Chad
>> allergy.
>> So, 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.
>> There was no Chad when I was a Chad.
>> Yes, 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.
>> Yeah. These aren't like uh our origin
story isn't well known. Yeah.
>> Um 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
done. 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.
>> Yep.
>> And 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.
>> Pre-ethereum.
>> Pre-ethereum. Yes.
>> Yeah. 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.
>> That's right. And so, um, you know,
another person, Alex Morcos, was also,
you know, Wall Street, you know him?
He's also in Coin Center.
>> Yeah. He's a good friend. Yeah.
>> Yeah. 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
the 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.
Right.
>> Well, 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?
>> You 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
printing. 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.
>> Well, 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
other 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?
>> Yeah. I mean there's a you can spend a
lot of time talking about rates and I
don't want to bore anybody.
>> Sure.
>> But normally you have like a 10 year or
30-year trade at what nominal GDP is.
Nominal GDP is growing 7 and a half%.
>> I don't really think rates are that
high.
>> Oh 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.
>> Right?
>> And 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
capital 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.
>> The South Sea bubble was about the new
world. I mean, that's the greatest
opportunity ever.
>> I mean, it's true,
>> right?
>> Uh but that's what allows you to have
the biggest bubble of all time.
>> So, 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.
>> Yeah. 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.
>> The 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
some 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.
>> Well 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
hour. Basically, um
I think mathematical proof of work is
very interesting. I really believe in
it, but it's not proven over cycles.
>> Math changes. You have to upgrade math.
>> Gold, 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
are 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.
Maybe 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.
>> Yeah. Well, I think um, you know, when
you're dying, you can still feel okay,
right?
>> [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
from 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.
>> Yeah. 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.
They 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
the 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.
>> Yeah.
>> That 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
bidding 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
it'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.
>> It won't. No.
>> Okay. 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
is 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.
there'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.
>> Yeah, you need liquidity. Yep.
>> And store of value.
>> Uh portability.
>> Portability. Very similar. Yes.
>> Yeah. And I mean to me, Bitcoin provides
that. Um, a dollar provides something
different.
>> Mhm.
>> Dollar is giving you liquidity and
spendability.
It'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.
As 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.
>> So 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?
>> Yeah. So do we.
>> Yeah, 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?
>> I did this, right?
>> I 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.
>> Definitely it'll beve asset.
>> Okay. 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
6102 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
possible. 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
is 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.
>> Yeah. 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.
So 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.
>> Yeah. So okay, what do you think about
that scenario? The fact that the
centralization of Bitcoin means its
seizure resistance property has been
eroded.
>> Yeah. I mean your success ruins you in a
way.
>> Yes. Um, and so whatever the next store
value is, the government wants just like
it did with gold.
>> That's right.
>> Right. And so I think that's a good sign
for Bitcoin in many [clears throat]
price.
>> It'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?
>> So 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.
>> And 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?
>> And 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
don't have cryptocurrency by 2030 2035.
I think that's probably true. What are
your thoughts on that?
>> Well, 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.
You 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?
>> A central bank dollar is actually a lot
of other things and it's easy just add
in some Bitcoin backing it.
>> Right now, the dollar is one-third
backed by gold if you market the market.
>> Is that right?
>> Yeah. You have 200 [clears throat]
>> if you took all the Fort Knox.
>> Yeah. It's like 267 million ounces or
something. So you market to market
against how much the Federal Reserve
liabilities.
>> Interesting. I didn't realize it was Oh,
you mean all gold?
>> All the Yeah. All the U [clears throat]
All the US gold.
>> Oh, interesting. Okay,
>> good. Okay. Well, I'm going to give you
the last word. Anything people should
check out Paxos? Anything like that.
>> Pax gold.
>> Great. Pax gold. I mean, I learned
something. I'm going to check that out.
I 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?
Fiat becomes stable coins. I mean, it
kind of already is becoming that.
>> Yes.
>> Yeah.
>> Yeah. I think I agree.
>> Which is the network taking over state
functions, right?
>> I you have to
>> Yeah.
>> The states not able to provide the the
guarantees you need.
>> Yeah. But we we can maybe do that. Okay.
Thank you, Chad.