Arthur Hayes and Ethena Founder on Tariffs as Central Bank Excuse to Print: Now Is a Great Buying Opportunity
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Arthur Hayes and Ethena Founder on Tariffs as Central Bank Excuse to Print: Now Is a Great Buying Opportunity
Recent signals from the Federal Reserve suggest they may begin easing monetary policy later this year, particularly in the Treasury market.
Navigating Web3 tides with focused insightsCompilation & Translation: TechFlow
Guests: Guy Young, Founder of Ethena; Arthur Hayes, Chief Investment Officer (CIO) at Maelstrom; Omer Goldberg, Founder of Chaos Labs
Hosts: Robbie; Andy
Podcast Source: The Rollup
Original Title: How To Position For The Institutional Crypto Frenzy with Arthur Hayes, Guy Young, and Omer Goldberg
Air Date: April 4, 2025
Key Takeaways
In today’s episode, we welcome Guy Young, founder of Ethena; Arthur Hayes, CIO at Maelstrom; and Omer Goldberg, founder of Chaos Labs, to discuss the current competitive landscape in crypto. We examine the macroeconomic environment shaped by tariffs and explore how Ethena's Converge announcement positions it at the intersection of decentralized finance (DeFi) and institutional finance.
Guy shared Ethena’s evolution from its USD+ stablecoin to building a dedicated blockchain. He emphasized: “If your product isn’t designed with institutional capital flows in mind, it will be very difficult to gain traction.” He also revealed plans to seed $500 million into their upcoming iUSDE product.
Arthur Hayes offered blunt insights on Circle and Tether’s competitive dynamics. He stated: "Circle has limited distribution, relying heavily on Coinbase, and lacks competitiveness in net interest yield—Tether clearly holds the advantage." He also discussed differences between Eastern and Western trading approaches and how these shape institutional finance.
We further explored shifting macroeconomic conditions, including Trump’s tariff policies and the Federal Reserve’s monetary stance. Arthur explained his decision to reallocate assets into Bitcoin, noting that market liquidity is gradually recovering.
Highlights & Key Quotes
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Anticipation of global monetary easing makes me more optimistic about market prospects.
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Stablecoins don’t exist for Americans—they exist for people who want U.S. dollar bank accounts but can’t access them.
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One of the biggest opportunities in this cycle is figuring out how to bring institutional capital on-chain.
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The strength of crypto and Bitcoin lies in the simplicity of their price narrative—we only need to watch whether fiat money supply globally is increasing, such as dollars, euros, and pounds.
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Countries will implement more fiscal and monetary stimulus to counteract the tariffs imposed by Trump on various nations.
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If market conditions demand it, the Fed will step in immediately without hesitation. In future crises—such as tariff-driven volatility, certain stocks dropping 40%, or major traders nearing insolvency—the Fed could act instantly, not wait for scheduled meetings.
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Every central bank will print money because they believe it offsets the negative effects of tariffs—whether due to inflation, underperforming U.S. firms, or European companies selling fewer goods. These are just excuses for central banks and treasuries to print.
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The primary use cases in crypto today boil down to two things: speculation, like meme coin trading, and dollar settlement and asset tokenization.
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We must strike a balance between openness and pragmatism—maintaining transparency and flexibility while providing necessary safeguards in extreme scenarios.
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Recent signals from the Fed suggest they may begin loosening policy later this year, particularly in the Treasury market. Meanwhile, Europe may print euros to fund military spending; China is waiting for U.S. action before potentially launching large-scale easing; and Japan’s central bank is already cornered—I expect intervention if Japanese government bond markets face crisis.
Backgrounds of Guy and Omer
Andy:
Hello everyone, welcome back to Rollup. Today is Emancipation Day in D.C.—I'm not sure if your portfolios feel liberated yet. Either way, we’ve got ourselves a pretty volatile president.
Before diving in, could you each give a quick intro? Let’s start with Guy—tell us about Ethena and the latest on Converge.
Guy Young:
Prior to joining Ethena, my background was primarily in traditional finance. I worked at a hedge fund focused on analyzing financial institutions—banks, payment processors, lenders, etc. In 2020, I entered crypto initially as a retail speculator. But soon after, I decided to go all-in and build something myself. The idea came from an article Arthur wrote in early 2023 titled *Dustin Crust*, where he outlined massive opportunities in this space and why the market needed such an asset. That piece was a revelation—it felt like my calling. So I quit my job, assembled a team, and launched our first product about 13 months ago. Since then, we've grown from zero to over $6 billion in assets under management—making Ethena the fastest-growing dollar-denominated asset in crypto. That’s our story.
Andy:
Omer, can you briefly introduce what Chaos Labs does?
Omer Goldberg:
I founded Chaos Labs about four years ago. We’re a platform focused on decentralized risk management. Our core technology is an engine combining AI and simulation capabilities, currently supporting major protocols like Aave, GMX, Jupiter, Ether, Pyth, Renzo, and others. We provide real-time data services on funding rates, interest rates, liquidation thresholds, and collateral balances. If you’ve used any of these apps, you’ve likely interacted with our infrastructure indirectly. I’m also proud to collaborate with Ethena on new products, including a proof-of-reserves oracle—a novel tool for verifying reserve holdings.
Impact of Tariffs on Crypto Markets
Robbie:
Arthur, perhaps you can set the stage from a macro perspective. You've written recently about the Fed, the White House, and views on Powell and Fed dominance. You mentioned that compared to equities, tariffs have less direct impact on crypto. Given today’s market movements, has your view changed? Or how do you see the current macro backdrop?
Arthur Hayes:
My view hasn’t really shifted. Looking at the numbers now, Bitcoin was around $89,000 and has dropped to ~$82,000—that’s clearly a reaction to the tariff news. I’ve spoken with trader friends, and no one had concrete expectations—but the measures rolled out by the Trump administration appear worse than even the worst-case forecasts. That’s reflected in prices.
However, the beauty of crypto and Bitcoin is that price movement follows a simple logic: just track whether global fiat money supply—dollars, euros, pounds—is expanding. If so, prices rise. So I see this as short-term pain. We might retest Bitcoin’s $76,500 level and see what happens there. Even if it breaks down, I’ll keep buying. So I think this is a great buying opportunity.
Every central bank will print money because they believe they must offset the negative impacts of tariffs—whether due to inflation, struggling U.S. companies, or European firms unable to sell as much. These are just pretexts for central banks and treasuries to print. They’re already signaling this implicitly, and outlets like Bloomberg are calling these tariffs highly negative. Therefore, some form of economic stimulus will be required. Hence, I expect increased fiscal and monetary stimulus worldwide to counteract Trump’s tariffs across different countries.
Andy:
I personally think the U.S. has mostly tolerated tariffs over the past few decades as a form of soft power—an extension of the dollar’s role as global reserve currency.
Guy, from a stablecoin perspective—especially in a low-rate environment—how do you see the next six to nine months unfolding? Goldman Sachs is forecasting up to three rate cuts. What impact would that have on stablecoins, Ethena’s business model, and crypto overall?
Guy Young:
I think it creates interesting two-way dynamics. Generally, lower rates boost speculative activity in crypto and increase demand for leverage. During the last cycle when rates hit zero, we added roughly $100 billion in stablecoin supply. There’s a counterbalancing force here—both sides matter. One key difference between Ethena and Circle is that Ethena’s yield tends to be inversely correlated with real-world interest rates—this may be Ethena’s strongest feature. When rates fall, people speculate more and seek greater leverage in crypto.
Ethena entered the market during peak rate environments, which posed challenges. But when rates began falling last Q4, we saw average financing rates in our ecosystem actually rise by ~14%. That’s when Ethena’s product shines. In contrast, Circle’s revenue drops sharply with every rate cut—for example, a 100-basis-point decline could reduce Circle’s income by ~$400 million. Ethena, however, benefits both from rising stablecoin demand and falling broader rates. So if we do see three rate cuts ahead, I’d be very bullish.
Circle’s Distribution Challenges
Arthur Hayes:
You wouldn’t consider investing in Circle’s IPO (initial public offering), right?
Andy:
I’ve been thinking about this too. With seemingly conflicting data, should we be optimistic or cautious?
Guy Young:
To be honest, the numbers shocked me. There’s a great chart comparing Tether and Circle side-by-side on supply and profitability. Tether earned ~$14 billion this year, while Circle made barely over $1 million. Despite similar supply sizes, their profit gap is literally an order of magnitude apart.
Arthur Hayes:
Exactly. I think Circle faces serious distribution issues. Their product is very “Americanized,” but American users don’t truly need dollar stablecoins—they already have Venmo, Cash App, instant access to dollars. The real demand comes from people outside the U.S., like in China or emerging Asia, who want dollar banking access—exactly where Tether dominates, while Circle remains weak in those regions. As a U.S.-based company, Circle relies on Coinbase for distribution. To compete with Tether, Coinbase must offer yields, whereas Tether doesn’t need to pay yields thanks to its superior distribution network.
So Circle shares part of its yield with Coinbase, which then passes it to users holding Circle’s stablecoin. This makes Circle overly dependent on Coinbase. I believe Coinbase will eventually acquire Circle—but only once its valuation drops low enough. Thus, Circle’s IPO faces big hurdles. Without independent distribution and lacking yield competitiveness versus Tether, Circle offers little appeal to Americans who already have dollars. So regarding USD-backed stablecoins, Tether is clearly superior and will continue pulling ahead.
Andy:
Omer, anything to add?
Omer Goldberg:
Overall, changes in the stablecoin space aren’t just about supply—they’re about actual usage and integration with various applications. The landscape is evolving rapidly. One thing that surprises me is how Ethena and Guy’s project, despite being only 13 months old, already feels established. Many previously considered “holy grail” stablecoins are seeing unexpected shifts in market share across distribution, liquidity, and utility.
Continuous innovation is critical. Companies must constantly identify new use cases and deliver them efficiently to users. Regarding Circle’s S-1 filing, it does show intent to innovate. While facing headwinds, it also represents an opportunity to explore new directions.
Aftermath of Tariff Policies
Robbie:
I’d like to quickly follow up on business models and link them to potential tariff impacts. Obviously, tariffs could trigger severe inflation. Without rate cuts, things could worsen. Rate cuts may be one response. But another view suggests enduring more economic pain, leading to higher long-term bond yields. Arthur, how likely do you think that scenario is? And Guy, how would Ethena respond if Treasury yields rose significantly?
Arthur Hayes:
Fed Chair Paul Volcker once said the Fed sees tariff-driven inflation as temporary. So even if inflation hits 4%, 5%, or higher, they’ll treat it as transitory and maintain dovish monetary policy. That means the Fed likely won’t shift stance due to tariff-induced inflation. However, if Treasury prices fall and yields spike, the Fed may act. For instance, they could eliminate the supplementary leverage ratio (SLR) requirement and restart QE for Treasuries—because the U.S. government cannot afford 4.5% or 5% 10-year yields, especially with total debt at $36 trillion and rising.
Guy Young:
From our standpoint, even if rates rose 75 basis points above current levels, our growth last year remained strong. So I believe we can still grow—even if slower. If rates fall, our upside expands.
Over the past six months, we launched a product called USTTB, giving us greater flexibility. It’s essentially a wrapper around BlackRock’s Biddle Fund. Today, Ethena is the largest holder of Biddle in crypto, with ~70% of beta exposure embedded in our standard stablecoin. This product allows cyclical flexibility—we can decide how much dollar backing to allocate. In the current low-rate environment, financing costs have hit their lowest in 18 months. We can select Biddle-backed stablecoins that offer normal yields while meeting market demand. So as crypto yields rise, dollars can better capture this growth.
Andy:
If rates fall, we get more speculative fuel. Is it fair to say Ethena occupies a uniquely favorable position across the stablecoin market?
Guy Young:
This product has reflexive qualities due to market volatility, especially along the growth curve. Look at USD’s growth trajectory—it’s unstable: surges $3B, plateaus for months, then climbs another $1B as rates rebound. Growth isn’t linear—it’s volatile with flat adjustments. But I think this is by design. It’s one of the most reflexive assets in crypto.
Even during last quarter’s growth phase, we weren’t fully integrated. We were only listed on Bybit among centralized exchanges; since then we’ve added four more. We partnered with OMA to launch RB products listing USD, enabling a powerful leveraged loop strategy at scale. Unfortunately, OMA restricted us, limiting safe scaling. We responsibly capped exposure at $1.5B, though it could’ve reached $3–5B. My point is: as markets recover, we’re now positioned across multiple fronts—and ready to grow further.
Omer Goldberg:
I believe we’re in a stronger position now. Previously, industry players like Aave manually updated parameters. Today, we’ve introduced risk oracles that react in real time—far faster and more efficient. This lets us seize opportunities quickly and slow down safely when needed. That was a key constraint in the last cycle—we had to prepare for worst-case scenarios because protocol changes took at least a week.
Since launching Edge with Aave, I believe we’ll soon achieve more flexible perp markets on core Ethena platforms, with similar progress in derivatives. This will enhance our competitiveness and adaptability.
Strategies for Market Volatility
Robbie:
Omer, when markets swing violently, what chain reactions does your risk oracle system trigger? You mentioned AI involvement—how exactly does the system respond during such volatility?
Omer Goldberg:
This can be broken down into layers. First, let me explain AI’s role in risk management. When we started, our models relied on quantitative signals—trading volume, price volatility, liquidity depth. But what truly moves markets are news events. Now, we react much faster to breaking news.
Take stablecoins: a classic case is USDC depegging. We discussed Circle earlier—this happened during SVB’s collapse. Panic led users to dump USDC for USDT. Uncertainty loomed over USDC’s peg stability and Circle’s ability to honor redemptions. Such black swan events are rare but catastrophic. As risk managers, we must always plan for them—to protect user funds and ensure protocol continuity.
Two years ago, we realized governance via individual parameter changes wasn’t sustainable. That’s why we built the Edge oracle protocol. It proved vital during such periods.
As Arthur noted, today’s tariff announcements, rate cuts, and rising speculation could trigger wild swings in mid-cap tokens. Without secure real-time infrastructure, many apps resort to conservative measures—or halt operations. Edge oracles not only safeguard platforms like Aave, GMX, and Jupiter but also help them flexibly capture market opportunities—traffic, volume, fee revenue. These gains were often impossible before due to safety concerns. Now, it’s different.
Ethena’s Model for Institutional Collaboration
Andy:
Guy, this deeply affects your risk strategy—especially designing resilient, sustainable products. Recently you announced Converge, drawing attention amid Trump’s “World Free Finance” push and institutional momentum in New York and D.C.
Before diving into Converge, can you share how Ethena engages with institutions and regulators in Washington and New York? In the context of “World Free Finance,” stablecoins, oracles, and DeFi projects collaborating with these entities—what progress has been made?
Guy Young:
We’ve had minimal contact with U.S. regulators—our focus is creditors and professional institutions. Here’s my take on the macro environment: this cycle has seen almost no new capital inflows, except minor increases from Bitcoin ETFs and Tether supply. Look at DeFi’s total value locked (TVL)—it’s just capital rotating across chains: Ethereum to Solana, Solana to parallel chains. Overall, on-chain products haven’t attracted genuinely new capital.
We believe Ethena’s offerings are highly attractive to traditional finance (TradFi) institutions. Imagine delivering a near-zero-volatility product yielding 18% annually—the demand isn’t $5B, it’s potentially hundreds of billions. In the last cycle, we saw similar products—though outcomes weren’t ideal. But we learned: structural high returns attract broad investor bases—from retail in Southeast Asia to BlackRock in New York.
Many institutions are now thinking beyond ETFs. Several have built 30–50 person teams exploring how to integrate on-chain financial products with TradFi. We’re working with them to launch compliant stablecoins and other on-chain solutions tailored to their needs.
Guy Young:
But the bigger opportunity lies in exporting unique crypto-native products to traditional finance—not just importing TradFi constructs. That’s why we launched IUSD—I mentioned it in our roadmap months ago. IUSD is a tokenized dollar security with basic KYC and permissioning. This format makes it acceptable to traditional financial institutions. Within the next 10 days, we’ll announce our first distribution partner committing $500 million—an extremely significant investment.
Guy Young:
This shows the massive potential under the right conditions. With proper infrastructure, scale can expand dramatically. This is our current focus. If your product doesn’t consider how to benefit from institutional capital flows, you’ll fall behind. Focusing only on reshuffling existing DeFi capital misses the larger opportunity. We believe we’re well-positioned to offer institutions a compelling product.
I think this illustrates how large this could become—with the right infrastructure. That’s our central theme. If you’re sitting here today and your product isn’t considering how to capture institutional capital entering this space, you’re likely falling behind. Just reshuffling the same DeFi capital isn’t enough. We believe we’re in a strong position to offer them something truly interesting.
Andy:
Arthur, are you concerned institutions entering the space will eat into your market share? As someone who’s excelled in crypto over recent years, do you see institutional arrival making markets more efficient and mature—or adding complexity that erodes your edge?
Arthur Hayes:
I think ultimately, every institution prioritizes self-preservation. For example, ByBit suffered a $1.5B loss. Fortunately, founder Ben covered it personally. But if you’re a hedge fund manager in the U.S. or Western Europe, exposing your firm to counterparty risk on an Asian exchange feels extremely uncomfortable. Worst case: you convince your boss to allow crypto trading, the exchange collapses, and you lose everything.
So institutions typically stick to trusted venues—CME or Coinbase. While this may compress foundational trading opportunities on those platforms, massive arbitrage space remains globally—especially between exchanges outside strict U.S./Western European oversight. This gap creates opportunities for both retail and smaller institutions. I think this makes crypto trading more exciting—more liquidity enables complex bilateral trades.
Guy Young:
I’d add to Arthur’s point. Different institutions have varying risk appetites. The spread between CME and Binance is a perfect example—about 700 basis points. Most institutions won’t accept credit risk. But smaller hedge funds may accept that risk for higher returns.
Regarding whether more capital reduces inefficiencies and lowers yields—I see this as inevitable market maturation. Rather than ignore inefficiencies, we should figure out how to profit from them. That’s Ethena’s goal. We believe leverage costs in crypto are too high—cash and arbitrage shouldn’t yield 18% annually; they should drop below 10%. Massive capital will flood in to fix these inefficiencies, and we aim to lead that transformation.
Omer Goldberg:
I’d add another angle. As Arthur and Guy said, individual traders’ autonomy and risk-taking remain key advantages. But this cycle’s big change is that AI advances and new trading tools now give retail real-time access to information once exclusive to institutions. This informational symmetry isn’t universal, but exists in many cases. If you can leverage it, it comes down to risk management: are you willing to act? So even as markets mature, vast opportunities remain unexploited.
Differences Between Eastern and Western Trading Approaches
Robbie:
Arthur, I heard you recently received a presidential pardon from Trump. But you mentioned preferring Eastern Hemisphere thinking when trading. What are key differences in risk management between Eastern and Western traders?
Arthur Hayes:
The main difference is institutionalization. The U.S. is the epicenter of global capital formation, with some participation from Western Europe. Review modern financial history—most successful hedge funds emerged in the U.S.: Renaissance Technologies, Millennium, Point72. Their models became global blueprints.
In Western finance, institutional investors—pensions, endowments—seek low-volatility, stable returns, e.g., 7–12% annually. Funds like Millennium manage tens of billions, and steady returns define success. This mindset limits their options—they favor deep, low-risk markets like New York. High-volatility crypto markets scare many institutions—they can’t justify massive losses in unfamiliar territory to investors.
Guy’s product solves this. It simplifies access, offers low-volatility options like 15% annual returns, with clear risk disclosures and detailed risk management frameworks. This fits traditional institutional mandates. High-risk strategies—like arbitraging DEXs vs. CEXs—may yield 30%, 40%, even 50%, but are unacceptable to large institutions.
This conservatism creates opportunities for individuals and small funds in crypto. Reputation risk prevents big firms from entering certain markets, while individuals and small entities can hunt high-alpha opportunities globally.
Andy:
By the way, did you meet Trump? What’s the process for getting pardoned?
Arthur Hayes:
No, I didn’t meet him. I can’t detail the exact process, but it was standard. We filed, got lucky, and received clemency. I’m grateful to the government for supporting me, my partners, and our company—but nothing extraordinary happened.
Andy:
We won’t dive deeper. Guy, let’s talk Converge. I find it fascinating—you announced it two weeks ago. The concept Ethena proposed had been circulating in markets for about a year. Much of the tech wasn’t running in your so-called execution environment but was tested and proven on Ethereum.
We have a theory about purpose-built chains: designing architectures tailored to specific use cases is crucial. Whether app-chains or single/multi-app chains, these choices are deliberate. Running on general-purpose infrastructure brings problems—“noisy neighbors,” high gas fees, poor UX. Plus, customization is hard on generic chains, while customizability is a major reason to launch your own chain.
With that framework, you chose to build your own chain. The logic is straightforward: the biggest opportunity is institutions coming on-chain. We see two market directions: one is speculation—24/7 trading, DeFi investing, meme coins; the other is dollar settlement, payments, and infrastructure. Your work with Security Token seems active here, creating real impact. Before diving into technical details, can you walk us through your decision-making? Because some Ethereum supporters might ask: “Are they abandoning Ethereum? Is this a vampire attack?” Share your thinking over the past 3–6 months and why you chose this path.
Guy Young:
Absolutely. Macro-wise, the value you described is precisely why we launched this project. I agree: today’s main crypto use cases boil down to two: speculation—like meme coin trading—and dollar settlement and asset tokenization. Ethereum has lost ground in speculation—most activity moved elsewhere, like Solana. But in stablecoins, Ethereum still leads—that’s Ethena’s starting point, the preferred entry ramp for institutions.
But I challenge a notion: yes, institutions launch projects on Ethereum, but where do their assets ultimately flow? Recently, reports surfaced of an institution moving assets to Solana. That decision wasn’t driven by Ethereum itself—it was made by stablecoin issuers and tokenized asset providers. In other words, *we* decide where these assets go.
Security Token plays a fascinating role. Clearly, they’re BlackRock’s preferred tokenization partner, aiming to bring not just Treasuries but all kinds of real-world assets on-chain and build financial infrastructure around them. We see Ethena and Security Token’s collaboration as a unique chance to bring TradFi assets on-chain while leveraging DeFi ecosystems to create new value.
Guy Young:
More interestingly, Ethena is packaging crypto-native assets into formats easier for TradFi to accept—pulling capital into crypto. Meanwhile, Security Token works to bring TradFi assets on-chain and explores future possibilities. Together, this opens vast design space—like Arthur’s specialized exchange. We believe it’s unreasonable for average users to trade single-stock options on Robinhood; those markets will eventually migrate to better-suited chains.
Overall, we believe one of the biggest opportunities this cycle is bringing institutional capital on-chain. We’re uniquely positioned in stablecoins and asset tokenization. If you believe in crypto’s long-term vision, speculation should gradually shrink in importance, while stablecoins and tokenized assets become central. Though speculation dominates usage today, we believe as markets mature, these new assets will claim larger shares—and we’re at the heart of this transition.
Potential Trajectories for Institutional Chains
Andy:
Arthur, do you think we’ll see chains specifically designed for institutions? Could that become the gateway for institutional onboarding?
Arthur Hayes:
I hope so. If that happens, my holdings would appreciate. But honestly, we can’t predict which solution institutions will adopt. Trying to forecast that seems futile. What we know is that asset managers like Larry Fink want to optimize products via tokenization—but they’re dissatisfied with current distribution and trading methods. They prefer controlling the entire process, bringing profits back to their own platforms. BlackRock might even bypass exchanges entirely.
If Guy and others succeed, traditional financial exchanges may fade—all trading shifts on-chain. In the internet age, anyone can connect globally via computers—why rely on paper-based processes? The infrastructure we’re building aims for decentralized global trading.
For firms like BlackRock, though reliant on TradFi frameworks today, reducing intermediary costs—especially gatekeepers—is appealing. They could easily build their own DEX, controlling everything from product design to execution. I believe this is where giants like BlackRock are headed. I hope we invest in technologies driving this shift and help build blockchain protocols that enable disintermediation.
Guy Young:
I’d add that we sometimes overestimate institutional clarity. In reality, they focus on selling products. When BlackRock launches a Treasury product, they ask: “Who wants it?” If buyers want it on Solana, they’ll issue it there; if Avalanche, same. For them, it’s just distribution channels.
Note: these products are fully centralized. If a chain fails, they can relaunch elsewhere. Decentralization isn’t their priority. But when managing their own balance sheets, they’re cautious. They need mechanisms to handle risks—rollback transactions, comply with regulations. That differs from products they merely distribute.
Currently, institutional on-chain activity focuses on promoting new products—not directly investing in on-chain assets. For example, Ethena’s decision to place $1.5B of managed assets on our own chain stems purely from security and efficiency considerations—external opinions don’t sway us.
Omer Goldberg:
Another key trend is emerging. Over the past decade, fintech innovation was limited by inefficient legacy infrastructure. Many startups innovated only on UI, not underlying tech.
But over the last three years, stablecoin infrastructure advanced significantly. Now, even in the U.S., users can seamlessly link stablecoins to bank accounts and move across chains freely. This unlocks new consumer applications—smarter savings accounts, etc.—unthinkable three years ago. Converge exemplifies this, but such features could exist on any chain, offering immense flexibility.
Thus, we now have the tools to build products that truly appeal to mainstream users—not just crypto natives. These users may not care about decentralization, but they demand better experiences—and we’re perfectly timed to meet that need.
Robbie:
The market seems to validate this direction. News broke today that DTCC (Depository Trust & Clearing Corporation) is launching a new application chain to improve collateral liquidity and transaction speed, bridging traditional and digital assets. DTCC handles $3 trillion in transactions annually—now exploring similar paths. What do you make of this? If this trend grows, will you face more competition? After all, this market is multi-trillion-dollar scale.
Guy Young:
You’re pointing in the right direction, but implementation may differ. I don’t think the optimal architecture is fully formed yet, but it might be a permissioned blockchain open to interaction. Fundamentally, it can’t be fully closed—or our efforts lose meaning. But look at Base—it’s highly permissioned because if Base’s sequencer rejects a transaction, it fails. That’s single-entity control.
I envision a scenario: a Base-like environment where validation is done by 10–20 participants—top asset managers, centralized exchanges, key stakeholders. If a $1.5B hack hits BlackRock’s funds, the sequencer could roll back transactions, avoiding catastrophe.
Of course, this sparks debate—decentralization purists may reject it. But reality is many on-chain systems already have centralized controls. I believe we must balance openness with pragmatism—maintaining transparency and flexibility while enabling essential protections in extreme cases. Such designs attract more institutions and bring greater stability and security to the ecosystem.
Andy:
I think the beauty of building a blockchain is that even after developing a successful app, you retain vast room to explore infrastructure—offering tremendous flexibility. Choosing to leave L1 and launch your own chain partly reflects optimizing for your specific use case. Meanwhile, fully decentralized, censorship-resistant environments exist—Bitcoin being a prime example. But your goal isn’t to replicate Bitcoin or Ethereum as L1s. Instead, you’re building a chain tailored to specific philosophies and technical needs. So I think you aim to balance “permissioned” and “permissionless,” designing risk management and rollback mechanisms case by case.
Guy Young:
I completely agree. Another question worth pondering: must we cling to “decentralization” dogmatically? If we examine on-chain activity, most is centralized stablecoin transfers and meme coin speculation. Do these require nation-state-level decentralization? I think for these use cases, 10 validator nodes are more than sufficient.
In fact, the market may overvalue decentralization. Look at top-performing projects today: Hyperliquid feels more like a centralized exchange in UX and function; Ethena last week closely collaborated with CEXs and custodians; Pump Fun is a centralized exchange settling on-chain. These show users willingly trade decentralization for better product experience. So we should prioritize building superior products from day one—not obsess over ideology.
Robbie:
If you adopt a 10-validator-node structure, you’re actually more decentralized than many popular L2s today.
Market-Wide Trend Analysis
Andy:
I’d like to step back from Converge and look at the broader picture—stablecoins, crypto, and speculative markets. Arthur, two months ago I joined Akshatt for a podcast in Hong Kong. He mentioned you were preparing for Trump-related sell-offs—and indeed, that unfolded. You seemed to be gradually reducing positions, preparing accordingly.
In your recent article, you mentioned reallocating capital back into crypto. What does that signal for markets? Where is the overall trend heading? Is it institutional participation reigniting your interest, or macro shifts driving your call? What’s your outlook for the market’s next phase?
Arthur Hayes:
As I said earlier, it’s all about liquidity. I was skeptical about future liquidity policy, especially between Trump’s election and inauguration.
Markets widely assume the Fed won’t resume printing—but I think the opposite is true. Recent signals suggest the Fed may begin easing later this year, especially in the Treasury market. Meanwhile, Europe may print euros to fund military spending; China waits for U.S. action before potentially launching large-scale easing; Japan’s central bank is trapped—I expect intervention if JGB markets face crisis. So this expectation of global monetary loosening makes me increasingly optimistic. Markets are gradually increasing allocations to crypto assets.
We’re focusing primarily on Bitcoin. I believe Bitcoin’s market dominance is rising, while altcoin investors aren’t ready to re-enter yet. I expect sentiment to improve significantly when Bitcoin surpasses $110,000, prompting renewed interest in other coins—we’ll join then.
My optimism stems from Bitcoin’s positive response to expected fiat expansion. I believe this trend will persist through year-end.
Robbie:
You highlighted QE as a key factor. Recently, Fed Chair Powell hinted at this in meetings. We may wait another month to six weeks for the next Fed meeting. He might announce rate cuts—or not. You mentioned adjustments to the Supplementary Leverage Ratio (SLR). Can he act between meetings, or must he wait for formal sessions?
Arthur Hayes:
The Fed Chair can absolutely take emergency action outside meetings. Last year, they held an emergency Sunday session, announcing the Bank Term Funding Program and pledging $4 trillion in printing.
Therefore, if market conditions demand it, the Fed will intervene immediately without hesitation. If a similar crisis arises—tariff-driven volatility, certain stocks plunging 40%, or major traders collapsing—the Fed could act instantly, no need to wait for scheduled meetings. So I don’t think we should over-rely on meeting calendars. Still, at the May meeting, I expect clearer guidance on tapering QT—how to handle maturing MBS and Treasuries, and how tariffs affect inflation. If tariffs remain, the Fed may adjust policy accordingly.
Feasibility of Institutions Issuing Stablecoins
Robbie:
I have a macro question about liquidity injection impacts. Usually we ask: does it boost liquidity or drain the system? Beyond tariffs, Doge, and Elon, one unresolved issue: Biden’s administration plans to refinance $10 trillion in Treasuries upon term expiration. When we refinance $9–10 trillion in debt, is that net positive or negative for overall liquidity?
Arthur Hayes:
Technically, it’s neutral. The government must do it—New York won’t default. The key is the refinancing rate. If rates are too high, they may need Fed or banking system support—buying more Treasuries to suppress yields and avoid costly rollovers. Currently, the average U.S. Treasury rate is ~3.3%, while 10-year yields hover around 4.1–4.2%. Rolling over the entire debt at current rates would sharply increase interest expenses—very bad for fiscal deficits. Economic plans like Trump’s suggest the government must act—getting foreign investors to buy more bonds, having the Fed print, or enlisting banks. These are possible fixes—but the real challenge is convincing investors to accept negative real yields.
Robbie:
Current liquidity injection starts at the top and trickles down via lending. Stablecoins sit at the bottom. Even if institutions like BlackRock issue stablecoins, they remain low-tier. Could stablecoins rise in this hierarchy—could major institutions issue stablecoins on-chain?
Arthur Hayes:
It’s like banks issuing their own dollar stablecoins on blockchain.
Robbie:
Yes, could organizations or states—like Wyoming—issue their own stablecoins? State-backed, national, or even Fed-sponsored—are such stablecoins realistic?
Guy Young:
I think it’s possible—but I’m pessimistic about traditional financial institutions capturing market share in crypto. PayPal is a good example: its existing product is basically a private blockchain—just moving PYUSD within their accounting system.
They’ve done decently, but scale is less than 1% of Tether’s. This shows entering the crypto ecosystem and gaining market share is extremely hard—market structure is the key barrier. USDT (Tether) is the primary quote currency on centralized exchanges—nearly all pairs are priced against USDT. No one will switch stablecoins just for 4% Treasury yields—market participants value trading efficiency and liquidity above all. You either need higher liquidity than Tether or offer higher yields—or you simply can’t compete. That’s Ethena’s approach: we don’t try to beat Tether on liquidity or yield—we innovate elsewhere.
I think if you’re launching a new stablecoin backed solely by Treasuries, it’s a waste of time, energy, and money.
Omer Goldberg:
Still, many institutions will attempt this. Today I heard Bank of America’s CEO say they’ll issue stablecoins where legally allowed. From talks with major financial institutions, nearly everyone is considering it. For them, it’s a cheaper, more efficient solution. In the U.S., more users adopt tools like Venmo—eroding traditional banking revenues.
Omer Goldberg:
So I think they’ll try—but as Guy said, success is another matter. Still, if achieved, it could be a “holy grail” with massive market impact.
Arthur Hayes:
I think this mainly applies to the U.S. For American users, stablecoins offer a cheaper, more convenient way to move dollars. But that’s not Tether’s core business. Tether’s real markets are Shanghai, Hong Kong, Buenos Aires—places JPMorgan and Bank of America can’t reach. So stablecoins benefit Americans, but their impact on global crypto markets is limited.
Robbie:
Unless these stablecoins break out of closed systems, their impact on overall liquidity won’t be positive.
Arthur Hayes:
Exactly. Unless stablecoin issuance involves lending and credit creation, their impact is minimal. If it’s just a new payment tool replacing Venmo, it changes nothing for the broader market.
Robbie:
Could SLR (Supplementary Leverage Ratio) exemption affect stablecoins’ fractional reserve mechanisms?
Arthur Hayes:
SLR exemption mainly allows banks to buy Treasuries without extra capital—no direct link to stablecoins. Banks can use SLR relief to buy bonds and create credit, boosting profitability. If rising rates cause bond losses, they can classify bonds as “held-to-maturity” and ignore mark-to-market losses. It’s a common practice.
Guy Young:
Last week I read a research report on what happens if U.S. bank deposits massively shift to stablecoins. That’s extremely dangerous—because the entire fractional reserve system depends on commercial bank deposits. If deposits shift to 1:1-backed stablecoins, banks’ lending capacity suffers severely—the entire credit system could collapse.
Arthur Hayes:
That’s why the Fed opposes it. If stablecoins become non-lending banks—just taking deposits and paying yields—it’s fatal to the fractional reserve banking model.
Andy:
Yes, that’s a key part of the Stable Act—I think it’ll advance this month or by end of May. While potentially positive for stablecoins overall, it may hurt USDC more than Tether.
Arthur Hayes:
It doesn’t matter. This is a U.S. issue. Stablecoins aren’t for Americans—they’re for people who want dollar bank accounts but can’t get them. In the U.S., it’s about dollar bank accounts. Stablecoins just make transfers cheaper—maybe save a few dollars monthly. Great for voters, but for crypto traders, whether it’s the GENIUS Act or others—I haven’t read any of them. It doesn’t matter. Yield or no yield—who cares? It’s just a tool for Americans to move dollars cheaper within their system. Doesn’t affect you.
Robbie：
Andy mentioned the barbell effect—one side speculation, one side payments. Can stablecoins act as credit-expansion tools, further leveraging the entire system?
Arthur Hayes：
The issue is who bears the risk. Fractional reserve banks have an advantage—if they fail, the state bails them out. Private stablecoin issuers have no such guarantee. If they go bankrupt, no one rescues them. Under those conditions, stablecoins can’t expand credit like traditional banks.
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