0:06So, you know what's funny is uh you're a Chad and you have the Chad. Chad was a Chad before the term Chad was a thing.
0:13There was no Chad when I was a Chad.
0:15Yes, exactly. He has a Chad jaw. Chad, you're CEO of Paxos. Uh you also should you you want to tell them about how you got into Bitcoin and how how we met like you know in New York and so on and so forth like in the early like the financial crisis origin story.
0:32Yeah. These aren't like uh our origin story isn't well known. Yeah.
0:36Um I was an investor and uh we did a good job at understanding the financial crisis. We were short subprime going into the financial crisis because we modeled every mortgage in the United States down to the zip code. And so we knew exactly what was happening and we just couldn't figure out how to express it and we realized CDS was the way you could do it very cheaply. And um coming out of the financial crisis uh I kind of realized they were just going to keep printing money uh which is what they've
1:04done. Um and I really thought that was you know ultimately going [snorts] to be enormously counterproductive uh to like the stability of society. And I came across Bitcoin. and it was at 3 cents and I started buying it and mining it and I remember connecting with you and we were like well you know what this thing needs it needs some governance uh to be able to help it uh form like a cohesiveness which led to coin center.
1:32And uh I remember having like meetings in our office sitting here talking about how can we like uh set this up and found Jerry Breurto and that was like 13 years ago. So, I mean that was way before all the regulatory like that was the advanced scouts or the advanced scouts.
1:49Yeah. I mean that tells you how early we were, right? It's like nothing else existed. It was just Bitcoin and nobody else talked about anything else.
1:56That's right. And so, um, you know, another person, Alex Morcos, was also, you know, Wall Street, you know him?
2:03He's also in Coin Center.
2:04Yeah. He's a good friend. Yeah.
2:05Yeah. And so it's funny, the guys who understood Wall Street the best often understood Bitcoin, the need for Bitcoin when guys who were only, it's weird, the very best within a space are open to disruption. Like Goldman was actually more open to Bitcoin than other of the major banks and so on and so forth, right? Yeah. Maybe you have a thought on that. Like a lot of Wall Street guys got very cynical after 2008 and saw the bailouts and so on because even though the big short romanticizes
2:34the process of making those wagers, it's it was very hard for a lot of people to get paid out even if they knew the mortgage crisis was was going to come.
2:42Well, and I mean I remember there would be days where you were like turn to my partner and I'd be like, I don't know if we made any money today because no one's going to pay us the collateral, right?
2:52You know what I It was like you know very harrowing times and um you know I kind of understand some of the decisions that were made. I think they I would have done it differently but uh that's neither here nor there. Now when we came across Bitcoin what I saw was one the blockchain as a mechanism to replplatform the financial system and two a store of value and that was essentially a way to be long the solution to the problem. And the problem was the over financialization of the economy that was leading to money
3:21printing. And it was the over financialization that was creating instability through enormous amounts of debt. Which by the way, we still have the same amount of debt as a percentage GDP that we did during the financial crisis. It's just that everybody knows you're going to print your way out of it. Nobody knew if we would print our way out of it in 2008.
3:39Well, so you know, it's funny now. I think you know rates are just going to the moon. You know, 10 year, 20 year, 30 year. you're seeing this stuff crazy crazy movements in in yields. Um how long I mean on the other hand the one counterbalance that is stable coins with Paxos and you know tether and USDC all providing demand for dollars. Where do you think things are going to go in terms of you know treasuries and and
4:08other western bonds you know having these catastrophic or maybe it's catastrophic. Let's take let's call it you know I shouldn't even say unprecedented let's call it very very rapid rise in rates. What what do you think is going to happen?
4:21Yeah. I mean there's a you can spend a lot of time talking about rates and I don't want to bore anybody.
4:25But normally you have like a 10 year or 30-year trade at what nominal GDP is. Nominal GDP is growing 7 and a half%.
4:32I don't really think rates are that high.
4:34Oh interesting. I think it's you think it's it'll be okay. Well, I don't think that the economy can handle higher rates, but for a fast growing economy, these aren't high rates. And um I think it was Paul Kadski who wrote about this and said there's four types of bubbles. There's government bubbles, there's debt bubbles, there's technology bubbles, and there's real estate bubbles. We have all four right now.
4:57And the last time he probably had all four was like the railroad boom and maybe like the South Sea bubble. Uh right? So like this is going to be the mother of all bubbles because everybody knows the government's going to print money. So the size that this bubble can get is so huge and the only thing that will stop it is so much capital getting sucked in that the 10 year and the 30-year uh repric. And so that's where you start to get into like blinking warning signs around what's going on in the economy because there's only so much
5:26capital and the amount that's being poured in is unprecedented as a percentage of GDP into AI. It doesn't mean it's not true. Bubbles are based on truth. Like people aren't stupid. You know what I mean? Like bubble.
5:40The South Sea bubble was about the new world. I mean, that's the greatest opportunity ever.
5:44I mean, it's true, right?
5:46Uh but that's what allows you to have the biggest bubble of all time.
5:50So, it's interesting because um you know, here's how I'm I'm start I'm seeing things. I like your you know I want to talk about Paxus also but on the one hand you have western fiat where even if even if you don't think the rates are un you have to maybe you'd agree the movement in the rates is very unusual.
6:12Yeah. I mean it's it's pretty fast the economy can't really digest these kind of moves. Normally when you have a 10-year move this fast something breaks that's exactly okay fine. So that that's I I was surprised he Okay. So I do think something's breaking.
6:28The level is not a problem. The movement is is the mo. Exactly. So the movement is very fast. And this this is um you know Trump is now talking about every American gets 5,000 bucks in the fall or something like that, right? Which is like whatever trillion dollars. And so on the other hand, you have this math singularity that's just happened which we were just talking about where encryption is being called or let's call I should say it's being called into question but
6:57some you know algorithms could have issues. So crypto you've got a devil and deep blue Lucy issue between western fiat and possibly crypto where there's uncertainties on both sides right and uh so then and then gold is you know has risen and then fell and so and so one view is you just diversify and you have a piece of everything so that you may not have the most upside but you are bounded on your downside. Um I'd love to know your view on this because I have some thoughts.
7:27Well it's tricky. You know, money is really a representation of energy or the ability to buy work. Um, and there's different ways to do that. I think of fiat money as proof of future work. I think of gold as geological proof of work, and I think of Bitcoin as mathematical proof of work. And so, there's different ways to prove work and the cost of doing that work on an incremental kilowatt
7:56hour. Basically, um I think mathematical proof of work is very interesting. I really believe in it, but it's not proven over cycles.
8:07Math changes. You have to upgrade math.
8:10Gold, you know, you're going to have booms and bust by how much you can find in the ground or asteroids, whatever it is. And then fiat proof of work makes a lot of sense. The problem is you just can't help yourself. It's a bet on the future with debt, right? and then [clears throat] you just have more and more debt. So then you know another lens I have on this is sort of very roughly western fiat versus eastern fiat and in so far like this is a very rough diagnostic um and there's there's countries that
8:39are confusing to me and maybe you have some thoughts of them like Turkey for example right where the currency has been destroyed but if you've been in the country it's actually fine you know or at least I should say all of it but like it's surprisingly functional and even nice despite the fact that the currency, you know, went crazy. And so, you know, if there's sort of cooperation between people, um, and you can kind of walk down the street and so on, that's fine.
9:06Maybe the currency doesn't matter. But if there isn't and then the currency has issues, then you're layering a bad thing on top of an existing bad thing. I don't know if you have any thoughts on that. Like, or go ahead.
9:17Yeah. Well, I think um, you know, when you're dying, you can still feel okay, right?
9:24[laughter] And so like and then you you're dead, right? Um sorry. [clears throat] Um so I don't really know if that's like a great way to go about building a society which is let's destroy our currency. I know feel good, right? It's it's it's I mean it's one of these things where uh you know the problem is you you said something interesting earlier which is they're going to print and we know they're going to print and the interesting thing about this is I think many people you know
9:54from Dalio to Udemy all think that's got to be endgame but there's been more twists and turns on route to that than were expected.
10:03Yeah. for example, like the rate hikes of, you know, late 2021, right, and early 2022 after they said inflation is transitory, doesn't exist, and so on and so forth. That was like this ridiculously high, you know, everybody who bought treasuries in 2021 was just totally destroyed. They bought them at like 1% rates or something like that.
10:23They were being told, all these banks were binging on bonds. They're being told that rates are going to stay low for a long time. and they had just been through whatever 10 years of ZERP and you know COVID policies. So they bought these bonds at low rates and then they all got destroyed as those you know rates were rose and then treasuries which were supposed to be the liquid asset right everybody's like oh hold them to maturity and don't sell them and you'll be okay which meant that they're illquid and you couldn't sell them. So
10:52the most liquid asset in the world isn't isn't isn't you know tradable without you know taking some huge hit on them. So like lots of it's it's really bizarre that the thing has gone on as long as it has with like shell game after shell game after shell game. Um and I think that's why you have this bubble that's going to form.
11:12That can be the mother of all bubbles. I mean just huge. I mean, you know, just wait for like the um so I mean obviously there's more uh I mean the property bubble in San Francisco when all these guys go and buy with this anthropic or you know open a lot of debt they're borrowing against the shares and you know somebody made another point which is that these high rates are also in a sense inflationary because you've got these coupons they're injecting huge amounts of money into the system as well and you can argue that that's also
11:41bidding up prices because ultimately you know but so okay in this what do you think of as stable you know so for example I mean obviously well Paxos very stable coin but um for example there's a kind of conservative mentality which I disagree with that says oh what you want is guns gold and land right and the thing is that where the land is really matters because if it's in the Pacific Palisades if it's in a blue state or if
12:09it's in a badly managed state then your real estate is only as good as your state and if the state is bad. You don't actually own the real estate. It could be seized. It could be tax. It could be all this stuff. You can't take it with you. Gold location, location, location, location, location, location. And then, you know, that's jurisdiction, jurisdiction, jurisdiction. And then number two, gold, you can't take it through a metal detector and so on and so forth. So, you know, at the time that actually it won't set a metal detector off.
12:36Okay. Well, let's say I mean more precise. Let's say you can't take it through whatever airport screening stuff there is. Yeah. Right. So, at the moment that people want gold is actually when gold is the most risky to transport. You know, because if you if the gold prices skyrocketed in a jurisdiction, then basically other things are breaking and it's less safe to transport. And so the the time that the price is up is a time the security
13:04is way down, right? And then guns. I mean, many people think there's going to be some Rambo kind of thing in America, but you you what I mean is the thing about this is here's a here's just a riff. There's no such thing as private security because um you know, if if you just have like a guy standing around, maybe they can stop somebody from rushing you, but they can't actually enforce a perimeter and make sure everybody's disarmed there and so forth.
13:34there's only public security, right? So, so for me, what I think is safe is mobility like second passport is much more important than the first home. Um, I think uh agility in the sense of like being able to do things, you know, remote and and remote work and so on. And then cryptocurrency or something like that like that's actually the safety package. I'd like to know your thoughts.
13:57Yeah, you need liquidity. Yep.
14:02Portability. Very similar. Yes.
14:03Yeah. And I mean to me, Bitcoin provides that. Um, a dollar provides something different.
14:11Dollar is giving you liquidity and spendability.
14:15It's it's portable, too. Um, but it's not going to appreciate in value versus anything except for maybe other fiat currencies. So, you know, you need to have something that people will accept.
14:27As time goes by, everything's going to be fungeable because it'll all be on chain. So, it doesn't matter. But you're in a ragdum right now where stable coins have an enormous importance and it's backed by dollars uh for good reasons. Um but I don't think that's permanent. I don't think uh the dollar is going to maintain its store value.
14:48So this I want to talk to you about. So you know Tether has uh a goldback stables if if you're familiar with that, right?
14:56Yeah, you guys do too. Okay, great. So, one thing I think is going to eventually come, maybe you guys should do it, I'd love to see it are, and it sounds funny to say it this, but Bitcoinbacked stables, right? Where you have a digital currency that is auditable that is backing. I mean, in a sense, that's kind of like offchain, huh?
15:20I did this, right? But I feel something like this. Um, so one of the things I was saying earlier is I think Bitcoin becomes a reserve currency of Western institutions because of its transparency.
15:33Definitely it'll beve asset.
15:35Okay. So I've got another here's a here's another thesis. I haven't written this up but I've got a thought one of your thoughts. Today Bitcoin has won to such an extent that it is highly centralized in terms of custodians you know due to due to right and so because of that in the scenario where where western government's due print the price of BTC and nominal terms skyrockets to a point that Bitcoin seizures like
16:046102 executive order 6102 I think can and probably will happen But everybody who's got Bitcoin out, you know, 6102 didn't end gold. It just ended private gold possession in America. And then FDR could sell the gold at a higher price, 35 bucks or something like that versus $24. He could sell it at 35 bucks on international markets, right? So the seizure of Bitcoin from these custodians is
16:33possible. I would argue even probable if the money is printed. And yet it wouldn't necessarily kill Bitcoin. It wouldn't be like the price would necessarily crash. The price might go up because the rest of the world would understand, oh, those countries are seizing it. That means it's actually like the country isn't solvent without the Bitcoin. Right? So there's a weird sense where a Bitcoin, you know, a a holder in a jurisdiction where Bitcoin
17:00is seized might go to zero, but the rest of the world who held it outside those jurisdictions would see it go up. Similar to what happened with 6102, the gold holder in America got his gold seized by FDR, but the rest of the world saw it bid up.
17:17Yeah. And there's a third dimension to this which is states like Texas have passed you know um anti-seizure laws right where you you know like the right to hold Bitcoin shall not be infringed.
17:29So some states let's say red states will be less likely to seize and other states maybe blue states will be more likely to seize. So people running across borders potentially into red states where the Bitcoin can't be seized, you know, and and then I think this also in turn leads to Zcash or something like Zcash, probably Zcash becoming the currency of individuals because it can't be tracked in the same way that Bitcoin Yeah. Like silver people go to silver.
17:54Yeah. So okay, what do you think about that scenario? The fact that the centralization of Bitcoin means its seizure resistance property has been eroded.
18:01Yeah. I mean your success ruins you in a way.
18:04Yes. Um, and so whatever the next store value is, the government wants just like it did with gold.
18:12Right. And so I think that's a good sign for Bitcoin in many [clears throat] price.
18:17It's it's weird because it's an interesting scenario where number go up at a global level even if individuals see number go down. And um it's funny, you know, the way I think about it is you remember the you know the movie The Social Network that came out in 2010, right?
18:35So in that movie, if you go back and watch it, there's something that's remarkable about its absence, which is politics. Politics is totally ab absent. There's nothing about politics in there.
18:44And if you had said in 2010 that the most important issue in the world, you know, in 10 years from then would at one point be whether the president of the United States could tweet, right? That would seem like surreal in 2010, right?
18:58And that that you needed social media to be in power as a politician. And I think that, you know, in 2021 when Blly, you know, made Bitcoin the national reserve currency there, I remember writing something like, look, 10 years later in 2030, 2035, there'll be a country which is need it needs digital currency or else it's bankrupt. Just like you weren't the president if you didn't have social media, you're not solvent if you
19:25don't have cryptocurrency by 2030 2035.
19:28I think that's probably true. What are your thoughts on that?
19:31Well, I mean I think you know a dollar is just a rapper today. It's a wrapper of actually gold, treasuries and you know some other like mortgages.
19:43You just add another asset to the wrapper. You add Bitcoin. So, you know, we stable coins are actually a safer dollar because it's just tea bills, right?
19:54A central bank dollar is actually a lot of other things and it's easy just add in some Bitcoin backing it.
20:01Right now, the dollar is one-third backed by gold if you market the market.
20:07Yeah. You have 200 [clears throat] if you took all the Fort Knox.
20:11Yeah. It's like 267 million ounces or something. So you market to market against how much the Federal Reserve liabilities.
20:17Interesting. I didn't realize it was Oh, you mean all gold?
20:20All the Yeah. All the U [clears throat] All the US gold.
20:23Oh, interesting. Okay, good. Okay. Well, I'm going to give you the last word. Anything people should check out Paxos? Anything like that.
20:32Great. Pax gold. I mean, I learned something. I'm going to check that out.
20:35I I I do think you the stable coin story is just starting um in the sense that that's going to be what fiat is, right?
20:43Fiat becomes stable coins. I mean, it kind of already is becoming that.
20:48Yeah. I think I agree.
20:49Which is the network taking over state functions, right?
20:54The states not able to provide the the guarantees you need.
20:58Yeah. But we we can maybe do that. Okay.
