For years some may say that crypto sold tokenization as the bridge to Wall Street.
The breakthrough in the evolution of the space is putting yield to work now stable coins are the bridge, making this happen, connecting traditional bank rates with crypto returns.
Well joining me this morning to talk about scaling institutional grade infrastructure as well as to talk about risk management and compliance is Nicholas Cannon, the Chief Business Officer at Gauntlet, Nick, good morning.
Thank you so much for joining me.
While large allocators want yield as well as capital efficiency.
So for the lay person out there who is watching right now and they're wondering why defile yields are so critical right now and what this does to shift from tokenization to yield markets, which is all of this look like and where we going.
It's critical right now because the cost of capital is cheap.
You can borrow billions of dollars on chain below so for rates right now, and that's particularly appealing to anybody tokenizing real world assets or, you know, private credit or a variety of other things that are starting to come on chain.
There is global demand for these things, and blockchain rails really help that. and let's look at the fiat side of stable coins.
So the cash engine is the off chain net interest margin and the yield issuers make on assets like treasury.
So how important is this off chain and I am and how does that act as the baseline for everything else.
For existing users today and you know, the few 100 billion of stablecoins right now and a lot of the 1.5 bill we manage in our vaults, it's actually not that important.
Access and the use of the stablecoins in the initial adoption was traders and market makers and people using payments and remittances.
So while it might be helpful for, you know, stablecoin issuers to have a very viable business model, and of course like regulation is still outstanding of what that looks like as far as yield or indirect yield.
There's, there's demand separate the US regardless, so that's not necessarily driving it.
You have a lot of credit and other like products on chain, and those are just up into the right despite macro, despite Bitcoin and Ethereum prices being down, the stablecoin yield and demand for, you know, a variety of these use cases and liquidity on chain is just growing.
And building on what you just said, can you walk us through some of the emerging hybrid market structures and explain to us how they actually bridge regulated yield, the traditional yield with permissionless defi liquidity.
Yeah, Gauntlet's been around 8 years, and we started with a bunch of quants coming from high frequency trading, DHI and Jump and get go, and we saw a lot of opportunity for models and simulations on chain, but in the past few years, as the market's matured and we've moved from these global multicollateral, multi-supply side pools of credit, vaults have very much emerged and And we've moved from kind of the mid mid-desk, you could say, to front office a little bit more.
And the biggest markets right now are in the low tens of billions is standard credit markets, borrow on one side, historically, primarily, you know, Bitcoin native assets and increasingly tokenized assets, and then on the supply side, on the lending side is primarily stablecoins.
And that that matching engine is 24/7, 365.
We're on 10 chains ourselves and 6 different types of credit protocols and, and, and just, you know, despite the drawback is still very much growing and we see healthy demand.
And speaking of which, if you look at the big picture, if you take a step back and if we combine these yield markets with programmable privacy as well as compliance, what do you think the next couple of years actually look like?
Yeah, right now the biggest concern and maybe a lot of the hesitations for the institutions is, you know, this is permissionless.
Who are my counterparties?
Who are the actors in the space?
I don't know who the users are.
I want to make sure, you know, legal and compliance are of course on the same page, but With this modularity coming on chain, we can have permission and programmatically do so for not just KYC but every other covenant that you would in an off-chain agreement, an LPA or something like that with cryptography.
It's, it's sound, it's verifiable, it's verifiable by your regulators, it's verifiable by your back office, and, and that's very much where it's going.
You'll see hybrid models, you'll see fully permission models, but the TA of this is, is absolutely exponential.
And finally, before I let you go, I want to ask you how all of this shifts the trajectory of stablecoins from just crypto adoption to more capital markets migration, and I do want to also ask you about the role of regulation here in the US.
Yeah, stablecoins very much are, uh, it's, it's driving a lot of things.
It's powering a lot of the back ends of, as I mentioned, remittances and payments, and now we're, you know, powered by in the backside of a lot of centralized exchanges and fintechs.
Where does regulation go?
We're actually relatively indifferent ourselves.
We think there's a demand on the edge, and that long tail is, is quite long when you, when you think about the globe.
The goal for us is very much not to worry so much about getting assets on blockchains.
The goal is very much to build a risk engine in a market that creates more liquidity and opportunity better than a human at a desk in Midtown ever could.
OK, Nick.
Well, thank you so much for joining us on this Friday morning.
We appreciate your time and thank you so much for joining us.
Thank you.
