Payments Is Commoditizing: 1kx's Nichanan Kesonpat on the Stablecoin Investment Thesis

I've been with one k x for the past almost five years now, which is quite a few lifetimes. Ten years.

Amazing. You're 10. We've never we've never covered anyone from from one k x. This is a first for us. Well, thank you. I guess you saw you were you were in the crypto round, which that was a pretty pretty big round in the past, I wanna say, six months, but my time maybe is just completely off. But, yeah, like Drew said, bring us into to to one k x, and and we'll transition a little bit into this this report. Yeah. So I've been with one KX for the past five years. I've been at in the space since 2017.

Started out as a smart contract developer. I'm building on Ethereum mainly. And 1KX brought me on initially as a researcher. And so I was doing a lot of research and independent content writing on the side. And 1KX brought me on to publish our investment memos and deep dives into various, like, different markets in in Web three. So I've done the things on DOW tooling, NFTs, wallet infrastructure, multiple ones on wallet infrastructure, actually.

And then I eventually transitioned to be on the investment team where I focused again on wallet infrastructure and middleware. So anything from key management infrastructure to account obstruction. And over the past year, that has expanded into payments infrastructure and stablecoins as well. That's awesome. I'm gonna pop up here the

one k x website. It looks like the writing and the research is a really core part of the team and and obviously your your background and your role. What maybe just the approach you take. I mean, when you when you're thinking about building this type of of value for the firm, it sounds like it's kind of a two sided equation. There's, like, internal memos and investment things that you've done that serve the team and the investment team, but then there's also

maybe more stuff like this that is, like, research and public facing guidance and education. How do you kinda break those things down? It sounds like you're kind of now sitting in in both seats where you're you're doing research and contributing to that, but now it sounds like you're you're on the investment side too. Yeah. I mean, a lot of it is just pattern recognition from speaking to just many, many founders tackling a certain problem. Right?

So a lot of my a lot of my market deep dives have a certain structure to them. A lot of it is like stack breakdowns and layers of the stack and breaking down where value accrues, how different layers of the stack verticalize and, you know, consolidate. I think it's arguable that like now, like a few years ago we were talking about things like key management and account obstruction infra. Nowadays, dApps can have a handful of kind of default providers that they can pick from.

So the UX and the onboarding is pretty much like solved. We're not, you know, seeing a lot of like key management infra and like account abstraction infra anymore. But instead, we're seeing things like on an off ramp, stablecoin orchestration that is tackling the next the next step of the the problem, right, which is not onboarding. How do we make crypto useful in the real world?

So for things like across border payments, for things like remittance, and I think the next wave of of crypto users now aren't like crypto natives necessarily, but they're using just a product that happens to use blockchain under the hood to do to pay their vendors or to, you know, send money back to their families and so on. Yeah. It's been interesting seeing the evolution of the wallet infrastructure

industry specifically. Before starting StableDash, that was the space I was in and working in was wallet infrastructure. That space has gone through such an interesting, like, multistage journey of being, like it looks like the article that I was just popping up there was just, like, yeah, December 2023. So, like, at that time, wallet infrastructure was, like, one of the most focal point things to go build is, like, we need to make wallet creation and onboarding easier because that was the bottleneck.

It seems like we've kind of solved that now. A lot of the people in that stack are getting scooped up. Others like defense are continuing to grow and and serve more upmarket. Maybe how have you seen that just the the progress of that that layer of the stack? Where where does the wallet infrastructure stack now live? This is a conversation we were just having yesterday, Zach and I, with Chris from Defense on how they're thinking about this and evolving what they've built into more specific use cases like banking.

Like, how how are you seeing that right now? Yeah. So one of the earliest memos that I published for 1KX was actually on on WalletConnect and we called that the the narrow waist thesis for for wallets and dApps. Right? And WalletConnect was disconnected tissue

for any wallet to connect with any dApp. And I I and that has been sort of the the inflection point for, you know, users no matter what app and front end they wanna use, they can connect to any dApp using this protocol. And then and then the question then became like, okay, how do we how do we onboard users who don't wanna download a wallet app necessarily, but they they just want to play a game or, like, interact with DeFi or or trade or whatever?

And thus came the proliferation and and of things like embedded wallets, like Dynamic and Privy, then WalletConnect has their app kit as well for people to log in and and sign up to a service or a dApp without having to have a separate wallet app. So now what we're seeing is, like, now we have a certain set of users who who own crypto. How do we make that usable and utilizable in in the real world? So now we're seeing a proliferation of things like cards, stablecoin cards.

Wallets are now issuing their own, you know, Visa, Mastercard cards for people to be able to tap with their Apple Pay or a physical card to be able to spend their crypto from their custodial wallet, self custodial wallet in the real world. And then more and more just especially in emerging markets or high inflation markets, they want access to stable coins just to have access to a stable currency, and they use that for savings and, you know, and earning yield. But all of the DeFi stuff is abstracted away.

So I think I think the concentric circle for what we consider crypto users is is broadening.

Thank god. And yeah. Yeah.

Yeah. And with each kind of concentric circle, the wallet infrastructure kind of enters its next evolutionary

phase. Yeah. When you when we think about, like, expanding, right, we're expanding the pie of of what we consider crypto users. I see in your report, you call out cross border invoices, payroll, merchant flows, and I think the question we ask we ask ourselves is, okay. Great. But then what? But they're settling merchants. What what do they look to to go next?

And I see that you call out specifically those same assets are can serve as collateral for on chain credit, liquidity lines, automated working capital financing. How much of that right now is kind of consuming your mind share? I'd say it's it's we kind of have three buckets that we see a lot of conversations going. It's credit, It's on chain FX, and there's a generic payments. And I think this credit one is one that I wish was talked about a lot more. What are what are you seeing in that realm? Yeah.

So this actually alludes to a thesis that I've been working on, which is on how

stablecoins play a role in in trade finance. So I think since the Genius Act came out, there's been a proliferation of startups doing cross border stablecoin orchestration, and which gave rise to the bridges and BBNKs of the world, and they've had pretty successful exits there. And cross border is still a big issue, especially in in emerging markets.

You know, like payments is commoditizing and, you know, margins are continuing to compress as we as we tackle the the cost inefficiency problems of, you know, correspondent banking. So the question then becomes where do these like, what's next for these stablecoin orchestrators? Right? And we see a big opportunity in in them verticalizing into other layers of the banking and and the financial stack in that, you know, as merchants, as businesses onboard their flows on chain.

And this is, like, abstracted away from them, by the way. What they're seeing is, a USD dominated front end. As they're onboarding their flows on chain, the payments history can then be used for things like trade finance eventually because the payment flows are auditable. They have regular volumes that that goes through. So that could be a nice basis for short term underwriting.

It's still it's still a very nascent space, but more and more stablecoin companies, stablecoin orchestration companies are starting to think about this. And there's the treasury aspect to that as well. Right? Yeah. They're integrating with things like tokenized money market funds for these companies to earn to earn yield on their treasury as well. What what do you think about WalletConnect going all in on the, like,

point of sale, PSP payment, like, the the terminal. It seems like, you know, you go to walletconnect.com now. WalletConnect Pay is what you see first. This seems to be a really, you know, interesting example of of this thesis in action. What what do you make of that specifically for them? Yeah. I think I think it's a very it's a natural next step for

a company in their specific position. Right? Because they have aggregated the majority or or or a lot of wallets already. So they have this kind of wallet distribution, and then all the users that currently have their funds parked in these self self custodial wallets and are just trying to find a way to to spend their crypto without, you know, having their money leave their their wallet. So they've proven kind of like this QR, UX connectivity between wallets and and dApps.

So these users are already using or are used to that UX already. So it's it's yeah. It's a exciting next step for them because now the users can go to a merchant, let's say, who has, like, an Ingenico or, like, a a a point of sales terminal and just scan a QR code and and have

that crypto being spent directly. Zach, what were you gonna say? I cut you off. No. I I was gonna say before that, it was just on the credit. Have you dug in the credit coop at all? I mean, just like a self plug. If you haven't haven't, you should. And we also have an episode with them doing a lot of trade financing right now, I think, with with Rain, and you can you know, you go on their website. We had a great episode with Christian.

So if you haven't talked to them and this is a a thesis you're developing, you should definitely talk to them.

Nice. Yeah. I'll check them out. Yeah. Creditcoop.xyz.

So for you, Nish, as you as you think about really, you know, from what you've said, your background, what you're doing now at the firm, the goal here is to be pattern wreck like, recognizing patterns. It's just the term you used and the idea of finding sort of opportunities, forward looking opportunities, what is currently happening on chain by the by volumes, and what's what's currently being launched? What does that indicate for the future?

Like, that's a really unique role to be in where you can kind of pair the facts of what's happening with on chain volumes. Like, that's what's so cool about this industry is, like, there's so many tools available that can actually show you what is actually happening. Maybe a two part question here. Like, what specific metrics or tools or charts are you currently really interested in and and leaning on? And and what sort of trends or patterns are you seeing as you guys, as at the firm, look into the future?

What sort of space might be a new what might be around the corner based on what you're thinking right now? So we take these on chain

data with a bit of a grain of salt. Right? Because a lot of the bot activity is kind of running rampant in crypto still. So we do have an internal data team that kind of like, checks like, manually checks and is a a very kind of rigorous process to kind of humble ourselves a little bit and not jump the gun and and, you know, take these on chain volumes at face value.

I think I think data providers like Allium who powers Visa's on chain, like Stablecoin dashboard has done a good job of, like, taking out the, like, bot activity from the Stablecoin volumes that they're showing. But it's it's certainly growing still even without the noise of these wash trading and end bots and and things like that. On the on the wider pattern recognition side, on the stablecoin orchestration side, we're seeing we're we're talking to a lot of the customers of these stablecoin orchestrators. Right?

And a few years ago, they weren't, you know, interested in in kind of looking at this at all. But now the value proposition is clear for them that if they want to be competitive, if they wanna save costs, you know, like this alternative rails really delivers that. And the infrastructure is good enough now for them to be able to deliver those UXs. There's there's still it's still very fragmented in terms of, like, what's going on in each region.

I think Europe and The US are have gone the farthest in establishing frameworks that make it even possible for startups to know how to operate legally and how to innovate in this space. Right? So like the the MICA and and Genius Act, for example. We're seeing legislation pop up now in countries like Brazil, in LatAm, in Bahrain, in The Middle East, and in the in The Emirates as well as Asia. So a lot of these guys are now kind of racing to to get licenses, right, to be able to operate.

So I think the big next unlocks here, especially for for real flows and, like, institutions to come on chain, is the is the regulatory side of things. And once that framework has been established, yeah, you'll see kind of this bloom of startups building in the regions. Drew, we can't we don't have your audio. Sorry about that. Sorry about that. In the last in the last five years,

as you've been at the firm, we've gone through such a tumultuous, like, regulatory situation. It's been so up and down and all over the place and difficult for founders and builders to innovate within this unregulated reality. The rules of the road have been very unclear. It seems like in The US, especially, that's finally changing in the last twelve months and really, really starting to pick up momentum.

Whether whether this is a US focused answer or more broadly, as you kind of mentioned, more countries and jurisdictions around the world are starting to put these types of regulations in place. What does that indicate for you as as an investor? What sort of trends do you see when good regulations regulation is in place? Why is that so important in terms of you you guys at the firm and how you're thinking about the market? What what does that indicate in your mind? Several things.

So I mean, I I was just on a panel with the Bank of Thailand

today because CBDCs are are a very hot topic in in Asia because, you know, governments don't want to kind of give up their currency sovereignty to to the dollar, and the dollar is still very dominant. And, you know, countries like Korea, Japan, you know, Thailand, they don't wanna just, like, kind of open the doors to to everyone and and kind of give that away. So it's it definitely factors into the decisions we make around, like, what what jurisdictions and what which regions we're comfortable investing in.

Because if you don't have kind of boots on the ground in those regions and if the founders don't have an advantage in those regions with the regulators, you know, a lot of these founders are participating in government, like sandboxes to help policymakers even know what to make of the situation.

So it it it does it does translate into the founder persona as well because a few years ago, we would be looking for, like, hacker like, really hacker type zero to one protocol innovator kind of DeFi, Degen type type of persona that really did, like, build the the primitives that makes all of this on chain volume happen today. But the founder persona for what we'd be looking for at this stage is different than that. Right?

It's, like, usually guys who coming from fintech or coming from TradFi or like have those relationships and have those experiences working with the the traditional like institutions to know, okay, like what is our wedge here and what is like the appropriate kind of order of operations to to to survive and and kind of navigate

the the environment here. Do you struggle with that at all? I'm I'm I'm thinking about your background, and you you see, you began as a engineer, smart con you know, a builder. Right? Like, is there a tension of I want to go back to be a builder? We've we've seen we saw Sam Bronner, right, leave a 16 z to go to build a better money company. Do you ever have that itch of just like, ah, somebody's not building that. Should I go build that? How how do you how do you balance that? Of course, you would never leave.

You would never leave the incredible Never leave, but I'm just saying, if you did, if you theoretically

did, what would you go build? What would I go build if I if I left? Today,

you get kicked out of the firm, and you gotta go build something. How can I write you a seed check for 5,000,000?

What what are you doing? What are gonna go build? What needs to be built? Well, I I think I think agentic finance is definitely really interesting or anything that marries agents and, you know, what you can do on chain. I I think that's like I think that's a zero to one in terms of like how people even interact with services and each other and what they do on the on the day to day.

It would probably be be something to do with the marriage of, I think, AI and crypto on the user facing side, less on the infrastructure side. Interesting. Okay. We'll we'll work on that. We'll we'll work on that. We I think we need to get a little bit clearer on where that what that means, but I agree. There's so much to be built there. I feel like much to be built there. Like I feel like agentic finance and things like OpenClaw and, you know, what's been happening is kind of the Wild West.

Like, the only what was the Wild West back in, like, 2020, 2021, or even 2017 where people were just putting things on GitHub and, like, getting wrecked. Saw that a lot with, like, the OpenClaw stuff. But, I mean, that's where I think the the most interesting kind of

primitives, how how they get built. Have you been experimenting or or messing with this at all? Like, have you

spun up an agent or messed around with any of this yet? I've been building like, do you know do you know the concept of a a Zettelkasten? Zach? I don't. Nope. This is a new one for me. So it's like it's like a second brain, like a Genentech second brain. Oh,

Wait. Wait. Sorry. Say can you say that one more time? What was that term?

A Zettelkasten. So it's this note taking system where where where the the note taking system, essentially, you identify atomic ideas that connect with each other. So, you end up with this graph of nodes of concepts and ideas that if you just have, like, separate pages of notes, it's really hard to see where they in interconnect. Right? But the way our brain works is that you make connections between very disparate pieces of information and that's how you pattern recognize things and that's how innovation happens.

So I I started out this second brain note taking, like, subtle constant thing in back in 2020. So every How do spell this? Can you spell this? Is that I don't have to quiz you on the spot. But like Yeah. It's zed e t t. It was invented by this this scientist called

Is that right? Yeah.

Yeah. That's right. Let's go. It's it's a whole it's a whole it's a whole niche. I was this was like during COVID years, so I had a lot of time on my hands. And that's where I met Peter Pan who's Yeah. Through DAOs. I was spending a lot of time on Discord back then. And I met Peter Pan who who's the consumer partner at 1KX

through a DAO that that he was building, and then he brought me on. That's really interesting. Kinda reminds me of Andre's Andre's our lead engineer, and I I'll just say we were we're we've been thinking about something like this for our media because of how many you know, I think I was looking at I was making a media map for the past three months of the show, and I like, wow. We've had over a 100 guests, which is kind of crazy to think about Yeah. So far.

And think of I could mentally bookmark a few of these these big chunks, but I'm I'm even fascinated to be able to dive and be like, how interwoven are these themes? How interwoven is this industry especially too when we're thinking about, you know, I think Sam Broner worked with Robert Bench at the Fed five years ago, and now they've branched off, and it's so intricate. It sounds like this could be your product where it's, hey. You have your Zettelkast Oh. That you've been I'm I'm showing you.

Your agentic you know, your agent your your trades or your investing thesis maybe as an individual. Maybe maybe there's something there. This is the this is what you're talking about. Right? Yeah. This is what I was talking about. This is very rough draft. I super love that you're showing this right now Yep. Because we're still working on it. But, yeah, we're you know, we've we've we see all these market maps, and they're great. They break it down by sector. But I'm more just focused on, hey.

Who have we talked to, and and where do I need to mentally, you know, put what buckets do I need to put them in? And then eventually go a step further to how are they connected, what are their trends, what are they building, where they fundraise. There's resources out there. We've we had a directory. I think it's still up, but it definitely can be improved. And, again, we say it all the time, but AI really does change everything when we think about how you can analyze how interconnected

everything is. Yeah. Yeah. And I mean, just per like, personally on this, like, Sethel Carsten, every single book highlight because I read on Kindle. Like, every single book highlight, every single, like, call notes, every article

highlight I had, I put it into this thing. Wow. But, like, up up until, like, now, up until Claude, you know, I haven't been able to draw insights from that in an effective way. And I've started doing that, and it's very I don't know. It's been Wait. So I I could nerd out on this. I'm like, where I I'm I wanna ask them, like, where do you host this? Like, is this a is this a Notion page? Is this a Telegram chat that you feed it and it goes in?

Because I'm like, I wanna start I wanna start brain dumping all this stuff. You know, I have random Notion pages and Notes pages. Do you publish this? Like, if this seems like something that could just be really really fascinating to just I not only get into your mind, but anybody's.

Exactly. I mean, there's I think Carpathi does this. And there's also a guy called Andy Matuszczak that that does this. Like, thinking in public is kind of the movement. And I was like down the hole five years ago. So but I I don't it's on. I I just host it locally in Cloud Code, and then I interface with it through Obsidian. Thinking in public,

I think I mean, personally, I when I hear that, it makes sense. And if you look at like what what do you make of what a 16 z is doing, Lightspeed's doing, a lot of the the folks in the venture world who, from what we've studied, are I think really convicted on this idea of thinking in public because you can kind of build you can build knowledge. You can build awareness. You can create systems around what you believe more easily if you're doing it in the public square.

How do you think that, like, how have you seen that play into, like, maybe other venture groups or other investors and their approach to sharing some of their ideas publicly? I'm even thinking about, like, Kleiner Perkins, and they have this really great, like, podcast series where they eat chicken and drink beer together across the table. And it's just, like, very raw and real and filmed, and we're seeing a really interesting trend of that, like, sharing your thoughts in public.

But specifically, in the last couple months, it seems really

an interesting movement of how investors and VCs are starting to take approaches with that. Curious how how you think about that. Yeah. I mean, so the form factor so far has been, you know, Twitter, blog posts, you know, podcasts. But but those things are kind of snapshots. Right? It's not like a live document, and it's it's usually very polished. And by by the zettelkasten or like this second brain stuff, you're it doesn't feel it feels less like you're reading a blog or a series of tweets.

It's almost like you're following someone's train of thought as they're thinking about something. And it's navigable as almost like a Wikipedia where, you know, Wikipedia you have these bidirectional links between different Wikipedia pages. And if you have a graph of Wikipedia, it's more it's less like page by page kind of a two d thing and more of a, you know, this organism of like where which thread do you wanna pull on.

And I think and I think if if people were able to, like, crystallize and externalize their ideas that way, even for themselves, they'd be surprised at at at what they find. And I mean, I've been using Claude to to to help me do this, but already it's like You know? Every

once in a while, we we just I gotta we we pop up the the timeline in the background, and I wanna share something that I just saw broke a few hours ago that's eerily on theme with what we're talking about right now. Drew, let me get the screen share from you. And then we can we can wrap after this. Yeah. We can wrap up on we're going we're going off now. We're doing I can feel we're starting to enter Yap Zone. Honestly, perfect.

I I'd love when we get into Yap Zone just because, again, we're talking about modern money, but there's so many things adjacent to modern money. So I just saw this. Harte raised 700,000,000 in series a funding Oh, wow. To accelerate their ambitions in Zoom in, Zach, on your Zoom in? Zoom in a little bit so we can see this. There we go. Couple more. Yes. Thank you. And Hark is an AI lab building the most advanced personal intelligence in the world.

And I thought it was very eerily similar to a zettelkast zettelkast in. And then when I went to their website even more oh, let's see. We are witnessing a worldwide transformation. The dialogue between humans and machines is shifting. We have intelligence systems that can use reasoning, what becomes possible when computers start understanding and cleaning the task, but building the most personal intelligence in the world that begins to think like you and sometimes ahead of you to offload your mental workload.

This sounds like possible

if if you're not thinking in public and, like, contributing to Yeah. Exactly. Giving Yeah. It sounds like that's so I don't know. But Yeah. This is gonna be probably something I'd dive dive into. I would see a video I'll watch later. Yeah. I mean, the important thing here, right, is that you're not just collecting information and just, like, accumulating research and, like, you know, accumulating tabs and bookmarks.

But you have to be able to make the do the work to make the connections between them, and that's where the insights are drawn. So there's actually I'll share one more thing. There's a there's a library or a quad code plugin called rs Contextra that helps you do this. Like, given, like, a large database of, like, information, the rs Contextra kind of makes these tries to make these connections for you.

What what sorry. Spelling here? Or or send us a link later because Yeah. Send it. This is definitely right at my end. Yeah. Yeah. Yeah. A RS. I think it's a RS. Right?

A r s space c o n t e x t a. So that's to GitHub. Stack right now is OSCONTEXT and

Obsidian. Memory infrastructure for Cloud Code? If you have a well, this is fun. I promise, Drew, I won't be working on this while I'm supposed to be making clips later. I mean, ultimately, this is the most important thing to get right.

And I think, you know, we've all started maybe playing around with, like, the projects feature and Claude and things like that to kind of start associating ideas together. But, yeah, this is the one of the most important things, not just for people, but also for investors, markets, companies, like build building this is, like, a crucial thing. Thank you for sharing your thoughts in public today. Would love to have you back on the show and and continue to follow some of these insights.

If you're ever coming out with something, a re a new research report or you're something we're actually doing, we don't talk much about it, but we're actively closing and working with a handful of companies to actually conduct research in this way. So speaking of, like, thinking in public and talking in public, like, we actually think these conversations and the format of what we're doing here is a really great medium to collect insights and qualitative perspectives from incredible people.

And so we'll be working with a lot of this isn't announced quite yet, but we have a couple of these research partnerships that will be actually using this as a medium to do research. So if you wanna participate in that or if you have, like, theses you wanna explore, we'd love to think through that with you guys. So Yeah. That'd be great. Awesome. For joining.