Solana’s Big Treasury Company with Kyle Samani

0:00Alex Thorn:Welcome to Galaxy Brains.

0:25Alex Thorn:Welcome back to Galaxy Brains. As always, I'm your host, Alex Thorne, head of firmwide research at Galaxy. Bitcoin, not zero. We have a great episode for you this week. Kyle Samani, co-founder and managing partner of Multicoin Capital and now chairman of Forward Industries, a new Solana digital asset treasury company, is our guest. I'm going to talk with Kyle about Solana, its prospects versus other chains, why he is leading this new digital asset treasury company, Forward Industries, why the time is now. and in quite an interesting conversation with Kyle. And of course, we'll check with our good friend, Bimnetta Beebe from Galaxy Trading, as always.

1:03Alex Thorn:We'll talk about this week's rate cut from the Federal Reserve, what it portends for markets, why the Fed finds itself in between a rock and a hard place and what might come next for rates and therefore markets. Before we get to that, I need to remind you to please refer to the link to the disclaimer in the podcast notes and note that none of the information in this podcast constitutes investment advice or an offer, recommendation, or solicitation by Galaxy or any of its affiliates to buy or sell any securities. I want to give a big shout out to one of our biggest fans, Bill Burgess, my friend.

1:35Alex Thorn:Congratulations on the great wedding last weekend. And thank you and all of the rest of our listeners for listening to Galaxy Brains. Let's hop right into it with Bimnet. Let's go now to our friend Bimnet Abibi from Galaxy Trading. As always, Bimnet, welcome to Galaxy Brains. Thanks for having me. Well, it's a big day. It's Fed Day. We got a 25 basis point cut out of the Fed. Before, I want to ask about some of the dissension in the Fed, but also just was this a dovish cut? Was he yelling at us about hawkishness while cutting? How would you characterize this cut? A very challenging one. I think you have as much uncertainty about Fed policy as you've had in recent memory.

2:20one of the main lines that you know stuck out to me today during the press conference was the fed's policy tools can't do two things at once right they can't tackle high inflation and weakening employment at the same time right and so the way he characterized it is you know our challenges are immense and high level, you know, we need, the economy has been, monetary policy has been too restrictive in the context of the labor market data that we've gotten. Right. And I think any Fed person was surprised by the magnitude of the revisions, right? We had a 910 ,000 downward revision to the labor market data last week.

3:08And yeah, so he's concerned about the labor market weakening. That's partially a function of layoffs, but also labor supply going down. And so to summarize it, he's reasonably concerned about the labor market, but also concerned about inflation. And he thought that it would be appropriate to cut 25 in that context.

3:31Alex Thorn:It's so interesting. So the labor market then, if inflation is still above target, which it is, then the labor market softening or weakening, or it's not fair to say contracting yet, right? But It's not contracting, yeah. But softening, that's the main impetus for the cut then? Yeah, that is the main impetus for the cut. And one of the things he highlighted about the labor market is, you know, jobs are becoming harder to find. And so if you lose your job, you know, it's going to take you much longer to actually get a job. And so if you get this downward spiral of people losing their jobs, it's going to be harder to, you know, come back from that.

4:07I think, you know, if you think about it, like, let's say one of the main reasons that people lose jobs nowadays is because of AI, right? Once somebody takes over, an AI takes over for a job, like, it's going to be really hard to be like, oh, I'm going to hire somebody because I just replaced them with this AI.

4:25Alex Thorn:So, you know, it gets a bit harder. So it's like the economy could contract a little bit, not literally contract, but slow down a little bit, leading to layoffs. But then when it starts growing again, the growth might come from automation and the labor market might remain stagnant. Yeah. And the other things he highlighted was that because the labor supply is shrinking, largely due to immigration, the run rate you need to kind of keep us closer to full employment is actually smaller. right? So let's say, you know, a year ago, you might have needed 125 ,000 jobs per month to keep us at a neutral rate of unemployment.

5:08But now you might need like 85 ,000 or 75 ,000. And so that number has also come down. And the other thing that is just like so apparent in the data that Powell touched on is kind of the tale of the two halves, right? By halves, it's not even haves anymore. It's really like the top 20 % of people and the rest of people where you see things like, you know, spending amongst top income folks like actually increasing and they're spending power beating, you know, the rate of inflation versus, you know, the rest of, you know, the population where they're purchasing power is net declining or staying flat, right?

5:52And you see it in, you know, asset prices as well, like the S &P is at an all-time high, right? Nasdaq's an all-time high. Property values are at all-time highs. And so there's a huge, you know, divergence between those areas of the population. And Powell specifically highlighted, you know, youth unemployment, you know, starting to tick higher, also unemployment amongst minorities. And the way he characterized it was, you know, the unemployment for vulnerable parts of the population, you know, is something that he is concerned about. And, you know, his mandate is really to help more Americans and all Americans.

6:31And so, you know, there's part of him that's like, I want to cut because there's a lot of folks that are in pain at the same time, like, you know, inflation's an issue. And once the inflation genie gets out of the bottle, it's really hard to put in. And so, you know, he's got a really hard dynamic. And at the same time, as a market participant, it is just so hard to actually understand where policy is headed. Going back to your first question about the dissent, it's really notable that the most recent Fed appointee that's also technically employed by the White House right now was the most aggressive person in terms of their rate policy.

7:16Alex Thorn:You're talking about Steve Mirren, who just joined as a Fed governor. Yeah. And he was in favor of 50 basis point cut. Correct. But his dot plot also for 2025 literally looks like the biggest outlier ever. It's just down. It's like 100 bips lower than everyone else for the end of 2025. Right. And it just doesn't make that much sense. And I think what's notable is that Powell was able to get consensus amongst the rest of the members. Right. So nine of the 10 voting members agreed with Powell and, you know, for 25 this time. Correct. But if you start looking beyond the distribution of dot plot estimates for members is really wide.

8:03And when you think about the fact that Trump is pursuing policies that are essentially going to put more people like Mirren on the board, it's really hard to know how relevant the dot plot is at all. And then you also have Powell telling you that it's still meeting by meeting. And just because the dot plot says that the median dot is forecasting two more cuts this year doesn't mean that they will actually do that. So you can't rely on this dot plot as much right now. You can't, but it's just tough for a market participant. And I think the stock market isn't the economy. And I think a lot of the market does hinge on people feeling like they're going to have a job for the foreseeable future.

8:52And so like the labor market is very important to people because, you know, one of the reasons why people feel so comfortable not selling their house is because they have a really good rate most likely. But also because they forecast themselves being able to make their mortgage payments because they're still employed. Right. And so if you start to, you know, lose jobs, particularly on, you know, some of the white collar higher end jobs because of AI, like that could have a meaningful, you know, trickle down impact. impact. And housing. And housing. That's fascinating. So it's a really interesting set of conditions.

9:27And, you know, one of the other big things that's been going on in the marketplace basically since Labor Day is you've had the dollar weaken, right? And all this uncertainty around Fed policy and Fed independence, you know, is leaking its way into markets via the dollar, right? And Euro was testing 119 and change at some point today and gold is making a fresh all-time high every single day right and so the the perception of you know the u.s as being you know run in a sound way from a monetary policy perspective at a fiscal policy perspective is getting challenged by the day um and so you know it'll be interesting to see how crypto fits in that in that landscape um you know i do still believe in the digital gold thesis um however you know i'm more inclined to think that the balance of you know all the data and what i've seen over the past couple years that it's more akin to like equities and risk assets than it is to like a true fiat you know debasement hedge And so, you know, I think for crypto, the main thing to watch is probably equity markets, not gold.

10:48Because if we were really tracking gold, we would probably be going up a ton right now.

10:54Alex Thorn:It has lagged Bitcoin gold in the past. So perhaps a move is still possible. But I mean, I agree. So we record this on, what, the 17th of September. So Wednesday, shortly after Jay Powell gave his press conference. Bitcoin's around 115.5. Is that what it says over my shoulder? 115.7. Unch, as they say. Unchanged on the cut, basically. Briefly a little tiny bit higher, but not really changed. Where is gold reacting? Other things reacting? Now, most of this was priced in. Literally, the rates markets were pricing 27 BIP cuts, which is basically one cut. Exactly. But I wonder then, with the sort of volatility in the dot plot, maybe call it that, or the widespread in the dot plot.

11:40Alex Thorn:Yeah. Do you think we're going to see some volatility in rates markets? I mean, it's totally possible. You know, it's just really hard to gauge right now. You know, I think one thing is clear. There's going to be a ton of issuance over time. You know, big, beautiful bill, you know, three plus trillion dollar deficits. There's going to be a ton. But if the balance of risks is really skewed towards easier monetary policy, then that should benefit the bond market. So it's super tricky. I'll wait and see. And you know that there's so many different levers that the government has to kind of cool the bond market if it ever gets too aggressive.

12:29One that comes to mind is obviously going from running off your balance sheet to actually expanding your balance sheet if you're the Fed. The other thing that's been proposed is cutting the rate that the Fed pays to banks to park deposits. So if you cut the interest rate on excess reserves or IORB below, let's say you cut it in half, those dollars would probably find their way into the bond market because they want more yield. You could change bank regulations around to allow them to take more risk in the bond curve. So there are things we can do over the next couple of years that kick the can down the road, but the issue ultimately doesn't get solved.

13:08And, you know, I would just highlight that there are plenty of economies, particularly in emerging markets, where, you know, unemployment is real bad. And yet inflation is really high. Right? And so there is this weird situation you could find yourself in ultimately where, you know, the economy slows and inflation is still kind of lingering.

13:34Alex Thorn:This is what they call stagflation, right? Correct. And it's one of the hardest, as you mentioned before about the Fed, it's one of the hardest things to address because they're fighting a dual purpose. Their dual mandate is pushing them in opposite directions. Correct. Which is why you get this, we're worried about the labor market, so we're cutting a little bit, but we're also worried about inflation, so we're not cutting a lot. Yeah. And you could see that go the exact opposite way. Well, we're worried about inflation, so we're hiking a little bit, but we're also concerned about unemployment, so we're not hiking a lot.

14:02Alex Thorn:Like it's sort of six and one half dozen. Yeah. Right? But I think you're right. It feels like it's still long-term a bias towards lower rates over time. Yeah, no, absolutely. Particularly when you know that Powell will be out of the Fed. Well, not technically, but he will no longer be chairman halfway through next year. In next May or so, right? Yeah, yeah. And I don't know. How many other appointments does President Trump have during his term? Well, if he just arbitrarily fires people for... Fed Governor Cook was still in the meeting, right? No, absolutely. So we'll see if that even works. If it doesn't work, then we're just looking at like term expiry and – what are they, 10-year terms, right?

14:41Alex Thorn:Very long. I don't know. But I agree. I think you mentioned it is notable that the most recent appointee by President Trump is also the most aggressive on being dovish. Yes, which makes you really – like the crux of like the Fed, at least in my lifetime, has been that they've been an independent arbiter. and that Fed independence I think is really critical for, you know, dollar reserve status and confidence in markets. Like if you're a corporation and you are planning your CapEx for the next four or five years, if you're somebody modeling, you know, purchasing an asset and you have to, you know, discount the cash flows, et cetera, like the variability about of the numbers that you're inputting like have to be higher.

15:28Alex Thorn:I mean, you have to assume that every person that Trump appoints successfully to the Fed is going to be dovish, right? Yeah. And so... A reason, like at least not a hawk. Yeah. How about that? Well, it's going to be exciting. This was, I was hoping for no cut. I thought that would have been the most exciting outcome. I was hoping for some volatility. Absolutely. It really, it was a pretty muted response in general. It is. Following the trend and no major difference. So maybe we'll see if that sticks when we talk next week. Bim Netta Bibi from Galaxy Trading, thank you so much. Thanks for having me.

16:02Alex Thorn:Let's go now to our guest, Kyle Simani, co-founder and managing partner of Multicoin Capital. And as a very recently, Kyle, chairman of Forward Industries, welcome to Galaxy Brains. Pleasure to be on Galaxy Brains. Alex, I got to say, I didn't think for a show called Galaxy Brains, the host would be wearing a suit. I think this is the first time I've ever worn a suit on the show. I have to go to the dreaded midtown of New York after we finish recording this. Wouldn't your background be the meme where it's like the four brains kind of, you know, exploding over time? Isn't that the correct background for this?

16:32Alex Thorn:Yeah, we should use that meme, right? But I don't think anyone would think that the final one, the most universal explosion of the brain, would be me in this suit with a hat on. I don't know. I'm not looking galaxy brain-ish, right? I'm looking pretty normie. Got the hat on, though. Kyle, I mean, I think the big news of the moment here and was the latter part of your title, new chairman of Forward Industries, what is that? And, well, I mean, I know what it is, but why don't you tell our audience what Forward is right off the top here? Yeah, so Forward Industries is a NASDAQ-listed publicly traded company.

17:07The ticker is actually Ford, F-O-R-D. Yes, like the car company. Forward Industries has been around for 20 some odd years. And they have a design business that kind of designs medical devices and other industrial equipment and such. And we got to know the management team at Ford Industries over the last few months. And we all kind of agreed there was a very unique opportunity to engage in a Solana treasury strategy. And so there was a big deal put together. It was a pipe that invested into Ford Industries. That pipe was co-sponsored by three firms. Those three firms are Multicoin Capital, which is the firm I founded, along with Galaxy, as well as Jump Trading.

17:53And the three of us co-sponsored a$1.65 billion pipe that invested into Forward Industries. That transaction closed last week. All of the money is now in the company. And as part of that transaction, I joined Forward Industries as chairman.

18:09Alex Thorn:So are you becoming the Michael Saylor of Solana? Is that what this role is, or is there something more to it? Because I think what I'm hearing from you guys at Forward Industries is a lot more than just acquiring Solana. Forward Industries is the largest Solana-based digital asset treasury company in the world by a pretty wide margin, and we very much intend for that to stay that way. Our aspirations are a lot bigger than the status quo. We're only a few weeks into this. and we tend to go very big with this. We hope that over the next five to ten years, this can become a$50 billion plus publicly traded permanent capital vehicle that is one of the preeminent holding companies and investors across the crypto ecosystem.

18:57A number of people on the internet have been calling me Sailor of Solana and while I'm very flattered with the analogy, if you know me at all, one thing you'll know is that I hate analogies and so I disagree with it. And look, I think our ambitions with forward are different than what Saylor has with strategy. I actually had drinks with Saylor last night here in D.C. And, you know, he's obviously a Bitcoin guy and Bitcoin's great. But the challenge with a Bitcoin strategy, Bitcoin treasury strategy, is that Bitcoin doesn't organically produce cash flows. And Solana produces cash flows in a number of ways.

19:39First is obviously staking. Second is participation in DeFi. And then third is, you know, we can actually borrow dollars either from crypto lenders or from banks. And we can plow those dollars into DeFi and kind of earn some credit spreads. I am optimistic, although I can't guarantee that, you know, forward industries will be able to borrow in the five to seven percent range and deploy into the dollar denominated Solana DeFi and call it 15 ish percent range. And that's a very nice spread to earn, all of which, of course, goes to our shareholders. And so, you know, by being an actively managed, thoughtful steward of capital in the space, we believe we can earn incremental value for our shareholders.

20:32And to be clear, the North Star that we look to in running the company is actually increasing the sold per share outstanding.

20:39Alex Thorn:I think your point about the sort of productive nature of Solana versus Bitcoin, and it would be true, it is true also for basically any proof of stake network at a minimum, like versus Bitcoin's proof of work, right, where the capital, the treasury can itself at a minimum earn the staking rate. I think that is probably one of the most important distinctions between Bitcoin and every other treasury strategy, right? So I love that point of yours. And I think if we stick with that for a second, I do want to talk about Solana, its technology, its roadmap, and application revenue also being a very interesting thing.

21:17Alex Thorn:We obviously do a lot of research on Solana, and I've got smart Solana researchers telling me these updates. It really is leading on many metrics. We'll get to that. But I want to talk about the, you know, building the staking business and then perhaps what other maybe business. Unlike Bitcoin, in Bitcoin, the capital and the consensus are separate. In proof of stake networks, they're necessarily tied together, which means that when you amass a large treasury, you can become a large consensus participant, which has a whole bunch of other things. How are you guys thinking about that at Forward?

21:50Yeah. Yeah, Ford owns 6.8 million SOL, as we disclosed publicly a couple days ago. And actually this morning we announced our ATM shelf registration of up to 4 billion in shares. So today we own a little bit more than 1 % of all the SOL tokens. And obviously our aspirations are to increase that. We fully understand that we are going to be a large stakeholder in the Solana network. and we understand the importance of delegating that intelligently and responsibly. We obviously are working with the folks at Galaxy Asset Management and Galaxy Asset Management has spun up a node for Ford Industries.

22:36We haven't publicly disclosed the public key yet, but we will pretty soon. And we intend to distribute the stake not only with Galaxy's nodes, but with a lot of other participants in the ecosystem as well. we think it's important for the overall health of the Solana ecosystem to spread the stake around and to have the Sol go to a lot of different places. So you should expect to see that activity ramp up, and you'll start to see press releases around all of that stuff in the pretty near future.

23:05Alex Thorn:Yeah, I think it's going to be quite large. It's already quite large. Over 1 % is already a milestone, and so congratulations on that. You know, one thing that I think sets Solana apart, and it's part of the reason that we looked at Solana to tokenize Galaxy stock, which we did, and as our audience will know, on Solana, is it's sort of designed for institutional trading, right? And it's like you can design a blockchain in a lot of different ways, but Solana is extremely optimized for speed of finality, transaction settlement. It's the fastest blockchain that I'm aware of on a theoretical basis.

23:42Alex Thorn:It's also basically the fastest on an actual pragmatic basis today in terms of the number of transactions that it is actually settling. Right. So even on a combo of demand versus potential, it's the leader today. You know, what do you see as sort of just the long term vision? You know, Anatoly has described it in the past as like the Nasdaq of blockchains. Like tell our audience your vision for the long term of Solana and then maybe assess where how close are we to there? Is it happening? Is it working? Yeah, so for some context, I found the Multicoin back in 2017. And Multicoin is probably most well-known for its investment in Solana.

24:24I led the investment at Multicoin in Solana. And actually, the Solana team raised three rounds of financing in the early days before they even launched a token and the network. The network launched in March-April timeframe of 2020. So basically right at the beginning of COVID, Multicoin led all three rounds of financing prior to network launch. So we've been in the weeds with Solana from day one, been through the trenches with Tully and Raj. We've been through some pretty rough times together. They have almost died multiple times. You know, the original vision that Tully pitched me all the way back in 2018 was decentralized NASDAQ.