um to uh async uh lightning bitcoin I mean we have had different type of investment and it has been in the infrastructure orchestration and all the other layers as well. Um

okay what about the application layer? Is it something you looking at or not yet?

One today we are obviously looking at um the solution that already uh I would say embed uh stable coin in their own infrastructure. Uh that's for sure. um there is I would say a still a maximum exposure into what is infrastructure uh mostly because also it's it's it's linked to the fact that on the ground we have a lot of tech schools that are like um showing a lot of great tech talent as well. So infra has been a 40 in in France for long and it has been reflected on our portfolio as well.

Okay. Okay. Clear. just maybe a quick question on the on the your mandate because I know that it's uh influenced by by uh the bank uh origins and also that the fact it's French uh like soian fund. So can you invest outside of Europe as well or just within Europe or it needs to be some some element of uh French founder?

Yeah. So uh being uh stateowned obviously we have a mandate to to to support first France uh that means that every uh startups that comes to us has to have a link to France uh whether the founder nationalities whether it's uh center center of activities uh biggest clients like uh it has to have a certain substance I would say in France but this is given to interpretation Obviously it's it's it's a case by case kind of analysis.

Sometimes it can be more loose.

Of course. Yeah. And and we we are a VC but we are also LP and on and on our LP side we have [clears throat] no borders I would say it's mostly on the VC side and when investing in startup these stasis around France is is is obviously more pushed. Yeah.

Okay. Clear. Clear. Uh so of course that this value capture uh like not just crypto and web free projects notice or players noticed and we see massive investments from threadfi and fintex. Um uh last year Stripe this year master Mastercard buying BBNK and Revolute making a lot of waves as well and everybody's uh uh like flowing capital into it.

So my question to Danielle is uh also to simulator uh is in your portfolio are you are you noticing or are you bit afraid of this competitive uh play uh you know the fintex maybe taking part of the pie of your of your investments.

Yeah. So um so I mean I I don't want to speak for the for all the partners because we have we have different opinions on this but from my my objective my opinion here is that um it's not that they're eating the space they're there it's it's val it's value additive and the reason why I think so is that well I guess we're going to talk later about um you know uh regulatory loopholes the clarity act genius act mika and so on so forth but um aside from putting those aside um the other thing that that that the the onchain space allows is to aggregate extremely heterogeneous sources of yield which again they don't always exist. They're volatile. They pop up here and there. So it creates um a need for a lastmile player that again captures or integrates the yield flows as they appear on chain through uh interest rate arbitrage opportunities um uh and other other such flows.

And so in that respect, um I still see I don't see how they remove the last mile player. Uh also they're they're they're bigger. So they're there's there's an inertia element to how quickly they can move in a in a in a fast in a quickly evolving space.

Yeah, definitely. Especially banks, but Fintex moves a bit faster than banks. But yeah, it's

I don't know, man. Uh you haven't been able to withdraw crypto assets from Revolute until I think this year. So like I don't know. I don't know how fast they actually move. Okay, I give you

I always been a bit u interested in this uh topic around f opposing fintech and crypto. Uh I started in fintech in 2016. I saw Revolute being like this at the time. Uh and then I deep dive into crypto in 2018. uh and it was for me a a subset space of fintech because it was finance and tech.

Why should we look at crypto as being something different? Indeed fintech cloud-based fintech have started with the first use case that has been payment crypto has been trading but I mean in the end it's still fintech. So are fintexs eating the pie? I'm not sure. I think the fintexs uh that we see today entering the space are mostly using the stack the infra I will mention for months uh which is a initially a cloud-based uh settlement uh solution uh and eventually now they have integrated stable coin just for the infra they don't do any crypto whatsoever and I don't think that those players are actually

[clears throat]

um eating the space I think they leveraged technology for the use case they have which is the best approach that should be in when innovating into in finance.

Yeah, I agree. They're they're they're scaling the pie. If anything, they're definitely scaling the pie. Like they're they're they're definitely bringing they're the big players. They're the big monoliths.

They're going to bring in they're going to bring in the liquidity. And yes, of course, when when certain tools of the that operate on the tech stack like like like was just said uh become very standardized, of course, they're going to be incentivized to to to introduce them in their nicely polished userfacing, you know, like BTOC framework. But there will always be other stuff being built on top that is going to capture the majority of the value in the last mile precisely because it's not easy to package in in in in a in a simp in a simple final product. And so yeah, the space just just keeps evolving that way.

Yeah, I agree. And I think that ties back to back to the stable cocon there are some layers which may be disrupted more some it will actually works uh other way. they will just make the pipe much bigger uh and there will be distribution uh coming from those fintech. So it's kind of different play for different uh different uh part of the stack and also different by jurisdictions which uh brings us to other question uh which is more uh uh because the product or success of of the project is not influenced just by product but also uh these days more and more by by regulation uh and jurisdiction they operate. So my question is if it's something you consider when you're investing where the project is based for example uh let's say you want to invest into neo bank probably you invest more into neo bankang in uh in LATAM than neo bankang in US right so that's where I'm trying to get

yeah so to what you just said absolutely like I said we we we have a strong focus on on on emerging markets uh obviously more than where based also the team um it's obviously very project dependent based on what you're investing in but like um you're you're you look at the team a lot uh do they have a distribution strategy on the ground in certain cases uh who who else do they have do they have backing them do they have support on the ground um yeah so [sighs] it's hard to make a general rule out of this but you absolutely you definitely look at specific jurisdictions what's hot what's not where are the flow where you seeing flow who can capture who can capture remittance flows to like Southeast Asia for example, who's who's having who's who's capable of of really really entering that space and grow fast. Um, we definitely want to see traction uh some form of traction before we invest. It's not not just pie in the sky projects. uh um you know you don't you don't want to see crazy ARRs but obviously because if if we invest in a seed in early stage obviously but like seeing some form of traction and and a well- definfined strategy to retain that traction and grow that is very important and in in last mile solutions it requires an on the ground at presence so where you're based where the team is based what is the experience the team has is crucial in that case

maybe yeah just to add to this because I think it will nicely contrast with uh with the approach of BPI So because you invest into uh emerging markets and those are often the regulation is there is maybe not in the same same stage as regulation in Europe or US uh depends on the country but in general I think global south is like that US VC are you like more adventurous in that meaning like you're going to go there even if the regulation is not super clear in some countries

uh the the valuation of the project

uh I mean the regulation of the jurisdictions where the project

oh the regulation Sorry, sorry, sorry, sorry. The regular jurisdiction. Um, yeah. Yeah. I mean, obviously if there the more clarity there is, the better.

Uh, like if you're if you're if it's a project that is in a heavily regulated environment, uh, you have to you have to show something for that like like how are you planning to tackle this? Uh, how uh you should have already got moving on this. Uh, you should have a clear idea of what the costs are going to be to comply with the regulations of that jurisdiction. Um, yeah, absolutely. That's totally part of the equation.

You can't ignore it.

Okay. And Selena, I guess you will have maybe more conservative.

Yeah. So for BPI France, uh obviously we are regulated by the ECB. So investment or or I mean we don't we don't invest in company that goes in uh Virgin Islands or stuff like that. Uh so that's that's the approach that is being taken and and it's just yeah regulatory [laughter] requirement actually. Um it this question is is interesting in the sense that this industry has always been has started against regulation in general.

Let's be honest but more and more we see this industry becoming like fintex how fintech started this regulatory dance between jurisdiction has always existed. We knew at the time that when a fintech was go when a cloud-based fintech was going to Malta, they might have a problem with BD. Why? Because they might have some clients that say I can't sign a contract with you. You are in the gray or blacklist.

So it's done. And we have seen some fintexs coming back to Europe because uh sorry coming back to other state member because they couldn't do business in in Malta. That happened uh and that was in fintech based. today with crypto at the time I remember being at the AWS forum and VC saying guys in front of standard charters uh sendenders all bankers and the VC was saying guys I can't have a portfolio that is not represented halffully in British uh in Virgin British Ireland so it I have to go there because this is where the industry is and you had all these banker eyes being like super wide and thinking what is that what is is wild west and I think that more and more innovation has been enabled because we have been able to push these boundaries without regulation but today the fact that regulation is coming is because we also see this industry being consolidated and when we when we are at this stage of consolidation it's only normal that banks and other financial institution are going to ask uh those um players to have the same requirement or at least the same standard that they have. So it's not surprising but I think today we still see as we've seen in fintech some jurisdiction that are like um I would say advantaged by the fact that they have let's say a strong regulator and we know that when you have a stamp from that regulator your company is supposed to be like a good running business and things like that that hasn't changed I think.

Yeah. Yeah. I'm going to update my answer because say to her, no, we definitely take a lot more risks than that. Uh um for for us for us like like like a being in a gray zone, a regulatory gray zone is is a value prop. Uh because obviously if if you're investing in something that the regulatory framework already considers you either have you either have like a very strong distribution strategy that you're so we're investing in the distribution strategy or you know it's it's not a seed investment.

and you're not doing anything particularly new, right? So whereas whereas if you want to invest in something new, you have to you have to take advantage of the gray zones. Obviously, we look we think of like we have like regulations in in in like in hindsight in in in our minds like it's like how is this gray zone very likely to fall into the regulatory process further down the road? And we we do think of that we do think about this and expect we ask the founders questions about this, see how they think about this. Obviously when you're dealing in in in you know it's hard to call them unregulated markets but just like you know poorly clarified markets uh you know you can't have certainty on on anything.

Uh but you got to you have to you have to take your chances. Uh, also cuz I mean there's a lot of technical solutions that simply aren't like even conceived by by regulator regulators and even though they are really incredible solutions to pretty obvious problems like really obvious problems like ZKID um uh privacy privacy pools like you can you can make them regulation compliant in the sense in functionally regulation compliant in the sense that there isn't a regul there's there isn't a regulatory framework right now that these things could be made regulatory compliant for it's more like these technologies are uh compliant in uh like respect the spirit of the compliance rule if only the regulators like expanded expanded the regulatory approach to include these technical products and so in that sense even though they're in a gray zone you do consider them because they do have a viable pathway theoretical pathway to to become uh regulatory compliant even though regulators are nowhere near to even considering these these these these tools as compliant.

Yeah, we don't need to go that much back right like in US year ago it was basically the similar environment you just described. Uh

yes I mean stable coins are classic example. I mean stable coins are like the first example that people kind of see because it was kind of like it was a technical solution that regulars just needed to adopt. But that's but I was I'm trying to make even finer distinction because stable coins were actively being used. So there was there was like there's there was economical value flowing through stable coins before they obtained regulatory clarity. There are technologies that are cannot acrue any value whatsoever without regulatory clarity on them.

uh simply because they they revolve at the end of the day between some interface between the real world and and and the blockchain and and you know the real world you can think of the real world I like to call it the meat space like the space of human meat like skin and bones right it has its own you can think of its own blockchain with its own you know the consensus rules whether you think of it as the judicial or monopoly of violence you know becomes philosophical but the point is that like if you have to if you if you're building a product that lives at the interface of these two chains like the blockchain and the meat chain, the real space chain. Um, you cannot avoid real real world consensus. Real world consensus has to be integrated uh for the whole the whole flow to work. And so there are there are a lot of technological solutions that are just there are solutions looking for for regulatory inertia to to dissolve.

Yeah, 100%. uh basically any infra touching banks directly uh will need regulation to to to succeed on scale for sure. Uh okay. Uh so we discussed the regulation in general but maybe [clears throat] let's uh let's bring it to to one of the most interesting aspects of of uh stable coin onchain finance which is yield. So we see this yield wars almost uh the discussions and uh regulatory approaches to to how to regulate yield.

Uh so G gen Genius prohibits yield on uh on issuer level. Uh clarity act may prohibit it even more. Uh basically any passive passive yield including lending and uh maybe even a reward maybe may maybe banned in US. Mika is also uh not super supportive. Uh so what's maybe s because I know you you were previously in the regulatory space right?

You worked in regulatory.

Oh yeah I was a a lawyer in banking and finance. [laughter]

Okay. Um yeah but uh

um no so I I think we don't really depart from from the general rule that is same activity same risk same rules it's always the same so it's the the approach is going to be different depending on the country but in the end we are always going to look at a financial instrument per analogy what is this instrument strument look like how does it look like and what is the analogy uh of this instrument in the trafi that that is how the regul regulation today like do regulation since many years and I think that overy yield um on the passive side indeed issuance has been clear on on the other side they will just look at what is the underlying is it payment is it an investment product and then define and put the role that is according to it and we are always going to we will need always to look at the underlying of each activity because it's not asset based it's activity based and if we look at it from that respect we can't be really um taking risk in a sense because we will always work per analogy um let's take an example um if I decide to offer yield uh that depends on a specific action from a user. I would consider this yield being uh either a reward either an investment product generally because it's digital asset they will say investment product but I believe that with time they will even make the new endance and we will have probably rewards as they are being seen for I don't know Starbucks point let's say the same analogy will be put at yield that is earned in the same way that's what I don't know if it was clear but uh Okay.

Wait, I missed I missed the the I lost track of the question.

The question?

Yes. Am I repeating it?

Uh, yes. So, so for seven, it was more about like the the the regulatory side of it. For you, it's maybe more about So, first maybe what do you think about this uh regulatory approach uh of basically banning banning the any kind of yield?

Okay. So, I'll keep I'll keep I'll keep playing with like playing in the the dark gray zone of of cryptoc.

Someone someone has to someone has has to represent that. Um uh so I mean crypto is obviously in the business of finding loopholes. That's that's the whole premise of living in a gray regulatory zone is figuring out what loophole you can get you can get away [clears throat] with. Um obviously the big hot topic right now is the debate on the Clarity Act in the United States. Uh is it okay for Circle to pay yield to Coinbase that then Coinbase redirects as rewards to its users?

The banks don't like it. Like there that's that's the narrative right now, right? as someone I'm I'm going to speak from like like like a like a cipher punk like it just feels like unnecessary leite friction the technology wants to be free the yield wants to flow the yield will find a way to flow like if it's you cannot define every possible way the yield flows like what if okay you say okay circle you can't give the yield to to coinbase anymore okay so who does yield belong to it belongs to circle right they earn that's the whole point of the issue it's like you're earning a yield right am I allowed let's say then this yield is you know I I could is is yield in in in treasury bills, right? Can I mint more USDC with this yield that I'm making since I own it? Yes.

No. Yes. Okay, fantastic. Can I deposit it on A and lower the borrow interest rates for USDC on on A and thus activate a whole machinery of interest rate arbitrage players that are going to try to arbitrage that interest rate. So in the end, did I not flow the yield to the ecosystem?

Sure, I'm not paying it directly to USDC holders, but I'm paying it to USDC incentivizers, right? Um, sure, it's not guaranteed. It's not well structured. It's not like the simple, oh, if you hold USDC in your wallet, you get USDC, right? But what you know, Coinbase could then say, okay, fine.

Your USDC gets directed to to more to like lending opportunities in the DeFi space. And in one way or another like this yield reflows back to these holders in some indirect convoluted way. You cannot preclude these convoluted ways from being found. The market will find them because the yield wants to flow to the recipient and so the path of least resistance will be found. You you can put obstacles along the way but the water will keep on flowing and this will not stop.

Sure. If I can add on it, I think that the perspective that we are looking at is mostly of course startup and innovation, right? Um obviously the ban is coming from the the lobbying of banks. I think like it's it's not a surprise. It's just about saying okay we have been given this mandate of giving uh credit to people.

uh in order to pay those credit I need interest and this new uh feature that you guys are [laughter] actually going uh to kill my my source of revenue to offer credit. Uh so I I I can acknowledge that uh the approach should not indeed be killing the new use case that we see in DeFi and and the reason why defy has been actually uh been so much developed today. So I agree on that point. But on the other side, imagine a world where if uh everyone was coming to sell their their assets and what do you do after that if a dump happens and this is completely private and there is no guarantee indeed. And today the concerns are are coming from people that have you know known systemics uh issues and systemic risk.

I don't say that regulation have been perfect around this but we've seen already problem happening in08 and I don't say that blockchain is going to replicate on the contrary I believe the technology is going to show transparency and what we need but also uh pushing it too far. I'm I'm also afraid we we forget those kind of safeguards we've been working on over the past years.

Yeah. So, I mean, okay, I'm not I'm not going to argue with with someone coming from the banking sector over over like the the risks of using of using tools in DeFi. That said, because again, there's the whole argument of smart contract risks, which were completely it's not it's out of scope for this panel, but that said, um I would argue that DeFi has been a lot more stable than centralized players in the last couple years. I mean, we've seen major major implosion implosions in crypto and we have overcolaris lending protocols that are still solvent that you know they they they handled they handled 80% market corrections. they've handled major liquidity players completely blowing up from one day to the next, you know.

Um, think think FTX, the FDX disaster, $8 billion, poof, like you know, like it's [clears throat] like the the centralized players are the problem. The the because they they hide the risk effectively whereas whereas the whole point of DeFi if it's built the principle of building these financial primitives on DeFi is that it makes the risks apparent. you you can you can you can you can simulate the you can you can simulate you can stress test everything is is transparent and available for you to to explore um there then I would also add that there's a distinction to be made about you know a lot of the risk I think the systemic risk is born by rehypothecation um and specifically under collolateralized rehypothecation I would argue that that is the biggest source of systemic risks because you have some big market stress and then suddenly you are in you're stuck in this leveraged credit scenario that is just not unwindable. That's the whole premise of the of where, you know, in in the in the fiat system, you have the lender of last resort, the central bank that can step in, you turn on the printer, and you make it go away, right? Obviously, DeFi is all built with the idea that this doesn't exist.

It's like it's like how do you how do you build financial primitives with the idea that there isn't a lender of last resort? And yes, of course, this means building things such as overcolateralized credit lines, which implicitly are less capital efficient than undercolateralized credit lines, but they're also more secure, like way more secure as long as long putting, you know, cra again crazy smart contract exploits and insolvenies created that aside, which is which is a a real thing, but again, out of scope for this panel, like the the mechanical principles are legit and and the proof is in the pudding. A still exists. FTX does not.

No, I agree. Uh just like last comment on that. Uh yeah, for me also the regulation feels a bit excessive on this. It feels it's protecting not really the the retail but more like the banks, right?

Absolutely

100%. And uh

yeah, I would love to see market to decide right if the fintex want to integrate yield from uh DeFi source uh would be great if user can use it or or not.

So let's market decide. Okay, we have one and a half minute uh till the end of the panel. Let's do some rapid question uh format. Um so this one I'm curious uh 2030 uh circle or tether who is winning the game or somebody else?

Well, I mean uh look as a I'm going to give you the the purest crypto answer, okay? As someone who's been in the space for a while,

never fade power. This is I know I I realize this is not like this this is very much not don't trust verify but typically fading polarino is a losing bet. So I'm going to say tether 2030.

Also they're like as big they're like they've got reserves worth of a central bank. So they have a head start for sure.

No comment. [clears throat]

No comment. Okay. Okay. Uh so the last one maybe something uh what is like the most contrarian position in your portfolio or if not in portfolio what is like contrarian view on on something in the space? [sighs]

I mean the I like so one of the projects we invested in is uh uh is a wallet for very very very very low-end smartphones. So, we're talking uh Android phones, KOS phones, the phones you would find in like in like a tiny village in remote Africa or like somewhere deep in India away from a major city like those low-end phones. I like to think of it, it's like a contrarian investment because how much money could people operating with with low-end phones possibly put together? But, you know, if you put it in the we we we think we see it more as like a like a thesis bet, like a longer term thesis bet. Um, first and foremost for capturing an entire audience, which right now is completely unserved because major wallets uh just don't run on those phones.

They're just big APK files that don't run on those phones. Uh, but also because um are we are we dollarizing the world with stable coins? Are we are we going to kill is is this the end of the Euro dollar market? Uh, it's possible. like is uh or the question would be are like I guess the contrarian bet is stable coins are going are going to kill the euro dollar market.

That would be my contrarian thesis.

Okay, cool. Um since we have a specific mandate we have obviously invested in in in project that with of with a bit of distance we've seen that we haven't seen the result we've hoped as I guess every every VC uh but given our mandate uh there is I would say no second guess around why we support it uh because even if it's not successful um the idea behind our investment is always dual and also about supporting the innovation and entrepreneurs. So in that respect we we obviously had some at the time some NFTbased company I mean we have we have been invested in in in in in most vertical within crypto um so we've seen during during the during the years what what sector have been dying and the others so yeah I would say what we've seen on trends has

it's a wilder portfolio construction than I would think. Okay, thanks. Thank you guys for uh for like answering and spending time and going deeper on on this topic. Thank you very much.