E602 | David Sutter, OpenTrade & Itxaso del Palacio, Notion: Stablecoin Yield, Real-World Assets & the Future of Embedded Finance

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2:39This show is not investment advice and the hosts of this episode may be invested in the funds and companies featured. Today, we dive into the mainstreaming of stablecoin yield, what many are calling the next illusion of embedded finance and what I call which speak because I have no idea what we're going to talk about. No, I've of course done my best to research this and Ichazo and David are going to help me a bunch. David Sutter is the CEO of OpenTrade and Ichazo del Palacio is of course the GP at Notion Capital and an early backer of the company. With 11 million raised in six months, millions of users across LATAM and Europe and InfraGrade scale, this is a story that's much more than just another fintech.

3:16It's about rebuilding financial access from the ground up. David, tell me, what exactly is it that made you think that the world needs stablecoin yield as a solution to today's problem in the financial system? First of all, it's great to be here. And as you can imagine, it's not a straightforward answer, but I'll try to make it so. So my co-founder, Jeff, and I, we have been working on crypto and stablecoins since we were college students over a dozen years ago. We're working on some of the first versions of stablecoins and tokenization. and over the last decade have gained a huge amount of experience in that realm and saw essentially what we're seeing today is an absolute Cambrian explosion of innovation around stablecoins.

4:06They're making dollars smarter, faster, more accessible. They're bringing dollars into the internet age in the same way that Stripe probably looked at the explosion of the internet and said, you know what, everyone's going to need a checkout tool. we looked at the explosion of stable coins and had what seems in retrospect, the various, very obvious insight that everyone's going to want to have a yield and embed yield, the ability to earn returns on their dollar and euro stable coin balances and to have that yield be embedded in the applications and tools that they already use to manage their financial lives.

4:43And so it was that sort of core spark of, you know, look, we've been in this industry pretty much since it started. It's going to be a multi-trillion dollar industry. Every single dollar in that multi-trillion dollar industry is going to want to earn a return and do it in a way that's embedded and safe. That's what we built OpenTrade to do. Let me ask a follow-up question to that because the yield problem with stablecoin is not a purely technological one, right? It's also that at least in the States, you've had a long time where you would not be allowed to make money or make yield on stablecoin.

5:21Am I right? That's absolutely correct. So just for the listeners out there, basically the arc of stablecoins is they started as a way to solve a very specific problem, which was that crypto exchanges were not given access to the banking system. And so exchanges needed a pair, one side of a trading pair to be denominated in dollars. And so they started using crypto to do that. And then with the explosion of DeFi, these crypto dollars started to be integrated into sort of more mainstream financial services. And then the next phase was people started understanding that, hey, they were actually really good for sort of real world use cases, sending money, building banking applications and services, et cetera, et cetera.

6:05Throughout that arc, there's always been this issue that stablecoins, unlike a checking account or a savings account, don't pay you any interest. And your investment options have been basically either hold it and earn nothing or invest it in crypto, which can be quite volatile and speculative at best. because of the way that regulators have kind of classified stable coins as a form of e-money. There's always been this sort of blanket prohibition on e-money and now stable coins from paying yield. And so in that market structure, we saw great demand for a utility like OpenTrade to be built that wasn't issuing a stable coin, but was taking stable coins, transforming them into something that could generate yield for end users.

6:55So, Echazo, now let's look to you and ask you, Notion is known for backing SaaS and infra leaders. What made OpenTrade stand out and how did you come to feel comfortable with the crypto angle to this? Definitely, it took a little while. This is not the first company we are looking in the space and we just made a bet in a couple of days. But yeah, anyway, it's great to be here. And Andreas, be back here because I was with you several years ago in a completely different podcast. But, yeah, Notion is, as some of you might know, is a business software investor. We've been investing in B2B software for more than 15 years now.

7:40And we backed a lot of the traditional fintech infrastructure, companies like GoCurrency Cloud, which was acquired by Visa, or GoCarless, Paddle, Griffin. They are in our portfolio. So OpenTrade is simply providing infrastructure for this next generation of financial rails. Let's put it this way. But it is still within the fintech space and its infrastructure, right? In fact, OpenTrade is not the first company that we are backing in the digital currency space. We did another investment a couple of years ago in a company called Figment, which is providing infrastructure for non-custodial staking.

8:24And we looked at a lot of companies, I tell you, companies providing infrastructure related, for example, with security solutions in the digital currency space, related to insurance in the digital currency space. So this is not the first company we are looking at. Open trade definitely didn't win the race because of that value, which I do believe is very compelling. But it is also the current tailwinds in the market that are happening. I think many of you have heard of this thing called Genius Act, which is basically enabling or will enable many of the mainstream adoption of a stablecoin and is led by the U.S.

9:15government. Obviously, there is a massive transaction growth in a stablecoin. So I think, correct me, David, if I'm correct on this, but I think last year they say that there were more stablecoin transactions than Visa and Mastercard in 2024. Is that right? Yeah, that's correct. And it's only growing. It's over$20 trillion of annualized transaction volume. It's at a size that shocks most people when they learn. Correct. Can I ask you just a question on that? A clarifying one. Is it volume of dollars transacted or is it number of transactions? Volume of dollars. Okay. What is the driver behind that?

9:58Because what I've always thought is, well, okay, when machines make super small transactions and we need them to happen really fast, Stablecoin is the natural good solution because you don't have the fees of Visa and stuff, which is what would then drive a bunch of small transactions, but not necessarily the huge ones. Can you clarify to me and the audience, what is it that drives this massive volume in space as well? And maybe correct if what I said was just ridiculous. Look, historically, the primary driver of stablecoin usage has been the crypto markets, which have obviously ballooned from several hundred billion dollars to well over$3 trillion of market capitalization today.

10:37And that was the core use case. And still today remains sort of the lion's share of that transaction value. However, what we're most excited about is all of the infrastructure, whether it's custody or wallets or like us, yield, that's been built up to serve that burgeoning stablecoin economy has now made them ready to cross the chasm to mainstream usage. And so now you have tens of millions of people, especially in emerging markets, who are using stable coins as a new digital dollar. And sort of the core value proposition, which is simple to explain and incredibly powerful, is that anyone with an internet connection can now, with a few clicks, open up a dollar account and send, spend, receive, save, and now with us, earn in dollars and do that anywhere in the world.

11:31anywhere that has an internet connection. And that sort of general purpose value proposition is incredibly powerful and is now, that's becoming an increasingly large share of what's driving that stablecoin growth is that core desire and need that businesses and individuals around the world have to do business and save and transact in dollars. And it's making it much easier and faster and smarter. It's making moving a dollar over the internet as easy as sending a text message or email. which is simple to explain, but incredibly powerful. This has been the narrative around stable coins for a long time.

12:10But the last year, of course, AI and the fact that we're going to have computers interacting with each other is definitely also a driver. Am I correct? And could you both of you talk a bit about how important that is in this specific relation? Yeah, look, I mean, I've actually I've I've been a huge proponent of this. I've been writing about this for quite some time. And that what you're referencing is that if you do believe in a future like I do, where sort of AIs and AI agents are going to become an increasingly large part of everyday life, then the natural sort of logical conclusion is that those that AI ecosystem will need its own financial system where AI agents and AI applications can pay each other.

12:59and basically avail themselves of the same financial services that we as human beings do. And if you do believe in that vision, then what falls is stable coins are today the only money technology that's fit for that future. And so they weren't built for AI, but because of their inherent characteristics, the way that they're built, the way that they run, the way that the technology works, They're really the only form of a dollar that is fit for that future. Some say that with AI, the solution crypto has found its problem to solve. Yajasa, can you tell me this rise of AI and this worldview that we're going to have computers transacting with each other in a much higher degree than we do today?

13:48Is that part of the thesis behind your investment as well, or is that just the kicker? To be honest, that's just a kicker. Let's put it this way. We are investing a lot in AI. Probably say 95 % of businesses are AI native businesses today that we are investing in and probably that we are seeing. However, I think within the financial fintech space, there are some regulatory barriers to entry that definitely create a very strong value proposition for those companies who make it their first and securely and get the regulatory power that makes them unique. So that wasn't part of the thesis. However, there is something that we haven't mentioned before, which is Circles IPO last year, last year, last two months ago or three months ago.

14:47I know it's not even last year. And I think that definitely brings a lot of trust to the market and the price of the stable price and the growing price. And that is also creating a great opportunity for other investors to come in. David, you spoke about it before, OpenTrade, your bridge in retail demand with institutional partners. I'd love to understand what does institutional-grade infrastructure really mean when you're serving end users in countries as far-flung as Argentina and Colombia? And how do you think that a product must protect both on the retail level, but also what you need on the institutional level?

15:30That's a really good question. So our business model is B2B2C. And so our customer is typically a regulated fintech provider. That means that they have a pretty high bar for the standards and the quality and the safety of the products that they integrate to then offer to their users. And so that institutional grade standard starts with our legal framework. So the idea of bankruptcy remoteness, that all customer funds and any cent that moves through our software is segregated and held in very large credit worthy regulated financial institutions. that none of that money is ever commingled with the operating cash or the creditors of any of the service providers, including ourselves, involved in the flow of funds.

16:24That then dovetails into cybersecurity. So we have independent cybersecurity audits and pen tests on every line of code that a customer ever interacts with. And that is all kind of wrapped in a very high level of customer support where, you Literally no job is too small in our business. I, as a CEO, am on calls with customers late into the night, holding their hands through any issues that they might have, making sure that the product is operating exactly as they expect it to and exactly as they need it to. So I think sort of the legal protections and the quality of the financial institutions and counterparties, the cybersecurity, the robustness of the cybersecurity protections and preparedness and then ultimately customer support to make sure that our customers, those are kind of the three pillars of what we consider to be institutional.

17:19And we offer those to the highest quality, the highest of standards. Tell me a bit more about that decision to grow via distribution partners, meaning existing fintechs, rather than going direct and building it. The inspiration was sort of right in front of our eyes. and it was with USDC. A lot of people don't realize you can't open an account as an individual with Circle. Circle serves the fintechs that then serve the end users who are interacting with USDC. And it really changes the cost base of your organization. It means in simplest of terms, one of your customers can get your product into millions of pockets.

18:02And ultimately the value proposition, one of the key value propositions for us is that our customer can ultimately maintain control over the customer relationship and the economics of that relationship and the brand that that customer interacts with and the user experience that that customer interacts with. So, you know, we've seen Circle do it extremely well with USDC and others like Stripe, as I referenced before, that sort of uses that B2B2C distribution channel to great success. And so we saw it work with USDC and figured why wouldn't it work with Yield on USDC. And so far, it's paid dividends.

18:42It's, yeah, so you've done a bunch of B2B investing. How is, and of course, massively successful with go-kartless, paddle, new life, as you said earlier. How does this model of B2B2C compare to that? Why do you like it? Where do you maybe think that it's difficult? What should you think about both as an investor and a founder in this space? We love B2B2C models. The principles of selling infrastructure, particularly in the fintech space, on the B2B or B2B2C, whatever you want to call it, models doesn't change significantly between the traditional fintech and this next-gen digital currency space.

19:25However, there is a fundamental difference, and I think Dave will agree with this, and the buying behavior. So if you think traditional financial institutions, how long do our companies knock off the doors of UVAs, HSBC, POC, and moving forward and integrations, right? So selling to exchanges, custodians, neobanks, and any of those stablecoin issuers becomes much more agile because they are less risk averse and they make quicker decisions. And in fact, they have a thick stack that is much easier to integrate with. This is what is driving the high adoption of OpenTrade. That's how OpenTrade is growing so much and being able to serve customers in such short period of time.

20:17So the time to value is very short as we speak. So the principles of go-to-market haven't changed. But the sales cycles, the speed of adoption and so on have significantly changed for sure. 100%. I mean, it's a very simple mental model. And Jeff and I used to sell blockchain-based software to large financial institutions. And the pain of that experience did inspire, in some part, our approach to who we've identified as our ICP. But, you know, those large institutions, an integration could take one to two years. We're doing them in one to two weeks. I probably say that the market has changed. Maybe, Dave, you can say that maybe in the last because of the regulation, regulatory frameworks, even more fine, more traditional financial institutions like and even Visa and Stripe and so on are developing stable coin rails are are being adopting those rails.

21:17Right. So I think that might have changed. Not sure. What's changed is that they're now comfortable to engage with stable coins. But what hasn't changed is that very long, painful sales process and the fact that you're going to have to run a POC for a year. And it's very likely at the end of it, you'll make no money and you'll get a press release. And that's kind of it. I still am not really sold on the idea that very large financial institutions are going to be the leaders in this space. I think that they'll probably be service providers to companies like Circle who carry the torch. It remains to be seen.

21:55Look, I mean, there's definitely the Genius Act is definitely, I mean, you've got Brian Moynihan from Bank of America kind of coming out on earnings calls and saying, we're going to build a stable coin. That's definitely a huge shift. But there's a lot of institutional bureaucratic inertia with those institutions that isn't going to change overnight. My good friend Grok just helped me with some research here because when we're talking about this and talking about Stripe, I thought I recalled that they had acquired a company in the stablecoin space recently. And lo and behold, Bridge, they acquired for$1.1 billion here in February 2025, which of course makes it their biggest acquisition to date.

22:36Do you consider this a competitor and a potential problem, or do you consider it validation of the solution and the need for this in the world? Absolutely. Absolutely validation. So Bridge is a good example of someone who would be a customer of OpenTrade, right? They're a stable point enabled on-off ramp provider. Those types of companies have a need to earn yield and offer their customers yield as a value added service. So some of our customers are competitors with Bridge. And so that there it's, for us, it was just kind of slam dunk validation that look, we're building a business in a space that is going to get very big, very quickly, and that the infrastructure play bridges sort of money movement infrastructure and we're yield infrastructure that those types of businesses are going to be prime targets for income and fintechs looking to break into what is quickly becoming a huge market.

23:31Then let's move to this whole topic of real world asset yield. And I maybe should go back to the start of the conversation where I said, well, isn't yield potentially solved by regulations then allowing you to just put 3 % or whatever tied to the dollar yield and then it's solved for? And you don't have to go and do workarounds and find real world asset yield. We very much believe in the separation of church and state. And by that, I mean the separation between those that issue stable coins and those that provide services on those stable coins like yield. And the regulators have basically made that law, which is that stable coin issuers in most major capital markets are prohibited from paying any form of yield.

24:19And that means companies like OpenTrade need to exist to transform those stable coins into yield generating instruments. What's the foundational principle, Dave, for making that prohibited? So a stable coin, while technologically very different than modern money, from a business model perspective is actually very similar to a concept that's been around for a long time called a narrow bank. The idea of narrow banking is that fractionally reserved banking, which is what most of our modern banking system operates on, where you take in a dollar and then you're given license to create$10 worth of credit, meaning that if roughly over 10 % of your customers ask for their money back at any given point in time, the bank is going to fail.

25:09People looked at that problem and said, we should actually have these special purpose payment institutions that are fully reserved. So for every dollar they take in, they hold$1 in very safe liquid investments that can be liquidated immediately to repay depositors. That is what a stable point is. And so what you're seeing the regulators do is basically say, from a legal and regulatory perspective, we're going to make you operate like narrow banks so that we take run risk off the table for money that is inherently very flighty because it can move with the click of a button instantly. This isn't new, right?

25:47Regulators have, this is something that they've done with e-money, basically, since the invention of e-money. There's always been a prohibition on paying yield because the assumption is that if you're able to pay yield, then what you're doing is you're taking customer money and making illiquid risky loans with that money. And that's going to create a problem. So what real world assets are powering open trade today? We offer a huge variety of yield products backed by many different asset classes across the risk curve. So very safe, liquid money market funds and short-dated sovereign bonds like U.S.

26:25Treasury securities, through to commercial paper, which are short-term debt instruments issued by investment-grade companies, through to trade finance and trade receivables, basically assets generated from the financing of working capital, private credit, so secured and unsecured loans to private companies, publicly traded fixed income ETFs, and soon crypto and DeFi native yield strategies. So our stance is that we're not an investment advisor. We're not providing any investment advice. We're not taking a bet on the direction of the market. We want to build as broad a range of investment options and yield generating strategies as is possible so that we can fit the need of any customer.

27:08Do you inside OpenTrade build this investment strategy portfolio model that underpins the yield or do you partner with an investment bank that then executes that? We partner with regulated asset managers who do the structuring and underwriting and sort of financial design of those products. Now, we provide input based on customer feedback, but that's ultimately all the portfolio design and management and risk management and trading activity is done by regulated asset managers. Because I was about to say, otherwise it becomes a huge shop. Yeah, interesting. We are just a technology company. Yeah, exactly.

27:47Tell me, I don't know if this is public, how much money right now is run via open trade or has yield generated via open trade? So we've processed in the last year over$200 million in transaction volumes. stable balances on the platform average about$65 million and growing very fast. We've had nine months straight of 20 % month over month growth. So we're really only just under 18 months like live. And I'd say, you know, basically a year with real customers. So we've gone from zero to something that's becoming quite big, very fast. And we expect really that to double or triple by the end of the year.

28:35And what is, I'll ask you, Chas, a real VC question. I won't ask you what's the TAM here, but I'll ask you, what's the end scenario here? Is that all the money in this world that's run by a staple coin? Is that kind of the dream scenarios that all of that goes by open trade to get yield? Or on what layer, how foundational is it possible to imagine that a system like OpenTrade operates? We start from the premise that people who are operating with digital currencies are pretty, it's pretty way, almost financially savvy today. And so if you think about it, people who are financially knowledgeable, they don't keep their money in the bank just because they want to make money out of it.

29:25And so they are the early adopters of this world. So first, I do think it's not necessary to have everyone that is using a stable coin earning yield to build a big business. Two, and I will later at the end, Dave comment a little bit on how are they expanding on the product side in such a way that you can build a very big business out of that. But I do think that definitely you can build a huge 100, 200 million revenue business just providing yield. Yeah, look, I mean, ultimately, we view yield as a starting point for our business. We think that the stablecoin market capitalization will grow to several trillion dollars very quickly, especially given the regulatory headwind that they have.