Author: Payment201
The issuance of stablecoins has exceeded $170 billion and continues to grow rapidly. As these funds flood on-chain, a crucial question emerges: How can they generate real, sustainable yields? Not relying on the self-reinforcing cycle of token prices.
Re offers a surprising answer: reinsurance. This on-chain reinsurance platform absorbs stablecoins from DeFi, uses them as collateral to back US insurance companies, collects premiums, and returns the profits to on-chain depositors. It currently supports 35 insurance companies, has underwritten $5 billion in business, and plans to exceed $10 billion in the next 7 months.
Bankless podcast host David, together with Electric Capital partner Avichal, converses with Re founder Karan Saroya, diving deep into how on-chain capital is reshaping this trillion-dollar traditional market.
They discussed the following core viewpoints:
1. Re is an on-chain reinsurance platform that absorbs stablecoins as capital, backs US insurance companies, and returns premium profits to the chain—allowing stablecoin holders to earn 12%-14% or even higher real yields.
2. Reinsurance is a trillion-dollar asset class completely uncorrelated with the stock market and crypto markets, finally providing stablecoin holders with a real yield source unrelated to Terra Luna-style death spirals.
3. Re compresses the traditional reinsurance capital-raising process into a smart contract, eliminating the need for a team of dozens of investment bankers to pitch pension funds—this operational efficiency brings a marginal cost advantage.
4. Re utilizes a leverage mechanism: every $1 of collateral can support $5-7 of premium underwriting, enabling the underlying capital pool to earn returns about 5 times the risk-free rate.
5. Depositors receive receipt tokens, which can be looped (looped) on lending markets like Morpho and Fluid, pushing yields to 18%-20%+.
6. Re has issued the RE governance token (referencing Lloyd's of London's governance model), controlling the allocation direction, counterparty admission, and parameters of a central capital pool.
Timestamps:
00:03 What is Re? Introduction to On-Chain Reinsurance
00:52 Why Reinsurance Needs Blockchain and Smart Contracts
02:13 Which Aspects of Reinsurance Does Blockchain Improve?
03:50 Viewing Re from a VC Perspective—A New Paradigm for Stablecoin Capital Markets
06:55 Barriers to Entry in Reinsurance vs. Democratization of Stablecoins
08:12 Reinsurance Capital Structure and On-Chain Tradable Slices of Insurance Risk
09:00 Operational Efficiency: How a Startup with a Triple-Digit Employee Count Challenges Trillion-Dollar Giants
11:54 AI and Crypto Tools Make Companies Smaller, More Efficient
12:49 Is This a 1000x Opportunity or a 30% Marginal Improvement?
14:30 A 10bps Advantage in the Reinsurance Market Can Consume the Entire Industry
16:00 The 5x Leverage Principle: Why Stablecoins Can Earn 12-14%
18:00 Capital Flow: Stablecoins On-Chain → Collateral → Premiums → Profits Return
20:00 Leverage Mechanisms and Layered Yields in Reinsurance
22:00 TVL and Human Capital Are Re's Two Core Metrics
24:40 Different Layer Yields: Senior and Mezzanine
26:30 Reinsurance vs. Algorithmic Stablecoins—Real Productivity vs. Self-Reinforcing Cycles
29:00 DeFi Infrastructure Is Ready, Demand Side Finally Arrives
30:00 RE Governance Token: Lloyd's of London Model On-Chain
32:00 Token Value Capture and Governance Mechanism
34:00 Re's Future Roadmap: From $5B to $10B+
36:00 The DeFi Mullet Theory: Compliant Finance in Front, DeFi in the Back
38:00 The Future of Stablecoin Capital Markets—On-Chain Is Everything
Takeaways:
1. Reinsurance: A Trillion-Dollar, Completely Crypto-Uncorrelated Yield Source: Reinsurance is insurance for global insurance companies, with an annual premium scale of about $1 trillion. Traditionally, only pension funds, sovereign funds, and ultra-high-net-worth individuals could participate. Re opens it up to anyone holding stablecoins, with yields completely uncorrelated to the stock market and crypto markets.
2. High Yields from 5x Leverage: Regulations allow every $1 of collateral to support $5-7 of premium underwriting. At 5x leverage, the underlying pool can generate roughly 20% returns using the risk-free rate. After deducting fees and payouts, stablecoin depositors can achieve 12%-14% annualized yields.
3. Smart Contracts Replace Investment Banking Teams: Traditional reinsurance requires teams of dozens to globally pitch and raise capital. Re compresses the entire capital-raising process into a smart contract—this is the core source of its operational efficiency and why it dares to challenge giants like Munich Re and Swiss Re, which have tens of thousands of employees, with less than 12 people.
4. DeFi Mullet (Compliant Front + DeFi Back) Architecture: Re's front end is a regulated reinsurance company (registered in the Cayman Islands); the back end is smart contracts and the stablecoin capital market. After depositors receive receipt tokens, they can loop them on lending protocols like Morpho and Fluid, pushing yields to 18%-20%+.
5. A 10bps Advantage Can Eat the Entire Industry: Avichal points out that even a 10 basis points efficiency advantage in the reinsurance market is enough to consume the entire market. Unlike sectors like Lending where 20%-30% efficiency gains are marginal improvements, tiny efficiency differences in large-scale capital markets like reinsurance represent opportunities worth tens of billions of dollars.
6. The Inflection Point from Supply Side to Demand Side: DeFi has created all the infrastructure over the past few years—Aave, Morpho, Gauntlet, Steakhouse, etc.—but lacked the demand side. Re provides the real demand: giving stablecoin holders a reason to deposit funds into these protocols because they can earn real yields generated by the real economy.
7. RE Governance Token's Lloyd's Model: Re's token model references Lloyd's of London's 330-year governance tradition—token holders decide acceptable counterparties, business lines, required capital, and the allocation direction of the central capital pool. The governance right itself has value because it controls the flow of the world's largest insurance capital pool.
8. Real Economic Empowerment: These stablecoins are not stuck in a crypto-internal loop; they enter the real world—helping businesses build factories, manufacture cars, operate businesses, allowing dental clinics to obtain liability insurance. This is not a Terra Luna-style self-reinforcing cycle; it's real productivity.
9. Online/Offline Will Eventually Merge: Avichal predicts that in 5-10 years, we will no longer distinguish between on-chain and off-chain—just as we don't distinguish between online and offline today. When $5-10 trillion in stablecoins flows on-chain, the entire financial world will migrate over.
10. Insurtech and Asset Management Are a Natural Pair: Just as Berkshire has Geico and Gen Re providing premium float, and Apollo has Athene, insurance premiums are essentially zero-cost float that can be invested by the asset management side. Re is replicating this model on-chain.
David (Bankless Host):
Bankless Nation, today we have Karan Saroya, founder and CEO of Re. Karan, welcome to the show.
Also joining us today is Electric Capital's Avichal (an investor in Re). Avichal, welcome back.
Karan:
Thanks for having me.
Avichal:
Great to be here, thanks.
David:
Karan, let's start with a simple question—what is Re?
Karan:
We are an on-chain reinsurance company. We absorb stablecoins, which primarily flow to US insurance companies. This capital allows them to underwrite insurance business. They collect premiums, and that yield flows back to this on-chain capital layer.
We currently support 35 insurance companies, have underwritten $5 billion in business, and expect to grow to about $10 billion in the next 7 months or so.
David:
What do we need to know about reinsurance to understand this conversation? Why are smart contracts the right underlying layer to rebuild reinsurance?
Karan:
It's a huge but boring industry. About $1 trillion in reinsurance premiums flows annually among a few dozen large reinsurers—Munich Re, Swiss Re, Lloyd's of London. All of these are essentially a pool of opaque capital, asynchronously verified. The product they sell is a promise—a promise to pay their insurance company clients when something happens. The second part is proving they have the ability to pay whenever needed.
Using on-chain capital might be the most elegant use case. We absorb capital; anyone in the world can see it at any moment—regulators, insurance company clients, the insured themselves, anyone with a computer can see we have the ability to fulfill our promises. It's also a large pool of capital that can diversify risk, with cash flows returning to this transparent capital pool—something that never existed before.
David:
Which part of reinsurance is improved by blockchain and smart contracts? You're building on Ethereum with stablecoins. What's your secret weapon?
Karan:
Two parts. First, reinsurance as a product is just another capital source for insurance companies. The expense ratio to manufacture a reinsurance product is lower. We are a business with higher operational leverage—less than 12 employees yet able to be a multi-billion dollar insurance market. In contrast, traditional reinsurers have tens of thousands of employees, legacy business, and legacy infrastructure. This itself is a huge difference in expense ratio.
Second, we are the first company to achieve scale on on-chain capital, and we have built transformers connected to all DeFi protocols to bring in capital in unprecedented ways. Our view is that when our product permeates the global end market through platforms like Pendle, our cost of capital will be competitive with or better than almost all reinsurers. The collateral funds backing these obligations are nothing special—we just can form them at lower cost and larger scale.
David:
Avichal, as an investor, what excites you about Re?
Avichal:
From a higher level, two things about Re caught my attention. First, it's a regulated fintech company—registered in the Cayman Islands, licensed, regulated. Then there's the on-chain part and the smart contract part. For the end customer, it looks like a reinsurance company, solving the same problem.
But behind the scenes, there are two things that make everything better. First, everything runs on smart contracts, making auditing and regulatory compliance cheaper and easier. You know where the money is, how to track it, the ledger is all clear. Second, I think the stablecoin capital market piece is very, very interesting. Many people know stablecoins can move money; people want dollars. But we believe, there are a few hundred billion stablecoins today, and eventually there will be $5 trillion of on-chain dollar stablecoins.
All these people are saying: Great, I have dollars now. Can I earn 4% with Treasuries? Then a large portion will say: Wait, I want to earn more than 4%. They will chase yield. So the really interesting thing about stablecoins is—you've created a brand-new capital market. This $5 trillion will seek yield, will want products.
Avichal:
From a business perspective, you have a fintech company. Many fintech companies have a large capital markets department because they constantly need to go to capital markets for funding. That's why Blackstone exists—they absorb debt, layer it, securitize it, then sell it to capital markets, backed by pension funds. It's a massive machinery.
What Re does is compress that entire process into a smart contract. The stablecoin market is the capital market now. I think the architecture of future fintech is what Re looks like now: the front end is a regulated fintech company, doing the same thing, solving the same problem; the back end is built on smart contracts, operationally more efficient; then the capital markets part—it's the on-chain stablecoin market.
David:
So if I understand correctly—there's $170 billion in stablecoins on Ethereum, and this number is growing. Access to traditional reinsurance capital is gated, it's a closed circle of traditional finance, inaccessible to ordinary people. What Karan is doing is opening that channel, pointing it to on-chain stablecoins. Now anyone with on-chain stablecoins can access the yields provided by reinsurance. That's democratization, that's the spirit of blockchain.
Karan:
Yes. Who provides capital to this market now? Pension funds, sovereign funds, ultra-high-net-worth individuals, and certain family offices that want exposure to an asset completely uncorrelated with stocks and crypto. What we're doing is slicing insurance risk thinly so it can be traded throughout DeFi. A secondary market for trading these completely uncorrelated economic value streams now exists.
Avichal:
I want to add one more point. You can look at any lending, insurance, or reinsurance market on three dimensions. First is the base rate—you can't borrow below Treasury yields. Second is the risk you're taking—like underwriting workers' comp insurance or consumer credit; it's just a percentage. Third is the operational efficiency of the enterprise. If the business is more operationally efficient because of AI, crypto, stablecoins, etc., that efficiency ultimately manifests in the net yield.
As a startup, you can't control Fed rates. You also shouldn't try to know underwriting better than people who've been doing reinsurance for 25 years—they are very mature. The only lever you have is operational efficiency. On a spiritual level, the on-chain capital market is very appealing in democratizing access to yields—ordinary consumers can now participate in 12%-25% yields. But on a business level, because you can do regulatory functions with smart contracts—easier and more efficient; because capital raising is "Here's a smart contract, deposit money"—you don't need to hire a dozen people spending $500k a year lobbying pension funds. That's the real operational efficiency that allows you to offer lower reinsurance rates to insurance company clients, thus eating market share.
David:
Is this a 1000x opportunity or a 30% marginal improvement?
Karan:
It's rewiring ancient plumbing. Product manufacturing cost drops, marginal cost drops. If you have the integration advantage of tapping into the internet capital market like we do, you gradually swallow the entire market—unless competitors can quickly respond. Second, while underwriting prices eventually converge, the response speed among market participants differs. We have AI workflows receiving information at the risk generation end, passing through layers of intermediaries straight to capital—whereas in insurance, this process is extremely slow. Combining AI and on-chain capital can make step-function improvements to the plumbing moving trillions of dollars. This is not a 30% improvement; it's the potential to consume the entire industry.
Avichal:
I want to add one more thing. The market dynamics of financial products are different from SaaS or media businesses. In insurance, a 10 basis points improvement is massive—enough for you to beat everyone. Because the numbers market participants handle are so large, a 30% efficiency gain means you become a hundred-billion-dollar company. A 30% more efficient fintech company is enough to crush opponents.
David:
Back to the mechanical level. You said because of the allowed guarantee ratio by regulators, $1 can support $5-7 of premium underwriting. What does that mean?
Karan:
Regulators set specific collateral ratios. Because the numbers are well understood, you can say I put $1 in a trust account (segregated account), and it can serve as collateral for up to $5-7 of premium underwriting. Essentially, that dollar is leveraged 5-7 times.
Avichal:
So this capital pool can earn 5 times the risk-free rate. If the risk-free rate is 4%, the pool can earn roughly 12-14% after fees. This isn't Terra Luna stuff—it's completely exogenous to crypto, no self-reinforcing cycle, and when it crashes, it doesn't crash in a terrible way. This is completely uncorrelated risk—geographically, industrially, with cryptocurrency. I can understand why I, as a capital provider, can earn double digits if the company can earn 20% with this money.
David:
So stablecoins stay on-chain, earning the base yield. Re takes a portion of funds to provide collateral for insurance companies; this money is interest-bearing, collects fees, and generates actual yield. A small amount of money goes out, a large amount comes back, then is added back to the pool, becoming the yield depositors earn.
Karan:
Yes. Insurance companies pay us premiums; those premiums become investable float. We put a cushion on top to absorb volatility. The law of large numbers tells us if we do this across hundreds of insurance companies, the outcome will be very stable. We have 51 active insurance trees, soon to be hundreds; volatility will continue to decrease.
The relationship between insurance companies and asset managers is like peanut butter and jelly—Berkshire has Geico and Gen Re providing premium float; Apollo has Athene. Premiums are essentially zero-cost funds that can be invested.
David:
What numbers do you wake up focusing on every day?
Karan:
This business is essentially a function of how much capital we have to deploy. When I talk to insurance companies, a large part is—they like money and want to know that partnering with a more efficient counterparty will lower marginal costs over time. I think about TVL formation, bringing in capital. Also human capital—those who have managed multi-billion dollar reinsurance business networks, how do I attract them to join Re.
David:
What are the yields for different layers? Senior and mezzanine?
Karan:
Senior layer is fixed, 250bps above the risk-free rate. Mezzanine is between 800-850bps, depending on capital deployment.
Avichal:
So if you deposit USDC now, excluding depeg risk, the real yield is around 12%. This touches on a key point—the productive use of capital we've been talking about. This is a real capital market. You take these dollars and do useful things in the world.
I strongly encourage everyone to read about the history of why insurance and reinsurance exist. They unlock people's productivity—allowing you to build factories, manufacture cars, do things, allow dentists to run clinics because they have liability insurance. These are productive things in the real world. Not the self-reinforcing cycle inside crypto—asset price drops, your yields get destroyed, you fall into a death spiral because you have to sell assets to pay yields.
This is truly uncorrelated, entering the real economy. Those businesses grow 40% a year—of course they're willing to buy insurance. That's the productive use of capital. This is no longer fake returns; these are real returns. This is what we've always promised—connecting crypto to the real world. It's finally happening.
David:
Now all the puzzle pieces are in place—regulatory clarity is there, the stablecoin market is clear, smart contracts work, fintech companies know how to connect. All infrastructure exists to truly do this. But in the depths of the bear market, nobody's paying attention. By the time people realize, the bull market is back, and they'll say why didn't I pay attention 18 months ago.
Avichal:
Builders created all the supply—we created protocols, looping mechanisms, Morpho and Aave, Gauntlet and Steakhouse, all components saying I'm ready. What was missing was the demand side. Why would anyone put stablecoins in? Why would anyone do asset management on-chain? We needed the last mile—they need to be able to turn those assets into productive yields. Need to let holders of this token or capital providers know they can get 6%, 8%, 10%, 12%, 14%, or 18%.
This is starting to happen now. The plumbing is in place to get the flywheel turning. The last thing we needed was demand side—why would stablecoin holders put money into the plumbing? For yield. Now we can get productive yields. Once the flywheel turns, larger capital providers will flow downstream—that's where the money is, where efficiency is. The whole thing starts to accelerate.
David:
Karan, you said depositors receive a receipt token representing collateral in the system. This token can go into DeFi—can I take the receipt token, borrow against it, borrow more USDC, deposit it back into the pool, loop it?
Karan:
Yes, it's already happening. Top curators Steakhouse and Chaos Labs have done risk assessments. You can loop Re products on Morpho and Fluid. Fully looped yields are roughly in the high teens to low 20s percent.
David:
The RE token is coming—what is it, what does it do?
Karan:
It's the governance token for the Re ecosystem. We referenced Lloyd's of London's governance model. It decides who the acceptable counterparties are, business lines, required capital, and most importantly, the size of the central capital pool, when to release it, and how the network economics accrue over time.
We didn't invent anything new—this is the natural outcome of 330 years of insurance market evolution, just starting on-chain.
David:
Lloyd's is the model for the RE token. Why would I go govern? Why do I care?
Karan:
It has the potential to be a massive fund—protecting tens of millions globally, and access to the direction of its investment strategy is valuable. If we have the ability to direct a portion of the long-term trend of trillions of dollars in the stablecoin market into this pool, making it available for this vast market—then holding the governance token becomes a very high-leverage tool.
If you hold a significant amount of governance tokens, you can direct system capital to certain endpoints. As a large holder, you have intrinsic alignment with the system—if you choose poorly or corruptly, you destroy the value of the tokens you hold.
David:
Governance tokens in DeFi mostly don't truly function—products don't deliver, or tokens don't capture value. What's different about RE?
Karan:
There's a real business and massive cash flows behind it. If you analogize to Lloyd's Central Fund, there is a considerable economic amount and cash flow to protect the network and the economic distribution or accumulation of insurance companies, capable of performing various economic actions to demonstrate value. Controlling the largest insurance capital pool on earth, and the knobs and parameters that decide how it operates—that itself is immensely valuable.
David:
What are you going to do next? What's the short-term roadmap?
Karan:
The TGE was a test; I'm glad we're past it. We have a real business to run. Adding a few hundred million dollars in new business in the coming months, then preparing for January 1, 2027 (the insurance market annual renewal node), breaking through $10 billion in premiums. We're no longer a toy, not just a conceptually interesting thing. We are a real market participant with real market access and capital.
David:
Are there still many people on-chain? Is the capital Re is interested in already on-chain?
Karan:
I think there are still many who need to come on-chain. The entire insurance industry ultimately needs to access these capital markets. If in a few years, when $5 trillion or $10 trillion in stablecoins is flowing on-chain—because that's the most efficient way to custody and transfer these assets and track their location—then the entire financial world should migrate over. A large portion of that will seek yield, and a significant part will flow into these pools.
Like 20-25 years ago people said online and offline—today nobody says online offline; it's merged. The same will happen with on-chain vs. off-chain. When we reach $5 trillion, it's no longer on-chain capital markets—it is capital markets.
Avichal:
We proposed a concept in Electric Capital's 2018 paper—programmable money. Builders created all the supply—protocols, looping mechanisms, Morpho, Aave, Gauntlet, Steakhouse. All infrastructure said "I'm ready." What was missing was the demand side: Why would anyone put stablecoins in? Why would anyone do asset management on-chain?
The last mile was: They need to be able to turn those assets into productive yields. Let holders of this token or capital providers know they can get 6%, 8%, 10%, 12%, 14%, 18%. This is starting to happen now. The plumbing is in place. What we needed was the demand side—why would stablecoin holders want to put money in? For yield. Now we can get productive yields.
Once the flywheel turns, larger capital providers will flow downstream. This is what the next 5-7 years look like—demand side fully connected, flywheel starts turning, loops start working, on-chain capital providers start running, then large institutions start noticing and must migrate on-chain.
David:
The podcast is called Bankless. Our idea when we started in 2020 was to be your own bank—why put money in a bank giving 0.04% APY? Banks take your money for productive investments, but keep all the profits. We gave banks the middle finger and went on-chain.
Now there are many products integrated into Coinbase—Morpho offering Bitcoin loans, Aethna offering yields. Can you imagine Re becoming the new savings account?
Karan:
Yes, our current state is a DeFi Mullet (compliant front, DeFi back). On the front end, we run a traditional reinsurance business; the back end is an elegant but abstract machine people want to plug into.
If you think about the ultimate form of reinsurers and insurers—they become the world's largest asset managers. There's a path to more diversified products. But we have a lot to do in reinsurance right now. When you underwrite a few hundred billion in premiums, there's naturally a path to other areas of finance.
David:
Avichal, Karan, thank you both for coming on the show and teaching me everything about reinsurance and Re. Good luck with the TGE, and hope you break $10 billion soon.
Karan:
Thanks!
Avichal:
Thanks for your time.
