🎙️ Ep. 53. The $300 Trillion Dollar Whoopsie

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This week, Simon Taylor is joined by Morgan Krupetsky, VP of Business Development for Onchain Finance at Ava Labs, and Raagulan Pathy, Founder and CEO of KAST, and former head of Circle's Asia business.

Morgan brings a decade of FX trading experience at major banks to dissect the largest liquidation event in crypto history. Raagulan survived USDC's 2023 depeg crisis firsthand and offers hard-won insights on reserves, risk management, and what separates survivors from casualties in market stress events.

Together, they unpack the flash crash that dominated Blockworks DAS, the stablecoin infrastructure M&A wave hitting billion-dollar valuations, and whether major banks exploring G7 stablecoins represent genuine strategy or expensive theater.

🎙️Listen to the full episode here on your favorite podcast app or 📷 watch on YouTube.

Key Takeaways: Market Structure Under Stress and the Infrastructure Consolidation Wave

The crypto flash crash that dominated conversations at Blockworks DAS 2025 last week exposed critical fault lines in market infrastructure, but the speed of recovery demonstrated something traditional finance hasn't yet achieved: transparent, real-time resolution of systemic stress. As Morgan noted, this was "the biggest liquidation of positions in crypto market history," triggered when Trump's late-Friday tariff threat hit markets that were already closing for the weekend, creating what some called "a 10 Sigma event."

Market Microstructure Needs Institutional-Grade Upgrades

The cascading liquidations unfolded in under 30 minutes, but the mechanics revealed systematic vulnerabilities that institutional capital won't tolerate. As Krupetsky detailed, "Market makers probably pulled support given huge volatility and really kind of instability in trading APIs, which thin liquidity even more... Liquidity engines were dumping positions into a market, therefore effectively with no bids." The result: exchanges deployed auto-delivering (ADL) mechanisms - liquidating profitable positions, something "unheard of in tradfi."

Critically, Ethena's USDe didn't actually depeg despite widespread reporting. The issue stemmed from Binance's oracle feed referencing its own relatively illiquid internal order book rather than deeper onchain liquidity pools. This pricing discrepancy triggered collateral impairment cascades for traders using USDe as margin, exposing how oracle design choices create systemic risk in nascent markets.

Raagulan drew from his experience managing USDC's 2023 depeg to highlight a reserve structure concern:

The institutional takeaway: "This event really highlighted that the market is still very small in the grand scheme of things, and immature," Krupetsky observed. "There's a lot of kind of growing up to do, especially as it relates to market structure and microstructure, and having institutional-grade price discovery, risk controls, and in some cases, people are talking about circuit breakers."

Yet the contrast with 2008 is instructive. Traditional finance faced a months-long "is anybody solvent?" crisis with opaque collateral chains. Here, crypto Twitter diagnosed the issues within hours, and Binance began customer refunds within 20 hours.

Orchestration Layer Consolidation Accelerates

The reported $1.5-2.5 billion acquisition talks between Coinbase/Mastercard and stablecoin infrastructure provider BVNK signal a fundamental shift. Following Stripe's $1.1 billion Bridge acquisition, enterprise buyers are paying premium multiples for capabilities they can't build fast enough internally.

Raagulan’s perspective on why these orchestrators are exciting is revealing: "My inbox on X and LinkedIn is filled every day with a new partner saying, hey, I'll give you the same rails for cheaper... There's an element of like, you can grow up to a certain size, and then as a founder... do I want to take money off the table here whilst I've got it before the competition tries to bleed me out?" The de-risking calculus extends beyond competition - banking relationship stability matters. "If you become part of a bigger org... for their banking partners, they're like, 'Oh, you're part of Stripe now... I'm not going to de-bank you as easily.'"

For acquirers, distribution trumps technology. Krupetsky emphasized that "a lot of these companies, whether it is Coinbase or Mastercard or Citi or whoever it is, already have distribution. For an orchestration layer, which might, over time, be increasingly commoditized, I think that is a huge reason why... some of these companies, in a time when maybe valuations are pretty elevated, are considering M&A."

The BVNK announcement notably highlighted strong B2B growth in the United States (companies moving dollars globally for corporate treasury management) as a key driver of its recent expansion. This marks a transition from consumer-focused on/off ramps to enterprise treasury infrastructure, exactly the institutional use case that justifies elevated acquisition multiples.

Bank Consortia and the Tokenized Deposit Settlement Question

When UBS, Santander, Bank of America, Barclays, BNP Paribas, Citi, Deutsche, Goldman, MUFG, and TD Bank announced joint exploration of G7 currency stablecoins on public blockchains, initial reactions were skeptical. Pathy was direct: "I think it's dead on arrival... 99% of stablecoins are just four: USDC, USDT, USDe and DAI. And 99% of stablecoins are USD. The biggest feature of a stablecoin is that it's largely permissionless, right? And I just do not see a world in which one bank, let alone a group of banks, are going to successfully launch something on the public internet that's as permissionless."

But reframing the initiative reveals its strategic logic: these aren't consumer stablecoins. They're settlement rails for tokenized deposits. The core problem banks face is legal, not technical. As the discussion highlighted, "my deposit token can't show up in somebody else's wallet, because once it's done that, it's left the bank and it's not my deposit anymore." JP Morgan already processes trillions in tokenized deposit volume internally. The question is making that open-loop when major corporate clients demand it.

Pathy acknowledged from his Circle experience: "To move money from Singapore to London via Circle was often faster than a bank's own internal Treasury system... That, in itself, is a huge opportunity, even if you just speak dollars, let alone the G7." Corporate pressure is driving bank action. As the hosts noted, multinational clients now tell banks: "You won't have our business anymore unless you start letting us move tokens around 24/7."

Krupetsky’s observation cuts to the execution challenge: "If that's what they're going to use it for (the interoperability of tokenized deposits) then at some point they really need to integrate these stablecoins into their day-to-day flows and operational flows... You need to obviously ensure there's sufficient liquidity. You have to do business development to create integrations, on and off ramps, custodians, exchanges... which I don't think can be driven by the innovation and blockchain teams of these companies."

The institutional reality: banks are responding to client demand for 24/7 programmable treasury management across jurisdictions where traditional correspondent banking remains inefficient. Whether they build proprietary settlement tokens or integrate existing stablecoins, the infrastructure convergence between traditional banking and crypto-native rails is accelerating - driven by enterprise treasury requirements, not retail speculation.

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