Invesco Is Taking Over USTB: Superstate's Jim Hiltner on Tokenizing Trillions with FundOS

Welcome to the show. How are we doing? Hey, guys. Doing well. Yourself? We are great. Doing great. Very excited to have you on. We've loved watching Superstate from afar. We were kind of talking internally before we were bringing you on of just, like, what we were excited about with with the the lineup we had today. Superstate is just such a serious player in the conversation around tokenization, and we've been itching to dive a little deeper here. So appreciate your time.

Well, I appreciate the love and support Oh, yeah. From a and now from very near. And I just wish you guys had given me the heads up to put the black collar on today because we've got the super stick golf too late. We could we could take a quick break. It's not We gotta take a quick intermission. Well, maybe, Z, we'll have to put that in our

in our notes that we put in the in the invites that if you want to mask the aesthetic, you know, here's the dress code. Next time. Next time. Next time. So, Jim, you guys, maybe maybe as we kind of anchor this, as we follow the business, there's continued to be more products that keep coming to market. We have, like, USTB with short term short duration US treasuries. We have FundOS, which we've seen and we're excited about.

You have these really interesting deals that are coming to market with things like folks like Invesco. How do you when you maybe even have an introductory call with a company that is evaluating superstate, how do you position the the firm from, like, a high level? Maybe we can kind of anchor

what the company does in that way as we kick off. Yeah. It's a great question, and and it's certainly evolved over time with some of the announcements that you alluded to have definitely kinda shifted our public perception in the market in terms of what we actually do. And so if you had asked me when we first started the business, we're an on chain asset manager. We're, like, building funds, tokenizing them, demonstrating that you can bring securities into DeFi.

And really, the intent behind that was to show that this can all work at scale with billions of dollars, you know, hundreds to thousands of investors, you know, multiple protocols, multiple chains.

But where we stand at today is is really where we had always designed the business to evolve towards, which is focusing on what we're great at, which is technology and connecting financial assets, particularly focused on funds and equities, to blockchains for reasons that make the issuer happy, make their investors happy, create secondary market use cases that are an improvement on the existing financial system.

But really, at the end of the day, Superstate is a technology company that's connecting the world's assets to to to better systems and creating efficiency, utility, and scale across,

you know, many different asset classes over time. So the the story of starting versus where you are today, maybe let's pick that timeline apart a little bit. Give us the evolution arc of how you where you perhaps started and then how you've evolved to bring more of a suite of these tech products to market, and and how that kind of organically

or maybe non organically came to be. Yeah. It's a great so maybe as a little bit of a earlier origin story for Superstate. So, you know, we founded the business after we spun out of Compound. So Robert Leshner is CEO of Superstate, and basically, when he built Compound from the from the job was basically like, how can we take smart contracts and allow people to manage risk and interact all around the globe?

And the only assets that were compatible with those systems at that time were just Bitcoin, ETH, or maybe wrap Bitcoin on Ethereum, you know, and a bunch of other types of tokens even before stablecoins became as large as they are today. And so the vision that he always had for, like, what can a decentralized financial ecosystem look like was always towards the goal of bringing traditional securities into those markets. So when we started out at super state, we're like, okay.

Let's go find the most boring conservative asset on the planet, which is the treasury. And, like, let's bring it into the pie because it has yield, and it's extremely stable, and it's a really fantastic building block for all of finance, but also for on chain finance. So USTB was our flagship fund. And if you do the math, you know, three years ago when we started the business, it was prior to the most recent election.

So regulatory regime in The US was definitely not conducive of really opening the floodgates for tokenization. We're in a very markedly different environment now than we were at that time, So we started it as a private fund. We got it to, you know, over a billion dollars, you know, hundreds of investors, very diverse types of clients. And the evolution for us was, okay, we've gotten this product to a scale that has demonstrated stability. It's, you know, passed all of its audits. It's integrated into Aave.

It's on multiple blockchains. It is extremely, extremely robust. And so we actually went through a process towards the end of last year to go talk to large asset managers who were all saying, oh, we wanna build something similar. And we said, hey, why don't you No. And why don't you instead go take over USTB as the portfolio manager for this fund, and we'll focus on technology while they focus on what they're really good at, which is managing assets.

So Invesco is taking over USTB literally in four or five days next week as the manager of that fund where we continue to manage all of the technology, the onboarding, tokens, you know, white listing, so on and so forth. And so we get to combine forces in like our respective areas of interest and focus and expertise. And it then opens up the floodgates for USTB's one token. Invesco has 2,300,000,000,000 of assets under management across hundreds of different products.

So how can we work with them and other managers to then go expand into other asset classes, not just t bills, but, you know, high yield fixing or private credit or or other asset classes that have demand on chain? And so we've done the same thing with our our other fund with Bitwise, taking that over. And FundOS is the kind of like unveiling of us not being an asset manager competing with Invesco, but actually being a partner helping magnify their ability to create really cool products.

And the first external manager coming on that platform was actually Coinbase. So Coinbase Asset Management, their their stablecoin high yield fund is gonna be tokenized through Superstay, and there's a whole slew of others that you guys should pay attention to for the next few weeks using that platform, you know, to to tap into these markets that we've demonstrated ourselves

are extremely robust and and can scale. I'm I'm trying to think through FundOS. Is this are we talking about bringing net new like, just going out and creating net new products with FundOS? Is this going to the legacy fund managers and saying, hey. Bring your product on chain, or is it kind of a blend where it's like, hey. Bring your fund on on chain so we can make net new primitives?

It's a great it's actually both underneath so Fund O West kinda breaks down into two categories. The way I think about it, when we talk to clients, it's like, we have this turnkey product. Right? So we basically have shown that we can create funds, USTB and USCC, with all of the, like, different pieces of what make a fund possible. So custody, know, audit, fund accounting, like those are necessary building blocks for a fund.

And so we do that, you know, for for our clients that don't want to, or don't have an existing product, that they can just use our platform to basically, you know, create a fund from scratch, as turnkey as as it gets. So they create the strategy, we do all the rest for them. They deploy the capital, we take care of technology. The other aspect is, you know, is actually embedding ourselves into existing products.

So there are ETFs, mutual funds, and other types of structures that already exist that have, you know, hundreds of millions of billions of dollars in it, and we can plug directly into those as a either new share class or as a enhanced feature of an existing product, so that, you know, QQQ eventually will have a tokenized version of it directly through super state, basically. Right?

Where there's native exposure to or ownership of that asset without needing to have like a separate wrapper or other product to get the same thing. And then I'm glad you're I just want I wanna take a moment to like

ground the world in how the gravity of what this actually means at scale. Like, what is, like, what is currently happening today with USDB and some of these existing like, the existing momentum.

But to do what you're saying with Invesco and the given the business that they're in and the history of that business and the scale of that business, like, would love, Jim, your from your vantage point, what that actually means from a business standpoint and and scale standpoint because it it seems like we're entering this new chapter that seems extremely scalable, but it but we're still actively in this moment, like, going through that right now.

For those who aren't familiar with Invesco or less familiar with the importance of that business, ground us a little bit and the the importance of them.

Yeah. And and, you know, maybe from a domestic lens, their ads are all over the TV. So if you ever hear of QQQ, you know, that's Invesco's Nasdaq 100 product, and so very famous for that. Very large, I think it's 400,000,000,000 in AUM. So it's a very, very, you know, highly used product. In TradFi, it's, like, giving you exposure, like, you know, a bunch of the AI names and and companies in Nasdaq 100. The Overall business has 2,000,000,000,000 in it.

And if you look at superstate across the managers outside of Invesco, there's and I can't disclose all of the the names, but there's 10,000,000,000,000 total in client base that are, you know, plugging into super state, that have, you know, very large existing businesses that are realizing that it's existential actually for them, that if they don't collaborate with a company like Superstate to tokenize their assets, to reach new investors, to create, you know, the markets, to be able to be stable coin compatible, you had it up on the screen there.

Like, imagine you didn't take dollars over the Internet, that would be a big So I think they're all realizing, like we were at Invesco last week, it was like a six hour session, and like their global head of product came in, it was like, we got all of this done so quickly because we wanted to learn how to do it from the best, and then we need to then figure out how to scale this across a bunch of other aspects of our business.

Because there's there's so much that this does for them in house from a middle office, back office perspective that our technology can upgrade their existing systems, but it also then creates new demand vectors that they're missing out on. So you think about ROI, it's like net

increased sales over lower costs. Like, who wouldn't want that in their business? Like, that's what tokenization does very fundamentally for for folks. How how much in these conversations and especially in the past, like, few years, you know, tokenization, I'm sure they've probably, like, been hearing it. It's I'm sure at times, was even probably, like, a buzzword, trigger word for them. Is there, like, a specific moment where where you could just see the tide shift where they were just kinda like, okay. Wait.

I have to come to terms, and I have to face rather like, I I have I can't fight it anymore. It's coming. And then do you just kinda see just like let their guard down? Have you had any kind of moments like that?

Yeah. I mean, you know, capitulation, I would say, is probably a good term here. When we started the business, there were folks that were like, oh, tokenization, no interest. You know? Because when we launched our money market fund, we wanted a partner with TradFi folks, and it was just Yeah. You know, too early days. They were still trying to get their heads around what that all means.

But the turning point, I think, was partly the election, but also genius, where folks realized that they're and and I think an even further inflection point will be when clarity gets passed, which basically is just more law codifying that people can build regulated products and not get crucified like that. You know, when you think about a risk manager at an institution like an Invesco, they're extremely risk off because they have a massive franchise to protect. Where now, like, that has de risked a ton.

And, you know, it's partly because of regulatory, but it's also, like, credit to securitizing BlackRock and to super state and, you know, other folks that have gone out there and said, you know what, let's partner with big asset managers, get these things to scale. WisdomTree has a massive array of different funds that are fully registered.

So there's folks that have been demonstrating that this is possible, and have also built enough credibility in the industry for the last, you know, few years that to me has been the, like, subtle inflection point where if this was a prior cycle and we didn't have these confluence of factors happening, I think people would be less bullish. Right now, you know, despite where prices are in crypto, like, none of these firms care at all.

They're realizing that the infrastructure is real and that it has to be a part of, like, literally every product that they issue today. And it's gonna take time to get there. So, you know, 2,200,000,000,000 from Invesco is not gonna come on chain tomorrow. This is Yeah. This is, like, not gonna happen. But, you know, the momentum is definitely carrying people towards, you know, the next decade for this to be, you know, a total rewiring of everything that they do.

Really cool. I'd love to dive into, just for a few minutes here, the relationship with CBAM and Anthony's team, Coinbase Asset Management. It looks like this was announced almost a month ago now. Would love to highlight, like, one, just what that relationship is, how it came to be, and and sort of the structure of it.

I I'd imagine that there are if we can unpack how this relationship operates or the structure, we can actually start thinking more about replicating this and and bringing this type of, I'd imagine, structure to other asset managers. So bring us into this this relationship with Anthony's team.

Yeah. Big fans of their team. Really honored to be selected by them to help power the tokenization of this really important flagship fund that they're bringing to market. So it's called Cushy, which, you know, Anthony's gonna butcher me, but it's basically the Coinbase there you go, Stablecoin Yield Fund. I thought there was a u in there somewhere, but maybe it's used to say US. They are managing a portfolio of diversified credit strategies, which are entirely based off of stablecoins. So forget that.

They're basically generating yield in this fund. And highly sophisticated risk management, portfolio management, you know, team over there run by the Coinbase asset management folks that are gonna deploy all the capital in this fund. What they've selected to do is have two share classes. One is just a very trad five share class. They think that this fund, and and I agree with them, is actually extremely attractive towards, like, a family office that doesn't care about tokenization.

They just want high yield, and this is a alternative private credit strategy for them. But then there's also a cohort of a lot of investors that want to actually hold the shares as tokens, because then they can use them as collateral in AAVE, and borrow stablecoins against it, and buy more cushy. And so you get this like staked ETH loop trade, but instead of the collateral being, you know, LST, it's actually the fund. Your shares in this fund, which Wow.

If you're in TradFi and you allocate towards a fund, it just like sits on a website, you like open it up once a month and you see the statement, and you're like, cool, maybe I should keep my money or add more, or I should, you know, divest from this. It's a static screenshot, basically, that just shows you where your assets are versus being a dynamic asset. So when you tokenize these shares, it's still the same fundamental ownership. Literally nothing changes.

I still own a 100 shares of this fund, generating nine and a half percent yield. Great. I'm happy with that. But now let's imagine that I wanna go like buy some Bitcoin because I think it's about to rip from here, or you know what? I like that exposure, but I actually wanna gear my return to get a higher yield. And so I can go tokenize my shares, go to Aave, post it as collateral, borrow USDC, and then either buy Bitcoin or buy more cushy.

And you have this, you know, utility of an asset that otherwise would have just stuck on a screen to now be more dynamic. And we've proven that. The reason why they chose us is if you look at Aave Horizon today, which is the RWA market specific to Aave. Similar, Camino has a superstate market, Morpho has a USCC market.

These are secondary applications that super state connects issuers to through ourselves first, and now our FundOS platform, so that the investors in those products get a better opportunity and experience that they wouldn't have if it wasn't tokenized. So this is the holy grail of tokenization is not just to say, cool. There's a ERC 20 Ethereum.

It's actually doing stuff in it. And so yeah. Calls like This this is specifically from Aave's Horizon. We haven't reviewed this, but let me know if this is helpful as, like, a visual as you're talking about this specifically.

Yeah. Exactly. So, you know, folks are supplying liquidity in the form of stablecoins. So whether it's USDC, RL, USD, or GO, I think are the three stablecoins permitted. There's various markets where, you know, people that own so the top left corner where it says supplies, think of you being a shareholder in cushy. So as I described, you now have a token in your wallet that you go then put it into this pool, and you can borrow that USDC or ROUSD that was provided by the liquidity providers.

So let's say I have $10,000,000 that I own in that fund. I can borrow 80%, maybe. And so I can borrow $8,000,000. I can go use that to invest in a house. I can buy Bitcoin or ETH. I can buy more cushy, and then I can go back to this market if I bought more cushy, supply it, and then do like a levered loop trade. That is very popular using these systems.

So the fact that the asset is tokenized means that in that orange grid in the middle there, it's compatible with that pool versus it not being tokenized and it's not compatible and it just sits there in a, you know, dusty way.

The idea I don't know if I'm alone in this, Zach, but like the idea of tokenizing equities and stocks and then being able to just think of them as like like, active assets. I think most people Yeah. I mean, I'm coming from a retail standpoint, obviously, but I think most people are are thinking of, oh, I'm gonna go buy this stock, and then that's just gonna sit there like you're saying, and it's gonna be something that, you know, for me, I'm more of, like, a long term hold kind of person.

Like, it's not an active thing that I can then go get liquidity out of or go do things with. It's like the idea of at least, I think, what now people are starting to realize with what you can do with Morpho on Coinbase with Bitcoin or something like this where you can, hey. I have this asset. I own it. I can retain custody of it, but then actually create liquidity for myself without selling it.

Like, that is a really, really powerful mental unlock for someone who has historically just looked at these things as, like, static buy hold, open the account thirty years later kind of things versus, yeah, like, collateral. I don't know if you're starting to see, Jim, the kind of psychology transformation of that in this moment, but it feels like we're entering that, which seems like a whole new paradigm for people. Yes. So I'm glad you brought that up, and it maybe is something

to leave the audience with to think about. Imagine you're holding Nvidia for the next thirty years, because you're like, that thing is just never gonna stop going up, and I just wanna be a long term shareholder. But then you'd like, life comes up, and like, you know, you you gotta you gotta do a down payment for a house or whatever. If you sell that Nvidia, you're gonna get hit with capital gains taxes. Right?

And so that'll take out some of your returns versus being able to borrow at, like, if you have the option to borrow against that from a DeFi protocol at, like, a three handle in terms of your borrow cost, that's actually cheaper than a mortgage today in The US. Right? Thirty year mortgages are, like, six, seven, 8%. And they're only going up because, you know, rates keep going up. Now, DeFi is not always gonna be at a three handle, but, like, you have the optionality because these are your assets.

You should be able to take custody of them and be able to have the autonomy to be able to source better economics that aren't currently available. The other point that I'll make, which I think is very underappreciated by the market, and I tweeted about this last week, is like imagine that you're, again, holding Nvidia for thirty years.

And instead of the broker that's holding, really, holding custody of your asset for you, lending that out to somebody else, like maybe there's a hedge fund that wants to short Nvidia, and they're borrowing that stock through your broker really is your asset. That broker's keeping 99% of the economics, if not a 100.

And so let's say that they're taking your Nvidia $10,000,000 that you hold, and they're lending that out at 30%, that's a clean $3,000,000 a year that they're getting on somebody who's borrowing that Nvidia from your asset. And they're guess what? You're getting zero of that. Now flip it on its head. If you have the tokenized version of that, and you could go into Aave, and you could lend that out at 30% and take that yourself, that's a nice little free dividend

that's coming back to you. I think I found it. Just the one? Exactly. Like, 14 likes. Great. My mom must have hit the smashed like button like 14 likes. Hey, man. Twelve twelve hundred. You can't can't nothing to be ashamed of. So if you're a long term shareholder, but receive limited economics from securities lending because your broker retains most of the yield, yeah, it's it's essentially putting control back to the person who has the control in the first place.

You should. Right? I mean, like, this is the whole thing about finance today is that these are your assets that intermediaries are basically taking advantage of free capital that's on their books because of the market structure and are getting, you know, they're getting paid off of your of your balance sheet. It's like, imagine somebody was like lending against my house, I'd be pissed. Or here, here's a better example for everybody. It's like, imagine somebody did Airbnb at my house, but didn't

pay me any of the fee income that they're getting. And it's like, I just show up, and there's, you know, two people when I come back from a trip that are just, like, sleeping in my bed, and I'm not getting paid on that. And I didn't have I didn't have any authority to, like, control that. Like, that's what's happening in securities today. Need to sit with that. There's a few rabbit holes. That's a good that's a good thing to to leave us with.

I will say, Jim, I think we'll have to have you back on because we didn't even dive into opening bell, which I think is something on the opposite end of the the spectrum that especially, you know, even think about, like, okay. One day does StableDash tokenize our equity for our shareholders and those more practical use cases for the 300,000 small businesses and and startups out there. So we'll leave that we'll leave that open ended for for next time, but we appreciate you you coming on today.

Sounds great. Thank you guys all all the gonna be a a fun couple weeks of of announcements too, so we'll be on the be on the horizon. Let us know if there's anything we need to be aware of. Will do. Keep you guys up. Thank you for the opportunity. It's great to spend some time together. Yeah, man. Thanks for being finally have you on. Appreciate it.