Fireside Chat: Institutional Ethereum Adoption with Robbie Mitchnick and Matt Sheffield

Transcript

[applause] >> So, I figured to start maybe we could just both introduce ourselves a little more in terms of what we're specifically doing in the ecosystem. Um so, as Karthik said, I'm the chief investment officer of Sharplink and last year we put about $3 worth of Ethereum on our public company balance sheet and then started to put it on chain. And so, I'm the chief investment officer, that means I'm focused on how do we get our Ethereum denominated yield and return to be the best risk-adjusted return it can. A lot of that means that we're dealing with first-time cases that we'll talk about later, uh but I'm excited to speak with you, Gal. Robbie, you want to introduce yourself?

>> Matt, did you lose your voice this weekend or was it game two Friday night for the Knicks? >> Knicks in four. >> Okay. [laughter] Um Robbie Mitchnick, I'm the global head of digital assets at BlackRock, uh where I've been since 2018, uh when I joined the firm to uh figure out what this whole blockchain and crypto world meant and what its implications would be for BlackRock and um along the way um we've obviously been progressively and progressively uh more deeply engaged in the space, uh and uh Ethereum is a big part of that.

>> So, to jump right into it, I mean, BlackRock launched the two largest crypto ETFs in history. And so, you did Bitcoin in 2024, beginning of the year, then Ethereum, that was IBIT and ETHE. And then you stopped after Bitcoin and Ether, and I wanted to understand what was the rationale behind that. What differentiated those two assets? >> Well, [snorts] I think we've been uh pretty consistent in the space in terms of how we've articulated the approach and how we've thought about the approach on the ground. Uh there's a very high bar for us to do uh an I shares product around an asset particularly in a novel asset class like this. So that was a multi-year journey that we progressed on as a firm that got

us to the point of doing Bitcoin that became I bet obviously and it was also a significant decision that we were going to expand that and do eat and we actually had to make the decision to do eat before we had launched I bet. So people were kind of trusting that you know what I and others were saying was going to really work would in fact really work as as obviously in the end it did. But there's a lot of questions that go into it. It's not just whether we think we can sell the product far far from it. Is this is the thing mature enough? Is it at a scale in terms of market cap and liquidity? Is it mature in its product market fit in terms of

both economic use cases and the investor narrative? Is it something that maybe more than anything we feel we can with a straight face say this is an asset that belongs in a client portfolio on a long-term fundamental basis. And so I do think over time there will be more crypto assets that hit that bar but for today you know clearly crypto there's a category one which is Bitcoin is a category of two which is Bitcoin and eat and then there is sort of a breakpoint after that and I think it's healthy for the space ultimately if that number of you know credible mature at scale assets grows but for now you know it's been Bitcoin and eat and

and deliberately so. >> Yeah, I mean I definitely agree Ethereum is a unique asset but I am curious so differentiating network from token. What about Ethereum itself versus other programmable layer ones? Are you seeing Wall Street react differently to it and that was part of the decision behind launching ETH and then pausing there? >> Yeah, so I think when you consider what traditional financial firms and their preferences are, I think there's a heavy indexation to um maturity in terms of time uh in existence and proven and utilized and uh functioning in a robust way.

Uh things that are novel and exciting tend to be more eagerly adopted by uh other parts of the crypto ecosystem. Sometimes that's for good reason, other times uh maybe it overlooks some of the risks that exist. I think of Zcash, which was one of the hottest uh assets in crypto for many months and basically goes poof uh through one vulnerability. You know, the longer things uh have been used and adopted and battle-tested, that's a significant thing. Maybe the other element of it is that from a traditional finance perspective, there's a real understanding of the importance of network effects and and the advantage that that confers. And clearly, Ethereum you know, even as it faces tradeoffs

from a design perspective versus other layer ones um has a massive advantage in terms of network effects and and incumbency and and TradFi firms view that as a significant thing. So, I I I I mean, I'm interested in your take here as well. Obviously, you've thought a lot about uh uh Ethereum's role in the ecosystem from a Sharplink perspective. Was there sort of one moment or one particular inflection point where uh you began to see ETH as a you know, truly institutional-grade asset to build around?

>> I would say it was less about a singular moment and more about the consistency and stability of the path forward. There's very little headline chasing in the Ethereum ecosystem, and that's basically what Wall Street needs. When you build a long-term roadmap that isn't about a single kind of shiny object announcement for the sake of announcement. And as we continue to see Wall Street build on chain, they continue to pick Ethereum time and time again. And as we see Ethereum build its roadmap, they continue to do the things that are best for the next 5 to 10 years. And we're benefiting from them taking that approach 5 years ago and not going for the shiny objects now. And in 5 years we'll benefit from what they're doing today to build that long-term roadmap.

>> The important thing to me has always been that we're building infrastructure and civilization grade technology is one step beyond what Wall Street needs. No one else is trying to build that level of rigor. And I think that it's important because there's a level of trust you build with the community when you're not chasing headlines. When I see a headline that a new bank or a large institution has decided to put their tokenized fund on Ethereum, it makes sense to me, end of conversation. When I see that they picked a L1 that I haven't heard of in a year or two, the first thing I think of is I wonder how much they paid them. Like it's a very different thing to get chosen on your merit versus off the economics. And people picked Ethereum for merit. And

that was always the thing that excited me about the space was that they kind of stood on their own. >> I do think that's one of the things that you really have to look at in this space is whenever there's utilization, that's one thing. But where's the utilization that's not happening with a specific and temporary economic incentive. Cuz obviously there there is a lot of that in the crypto and DeFi ecosystem. When we start to see utilization where there's a real problem is being solved or there's a real economic unlock independent of any sort of incentive, that's a real important signal.

>> Yeah, absolutely. [snorts] Now, the great news is 80% of the work is getting someone to build the pipes. So, if someone else subsidizes that, then the institution gets on chain, it's very easy to switch over. The activation energy has already taken place. But, going back to BlackRock, so you launched ETHA and it was extremely successful ETF. And then recently, you started staking back in March, but you created a new ETF called ETHB. And I was wondering, why didn't you just stake the assets out of ETHA? Like, why have two separate products? What are you catering towards there?

>> Yeah, we were in a fortunate position there, somewhat uniquely, where um ETHA was at such scale and we've been able to have the success that we have with our uh crypto ETPs that it actually was was plausible to do two products. I think if we were a smaller issuer, that would have been hard. And the reason it's great that we are able to do two products is it caters to different investors with different preferences, right? So, we're giving investors that choice. Uh for most long-term uh investors in ETH, we certainly think that ETHB, the new product, as you mentioned, that launched in March and has done quite well out of the gate, um half a billion in AUM already, uh is good for a new

ETF, uh that ETHB will be the preferred vehicle for most, as they're getting to capture that staking yield. For the investor who's just hyper hyper sensitive to liquidity and they want maximal liquidity and flexibility, that leans uh to ETHA and and we don't think that's most of the markets, but it's but it's some of the market. And so, we're able to address both. And what it also enables us to do is uh dial up the staking percentage in ETHB to a level that captures, you know, a a more significant portion of the yield, probably higher than we otherwise would have been comfortable doing if we were folding all investor types into the same product, including folks who maybe were less focused on capturing that yield.

>> So, behaviorally, is it a material different investor going into one of the other or is it you've unlocked the ability for different people to choose different proportions of your funds to hold? >> Yeah, we're we're definitely not seeing a pattern of a whole lot of switching. Uh most of the days that ETHB has been gaining assets, ETHE has also getting inflows. >> Makes sense. Well, it's been a great success, and to the extent that you guys continue to make access to the crypto ecosystem easier, especially for all the people that don't like everyone in this room know how to go and do this on their own.

It has been a huge win. I mean, it's night and day since the ETFs went live what this industry looks like. So, I think the thing I wanted to focus on a little bit was tokenization. So, you've obviously done a lot with tokenization, BITO, the most successful tokenized fund launched several years ago at this point, and it accumulated several billion dollars of assets. You've recently launched two new products, though, and without getting into the specifics of it, a lot of it is focused on the money market space. I guess what I'm interested in understanding is like why is tokenized cash so specifically the focus of Wall Street right now? Like, what makes that the great first place to enter into the tokenization world?

>> Yeah, I think it's been um a really important and often overlooked question, which is people take kind of the generalized value prop of tokenization and say, you know, it's faster, it's global, it's digital, it's instant settlement, 24/7. It's programmable. Like, who wouldn't want that? We should just throw that value proposition at everything, and it'll obviously take over the world. And in practice, it's not so simple because there are material frictions that offset some of the, you know, otherwise logical benefits of moving to a tokenized world.

So, what we really need is clear unlocks that tokenization makes possible in a particular asset class or application. And the the strongest and clearest of those out of the gate was in money market funds. Why? Because it breaks the historical trade-off that investors or savers have had to contend with, which is do I want to capture full US Treasury yield or do I want perfect liquidity? And um historically, even a money market fund, which is quite liquid, still not liquid over a weekend. Still kind of end-of-day type liquidity.

Whereas now with a tokenized money market fund paired beside a stablecoin, this ability to instantaneously convert between them and to perennially hold your savings in a full US Treasury yielding asset and then the moment you actually need it to make a payment or to settle a trade or do anything else with cash, you have that ability. So, that was that's a game-changer. And that's why this is grown so fast. It's now over 10, uh, billion dollars as a category. As you mentioned, Bitwise is one of the the leaders in that. Uh, we have more, uh, funds on the way that we filed for that will enable this to be accessed by a more of a retail, uh, democratized audience, which we're really excited about. Other asset classes, I think there are inklings of

those sorts of unlocks, but they haven't been, uh, as decisive. And that'll be the real test is how do we find those powerful unlocks to start to roll out the type of success we've seen with tokenized money market funds to other asset classes. Um So, on the ShapLink side, you've been vocal in the past about tokenization. Obviously, it's a big reason why you guys are so bullish on Ethereum. Um obviously, I think we both agree it has massive potential to be an infrastructure layer for finance in the future. What do you think needs to happen for Ethereum to remain the preferred blockchain for tokenization?

>> So, I think the thing that Ethereum has a massive incumbent advantage in is liquidity due to network effect. Over half of stable coins, over half of the transactions, the supermajority of real world assets and tokenized funds live on it. They're in and as a result, liquidity begets liquidity. So, I spent the first half of my career trading rates and credit in traditional finance and it was all about the network effect of trading with the largest balance sheet that was trading the given thing. Like, you wouldn't go to a very small broker trying to source something. You would go to the largest firms in the given space and they would be the ones that had inventory. The same goes for Ethereum. You're not going to go and trade on a small blockchain that has a billion dollars of overall secured

assets if you have 250 million dollars you're trying to take a collateralized loan against. Ethereum being the largest already has that pole position. But, what's next is that we actually have to bring that additional composability benefit at scale so that real world assets become more valuable on chain than they are off chain. Right now, I think a lot of people use RWAs as an access schema on chain, but tokenized equities, for example, there are not that many people who are trading tokenized equities who have access to a Robinhood account unless they're hobbyists. I think for us to make that stepwise move would be to see a cheaper borrow rate on chain. Or, next time there's a GameStop style short squeeze where someone can earn 500% APY on their

equity, maybe you see stock loans come on chain. Maybe that person no longer has to pay the majority of the yield to their brokerage account, they're able to go and earn the full yield by doing a lending pool. I think marginal value has to be the thing that brings people on chain. Ethereum having that largest liquidity pool and network is the ideal place for it to happen. We can't rest on our laurels because very little has actually been accomplished in the grand scheme of global assets. We are 0.1% of global assets currently tokenized. So, we're barely scratching the surface, but I think if we can bring liquidity at scale on chain, Ethereum is the natural place for it to come. That doesn't even consider all the security benefits and things of that nature.

That's purely the network effect, assuming people are going to be best economic actors and try to get the best value for their assets. >> I think that makes sense. And anything holding you guys back today, but you started to allocate on chain, which is exciting. Anything holding you back from uh specifically at Char- Shapelink allocating at scale on chain? >> So, we've done some allocation. So, last year we did a $200 million into Eat the Vice LRT wrapped ETH. We also did a and we bridged that over to Linea. We just announced a $125 million private fund with Galaxy to basically deploy in six to 10 new protocols, so that there's that cold

start problem where billions of dollars of capital gets invested by venture firms into great founders to build great products. Very little of that money is ever earmarked to actually use those protocols day one. So, we'd like to be that capital. The thing is, the regulatory process, the audit, etc. of doing this in a public company, we're generally doing something for the first time. When we minted that LRT, no one had ever done that from a corporate balance sheet before. We were certainly the first people to use a bridge out of a wallet like custodian. So, every time we do one of these things, it takes a bit of time for us to go get the approvals from the regulators. In the case of our last women, OCC, the the bank regulator, explicitly had to approve that exact contract address, that exact bridge. So, we are trying to

pave the way in that respect, but we're certainly block and tackling a lot because we're not going to lower our standards to do it. And in a lot of ways that means that we're trying to build the infrastructure while we do these deployments. We're very excited for what this year will hold because I think we can do a lot more deployments given the momentum the regulators have. Like they are in a posture where they want to approve things. They just want to approve things that are professionally brought to them and not just approve things either cart blanche and then have a large event cause them to have to walk it back or not have to approve things that get them over their skis and back track in a lot of the progress. So, we call it an efficient frontier. We're trying to kind of plot our way out it

methodically one layer of risk at a time. It's taken us a bit of time. I will say every deployment happens quicker than the last. Our first one took us a very long time. The second one took a little long was a little less time than that and I expect that pattern to continue as the precedents are kind of fewer and fewer and we can kind of just roll up our sleeves. I guess to return the question to you from a tokenization perspective, what needs to happen to get us to that next large wave? Like what does BlackRock need to see for tokenization to really hit its stride?

>> Yeah, so multiple years ago we sort of landed on this uh framework or four things that were the critical barriers that would ultimately become critical unlocks, which is uh focus around asset classes custody, regulation, and uh exchange listing. And there's been meaningful progress made. I mean at at that time there's basically uh $0 in in tokenization that wasn't just a you know a very basic proof of concept and now there's uh 30 billion or so.

Uh so it's progress. Where's that coming from? One, there was coalescence around asset class of focus. So, in the early days of tokenization people were uh trying things in literally everything under the sun. It was art, commodities, real estate at the property level, real estate at the fund level, credit, private equity, stocks, ETFs, bonds, bank loans, government debt. You name it, someone was trying to tokenize it and that really fragmented the industry's efforts and prevented there from being a real uh coalescence and a focus around at least one asset class that we could say, "Here's a here's a thing that we used to hold and trade and issue like this and now we overwhelmingly actually do it in a tokenized way. And the closest to that that's happening is in money market

funds, right? And so there's real focus there and now there's real progress. Uh I would say on exchanges there was this question of would the TradFi exchanges get to tokenizing their existing securities first or would the crypto exchanges get to licensing and developing the infrastructure to support uh tokenization of securities alongside crypto first. And it seems like the latter is happening. There's been a huge acceleration of effort from all the big crypto exchanges. So I'd say that one is is getting very close to being uh materially solved. And of course there's hundreds of millions of users globally already on these crypto exchanges and opening [snorts] them up to uh another uh much broader universe of asset types is exciting.

Custody part way, obviously all the the big crypto custodians including the institutional uh crypto custodians like Coinbase, like an Anchorage, etc. uh support tokenized assets. But um what we really need for institutional adoption scale is all the traditional bank custodians to do that. And they're undertaking efforts, but it's still I would say a ways away. That's critical because if you want traditional investment funds to include some tokenized exposures within their existing construct, they're typically not going to do that unless it can be accommodated and supported by their existing custodian. So that's a real uh hurdle that needs to be met. And then the regulatory piece, I try not to talk about you regulatory clarity at

conferences cuz it's such a cliche, but um what I think is a little bit missed, yes clarity would help in this, but clarity is not really a tokenization bill. It's more about crypto. Uh so there's still a bunch of questions that will be unresolved in terms of how tokenization uh is supposed to operate within the regulated perimeter here that allows it to unlock uh, the value proposition of the technology. So, we'll see how that comes. But, I would say relative to maybe 3 4 years ago when we first sort of set out with that framework, there's been material progress.

>> Well, I would just say in we're all lucky in this room because most people theorize about what needs to happen to see a major growth opportunity. And in this case, if they were to tokenize I shares, we would see TVL 10X on Ethereum. So, in some cases we've just heard it directly. What is the criteria list to bring institutional capital on chain and mass? Thank you. >> Yeah, and um, you know, we're at this moment. It's an exciting moment even as sentiment in the space is is challenged uh, you know, in the relatively recent term.

I think that's ultimately going to be a blip uh, in the long-term picture of this. But, tell me, what are you most excited about 5 years from now? >> I think for me it's agentic finance actually working in a way where it adds value to people who are not traders day-to-day, who are not portfolio managers or investors day-to-day. Like right now, I don't think very many people trust agents to do things that they don't actually understand how to do themselves at level. You have to be able to basically check the work. Um, but I've already started to see it in my personal day-to-day. Like it it acts like a guardian angel right now basically coming in and saying I think you're about to do something dumb. And that's today. 5 years from now, I could

imagine a world where I'm trusting it to do things that I wouldn't otherwise be willing to do myself or understand how to do myself. And that chasm will be huge because right now, if you wanted to go in and trust your credit card to your agent to go take actions on chain, the credit cards don't want you doing that. Like they all build systems. But, what happens if it screws up? They're not going to let you charge back. Or if you have the ability to charge back, it undermines the entire thing. And so, where I think Ethereum benefits in the long run is that immutability, and once the transaction is complete, for better or worse, it's complete. And so, where I think a lot of this agentic payments are going to come from is not your agent going and doing microtransactions on your behalf, it's your agent going and

doing transactions you didn't have the time or wherewithal to do yourself in the future. We're very close. The rate the models are getting better and better. It's honestly eye-watering. So, I'm very excited for that, and I think that it'll be a stepwise function or two in terms of on-chain payments. And then to throw it back to you to close things out, like what gets you most excited for the next 5 to 10 years? >> I think that's exactly right. It's the intersection of AI and digital assets. And you know, as passionate as we both are about digital assets, I think any person who studied this knows that AI is just a whole order magnitude or more more consequential theme. But digital assets has an important role to play within it.

And a lot of that is agentic commerce. If you think about what AI is, it's internet-native or machine-native intelligence. What is crypto? It's machine-native money. And so, the synergy there is potentially massive, and I think it's very logically a place where a lot of crypto development should start to focus. >> Absolutely. Well, I think we are at time. I appreciate it, and great chatting with you. >> Thank you. Likewise. >> [applause]