In this week's episode, we have on Anthony DeMartino and Mason Vollum from Trident Digital. We were introduced to them, as they are facilitating stablecoin growth for Paypal's PYUSD, issued by Paxos. We wanted to bring them on the episode because of PYUSD's budding relationship with Frax. We learned a lot about the opportunities and difficulties of stablecoins in DeFi, the role of Trident, how they are planning to use stablecoins in Central and South America, and also how they think banks will have an "aha" moment about this new type of digital money in the next few years.

Guest Biographies

Anthony DeMartino is a seasoned Financial Executive with a dynamic career spanning over two decades, characterized by pioneering roles in the trading sector and a visionary approach to digital finance. Having served at the helm of operations for prestigious banks such as HSBC, Barclays, and UBS, Anthony has a deep-rooted understanding of both traditional and emerging market dynamics.

In 2018, he deepened his expertise in local markets trading as the Head for Latin American regions, steering activities across Brazil, Mexico, Argentina, and Chile. 

Embracing the potential of blockchain technology, in 2021 Anthony transitioned to become the CEO and founder of Coinbase Risk Strategies, which led to him founding Trident Digital Group, where he serves as CEO and Co-Founder. Trident Digital Group stands at the forefront of crypto-native solutions, specializing in lending and debt issuance.

Mason Vollum was educated in finance and economics and worked in traditional finance before departing to work with web2 and web3 startups. He’s been in crypto since 2017. In 2019 he made the leap into crypto full time with BadgerDAO. Since then he’s been applying his analytical skills across the space. He’s most excited by lending and stablecoins which he believe are a hugely under-appreciated development of the space.

What is Trident Digital?

Trident Digital was founded by Anthony seeing how messed up things got during the bear market of 2022, FTX, Celsius, Genesis, etc... these were problems with lending and the banking system's failure to provide yield on accounts, also collateral tracking.

Trident wants to address these gaps, particularly by creating a lending platform, to be a new form of a prime brokerage for crypto.

What this means is building a system that doesn't rely on trust in the prime broker, enabling direct lending with secure terms facilitated by an independent third party. Celsius, Genesis all lent money to dodgy over leveraged funds and creditors paid the price. Trident wants to fix that.

Trident is also working with prominent VCs and technology partners, aiming to enhance the adoption and integration of stable coins within DeFi ecosystems, contributing to platforms like MakerDAO, Curve, and Aave through proposals and strategic advice.

What is a Prime Brokerage?

A prime brokerage in the context of both traditional finance and crypto is a service that provides clients with the ability to manage their capital across multiple exchanges, borrow and lend assets, and access trading venues that may otherwise be unavailable to them directly. They can also offer aggregated trades which allow smaller clients to benefit from higher fee tiers, resulting in lower trading costs.

In crypto, a prime brokerage extends these services to include the borrowing and lending of tokens and other digital assets, providing access to capital in the form of cash or tokens.

Unlike centralized entities like Genesis, where clients lacked control over how their lent assets were used, Trident's prime brokerage aims to offer more transparency and choice in terms of risk and investment strategies. Clients can agree on specific terms, risks, and rewards for their investments, creating a more tailored and risk-managed lending environment.

The goal with Trident's approach is to create less counterparty risk and tailor each loan for creditors and not repeat what happened with Genesis.

What is Trident's Relationship with Paypal and PYUSD

Trident's relationship with PayPal revolves around their advisory role with Paxos, the regulated stablecoin issuer that collaborates with PayPal.

Paxos manages multiple stablecoins, including PYUSD, which is regulated by the NYDFS, and Trident has previously been involved in maintaining USDP within the MakerDAO ecosystem. Trident has been a trusted advisor for Paxos, helping them enter into DeFi and help grow their stablecoins. PYUSD is just one they are advising and helping to bring incentives to Curve for through Paxos. They are bribing through Votemarket, and started just today with their incentives.

As for PayPal's DeFi strategy, Anthony noted that PayPal has had a robust presence in the Web2 space and is currently transitioning into Web3. This move is seen as an initial step towards expanding PayPal's web payment capabilities into the crypto.

He said that the selection of Curve as a platform for PYUSD is strategic, allowing PayPal to tap into it's liquidity pools to enable greater access for PYUSD beyond the limits of a Paxos account, and to provide an avenue for PYUSD holders to earn yield in a lower-risk environment. Trident views Curve as a core infrastructure component in the DeFi ecosystem, not just for swaps but also as a foundational element that is natively integrated with other DeFi applications, reinforcing its central role in DeFi.

What is Paypal's and PYUSD's Future Prospects in DeFi and Crypto?

Anthony thinks PYUSD is currently in its MVP, the foundational stage for broader development and integration within DeFi.

The next steps for PYUSD involve getting it added to other lending protocols such as Aave and building liquidity. He thinks the ultimate goal for PayPal is to position itself as a "layer 2 for money," leveraging the ubiquity and efficiency of its platform to facilitate peer-to-peer (P2P) and business transactions both in TradFi and the burgeoning Web3 space.

His vision also includes significantly reducing friction in the banking system and increasing the volume of transactions within the PayPal ecosystem, both in Web2 and Web3.

This could lead to a shift where a majority of stablecoin transactions are handled within PayPal's infrastructure, thereby diminishing dependency on traditional banks. By becoming a "layer 2 for money", PayPal aims to streamline and decentralize financial transactions, making PYUSD a dominant force in payments and transforming how we do business.

A day after we recording our interview, CoinDesk published an article covering how the FRAXPYUSD liquidity climbed to be the third largest on Curve with $135 million. It's clear that PayPal is serious on increasing PYUSD's presence in DeFi and Frax makes an ideal partner in this regard. In a previous space with Sam Kazemian, he spoke about Frax's position to help numerous fiat-collateralized stablecoins like PYUSD access liquidity on-chain which give FRAX the opportunity to cement its as the DeFi stablecoin of settlement.

Trident's 10,000 Stablecoin Future

Anthony also believes we are heading towards a future where the stablecoin ecosystem could potentially consist of hundreds, if not thousands, of stablecoins. He thinks a wide variety of entities could issue their own stablecoins, ranging from local credit unions and banks to commercial businesses like Starbucks or airlines.

He see the current development in crypto as establishing a foundation for fungibility and seamless money movement. and he believes that as infrastructure evolves, especially on layer 2's, it will become increasingly feasible for various groups and communities to have their own stablecoins, much like we use airline points.

Anthony also foresees the potential for traditional financial rewards, such as credit card loyalty points, to migrate onto the blockchain, effectively becoming a form of stablecoin. Blockchains provide a better accounting standard and medium of exchange, making it easier to transfer value.

Permissioned DeFi, a Trojan Horse

Both Mason and Anthony were skeptical regarding permissioned DeFi, particularly from entities like Goldman Sachs and JPMorgan. Why do these institutions need a new system when they already operate within a framework of mutual trust and legal agreements.

Permissioned DeFi is more of an educational tool or a "sandbox wrapper" for the younger generation within these institutions to teach senior executives about crypto without risking legal issues. They are stepping stones for traditional banks to become more open to cryptocurrency and blockchain technology.

The real potential for blockchain and stablecoins lies in their ability to increase efficiency in financial transactions by reducing settlement times. Eventually the banks will have their own "aha" moment.