In this episode of The Block which took place on August 1, 2024, Frank Chapparo hosted Nick Van Eck from Agora to discuss the evolving landscape of stablecoins, the potential disruption of traditional financial markets through tokenization, Agora’s strategic advancements in the space, and more! Read our notes to learn more!
Background
Frank Chapparo (Host) – Host of The Scoop & Director of Special Projects at The Block
Nick Van Eck (Guest) – Co-Founder and CEO at Agora
Agora – $AUSD (Agora Dolla) is an ERC-20 standard token designed for decentralized peer-to-peer transfers, integrating features to ensure robust real-time financial operations and compliance
Building a New Stablecoin Paradigm: Nick Van Eck’s Journey with Agora
- Frank introduces the episode by highlighting the focus on new entrepreneurs in the crypto space, specifically bringing on Nick Van Eck of Agora.
- Nick, who transitioned from VC to starting his own company, shares that the last few months have been very productive, with Agora already reaching $40 million in TVL since their limited launch on the Ethereum mainnet.
- Frank asks Nick about building network effects for a stablecoin, noting the competitive nature of the space.
- Nick explains that stablecoins can be highly profitable at scale but challenging for smaller issuers. He outlines the evolution of stablecoins, starting with Tether, which brought dollars on-chain, followed by exchange-backed stablecoins like $USDC and $BUSD, which gained traction through trading and DeFi.
- Nick highlights that the market structure in 2024 is very different from 2018, with the expansion of DeFi, multiple chains, regional exchanges, and custodians. He believes stablecoins have the potential to disrupt the eurodollar market, envisioning a $15-20 trillion opportunity.
- Nick critiques the conflict of interest in current exchange-backed stablecoins, particularly with $USDC and its affiliation with Coinbase. He argues that money should be neutral, free from conflicts of interest, and points out the challenges faced by yield-bearing stablecoins, such as regulatory issues and reduced addressable markets.
- Nick contrasts bad stablecoin products with what he believes is a better model: one that is one-to-one stable and shares economics with businesses. Agora’s approach involves partnering with exchanges, fintechs, and applications, sharing a significant portion of net revenue with them in exchange for their services, such as marketing and listing. This model, according to Nick, has resonated well with businesses in the industry.
Navigating the Evolution of Crypto Collateral: Bitcoin to Stablecoins and Innovative Financial Products
- Frank discusses the evolution of collateral in the crypto space, noting the shift from Bitcoin as the primary trading pair to stablecoins like $USDT and $USDC, and now to more innovative products like Ethena and tokenized treasury bills. He asks Nick for his perspective on these changes and how they fit into the current market landscape.
- Nick explains that $AUSD competes primarily with $USDC and $USDT as centralized stablecoins, describing them as “digital cash” that can be used across various products and platforms. He views decentralized stablecoins, such as those from Ethena or wrapped products like those from Frax, not as direct competitors but as customers or partners who utilize centralized stablecoins as part of their own ecosystems.
- Nick further elaborates on the differentiation within the stablecoin market, comparing it to the fixed income market with varying levels of risk, from AAA-grade products to those with higher risk and yield, similar to junk bonds. He highlights that while some products may offer higher yields, they also come with higher risks and cater to different customer segments.
- He uses Ethena as an example, highlighting that while it serves traders and firms looking for additional alpha, it is not necessarily targeting the same users who seek stable, low-risk assets to preserve wealth.
- Nick says that the market is large and diverse, with different products serving distinct consumer profiles, some of which can be complementary rather than directly competitive.
Exploring Tokenization and Its Future Impact on Capital Markets
- Frank asks Nick about the term “tokenization” and whether it needs improvement. He points out that stablecoins are essentially the largest real-world assets (RWAs) already on-chain.
- Nick agrees and explains that there are different ways to bring off-chain assets on-chain, such as perpetuals or canonical tokenization. He believes that while tokenization will eventually dominate, we’re still three to five years away from widespread adoption beyond stablecoins. The challenge lies in getting traditional financial institutions like Nasdaq, BNY Mellon, and State Street to interact with these assets, which will lead to greater liquidity and utility.
- Frank notes that tokenized assets aren’t necessarily better right now, to which Nick agrees, highlighting that traditional financial players need to start accepting and interacting with crypto. He believes that clear regulation in the U.S. would accelerate this process, making tokenized assets truly beneficial.
- Frank asks Nick to explain how tokenization could improve capital markets. Nick provides an anecdote about the inefficiencies of traditional finance, such as the delayed settlement times when selling equities.
- He highlights instant settlement, lower transaction costs, and programmatic transactions as key benefits of tokenization. He also mentions the potential for embedding data into assets to eliminate manual processes.
- Frank asks about the broader vision for Nick’s company beyond their flagship product $AUSD.
- Nick shares that their goal is to build the most liquid digital dollar and eventually lower transaction costs significantly. He envisions becoming the primary business for the global money movement, whether for corporations like Pepsi or crypto companies. A long-term goal is to offer merchants lower transaction fees compared to traditional payment processors like Visa and MasterCard by accepting $AUSD directly.
- Frank asks which market is harder to penetrate: merchants or others. Nick acknowledges the challenge posed by the duopoly of Visa and MasterCard but believes that by starting with crypto and digital dollars, they can eventually offer more value to businesses and users, moving away from the current rent-seeking models.
- Frank asks how Nick’s venture capital background influences his approach to building the product. Nick says his experience in venture capital has given him a clear understanding of what success looks like in startups, helping him build a strong network and deeply analyze markets. This background has been advantageous in setting high standards and thinking strategically about the long-term goals of the business.
- Frank asks how this background shapes Nick’s view of success in the short to medium term. Nick explains that their goal is to dominate the global stablecoin market. With about $40 million in assets under management (AUM) or TVL just two weeks after launch, they are off to a good start but remain focused on growing liquidity, adding networks, and becoming a better service provider in the market.
Check Out These Important Links
- Watch the YouTube Video
- Follow Frank Chapparo on Twitter
- Follow Nick Van Eck on Twitter
- Follow Agora on Twitter
- Follow The Block on Twitter
Show Information
Medium: YouTube (Video)
Show: The Scoop
Show Title: Disrupting the centralized stablecoin duopoly | The Scoop Podcast w/ Nick van Eck
Show Date: August 1, 2024