Hi Fintech Architects,
In this episode, Lex chats with Cactus Raazi — CEO Americas at B2C2, one of the original and largest institutional market makers in digital assets, serving roughly 1,500 institutions and pricing across more than 40 exchanges globally.
They discuss what a market maker actually does, how balance sheet and signal generation underpin roughly $1 billion a day of stablecoin flow at B2C2, and why the two extremes of crypto market making - riskless principal aggregation versus proprietary alpha - produce very different client outcomes that buyers rarely understand.
Cactus explains B2C2's 18-month bet that the Circle-versus-Tether debate would give way to a multi-issuer world, the launch of its PENNY product for instant zero-cost cross-stablecoin swaps, and they explore why programmability is the next frontier for digital dollars, why US capital markets have almost no structure for funding genuine risk-taking businesses, and whether the current combination of scale, speed, and complexity makes this the hardest investing environment Wall Street has ever faced.
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Thanks for your time and attention,
Matt & Lex 🙌
Key notable takeaways:
Market makers aren’t a homogeneous category, and clients pay for the difference. At one extreme, a market maker is essentially a riskless agent - aggregating prices across 40+ exchanges and quoting on top with no real view. At the other extreme, a market maker is a proprietary quant shop running alpha signals on horizons from seconds to days, and the price you get is heavily conditioned by where the signal says the asset is going. B2C2 sits in the middle, partly because its public-company parent (SBI) constrains risk appetite. The implication for institutional buyers: who you trade with structurally determines the quality of execution, not just the spread.
Algorithmic fixed income market making didn’t fail on technology, it failed on capital structure. US capital markets are excellent at funding venture, growth equity, private equity, and buyouts, but there is almost no domestic pool of “risk equity” - capital comfortable with the possibility that the machines (or the humans) lose money on a given day. Market makers need exactly that kind of balance sheet, and the mismatch between what the business requires and what the US capital base offers is a structural reason firms like Elefant struggled, regardless of execution quality.
The Circle-vs-Tether framing is already obsolete; the next product wedge is interoperability. B2C2 made an 18-month-old contrarian bet that the duopoly narrative was wrong and that Stripe (via Bridge), Western Union, Revolut, and many other consumer and platform companies would issue their own stablecoins. PENNY - instant, zero-cost, zero-counterparty-risk stablecoin-to-stablecoin swaps - is the product expression of that view. The deeper claim is that stablecoins are software, and the SaaS analogy (a base layer plus an app store of programmable financial logic) is the real reason institutional adoption accelerates from here, not the transfer-of-value benefit on its own.
Background
Cactus Raazi spent close to three decades on Wall Street before taking on the Americas CEO role at B2C2 in 2024. He started his career at Goldman Sachs in 1998 in money market origination - the desk that oversees commercial paper issuance - before moving into credit sales in late 2000, where he covered hedge funds across convertible arbitrage, credit derivatives, structured credit, and mortgage derivatives. He spent 13 years at the firm and holds the record for Goldman's highest-ever annual credit sales production.
After Goldman, he held managing director roles at Nomura (2011–2012) and Tradeweb (2013–2015), where he designed OTC trading platforms. In 2015 he co-founded Elefant, an algorithmic market-making platform for corporate bonds, which he ran for over six years before its acquisition by Exos, where he then served as a partner.
Cactus subsequently led Amber Group's US business as CEO and co-Head of Americas, followed by US strategy work at Enhanced Digital Group (EDG). He holds a BA from UC Santa Barbara and a Master's from NYU Stern.
👑Related coverage👑
Topics:
B2C2, Goldman Sachs, SBI Group, Binance, Coinbase, Circle, Tether, Stripe, Kraken, Credit Suisse, Market making, institutional liquidity, stablecoins, fixed income, risk management, algorithmic trading, crypto exchange infrastructure
Timestamps
1’17: Rejected by 30 firms: A cold-call advertising inquiry that became a Goldman career
6’43: "I'll go sell jet engines": Complexity as the through line from credit derivatives to crypto
8’53: Scale, speed, and dimensionality: The hardest investing environment in 28 years
12’33: A terrific idea, a brutal execution: Building an automated market maker in 2015
16’22: The used car dealership of bonds: How over-the-counter fixed income actually works
19’51: Price, time frame, and the art of liquidity: What a market maker actually does
24’52: Riskless principal or proprietary alpha: The two extremes of crypto market making
29’54: Priming the liquidity pump: Why new tokens hire market makers and large ones don't
35’40: $1 billion a day in stablecoins: A contrarian bet against the Circle-versus-Tether frame
39’43: 24/7 money movement: The treasurer wish list stablecoins actually deliver
41’04: The channels used to connect with Cactus & learn more about B2C2
Illustrated Transcript
Lex Sokolin:
Hi everybody, and welcome to today’s podcast. I’m absolutely thrilled to have you with us today. Cactus Raazi, who is the CEO Americas at B2C2 which is one of the original and largest institutional market makers in digital assets and crypto. So, I’m really excited to open up what a market maker does and how it works. But cactus also has an amazing career in financial services, from leading roles at Goldman Sachs during some really key times to building out his own technology platforms and trading firms. So, we’re going to learn a lot. Cactus. Welcome to the podcast.
Cactus Raazi:
Thanks, Lex. I really appreciate you having me on. I’m looking forward to our conversation.
Lex Sokolin:
It’s my pleasure. I’ve been meaning to have you on for a long time. Let’s start with big finance. You spent quite a bit of time in Goldman. How did you end up there and how did you get your start?
Cactus Raazi:
That’s probably the most interesting part of my life journey. I started out in a kind of a backwater role at Goldman Sachs, and I got the job largely through a great fortune at the time when I was prior to joining Goldman. I was living in Los Angeles. I was reading The Street, which was an early finance website, and dreaming of being on Wall Street. I had no idea what that actually meant. And out of the blue. One of my still best friends, a gentleman named Nathaniel Klipper, called up the magazine that I was working at and asked for some advertising information, and he asked for it to be sent to his office at Goldman Sachs. And I took that as a sign from heaven and followed up with this gentleman.
The actual advertising in the publication I worked at never happened, but he agreed to meet me on my next business trip to New York, and that kicked off a friendship where I started to learn more about finance through my conversations with him, and through reading a ton of books that he recommended. I moved to New York eventually in 1998 without a job, and just started interviewing. And after getting rejected by probably close to 30 firms, I got an interview at Goldman. It took quite a time to even just get the interview, but I was pretty well prepared for that interview at that point. Having screwed up so many prior interviews and I got my first job in 98. In money market origination is kind of the desk that oversees the issuance of commercial paper programs, which is not exactly the sexiest place to start. But it was my foot in the door and things grew from there.
Lex Sokolin:
Which markets did you get exposure to sequentially? It sounds like a lot of it was fixed income, but you also travelled kind of through the different parts of the firm.
Cactus Raazi:
It’s true. I started in fixed income and the bulk of my experience has been in fixed income. But there’s an important asterisk there. My client base starting around 2000. I moved into a sales role in late 2000, and my client base was primarily hedge funds at the time. These were sort of dormant hedge funds that Goldman Sachs gave me as, as sort of an initial client list. And several of these hedge funds started to look into derivative products. They were convertible ARB funds, and they were interested in interest rate swaps to hedge some of their interest rate exposure. So that gave me a lot of exposure to derivative products in general. And then a little later in the early 2000, with the growth of and sort of awareness of credit derivatives, that was another big stepping stone in my career. A fairly complex product that a lot of the other salespeople didn’t really spend the time and energy to learn and master. And so, it gave me a terrific opportunity to go out and prospect a bunch of new clients.
Again, most of the hedge funds and that large that client base of large hedge funds then morphed into a bunch of additional products, structured credit products, mortgage derivatives, and then in some cases, some different products that touched on equity markets as well. The hedge fund client base in general is pretty rangy, and for the most part, they’re open to a variety of products and strategies to accomplish their mandate. Unlike, you know, let’s say, a more traditional asset manager who’s generally pretty range bound. So the open mindedness and sort of capabilities of my client base allowed me to get exposure to a variety of what you might call. Back then, we didn’t call them, but these days we call them frontier markets, I guess.
Lex Sokolin:
How do you sell to a hedge fund? What is it that they’re buying?
Cactus Raazi:
They are looking for the most capital efficient and risk efficient way to express a view on a specific outcome. So the point I’m making there is if you thought, for example, company X was going to was going to do very well over the medium term, you obviously could buy the stock of that company.
Obviously, you could buy the bonds of that company. You may actually want to look at buying call options, for example, because you’re going to get a much better payout to the GP that you’re right. And this idea of picking up asymmetrical exposure in a capital efficient manner is really at the heart of a lot. Not all, but a lot of hedge fund activity in general. How do I express this view, whether it’s bullish or bearish in the most sort of capital efficient way, with the greatest asymmetry to the outcome.
Lex Sokolin:
Were there different pockets of capital that you encountered? What is the sales cycle? Like, I’m really curious. You started fresh in the industry and then you built this bench of relationships. Selling early on pretty complex products, you know, very mathematical sort of structures. And also, you did it during a time where there was also a lot of market volatility. Right. Like in the early 2000, you had the internet boom and bust. In 2008, you had the great financial crisis and the mortgage bust. Within that, you had sort of like the hedge fund boom that I’m sure that you were exposed to, and all sorts of other shifting ground, which reminds me of the situation we’re in today. So how did you find, like, a commercial path through that?
Cactus Raazi:
I’ve asked myself this question a lot because I did quite well in retrospect and my sort of production numbers, and I think impact on the business were notable. And so, I’ve asked myself what was the common thread? And the answer is really I gravitated towards products of greater complexity and they were just more intellectually interesting to me. I might add that in my interview process at Goldman, one of the toughest interviews, I had a real legend, a Wall Street legend. The gentleman named Phil Off asked me a question towards the end of the interview after I think I had, you know, barely passed, probably. And he said, if you don’t get this job at Goldman Sachs, what are you going to do? It was an interesting question, frankly, and I answered at the time, well, I’m pretty good at sales, and I’ll probably go sell the most complex product I could think of, at which I at the time, I thought was jet engines.
And frankly, I still don’t fully understand jet engines sufficiently well. But having said that, that’s the example that I cited. I said, you know, maybe I’ll go sell jet engines or something. And I think once I got on, once I got into finance and got my job on Wall Street, I have continued to move towards new products, more, more complexity. It’s more intellectually interesting and that that has continued not only through my time working at bulge bracket banks, but also in moving into electronic trading, setting up my own market, making firm, and then more recently, of course, being in digital assets, it seems to be a through line over the course of my entire career.
Lex Sokolin:
Can you talk about what you saw in terms of the different market conditions in the businesses that you were in, and kind of any lessons about how to behave in different market cycles, how to respond to them, how to think about them? You know, there are people who say it doesn’t matter what the market’s like. We just go do our job and other people are very reactive. It’s like risk on, risk off trying to find kind of the right weather. What’s your view on why cycles happen and how you would navigate them?
Cactus Raazi:
It’s a great question. I might add, by the way, that when I started in 98, it was just a couple of months after I started that the long-term capital kind of implosion took place that, you might remember, was the world’s most famous hedge fund, staffed with the world’s brightest people who managed to blow up in spectacular fashion. If I’m not mistaken, the Fed actually convened a bunch of the CEOs of banks to deal with the mess and the fallout of long-term capital. And since then, you’ve cited a few different up and down events. And I think even more recently, we had the sort of Archegos, you know, prime brokerage debacle which effectively took down Credit Suisse as an entire institution. And this seems to be a recurring theme. And Wall Street tends to have a hard time learning its lessons.
But more specifically to your question. I’m more of the latter camp where you need to be aware of what the overall market conditions are and understand what the opportunity is afforded to you and many terrific asset managers of all stripes will adjust their exposures based on whether they view the opportunity as favorable or whether they view the market conditions is quite challenging in terms of whatever the mandate may be extracting a return or extracting alpha relative to a specific benchmark or even on an absolute basis. And you’ll see the things such as cash positions fluctuate or people stick on the sidelines when the opportunity is simply not there. And typically, the best investors have that approach. I think that the questions are really interesting, one, because you’ve cited a few crises, and then there are obviously have also been a number of opportunities over the course of the past 28 years that I’ve been on Wall Street. I will say that at this, it’s quite timely to be asking that question, because I have never experienced and I’ve sort of thought about this a fair amount.
I don’t pretend to be a historian of financial markets, but having thought about it, I’ve never considered a market opportunity that that even comes close to what we’re currently living through, as you and I are talking. The scale of the forward opportunity with the frontier technologies that your media company kind of focuses on, the scale of these opportunities is unbelievable. The complexity of trying to think about second order and third order impacts of these technologies is, is really mind bending. And then finally, the speed at which this stuff’s changing is also really remarkable. If you think about any seasoned investors, you know, anyone from a Soros to a Druckenmiller or to many, many other famous names, you know, whether it’s Tepper and Distressed Debt or maybe Steve Cohen or whoever you want to cite as you’re investing hero. I’m sure if they were on your podcast, they would probably agree that the scale of the forward opportunity, the speed at which it’s changing and the complexity or the high dimensionality of thinking about the forward path makes for a unique investing challenge on a going forward basis.
Lex Sokolin:
The opportunity is larger than ever, but then the amount of change is faster than ever, and I think is probably one of the most complicated periods to try and figure things out. So, on Wall Street, you were doing a lot of kind of hand-to-hand combat and high-level institutional sales, relationship building, and then your career took you towards more software first and digital and programmatic ways of touching financial services. Can you talk about what happened next, and how did the things that you used to do start to get transformed?
Cactus Raazi:
I was strongly of the opinion, along with a group of other professionals. I was strongly of the opinion that the process of buying and selling bonds in small size, not, not huge trades that will make your year, but rather just a bunch of odd lot stuff. As you probably know, most asset managers go through a monthly process of cleansing their portfolios of small amounts of positions that they want to reduce, adding small amounts of positions that they want to increase. And these can be as a result of slight changes to their allocation model or people asking for their money withdrawals, redemptions of capital commitments or new capital coming into the funds.
And so, our thinking was, hey, the pricing process for fixed income can be replicated by algorithms, and we should be able to set up a fully algorithmic market maker that provides a service in a superior way. As you may or may not know, most human traders who still price the vast, vast majority of larger fixed income trades. Can’t be bothered with these tiny little, you know, offer a million here or a bit a million there. These types of small nuisance traits are not what most traders like to do anyway, human beings that price larger blocks of risk. And so, we thought, let’s set up an algorithmic market maker. Let’s. It needs to be a broker dealer. So, there was that entire process. And let’s then go out there and start buying and selling bonds on an automated basis. It was a terrific idea. Yeah, it probably remains a terrific idea, but the execution of that idea was significantly more complex than perhaps we had realized. And I think that the technology stack that was available to us back in 2015, 16, 17, 18 was also not what it is today, rather, obviously, which made for a difficult time.
The biggest challenge we had, though, was not necessarily on market structure nor on technology, but rather on the availability of capital. One of the more significant oversights on my part, and on the part of the team that came together to build this company, was the fact that market making firms, regardless of how they come up with their prices, are really capital-intensive organizations. There are huge amounts of capital in the US capital markets for early-stage venture, for growth equity, private equity, you name it. There is very little capital for risk equity, if you will. Or this notion that if your machines do something wrong, or if your human beings do something wrong, you’re going to lose all your money. That’s just not consistent with what a venture investor or a growth equity investor would be looking for. That’s much more consistent with what a hedge fund investor is looking for. And so there was kind of effectively, you would say poor product market fit from the perspective of the capital base required for a market maker is not consistent with the type of capital. That’s why we considered being available in the world’s dominant capital market in the United States.
Lex Sokolin:
There’s a bit of an odd question, but maybe from a definition’s perspective, it would help. Can you highlight the difference between maybe a custodian or a depository of financial assets versus an exchange or a marketplace or a market platform, and then finally a broker or an agent. Because I think for a lot of listeners that all smush us together, you know, but if you walk through it in the fixed income example, that would be helpful, right? Like where’s the fixed income instrument live? And then what does it mean to try and build a venue. Like what does the word venue mean? What does the word exchange mean. And then what’s the role of the salesperson or the broker. And how is that different.
Cactus Raazi:
Sure. Yeah. I mean, frankly, it’d be very understandable why there’d be confusion around fixed income market structure. It’s so opaque. I’m not even sure Claude or ChatGPT fully understands it.
But yes, there is. You know, custodians are where you would sort of keep your assets. This could be true of stocks as well. There’s complexity of micro complexity and market structure. But in general, you have companies that hold on that provide safekeeping for your assets. Generally, custodians could also be in some senses, a prime broker or whatnot, but in general, it’s where you keep your assets and then you have venues on which you can transact in. The purpose of most of these venues is price determination. So, you have exchanges. The purpose of exchanges is obviously to determine price. Buyers and sellers come together on the same instrument, and they form a stack of prices at which they’re willing to buy, at which they’re willing to sell. And the intersection of those prices creates trades. Of course, even in over-the-counter markets, which is how fixed income is primarily set up, you as a as an investor would have multiple service providers, typically brokers or broker dealers, where you would be able to ask for prices on the fixed income instrument that you’re looking to either buy or sell.
And this is a portion of that marketplace is satisfied by market makers. By the way, this is also true in equities and other asset classes such as commodities or FX, where a market makers job is to provide liquidity to either an exchange or some other execution venue, or potentially directly to the end customer. Again, there’s some microstructure there. Some market makers don’t actually serve customers directly for regulatory reasons. They’re effectively just proprietary traders on exchanges. But ultimately, the experience from an investor’s perspective is an abundance of liquidity. First, safekeeping of your assets when you’re not trading them, that’s at custodians the worlds. To the best of my knowledge, the world’s largest custodial bank is Bank of New York, with roughly $36 trillion of assets under custody. But, you know, there’s many smaller operations out there. And then once you’re ready to transact, you’ve got your various execution possibilities. Electronic execution in a bilateral sense on platforms such as trade, web or market access, as well as over-the-counter transactions with large banks, smaller institutions, even pure agency broker dealers.
Lots of different ways that you can actually buy or sell. And ultimately, though, you are going to need a balance sheet on the other side. That is the truth in not necessarily in exchange-based markets where you may have an intersection of natural buyer and a natural seller. But in over-the-counter markets, it’s typically the case that the person who is purchasing something that you are selling does so as a business, and they will keep it on their balance sheet and look to sell it later. The corollary I like to use that almost everyone can understand is a used car dealership where you can show up to a used car dealership and buy anything on their lot, and you can show up with your car and they will show you a price for that car. And if you don’t like the pricing, go to a different used car dealership. And that’s more or less the market structure of a fixed income.
Lex Sokolin:
Let’s use that as a jumping off point to talk about B2C2, where you’re running the America’s business. What is B2C2. And then Maybe let’s use that as a path into the market structure of digital assets.
Cactus Raazi:
So B2C2 is a global market maker and liquidity provider. And just a little bit more on that. There are there are firms out there in not only in digital assets and crypto, but also in other asset classes whose business it is to just provide prices to exchanges. The largest exchange in digital assets is Binance. So we can use that as one example. But this would be true of many other exchanges such as Coinbase Exchange or Kraken Exchange. The idea is that firms like ours, as well as other firms, provide prices at which customers can buy or sell crypto and digital assets. On these various exchanges, B2C2 and a small number of competitors also have a large over-the-counter business. We serve end clients directly. We have a global franchise of about 1500 institutions who have onboarded with BTC to and can trade with us using our balance sheet as the repository of the assets that they’re looking to either buy or sell.
Lex Sokolin:
In these two contexts, like do the words exchange and liquidity? Do they mean the same thing as in Wall Street?
Cactus Raazi:
Yes, they really do. From the perspective of either an institutional investor and B2C2, by the way, is 100% institutional and we don’t have any individuals. We don’t serve any individuals directly. We typically serve platforms that then serve individuals. But having said that, for the most part, from the perspective of your listener, the way that an exchange works in digital assets is the same as the way that an exchange would work in traditional securities or other asset classes.
Lex Sokolin:
Then let’s walk through what a market maker does. And you mentioned words like balance sheet and liquidity. Can you unpack for us what it means to provide liquidity, what it means to use your balance sheet? What does the world look like with or without market makers supporting particular assets?
Cactus Raazi:
Yeah, well, market makers primary role is to give the marketplace prices at which the other side, so to speak, can either buy or sell some underlying instrument.
We can use Bitcoin as the example here. Simple and obvious example. Our job is to put prices onto exchanges in the first instance, where the anyone else on the exchange can either buy or sell bitcoin against some other asset. Typically, it’ll be against USDC, USDT. That would be the circle stablecoin or a tether stablecoin. We can also show prices against many other assets. And that would be the idea that you can sell USDC and buy Bitcoin, or you can sell Bitcoin and buy USDC. And we put these prices on over 440 exchanges globally. And then we also have our large over-the-counter business directly with end customers as we’ve discussed. And then customer could be, for example, a digital asset hedge fund that manages a pool of digital assets on behalf of their investors and may have a decision to make around buying or selling an asset and is going to look for the best price. They’re going to look to what their execution may be on Coinbase or Binance, or any other of the 40 exchanges that were connected to.
Or they may compare that price to contacting us directly, but we say we call it a voice trade. But these days it’s mostly through some sort of an electronic messaging platform and asking for a price. For example, of a client, we’re looking to buy a hundred Bitcoin. They would be able to guesstimate how quickly and at what at what blended price they’d be able to do that on one or more exchanges and compare that to the to the price we would give them on 100 Bitcoin and that would be our offer to them. So, this idea of what a market maker does, is it, you know, we use this term liquidity. But liquidity obviously translated is just the ability to buy or sell something at a price that you’re happy with and in a time frame that you’re happy with. Price and time frame will change, and the more focused you are on getting the best possible price, typically the longer the time frame and therefore uncertainty you’re going to have. And that tends to be a natural trade off in all markets.
And what market makers do is provide prices to either end customers or to exchanges in order to facilitate transactions. That’s really the heart of it. It’s a pretty simple business from a perspective of the what, but the operational realities between managing the risk of your balance sheet, trying to avoid negative selection. That is to say, every time we buy something, its price goes down. Every time we sell something, its price goes up. Trying to avoid those types of outcomes is the art of being a market maker.
Lex Sokolin:
That’s exactly what I was going to go next, which is the risk engine and how do you hedge out all of the exposures and keep yourself net neutral every day. Like what does that infrastructure look like for the firm to be confident that it can provide liquidity in all these different places. Like, it sounds like there’d be a lot of math.
Cactus Raazi:
There is a fair amount of math. There is also a high level of variance between market makers in terms of what their core business model is. I’ll give you kind of the two extremes.
One end of the spectrum would be a firm who really represents to their clients and to their customers the pricing that’s available to them. And what that means is you’re not really expressing a view on the marketplace. What you’re saying is, for example, I see five Bitcoin on offer at Binance and five at Coinbase, and I see three at Kraken and maybe another three on another platform. So, I’m observing that there’s 16 Bitcoin on offer. And I’m observing what that the price of each is. And so, I now have a price at which I’m able to offer 16 Bitcoin to some end customer. I would just make a small amount of money there because I’m essentially an agent between the exchanges to which I’m connected and my end customer. And that’s a very, very low risk, sort of almost as you would call that a riskless principal type of transaction. And so that’s at one end of the spectrum for market makers is really low risk, no point of view on the market, not necessarily a lot of infrastructure in place to determine the right price, but the ability to look at available pricing and aggregate that together for your end customer.
And that’s the service there. And that type of service allows your customer to avoid going to a bunch of different exchanges dealing with exchange deposits and some of the other operational questions there. In some cases, there may be some compliance considerations. And so there you go. That’s one end is very low risk riskless principal type trading. The other end of the spectrum would be a much greater risk appetite. A strong point of view around where anyone asset is going to go, whether it’s going to go up or down in the medium term, typically near the medium term, maybe a signal generation framework and the signal generation framework attempt to use quantitative techniques to generate a bunch of alpha signals, that is to say, a point of view in some examples. For example, in Bitcoin, you may have a medium-term alpha signal that predicts whether Bitcoin is going to go up or down in the next five minutes. And a very high frequency or a very short-term type of alpha signal might actually be whether Bitcoin is going to go up or down in the next couple of seconds or even shorter.
But putting all of this together, a firm that trades with a heavy proprietary bias has invested quite a bit of time and money and manpower or smarts and analytical capabilities into having a point of view on any individual asset and the correlation between these assets and their pricing, and therefore, what is the quote unquote, right price for any given inquiry is much less a function of what’s available on exchanges and much more a function of what the machines tell them is going to happen with the assets price over the, over the next very short to medium term. These types of firms also exist. They just have a reasonably different business model. It tends to be a much more proprietary trading business model and therefore the client experience there is, I say, probably less consistent. You know, in some cases you would ask for an offer on Bitcoin. And if the signal suggests Bitcoin’s going up, you’re going to get it. You’re going to get a terrible price. If this their signals. If the if the market maker signal suggests Bitcoin is going to go down, then you would potentially get a much better price.
And these are the types of differences between the firms. BTC is kind of somewhere in the middle. We have a we have a fairly well built out alpha framework, but we overall have a pretty constrained risk appetite. We’re owned by a public company, a Japanese public company called SBI, and that translates through to a more moderate risk appetite than some firms that are owned by either a founder or a founder and a group of partners and have probably more leeway to take a more proprietary point of view on the marketplace.
Lex Sokolin:
One last question about the role of market makers. And, you know, for those people who are really close to the crypto markets, you know, there’s always so much feeling about the role of market makers and performance of tokens and performance of tokens on different exchanges and so on. Whether it’s sort of this, people say, if you’re launching a token, you need to hire a market maker in order to support the price in the beginning. Or if you looked at the Binance crash in October, whether it was, you know, Wintermute or GSR or somebody else, the sort of collapse of one of the large market makers has led to effectively beta level extinction across all the markets and liquidity drying up and price levels going down.
I think in crypto, there’s sort of this assumption between, you know, it’s not just taking orders. It’s something to do with price support in traditional sort of equity markets. You definitely would not have that sort of conversation. What do you think is the disconnect? What is it that you think people are doing in crypto and why?
Cactus Raazi:
I think that the role of a market in the context of your question, what the market maker is really trying to do is demonstrate to the marketplace that there is sufficient liquidity in whatever token we’re discussing. It’s typically a newly issued token or one that’s still early in its lifespan, so to speak. And that’s typically because you’re going to get a relatively low levels of familiarity on the part of the investor base, and therefore you’re going to get relatively low levels of transactional interest. And what it tends to be the case that the perception that there is sufficient liquidity, that is to say that an investor is able to buy or sell with relatively low cost, and then that perception tends to create a virtuous circle where the perception that there is liquidity brings more investors to either consider the asset or potentially make an initial allocation, some sort of an initial purchase, which then feeds more liquidity and tends to get the kind of virtuous circle going.
Obviously, we don’t need market makers for the large liquid tokens. Anything most of your listeners have heard of don’t really require the support of a market maker, but that’s less true for a newly issued token or one that perhaps has been issued but is still languishing. And I don’t mean languishing as in, you know, its price should be higher, I mean languishing in terms of visibility, engagement on the part of a broad set of investors, familiarity, those types of metrics. So that’s where a market maker comes in, I think can be really helpful to sort of priming the liquidity pump, facilitating more transactional activity off of their own balance sheet and over time, leading to a larger investor base and greater levels of activity without the need for a market maker.
Lex Sokolin:
Support a different function right in early stage, and I think the lines kind of get blended a bit.
Cactus Raazi:
Yeah, I mean, you see the same thing in equities. Obviously in the context of an IPO, you have the underwriters and their job is to provide some level of support and stability for the newly issued stock for a moderate period of time.
And if there’s, you know, extreme levels of interest, they typically have some stock in their back pocket typically. So, I usually call the green shoe to which they can then feed some more stock into the marketplace. But the overall idea even in securities markets, is to ensure that, you know, the issued security comes to market in a in a way that’s sort of stable and in the best interests of the issuer over the medium to long term, you know, creating some goodwill on the part of institutional investors, creating the perception that the security is is well stabilized and sort of its price action is reflective of the sum total of the market’s point of view on the security. A lot of that translates over directly to crypto. I would say, you know, the world of crypto is a mixture of what you and I would probably call sound enterprises who are coming to digital asset markets looking for financing and have a real business and have a real use case and are exploring product market fit and growth. And then at the other end of the spectrum, crypto, for better or for worse, also includes a bunch of, you know, jokey, extremely speculative assets whose fundamental value is questionable.
And it is sort of it’s both a feature and a bug, I suppose. And needs to be acknowledged that that last parts less true. It’s pretty. Well, yeah, I was just going to say it’s less true of securities markets. But if you look at some of the some of the SPACs, for example, that have come to market over the past 5 or 6 years, and there has been a fair number of those that have turned out to not be a particularly hot investment either. So perhaps there is a corollary to securities markets, and maybe crypto is getting an unnecessarily harsh rap. But nevertheless, the point here is that market makers in both instances are service providers. You know, in security space would be investment banks, but their job is to ensure that a new a new investment that comes to market with a degree of stability and then and, and establishes good rapport with its investor base as, as that security or that digital asset takes on a life of its own.
Lex Sokolin:
Yeah, I guess the difference is like there’s the primary markets and there’s the secondary markets, and those are two different business lines.
Effectively, they both use balance sheet but in different ways. One thing I wanted to talk to you about is stablecoins and sort of this broad adoption of stablecoins that’s now happening within fintech, you know, even like five years ago. One thing that just stood out at me is how we’ve managed to conflate two different versions of cash. And it’s funny that, you know, you started out at Goldman with commercial paper, which I think brings it nicely into a loop here. There are different things that the dollar does. Some dollars are used to buy sandwiches in a shop. Some dollars are used as deposits in a bank to earn interest. Some dollars are used as a cash sweep account inside of brokerage. You know, that may go towards funding that commercial paper or money market funds and so forth. From a software perspective, stablecoins are just tokens that are collateralized by different versions of these dollars. We only have like one word for them and we’ve got one law and it sort of smashes everything together. I know that B2C2, has been working on initiatives around stablecoins, and maybe a way to get into that is to talk about the differences that I’ve touched on what you think of them. And then what is it that you see happening on the capital market side?
Cactus Raazi:
Well, the fact that you were thinking about stablecoins five years ago puts you in rare company because, you know, most of us could not have cared less five years ago. But at B2C2, we transact quite a bit in stablecoins, about $1 billion a day. It’s a function of our heavy transactional activity in digital assets and crypto and stablecoins being sort of the native funding instrument. And it’s a little bit of a legacy also from some of the challenges that digital asset companies have had in accessing their traditional banking. And so, we’ve, you know, digital asset investors have had to move to stablecoins for a variety of reasons, some of which have to do with banks. Until recently, the lack of appetite to touch crypto and digital assets amongst traditional financial institutions. So, for us with stablecoins, we made a kind of a big bet a little bit more than a year ago, about maybe 18 months ago, that there were going to be many more stablecoins in the future.
This was at a time when the big discussion in digital asset markets was whether circle was going to be tether, or whether tether was going to beat circle, and we always thought that was a rather naive conversation to have. And we expected that many more institutions were going to issue their own stablecoins for a variety of reasons. That was our first bet. And the second bet was that the programmability of this, this form of money. We’ll talk about that in a second, but that the programmability was going to be increasingly important over the next 3 to 5 years. Specifically, when you think about money and you mentioned that there’s different forms of money. We have store of value. That’s a very common sort of perspective on what money is a store of value, although the, you know, a lot of monetarist people or the kind of like debasement people will argue against that. But if we can set aside the philosophical component, you know, there’s a store of value and then there’s a transfer of value.
And the transfer of value component is where stablecoins really shine. Most people would agree at this juncture that stablecoins are in fact a better mechanism to transfer value. What does better mean? Like all technologies, better means faster and better means cheaper. That is what better means. And that’s at the heart of almost every piece of new technology and why it succeeds. And with stablecoins, we have this idea that you can move, in most cases a dollar. But, you know, we’re seeing more stablecoins in other currencies, but nevertheless, you’re able to move a digital representation of a unit of currency that’s held in trust in a typically in a custodial environment, and that it allows you to move this currency much more quickly with much less cost than current systems such as ACH or Swift. I would probably also point out that in certain jurisdictions, the central bank or some sort of a central governing body has set up an instant payment system to some degree, obviating a portion of the stablecoin. Benefits. Examples could be the Peixe system in Brazil, where money is able to.
Move very quickly and basically for free. 24 over seven. So, there are there are certain jurisdictions where they’ve leapfrogged what we can do in the United States. But more generally speaking, the transfer of value, whether it’s in Western developed economies or developing economies, as has always been too expensive, and stablecoins really addressed that problem. The second thing, I think is forthcoming, so that even the stablecoin skeptic would have to agree that a piece of software, which is what stablecoins are, has the ability to then run additional software on it. You can think of it as not that different from some of the SaaS platforms where the SaaS platform is the software, but they open up an app store, and there’s all sorts of different applications that can run on top of stablecoins. That’s something we expect to see over the next couple of years.
Lex Sokolin:
So, it’s not about competing with Stripe, about who can pay people better for products on the internet. It’s going back to that point about using the balance sheet for liquidity across all sorts of different venues, isn’t that, right?
Cactus Raazi:
Yeah, I think that’s exactly right. I mean, it’s funny you mentioned Stripe. I was blown away by what Stripe announced nearly a year ago now at their annual Stripe sessions, which was, you know, the idea that they were going to create their own, effectively, their own stablecoin network amongst all of their merchants, obviating the need for a financial transaction to necessarily touch a bank balance sheet until you go from transfer of value to store of value. And of course, I don’t think there’s a company out there that is planning on self-custody of their cash. Most companies think it’s the right thing to do to keep your cash out of bank. This has everything to do with governance, and not necessarily so much to do with whether you receive interest or not. That’s a that’s sort of a little bit of a side note, but there’s probably not a CFO out there that feels comfortable keeping 100% of the company’s cash in some sort of a crypto self-custody wallet. Having said that, moving money around and being able to do that 24 hours a day, seven days a week, is very much at the top of the wish list of many CFOs and treasurers. And that’s where the stablecoin transfer of value discussion, I think, has the greatest potential.
Lex Sokolin:
Absolutely. If our audience wants to learn more about the stablecoin initiative or B2C2 or about you, where should they go?
Cactus Raazi:
Well, these days, I suppose you can go to Claude.
Lex Sokolin:
You are the first to defer to the robots.
Cactus Raazi:
Oh, is that right? No, I mean, the robots are so. Boy, they are so powerful. Here’s what I would say. B2C2 has an actual product that’s been receiving a huge amount of interest in the institutional context. And this product is called Penny, and it’s a stablecoin facility that allows any user to instantaneously, that is to say, instantly and with effectively with zero fees and zero cost swap from one stablecoin to another. Again, the stablecoin landscape is still to this very day dominated by Tether and Circle, with, I think, a strong third asset being the global dollar network USDC. However, we are seeing really exciting announcements not only from stripe, as you have already mentioned, in their acquisition of that terrific company bridge, but also from Western Union.
That’s public. I think Revolut has made it public. It’s quite likely that other consumer platforms, large retail platforms, are going to issue their own stablecoins, and then therefore there’s going to be the need to be able to go from one stablecoin to another instantly. No counterparty risk. And very quickly. So that’s our that’s our penny product. And it seems like the product market fit there is excellent. The other places to go for stablecoin information I found LinkedIn to be terrific. If you don’t want to deal with clod or you don’t trust it for whatever reason. A simple search for stablecoins on LinkedIn. There is the amount of information there. Formal research reports I’m not referring to, you know, random tweets like you get on some platforms. I’m really referring to proper formal research sanctioned by banks and consultancies. There’s a huge amount on LinkedIn. I don’t know if you agree with me, but there’s that. And then of course, your own podcast. I mean, you’ve been very early on the stablecoin topic, and I think a lot of what you’ve put out has been absolutely spot on.
Lex Sokolin:
Cactus, thank you kindly for joining me today.
Cactus Raazi:
Always a pleasure. Speak to you soon.
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