The US Treasury’s Stablecoin Report, TradFi’s Crypto Adoption, and Ethereum’s New Era | Roundup

This episode dissects the US Treasury's surprisingly bullish $2T stablecoin forecast, TradFi's accelerating crypto adoption despite market dips, and the strategic recalibrations defining Ethereum's next era.

San Francisco's AI-Fueled Resurgence

• The speakers note a palpable return of vibrancy to San Francisco, largely attributed to the AI boom. Michael observes increased traffic, difficulty getting restaurant reservations, and friends moving back to the city, including several joining OpenAI.
• The atmosphere is compared to the 2013-2014 era of the tech craze, suggesting a foundational phase where the direction is clear, centered around major AI players like OpenAI headquartered locally.
• Anecdotal evidence underscores the AI concentration: Michael mentions witnessing OpenAI's Sam Altman and former Apple designer Jony Ive filming nearby. "Johnny IV [Jony Ive] and Sam Altman are filming a commercial in our lobby," highlighting the buzz.
• Strategic Implication: The concentration of AI talent and activity in SF reinforces its role as a central hub. Monitoring developments here provides early signals on AI trends, talent migration, and potential crypto-AI intersections.

US Treasury's Bullish $2T Stablecoin Forecast

• A significant, yet under-discussed, 20-page report from the US Treasury projects the stablecoin market could reach $2 trillion by 2028, a roughly 10x increase from current levels.
• The report distinguishes between "payment stablecoins" like USDT and USDC, and emerging "tokenized money market funds." Michael expresses surprise at the government's optimism: "I don't think that I've ever seen a government agency... be more bullish than us on something."
• The report acknowledges stablecoins could pressure banks to offer higher deposit rates to compete, potentially impacting traditional banking dynamics in the US.
• The "Genius Act" is mentioned as the likely legislative framework, with speculation it could pass before Memorial Day (end of May), potentially unlocking rapid bank participation in the stablecoin sector.
• Actionable Insight: The Treasury's forecast and potential regulatory clarity via the Genius Act signal massive growth potential and mainstreaming for stablecoins. Investors should track legislative progress closely as it could catalyze significant institutional involvement.

Yield-Bearing Stablecoins vs. Tokenized Money Markets

• There's ongoing discussion about whether payment stablecoins under the Genius Act will be permitted to be yield-bearing. If not, products like BlackRock's BUIDL (BlackRock USD Institutional Digital Liquidity Fund), a tokenized money market fund, might serve that function.
• Tokenized Money Market Fund: A digital representation of shares in a fund that invests in short-term debt instruments, offering yield to token holders.
• Michael notes the historical parallel where traditional money market funds faced resistance from banks concerned about deposit competition – a dynamic now repeating with stablecoins.
• The Treasury report explicitly separates payment stablecoins (non-yield-bearing under the proposed act) from tokenized money market funds (yield-bearing). The yield generated by payment stablecoins currently goes to the issuer.
• An idea floated is creating central bank "swap lines" for stablecoins to incentivize global dollarization, akin to existing FX swap lines between countries.
• Swap Line: An agreement between central banks to exchange currencies, providing liquidity in foreign currency to domestic banks.
• Strategic Implication: The regulatory distinction between stablecoin types will be crucial. Investors should monitor how yield generation is structured and regulated, as it impacts product design and investment opportunities in stablecoin infrastructure and related DeFi protocols.

Stablecoins' Impact on Treasury Markets

• The Treasury report highlights two key impacts of stablecoin growth on the US Treasury market: an overall increase in demand for Treasuries and a significant shift in demand towards the front end of the curve (short-term debt).
• Issuers like Circle primarily back USDC with T-bills (Treasury Bills – short-term government debt instruments maturing in one year or less). This concentrated demand for short-term debt could be a useful tool for the Treasury to manage its debt issuance profile and potentially influence interest rates.
• Actionable Insight: The structural demand for short-term Treasuries created by stablecoins could subtly influence US monetary policy levers and debt management strategies. This interplay is a background factor for macro-aware investors.

The Rise of Global Stablecoins & Issuer Potential

• Michael strongly argues that the primary growth engine for stablecoins will be outside the US. He predicts, "I would not be surprised if we're at two trillion in stable coins. 1.5 of those are originating outside the US."
• Stablecoin issuers are framed as akin to global deposit-takers with low overhead and safer asset bases, resembling a form of "narrow banking" (a theoretical banking model where banks hold 100% reserves against demand deposits).
• A distinction is made between payment stablecoins (USDC/USDT) and newer yield-generating strategies like Ethena's USDe, which function more like tokenized hedge fund strategies.
• The speakers highlight the immense potential scale of stablecoin issuers, suggesting $500B-$1T AUM per major player is possible, leading to "Google sized outcomes" with significant earnings potential based on current monetization models (100-400+ basis points).
• Basis Points (bps): A unit of measure equal to 1/100th of 1 percent, commonly used to express changes in interest rates or yields.
• Actionable Insight: The largest market opportunity for stablecoins lies in international markets. The business models of stablecoin issuers themselves represent a significant value capture opportunity, making related investments (where possible) or infrastructure plays (like borrow/lend protocols benefiting from stablecoin flows) attractive.

TradFi Adoption Amidst Market Cooldown

• Despite lagging crypto market sentiment, significant traditional finance (TradFi) adoption milestones are occurring. Charles Schwab's CEO announced plans for spot crypto trading within 12 months, and an $8 billion Bitcoin strategic reserve bill is advancing in Arizona.
• Michael observes a stark disconnect: "It has never been more bullish from a fundamentals perspective... but it does not match where the rest of the market is." This sentiment is echoed by industry partners seeing strong fundamentals (protocol revenue, institutional adoption, product capabilities) not yet reflected in prices.
• Actionable Insight: The divergence between strong fundamental adoption by major TradFi players and current market prices presents a potential opportunity. This could indicate a lagging market reaction or a long-term accumulation phase driven by institutional groundwork.

Protocol Valuations: A New Paradigm?

• The speakers discuss comparing crypto protocols to publicly traded companies, highlighting the extreme efficiency of protocols. They note protocols often generate substantial revenue/profit with tiny teams (10-30 people) compared to traditional comps with thousands of employees.
• This high efficiency (low opex) combined with global distribution and value accrual makes protocol economics fundamentally different and compelling, resonating well with investors when presented this way.
• Strategic Implication: Analyzing crypto protocols based on their operational efficiency and comparing their revenue/profitability per employee against traditional businesses can reveal significant valuation discrepancies and investment potential. This framework is key for fundamental analysis in crypto.

Crypto: An Active Manager's Arena

• The conversation contrasts the crypto market with public equities, where passive investing dominates and generating alpha (outperformance) is perceived as increasingly difficult.
• Crypto, conversely, is presented as an "active manager's dream" where diligent research, direct communication with teams, and identifying niche opportunities can yield significant alpha. Michael suggests there is "value lying on the floor in crypto."
• While TradFi markets are dominated by giants like the "Mag 7" tech stocks, crypto remains an open field, though navigating it requires skill to avoid pitfalls like overvaluing hype (e.g., OpenSea's peak valuation).
• Alpha: Investment return above a benchmark or expected market return, often attributed to manager skill.
• Mag 7: Magnificent Seven – refers to a group of high-performing US tech stocks (e.g., Apple, Microsoft, Nvidia).
• Actionable Insight: Crypto markets continue to reward deep research and active management. Investors willing to engage directly with protocols and analyze on-chain data can find opportunities less available in more efficient traditional markets.

Stablecoins on L1s/L2s: Competition or Catalyst?

• Stablecoins are predominantly issued on Ethereum, Tron, and increasingly Solana. Data shows stablecoin activity is surprisingly "sticky," not dropping off as sharply as DEX volumes after peaks.
• A key question arises: Do stablecoins compete with native L1/L2 tokens (like ETH or SOL) for use cases like Medium of Exchange (MoE)?
• L1/L2: Layer 1 (base blockchain like Ethereum) / Layer 2 (scaling solution built on top of L1).
• MoE: Medium of Exchange – an asset used to facilitate transactions.
• The speakers lean towards viewing native tokens less as MoE and more as collateral assets or stores of value within their ecosystems. ETH remains dominant for borrowing/lending. Solana briefly captured the MoE narrative via memecoin pairs.
• Ethereum's deep capital markets are cited (referencing BlackRock's Robbie Mitchnick) as a major advantage attracting stablecoins and complex financial products, creating network effects.
• Strategic Implication: While stablecoins might displace native tokens as pure MoE, their presence drives significant economic activity and deepens liquidity on L1s/L2s. The value accrual to the native token depends on how effectively this activity translates into fees (e.g., transaction fees paid to validators/stakers). ETH's established liquidity remains a powerful moat.

Ethereum's Strategic Evolution and Valuation Complexity

• Valuing L1 tokens like ETH is complex; they resemble pseudo-equity but operate differently than companies. Valuation involves multiple factors: liquidity depth, fee generation (quality and quantity matter – e.g., discounting transient memecoin fees), network effects, and strategic direction.
• The speakers lament that crypto discourse often oversimplifies valuation to single metrics, unlike the more sophisticated multi-factor analysis common in traditional finance.
• Ethereum is undergoing a strategic pivot in real-time, grappling with scaling, fees, and its core value proposition.
• Actionable Insight: Evaluating L1s requires a nuanced, multi-faceted approach. Investors should analyze the interplay of technical roadmaps, fee mechanisms, capital flows (like stablecoins), and developer activity, rather than relying on single metrics.

Restaking Capital and New Stablecoin Designs (CAP Example)

• Restaking protocols like EigenLayer have unlocked billions ($10B+ TVL) in staked ETH capital, creating a challenge and opportunity: finding productive uses for this capital.
• Restaking: Using already staked assets (like ETH) to provide security for additional protocols or services.
• TVL (Total Value Locked): The total value of assets deposited in a DeFi protocol.
• A new stablecoin project, CAP, is highlighted as an example. It plans to use restaked ETH as "first-loss capital" to backstop professional operators generating yield on USDC/USDT deposits.
• First-Loss Capital: The portion of capital in a structured investment that absorbs losses first, protecting senior tranches.
• This model showcases Ethereum's unique capacity for complex financial experimentation ("Eth one is still the only place for like very big financial experiments," notes Michael). However, it also presents a potentially different and higher risk profile for restakers than initially perceived.
• Actionable Insight: Restaking is enabling novel DeFi primitives but introduces new risk layers. Investors participating in restaking or protocols utilizing restaked capital must carefully assess the underlying mechanisms and understand where their capital sits in the risk structure (e.g., providing first-loss insurance).

Industry Transparency and Self-Regulation Needs

• Recent investigative reporting (CoinDesk on Movement) underscores the need for greater transparency in crypto regarding team allocations, token vesting schedules, market maker agreements, and smart contract audits.
• A debate emerges: Will improvement come from regulation, exchange actions, or self-regulation by industry players (like investment funds)?
• The speakers note that Coinbase delisting the MOVE token had a more immediate negative price impact than the initial investigative report, suggesting exchanges hold significant power but their incentives (volume) may not always align with investor protection.
• Michael advocates for self-regulation led by diligent investors demanding higher standards: "If we were to take that perspective [deep diligence] and apply that in a public manner... I think that that would engender confidence..."
• Actionable Insight: Transparency remains a critical issue. Investors should prioritize projects with clear disclosures and verifiable on-chain mechanics. The push for higher standards may increasingly come from reputable funds and LPs, creating a potential quality differentiator.

Ripple's Potential Circle Acquisition

• A rumor surfaced about Ripple considering a $5 billion acquisition of Circle (USDC issuer).
• The speakers analyze this as a potentially savvy move by Ripple, using its high private valuation ("funny money") to acquire a strategically vital asset in the stablecoin space. This fits a pattern of acquiring key infrastructure (like their investment in prime broker Hidden Road).
• Strategic Implication: M&A activity is heating up, with highly valued private crypto companies potentially consolidating key parts of the market infrastructure. Tracking these moves provides insight into strategic priorities and future market structure.

UNO/Thru Blockchain Launch by Fire Dancer Lead

• Liam Hager, formerly of Framework Ventures and a key figure behind Jump Crypto's Fire Dancer (a high-performance Solana validator client), is launching a new L1 blockchain named Thru (via company UNO).
• The project stems from insights gained building Fire Dancer and aims to offer improvements. A notable technical detail is its use of a RISC-V based virtual machine.
• Fire Dancer: A high-performance validator client for Solana developed by Jump Crypto.
• RISC-V: An open-standard instruction set architecture (ISA) gaining traction as an alternative to proprietary ISAs.
• A non-compete lawsuit filed by Jump against Hager was settled, clearing the path for the launch. Michael remarks, "You know you're working on something... worth something when Jump files a lawsuit... to enforce your non-compete."
• Actionable Insight: The emergence of new L1s led by experienced teams from established projects signals continued innovation at the base layer. The choice of RISC-V aligns with a broader trend exploring VM alternatives for potentially greater efficiency or flexibility.

Ethereum's RISC-V VM Consideration

• Relatedly, Vitalik Buterin recently proposed exploring RISC-V as a potential future virtual machine for Ethereum, citing significant potential efficiency gains over the current EVM (Ethereum Virtual Machine).
• EVM (Ethereum Virtual Machine): The runtime environment for smart contracts on Ethereum, widely adopted by other chains.
• The speakers acknowledge the potential benefits but emphasize the extremely long timeline (2028+) and the significant trade-off: abandoning the vast network effects and developer tooling built around the EVM.
• The discussion touches on whether EVM dominance directly translates to ETH token value, noting that many EVM-compatible chains exist without necessarily bolstering ETH's price directly, though indirect benefits (developer familiarity, integration ease) exist.
• Strategic Implication: While distant, the exploration of fundamental architectural changes like moving away from the EVM shows Ethereum's willingness to consider radical long-term optimizations. This debate impacts the long-term strategic positioning of Ethereum and the value of EVM network effects.

Conclusion

Stablecoin expansion ($2T forecast) and TradFi adoption signal crypto's fundamental growth despite market dips. Ethereum faces strategic choices on VMs and scaling critical to its future. Investors should track regulatory clarity (Genius Act), institutional rollouts, and ETH's technical evolution for key opportunities and risks.