Bad Sentiment, Strong Fundamentals: the Institutional Turn | Chris Perkins, Franklin Crypto

Transcript

And you have to start thinking as you look at the entirety of the institutional landscape, how many buyers are there? And in my experience in talking to institutional investors for many years, they had risk if they were in the space. I mean, guys like you and me were crazy, right? Because we were willing to take regulatory risk. We were willing to be in an environment that was very hostile for a very long time. But most most institutional investors, they're very comfortable taking market risk. They're not comfortable taking regulatory risk. They're not comfortable taking operational risk, cyber risk, etc. Now a lot of that risk is being taken off of the table, and now only now is when they can go to their investment committee and say, "Guys, you know, I think we need to we have more risk for not being in this asset class. We have

to have a story. We have to have exposure." >> Welcome to the Defiant Converge Podcast. Today we're here with Chris Perkins. He's the CEO of 250 Digital Asset Management. Welcome to the show. >> Great to have you here. >> Thanks for having me, Chris. Good to be here. >> Awesome. So, we have a lot of different topics to to go through today. I thought we we could start by talking about the the states of the crypto markets. There's been a lot of discussion around Ethereum prices. We had the incredible action around exploits in DeFi. So, curious about what what your take is given the current state of affairs.

>> Yeah, it's a really interesting time. I mean, you've been in the space for a long time. I've been around for a little bit a little while as well. And you're seeing this really weird inflection point where I hate to say it, but the space is normalizing. It's mainstreaming. You know, we just had the first law in the United States, which was the Genisys Act. We're about to have the Clarity Act, I think. And even in the absence of the Clarity Act, we have these two commission these two chairmen of the SEC and the CFTC, Hester Peirce and Brian Quintenz respectively. They're really creating the conditions where we we have the opportunity to mainstream this asset class. So, what are you seeing? You're seeing institutions are coming in and marching forward. Retail, for a number of different reasons, whether it's goes back to 1010 or the

fact that, you know, a lot of these early adopters, they don't want to be part of a mainstream asset class. They're like, you know, what, man? Like, you know, these are frontiersmen and and women. And now the frontier's getting settled. I tweeted about this. I caught a lot of flak, but it's the truth. And And what you're seeing now is those institutions are marching forward very methodically. And it's just such an interesting time as retail's pulled back for now, institutions are moving forward, but I'm telling you, I think retail's going to come back as well. We just need a little bit of price action. There's a few things going on in the market right now that is suppressing the price. I think from a geopolitical perspective, it's really put its boot on the neck of crypto and frontier risk assets. But as the And And I mean, it's

very rare that you see a market where sentiment is really bad, but fundamentals are very good and improving. So, I think we're like one catalyst short. But of course, like, we still have a lot of work to do. Like, even with stable coins, you know, you can't even buy a stable You can't even buy a treasury bill with stable coins from the government yet. And these are like fundamental things that still need to get worked out. We're still at the very early innings. But I feel like it's a very constructive time if you're an investor, because sentiment is bad, fundamentals are improving, institutions are marching forward, and like, things are things are looking good.

>> And And do you think that some of these facts are canceling out? I've heard you talk about the CBI of a coiled spring in the sense that if you go back in time when there was even rumors that a Bitcoin ETF might get introduced that would immediately have a impact in prices, the response today seems more muted. Is that mostly because of external pressures, micro environment, or is something that's, as you were alluding, that has changed within crypto itself as well?

>> Prices go up when there are more buyers and sellers. And you have to start thinking as you look at the entirety of the institutional landscape, how many buyers are there? And in my experience in talking to institutional investors for many years, they had risk if they were in the space. I mean, guys like you and me were crazy, right? Because we were willing to take regulatory risk. We were willing to be in an environment that was very hostile for a very long time. But most most institutional investors, they're very comfortable taking market risk. They're not comfortable taking regulatory risk. They're not comfortable taking operational risk. Cyber risk, etc. Now, a lot of that risk is being taken off the table and now only now is when they can go to their investment committee and say, "Guys, you know, I think we need to

we have more risk for not being in this asset class. We have to have a story. We have to have exposure." It just takes time when you know, when you're turning you know, an aircraft carrier. You know, these big big institutions, they have diligence they have to undertake. They know, quantum risk comes up. They're like, "Oh, wait, what is this? We got to we have to dissect it. Is this really something?" They have infrastructure requirements. So, it doesn't happen overnight, but you know, I will tell you when you talk to institutions around the world, they are barely getting started. And that's what makes me bullish. >> And what areas of the space do you think are ready for this new wave of farmers using the analogy of the the frontier, more institutional capital coming in? We saw that with institutional capital going into, you know, Bitcoin, Ethereum ETFs.

Is the rest of crypto ready? And I'm asking this in the context of what we saw with the old Dow exploit in the sense that we thought, "Okay, we have been saying institutions are coming, institutions are will finally here in DeFi. We're going to see institutional capital allocated to staking Ethereum whatnot." But then this kind of thing happens and you have somewhat of makeshift response from the largest protocols out there. So, what assets within and what strategies within a crypto are ready for institutional capital?

>> It's a great question, and I think it's probably wrong to say crypto, right? It's almost like saying, "Hey, are ETFs good or bad?" Doesn't matter It's about the underlying asset, the fundamentals of that asset. And as you know, crypto's super diverse. You have meme coins on one end, you've got Bitcoin on the other end, you've got all different types of very programmable assets with different fundamentals. And so, as institutions underwrite their investments, they have to look at those those underlying fundamentals. Now, what does tokenization do? It unlocks a few things. It unlocks instantaneously global TAM, in a way, because every time you deploy a token, anyone in the world with an internet can can access it, right? It's very important. It also unlocks 24/7 markets. This is a really big deal. The reason it's a big deal is

because throughout human history, you know, markets are 24/7 by nature. In their natural state, they're always moving. Prices are a function of buyers and sellers, right? That's the natural state of nature. But we've always put up these artificial gates around when markets are open, cuz we never had the technology. Now we have the technology to can do it. So that's a very powerful part of the underwriting thesis. The problem that you talk about with Kelp DAO is, you know what? You're introducing some new risks. The risk of hacking. And the first thing I'll tell you is that a lot of crypto people will say, "Code is law." And it's a very adversarial environment. And I will disagree with that. Law is law. And so, just because you have new technology, doesn't mean you can go around and do anything and start hacking people on whatever. And we're seeing this really

unfortunate situation where we have state actors attacking our startups. I mean, pretty much every company within crypto is a startup, you know, crypto by its nature is not that old. It's That's wrong. One of the things I've been pushing for in Washington D.C. is this concept of privateers. >> Yeah, so >> So like, how do we unlock the private sector to extend our security umbrella? And in my, you know, I was used to be a U.S. Marine. The one thing I know is that a good defense, the best defense is a good offense. And so, I think there's some public policy things. Again, going back to my earlier thesis, we're still early in this institutional adoption wave, because things like security haven't even been covered yet from a policy perspective. And I'm hopeful that we can slip something into the Clarity Act, but if not, it'll get sorted

eventually. >> And I'm taking two elements out of of that. So, the first one, as you mentioned, there isn't that that much in the law in terms of, okay, what do we do now that we've had this exploit? There is money that we can clearly see is coming from this illicit exploit of a protocol. There's not much or there's an improvised response from the protocols themselves and the different infrastructure layers that are out there. So, we have things like DeFi United as a response to that. Which is in some ways a fundraiser, some sort of like a collective goodwill kind of thing, which feels fairly opposed to what were you saying about like privateering and, you know, just go

after the funds and give them to the rightful owners. Yeah, so what's your take on DeFi United and and the industry response? >> Yeah, I met with Stani last week and, you know, they weren't hacked themselves, but they were impacted, as you know, within the Borrow Lend protocol. And I think it's pretty unbelievably amazing when the market comes together to solve problems rather than rely on bailouts. I actually was at Lehman Brothers. And at Lehman Brothers, we didn't receive a bailout, but I watched as the other banks around me after they let us go were bailed out. When you're not bailed out and the market addresses issues, it results in a stronger foundation, a more resilient foundation. And in talking to Stani and others, you can start thinking about ways to make the system even more

robust, learning from what happened. And I and I see that's happening. And frankly, I've been very impressed by seeing certain founders step up and say, "You know what? I've got this. It's a problem. I'm going to fix it." And like I've been kind of blown away by the response. You know, a lot number of industry leaders have come out of the woodwork and they could have let the the token holders suffer. And they said, "You know what? No. We're going to solve this our way. We're going to do it for the good of the ecosystem and I think they're focused on the long-term, which is spectacular rather than short-term whatever. So, I I think ultimately this is a very unfortunate situation. I think the industry will be stronger because of it. I just wish we had that that policy response. Like we need a better policy

response. Look, our government and it's not about relying on the government, it's around creating the conditions. Right now there's an artificial condition where we can't, like I said, go on offense against, you know, these rogue states because we'd violate OFAC. So, like why don't we take away that artificial restriction and, you know, go back to our history. So, I still think there's a long way to go. Now, you know, I'm coming into a new role with one of the, you know, you know, one of the most amazing asset managers in the world. And as I'm coming, however, the one thing that I'm super focused on and and and very excited about are all the support groups at that company. And so, you think about, "Oh my gosh, you went to a big company." Well, guess what? It's the legal, it's the compliance, it's the risk, it's the cyber guys. That's the

edge as you as you move into the institutional space. You know, you know, of course you have to to to to have good strategies and thoughtful strategies, but but the differentiator is having that robustness of controls. That gives institutions the confidence, you know, hopefully to to have a local guide as they enter into the space for the first time. >> And in that sense, there is a bit of a difference, right? Because if I think about comparable examples in traditional finance, so the fall of Knight Capital or what you're saying about Lehman, those incidents resulted in rules, you know, by the SEC or the CFTC depending on on the case or where it might be.

>> Yeah, laws. Like I had to I had to read through thousands of pages of of rules and laws. Yes. >> See See, things like clarity, see the final like rule making that's going to come out of it. So, like preventing this sort of like makeshift response from from the industry in the future and so like establishing risk committees and >> So it's really interesting. So I was on the floor of Lehman Brothers. I was in the heart of derivatives markets. I had a book that had a bunch of CD credit default swaps and other derivatives. So like what we learned there was that innovation got way in front of regulation and it kind of went crazy.

And then in 2009, this was such a big deal. People don't remember the G20 came together. I said, "Guys, you know, you got to get these derivatives under control. We're going to force you to report them, centrally clear them, and then electronically execute them." So the response was hyper-centralization. Hyper-centralization. They didn't want to look down. They made us put all this capital together. And the fact of the matter is is that a decentralized solution could have been equally, perhaps more interesting. However, they didn't want to spread out the risk, right? But they didn't have the tech. Bitcoin comes out of the crisis. And now like the thing about the US regulators now is you when you talk to them, they're very focused on principles. And I feel like with right now our regulation needs to catch back up to technology. And that's where clarity

comes in. No law is perfect, but I'm very hopeful that we get it because it will enshrine, you know, these this, you know, what is crypto and how it can be regulated. But again, even in the absence, we're going to have wonderful precedent setting for for the next 3 years, which gives those institutions confidence to come into the space. >> We'll talk more about the market structure changes, but out of that, do you think that there is a risk for the centralized institutions that came about in in those 80s, 70s, 90s context like centralized custodians, DTCC, those type of institutions without going to any specifics, would you be bearish on those institutions in the future?

>> It's a great question and there's a paradigm shift that that should happen. So what crypto does is it gives you the capability to really democratize access to finance because anyone with an internet, you know, running around in mobile phones are ubiquitous all over the world, you can access financial services for the first time. You can you can buy dollars for the first time in many cases. Until you know, today however, the entire regulatory environment is you have forced intermediation. >> Right. >> And so intermediaries are awesome. You know, I used to run the largest derivatives intermediary in the world at Citibank uh Citigroup. And the fact is is like intermediaries are awesome because they can hold your hand, they can provide additional services, and

they can give you like cross marginning. And for many other institutions, they want those intermediaries because it's just easier for them and they they value those services. But I think as a crypto natives, the point is is like why are we forcing those intermediaries? In the past they did it >> Mhm. >> because they said, you know, I'm losing control, there's all this risk everywhere. I need to centralize it and I need to watch it. >> Yeah. >> The point is is like, you know, Chris, like why should I be tell you, you know what, this derivative stuff, it's too risky. You're not allowed to do it. I don't think you should be allowed to do it. That's not right. Like we're seeing an incredible democratization of of information with AI. Crypto's bringing the democratization of finance. People should be allowed to have the freedom to

execute in derivatives markets if they feel like it. And so my point is that intermediaries are not going away. People like intermediaries. Makes things easy for them. But that shouldn't be forced upon them. And I think that's where our regulators heads are right now. And that's the right outcome. >> Perfect. I will get back to it, but I wanted to talk talk a bit about your announced transition that's in the making from 2050 Digital into Franklin Crypto. Can you talk about what that means, how it came to be, and more curious about the why now given the context that we have in terms of the sentiment around crypto, and yeah.

>> Yeah, look, the timing couldn't be perfect. The institutional era of crypto is upon us. And what institutions need are highly scalable enterprise products. And I mean, we're at such an inflection point. If if you know asset management, it's a business of scale, and what better place to scale than a place like Franklin Templeton. So, like, I couldn't be more excited. And as you start understanding the opportunity, like I said previously, there are institutions all over the world that need a trusted agent to help bring them in and navigate the space. Jenny Johnson, people don't realize this, she's the CEO of Franklin Templeton. She came up through technology. And she bit on to crypto very very early. 2018 they launched.

She's also her head of innovation is a woman named Sandy Call, who actually she and I worked together for many many years at Citi. We sat next to each other. We got into crypto together, and we used to iterate on the possibilities. And she's she's brilliant, and she's like total futurist. And like the things that she tends to say and think and publish tend to come true. And so, they've been in the space. Ideologically, they get it. They understand the the the opportunity. And really, you know, I'm coming across with my partner Seth Gins. Uh we're going to be joined by a guy named Tony Pecor. And our our job is to really solve problems for our clients. The problem is how do I enter, navigate, and get the right exposure based on these the right strategies in the crypto space?

>> And in terms of those strategies, so I agree with you, Franklin has been early in the space, have their own ETFs, Bitcoin, Ethereum, also early on tokenizing money market funds. So, what are institutions looking for that they cannot get from those two? And I I've been on the other side, and for most investors, you know, with Bitcoin and Ethereum you're getting, I don't know, whatever fraction of the market, but substantial. And then the correlations might be high or low, but are people Do you see us more people thinking deeply about, you know, unique sources of risk that they can get into? And also you have, in some cases, you know, that the fact that crypto's still fairly small compared to other asset classes. So, what are the what are they after, and

what are you bringing for them? >> Yeah, when it comes to active management, there are a variety of traditional strategies that you can apply to the crypto space. And I don't want to show my entire hands yet about all the different things that we're producing, but you know, let's start with like the our fundamental strategy that essentially how do we identify the right projects with the right fundamentals? And and we look to underwrite them to to you know, to to to to find the right value in the space. So, you'll hear a variety of active strategies that will nicely complement the ETF franchise.

>> Mhm. >> And and you know, even even you know, the other parts of the firm. The other thing that gets me very excited is the convergence theme. >> Okay. >> Right. And so, you're going to have you have portfolios traditional portfolios today and guess what they're missing? They're missing crypto. If only there was an active management expertise that can help work closely with the traditional folks to make sure that that those institutional clients get the exposures the tailored exposures that they that they need and expect in crypto native lands. >> Very, very cool. >> Yeah. Yeah. >> And but some of these assets are you know, particularly risky and small if you want. So, for instance, thinking about right now like hyper liquid that's done great. So, it's 47% up in a week.

>> Yeah. >> But still like in other context it would be a privately owned, you know, early stage or mid-stage startup. And in some way isn't this like a bazooka, you know, going after small ducks? If if you if you get the sense of what I'm trying to say it like liquid tokens many of them have come down 80, 70% in terms of like their all-time highs or what we saw in the last you know, like cycle. So, >> Yeah. >> are institutions institutions really aware of the type of risk that they're buying? >> Well, of course. So, I think you make a couple points. Number one, it's important to remember that the market cap of crypto is still very contained.

Now, we think that's going to grow pretty spectacularly in the coming years as institutional inflows come in. As far as the riskiness of these assets, again, crypto is not the same. It's like saying ETFs are the same. You really have to understand, you mentioned hyper liquid, what are the fundamentals? What is the value accrual? What is the value accrual to the token? What's value accrual to the equity? You know, you just saw Arc come out with, you know, with Circle come out with Arc and say, "Hey, we're going to do a $220 million token raise." Okay, how does the value accrue to the token versus the equity? And and you know, we have we apply a lot of traditional fundamental equity underwriting skills. And we also have the ability to our strategies look at equities as well. And so, you're right in that it's a growing market. I will

tell you that, you know, many investors like to buy when there's all the hype and the assets are very high. The smart sophisticated ones come in when the assets are, you know, when when when the the value is is maybe higher than the price. And so, again, I think it's a constructive environment. Fundamentals down, fundamentals continue to improve. In many cases, you have tokens with very strong underlying fundamentals that are probably probably undervalued right now. So, I do think there's an a very, very nice opportunity. >> And is this going to their like a broader alternatives side of the side of the portfolios or going more like we see this as tech?

>> It's a great question and I think this is one thing that institutional investors are struggling with. You know, is this PE? Is it like where do I put this thing in my, you know, as I underwrite? Look, post genius, the asset class gets normalized more and more and then institutions will figure out, oh gosh, like look at Franklin Templeton. Franklin Templeton Stone. Now they have a dedicated Franklin crypto, right? I would expect that allocators will do the same. They're going to develop that specialized expertise to allocate to crypto managers. That makes sense. Because yeah, as you have a new asset class, you're like, "Okay, where do I put this thing?" Totally get that. But, it's an asset class. Like the one thing that the one reason I had the comfort to come into crypto full-time, this is years ago, was that the Basel rules came

out and said, "Okay, we're going to put really awful punitive rules around this new asset class called crypto. I was like, "Awesome." Because now we actually They're not trying to fight anymore. They're recognizing it's a new asset class. And so now that you have a new asset class, I think in time, again, this doesn't happen overnight, but as we get clarity, as we have genius, allocators are going to have to say, "Wait a second, I need to restructure for the benefit of my clients to get the best returns. I need that in-house expertise." And then And then asset managers such as Franklin will say, "Listen, here's how we can help." >> And And do you see this evolving over time from this being delivered through traditional investment vehicles into tokenized investment vehicles? And I want to connect with something I read

about the 250 guy becoming a part of Franklin. I I read it some part of the, you know, the the payment is being done using the Benji tokenized money market fund. So, of course, you guys are innovators in the space, so it makes sense for you to be early there, but do you see more adoption of you know, just tokenized investment products? >> 100,000% if there is such a thing. So, we're fiduciaries. We have to act in the best interest of our clients. And the equity market's $127 trillion in size, market cap. Fixed income $145 trillion in size.

If I'm a fiduciary and I have to act in the best interest of my clients, I'm always going to buy a tokenized version of whatever product I'm buying. Why? Because it unlocks 24/7 markets. It goes back to what I said earlier around keeping up with the nature of markets. Why is that important? Because when Donald Trump invades Venezuela on a Friday night, I can risk manage if I want while the fiat markets are asleep. When he invades epic when epic fruit kicks off on a Saturday night, I can risk manage my position. And so this is It's It's frankly a better wrapper. It's a better asset. You know, apples to apples, provided there's enough liquidity. And I think the liquidity is going to come, but but that's the inevitability. When you start thinking about getting paid in a money market

fund, why would you do that? Well, if you could have a yield bearing asset or a non-yield bearing asset, right? If you were an AI agent, and by the way, one of the most exciting parts of all of crypto right now is that intersection of AI and crypto. Agents are like the thing their superpower is optimization to a fault. Like they over optimize. So, if I'm going to buy an asset where and I'm going to use an asset where somebody else gets the interest or I get the interest, what do you think they're going to choose? And so, I think even on the money market side of things, incredible opportunity. Cuz when we think about crypto, you know, I mean, even going back to the early days when when I was sitting at my desk in city, I thought that's awesome technology. What do you want to use it for? And at the

time they didn't they weren't really sure. It's about utility. It's really about utility, and that's what gets us excited. >> How ready do you think, you know, trading desks are to a world of 24/7 trading hours and well, we sort of like to take the the joke that people don't necessarily want to be 24/7 on or ready to react, you know, and of course there's ways in which you can get, you know, like forward-looking exposure to to markets before they open, but liquidity might be thin and some people have argued, okay, nice see going what is it, 2022 yes, six or something like that.

Will people well, with any new technology, they'll adapt it in the same way that we thought we were safe from the internet during a flight and that's no longer the case, but do you think this creates additional risk, you know, like flash crashes and stuff like that happening, you know, in weird market hours where there's thin liquidity and you know, cascading liquidity liquidation events taking place. How how do you see that unfolding? >> Yeah, I've heard this argument for many years. I testified in Congress in front of the eye committee and this came up.

And the thing about markets is that they are very fluid and they adjust very well. Right now, we say that well, in the middle of the night it's going to be less liquid. That's because we're humans and we close artificially close markets. If markets were naturally 24/7 and one of the things I've learned over the last five years operating in crypto as I come back to like a more of a rational place. I know how to operate 24/7 and that's how we're wired, that's how we exist. It's very hard for the other side, the trad guys to do it, but the markets create liquidity. We put on these artificial barriers because we're humans and we say we're going to artificially close them. Those issues tend to go away when the markets open 24/7 in nature. It responds to buyers and sellers and if something happens in somewhere in the

world at 2:00 a.m. in the US, then liquidity will migrate accordingly. So I think it works itself out and then again like you're going to see more and more agentic activity as well. The market is never going to be immune to flash crashes. Like these things happen and so we that will have to be discussed, but I think we're much better and let me tell you what, the the risk that I'm most worried about, I've been part of plenty of risks. I was at Lehman Brothers, I've seen every risk under the sun for the last 15 years in traditional markets. When you have one system that moves at 24/7 and one system that doesn't, which system has more risk do you think? >> Probably the one that's asleep.

>> Because the risk on the other side rebalanced overnight, over the weekend, the other guys wake up on a Monday and it's over, right? It's like and so rather than say, "Hey, everybody slow down." You can't do that at this point. We need to get the old guys to fix their tech. >> And and how you see things like the interconnectivity between different trading venues, liquidity pools changing over time. So if some, you know, like weird price action takes place, you know, trading might be halted. >> Yep. >> That is less viable if things are more interconnected and and probably I I I agree with your perspective so like >> I've already talked or it's going to, you know, self-correct and the price discovery will work wherever the the ability to trade is. Do you Do you see I

think people in crypto as you said are are more aware of this and have lived through this more. Do you have any advice for the people in traditional finance maybe? >> Yeah, 100%. So liquidity is something that is a mystery to all of us. It just kind of forms, right? Hyperliquid now has liquidity. If you had a magic formula for creating liquidity, like no one would be here cuz you'd be richer than you could imagine. People try to cut fees, they try to do but liquidity just kind of happens. So, one of the things that I focus on Have you ever heard the story about the the Bund future?

>> I No, I I'm somewhat familiar with the with the net, but >> Yeah, I think it's a very cautionary tale for the folks who are in traditional finance today. So, Bund futures used to trade on the LIFFE exchange. And you know, you had these big sweaty guys who would fight in the pits. And then Eurex, behind the scenes, built an electronic market. And then overnight, that liquidity migrated from open outcry, the pits, into the electronification. It stayed like that to this day. Overnight, gone. And it never came back. What we're seeing today is that next iteration of electronification. And so, my advice to the traditional folks is you better double down and get to 24/7 very, very quickly. Because again, as a fiduciary, if I have the choice to trade something that has liquidity in 24/7 versus not, I

don't have a choice. I have to trade the token. That's it. And so, you're going to see I think you're going to see some pretty profound Bund future trades happen where overnight liquidity flashes and goes somewhere else. It's a hugely disruptive time. It's a scary time if you're an incumbent, but it's also a period of incredible opportunity. Because again, once liquidity kind of coalesces in a place, it's very hard to rip it out. This is a reason why it could move. >> Who do you see as the winners and losers? Surely, as you said, it's both threats and opportunities at the same time. But if I speak with a small, you know, investment firm or broker-dealer and say, "Oh, is this, you know, like shift in the market going to be an

opportunity for me to reduce my dependency on BNY or Pershing? Is Is there some way?" And And those are the the that I that I'm receiving is how can I leverage this to like offset like shake the table in a way? Franklin getting into this early and and tokenization, I think it's an interesting response. If I'm not mistaken, this is all structured under, you know, the innovation umbrella because, you know, firms are trying to figure out where to play, how to play, where there's market fit, and and what the right response is. So, who do you see as the winners and losers of of this transformation?

>> So, I voted with my two feet when, you know, we decided to do a deal with Franklin Templeton. So, I think you know who I think's going to come out on top. But, look, it's it's too early to tell with a lot of the other incumbents. When you look at ICE, they just did a deal with OKX. They're They did a deal with PolyMarket. Like, they're they're getting very, very aggressive. They were early adopters as well. Cboe is going long Google. That's That's their philosophy. BNY has a dedicated team, very close with those folks, watching how fast they're building. The DTCC even, like, DTCC traditionally was this like slow, sleepy uh uh uh monster utility. They're They're building like crazy. You know, speak to the CTO over there all the time and and like So, everyone is moving very fast because they know the stakes are high. Who's

going to win the race? Too early to tell. I I don't know. But, they're they're all they're all in. All of them. That's what That's one of the things that's so exciting with Like, everyone is building. I knew a guy on the executive committee of one of the G-SIBs, one of the big banks. And he said, "Chris, you know, last 4 years, regulators would march in here and say, 'What are you doing in crypto?' And I'd say 'Nothing.'" >> Right. >> And they'd say, "Great." And they'd walk out the door. Now, he doesn't have that luxury. So, they have to hire. They have to hire quickly. They have to acquire. I think it's going to be a very robust M&A environment right now because if you're in an arms race, it takes a long time to build things organically. So, you can expect for many of these traditional

institutions to try to pick up talent, acquire, and just, you know, So, I think we're going to see a ton of M&A going into the future. >> So, players like Securitize and others who getting massive tax and to be allowed this technology for the incumbents in some way and >> There's there's been you've seen ton of partnerships. I think it's only getting started. >> Do you think that things like the Clarity Act going the right direction? I think in some way it as the name says provides clarity. Finally we have the this like three agency problems problem we solved but in other ways it replicates the structures that we're used to in traditional finance instead of you know thinking more loosely about what new structures might come about. So what

what's your take on on clarity specifically? >> I think it's going to potentially unleash animal spirits in our markets. Why? Because it really enshrines all of those rules and what do we really want in clarity? We want a taxonomy. We want to know what's a commodity and what's a security. Like that's and there's a lot more to the bill than that. We're getting some of that already but once that's enshrined then those all those institutions will really have to dial up and throttle up because there's very little probability that we're turning back. It takes an act of Congress to pass a law. It takes an act of Congress to unwind a law.

>> Right. >> So they're going to have to really throttle up their ability to to be able to operate in this space. I feel pretty good about the bill passing. I'm in the 50% ish 51 still a coin flip. We have some really hard things to overcome but it's the right thing for the country. I'll give you an example of why it's such a big deal. You know, we don't even have regulated futures in this country like beyond like like a couple of tokens. The futures >> Are the like >> Are the one of the most important like products in the world price discovery, risk transfer. It's like this basic foundational level and we don't even have them because it's too hard because we didn't even you know, know which was which. I think pretty soon like you know, these are the building blocks that

come together that allow people institutions to come into the space first time. Like a lot of them are a little bit nervous about you know, you talked about volatility early. How do I go along with this asset if so volatile? I need to hedge off my risk, but I don't have futures. I can't do it. So, as these building blocks come together, you know, Clarity Act will help accelerate just the maturity of these markets. >> And how happy are you with the taxonomy that's introduced around like digital commodities and so like sufficiently decentralized or big? They're like >> Yeah. >> Some of it's tricky, but like at least we have a framework and like when I was going through Dodd-Frank, I spent hundreds of hours reading thousands and thousands of papers to understand the rules. And once you understand the rules, you can build very thoughtful

businesses around it. The problem is we didn't have rules. The goal posts were shifting and and we you know, and things weren't sure then we get sued and so I I think having that clarity unlocks innovation. Having transparency and predictability lets entrepreneurs come back on shore. So, I think >> Right. I think it's all good. I think it's a very positive development. >> And do you see the provisions related to sufficiently decentralized, you know, front-end software providers and and so on being effective or are we asking too much? And like does it really provide a space for decentralized finance, you know, emerging within the US for example, operating comfortably, you know, Franklin Templeton being

integrated with a sufficiently decentralized protocols for liquidity provision like >> Yeah. So, so the one good thing like federal preemption is always a good thing. If you have one set of rules instead of having to go to 50 states, we've seen that that's that's problematic. We know it's hard to be truly decentralized. I get that. That's the truth. We're seeing the protocols that have achieved it, Bitcoin as Ethereum. Like that's a massive moat and an edge for them. You know, Ethereum's been getting a hard time on crypto Twitter lately, but but come on, guys. Like this is a truly decentralized protocol. It's pretty amazing. So, yeah, it's certainly difficult. What I also like is we want to make sure that that developers, coders, you know, they can't be, you know, prosecuted for code. It's freedom of speech. And I think it's hard

for a lot of people when you introduce this concept for the first time and you're like, "Okay, like who's accountable? Who's a Right." Accountability, there's absolute accountability, but it's the people that use the protocol, not the designers of the protocol themselves, right? So, you really have to focus on behaviors and activities, not the guy who built the car, the guy who drives the car. And I think that that's very hard for people to understand. I tried to explain it to them in like the cars in Iraq many years ago. The way I explained it is I'm like, "Okay, listen. I used to drive down the street and I would get hit by IEDs as I went along the way. And the bad guys would trigger them using garage door openers." And so, like they would press them, they'd blow me up. It had happened for 7 months. And I'm like, "So, we

should just get rid of garage door openers, right?" And they're like, "And so" So, again, it's about the behaviors of the people using the technology, not the technology itself. So, hopefully, I think that's a very good part of the bill. >> Right. Do you see allocators being comfortable, you know, assigning uh part of their portfolios into this entities there where the idea of diligence, such a diligence, doesn't exist? Oh. >> I guess I don't understand that question because the thing about crypto is it's open source. And you can you can There's actually a lot of information there that you can do. As you layer in AI as well, it can get even better. Now, let's be honest, we do have a security problem right now and we need to solve it. And I I do think ultimately AI is going to be

more of a help than a hindrance in getting our security much more effective across the board. Again, another place where crypto and AI will continue to intersect, very exciting vertical. But but look, as fiduciaries of our clients, we're the ones who have to make sure that we're very comfortable operating in these environments. I'm hope I'm hopeful that the team that we have, you know, is as knowledgeable as anyone in the world in how to operate institutionally in these difficult environments >> for the benefit of our clients. >> And out of curiosity, okay, so then you present the argument of the industry having strong fundamentals despite the sentiment, but when you try to look at the fundamentals, you also have to look at things like revenue being created.

And I'm curious about what your take is, like the overall like revenue structure that's coming from all these protocols. There aren't that many that are making real money. You see a lot of projects struggling at the moment. >> Yeah, it's a very important consideration as you underwrite any protocol or projects fundamentally. That is a very, very critical input, but it's not the only one. You know, as you start looking at evaluations of networks, evaluations of communities, there you know, revenue is not the only input. It's a very important input. Future revenue is very important. And so, I just say it's one of many, but it we're you can take a lot of modeling and processes related to traditional equities, and you can absolutely apply them to crypto. And that's one thing

that we try to do is adapt very sophisticated equity fundamental underwriting to the crypto asset class. You'll see more of that. >> Nice. So, to wrap up, what would be your message to an allocator listening and thinking about making their way into the space, or maybe those who are already into Bitcoin and Ethereum as they're thinking about the next move in the in the space? >> Yeah, look, I think it's a very, very exciting time. Don't look at crypto as just crypto. Each asset is very unique and differentiated. I think it helps to have a local guide if you're coming in for the first time. But, again, I think it's probably the most exciting exciting conditions to operate right

now, where you have a this period of improving fundamentals. You have not just from an investment perspective, but from an application perspective. Institutions all over the world are implementing this technology for their own benefit, to mitigate that risk, to mitigate to unlock those 24/7 markets. And so, it's a very interesting time both as a user of the tech and as as someone who's looking to acquire those assets. So, underwrite them, you know, get past all the hype, look at the underlying value, look at the utility, look at the cash flows, and then probably makes sense to have a local guide.

>> Well, fantastic. Well, it's it's been great having you here in the show. I really appreciate it and wish you the best at Franklin Crypto. >> Chris, such a pleasure. Big fan. Thank you. >> Awesome. All right, thanks again.