New York Morning Trade, we are seeing Bitcoin nearly flat and holding below $77,000, while crypto falling over the weekend and into Monday with the majors giving back all of their gains in May.
And while prices slump, stablecoins continue to draw institutional interest.
A16z crypto putting up $75 million in a private token presale for ARK. which is Circle's institutional-grade Layer 1 blockchain.
Now, other TradFi investors include BlackRock, Apollo Global Management, and NYSE's current company, ICE.
This does come at a time when reports suggest that the SEC may release its innovation exemption for tokenized stocks soon.
Well, joining us this morning to weigh in is Christian Catalini, co-founder of the MIT Cryptoeconomics Lab.
Christian, good morning.
Thank you so much for joining me.
A lot to get through.
So let's start out with the funding round for ARK.
So $222 million at a $3 billion valuation.
So what are the implications here of institutional interest when it comes to Circles Layer 1 blockchain?
I think we're seeing increasing attention towards custom built blockchains that really tackle an individual purpose.
You've seen now Circle with ARK going after payments and institutional money movement, Stripe with Tempo, to some extent Canton's efforts in the enterprise institutional space is also very similar.
We're shifting from a phase where, to be honest, it was all about the technology, it was all about whoever has the fastest, most performant blockchain, to a phase where your enterprise sales team is going to make a difference.
Everyone is after distribution and everyone is trying to own a greater piece of this growing pie.
Yeah, and I do want to expand on this.
You mentioned Tempo.
That is the high-speed payments blockchain backed by Stripe as well as Paradigm.
And they integrated Morpho, which is a leading DeFi lending protocol.
So how is Tempo actually bringing a paradigm shift in how money moves on the Internet?
Can you break this down for us?
Yes, what they're doing right now is actually very similar to what we did a few years ago when we were setting up the network around Libra.
They're bringing together partners across the ecosystem from retail one like DoorDash to Morpho, which is of course a DeFi lending protocol.
You're seeing really the pieces of what could become a very effective network for money movement between wallets and merchants.
Of course, the looming question for all of these from ARK to Tempo to Canton is, is the future going to be built on rails where there's a key sponsor, a key architect that can influence their direction?
Or will we see a pushback towards more open and decentralized networks?
To some extent, it's been interesting over the last few months, GSIBs and other banks are actually looking more and more at open and permissionless networks like the Ethereum one, and relatively scaling layers on top of them, because they're starting to realize that neutrality might be quite important when the stakes get real.
Yeah, and while I have you here, I do want to get your take on privacy.
So frequent FinTech TV contributor as well as guest Fitwise CIO Matt Hogan says that privacy is emerging as crypto's next killer app and the crypto payments race is directly colliding with this privacy boom.
So given Given the fact that ARK as well as Catten, which you mentioned, are targeting a massive pain point where Tempo is vulnerable, what does the crypto payments race look like and where and how does privacy actually fit in here?
I would say at this point privacy is going to be table stakes.
Every effort from Tempo to Solana to ARK to many others are really thinking through if we're bringing real world transactions, if we have real merchants, real institutions transacting, we will need a way to provide them meaningful privacy.
And in fact, one of the interesting solutions is also creating hybrids, where an institution can come on a chain or on an L2 that provides privacy and still be compatible with the public chain.
So we may land in a world where a lot of activity happens on these private clouds, so to speak, and then they can still be reconciled, they can still interoperate on L1 on a public blockchain, which is a very interesting architecture relative to where we started.
Yeah, and Christian, I understand that you have said the Capitol seems to be loudly voting for purpose built chains here.
So walk us through this.
I think we're, again, shifting from a phase where most of the capital was going after the best R&D teams, the best technology, the most promising engineering teams, to capital realizing that now that Genius is in place, Clarity Act is almost over the finish line, it's all going to be about who can land the largest institutions, the one with the most distribution, who can actually deliver on all those use cases that in the blockchain space we've been talking about forever.
So these purpose-built blockchains, it's not that they're necessarily technically better, but they come with an effort, really a partnership sprint, an ecosystem sprint, that has the credibility to bring on board a number of different players.
So now it's not a race about engineering, it's a race that's going to be won on who can close those enterprise sales deals, who can onboard financial institutions and reassure them that they have the right solutions around their technology stack, who builds the best developer experience.
I think the game is still very wide open and so I would expect a lot more surprises despite the big fundraisers, despite these large token sales that to some extent almost echo the early days of the ICOs.
Yeah, and as we turn our focus over to the nation's capital, we have been digesting the Clarity Act passing the Senate Banking Committee.
So if the bill does pass as written, largely as written, who are the winners here?
And give us your take on this.
Yes.
First of all some really good news.
We're finally ending the turf war between the SEC and the CFTC around all of this.
There's going to be a clear distinction between securities and commodity tokens.
I would say first of all the banks have already won. if clarity passes as written, a very important round when it comes to the yield on stablecoins.
They were, of course, extremely concerned about stablecoins being able to deliver yield as a much more direct competition to checking and potentially even savings account.
That is going the bank's way, so stablecoins won't be able to provide yield.
They'll be able to engage, of course, in loyalty and rewards, but not of the type that would have made it very salient I think to consumers and businesses, that stablecoins are actually a better vehicle for a lot of these applications.
In terms of winners and losers, so first of all I think the good news is that Parity doesn't pick winners.
It really sets the stage and of course we're going to have to see where the SEC lands as it formulates the implementation rules and more promising news as of yesterday in terms of like pro-innovation frameworks that really kind of allow new entrants to compete here.
But it is definitely tense news for players like DTCC that are, you know, revenue generating mostly through custody, clearing, post-settlement, or even transfer agents, where in a sense, you know, they were the record keepers of the past.
For both of these types of institutions, now it's go time.
They need to enter the tokenization game.
And so it's kind of clock ticking and trying to figure out what's the new revenue model.
When it comes to banks versus stablecoins, I think this is essentially a very interesting race where tokenized deposits are coming in roaring.
Stablecoins, of course, have a bit of a lead, but we'll have to see.
I wouldn't be surprised if a lot of the volume shifts to tokenized deposits over the next year or so.
Yeah, Christian, a lot to wait and see here.
But finally, before I let you go, I do want to get your take on artificial intelligence, since this is a technology as well as investment theme that we are all closely watching.
Now, OpenAI and Anthropic are rapidly turning their models into financial control centers.
And this could set up AI agents as the ones that are actually executing as well as monitoring and keeping daily transactions compliant.
And there are a lot of risks as well as opportunities here.
So where do you stand?
Yes, I would say these days you almost have to always consider what the foundational labs are doing, no matter what industry you're on.
We've seen it with legal, we've seen it with other domains.
Every time there's a release, kind of the market shifts under the relevant players.
We've seen OpenAI go consumer direct with ChatGPT personal finance.
It's a classic B2C disintermediation play.
It plays to their strengths.
On the other side, on Tropic, as usual, going a lot more B2B, so embedding inside FIS.
As you all know, FIS powers double digits of the global economy, and bank spend Billions of dollars a year, about $30 to $40 billion a year on AML compliance.
If you can throw these AI agents into those flows, that's a major win for the banks.
What's important to say is that, of course, neither OpenAI nor Entropic are trying to become a bank, but they're actually starting to absorb the codified middle, really what sits in between that transaction hitting a ledger or a blockchain in the near future and everything else.
Those workflows are extremely profitable and so would not discount the impact of the labs on everything in fintech and traditional finance.
So it's kind of hard to declare winners at this stage, but I would watch the foundational labs because again, in a single move, they can take entire slices of the value chain for themselves.
Well, Christian, we will have to leave it there for today, but great talking to you.
Thank you so much for joining us and thank you so much for sharing all of your insights as well as your perspective.
