Decentralized Organizations, Stablecoins & The Long Case for Bitcoin

On October 31st, 2008, Satoshi Nakamoto sent a 9 page .pdf to a small, cryptography mailing list… What seemed like an insignificant action at the time has had an impact that reaches far into the world of monetary theory, how humans work together and how governments issue their currencies.

Since then, Bitcoin’s market cap has reached one trillion USD, Ethereum has emerged as a global computing infrastructure and USDC has crossed two trillion dollars of value transacted. These are significant milestones, and Bitcoin may be entering the next phase of its maturity...

In this episode of The Money Movement, Jeremy is joined by joined Nic Carter, General Partner at Castle Island Ventures, to discuss decentralized organizations, stablecoins, and the long case for Bitcoin.

Jeremy Allaire: Welcome to The Money Movement. I'm super excited today to be joined by Nic Carter. Nic great to see you again.

Nic Carter: Thanks for having me Jeremy. Hello?

Jeremy: Awesome. There's so much. I want to talk to you about. I enjoy whenever I see you, hear you, when you're tweeting, all kinds of stuff. You're just-- I think you've got such fresh and fun perspective on a lot of things and very deep perspective on a lot of things. Thank you for making the time for having this conversation today.

Nic: Of course. Yes. Second time on The Money Movement.

Jeremy: Second time. I know, watch out third time's a charm. We'll see. When when that happens. Bitcoin at a million. [chuckles]

Nic: We'll get there.

Jeremy: We'll get there. Yes absolutely. As a refresher, very quickly for folks that are listening or watching maybe do the 32nd. Who is Nic Carter for a moment and then we'll dive into some of the key themes.

Nic: A general partner at Castle Island Ventures. We are seed and Series A venture firm focusing on startups in the public blockchain industry based in Cambridge Massachusetts. I'm in Miami. I recently decamped down here. Rest of the firm is is mostly in the Northeast.

Jeremy: We like to say that our headquarters is the internet and so we no longer say it's Boston or this or that because it's actually pretty distributed now.

Nic: It's the Metaverse. Yes.

Jeremy: I guess I should change it to the headquarters as the Metaverse.

Nic: Speaking of distributed, also co-founded Coin Metrics which is a crypto data company which is fully distributed by design. We did that long before COVID struck and we had a feeling that that might be the dominant model going forwards and that turned out to be the case. Those are the the main two things that I do.

Jeremy: That's awesome. I want to come back to distributed economic organization and on chain economic organizations and the experiments, the huge laboratory we have around that, but that's maybe for later in the episode. Look, I think one of the things that you're, I think, really well known for is you have a very deep long conviction about Bitcoin among many other themes. I thought it'd be interesting to just start with your most up-to-date narrative on your core long thesis on Bitcoin.

I know for a lot of people it's something that people have had strong conviction about for a very very long time, but it continues to get refined as the world evolves. As we're seeing as Bitcoin reacts to the world and the world reacts to Bitcoin. It's truly fascinating because we just achieve these new milestones. Not just price, but other things that just blow our minds like when-- I know you were involved really early, but maybe just talk about your your long thesis there. Where do you think we are on that today? How soon will the majority of G20 central banks hold Bitcoin on their balance sheets?

Nic: No pressure. Wow. It's funny I don't get asked that that much anymore. My updated long thesis on Bitcoin. I'm obviously I'm still bullish Bitcoin. I guess we should periodically ask ourselves has Bitcoin met the thresholds or do we expect it to meet and where is it and its growth cycle? I think it's matured a great deal. I wouldn't say it's an early highly asymmetric bet the way it was three or five years ago. It's got a huge amount of traction and momentum and the the return profile looks different today.

I still think it's obviously a great thing to own especially on a forward looking basis confronted with the macro outlook. What seems likely from a debt monetization inflation perspective here. I continue to obviously own Bitcoin and happy to do that for the foreseeable. In terms of updated narratives, I think right now Bitcoin is pretty exposed to what happens in the broader macro context.

That may not be the most comfortable situation to be in, but I think it is the case. If you look at the correlations, it's not highly correlated with risk on assets, but it has had periods of positive correlation in the last 24 months especially throughout 2020. That was perturbing to me because I don't really want to see it behave a Tesla or a risk on asset. I wanted it to-- Not that I can mandate anything about its return characteristics, but I was nervous that it would end up being like a risk on asset and then just sell off if anything adverse happened.

It has had those periods of positive correlation which causes a lot of I think smart people to dismiss it as a portfolio hedge or anything like that because it doesn't really act like a hedge.

Jeremy: We've seen so many more, "Significant macro, global macro, investors, asset managers" who've come out saying, "There's a role for this. Here's how to think about it. It's a macro hedge." That's been one of the stories of the last year. Ray Dalio has got a position in Bitcoin blah, blah, blah, blah, blah and all that thing. It's just how much of what it is today is a risk on asset versus a true high conviction long-term hedge asset. It's hard to differentiate that obviously.

Nic: That's actually my greatest concern is that it's to risk on and it's to expose to a very loose liquidity environment and when liquidity tightens up, that gets withdrawn from Bitcoin rapidly. Obviously in March 2020, that was exemplary of that where Bitcoin sold off harder than equities. All that said, the traditional thinking we have around 60/40 portfolios and normal hedges doesn't apply anymore. It's not applying. People think the stocks and fixed income tend to be anti-correlated, but we've seen them selling off together in the last year or so.

Jeremy: Liquidity becomes the prime motivator in those situations.

Nic: Yes. These theories that people have, that they learned in business school or the CFA about the correlation characteristics and the efficient frontiers, they're not really holding up anymore. I think we need new thinking around how to construct your portfolio especially as we enter this period of potentially very, very negative real interest rates, which I think is where we are going. It's where we have to go. I don't see an alternative.

In that world if for real rates go to minus 10 or deeper, I know that sounds extreme, but I could absolutely see it happening. I think your store value assets that are custom built to resist monetary repression, whether it's Bitcoin or gold, they do very very well. In the '70s you saw gold do multiples in terms of its return profile in real terms as it became monetized as this asset that people use to protect themselves from inflation effectively.

Not to return to this trite analogy of digital gold, but I think Bitcoin is gaining consensus as an asset that is really suitable to resist. A new monetary repression that's emerging.

Jeremy: Obviously, it has just dramatically more utility value and is actually a financial primitive and an instrument that is extraordinarily useful in so many ways versus other traditional hedge assets which are paper-based or they're-- You're not really owning them and they don't have any actual utility.

Nic: That's the really key difference for me is that you can take your physical ownership of your Bitcoin physical whatever the digital version of physical is, but you can really possess it and that is much unlike virtually any other financial asset out there.

Jeremy: Do you think the rumors of Putin accumulating Bitcoin and Ether are true?

Nic: Well, if I were him, I wouldn't disclose it until I had my position in place. You want to monetize it after you have accumulated it, but I think it would be prudent for every central bank to determine what percentage of the world's gold they own and then acquire that exact same percentage of Bitcoin at a minimum because you don't want to be any worse off than you are with the old regime.

Jeremy: We've seen this. We've seen obviously, it's this risk-on environment, we can argue about that, but we've seen this-- I don't want to say it's an inversion, but Bitcoin store of value just basically radically outpacing gold and gold underperforming, but despite the macro and monetary inflation risks and debt monetization risks and everything else, gold is not performing and it does feel like there's been this rotation and you have to assume if that's the case for a retail investor, an institutional investor and an asset manager, that that would be the case for a central bank balance sheet as well.

Nic: I'm not against gold actually. I don't like it when Bitcoiners feud with gold bugs or anything like that. I think that we're pretty much on the same team. [chuckles] We just have different ways of expressing our opinion, which is generally the same opinion and I think it's productive to fight. If you just look at what's happening, both central banks and pension funds and other enormous pools of institutional capital ex-US, they are divesting dollars and dollar assets.

There will be an interesting conversation about how stable coins fit into all that, but they're certainly divesting themselves of treasuries. If you just look at what is happening, like China stopped buying treasuries, I want to say in 2014, maybe even before that. Generally speaking, foreign official buyers stopped buying treasuries in the last decade and they've been net sellers.

You've got Russia saying they want to divest all their dollar assets. You've got Russia, Mexico, China, Japan, they're not buying US debt anymore and the Fed is making up the difference by basically buying the debt. Lyn Alden has this great analogy. She says, "It's like the chef eating his own cooking." It's very circular and that's not the basis for a functional restaurant economy.

Jeremy: They're supposedly going on a diet announced later this afternoon. We'll see.

Nic: Yes, it might be like one of my diets, very short-lived. If you look at what they're doing, they're buying a lot of gold. Central banks are buying a lot of gold and we're not seeing that expressed in the price of gold, but I think it's very indicative. There's still a role for non-state, whether it's inflation-resistant or negative rate-resistant goods and I don't think central banks need to despair. They have plenty of time to get a Bitcoin position that has parity with their gold position because Bitcoin is still worth 10 times less than gold.

They've got all of that time while it's still monetizing to get off zero. It's not like no countries own Bitcoin officially, I think there are four at least. One we know for absolute certain, El Salvador owns Bitcoin and then you have a few pariah states that it's heavily rumored or hinted that they own Bitcoin.

Jeremy: They're mining or they're using their own cyber attacks to go see some or [crosstalk].

Nic: Yes. It's not like the names you strictly want to be co-investing with, but they've understood that this is a thing that they can truly own and the US can confiscate from them very easily.

Jeremy: Well, there's so many things to ladder off of that, a lot of those thoughts. One is how far down the curve of crypto assets will-- How many of these crypto assets will be commodity money. Obviously, the ETH maxis feel very, very strongly that that ETH is a superior form of digital commodity money, functionally and things like that. There's obviously the rollover that's coming into into the new version or almost new version of Ethereum and arguing that it will have these deflationary characteristics and it has more utility value and and and so on.

I don't want to drag out from you like, this is better and this. That's not my goal at all, but is there a portfolio construction mechanism here from sound money, non-sovereign commodity money perspective in this space? I'm using nation-states as a proxy for how the whole world might adapt and think about these things over the long run?

Nic: Yes, it's a great question. It is very [unintelligible 00:15:34] to have a world of dueling-- Actually, what Hayek wanted, was a number of Fiat monies that were competing, but privately issued fiat monies, competitive. He thought that they would compete on actually their price stability characteristics. Their ability to hold value. It's interesting that now we have digital commodity money's competing on how deflationary they can be, which is actually not what Hayek thought would happen.

In some senses, his vision is actually much more consistent with the world of many different competing stable coins that have different units of account. It might be the dollar one might be index of CPI one might be to commodity basket or something.

Jeremy: Whatever it is. Or they're pricing effectively the risk of the reserves in different ways, right?

Nic: Right.

Jeremy: Whatever that is.

Nic: When he wrote it, it was quite theoretical.

Jeremy: It was one of the things I read back in 2012 as I was trying to think about all of this and I read extensively read Vaughn Hyack when I was in college. He was always a thinker that I respected a lot for a lot of things. It was when I was stumbling into this space, I was like, "Oh, my God look like this." He's written about this, but very different set of ideas there, but very, very relevant here in this conversation.

Nic: In some sense that it's thrilling, but the denationalization of money is occurring, at least in part. I also think that we have insufficient appreciation for some of the monetary thinkers in these conversations where their ideas are salient even though they weren't writing about cryptocurrency per se, they didn't know it would exist. For instance, in the discussion of Ethereum versus Bitcoin from a monetary perspective.

On the one hand, Ethereum will like the figure out how to become more disinflationary or even possibly deflationary in the monetary sense. Now, if I'm being pedantic, I would say, deflation is more a function of the aggregate price level. You'd say if the coin is appreciating, it's experiencing deflation. You could say ETH is deflationary today, but there's the two definitions of inflation. It's funny that we use the monetarist definition.

Jeremy: It's all relative [crosstalk] what's the real-world purchasing power? You have to always anticipate against purchasing power of real-world goods and services.

Nic: Under that definition, both Bitcoin and ETH just structurally deflationary, even though they have positive monetary inflation, but I don't have to have that debate right now.

Jeremy: Whatever you're looking at kind of thing? Is it the curve against the dollar or the curve against itself, right?

Nic: I certainly think that Ethereum will be able to achieve that. A less issuance-heavy outlook, for sure. I think they'll be successful in that transition away from proof of work to proof of stake model, moving towards a roll-up space scaling model. I have a bit of a contrarian view. I don't think that will reduce fees on Ethereum for a number of reasons but I think, generally speaking, they'll achieve their objectives.

Then the question is, do they have more monetary credibility than a Bitcoin, where it Bitcoin just has these ordained rules and we adhere to them and we expect them to hold indefinitely, whereas Ethereum has a design philosophy, but less rigid rules and they're optimizing for other things like sustainability of the miner or validator budget. They'll tune the monetary policy around that. It's just more multivariant design analysis.

I think if you think back to the pre-crypto monetarist literature and you look at what a lot of these thinkers were looking for, it often centers on these, "Can we design a monetary rule that satisfies a few criteria?" It produces price stability, it's apolitical, it eliminates discretion, political discretion. It creates an independence for the authority of the central bank or whatever it is.

Is such a rule possible and practicable? Can you actually politically instantiate such a rule? Of course, the answer is always no because what central bank will submit themselves to some superior rule which says target nominal GDP or whatever. That was never possible and I think that was the beauty of Bitcoin, initially, is that it was completely outside of the system. It didn't try and change the existing system. It was just a completely novel system and propose a different rule set entirely which was alien and all central bankers hated, but it didn't even seek to engage with the institution of central banking, it just proposed its own thing.

We made progress towards finding a stable non-discretionary monetary rule. Now was it the correct rule? Is another question. Then if you look at Ethereum, they don't have a non-discretionary rule, there's certainly discretion. That's where I'd say the potential for error creeps in is having a periodic assessment of the rule because now, there can be political motives that creep in. That's my concern.

Jeremy: Yes. Bitcoin obviously has the benefit of being very, very focused on what it's doing, so to speak whereas Ethereum and frankly, all these other next-gen layer one blockchains are trying to be operating systems. They're trying to be application platforms, they're trying to support very, very diverse kinds of utility value for a very, very diverse range of applications for society and the demands that exist there are to some degree, paramount and there's an interplay there and that's a very interesting one to watch as I read folks talking about ETH today, that there is a, "Hey, it's this internet digital commodity money, not sovereign. It has this great monetary policy and it's this engine for X and Y and Z and so on."

That's generally viewed as a really powerful thing. It's more utility value argument. Related to the discretion versus non-discretionary approach to monetary theory, do the application utilities end up having an impact where you're going to be making decisions on the monetary policy that wouldn't necessarily be the right decisions for it as a commodity money, but might be the right decisions for it to grow as an operating system?

Nic: I think actually the risk is the reverse, which is that you are motivated by a monetary motive to make decisions which actually impair the utility of the system. I'll give a very simple example. EIP-1559 was a new change that was added to Ethereum recently which changed the core fee logic and introduced this notion of burning coins for some portion of the fees. That had the net effect of reducing issuance of Ethereum which from an investment standpoint is really attractive. I think that really led a lot of the rally.

However, it introduces this different set of incentives across different stakeholder groups in Ethereum. On the one hand, you have token holders and people that are holding Ethereum in the expectation of appreciation and then on the other hand, you have people that are using Ethereum from a utility perspective because they value the block space and they like the settlement assurances that you get from Ethereum.

Now, those two groups are now, in some sense, at odds with each other in my opinion, post-EIP-1559 because the first group wants fees to be structurally high so that lots of Ethereum is burned. The second group is suffering the cost of those fees. They're providing subsidy in the form of high fees to the first group because their economic activity, a portion of that is siphoned off and burned, retired effectively. It's like this ongoing stock buyback and retirement which is good for the monetary policy, bad for the transactors.

Jeremy: Yes, I face it all the time.

Nic: Yes. You're a perfect example of this.

Jeremy: Yes, absolutely. There was a tweet today that someone was like, "I sent $100 in USDC. It cost me $200 to send the $100." It's like, "What's the fucking point?" Something like a stable coin on a layer one that's got these kinds of fees, it basically makes it only useful for whales, only useful for people who are doing much larger transactions. They want the finality, the speed, the security, the interoperability and all that, but it prices that out.

Now, we're faced with this because generalized adoption of layer twos is not here. It's one of the reasons why we've been focused on multi-chain in USDC as a protocol is because we really believe from a utility perspective we need more scalability, we need more capital efficiency, we need more cost-efficiency. We believe that there are layer one's that are doing that effectively and have the potential to be very decentralized and provide that use case.

It may be that ETH is just not able to do that, at least for some time. We face that with our customers too, like NFT. We have a lot of companies that are building NFT projects. There are NFT this entertainment, NFT that musician, NFT whatever. There are all these NFT projects, which if they don't care about the monetary theory here. They're like, "I want to be able to have this seamless way to enable the sale of digital property and make it as mainstream as possible. I want to connect people so that they can interact with that."

The economics are insane. Other than marketplaces where everything's priced out and it's super speculative, it's really challenging. You're seeing that clash of utility versus the monetary incentives happening right now in front of us.

Nic: Yes, and I think it wasn't really a big consideration for the Ethereum community when they were debating that EIP that it could actually set these stakeholders at odds with each other. I think it's clear that it does. Then the big question is, Ethereum block space a commodity, on an even par with other genres of block space, other blockchains, whatever it is, Avalanche, Solana, Polkadot, NEAR? Are they interchangeable and fungible with each other or is there something really special about ETH block space where people are going to pay a structural premium to use it? An advantage over these other ones.

Jeremy: Right. It's all about network effects of the ecosystem and install base of wallets and end-user access and tooling, this kind of stuff. My own view is having been through many platform wars and developer platform wars from the early '90s through today, there are these big generational changes that no one can anticipate that happen in terms of what platforms people are building on. No one can predict them.

They happen, though. What I always assume is we don't know what platforms we're going to be building on in 5 to 10 years. To say we know is just ludicrous because that's just never historically been the case. There are new either physical devices or distribution paths or other things that emerge that do that. I feel pretty strongly that that's going to be the case in the blockchain operating system space.

I think of these more maturing third-generation chains as competing in the internet operating system space and nothing's a foregone conclusion at this point, in my view.

Nic: Yes. This is, I think, what's so interesting because also, I think the presence of USDC actually materially changed the outcome here because USDC is portable across chains. It allows you to more frictionlessly have-- Your exit cost is lowered from a certain block space. It makes it more competitive because liquidity is now mutual across many blockchains. That just was not the case two or three years ago. In a sense, you're accelerating the conflict here between these different transactional spaces.

Jeremy: I don't want to think of it as accelerating the conflict. I think we--

Nic: The market base competition.

Jeremy: The market base competition. Thank you. Yes, definitely seeing that without a doubt. Maybe we'll segue a little bit. Sound money theory, if you anchor things like what we're talking about with Bitcoin or the monetary policy of Ethereum and there's sound money theory behind some of these. There's also sound money theory as it may apply to Fiat currencies as well.

In fact, it can apply to even fully reserved asset-backed Fiat stablecoins. I think you've written about and talked about stablecoins a lot. I know you've called them Crypto dollars, but we'll call them stablecoins for the--

Nic: It didn't catch on. [laughs] I tried.

Jeremy: Look, we didn't choose the word stablecoins. In 2017, when we put this on a white paper out around USDC, it was Fiat tokens, which obviously did not take off either, [laughs] but in any case, I think, one of the things that I've been really interested in is, what is sound money monetary theory as applied to the utilization of Fiat money and its expression in a digital currency world, its expression in a public blockchain world?

Actually, when I launched the Money Movement series, in the height of the pandemic last spring, some of the early guests I had on were people who'd been thinking about, writing about studying the Chicago Plan, which was Irving Fisher and a whole host of other very influential Chicago School economists following the Great Depression, who basically had seen all the bank runs and there was a run on the bank and why was there run the bank? Because banks were fractional reserve lending and they couldn't meet their obligations.

The classic story and that risk-taking led to a deepening of the Great Depression and so the theory obviously was that it was possible to effectively separate the storage of value and payment utility side of banking into a full reserve model and separate that from the provisioning of lending and not have banks be in the business of creating money. You're still having essentially the government debt or back then, it was gold-backed treasuries and so we could talk about the base m-zero. What is m-zero, in practice, in a Fiat money world?

Which is a whole other discussion, but let's put that aside for a second and come back to even-- We're going to take for granted that somehow the purchasing power, the rate of inflation and the management of that is reasonable, say in the Eurozone or the dollar economy. Again, put aside that discussion because I think that's debatable obviously, but just assuming you have that, is the construct of a full reserve dollar digital currency feasible to actualize the needs of the real-world economy?

The argument has been banks need to be able to create money and monetary policy and the role of the central bank in pricing that is how you incentivize credit velocity, money multipliers, other things like that and how you contract it as well. That's pretty dogmatic right now. The alignment between the Fiat currency central bank policy and the two-tier banking system and the role of banks in creating new money.

We have taken a view that you can have a full reserve monetary system and it can actually be safer and more resilient. There is a way to apply sound money theory in the Fiat world and in the stablecoin World and those debates are being played out right now, but I'd love maybe-- I just laid out a whole bunch of stuff, but I'm interested to hear you unpack some of that and share your thoughts on stablecoins and their relationship to these monetary theory questions.

Nic: Yes, that's so much to cover there. I guess there's a difference maybe in terms of what's the most prudent approach to regulating stable coins with regards to what the institutional characteristics should be. What are they holding? Who regulates them? What are their obligations? Are they fiduciaries? What are the claims and liquidation of the creditors effectively or the noteholders, whatever you want to call them?

Jeremy: Token holder.

Nic: Token holders, I suppose, yes. I always think about it as an analogy to people holding banknotes. I think of stablecoins as banknotes issued by private entities, just digital banknotes.

Jeremy: Our M2 money today are like bank notes that there are rules around how much risk they can take, but it's really just an IOU against the debt and investment strategy of the underlying institution. A Chase dollar is different than whatever, Bank of Argentinian dollar. [chuckles] There's just that really different characteristics for what that IOU represents.

Nic: Yes, but at least within the US, they are treated as equal [crosstalk].

Jeremy: They are treated as equal, yes.

Nic: The solvency of the institution doesn't matter as much, because there's the underlying guarantee. There's the one discussion of well, should stablecoins be eMoney issuers and should they be only holding extremely liquid assets underneath them, but then I think there's maybe the more interesting discussion that you're hinting at, which is, is there a possibility for a banking system that's Rothbardian in nature? Is it a full reserve system? What would that look like?

My mind strays to prior private banking systems, where effectively there was very little regulation from above. A lot of our policymakers and regulators talk about the "free banking system" in the 1830s to 1860s in America, but that actually had regulation. There was actually a good deal of regulation there and arguably, the regulation is what, in my view caused a lot of issues with that system.

If you look at truly unregulated private banking systems and what their characteristics were, I would think back to Canada during the same period, or Scotland, from 1714 to 1844, or there's Swiss episodes or Swedish episode. Those were not full reserve systems. They were actually pretty fractionalized. You'd hold in Scotland because no one really wanted to ever redeem the banknotes for the gold.

They would hold 2% to 5% of the outstanding value of the notes in gold, in [unintelligible 00:38:57] and because it was a plural system of note issue with the number of different banks issuing notes against their reserves, the notes would just ultimately clear through a clearinghouse, and the banks would settle up against each other. There wasn't often an outflow of gold from the banking system and so because that was infrequent and also because the banks had some contractual ability to suspend redeemability for short periods of time, they would actually pay interest when they did that, there just wasn't a need to hold a huge amount in reserves and so they developed a pretty efficient system of holding a pretty light reserve.

I think George Selgin is probably the number one academic who's written about this, which is, at equilibrium, if you eliminate regulation and constraints, where do these banks systems equilibrate in terms of the quality or the quantity of credit? Because of course, there's no shortage of credit being created. Scotland was industrializing. That period is a very productive, economic period.

I'm not sure you actually get in the wild, so to speak, these full reserve systems as the basis because banks ultimately just want to make money and it's more difficult if you have a full reserve and you're acting as a-- There's a legal term for it, bailment I think, where you are [unintelligible 00:40:37] coins and you're just holding them in the bank.

Jeremy: In a world where effectively, the money exists on a public blockchain infrastructure, where it can be programmatically and contractually locked and utilized at the speed of the internet to any endpoint on the internet and we're approaching a world where the cost of even flash lending, 10 USDC is a tiny fraction of a cent and you can have that available in a credit pool for minutes or hours or things like that.

I feel like a lot of these models were-- And even fractional lending itself was based on the capital inefficiency of what it took to store value, move value, reclaim value, et cetera. In a world where it's all instantaneous and it's all frictionless and it doesn't cost anything and you have programmatic perfectly secure and auditable and transparent control functions, it feels like you could potentially build things that are both safe and create money velocity. That's just a theory I have.

Nic: Yes, that's a great point actually. I agree. I think in crypto land, you just need a lesser monetary base to satisfy the same amount of commerce as you would need because settlement is so so fast.

Jeremy: Yes. I know it's not a point of view now, because the use cases vary so much, but the velocity of money in stablecoins is so much higher than the velocity of money in M2 money. Dramatically higher.

Nic: Yes, I haven't looked recently, but we also have to be careful with-- I'll caveat one thing. I know I'm partially responsible for some of that data, but I think the actual velocity calculation in legacy world is something like GDP divided by monetary base if I'm not mistaken. You take the final value of the goods and services and you strip out the intermediate transactions and you strip out securities-related transactions and then you divide it by monetary base.

I would caution that it's not necessarily [unintelligible 00:43:18] because frankly, we don't have a crypto GDP figure as much as I'd like to have one.

Jeremy: I think that's right. If there's truly financial transactions that are for financial activity, it can inflate those very significantly.

Nic: Yes. The ultimate point is just stablecoins at what-- I don't know what the aggregate value of them is 130 billion, something like that. They're satisfying just an enormous quantity of economic transactions on a par with other major payment methods. Probably a couple of orders of magnitudes below what Fedwire does, but rival with your Visas and your Paypal's for [crosstalk].

Jeremy: They're growing fast. We just crossed $2 trillion of value transacted in USDC.

Nic: That's USDC alone?

Jeremy: Alone, yes. Which is pretty--

Nic: Yes, it's incredible, for something that's effectively five years old or less.

Jeremy: [inaudible 00:44:19] it's three years old.

Nic: Yes. I meant stablecoins in general.

Jeremy: Yes, stable coins in general. It has been has grown immensely. I know we're coming up on time, but I want to maybe-- And we could definitely talk about a lot more for a lot longer. We can maybe next time do a two-hour episode or whatever it is. Yes, maybe just a closing thought totally transitioning to a very, very different topic, which is we started talking about distributed companies.

I'm very, very interested in what's happening with decentralized corporate forms on-chain corporate forms, DAOs as I talk about all there. Someone on Twitter was saying now they're DOs, decentralized organizations versus decentralized autonomous organizations, what are actually autonomous [crosstalk] just decentralized organizations to DOs and DAOs. It really feels like to me, I think of public chains as a new global economic infrastructure that we can build on and experiment with.

It really feels like we're seeing the birth of new kinds of micro-economic units of organization that have just never been possible. What are your high-level thoughts on this space and what you're most excited about?

Nic: I see venture funds investing in DAOs directly now and just facing off against, often an anonymous group of individuals. It's incredible. We haven't been quite bold enough to do that from our firm just yet, we like to know our counterparties [chuckles] if it's for putting money at stake, but the growth of DAOs, I guess, we can't call them DAOs after-- That's honestly a great point. They're not autonomous.

It's really surprised me and the fact that now there's just an industry of probably tens of thousands of people that work for these entities. I remember back in 2017, I interviewed at Fidelity for the role that I took there. I sat down with the head of their private internal pool of capital they have there. He asked me for my long-term predictions of around the crypto space. I said, economic activity will move away from being organized by corporations and it would be organized on-chain.

Jeremy: Of course.

Nic: At the time, I don't think there really weren't any DAOs. I'd been inspired by The DAO, as in the [crosstalk].

Jeremy: Right, The DAO and there was part of the white paper, Ethereum white paper.

Nic: Yes, but it was very theoretical and of course, The DAO was an enormous failure, a disaster. I just got such a raised eyebrow at that statement when I said that and I think they just forgave me for saying something like that.

Jeremy: I led with that at the kickoff of my company all hands event a week or so ago, I was like, "The long road here is we're back to basically rebuilding economic activity around these units of organization that are going to happen on-chain." That is that's that is what's going to happen.

Nic: Yes, I think it's correct and I think there's so many advantages. For instance-- And when I talk to regulators about this, their eyes actually light up which is-- It takes a lot--

Jeremy: Right. Transparency, accountability.

Nic: It takes a lot to do that. When you say about how you can get a real-time financial statement on a per-block basis, if you're looking at cash flows that are on-chain, and it's fully auditable and you can actually trace through the cash flows and balance sheet and income statement programmatically, you don't actually need an accounting firm to do it. They tend to start to understand. The caution I would urge is, think about the joint-stock corporation, that was pioneered, I want to say in the 1600s and then it wasn't really refined for--

Jeremy: The late 1800s really.

Nic: A couple of hundred years.

Jeremy: [crosstalk]industrial revolution, a global experiment.

Nic: Yes, we didn't have limited liability corporations for a long time. Public equity wasn't really a thing for a long time. Real securities markets didn't develop for a long time and then corporate governance of course, just took hundreds and hundreds of years to really refine. Then we had the American model of common law, corporate governance, which is the dominant successful model.

That's the way common law works. It incorporates all of these case studies and failures and edge cases and then incorporates them into the body of the law and it just takes a long time. Now, of course, things move faster these days, but I think we're going to have the same process with DAOs, where we have a lot of learning to do around how to actually organize these things and structure them.

Do we create legal wrappers around them or not and do we have vesting? How do we segregate duties? How do we introduce accountability? How do we engage in treasury management and [crosstalk]problems.

Jeremy: Who resolve the dispute?

Nic: Yes. All of those things are accounted for in the corporate governance literature imperfectly, in some cases. That's basically my model and of course there's obviously many successful DAOs today, but I think there's informal rule sets that generally govern those. The notion of a DAO as currently structured is very incomplete in terms of codifying the the modes of activity within that semi-corporate setting.

I do worry about that. It's not something that's necessarily solvable, it's just that we have to learn with the passage of time what things can go wrong and then how we deal with them basically.

Jeremy: The merging of meet space with DAOs and common law and case law and there's a lot there. It's pretty exciting. Well, cool. I appreciate you sharing your thoughts on that. Nic, really enjoyed the conversation today. Always love to chat with you and I'm glad we could do this and make it available to everyone.

Nic: Yes, I appreciate the invitation. This is great.


Jeremy Allaire
Co-Founder, CEO & Chairman at Circle
Nic Carter
General Partner, Castle Island Ventures

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