Circle launched its own blockchain. What happens to Ethereum?

We're excited for this. This means that like if I'm an institution, if I want to transact privately, whether with another institution, another user, or another smart contract, I don't have to worry about others being able to find out my balances or how I'm contracting. So yeah, it's a pretty big milestone for us. Crypto markets move fast. You need research that keeps up. That's The Stack, Grayscale's blog with sharp analysis from the team that's tracked digital assets since 2013. Head to grayscale.com slash the stack. Introducing RealFi, a smarter stable coin that's backed by real world assets. Join the testnet now at realfi.co. Welcome back to Markets Outlook. My name is Kate Irwin, and today we're here with Nikhil Chandhok, the Chief Technology and Product Officer at Circle. Welcome to Markets Outlook. Excited to be here, Kate. Thank you for having me. Yeah, thanks for being here. Today, we're thinking about a lot of different things. The ARK mainnet launch is happening, as well as there's some lingering crypto news in the broader industry about the Clarity Act failing to pass the Senate. Are you seeing that as impacting Circle's business at all? How are you seeing that impact in the markets, or are you more looking at the Genius Act as your guiding light at Circle? Yeah, thank you for asking that question. We were hopeful about Clarity passing, and I'll let the policy team at Circle sort of opine more deeply about what happens from here. For us at Circle, to build the products that we're building, Genius, in your words, Genius is our guiding light. Genius was passed last July, and the rule's going to effect in January next year. What that means is that stable coins will become federally supervised and will be treated as real money inside the system, which means institutions and enterprises that have been hesitant to hold stable coins can now hold stable coins and use them for their daily transactions, much like they use bank money or other kinds of money. So for us, that's a pretty big milestone. It's not far away. That's four months. And we want to make sure we're ready for it. We will be ready for it. We will be the largest distributed stable coin that is Genius-compliant day one, once the rules go live. With that, we also have what we're announcing today, which is our ARK blockchain. And for all of this institutional traffic that are going to use that institutionally sound stable coin, we want to make sure that we have an institutional-grade blockchain that all that traffic can ride on. And so we're announcing ARK today, so we're very excited about that as well. The ARK mainnet is using USDC as its gas token. There's the option for private payments. Can you speak a little bit more to the opt-in privacy elements of the blockchain and why you came to that decision? So I have studied blockchains. I mean, this is my fifth year at Circle. I was interested in blockchains before I came at Circle. And particularly the way you would do privacy in the past is, amongst other things, is you would use these privacy mixers and were really problematic. And so what Circle did is something very different, which Circle said, all right, first we want to make sure that the experience of privacy is very similar. So if you have a wallet and your transactions are public by default on ARK, but let's say you did want to transact privately or wanted to interact with a smart contract privately, you could just toggle the switch on your UI and you can say, like, this transaction is going to be private and that that's all you need to do from a user experience perspective. And what it does is it uses something, what we call an ARK and ARK privacy sector, which is a specific lane for private traffic. And so nobody else can look at that traffic unless they have the viewing keys and those viewing keys are typically the two parties that are doing the transaction. So we're excited for this. This means that if I'm an institution, if I want to transact privately, whether with another institution, another user, or another smart contract, I don't have to worry about others being able to find out my balances or how I'm contracting. Yeah, it's a pretty big milestone for us. In terms of ARK compared to maybe the traditional financial system and rails that currently exist versus maybe other blockchains, what would you say is allowing ARK to really stand out in the current moment? There are a few things. One is like gas is in USDC. I know it feels like a trivial thing to some, but we live in a world in which like new economic actors are being created by the millions every day, i.e. agents. And so you're in a world in which you're running all of this agentic traffic, but I think it's much harder to ramp these agents, not just into your core stable point that you're going to be operating in, but also like gas tokens tend to have variable values. So every minute, you're not sure like how much token you need to hold. That means you're just overspending on like on token. And it becomes difficult to account because like USDC is gonna be accounted for as cash. Once genius is five, but if you have a native token, you're not sure what it is. So like, if you're really running enterprise use case or institutional grade use case, you need gas to be as simple as just paying in USDC. You're just paying for the transaction, which is what you're used to today in like other rails, right? Like you don't come up with a different token to pay for a wire or pay for like a payments transaction or something like that. So that's one. I'd say the other key things that are important are the speed. Like we have self-checking finality. We have something called payment finality. So transactions can be rolled back, blocks can be reorganized once they are final, which means that if you're doing millions and billions of transactions, you have that guarantee that like these transactions are final. And that means you can build more trust ecosystem. And the last thing I'd say is like we are building for a world in which like AI are native economic actors, agents are both on ramp into USDC, use USDC to do everything from inference to like running research reports. And all of that is possible using the agent stack. So all of that together makes us think that we are building a next generation platform for what is gonna come like in the next decade versus like looking back at like what has happened in the past, just focusing on trying to fix it. Are you envisioning a world where AI agents are making payments primarily on behalf of people? To what extent are you seeing the AI agent economy really taking over the majority of blockchain activity? Look for trading. There's a lot of activity AI agents because I don't want to say it's trivial, but it is easy to create an agent, give it like describe something for it to do and then give it a budget. And a lot of it is enabled by things like our Circles agent stack. There's other functionality in the market as well. Is it majority? I don't know yet. Like, I think that is yet to be seen. But if I can make a prediction, there's just gonna be more of these things. I think like everybody thinks about agents as I have an agent and it needs to go buy me something. And that's probably where it makes sense. It's almost like skeuomorphic UXs from back in the day. I don't know if you remember the first I worked on video and like the first video apps on the iPhone, they all had like a picture of a television on them because the way people sort of understood video apps was like, oh, this is just like TV. But like when you look at your video today, like that you view on the internet, it's nothing like what television was like 20 years ago. I think similarly, like we'll probably start with a place where my agent does a thing for me, goes and buys a thing that I've been trying to buy for some period of time. But I think what we're looking for in agents is yet to be invented and some ideas around that are like these novel contracts that like agents would have. Like if my agent wants to like go fulfill a complex economic contract, it can generate that contract by using something like ArcStudio where it talks to the coding agent, creates a contract, implements it to another agent and then has like a full audit log of like all the tasks that need to get done for that contract to be fulfilled and for the payment. So coding agents were the first one, trading agents were the next one we saw. And I think like these sort of like really interesting generative economic contracts will be like what is coming in the next five, seven years. But I don't, it's hard for me to make a prediction how the traffic will be balanced between humans and AI. We're gonna take a quick break. When we come back, Jen Sanasi brings you brand new rails and more with Nikhil. If you're serious about crypto investing, you need more than headlines. You need research you can trust. That's The Stack. The blog where Grayscale's research team breaks down what's actually driving digital assets. From Bitcoin and Ethereum to the emerging trends shaping what's next. No hype, just sharp analysis and insights from the team that's been navigating crypto markets since 2013. Visit grayscale.com slash the stack and subscribe today. This episode is brought to you by RealFi. Most stable coins leave capital sitting still. RealFi is different. It connects on-chain capital to real world markets like US treasuries, money market funds and private credit, real transparency, real impact, RealFi. Join the test net now at realfi.co. This is brand new rails. Our weekly look at the latest developments in tokenization. It's brought to you by RealFi. Most stable coins leave capital sitting still. RealFi is different. A smarter stable coin backed by real world assets like US treasuries, money market funds and private credit. Join the test net now at realfi.co. All right, today we're looking at luxury resale and it's booming, but the category still depends heavily on authentication, provenance and trust. Is the bag authentic? Where has it been? And if you wanna sell it, how quickly can you turn it back into cash? BZ and the Luxury Closet think tokenization can make that process more efficient. The two companies have partnered to bring authenticated luxury goods on chain as digital twins on Solana. Every item is sourced and vetted by the Luxury Closet before it's tokenized and stored in a secure vault. Once on chain, collectors can vault it, ship it, trade it or instantly swap it back for over 90% of fair market value. I asked Andrea Mila, founder and CEO of BZ what putting these assets on chain changes. I think when it comes to luxury or collectibles, there's a beautiful story for a lot of these assets, right? We always used to say when we first started up that receipts matter in collectibles. And when you can see the story on chain when it goes from one owner to five owners later, I think that that is a big piece of the narrative. That's not spoken about that much. That on-chain record creates a verifiable ownership history. Once a Birkin is authenticated and tokenized, every on-chain transfer becomes part of its provenance. But BZ is also trying to solve another problem, liquidity. By bringing these physical assets on chain and offering an immediate exit, it's trying to create a more liquid market for luxury goods. Its luxury launch uses a blind drop model. Buyers pay $500 and reveal an authenticated luxury item that could be worth anywhere from 500 to $15,000. They immediately get a buyback offer at 90% of fair market value. If they don't want the item, they're not stuck with it. The boring piece of that is the logistics, right? This makes it so much more efficient when you want to store, when you want to quickly sell and to tap into that liquidity. I think that what we are doing is we are looking at buying behaviors that are changing. And that blind drop model points to something bigger. BZ isn't just about trying to change how luxury goods are owned and traded. It's trying to change how people discover and shop for them. So for the last 25 years, it's been search, click, add to cart, and then you buy, right? It's very different now. When you think about gamification and commerce sites that are adding in layers of gamification, I think you have like a 10X add to cart rate. And that's impactful, right? That's telling us that buyers don't want that same experience. They want there to be a journey. They want there to be a process of discovery. And that's exactly what we built. That's a wrap for this week's Brand New Rails. We'll see you next week as we continue to explore the latest in tokenization. All right, let's get back to Markets Outlook with Kate now. Tokenization is a huge part of what's happening right now on the institutional side of crypto with ARK, there are a number of different validators, BlackRock and Visa among them. Can you speak a little bit to the decision behind bringing in some of those players onto ARK? When these institutions want to put their traffic on the blockchain, they need to know who the validators are. That's not an option. And so we went to the most important financial institutions and got them to be partners on ARK, got them to be validators on ARK, got them to be invested in the economic success of ARK. And so we believe when these, this will create more confidence about moving distinct financial traffic to ARK. And the tokenization is happening anyway. It's happening at a speed that is quite amazing. Well, ARK is an accelerant. ARK is saying like, let's take away those things that stop you, that give you pause from tokenizing that real world asset, tokenizing that stock, tokenizing that bond that you're trying to like, that you're gonna try to trade. And the main, like tokenization opens up a few things. One is it opens up new markets. Like if I am a non-US user, maybe I want to buy a stock, which tokenize portions of those. The other thing it does is it makes new markets possible because of the 24 seven nature of the asset. So the same asset that was collateral just during banking hours in the United States, a tokenized version of that asset is collateral 24 seven 365 all around the world. So that's a whole new world that opens up. I think these companies are just trying to figure out what assets those will be, what kind of economic transaction, what kind of economic contracts they would wanna enter into. All of this sort of unlocks more capital efficiency at a time when like, I don't know, capital is in demand as it's probably obvious from the news as well. Can you speak a little bit more to DeFi on ARK and what that looks like and some of the decisions there? I know Aave V4 plans to have a market on mainnet as well as Morpho. Both of them are live on ARK right now. Uniswap are live on ARK. Our roots are in DeFi. We grew up with DeFi. So I think it would be impossible for us to go out both culturally and technically and have a launch which did not sort of bring DeFi along and build the best products for DeFi. So even though Circle sort of presents that it can solve for institutions, the way we do what we do is that we bridge the gap between what is traditional open internet innovation, which is well represented by DeFi and like what traditional institutions and regulators want, which is they want some of the features that we've just talked about. So for us, DeFi partners are class one partners. We want them there. They are not at the expense of other kinds of traffic like humans traffic, agent traffic, real world asset traffic. All of these things sort of are just composable primitives to use crypto parlance that will all come together into building what we think is really important, which is this new financial stack that allows for all kinds of new novel financial activity on the internet. And going forward, what do you see as some of the biggest challenges that institutions might face as they look to adopt digital assets and move on chain? I think all of them are in the process of figuring out their strategy right now. There is both technical questions and regulatory questions as they try to navigate this space. We can debate whether they are, if an institution is six months too early, if an institution is six months too late, but three years from now, I don't foresee a world in which like institutions are like holding back and they don't have assets. They don't have like these great settling on, that they are not settling in stable point. And I think that's not just me. I think there's just a secular interest in stable points, which is sort of like the gateway to understanding this entire ecosystem, right? So I think the challenges for institutions are primarily around like picking good partners as they navigate this space. What Circle is, is like I've said earlier, we have a decade of experience doing this. We've settled a hundred trillion plus in US transactions. We are going to be regulated by the OCC come January. We are the largest regulator stable point. We have an institution with our blockchain. We have a Circle Payments Network with a lot of payments to happen anywhere in the world, really, really fast. So I think the market for partnership is open. And I believe Circle is one of the best partners institutions can have as they try to bring these new class of assets or even existing assets on chain and trying to figure out what does it unlock for them. You don't want to do these things just because. You want to do it because it unlocks capital efficiency, new markets, new opportunities for you. What do you see happening to Bitcoin and Ethereum as stable coins continue to hold a lot of institutional interest in the market? I would be hard pressed to make a prediction on like Bitcoin and Ethereum because of institutional interest. I do think there's secular interest in Bitcoin. I don't know the price today, but it is. I think it's a two trillion dollar asset. I remain optimistic about Bitcoin and Ethereum. And Ethereum is sort of the granddaddy of DeFi. So it's hard to be bearish on Ethereum. So, and as a company, we grew up both with Bitcoin and Ethereum. So I think you will find people who are champions for both inside of Circle. And just because we are launching our own blockchain doesn't mean that we're not going to be issuing USDC on Ethereum and 30 plus other blockchains. So we'll keep doing that because we believe like this, it's still early days. It's still, we represent a really small amount of money that is there in the world that is tokenized. There are even less assets in the world that are tokenized than the amount in terms of ratio. So, yeah, so I think Bitcoin and Ethereum have an important place and so do products like USDC and on. Thank you so much, Nikhil. I really appreciate you coming on Marketello today. Thank you, Kate. Really glad to be here. Thank you.