Mert Mumtaz on tokenized private shares: Republic's mirrored assets, Robinhood's chain, and what Erebor means for crypto

having some technical difficulties. Can you hear me? Yeah. Yeah, you look good. Uh the only thing is maybe rotate the camera if you're on your phone so we can go horizontal, but uh other than that looks fantastic. Looking good. Thanks so much for taking the time.

I know you're on really, you know, a jet setter at heart all over the world. Um, uh, but very excited to talk to you. There's a ton of stuff going on in the crypto world that we wanted to talk about. Should we start with the idea of of private companies on chain? Is that a good place to start? Yeah, sure.

Um, so there's a there's a few versions of this that that have just been announced. Um, uh, one by Republic and one by Robin Hood. Yeah. Um, do you want to just go over both or Yeah, I Yeah, let's start there and then I I basically want to cover publics and privates, but we can start with privates. Sure. Yeah.

I mean, so the details on these uh are a little fuzzy just because uh I think um at least um the name of the game for some of them seems to be regulatory arbitrage. Um uh but so for example, in the case of Robin Hood, they just announced that they're going to have it.

Um, and they didn't really give any specific details other than it would be on their own uh optimized chain uh blockchain for RWAs. um for Republic.

Um they basically said, and by the way, um uh people thought this was for trading these uh private equity, like these these private shares, but they're actually just for buying them and then holding them, and then you actually get um uh in in in Republic's case, you you're locked up for about a year.

And and I believe the maximum size you can do is actually only $5,000. Um so I think they're basically just trying to test the waters and and and see how the regulars will react. uh is my reading of it. Yeah, the 5k limit is interesting. The lack of immediate liquidity is interesting, too.

I mean, it's clearly a product for retail. The other thing that I was thinking about is you know, if you if you just released uh you know, SpaceX uh shares on chain, there's almost going to be infinite demand for them.

And so, the limit could also just be, hey, we want as many people to to be able to access these as possible, or it just gets, you know, bit up and bit up. But it sounds like it'll be um fixed price. Any any reaction to Robin Hood setting up their own chain to do this?

And then it's also Europe only from what I could tell. Right. Um yeah, and by the way, uh just on the the Republic um private shares thing, it's actually I looked into this. It's um it's a mirrored asset. So it's it's purely mimicking the performance of the of the price of the shares.

And then it's a note on uh the upside in the event of a liquidity event. So um it's it's not like you're you're actually owning the the stock by any means obviously.

Um for for Robin Hood um yeah I mean they it see so it seems like they decided to launch on arbitum uh the the L2 uh to start with uh with the eventual understanding that they will launch it on their own optimized chain.

Um I think uh you know Robin Hood has always been has always been like a vertically integrated company that wants uh full control over the design, the user experience uh the abstractions and so I think um building your own chain for this uh makes sense because I mean they obviously already have the liquidity, the users and the distribution.

Um, so, so I think it makes sense provided that, you know, um, they can hire, you know, uh, Vlad can go full Zuck mode and hire some, uh, crypto talent to, to, to, to, to, to, to, to, to, to, to run the blockchain because that's hard work. Run the blockchain. Um, break down the, uh, what's happen.

I've seen enough screenshots this week so far. I think you were sharing some of them of people, you know, swapping something, you know, an esteemed asset like Fartcoin for for some Tesla shares. What is actually happening there?

Are they is it just a is it is there act are the this the exesla or whatever these are are they tied to any real underlying asset? Is it entirely vibes? What's actually going on? Yes. Uh so uh as sophisticated investors uh we we've been swapping farcoin into the Tesla and Nvidia stock and and even Meta now.

Um uh and so uh these shares actually are backed uh one by uh fully backed by the the uh custodian um it's quite fascinating how it works actually um and and these are only available in Europe by the way uh both in the case of Robin Hood and um uh Kraken and and this company called Back that's actually doing the regulatory stuff.

Um so what happens is there's some KYC uh at the beginning of the process where you actually have to buy from the primary market.

Uh but then once it's withdrawn to uh the the blockchain um it's basically there's like this loophole where they're treat like certificates um and and so you can as long as you know you say that these aren't supposed to be allowed for uh USA uh investors as long as you basically just say that and you know you put the fine print there.

Um once you do that, they're just treated like digital assets. Um and so when you do trade uh you know uh you know Shitcoin 3000 into uh Nvidia stock uh it actually is like you're you're getting something that's uh backed one to one.

Uh however uh it's the same with um the private stocks where there's like a pretty big limitation on the liquidity. um like I think uh you know a h 100red million is like the max that can be issued uh at this point uh and they're doing like uh several tens of millions uh in volume. So nothing crazy yet.

Um but how are they trading are they are they tra are are not stable right? No no no. Yeah. So there's a um so they can prices are Yeah. No, they're not. This isn't uh it's it's uh not like a micro strategy play.

Uh we can talk about the treasury uh companies as well, but um the prices are supposed to be indexed um uh one to one. Um and what's interesting is like you can now um obviously compose this with other applications in DeFi, right?

So you can literally um buy Tesla stock and then take out a loan against it and then maybe eight Farcoin at that point. Like you can do all sorts of different things. Um Uh uh and you can just like hold it in your wallet. Um it's pretty cool, but like it's just it's very very early.

So I wouldn't make any uh but it feels pretty monumental, right? Is this not what what people have been excited about for the for the last decade? Two decades. Peter Teal was saying that he wanted a cryptocurrency that was backed by a basket of every financial asset. And like we're on the cusp of it.

It feels like that you could have like a token that owns a slice of the S&P, a slice of physical gold, a slice of real estate, and it'd be kind of like the most stable asset, even more stable than the dollar potentially. That was like the original thesis. But I guess that was actually, by the way, that video Yeah. Yeah.

You guys should search that video. That video is predicted in 1999. Um, but yeah, I mean, it is huge, right? Like, uh, it's gotten a lot of attention. Uh and and it's very exciting that you can just um basically start to like um actually modernize the financial rails.

Uh Pat uh Patrick Collison from Stripe had a really good way of describing stable coins uh which was like these are B this is like dollars on like superconductor rails, right? Where there's now no friction and you can just uh compose with any other financial instrument obviously that's on the blockchain.

Um, and it's it's just it's got it's taken so much work to actually get here uh and clear all these regulatory hurdles. Um, but you know, it's it's it's really just beginning. I think there's going to be once Robin Hood gets in and everybody else starts getting I think Coinbase will also start uh pretty soon. Um, right.

They also have their own blockchain. Um, so I think it's going to start getting very competitive. Okay. I was talking to a retail investor who would be like so excited like 150 IQ would be so excited to be able to buy private company shares on chain be able to buy all sorts of stuff on chain.

Um I but he was particularly act very upset and still held a grudge from the GameStop uh rally where there was no buy button. There was only a sell button and he felt like betrayed by the platform.

Now when I dug into it, it seemed like the the situation with Robin Hood was much more nuanced than that and there was actually some liquidity constraints and there were a lot of reasons why they chose the whole narrative of like oh they Ken Griffin called them and told them to you know save some hedge fund.

I didn't really buy into that. But anyway, um the I think the more important question is when you put something on chain, the idea is like the the code is decentralized, no one has the button to turn something off.

But the the downside of that is that you could maybe get into some situation where the like if there's if there's a you know reinforcing feedback loop of sell pressure or buy pressure, you could really really distort the market.

And so I'm wondering like, you know, I'm thinking about the Terra Luna situation or any of these situations where there was like this perfect perpetual motion machine, but then the fact that it was actually the that someone couldn't step in and just put pump the brakes was actually uh a bug, not a feature at that moment in time.

And I'm wondering if there are potential risks to having real world assets on chain that that where where everything is is is in code. Does that make any sense? Am I asking any sort of reasonable question here? Can you just nail on that a little bit? Yeah.

Um, it's it's certainly a very valid point and it's also why the Genius Act for stable coins was pretty monumental. Uh, because like you know, Ter Luna also had um some very uh funky concepts around their stable coins and their, you know, not actually being backed by anything, right? Yeah.

Um and and with the new stablecoin act um which like uh puts very or you know much more clear uh framework on like how how often should these things be audited, how should they be backed, who can do this, whatever.

Um and and with this new regulatory um approach uh consumers and users actually have like way better benefits um uh and way better guarantees, right?

and and it's also um right like um we it's obviously decentralized finance uh but it's also programmable finance right so um in the case of an L2 for example you know Robin Hood can add again the same types of rules um that that to enact some sort of control and and like maybe freeze something uh USDC can already do this today by the way right USC can actually freeze uh the USC uh per on a wallet uh on a per wallet basis Um and even on Salana you can do this right.

Um the smart contracts have certain hooks um depending on how the issuer of the token actually encodes these. Um so you can actually still program these uh to to get like the compliance, you know, flavor that you want. Um the difference is that it's it's it's um uh extremely transparent, right?

You can read the code and you can be like, okay, this is what can happen in this situation and this is what they did. So you can actually audit it and it's very verifiable. I have a question about uh Arabore.

This story kind of leaked out today in the Financial Times about Palmer Lucky, Peter Teal, and some other folks, Joe Lansdale, uh working on something that sounds like a stable coin bank. Uh I would love to hear about the problems that crypto companies run into with banks.

What might they solve if they if you were imagining the list of to-dos? And then are there any I mean there's been a few crypto friendly banks but if I have it correct like Robin Hood isn't a bank, Coinbase isn't a bank, Circle's not a bank, Stripe isn't a bank.

Uh or or maybe you can correct me there, but just kind of take me through the the the problem that banks solve and then the in the current in the current structure and then what problems are do stable coin companies still face with the traditional banking system? Right. Yeah.

So, um I think actually uh uh Mike from Pirate Wires and Nick Carter did a really good job on Operation Chokepoint where where they kind of go in detail into the debanking of of of these industries. Um uh I have like a much more uh trivial example which is my co-founder.

Uh he's a he's a he's Canadian unfortunately just like me. Um uh and he he went to get a mortgage uh for his for his new house. Um, and uh, at first I uh, I think they like approved him and then they they looked at where he worked, which is Helas, the uh, the company that we run.

And uh, then they actually uh, rescended the mortgage uh, and they said it was uh, you're in crypto even though we don't have like a token. We're basically a cloud provider. And they said it's too high a risk of an industry. And they actually he couldn't get a mortgage. Wow. Um, and like this is Canada.

Um and um so like in terms of problems um you know there's a lot of maybe there's two dimensions to this.

Uh one is just the interoperability right like being able to off-ramp on-ramp uh compose like if you're earning money uh USDC onchain how exactly are you transferring that how are you doing payroll uh all sorts of things like just the tech side of it.

Um and then just like being able to get access uh has been historicult. Um especially I think this is changing especially with uh you know the the president of the free world and uh actually the first lady both being the the founders of various shitcoins. Uh I I think it's certainly changing.

Um but yeah we saw that what what was the the announcement? Are you talking about the the the social media founder the founder of truth social? He because he has a coin, right? Unicorn. People don't give him enough credit.

It's very rare that a that a founder of a social media company as big as Truth Social has a side hustle as demanding as being the president of the United States. Yeah, it's pretty remarkable. Um, too crazy.

There was there was also the news that um I'm forgetting the governing body, but um they were advising Fanny May and Freddy Mack to start looking at crypto assets in the mortgage process, the federal housing. Yeah. Yeah. So there's progress, right? Yeah. So yeah, that so that one's super interesting.

uh where you can actually I believe the exact rule is something like the assets that you have on a centralized exchange like a Coinbase uh and and soon to be I guess Robin Hood you you can uh actually take out a mortgage uh using those assets as collateral um and and I believe they actually I don't know if this was real news.

I didn't look too too into it, but like I believe they were actually looking at like if Farcoin is viable uh to use uh as mortgage collateral. Um cuz like it obviously needs to have some certain properties. Um but yeah, that that can be very interesting. Um I I'm not sure how it'll go.

Uh you know, the devil's always in the details for these things. Um but there's a lot of progress, right?

um like two years ago with Gary Gendler uh at uh let's say being the eye of Sauron uh you could not even imag like you could not even think this you you you would he would arrest you in your sleep so uh and then everybody left the states as a result and now they're coming back. Yeah.

Well, the eye of Sauron is closed and the mountain of Arabore is born. So, well, we'll have to have you back on soon to talk more. This is fantastic. Thanks so much for calling in. I'm sure it's uh late wherever you are and we really appreciate you taking the time. Yeah, great to catch up. We'll talk to you soon.

You always catch me up. Have a good one. So many zingers. The the the crypto vernacular is just undefeated. Uh but you heard Emily Sunberg tell it uh mention it earlier. She bought her husband a watch. You can buy your husband or wife a watch on Bezel. Go to getb bezel. com.

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