The Ether Machine and Ethereum as a treasury asset

Transcript

I believe Ethereum to be the next generation of the internet. It is experiencing parallel dynamics similar to Google with search where with Google 90% of searches happen there and 1% happens on Bing 1% happens on ask Jeeves 1% happens on Yahoo and 90% of highquality liquid assets which is a defined term by the financial accounting standards body HQLA are settled on top of Ethereum GM good morning welcome to the Milkro show the daily crypto show we're missing That trade feels like watching your Uber drive by without you. I'm your host, Jay Hamilton. It's Thursday, September the 11th, and if you are listening to this

then you have been in crypto likely for a while, or maybe you're new to investing crypto, but you likely understand crypto. I really want to make sure that everybody here today is taking the time to learn how to invest in DATs because there is a big opportunity. This is one of those moments where if you have been early in crypto and early in that technology, early in blockchain, you understand half of the equation of DATs. Most of the world doesn't understand both, sides, of the, equation, of, DATs., The thing that I want everybody listening today to really understand is the public market side of DATs and the financial engineering side of the equation which will give you the conviction that you

need to invest in DATs because well 85% of debts that exist today will probably fail 15% are going to make it and they are going to be huge in my mind. So today to break this all down we are joined by Andrew Keys chairman of the Ether Machine. He was in the room day one of Ethereum. He worked on alongside Jal Luben and other Ethereum builders at Consensus. He then founded Dharma Capital,, which, is, one, of the, largest east staking providers you've never heard of. And then he took 600 million of his own money and put it into the Ether Machine. We're also joined by Andrea Bernova, the CEO and chair of Dynamics Corp. which is the spa that is forming the Ether Machine. Before we

jump in, I got to tell you guys about an amazing pro report that's coming out from the Milk Road team this Saturday. It is all about the new era of D5 and the platformization of D5. If you don't know what that means, you're going to want to check out the report part of what is happening within DeFi especially Ethereum is impacted by DATs such as the Ethereum machine that we're talking about today. Today's episode is brought to you by Figure Markets. Grow your cash like a bank. No lockups, just real returns. It's also brought to you by KGEN, the vertical distribution protocol, changing the growth game. With that, Andrew Andrea, welcome to the Milk Road Show. Andrew, welcome.

Thanks for having me, Jay. Good to see you, Andrea. Good to see you guys. Pleasure to have you both. Very excited about this conversation. It's been a bit It's been DAT season recently. We've had a We had a lot of DAT episodes. We got more to come. But there is a big opportunity here. I want to uh step back for a second just to kind of introduce both of you to our audience. Um Andrew you were at the first Ethereum meetup. Um and I've heard you say that you read the Bitcoin white paper and then you read the Ethereum white paper. And the Bitcoin white paper didn't get you as excited as the Ethereum white paper did.

Why is that? So, Bitcoin was a great opening act, a funky experiment in monetary policy, but simply put, there's one asset on the Bitcoin blockchain, and it can do one thing, send. Uh, there's the the one asset being a bitcoin. And and with Ethereum, we can tokenize any assets. So, we can essentially have infinite assets and infinite functionality, anything we can programmably dream of. and and and with that uh I thought that this white paper of Ethereum could be the substrate of the next generation of the internet and here we are 10 years later

and we'll get into more of uh the story of what happened in those 10 years uh in a second but first Andrea on your end you've had a bit of a different path you've gone from Harvard to Wall Street to energy infrastructure ure and spaxs and now into a public Ethereum vehicle. Why now? Why make this transition? Why make this move into digital assets? So, I come at it from a very different direction. You're right, Jay. And and I have to fully confess that earlier this year, I was a crypto skeptic. Uh I knew nothing about the space, very limited knowledge. And you know, uh Andrea and team taught me everything I know. And obviously, it's been a incredible learning experience. But you know really

real reason why Jay is if you really take a step back and as I was going through my educational process is I you know one of the um interviews I listened to was uh Bill Gates's interview on David Letterman show um when David makes fun of Bill you know we what is this internet thing we already can share information we have radio and we have TV and we have newspapers and telephone etc. uh why is this necessary and obviously fast forward to today and uh you know to Andrew's point this is the internet moment and so um it really was an eyeopening experience for me just study the asset class and really taking a step back Jay and um studying how it's

going to influence everybody's daily life uh in a measure that we can't comprehend today or majority of population cannot comprehend today so that's why Ethereum now and that's why we partnered with Andrew and his team. Andrew, you've been in tech for a while. How big of a tech innovation is crypto and blockchain? So, so I would say we can't put a TAM we can't put a total addressable market on this because we've never been able to value the internet. we and and and furthermore we've never been able to value the concept of trust and and and basically what we're doing is we're

codifying agreements right uh you know our Microsoft Word documents are going from words legalies to if then else statements that instead of a breach of contract having to be litigated that breach essentially can't exist when you have your agreements codified. And and and and that aha moment uh is is is is an in is is a change of the gear of how humanity can agree and disagree with each other. Uh so so basically I think once we have this trust base and you

know digitized assets that are embedded into digitized legal agreements we are going to see an increase in the velocity of capital and we're going to see you know changes in liquidity profiles where you know in in in a previous uh world with paperbased legal on Microsoft Word documents, one may have to have a loan to value of 50% where now that it's a digital-based smart contract, it could be 15%. And and that kind of inertia uh in real time gross settlement is going to have a profound impact on Earth. It feels like what has happened in the last

I'm going to say two years post Bitcoin ETF. I'm going to take that as the tipping point has been a acceleration of not necessarily the outcome of where we're going to be in decades from now but the adoption of institutions to trying to figure out okay to accepting oh the future of finance is going to be on chain and we want to be a part of that and the stakes of that are massive like we're talking stakes that I don't even think crypto people fully appreciate and I don't think it's it's as you said Andrew it's very difficult to estimate the TAM of the internet.

This is this is so big. It is something bigger than I think anybody can really appreciate. And in the day-to-day, we sort of lose that. Like I remember, and you probably feel the same. Back in the beginning, we were very visionary and very in crypto was all this theoretical talk about what it could be someday. And now that we're in it and we're making that happen, it moves a little bit slower than we want it to. And we need to be patient and we need regulators and we need all these things to happen. But it feels like there was a tipping point in the past few years and now we are on a different trajectory and that trajectory is something that we you can't stop that that is inevitable and that is the future. Where that shakes out and how that shakes out, I mean

that's why we have conversations like today. I want to rewind the clock for a second. Andrew, you mentioned that you know the 10-year period from uh early days Ethereum to where we are now. Can you just give us a bit of the backstory and the origin story of the Ether machine into why you identified a pro problem within I mean really a technical nuance that I think you saw within Ethereum and Ethereum ETFs and staking that led you to create it. Can you can you run us through that? Sure. So to your point that there's a great quote where you know there are decades when nothing happens and then there are days when kind of everything happens, or, decades, happened, and, and and to that point uh you know there there

has been kind of this aha theoretical point on what is blockchain what is bitcoin what is ethereum and then there's been this long slog frankly because innovation takes time where you've got the world the way it works now and and and incumbency doesn't want to seed their power. Uh and and and and basically a decade ago every Fortune 500 had a smart young software engineer that kind of read the early Bitcoin or Ether white papers and and she or he uh kind of asked their boss, you know, c can we create a proof of concept and can we, you know, can we

put that proof of concept into MVP? Can we put that MVP into production? And over the last four years, you know let's call it the the prior uh political administration, many of uh the many of these projects were stymied and and now those headwinds have turned to tailwinds. And I think that confluence of factors kind of led us here from a regulatory standpoint. But to your question, uh there I I was approached by one of the large ETFs, uh the Ether ETFs, and and and and basically they asked me if I would be their market

maker because I run an institutional staking provider from inception of Ethereum's proof of stake. uh and and and basically what their their problem that they were trying to solve and it's very topical right now is they was trying to solve the technical issue of the withdrawal cube. So there has been a potential hack uh that that that happened with respect to a Salana staking uh team uh over the last couple days and they have exited all of their Ethereum staking and what happened is the withdrawal queue to unstake one's Ether has gone from a couple days to 40

days. And if there were a black swan event to occur, that with withdrawal queue could go from the 40 days it's at now to 6 months or a year. And that does not jive well with the 24hour redemption mandates of an ETF. And right now in America, the ETFs currently do not enable staking, but we believe in time they will enable staking. And uh but as a proxy, you can look at Canada or Europe and they're staking at what I call 50% capacity. Meaning that if one had a billion dollars in a Canadian ETP and uh they would be

staking 500 million Canadian dollars and they'd be you learn earning the 3% yield on the 500. So on the total billion they'd, be, earning, one, and a, half%. uh and and basically they are only doing that with what I would call vanilla staking which is one of three buckets broadly speaking uh of ways to earn yield using Ethereum vanilla staking restaking and decentralized finance and and basically I said well that's not the right way for a public market investor to have exposure to Ethereum because a the public market investor wants to have

full capacity of staking plus the ability to do restaking and DeFi and so with that uh we set out to create the institutional vehicle to do this best. Yeah, it's a it's it's a clear opportunity that you saw in the market. I I want to take a slight step back for a second. Why employ Ethereum based treasury strategy? Why not a Bitcoin or or or Salana or another token?

Sure. Sure. So I believe Ethereum to be the next generation of the internet and it is the only available substrate that nation states, Fortune 500 corporates and regular people like you and me will be able to trustlessly interact on a global scale and and and it is experiencing parallel dynamics similar to Google with search where with Google 90% of searches happen there and 1% happens on Bing 1% happens on ask Jeves 1% happens on Yahoo and 90% of highquality liquid assets which is a

defined term by the financial accounting standards body HQLA are settled on top of Ethereum and and basically the the the next largest competitor has about 9% and then the the it it continues to kind of fall off uh the the beaten path So basically a liquidity begets liquidity. B uh it is the only one that has an there's a point of client diversity. So there are 12 implementations of Ethereum now. Uh there's a Java client, a net client, a Haskell client and all of these clients have to form consensus with each other uh every six seconds as a block uh propagates. To give you an idea, Bitcoin has one, Bitcoin core, and

Salana has one. Just to give you kind of an idea there, it is the most decentralized, the the it has the most validators around the world that are forming consensus and has had 100% uptime uh since inception. And and so basically we've gotten this platform that works that has attracted the most amount of capital that has decentralized client diversity. And lastly it's it's kind of a historic technology lesson. Java became J2e, Java 2 Enterprise Edition. Uh and it became the most permeated software language in the world when it converted from Java to

J2E. And what that basically was is it created standards and and it had clean web APIs and clean database APIs. So if you were a developer in Mumbai, Paris San Francisco, New York, Houston wherever you were, you were using the same standards. And what we've seen is the modularity uh of standards that are created. So basically one example is the ERC20 token standard and that ERC20 can go into the wallet standard. So basically anyone in the world could create a token that represents some type of asset and that asset would fit safely into a wallet.

And because of this we've been able to build different types of tools that all work together. And that's created this zeitgeist, Cambrian explosion, whatever cliche you want to use, and and and has propagated Ethereum to kind of the most used developer ecosystem with the most distributed validator set uh and and and and I guess most importantly, the most amount of assets by a factor of 9x. Yeah. Yeah. And if and if you're listening and you know you don't know the different standards within Ethereum don't worry about that. If ERC20 isn't necessarily mean anything to you, you don't need to know that. What you need

to know is you need these standards in order to achieve mass adoption because you need millions of developers around the world building in your ecosystem and these standards exist very strongly and we're really a part of the initial building of Ethereum. These standards were very well thought out by the team in the early days which Yeah, exactly. And it it shows how earlier I mean you use the JavaScript example. What is there 16 million JavaScript developers in the world and there's about uh 20,000 Ethereum developers like you know the we're so early so early. Uh okay, I want to I want to shift gears for a second to uh to DATs. So um I want our audience to understand the difference between

different DATs. And this is going to get a little bit nuanced because I think you can really get into the weeds of the differences. Uh but let's start by talking about the Ether machine and the way you're building the Ether machine and then we can talk about the other DATs and how they're built differently. Sure. So so so I I I I guess I'll I I'll talk about this from kind of being patient zero and I'll and I'll let Andrea chime in and I'll shut up. But but basically I was going to commit capital to this endeavor because it was my uh strong opinion that this was the best way for public market investors to have access to Ethereum and Ethereum's yield generation and and and basically

we've talked about the onchain yield generation uh and then that there are other things that one can do when one has a public company uh and and and that is let's call it offchain ability to increase one's ether concentration per share. And that I think is an important topic for us to understand. Our northstar metric is if we have an investor that purchases a thousand shares for example and that thousand shares equals one ether we have to be able to increase the amount of ether they have per those thousand shares. So the goal

would be to increase that you know one ether to two ether and we can do this onchain by uh participating in staking restaking and defy and we can do it offchain by using the public equity and debt markets to uh basically acquire more ether and this is really what Michael micro Michael Sailor with micro strategy uh pioneered and and he should be giving credit And basically what he was able to do was he was able to issue bonds and and with those bonds there were uh bond holders that wanted to acquire volatility and then with the dollars he received for from those bonds

uh he was able to purchase additional shares of or excuse me additional e uh bitcoin for the shareholders that wanted additional bitcoin concentration per their shares. So I thought that this was the right vehicle because we ether has double the volatility of Bitcoin and it has the ability to generate yield which Bitcoin doesn't have. So when I went down the rabbit hole I said well Ether is a better mousetrap than Bitcoin because it's a prod productive asset that has double the volatility which would be more valuable to bond holders. uh and then I went down the path and broadly speaking there are two paths one can go one can

do what's called a reverse takeover of a shelf company or they can create a denovo or a brand new entity and and do a merger with a special purpose acquisition company and and and uh and can is is is the subject matter expert of special purpose acquisition companies and I had a few conversations with a few shell companies is and I knew that I wouldn't feel comfortable putting my capital there. And as patient zero that deployed 170,000 ether into this vehicle be uh to lead by example as I wouldn't suggest someone else do something that I wouldn't do. Uh I I learned very quickly I didn't I wasn't comfortable with with

what I would call contingent liabilities. And I'll just give you a quick anecdote on on on some of these types of contingent liabilities. I talked to one which was a dying biotech uh where the uh the the drug didn't make it through clinical trials and then and so basically the company was going to go bankrupt and the CEO would have to stay on the board due to uh control provisions. You can't just if you have a publicly traded company just change the management, you know willy-nilly., and, and and, the, CEO, wanted $5 million a year and couldn't spell Ethereum, and, and and, basically, I, didn't want to deal with a pre-existing operating business. Another one was a

Bitcoin mining company that had a data center lease for 10 years. They were in year four of 10 and it cost $10 million a year for this data center. And with Ethereum, you don't need the data center because they don't do proofof work mining. And so that would have been a $10 million year leakage, you know ongoing. There are other ones that uh are are are are basically saving capital that are invested in these treasuries to potentially settle lawsuits because, you know, you basically are inheriting a company that has a four-year statute of limitations. So what they've done for the last four years maybe while their micro cap or their market cap is you know effectively zero um isn't worth uh a a lawsuit but once a billion dollars

is, put, in, of, of of, digital, assets, that becomes kind of a honeypot for class action lawyers. So very quickly I I I I said I didn't want to inherit an existing operating business, an existing management team, uh existing potential liabilities in these, you know, the these lawsuits that have statutes of limitations of the last four years that I don't know. Um and so what we've done is we formed a denovo brand new LLC and we merged that with a special purpose acquisition company. And maybe Andrea would be best to explain kind of what a special purpose acquisition company is and kind of the value uh that that a

special purpose acquisition company provides. That's great. I'm going to exit the interview. Actually, you guys can interview each other. Perfect. That was my next question, Andrew. I love it. Okay. Why do people invest in real estate? Because it spits off cash flow. But I'm not here to manage rental properties. That's why I'm looking at Figure Markets. Their new democratized prime product backs your money with real cash flowing assets and returns up to 9% APY. It's the first real world asset borrow lend pool built for everyone, not just institutions. Ready to lend like a bank and get more than the 5% A is offering you. Download the Figure Markets app today and get 9% on your idol funds. Go to

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uh Draica explain us back to us and then afterwards I do want to come back Andrew to uh that risk because that risk that you mentioned is significant for a bunch of the DATs that are out there. So but give us the background on what a spack is for those of our listeners who don't know. you know I like actually take it a little bit uh sort of more macro uh J Andrew and you know I come from a oil and gas space and infrastructure space and that's a you know well uh developed arena but it has gone through very similar evolution that you know likely the Ethereum and the crypto space may head into over the next few years. But if you are an investor in 2008 when shale started to boom and you know

America was on the path to become the biggest oil and gas producer on this planet you essentially had three options and you have a three op the same three options today uh in the crypto space. So option one is you can buy a barrel of oil um which is hard to do cumbersome etc etc but you can do that express review in 2008. The second was uh you can express it via ETFs again similar to what you can do today uh in the crypto space. And the third was well let me just make my life easier number one. So I can invest in Exxon or Chevron. But not only easier but also a company like Exxon or Chevron or Ether Machine should

create more value than my barrel of oil because that is obviously barrel creates energy but it's a more of a passive asset but what you know we and Andrew and the team are planning to do with the Ether machine is we are going to actually create value that's incremental to the value of ETH. So I would say that's you know step number one why you should be thinking about investing directly into companies and not you know just the assets essentially the the second piece and to tag along on Andrew's point and what spaxs are so um you know I've been in the space of taking multiple companies public via IPOs or via spaxs and via different structures and spa is essentially a

blank check company. It's a company that has, you know, certain amount of capital. We have 171 million in in trust capital and cash. And our sole purpose in life is to look for another business or two businesses, but generally one business that's going to acquire another company that essentially will survive to be the public entity in this case is the ether machine. Now, why do you do that? Right? So, um in IPO format, it's a long drawn process. It's it's um full of a lot of surprises that you can't expect versus in a spa format you can run a very quick process. You can raise a lot of capital and you can make sure that you have the you know the capital base

from an investor perspective and balance sheet perspective that's adequate for the company that um you are looking to build. And so, you know, when we think about the Ether machine specifically and the reason why we partner with Andrew's team, uh, and and we think that's the uh, you know, best team in the market uh, today is number one um, when you look for companies to go public, um, you look at a company that's highly scalable over the next five to 10 years. That's not a little zombie that nobody's going to like in the next, you know, six months. So, that that was the first component. Is this company backed by a team that know what they are doing who's been doing it for a long time and

who is the best equipped team in the industry to actually take it to the next level. So that's sort of the criteria number number one. Uh and number two and I do want to highlight this in this context. I mean Andrew's alignment in uh in terms of his contribution to the ether machine is unprecedented right he he he, he, is, forced, to, do, what's, the, best thing to do for public investors uh that are going to invest or that are invested currently in the ether machine so that's very unique very unlike you know some of the others and um and that really is a extremely important base to scale the business to the next level just like Chevron just like exon on. You got to

have a business that can scale to the next level. So, we're hearing so much about DATs right now and depending on where where you would like to put the starting point of DATs, whether you go back to Michael Sailor and Micro Strategy or whether Absolutely. I would I would absolutely I would go back there, but I kind of I kind of like to say that the not the starting point, but the moment is more like three months ago, four months ago like really the moment, right? And so um, the only reason I say that is just that we're so we're I'm trying to paint the picture that we're so early for is this a is this a is this a meta right now that is just a moment in time or are we going to be talking about DATs

for a long time? And I really like your Andrea your example of comparing debts to oil companies and that is a common example that's made. We've also heard the example of debts are just the f our future banks. What are debts going to be long term? I'm happy to take a a crack at this. Uh I think that the digital asset treasury is specifically for Ethereum which is a productive asset that we've spoken about is the best way for public market investors to express their view because one can acquire Ether and and and stake it on a retail exchange and get charged 30 plus percent. I think that's

inefficient. one can put uh acquire the ETF but only have a partial capacity of one bucket of yield generation. Uh you know they they they get 50% of the vanilla staking. they don't get restaking or defy or this vehicle you can have full capacity staking plus restaking plus defy on the onchain world and then we can also add what the American capital markets which are the best in the world are good at which are basically adding financial instruments

you know I can I can pick it up Jay too I mean know from our perspective again this is not, you know, a uh sort of re revolutionary time. I if you really take a look at the past 100 years, you know, plus uh of capital markets history, um this is a time where you are facing an industry at a transformational point and what you're likely going to see is a number of companies entering the DAT space. they are going to enable essentially the the entire you know ecosystem to grow and I think what's what's really important for investors and and newcomers into the

space is uh understanding that you know you have to evaluate those companies on an individual basis and you know pick just like you do in you know in healthcare or consumer products pick the ones that are you you think are the strongest ones that are ultimately going to you know consolidate the space and are going to be the leaders in the space but you From our perspective again we've we've lived through it in the energy space you know you are going to have ups and downs um but what you really want to see and obviously that is you know where we are hoping the space will end up is you are going to see a upward trajectory right so this is not going to be going this direction it's going to be going more in in this format and so that's where we see the ecosystem is going to

grow there are going to be more players and essentially the strongest players are going to be the ones who consolidate who are the leaders in the space just like you know Walmart is or or Google is or uh you know Exon Mobile is. Andrew, you're back. We lost you for Sorry about that. It's all good. It's all good. Uh uh and Andrea picked up where where you left off. I just wanted to give you a chance uh to finish what you were saying before. Yeah. So So I I mean, so so I I kind of spoke specifically on on like the Ether uh example, but I would say, you know our DATs banks are are you know, our our debts just a flash in the pan. Um, the American capital markets aren't going anywhere. They're the deepest, most regulated uh place in the world. And I

think that what this is doing is meeting institutional investors where they are. So 90% of pension funds or endowments can't open up a Coinbase account and and and go and buy Ether or Bitcoin. And and basically what we're able to do here is create a vehicle with uh the in in a nomenclature that they understand uh where they're able to express their interest and with that we get a microphone to explain what is Ethereum what is staking, what is restaking, what is uh what are the use cases that this technology enables. So I think that

that's an important consideration. And then like are are these potential digital banks? I don't think they are. I think that you know there are different iterations of this. Uh what we are are are expressing is a pristine expression of ether denominated yield generation. uh for those that are looking for a beta play on the next generation of the internet meaning that you know all of the applications that run on Ethereum and and if you kind of think about you know do 85% of apps went to zero right

85% of dotcoms went to zero the other 15% uh changed the way the world works but all of them ran on HTTP and and and similarly uh the majority of applications the majority of assets are sitting on top of Ethereum. So while the application layer finds product market fit and we've seen kind of early product market fit with things like stable coins um 80% of stable coins are settled to Ethereum and each time there's a transaction on an Ethereum layer 1 stable coin transaction or Ethereum layer 2 that burns this micro payment this commodity you know and it's interesting you know that we

and and and I think intentional in in hindsight maybe it it was supposed to happen that we we we we we merge with an oil and gas subject matter expert uh because basically this is a digital commodity that for every computational step it requires this digital fuel and I I would just add one thing to Andrews and and maybe you know when you asked that question Jay you know has there been really a sort of this renaissance in uh the past three months I mean the the factors and again this is not the first industry that's going through this is just the scale scale of this industry we believe is much much larger than others is number one obviously have regulatory you know support that is very important but

really what's important and that's you know again how uh why we decided to wrap our head around um partnering with Andrew's team in the Ethereum space is consumer uh sort of adaptation to the space so that's from an institutional perspective you know have JP Morgan you have black rockck you have Robin Hood you have Deutsche Bank etc ETA embracing this digital asset class that's number one and I think the moment where we are standing at right now it's it's a really pivotal moment where we need to we actually need to do a better job I believe than oil and gas industry has done because that it became a little bit of an echo chamber right at at some point this is some guys in Midland you

know you watch the landman series this is like this is how these people roll we don't understand the space and you know uh we don't know what to do with it what we see now is an opportunity to one educate institutional investors. You really need to get people at large scale to learn about the space and I know that you know a lot of the viewers here they've been living and breathing it for a decade or a long time that is not vast majority of institutional investors and I would say the second piece it's certainly not vast majority of consumers so that is the other piece I literally had probably 150 discussions with individuals from you know very uh successful individuals

very smart guys to, you know, my dad who is a car mechanic and explaining to all sorts pe of people, you know, sort of you know, I would like to be like, you know, I would like to be somebody like Steve Jobs who is in very simple terms is able to explain how it's going to affect my dad's life in the Czech Republic as a car mechanic and how it's going to, you know, uh, affect a life of a Princeton University professor. But I think that's the piece where I feel I'm I'm the biggest excitement I have about this space is introducing this to the general population and inviting consumers but also investors from institutional to retail. And I think we

should not miss that moment. That is critical. It's it's certainly a big signal that you chose digital assets as your next venture for your stack. That's a massive signal. You could have gone in many different directions. You could have gone in a different completely different industry. You could have stuck in energy. You could have gone into AI. Like there's so many so many different ways you could have gone. So that is a is is a large signal in itself. And I I completely agree with the the learning and education that needs to happen for all basically everybody is is is an uphill battle. And I mean that's why we do this show. Before before we wrap up I have two quick questions that I want to ask. I hope I hope they can be quick but it's always difficult to do quick

questions. First is, and Andrew, you kind of touched on this, is what's the uh what is what's the impact to Ethereum of these types of vehicles being being available to public markets. So I think you get a an an additional bid on Ether which which we saw happened with Bitcoin and Michael Sailor that that there was an institutional bid. I think that's one consideration. So I think it'll be beneficial for the price and when price goes up people talk about it and and people learn about it. I think that's one consideration. Two is the education that Andrea just touched on. uh we

wouldn't be having this conversation and and the other thousand conversations we've had over the last three months uh you know had this not occurred. Uh we're also going to get what's important is self-side research meaning you know City Bank was our banker you know a lot and a lot of these tats have these banks that I've never even heard of but but but we worked with city KPMG is our auditor you know big four auditor uh and and and basically having these types of institutions publish research for analysts investors to understand you know what is the discounted cash flow flow of Ethereum, what is the value of uh of a smart contract based transaction

versus how one would happen in a legacy environment and and basically kind of broaching all of that uh occurrence and that's plays right the these institutions have operations that could be upgraded. you're you're hearing about, you know, all of these institutions due to the Genius Act, uh where we just got stable coin clarity becoming custodians, uh, and and the largest beneficiary of this of the Genius Act is Ethereum because over 80% of the stable coins settle to Ethereum.

So, so I think we're basically creating kind of infrastructural rails and this is one of the many pillars of a new ecosystem. This isn't the beall and endall, right? There's going to be a decentralized environment. there's going to be venture investing in the application layer. But what this does is it creates the ability for anybody who doesn't want to deal with a public private key pair and you know two-factor authentication to be able to express their view. You know the dentist in Chicago can buy some of this stock uh and have that exposure and and sleep well at night. So I think there's it's kind of multiaceted.

It's it's a such a reminder that not everybody wants self-custody. Like it's me, we all I'm my own worst enemy. I don't want a gun because I'd shoot myself. Like like I don't want I don't want self custody. I don't want anything. Right. Yeah. I I'm my own worst enemy in in basically all of my life. Okay. What's what could break this? What's the downside? We talked a little bit about this at the beginning. Uh there is a massive opportunity happening right now. There's a lot of capital flooding in. A lot of people trying to get on top of that opportunity. Bubble is what everyone's thinking. Is this a bubble?

So, I I don't know. I don't know if I think about bubbles as as more as I think of this industry is good at at being grouped and and you know, FTX blew up, everyone in crypto is bad. Uh, you know, is is is is just like my naive kind of first response. And and what I'd say is, you know, all of these digital asset vehicles are not created equal. And and I use a a a term if you play silly games, you win silly prizes. And there are lots of as an example, there are lots of venture capitalists that bought application layer tokens. They're not protocol

tokens. They're not commodities like Ether is this digital oil that's used for any application. But let's say they built, you know, some type of.com website and issued some type of token and and that token is in a vesting schedule where it's locked up. And in any transaction, if you're my counterparty and I'm selling you something that's locked up, you would typically ascribe a discount to that. Maybe you say, you know, if if we value this asset, you know, this locked up asset at $100, you say, I'll buy it for 50 or $75 because I have to deal with that time duration risk. And and and and that's just how the world works. And and

what we're seeing in some of I would say kind of the lower effort uh vehicles is maybe retail doesn't necessarily understand that. and retail doesn't understand that uh they're acquiring and they're essentially buying someone else's liquidity path, right? Venture capitalist XYZ now makes this vehicle. They they buy some shell company and and so they're basically exiting their position to get dollars, which they'd love so they can make other investments. uh and and and basically the other side is stuck with this locked asset that may or may not be at that true value. So I think you know a lot of what the SEC is very good at is consumer protection and

and basically we're trying to do this by the books with the right auditor with the right banker with the right legal firm. You know we we're probably the most prudent on the scale and and uh and and and we'll see how that goes. But I think there's issues in that regard. And then I think there are these issues of pre-existing liabilities, these kind of skeletons in the closets of these shell companies where you know which is sorry just to interrupt Andrew which is how most debts so far have been created, right? That would be the more common structure is by a shell company over Yeah. Okay.

Yeah. and and and so I I think because we're in month three and the class action lawyers of the world take, you know, a couple months to prepare their complaints, um I I I bet, you know, you know, let's call it nine months from now, a year into this, a bunch of these are going to have, you know, skeletons of in the closet come to light. And then lastly, I would say uh these vehicles uh can employ leverage, meaning they can issue bonds and and basically maybe potentially borrow too much and there can be a down down cycle and uh I think there is a place for leverage but leverage has to be properly managed right?, And, and, you, can't, get get, over

your skis and you have to basically spllay and I think micro strategy is a great example. You know, people go out and they put 20% down on a house and they take 80% leverage. So, they basically go out 5x or 4x their their downside. Micro Strategy kind of inverted that where they've got, let's call it 20% leverage and 80% equity. Um and they also split it where some of that was in convertible bonds that really has a duration. you know, you know, this could end in two years or three years and convert and then they have preferred shares which doesn't have a duration but has an ongoing coupon that they have to pay. And so they've

spled that leverage uh risk which I think one has to consider and this is professional risk management. you know we we've got, you know, chartered financial analysts that that that have been doing this at places like JP Morgan and SACE Capital, uh, Steve Cohen shop which, one, of the, largest, hedge, funds, in the world, uh, that that that basically uh, can can that create risk models accordingly. Um, and I don't know if the the the the low-level, loweffort, you know, hundred million dollar vehicle that someone's trying to, you know, get rich quick on, uh, is going to employ those same types of risk management uh

considerations that that we're employing. Yeah. I mean, Jay, you know, from my perspective, um, you know, the American capital market is a very exciting one. There are certainly booms and busts and it always swings too much one direction and then the other. So uh you know I I want to be very clear that this this has been happening for a long time. It will continue to happen. But uh you know what what uh how I feel about the space and and I've run you know public companies um what's really paramount about uh this time and the new companies entering the public arena is this is a serious

business to Andrew's point you are regulated by the SEC a number of other regulators uh you are uh you have very serious in large institutional investors And this uh you know running a public business cannot be taken lightly. And so from balance sheet to having the right you know uh processes in place and uh you know focusing on the right disciplines not you know getting swayed oh this is an exciting shiny company I want to go for that and I want to acquire another business and then you know two years later you are sort of left with something that's totally different from the type of company that you know investors actually initially invested in or are interested in. And so

I think the really critical piece of the equation is uh you know having serious management teams um one two three or number of public companies in the space. It is important to have number of serious players to get scale in the you know and and credibility in the public arena in the Ethereum and generally digital asset space. But I think again going back to what I I I feel it's is critical. I know it's critical because we've seen it in other industries is if you run a serious business and uh you you know are sort of good servant of the capital you will attract the large institutional capital which is really what's um ultimately going to be uh you know one of the biggest drivers uh of of

this space in the next uh years and decades to come. That's but but that money is not going to come in unless you know we run really uh high quality public businesses at at scale and um you know high high level of stewardship. Well, I can't wait uh for a decade from now to give you both a fist bump and a high five for doing exactly that for us and for all asset ecosystem. I know I know you will. I have nothing but faith. Thank, you, so, much, to, both, of you, for joining us today. It's been a pleasure to have you on the show. Thank you, Jay.

Thank you, Jay. Thank you, Andrea. Thanks, Andrew. Thanks for tuning in, everybody. I want to remind you as always, none of today's episode is financial advice. I'm not your financial adviser. And Draco and Andrew are not your financial adviserss. If you're going to make investments, you should speak to a professional because investing is risky. And the show is for educational informationational purposes only. As I said at the beginning, check out our pro report coming out this Saturday where we talk about the next phase of DeFi and the what we are calling the platformization era of DeFi. It's got tons of alpha. Thanks for tuning in everybody. Have a wicked awesome day. We'll see you back again tomorrow. If y'all are making swaps or trades right now, highly recommend you check out Milkroad Swap.

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