RWA Looping, Crypto Market Structure Bill, & Vaults - Sean Kelley

As you've seen, all these traditional financial institutions are coming on chain, and they're looking for trusted partners to do it with.

So they're not going to go with some new stable coin in order to do that; they're going to go with a name like FRA.

How much of a kumbaya we want to work with banks approach should we be taking? And how much should it be like, yeah, we are going to spur capital flight; we are going to take all these deposits out of banks and put them into onchain protocols because the banks and Brian Armstrong from Coinbase and others are fighting big time right now tooth and nail about whether or not yield will get passed to stable coins and whether or not that's going to cause a capital flight from banks.

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All righty, Sean, what's going on, man? Welcome back to Stabled Up episode number 21, our weekly premier stable coin show brought to you by our friends at FRA with their FRXUSD product, FRA tool chain, and more.

Today we're talking about Sean Kelly, VP of partnerships and comms at Fracks about FRXUSD yield forwarding stable coins.

We've been really bowled up on RWA looping as of recently as well and just generally what we've seen in the DeFi market with Black Rockck and Uniswap, Morpho and Apollo, A's new proposal and just generally how this space is evolving.

So Sean, good to have you on, man.

Hey, happy to be here.

Absolutely. Well, would love a bit of an update from Fracks. I mean, I'm sure we'll get into all of the things as far as how we're seeing some of the DeFi elements unfold.

I don't know if you caught maybe more in the beginning part of the stream. We were talking about institutional yield farming, which is what it feels like what's happening as these things are tokenized.

You know, the next unlock is incorporating them into some of the lending products lending market so that you can gain liquidity, either use that buy another tokenized treasury put in another fund use it somewhere else. That seems like it's something that's starting to pick up steam now before we get into some of these institutional yield use cases.

Yeah, just would love an update on what's happening at Fracks, you know, over the last few weeks. I think we had Sam on earlier this year, but you guys are always cooking. So would love an update.

Definitely. Yeah. So, 2025 was really a foundational year for us in terms of building the infrastructure needed in order to support FRAUSD growth.

And then this year is when we're really going to start delivering on that growth. It's both from a DeFi side as well as a traditional finance side.

So on the DeFi side of things, we have a peg keeper strategy going where we pair with DeFi stable coins and over a dozen protocols have chosen to pair their core stable coin with FRAUSD.

And the reason they do that is they trust FRAUSD to be as secure as USDC or USDT, but the underlying yield goes into incentivizing liquidity. So it creates a more sustainable DeFi ecosystem.

And that strategy expands beyond just pekeepers. It also goes into D5 protocols as a whole. We're talking with a lot of early stage D5 protocols who want to build on top of FRAUSD as a core asset.

But then also established D5 protocols like A is being FRAXUSD is being proposed to be integrated into A and we're taking the underlying yield from there and using it to make sure that people who are holding for example a FRAUSD are getting at least the risk-free rate and also incentivizing ESCO holdings.

So, it's just a more sustainable DeFi ecosystem, more productive, more capital efficient, and that's what DeFi is always looking for.

And then on the traditional finance side, because we have these relationships with Black Rockck and Wisdom Tree and Superstate, we have connections to all these traditional finance institutions.

So we're trusted in that respect and people trust our brand over five years of security in order to build on top of.

And so, more recently, we announced ATW, which is a New York City investment bank. They put 50 million into FRAUSD to power some of their convertible payments. They're behind a lot of the digital asset treasury companies.

But we're also cooking up some pretty large partnerships around stable coins and stable coin real world use cases and payments.

As you've seen, all these traditional financial institutions are coming on chain, and they're looking for trusted partners to do it with.

So they're not going to go with some new stable coin in order to do that; they're going to go with a name like FRA.

Yeah. and we've been talking to quite a few providers of vaults and kind of this idea of tokenized assets into vaults and in institutions wanting to kind of get this oneizefits-all strategy into vaults that you know they want a set of smart contract parameters that allows them to get really good yields better than what what they can get in traditional you know in traditional finance and and you know then they want to do it onchain with you know trusted vault providers, risk curators and you know trusted assets etc.

What's the latest on vaults that you're seeing from your side? You know, what's where's the interest at? What are the types of vaults that are interesting? What are you guys focused on? Give us a quick update on the vaults landscape as well. I think this has been pretty promising as of late.

Yeah. Um, certainly there's a lot of institutional capital looking for onchain vaults as well as yields.

We have our own vault product SRAX USV that we put into blue chip DeFi products.

But I think you're going to continue to see new projects built around taking some sort of off-chain capital system and then bringing it onchain for yields.

I think that stuff is super interesting. It's not something we're as focused on. We're very focused around FRAUSD as money and in the payment system and broadening adoption of that both in DeFi and tradi.

On vaults we're more just observing that space and like but specifically real world asset vaults is something that we're uniquely positioned to deliver on in terms of having the relationships with like securitize.

So, you know, the announcement that was just made about Biddle on Uniswap, we're actually one of the, you know, registered holders of Bidd. We're actually one of the top holders and we keep our Bidd on chain.

And that's backing FRAUSD, but we're, we also have the relationships with Wisdom Tree and Superstate. So, we actually basically have a a reserve backing of FRAUSD made up of multiple RWA issuers, which is pretty unique.

And so when you think about needing to source liquidity for a bidd candidate for that because we have it on chain in size and we're able to move in between Bidd versus WTGXX or USB or FRAUSD.

So there's some interesting use cases there as well.

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And as we see the development of more of these RWA focused vaults, right, we're, you know, you guys have a lot of Bidd, you guys are, you know, able to collateralize Fracks USD with the stable coins that are excuse me, with the treasury, the tokenized treasury funds that are underneath it.

And and you maintain genius compliance that way.

As you guys are thinking about your own reserve management strategy, h how do you think you will start to access some of these opportunities that are coming up like you know whether it means kind of getting more yield passing more of that yield back to end users of FRAUSD.

Do you see a lot more of these vaults opening up where you can deposit things like Bidd or other, you know, tokenized treasury products? Will that increase the yield that you guys at FRA are generating on your reserves in turn increasing the yield on FRAUSD or or how should we think about you know the way these institutional products are deployed on chain?

Yeah, I think the yield underlying FRAUSD is kind of capped at the risk-free rate because we back it with tokenized treasuries.

I think where you would look to have enhanced yield opportunities would be on SFRAXUSD, which is our stake vault version.

And because of our relationships with these real world asset providers, we you know may have some unique opportunities to access some of these products and for the underlying yield to our SFRAXUSD holders.

But for FRAUSD itself, it's really just the risk-free rate. Um, but that's much better than most stable coins today that aren't passing anything on and they're keeping that revenue for themselves.

And I I mean I think what Rob's trying to get out here more so Sean is this idea of RWA looping and why this is so big.

So Kyle Somani put out a tweet saying, you know, R like RWA looping is going to be huge or, you know, that's like the main use case for RWAs.

And we just can keep kind of thinking about this thesis around how these institutional allocators are going to want to come on chain with something like like Black Rockck's Bidd and they'll want to you know put that into an A or into a Morpho borrow against that you know buy more Bidd with that redeposit it loop it and hope hope that there's a arbitrage of rates possible there use something like Pendle use a different lending market so like this this like looping credit creation thesis.

We talked to Rune last week about it from Sky. He's pretty firm that he sees this as being like the main value driver for a lot of these institutional flows.

I know Mike from Blockworks has been talking about this. He's also pretty convinced that this is going to be the main value driver.

So, there's quite a bit of confluence in this concept of like looping RWAS as the main kind of additional value ad that crypto rails provide to institutional capital allocators.

Just curious like what do you think about that? Like is there is there a specific strategy you think that that these flows will want to be going into? Is there a a a right way to think about this looping when it comes to fracks, FRX, USD, stable coins in general? How do you think about like this this concept of looping and credit creation as the main kind of additional value ad that that crypto rails provide to institutional capital allocators?

Yeah, I think that the reason why they're bringing this capital onchain for looping is because of the transparency of the system and like the risk is very controlled as long as you're working with one of these blue chip DeFi protocols.

You get like blockby-block transparency into what you're doing, what the risk is involved.

I think the challenge which some projects are trying to address is around you know like T+1 settlement of these real world assets when you're trying to loop them you actually like each loop you're adding in that settlement time.

And so there are some projects that are doing basically like flash loans where you can size up on a loop on a real world asset.

In order to do that, you need someone who's providing a lot of liquidity of the real world asset. And so that's again a place where we can come in both on the supplying of the asset side, but also when inevitably liquidation of these assets happen, you need someone with a large supply of it.

So yeah, I agree that it is a massive source of incoming TVL.

Traditionally like we've looped things that are native to DeFi and we've run out of that supply.

And so our ability to tap into institutional capital is like limitless and as it comes on chain I think that's why people are so excited.

And what do you think, you know, we obviously we believe in the growth of stable coins, you know, as as this industry evolves, upwards of, you know, trillions of dollars of stable coins ultimately on chain.

What are you seeing as a primary driver of this? Because from from my my perspective, it's, you know, almost got this cold start problem, right? you know, you've got the necessary collateral and reserves that need to be generated in the terms of treasuries and then once you receive those treasuries, you can mint these, you know, additional stable coins on chain.

But first you need to get the treasuries and you do that, you know, by by working with teams that are ultimately going to deploy capital.

And so h how do you think more like how do we get fracks more treasuries and therefore more frack USD onchain?

Yeah. Um, our main sources of growth are, um, the PetKeeper strategy on Curve. So, um, pairing with all like DeFi stable coins.

And then growing FRAUSD as like a core stable coin asset in DeFi protocols.

But the main thing is getting FRAUSD to the point where it's treated as money in the real world.

Similar to how we're talking about how traditional finance you need to bring that institutional capital on chain to really see growth. The same thing is going to apply to DeFi stable coins or stable coins that are built in the genius era for payments.

It needs to be accepted as money in large venues and within the payment system.

And so a lot of our work is focused on actually crossing that chasm into the real world and FRAUSD serving as a rail for very large payments.

Yeah, definitely. I think that's kind of the we had this the liquidity CEO on last week of stabled up and we talked about kind of the actual like the two types that that Sam opened up this entire series with back in episode one about kind of genius compliance stable coins and more like yield bearing yield coins or whether it's like you know algorithmically collateralized or ETHbacked or whatever it is something that's not just pure onetoone backed by treasuries a and you know as you say in order for to to kind of cross that chasm of money as a genius compliance stable coin that you know that's really the the chasm that you're trying to cross which is that getting it accepted into as many venues as possible being having it be used for payments.

I think that's kind of like the massive competition going on right now between USDT, USDC, FRXUSD and and the likes. It's it's very much so that kind of race.

And what is interesting right now, and I put out a tweet about this today, is, you know, I think that the crypto market structure bill will get passed in Q2.

And perhaps that's a bit bold. I think everyone wants it to be passed before midterms, but in Q4 when we get the new Congress.

But what people don't quite understand right now, Sean, is that while Genius Act has been, you know, signed and put through, it's not exactly implemented yet.

And so there's still some kind of waiting period right now for other stable coin players to kind of enter the playing field because the the Genius Act is still kind of in this state. I'm not exactly sure how the US legislative system works, but it kind of goes into a state before it gets implemented.

And then the crypto market structure bill is also very notable because the banks and and Grant Armstrong from Coinbase and others are fighting big time right now tooth and nail about whether or not yield will get passed to stable coins and whether or not that's going to cause a capital flight from banks.

So, lot to unpack here, guys, but I think it's it's worthwhile spending, you know, the next bit talking about Genius Act, the market structure bill, what yield getting passed back to stable coins holders looks like, the effects of that, will capital flight really happen?

So Sean, kind of open-ended here, but take it where you like. How do you think about the current state of the regulatory climate in the US?

Yeah, I think it's much friendlier than it used to be. I think Genius Act was a monumental bill that allowed for innovation in stable coins.

I I do think there is an ongoing fight around yield for stable coins. I I think it's interesting because you know there's underlying yield. How do you keep that from being passed on to holders? It's kind of an odd proposition to protect banks, but ultimately you know there's there's ways around it.

I think, you know, maybe you won't be able to have just like direct you hold the stable coin and it's basically just like a high yield savings account.

But there's so many other ways to incentivize usage of something that's not directly tied to holding something.

I think a great example of this was lighter this past week. You know, they announced that they were getting revshare on their USDC. But what actually they were doing with that was they were incentivizing reduced funding rates for their premium traders on their platform.

So this is taking underlying stable coin yield. It's incentivizing like certain actions on your platform. It's still rerouting that yield back into your ecosystem, but it's doing it in a way you choose, but it's not incentivizing just holding of the stable coin.

And so that would, you know, pass what what the regulations are around. So I think there's a lot of like clever ways to still end up with the same result where your platform is more sustainable with the underlying yield without want simple, want fast, want every chain, use relay.link, the fastest bridge in crypto. Transfer your assets crosschain instantly with very low slippage right now on relay.link.

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From your experience, just to double click on this, like we we had a chat with, you know, another stablecoin provider and he seemed like he wasn't too concerned about this whole narrative around capital flight out of banks.

From my perspective, this is probably the most bullish narrative that could have came to stable coins. like the fact that we're now like at a point where we're looking at the baking industry and they're they're the ones saying like stable coins are posing a real threat if it wasn't for our regulatory moat you know how do you approach this generally I see this as a very bullish thing are are you you know how much of a like kumbaya we want to work with banks you know approach should we be taking and how much should it be like yeah we are going to spur capital flight we are going to take all these deposits out of banks and put them into, you know, uh, onchain protocols.

Yeah, I think yeah, we still have a long way to go, but I I definitely think it's like a huge victory moment to have them, you know, trying to fight to keep things from happening in the DeFi world because they're concerned about what might happen to their own bottom line.

So, yeah, I think that's that's a massive victory. At the same time, banks, I don't believe banks are in trouble in the slightest. You know, banks have so much power and they offer so much more than just a deposit.

So, I'm not concerned about that. But, you know, if 1% of capital from banks do come into stable coins, then, you know, yeah, we're looking at a huge growth industry for stable coins.

But yeah, I think really where stable coins are going to see outsized growth opportunity is around just like being nimble and providing benefits to existing corporations in ways that a bank is not going to offer for the next like three to five years.

As we see that banks who are posting these stable coin job offerings are saying you're going to design our stable coin strategy to you know launch within the next you know three to five years. Uh so they're they're operating on a different time scale and banks will be fine.

But stable coins are going to be much better off. I I do agree with that.

Yeah. I mean, we actually talked to a a this a chief marketing officer of a pretty big public company last week and one of their core initiatives is actually to reduce the narrative of capital flight from banks via stable coins in an effort to try to get comp the banks to comply with the crypto market structure bill and with the idea that they should actually collaborate with like the banks should collaborate with these large stable coin providers, right? Rather than view them as enemies.

So there's like there's this cipher punk cryptonative folk yelling like we're going to kill the banks and then meanwhile the comms leads of the larger stable coin providers are trying to squash that narrative and actually be friendly to banks. So it's quite interesting.

Yeah. Yeah. Um I I want to build on that because it it feels like it's inevitable. like maybe it takes 3 to 5 years until you know these guys ultimately come into the scene, but we're building and picking off chunks of the financial system bit by bit.

The this morning I was looking into the repo market, right, which is doing like 10 trillion dollars in the US every single day.

And we're actually starting to see a lot of that come on chain as well. I was looking at, you know, Broadidge is using this DLR product. They're doing like $250 billion a day.

Most of this is happening on Canton network which makes it a little bit difficult to really understand like where where it's happening or what's happening but how are you guys approaching some of these facilities around just pure cash and thinking about okay how can we help facilitate you know some of these big large capital transfers that happen on a rolling daily basis given that you guys have the liquidity on both sides of the aisle.

Yeah. Um we're definitely well positioned to bridge that gap between DeFi and Tradfi.

I mean we're not at the level of trillions of treasuries that are happening on Canton, but we are a validator on Canton. We do take bets on ecosystems that we think have a ton of potential and Canton is definitely one of those.

You know their like partnership lineup is insane. I mean they have like every single major bank signing on to be a partner.

And they've built from like a customer first standpoint in terms of like talking to these institutions and figuring out what they need and that's why they're so privacy focused because that's one of the things that came out of those discussions. They were, you know, working on privacy before privacy became a narrative in crypto.

And uh, another one of those is layer zero. They just launched their network. You know, we use layer zero as our crosschain provider. So we will definitely be working closely with them on that.

And then I think one other one is Tempo. Tempo has so much potential in the stable coin payment space and we just released a blog post with them where the first stable coin protocol to build on their tip 20 ERC or their tip 20 token standard which has like stable coin gas rewards as well as pay payment for gas.

And so FRAUSD is one of the first to do that.

Yeah, I mean they've assembled the Avengers of crypto is what we're calling it. Um coming back to kind of how you're seeing uh you know things like the repo market, things like banks coming on chain.

Is there is there a path that you guys have have seen through your work uh you know in partnerships with Sam's work in DC? um you know it it like like just I'm curious what the progression has been the last sixish months right as you've seen the change in demand or change in appetite right I think like the driving force behind a lot of these institutional digital assets teams is like they have like this FOMO effect of like wanting to launch a stable coin because their competitors are wanting to actually build in in in the digital asset space because their competitors are hiring people like in your conversations what is changing materially as of late.

Maybe you can just like walk us through a bit of the evolution of your processes, what that's been look uh looking like in your conversations, whether it be policy makers, regulators, institutional flow. You know, what's that what's that actually looking like behind the scenes? Give our audience a grasp of like what that conversation looks like currently.

Definitely. Yeah, I think FOMO is a good way of describing it. I think a lot of these traditional institutions, they were playing a wait andsee mode.

And some of the early innovators were kind of doing experiments but not really using anything in production. And now we're getting to the point where these traditional in financial institutions are going beyond experiments and like actually integrating these flows into production.

And that's when you start to have kind of like this watershed moment when all of these these banks are realizing that they're behind the ball already. They're slow moving.

And so all of a sudden you see this flood of job postings for for stable coin development programs within these banks. Um and similar in our conversations with companies who are looking to adopt stable coins in the past.

We would have these meetings and they would say yeah stable coins is something that we like have on our radar but we like don't think it's super pressing but you know of course we're going to take this meeting because we want to like learn more. But now you take the meeting and it's like how do we get this in production in our flow today because people now understand that there are clear benefits as these products have come to market and so they want to have those benefits for their bottom line as well.

And so our conversations is much more around implementation and then you know thanks to the state of AI coding like it's way faster to get to a usable product that's integrated into someone's existing flow than it was in the past. you know, we've already built all the smart contract infrastructure and the, you know, stable coin itself.

And it has TBL and it has, uh, you know, a five-year track record of security and so that's kind of what gets us the role and then our ability to move very quickly is what brings it to market.

Yeah. Yeah. So, with the the acceleration of these engineering timelines, like what are you guys seeing as the primary limiting factor? What where's the bottleneck to growing this thing 10 20x?

Yeah, I mean the bottleneck at the end of the day is you know convincing the institutions that we are the best solution and so we have institutions in our pipeline who have been sold and these things are coming to market and then I think once you have like a really big partnership announcement and then you can kind of lean on that to close a ton more deals.

So ATW was really the first one from an institutional standpoint to have a investment bank, New York City investment bank put 50 million to FRAUSD. That sends a signal to all institutions that you know they did deep due diligence on our setup of FRAUSD and how everything functions and they signed off on that and they're comfortable holding tens of millions of dollars in FRAUSD.

So that's step one. But as we go to release more of these partnerships throughout the year, that is going to close a lot more deals as well.

Yeah, it's a flywheel effect. Yeah, exactly. Yeah, it's the Clooney effect. Um when they were making Oceans 11, they told Brad Pitt that Clooney was in and then they told Clooney that Pit was in and then they were both in.

Sean as we come to a close here what what is the kind of roadmap here for fracks coming into Q2 into Q3 right you know when you look at the at the landscape of genius compliance stable coins there's there's quite a bit of competition especially coming on as I was mentioning as the genius that kind of gets implemented and the green light goes on for more and more you know banks financial in institutions and other others to collaborate in this landscape you guys have a fraction product that is kind of built for that expansion, but also this F FRXUSD product being your main Genius compliance stable coin sitting pretty in the nine figure market cap range.

Where are we looking for from you know Q1, Q2 into Q3? What what has to materially grow and change for F FRXUSD to become a larger more competitive genius compliant stable coin?

Yeah, definitely. So on the D5 side we have our pekeeper strategy and then D5 protocols. So A is going to be a huge one when that comes online. But we also just last week announced that FRAUSD is integrated on EtherFI.

So now everybody who has an EtherFI card can load up FRAUSD, spend it, and get the risk-free rate which is better than like you know holding USDC on its own and not not getting the yield.

So yeah, we're going to continue to integrate into more of these NEO banks. As you know, FRAUSD is basically just base infrastructure there.

We're also working on making FRAUSD more accessible for retail. FRA is more like of an institutional dashboard. So, we have a mobile app we're working on. Very basic, just focused on like the easiest, fastest way to get someone onboarded to a stable coin without, you know, bombarding them with meme meme token trading and all that stuff. it's just very stable coin and payments focused.

And then a lot of growth will come from our institutional partnership side as well as FRAUSD becomes more integrated into everyday payments.

So yeah, that that's the main focus is that we're growing. We've built the infrastructure side and then partnerships is going to grow.

Awesome. Sean, thanks so much, man. It's a it's a pleasure to have you on and yeah, you guys are doing great work in stable coins, one of the one of the primary sectors of our NEO finance thesis and there's tons getting built out around what you guys are doing as well as stable coins as a whole.

So, thanks for coming on. It was a pleasure and shout out to Fracks for sponsoring Stabled Up. We really appreciate you guys and yeah, you guys are I I think you know helping the space out as a whole by investing in the educational resource that you know we have here at this show.

And see you in New York, man. See you in the Big Apple very soon, Sean. Sounds good. All righty, buddy. I'll see you next time. Cheers.