Latest / The Stable Pulse / Sovereign Debt Goes On-Chain

Transcript

Sovereign Debt Goes On-Chain · The Stable Pulse

• 0:00
  Patrick Murck: Passage of the stablecoin legislation drafted by the Senate, dubbed the Genius Act, because analysts say a wave of competition could complicate things.
• 0:08
  Patrick Murck: Stablecoin issue of debut right here at the NASDAQ today.
• 0:13
  Justin Freidman: Welcome to the Stable Pulse.
• 0:15
  Justin Freidman: We have a special episode for you recorded live from StableCon Salon at the offices of the Stellar Development Foundation on April 30th, 2026, during New York FinTech Week.
• 0:26
  Justin Freidman: I'm Justin Friedman.
• 0:28
  Justin Freidman: I'm head of policy at Stablecon and your host.
• 0:31
  Justin Freidman: I'm joined by three leaders who will introduce the world to a brand new type of financial instrument, which may just transform the way governments raise and disperse funds.
• 0:42
  Justin Freidman: With us today are Raja Chakravorty, Raja's Chief Business Officer at the Stellar Development Foundation.
• 0:48
  Justin Freidman: Thanks for hosting us, where Raja oversees strategic partnerships and investment activities in support of the mission to expand equitable access to the global financial system.
• 0:59
  Justin Freidman: Welcome, Raja.
• 1:01
  Raja Chakravorti: Thanks, Justin.
• 1:02
  Raja Chakravorti: I'm thrilled to be here, and you did a great intro for me.
• 1:05
  Raja Chakravorti: So thank you.
• 1:06
  Raja Chakravorti: You're welcome.
• 1:07
  Justin Freidman: Next to Raja, we have Patrick Mark.
• 1:09
  Justin Freidman: Patrick is founder and CEO of Sheriffs, a full-stack financial infrastructure platform that provides digital asset builders with qualified custody, reserve management, stablecoin issuance, asset tokenization, and fund administration.
• 1:25
  Justin Freidman: Don't miss Patrick's monthly podcast, Form and Structure.
• 1:30
  Justin Freidman: Patrick, welcome.
• 1:32
  Justin Freidman: Humbled and honored.
• 1:33
  Justin Freidman: Thank you.
• 1:34
  Justin Freidman: Finally, we have Mark Lorrie.
• 1:38
  Justin Freidman: Mark is co-founder and CEO of M1X, a global sovereign financial infrastructure and technology company bringing public finance to on-chain capital markets.
• 1:51
  Justin Freidman: M1X operates in partnership with the Republic of the Marshall Islands, coordinating the legal, compliance, technology, custody, and institutional infrastructure necessary to integrate sovereign digital instruments into global markets.
• 2:03
  Justin Freidman: I'm so excited for this conversation.
• 2:05
  Justin Freidman: Welcome, Mark.
• 2:07
  Mark Lurie: Thank you very much.
• 2:07
  Mark Lurie: And thank you to Stellar for having us here.
• 2:10
  Mark Lurie: And thank you all for coming.
• 2:14
  Justin Freidman: What happens when a sovereign nation chooses the blockchain over banks?
• 2:19
  Justin Freidman: The Republic of the Marshall Islands turned to blockchain infrastructure to tap into the capital markets while addressing the practical challenge of delivering a universal basic income to the planet's most geographically dispersed population.
• 2:34
  Justin Freidman: With fewer than 50,000 residents at the last census, the Marshall Islands is one of the world's smallest countries.
• 2:41
  Justin Freidman: Yet these 1,200 islands are spread across an area of the Pacific Ocean nearly the size of Mexico.
• 2:47
  Justin Freidman: As a result, many households lack reliable access to banks and cash.
• 2:52
  Justin Freidman: Today's panel will explore a pivotal moment in the history of public finance.
• 2:58
  Justin Freidman: Governments can now issue debt natively on-chain.
• 3:01
  Justin Freidman: The Marshall Islands worked with M1X to develop USDM One, a US dollar-denominated sovereign bond that is fully collateralized by U.S.
• 3:10
  Justin Freidman: Treasuries and natively issued on the stellar blockchain.
• 3:14
  Justin Freidman: It went live this March.
• 3:16
  Justin Freidman: Shuris serves as the regulated U.S.
• 3:18
  Justin Freidman: space trustee, custodian, and collateral agent for holders of USDM One.
• 3:24
  Justin Freidman: The result is a high-quality digital asset that anyone from individuals to regulated banks to corporate treasurers can hold, just like they do today with U.S.
• 3:35
  Justin Freidman: treasuries.
• 3:36
  Justin Freidman: Proceeds of the bond will fund aid to be distributed to the citizens of the Marshall Islands through a digital wallet, promising to reduce their dependence on cash.
• 3:46
  Justin Freidman: Coindesk hailed USDM1 as a new model for digital public finance and universal basic income in underserved regions.
• 3:55
  Justin Freidman: Let's dive into our discussion to explore how this experiment could reshape access to capital, redefine trust in sovereign debt, and open new pathways to financial inclusion.
• 4:06
  Justin Freidman: Mark, start with you.
• 4:11
  Justin Freidman: Tell us a bit about the Marshall Islands.
• 4:14
  Justin Freidman: What is the constraint that they were solving for with USDM one?
• 4:20
  Mark Lurie: So uh the Marshall Islands is a small country that's about halfway between Hawaii and Australia.
• 4:26
  Mark Lurie: And it's a former US territory.
• 4:28
  Mark Lurie: It's actually very similar to the US in a lot of ways.
• 4:31
  Mark Lurie: They uh speak English, they use the US dollar, they serve in the US military, they're still domestic for postal services.
• 4:38
  Mark Lurie: Um and so uh it has the institutional stability uh and kind of legal system that you might benefit from in the US, but uh they have real problems with everyday payments, right?
• 4:52
  Mark Lurie: And these are people who are free to come and work in the US, and yet sometimes cash runs dry in the ATMs.
• 4:59
  Mark Lurie: Why does that happen?
• 5:01
  Mark Lurie: Well, the problem is that for the Marshall Islands and for a lot of small countries, it's not really worth it for correspondent banks to serve those markets.
• 5:12
  Mark Lurie: And so they de-risk and pull out, right?
• 5:15
  Mark Lurie: And as a result, it can be quite hard to get money in or out of the country.
• 5:19
  Mark Lurie: There are local banks without correspondent banking relationships, right?
• 5:23
  Mark Lurie: And so in that kind of environment, how do you actually get money?
• 5:28
  Mark Lurie: Uh and if you're spread across islands, you don't necessarily want to travel to just a you know deposit or withdraw a check.
• 5:36
  Mark Lurie: And if there's not central check clearing, well, you can't really have online banking or transfers.
• 5:40
  Mark Lurie: And so it creates a very unique environment where there's a really big need in an environment where you have the institutional stability uh similar to the US.
• 5:51
  Mark Lurie: That's a really unique opportunity for blockchain to play a really big role.
• 5:56
  Mark Lurie: And I think the Marshall Islands really wanted to try to solve this problem, which has been an issue for many, many decades.
• 6:03
  Mark Lurie: The uh I think that the problem can really be identified in in what's happening with universal basic income, right?
• 6:13
  Mark Lurie: Where about 25% of the checks haven't been picked up because people can't get to them, right?
• 6:19
  Mark Lurie: It has 10,000 checks sitting there.
• 6:21
  Mark Lurie: I mean, and this needs to pay for groceries and goods and children.
• 6:25
  Mark Lurie: It's it's an important thing.
• 6:27
  Mark Lurie: Now, the Marshall Islands considered things like stable coins, but the problem is to get a stable coin, you need to send a wire into the country.
• 6:36
  Mark Lurie: And if you want to deposit a stable coin in the bank or convert it to cash, well, that bank can't hold stable coins.
• 6:43
  Mark Lurie: So it has to send a wire to offer anything.
• 6:46
  Mark Lurie: And that defeats the whole point of avoiding a reliance on correspondent banking systems.
• 6:52
  Mark Lurie: And so they thought, how can we reclaim our sovereignty and reduce our dependency on international financial institutions who don't really serve our interests, right?
• 7:02
  Mark Lurie: Not that they're uh ill-meaning, but it's not their priority.
• 7:06
  Mark Lurie: Uh, and the answer was um do it ourselves.
• 7:10
  Mark Lurie: And so USDM1 is a sovereign bond, but is also fully collateralized by US Treasuries.
• 7:16
  Mark Lurie: So you have the uh legal structure of a sovereign asset, but you also have the creditworthiness of US Treasury.
• 7:25
  Mark Lurie: And that's something that banks can hold, and that helps solve their correspondent banking problem, and that helps solve their payment problems.
• 7:32
  Justin Freidman: Okay, hang on a second here.
• 7:33
  Justin Freidman: Uh you said they looked at stable coins.
• 7:37
  Justin Freidman: USDM1 kind of looks like a stable coin to me.
• 7:40
  Justin Freidman: Are you telling me it's not a stable coin?
• 7:42
  Justin Freidman: What is it?
• 7:44
  Mark Lurie: Well, a stable coin is not a dictionary-defined term.
• 7:47
  Mark Lurie: Uh, and it can mean many different things.
• 7:50
  Mark Lurie: I mean, we refer to stable coins as circle, as tether, as uh Athena.
• 7:56
  Mark Lurie: I mean, these are very different things.
• 7:58
  Mark Lurie: So the truth is it doesn't mean much, right?
• 8:01
  Mark Lurie: There are certain types of things.
• 8:04
  Mark Lurie: There's now payment stable coins as a result of genius.
• 8:07
  Mark Lurie: There are uh algorithmic stable coins, um, there's fiat back stable coins in other ways, right?
• 8:14
  Mark Lurie: And so all of these are actually different things, and they have different legal treatment, different regulatory treatment, and that really matters for how it's actually used.
• 8:21
  Mark Lurie: This is not a stable coin, it is sovereign debt.
• 8:24
  Mark Lurie: And sovereign debt is a thing unto itself.
• 8:27
  Justin Freidman: Raja, I'm gonna turn to you.
• 8:29
  Justin Freidman: Where does this distinction actually matter?
• 8:32
  Raja Chakravorti: Uh okay, so there's like so much to unpack, which is like so awesome, by the way, what you guys created.
• 8:38
  Raja Chakravorti: And so let me try to I'll I'll get to like what it means.
• 8:42
  Raja Chakravorti: But I'll say the first time I met Mark, um, he he approached me, and there was this just like audacious idea that you've got, you know, all of these islands that are disparately, you know, like out in the middle of the Pacific, and you have to be able to get assets between people.
• 8:59
  Raja Chakravorti: And that the existing system was effectively like bartering because there's no access to cash.
• 9:04
  Raja Chakravorti: So, okay, that's wild.
• 9:06
  Raja Chakravorti: And it's not like there's a plane where you can fly from like island that is like on the Cancun side to, you know, the Port of Ayurta side.
• 9:13
  Raja Chakravorti: And if you're looking at Mexico, like, you know, you have to vote.
• 9:15
  Raja Chakravorti: And so that's like really severe friction.
• 9:18
  Raja Chakravorti: And so, in so many ways, a digital asset is the thing that makes the most sense.
• 9:24
  Raja Chakravorti: Um, the reality is when I think about like banking and how banking has evolved, just this idea that the correspondent banking network effectively like fails in that place actually kind of follows what happened.
• 9:36
  Raja Chakravorti: You know, obviously, I live in the United States, and so I'm taking a US centric point of view.
• 9:40
  Raja Chakravorti: But over the past several years, you're starting to see this kind of evaporation of local banks, you know, different bank branches, because it wasn't really a creative for the way in which people were going to the banks.
• 9:52
  Raja Chakravorti: It wasn't necessarily profitable, and you're starting to see this like loss that was happening there.
• 9:55
  Raja Chakravorti: I think that's probably exacerbated when you look at an island scenario and then you take COVID on top of it.
• 10:01
  Raja Chakravorti: And I think the banking system probably like, you know, all of the banks disappeared.
• 10:06
  Raja Chakravorti: And so finding that mechanism is super, super valuable.
• 10:09
  Raja Chakravorti: So I just think kudos to you guys for having done a solution like this.
• 10:13
  Raja Chakravorti: Um, but to get to your question, the difference between this structure, I think is it's it's really exciting because a stable bond product, which is what we're describing here, has so much embedded value that I think stable coins have solved very clear problems, but stable bonds take it to the next level.
• 10:31
  Raja Chakravorti: And so in a stable bond, you've got kind of like your principal element and you've got your coupon element.
• 10:35
  Raja Chakravorti: And that coupon element provides interest.
• 10:37
  Raja Chakravorti: And that interest is something that is incredibly valuable because structurally you can start doing really, really interesting things, particularly as you know, uh like a collateral perspective, as something that literally earns you a yield.
• 10:52
  Raja Chakravorti: So you don't have what I describe as like a lazy asset sitting there within a system.
• 10:55
  Raja Chakravorti: And so you're actually unlocking incremental value as we talked about, like developing financial access.
• 11:00
  Raja Chakravorti: And I think that's probably the place where we're gonna see this innovation actually start to like seep into innovation across how people are thinking about stable coins broadly, right?
• 11:13
  Raja Chakravorti: Like you are going to have that first stable coin, that first use case was hey, let me use, like let me have a dollar denominated bank account, I guess, in an emerging market where you have, you know, um you have risk from currency, you have risk from inflation, you have all of these different risks.
• 11:30
  Raja Chakravorti: But now you've got a sovereign bond product and it is fully collateralized by the US government, plus it's got this coupon, and so it's just creating all this opportunity to create more more uh innovation.
• 11:41
  Raja Chakravorti: So huge, huge opportunity.
• 11:43
  Justin Freidman: Patrick, uh you're a corporate lawyer.
• 11:46
  Justin Freidman: Um He looks the part too, doesn't he?
• 11:51
  Justin Freidman: Yeah, obviously.
• 11:52
  Justin Freidman: For those who are listening and not watching, by the way.
• 11:54
  Justin Freidman: For those who are listening and not watching, uh, he he very much looks the part.
• 11:59
  Justin Freidman: And uh so Patrick, my question is why is this distinction so important to holders of the asset?
• 12:05
  Justin Freidman: The difference between a stable coin, a stable bond.
• 12:09
  Patrick Murck: Yeah, I mean, again, like these terms are so fluid that you know take it all with a grain of salt.
• 12:16
  Patrick Murck: But um, what's interesting about this particular asset and what makes it unique is that it is sovereign issued and it in the US qualifies as what's called a Brady bond.
• 12:27
  Patrick Murck: And so when you hold this asset, unlike a payment stablecoin under Genius, what you actually have is something that is is basically a look through to the treasuries that are being held behind it.
• 12:39
  Patrick Murck: So they function like those treasuries, and that has practical implications.
• 12:44
  Patrick Murck: It means that unlike a security in the US, um, which is typically how you would get yield from an asset, it can transform more, transfer more freely.
• 12:56
  Patrick Murck: Um and then unlike a stable coin, which can transfer freely, you get yield.
• 13:00
  Patrick Murck: So it's like got this like combination of the best of both things at the same time.
• 13:04
  Patrick Murck: And that makes it a very unique product.
• 13:06
  Patrick Murck: And then if we wanted to like get into the more wonky legal stuff, which I don't know, reads no kidding.
• 13:13
  Patrick Murck: Nobody wants to go too far down this rabbit hole.
• 13:15
  Patrick Murck: I know that.
• 13:16
  Patrick Murck: Um the bars open, maybe.
• 13:19
  Patrick Murck: Um so the other implications are it's more institutional braid than a lot of other offerings that are out there to settle the cash flake, like other stable coins and things like that.
• 13:30
  Patrick Murck: Because it's sovereign debt, because it's registered with the SEC, and because it's technically a security.
• 13:37
  Patrick Murck: So under the UCC, which is how we govern sort of transfers of property, it's state level, and every state has their own version of it.
• 13:44
  Patrick Murck: UCC8 applies to securities and it creates a very clear framework that has stood the test of time and decades of use to decide how ownership is transferred between these different assets.
• 13:57
  Patrick Murck: Um whereas with stable coins, it's still a bit of an emerging area.
• 14:02
  Patrick Murck: And for other digital assets, there are only a handful of states which have passed the UCC amendment to even provide any sort of clarity on it.
• 14:09
  Patrick Murck: So you get that clarity too, and it can be rated by ratings agencies.
• 14:14
  Patrick Murck: There's all sorts of like things that make it really interesting for institutional actors.
• 14:20
  Patrick Murck: And Mark and I were talking, it's very it's kind of like it's weird, right?
• 14:24
  Patrick Murck: Because like usually if you make a product and you're like, man, this is really gonna help the bankers, right?
• 14:30
  Patrick Murck: Fine, you that's okay.
• 14:32
  Patrick Murck: But it usually doesn't help the Marshallese people.
• 14:35
  Patrick Murck: And if you make a product that's like to help the Marshallese people, it's usually not something that helps bankers, too.
• 14:41
  Patrick Murck: And this is just a weird, that's just weird, man.
• 14:44
  Patrick Murck: It's weird, right?
• 14:46
  Patrick Murck: Like, because it helps both.
• 14:48
  Justin Freidman: That's what I love about this, that it is uh it has such a two-sided mission.
• 14:53
  Justin Freidman: Um, Mark, this project has been underway for years.
• 14:58
  Justin Freidman: I I know that you and your colleagues have building a really have been building a relationship with the government of the Marshall Islands for a long time and conceptualizing this.
• 15:06
  Justin Freidman: What was the most significant hurdle that they were trying to overcome?
• 15:12
  Justin Freidman: And how did you get across the finish line?
• 15:16
  Mark Lurie: Well, there was a uh 10 years in the making, um and uh probably two years focused on this, but 10 years exploring how to solve the problem.
• 15:27
  Mark Lurie: Um and I would say that the hurdles were not what we expected going in.
• 15:34
  Mark Lurie: Um and I think it probably uh calls back to what Patrick mentioned, which is it is surprising that this same asset can is useful for Main Street and and Wall Street, but it shouldn't be because we all hold sovereign assets for Main Street and Wall Street.
• 15:52
  Mark Lurie: You can open your wallet, your physical wallet, and you will see sovereign assets.
• 15:56
  Mark Lurie: Many people hold treasuries, right?
• 16:00
  Mark Lurie: Uh and T-bills, you can get them from treasurydirect.gov.
• 16:03
  Mark Lurie: So actually, this is how the financial system is designed, intended, and set up.
• 16:08
  Mark Lurie: So we really shouldn't be surprised.
• 16:10
  Mark Lurie: And so a lot of the hurdles that one would think would be there were not the ones that uh turned out to be the biggest blockers.
• 16:18
  Mark Lurie: Now, not that they were not hard, but um, you know, they were surmountable.
• 16:22
  Mark Lurie: I think what was actually the biggest challenge was uh will and faith.
• 16:30
  Mark Lurie: So there had to be will from the Marshall Islands government and faith in an entrepreneurial approach to the problem as opposed to a very uh, you know, let's say bureaucratic large institution approach to the problem.
• 16:47
  Mark Lurie: I think they were done with large institutions now prioritizing them and willing to engage in an entrepreneurial approach.
• 16:54
  Mark Lurie: And faith because they had faith in that entrepreneurial energy and the partners involved, but also faith on the on the behalf of the partners because it's not clear what this would be initially, and yet it took years to of work with uncertain return, uh, just having faith that actually this is a real problem, finally.
• 17:17
  Mark Lurie: And there is a real solution that will do real good for people, and it is worth pursuing that and supporting that and putting blood, sweat, and tears in.
• 17:24
  Mark Lurie: And it turns out that attracts some of the most brilliant minds and the best people.
• 17:27
  Mark Lurie: And uh and that's what happened.
• 17:30
  Mark Lurie: If anything, it's selected for that.
• 17:32
  Justin Freidman: Um if it wasn't clear that I stole his talking point.
• 17:40
  Patrick Murck: I 100% stole his talking point there.
• 17:43
  Patrick Murck: Um, but I enjoyed it and thought it was great.
• 17:45
  Patrick Murck: And I and you know, so it's good.
• 17:46
  Patrick Murck: And they liked tearing it twice, anyways.
• 17:48
  Patrick Murck: I will say, like, I've known you for a decade and I almost probably this whole journey, and I will say for at least nine and a half of those years, I thought you were a crackpot you know, for doing this thing.
• 17:58
  Patrick Murck: You're like, I went to the Marshall Islands again.
• 18:00
  Patrick Murck: And I'm like, man, what the heck are you doing?
• 18:02
  Patrick Murck: Where even is this play?
• 18:03
  Patrick Murck: So it was having gone there now, I think.
• 18:05
  Patrick Murck: Yes, it's amazing.
• 18:07
  Justin Freidman: It's uh it's terrific.
• 18:07
  Justin Freidman: Okay, everyone on the stage has probably been called a crackpot uh by some of their friends and family for you know not believing in you know what we see as the future of financial services.
• 18:18
  Justin Freidman: And it's really exciting to see practical use cases like this coming to fruition and actually answering that call.
• 18:25
  Justin Freidman: So let's talk about Stellar.
• 18:28
  Justin Freidman: There are many blockchains out there, and you chose Stellar.
• 18:34
  Justin Freidman: Why?
• 18:36
  Mark Lurie: Well, we chose um they have a great bar.
• 18:41
  Mark Lurie: Yeah, coffee seats.
• 18:44
  Mark Lurie: Yeah.
• 18:44
  Mark Lurie: Um nice view.
• 18:45
  Mark Lurie: Yeah, nice view.
• 18:46
  Mark Lurie: Um, handsome people.
• 18:49
  Mark Lurie: Uh and uh you know, first it it was a uh decision we came to with the Marshall Islands, and there was quite an extensive evaluation process.
• 19:01
  Mark Lurie: And uh there's some things which were technically beneficial, right?
• 19:07
  Mark Lurie: Uh fast transaction times, uh long track record, very low transaction fees.
• 19:15
  Mark Lurie: Um those were table stakes.
• 19:18
  Mark Lurie: Um but I think what really set it apart was uh was a mission, right?
• 19:24
  Mark Lurie: Stellar's mission is financial inclusion.
• 19:27
  Mark Lurie: And there are other foundations that say that, but not many that walk the walk.
• 19:34
  Mark Lurie: Or talk the walk, walk talk and walk.
• 19:37
  Mark Lurie: And uh, uh and they were really enthusiastic, uh supportive, leaned in, and uh and and because of all that, I think there's faith that whatever happens, whatever problems come up, they will find a way to make it work and they will develop the technology in the way that is necessary for uh the Marshall Islands to continue, right?
• 20:04
  Mark Lurie: And the Marshall Islands was very uh hesitant to engage with technology run by an institution which had unaligned interests because that's what created the problems in the first place.
• 20:15
  Mark Lurie: And Stellar answered that call.
• 20:17
  Justin Freidman: Raja, what does this prove to the world about Stellar and its mission and its capabilities?
• 20:22
  Justin Freidman: Yeah.
• 20:23
  Raja Chakravorti: Um, Mark, I appreciate kind of the commentary.
• 20:26
  Raja Chakravorti: And I think as I was mentioning, when Mark first approached me and we described the problem, it was very aligned to what we built Stellar as.
• 20:34
  Raja Chakravorti: And we talked about financial inclusion, financial access as being core to the mission of Stellar, and it is.
• 20:39
  Raja Chakravorti: The design of what we are trying to do, though, is create a very efficient ability to transfer assets at scale globally.
• 20:48
  Raja Chakravorti: And that was really what we built Stellar from the ground up for.
• 20:51
  Raja Chakravorti: I think the things that for me were really resonant in the discussion we had was hey, look, like we really need to be able to have almost instant transfers.
• 21:01
  Raja Chakravorti: We need to be able to do it with very, very low cost, as we talked about.
• 21:04
  Raja Chakravorti: Um, but also just making sure that there's institutional rate uptime.
• 21:09
  Raja Chakravorti: Like the fact that the blockchain itself has been really stable when we prioritize security within the blockchain.
• 21:15
  Raja Chakravorti: I think those are really important components when we're engaging with a government and talking about moving an entire economy on-chain.
• 21:22
  Raja Chakravorti: Like it, these things have to work and be really true.
• 21:25
  Raja Chakravorti: And so I think those were there, there where there's a lot of alignment.
• 21:28
  Raja Chakravorti: As it relates to the access point of view, I have a very strong view that the types of initiatives that we've worked on that are oriented around like financial access, inclusion, the aid work, what it really exposes is those are some of the hardest to deliver payment scenarios.
• 21:45
  Raja Chakravorti: And what we've tried to design Stellar for is being able to solve the most difficult of payment scenarios.
• 21:51
  Raja Chakravorti: So imagine a scenario where you have one country trying to invade another country and you're trying to get aid into the Invaded the country.
• 22:00
  Raja Chakravorti: I don't know if you mean the right terms, but ultimately what happens is a disruption in correspondent banking.
• 22:05
  Raja Chakravorti: How do you actually deliver payment from one side to the other?
• 22:08
  Raja Chakravorti: This is why working with organizations like the United Nations, why they chose a blockchain like Stellar was very important, because we're able to help facilitate the direct transfer of assets in a way that is conducive that is audible, auditable, as well as making sure that it is immune from like the breakage that happens in that.
• 22:27
  Raja Chakravorti: And I think that's where we saw a lot of alignment here, which is look, we have to be able to deliver this scenario, deliver the solution, and deliver effectively deliver this UVI solution to people who are going to be in very, very hard-to-reach places.
• 22:40
  Raja Chakravorti: And so I think what this scenario has demonstrated for me, and Mark and I have had the chance to talk about this, is we're when we're talking about the Marshall Islands, we're kind of talking about it in a little, like a little bit of like a very specific thing.
• 22:53
  Raja Chakravorti: But what we're seeing here and the fact that an entire economy can move on-chain, leveraging an asset that has multiple levels of value beyond just like a stable coin, but actually like drive this like yield profile.
• 23:05
  Raja Chakravorti: That is the type of thing that every government should take a look at and say, hey, look, if I wanted to make the same leap, how would I do it?
• 23:12
  Raja Chakravorti: And I think Marshall Islands is basically driving the blueprint for what we can do next.
• 23:18
  Raja Chakravorti: And that's incredibly exciting from a stellar point of view because it just resonates very well, very well with our mission.
• 23:23
  Justin Freidman: Yeah, let's let's pull on that thread a little bit.
• 23:25
  Justin Freidman: So beyond this particular use case of USDM1, how could this structure unlock new behavior in capital markets?
• 23:32
  Justin Freidman: Like what's what is the next iteration?
• 23:37
  Mark Lurie: Well US treasuries are an order of magnitude larger than money supply.
• 23:43
  Mark Lurie: Uh they're an order of magnitude larger than money markets.
• 23:47
  Mark Lurie: They are the substrate that the financial system works on.
• 23:51
  Mark Lurie: Uh they are the collateral that is essentially default.
• 23:57
  Mark Lurie: And when you have an asset that uh has the same regulatory framework as a T-bill, because it's a sovereign bond, and has a creditworthiness of a US Treasury, then it can be used like a US Treasury.
• 24:13
  Mark Lurie: And that makes it a really ideal collateral instrument.
• 24:16
  Mark Lurie: And that lets you mobilize collateral across countries, across time zones 24-7, which is the number one need that uh TradFi institutions have and see in uh in the blockchain, right?
• 24:32
  Mark Lurie: It's like use case number one.
• 24:35
  Mark Lurie: And and I think this is a great use case for them, and there's a lot of other assets that can be similar that they will end up using over time because sovereign assets are designed for that.
• 24:50
  Raja Chakravorti: I want to double down on one thing that Mark was talking about because the structure of this as a brain bond is very, very exciting in that you've got the the the risk is the US government.
• 25:00
  Raja Chakravorti: Like it is essentially the best rated risk in the world.
• 25:04
  Raja Chakravorti: And you've got the coupon element, and you've got the structure that Patrick was talking about, which is you've got the free transferability plus you've got the yield.
• 25:12
  Raja Chakravorti: So you have the best of both worlds.
• 25:13
  Raja Chakravorti: And so it I agree, it is like the most ideal collateral asset for any institution.
• 25:18
  Raja Chakravorti: And I think that is really exciting because being able to talk to institutions and say, hey, look, like that collateral, it's an on-chain collateral, and it is structured as like T-bills and has all of this ability to go do all of the things you need to be able to do, that creates a new level of innovation.
• 25:37
  Raja Chakravorti: And that is like re-architecting financial services from the ground up, which is ultimately what we're really focusing on doing is like really building that infrastructure out.
• 25:45
  Justin Freidman: But I heard you describe this as a Brady bond, which is not a new concept.
• 25:50
  Justin Freidman: It's remind me what that is.
• 25:52
  Justin Freidman: Go ahead.
• 25:54
  Mark Lurie: Uh so a Brady Bond uh is named after U.S.
• 25:57
  Mark Lurie: Treasury Secretary Nicholas Brady, um, who uh in the 80s was dealing with a US banking crisis.
• 26:04
  Mark Lurie: U.S.
• 26:04
  Mark Lurie: banks held a lot of sovereign debt uh from emerging markets.
• 26:08
  Mark Lurie: And uh and it's actually those sovereigns that were having a sovereign credit crisis.
• 26:14
  Mark Lurie: But that was also a US problem because the US banks held it.
• 26:18
  Mark Lurie: And so a grand bargain was struck, and uh the US banks, who are most of the bondholders, agreed to uh and the sovereigns agreed to redenominate all the bonds in US dollar terms.
• 26:30
  Mark Lurie: Um, interest rates came down, and the US and the IMF posted T-bills as collateral against those bonds to enhance the creditworthiness.
• 26:39
  Mark Lurie: Now, the US banks all held what essentially functioned as U.S.
• 26:43
  Mark Lurie: treasuries in a standardized format uh that aligned with their frameworks and their ballot sheets improved, banking crisis resolved, and about $10 trillion worth of brain bonds were traded uh from this financial instrument.
• 26:57
  Mark Lurie: Now, they're not common now because the U.S.
• 26:59
  Mark Lurie: doesn't post collateral on behalf of sovereign nations anymore outside of a crisis.
• 27:03
  Mark Lurie: But uh but there's actually a very long precedent of it being used for exactly these kinds of use cases.
• 27:08
  Justin Freidman: Aaron Powell So what I'm hearing is that this is really leveraging a tried and true structure that has been legally tested and relied upon for a long time, and we're just putting it on chain.
• 27:18
  Justin Freidman: That's right.
• 27:20
  Patrick Murck: So here's the thing, right?
• 27:21
  Patrick Murck: Like you're talking about what other uses and things like that.
• 27:24
  Patrick Murck: So when you look around the world, right, you have all these central banks out there, and some of them do a better job than others in terms of maintaining their economy and the currency and the balance there.
• 27:40
  Patrick Murck: And many of these small countries have a ton of pressure from the US dollar internally, right?
• 27:48
  Patrick Murck: That's the dollarization effect.
• 27:49
  Patrick Murck: And it's only increasing with stablecoin use.
• 27:52
  Patrick Murck: It's not getting better, it's getting worse if your perspective is on a central banker in a small country.
• 27:58
  Patrick Murck: The question you have to ask yourself is like, one, should they even exist?
• 28:02
  Patrick Murck: I mean, that's I think actually a real question.
• 28:05
  Patrick Murck: Many of these central banks, I mean, should they actually exist and be trying to have any sort of monetary control over there?
• 28:10
  Patrick Murck: And because they're just going to get dollarized anyway, so why not just jump ahead?
• 28:13
  Patrick Murck: Um there is.
• 28:14
  Patrick Murck: I told you I'd give you a spicy take, right?
• 28:16
  Patrick Murck: Um so maybe we just get rid of most of the central banks anyways, because they don't serve any purpose.
• 28:22
  Justin Freidman: Um, but this is something I think about a lot.
• 28:29
  Justin Freidman: And I uh it's a fascinating time to be a central banker and to be confronting this potential.
• 28:36
  Justin Freidman: And that's the central crisis.
• 28:39
  Justin Freidman: It's not just job security, it's a loss of control over independent monetary policy and the ability to set interest rates for your economy.
• 28:46
  Justin Freidman: Trevor Burrus, Jr.
• 28:46
  Patrick Murck: Correct.
• 28:47
  Patrick Murck: But you've probably that that ship sailed years and years, decades ago, right?
• 28:51
  Patrick Murck: Um and and you're just really clinging on to a fiction in that sense.
• 28:55
  Patrick Murck: But what's interesting is so it used to be basically get dollarized and eliminate a central bank or you know, post-capital controls and try and like keep this fiction going that you can control the economy or your own economy, which you can't.
• 29:09
  Patrick Murck: And but now there's this like weird alternative because now as a central bank, you can issue your own US dollar.
• 29:17
  Patrick Murck: And instead of all the benefits going to the US, actually you retain those benefits.
• 29:22
  Patrick Murck: Because when the Marshall Islands is is effectively, they're already dollarized, but they're redollarizing with digital dollars, their entire entire economy, they're all the benefits Mark said.
• 29:34
  Patrick Murck: But there's an additional benefit, which is all of a sudden the Marshallese people, the government, take yield that they never had before.
• 29:43
  Patrick Murck: So this is actually an income stream for the government to better serve the Marshallese people.
• 29:48
  Patrick Murck: So if you're in one of these small countries, you can either face the fiction and just eliminate your central bank because it's kind of pointless, anyways, or you have this new opportunity, the blueprint has been laid, where you could actually take control of the process and reap a benefit for yourself and your country and your own economy by just like absorbing the dollarization effect and like reaping a benefit from it.
• 30:13
  Patrick Murck: And that's super unique for this moment in time.
• 30:17
  Raja Chakravorti: I just well so I actually loved your spicy tape, Patrick.
• 30:21
  Raja Chakravorti: It's great.
• 30:21
  Raja Chakravorti: Um I was gonna think else you want me to say shouldn't exist?
• 30:24
  Raja Chakravorti: Uh no, but you can swear a little bit.
• 30:27
  Raja Chakravorti: That'll be that'll be spicy fucking egg.
• 30:29
  Raja Chakravorti: This is uh the family program.
• 30:30
  Raja Chakravorti: Yeah, absolutely.
• 30:31
  Raja Chakravorti: Um I think there's probably a slightly there's slightly different things I have is that I believe I think we're now seeing a counterpunch, which is that I think a lot of governments are very interested in fighting against dollarization.
• 30:47
  Raja Chakravorti: And so I think we are seeing from our end this emergence of hey, can we build stable coins that are local, locally denominated stable coins in different markets?
• 30:58
  Raja Chakravorti: And while that, you know, the overwhelming majority of stable coins is US dollar denominated, absolutely.
• 31:05
  Raja Chakravorti: And I think this is an elegant way to kind of fight against that.
• 31:09
  Raja Chakravorti: I think the emergence of local stables will continue, and we're starting to see a lot more of those.
• 31:13
  Raja Chakravorti: In fact, I think on Star, we support about 40 different um stables, which is pretty wild.
• 31:19
  Raja Chakravorti: Um, but where I think there's potentially in a kind of a meeting in the middle of these two ideas is that stable bond structures actually allow for potential optimization of FX between a US dollar asset and a local asset, because that if you basically pair that with a yield-bearing instrument on chain, you can optimize FX fee and then transition it to a local stable coin.
• 31:43
  Raja Chakravorti: And therein you can have the most optimized flow as long as you can build an economy that, again, is prevalent now in the Marshall Islands, where you can then off-ramp it appropriately within the local economy.
• 31:54
  Raja Chakravorti: And I think that last mile is the thing that you need to unlock for it.
• 31:58
  Raja Chakravorti: But um, I think the reality is the story has yet to fully be written.
• 32:02
  Raja Chakravorti: Uh, but I do think the technology emergence is giving a lot more opportunities to resolve this issue.
• 32:07
  Mark Lurie: Okay, and and maybe one follow-on from that is uh it's so true.
• 32:13
  Mark Lurie: And uh in crypto, the narratives don't really take sovereign seriously, right?
• 32:21
  Mark Lurie: Because they take their time.
• 32:22
  Mark Lurie: Uh and they take their time because they can take their time, right?
• 32:26
  Mark Lurie: But when they decide they want to do something, they write the rules.
• 32:31
  Mark Lurie: Uh and the biggest curveball that's gonna come to crypto in the next decade or two is like, oh, what happens when actual sovereign assets come on chain?
• 32:41
  Mark Lurie: Right.
• 32:41
  Mark Lurie: And that is being hashed out right now and starting to happen.
• 32:45
  Mark Lurie: And it is happening on stellar.
• 32:47
  Mark Lurie: And uh and I I think people should pay attention more than they are, uh, because we all use sovereign assets.
• 32:54
  Mark Lurie: Thanks, Mark.
• 32:55
  Justin Freidman: So let's wrap up.
• 32:57
  Justin Freidman: No more than 30 seconds.
• 33:04
  Justin Freidman: Starting with Mark, then Patrick, then Raja.
• 33:07
  Justin Freidman: When you think about the future of sovereign assets, is USDM1 exceptional or is this just the first of its kind?
• 33:19
  Mark Lurie: I think there will be lots of sovereign assets.
• 33:21
  Mark Lurie: I don't know that they'll be exactly the same.
• 33:24
  Mark Lurie: Uh but I think they're coming.
• 33:26
  Mark Lurie: And um so I guess I'd say first of its kind.
• 33:33
  Patrick Murck: I think that it won't be the only asset that looks like this.
• 33:38
  Patrick Murck: I think there will be others, especially as this proves itself out.
• 33:42
  Patrick Murck: Um but the question is with a huge first mover advantage, at least regionally, really is there any point in trying to like create another one?
• 33:53
  Patrick Murck: And coming back to the fiction that like anybody other than the U.S.
• 33:58
  Patrick Murck: and China control the entire economy, anyways, um if you're a central bank in a small country, like there's it's a little bit of game theory, right?
• 34:07
  Patrick Murck: Like if you're not the first mover in your region, you might be using another country's central bank like US dollarized uh stable bond, right, as your currency now.
• 34:19
  Patrick Murck: So there's going to be I'm wondering how long it's gonna take before the actual like firing gun starts the race.
• 34:27
  Patrick Murck: Okay.
• 34:27
  Patrick Murck: Raja, what's next?
• 34:30
  Raja Chakravorti: Um Well, I'll say I I think it's uh it is exceptional in the blueprint that it has provided.
• 34:35
  Raja Chakravorti: And I think that it is the first of its kind in that it's demonstrating that this is the type of asset that will gain traction.
• 34:43
  Raja Chakravorti: I still think we're writing the story of um uh of this asset um and we're seeing the adoption roll out.
• 34:50
  Raja Chakravorti: I think the trajectory is really phenomenal.
• 34:52
  Raja Chakravorti: Um, but I think the thing that will make it, you know, stand in you know, kind of its own stratosphere is if you can get it to become this collateral asset for institutions, like gaining institutional adoption for these types of assets is the unlock that I think make them scale.
• 35:08
  Raja Chakravorti: And so I'll be really excited to see what happens next year.
• 35:13
  Justin Freidman: Okay, that'll do it for us.
• 35:15
  Justin Freidman: This wraps up our special live edition of the Stable Pulse.
• 35:19
  Justin Freidman: Thanks to Raja, Patrick, and Mark, and to all of our listeners at home for tuning into this conversation.
• 35:26
  Justin Freidman: Keep your finger on the pulse of the latest developments in stable coins and the future of money by subscribing to the Stable Pulse wherever you listen to podcasts.
• 35:34
  Justin Freidman: We will see you next time.
• 35:36
  Justin Freidman: Thank you.
• 35:38
  Justin Freidman: Thank you.