Cambrian Stablecoin Explosion is Coming with Luca Prosperi 

18:03Alex Thorn:If there is a stablecoin story, what was the stablecoin part of that story last week? Yeah, I think on the surface there is a stablecoin story, but in reality it is really a DeFi, C5 fabric of finance story with some good takes on how actually to embed derivatives or protocols within other protocols. But it's very interesting. I think that the beauty of DeFi is that we are seeing in the open all the mess that used to happen within closed source balance sheet of investment banks like 20 years ago. So it's a lot of fun to crowdsource opinions on how to connect the financial fabrics of the world.

18:51It's pretty cool. So I mean, I think on the stable coins, obviously, the The USDE Athena stablecoin was at the center of the debate here. Now, I think Guy, the Athena team and Guy especially, I think is one of the smartest founders and builders in this space. And I have always had a lot of respect for him. But obviously, Athena is not a stablecoin USDE. And I think there is a good segue on how we should include, embed assets in crypto in certain DeFi protocols and leverage, just not doing it at face value, but trying to understand deeply what is the risk profile behind what we're doing. So very, very, very interesting times for like a DeFi fig, former fig nerd like myself.

19:41Alex Thorn:Yeah, it really was. And so the USTE, which I don't know what they call it, I think they've called it a synthetic dollar in the past, but say it's a dollar peg stable asset is what it intends to be. Not a stable coin in that it's not collateralized the way other stable coins are collateralized. it de-pegged on Binance specifically, is my understanding, not the result of any kind of issue with minting and redeeming or the collateral at actually Athena, but sort of inside the Binance order books shortly after the big crash happened. And I understand this to be mostly a Binance issue, but it does raise questions, right?

20:21Alex Thorn:Because where you get the value of such an asset, whether it's from an external Oracle or from your own order books, or if you hard-code it, for example, I think USDE was hard-coded to the price of Tether on Aave, which actually made it perform quite well during the crash there, but all of these setups have their own it's all about risk transfer, right? It's not like, you know, Aave is a great example. What if USDE was fine, but Tether traded below the peg? Then on Aave, USDE would have looked like it traded below the peg, right? There's only like sort of it's a ball of risk. It has to be worn somewhere by the traders.

21:00It seems to me part of the confusion as it related to

21:04Alex Thorn:USDE and Binance was that people weren't exactly sure where the risk actually lied in that instance. I think nomenclature is important. USDE was originally marketed as a stable coin. I think it went out of hand. The team realized it. and I think if you talk to the team now, they are very clear in saying that this is a tokenized, wrapped, basis trade strategy type of hedge fund product. So it is not a money market instrument at all. I think that the idea that it trades around a peg is a good marketing tool so that you can actually measure the yield you're going to get from it at a par value. And you say yields 10%, 12%, 5%, whatever.

21:57Now, obviously, even if USD would be redeemable at 80 cents in the dollar, it doesn't mean it's not a good product. Ultimately, you need to do your yield to maturity type of calculations. So I think that, and I'm sure the team would agree with me, I think that what is interesting is nomenclature is very important because you really need to treat some stuff for what it is. And I think in the case of USD, in some cases, it is really treated instead as a stablecoin in the fabrics of DeFi, how you use it to source leverage or to provide leverage. And I think what is important, and we have seen all this debate about how should oracles work here?

22:43Should oracles look at secondary prices? Should oracles look at the nav? So the net asset value that is behind the product. It seems a very nerdy topic, but it's actually fundamental. First of all, like, you know, talking about the irrelevance of secondary market and the concept of peg in the same sentence doesn't make any sense whatsoever. My point was, it's exactly what you said, Alex. Like there is no free lunch in finance. And so if you are hiding volatility in one place, the volatility ends up being in another place. Like if you're taking assets and you're saying, I'm just hard pegging an asset one for one, what it means is that you're saying, I am ignoring the underlying volatility of that asset because I think it's not important, but somebody needs to swallow that risk.

23:35And this is very typical. Like, you know, I've been a financial investor all my life. And this is what happens in balance sheet of banks, right? Banks, they are not marked to market their balance sheet. For depositors, it's fine. Assuming that it works. And then if there is a problem, and then the balance sheet snaps in one go. And the people who stay in, they pay the price for everyone. And I think this is very similar, right? Like, I mean, if you are like locking something in one environment, you're hiding volatility. It's like a earthquake. and then you need to hope that this stuff is not going to blow up in one go on your face.

24:15The problem in DeFi is that there is so much leverage in DeFi that any level of turbulence at the underlying asset level can really create huge problems across the fabrics of DeFi. So I think we avoided a lot of turbulence because of the way the oracles were constructed. But as you said, like, oracles are app-specific risk management tools, and we should look very, very carefully what it means, right? Because otherwise, we're actually saving ourselves from a small problem and building up a way larger problem for the future. This is like, you know, financial crisis 101, but we're just seeing it now in live form through DeFi products, which, in my opinion, is great and very beneficial for the ecosystem because we can have open debates.

25:07We can see what is actually happening.

25:09Alex Thorn:um throughout the stack yeah i think there's a lot to learn as you pointed out and it's funny because you know for people building in defi and building this new financial system it is important to learn at all these things and look at this minutiae i think when i talk to macro and institutional investors about what happened the story is pretty simple from my perspective right perpetual dex trading became the main narrative in crypto over the last three months with hyper liquids rise and then ASTOR competing and then everybody just trading perps everywhere, right? And open interest got huge. And then you have a end of day market moving macro headline.

25:48Alex Thorn:And lo and behold, there's a big leverage wipeout. And there is microstructure to look at, right? But just broadly speaking, I think, you know, I think sort of reminding the institutional investors that like there's microstructure, but let's, well, the DeFi builders need to really be looking at that and understanding how to better build that microstructure and what, you know, take learnings from this. But the broader investor takeaway is relatively straightforward here. If you play with large leverage and during times when liquidity is thin and the risk of a true social post is high, like you should prepare to be burned, right?

26:23Alex Thorn:Like that's the simplest answer here, right? Yeah, no, absolutely. And also the answer for the crypto capital market, which capital market, which is very yield hungry is there is no free lunch. So if you actually have yield that is 10 % and the risk-free proxy is 4%, who is actually giving you 6 %? Most of the times is leverage. So if you're building leverage on leverage, you really need to pay attention and just always remind yourself that there is no free lunch. And how you construct the products that you are constructing for your clients, it is very important because you're not the smartest person.

27:01You're just like, you need to know exactly what type of risks you're underwriting in your stack.

27:06Alex Thorn:And it's also very likely that there's nothing new under the sun. People have tried these things in finance in various forms over the years, over the centuries in some cases. So don't get the hubris that thinks that stablecoin lend and borrow looping is a brand new invention. No, leverage on leverage has been tried many times. Maybe the rails are new. The rails are new, and they do bring some key benefits. Let's talk about some of those now, Luca. I want to talk about M0, but let's set the stage a little bit with the Genius Act, the landmark stablecoin law now, signed into law by President Trump in July of this summer.

27:48Alex Thorn:It's called the Guiding and Establishing National Innovation for U.S. Stablecoins Act. The Genius Act, a lot of people worked really hard on this. I know both inside the government on Capitol Hill and in industry providing technical assistance on this bill. Just I'll set it up broadly. The bill creates a federal framework for stablecoin issuance. It includes rules on collateral management and risk management for the issuers. It also imposes rules on digital asset service providers like a Galaxy on which we can use and when we can use them. It also creates, just as an aside, a state pathway to issue one up to a certain threshold.

28:27Alex Thorn:if those states' regulatory regimes are materially comparable to the federal one. So it raises everybody to a federal threshold, but still allows states to do it. Just broadly, what's your take on this act? This seems like an incredibly consequential financial bill, monetary bill. I would say definitely the most consequential since Dodd-Frank was passed in the wake of the great financial crisis. Perhaps even more so long-term, yet to be seen. But what's your overall take on genius? I agree. I was quite vocal during the drafting process. I think this piece of legislation has incredible consequential effects in the fabrics of finance that most people do not realize yet.

29:20And in my opinion, the main point is the following. until now, until recently, until like still now in certain jurisdictions like Europe. And, you know, I'm European. I spend a lot of time in European financial institution space. So fortunately, unfortunately, I know well the ECB regulatory environment. Any form of... So until now, like banks were acting as the main distributors of M1 money, expanded money in the system. Banks were underwriting. credit, they were just distributing money in the economy and they had the benefit of the monopoly on deposits. So you had to park the money there. That money is virtual, of course, and banks were actually doing the distribution and the management of clients' relationship.

30:09Now, this stuff has changed over the last 10, 20 years, right? If you look at, if you talk to a person like under 30, probably they never stepped into a bank branch in their life. So they don't need banks for distribution or storage. So there has been a tech overlay on top of the banking sector for a long time. Until now, though, this tech overlay was just an overlay. So the banks were the banks, and the fintech companies were just operating on top of it. So any tokenized form of money was like some sort of electronic money on top of deposits. So we were not actually reinventing the stack to actually create money and distributing it to the system.

30:49We were just creating a distribution tech overlay on top. Now, this under Genius changes completely. What Genius is saying is that there is a new vertical, like some sort of narrow bank stablecoin monoliner issuer that can create digital money fully collateralized. That's why they are talking about payment stablecoins. It's M0, not M1. But you don't need to rely on the banks to deposit your money. And this is fundamental. because what happens is that if you're an app builder, you're saying, okay, I need to have digital money on my stack. What can I do? I can connect to a bank through APIs and I'm running their counterpart to risk and I need to interact with their stack, which is antiquated, and I'm bringing them free flow of funds.

31:36Or I just do it on stablecoin rails. Safer. There is no counterpart to risk for the depositor. Tech-friendly, super fast, and programmable. And obviously banks do not like that at all. And I think that it is really fundamental in realizing, I think, consciously or unconsciously, that we will reinvent layer by layer the whole stack of money transmission in the economy. I think this has huge fundamental impacts in the banking sector because some banks that do not really have a competitive advantage in other products will see a liquidity crunch. Liquidity will move. why would you need to park your money in a regional bank as just a parking spot if you can do it through stable coins and stuff that is fully collateralized.

32:26So we will see a complete reshuffle of the banking sector in the next 10 to 20 years. I'm convinced of that. So I think that, and this creates a lot of, obviously, regulatory clarity and some sort of Cambrian explosion of stablecoin issuance in the US. But the last point I wanted to make on this is, and this has been our thesis at M0 for a long time, and you know Alex had been researching in stablecoins space before M0, so I'm not trying to preach at all. It's just like my conviction. Issuance itself, people are obsessed about issuing a stablecoin. Issuance is the least relevant piece of the stack.

33:09Issuance is going to be commoditized very quickly. It's going to look like custody for securities. No clients know who is the custodian of the securities that they are trading on Robinhood. And if Robinhood changes the custodian, they will not care. So most of the stuff will happen at the infrastructure level and the applications will just deal with infrastructure and behind the scenes there will be issuers that just are custodians and guarantors and compliance providers. So I think that it's interesting that now we will see a lot of banks trying to morph into stable coin issuance because they think they need to do it for competitive advantage reasons.

33:46But it's going to be tough for them because they have a huge conflict of interest. So for me, it's a big bang in how money is intermediated and created in the largest economy in the world. So we've just started to see the impacts in the competitive landscape now.

34:03Alex Thorn:Let's talk about your conviction here, Luca, as you mentioned, and get into M0 then what you guys are building because it's very interesting. It's obviously extremely relevant. And I'll preface this by congratulating you. You guys announced in August that you raised$40 million in a new venture round led by Polychain and Ribbit Capital. So congratulations. Maybe before we get deep into it, remind the audience, and I encourage people to go listen to the episode I did with Luca last fall in fall 24, but remind the audience, broadly speaking, how M0 works and what your sort of take and angle is on the stablecoin market.

34:39Yeah, and I promise I'll try to be short. It's just that sometimes you need to rewire the way you look at things. So our conviction at MZero has always been that money is infrastructure. Money is infra, it's not a product. And when it comes to digital money, stable coins, we thought that this market has two sides. The people building cool stuff with money and the people, the institutions issuing the money. These are two different markets. So M0 is an infrastructure middleware infrastructure lien that separates the two things completely. So if you are an application builder, like if you are a new DEX or a crypto powered credit card or an exchange or a chain or DeFi protocol, you can embed money in your stack only with code.

35:34The rest is abstracted away. You can do it only with code. You can program it, stream yield, do compliance, interop, liquidity, in and out, just interacting with the M0 protocol. So it is a protocol. On the other side, on the issuance side, you can just use this protocol to do issuance and sell into this market. So we are completely bifurcating the two sides. So M0, ultimately, we want to be the best application-friendly money infrastructure there is. And, you know, we are in the world of stablecoin-centric chains, etc. I think we don't believe in stablecoin-centric chains, so we created a protocol that is completely, sorry, it's completely blockchain agnostic and it just wants to focus on the interoperability, liquidity, and programmability, the money for app builders.

36:29These are our clients. So, I mean, I'll stop here, but we started with this thesis in the company that money is not a product. Stable coins are not branded products. Money is infra. People struggled to wrap their mind around what we wanted to say, but now it's becoming real. You see all these companies from Stripe to Circle to Tether through Plasma, they are building infra for interop, exchangeability, liquidity of digital versions of money. This is the most important thing. So that's why we have been pioneering at MZero and it's great to see crypto-native VCs like Polychain and very opinionated fintech investors like Ribbit joining our journey.

37:18Alex Thorn:Yeah, so MZero, you're building this infrastructure, as you say. It's a platform for other businesses to issue, mint, manage stablecoins. Is that right? Yes. Not even to issue. I think the issuance is not really important, but to control their dollars. Yeah. And so it seems like an incredibly ingenious, dare I say, perfect design to address what you call that Cambrian explosion that Genius Act is propelling, right? Where everyone thinks they need to issue a stablecoin, And maybe there's a better way rather than every single one go get what they call now a PPSI, a permitted payment stablecoin issuer license from the OCC or a state regulator.

38:06Alex Thorn:Would M0 be the PPSI in this setup, you think? No, I think M0 is a tech layer. It's simply a tech layer. So these guys can use it. And I can have a practical example for what we're doing for MetaMask. M0 is the platform on which MetaMask is launching their MetaMask dollar. But this tech layer is allowing those issuers to deal with the smart contract platform, the programmability, the interop and everything. Everything, I'm stressing, I tend to repeat always the same stuff. In money, everything is about liquidity and interop. I think the struggle we are having in stablecoins is that our mental model is created around the first two success stories that are Circle and Tether.

38:54These success stories will not repeat themselves, especially Tether. These are like fat stablecoin companies. What I mean is they control everything. They control the brand, the minting, the custody, especially the distribution and the liquidity. This is not replicable. And I think probably only Tether will succeed in doing that. All the others will need to operate within a fabric that connects applications, custody providers, issuers, liquidity providers, and it's all about this interoperability. Ultimately, this will be completely obstructed away from the user. The user will interact with an application.

39:36They will see a dollar balance on their application. And behind the scenes, instead of having old rails, there will be new rails. And stable coins will be these new rails. In my opinion, stable coins are networks, are like fat networks. And most of that stuff will exist on chain, and that's why we're building M0. It's a very complicated stack, but has different pieces.

40:01Alex Thorn:Yeah, that liquidity primacy in your mind, that's sort of the idea here with MZero is that these many different issuers can get fungibility and centralize the liquidity instead of a bunch of individual issuers like a tether and a circle sort of trying to build an entire stack on their own. And then you have to swap them in secondary markets, right? Yes, they can use all these different issuers. Let's look from the issuer side and most importantly from the application side. All the different issuers can use the same set of smart contracts. They can actually decide what level of interop they have within the stablecoins they issue and the stablecoins others are issuing.

40:39They can decide what is predicated on secondary liquidity, what is predicated on tech interop. So they can actually compose their stack and integrate with others in a way more efficient way. And they do not need to chase their own distribution. Like I was like, if there is a bank X that says we are issuing a stable coin, that act of issuance is completely relevant unless that stable coin is embedded in an application that everybody uses on a daily basis. So I think that the idea here is the issuers are just connecting with a stack that is ready for them and gives them all the benefits of interoperability, issuance, liquidity, shared programmability, et cetera, without them having to invent it.

41:24Now, on the other side, it's even more powerful. So if you are an app builder, you can just integrate a set of smart contracts on the MZero network, and all the issuance, all the connectivity with the banking rails is completely abstracted away from you. You just deal with code. The rest you ignore sometimes. You can be opinionated and say, I actually want to use this stack, but I want company X to be the issuer of record because I have certain requirements. you can do it, but the tech layer is the same. And this is very, very important for new companies that are building directly on digital rails.

42:07I give you an example. I think the best example is what we have done for MetaMask. People know MetaMask. MetaMask is probably the most famous, the most important, the largest, if not the largest, wallet infrastructure company everybody uses. They have 30 to 40 million monthly active users. in their non-custodial platform. They wanted to have a stablecoin for their platform. I stay away from the idea of issuing a stablecoin, again, because it's not really the important part. They say, we want to have a MetaMask dollar. And the MetaMask dollar needs to be integrated with our Layer 1, with our Layer 2 Linea, needs to be integrated with our swap markets, with other products we are building on top for their stock.

42:50So they had a lot of tech-heavy requirements and then decided to build it on M0. Now, they also had a requirement regulatory-wise that they wanted the MetaMask dollar to have a parent from a legal perspective. So we decided to partner with Bridge, a Stripe company, to be the issuer of record of the MetaMask dollar. So what it means is that Bridge has the licenses to store their collateral of chain and to give birth to the MetaMask dollar through our set of smart contracts. The entire tech stack, the interop, the way the liquidity, the way the stablecoin is delivered to the customer and the way it moves within the MetaMask consensus ecosystem and outside of the consensus ecosystem is entire M0 tech.

43:38And others could do the same using the same tech layer.

43:43Alex Thorn:So will MetaMask themselves, I mean, maybe you don't want to speak to them, but I'm assuming then they would be the permitted payment stablecoin issuer from a regulatory perspective, Or perhaps they yet also partner with another third party? No, I don't think they would be. I think the permitted payment stablecoin issuer would be Bridge in this case. And MetaMask simply consensus will have certain control at the smart contract level. And they will embed this product within the set of non-custodial products they're offering to their customers. They will be in control of the experience. The permitted stablecoin issuer is bridge.

44:27But in my opinion, the issuance business per se, it really will resemble more custody in the securities world. It is going to be a highly regulated, low margin, commoditized business per se. That makes sense.

44:45Alex Thorn:I think you're going to see then, it sounds like in that world, you probably see sort of a handful of highly specialized, effectively white label issuers emerging. Like, for example, I know Anchorage will be the issuer for USAT, which is Tether's onshore foray, I'll call it. That's what they announced at Token 2049. presumably right and anchorage is a national bank occ regulated national bank obviously in a very good position to get the whatever accompanying occ license will be required to be a ppsi sounds like bridge will be right but you know how many of these is your uh you were saying this at the top i don't know if it's a fear or a or a prediction do you think all the big banks that say they want to do a stable coin are they they're all gonna miss this boat or are you guys going out to them and all try to go get their own license and all build their own silo and all get a JPM dollar, BNY dollar, all these different dollars and not see the light of the tech interoperability?

45:48Alex Thorn:Are they at risk of making that mistake, building their stablecoin in COBOL and keeping it inside their four walls? I think they are at risk. And I think that a lot of them will make mistakes. A lot of them will be not needed in this future. I think, again, I think that the issuance, the act of issuance per se is going to be commodity. So what is going to matter is what you can offer around it. So if you're JP Morgan, for example, and you offer a lot of adjacent services around a potential JP Morgan coin, you're in a good position, right? And if you want to interact with the JP Morgan ecosystem, you need to use the JP Morgan coin and you can get credit and I don't know, whatever, like OTC derivative desks, whatever JP Morgan can offer to you.

46:42But what matters are the services. The issuance per se is commodity. and in the case of Bridge Stripe for example we're seeing because Bridge is fully integrated on M0 stack we see a lot of potential customers very interested in having Bridge as the issuer of record because of the access they can have to the Stripe suite of services of payments and integration with merchants so it's all about the services you can provide around Anchorage, another example we're very close to the Anchorage stablecoin team we hope Anchorage will soon use M0 as a tech layer to issue part of the stablecoins they can issue.

47:22But issuance per se is not sufficient to win. And I think that a lot of banks are struggling. They think, okay, if I am a famous banker who will issue a stablecoin, every user will come to me. The user doesn't care. The user trusts the application layer. So unless they build the application layer, which is a completely different business, they will be just squeezed. So I think that it's interesting. I think we will have few white-labeled massive issuance businesses. The issuance business, I think, is going to become digital very soon. It's going to be probably most of those securities will be tokenized.

47:55Treasuries will be tokenized. There will be smart contracts. There will not be trusts. So that stuff is going to be very programmatic very soon. And if you want to create a financial institution around stable coins, you better focus on the additional services you're providing to your clients. Otherwise, you're just going to be irrelevant.

48:13Alex Thorn:Let's continue this sort of line of thought. One of the interesting things that we've seen come out of this, and I know Bridge is sort of one, which is obviously Bridge is part of Stripe. And Stripe has announced that with sort of a consortium of partners, including I think, you know, with Paradigm sort of leading that, that they're going to build their own stablecoin focused blockchain tempo. I think Circle has said they're going to build, I think theirs is also their own chain. ARK. It's not an L2. And then, of course, there's this Plasma XPL chain that is, I don't know, tether-backed. I don't know if Tether's actually building it.

48:50Alex Thorn:That's at least three that are sort of corporate stablecoin chains. That seems like maybe making the wrong decision, trying to keep it all inside of a silo. What's your take generally on these sort of corporate stablecoin chains and how does M0 see that as a pathway? I am bearish corporate stablecoin chains and I hope I'm right because I come from the crypto, early day anarchic crypto, open source cypherpunk side of the industry. And I hope we keep winning because having an open architecture financial system is so much better and so much cooler to build on. Now, I think that it is going to be very difficult for stablecoin-centric chains to be successful because they need to convince people to build stuff on top of it and assets to flow through their pipes.

49:55And currently, large banks have tried it, right? And large banks ended up adopting Ethereum. And the adoption of Ethereum five years ago would have been anathema for most of them. I'm pretty happy we got there. Now, I think some are in a better position than others. I think Stripe is in a good position because they have their own captain network of merchants. They can bring... And the Stripe story is interesting because Stripe... And I mean, I know the bridge team very well, but I'm speaking... I'm just... These are my own opinions in no way connected with what their strategic position might be.

50:30I think Stripe is in an interesting place because stablecoins are a huge opportunity for them but also disrupting their business. So I think creating some sort of stablecoin-centric chain is a way also to reduce their own internal marginal costs and sideline Visa. So this is a network fight. And I think we're going to have new networks emerging. There's going to be a new mesh of networks. Now, I think it's going to be difficult. I hope we will be in a world of open architecture chains for the future. But there will be also closed-loop chains that are optimized for certain use cases. So everybody's threatened here.

51:15It's interesting how we're going to reshuffle the balance of power in the next decade or so. Then, of course, we are not naive, and there is a huge equity premium in creating chains. So everybody wants to capture that premium in the form of tokens that are sold to investors if they launch their own chain. And I hear in the market that the Tempo chain is not existing yet, but there is already a price for token warrants. So that is also a reality.

51:45Alex Thorn:Yeah, it does seem to me a little bit of a step back or another way of saying it is everything old is new again. You remember the old enterprise blockchain, and then I think you're right. The enterprises made great strides, and I think finally realizing that public blockchains were the place to actually build, and that you could do some of the impetuses that had led to the enterprise blockchain thesis, that you needed to control them more, and KYC users and stuff. The tech has emerged such that even on public chains, you can accomplish a lot of that if you wanted to do that. it does seem like surely they could.

52:24Alex Thorn:And in fact, I would say even from the Ethereum standpoint, the fact that some of these, these are all, all three that I mentioned, I believe are new L1s, like surely the Ethereum roadmap had been designed where these could possibly be corporate L2s. We see a lot of those with like Robinhood and Kraken and Coinbase, but I'm just surprised, like full new L1s. And they say that stable coins will be used for gas, which is the other, I think from a user perspective, very positive. But doesn't that take away one of the main reasons to launch an ONL1, which is to build your own token, have your own validator network?

52:58Alex Thorn:I guess a lot remains to be seen, but it feels a little bit enterprise blockchain-y to me. I agree. At M0, we decided not to build a chain, even if we were very early in the stablecoin adoption war. We decided to create a set of protocols and standards that are chain agnostic, but we are cheering for the open architecture side of history. So we will see. Yeah, I think we will see. We will see. It could be the whole thing. I can never forget IBM saying they were tracking tomatoes on their blockchain from ground through Maersk shipping to whatever happened to those tomatoes. I'm assuming they got to their destination.

53:46Alex Thorn:it does make me wonder but there is obviously a huge green field upon which to build now thanks to the legal regulation and adoption promotion even by the treasury department of stable coins in america so it is going to be this is why i say it could be the most consequential change to money i mean honestly since like 1971 dodd frank is financial regulation right like it puts safeguards and adjust how intermediaries have to be regulated and overseen. This is a more, to your point, M0 base layer upgrade, potentially, that is so interesting. You do a lot of work in Europe, as you mentioned. You know a lot of ECB and stuff.

54:27Alex Thorn:What's your take, Luca, on Christine Lagarde and the ECB's continued insistence on the central bank-issued digital currency, stablecoin? Obviously, the U.S. going a whole different direction with these intermediated two-tier banking system, privately issued ones. What are they thinking over there? Yeah, I mean, since I became a founder and an executive, people always remind me that I need to be very filtered in my opinions, but you only live once I decided not to follow their advice. Sorry, guys. I lived most of my time, most of my life outside of Italy, but as you can tell from my accent, I am Italian.

55:08and my own personal hero as for many other italians is mario draghi i think was the greatest central banker we've ever seen i was working at morgan stanley during the whatever it takes times and you know he just destroyed the the european the european sovereign debt crisis with one sentence and a lot of credibility now i think christine lagarde is probably the worst central banker we've had in Europe coming right after, unfortunately. But a lot of the posture of her as a central banker and the sense of complacency against Bitcoin or digital asset rails is a bit depressing. but I think the reality in Europe is slightly different it is quite clear that the ECB space is trying to protect domestic banks they know because the central banks are very very smart they understand the fabric of money better than anyone else they know clearly that having stable coin issuers or digital money issuer monoliners is threatening banks because why on earth do you need to deposit money in a bank if you can do it in an over collateralized instrument which is digitally native and you control the economics of and they are fighting for it.

56:31Now, I think that, and I know for a fact because I heard stories about it that the regulators in Europe were not very happy to see the U-turn in the US on stable coins and crypto in the new administration because now they are a bit cornered because on the one hand, they are trying to protect their banking system, which is antiquated. On the other side, now they see the risk of seeing a ton of liquidity siphoned out of their system through USD stable coins. So I think it's in a very difficult position. And as a European who doesn't live in Europe anymore much, or at least doesn't do business in Europe much, it's sad to see such a large currency block lagging behind, while Europe actually had a possibility to be at the forefront of this during the Biden years, where the US were actually pushing out crypto business.

57:27So it's interesting, but I think this goes back to what you were saying before about what we're seeing, which is one of the deepest financial paradigmatic shifts in our lifetimes. This is also about geopolitics, and there are blocks fighting each other. The US, I think, had a very deep and smart understanding that this could be one of the most powerful rails to perpetuate the dominance of the dollar worldwide. And they're using it. But they're not the only block in this world. So it's going to be interesting. But Europe definitely has been very incumbent-centric and protectionist in the last couple of decades, and they haven't learned a lesson yet.

58:09Or we haven't learned a lesson yet. I'm European.

58:11Alex Thorn:Yeah, it does feel like, I agree with you completely, this is a very geopolitical, geostrategic move by the U.S. Obviously, the Treasury Department and Secretary Scott Besson has talked a lot about the increased demand for Treasury purchases that stablecoin issuance at scale could bring. Of course, that's helpful, but it's also by statute very short-term treasury debt, whereas America's treasury market problem is really about the long end of the curve. And stablecoins by law can't buy, I don't think, anything longer dated than a 92-day treasury, I think, under the Genius Act. But the other thing that he has said, he said explicitly on, I think, March 6th at the crypto roundtable at the White House, Scott Besson said, we will grow and maintain U.S.

59:04Alex Thorn:dollar dominance and we'll use stablecoins to do that. It sort of seems to me like the geopolitical strategy here is, look, we know that there's declining interest in owning U.S. debt. We know there's even, you know, in some cases, although I think it's a bit overstated, but declining interest in trading, international trade settlement in dollars. and we say, okay, well, I mean, maybe we'll work on that, but in the meantime, we're also going to make it really easy to just put dollars on every one of your citizens' cell phones. It's a highly subversive geopolitical play, right? Like, try to stop the flow of dollars when they flow as easily as Bitcoin.

59:40Yes, and also, I think it is the beginning. So currently, stable coins are, ultimately, I think stable coins are balance sheets, right? Stable coins are allowed to hold only short-term debt. that what is going to happen if there is some sort of squeeze in the longer term, longer part of the curve, then maybe surprise, surprise, that we'll be able to hold a longer date adapt. And, I don't know, commercial paper. And they will start to resemble more banks' balance sheet. Or maybe we'll start having insurance companies that are building products on Bitcoin and stablecoins. They already are. Bain Capital and Pantera are two of my largest investors.

1:00:20and I think they just invested in a Bermuda-based insurer core, I think, meanwhile, which raised roughly$100 million to build an insurance because insurers are long-term investors in assets. So you see how the whole financial industry slowly moves on a different stack and things go so quickly, right? It seems that it's taking forever, but I don't know, five years ago, what was the TVL of Tether's USDT? definitely not$170,$180 billion. So yeah, it is moving. Also the way what we think of stablecoin is moving. We thought that stablecoin was a trading settlement asset and then people like Nick Carter, myself, they started to say, wait a second, stablecoins are actually the next iteration of euro dollars, offshore dollars.

1:01:14And now it's like, wait a second, stablecoins are actually the new vintage of bank deposits So this instrument is becoming way more pervasive and is absorbing and swelling larger and larger parts of the financial stack. And I think now, even if there is a change in administration in the next years, I think now this phenomenon is becoming so big that it's impossible to ignore.

1:01:37Alex Thorn:And it was, the Genius Act was passed by bipartisan veto-proof majorities of both houses of Congress. So it does look like this one is here to stay. It's about as good as you can expect or hope for any federal legislation, right? This was not partisan. It's not like one party is going to get into office and want to undo the other party's bill. Everyone voted for this bill except for a very small minority of Democrats. Before we wrap here, Luca, let's do that. You were winding back five years to Tether, and it was much smaller. It's been an explosive growth there at Tether. and in stable coins in general.

1:02:12Alex Thorn:We expect that growth to continue, but let's go forward five years instead. We'll call it five. Why not five? Genius Act has to be fully implemented, I believe, within the next year. The longest dated implementations and compliance requirements for Genius are three years out. So by five years from now, we should be two full years into sort of full Genius Act world. Who do you think will be the biggest winners in that world, industry-wise, or I guess you could say consumers too. But what types of entities will be the biggest winners in that regime? In my opinion, the biggest winners will be the new fintech applications that are going to be built on stablecoin rails.

1:02:57I think maybe five years is short, but the Revoluts or Robinhoods of the next decade are emerging now, and they are built on stablecoin rails. And this is where most of the value will accrue. There will be two, three very, very large networks that dominate. Hopefully, M0 is one of those. But these, in my opinion, will be the winners. We are just completely reshaping the way we do financial applications and financial intermediation. And I think the companies can launch on those rails so much faster. I mean, we have seen some companies, I think some of those companies are also galaxy portfolio companies, like companies like Red.pay, creating credit card products on top of stable coins and exploding in growth in a matter of like 12 months.

1:03:53Or the hyperliquids of this world, right? Built on digital rails and creating some of the largest perps in the world in like two years. And I think this is going to come. I mean, the first six months of 2025 was all about the stablecoin narrative following the acquisition of Bridge by Stripe. The second half of the year is this narrative is becoming real. We see massive shifts. So in my opinion, five years, if I had to make a prediction, the stablecoin float is going to be north of$2 trillion. dollars. We will start to see the emergence of very large stablecoin providers in other currency systems like the Mexican peso, the Brazilian real, the Indian rupee, et cetera.

1:04:38Maybe the euro, who knows if these guys wake up. And we will start seeing huge financial companies built on stablecoin rails that are$50 billion plus of market cap.

1:04:51Alex Thorn:Very exciting. Well, Thank you for the insights, my friend, Luca Prosperi, CEO and co-founder of MZero. Check them out. And again, Luca, congrats on that latest fundraise at MZero. Great having you. Thanks, Alex. Next time in person. That's it for this week's episode of Galaxy Brains. Thank you to our guest, Luca Prosperi, CEO and co-founder of MZero, and our friend, Bimnetta BB from Galaxy Trading. Everyone have a safe and happy weekend, and we will see you next week.

1:05:25Alex Thorn:Thanks for listening to Galaxy Brains, the weekly podcast from Galaxy Research. If you enjoy the show, please like, rate, review, and subscribe wherever you get your podcasts. To follow Galaxy Research, sign up for our weekly newsletter at gdr.email, read our content at galaxy.com slash research, and follow us on Twitter at glxyresearch. See you next week.