The Banks are Wrong on Stablecoin Yield with Omid Malekan

10:05Omid Malekan:It would be hard to go short. That's right. It would be very hard.

10:09Alex Thorn:That trade was better at 100. Yes, correct. Yeah. So it's not – but it could go lower. And you're saying historically even without necessarily a macro rollover. I think both kind of did have a little bit of one in those prior – They did.

10:22Omid Malekan:Like 2022 with the rate hikes. Yeah. But long story short, it normally takes like a full year. It could. Right? So October to October is kind of that time series. I see. Right?

10:35Alex Thorn:So it could go lower. It's not like – and the one thing I would say about – although I don't think we've ever really seen a bottom hit in a bear that just hit once.

10:45Omid Malekan:Correct.

10:46Alex Thorn:Never. But the carnage, the capitulation and fear of February 5th did, like, if later we looked back on it and it was the literal bottom, we'd be like, you know, we were there during it. It was pretty panicky. Like, that is sort of usually the nature of the scariest wick. Yeah. It doesn't mean that, but again, like, it's not a strong enough V-shaped recovery here either. Not like April of last year where we really roared back pretty fast.

11:10Omid Malekan:um yeah and generally i i just think you'll be rewarded for having patience in this market and like the setups will be clear um i also think that like there was a lot of liquidations etc but you know just here at galaxy like we every client met their margin call yeah right and it didn't it didn't feel like everyone's throwing in the towel on crypto and that's normally how markets bottom where like everyone gives up hope.

11:44Alex Thorn:Yeah.

11:44Omid Malekan:And it doesn't feel like that. I think there's a lot of optimism. And I think that optimism is totally fair because, you know, the from the traditional finance world, there's still a huge push to adopt crypto rails. Stable coins are still prominent. There's still legislation being proposed. And so the adoption narrative of crypto hasn't really slowed down. I would say it might even, in fact, be accelerating. Right. But that doesn't mean that the value proposition of crypto rails has to be tied to price.

12:20Alex Thorn:Right.

12:20Omid Malekan:Right. And so I don't think folks have quite thrown in the towel on price.

12:25Alex Thorn:And you kind of, in your mind, you're saying for you to confidently feel like we have bottom, you wanted to see more capitulation on price and narrative than you did see. even though there was a lot of carnage that February.

12:37Omid Malekan:But again, like we're looking at, you know, gold trading around 5 ,000. You're looking at S &P at 6 ,900. Like, you know. Isn't there a meme coin called that? I don't know. Something. I mean, Dow around 50K.

12:51Alex Thorn:Yeah.

12:51Omid Malekan:And so like we haven't really seen like a meaningful tape yet where equities are in proper like trouble. Right. And so I'm just curious as to see.

13:05Alex Thorn:if we see that if we see that to see a lot of other stuff roll yeah um okay before we break let's talk about equities and macro a little bit here yeah what are the current drivers risks i mean we talked a little bit about the widespread realization of ai even though it's been you know prophesized for a long time that has gripped some of the market what else is there out there that's driving market sentiment right now?

13:31Omid Malekan:I think there's generally a lot of rotation into industrials and energy and real world. That's what they said, instead of software, now it's hardware, right? Hardware, yeah. And so you've seen industrials trade really well. You've also seen a big move in non-U.S. equities, right? The KOSPI has had a huge run. I think this is the biggest divergence between S &P and MSCI all world.

14:01Alex Thorn:This is the anti-dollar trade, right? The dollar... De-dollarization. The dollarization trade, as they say, right?

14:06Omid Malekan:And so...

14:07Alex Thorn:Also partially driving gold, probably.

14:09Omid Malekan:Yeah, absolutely. And so there's been a big push to invest outside of the U.S., and you've seen that in the performance of every other major equity market relative to the U.S., and especially relative to MAG7. Yeah. And so I think those are themes that probably continue would be my guess. But again, like that relative outperformance can happen in a downward moving tape in general or an upward moving tape or a flat tape. Right.

14:37Alex Thorn:That's a relative trade as opposed to. Yeah. Absolutely. Yeah.

14:40Omid Malekan:Yeah. And so those are kind of the big thematics industrials moving away from the U.S. And generally speaking, like, the trades that are working are, like, things like memory, stuff that benefits from CapEx spending. Not the companies doing the spending, but stuff, you know. Stuff they buy with the spending. Correct. Yeah. And I don't know if that slows down. And the only way that trade slows down is if the Mag7 decides to spend less on CapEx.

15:09Alex Thorn:They're still guiding higher on CapEx. These numbers are insane. The amount of money. And then I wanted to add, too. I saw there's been this going around. It's not been I think specifically acknowledged by the US government But a lot of open-source Intel analysts are pointing out that the US is currently moving enormous amounts of military hardware Into the Middle Eastern theater If the US strikes Iran like what would you expect the market impact to be?

15:33Omid Malekan:I mean, I think it's like Generally with these types of things. It's like a quick risk-off move that gets bought.

15:40Alex Thorn:Yeah

15:40Omid Malekan:So, you know, I'm thinking like maybe S &P down like a percent and a half to two and a half percent. That probably gets bought. VIX probably spikes to like, you know, high 20s would be my guess. But it's really tough to know like, okay, you do these tactical strikes, but what's the follow on? What's the contagion risk? It's really interesting because he's been the president who controls the military has been moving these assets.

16:09Alex Thorn:but they also seemed to announce that they reached the framework of an agreement in geneva now that can make sense by the way like well right whether or not that holds and i don't know details on it

16:21Omid Malekan:we i don't think they reached an agreement i think i think essentially the iranians were like we'll come back to you in two weeks with like after ramadan yeah well ramadan i think it was a month yeah so um yeah but point being is you know there are still negotiations and so there is hope for a de-escalation. But at the same time, the magnitude of the military movement is one that is substantial.

16:48Alex Thorn:Now, that can obviously, that can be posturing during negotiations. In fact, it is posturing.

16:55Omid Malekan:I think it went past the point of posturing.

16:58Alex Thorn:I kind of agree. It looks like something is probably imminent here.

17:02Omid Malekan:There was one U.S. official today that was quoted by, I think, Sky News or somebody like that. That said, we're not sending people to all these bases to just sit around. Yeah, yeah, that's pretty ominous. And all the equipment. And so, you know, and the other thing is, you know, I've heard some theories that, you know, striking during Ramadan or like right before. Around it, yeah. Might be a little destabilizing in the context of like our Middle East allies. That's right. but at the same time the game theory in me says that if you're playing to win why would you give your opponent a month to prepare yeah uh and so i i think yeah it seems like if the decision

17:43Alex Thorn:is made to make a strike they're not they wouldn't consider rama i wouldn't think like if you're playing to win yeah the other thing that was interesting you know i talked to a friend of who's an Iranian expat, and he was talking to his relatives that are still in Iran, to the extent those communications have been possible, and they are periodically. The internet has been degraded at levels never seen before. They actually straight up cut it off for a week or two, but also they can't do that for too long. That messes up the regime's own internet. But also they pointed this out, and you can see this if you go to the Iran Monitor.

18:21Alex Thorn:I think it's iranmonitor.com. they track this, they're tracking the most casualties by regime forces against Iranians more than all other prior uprisings combined since the 1979 revolution. And this had been one of Trump's sort of red lines that he had promulgated was like, stop killing the protesters. Terrible stories coming out from there. So you could imagine the president wanting to back up his prior statement and striking, even in the case of a token strike. I hate to say that.

18:52Omid Malekan:No, I mean, I think they're going for the jugular here, right? Like, full regime change.

18:59Alex Thorn:Surely it must be on the table.

19:01Omid Malekan:Iran is geo-strategically very well ensconced. It is, but it's like, you know, if you want to take out their nuclear capabilities and put in a regime that... Didn't we already do that?

19:14Alex Thorn:Maybe. I have seen that show Tehran on Apple TV, which is quite good. Maybe I'll check it out. It's a very good show. You sponsored? Yeah, thank you Apple for the sponsor. Just for full clarity, I am not sponsored by Apple or anyone else except for Galaxy. But there's a par with the underground nuclear facilities. The way they describe it in the show is like they're very, very far underground.

19:40Omid Malekan:No, I mean the chatter is like there's the potential of using tactical nukes instead of the bunker busters because the tactical nukes could actually reach it or something.

19:49Alex Thorn:Yeah. Well, interesting to hear your take on the last thing on that, actually. Oil's not a big concern at this point. So much Iranian oil. It's up 5 % already today. So is that like speculation? I mean, but how much supply is Iran actually getting out in the market? Not a lot, right? With sanctions and stuff?

20:05Omid Malekan:I mean, I think there's still buyers of Iranian oil. But the questions are really around oil are kind of around like straight-to-form moves. Like, are they going to be able to close that off? The answer is probably not.

20:18Alex Thorn:Yeah, but I mean, if they close, but even if we're engaged in an actual military conflict with Iran, presumably the strait is not safe for cargo, even if neither side's formally trying to close it. Like, what are you going to do, like two guys shooting at each other and you're just like, with your like food cart coming by, like, don't mind me, I'm just going to deliver my groceries. Like, seems unlikely. That's a fair point. So it's not Iranian supply as much as just disruption to the distribution that you'd be watching for. Yeah. Yeah. All right. All right. Well, my friend, this is great. Bimnetta Bibi from Galaxy Trading.

20:48Alex Thorn:Thank you so much. Thanks for having me. Let's go now to our friend Omid Malekhan, professor at Columbia Business School. Omid, welcome back to Galaxy Brands.

20:56Beimnet Abebe:Great to be back, Alex. Is this your third or fourth appearance? Third, I think.

21:01Alex Thorn:Third, yeah. The first one was SVB Collapse, which I think was my favorite rap that I did in 23.

21:06Beimnet Abebe:Well, it was certainly my favorite rap because it was about me.

21:08Alex Thorn:Yeah.

21:09Beimnet Abebe:And I still play it for my students sometimes when I need to person on it.

21:11Alex Thorn:I said the weekly podcast from Galaxy Research, the chancellors on the brink of backstopping reserves, which was the bailout. Yeah. What do they call that bailout? There was the BTFO or...

21:22Beimnet Abebe:It was the regional BTFP, which is just one letter removed from BTFD, which is probably what you should do with all sorts of assets every time they say that they're going to paper over market problems.

21:35Alex Thorn:Yeah. They stepped in and the bank's fragility was, the banking system's fragility was put to test and shown. I think one of the big takeaways that a lot of people had was the speed of deposit flight then, right? And it was not because of crypto in any way, but because of fintech, because of the apps. You could just go into your SVB thing and instantly send the money out or go to Zelle or whatever.

21:58Beimnet Abebe:And social media. Right. And it's very relevant today because there has always been an assumption in sort of banking academic circles that deposits are sticky. that people don't move their deposits from banks, even when you could argue they should, or even though when you could go to another similar bank and it pays more interest. But the regional banking runs, which I still believe started with Operation Chokepoint 2.0 and the way they suppressed the crypto banks. But nevertheless, to your point, clearly deposits were a lot less sticky than everybody had assumed. and then the other thing that was revealing to me is that that was what 2023 so we're literally exactly 15 years after the great financial crisis and we had two of the largest banks in America SVB and then also First Republic there was also signature fail which sort of proved that eliminating bank runs and banking crisis to me is an unsolvable problem and instead of constantly being like, well, it happened again.

23:06Beimnet Abebe:Let's have even tighter regulations and supervision to prevent it. Maybe we should move to a less levered banking system.

23:14Alex Thorn:Interesting. Yeah. And they tried to blame crypto for SVP simply because Circle had deposits there. But of course, they didn't get out. Right. It wasn't them that sucked out the money. Yeah.

23:28Beimnet Abebe:I always find it kind of a ridiculous argument when there's any attempt to shame people who run from a troubled bank. Depositors don't owe banks risking their life savings. Banks owe depositors soundness and stability. And when you achieve that, then no one will ever run. So you won't have a problem.

23:47Alex Thorn:Yeah. I mean, it's like they think that they're all people who make that argument think they're George Bailey saying like, you know, the money's not here on the bank. It's in Omid's house and Alex's Ferragamo sneakers.

23:58Beimnet Abebe:Right. Which ironically, especially for the large banks, it increasingly is not. That's right. The money is in the Fed and the money is in Treasury and agency.

24:08Alex Thorn:We're going to get to this, too, because the question of what deposits are actually used for, if anything, is an important part of the bank's argument in the Clarity Act about restricting yield and deposit flight. But a few more, too, on the regional banking crisis, because that really was an exciting and dramatic time. Bitcoin performed very well around that. And I think SVP in particular, I think it went from like 20 to 30K, if I recall, which is a 50 % increase at the time. But they did also try to blame crypto broadly. And you mentioned Signature and Silvergate. But it was so disingenuous.

24:45Alex Thorn:Like Silvergate literally wound down. They didn't lose a single dollar.

24:48Beimnet Abebe:Which is remarkable and almost never happened. Like unheard of. Banks don't voluntarily shut down. Banks either collapse or are taken over by the government.

25:01Alex Thorn:And they were bullied out of existence by Operation Choke 0.2.0 stuff. And then Signature was effectively decapitated, right? I mean, Barney Frank, the irony that like one of the named sponsors of the seminal banking reform bill, Dodd-Frank, was a board member at Signature Bank. And he said they were solvent.

25:25Beimnet Abebe:And he claimed political motivation, which ultimately we might never know. But I did think it was telling that the FDIC takeover of Signature, which was a New York State bank, so it began with the New York State regulator, was announced in the same press release where the Fed announced a BTFP for every other. So it's always telling when they say, well, we're going to save all the other banks, but this one has to die. which has since led to other kinds of speculation as to whether they sort of needed signature to fail. But Chokepoint did play a part in it, I think for two reasons. First of all, it's always been understood that industry concentration in banking is a very bad idea.

26:13Beimnet Abebe:Because of the fragility of levered or fractional reserve banking, you want a diverse set of depositors. So in that regard, it was not good that the entire crypto industry was in one of two banks. However, why was that the case? That was the case because all the other banks we now know were basically ordered by the regulators not to bank crypto. I'm sure, well, I know as a fact, because I happen to be working at one at a time, Circle would have preferred to keep billions of dollars of its reserves at the GSIBs, a.k.a. too big to fail banks. But they weren't welcome there. and regulatory pressure had something to do with this.

26:54Beimnet Abebe:And then the other thing is, I still think it's remarkable in early 2023, the major federal banking regulators put out a joint memo explaining how they thought crypto deposits were risky. And to me, this is one of the most irresponsible things bank regulators in this country have ever done. Because there's a general rule. you publicly never, ever talk about deposits being risky, right? There's a reason why in the middle of every banking crisis, OA 2023, you have all these government officials and regulators say something like, our banking system is safe and sound. We know they're kind of lying, but we also understand why, because can you imagine if they go to the public and say, well, actually, all the banks might fail.

27:39Beimnet Abebe:They would cause it. They would cause it. But in this case, I thought it was remarkable. Here you have regulators saying that a certain industry with concentrated deposit in certain banks is dangerous. And then sure enough, those are the banks that blow up six months later. That's right.

27:56Alex Thorn:And there were politicians beating that drum as well. Sherrod Brown, Elizabeth Warren. I forgot about that. On the floor of the Senate. Yes. Also like this almost the same day. So there was that, I think it was January 3rd, which was auspicious from a Bitcoin standpoint. 2023 was that first joint notice from OCC, FDIC, and the Fed. And then on January 27th, they had another joint one, and that was the same day they also denied Custodia's master account. Brian Deese, who worked at the White House National Economic Council, the NEC, I believe, published a blog post at the White House the same day, ostensibly about crypto innovation, but was all about how brisky it is.

28:38Alex Thorn:the joint statement was basically extending that guidance to capture state banks from january 3rd right and then the first time the senate opened which i think was like you know february 1st or something like around because that was like on thursday uh sherrod brown um and i think dick durbin gave a very long floor speech about how crypto is terrible attacking abby johnson talking about silver gate and signature um and it's hard to think that's not coordinated like

29:06Beimnet Abebe:yeah either um by some of them or all of them yeah i mean i had fingered uh this guy barat ramamurti who was the i think the head of the nece who we might think might have been behind

29:18Alex Thorn:yeah choke point yeah i think um and in fact it had been confirmed by other reporting and like by reporters that he was the one that called maxine waters and told her to kill the pat mchenry maxine waters stable coin bill at the time in like the summer of 22 i think which happened

29:36Beimnet Abebe:sort of like in the final hours, right?

29:37Alex Thorn:Yeah, it looked like they were close. And so anyway, we've come a long way since ChopePoint 2.0. One of the other things that was so damaging to crypto by the collapse of Silvergate and SVB was that Silvergate ran the Silvergate Exchange Network, which was a real-time dollar payment system internal to the bank. So if you were a client and I was a client, I could send you dollars like an internal Zelle or Venmo, even when the bank was closed. And that was how crypto was moving a lot of money around to trade these 24-7, 365 markets outside of bank hours. And Signature had Signet, which was a competitor to send.

30:14Alex Thorn:And these were the main two dollar settlement networks that crypto was using. Both of them killed by the takedown. And for a while there, it wasn't just that you couldn't get a bank account easily, like your own business bank account if your business was crypto. It was also that there was almost no way to get dollars to and from an exchange in size because we'd all been using those systems.

30:36Beimnet Abebe:Which might have forced a lot of the crypto industry to adopt stable coins even faster than they would have. That's right. Which is a fascinating reflection of what I would call sort of the whack-a-mole nature of good technology. Yeah. You can't kill it. If it's a good idea and it solves important problems, people will figure out how to use it. That's right. It's kind of like cigarettes in jail, you know?

31:01Alex Thorn:Whatever the best money is is going to emerge to be used as money, right? And you can't always control that or engineer it. It's very emergent. So stablecoins is a great pivot because it has. Stablecoins did ultimately emerge, and they certainly have now. No one really quite needs CEN or Cignet the way they did then, partly because the safety of the major stable coins is really widely believed, at least by crypto market participants. So we're all comfortable settling in stables, which also, of course, move on permissionless rails 365, 24-7. It is the successor, but how do you view then that they'd already been adopted, but then we got Genius Act passed into law.

31:49Alex Thorn:How do you view that as a milestone in the stable coin story, the passage of genius?

31:53Beimnet Abebe:Genius is a remarkable bill because you could argue it is the most transformative piece of financial legislation in the U.S. in decades. It's certainly the biggest since Dodd-Frank, but Dodd-Frank was a restrictive legislation. The point of Dodd-Frank was to curtail what financial institutions could do. Genius drastically expands it. And it also finally makes available something that me, I would guess most ordinary people, if you actually explain to them the dynamics and certain respected academics have wanted forever, which is a narrow banking option. This idea that we have to force people to save money or make payments via highly, highly levered financial institutions that are run prone just strikes me as a bad idea.

32:46Beimnet Abebe:I think I would have said that if I was around 50 years ago, 75 years ago. But we now have that much time and history of increasingly catastrophic financial crisis, which always start and end with the fragility of highly elaborate financial institutions. And look, we work in crypto. We know the dangers of leverage. Almost nothing good ever comes of it. That's right. So this idea that you couldn't give savers a safer option, the Fed would refuse to give narrow banks charters and access to their payment infrastructure, but Genius changed all that. Right, it does.

33:29Alex Thorn:It moves or creates not only a fully collateralized payment option, it is on permissionless open rails as well. So it's actually, you're right, it's revolutionary from a banking and payment standpoint.

33:42Beimnet Abebe:Yeah, and going back to what you said earlier about Sen and Signet, I always thought it was funny at the time that the exception in banking was being able to make 24-7 payments to other customers of the same bank. Like databases don't turn off at night. They don't get tired. You don't need to like oil them overnight. It's just the archaic architecture of banking where it's like, oh, well, even if you're sending money to another customer, we can't process that in real time because it's a weekend.

34:10Alex Thorn:I always laugh about when the major securities exchanges, like NYSE, said that they're going to build a tokenized securities exchange and it will allow 24-7 trading. And I was like, but couldn't you just leave your normal servers on? I'm not quite sure. I mean, we could get into settlement and stuff and now it is better with token. But surely you could just not turn off the server at 3.59 in 59 seconds. You could just be running.

34:35Beimnet Abebe:Almost every single benefit that TradFi ascribes to crypto is wrong, meaning it's not a crypto thing. You don't need crypto to do even smart contracts. Attaching a line of code to how a transaction happens is not hard. We already have databases. You can have software that results in change entries in databases. That's what all of TradFi is, just ledgers and databases. It's just a question of the trust assumptions. Like, do you trust who's running the database? Can they turn it on and off at will? Is it open or censorship resistant? And who gets to run it? Which, ironically, almost all of these private permission tokenization efforts, they have all the same pitfalls and trust assumptions.

35:26Beimnet Abebe:So they don't achieve anything.

35:28Alex Thorn:I think that's a great point. and we're going to get into this too, because what is the actual value proposition? You have a great book, Re-Architecting Trust, about blockchains and how, and that book's really interesting because it's not primarily about the technology. It involves the technology. It's really a history of trust and what it means to have a system like, you know, a public permissionless blockchain or DeFi that totally re-architects it. Is that the core, like, innovation, right? It's not sending money fast. I mean, if Sen and Signet showed they could send money fast.

36:03Beimnet Abebe:Yes, the core innovation is the changing nature of the trust assumptions. I've actually gone to the point now where I will no longer call a private network a blockchain. Because as part of my own learning, I've come to realize that all of the cryptographic features that an actual permissionless system like Bitcoin, Ethereum, Solana, etc. has are almost irrelevant if you permission the validator set. Hash functions are useless. The database is not immutable. Public key cryptography as a method of authentication is useless because you could just censor who the users are. The fact that you have a private key is not what gives you true property rights over your Bitcoin.

36:54Beimnet Abebe:What gives you property rights over your Bitcoin is that you have a private key that nobody could prevent you from signing a transaction and having that transaction be approved. Banks could give us private keys, but then they could also debank us, or you can send them a signed request for a payment and they could just say, no. So it's such an interesting time, whether we're talking about stable coins, tokenization, real world assets, etc., where we've now crossed past the point where people in power question the appeal. And the debate now is the how, right? Like we're not debating whether we're going to have stable coins.

37:35Beimnet Abebe:We're debating what kind of stable coins will they pay interest? How will they be regulated. We're not debating whether we're going to have tokenization. But amazingly enough, we're debating whether the New York Stock Exchange and the DTCC and all the brokers they do business with today, if they deploy a fake blockchain, whether that's tokenization. So progress was still a long way to go.

37:58Alex Thorn:Yeah, I agreed. Let's talk about stable coins more. Let's talk about the Genius Act and this current debate that's happening on the Clarity Act. The Genius Act very clearly prohibited issuers of stablecoins that are licensed under the Act from passing on rewards to token holders of their stablecoin. It notably said nothing about third-party intermediaries doing so. And since Genius passed, Coinbase and others have continued to pay rewards or pass on rewards. I'm not an expert in Coinbase's business, But my understanding is some of the rewards they'll pay to a USDC depositor there are derived from some revenue share with Circle, right?

38:40Beimnet Abebe:Well, certainly not from them lending it out. That's right. Which is an important distinction to make.

38:44Alex Thorn:Because the rewards otherwise, it is so interesting because to get to your point, if I deposit in a savings account at a traditional bank, let's say they do pay me some yield. Realities most don't pay much. But let's say they were. They're deriving that from what the lending and other financial activities of the bank.

39:00Beimnet Abebe:activity with my deposit.

39:02Alex Thorn:Whereas a collateralized stablecoin sharing rewards is passing on treasury yield from the underlying collateral, which is fully collateralized. So inherently safer. And this is your point about it being a narrow banking option for payments. It's safer and it pays more interest. So it's superior for the end user.

39:19Beimnet Abebe:That's right. It's not superior for an intermediary that hopes to get cheap capital to deploy to make money.

39:28Alex Thorn:We're going to get to that too, because you had a great article today on X about that, about whether this cheap capital deposits at banks, for example, really does create good credit for the economy or whether they're just doing something else with it or keeping it for themselves. But let's talk about the banks and clarity. So now we have the second major legislative effort in crypto is the market structure bill. So we legalized stablecoins and created a framework with genius for certain types of really high quality, safe stablecoins in the US. And then the other big thing the industry wanted was to not be railroaded by a future SEC chair like a Gary Gensler.

40:08Alex Thorn:And so we wanted clarity on which market regulator regulates which type of asset and intermediary under which circumstances. But by the way, I desire that there be a market regulator to do so. Indeed. And that that role codified in federal law so that it can't be rolled back easily by some intransigent, you know, chair of a market regulator or a president.

40:28Beimnet Abebe:Which, by the way, is the kind of thing that I would say if you're for or against crypto, ultimately you want Congress to create rules that address it, not this political process of the political appointees at regulatory agencies making those decisions.

40:44Alex Thorn:That's right. And with Lapa Bright to the Supreme Court ruling, I think, again, not a lawyer, although our audience knows I sometimes pretend to be one.

40:52Beimnet Abebe:I think you make a very good lawyer.

40:53Alex Thorn:Thank you. That Supreme Court ruling also restricts independent agencies' ability to use interpretive guidance versus beyond what they are directly authorized to do in the statute. so I don't think we any of us want to wait for Supreme Court cases to play out as a way to protect us from uh you know a market regulator who reaches beyond their authority especially to hurt us so we want this in federal law now all that stuff's great how to handle defy like you know which types of things are decentralized enough to not be regulated versus you know a business like Galaxy uh if it's trading digital commodities should it have a digital commodities license, right?

41:35Alex Thorn:Stuff like that. All makes a lot of sense. And it seemed like we got to a pretty good compromise on almost all of these issues. But at the last minute, Coinbase and mostly the stablecoin issuers, I think they raised that the emerging compromise on this yield question wasn't palatable to them. And it's true, it's not palatable to them, right? Because the banks, literally the banks, I don't know, this monolithic group, and they are, it's like the Bank Policy Institute and the ICBA and the American Bankers Association all decided they were very mad and wanted to effectively retrade the stablecoin rule about yield from genius and clarity.

42:13Alex Thorn:And they've been making a few arguments about why policy arguments. We know that they have their own arguments. They really just don't want to give up their control over the payments systems, probably.

42:22Beimnet Abebe:And they don't want competition. That's what it comes down to. Right.

42:25Alex Thorn:But the arguments they're making, I think it's two primary arguments, maybe three if we throw in a third one. One is that there will be stable coins will result in all this deposit flight out of the banking system. Or in fact, they've even said that out of the banking system, which is hilarious because that's not actually possible. That's not how dollars work. But at least, so then they say as sort of a corollary, the second point, well, maybe not out of the whole system, but out of community banks, which is a hilarious way to, it's like a backhanded compliment to the community banks. They're saying, look, you're so important.

42:54Alex Thorn:We got to protect you. But by the way, you suck so bad that stable coins will kill your business if they're allowed to pay even like 1 % in yield. And then I would say the third argument that they've been making is that like it'll generally destabilize the financial system if non-bank payment stablecoin issuers are allowed to pass interest to depositors. Let's talk about these arguments. So the deposit flight you've written about, you just wrote again sort of about it. Is this a genuine threat? Because there was this like, what are the banks, What is their argument and like is it real?

43:27Beimnet Abebe:So the truth is nobody knows exactly how stable coins are going to impact bank deposits. I actually think at this moment in time, regardless of what happens with this legislation, there is a 50-50 chance that they actually just increase bank deposits. When it comes to private forms of money, which both a stable coin and a bank account are, it's really, really, really hard to take money out of the system, right? Like just in academic monetary terms, there's inside money, which is money that's issued by a private entity, and outside money that's either money issued by the government, like the Fed, or gold and Bitcoin.

44:08Beimnet Abebe:It's really hard to shift the balance of inside money. And we have data points because we went through the same exact debate in the 90s with money market funds. Fast forward to today,$5 trillion in money market funds. more deposits in banks than ever. And when you throw in the fact that for now, and probably for the foreseeable future, most of the stablecoin demand is coming from offshore, from people who are not substituting from dollar bank accounts, but substituting from other currencies or other assets, it's quite possible that bank deposits just go up. But let's steel man this, right? Let's say that there is a future state in which some stablecoin adoption domestically leads to less deposited banks.

44:53Beimnet Abebe:What does this mean? Because the arguments that all of those trade groups have been making is, one, you just get less credit creation. Two, the credit creation that you do get is more expensive. And three, the more vulnerable parts of our economy, whether it's regional banks or, for example, small businesses that require small business loans, those are the people who stand to lose. This is something that big banks will say. Well, we'll be fine. But it's really like the first bank of Nebraska that I'm worried about or whoever we get a loan from them. So let's go through all of this. First of all, we need to acknowledge that banks in the U.S.

45:33Beimnet Abebe:create a minority of credit. They only account for approximately 20 % of loans to the private sector. We're blessed in that we have very sophisticated capital markets, the bond market, and we have large and sophisticated non-bank lenders like insurance companies, private credit, etc. And there's a whole argument that actually that's safer because they don't face runs in the way that banks do. So one, banks create a minority of credit. They would still argue that, yeah, sure, but because we have access to deposits, we provide cheaper credit. So the 20 % that we contribute to cheap deposits equates to cheap loans, and if we're forced to pay more to compete with a yield-bearing stablecoin, then we won't be able to make cheap loans anymore.

46:29Beimnet Abebe:But of course, today, there is virtually zero domestic stablecoin adoption. And what there is doesn't actually pay yield anyway. So if their math is correct, we should be living in an era of abundant and cheap bank credit. So I actually went and looked at the numbers. Deposits we know are cheap. The FDIC data shows the average demand deposit in the U.S., which is a checking account or savings account, pays just a little bit more than 1%, which is very low because the Fed funds rate is 3.6%. Like T-bills pay that. Money market funds pay that. Banks are paying a fraction of that for whatever reason.

47:11Beimnet Abebe:So they have access to cheap credit. Does that translate to, sorry, they have access to cheap deposits. So does that translate? Well, credit card interest rates are on average over 20 percent. Right. It's like an all-time high, right? Near an all-time high. The rate that banks charge for credit cards over the prime rate, which is supposed to take into account the cyclical variables, has been steadily climbing for a decade now. And only banks could issue credit cards. So the same banks that borrow money from Jane and John Doe at 1 percent will turn around and lend it back to them via a credit card at 20 percent.

47:48Beimnet Abebe:And credit cards are the most widely available type of bank issue credit in America, right? Most people can get a credit card even if they can't get a mortgage or a car loan. So it doesn't translate there. If you look at auto loans, same exact phenomenon. Compared to the average over the last 20, 25 years, auto loans are very expensive. They're a little cheaper than they were a couple of years ago. All rates spiked post-COVID. it. But nevertheless, the last time auto loans were this expensive, banks paid depositors double to triple what they do today. So once again, same thing. And then this is also true for mortgages.

48:30Beimnet Abebe:Banks don't issue most mortgages. They're securitized. But the mortgage market is so massive that banks hold several trillion dollars in mortgage debt on their balance sheet. And there are two, right? 30-year mortgage as of this week is 6%. If you go all the way back to before the financial crisis, the last time mortgages cost this much, deposit rates were significantly higher. And there is another way we could look at this, because if cheap deposits don't translate to cheap credit, then they translate to bank profit, right? It's just their cost. Right. So we can look at banks' net interest income, a widely reported, easily calculated number.

49:18Beimnet Abebe:And according to the FDIC and the Fed, for last year, U.S. banks made something like$750 billion in net interest income. And to put that number in perspective, I believe that's more than the MAG-7 made in net income combined. So this is a wildly profitable activity, which would not be the case if what banks were doing with the cheap deposits that they have exclusive access to was passing it on in terms of cheap credit.

49:51Alex Thorn:That's right.

49:52Beimnet Abebe:And look, good for them. I'm all for profit. but it just shows how disingenuous that particular argument is because it turns out when banks have access to cheap deposits, they just make more money.

50:05Alex Thorn:Yeah, they're not actually creating all this credit they claim will go away if the deposits aren't cheap right now.

50:11Beimnet Abebe:Right, nor are they passing on the savings to consumers. Now, people will push back to this argument and say, well, hold on a second. Banks take risk and they need to be compensated for that risk. That's why there's a net interest income in the first place. And it's true to the extent that credit underwriting is risky. People default on credit cards and car loans and mortgages. Then you do need to compensate the lender. Otherwise, they just won't bother giving that loan in the first place. That's right. But this is sort of a misunderstanding of how banking works today in America, particularly the very large money center banks.

50:50Beimnet Abebe:They are not underwriting$5 ,000,$10 ,000 loans to small businesses. What they often are doing is taking the money and they are either parking it in treasuries or agency debt, like mortgage-backed securities, or parking it at the Fed. And combined, right now, the largest banks have about, I believe,$5 trillion. So all banks have$5-6 trillion, which is something like a third of the M2 money supply in the U.S. So a substantial portion of the balance sheet of banks on the lending side is going into things where there's zero underwriting. If you buy T-bills, you buy T-bills. And there's very little risk, right?

51:32Beimnet Abebe:Like if you park your money at the Fed, and for absurd monetary policy reasons I won't get into, the Fed will pay banks 3.6 % to take money out of circulation. That's right. To not lend that money out. Right. Leave it at the Fed, which does nothing as far as economic growth is concerned.

51:50Alex Thorn:It's not being invested.

51:52Beimnet Abebe:No, but it's profitable. So the simplest thing that when you give your money to a bank in a checking account and they pay you zero interest for checking accounts, the simplest thing they could do with that money is just deposit it at the Fed. And the real irony of this calculation is whether it's T-bills or interest on reserve balances at the Fed, where does that money come from? It comes from taxpayers. That's right. So banks pay very little interest to taxpayers when they open accounts. But taxpayers pay a significantly higher interest to the banks.

52:25Alex Thorn:Yeah, very, very bizarre. And so if I summarize the argument that there'll be deposit flight, you've, I think, I'd say eviscerated across a couple of vectors. One, they're not the biggest source of lending at all. Two, they're not actually doing the cheap lending, really, mostly that they claim they won't be able to do if they are competed against. And that's the core of it, right? I mean, they aren't – and three pointed out that, by the way, if they were doing that, they would already have faced this competition. And by the fact that they're just clipping it as NIM rather than actually giving out the credit or seeing deposit flight, which they haven't, they didn't even see it from the money market funds.

53:09Alex Thorn:Is that, by the way, you know, people take money market fund balances or AUMs are also at like all-time highs probably.

53:16Beimnet Abebe:There's a lot of money in the system.

53:18Alex Thorn:But when you buy, when a fund or a stablecoin issuer buys the treasuries that then go into the money market fund, don't they buy them and then give the cash they use to buy them to a bank?

53:30Beimnet Abebe:To somebody else who is going to their bank account. It's usually a bank.

53:33Alex Thorn:Because my understanding is for a dollar to exist, the only place the dollar can be held is in your pocket, like as physical cash or in a safe deposit box, et cetera, at the Fed or in a Fed master account or tied to one or at a bank that has access to one or at the Treasury general account basically at the U.S. Treasury. Like there is no other place where – that's why like banks that don't have master accounts have a correspondent bank where they actually keep their cash at that does have a master account. So, like, there wouldn't be deposit flight out of the banking system because every stablecoin issuer, when they go to buy the treasury to put, you know, when I come to Circle and I say I want USDC and I send them cash, they take the cash and buy a treasury with it.

54:15Alex Thorn:Yeah. And the person from whom they bought the treasury gets the cash and puts it in a bank account, right? That's right. So there is no deposit flight from, like, X the system. That's not a thing, right?

54:27Beimnet Abebe:Well, first I would say that a genius chartered payments stablecoin institution is a bank. They are a part of the system.

54:36Alex Thorn:Well, and they're now under genius. They would be, right? It's like an OCC license or I think a state pathway to the state bank effectively.

54:43Beimnet Abebe:Yeah. It's just this system. Yeah. But let me steel man myself. I do think the one thing we don't have today that we never had is we can't make payments with a money market fund. Like I use money market funds. if I want to pay my rent, I have to cash out a little bit of that security, wait a day or three if there's a weekend, and then transfer the money to my bank account and pay my landlord. That's right. There is a future state in which, with stablecoins, if they become widely adopted enough, and this is me arguing against myself now, the circular nature of you, I will just have a stablecoin that I hold to earn yield and save in dollars, and then when it comes time to pay rent, I will just send it to my landlord's wallet.

55:28Beimnet Abebe:Yeah. And my landlord will just sit on it until my landlord needs to - Buy groceries or - Or pay taxes, and then they'll just send it to the municipality. It will sit on it until they need to pay off their debt. That flow might reduce deposits in what today we understand as the banking system. This is very, very hypothetical. But at the highest level,

55:51Alex Thorn:the cash that was used to create the stable is still sitting at a bank somewhere, right? Or in T-bills. That's right. Well, and even then, it is in T-bills. But again, like to buy the T-bills, the issuer buys them with cash. I guess theoretically they could buy them directly from the Treasury, but my understanding is they mostly don't, right? They buy them from the big banks, basically.

56:14Beimnet Abebe:Oh, yeah. Well, you can't buy directly. Only the primary dealers are allowed to do business with the Treasury. Yeah, like if you were,

56:19Alex Thorn:so they buy them from the primary dealers. And so if anything, the deposit in your scenario is going to still end up at a primary dealer at the worst case scenario, which is a big bank, right? It's not going to. So is the community bank thing real, though, then? Like, would they just because, like, in the scenario I'm describing, the deposit does eventually flow, but most likely to like a G-sib. Yeah. You know, it's most likely not going to the first bank of Nebraska. By the way, if that's a real bank, we apologize. Purely hypothetical. We don't know anything about it, but it seems plausible that it could be called that.

56:54Alex Thorn:Right? Like, it's most likely going back to the G-CIP or the Primary Dealers Bank and not to, like, some random small regional bank. Yes. And then those people, if you're in Spokane or some random place. Peoria. Peoria. That's usually the place we're supposed to use. you know maybe you as a local person pay your rent from your stable coin wallet to their stable coin wallet and now you don't need the first bank of main street for payments so let's talk about

57:22Beimnet Abebe:community and regional banks for those who don't know the u.s is exceptional for having thousands and thousands of small banks and the cost and benefit of this gets debated small banks are more fragile. Small banks have a harder time keeping up with infrastructure and technology upgrades. However, small banks are more innovative. Small banks are far more likely to take a chance on a young person or up-and-coming small business owner who wants to borrow 20 grand than Bank of America. Bank of America can't be bothered. It doesn't move the needle for them. So this is an interesting debate. And then it falls into also the general debate about federalism in the U.S., Community banks are regulated at the state level.

58:08Beimnet Abebe:State regulators have always been more innovative, right? Shout out NYDFS, despite my annoyances with the bit license. They were the first major American regulator to say, yes, stablecoins are fine. We just need rules about the reserves and bankruptcy remoteness, and great. Go ahead and issue them. So that's the lay of the land. And what we keep hearing now, suspiciously from the big banks, is that stablecoins really harm community banks. So let's look at some stats. First of all, community banks already pay more interest than the too-big-to-fail banks. Why? Because they're not too-big-to-fail.

58:52Beimnet Abebe:They don't get that taxpayer subsidy, and they are riskier. so if stable coins pay yield community banks are already in a better position to compete with them than a bank of america or citibank account um second the demographic of small bank customers use older uh third a lot of times the reason why somebody in a more rural part of america has an account with a small bank is because of a personal connection right there could be a family member or friend who works there.

59:25Alex Thorn:All three of those, the higher yield, the skewing older demographic, and their personal relationship, they make the deposit stickier.

59:32Beimnet Abebe:Yeah.

59:33Alex Thorn:As opposed to the faceless G-SIB. Yes.

59:36Beimnet Abebe:When I think of a farmer in Iowa that has an account with a local ag bank where the assistant manager is his brother-in-law, and this is also the bank that gave him his first mortgage for his farm, and then do I think that's the person who's going to sign up for a digital wallet to switch to some weird thing called a stable coin because it pays more interest. And again, we're talking about maybe a percent or two more, not even that much. Right. Certainly a lower gap than if you're a large or SME, a middle market business in an urban area that today banks with a GSEB because you have to rely on them for payments and other services, and they pay you nothing.

1:00:19Beimnet Abebe:Right. So I think, ultimately, I think the payments use case for stable coins are far more attractive than the yield use case. If all you want to do is park your money somewhere, you have a money market fund, right? Or there are many banks that, like the Goldman Sachs' Marcus account pays like three point something percent. If you just want to park your money there for the next two years, that's already taking money out of the deposits that create credit. Right. So I think, and I think you came up with this line that the big banks are using the community banks as human shields. Yeah. And the irony of that is that all of the largest banks in America are currently executing a expansion plan to take more deposits.

1:01:05Beimnet Abebe:Or J.P. Morgan Bank of America, they've explicitly stated, we want to grow our deposit base. This morning in the FT, there's an article of all the new branches that the chases and BOVs of the world are opening in new markets. So let me ask you, Alex, who does Jamie Dimon think he's taking deposits from when he's doing this? So the real irony is that it's actually the big banks that are trying to kill the community banks by taking their deposits, which we also saw during post-SVB. That's right. Massive deposit flight, which has led to there's an alternative proposal out there in Congress. It has nothing to do with stable coins, as far as I know, which is to expand, significantly expand the FDIC insurance limit at community banks to prevent the kind of deposit flight that happened post-SVB.

1:01:55Beimnet Abebe:And the idea is we should make the big banks pay for it because ultimately they get a taxpayer subsidy that small banks don't. which I think is a very reasonable argument, which of course the bank lobby, the big bank lobby is vehemently against. They're also trying to kill credit unions by getting rid of their non, well, making them pay taxes, even though they're non-profits. I'm not a big fan of the lobbying position of the largest banks, as you can tell, because I do think, and I don't use this word common, they operate from a place of privilege. And what they're doing in the stable coin debate is really abusing that position.

1:02:31Beimnet Abebe:That's right. I think that's right.

1:02:33Alex Thorn:And it is, I think, very clearly more about protecting their profits and preventing competition. I can't, the point you're making about the big banks expanding to Main Street at an extremely expanding rate is so ironic and disingenuous, right? They say stable coins will kill community banks. That's our job.

1:02:55Beimnet Abebe:The CEO of PNC Bank, which is like a tier below the G-set. Yeah, but it's a big one. It's a big one. Super Regional Bank was in another podcast not that long ago saying that there's apparently some percentage number that's understood in banking that if you get branch concentration, you didn't get deposits. Yeah. For some.

1:03:14Alex Thorn:So, well, like if you're one of two in a zip code or something like that.

1:03:17Beimnet Abebe:Some number. Yeah. And I'm like, well, yeah, again, if, okay, he knows it. Jamie Dimon knows it. Brian Moynihan of Bank of America. They all know it. It's a banking industry thing. Well, who do they think? Where are they going? where they're easily going to become a significant percentage of branches. Again, it's not a, you know, Wells Fargo is a West Coast bank. It's not them taking market share in New York City by opening more branches than Chase. It's them going in other parts of America where it's really the community banks and the regional banks that have the bulk of the deposits and opening a bunch of branches because they can afford to.

1:03:54Alex Thorn:Yeah, they can operate at a loss for a while just to open them and capture share, plant their flag.

1:03:59Beimnet Abebe:Yeah.

1:03:59Alex Thorn:Yeah. It's really something, though. It's something. But meanwhile, if we let a person while they're holding a stablecoin capture just a couple percent. God forbid. God forbid. And it's apocalyptic.

1:04:11Beimnet Abebe:And the point you made when we were talking before we started recording is that ultimately whatever happens with genius and clarity will apply to U.S.-issued stablecoins that are held by Americans. They do not apply to foreign-issued stablecoins held by foreigners. even if they're dollars. So imagine a scenario under which Americans hold a dollar stable coin. They get no interest. Foreigners hold a dollar stable coin. They get 2%, 3%. Meanwhile, where does the yield come from? It comes from treasury bonds. Who pays the interest on treasury bonds? Americans. So Wall Street is now arguing for a position where a citizen in Hong Kong who holds a dollar can get the interest from middle class Americans, but middle class Americans can't get the same interest.

1:05:04Beimnet Abebe:This is a very unpatriotic position for them to take. It is.

1:05:08Alex Thorn:It's truly shocking. I don't know how close you've been falling. Do you think we get a compromise here? Because right now, I think the state of this clarity negotiation, it's very clear from the meetings they've had twice now at the White House, literally between the banks and crypto representatives and trades, that it's this yield issue. And the banks put out a principle. They finally did some homework and came. The White House, Patrick Witt, you know, shout out to Patrick Witt for pushing this ball forward diligently and working hard on this. After the first one, I guess it was sort of a meet and greet.

1:05:41Alex Thorn:And they said, listen, literally come back with actual concrete substance. And, of course, they didn't come back with new language for the bill, but they came back with a one-page set of principles, which said ban all stablecoin yield.

1:05:53Beimnet Abebe:Not just that.

1:05:54Alex Thorn:And that's clearly unpalatable to the crypto position.

1:05:57Beimnet Abebe:Not just to the crypto position. Ordinarily, I would have guessed my gut would have been, I don't know nearly as much as you do about how things work in Washington, but my gut would have been that because the administration wants a bill and the industry wants a bill, and you say, well, we get of the eight things we would love to have, we're getting six, and that's pretty good. The stablecoin yield thing would just get sort of thrown under the bus. And to be clear, I don't have a dog in the fight. I don't have any financial interest in any of this. I don't work for anybody. It's just like from the principles, like when people make bad faith arguments using demonstrably wrong data, it upsets me.

1:06:34Beimnet Abebe:but the funny thing about that principles document that the banks put out it is so unbelievably reactionary that if that goes into the law it's going to cause a lot of other problems because one of the things that they say is no one will ever be able to pay rewards for using a stable coin in a transaction so does that mean if delta airlines wants to give me airline miles and i pay a stable coin, it's illegal. Like you open up a whole can of worms that basically negates the reward system of credit cards. So they're being, I don't know if they're, this is their place of negotiation or they're just being very arrogant about it.

1:07:16Beimnet Abebe:So I don't know what will happen. But my fear is that if the Tradfire world gets what it wants on this issue, it will come for things like DeFi and permissionless systems next.

1:07:28Alex Thorn:I see, that's interesting because the state of the negotiation is that it seems like the other issues, there were compromises in the Senate banking ANS amendment and the nature of a substitute, which is their latest draft, right, that was from early, mid-January. There were compromises in there on DeFi front ends, what is decentralized enough, et cetera. Dev protections for open source developers were in there explicitly clarifying that money transmission laws don't apply to non-custodial services is in there. Some great stuff. And it seemed like those were settled. But even in this debate, and this isn't quite what you're saying, I think, but I'll get to your point about it, but even in the debate, it's not actually clear if they are settled because the whole debate has now been diverted on yield.

1:08:17Alex Thorn:Let's say tomorrow we get a big, giant, handshake, blue ribbon deal on yield that everyone agrees is good and we're going to now it's off the table as an issue. It's possible those other issues could be raised in this clarity debate. We haven't we didn't quite get to that point. But I think your point is even bigger, which is let's say, OK, they're settled in the law and it passes and yield is given away or compromised on to get that passed. You're saying like what says they don't come back during the farm bill next year and try to add a DeFi provision to retrade again.

1:08:48Beimnet Abebe:And for evidence of that, I would submit the fact that we thought genius settled the stablecoin issue. And here we have a market structure, which we generally have nothing to do with yield. No. But they raise it. So yeah, it's always possible they come back down the line. And my fear, because I believe in so much in the value of permissionless systems, but they do make, they have a very major competitive threat for Wall Street is that they will continue to innovate roundabout ways of trying to kill that, right? So maybe in some future unrelated bill, they sneak in somewhere in there that Bitcoin miners and Ethereum validators have to do KYC.

1:09:23Alex Thorn:This is what they had, too, in the, what was it called, the inflation, sorry, the Biden's bill in that summer of what? The oddly named, the highly inflationary Inflation Reduction Act. And they slipped in this stuff about the broker rule, the DeFi broker rule into that. And we briefly thought maybe we could get it out. And there were some allies in the Senate who gave speeches and tried to get it out. But eventually, like this very restrictive, terrible rule, which has been now revoked by law also for DeFi, was just added into some random bill. And it was must pass legislation, too. So everyone was like, guys, we've got to save America.

1:10:00Alex Thorn:We can't be held up with this arcane like tax question for DeFi. So we just you have to swallow it. Right. That risk is always there.

1:10:07Beimnet Abebe:Yeah, and if I may end with a warning, because I believe you have a large TradFi audience for this podcast. If I were advising the banks, I would tell them to be very careful here, because they keep going back to this argument that Wall Street should be thought of as a utility. That it provides this fundamentally needed service, that that's why they deserve protection from competition. The problem with that argument is that it opens up a whole can of worms on everything else that Wall Street does. And what you end up with is people like me saying, well, if you are a utility, the thing with utilities is that they're highly regulated, including what prices they charge and how much money they make.

1:10:48Beimnet Abebe:So if you're a utility, I think we should have a cap in credit card swipe fees in America like many other countries have implemented. If you're a utility, I think the big banks should be forced to pay for infinite FDIC insurance at community banks. And even the idea of a windfall tax on net interest income, right? Utilities, the power utility here in New York can't arbitrarily raise the price. They have to go to the regulator, say, here are my costs. Here's the market. Here's how much I want to raise. And then the regulator says, well, what's your profit margin? Because it can't be too big. Why?

1:11:22Beimnet Abebe:Your utility. That's right.

1:11:24Alex Thorn:Very interesting. And it sounds like, too, on your point on the, what I'm hearing is that perhaps defending and winning the fight on yield might, one of the reasons that might be important is because it's a beachhead for the longer term battle. And if we lose the yield issue to the banks, like, they'll be emboldened and come back to take away our DeFi issue or our, you know, other dev protections issue or et cetera. Exactly. So it's kind of like you got to fight the battle now because like winning it now will help you win it later. Losing it now will risk losing it later.

1:11:56Beimnet Abebe:Yeah. Or if we're going to lose it, I want to lose it on genuine grounds. I want somebody in Congress to say we just want to make sure that Wall Street can keep operating the way it has. Yeah. Don't give me this song and dance about about like small business lending. The simplest way small businesses get a loan is by having a credit card that charges them 20 percent interest. That's right. The vast majority.

1:12:16Alex Thorn:This has been fascinating, Omid. before we wrap i want to ask you about columbia yeah you've been teaching a core blockchain class there at columbia business school for years now um but you've graciously had me there to speak a few times now i think three times maybe you you have historically been one of the more popular speakers but you have great speakers you had rob haddock there uh recently shortly after i was there this year that's right um you have uh you've had people from government come you've had regulators our friend Nick Carter has spoken there multiple it's a great class by the way great thank you how has the interest in blockchain and crypto evolved over the time and I should clarify too this is a business school executive MBA program class so these are working oh both and core MBA but these are business school yes they're not 18 year old college freshmen no and they're not Computer scientists and cryptographers.

1:13:13Alex Thorn:So, yeah. How has it evolved their interest? And what is the state of their interest today? Are the youth going to be all right?

1:13:19Beimnet Abebe:Yes. Interest is actually at an all-time high. And people keep asking me, basically not impacted by price action over the last six months. Price action is actually great. Crypto prices were crashing two weeks ago during class. I was actually put up the chart of the perps trading in real time. It's like, you know, let's look at what's happening on Hyperliquid and we can talk about it.

1:13:40Alex Thorn:Yeah.

1:13:41Beimnet Abebe:Um, the students increasingly just see this technology as, or this industry as a part of their futures, uh, which is why their interest as measured by things like how many people sign up for my class, the wait lists, et cetera, demands to audit it. It's, it's literally been up only. Yeah.

1:14:01Alex Thorn:Um, and that room is packed. And you didn't have any, when I was there, uh, what, in December, maybe, uh, um, there's no room. Like every seat is filled.

1:14:08Beimnet Abebe:Yeah, with 75 students and lots of people begging to get in because they didn't make the cut. And me having to say no because there's no room. And I have every student submit a one paragraph answer before the start of each semester saying why they want to take the class. And the evolution of that has been super interesting because six and a half years ago when I started teaching, some curiosity, tons of skepticism. I would literally have people say, like, I think the whole thing is a scam, but I figured I should learn more.

1:14:41Alex Thorn:Yeah. Reasonable position, by the way, if you're willing to learn more, at least.

1:14:44Beimnet Abebe:My favorite kind of student is the skeptic. If you're skeptical of something and you're willing to take a semester-long class, and by the way, my class is hard, and there's a ton of assignments, a very tough exam, etc. Now, I don't get any of that. I would say 80 % of the students say that they want to take this class because whatever future they envision for themselves, it's a business school. So we're talking about banking, consulting, tech. They just think blockchain, crypto, tokenization is going to be a part of it. And also very exciting, a minority, but like 10, 20 % of every class now is students who say, I want to work in this.

1:15:23Beimnet Abebe:I believe in it. I'm excited about DeFi, about stable coins, about NFTs, all of the perennial ideas. And I want to learn more about it. And I would say not investment advice, not a price prediction. But to me, the most bullish thing about crypto in general is getting to experience firsthand how the utility of it is just becoming more and more given to a wider group of students. I agree.

1:15:55Alex Thorn:I think adoption and knowledge of crypto and stables and Bitcoin and DeFi is one of the clearest signals, right? And you can see it in so many ways. Omid, this has been fantastic. Thank you so much, my friend, for coming back to Galaxy Brains.

1:16:10Beimnet Abebe:My favorite podcast would be on. Thank you for having me.

1:16:13Alex Thorn:That's it for this week's episode of Galaxy Brains. Thank you to our guest and friend Omid Malekon from Columbia Business School and our friend Bimnet Abibi from Galaxy Trading. Everyone have a safe and happy weekend and we will see you next week.

1:16:39Alex Thorn:Thank you for listening to Galaxy Brains, the weekly podcast from Galaxy Research. I'm Alex Thorne, head of firmwide research at Galaxy. Follow me on X at Intangible Coins. Follow Galaxy Research on X at GLXY Research. Read our written reports at galaxy.com slash research. And don't forget, if you like Galaxy Brands, to like and subscribe on your favorite podcast platforms like YouTube, Spotify, Apple Podcasts, and more. We'll see you next time.