Omid Malekan (Columbia Business School) on Private Money, Financial Systems, and Crypto in Geopolitics (EP.724)

Omid Malekan, who teaches at Columbia Business School and frames his role as explaining rather than building or investing, argues that the most underappreciated feature of Bitcoin is the optionality of self-custody. He contends that as long as users can withdraw assets to a self-custody wallet, competitive pressure on custodians and brokers remains alive even as institutional products like ETFs dominate flows. A crypto custodian fears customer exit in a way a stockbroker never does, which he expects will make crypto custody cheaper and more trustworthy over time. He cautions that self-custody carries real practical dangers today as incentives for attackers rise alongside asset values, and he would not want his mother self-custodying her own coins.

Malekan frames Bitcoin as money insurance against censorship, inflation, and confiscation rather than a recommendation to concentrate savings in it. He notes that nation states adding Bitcoin to foreign exchange reserves would likely do some version of self-custody, possibly partnering with a local bank or tech vendor while retaining full control. He expects new custody models combining multi-sig smart contract wallets with biometrics to emerge over time as a middle path between pure self-custody and full institutional delegation.

On stablecoins, Malekan holds a minority view among peers that successful stablecoins will end up closer to bearer assets than to bank accounts. He argues DeFi works best when a bearer native asset like ETH is paired with a close-to-bearer stablecoin, because a stablecoin issuer able to freeze tokens can shut down entire DeFi pools, and small incidents of court-ordered freezes have already occurred. He believes market forces more than regulation will push stablecoin issuers toward censorship resistance, and suggests ETH may become the high-quality liquid collateral of crypto in the way US Treasuries function for the global financial system.

Malekan takes direct issue with a Wall Street Journal piece by Greg Ip arguing stablecoins are dangerous private money. He calls the piece poorly reasoned, pointing out that most money in existence is already private rather than central bank money. Total central bank dollar money is approximately 6 trillion dollars while private forms of money in the US total well north of 20 trillion dollars, making the 300 billion dollar stablecoin market comparatively micro. Licensed stablecoin issuers cannot do fractional reserve banking and carry no leverage, making them among the safest issuers of private money. He argues stablecoin issuers should be permitted to pay yield directly to holders, with no justifiable academic or economic reason to prohibit it. Banks are lobbying against stablecoins because a safer dollar alternative could trigger deposit flight during crises, yet he notes banks account for only 20 percent of total credit creation in the US, so reduced deposits would more likely raise the cost of credit modestly rather than cause catastrophic lending contraction. American bank net interest income last year was 700 billion dollars, more than the Magnificent Seven earned in profits combined, with banks borrowing from depositors near zero while charging roughly 25 percent on over a trillion dollars of credit card debt.

Malekan is categorical that BSA, AML, KYC, and CFT frameworks do not work and that the data is clear. Trillions of dollars are laundered annually despite massive compliance investment, the IRS caught only 700 people tax evading despite millions of suspicious activity reports filed, and regulators periodically fine banks roughly three billion dollars for violations that recur every year. He adds that compliance requirements function as a competitive moat for incumbents, disadvantaging startups, and that new stablecoin licenses will perpetuate the same framework. He expects on-chain forensic tools combined with AI to soon make it much easier to unmask most crypto users, and flags that zero knowledge proofs could enable encrypted on-chain payments with selective disclosure to lenders without creating centralized honeypot databases.

His mental model of the future financial system places a permissionless public blockchain at the base, with Ethereum currently leading, and DeFi eventually becoming the wholesale core through which large institutions interact with each other, driven not by idealism but by a Machiavellian logic where nobody trusts any counterparty. He contends that Apollo and major private credit firms cannot access global south liquidity because they cannot establish trust relationships at scale, whereas on-chain systems can extend trust programmatically to a wider audience at lower cost of capital.

Malekan sees the current moment as resembling the Gartner hype cycle trough of despair, historically where useful solutions emerge. He expects failed experiments including NFTs and Web3 to return in better forms, with NFTs specifically making a comeback as programmable, traceable, self-custodiable credentials rather than derivative profile-picture collections. The next adoption wave may resemble the post-dot-com era where value accrued to existing businesses rather than purely to startups. He acknowledges underestimating how messy the path would be, including the volume of frauds and scams, and notes that a technology being ready and society being ready to accept it are two very different things.