Howdy!

I changed my Slack profile picture to a dachshund wearing chain mail armor. It just felt right.

Today, we’ve got an interview with the man behind Kraken’s tokenized equities and ORE’s big change in direction:

Backed CEO thinks tokenized equities will be ‘bigger than stablecoins’

Kraken announced last week that it would soon list Solana-based tokenized equities, in what looks partly like the exchange’s latest step to lure Solana investors. 

This forthcoming xStocks product was developed in tandem with a startup named Backed, and Backed’s ambitions don’t end with Kraken users or the Solana ecosystem.

“The vision is that you can buy an xStock on Kraken, you can withdraw it and then you can deposit on Coinbase or you can deposit on Orca, you can leverage it on Kamino,” co-founder Adam Levi told me in an interview. Levi said separately that xStocks would be launching on other centralized exchanges, and the product would be available on other blockchains “at some point.”

Levi said Backed originated when he and his co-founder examined crypto’s product-market fit surrounding stablecoins — which are currently basically tokenized US Treasurys — and wondered what asset class could be tokenized next. Four years ago, Levi says, they concluded the answer would be public equities.

Granted, others are asking this same question, and not all are reaching the same conclusion. The buzzy tokenization firm Securitize, for example, has set about tokenizing a private credit fund — essentially offering exposure to elevated yields created by riskier private loans — offered by Apollo Global. The product will be onboarded to Kamino, it was announced last week.

Still, Levi told me he thinks the upside for tokenized public equity is significant.

“I think it’s going to be bigger than stablecoins, and volumes are almost in a way going to compete with TradFi,” Levi said of the sector. He said demand could primarily come from non-US residents who want easier access to American securities and young people for whom trading tokens may feel more intuitive than opening a brokerage account.

Throughout our interview, Levi cast Backed as being having a similar business model to a stablecoin issuer insofar as it creates and ostensibly collects revenue on a tokenized product that is then exchanged on other venues. 

Kraken, which has a large base of crypto users Backed could not easily acquire on its own, becomes the first such venue. Think USDC-Coinbase but for tokenized stocks. This also fits into a broader narrative that growth-minded crypto exchanges may begin to offer more traditional bank-like features over time, especially given the friendlier regulatory environment.

As for the Solana of it all, Levi told me: “Tokenized equities is a very kind of retail game, and I think Solana is a very retail chain.” He added that the Solana Foundation — which has gone all in on “Internet Capital Markets” branding recently, was very supportive. 

“They really want this to succeed,” Levi said.

— Jack Kubinec

P.S. Fill out our short audience survey and help us build a better Lightspeed. Thank you!

Remember ORE, the proof-of-work experiment that nearly brought the Solana network to a standstill a year ago? 

Well, it is about to be proof-of-work no longer.

Last night, the project’s pseudonymous founder Hardhat Chad announced ORE “mining” rewards would be distributed via “proof-of-value” whereby users deposit SOL as a kind of bet, and their probability of winning the 1 ORE “block reward” every minute stems from the proportion of the total pot they have wagered.

A simplified version of Hardhat Chad’s reasoning behind the switch from PoW to PoV goes like this: Under PoW, miners must expend energy to try and win the block reward, and to pay for those energy resources, they must sell some of the block reward to pay their electrical bill. This means that new buyers must take the other side of the trade on miner sales, which ultimately goes toward paying energy companies.

This works well for Bitcoin, because the energy expenditure provides security to the network. But ORE isn’t a blockchain, so PoW creates “value leakage” for ORE. PoV cuts the energy expenditure piece of ORE and just focuses on creating an onchain wagering game.

It’s a bold overhaul to the once-hyped project, but perhaps some bold action was needed: ORE’s price is down around 98% from its high roughly 10 months ago.

“The whole point of a token arguably is for it to go up. If a token doesn't go up, it's broken. Simple as…A big reason no one wants to buy ORE is because of the miners,” Hardhat Chad wrote on ORE’s discord.

— Jack Kubinec