The core idea behind Reserve is almost 100 years old. It failed back then for one reason: you needed a physical warehouse. A digital warehouse is built different. 🗣️ Lawrence H. White at Monetarium 2: “Going back to the late 19th century, people were worried about instability in the purchasing power of gold under a gold standard. Even though the long term trend was good, there were short periods of volatility. An economist named Alfred Marshall said, if the relative price of gold is changing as a result of supply discoveries or demand shocks – and in his day the biggest demand shock was Germany decides to leave the silver standard and join the gold standard – we can diminish the impact of that on the purchasing power of gold by redefining our monetary unit. The pound would not be defined just in terms of gold, but so much gold plus so much silver. (…) So you've got two metals defining your unit of account. That’s a kind of gateway into having a whole bundle of commodities define the unit of account.” “A commodity reserve currency is an idea that became popular in the Great Depression, but was kind of rediscovered when the problem was not collapsing demand, but rather the need for a way to get the money supply to grow. That's what the original idea of the commodity reserve currency was. But the reverse problem of excessive inflation – and so linking the dollar or whatever the unit of account is called to a basket of commodities – would be a way of preventing excessive inflation. Our friend Hayek from 30 years before denationalization of money saw some merits in this kind of proposal. It had the benefits of a gold standard in taking the regulation of the quantity of money out of the hands of a committee of central bankers. It is, in a sense, putting it into the market because anybody could bring commodities to the warehouse and get money. Anybody could bring money to the warehouse and get commodities. But the proposals in the 30s and 40s were for physical warehouses filled with physical commodities.” “We don’t need to do that today. We could accomplish pretty much the same thing with a portfolio of tokenized commodities.”

the cantillon effect is so rude. asset-backed currency will fix this.

At its peak, Reserve had built the world’s largest retail stablecoin payment network in Venezuela. Then, the Sword of Damocles fell. 🗣️ Nevin Freeman at Monetarium 2: “Reserve, starting in 2019, 2020, 2021, had a project where we built an app called Rpay that reached a point of being used in Venezuela under the conditions of hyperinflation, offering US dollar stablecoins. Because of the practicality of using dollars in that situation, it reached a point of $300 million in monthly transaction volume. Both people doing ordinary transactions, buying and selling goods and services in the country, and using it to move money in and out of the country in dollars, which is a very important thing you have to do as an import economy. We reached the point of having 27,000 merchants who were accepting ordinary payments in stablecoins for normal goods and services. As far as we know, that was the most significant usage of stablecoins for ordinary goods and services that we’ve seen on that sort of retail level in the world. […]” “Merchants all over the country had made their own signs to show that they would accept Reserve as a means of payment.” “But we found out the hard way about what it’s like to do business in a very politically volatile country. The reason I'm speaking about this all in the past tense is we effectively had to shut this down. We reached the point where, with I think it was about 700,000 registered users, we had to register in the country and undergo regulatory compliance measures – which turned out to be very difficult in the context of a country that was undergoing hyperinflation and had quite a lot of political volatility. In particular, we needed to go in and register with the crypto regulator. Right at that time, the head of the crypto regulator was found to have stolen about $3 billion from the Venezuelan government. And so they put that person in jail and they shut down effectively the crypto regulator and pulled all those licenses. That came right about the moment that we were blowing up.” “So it was a challenging situation. And we decided, if we want to offer services like this in very volatile markets, we actually have to have a very strong footing as a business in the more boring markets of the world. You can’t have your entire business just dependent on situations that are that volatile. That’s part of the calculus that led to the evolution from Rpay to Uglycash […] a more considered approach to the same overall mission of offering financial services all throughout the world…”

On my DTF wishlist.

The Dutch had shipping. The British had steam. The Americans had semiconductors. Every reserve currency in history was maintained through technological dominance. Today that technology is AI 🗣️ Mark Dinner at Monetarium 2: “Just as the dominance of Dutch in shipping led to the rise of the guilder, and the Industrial Revolution led to the rise of the pound, the Second Industrial Revolution in the US and subsequent US dominance in innovation and technology alongside financial and military strength have led to the rise of the dollar as the world’s reserve currency today. […]” “Well interestingly, North of Virginia is by far the dominant location for the hyperscalers [data center capacity], Beijing is next, Shanghai's a couple below, but if you add up Oregon, Iowa, Ohio, Silicon Valley, Dallas, Virginia, South Virginia, Arizona, you get to a point where the US is pretty clearly the dominant superpower in terms of data capacity. Meanwhile, China has emerged as an economic superpower, and while hobbled by a domestic debt crisis, still has potential to grow its financial role, especially in spheres of influence, and in the areas of military strength, and also innovation, China is catching up and testing US supremacy. China now has more naval carriers than the US, rumored to potentially have longer-range missiles. China is years ahead in automated manufacturing, and DeepSeek shows the potential for Chinese AI.” “I was recently at a cocktail event and had time to hear from and speak a bit with Nouriel Roubini […]. His point was that as much as there's concern and talk about the US debt situation, perhaps more important than treasuries is tech and AI. So he suggested the AI will produce a productivity boom that could generate 3 to 4 percent real GDP growth in the coming decade. That would be huge. So coupled with elevated, moderate, and controlled inflation of around 3 to 4 percent, GDP growth of around 7 to 8 percent would be massive, and if the Fed kept rates contained around 4 to 5 percent, the US could grow out of its debt problem in the same way the UK grew out of its debt problems from the end of World War II, when the UK debt stood at 250 percent to below 70 percent by the early 70s.” “We are in the midst of a shift in the global world order and currency regime.” “The US is at a crossroads and looks a lot like the UK around the time of World War II. Whether the US dollar declines like the pound and whether that is a peaceful or violent transition, the determinants of these questions are playing out real time in profound ways, and whether even the shift occurs is a big question based on the potential for the US to have technological dominance going forward.”

As the crypto industry matures, iconic behaviours like passive investing reoccur, but onchain. In one term: DTFs.

The US: • less than 5% of the world’s population. • 65% of global equity market cap. How did that happen, & why can’t it last? 🗣️ Quinn Thompson at Monetarium 2: “The U.S. comprises 26% of global GDP, but 65% of the equity market cap. One of our top 10 companies is bigger than all of China and Europe’s top 10 companies combined. These numbers seem staggering: how could that happen? Trust your gut. To put it all in context: the U.S. is less than 5% of the world’s population, yet holds 65% of the market cap, and the Magnificent Seven dwarf anything similar across the globe. {Looking at the chart}, the blue lines show U.S. equity outperformance relative to the rest of the world. We’re at what I would call a peak extreme imbalance – one that, looking back in history, has happened multiple times and mean-reverted multiple times. […] It’s important to realize where we sit, because it’s always at these tops and extremes that we think: this time is different, we’re special, this is going to last forever.” “We’ve adopted a complete free trade approach, more so than anywhere else in the world, and that has led to a maximization of corporate profitability. Manufacturing jobs as a percentage of the total workforce have been in secular decline […] while the service industry has grown. Basically, we’ve taken the view that it’s optimal to maximize corporate profitability and aggregate GDP, at the expense of national security, supply chain security, and many other things. The loss of these manufacturing jobs and the rise of white collar jobs also have other ramifications. […] One of the costs is record inequality. It’s not just a U.S. thing. It’s global. But income inequality is quite obvious. That’s led to wealth inequality as well, where the number of people in the middle and lower class has actually increased while the wealth in that pool has decreased, and the rich have gotten richer. Less jobs available, more competition in those cohorts – that’s suppressed wage growth and inflation for base-level goods and services. Lower inflation means higher asset prices, and asset price appreciation accrues to the wealthy.” “Over 30% of household wealth is held by Americans aged 70 and over. Older Americans have been in the workforce longer, they’re asset owners, and they’ve benefited from the rise in U.S. asset appreciation for longer. Why does this start to become a problem? The fading American dream. It doesn’t matter where you’re from – born here or elsewhere, regardless of race, religion, or creed. One thing that has historically bound Americans is the belief in the American dream: the optimism of striving for a better future than what we were given. And you can see a secular decline in the percentage of children earning more than their parents. […] All of these trends – income inequality, demographic inequality, and beyond – are actually all connected. As the saying goes, it’s all one trade. They really do boil down to the same root causes; it’s just a matter of where they fall on the second, third, or fourth order chain of events.”

let’s support the brilliance of @reserveprotocol

Which major asset had the lowest real max drawdown over the last century: Cash, T-Bills, Stocks, Gold or 10-year Bonds? Reality is not that intuitive. 🗣️ Taylor Pearson at Monetarium 2: “Cash under the mattress was the worst because of inflation, [followed by] stocks, and foreign stocks. 10-year bonds were the second best. Gold was an 84% max drawdown. They also have all pretty gnarly worst one-year returns. The answer is T-Bills – the lowest real max drawdown from 1926 to 2022. […] 48% is the max drawdown for T-Bills over this period. When we start to think about the theme of this conference – maintaining purchasing power over time – no single asset has historically done an amazing job of this. T-Bills were the best, and even in real terms, it had almost a 50% drawdown over this period.” “So you can see basically two big drawdowns coincided with the World Wars – positive real returns over this period. But again, these pretty gnarly drawdowns. And if your kid went to college at this point, or you need to buy a house at this point… you've lost a lot of your purchasing power at those particular times. […] You want it to be there when you need it, and you don't know necessarily when that's going to be.” “So, let's talk about the idea of the path of returns and why this is important. An example I like is the Dow Jones Industrial Average from 1966 to 1982. It had about an average 8% annual return over this period. However, you can see the returns varied a lot. From ‘66 to ‘82, it was basically flat. There were no real returns [in the first half]. From ‘82 to ‘97, it had a return of about 15% a year. So over this total period, about 8%. Two very different periods. Let's say you take a saver – someone starting to save for retirement, and they retire with $3 million. The sequence of those returns matters quite a lot to their future trajectory. […]”

Reserve’s goal as an ecosystem is to eradicate inflation worldwide. That sounds insane, but the mission is possible. The problem is soluble. 🗣️ Nevin Freeman at Monetarium 2: “I know that sounds a little bit bold, how could you completely eradicate inflation? But I want to break down what I mean by that, and how it is that we're trying to do that. And we really take, I think, a quite practical approach to it that has three prongs. One is simply offering USD stablecoins around the world. In a country with very high inflation, the US dollar is an attractive alternative. And with the proliferation of stablecoins, we can make that access even easier.” “Prong two is offering diversified stores of value, so people can get access and get exposure to assets, real assets that preserve their value even better than the US dollar, also worldwide. […] The end goal, the vision for DTFs as a broad category, the way I see it, is to make it so that anybody anywhere in the world can easily get access to any sort of diversified investment product that you might want. We can see the progression in the world in this direction, just with ETFs and mutual funds in financial markets today. But we think by tokenizing all of this and bringing it on chain, especially if we have a regulatory framework that allows for international usage, we can open that up even further and make it not just possible, but practical and common and well understood – and very, very widely adopted for everybody worldwide – to store their assets with very practical diversified stores of value.” “The third prong is this concept of asset-backed currency: could you use a DTF as a means of exchange throughout some meaningful portion of the world? Maybe not the whole world, but maybe an entire country or an entire region. And so that's where we get to the sort of somewhat crazy dream of eradicating inflation altogether. The idea is that you could slowly adopt asset-backed currencies, maybe first as stores of value and then eventually as means of exchange, in countries where you've had a really significant hyperinflation and the population has decided in a bottom-up way, we really want to switch to something else, or sometimes a top-down way. Governments sometimes do actively decide they’re going to endorse a currency substitution. And typically in recent history, they’ve picked the US dollar. But it’s not out of the realm of possibility, in my opinion, that it would make sense to pick something else – something that is not under the control of a foreign government, a foreign central bank, something that’s more neutral. So you can imagine a progression, potentially, where over the course of time, one by one, slowly, decade after decade, in cases of hyperinflation, you end up having these DTF-type products adopted as asset-backed currencies. And again, only in situations where fiat money has failed.”

“The kinds of companies I think are underrated & undervalued are the ones that are somehow one of a kind and don’t easily fit into some sort of narrative.” • Peter Thiel

Time to play the most rock ‘n’ roll album, $RSR fam? 🤘🔥

“No system of government, no economic system, no currency, and no empire lasts forever, yet almost everyone is surprised and ruined when they fail.” • Ray Dalio

The strong dollar and US equity outperformance are not two separate phenomena. 40 years of the same illusion. 🗣️ Quinn Thompson at Monetarium 2: “When US assets are the top performing asset class in the world, you need dollars to chase those assets. So it’s sort of one in the same – US stocks are going up, US real estate’s going up, and I need dollars to buy those assets, and that puts upward pressure. This is part of the reflexivity, the exorbitant dollar privilege we’ve very much benefited from. Foreign investment comes in, we buy their goods and services, they accumulate dollars, they buy assets, we become the largest and best performing market. And it feeds on itself until there’s no one left at the party.” “The Federal Reserve – the largest buyer – is not buying US debt right now [June 2025]. They’re actually reducing their holdings, and they’re not providing liquidity because inflation is too high for them to support the debt market in normal course. So you have the largest buyer out of the market. The foreign buyers are the other big problem; also on a buyer strike. China and Japan, the number one and two holders, have been reducing their positions. And what do you think tariffs, immigration cuts, travel bans, and protectionist policies do to foreigners’ appetite to buy US assets? It’s not good. Every indication is that this trend will continue. And on top of it, aside from China, Japan and the UK, most other nations have their own form of bond market difficulties, which also limits their ability to keep buying US debt. So you have increasing amounts of debt needed to be issued and the two largest buyers on a buyer strike. This has resulted in a meaningful trend change to what was a 40-year secular decline in US interest rates – the cost of capital to finance these exorbitant budget deficits.” “I think of this situation like the Wile E. Coyote scene: running off the cliff, still running, thinking he’s fine, until he looks down and there’s nothing there. Just at this moment where our cost of capital is rising and buyers are stepping back, everybody is fully allocated to US assets. We had a blow-off top in US exceptionalism headed into the Trump inauguration in January [2025]. Allocations to equity markets are at all-time highs, debt and cash at lows. 40% of the S&P 500 is concentrated in the largest stocks. […] This comes at a time when the music is starting to not play so loudly anymore. The same reflexivity that propelled things to the upside now runs in reverse: asset prices start to underperform, I don’t need as many dollars, I get tariffed, protectionist policies kick in. And when the dollar starts to go down on top of falling asset prices, that’s a very inflationary outcome. To summarize: you have record deficits increasing the amount of treasuries to issue, exponential debt growth, shrinking financing sources creating a higher cost of capital, pressure on the dollar. And ultimately, an inflationary outcome.”

*Great* things take time. LFG @reserveprotocol

“Fed, we have a problem.” 👀 🗣️ Thomas Hogan at Monetarium 1: “These [bank failures] weren’t caused by the gold standard. I’ve seen people from the Fed, critics of the gold standard, say: oh, did you see all those bank failures? Yeah, but they were caused by a bunch of things. One of them: the banks were required to hold state bonds. […] And a lot of those states got into trouble and couldn’t pay their bills – so that causes all the banks to fail. That’s a regulation that caused that failure. It’s not the gold standard. Another example: most states restricted branching. And some of them, if you opened a bank, you couldn’t branch at all. You only have one bank. That makes it impossible to diversify. So if you’re in a small farming town, all your loans are farm loans. You can’t send money to New York. You can’t invest in bonds from other states. So if there’s any local crisis – a crop failure or something – all the banks go out of business. It’s not the gold standard. That’s a problem of regulation. Deposit insurance was in some states government-mandated. That causes moral hazard – banks take too much risk. We see in states that had private deposit insurance systems, they were safer. They had fewer bank failures. Gary Gensler from the SEC said: crypto is like when we had Wildcat banking. There were these banks that would set up shop, take people’s money, and just run away. Obviously that’s bad. But that was actually pretty rare – a couple of famous stories of that happening. And if you look at the numbers, it’s not a big deal. There’s fraud in the banking system today. The government hasn’t eliminated fraud.” “Banks also did a lot of things to prevent failures. If they were worried people thought they’d fail, they could publish how much assets they had: ‘look, we’ve got your money, you don’t have to run on the bank.’ If people did run and they ran out of money, they would just suspend redemptions: ‘we don’t have your cash right now, but we’ll get it for you tomorrow.’ It's not guaranteed that they're going to fail. I know everyone has in their head this idea that bank runs were the devil and caused all these bank failures. That’s just not true.” “People at the banks, they knew that that was a danger. And so they did things to prevent them from failing when that problem occurred. Unlimited liability was another one. During this period, a lot of banks were unlimited. It’s not like when you start a corporation, you buy the stock, the company fails, and you’re like: oh, my stock went to zero. Unlimited means they can sue you and take everything you own. It’s not like 2008, when the bank CEO causes the bank to fail and gets fired. Oh, I got my $20 million golden parachute. No, no, no. If it’s unlimited, they can come and take all of your money. So you’re going to be a lot less risky if you know everything that you own is at risk.” “These things would help them to prevent bank failures. But then there's a question of also, compared to what? How bad were these bank failures? Ben Bernanke [Fed chair 2006-2014] gave a talk where he said: there were these bank failures before the Fed – 1839, 1907, 1914 – and that's why we needed it to come in and act as the lender last resort. The Fed didn’t actually open its doors until the end of 1914. Yeah, that was a problem. But what happened when we had the Fed, in the early years? Also, we had a ton of bank failures, right? Like 1921 and in the mid-20s. But obviously, the 1930s is when we have the Great Depression. So the Fed was brought in to be a lender last resort and failed. They did terribly. Much worse under the Fed, this is true even in percentage terms. […] Financial crisis frequency since 1973 has been double that of the Bretton Woods or classical gold standard periods. I underline Barry Eichengreen as the author of this paper. He is a major critic of the gold standard. But even he says: ‘when I look at the numbers, it just wasn’t that bad. Things are actually worse now.’”