Paxos CEO 谈当下加密行业与稳定币为何爆发 | Charles Cascarilla

I want to be playing in the biggest part of the TAM to build the most valuable business. To me, I look at our TAM, and our TAM is enormous. We're trying to replatform the financial system. There are $900 trillion of assets. We have a long way to go. If you do this successfully, you're going to be able to build a very big business doing it. This is like creating an enormous problem where, if you own assets, you make a lot of money.

Yeah, this is the K-shaped recovery.

Yeah, everyone's coming around to this affordability crisis. But what it really is, is we're printing money. If you told me we were going to have the most pro-crypto administration and president you could ever possibly imagine, the average show can be down like 80%. And Bitcoin would be down 50%. I do think it's the crypto golden age. It's just not the crypto price golden age.

Good to be back. Thanks for dealing with Santi and Rob as I took a little hiatus. I'm very excited to have Charles Cascarilla back on the podcast. Last time, I think we had him on in 2022. He's the CEO, I think, right now, of Paxos—the co-founder of Paxos.

Last time I checked.

All right, good. The backstory of Charles is that when Mike and I were starting Blockworks, I listened to an episode that Charles did in 2017 with Patrick O'Shaughnessy. There's another podcast called Invest Like the Best, and it was a formative podcast for us. We were like, “Okay, this is a real thing. This serious guy is talking about Bitcoin and money blowing up and all that kind of good stuff.” It's one of the reasons we love podcasts: there are these formative moments. I think your podcast was actually pretty formative for us.

No, that's awesome to hear. I know a lot of people really like that podcast. I think it's because it was a crossover from traditional finance and crypto. It made it maybe a little more accessible than it had been in the past.

1. The State of Crypto Today

You guys have been building Paxos for 14 years now. I'd love to hear, maybe starting with what you think you got right and what you think you got wrong.

I think we got most things wrong. But we got maybe the most important thing right, which is that we recognized that Bitcoin and blockchain were going to fundamentally change the financial system and lead to a replatforming that we're now maybe just on the cusp of, finally.

I came across Bitcoin in 2010, actually, so it was pretty early. We were coming out of the financial crisis, and I looked at blockchain and said, “Well, look, I don't know if it'll be Bitcoin or not, but blockchain could really change how the entire financial system works.” It turns out that it's both Bitcoin and blockchain.

I remember there were colored coins, and the idea was you were going to actually put everything on the Bitcoin blockchain, and that was going to be the ledger of record. That was my initial thought about how this was going to evolve because we predated Ethereum.

I was involved in starting Paxos—it was called itBit at the time. The idea was, well, we're going to build an institutional platform so that traditional institutions can feel comfortable coming into the crypto and blockchain space. That was wrong. It took them a very long time to get to that point.

Just wrong on the timing.

Yeah, well, there's no difference between early and being wrong, in some sense. The right timing is just as much about being right.

When we started incubating the business inside what was our asset manager at the time, we had come out of the financial crisis, and we were short subprime and commercial real estate going into it.

Who was “we”?

My co-founder and my partner in the asset management business, Emil Woods.

Hedge fund or what?

It was a hedge fund, and it invested in public companies as well as private companies. In private companies, it might be VC-backed companies all the way through to growth or private equity firms.

Got it. He still runs that business today. It's called Liberty City Ventures.

Oh, that's Liberty—

Oh, you started Liberty—

Yeah, we started it. It was part of our broader asset manager. We started it, and he still runs it. He was a co-founder of Paxos. We incubated it within the asset manager business.

I didn't know this.

We started in 2012, but I didn't come in to start running it full-time until about 2015.

Did you ever wish you had just stayed as an investor? A little easier than running a company.

There are pluses and minuses to it. I think it probably would have been more lucrative, maybe. But I think I would be a much better investor today, and I think about businesses much better because I've been inside one.

I've seen it from early stages all the way through to later stages, and you can now really understand what's going on underneath and how disruption is happening. That would have been impossible because, even though I started an asset manager, I've actually started 2 asset managers before Paxos. They were hedge fund businesses. They were more services businesses as opposed to product and technology businesses.

You would just totally misunderstand how accurate what Marc Andreessen said is about software eating the world, and how that could also be very analogous to how blockchain could eat the financial system, in some sense.

I think we did a very good job of understanding that Bitcoin could be something that really changes the world, and blockchain could be something that changes the world. We started Paxos, and we invested in a lot of earlier-stage companies too, like Backed, for example, at seed stage. We were actually one of the lead investors in it. We were very early in the space.

You could get to the end of pretty much the internet on Bitcoin in 2010 with about 4 clicks. It always led back to Satoshi's white paper. It wasn't really hard to know the whole community then.

I remember going to the first Consensus in San Jose, and they didn't even have the San Jose Convention Center all to themselves. It was mainly Comic-Con.

Yeah, it was definitely Charlie Shrem, among other people.

I mean, I'll tell you, it was like 80% Comic-Con people and 20% Bitcoin people. I got to tell you, the Comic-Con people were actually more normal than the Bitcoin people.

What's the crowd like? Balaji, the Winklevosses, Voorhees, Shrem?

I'm sure they were all there. But just talk about an odd lot of other people in retail. It was interesting. You're coming from an institutional asset manager business, and then you're sitting here, and the people at the Bitcoin conference are more unusual than the Comic-Con people.

Why do you think that you have lasted? It's interesting. Blockworks has some competitors who were formidable competition, and I think the reason we don't really compete with them anymore is not because they had bad products or anything. They just weren't able to last as long. I think maybe some of the founders just burned out.

Why do you think you were personally able to build a company in crypto for 14 years? Very few people from your class are still around.

That's true. Partly, because you've been around that long, you've probably held crypto and you probably made a lot of money, and you're like, “Well, do I want to keep doing this?”

What keeps me going is the mission and vision of what we're going to achieve as Paxos. Our goal is to open the financial system to everybody and enable any asset to move at any time in a trustworthy way—to really replatform the financial system.

That's a big goal. It's something that I think is worth continuing to spend time on. I could go do other things with my time, but I don't think there's something that would be more valuable, more impactful to society, more challenging, and more fun.

I also think that, unlike other businesses, we've had that guiding light even though the market continues to shift. The crypto market moves so unbelievably fast. Think about how many different cycles we've gone through since 2010 or 2015: how many times there's been an RWA cycle, how many times there have been different versions of ICOs, meme coins, and NFTs.

There are all these things that happen, and it's kind of like a lot of immediate lemming behavior into the next thing and then the next thing. It's almost like an ADD market. You have to step back a little bit and be able to think about where things are going to be on an enduring basis.

Certainly, that doesn't mean you're always going to get things right, but it does create an opportunity for you to have longer operating cycles that you're planning around and building a business around. Otherwise, you can easily go down cul-de-sacs, and we've certainly done that in many different ways because we've been trying to bring traditional assets onto the blockchain from the very beginning of the company.

Yeah. And we're still only now maybe just starting. If you would have told me it was going to take 14 years for you to get to $200 billion or $300 billion of assets, I would have been like, “Oh my God, we're talking about being early.” And if you would have told me that, but yet you would have mature, public-company businesses, I actually would have been surprised, too.

So that's what is very interesting, because you had crypto as an asset class expand in a way I would have never imagined. I remember there were big battles about whether you could have blockchain without crypto, and how many different types of crypto.

2016 and 2017. Yeah, exactly. I mean, even back in 2013, there were different debates about this. Of course, there were the hard-fork wars. You lived through all of this.

At the same time, some things have held true. Bitcoin has been able to, I think, continue to be a source of truth. Blockchain has continued to be a source of truth. Crypto as a different way to operate in the world and in communities continues to hold as a source of truth.

But if you would have told me that we would end up with tens of thousands of tokens in 2014 or 2015, I would have said, “What is this? This is crazy. There are only about 3,000 public companies. Why are we going to have as many tokens?” So there are a lot of things that we hadn't anticipated.

We didn't actually try to enable that market. As an institutional infrastructure player, we didn't even have customers that wanted it. But that was the most lucrative place to be. Obviously, Coinbase has gone out and built a very big business, among other firms. And the biggest business is built around monetizing the fact that you can create retail access to crypto assets.

Yeah, all the tokens. Yes, to all the tokens. Not to the fact that there are $900 trillion of assets in the world that are going to be replatformed onto the blockchain. No one has built tens and tens of billions of dollars of business doing that. I would have never believed that.

Do you agree with where the industry has gone? I know that it's not really in your hands. It's just the market dynamics, right? But there are 40,000 tokens out there right now. What do you think about that?

So I went to Token2049. I always go to the one in Dubai and Singapore. I went to the one in Singapore, and I was speaking at it. We went onstage and went into Marina Bay Sands. This was basically the beginning of October.

I probably should have just listened to my spidey sense. I walked in and felt like—my analogy was, it's like you grew up in Austin, left for 30 years, and just came back. You wouldn't recognize the town. I went into Marina Bay Sands to go talk at Token2049, and I looked around and said, “Who are all these people spending $600 to $1 million on booths? I don't even know any of these.”

I told my co-founder after that. I was at the same event, and I said, “It feels super toppy right now.”

That's exactly what I thought. Sell. I didn't sell either, but I only had Bitcoin. But anyways, I looked around and thought, “I feel like there was no crypto for old men.” I couldn't even understand what was going on. I felt like I didn't even know the industry anymore.

Part of that's Asian retail, which is highly speculative. But that was also just the nature of the moment we were in. Then we've seen a pretty significant correction since then across all these crypto tokens.

I don't think we need to have all those tokens, but you should have the ability to create as many tokens as the market is willing to fund, because there are lots of different possible businesses that can happen. But there is some element of buyer beware here, because it's completely open to anybody to create a project and issue a token, which is cool. I suspect most of these—if not the vast majority—are going to zero.

Yeah, yeah. Agreed. I think about tokens almost like websites. Probably 99.99% of the value accrues to 25 websites in the world—or probably 100 websites in the world, right? But it's great that anyone can go create a website. One guy can create a website. You shouldn't shut down the ability to create websites, but most of them are useless and pointless.

If you look at the airline industry—it might be a little bit different now—but American Express has made more money off the airline industry than all the airlines' profits combined over the history of the airline industry.

Yeah, that makes sense. Right? I mean, some parts of the value chain are much more valuable than other parts of it. It's much easier to build a business that enables people to trade crypto tokens than to launch a crypto token.

Exactly. Maybe before we get too deep into Paxos's business, because it's changed a lot since I last talked to you, I'd love to hear your updated commentary on where Bitcoin and crypto fit in this global monetary and capital-markets system right now.

Sure. I think it's important to maybe separate crypto and blockchain, because I think of crypto as a way of creating incentives and coordination for projects—maybe non-Bitcoin crypto. I think that's very valuable. There are lots of ways of creating incentives for people to come together as communities to build something, like Hyperliquid being a perfect example of that. You can go on to all kinds of different things—BitTenser and different places, different ways.

You can use crypto as an organizational mechanism to coordinate people, and I think that's really important. You create network effects.

Bitcoin, I think of slightly differently. I know there are other things that are trying to be a store of value like Bitcoin, but none have come anywhere close to it. Bitcoin is trying to do something a little bit different. I think of it as mathematical proof of work. In some ways, it's competing with geological proof of work, which is gold.

There's a bit of a question of whether, today, mathematical proof of work is as enduring as geological proof of work. Can you really use it over the next 20 to 100 years? There's going to be new math. Forget about quantum for a second, which I'm no expert on, but you're always going to have new math. You used to have RSA 1028, and then you upgraded to the next one and the next one and the next one. You have to keep upgrading cryptographic algorithms no matter what.

I think Bitcoin is a solution to creating mathematical proof of work that you can use, because that's better in some ways than geological proof of work. It's infinitely divisible, it's more transparent, and it's not tied to the physical world. So you still don't have some need for trust in wherever it's being stored.

There are great things about Bitcoin, but it's only at a couple-trillion-dollar market cap versus $40-some trillion for gold.

Yeah. There is a need for something that you can trust because currency is basically future proof of work. That's the way to think about it. It's debt, right? Debt is, “I'm going to pay you in the future.” A little bit of betting on the future is a good thing. You overbet on the future, and it consumes the present.

We're at the stage—and you can never quite stop yourself from wanting to keep betting more on the future—which is issuing more debt and then probably investing it in things that don't have a very high ROI. Government spending is probably a negative return in general. So you just keep issuing more and more debt, and you're going to end up destroying a fiat currency.

Gold versus the dollar: the dollar is down 99% since—whatever it was, $19 was the original price—and now we're at $5,000 or something. $4,500. So you've obviously already had an enormous decline in the value of the dollar and all other fiat currencies, but that's going to continue to happen—unless AI gets to a point that creates a productivity boom that could ratify all the debt that exists. I just find it unlikely that that will happen.

So I think Bitcoin as a store of value is in a very good position to continue to go up as it unwinds the risk of mathematical proof of work becoming as valuable or as certain as geological proof of work.

Why do you think that? I agree with everything. I love how you lay that out—mathematical proof of work versus geological proof of work versus future proof of work for the dollar. Why do you think, though, that gold is up 50% year over year and Bitcoin is down 20% year over year?

I think there are different dynamics going on. As much as I would like Bitcoin not to be a risk asset, it is, because your journey from speculative asset to store of value is about going through volatility.

Climbing walls of worry every time. Now we're about to hit the wall of worry around quantum.

Exactly. Get over that wall of worry. And by the way, this is a really meaningful and important wall of worry to get over, which is: How can we show that we can upgrade the math? Whether it's quantum or otherwise, you come up with new proofs to other things that aren't even quantum that could be an issue.

I’m not a quantum expert. I’ve watched a lot of it, but I’m only going to parrot back what other smart people have said. I just think the broader point is not quantum; it’s that you have to upgrade the math over time. Is there a way to do that that creates certainty that, if you took your Bitcoin and said, “I’m going to give it to my great-grandchildren,” it would be something you could reasonably presume will still be around and valuable?

Whether you think that might be the case for gold or not, most people believe that around the world. It’s been true for thousands and thousands of years. Twenty years is not a very long time—less than that, right? We have to put things in perspective. If you want to be worth $40 trillion, you’re going to have to go through some pressure cycles of testing the underlying core thesis. We’re at another moment of that now.

I don’t know if that’s actually why it’s down 50%. I feel like a lot of times things go down and everyone says, “I wonder why?” Then you come up with a narrative. But there is a wall of worry that we’ve now found that is valid and needs to be overcome.

If you looked at gold, you basically had all these central banks buying, and you had retail all over the world buying. Once the price starts to go, it starts to go. It creates its own momentum, and everyone says, “How come gold is up so much?” By the way, now it’s down a bunch from the highs. You have central banks selling all over the place because they’re trying to cash in. Turkey and Poland have talked about this, among other places.

You just can’t expect these things to go linearly. In some ways, I think this is the price you pay for fiat money: you have all this liquidity sloshing around, looking for the next momentum thing.

The hot ball of money.

Exactly. There were stories about this in the 1920s and ’30s, where it felt like money was just sloshing around the world, looking for the next thing. I think that’s exactly what we have going on now. It found the next thing that has momentum, and you have all these models based on price momentum looking for what they’re looking for. They just keep following the trend.

I really strongly believe that sometime this year there will be a moment like the one in 2020. Do you remember in May 2020, when Paul Tudor Jones called Bitcoin the fastest horse in the race?

Yeah.

That basically unlocked the career risk for hedge funds to buy Bitcoin.

Yes.

And it was this major moment. There have probably been a few of those. Every 3 to 4 years, we get one of those moments. Coinbase becoming a public company was big. BlackRock and the ETFs were big.

ETFs, yeah.

Those things unlock the career risk to do these things. I don’t know what it’ll be, but I assume something like that could happen this year. It usually happens at the bottom, when there’s a lot of fear. Then something happens, and boom, it’s off to the races again.

There are also the 4-year cycles that people like to look at, and that kind of puts you into October or so. That comes into play. Are you a 4-year-cycle person?

Not really, but it’s hard not to look at it and say it kind of worked. It’s supply, and I think you look at what the price action of Bitcoin is. It’s obviously very volatile, and when you start to take away supply, there’s a change. The Bitcoin ETFs were the biggest thing that happened.

In some ways, the analogy is that Bitcoin went public. When things go public, what happens? You probably get a pop, but then there’s a lot of distribution. You have a lot of turnover and a lot of people who held it for a very long period of time and made a lot of money.

You have to remember that a couple trillion dollars is not just about percentages. Absolute dollars matter at some point. If you go from $2 trillion to $3 trillion, a trillion dollars is created. Somebody who accumulated that trillion dollars—maybe some of them are the new buyers, but a lot are old holders—starts to sell.

Totally.

It’s logical. You’re still living in dollar terms.

Yeah.

$100,000 was the first time I started to see people who were around way before me—your crowd, from 2012, 2013, 2014—selling. Maybe a lot of them sold along the way, but there was a huge amount of selling by that crowd around 2025.

I think it was less because Bitcoin had hit $100,000, although there’s a psychological point there. I also think a lot of that crowd picked their heads up after a decade and said, “I don’t really like where the industry is anymore.” Now there’s AI, too, and maybe they want to go play with a new shiny toy.

Some OGs have made a lot of money. It’s prudent to take some off the table and go do something. Someone told me, “My goal wasn’t to die with the most amount of Bitcoin.”

Yeah.

People decided they wanted to do other things.

2. How To Fix The U.S Debt Problem

That makes sense. Maybe one more markets question, and then I do want to talk a lot about Paxos. What do you think about the general markets right now? You’re such a great connoisseur of markets.

You mean broader markets?

Yeah, just broader markets.

I think it’s unbelievably hard to prognosticate right now. I know President Trump’s favorite quotes include one from President Andrew Jackson. It’s something like, “I was built for a storm; the calm does not suit me.” I think that very much sums things up. He’s a volatility-creating machine.

Yeah, yeah. He’s like, “Oh, it’s calm going into the weekend?”

Yeah, we need to do something else.

Tariffs, yeah.

Exactly. Or, “The markets are selling off too much,” and then he’s kind of managing the market a little bit.

What’s really hard to know here is whether, if you’re the Iranians—and that’s the main focus at the moment—you’re in a better negotiating position by dragging this out or in a worse one. What can the United States do to put them in a worse position by dragging it out?

Yeah.

That’s very hard to tell right now. The longer it goes on, the more likely you are to have a very bad adverse action in the markets because of the amount of supply-chain disruption happening across critical areas. It’s not just oil, which people look at. The cost of diesel fuel is like, you know, $170, $160, $170 depending on where you're at. We’re running low on jet fuel. Helium, which you need for chips, fertilizers—you can go on and on.

This is a very nonlinear situation. You’re creating a lot of inflation pressures that can also destabilize the market, including where long-term bonds are. You also have an enormous amount of capex being poured into AI. Depending on exactly how you look at it, you could say it’s $5 trillion, $7 trillion, or $9 trillion over the next 5 or 6 years.

The cost to put on a terawatt of data-center capacity was, I think, around $35 billion, and now it’s around $50 billion. You’re talking about some pretty serious surge pricing, with prices going up very significantly. Are you actually going to get good returns on that capital? How much disruption is going to happen to a lot of the market cap that exists today? How deflationary is that, versus how much does it create one-time surges?

It’s a pretty good analogy to the 1990s. You had this huge capex boom, and after the capex boom you had the productivity, which is deflationary. You also had the fact that you weren’t spending on capex anymore, and that becomes deflationary. You get inflation and you get deflation.

You should actually have higher interest rates now because you’re going to be spending more capital than anyone otherwise thought. You need to ration it. What’s the whole point of interest rates? You’re creating a mechanism to ration capital intertemporally. If you’re using more now, you need higher interest rates. You need lower interest rates in the future.

You should bring interest rates up.

Yeah, yeah.

That’s quite a different question from whether I would bring them up—not just because President Trump wouldn’t be happy with me if I were running interest rates, but because the economy is so imbalanced with all the debt loads we’ve put in.

In the 1990s, Alan Greenspan 100% should have been raising interest rates. He said “irrational exuberance” in 1995. The original sin was that he didn’t raise interest rates then. He allowed giant bubbles to form, and ever since then we’ve been on a train of needing to print more money to ratify the prior bubble.

Right. So, actually, that was the moment when you needed higher rates. Now, I don't know if anyone knows what you can do between these different wars, the AI boom, and all the debt. You have a very unstable equilibrium—what I would call a disequilibrium that we're in—and we've been in this for a long time.

People ask me, “What do I think about Bitcoin?” I go, “Well, it's like the antidote to this problem.” It's very hard to understand what you should price things in dollars. Mhm. But I think if you looked at gold, people would say, “Oh, look how much gold has gone up.” I think it might be just gold—or Bitcoin, for that matter. I think you might want to invert that and say, “Actually, guess how much the dollar has gone down.”

Yeah. That's really telling us how much the dollar has gone down, not how much those assets have gone up. Mhm. Because what did 1 oz of gold used to buy you historically? The rule of thumb was that it would be a month's salary for someone in the army—a soldier in the army—or a fine man's suit. Right. And, by the way, that's kind of about what 1 oz buys you right now.

Yeah, yeah. It's not a crazy price. You have another way of looking at these things—not as dollars, but as a unit of energy. Gold is a unit of energy that gets you other things that you have to spend energy on: a suit, a person working for you, whatever it is. That's all money really is.

And so, if you reel that all the way back into your question about what I think is going to happen with markets, it's so hard to tell what will happen in dollar terms. Yeah, but those are the only terms to play in right now.

Well, no, because that's why you can own Bitcoin and gold. They're still denominated in dollars, but if you took the S&P and divided it by the price of gold, or the S&P divided by the price of Bitcoin, that's a different way to think about other assets.

But you still, as you know, as a founder but also a fund manager, have to think about it. You have $100—how do you allocate the dollars? Do you buy Bitcoin? Do you buy gold? Do you go buy Nvidia? Should you buy Amazon? Google's ripping. Maybe Google's going to win the AI race—the first $10 trillion company. Buy some Google.

You can buy shares of equities and say, “I think that's going to go up more than anything else against dollars,” which is another way of looking at it.

So you're trying to think, well, what assets are going to go up versus dollars? And I think if you look at it on a risk-adjusted basis—meaning, what risk are you taking—your other somewhat risk-free assets are Bitcoin and gold. Now, Bitcoin's not risk-free yet, but I think gold is widely considered to be.

If you divided the S&P by the price of gold, it's not nearly as good of a return. Right? And, you know, partly that's because global M2 goes up by 10% a year. Like, that's basically how much—

Fiat money is being debased. You have $100 trillion or something right around in M2 globally, and it goes up 10% a year. So you basically have to earn a 10% return just to be flat in dollar spending.

And this is actually creating, I think, all of the underlying societal difficulties that we have, because people's real wages are not really going up.

Totally. And this is creating an enormous problem where, if you own assets, you make a lot of money.

Yeah, this is the K-shaped recovery. Everyone's coming around to this affordability crisis, but what it really is is that we're printing money. We keep growing M2 in order to support the level of debt that we have. This is the debt consuming the future, and we're living in it. How would you fix this, though? Because we took our best whack at fixing it. We put the best entrepreneur of our generation, Elon, on it, and he couldn't figure it out.

Well, he was trying to fix one part of it, which was that we were spending too much money, which is true. Because if you look at the federal government, there's the spending and there's the printing.

Right now, you're collecting taxes that are somewhere around 18% of GDP, which, by the way, is normal. That's the normal level going back forever—like 50 or 60 years. Probably before the Great Society, it was less. Your spending is 24% of GDP, which is near the highest it's ever been. So we have a spending problem; it's not a taxes problem.

If you dropped government spending from 26% or 24% of GDP to 21% or 20%, we'd be in a recession right now. Nobody's voting for that. And then what happens? You raise taxes. You're in a very challenging time. This is why there isn't an easy answer. This is why people keep printing money.

Bitcoin. This is why. So, you know, we were very good in my asset-management days at being kind of short the problem. You could be short the problem—there was subprime or other things—but then I realized, and we stayed bearish too long, by the way. We weren't, by any means, perfect on this. But I realized you need to be long the solution.

That's why we built Paxos. That's why I think Bitcoin and gold are, in some ways, long the solution. You need to be long the solution. We need to be able to create a different type of financial system, and we need to be able to create one that's based on proof of work, so that you're actually tied to the present moment and tied to an intertemporal allocation mechanism that is actually real.

Fiat money is run by the politicians, which is really kind of everybody. You have a tragedy-of-the-commons problem. It's not just the politicians' problem. We're all voting for all this stuff.

Yeah, you know, no one's going, “Oh, I'm—” Everyone voted for these politicians to lower spending. Nobody voted for that.

No. Yeah, I'd really like a recession for the next 5 years in order to solve our 100-year problem.

Yeah, exactly. I'm going to vote for a mini-depression. No one's voting for a mini-depression.

Yeah, yeah. I'm a man of the people. Exactly. And in some ways, you could look at the Trump policies and say they were actually being pretty smart about trying to solve this, because they wanted to drive energy costs down as much as possible.

Yeah, yeah. To me, it should almost be like a Manhattan Project for fusion. You have to drive energy costs down as low as possible, because if you do that, you actually have a chance of creating deflationary growth. And if you had deflationary growth, then you could support the debt.

Yeah. But you're always going to come back to whether we'll ever get our fiscal house in order, even if economically we could. I suspect the answer is probably not.

3. Behind The Paxos Business Model

You want to get into Paxos? Let's do it. Why is Paxos—maybe looking at Paxos through this lens of, “Okay, you guys were short the problem 10 or 15 years ago, whenever it was”? I'm assuming you're talking about 2008 or 2009. You needed to find the solution. The solution is Bitcoin. Why is Paxos the best? You could have built anything, right? You could have built an exchange or a chain. Why is Paxos the thing that you're most excited about building right now?

Sure. Well, by the way, we tried to create a chain at one point. We tried all kinds of weird things. We had this thing called Bankchain. It was a private chain.

The branding.

And then, no kidding, we had more help than just the branding. We had some great people working on it. Jimmy Song was working on this thing, and Michael Flaxman. We had all these people working on Paxos, and some of them are still there.

And we were creating this chain. The whole idea was that you were going to create a private chain so that traditional institutions would be willing to put their assets on a private chain.

2017, 2018? When? 2014, 2015.

Yeah, I mean, we were—this was early. We abandoned that, and I realized it was going to be all about public chains.

Yeah, yeah. But from 2013 to 2015—2014, 2015, maybe it was 2016, whatever it was—right in that time frame, there was a big debate around private chains versus public chains.

Yeah. I remember we had R3, Hyperledger, and Corda.

Yeah, exactly. Corda and Digital Asset are still around. They’ve kind of—well, now they’ve got a public chain. It’s a pseudo-public chain. Canton. It’s pseudo-public. They morphed it. I think that debate has now been settled. It’s going to be public chains.

Yeah, yeah. I think we realized that way back when. I also thought, really, what’s a chain? It’s a database. I don’t think we should be in the business of building a database. I want to be in the business of figuring out how we can be an infrastructure provider to institutions using blockchain. How can we provide the tools of disruption, which I think is what we do, and we do well?

That’s different from building more of a retail offering. When people talk about an exchange, you’re basically talking about a retail broker kind of mashed together with an exchange. We were never about trying to bring in the retail end user, which, by the way, is arguably a mistake. People have certainly been able to build very valuable businesses doing it.

The rationale for why we didn’t do it was that you look at the financial system right now, and it’s very fragmented. Everyone has different relationships with end users. You have JPMorgan, Bank of America, and all these other small banks. Everyone already has a financial relationship. Why go compete against those institutions?

Right. We’ll provide them with the infrastructure to enable them to come into the blockchain world—something they can trust that’s done in a regulated way.

And, by the way, I think now is the moment in time for us. That is very true. But what we didn’t appreciate very well was how, even if we were regulated, institutions would still be very hesitant to come on board.

Secondly, the regulation would be sufficiently ambiguous that people could go build big businesses and bring all these retail people on, but other institutions wouldn’t be able to respond. You actually had a very unusual situation that was completely exacerbated by what the Biden administration did. By preventing traditional institutions from coming on board but not preventing crypto institutions from doing so, you had a great way to acquire end users.

Right. And so people were able to do this across the board around the world, from Binance to Kraken to OKX to Coinbase. They were able to acquire customers because, if you wanted to trade crypto, you weren’t going to Charles Schwab, E*TRADE, or wherever it was. They weren’t even enabling it. Even if they were, it would have been 5 tokens, not 50, 75, or 100 tokens.

You could really build big businesses and acquire customers in a way that I had never imagined you’d be able to, because you thought Charles Schwab, TD Ameritrade, and all of them would just turn on Bitcoin one day.

Well, if someone could acquire 50 million customers, why couldn’t Charles Schwab turn it on? Or why wouldn’t they turn it on?

It turns out the regulations were much nastier than you thought they’d be. Robinhood did do it, by the way, so they were probably the one that—

But then they had to turn it off. Remember when they turned off Solana trading and then got back into it?

Got back into it.

It was because they had other ways the regulators were overseeing them. You could just operate with money-transmission licenses—no banking license, no trust license, whatever—and enable crypto trading. It was something that I had never thought would exist at any type of real scale.

So that’s why we maybe misunderstood how the market was going to evolve. But secondly, that’s partly what informed why we created Paxos in the way we did.

I looked at it and said, how can you create trustworthy infrastructure? Trustworthy wallet infrastructure and trustworthy tokenization infrastructure that would allow a replatforming of the financial system. We’re very happy to work with crypto firms, fintech firms, and traditional institutions as well.

Our goal was to provide that infrastructure to anybody. That would be a very valuable business, just like other infrastructure providers are. Exchanges—traditional exchanges—are infrastructure providers. Broker-dealers are not. Visa and Mastercard are infrastructure providers. The banks are not.

You look across the board, and there are different layers that tend to have the capacity to be a common utility. That’s what we’re trying to build. I think now is actually a moment when we can do that. It didn’t exist before because the Trump administration came in and started creating legal clarity, regulatory clarity, and policy clarity in a way that, frankly, was almost shocking.

Trump 1.0 was not all that positive for crypto. Obviously, Biden was not positive for crypto; we almost all went to jail. Now you’re in a completely different operating mode, and that means every institution is trying to think about what it can do.

I think we finally came around to where I thought we would have been a long time ago. When somebody says, “Skip the steps,” you of course had to go through this stuff.

Yeah. And you definitely needed to have all these crypto tokens get created, and you needed to have a lot of speculation get involved so that you could make it big enough and interesting enough that everyone felt like crypto was an asset class they had to be a part of.

Yeah, bubbles are great. Bubbles bring in capital and people.

That’s right. And the right kind of bubbles are great.

Yeah, the right kind of bubbles. Tulip bubbles are not so great, because that’s nonproductive.

But you’re not bringing capital and people into tulips. Productive bubbles are good, like AI.

Yeah, AI could be a bubble. That’s a good type of bubble. It’s not good to destroy capital foolishly, but there are different types of foolishness.

All right, what does your business look like today? The way I think about your business is basically regulated infrastructure for institutions and fintechs that want to come into crypto, right?

If someone wants to do real-world assets, stablecoins, or they’re a fintech app that wants to offer crypto trading, they basically go to Paxos. I think your customer list includes Revolut, Nubank, PayPal—I’m sure I’m butchering some of these—Mercado Libre, Interactive Brokers, and other very large institutions.

What is Paxos today? What are your revenue lines and products?

Our business really has 2 aspects to it. One is the wallet side, which enables crypto trading or payments. It might be Stripe, Mastercard, PayPal, Venmo, or trading. All of them have it on Paxos in the background.

You have wallet trading and wallet-like stablecoin infrastructure. Those are the business cases that are built on our wallets. We have custody, and we also have self-custody now. We purchased Fortify at the end of last year, so you can do different types of custody and different types of business logic from the custody we provide. That’s all the wallet infrastructure side, and that’s about half the business.

The other half of the business is tokenization. We have a white-label stablecoin business. It’s been with other firms in the past, but today it’s PayPal dollar and the global dollar, which we issue for the Global Dollar Network.

Global Dollar—is that USDG? Is that the one with Anchorage and Robinhood?

Robinhood, OKX, Kraken, and Mastercard are part of it, and there are about 130 institutions in the Global Dollar Network. We issue on behalf of that consortium. That’s roughly 50/50 revenue between the two sides.

We also issue Pax Gold. We have a gold token, and we’ve tokenized equities in the past. We’ll definitely do other types of tokenization in the future.

How do you make money? Is it a SaaS model? Is it an API-by-usage model? Are you making money on the pipes where money flows through PYUSD and taking a few basis points?

There are a couple of different ways that we earn, but if you wanted to simplify it, you’d basically say that, on the one hand, we might earn an asset-management fee for the stablecoin business. That’s what we earn. We don’t take the float.

On the wallet side, it’s some combination of a SaaS fee and transaction fees. You basically have some minimums for coming in and using our wallets and the different logic, and then the more transactions you do, the more we take—a small piece of the transaction.

4. Why Binance’s $BUSD Would Have Been The Largest Stablecoin

Yeah. Do you ever wish that, instead of sitting behind the scenes, you guys just did the end product? Like stablecoins—you guys are behind the PayPal stablecoin, as I understand it.

That’s right, yes.

But do you ever look at Tether and Circle and see USDC and USDT, and think, “We could have done that better?”

Well, we did do it better. It was called BUSD, and it was actually—

This was Binance?

The Binance dollar that we issued from our New York trust, in the same way we issued the PayPal dollar. Binance didn’t do any of the compliance or anything related to it. We simply had a business relationship with them. They were great partners, they had the marketing on it, and they had a big distribution system.

Yeah.

But it wasn’t any different from the way Circle is the issuer and Coinbase is a distributor. It’s just that instead of saying USDC on it, it would have said something like Coinbase US Dollar. There were lots of ins and outs related to what happened there, but that was going to be the winning dollar.

100%.

Do you feel so confident in that?

Well, basically, USDC depegged. It was going down.

Are we talking about First Republic?

Yeah, they had $3 billion, and the government had to basically bail out Circle. That was a completely different situation. Tether at the time was also going down, so BUSD was the third largest, on its way to being the second largest, and I think it would have been the largest. It was a completely regulated—

It had $24 billion in market cap—$23 billion. Wow, this is a crazy chart. What happened?

Basically, there were a couple of different things related to it, but our regulator at the time—the New York Department of Financial Services—made us wind down the relationship. They’re not a regulator now because we converted our trust company, and we also received a Wells notice.

Wait, NYDFS made you shut it down? Why?

Well, we got a Wells notice from the SEC saying it was a security, which is kind of crazy because I had met with the SEC and they said it wasn’t a security, and then we got a Wells notice saying it was. There was also a lot of pressure on the whole industry to get debanked. There was pressure on some of our other stablecoins, too, not to get launched. It was quite a trying time.

I think this was a coordinated effort because of Binance’s name on it, which, of course, could have been changed. It was a branding and marketing partnership. It wasn’t a compliance partnership, an operations partnership, or a reserve partnership. We were running the whole thing ourselves, just like we do for our other white labels.

I think that was a really unfortunate situation because this was issued through a regulated entity. We had a primary prudential regulator that oversaw everything we did, and so they could tell you what to do. That’s different from USDC, where they’re issuing under money transmission licenses, and Tether is unregulated. You basically had the unregulated players win at the expense of being regulated.

It was definitely confusing and really disappointing. But when you’re trying to shut down what seemed like the whole industry, the first people you can go after are the ones that are the most regulated.

Yeah, that sucks. So you were basically what Circle is to Coinbase—you were to Binance.

Yes.

Wow, yeah, this chart is crazy. For folks who are mostly listening to the podcast, there was $1 billion in market cap in January 2021. By the end of 2022, it was $24 billion.

Yeah.

Crazy. That sucks.

It was tough. That was a tough thing to go through.

That sucks. Is that the hardest thing you guys have gone through?

That was probably one of the most challenging. Certainly, the regulatory aspects related to it were probably the hardest part.

Yeah. Winding it down, I think you did a great job. You never depegged, by the way. But I’m more saying, you raise venture money, you tell them and the board your revenue projections, and you’re modeling out the future of the business. You can just do the math on a $24 billion stablecoin—how much it would be earning when you got up to 5% interest rates. Right? It’s $1 billion in revenue.

And, by the way, it was going to keep growing, so it wasn’t going to stop. Of course, we were sharing that with Binance, but nonetheless, you can imagine that’s a challenging thing to go through. It does certainly make you stronger because it forced you to really think about what the most important things are for you to be building and the ways in which you have a unique market position.

When you were asking about the white-label strategy, I think the white-label strategy was creating a scaled stablecoin winner. I think it will—I certainly think it will in the future—because I think it’s going to be very difficult for Tether to be a global stablecoin, given the way it’s positioned and even the fact that it’s not fully backed by dollars today. I think USDC is in a tough position because of the way its economics are shared with Coinbase, to the detriment of everybody else.

And so that does create opportunities. Maybe that’s PayPal’s dollar. Maybe that’s the global dollar. There are a number of global bank consortiums that want to launch dollars. Maybe they won’t succeed. We’re the infrastructure provider, and we want to help them succeed, but ultimately they have to manage the go-to-market and push the product.

So, would you like to have total control?

Yes. But if you really think about creating a neutral infrastructure platform that people can build off of, I think that’s a better business model in the long run.

Why hasn’t PayPal’s stablecoin—so, PayPal’s stablecoin is around $4 billion right now, which is solid, but it’s not massive. It’s not $24 billion in 2 years. Why isn’t it bigger?

There were a couple of problems. As soon as PayPal launched this, they received a subpoena from the SEC, which was public. That was difficult for them, and it slowed things down.

They have a big company, and they’ve been working on a lot of things.

CEO turnover.

They’ve been focused on trying to address a lot of things, and I think the stablecoin is very important for them. But it’s always hard to prioritize things, especially when you’re hamstrung again by a subpoena. That was a tough time.

I really applaud the effort they put in to push through some real adverse pressure that they were feeling.

5. The GENIUS Act & The Global Dollar Network

Yeah. Walk me through when the GENIUS Act got signed. I think I saw a picture, and you were there.

I was there, yeah.

Yeah, at the GENIUS signing. Maybe walk me through just how much the business changed from the GENIUS Act going through.

Stablecoins were obviously accelerating—you can look at the chart and see that—even through the Biden administration, partly because of the Bitcoin ETF and whatever it was. There were just a bunch of tailwinds happening for the industry. Then Trump gets elected, you have the negotiations that went on with GENIUS, and then you have a bill that gets passed that I think is a very good bill. No bill is ever going to be perfect, but it’s a good bill.

When a bill passes, you don’t need a bill to tokenize dollars. Obviously, you don’t. We did it before there was a bill.

Right. I mean, it’s pretty clear.

We were doing it on a regulated basis out of a trust company, and we’ve done it now from Singapore, Abu Dhabi, and New York. You don’t even need some special place to do it from. Putting a dollar on a blockchain doesn’t need a law.

Yeah.

But making something a law makes it unambiguous that it is here to stay.

Right.

If you’re different types of institutions thinking, “Should I get involved with this or not? I have a lot of other things. Maybe someone else is going to come along and change the rules again,” it’s a lot harder to change a law. That really forced every financial institution around the world to say, “What is going to be our stablecoin strategy? How are we going to respond to this? What’s going to happen?”

They’re not going away. They exist, and they exist in a way that can’t basically be put back in the box.

Mm-hmm.

I think that was the real significance of the law. It’s not easy to get a law passed. Some of the senators can tell you that thing almost died 10, 12, 15 times.

Yeah. I almost feel like now, having also lived through CLARITY, if a bill doesn’t die a lot of times, it was never going to pass. The market-clearing price for legislative language is the fact that everyone will walk away.

Mm-hmm.

That’s the way you find it, thinking as a markets person: the market price for any language in the bill is who will walk away from it. That’s the only way you get there. You have to have that; otherwise, there would be no controversy. A bill would just pass 100 to 0.

Right.

So if it's not going to pass like that, you're going to have people threatening to walk away.

Right. And you had that happen a bunch of times.

Yeah. And it wasn't easy to get this through, even though, in some ways, it's not controversial to put a dollar on a blockchain. People have done it; I've been doing it.

Yeah. We were obviously doing it, amongst others. I think it's a critical piece of changing the landscape for the industry. But there are different requirements, right? It's not only that you can put a dollar on a blockchain; it's 1-to-1 reserves, bankruptcy protections, monthly disclosure—all these things that you guys do. I'm assuming there's some sort of competitive moat there for you guys.

Well, in some ways, you could argue maybe there was more of a competitive moat before, because no one knew exactly what you needed to do. But I think the moat for us has a couple of aspects. One is that you can be regulated and GENIUS-compliant. Europe has a different set of rules. In order to create a token that is GENIUS-compliant but can also operate in Europe, you don't need to have multijurisdictional compliance. And we're the only firm that has issued a stablecoin where you have more than 1 primary regulator, but the token is fungible.

What about Circle? What about Euro Coin? It's not USDC in Europe, right?

They have USDC in Europe, but they don't have a primary regulator in the United States. They still have money-transmission licenses. So they actually don't have multijurisdictional compliance. We're the only one where you have 2 primary regulators. We have 1 in Europe and 1 in Singapore, and they have an agreement about how we can operate. Our goal here is to add the OCC as an issuing place so we can have 3.

That's pretty complicated to do. Just issuing a GENIUS-compliant stablecoin is relatively straightforward now. You need to go get an OCC trust or a state trust and follow the reserve requirements. So that's an important differentiator for us.

The second thing that differentiates us is that we operate at scale. We've now minted and burned over $200 billion of stablecoins, so we've had an enormous amount of velocity. We've been able to do this very successfully since 2018, I guess, when we first issued a dollar stablecoin. We've been doing white-label since then. We started with a Huobi dollar, and we did BUSD dollar.

I remember that. Why don't you partner with the exchanges again? It seemed like it went well. They're all coming to the United States, right? Bybit, OKX, all these guys.

Yeah. By the way, they're almost all members of the Global Dollar Network.

Got it. So OKX is a member, and BitMart is a member. Why would you structure it this way?

It's not so much us. We're the issuer of the Global Dollar, USDG. The Global Dollar Network is the membership. Anyone can join and be a member, and the whole point is that the economics can then be shared among those members.

If you have balances and you're a Global Dollar Network member, you can get the interest on your balances. You can decide how you want to pass it along, following GENIUS compliance and whatever rules you have. There's a network advisory committee and a governance committee that run the Global Dollar Network.

Paxos is a member of it, but we're just 1 member of it, just like anybody else can be. Anybody can join it. Running it that way creates something different from anyone else, where you have a degree of certainty about how the economics and governance are going to operate that you wouldn't otherwise get.

A $2 billion market?

$1.8 billion. $1.8 billion, yeah.

Yeah, not bad. It's been around for a year now. In what world does a Paxos-issued stablecoin challenge Tether at $180 billion? USDC is at, whatever, $80-something billion. What has to change?

I think there are a couple of things. One is that market share has been growing. If you look at Paxos-issued white-label stablecoins—BUSD, sorry, PYUSD, plus USDG—you're at $6 billion.

And that was basically $1 billion last year.

So it's whatever, 5 or 6x, which is gaining a lot of market share. You went from 20 basis points to 65 or 70 basis points, or something like 75 basis points. So you gained a lot of market share, but it's still a small market share.

The thing with PYUSD, USDG, or any other coin that has launched is that it takes a while to build some of the other network effects. You're competing on 4 different vectors. One is how you're regulated—we were just discussing that—and I think we have unique regulation for both PYUSD and USDG today, as well as any other person we're issuing for.

The second thing is how you're paying the rewards. Who are you sharing them with? Who's getting what? The third thing is your utility. The fourth thing is your liquidity.

Liquidity and utility are not the same thing. Utility is, “What can I spend it on? Can I use it in every payment network?” Liquidity is how easily I can get in and out of it. Liquidity is the hardest thing to build.

You can actually build utility more easily than you can build liquidity.

You've got to grow to grow, basically. Effectively, that's it.

Now PYUSD being at $4 billion opens it up to a whole different set of markets than you would otherwise be in. That's why market cap matters and liquidity matters. It's not the only thing; you want velocity, too.

You can have fake market cap, where you just manufacture it. That's a vanity metric, and vanity metrics can be valuable because people respond to the numbers they see. But ultimately, if you're asking what's healthy, it's how many wallets are using it, what the transaction velocity is, how many transfers are happening, and how it's being used.

You could have a $10 billion stablecoin that's worth less than a $2 billion stablecoin because it was just sitting there as 1 person's treasury, not moving at all. That's not actually creating healthy usage.

Yeah, it's not like adding to GDP on stablecoins or anything.

Exactly. It's economic value.

6. Agentic Payments

Maybe you're talking about that. What are your thoughts on AI agents? We just had this Digital Asset Summit, and a lot of people are starting to talk about agents. Where are we in that evolution?

It's hard to tell exactly, but it's going to change everything. It's super early, obviously.

Yeah, it's early, but you can already put an agent with a MetaMask wallet and say, “Come up with a strategy.” You can put $100 into a MetaMask wallet—whatever you want—and say, “All right, come up with a strategy and go deploy.”

It'll do it for you. You can say, “Take more risk. Take less risk. Take a lot more risk,” and it will. You can already see it happening at the edges.

There are some very interesting companies we're talking with that are trying to think about how AI actually changes the entire way in which you use the internet: how you go to websites, what information is pulled from them, and how much of it is an actual person using the internet to purchase something versus simply understanding the competitive landscape or scraping information.

You can start to create payment for bot movement in a different way. You're definitely going to have agents go do things for you—“Go book me this thing”—and you're going to want to be able to use stablecoins. We definitely see this happening, but it's also quite early.

But the pace at which AI is moving—in 6 months, I still found it relatively mediocre in a lot of things.

Yeah. Now I have Claude Code, and I'm coding stuff. I can see, “Oh, I wish I could tell the agent, or tell Claude, to go do this thing or that.”

Yeah, yeah.

Whatever.

Book my flight. Or, just get me some more testnet tokens from Solana or Canton or something. Or I want to go test something on Binance Smart Chain—go get me the test tokens. Go get me some tokens. I don't want to have to think about it.

Yeah. Here's a wallet; you just go do the whole thing. You can already see this happening in the process of coding.

It's very quick. It's interesting. I feel like this is the most pessimistic that crypto natives have ever been. This is a very interesting time in the industry, I think. It feels like a real line in the sand, where crypto people who have been building for so long—a decade plus—are actually very pessimistic on crypto right now.

Mostly because a lot of their tokens are down and stuff like that. But we just had this conference, DAS, and the institutions are the most excited they've ever been in the history of the industry.

Mhm.

I was just in San Francisco for 2 weeks, meeting with a lot of fintechs, AI companies, and payments providers.

That's interesting. Yeah.

They're also the most excited they've ever been. It's a very interesting time in the industry.

Well, I think that's pretty consistent. First of all, people are bearish. I remember feeling like the village idiot when Bitcoin went from $10 to $1.

Yeah, yeah. You have to put some of these things in perspective. If you told me we were going to have the most pro-crypto administration and president you could ever possibly imagine, and the average token would be down 80% and Bitcoin would be down 50% 15 months after that, with legislation having passed, those would feel like completely mutually exclusive possibilities in the world.

And yet they exist together right now. I think that's probably part of the reason why people are pessimistic, because you're going, “What more could we have hoped for? What were we praying for?” This is what we were praying for. This was supposed to be the crypto golden age. That's what I thought it was going to be.

Not the crypto price golden age. You know the Meek Mill song, “I Used to Pray for Times Like This”? That's how I feel right now. That's how I feel. Someone was giving us crap because there were all these institutions on stage. They were like, “Hey, put all these suits on stage.” I was like, “I used to pray for times like this.”

This is what we wanted, right? What we've been asking for for a decade.

I'll be honest with you. I do think this is a crypto golden age in many ways, but it's not a crypto price golden age. It's partly because there are a lot of existing projects that, as time goes and cycles through, have to bring something valuable to fruition.

You have the 25th chain that nobody's using. You have a DeFi protocol whose TVL was sustained purely by farming strategies, and you've run out of money. That was never going to be a sustainable business. You were trying to build a network effect and you didn't. By the way, that's totally fine, but that's why you're going to have a winter, and you've had these before. You had ICO winters. I know it wasn't during the golden age, so to speak.

Yeah, yeah. Even after DeFi, we had Terra Luna.

You had a lot of examples where things just got wiped out. There's no central bank here propping up crypto.

But that's also the good thing, because you have so much more freedom to go out and operate.

Yeah. It's going to be painful in many cases, but I think this is actually when the best time to start crypto businesses is. When everybody's raising money and the FOMO is crazy, and you walk into the Marina Bay Sands and you don't know what you're looking at, that's not the right time.

7. Will Paxos IPO?

You want to talk about raising and IPOing? Sure. You guys have raised like $500 million? $530 million? $540 million?

$540 million. $540 million.

Yeah. So you raised—first of all, that's a colossal amount of money to raise. In hindsight, do you think you had to raise that much money?

I think the more money you raise, the better in a business like ours. We're in institutional infrastructure. People want to know you're going to be around. If they're like, “Oh, yeah, you're going to spend all the money and do another raise in 2 years,” people are like, “Why would I want to use you for a 5-year contract?”

So you actually need to have capital in the bank to be able to depict trustworthiness just from a balance sheet. Obviously, there are other things that depict trustworthiness: Are you regulated? How well have you operated? What are your security postures? But having capital is one of them.

When I'm looking at a valuation of $2.4 billion from 2021, have you raised since then?

No, we haven't raised since then.

You haven't raised since then? That's cool. Do you think you'll IPO?

Very likely. It's always hard to be definitive, but I would say very likely.

This year? Next year? 2028?

I mean, the farther you get out, the more the likelihood goes up. The longer answer to that is that the whole point of capital structures is that they help your business.

It can help your business just because you have more money in the bank. It can also help your business because the people who invest in it can help your business. That might not just be VCs; that could be strategics. PayPal's an investor, Interactive Brokers is an investor, and Mercado Libre is an investor. Bank of America is an investor. We have numerous strategics that are investors. Even Coinbase is an investor in us.

So that's great: bring strategics in. We can go raise more money from strategics, and that can help our business—people who are our customers who want to participate in the equity value that we create.

You can go public, and that also is a way of creating value, because you change your brand and your immediate access to capital. People can say you have more—

More people know you. More people know who you are.

More trust, credibility. There are also costs to being public. So you have to just say, “When do I want to take on a certain cost in my capital structure versus the benefits?”

While you don't necessarily think of being public as a cost to your capital structure, it really is. You have all these different things you need to do and ways you need to explain things.

I think there's a valuable lesson from looking at a lot of the companies that have gone public in this first wave. You need to have the right level of momentum in how your revenues are growing and how they're going to continue to grow, and be able to have the consistency to make quarterly numbers in a way that the Street and the market wants.

These are complex businesses. They're not easy to understand. Crypto goes through cycles. It doesn't mean that you shouldn't be public, but it can also be counterproductive.

You create liquidity, but if you create liquidity at the wrong price because someone doesn't understand it, versus being in the private markets where you can go create liquidity—what's the difference? You have other mechanisms.

You don't want to go out into the private markets every single year to enable employee and shareholder liquidity. But the last thing you want to do is be in a position where you're sitting here and the stock price is misunderstood and you're down in the single digits or lower.

There's some statistic—what percentage of stocks below $5 go to zero? I think it was 80% or something. Who wants to be battling that and doing reverse share splits?

Yeah. I think BitGo is down to $8. It's down 55%. It's not that Bitdeer doesn't have a successful business, but people decided they don't like it today. So you're getting weighed.

What's your story? These are complex businesses, right? I remember when BitGo filed, and it was like, “Okay, is this a SaaS business? Is this an AUM-type business?” Those all get different multiples, right?

Definitely. SaaS businesses are getting worse multiples now.

SaaS got rerated. I was talking to the CEO of one of the big exchanges, and he's like, “Look, I'm even trying to figure out whether we should talk about ourselves as a payments business, because those get slightly higher multiples than exchange businesses do.”

And not slightly higher. Much higher.

Much higher businesses. Much higher businesses. Yeah, you know, 2 times higher multiples. Exactly.

He’s thinking about getting out in probably 2027, and he said, “We’ve got to think about retelling the story.” So how do you think about your story? People love analogies, right? Are you the Stripe of crypto?

Sometimes you don’t want to be the something of something else. Maybe you’re the nothing of anything. It’s a good way to put it. The last thing you want to be is like, “I’m the Uber of the crypto movement,” or something. You’re really nothing. Reasoning by analogy oftentimes leads to the wrong conclusions, but it’s also helpful, too.

It’s helpful for marketing purposes. I think there are a couple of different components to break down here. One is, if you look at the price of Bitcoin, it’s pretty interesting. It almost looks like the chart of software stocks, which is kind of interesting. So it’s trading like something that it isn’t.

Then you have a bunch of crypto companies that are also trading like software stocks in many ways. You’re constantly trying to think: What is a TAM? What is a TAM for this business? How big can it be? If you’re just trading crypto, and all these things are going down 80%, and you’re in the depths of winter, you’re like, “Maybe this TAM is really small.”

I think that’s why people then go, “Well, maybe we should talk about payments.” Guess what the TAM for payments is? Enormous. You have the market caps of just Visa and Mastercard, which are well north of trillions of dollars, and that’s only one piece of the payment puzzle.

You’re looking at all this stuff, and you’re talking about trillion-dollar market caps. You can dream really big dreams for payment companies, and they can grow really fast for a long period of time. You’ve seen this with other companies like Toast, Clover, and so on, where they can grow really fast. There are incumbents that can get disrupted, so you can keep gaining market share, plus the market is growing fast.

Toast is a $15 billion company. Did you know that? It’s grown a lot. They’re a great product and mission-critical. I don’t know how it’s done recently, but I was talking to a superuser of it, and he said, “This thing is mission-critical. I can never replace it with AI, even if I wanted to. Toast, you can’t replace.”

It’s too much of the business—the whole restaurant or whatever.

It’s just too much of the business that runs on it. I couldn’t take the chance that I vibe-coded something up. He’s a pretty savvy person. He runs a very successful restaurant business with $30 million in revenue and a bunch of restaurants. I don’t know if he’s right, but that’s why I think everyone is like, “Well, I have to describe myself in a different way.”

To me, I look at our TAM, and our TAM is enormous. We’re trying to replatform the financial system. There are $900 trillion of assets. How do I get them onto a blockchain? You’re basically at around $300 billion, so you’re at around 3 basis points. We’ve got a long way to go.

If you do this successfully, you’re going to be able to build a very big business doing it. I don’t think that it looks like Stripe, per se. They’re a payment service provider, so they’re going out and acquiring merchants. We don’t want to acquire the end user.

Stripe is our customer. Mastercard is our customer. Interactive Brokers is our customer. In some ways, you could argue that we look more like a Visa or Mastercard, but we’re not, because we’re not trying to acquire the end user. They don’t either.

Yeah, yeah. Like a card rail. It’s like everyone goes crazy. Or the DTCC, something in stocks and bonds.

That’s a good one. You’re an infrastructure layer that others can build off of. Now, it’s an open system, so it’s not a closed system, and the analogy starts to break down.

I also think there are elements that make it look more like a marketplace model. If you basically said, “What is Paxos?” we’re the infrastructure provider so that you can operate on the blockchain. We do that either through tokenization or through wallet software. Those are the ways we operate.

Most of our customers want to use both. They want to use the wallet software, which is distribution, and they want to use the content we’re providing, which is the tokens. You have demand, and you have supply.

I think that’s why a lot of other businesses are wondering, “How should we approach this so that we can be big enough?” By the way, that’s why we always had—if we go all the way back to the beginning of this conversation—why did we position Paxos this way? It’s because I wanted to be playing in the biggest part of the TAM to build the most valuable business.

It was also the hardest place to be. The easier place was to go monetize crypto prices, build an exchange, or whatever.

What have you learned about acquisitions?

I think you have to be very careful about acquisitions because 80% of them fail. Every time I make an acquisition, I always say, “80% of these fail. How do we make sure that this one doesn’t fail?” It’s not because those people aren’t smart, so you have to be very careful.

There are 3 different types of acquisitions you can make. One is to buy some revenue and fire everybody. You just buy the client list. The other is to buy a division and just let them keep running. They’re always going to run because they’re going to remain independent.

The third and most difficult one is to buy something that you’re actually going to integrate into your business in a full way. That’s the one you have to be really careful about. You normally don’t make those acquisitions without really thinking about how they’re adding to your product set and your ability to help your customers.

What did you do with Fortify and Membrane?

With Membrane, we’re buying licenses to be able to operate in Europe.

You’re buying licenses.

We’re buying licenses to be able to operate in Europe, so that’s relatively straightforward. It’s hard to make that fail. You might not use those licenses; that’s maybe how you would call it a failure. But we are using them, so you’d say that’s a success.

With Fortify, we’re not going to have them be independent. We want to use their wallet technology in ours, but you have to be very careful because they’re growing fast and doing great.

A lot of failures are big companies buying a small company. We’re 200 people, and they’re 45 people, so we’re only bigger compared to them. Neither of us are big. That also means we’re all spending 100% of our time doing other things. If we’re going to do the integration, it has to have a good ROI.

How do you make sure our customers will be able to benefit from their wallet technology? Their customers can benefit from our regulatory structures in certain cases. How do we make sure that our customers want to be able to access DeFi markets, which is what they’re really great at?

I never put that together. I know. It’s been a little while, too.

That’s what they’re known for. They’re institutional, so they have the same type of customers as ours. They have something orthogonal that our customers want, and they have a specialty that we don’t have. To me, that’s the recipe for how you make a good acquisition.

We’ve looked at other ones. There are other places that we would potentially want to acquire in the tokenization space and potentially in some of the stablecoin infrastructure space. We’re out looking for acquisitions, and I expect that we’ll make more, but we’re going to be very careful about making sure that we structure them in the right way.

We’re not just trying to spend money just to spend it. That’s not what’s going to make a great company. That’s what we think about every day: How are we going to build a great company? How can we build a generational company?

8. Advice For Founders

Do you have any advice for the many founders who listen to the podcast and are also trying to build a generational company?

I have so many things that I could impart. I’ll try to make sure I order them correctly. I think one of the most important things is prioritization. What are you actually going to do? What are you not going to do?

Everyone always talks about it, and you feel that even more in crypto because you can go do a lot of things. We’re a horizontal company. We’re horizontal infrastructure; we’re not vertical. A lot of companies try to be vertical.

If you’re vertical, it can be a little bit more consistent because you’re like, “I’m only going to have one type of customer, and I’m going to do the entire thing for them.”

But it does mean that you’re maybe limited. “I’m just going to be a crypto exchange or something.”

Right.

How do I branch out into other things? Whereas we’re horizontal, we’re providing different types of infrastructure. So how do you decide which ones are going to be the most important to create a flywheel effect for your customers? How are you constantly thinking about what you’re prioritizing most that’s going to create a flywheel effect for your business to grow faster than it would if you just did something that’s going to create linear growth?

Mhm.

That’s, I think, the heart of the matter, because you need to be able to create accelerating growth. That’s what’s so important. You have to be careful about that, and you also need to be consistent. It’s very easy to get turned around. What do I think is true today, and what do I think will be true in the future?

When I have new information, I’ll change my mind, but I can’t just change my mind every time Twitter decides that something else is cool and hot or whatever, because then you’ll definitely find yourself unable to create product velocity. I think those are maybe some of the 2 most important things. And then, of course, you want to have as few people as possible for as long as possible.

Yeah. Yeah, I’m surprised you guys only have 200 people.

The bigger the company, the more coordination costs go up. Big companies aren’t stupid. It’s just that you have more degrees of connection that need to happen.

Now that you have AI, I would always say that, no matter what, you have to lean against the idea that somebody advances in their career because they have more people they manage. It should be people advancing their career because they have more responsibility that isn’t necessarily related to people. It’s related to how they built a really successful business and were able to create leveraged ways to do that. AI makes it easier and easier than ever.

This used to be more complicated. You needed more people to do things. If you’re not hiring great people, the marginal productivity of a person, no matter how good they are, when you add them in, is always going to be very low. You want it to be positive. I suspect for most companies it’s actually maybe slightly positive or negative.

Yeah. And you don’t even realize it.

Yeah. Fewer people move faster and are able to create product-cycle leverage.

Nice. Any tips for fundraising?

You really have to think about who you want to be your investors. You have to think about the duration of their capital, and you have to think about how long you want to be running the business. If you’re like, “I want to operate for 20 years and build a business for the next 20 years,” you’re going to think a lot differently than if you’re going to build for the next 5 years and sell the company.

Mhm.

Because you need to have capital that can mature with you. You want to make sure you have capital that can be there and not just give you dollars, but give you really important learnings along the way. Some of that might mean wanting to have strategic capital that’s permanent. It could be company capital, it could be sovereign wealth capital, whatever it might be.

You have to try to match the duration of your capital against the duration of your business, and you have to make sure the quality of that capital matches the quality of the business you want to create. That’s really important.

When you’re going to raise any individual round, it’s really important to understand those factors against what you need in that moment in time. It’s so easy to say, “I’m just going to show the metrics that I need for the next round.” On the one hand, that is true. You need to have metrics because that’s how you show that you’re growing and building a business that’s valuable.

But if you’re just chasing the metrics, then you’re going to have a real different problem, because that ends up not being a business anymore, and you end up hitting a ceiling and running out of headroom. Raising capital and forcing yourself to go out and try to raise a lot of capital can be a good forcing function, but it can easily be a very bad forcing function. You chase the wrong things.

Getting that product-market fit where you can really see the accelerating cycles is not easy to do. It takes time. Keep going at it and stay as lean as you can while you’re doing it.

Yeah, agreed. Anything that you wanted to cover that we didn’t touch on?

I don’t know. We’ve covered a lot of ground, but I feel like we could probably keep going. No, I think I feel happy about everything we covered here.

All right, good. Good, Charles, thanks so much.

Thanks for having me. Cool. Cheers.