Transcription
Hi everyone and welcome back to another Binance Master Class sponsored by Binance, of course. And today, we're joined by Mullik Nagesh, research lead at Binance. We have a great conversation for you today. I'm really excited for this, Mullik. How are you doing today?
>> Thanks, Bren. Really excited and I'm doing well. How are you doing?
Fantastic. I know our audience is definitely looking forward to this conversation. Anytime we have someone who's, uh, deep in the weeds at research in this industry, especially at a giant like Binance, it's always an interesting conversation for us. So, really quickly, before we dive into it, Mullik, for the people who may not be familiar with you, can you give us, you know, kind of a quick overview of your role at Binance and, you know, kind of the data that you you come into contact with day-to-day?
>> Yeah, of course. Um, so I'm essentially the macro research lead, um, at Binance. Uh, we're kind of a lean team, but we focus on various different, uh, kind of sectors across the space. Um, so that includes sort of, uh, very, kind of much macro-based, uh, we look at industry-based, um, kind of metrics, as well as, uh, deep dives on a bunch of different, kind of thematic focuses. So whether that's sort of like stable coins, uh, it's like DeFi, um, it's kind of layer ones and so on. So, uh, it's kind of like very much, um, kind of across the board. Um, in terms of the metrics that we look at, we're really looking at, kind of, uh, macro-based metrics. Um, so like things which are very much, uh, like usual day-to-day institutional-based, uh, chart-based metrics that are kind of common. Uh, but we also kind of combine that with, um, very much like on-chain based metrics. Um, so we're looking at, kind of, um, like stable coin flows, uh, on-chain based liquidity. Uh, we're looking at sort of liquidity from new asset classes, asset-based vehicles such as, uh, ETFs, um, kind of digital assets, treasuries and so on. They're very much kind of like combining both the worlds of TradFi and crypto and and kind of bringing that together.
Yeah, I love that. You know, Ral often says crypto is macro, macro is crypto. So, you know, what you're doing is is a great, uh, description of that. So, let's dive into it, right? Cuz you are uniquely positioned to really know, kind of, what's going on in the markets. You can see what the data is telling us. So, where are we now in the current market cycle? Like, what, what, basically, what I'm trying to say is, what actually defines this current market cycle and like, what to you feels different to, you know, in this market versus previous ones?
>> Yeah. Uh, definitely. So, um, in terms of, I, I guess the biggest change that we've seen is the maturity of the space. Um, and that has been brought about by the combination of institutionalization of of crypto markets as well as, uh, regulation that's provided a lot more clarity to the space in, in overall. Um, so what that has really meant is that the buyer base that we've, we've sort of moved from a space where it was very much retail-driven, and now it's, uh, kind of focused more towards the institutional side. Um, and that's kind of changed, essentially, the demand-based structure of what we're seeing. Um, what's that resulted in is just more, kind of, um, let's say, more mandate-based, uh, purchases of of of cryptocurrency. We're looking at sort of, um, overall declining trends in terms of volatility, uh, over the horizon. Uh, that also sort of includes in terms of how Bitcoin is kind of viewed as a macro-based asset class as well and portfolio, portfolio inclusion. So I think that's been a very big, kind of change where, uh, before it was sort of still a very early asset class in terms of, we didn't have much data points there in terms of how best to judge it. I think there were a lot of different, kind of trends and notions that were essentially going on about that. So whether it was sort of, um, an inflation-based hedge, uh, kind of a debasement-based hedge, uh, whether it was just like a speculative asset and its correlation with, kind of, um, risk-on assets, um, that is sort of kind of formalized towards, um, Bitcoin being this sort of macro-based asset that provides enhanced risk-adjusted returns, um, and its correlation is very much regime-dependent, um, and and that is sort of something we're seeing in terms of portfolio-based inclusion. So, uh, when we look at sort of your, uh, institutional like buyer, uh, they're really much kind of incl, uh, kind of valuing Bitcoin in terms of how they end up going about actually sort of allocating a purchase. Um, so that's something which I think wasn't there before. Um, and it's really much changing the kind of, like, the buying base structure, um, in this market. And then naturally, um, from Bitcoin, I would like to kind of touch upon altcoins as well. I think in previous cycles, um, that was very much, um, highly speculative, um, and there were very much a lot of different narratives in the space. Um, nowadays, it's become a lot more selective. I think there's a massive, kind of drive towards a return toward fundamentals in terms of how we value altcoins. Um, that space is still maturing. It's, it's something which I think will be a key, kind of focus point for the rest of the year in terms of value across these altcoin-based metrics. Uh, but overall, the take there is that it's, it's, it's very, kind of positive for the space in terms of how we get towards a more mature market structure. Um, and the final piece I'd like to also say in terms of the differences, um, and I, kind of, touched on it before, is, uh, just the liquidity, uh, side of the market. So, um, I think now we have a lot of different structures from whether it's stable coins, um, there's, kind of, ETFs, there's digital treasuries, um, these are very much, uh, key drivers of, uh, liquidity in markets, um, and that's something which becomes an important metric to track as we kind of navigate and, uh, move forward in the space.
Yeah. Uh, so I want to kind of touch on that because, you know, you mentioned institutions, uh, as well, and we're also seeing governments come into this as a lot of big players, which is also, you know, fundamentally different, it feels, at least from, from the last cycle, right? And, kind of, when we look at also what's going on, like, just geopolitically, all the chaos in the market, right? Um, during this time, like we had just massive inflows still in the ETFs versus S&P, kind of, you know, being very volatile. What do you think that set? Are you kind of seeing Bitcoin becoming like a, a hedge against, kind of, you know, these, these types of environments, or is that, like, is that also different from what it was last cycle? How are, how are we viewing this now?
>> Yeah. Uh, that's a very good question. Um, so the first thing I would like to say to that is, um, I think it's important to remember that Bitcoin is still a very early, kind of asset class. So when it comes towards the data points that we have, um, they're still relatively limited compared to, kind of, your traditional assets that that you see. Um, so that has naturally meant that in terms of the opinion, what Bitcoin essentially is and crypto is, that has also kind of evolved, and we will still continue to see that evolve, um, over time. Um, so when it comes towards, uh, Bitcoin, I think what we can extrapolate is, in terms of previous data, um, is that it's a very much, um, sort of a risk-adjusted asset class in terms of providing enhanced risk-adjusted returns. Um, I think we're seeing, kind of, in your traditional 60/40 portfolio, um, there's this drive for a 2.5% inclusion or so, so on, and we're seeing that drive really much, um, kind of come and take effect from various different, kind of, asset managers, um, across the space. Um, now, in terms of correlation, um, I think we've seen sort of, uh, various different trends there. Um, initially, Bitcoin was a lot more, um, kind of diversified in, in, kind of, let's say, pre-2020 or so. Uh, recently, with institutions coming into into the space, um, it's very much kind of been, um, short-term, it reacts in terms of being, uh, kind of risk-off, uh, when there's, kind of, stress-based episodes, like we've seen with the recent, kind of, geopolitical tension. Um, but then in the longer-term horizons, it tends to sort of act as a, um, semi, kind of diversifier as well, just, and that's purely just because the perception of the asset class is, it's very different. It still holds, kind of, structural differences, whether it's, kind of, a supply-based metrics, um, having cycles and so on. Um, so it naturally just provides, um, a bit of diversification towards traditional-based equities. Um, but I'd like to kind of, like, go back to my first point is that that that kind of, um, take is, is very much evolving. Um, I think we've never really seen Bitcoin operate in an environment where, you know, we've had geopolitical volatility. We haven't, kind of, seen Bitcoin where we've sort of had, like, high interest rate environments. It was always where interest was pretty much, uh, near, kind of, like, zero or zero-bound rates. So it's something which we're learning, and I think, uh, as, kind of, we we evolve towards the next, kind of, macro-based regime, um, these data will evolve, and we'll have, we essentially be able to see a better, kind of viewpoint and picture towards, um, what exactly Bitcoin and its role, um, in terms of a, um, um, asset class.
You know, we mentioned, right, we're just still sticking on this institutional level with with Bitcoin and just crypto in general. Like last cycle, it was like retail was driving this, right? Or at least that's what that's what it felt like. But now it feels like it's the businesses and the governments kind of driving what we're seeing now. So what, what is happening, or I guess, what happens when retail is no longer that volatility engine? Is that what you're seeing now, or, uh, so basically, yeah, what happens there?
>> Yeah, it's a very good question. Um, so the buyer base has has sort of changed, and what, what that sort of has meant is that not that retail essentially has become less. It's just that now the the size of demand, uh, a large proportion of it is coming in from the institutional side. I think we saw it very recently where, you know, even this, like, when we saw, kind of, market-based volatility, um, ETFs tended to be a lot more stickier. Um, I think we saw the market drop by around, uh, 30 or 40 odd percent. Um, but at the same time, um, the kind of the asset under management for ETFs had a much, kind of, smaller marginal-based drop, um, and that just reflects, uh, that institutional capital tends to be a lot more stickier and less reactive, um, and is more based on, kind of, mandate-based, uh, purchases and just fundamentals. So they will make their purchases a lot more on whether, um, you know, fundamentally the demand holds and whether it still makes sense, whereas, um, retail tends to be a little bit more speculative in terms of reacting to different, kind of, market-based regimes. Um, in terms of, uh, whether it's changed, um, because of that composition, it's just meant that volatility's essentially become, um, a lot less from the space. I think we, we've kind of naturally seen it. In prior cycles, we had a lot more, kind of, peak-to-troughs, but, but now it's, it's, it's very much like not as significant. Um, and I think that's also kind of reflected towards the, the division we're seeing in Bitcoin dominance. Um, so when we look at, kind of, institutions, they prefer your, kind of, harder asset class. It's more mature when it comes to Bitcoin, the largest, kind of, um, market cap in, in, in crypto markets, whereas altcoins have taken that, kind of, racial basis, and the reactiveness still exists in that market. So that's basically the symbolic nature of the differences in composition of demand.
Yeah. We're seeing it even today in the price action, right, where Bitcoin is is leading that. And I want to ask you, cuz so we, we know the, the, the ETFs are buying up Bitcoin and even ETH, right? Do you, do you see that expanding out the risk curve into other, you know, you know, prominent L1s?
>> Uh, yeah, and it's already sort of happening. Um, I think we've, we've seen, kind of, um, Bitcoin obviously being the first, um, kind of ETF to, kind of, unlock that trend, and then, um, Ethereum naturally following. Uh, but, but now we're seeing, um, you know, we've already seen, kind of, Solana-based ETFs being approved. Um, there's, kind of, a push for BNB-based as well. So that's naturally evolving, uh, in terms of whatever asset class, whether it's L1 or something which, um, let's say, has a strong value accrual mechanism, um, and generates strong revenue utility as well as fees, um, I think those are essentially the, the crypto-based assets, um, that will naturally roll towards ETF-based structures, as they just become more attractive for, um, institutions wanting to own and adopt them, and ETFs provide that natural gateway for them to actually, um, enter that market.
Yeah, and that's actually segues us kind of into the next topic I wanted to discuss, which is L1s, right? We know Bitcoin is is king, right? Uh, but how would you describe the state of of the L1s in, uh, in today's dynamics?
>> For this one, I'd like to focus, uh, mainly on sort of just the overarching trend that we've seen from maybe, uh, the early days of crypto, and then, uh, where we are today. Um, I think for, for a long time, uh, it was more about just general-purpose L1s, uh, where I think we had, kind of, Ethereum start that trend, but then there were a wide variety of different, kind of, um, uh, just smart contract platforms that were essentially doing the same thing, and and trying to compete with Ethereum for liquidity. Uh, they're competing in terms of just general activity, whether it was for trading-based volumes, uh, or even just, um, general decentralized applications. Um, now, I would say that, um, that notion of trying to compete with each other is slowly becoming a lot more, kind of, converged, where I think naturally, a lot of these chains are becoming more consolidated and towards one particular niche and specialization. Um, and and that trend is, is, kind of, what we're seeing with, with, kind of, the major ones, as well as the, the new L1s that that sort of are coming entering the space. So from, like, the earlier days that we've seen Ethereum, I think that's now naturally looked at more as a settlement-based layer, uh, DeFi-based security, uh, liquidity, as well as providing, kind of, um, a lot of security. Uh, whereas when we look at more towards, let's say, BNB chain, for example, uh, that's providing a very good funnel for retail-based, kind of, audiences, um, to go from the exchange side, uh, and be onboarded and and utilize, kind of, more decentralized-based applications. Um, it's also providing, kind of, asset-based discovery and price-based discovery with, um, uh, taking BNB chain example, there's Binance Alpha product, so that just provides a lot more, kind of, um, discovery for different tokens that first emerge on these chains, whereas not being listed on, on, kind of, centralized exchanges, and then you also have, uh, Solana, where I think their mode is has been a lot more towards just, like, trading, uh, volume, and then, uh, throughput, as well as just having a very good, kind of, UX-based layer to provide, uh, entry to a range of, kind of, u different applications. So we're seeing this, kind of, you know, slowly and slow and slow, kind of, consolidation happening, um, and that's also led to, kind of, the emergence of, um, app-based, kind of, and specialized, uh, layers. So, you know, whether it's Hyperliquid with their own chain, we have, kind of, UniChain on that side, and then, uh, more recently, stablecoin-based chains, in terms of, like, Arc and and Tempo. Um, so, so very much, I think the space is moving towards more of a place where it's less so of general purpose, but more towards, um, specializing application-specific, um, layer ones.
>> and how do the institutions think about this when they are like buying up stuff for an ETF? Like, are they, are they do they have that particular kind of use cases in mind? Like, you know, Binance distribution layer, so I'm specifically accumulating it for that use case, and then Solana because of the throughput, Bitcoin store of asset? Is that how they're they're thinking about it and like the reasoning behind accumulating it, or is there, kind of, more to it than that?
>> Uh, yeah, exactly. I, I, I think a lot of it is based on fundamentals and whether, um, there's strong value accrual mechanisms, uh, towards, um, the token. I think that plays a very, kind of, important role. Um, and naturally, I would say that, you know, network-based activity, applications based on the chain, and sort of just how much, kind of, fee, um, these chains essentially collect, um, that's just a natural indicator towards, uh, whether it's, it's something which is generating revenue, and that translates towards value accrual back towards the token. I think, um, another important metric is, is, kind of, just more less so on the demand side, but also on the supply side, which is important to consider. Um, start looking at, kind of, token-based emissions, what the inflation metrics are, um, and so on. But I would say overall, it's still quite an early, um, space in terms of, um, institutions wanting to adopt, um, these sort of tokens. I, I think they're still building out their mechanisms for how they value these structures. Um, and we'll probably see and likely see a lot more, kind of, transparency and, kind of, token-based, like, investor relations, um, exist, and just a lot more classifications towards how these tokens are essentially valued going forward, because that has also evolved over, over the course of time in crypto markets.
Yeah. I want to talk about actually, uh, this as well, because, you know, with ETH as the settlement layer, right, we know, you know, Solana is always, kind of, you know, with their, you know, always advertising their their speed and throughput, and, and B, and you mentioned something about, you know, Binance, kind of, as, you know, this distribution layer, and I wanted to talk about that because it is very interesting. It's actually not a, I haven't really thought about Binance in that, in that sense, right? But, you know, you guys have this centralized exchange, this DEX funnel, you have the asset discovery. Is that actually, kind of, an the most underrated advantage of, you know, an L1? Like, talk, can you talk to me about that? How Binance is uniquely positioned in that distribution layer?
>> Yeah. Um, that's a very good question. So, um, I think that there are these unique advantages naturally when you specialize towards certain areas. Um, when we speak about sort of Binance and and BNB chain, I think that the strongest moat there, um, and as you kind of put correctly, is sort of the flow between a centralized exchange liquidity as well as decentralized exchange. Um, and that provides a natural, kind of, just a new point for asset-based discovery. Um, and and that conversion just becomes a lot easier as well from a UX perspective. Um, that probably is quite a strong moat when it comes towards having L1 linked towards, um, an exchange, uh, that that can provide that kind of, um, distribution layer. Um, and and that naturally also just stems towards, you know, when it comes to distribution and engagement, um, it just is a lot more beneficial, uh, towards that kind of, like, L1, just to have that kind of roll-up from liquidity coming from different sources and angles. Um, when it comes towards the asset-based discovery side, um, yeah, I, I would say that, u, you know, when it comes towards the Alpha-based product, that has provided a lot more, kind of, um, discovery for many different, um, types of tokens, um, as well as a strong, kind of, liquid layer for retail to get access to these tokens very early on. Uh, that also exists from another chain as well. Um, but it probably isn't as, kind of, maybe structured, just because of the fact that it comes from a more, let's say, of a formalized product base rather than just, um, a general, just on-chain, kind of, asset being listed.
>> now, and and I, I like the way we talked about this at the beginning of this segment, because I often heard or heard the the criticism that a lot of L1s were being built for a demand that wasn't necessarily there, right? And, uh, it kind of makes sense to, kind of, consolidate it and focus on ones that have been successful, have a proven track record, like the Binances, Solanas, and Ethers of the world, right? That that can show us that they're specializing it. But where do you see, kind of, this chain specialization ending up in in three to five years? Is it, like, is it one layer, like, you know, ETH is the dominant settlement layer? Are people going to be using others? Are there going to be a bunch of execution chains that, kind of, support this, or is there, kind of, going to be genuine fragmentation between this, like, hey, I work, I'm just Binance can do everything that I need. Uh, Solana can do everything that I need. How do you, kind of, see that, uh, playing out?
>> Yeah. Um, I think that's a very good question. Um, in terms of how that sort of is, is happening, that consolidation is already in effect. I think fragmentation, um, as it, kind of, put it, was one of the big drivers and and reasons for it as well. Um, it doesn't just doesn't create a good UX, um, overall, and it also becomes a lot more, um, efficient if liquidity is in one place, and that just helps enhance the, kind of, the composability of, uh, DeFi as well. Um, I think it gets trickier when, you know, you have lot lot of different bridges. There's also security risks, uh, to do with that. Um, and that's something which, um, I think has, kind of, pushed towards the consolidation aspect, but also just naturally, in terms of where liquidity has gone and the demand, uh, and user base that that that's, kind of, occurred towards it. Um, that's also been a major driver in terms of where that space will be headed. I think consolidation will just be a natural, kind of, endpoint for it, and um, specialization is probably just going to be the end, end product game, where, um, you'll probably see, in terms of liquidity, there'll be very specific use cases, um, on a particular chain, on in terms of what's sort of happening there. Um, I think each chain also will very much depend upon their scalability aspect in terms of where that execution side is happening. So when you compare sort of, um, Solana compared to, let's say, Ethereum, for example, uh, the technology is built very differently. Um, Ethereum required, um, you know, layer 2 and all these things to sort of come into play, just, just because of the fact that, um, they were suffering on the scalability side on the base chain. Um, and now that's naturally evolving, just because of the value, um, accrual argument. Uh, but Solana, for instance, just always had, kind of, natural throughput, and same case with BNB chain. Um, so within ecosystems as well, um, I think there's also different, different layers of fragmentation. Uh, but eventually, what we've seen so far, all, all trends, kind of, are pointing towards more consolidation.
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>> Yeah. And it makes, honestly, as someone who's using it every day, it makes so much sense. Bridging is a pain. Uh, the, you know, different UIs can be cumbersome to use or just a bit clunky, right? So it does absolutely make a lot of sense, especially if we want, you know, kind of that adoption, and we want this to be the future financial rails. So let's kind of talk about that, right, as we kind of move to a more consolidated financial system, right, and, and, um, you know, unified in a sense, um, what does that look like, essentially? Like, what does that world look like when, you know, we have this, you know, we don't have this fragmentation, and we are consolidated? What can, you know, kind of the average user of this, you know, financial system expect that to look like?
>> Uh, yeah, I, I think that's, um, definitely a key theme in, in today's market. Um, we're seeing, um, a very much like a convergence of of the spaces. Um, and that's something which, um, will continue to be a key theme going forward. Um, so naturally, I think it's, it's, it's convergence happening from both sides. We're seeing, kind of, um, for example, crypto being built on traded rails, and then we're also seeing being built on crypto rails. So, just to give some examples there, um, crypto on traded rails, that's essentially ETFs, uh, you know, providing access there. We're seeing a lot more utility for crypto-based asset structures. So whether it's more yield on Bitcoin-based products, or even sort of use cases such as mortgages, for for instance. So that, that, that's essentially something which, um, is slowly growing in that space. Um, and then on the reverse side, I think the, you know, the biggest use case there is, is sort of stable coins. It provides, kind of, like, liquidity layer, um, and payment, uh, rails that that are going off of it. Uh, as well as tokenization, uh, which is quite key there as well. So, um, in that space, we're seeing, kind of, like, uh, the growth of, kind of, just on-chain equities, commodities, uh, kind of, uh, I think a space which is quite, kind of, new and and recent is, um, pre-IPO-based, um, tokenized assets, um, so providing exposure towards private market-based assets, um, and just overall, a lot of it just converges towards providing access, um, to to the end user. Um, now, uh, where that space is sort of headed is, we're seeing, kind of, the advent of a super app, uh, emerge as part of it. Um, I think this is currently being driven by a lot of, kind of, neo-banks, fintechs, as well as crypto-based exchanges, just purely because they're best positioned, uh, to, kind of, adopt, uh, all these different product areas. Um, and naturally, they've been the first to, kind of, go go into, kind of, payment-based rails, provide, uh, exposure across a wide variety of asset-based classes. Whereas when you look at, kind of, your traditional, uh, institutions, they've been a bit slower, just because of the fact that they, kind of, await for, um, regulation, and and that's just what they, um, kind of, user base and institutions essentially mandate. Um, now, one thing important to remember is, is that, um, this is all very much an access-based convergence, as well as a UX-based one. So providing exposure, u, but when it comes towards the asset classes themselves, um, they will remain different. Um, so in terms of, um, let's say, how you value a token versus, like, an equity, and and so on, um, that will continue to remain different, and something which I, I think will continue to drive discussion, conversation, um, even though if they all remain in, in one, kind of, um, asset base, just to provide, uh, different investors exposure to that asset class.
Which one matters more, uh, or like, which one do you think is, I guess, more important, and which direction is moving faster, crypto to TradFi, or TradFi to crypto?
>> Um, I think naturally, just, just because of, uh, crypto can operate a lot more, let's say, quicker and and more nimbly, um, it's been crypto to TradFi. Um, and we've seen it in terms of the, the growth in terms of product spaces, right? So when we look at, like, stable coins, um, and tokenization, I think that has essentially, uh, seen very strong growth, and a lot of it has been stemming from the fact that, um, the crypto industry has been able to push these use cases, um, quite, quite forward. Um, and at the same time, we, we've seen, kind of, crypto exchanges, uh, list, um, a lot of, like, TradFi-based assets, and right now, it's generating quite, quite a lot of good volume. So, um, even as recently, when we look at chart-based professionals, um, you know, the use case there is that you can get access towards markets in, in off-market hours, um, and that's driven a lot of volume and exposure for investors that maybe they can essentially get access to and react to news and geopolitical, um, like changes quite quickly in, kind of, the weekend versus if they weren't able to before. Um, so crypto's been essentially the main driver of of this push, for sure.
Now, you mentioned something very interesting, which is the super app thesis, right? And I think when Elon first bought X, a lot of people were talking about that, that's when that I first heard that conversation, like X is going to turn into the new WeChat, it's going to be a super app and everything. But like, who actually builds this super app? And is it coming? Is it like the Binance, like the Binances of the world from the crypto side of things, or is it more like a JP Morgan from the TradFi side of things? Because people are so used to holding their money already in a JP Morgan. So, it seems like the use case would be more adopted from the TradFi side of things, but crypto has that advantage on the speed and already kind of the expertise in that. So, like, what's your, what's your take on that?
>> Yeah. Um, I, I think, um, what probably will happen is, it'll just be natural convergence towards, um, where the expertise and advantages lie. Um, so if you look at, for example, on the crypto side, a lot of it is down to crypto-native assets. It's down to, um, essentially, you know, tokenization as an infrastructure, stable coin rails, and so on. Um, I think that's where the natural, kind of, expertise lies for crypto-based, kind of, exchanges and apps, and and that's where I think the natural convergence will apply for them. Uh, whereas on the TradFi side, I think it's, it's, it's more to do with the fact that, um, they are essentially providing a lot more efficiency when it comes to stable coins and access from tokenization aspect, and it's very much catered towards, um, the existing user base and, um, institutional-based, um, kind of adoption that that want that kind of asset class and access to that product layer, um, so they will naturally converge to towards that aspect. Um, so overall, I think, yeah, that space will just naturally converge towards where the existing, kind of, advantages lie, um, and crypto has that advantage of just being a lot more quicker and and providing that conversion area. But that will be catered towards, um, you know, the audiences that currently deal and operate on on crypto platforms, versus, uh, the TradFi side. I think they will wait for just a natural discovery, uh, when it comes towards, um, more mature infrastructure, as well as the regulatory side. Um, and that will then naturally evolve, um, accordingly as well.
>> Yeah, absolutely. And we are kind of starting to see, you know, these TradFi and these banks, you know, operating on stable coins. They're moving on to the stable coins. I think HSBC, right? UBS, I think I've even heard JP Morgan throwing around that they want to build their own blockchain. Um, so at what point do you think TradFi basically like out-executes crypto, uh, at their own game with moving volume on on these rails?
>> Uh, yeah. Um, so when it comes to in terms of, um, like, moving the rails and in that side, I think that's slowly already taking place. Um, but again, it's very much driven more towards institutional-based use cases. Um, and and we, we're seeing sort of that naturally, kind of, evolve. Um, and it's very early days, though. Um, from, from in terms of over-executing, I think there will be a split in terms of what use cases that that would look like. So, uh, when we look at, kind of, um, certain markets and regions, as well as various use cases, I think the crypto side, consumer-to-consumer transactions, whether it's, kind of, merchandise adoption, um, a lot of crypto platforms are already quite advanced in terms of where they are from, from that perspective, whereas on the TradFi side, I think, uh, you know, B2B transactions, u, where we look at, kind of, use cases on, um, you know, it's corporate treasuries, for example, and so on, that's something which, um, you know, more institutional-based use cases is, is where they will see that kind of, um, expertise. So it very much will be split between, you know, different markets, different, kind of, use cases, um, and that will then naturally consolidate towards, um, uh, specializing to in terms of what crypto platforms do and what TradFi does.
>> Yeah. So let's, let's dive into that too, because you mentioned these use cases, and at the top of this, you mentioned how the crypto market is maturing. So I think it's very important that we discuss, you know, what's real, what's hype, right? And then you're obviously, you, you can see into all of that. So, like, what are you seeing? Um, that's genuine sustained growth today in crypto? Which use cases are actually, like, actually matter versus what's just like narrative and hype.
>> Yeah. Um, so there's quite a few, um, um, in terms of which use cases are like very relevant in this market, and and they have changed o over the course of, um, the last few years. Uh, the biggest one which I think is, is very, kind of, front and center is stable coins. Um, I think that's basically been one which is had the strongest, kind of, use case, um, and driven that, kind of, uh, bridge between TradFi and and crypto-based rails as well. Uh, the biggest, kind of, growth, um, uh, has been towards, uh, payment-based, uh, use cases. Um, so whether that's, uh, B2B-based, um, kind of, consumer-to-business, as well. Um, that's something which is naturally, kind of, growing, just because of the efficiency that stable coins provide as, as a, as a payment-based rail. Um, there, there are also new use cases that are coming on top of it. So, um, we're seeing, kind of, slowly the conversation yield around, um, corporate treasuries adoption, um, in terms of just providing a lot more efficiency for how they deal with operations and using stable coins there. I think yield is a very important front conversation, um, and that's where regulation side is currently, kind of, taking place with the Clarity Act, um, and just, yeah, yield-based metrics, um, for stable coins, um, but overall, um, stable coins is also very dependent upon what it's seen in different markets. So, um, you know, what kind of USA versus, um, emerging markets, in terms of what the use case for stable coins are, that also differs. So very much, um, in the USA, it's, it's seen more as a financial-based infrastructure, um, and something which I think is just making, um, uh, processing flows a lot more efficient, whereas emerging markets, um, payments and consumer-based adoption is, is already, kind of, um, seeing a lot more growth, and then in some markets, is also seen as sort of, um, digital dollarization, where it's sort of a lot of, um, especially in South American countries, seen as as a way to get exposure to the dollar, um, and try to, kind of, hedge against, um, you know, if the currency is suffering from high-based, uh, inflation, which, which, which I, I think has been something that's impacted them. So, uh, yeah, it's something which is very much market-based dependent, use case dependent for stable coins. Uh, but something which I think has been very, very promising for crypto. Um, now, uh, one thing to also note for stable coins is the second-order effects that that come, come on top of it. Um, I think all these adoption cases that that are happening, the important point and takeaway here is that it's, it's essentially onboarding a lot of liquidity on-chain. Um, even if it's for payment-based use cases or corporate treasury, for example, um, it's, it's bringing a lot of liquidity on-chain, and which is a very important metric for crypto markets in general, and what that does is, is that it just, um, means that once that's the use case is there, uh, the natural, kind of, next layer becomes, um, talking about capital efficiency, talking about what more use cases, um, can exist on top of, um, just, let's say, stable coins for payments, um, and that will lead to natural conversations around providing yield on these stable coins on-chain, more DeFi-based use cases, that also catering towards retail and institutions. Um, and and that just naturally means that there's more propensity for a lot of this, like, new liquidity that's come from, let's say, payment-based rails, to eventually flow towards, um, crypto-based markets. Um, so overall, um, stable coins has been very, very positive and something that continues to drive the space forward.
You know, one thing as well that we've kind of seen is, um, especially with, like, the geopolitics of it all, like Hyperliquid is absolutely like blown up because of, you know, trading perps, right? And then, you know, S&P, now they're talking about 24/7 on-chain perps, right? You know, a lot of exchanges are talking about tokenizing stocks, right? So, now we're, we're getting into this, basically, the market never closes. Is that, one, is that a good thing? And two, what is, like, I guess, what is the risk of moving this fast and having 24/7 markets?
>> Um, yeah, uh, I think there's basically, uh, conversation on both sides, for sure. Um, so to begin with, uh, when it comes towards access and 24/7, um, I think crypto exchanges have been able to, kind of, demonstrate that, um, as well as Hyperliquid. Uh, when we saw, kind of, geopolitical-based tension recently, um, and that required, kind of, just risk-off and sentiment, kind of, adjusted accordingly, we saw that adjustment and reaction happen a lot quicker, um, in terms of, um, these TradFi-based perpetual assets, um, and that then reflected eventually towards, um, your standard, uh, TradFi-based asset classes. Um, so that 24/7 access has, has been a key mode, and something which I think, um, is that TradFi-based markets are looking towards also adopting that, that trend. Um, we're seeing a lot of institutions talk about it. We're seeing, um, NASDAQ and, kind of, um, the stock exchanges themselves wanting to tokenize and provide a lot more, kind of, access across the board. So, um, that's just been a natural, um, that that will evolve. I think the challenges there, um, as you rightly mentioned, was, uh, the main risk tends to be price discovery and liquidity. Um, so right now, the liquidity is still pretty young. It's, it's, it's a new, kind of, space. Um, so what that means is, there's, there's still some disparities in terms of, um, uh, the price that that's, kind of, sometimes quoted on, uh, especially on-chain, like, tokenized-based, um, metrics versus, uh, what ends up being on, on the, kind of, equity-based markets, and and that will naturally result once more liquidity enters the market. Um, and and that's something which I think, uh, the takeaway there is that, um, these markets provide somewhat of an indicator, uh, towards where volume is, is sort of moving. Um, but eventually, um, the price discovery part still has to evolve, and that will require a lot more liquidity in the space, which I think will naturally evolve once, uh, more institutions and TradFi-based firms enter the space.
Now, speaking of what also is entering the space, we're seeing the rise of AI agents, and they're using crypto rails, right? Uh, and they're using stable coins and a whole bunch of things. What, how does that play into all of this? What, what does that, and then what does that say also about where these rails are actually headed when people are starting to spin up AI agents to operate on their behalf and execute trades and transactions?
>> Uh, that's definitely something which, um, is an emerging use case, um, in today's market. It's, it's still very new, um, it provides this, kind of, new demand layer in the space. Um, so when we look at, um, kind of, the agentic economy, essentially, um, a lot of it is driven by, um, sort of crypto being able to provide the rails that allows these agents to transact. Um, so naturally, I think these agents, um, when we look at, kind of, traditional bank accounts and requirements, uh, from a regulatory perspective, as well, KYC, um, that side becomes a lot more tricky for them to actually execute transactions on, on, sort of their behalf, and that's where the use case of stable coins and, and wallet-based, um, products come into play, where agents can essentially execute, uh, accordingly based on that infrastructure. Um, and that's where a lot of the focus in the crypto space has been towards evolving that particular infrastructure. Um, and that's where we're seeing a lot more, kind of, investment, as well as, um, activity from a developer perspective, in terms of growing that infrastructure out. Um, now, one caveat to mention here is that, um, a lot of it is also dependent upon the natural adoption of of agents. Um, I think that's something which we're also just seeing, um, and sort of, uh, kind of grow slowly across different markets and use cases. Um, so whether it's, kind of, for commerce-based reasons, whether it's trading-based, um, as well as, um, just general businesses adopting agents for, uh, different use cases, I think that, that will be the first layer, um, in terms of just markets in general, and then, uh, naturally, once, um, that, kind of, co-pilot phase is done, it moves more towards, uh, the side of, um, executing transactions, so being able to then utilize payment-based rails and stable coins and so on, which will then naturally, um, translate towards more adoption and use case for the crypto side as well.
Now, you know, speaking of stable coins, we see in the headlines, like we see just an eye-opening number, right, of, you know, volume from stable coins, but then when you, like, you dive into it, you kind of strip out the trading and, uh, the, the flows and the real payments are are much less than that headline number. So, like, I wanted to kind of ask you, like, what actually matters in terms of stable coin volume, and how do you, like, identify what's, like, signal, uh, with stable coin volume versus, like, what's just headline noise?
>> Um, yeah, that's a very good question, and and and definitely an important metric that I think is, it's, it's very much tracked across the board. Um, so stable coins, um, historically, they're used as as more of this kind of stable asset as a trading pair. Um, and and very much, kind of, peer-to-peer. Um, and that's something which has been, kind of, the essence of of where they essentially came from. Um, now, the the trading volume side, um, that dominates stable coin usage. Um, and these new use cases are something that that's being a lot more broken down, and and there's a lot more, kind of, metrics that are coming about in terms of adjusted, um, volume to look at these specific use cases, whether it's, kind of, B2B-based, uh, whether
It's kind of like consumer purchasing on for the commerce perspective, um, even sort of, um, when we look at just cross-border remittance and so on. So, these use cases are, are definitely something which I think are individually being tracked. Um, and that's quite important, uh, because that gives us a natural kind of, um, attention towards what are, what is essentially the, the growth and and use case of stablecoins outside of the traditional, uh, use case that we're always kind of used to, um, seeing.
Um, but the, the good part, the good news out of that is that we've seen very strong growth in, in all these different areas and, and just to essentially indicate that this is something which is moving quite fast. Um, and I believe that the, the strongest use case today is, is on the B2B side. Um, but that's also naturally just because institutions drive a lot more volume. Um, and that's kind of led to, um, yeah, the B2B side being, being quite strong.
You know, one big thing apart about, you know, a financial system, right, is, is debt and credit. And, uh, what, what happens when that starts originating directly on-chain? Can you walk us through kind of what that act, what that process actually looks like?
Uh, yeah. So, is the question around like how debt and credit would essentially like be tokenized and, and, and kind of—
>> Exactly. Yeah.
>> Yeah. Um, so it kind of just, um, goes through very similar in terms of how, uh, let's say you would tokenize like your general kind of equity-based product. Um, so you'll have kind of like your, your issuer. You'll have kind of like your rails that connect the off-chain data to the on-chain side. Um, and then your natural kind of security rails around it. Um, so that kind of issuer framework, um, as well as creating the market for it. Um, that, that remains, um, pretty much similar in terms of, uh, what that would look like. Um, I think it's very similar towards what your natural markets for, um, in the traditional finance sense look like as well. Um, so when you're looking at kind of like private credit in terms of, uh, how that would exist on-chain, um, a lot of the operate, operating side in terms of what's done today, that would also need to be met on-chain as well. Um, and all those kind of like functionality and processes that, you know, institutions are used to, um, that infrastructure to accommodate for that will have to be built out. Um, so that's, that's going to take its natural kind of evolution, uh, in that side.
Um, one key aspect there is also kind of evolving the regulatory aspect so that, um, there's clear transparency, visibility in terms of, um, you know, how these on-chain metrics kind of, uh, and assets essentially flow. Um, because institutions are obviously used to working in a certain way and metric, and there's, uh, thousands and thousands of legacy-based integrations. So all of that will essentially need to be catered for, uh, for, for a lot of these new markets, whether it's kind of like private-based credit, whether it's, um, you know, money markets and debt and so on. Um, this is something which I think is, is currently built in the build-out phase for on the infrastructure side.
>> So let's talk about, you know, I guess, you know, kind of the elephant in the room, the, the, the, the important, you know, uh, regulation that needs to happen for us to kind of move forward. Right. That's, that's something that you, you kind of touched on as well. Banks are, you know, they, they need that regulation to be able to move forward, and that's kind of what slows them down. So let's talk Clarity Act, right? That's the big one. What does it mean for the market if it passes, and what happens if it stalls out?
>> Yeah. Um, uh, regulation is, is definitely something which, uh, is front and center, um, in this market. I think when you talk about, uh, what is one natural catalyst in ter, for crypto this year, it's been kind of regulatory trends and what the outcomes are from that side. Um, I think that the current one in focus is, is as you mentioned, is the Clarity Act. Um, that's something which, uh, currently is in, kind of undergoing debate, mainly from a yield perspective. Um, I think that's been kind of one specific conversation that, that's been occurring.
Um, and, and just to kind of explain that, that side, it's, it's mainly about, um, how yield essentially rolls up towards, uh, essentially what, what can be provided by, uh, stablecoin issuers, as well as, um, crypto-based entities, uh, for, you know, if they're earning yield on stablecoins, how can that roll up towards, uh, a sort of a retail-based user who's earning it. So that whole concept of sort of being able to earn yield on a dollar-based asset, um, that's essentially what we're talking about here.
Um, now, uh, in terms of the hold upside, I think that naturally will kind of deviate and reflect in, kind of price action. Um, so what we've seen is, is that whenever there's kind of regulator-based changes or announcements, uh, we've seen markets react, um, to that particular news, just because that leads to a natural kind of, um, whether it's kind of opening up access, uh, towards a certain area for more growth, or whether it's kind of leading towards more of a, let's say, a blocker, um, for, for growth to essentially happen, and that's something which then naturally gets reflected towards, um, uh, markets, especially more so today, uh, given the composition of buyers are institutionals, and they value that side a lot more.
Um, so, yeah, pity is definitely act is definitely one of them. Um, and to really kind of give another example about how regulations really driving markets, it's, we can take an example from the Genius Act last year. Um, I think once the Genius Act was essentially, uh, approved and sort of passed, um, uh, through towards being an actual regulation, um, that's essentially the first major catalyst that drove the stablecoin, uh, based kind of adoption and volume across the board. Um, and that, that's something which we've seen in terms of, um, uh, regulation being a natural driver for stablecoin-based adoption. Um, and that will be the same for tokenization and, as well as other, uh, major use cases.
Uh, so, yeah, very in terms of this market that we are in today, regulations is definitely something which is, um, uh, you can think of as a natural driver of crypto markets and a natural catalyst as well.
No, I, I think the market tends to think, you know, the minute the Clarity Act gets passed, you know, that to the next day, it crypto rails are going to be free-flowing and everything. How does that actually like work though? You know, a Clarity Act gets passed, like from your kind of viewpoint, when do you see that actually coming into play with the results of the Clarity Act being passed? So like institutions ready to go right now, they have all kind of all their ducks in a row, or is it more like this gets passed, then we figure out based off of that, and might not start seeing the effect of it a year or two later?
>> Yeah, that's a good question. Um, I think based on, so, so for this, we can extrapolate what sort of happened in, in prior, uh, regulatory passings and regimes there. Um, given the market composition, are kind of based very much institutionally driven, there tends to be a lot more structured approach to things. Um, so in terms of what sort of takes place, it very much firstly depends on, uh, what the final outcome is of that particular piece of regulation.
Um, and that will be where, where that, what is the focus point in terms of what product needs to be built out, or what sort of use case, um, institutions essentially want to cater and adopt for. So that's, that's obviously going to be dependent upon what, what regulatory aspect is kind of passed.
Um, the second part is that, uh, it, it wouldn't be kind of immediate per se, but I, I think we'll see it as a natural kind of progression towards, uh, what sort of, um, is, is essentially deployed from an adoption-based perspective. Um, what is probably more immediate in terms of reaction is, is what will get reflected in terms of just, um, how crypto markets are valued in general. So that's more from a pricing perspective, um, whether it's sort of, um, you know, reflected across, like crypto markets, as well as, uh, you know, equity markets, uh, in terms of the natural kind of, like public companies, uh, that are based on crypto rails that have essentially, um, yeah, operating that market space as well.
Um, so from a pricing standpoint, I think that's where it gets naturally, uh, uh, kind of, uh, positioned in terms of, like, how people are positioning for, um, the growth of the space, but in terms of product-based use cases and adoption, um, that will be very much kind of a structure-based approach, and also driven by different use cases and market structures.
>> Now, little bit of a different topic here, but I think one that maybe the regulation should consider at some point, because I've seen the, the, the rise of, I guess, quantum risk. Are you seeing anything like that coming up in the data? Uh, where, you know, it's quantum risk is a potential vulnerability for Bitcoin? Uh, does that, is that relevant in the market right now from what you're seeing in data, or is that something that maybe we're getting a little ahead of ourselves?
>> Uh, yeah. So, so quant, quantum risk is, is something which, um, uh, I would say that it's been in the conversation for a while now, um, in the background. Um, particularly this year, um, it's been accelerated, um, particularly from, uh, I think there was a research paper from Google that, that essentially talked about, um, various different aspects, uh, about the quantum risk, uh, and there might be a lot more kind of closer to towards, um, that the risk being realized, um, and that's led to a lot more ongoing debate and discussion in the industry, uh, in terms of, uh, what we're seeing take place as a result of that is, um, there's development-based discussion, uh, so it's execution-based metrics, not just for Bitcoin, but also for your general-purpose Layer 1s as well.
Um, but on top of it, I think what we'll start to see is that this risk will start being priced in, um, towards how far, um, a particular, uh, whether it's Bitcoin or, um, a Layer 1 kind of chain, uh, how far they are in the progression of becoming quantum-resistant, and that kind of, um, risk-based premium is something which will start to be reflected, um, in the pricing of, um, that particular asset class.
Um, I think it's still very early days, uh, but something, uh, which will definitely be the case, uh, going forward in today's market.
>> Yeah, absolutely. Now, and, and I guess to kind of touch on that while we're on the conversation of risk, like DeFi, right? There's a, there's a risk in DeFi, and we touched on it with bridging, right? And all of those different vulnerabilities that can be attacked, uh, through, you know, kind of all of that fragmentation. Um, we've seen that a lot recently in the news. Is that getting priced into the market right now? Are you seeing that in the data?
>> Uh, yeah, it, it is, uh, uh, definitely, um, and it's being priced in in various different aspects as well. So, um, I think, I think w with the recent, um, you just to give some perspective, firstly, um, we've seen kind of April, um, have one of the largest kind of like, uh, months in terms of, um, exploits, um, since, um, we say early last year, um, but it's been one of the largest from an incident count perspective as well.
Um, so DeFi risk is something which, um, has also led to, uh, more debate and discussion in the industry. Um, what the natural kind of reaction to that was, um, uh, so firstly, we saw, uh, liquidity on-chain, uh, across DeFi protocols. We saw an outflow from there. So that's just led to kind of like the total value locked metric, um, on-chain, that's been impacted. Um, there was a natural kind of hit, uh, for various space-based, like DeFi-based, um, assets, in terms of like pricing.
Um, and this, the secondary effect has been sort of more about like discussion around how to mitigate for this going forward, um, so that's, that's front and center in terms of conversation for, for how that takes place. I think there's various different approaches that are being discussed, whether there's more of a kind of market-based recovery fund, whether, um, you know, DeFi yield itself, um, it's not pricing this risk, uh, correctly, and whether yield needs to maybe more attractive, um, from that viewpoint.
Um, and then there's also, um, you know, use cases around insurance and so on. Um, so all of this will, will naturally play out, um, in terms of what, what's best for, um, innovation in the space. Um, but I, I think one thing I, I do want to kind of draw attention towards is, um, the, the whole concept about, uh, DeFi yield and, and, and the risk side there, that's currently front and center in that debate.
Um, so, uh, one of the reasons for that is, is, is essentially, so DeFi yield has been driven by various different on-chain-based, uh, catalysts and so on. I think what we've seen is there's a natural con, um, spread between, you know, DeFi-based yield, as well as, uh, you know, if you look at the risk-free rate, which is treasury-based yield, um, and these days, given interest rates have kind of essentially gone up, um, that, that spread has, has decreased over time.
Um, and at the same time, uh, what we've seen is that there's a lot more, uh, demand for yield, whereas, uh, there's a lot less demand for borrowing on-chain, and that's also led to, um, effectively more, um, just, yeah, more, more people wanting to kind of just, uh, find more capital efficiency for stablecoins, whereas more people wanting to borrow on-chain, um, and that's just been a natural effect, uh, in terms of what we've seen with the, with the other use cases that I've talked about, right? So when we look at kind of stablecoin adoption, a lot of it is very much driven about holding stablecoins on-chain, but the borrowing market and money market side, that's still, you could argue, it's a bit more m, uh, less mature than the stablecoin space.
Um, so these are just things that have created, you know, a certain dynamic, um, and it's leading a lot of, like discussion in the space, um, and a lot of, a lot of it will naturally just evolve as adoption grows, use cases grows.
Um, and, yeah, a lot of these incidents and episodes stem as kind of like a foundation for the crypto space to essentially just innovate, um, to use as a learning curve, and then just build the right product, um, and continue going forward.
>> Yeah, absolutely. Mullik, this has been such an illuminating conversation. Uh, but I want to leave, I want to leave, leave off with one more question, because you're inside Binance, you see the data, you know what the institutions and retails are actually doing versus what they say they're doing. Uh, so what's, what's like one thing you wish more people in traditional finance kind of genuinely understood about this moment that we're in, uh, in crypto markets?
>> Uh, yeah, that's a very good question. Um, I think it's, it's, it's also a question that probably has a lot of, um, different answers, uh, that, that can be put forward for that. Uh, in terms of what, um, I would say, uh, in ter, from that side, it's mainly from a perspective of, uh, understanding the different use cases in crypto, um, and, and how, uh, crypto assets are, are valued. I think there's still a bit of, um, disparity towards, um, you know, how, let's say, a particular token should be valued, uh, and, and where that value accrual essentially comes from. I think when you look at traditional market investors, they're a lot more used to, uh, you know, earning call-based approach, like in terms of the performance of a company. They're, they're used to, you know, cash flows and so on, like very much, very traditional metrics that dig these.
So the crypto space is a whole new world, um, in terms of how things are valued, and that's where we're seeing, you know, the growth of just more transparency towards value accrual mechanisms, um, token-based, um, investor relations, um, and so on. And, and that's something which I would recommend that, you know, to pay like and keep tokenomics front and center in terms of, uh, visualizing terms of how that looks like, understanding the role of a token, um, in a particular protocol, what that means, um, and how value accrual is essentially done, and the fact that, you know, these tokens are built on very different, um, dynamics for how value does get accrued, and it's both from a demand side as well as a supply side.
Um, so, yeah, these, this is something which I, I would say for market investors to definitely kind of, um, sort of put forward their, their attention towards.
>> Well, Mullik, it's been a pleasure. Thanks again for joining us, and thank you everyone for tuning in. This has been another Real Vision masterclass with Binance. Thanks again, everyone. We'll see you for the next one.
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