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Circle Chief Economist's Latest Interview: USDC Entering Hyperliquid Bullish for Circle and HYPE

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Stablecoin being the marginal buyer of US Treasuries is a more compelling narrative than people give it credit for.

Original Video Title: The Fed, China, and CLARITY + Coinbase Eats USDH
Original Video Source: Unchained
Original Text Translation: DeepTech TechFlow

Editor's Note

In this podcast episode, Circle's Chief Economist, Gordon Liao, first systematically explained the market structure logic behind USDH being replaced by USDC. The balance of USDC on the Hyperliquid platform has doubled in the past year, with 90% of the reserve income flowing back to Hyperliquid for HYPE buybacks. Coinbase serves as the treasury deployment party, Circle serves as the technical deployment party, and stakes 500,000 HYPE tokens.

Gordon also dissected the long-end Treasury yield. The current 30-year yield breaking 5% is mainly being driven by term premium, while stablecoins are quietly becoming marginal buyers of Treasuries. In Q1 2026 alone, on-chain settlement volume of USDC reached $21 trillion, and stablecoin concentrated buying of short-term Treasuries has effectively suppressed the overall weighted average duration of U.S. Treasuries, potentially providing reverse support for long-term rates.

In addition, the show's assessment of the CLARITY Act and the debate over where AI value is captured in the aftermath of the OpenAI lawsuit are also worth noting.

Key Quotes

USDH Replaced by USDC

- "This is essentially a liquidity supernova event. As the most dominant on-chain perpetual contract platform, the collateral assets it uses will also be radiated throughout the entire on-chain economy."

- "Eight or nine months ago, a governance vote selected a different reference asset. However, as the platform grows and matures, they also need to interact with more traditional institutions. Using high-quality, institutional-grade collateral assets is a key part of this."

- "Any place that can capture TVL—be it a trading platform or a prediction market—will find a way to monetize this floating interest rate. Why should this money be given to a third party?"

- "For Coinbase and Circle, this is a strategic move to neutralize a new emerging competitor. Coinbase, as the collateral management party, has inserted itself at a key node of this new infrastructure."

Multiple Attributes of Stablecoins

· "Regarding whether stablecoins are primarily a medium of exchange or a store of value, we see that they can be both. In a payment scenario, they serve as a medium of exchange, while in this context, they act as a conduit for capital and collateral liquidity. As the system scales and becomes more institutionalized, the latter will become increasingly important."

· "An agent would probably want a money market fund that earns interest on idle funds, but as soon as they make a payment, they would want that money to be in the form of a stablecoin. The sheer compliance paperwork involved in using securities for payments is unbearable."

OpenAI Case and AI Value Capture

· "There is hardly any value capture at the LLM layer. These AI labs are spending billions of dollars to provide us with free services, essentially engaging in public service. The value of LLM lies in the model weights, which is called IP."

· "Whoever controls the end-user captures the most value. The primary value lies in the application layer, as well as in cloud businesses and AI deployment service providers, such as companies like Accenture, who are doing quite well."

· "I think this is a barbell structure. Apart from the distribution end, the other end is energy. Whoever can access nearly free energy and cheap computing power wins. Elon has an advantage in this regard."

About the CLARITY Act

· "The compromise proposed by Thom Tillis and Angela Alsobrooks is essentially about separating the store of value, settlement, and unit of account functions of currency."

· "We are approaching the Hillary's Step of this mountain (referring to the final challenging summit push on Mount Everest). There are issues with committee seats and ethical concerns, with the ethical hurdle being particularly difficult."

· "From the beginning, I felt that the banking sector was playing a somewhat Quixotic role in this battle. What exactly do you want to gain from this? Are you just stabbing each other in the back, or are you presenting a grand gift to asset management companies?"

Long-term Treasury Bonds and Interest Rates

· "The majority of the upward movement in the 30-year yield comes from the term premium, which is currently around 80 bps. This is quite high compared to when it was negative two years ago. This suggests that the market reflects supply-demand dynamics rather than expectations of short-term future rates."

· "The narrative of stablecoins being marginal buyers of Treasuries has more substance than people give it credit for. Their duration is very short, focused on short-term government bonds and reverse repos. This effectively frees up space for the Treasury to issue more short-term debt, reducing the supply of long-term Treasuries in the market when weighted by USD duration."

· "Investors are saying: I need more compensation to hedge against a greater inflation risk. That's it. They know the Fed is not inclined to cut rates."

Coinbase and Circle Team Up to Secure USDH

Austin Campbell (Host): Hello, everyone, and welcome to Bits + Bips, where we delve into how crypto and macro collide on a basis point basis.

I am your host, Austin Campbell, and joining me today are Ram Ahluwalia, Co-Founder and CEO of Lumida Wealth, Chris Perkins, Managing Partner at CoinFund, and Gordon Liao, Chief Economist at Circle. Today, there are many topics in the rates market and news, and I'm especially looking forward to Gordon's perspective.

Let's start today with Circle. Coinbase and Circle have essentially taken over USDH. USDC will be crowned as the quote asset aligned with Hyperliquid (an on-chain perpetual contract DEX). Eight months after winning the governance competition, Native Markets has now been acquired by Coinbase.

USDH holders will redeem during the migration period to convert to USDC. Coinbase will become the official reserve fund manager/deployer for USDC on Hyperliquid, while Circle will handle technical access and operational infrastructure for USDC on Hyperliquid, pledging 500,000 HYPE tokens towards validator slots. 90% of the reserve yield will flow back to Hyperliquid, likely channeled through a buyback fund for HYPE.

Roughly estimating, there is currently around $5 billion USDC on Hyperliquid, yielding just under 4%, approaching $200 million annually. Most of this money will flow to Hyperliquid, with Coinbase taking a cut and Circle gaining a new USDC deployment front to continue chasing Tether's volume.

The bullish thesis is that there will be deeper liquidity, less exchange slippage, faster deposits and withdrawals, and improved market maker support with HYPE tied to platform fees, staking, and Builder activities. Bitwise is also concurrently applying for a physical HYPE ETF.

Bearish individuals like ZachXBT are concerned that if Hyperliquid's core collateral, quote asset, and liquidity become increasingly dependent on USDC, the entire system will be putting some of its fate in the hands of Circle/Coinbase/regulatory orders. There are also governance issues with Native Markets. Chris, as an investor in this space, what are your thoughts?

Chris Perkins: I think this is one of the series of actions we will see next, with a key phrase being "Net Interest Income." Stepping back and looking at the traditional model of trading platforms: you earn the nominal transaction fee, taking a small cut for each transaction; typically, the clearing part doesn't make money, although in our circle, it has become a new business line, sometimes making a bit through data. But the real money maker is Net Interest Income.

The way it works in traditional finance is, the customer gives you dollars as collateral, you give the dollars to the clearinghouse, the clearinghouse invests it, keeps a large chunk, and gives you back a small part. That's your net interest margin. This is a fundamental part of any trading platform's business model. Many decentralized applications have overlooked it in the past, giving away this handsome income for nothing. Now they realize they need to take back this piece.

I can tell you, anywhere that can capture TVL—be it a trading platform, application, or prediction market—will find a way to monetize this floating rate. Why should you give it to a third party?

If you look at it from the perspective of a trading platform, this is a bullish case—Hyperliquid surged after the news came out because this circular loop was completed (a play on words with Circle). You've addressed the Net Interest Income issue, returning it to token holders.

If you look at it from the Circle/Coinbase side, you are also a winner—of course, the details are in the terms, such as how long the lock-up period is, how often the interest rate is renegotiated, I don't know if Gordon can disclose that. But what you get is a widely used stablecoin, USDC is interchangeable, the more it circulates, the more likely end-users will accept it as a form of payment.

So USDC also wins. Perhaps in the future, both parties will adjust the economic terms. Hyperliquid wins big, nails down the Net Interest Income; Circle gains greater adoption, a larger volume, wider distribution, and the incremental utility they hope for. I think it's a win-win situation.

Austin Campbell: Gordon, I'd like to throw the ball to you. I'm familiar with Circle, and USDC has many different aspects in the current market. From a market structure perspective, Americans are used to seeing money as layered, the money you use to buy coffee is not the same as the money you settle derivatives with.

But now we are starting to see USDC being used for many things, and its fungibility is increasing. How do you view this from Circle's perspective? Zooming out to your economics background, how do you see the market structure?

Gordon Liao: A few observations. First, we are witnessing the overall maturity of the infrastructure. Hyperliquid is the dominant on-chain perpetual swap platform today, and its scale has grown significantly. The USDC balance on this platform has roughly doubled year-over-year.

About eight or nine months ago, that governance vote did indeed select a different reference asset. However, as the platform grows and matures, they also need to engage with more traditional institutions, and using high-quality, institutional-grade collateral assets is a key part of that. Choosing USDC is a recognition of its underlying security and the underlying 1:1 reserve commitment.

As Chris mentioned, this is a win-win and also a liquidity supernova event. As the most dominant on-chain perpetual platform, the collateral assets it uses will be radiated throughout the entire on-chain economy, making this a significant liquidity event that will promote the use of USDC and other associated infrastructure.

We deployed USDC to Hyperliquid last September, along with CCTP (Cross-Chain Transfer Protocol). So it has been there for a while, but this is a good "reconfirmation" event.

Regarding whether stablecoins are primarily a medium of exchange or a store of value, we see that they can be both simultaneously. In some scenarios, they serve as a medium of exchange for payments, while in other scenarios, they act as carriers of capital liquidity and collateral liquidity. As the system scales and becomes more institutionalized, the latter will become increasingly important.

A similar trend is also evident in settlement volume. Our recent financial report disclosed that Q1 USDC on-chain settlement volume was $21 trillion. This reflects the expansion of the infrastructure, with liquidity on the largest platforms—whether centralized or decentralized—improving.

Austin Campbell: Following this line of questioning, the circulation of USDC is actually highly tied to Coinbase. Coinbase has many products that are based on USDC, such as debit card, credit card payments, and corporate payments. Now we are using it as a core asset for trading platforms like Hyperliquid. Ram, from a market perspective, does this make you more bullish or bearish on Coinbase and Circle's stocks?

Ram Ahluwalia: This is a win for everyone, with Hyperliquid benefiting the most. For Coinbase and Circle, they have successfully neutralized a rising competitor. Coinbase, as the custodial manager, has positioned itself at a key juncture in the new infrastructure, which is a very strategic move.

For Hyperliquid, retaining 90% of the revenue is a reward for its achievements over the past few years. We discussed Hyperliquid three to four weeks ago as one of the assets you want to hold in this cycle. Coinbase's proactive move is very forward-thinking, as Hyperliquid is becoming central to the decentralized exchange landscape.

Circle has secured a significant recurring net interest income. So, it's a win-win situation for everyone, with Hyperliquid benefiting the most.

This brings us back to another topic we discussed earlier: ultimately, distribution will drive most of the revenue in this system. Gordon, you have also mentioned that Hyperliquid is the emerging perp DEX in the crypto space. All these elements coming together fundamentally acknowledge distribution and the role of users, a theme that will continue to surface when determining winners and losers.

OpenAI Lawsuit

Austin Campbell: Speaking of users and winners, today Elon Musk lost, and Sam Altman won, at least in the first round. The Oakland Federal Jury unanimously rejected all of Musk's claims in less than two hours. The core of the verdict revolves around the three-year statute of limitations, with the jury believing Musk knew in 2021 that OpenAI was transitioning to a for-profit model, yet he did not file suit until February 2024.

He initially sought $134 billion in "unjust enrichment" and the removal of Altman and Brockman from leadership due to the 2025 profit restructuring. However, the substantive issues of the case, including breaches of the charitable trust and unjust enrichment, were not ruled upon.

Musk's team has indicated they will appeal. Wired magazine commented that both sides painted each other in a self-serving light during the trial, with neither Musk nor Altman coming out unscathed. The subsequent interpretation is that at least during the transition period, OpenAI may proceed with an IPO.

There are a few reactions on X worth reading. Structural skeptics argue that legally, this is a significant win for OpenAI, but the larger political and institutional issues remain untouched—what does it mean for an organization to establish public legitimacy with a "non-profit, human-first" mission and then become one of the world's most valuable commercial platforms?

News24 reported that a nonprofit entity established for the betterment of humanity has been forcefully steered into a Microsoft-backed closed for-profit entity. The trial indeed revealed that commitments regarding openness and security were breached. Chris, what are your thoughts?

Chris Perkins: It seems the statute of limitations has lapsed, so it's pretty cut and dry. I don't know how Musk's lawyers will appeal, but they are clever and will surely find a way.

At this juncture, Ram usually has something negative to say about OpenAI; he tends to blow things out of proportion. Before letting him speak, a bigger issue is in the cryptocurrency space, where due to regulatory pressures over the past four years, many foundations have been structured as nonprofits alongside Labs.

I hope there will be a clear precedent set to clarify the relationship between foundations and Labs. In many protocols, roles and responsibilities are murky, causing confusion for everyone involved.

I'm not saying foundations are useless; they certainly have noble nonprofit ideals to advance, such as Ethereum's cryptographic research. However, the founding motivation of many foundations may have been to seek protection when faced with a very aggressive regulator. So, this case will have a profound impact on the cryptocurrency space. Sam is also becoming more and more involved in this circle now.

Ram Ahluwalia: Chris, you're practically handing me the ball here. I wasn't expecting much to come out of this case, so indeed, nothing happened, and it was definitely blown out of proportion.

The tech industry has seen its fair share of heroes and villains. I place many individuals on the hero side and some on the villain side, but that doesn't mean they haven't created value. Sam's issue is that he has a history of entering into unlawful agreements at the contract law level.

He even played this trick with Microsoft—signing Amazon's agreement and then renegotiating with Microsoft. Microsoft, in return, secured very favorable terms, and OpenAI got the funding it needed. Of course, Microsoft also aims to cash in on their 10x return by providing capital to OpenAI.

To me, Sam is clearly a villain. He has been ousted by a board he appointed, inadvertently facilitated a team exodus for his main competitor (referring to being fired and the team leaving), and had one employee die under suspicious circumstances during his tenure.

Chris Perkins: You're being a bit extreme there.

Ram Ahluwalia: No, no, this is a statement of fact. "An employee died under suspicious circumstances during his tenure"—that is an accurate statement, and those circumstances were indeed suspicious.

In any case, this field has its heroes and its villains, and I put him in the villain bucket.

Austin Campbell: What are Gordon's thoughts?

Gordon Liao: Broadly speaking, AI competes at every layer, and what is being played out in court is one aspect of this competition. But when we think about where the opportunity lies for us, this audience that is interested in both blockchain and AI, where is the opportunity? I think it lies in building the track for tomorrow—for the Agent, for AI.

This is also what we at Circle have been doing, releasing the smart agent technology stack, and our "Autonomous Resource Coordinator" known as the economic operating system. I believe these will have lasting network effects, just as strong as the network effect of USDC. So even though there is fierce competition at the foundational model layer, from a business perspective, there are still many opportunities elsewhere.

Chris Perkins: Competition is a good thing, we need more of it. No one is perfect, and I am not either. This is a tough race. I hope they continue to innovate, continue to create value, and may the free market prevail.

Austin Campbell: Following this line of thought, let me pose a question: Today, we fought tooth and nail in court for OpenAI because the private markets see OpenAI as one of the most valuable foundational model companies. But let me stress test this, in the long run, will this trial be remembered as much ado about nothing?

The reason being, if distribution is where value ultimately accumulates, will the value stay in companies like OpenAI and Anthropic, or will it stay in platforms that deliver the models to users and charge tolls?

Ram Ahluwalia: Definitely the latter. The LLM layer has almost no value capture. These AI Labs have spent hundreds of billions of dollars providing us with free services, essentially a public service.

But Microsoft owns the IP of OpenAI—six years from now, they can liquidate the stock, but the IP is permanent, and they can do anything with that IP, even put it on the internet—I'm not saying they will, but the value of LLM lies in the model weights, that's called IP. It will fall into the hands of a direct competitor.

So, I support AI Labs raising more money to invest in the future of humanity, but their business model has no value capture. Meta brought in the 'A-Team' (Ram used a reference to the 80s TV shows "A-Team" and "Airwolf"), they have launched a powerful new model and are heavily investing in NVIDIA GPU. So this competition is still in its early stages.

Anthropic is in a leading position, experiencing rapid revenue growth. Today, I also saw Michael Dell of Dell reveal that they have signed 1,000 new enterprise customers. We are moving from a world where only hyperscale data centers and AI labs were using GPUs to a true commercial implementation phase, and it is still early days.

Whoever controls the end user delivers the most value—primarily falling on the application layer, cloud businesses, and AI implementation service providers like Accenture.

Chris Perkins: I agree with the logic of the distribution at this end, but I think it's a seesaw. On the other end is energy. Whoever can access nearly free energy and cheap compute power wins. Elon has an advantage in this regard.

It's not easy to obtain energy for free in space, but if anyone can do it, it's the person who can send things into space globally. This is Elon's unfair advantage at the bottom of the stack. But distribution still reigns supreme at the front end.

Ram Ahluwalia: We have also not seen Apple unveil its true solution yet. How many times has Apple swooped in late in the game and then dominated the field? There has been some recent internal turmoil, and this company is worth keeping an eye on.

Austin Campbell: I must say Apple is an interesting story in this area. While its 'Mag 7' peers are investing heavily in model training, Apple seems to be saying: we are a vertically integrated hardware company from end to end, from iPhone and MacBook to servers and the Mac Studio. We will become the endpoint for your model deployment, and we will collect a toll on the way.

Look at what they are doing on the App Store, look at the ecosystem bundling, and you'll understand.

By the way, Chris, this brings us back to your perennial identity theme—Apple is one of the few major tech companies that is "good enough" on privacy protection, making them more trustworthy on these issues. So, the differentiation I see now is whether you want to build your own AI or deploy others' AI and collect tolls from them. The latter is the distributor.

Gordon, you are now in a company that deals with the "currency" form, and you've also seen many cases of Agentic Commerce and financial firms intertwining with AI. How do you think this relates to the modernization of the U.S. financial system and the adoption of new products?

Reminder to American listeners: Asia has had a 24/7 real-time gross settlement system since the late 1990s to early 2000s. We are already two decades behind. Will this accelerate the overall financial system update, not just the AI sector?

Gordon Liao: Absolutely. Most transactions are currently human-mediated, but many predictions suggest that machine-to-machine and machine-initiated payments will dominate. Today, large LLM model companies are significant, but model turnover is very fast, with even open-source models not lagging far behind. Therefore, value will increasingly flow towards commodities, hardware, and the track of Agentic Commerce.

For example, micro-payments—we recently released a micro-payment protocol, where Agents can browse each other, find each other, and use the best tools in the market, even without anyone present, to conduct machine-to-machine commerce. All of this will be built on the blockchain track.

We recently used ARC, which is a huge growth area that will tightly integrate with finance. When discussing CLARITY later, it will involve asset-liability intermediaries in contrast and is actually related to active financials.

Austin Campbell: I'll provide a counterpoint. I often hear that agent payments will move onto the blockchain track, but I also think they will use traditional tracks—an agent having a credit card is very convenient. I think the winners in this area will be those who can bridge the flow across different systems.

That's why I'm paying attention to combinations like Coinbase + Circle, or looking at products released by companies like Fidelity, which already have money market funds, cash management products, and are now launching stablecoins.

Agents seem to have much less "loyalty" than human consumers, but they excel at optimizing between different flows. Not all flows use the same framework—sometimes you need on-chain payments, sometimes you need to swipe a card, sometimes you need to use a bank account. I guess the winners of Agentic Commerce are those who can seamlessly integrate between these. In theory, something purely stuck on-chain or off-chain may lose to those who integrate seamlessly across chains and layers.

CLARITY Act: Entering the "Hillary Phase"

Austin Campbell: The Senate Banking Committee voted 15-9 in a bipartisan vote to bring the Digital Asset Market Clarity Act to the full Senate. It will require 60 votes for formal consideration in the full Senate. There is still a pending question: whether there will be further amendments once the bill reaches the full Senate.

The core of the bill includes: decentralized testing, delineation of responsibilities between the SEC and CFTC, and which agency oversees which type of token. Everyone agrees that this bill is not perfect, but at least it’s something.

Let me start with two points. The first is the controversy over stablecoin yields, with consumers, retail users, and the crypto industry calling it "working as designed," while the banking industry lobby still refers to it as a "loophole." Senators Tillis and Alsobrooks have reached a compromise where strictly passive yields are banned, but "activity-based rewards" are allowed.

The American Bankers Association (ABA) is unhappy, while other parties are somewhat satisfied, and the senators have also stated that they will "not renegotiate." Let's discuss first: assuming Tillis and Alsobrooks are truthful and there will be no renegotiation, how does everyone feel about the bill passing with its current terms?

Gordon Liao: Let me begin. Money itself has multiple attributes: it is a settlement tool and a store of value. In a sense, it separates the functions of a store of value, settlement, and unit of account.

It also reflects a broader trend in the financial intermediary space. Traditional intermediaries rely heavily on balance sheets, which is why there are banking rules focused on stress-testing balance sheets. In that world, having a large balance sheet is key, along with corresponding regulation.

But looking at the evolution of on-chain finance, a significant portion is activity-based, not based on balance sheet size, but on a set of activities underpinning smart contract intermediaries.

This compromise actually strikes a good balance between the old and the new—from the traditional, balance sheet-heavy intermediary world to the new, smart contract and agent-driven intermediary world. Players focusing on activity-based rewards, activity-based services, and new forms of intermediaries will have significant opportunities.

Chris Perkins: I first want to thank Senator Tim Scott and Senator Loomis; the Republican leadership has done a great job on this side. I also want to give a special mention to Senator Gallego and Senator Alsobrooks. Gallego is a Marine, and I've fought alongside him in Haditha while I was in Ramadi. This guy has courage; he ensured the bill had a bipartisan flavor at the committee level, which was excellent.

We are now approaching the Hillary's Step (the final difficult climb just below the summit of Everest). The committee seat issue is still unresolved, the ethics issue is looming, and the ethics hurdle will be very challenging. Then there's the dissatisfaction from the banking sector. The banking lobby is still drawing the national security line today, perhaps because they are unhappy with other clauses. So, nearing the finish line is going to get very tough.

But I still believe the bill will eventually pass, and I wanted to ask all of you how you see it, as we have had differing opinions for a while.

Ram Ahluwalia: I think it will pass by a narrow margin. What did Trump do? He tweeted about the CLARITY Act, saying he's going all-in. Approaching the midterm elections, there's no benefit in letting this fail. I still think it will pass by a narrow margin.

Austin Campbell: I'm more skeptical than both of you. The move to the full Senate itself is a very positive signal, and no matter what the prior probability estimates were, they need to be revised upwards now. But Chris, no one has yet given me a truly credible "ethical issue" solution.

I see two possible paths here: one is short-term good, long-term very bad, where CLARITY goes the pure partisan route in the House and Senate. This is possible within the current framework. But if it's only passed by the Republicans, it will probably end up like the Affordable Care Act—dismantled as soon as the other side takes the stage. Forcing through transformative legislation in a partisan landscape has historically not turned out well in the U.S. legislative history.

The other path is where the bill hits a direct ethical snag. If it dies, it dies here. Every other issue, including the industry's argument about yields, has solutions, with many arguments essentially being industry-specific pleas detrimental to the average consumer, the U.S. economy, and national security agencies, which are increasingly interested in and positive about digital assets. The ethical piece is the area I still have reservations about after talking to people on both sides. So I'm hitting the brakes.

Ram Ahluwalia: Austin, what is the specific sticking point of the ethical issue?

Austin Campbell: The crux of it is whether the party will vote for a bill that doesn't force the Trump family to divest from World Liberty Financial, meme coins, and other interests. Will Republicans send a bill to the president's desk that compels him to do so? That's the sticking point in the middle. I don't see an elegant solution. But Chris is right, things will get weird now that it's to the full Senate. There's a nonzero chance of progress, maybe with some compromise unrelated to crypto, like swapping other chips.

Ram Ahluwalia: Distinguishing between interest and "activity" is a very smart design, and in principle, I like it too. The question is, how many edge cases can activity-based regulation tolerate?

Chris Perkins: We are now living in the "post-Chevron deference" era (referring to the Supreme Court overturning the Chevron doctrine, where courts no longer defer to regulatory agencies' interpretations).

In the past, it was "when the rule is unclear, the regulator decides," allowing regulatory agencies to fill in the gaps in ambiguous statutes. Now, legislation must be more rigid and prescriptive, leading to poorly drafted bills. Consequently, any disputes end up in court. To some extent, we do need Chevron to step back, but it did have its benefits in the past. I'm not saying we should bring it back; I'm just saying the complexity has increased.

Austin Campbell: Let me offer another perspective: fundamentally, this issue is a Gordian knot, rooted in the structural problem of overall U.S. financial regulation. If you want to prevent money market funds from paying interest, you have to rewrite the 1940 Investment Company Act — they are legally required to distribute earnings to customers and cannot compound money in the instrument.

As long as we have tokenized securities on one side, stablecoins on the other, and reserves looking like tokenized securities, this door cannot be closed. The issue is merely cosmetic, not substantive. Otherwise, you would have to rewrite the Banking Act and the 1940 Act. I don't think Congress has the willingness to do that now.

They could barely confirm Warsh; that's just getting someone into a seat to do a specific job. Are we expecting them to rewrite the fundamental structure of U.S. securities regulation? It's impossible. So, from the outset, I thought the banking industry was engaging in a quixotic battle — what exactly are you trying to achieve? Isn't this all just a gift to asset management companies?

Chris Perkins: Senator Gillibrand is now one of the most watch-worthy figures. She supports crypto, has been deeply involved since the early stages of legislation, but her stance on ethics is very firm. If someone could strike a deal with her, it would be very influential.

Bond Vigilante vs. Federal Reserve Chair Warsh

Austin Campbell: Warsh is the closest vote in modern history for a Federal Reserve chair. The first FOMC was in mid-June, but just hours after his confirmation, the $250 billion 30-year Treasury bond auction broke 5%. The 30-year yield intraday hit 5.12%, marking the first time a "5-handle" has been seen since the 2008 financial crisis.

The 10-year yield is currently at 4.59%, and the 2-year yield is at 4.08%. The CME FedWatch Tool indicates a 50% probability of a rate hike later this year, marking a significant reversal from the previous rate-cut narrative. Of course, interpreting this data is not straightforward, as a rate hike is not set in stone.

Ed Yardeni, who coined the term "bond vigilantes," mentioned they are currently setting policy, and the Fed may be forced to hike rates in July. Vincent Ahn from WisdomTree mentioned that Warsh wanted to keep the option of a day one rate cut, but the bond market has just taken that option off the table.

Morgan Stanley stated that a rate cut is now expected to be delayed until 2027. Ryan Swift from BCA commented that if Warsh turns dovish amidst this bloodbath, inflation expectations could become unanchored, and the Fed would lose control over the long end.

Some see this development as a positive. Phil Blacanto from Reuters Breakingviews mentioned that the dissipation of rate-cut expectations could restrain an overly interventionist Fed, which might be a good thing. However, interest rates are a complex space and are often misinterpreted even in traditional markets. Gordon, as an economist, market observer, and someone with Fed experience, how do you view what the market is currently indicating?