Tokenization of Gold and Tether Gold: What Does It Mean For Investors
Summary
Bitcoin: Guest views the recent pullback as a buying opportunity, citing leverage washouts and fiat debasement cycles as supportive of higher prices ahead.
Crypto Derivatives: Detailed explanation of perpetual futures, funding-rate mechanics, and the attractiveness of basis trades, with key risks centered on counterparty and operational exposure.
Coinbase (COIN): Discussion of Coinbase’s international derivatives platform and 50x leverage move within the broader context of perps history, market-maker utility, and retail access limits.
Tokenization: Tokenized assets offer 24/7 trading, faster settlement, and easier collateralization versus ETFs, but face high switching costs and will likely see gradual adoption in developed markets.
Emerging-Market Use Cases: Tokenization may advance faster in places with weak registries (e.g., land titles), providing superior ownership proofs versus legacy systems.
Stablecoins: Tether/USDT exemplifies tokenized USD velocity; the issuer captures T-bill yields and has become a major Treasuries holder, enabling rapid movement of liquidity across crypto venues.
Gold and Tokenized Gold: Comparison of Bitcoin vs. gold properties and correlation, plus tokenized gold advantages over GLD (GLD) for payments, weekend trading, and collateral mobility.
FRNT Financial (FRNT): The guest’s firm is a publicly traded specialty digital-asset investment bank with capital markets and advisory services for institutions entering crypto.
Transcript
[music] Stefan, thank you very much for joining us today. One of the things I love about financial markets is that they're always evolving. We're always seeing new products and new concepts. And some of the concepts I want to discuss with you today include tokenization, stable coins, and also perpetual futures. But before we do that, why don't we start with a brief overview of your firm FR&T Financial? Where is the firm based and what services does it offer? Thanks, Jimmy. Thanks for having me on. Uh yeah, so so starting off, FR&T Financial was founded in Toronto. Um we've expanded globally since I'm currently sitting in London. FRT has an FCA registered uh subsidiary. We have uh people all down the east coast into even uh the Caribbean. And then uh you know we uh we touch Europe and we touch Asia as well. Uh FRT is what we refer to as a specialty digital asset investment bank. And so essentially it's been created to service institutions as they enter and build out their crypto uh platforms. Let's say uh we service just like a traditional investment bank would primarily you know asset managers, hedge funds, pension funds etc. on uh the trading side and then on the corporate side we cover you know whether it's a bitcoin miner or a new project and all of that kind of stuff. Uh we're set we're set up very much like a boutique investment bank would. The correlation I give to kind of traditional markets would be a commodity specialty investment bank where we have two primary business segments. Uh one we refer to as capital markets which is our daily transactional activities. So that's physical often block trading of cryptocurrency. We have a borrow lendes. We have uh which has a lot of technology in it and we broker transactions for the most part and we have a derivative and structured products desk where we create you know multi-leg derivative structures for clients either trying to attack an opportunity via swap or uh uh some other kind of structured product to CFD um and you know just do straight kind of futures bilateral trades options bilateral trades. We then also have advisory where as I mentioned we work with you know digital asset companies often private uh that you know aren't getting serviced in the right way from the bank. Sometimes that's just because we get it sooner. You know our teams spent for the most part a decade in the space and uh we can see the opportunity for a new build often quicker just because of the expertise that we have. And sometimes these companies want to do something the investment banks just can't like raise money denominated in Bitcoin like la like um you know bring in a line of credit denominated in stablecoin. And so we fill in those gaps where the traditional investment banks uh you know don't participate. We also do consulting for traditional financial uh firms and others uh within that advisory segment. So that's FR&T. Great overview. So you're the perfect person to speak to about some of the concepts that I mentioned. But before we do that, I want to get your views on what's happening with Bitcoin right now. We recently saw a sharp pullback in financial markets across the globe. And Bitcoin and cryptos got it hit especially hard. And I read it was the largest liquidation event in crypto history. Bitcoin lost $19 billion in market value in a short period of time. Stocks lost US stocks lost $2 trillion. So I guess when you compare it to the US stocks, Bitcoin didn't really lose all that much. But what are your thoughts on the Bitcoin price and does this volatility concern you at all? So, you know, a lot of like having the largest sell-offs or the largest liquidations in history when you're talking about it being denominated in US dollars is a function of the market just increasing in size and going up a lot. So, as the market makes new and newer highs, by definition almost they'll have the largest notional sell-offs and the largest notional liquidations and all of that when being priced in US dollars because, you know, we're at $120,000 Bitcoin right now or give or take. We were at $100,000 $20,000 Bitcoin and you know historic in the last market cycle we only got up just above 65. So, uh that's that's the first thing. It's kind of a product of the asset success. Uh secondly, you know, the volatility and aggressive pullbacks have been, you know, very much kind of uh, you know, table stakes in digital assets over the years. Uh, there's a lot of reasons that contribute to that. I think the first reason is that you're dealing with a global asset that's growing from a standing start zero and is starting to emerge as a very big as a very big and important asset, but still relatively small. So, you've got this, you know, you've got the world kind of slowly getting into this asset. And as as we know, when sell-offs happen, you know, sell-offs happen more quickly than rises tend to happen. And just by nature of there being it being a relatively small nason asset, a whole bunch of people get spooked because of of a headline that has recently happened, it tends to just have these momentum waves where things sell off. In addition to that, um, you know, there is a lot of leverage that is available in the cryptonative landscape. So, it's not leverage in the traditional sense where someone is, you know, writing an over-the-counter loan to somebody, but there's a lot of CFD like products if you're, you know, if your uh listeners are familiar with that, where there's embedded leverage where essentially you can in you can you can you can define the quantum of your move. So, you'd say, you know, if I if I want a $1 move to look like a $2 move or if I want it or if I want it to look like a $5 move, that just means that on the down swings, you know, I could be wiped out of my derivatives positions much quicker than if I was just holding them fully collateralized. So, there are a lot of kind of embedded leverages in in the space. Retail, it's a really retail dominated market. They tend to be a lot more loose with leverage than institutions generally are. And so you do just by the nature of, you know, having these major momentum upswings, you know, the downswings, you know, particularly as the markets become more correlated with traditional assets because of things like ETFs being widely available and all that. You know, macro headlines have led to sell-offs. But I'll caveat that one of the best trades, you know, you know, uh, of size over the last 18 months has been when a macro headline causes a riskoff trade, which brings down Bitcoin to be a buyer. I mean the first time this has happened in in recent history was in August 2024 where the Fed you know showed their hand that they would be cutting rates for the first time in the fall. It created a macro kind of upheaval where like major books were had to shift to accommodate that and Bitcoin sold off from about 70,000 to 50,000. It made no sense. Bitcoin is traditionally a market that does very well in fiat debasement cycles which we are in and you know getting more aggressive. That would have been a great purchase to buy at 50,000. And I think we we saw the same thing when we started to get the tariff concerns in in you know Q1 of this year, Q1 and Q2 of this year, those have been great purchases to make. So yeah, it's uh it's uh you know, a lot of the macro concerns actually build out the Bitcoin thesis. So even though there might be a knee-jerk reaction lower, ultimately over time they tend to recover and make new highs. >> So it sounds like you're not too concerned about this pullback that we recently saw. You see this as a buying opportunity? >> I see this as a buying opportunity. you know, makes the market healthier. When le when leverage gets extended, you know, if short-term leverage gets extended, these moves are more likely to happen and then it kind of sets up an opportunity for a new run. You know, I'm talking about leverage getting extended, but we have not seen leverage get nearly to the levels that we saw in 2021. I mean, you know, we're yet to really see the type of fear of missing out style momentum moves that have typically come at the top of market cycles as seen in 2017 and then 2021 where you know the the internet attention and internet activity around Bitcoin searches and crypto searches just goes through the roof. Volumes still haven't hit like the levels in maybe in US dollars. They have had certain days because of the assets appreciation, but actually in Bitcoin denominated terms, volumes are well off some of the levels that we've seen in that we saw in 2021. And we haven't seen the the level of kind of mid and long-term leverage get to the crazy crazy rates we saw in 2021. Like the the level I I would have said that, you know, the the risk level for leverage, you know, in the most recent liquidations that we saw was kind of yellow to orange. we've seen it get go push right through yellow right into orange and into the red and that's kind of when you start to get these blowoff tops that have have typically come into the space and you know this market cycle's played out longer and we're yet to see that. So until we start to get the kind of activity that I described and anecdotally like everybody every room I talk to is talking about crypto, you know, every I'm getting calls on the weekends from people I went to high school with that are asking me about how to work their Coinbase account, which is what I was getting in 2021. You know, I'd like to think that the highs are not in and I'd expect that we're probably just getting out of we're somewhere between the first third and halfway through this market cycle would be my best estimation. >> So quite often Bitcoin is referred to as new gold or digital gold. So I have to ask you about this relationship now. And gold has done extremely well this year. It's up over 50%. Bitcoin's up around 20% on the year. Uh JP Morgan recently said that Bitcoin is undervalued compared to gold. I'm not too sure how they came up with that analysis, but they also said they see a pathway to $165,000 for Bitcoin. What are your thoughts on this? Are you as bullish as JP Morgan is? >> Yeah, I am as bullish as JP Morgan is. Um, I think it's a question that I get that it's, you know, like first of all, just just talking about Bitcoin is digital gold. You know, I think that as market participants that have been used to trading assets that have been around for a long time, people tend to define uh things having similar properties as having correlation, like a very tight correlation. And so, you know, the properties of of Bitcoin and gold are very similar. I mean, in in if you think about, you know, it as being like a store of value or something that is is something where you can self-custody, maybe that's a better example. You can have your own private Bitcoin wallet and you can take a gold bar and leave it in a safe at home. That is very similar. You don't have to have an intermediary stand between you and your gold bar. In the same way, you don't have to have an intermediary stand between you and your Bitcoin. You know, gold has not a fixed supply like Bitcoin does, but there is, you know, a supply that isn't necessarily impacted by government policy or something like that. So, there are a lot of properties to have in gold. It's like the, you know, it's like the rainy day fund where if the banking system fails, I'll still have my gold. It's the same. It's a very similar argument with Bitcoin. So, they do have very similar properties as I was identifying where that where that tends to cause people confusion is they don't have uh they don't always have a tight correlation. And uh I think that there's a few reasons to that. Uh first of all, uh I think that you know you've got to think about about Bitcoin differently than you have to think about other asset classes. There isn't like a consistent new set of people that are learning about gold that didn't know about gold yesterday that are ready to dive into gold for the first time. Gold is a very well-known story and people have understood the value of investing in gold. Basically, since they've entered markets, you know, like when you enter markets, one of the first lessons is when when when does gold typically go up? It's an inflation hedge, etc. People are still getting very heavily indoctrinated into that thesis for Bitcoin. So what tends to happen is that when you get these inflation sp like that that you get some you know whether it's economic data or some other indicator that inflation is going to spike gold reacts immediately right what tends to happen in in in Bitcoin is that more and more people start to consider the possibility of basically hedging themselves out of the current financial system the banking system the fiat system and that happens over time it's not like everybody gets the same idea on day one someone who hasn't boughten Bitcoin before sees all the the the fiat currency debasement and might say to themselves you know what I should probably allocate 1 to 2% of my portfolio into Bitcoin because I see it as hedge these things and they've never done it before they might not decide to do that the second that a piece of economic data comes out right so there's there's kind of an other kind of adoptive force that is that has this underpinning to Bitcoin which tends to miss its correlations in addition to that it's relatively new a lot of people disagree on what this asset is whether it's a inflation hedge whether it's a risk asset whether it's technology etc And so you have moments in the market where the speculators who are also long NASDAQ and are also long you know Nvidia also buy Bitcoin. The market goes up and then as the market as the equity markets turn let's say they risk derisk their entire book which includes Bitcoin and then what you tend to see is that you'll and there's a lot of data that you can have on this in terms of wallet transactions onchain activity. you tend to then see, you know, the speculators leave and it develop a new base out of people that are going, wait, the reason why I'm in this thing is because interest rates are going lower. The reason why I'm in this thing is because there's a global financial system that seems to be changing a lot and in chaos and then you get the, you know, find some support and it continues to kind of kind of push higher. So, um, you know, I that's the way I'd characterize the gold and bitcoin relationship. There are times where it does heavily correlate when the speculators are out of the market and everybody who uses an inflation hedge starts it starts to starts to buy. But if there's crossorrelations held with, you know, other risk assets, it it'll buy just technical technical justifications straight down with them. >> And I think another characteristic between or difference between the two is the demographics. Uh I'm assuming gold probably caters to an older demographic. Bitcoin and cryptocurrencies a younger demographic. Would you agree with that? >> Absolutely. I mean, it's, you know, I, you know, we're publicly traded stock. We're on the TSX venture. So, you know, I have to pitch to a lot of IAS that have been in the industry for a very long time and all of that. and and and you can see that there is something about value being held in the digital world because it's not something you can hold and all the usual reasons that seems to make it very hard to visualize for for people in terms of what do they own if they've you know if they're if they're older. I mean it's not a rule like there's all kinds of of people that are very sharp in the space that are older but it does tend it's a generalization but it does tend you tend to see that more often. The younger generations which are typically what you know the younger generations uh interest and adoptions typically are very good indicators of future success are very comfortable with the concept of a digital asset. I mean, there are, you know, people that uh play online trading card games like on, you know, on PC games where they play, you know, whether it's FIFA or something. And these people are spending thousands and thousands of dollars a year on buying a digital trading card that in most cases only has a one-year life cycle and then the new game comes out and you can't even use it anymore. Like, this is not an unusual concept. And the things that are kind of that that people have heruristics around in terms of how they assess value for a young generation are just totally different. Like it's just it's a it's a complete like people who have grown up with the internet and grown up with computers under like feel as though things that are on the internet are valuable. You know, they're and they are they're attention. There's all these, you know, other other kind of real world items that you could associate with why they have value. But um it's just not a it's not a hard thing for a 25-year-old to wrap their head around. And it is it does seem to be a tricky thing for a 65-year-old to wrap their head around in many cases. >> Yeah, you you raised a very interesting point and um here's something I read recently. On any given month on YouTube, there's five to six million searches on anything and everything to do with trading, equity trading, FX trading, whatever. But there's 50 to 60 million searches on sports betting. So, it's the same sort of thing. We have this younger generation that are really into sports betting now. It's almost become like a >> I think that there's some >> there's also some economic factors. I think there's a gamification element for sure. That's kind of a new kind of online concept as well. But, you know, the when when I grew up, you know, if you were the top of your class as a lawyer or and you you know, you made partner at a firm, you'd be extremely wealthy in one of the buying a house in the nicest area in town and all of that. Now, the people that are doing that, you know, now, like, forget the lawyers. Like, if you're not, you know, in one of those high-paying roles, you're trying to figure out like, I can buy a house. You know, I can like my account is at zero every month. Like, this is the situation that many millennials find themselves in if they don't have any inheritance or anything like that. You know, they're they're struggling to keep their head above water. So, the idea that I'm going to earn 8% annualized in a dividend stock, like, you know, it used to you used to be able to do that math and go, "Oh, then I'd be able to buy a house by the time I'm 40." the math doesn't work anymore. It just doesn't work anymore. So, people are looking for windfalls and they're looking at at sports betting because, you know, there's a lot of different elements of sports betting where you can convince yourself that you're going to hit a 16 leg parlay on the weekend and you're going to be able to quit your job on Monday. So, you know, the companies are really playing on that angle. But in in crypto, you you can hold a token that doubles in a year. You can hold a token that doubles in a week. And so it continues to draw this attention from these people that feel like they need to have a windfall to get where they just expected they would in life, you know. Okay, so speaking of windfalls, let's talk about perpetual futures now. And this is something else I keep reading about. 70% of all Bitcoin trading volume is through perpetual futures. What exactly are they and why are people so interested in them? Yeah. So, perpetual futures are a concept that emerged out of digital assets. Uh they're uh they're not something that's well recognized on Wall Street. And I would imagine like I you know, I haven't done it for a while, but years ago there would be very small percentage of Wall Street traders that even knew what they were. And you know, today maybe it's more like 50%. But it's still even to like very sophisticated derivative traders a concept that isn't on Wall Street. And the primary reason for that that it's available that's able to exist in digital assets is because of 24/7 markets. And so what a perpetual future is, it's a future that never has an expiry date. Okay? And so how do you launch a future that never has an expiry date? Brief overview of futures. The reason why the underlying and a future stay relatively connected throughout their life history is because you know that on the expiry date the future and spot are going to close at the same level. So that's that's known. So there's an added incentive for arbitrageers if the future because people just say someone's outright buying the future and starts to bring it beyond the spot level. If I buy spot and short a future and put on that basis trade, I'm going to get that spread on expiry, right? So how do you incentivize the arbitrageers to maintain that spread if there is never an expiry date, right? And so that is the mechanism that was kind of the innovation of a perpetual future. And the way that they're operated is that um and there's a couple different models for it, but you know the model that really BitMEX popularized, which is kind of the the main model, the way Binance operates their perpetual swaps, is that there's eight hour windows where they they have an equation where they look at the book and if longs are outweighing shorts, then at at the eighth hour of that window, they a little bit before they start to announce what the incentive is to go the other way. So they'll basically say for the next 8 hour window, we're going to pay shorts, you know, this many, you know, daily basis points, you know, like prorated, which incentivizes the shorts to then go long, which then incentivizes someone if they're trying to incentivize shorts to buy the underlying spot asset, short the perpetual swap, and get the interest rate implied by that. And it's, you know, that's been a very popular trading strategy. it been a very attractive trading strategy because in these really aggressive market moves up or really aggressive market moves down retail tends to dominate the side one side of the book and taking the other side of retail has created a really strong annualized trade opportunity where your only risk is operational and counterparty risk of the platform that you're working on. So this is something that like you know I've been involved in hedge fund launches in the space and this has been a really really attractive trade that FR&T has tried to pitch to regulated institutions over the years via derivatives and regulated swap products that they can that they can access. But that's basically it. It's a future that never expires. And the reason why they're able to maintain the the perpetual swap price to the underlying is because of this eight hour window mechanism where longs pay shorts where shorts pay longs you know based on the way that the book is weighted >> and is one of the reasons why the retail um retail investors are embracing this concept is it because of the leverage associated with these futures. So what brings them to the derivatives space in the in digital assets is the leverage. So they say that like okay yeah I want to I want to buy Bitcoin and I want to have this leverage and it's easier to bet leverage into derivatives than it is in a spot margin lending account let's say. Okay so they've gone to derivatives then they look at a future and then they look at a perpetual swap. The perpetual swap just makes more intuitive sense to most retail traders. That's basically what it comes down to. And so perial swap liquidity is much higher than futures liquidity in digital asset markets because you know I mean you can imagine like a retail trader with very little experience coming to trade you know a Bitcoin derivative for the first time and they're wondering wait Bitcoin's trading at 115 why am I buying something at 116 and and you know that dynamic playing out although you the futures typically have about as much leverage as perpetual swaps perpetual swaps it's trading about about around the spot rate it would you know, very very close to the spot, right? And then there's this like eight hour I got to pay a couple basis points here and there. I don't even know what that is like, you know, and so they just buy it because it just looks like very leverable spot. >> Coinbase recently increased the leverage to 50 times on international per futures. Thoughts on this? Like to me 50 times was just insanity, but what are your thoughts? Yeah, I mean there's, you know, there's there the the platform that really kind of uh caught kicked off the development of Perfus, which was BitMEX, always had 100x uh leverage. So 50x is not is not like a new concept. That Coinbased derivative exchange is not like a widely accessible exchange like unless something's changed recently. It's like a, you know, basically like this whole derivatives exchange like was a kind of a Coinbase response to the last administration. They were trying to get a ri a a derivative exchange through in the US and they couldn't. So they kind of like threw their toys out of the pram and said, "Well, we're going to create an international derivative exchange." So, you know, where we can do all of these things and you know, you're not going to have jurisdiction over it. And it was kind of like a little bit of a you know like u you know an argument with Gary Gens was SEC that led to that. You know the the reason why leverage is also interesting otherwise in in the space is because it's very useful for market makers. Like a market maker can can you know can access they have to manage their own risk but they can they can you know put a little bit of equity on a platform do a trade and and it's helpful. Maybe it's offset by something else on another exchange or on the same exchange, etc., etc. So, it's not just for incredible retail leverage. And I don't really even know how much access retail has to that Coinbase exchange. So, you know, from my perspective, like they're, you know, they're getting a headline out around the international exchanges development. You know, I've seen higher there's 150x leverage on some on some platforms. Binance did that. So, it's not a new thing. Uh it's like even on BitMX when they were the you know kind of the kings of this world the principles would say that the average leverage rate on the exchange is eight and a half. We have 100x as like a marketing tool. >> I want to move on now and discuss tokenization. The CEO of Robin Hood Vlad Tennv said the tokenization of real world assets from stocks to real estate will spread to financial markets around the world. And he went on to say that tokenization will be a freight train and it can't be stopped and eventually it will eat the entire financial system. What is tokenization and why does Vlad Tennv think it will eat the entire financial world? >> Yeah. So I mean tokenization the best correlary to what a token is and like a real world tokenized asset is is an ETF. It it's a like it's a it's it's a version of a receipt on assets held in someone else's custody. That's basically what it is. So the you know the benefits of an ETF over a a uh sorry the benefits of a token over an ETF are you know if you don't think about the counterparties that are issuing them or whatever would be that you know they trade 24/7 they have far faster settlement like you know equity markets you know when I start equal a like a a tokenized trade in in minutes and sometimes even faster than that if you need if you're just dealing if you're dealing outside of the existing financial system, there's no wires involved. I'm sending you one token, you send me another token. It's it's relatively instantaneous that you know as a result they trade 24/7 and there's a lot more that you can do with it. You can pledge them as collateral as a retail trader much more easily. So you can you know I I have this equity in this account and now I can buy this thing. It's m much more easy to margin. You know there's a lot more there's a lot of disintermediation from the token world that you don't need, you know, a custody agent. you can hold it yourself. Like there's there's all kinds of like on almost every vertical outside of you know track record, how long it's been around for and counterparty risk in the in the industry like the tokens just by their nature kind of dominate you know all other ownership representation mechanisms like that that is that is you know I mean there's like exceptions and I'm sure someone could tell me well what about this case and I'd go okay there yeah you're right but um the thing about tokenization that has is that tokenized this narrative around you know in 2018 people would say blockchain not Bitcoin right like they'd say and now it's like real world tokenized assets like in every market cycle someone it's set a little bit differently but you know a lot of the reason why this has gotten steam was because of a way to like not make yourself look like a dinosaur and say that like I don't think any of this stuff works but by the same time kind of put down Bitcoin and because Bitcoin is such an inconvenient truth to the financial system. It's It's something that that so many people just don't even want to exist. Like they just it's too weird. Get it out of here. But I'm not a dinosaur. I like blockchain. I just don't think Bitcoin's going to turn into anything. The saying that the one thing that blockchain technology has been used for to turn into a, you know, multi- trillion dollar market is the thing that doesn't work. And everything else that's really not seen any adoption at all is the thing that is work is always a little bit of at odds, right? But the issue with tokenization, like you know, like the way the tokenization is thought of is that I'm never going to I'm not going to have to go to a central registry to reregister a real estate sale. It's just going to be I'm going to send the guy a token. He owns the building now. I can then take that token and put it as collateral to buy gold with. You know, it's that kind of thing that people are thinking about just like an incredible amount of interoperability, which if you could snap your fingers and just have everything move to a tokenized world, like you would. I mean, it does make a lot more sense. But the problem is the switching costs. I mean, you know, the idea that every NASDAQ stock's just going to become tokenized one day is probably one of the biggest technical, you know, engineering like ideas that I can imagine. You know, just like it's from a from a software engineering perspective, it'd be crazy. You're putting an entire financial system probably at risk in this transition. And so, you know, the best way for the US to to do tokenization is kind of what's going on. It's like, okay, you tokenize this one stock. It also trades on the New York Stock Exchange. We're going to create some mechanism where we're going to recognize them as fungeible, and we'll see how it goes. And it kind of builds out slowly over time, which is probably what's going to happen. It built builds out slowly over time. Maybe the next company that gets launched via like makes big IPO ends up just going down the token route and then other companies do and then all the new companies are tokens and the old companies are stocks and something like that kind of kind of plays out. But where I think that this is a real kind of this is happening right now thing is in countries that don't have very good centralized systems which is like the old systems. So like in Colombia for example like they of there's also often two parties that say I own the same piece of land right we don't really have that issue in in in you know Canada or the US right like especially on land I mean occasionally but it's not like a consistent problem in Colombia it's every day and so we're working with a company that's trying to build out kind of tokenized ownership proofs via you know tokenization blockchain etc so that like if you show up to court and he's got a deed that he that you say is forge and you've got a deed that says he's says it's forged. Well, at least I have a token that says that it's mine and that's a little bit better than a guy who doesn't even have a token, right? So, you know, these these places that don't have good like prior generation systems may just skip those systems altogether and move to a blockchain based system because what they have isn't working. In the in the west, there's this issue around like, you know, our real estate directories work quite well and and all of that. So like you know what like who's going to want to just switch the whole things overnight to something else and for what to what benefit to them and you get into all those kind of questions. So uh I do think it's something that's on the horizon. I think it's a very hard thing to handicap you know what um you know how long it's going to take for this to get some serious adoption. I think it's probably going to be two steps forward one step back with different political regimes coming in. This isn't something can happen overnight. So you get a proto tokenizenization regime and then an anti-tokenization regime because they're funded by people that it doesn't you know it doesn't help like I mean already like you know like Trump went really hard with trying to create a plan like that and like citadel the first people put up their hands and be like you this is just taking in incredible risk with the equity market. They're also kind of talking their book but you know you're going to get a lot of that too. So, you know, tokenization I I agree by all looks of it, tokenization is the path of least resistance. Still, it's it will still meet resistance along the way. It's definitely not a overnight thing or a straight line. >> Now, there are companies that are trying to tokenize gold, and I'm curious about this concept, but as an investor, like why would I want a token on gold? Why not just go out and buy the GLD or buy physical? What What are the benefits of that? >> Yeah. And tokenization also I should say like there's there's there's easy there is easier things to tokenize than like the US equity market and all of that. And we've already [clears throat] seen a lot of success in tokenization with US dollar tokenization, right? Like Tether is now like the 15th I believe largest holder of uh of treasuries. They have like an over $150 billion of balance sheet. And basically what that is is that I send a wire uh to to you know to like basically I send a wire to a stable coin issuer say they're a US dollar stable coin issuer and they give me a digital representation of that uh that I can quickly move around the crypto ecosystem. Whereas if I have to send a wire from one crypto exchange to another crypto exchange now I got to go through Swift it might take three or four days. And if I'm a trader and I need to move something quickly from one exchange to another exchange or if I want to settle something quickly, you know, a uh a tokenized representation of my dollar is a lot has a lot higher velocity than than a US dollar held in a bank account. So that's, you know, and like those guys have had an amazing business model because they don't pass on the interest rates to their clients. to where we've seen the spike in interest rates over the last few years. They've captured all of that, you know, in the same way that in same way that a lot of banks do and they've, you know, they've become one of the most profitable firms in the world over the last few years. So, the tokenized gold element is an extension of that model and it is very similar to the GLD. I mean, basically what happens with with uh with tokeniz with tokenized gold is is that, you know, I go to an issuer or a market maker as you do if you do if you're trading the GLD and I say, "Hey, I've got, you know, 10 million bucks and I want to buy I don't want to buy physical gold because it's just going to sit in a vault in Switzerland and, you know, I don't want to deal with all that. So, just give me exposure to it and I'm happy to pay a couple basis points for you guys doing all that in the background, holding the gold on my behalf in your vault and you give me a receipt to your vault. That's what the GLD is because it's gotten so big. It also has some derivative components in in it. It's not just physical gold and all of that. It, you know, I'm sure a lot of your listeners are well aware with that. The the X Autack tokens uh are the same. You go up to a market maker or issuer, you say, "I have 10 million bucks and I want a subreceipt representation. Instead of getting that in an ETF rapper, I get in a tokenized rapper." And the benefits are the same as I was describing for tokenization over stocks. You can trade it on the weekend. It's much easier to move to collateral. If I could actually pay for something with tokenized gold. I could hold tokenized gold in my wallet and if somebody goes, "Hey, this thing costs 10,000 bucks." I could go, "I'll just send you 10,000 bucks in tokenized gold." And they go, "Okay." and they can sell it immediately or they can hold on to it or do whatever they want because that's the way you operate. If I wanted to buy like a boat with my GLD position, I couldn't. So, it's a, you know, it's a it dominates the GLD on a lot of elements. Probably a little bit worse on liquidity, but not really because you can always just go back to the issuer and they're going to issue it essentially at par with a little bit of fees. So, um, so that is and and tokenized gold is an easy one because I can just decide to launch my own tokenized gold coin at any point and people might not buy it, but they I can do it versus, you know, where you're talking about shifting New York Stock Exchange and all their assets to, you know, to to being tokenized. I got to get the New York Stock Exchange to agree. I get all the investors agree. I got to get all the operating systems to agree. I got to get the the companies to agree. It's just a way larger exercise. Just like if I was a company and I wanted to launch my own token, it'd be easier. If I'm an issuer and I want to launch my own ETF, it's easier than if I want to just change the existing paradigm to something completely different that's already working pretty well. >> Just a couple of points I want to clarify. Uh you mentioned Tether and Tether is a stable coin which is an example of tokenization of a real world asset in this case the US dollar. Is that correct? So Tether is the issuer. Their their US dollar stable coin uh is USDT. Uh so Tether is is like the issuer just the same way that Black Rockck would be. And so you know it it's colloally because it's such it's so dominantly their largest product this US dollar project that's often referred to as Tether, but it's Tether's actually the issuer. They issue USDT as their US dollar stable coin and for example XAT as their gold back token. So, um, but yeah, I mean, Tether, you know, the Tether gold token is only a couple billion dollars and, you know, uh, the te Tether US dollar stable coin is well into the billions. So, the hundreds billion. So, it's just often colloially referred to as Tether, but that's the real breakdown. >> And you mentioned that Tether is one of the largest holders of US treasuries. Maybe you can just elaborate on that concept and how does that work exactly? Yeah. So, Tether's business model is basically to hold like historically their business model was to hold US dollars in kind and buy US treasuries and hold them in US treasuries and get the yield. I mean, this is a company that started it around 2012. You had a basically a zero rate environment for a very long time. So, you know, it wasn't that big a deal that they didn't pass on the yields because it was nothing. you know, it was it and and they weren't making a lot of money because that's, you know, they have some fees on create redeem, but it's not nothing huge. So, that company was was wasn't doing a whole lot for a long time and and dealing with a lot of like DOJ investigations because it was new and they were dealing with the US dollar and, you know, a whole bunch of like fear, uncertainty, and doubt that was bandied around the media and they it wasn't, you know, you could argue it wasn't really worth it for a long time until the rate cycle starts to increase. And now as this token has grown with the gold ecos, sorry, the crypto ecosystem as a whole because it's basically an enabler to get into crypto, it's like a fiat on-ramp essentially. Not not to get too much into that, but it's grown with the industry now with rates at, you know, where T bills are trading four to 5%. They can put that whole thing in T bills and and get four to 5%. They do some other things, you know, with it. Some different overcalized lending strategies which they which they now have gotten into. Basically, that was their strategy the whole time. When rates went to zero, they changed their policies to basically like be like, "We're always going to have more US dollars in our account, but we might actually buy things like commercial paper now because we're not able to do this just on the back of US dollars." So, they actually built about a 20% position in commercial paper. So, you know, so which, you know, some people didn't like, but it's essentially kind of, you know, it's a money market fund where you don't get anything back from it. What you get is the velocity of a dollar in digital assets, which is worth a lot to people. Well, Stefan, this has been a great conversation. I want to thank you very much for spending time with us today and sharing your thoughts on Bitcoin tokenization and also stable coins. And as we wrap up, if someone would like to learn more about your firm FR&T Financial, where can they go? So yeah, I have to say we're we're publicly traded under the ticker FR&T in Canada and in the US under FRFL on the OTC markets. Uh we our website's great f frntt.io is our website. We also have a you know a very strong presence on LinkedIn. You know I'm often posting corporate developments. We have you know our our LinkedIn page is posting corporate developments. We're also very often quoted on in Bloomberg articles and stuff like that. So, if you keep an eye out for us, you'll you'll generally see uh what we think. And also, we're in the business of educating institutional clients about this industry. So, us getting an inbound call from someone who's trying to figure out how to get their firm operating this industry is what we do. Like, we're here to we're here to help. If you're confused, you don't feel like the you have the internal expertise to figure it out on your own, but you feel like you're missing an opportunity, call FR&T. We're one of the only partners that is designed to do that. >> That's great. and I will include a link to your website in the show notes below. Once again, thank you. >> Thank you very much. [music] [music]
Tokenization of Gold and Tether Gold: What Does It Mean For Investors
Summary
Transcript
[music] Stefan, thank you very much for joining us today. One of the things I love about financial markets is that they're always evolving. We're always seeing new products and new concepts. And some of the concepts I want to discuss with you today include tokenization, stable coins, and also perpetual futures. But before we do that, why don't we start with a brief overview of your firm FR&T Financial? Where is the firm based and what services does it offer? Thanks, Jimmy. Thanks for having me on. Uh yeah, so so starting off, FR&T Financial was founded in Toronto. Um we've expanded globally since I'm currently sitting in London. FRT has an FCA registered uh subsidiary. We have uh people all down the east coast into even uh the Caribbean. And then uh you know we uh we touch Europe and we touch Asia as well. Uh FRT is what we refer to as a specialty digital asset investment bank. And so essentially it's been created to service institutions as they enter and build out their crypto uh platforms. Let's say uh we service just like a traditional investment bank would primarily you know asset managers, hedge funds, pension funds etc. on uh the trading side and then on the corporate side we cover you know whether it's a bitcoin miner or a new project and all of that kind of stuff. Uh we're set we're set up very much like a boutique investment bank would. The correlation I give to kind of traditional markets would be a commodity specialty investment bank where we have two primary business segments. Uh one we refer to as capital markets which is our daily transactional activities. So that's physical often block trading of cryptocurrency. We have a borrow lendes. We have uh which has a lot of technology in it and we broker transactions for the most part and we have a derivative and structured products desk where we create you know multi-leg derivative structures for clients either trying to attack an opportunity via swap or uh uh some other kind of structured product to CFD um and you know just do straight kind of futures bilateral trades options bilateral trades. We then also have advisory where as I mentioned we work with you know digital asset companies often private uh that you know aren't getting serviced in the right way from the bank. Sometimes that's just because we get it sooner. You know our teams spent for the most part a decade in the space and uh we can see the opportunity for a new build often quicker just because of the expertise that we have. And sometimes these companies want to do something the investment banks just can't like raise money denominated in Bitcoin like la like um you know bring in a line of credit denominated in stablecoin. And so we fill in those gaps where the traditional investment banks uh you know don't participate. We also do consulting for traditional financial uh firms and others uh within that advisory segment. So that's FR&T. Great overview. So you're the perfect person to speak to about some of the concepts that I mentioned. But before we do that, I want to get your views on what's happening with Bitcoin right now. We recently saw a sharp pullback in financial markets across the globe. And Bitcoin and cryptos got it hit especially hard. And I read it was the largest liquidation event in crypto history. Bitcoin lost $19 billion in market value in a short period of time. Stocks lost US stocks lost $2 trillion. So I guess when you compare it to the US stocks, Bitcoin didn't really lose all that much. But what are your thoughts on the Bitcoin price and does this volatility concern you at all? So, you know, a lot of like having the largest sell-offs or the largest liquidations in history when you're talking about it being denominated in US dollars is a function of the market just increasing in size and going up a lot. So, as the market makes new and newer highs, by definition almost they'll have the largest notional sell-offs and the largest notional liquidations and all of that when being priced in US dollars because, you know, we're at $120,000 Bitcoin right now or give or take. We were at $100,000 $20,000 Bitcoin and you know historic in the last market cycle we only got up just above 65. So, uh that's that's the first thing. It's kind of a product of the asset success. Uh secondly, you know, the volatility and aggressive pullbacks have been, you know, very much kind of uh, you know, table stakes in digital assets over the years. Uh, there's a lot of reasons that contribute to that. I think the first reason is that you're dealing with a global asset that's growing from a standing start zero and is starting to emerge as a very big as a very big and important asset, but still relatively small. So, you've got this, you know, you've got the world kind of slowly getting into this asset. And as as we know, when sell-offs happen, you know, sell-offs happen more quickly than rises tend to happen. And just by nature of there being it being a relatively small nason asset, a whole bunch of people get spooked because of of a headline that has recently happened, it tends to just have these momentum waves where things sell off. In addition to that, um, you know, there is a lot of leverage that is available in the cryptonative landscape. So, it's not leverage in the traditional sense where someone is, you know, writing an over-the-counter loan to somebody, but there's a lot of CFD like products if you're, you know, if your uh listeners are familiar with that, where there's embedded leverage where essentially you can in you can you can you can define the quantum of your move. So, you'd say, you know, if I if I want a $1 move to look like a $2 move or if I want it or if I want it to look like a $5 move, that just means that on the down swings, you know, I could be wiped out of my derivatives positions much quicker than if I was just holding them fully collateralized. So, there are a lot of kind of embedded leverages in in the space. Retail, it's a really retail dominated market. They tend to be a lot more loose with leverage than institutions generally are. And so you do just by the nature of, you know, having these major momentum upswings, you know, the downswings, you know, particularly as the markets become more correlated with traditional assets because of things like ETFs being widely available and all that. You know, macro headlines have led to sell-offs. But I'll caveat that one of the best trades, you know, you know, uh, of size over the last 18 months has been when a macro headline causes a riskoff trade, which brings down Bitcoin to be a buyer. I mean the first time this has happened in in recent history was in August 2024 where the Fed you know showed their hand that they would be cutting rates for the first time in the fall. It created a macro kind of upheaval where like major books were had to shift to accommodate that and Bitcoin sold off from about 70,000 to 50,000. It made no sense. Bitcoin is traditionally a market that does very well in fiat debasement cycles which we are in and you know getting more aggressive. That would have been a great purchase to buy at 50,000. And I think we we saw the same thing when we started to get the tariff concerns in in you know Q1 of this year, Q1 and Q2 of this year, those have been great purchases to make. So yeah, it's uh it's uh you know, a lot of the macro concerns actually build out the Bitcoin thesis. So even though there might be a knee-jerk reaction lower, ultimately over time they tend to recover and make new highs. >> So it sounds like you're not too concerned about this pullback that we recently saw. You see this as a buying opportunity? >> I see this as a buying opportunity. you know, makes the market healthier. When le when leverage gets extended, you know, if short-term leverage gets extended, these moves are more likely to happen and then it kind of sets up an opportunity for a new run. You know, I'm talking about leverage getting extended, but we have not seen leverage get nearly to the levels that we saw in 2021. I mean, you know, we're yet to really see the type of fear of missing out style momentum moves that have typically come at the top of market cycles as seen in 2017 and then 2021 where you know the the internet attention and internet activity around Bitcoin searches and crypto searches just goes through the roof. Volumes still haven't hit like the levels in maybe in US dollars. They have had certain days because of the assets appreciation, but actually in Bitcoin denominated terms, volumes are well off some of the levels that we've seen in that we saw in 2021. And we haven't seen the the level of kind of mid and long-term leverage get to the crazy crazy rates we saw in 2021. Like the the level I I would have said that, you know, the the risk level for leverage, you know, in the most recent liquidations that we saw was kind of yellow to orange. we've seen it get go push right through yellow right into orange and into the red and that's kind of when you start to get these blowoff tops that have have typically come into the space and you know this market cycle's played out longer and we're yet to see that. So until we start to get the kind of activity that I described and anecdotally like everybody every room I talk to is talking about crypto, you know, every I'm getting calls on the weekends from people I went to high school with that are asking me about how to work their Coinbase account, which is what I was getting in 2021. You know, I'd like to think that the highs are not in and I'd expect that we're probably just getting out of we're somewhere between the first third and halfway through this market cycle would be my best estimation. >> So quite often Bitcoin is referred to as new gold or digital gold. So I have to ask you about this relationship now. And gold has done extremely well this year. It's up over 50%. Bitcoin's up around 20% on the year. Uh JP Morgan recently said that Bitcoin is undervalued compared to gold. I'm not too sure how they came up with that analysis, but they also said they see a pathway to $165,000 for Bitcoin. What are your thoughts on this? Are you as bullish as JP Morgan is? >> Yeah, I am as bullish as JP Morgan is. Um, I think it's a question that I get that it's, you know, like first of all, just just talking about Bitcoin is digital gold. You know, I think that as market participants that have been used to trading assets that have been around for a long time, people tend to define uh things having similar properties as having correlation, like a very tight correlation. And so, you know, the properties of of Bitcoin and gold are very similar. I mean, in in if you think about, you know, it as being like a store of value or something that is is something where you can self-custody, maybe that's a better example. You can have your own private Bitcoin wallet and you can take a gold bar and leave it in a safe at home. That is very similar. You don't have to have an intermediary stand between you and your gold bar. In the same way, you don't have to have an intermediary stand between you and your Bitcoin. You know, gold has not a fixed supply like Bitcoin does, but there is, you know, a supply that isn't necessarily impacted by government policy or something like that. So, there are a lot of properties to have in gold. It's like the, you know, it's like the rainy day fund where if the banking system fails, I'll still have my gold. It's the same. It's a very similar argument with Bitcoin. So, they do have very similar properties as I was identifying where that where that tends to cause people confusion is they don't have uh they don't always have a tight correlation. And uh I think that there's a few reasons to that. Uh first of all, uh I think that you know you've got to think about about Bitcoin differently than you have to think about other asset classes. There isn't like a consistent new set of people that are learning about gold that didn't know about gold yesterday that are ready to dive into gold for the first time. Gold is a very well-known story and people have understood the value of investing in gold. Basically, since they've entered markets, you know, like when you enter markets, one of the first lessons is when when when does gold typically go up? It's an inflation hedge, etc. People are still getting very heavily indoctrinated into that thesis for Bitcoin. So what tends to happen is that when you get these inflation sp like that that you get some you know whether it's economic data or some other indicator that inflation is going to spike gold reacts immediately right what tends to happen in in in Bitcoin is that more and more people start to consider the possibility of basically hedging themselves out of the current financial system the banking system the fiat system and that happens over time it's not like everybody gets the same idea on day one someone who hasn't boughten Bitcoin before sees all the the the fiat currency debasement and might say to themselves you know what I should probably allocate 1 to 2% of my portfolio into Bitcoin because I see it as hedge these things and they've never done it before they might not decide to do that the second that a piece of economic data comes out right so there's there's kind of an other kind of adoptive force that is that has this underpinning to Bitcoin which tends to miss its correlations in addition to that it's relatively new a lot of people disagree on what this asset is whether it's a inflation hedge whether it's a risk asset whether it's technology etc And so you have moments in the market where the speculators who are also long NASDAQ and are also long you know Nvidia also buy Bitcoin. The market goes up and then as the market as the equity markets turn let's say they risk derisk their entire book which includes Bitcoin and then what you tend to see is that you'll and there's a lot of data that you can have on this in terms of wallet transactions onchain activity. you tend to then see, you know, the speculators leave and it develop a new base out of people that are going, wait, the reason why I'm in this thing is because interest rates are going lower. The reason why I'm in this thing is because there's a global financial system that seems to be changing a lot and in chaos and then you get the, you know, find some support and it continues to kind of kind of push higher. So, um, you know, I that's the way I'd characterize the gold and bitcoin relationship. There are times where it does heavily correlate when the speculators are out of the market and everybody who uses an inflation hedge starts it starts to starts to buy. But if there's crossorrelations held with, you know, other risk assets, it it'll buy just technical technical justifications straight down with them. >> And I think another characteristic between or difference between the two is the demographics. Uh I'm assuming gold probably caters to an older demographic. Bitcoin and cryptocurrencies a younger demographic. Would you agree with that? >> Absolutely. I mean, it's, you know, I, you know, we're publicly traded stock. We're on the TSX venture. So, you know, I have to pitch to a lot of IAS that have been in the industry for a very long time and all of that. and and and you can see that there is something about value being held in the digital world because it's not something you can hold and all the usual reasons that seems to make it very hard to visualize for for people in terms of what do they own if they've you know if they're if they're older. I mean it's not a rule like there's all kinds of of people that are very sharp in the space that are older but it does tend it's a generalization but it does tend you tend to see that more often. The younger generations which are typically what you know the younger generations uh interest and adoptions typically are very good indicators of future success are very comfortable with the concept of a digital asset. I mean, there are, you know, people that uh play online trading card games like on, you know, on PC games where they play, you know, whether it's FIFA or something. And these people are spending thousands and thousands of dollars a year on buying a digital trading card that in most cases only has a one-year life cycle and then the new game comes out and you can't even use it anymore. Like, this is not an unusual concept. And the things that are kind of that that people have heruristics around in terms of how they assess value for a young generation are just totally different. Like it's just it's a it's a complete like people who have grown up with the internet and grown up with computers under like feel as though things that are on the internet are valuable. You know, they're and they are they're attention. There's all these, you know, other other kind of real world items that you could associate with why they have value. But um it's just not a it's not a hard thing for a 25-year-old to wrap their head around. And it is it does seem to be a tricky thing for a 65-year-old to wrap their head around in many cases. >> Yeah, you you raised a very interesting point and um here's something I read recently. On any given month on YouTube, there's five to six million searches on anything and everything to do with trading, equity trading, FX trading, whatever. But there's 50 to 60 million searches on sports betting. So, it's the same sort of thing. We have this younger generation that are really into sports betting now. It's almost become like a >> I think that there's some >> there's also some economic factors. I think there's a gamification element for sure. That's kind of a new kind of online concept as well. But, you know, the when when I grew up, you know, if you were the top of your class as a lawyer or and you you know, you made partner at a firm, you'd be extremely wealthy in one of the buying a house in the nicest area in town and all of that. Now, the people that are doing that, you know, now, like, forget the lawyers. Like, if you're not, you know, in one of those high-paying roles, you're trying to figure out like, I can buy a house. You know, I can like my account is at zero every month. Like, this is the situation that many millennials find themselves in if they don't have any inheritance or anything like that. You know, they're they're struggling to keep their head above water. So, the idea that I'm going to earn 8% annualized in a dividend stock, like, you know, it used to you used to be able to do that math and go, "Oh, then I'd be able to buy a house by the time I'm 40." the math doesn't work anymore. It just doesn't work anymore. So, people are looking for windfalls and they're looking at at sports betting because, you know, there's a lot of different elements of sports betting where you can convince yourself that you're going to hit a 16 leg parlay on the weekend and you're going to be able to quit your job on Monday. So, you know, the companies are really playing on that angle. But in in crypto, you you can hold a token that doubles in a year. You can hold a token that doubles in a week. And so it continues to draw this attention from these people that feel like they need to have a windfall to get where they just expected they would in life, you know. Okay, so speaking of windfalls, let's talk about perpetual futures now. And this is something else I keep reading about. 70% of all Bitcoin trading volume is through perpetual futures. What exactly are they and why are people so interested in them? Yeah. So, perpetual futures are a concept that emerged out of digital assets. Uh they're uh they're not something that's well recognized on Wall Street. And I would imagine like I you know, I haven't done it for a while, but years ago there would be very small percentage of Wall Street traders that even knew what they were. And you know, today maybe it's more like 50%. But it's still even to like very sophisticated derivative traders a concept that isn't on Wall Street. And the primary reason for that that it's available that's able to exist in digital assets is because of 24/7 markets. And so what a perpetual future is, it's a future that never has an expiry date. Okay? And so how do you launch a future that never has an expiry date? Brief overview of futures. The reason why the underlying and a future stay relatively connected throughout their life history is because you know that on the expiry date the future and spot are going to close at the same level. So that's that's known. So there's an added incentive for arbitrageers if the future because people just say someone's outright buying the future and starts to bring it beyond the spot level. If I buy spot and short a future and put on that basis trade, I'm going to get that spread on expiry, right? So how do you incentivize the arbitrageers to maintain that spread if there is never an expiry date, right? And so that is the mechanism that was kind of the innovation of a perpetual future. And the way that they're operated is that um and there's a couple different models for it, but you know the model that really BitMEX popularized, which is kind of the the main model, the way Binance operates their perpetual swaps, is that there's eight hour windows where they they have an equation where they look at the book and if longs are outweighing shorts, then at at the eighth hour of that window, they a little bit before they start to announce what the incentive is to go the other way. So they'll basically say for the next 8 hour window, we're going to pay shorts, you know, this many, you know, daily basis points, you know, like prorated, which incentivizes the shorts to then go long, which then incentivizes someone if they're trying to incentivize shorts to buy the underlying spot asset, short the perpetual swap, and get the interest rate implied by that. And it's, you know, that's been a very popular trading strategy. it been a very attractive trading strategy because in these really aggressive market moves up or really aggressive market moves down retail tends to dominate the side one side of the book and taking the other side of retail has created a really strong annualized trade opportunity where your only risk is operational and counterparty risk of the platform that you're working on. So this is something that like you know I've been involved in hedge fund launches in the space and this has been a really really attractive trade that FR&T has tried to pitch to regulated institutions over the years via derivatives and regulated swap products that they can that they can access. But that's basically it. It's a future that never expires. And the reason why they're able to maintain the the perpetual swap price to the underlying is because of this eight hour window mechanism where longs pay shorts where shorts pay longs you know based on the way that the book is weighted >> and is one of the reasons why the retail um retail investors are embracing this concept is it because of the leverage associated with these futures. So what brings them to the derivatives space in the in digital assets is the leverage. So they say that like okay yeah I want to I want to buy Bitcoin and I want to have this leverage and it's easier to bet leverage into derivatives than it is in a spot margin lending account let's say. Okay so they've gone to derivatives then they look at a future and then they look at a perpetual swap. The perpetual swap just makes more intuitive sense to most retail traders. That's basically what it comes down to. And so perial swap liquidity is much higher than futures liquidity in digital asset markets because you know I mean you can imagine like a retail trader with very little experience coming to trade you know a Bitcoin derivative for the first time and they're wondering wait Bitcoin's trading at 115 why am I buying something at 116 and and you know that dynamic playing out although you the futures typically have about as much leverage as perpetual swaps perpetual swaps it's trading about about around the spot rate it would you know, very very close to the spot, right? And then there's this like eight hour I got to pay a couple basis points here and there. I don't even know what that is like, you know, and so they just buy it because it just looks like very leverable spot. >> Coinbase recently increased the leverage to 50 times on international per futures. Thoughts on this? Like to me 50 times was just insanity, but what are your thoughts? Yeah, I mean there's, you know, there's there the the platform that really kind of uh caught kicked off the development of Perfus, which was BitMEX, always had 100x uh leverage. So 50x is not is not like a new concept. That Coinbased derivative exchange is not like a widely accessible exchange like unless something's changed recently. It's like a, you know, basically like this whole derivatives exchange like was a kind of a Coinbase response to the last administration. They were trying to get a ri a a derivative exchange through in the US and they couldn't. So they kind of like threw their toys out of the pram and said, "Well, we're going to create an international derivative exchange." So, you know, where we can do all of these things and you know, you're not going to have jurisdiction over it. And it was kind of like a little bit of a you know like u you know an argument with Gary Gens was SEC that led to that. You know the the reason why leverage is also interesting otherwise in in the space is because it's very useful for market makers. Like a market maker can can you know can access they have to manage their own risk but they can they can you know put a little bit of equity on a platform do a trade and and it's helpful. Maybe it's offset by something else on another exchange or on the same exchange, etc., etc. So, it's not just for incredible retail leverage. And I don't really even know how much access retail has to that Coinbase exchange. So, you know, from my perspective, like they're, you know, they're getting a headline out around the international exchanges development. You know, I've seen higher there's 150x leverage on some on some platforms. Binance did that. So, it's not a new thing. Uh it's like even on BitMX when they were the you know kind of the kings of this world the principles would say that the average leverage rate on the exchange is eight and a half. We have 100x as like a marketing tool. >> I want to move on now and discuss tokenization. The CEO of Robin Hood Vlad Tennv said the tokenization of real world assets from stocks to real estate will spread to financial markets around the world. And he went on to say that tokenization will be a freight train and it can't be stopped and eventually it will eat the entire financial system. What is tokenization and why does Vlad Tennv think it will eat the entire financial world? >> Yeah. So I mean tokenization the best correlary to what a token is and like a real world tokenized asset is is an ETF. It it's a like it's a it's it's a version of a receipt on assets held in someone else's custody. That's basically what it is. So the you know the benefits of an ETF over a a uh sorry the benefits of a token over an ETF are you know if you don't think about the counterparties that are issuing them or whatever would be that you know they trade 24/7 they have far faster settlement like you know equity markets you know when I start equal a like a a tokenized trade in in minutes and sometimes even faster than that if you need if you're just dealing if you're dealing outside of the existing financial system, there's no wires involved. I'm sending you one token, you send me another token. It's it's relatively instantaneous that you know as a result they trade 24/7 and there's a lot more that you can do with it. You can pledge them as collateral as a retail trader much more easily. So you can you know I I have this equity in this account and now I can buy this thing. It's m much more easy to margin. You know there's a lot more there's a lot of disintermediation from the token world that you don't need, you know, a custody agent. you can hold it yourself. Like there's there's all kinds of like on almost every vertical outside of you know track record, how long it's been around for and counterparty risk in the in the industry like the tokens just by their nature kind of dominate you know all other ownership representation mechanisms like that that is that is you know I mean there's like exceptions and I'm sure someone could tell me well what about this case and I'd go okay there yeah you're right but um the thing about tokenization that has is that tokenized this narrative around you know in 2018 people would say blockchain not Bitcoin right like they'd say and now it's like real world tokenized assets like in every market cycle someone it's set a little bit differently but you know a lot of the reason why this has gotten steam was because of a way to like not make yourself look like a dinosaur and say that like I don't think any of this stuff works but by the same time kind of put down Bitcoin and because Bitcoin is such an inconvenient truth to the financial system. It's It's something that that so many people just don't even want to exist. Like they just it's too weird. Get it out of here. But I'm not a dinosaur. I like blockchain. I just don't think Bitcoin's going to turn into anything. The saying that the one thing that blockchain technology has been used for to turn into a, you know, multi- trillion dollar market is the thing that doesn't work. And everything else that's really not seen any adoption at all is the thing that is work is always a little bit of at odds, right? But the issue with tokenization, like you know, like the way the tokenization is thought of is that I'm never going to I'm not going to have to go to a central registry to reregister a real estate sale. It's just going to be I'm going to send the guy a token. He owns the building now. I can then take that token and put it as collateral to buy gold with. You know, it's that kind of thing that people are thinking about just like an incredible amount of interoperability, which if you could snap your fingers and just have everything move to a tokenized world, like you would. I mean, it does make a lot more sense. But the problem is the switching costs. I mean, you know, the idea that every NASDAQ stock's just going to become tokenized one day is probably one of the biggest technical, you know, engineering like ideas that I can imagine. You know, just like it's from a from a software engineering perspective, it'd be crazy. You're putting an entire financial system probably at risk in this transition. And so, you know, the best way for the US to to do tokenization is kind of what's going on. It's like, okay, you tokenize this one stock. It also trades on the New York Stock Exchange. We're going to create some mechanism where we're going to recognize them as fungeible, and we'll see how it goes. And it kind of builds out slowly over time, which is probably what's going to happen. It built builds out slowly over time. Maybe the next company that gets launched via like makes big IPO ends up just going down the token route and then other companies do and then all the new companies are tokens and the old companies are stocks and something like that kind of kind of plays out. But where I think that this is a real kind of this is happening right now thing is in countries that don't have very good centralized systems which is like the old systems. So like in Colombia for example like they of there's also often two parties that say I own the same piece of land right we don't really have that issue in in in you know Canada or the US right like especially on land I mean occasionally but it's not like a consistent problem in Colombia it's every day and so we're working with a company that's trying to build out kind of tokenized ownership proofs via you know tokenization blockchain etc so that like if you show up to court and he's got a deed that he that you say is forge and you've got a deed that says he's says it's forged. Well, at least I have a token that says that it's mine and that's a little bit better than a guy who doesn't even have a token, right? So, you know, these these places that don't have good like prior generation systems may just skip those systems altogether and move to a blockchain based system because what they have isn't working. In the in the west, there's this issue around like, you know, our real estate directories work quite well and and all of that. So like you know what like who's going to want to just switch the whole things overnight to something else and for what to what benefit to them and you get into all those kind of questions. So uh I do think it's something that's on the horizon. I think it's a very hard thing to handicap you know what um you know how long it's going to take for this to get some serious adoption. I think it's probably going to be two steps forward one step back with different political regimes coming in. This isn't something can happen overnight. So you get a proto tokenizenization regime and then an anti-tokenization regime because they're funded by people that it doesn't you know it doesn't help like I mean already like you know like Trump went really hard with trying to create a plan like that and like citadel the first people put up their hands and be like you this is just taking in incredible risk with the equity market. They're also kind of talking their book but you know you're going to get a lot of that too. So, you know, tokenization I I agree by all looks of it, tokenization is the path of least resistance. Still, it's it will still meet resistance along the way. It's definitely not a overnight thing or a straight line. >> Now, there are companies that are trying to tokenize gold, and I'm curious about this concept, but as an investor, like why would I want a token on gold? Why not just go out and buy the GLD or buy physical? What What are the benefits of that? >> Yeah. And tokenization also I should say like there's there's there's easy there is easier things to tokenize than like the US equity market and all of that. And we've already [clears throat] seen a lot of success in tokenization with US dollar tokenization, right? Like Tether is now like the 15th I believe largest holder of uh of treasuries. They have like an over $150 billion of balance sheet. And basically what that is is that I send a wire uh to to you know to like basically I send a wire to a stable coin issuer say they're a US dollar stable coin issuer and they give me a digital representation of that uh that I can quickly move around the crypto ecosystem. Whereas if I have to send a wire from one crypto exchange to another crypto exchange now I got to go through Swift it might take three or four days. And if I'm a trader and I need to move something quickly from one exchange to another exchange or if I want to settle something quickly, you know, a uh a tokenized representation of my dollar is a lot has a lot higher velocity than than a US dollar held in a bank account. So that's, you know, and like those guys have had an amazing business model because they don't pass on the interest rates to their clients. to where we've seen the spike in interest rates over the last few years. They've captured all of that, you know, in the same way that in same way that a lot of banks do and they've, you know, they've become one of the most profitable firms in the world over the last few years. So, the tokenized gold element is an extension of that model and it is very similar to the GLD. I mean, basically what happens with with uh with tokeniz with tokenized gold is is that, you know, I go to an issuer or a market maker as you do if you do if you're trading the GLD and I say, "Hey, I've got, you know, 10 million bucks and I want to buy I don't want to buy physical gold because it's just going to sit in a vault in Switzerland and, you know, I don't want to deal with all that. So, just give me exposure to it and I'm happy to pay a couple basis points for you guys doing all that in the background, holding the gold on my behalf in your vault and you give me a receipt to your vault. That's what the GLD is because it's gotten so big. It also has some derivative components in in it. It's not just physical gold and all of that. It, you know, I'm sure a lot of your listeners are well aware with that. The the X Autack tokens uh are the same. You go up to a market maker or issuer, you say, "I have 10 million bucks and I want a subreceipt representation. Instead of getting that in an ETF rapper, I get in a tokenized rapper." And the benefits are the same as I was describing for tokenization over stocks. You can trade it on the weekend. It's much easier to move to collateral. If I could actually pay for something with tokenized gold. I could hold tokenized gold in my wallet and if somebody goes, "Hey, this thing costs 10,000 bucks." I could go, "I'll just send you 10,000 bucks in tokenized gold." And they go, "Okay." and they can sell it immediately or they can hold on to it or do whatever they want because that's the way you operate. If I wanted to buy like a boat with my GLD position, I couldn't. So, it's a, you know, it's a it dominates the GLD on a lot of elements. Probably a little bit worse on liquidity, but not really because you can always just go back to the issuer and they're going to issue it essentially at par with a little bit of fees. So, um, so that is and and tokenized gold is an easy one because I can just decide to launch my own tokenized gold coin at any point and people might not buy it, but they I can do it versus, you know, where you're talking about shifting New York Stock Exchange and all their assets to, you know, to to being tokenized. I got to get the New York Stock Exchange to agree. I get all the investors agree. I got to get all the operating systems to agree. I got to get the the companies to agree. It's just a way larger exercise. Just like if I was a company and I wanted to launch my own token, it'd be easier. If I'm an issuer and I want to launch my own ETF, it's easier than if I want to just change the existing paradigm to something completely different that's already working pretty well. >> Just a couple of points I want to clarify. Uh you mentioned Tether and Tether is a stable coin which is an example of tokenization of a real world asset in this case the US dollar. Is that correct? So Tether is the issuer. Their their US dollar stable coin uh is USDT. Uh so Tether is is like the issuer just the same way that Black Rockck would be. And so you know it it's colloally because it's such it's so dominantly their largest product this US dollar project that's often referred to as Tether, but it's Tether's actually the issuer. They issue USDT as their US dollar stable coin and for example XAT as their gold back token. So, um, but yeah, I mean, Tether, you know, the Tether gold token is only a couple billion dollars and, you know, uh, the te Tether US dollar stable coin is well into the billions. So, the hundreds billion. So, it's just often colloially referred to as Tether, but that's the real breakdown. >> And you mentioned that Tether is one of the largest holders of US treasuries. Maybe you can just elaborate on that concept and how does that work exactly? Yeah. So, Tether's business model is basically to hold like historically their business model was to hold US dollars in kind and buy US treasuries and hold them in US treasuries and get the yield. I mean, this is a company that started it around 2012. You had a basically a zero rate environment for a very long time. So, you know, it wasn't that big a deal that they didn't pass on the yields because it was nothing. you know, it was it and and they weren't making a lot of money because that's, you know, they have some fees on create redeem, but it's not nothing huge. So, that company was was wasn't doing a whole lot for a long time and and dealing with a lot of like DOJ investigations because it was new and they were dealing with the US dollar and, you know, a whole bunch of like fear, uncertainty, and doubt that was bandied around the media and they it wasn't, you know, you could argue it wasn't really worth it for a long time until the rate cycle starts to increase. And now as this token has grown with the gold ecos, sorry, the crypto ecosystem as a whole because it's basically an enabler to get into crypto, it's like a fiat on-ramp essentially. Not not to get too much into that, but it's grown with the industry now with rates at, you know, where T bills are trading four to 5%. They can put that whole thing in T bills and and get four to 5%. They do some other things, you know, with it. Some different overcalized lending strategies which they which they now have gotten into. Basically, that was their strategy the whole time. When rates went to zero, they changed their policies to basically like be like, "We're always going to have more US dollars in our account, but we might actually buy things like commercial paper now because we're not able to do this just on the back of US dollars." So, they actually built about a 20% position in commercial paper. So, you know, so which, you know, some people didn't like, but it's essentially kind of, you know, it's a money market fund where you don't get anything back from it. What you get is the velocity of a dollar in digital assets, which is worth a lot to people. Well, Stefan, this has been a great conversation. I want to thank you very much for spending time with us today and sharing your thoughts on Bitcoin tokenization and also stable coins. And as we wrap up, if someone would like to learn more about your firm FR&T Financial, where can they go? So yeah, I have to say we're we're publicly traded under the ticker FR&T in Canada and in the US under FRFL on the OTC markets. Uh we our website's great f frntt.io is our website. We also have a you know a very strong presence on LinkedIn. You know I'm often posting corporate developments. We have you know our our LinkedIn page is posting corporate developments. We're also very often quoted on in Bloomberg articles and stuff like that. So, if you keep an eye out for us, you'll you'll generally see uh what we think. And also, we're in the business of educating institutional clients about this industry. So, us getting an inbound call from someone who's trying to figure out how to get their firm operating this industry is what we do. Like, we're here to we're here to help. If you're confused, you don't feel like the you have the internal expertise to figure it out on your own, but you feel like you're missing an opportunity, call FR&T. We're one of the only partners that is designed to do that. >> That's great. and I will include a link to your website in the show notes below. Once again, thank you. >> Thank you very much. [music] [music]