The Trillion Dollar Internet Bond

Transcript

I think the trafi mind really understands ethereum because like Bitcoin it's like okay what makes Bitcoin special all right there's there's 21 million coins that they can't be any more than that so like it's limited Supply totally okay I get it store value then they go to like ethereum and they're like wait a second you're telling me that there's yield on this thing and I can have Smart contracts that's pretty cool and so I do think that that eth as an asset class is going to be super appealing um as people take the time to really understand it a little bit it's it's a matter of uh of when not if welcome to bang list where we explore the frontier of Internet money and internet Finance this is Ryan Johan Adams and I'm here help be become more bangless yep just me today solo episode

David's at a conference the guest today is Chris Perkins and myi this is definitely Frontier of Finance material so Chris has a fascinating background as I've come to learn uh he was a marine he was shot at in Iraq he was at Leman Brothers when all of that came crashing down in 2008 then he was at City Group trying to pick up the pieces of the financial crisis that's when he first ran across Gary gendler now he's in crypto um all of this as you might imagine gives Chris Perkins a very unique perspective on crypto on National Defense on traditional Finance so we talk about all of that in the episode but that's not even the main event the

main event is ether the asset and a new reference rate an interest Benchmark if you will he's building on top of it so this Probably sounds in the weeds to a lot of people but it's actually key to unlocking trillions in new Financial products and capital you might call this the liore for eth truth be told I didn't fully understand what liore was or why it was so useful in traditional Finance but we get that education today and I want to give you some context on why this is important in the scope of Bank list and crypto and crypto investing so on Bank list we've described ether the asset as the

internet Bond that's a a narrative that we've used a way of understanding an analogy uh since probably 2020 um before proof of stake on ethereum even existed before ether even had yield we called it the internet Bond because it's simply the best way of describing ether the asset and its future um ether is money staked ether is the internet Bond so what do we mean by this ether is like the bond of a sovereign country it's kind of like a a t bill that's a comparison we've made in the past when you stake dollars into a Government Bond like a treasury like a t bill you get yield that's denominated in the dollar and when you stake ether into a validator you start staking your eth

you get yield denominated not in dollars but in ether and where does this yield come from well you know you've listened to previous Bank list episodes it comes from revenue produced by the ethereum protocol itself in the world of nation states with Sovereign bonds you might call these revenues taxes because the revenue is proportional to the overall size of the economy and that's true for ethereum as well the revenue produced by the ethereum protocol and given out as a yield to stakers to validators is proportional to the overall size of the ethereum economy you have more Goods you have more services more blocks based Demand on ethereum you get more transaction fees you get more Revenue you get higher yield for those staking

so what is the next step to establishing ethereum as an internet bond to making this narrative to making this meme even more true than it is today well according to our guest today what we have to do is standardize on a global reference rate for eth daily yield so traditional finances has done this in the past using things like liore which we'll discuss in the episode so we need to create a liore for ethereum a reference rate on the yield on a daily basis that can be used both onchain and offchain has to be open has to be public accessible it can't be corrupted in the way that traditional Finance reference rates were like liore and why is this all important what's the what's the summary here well in trafi interest

benchmarks like this like formerly liore and other reference rates underpin hundreds of trillions of capit Chris mentioned in the episode $500 trillion in derivatives markets all underpinned by these types of reference rates they also set the risk-free rate they determine the cost of of capital so this is a a metric for investors everywhere and they are also part of the reason the dollar is the global Reserve currency they're the reason Jerome Powell is the high priest of global finance and the world stops all of trafi stops to listen to what he has to say so here's how this connects for ethereum to become an internet Bond Worth trillions of dollars it will need a reference rate

something similar to the reference rate ceser that Chris talks about today this is how ether the asset scales and becomes Central to the functioning of the global economy which of course you know we believe is its Destiny so hang on fascinating episode ahead essential learning for the bank list Journey let's get right to our episode with Chris Perkins but before we do we want to thank the sponsors that made this possible including our number one recommended exchange the place to convert your fiant for ether that is Kraken go create an account if you want a crypto trading experience backed by worldclass security and awardwinning support teams then head over to Kraken one of the longest standing and most secure crypto Platforms in the world

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interesting life I would say three professional careers first he was a Marine Corps officer uh served in Iraq in 2004 in a unit that actually experienced some of the heaviest casualties of the war and then he made a switch over to trafi spent some time there and now he is in crypto and has been for the past three years or so I believe Chris welcome to bank list hey thanks Ryan and I guess to sum it up uh I guess I'm used to getting shot at oh my god wow so has that is that a continuation in crypto are we uh are we metaphorically give getting shot at I mean not to diminish it I'm sure uh in Iraq it's it's quite a bit different than what we're dealing with in crypto

but um yeah well you know maybe let's start there Chris um take us through the um web of your life how are these three things related so uh in the in the Marines in Iraq actually getting shot at and then you switched to trafi doing that for a while and now you're in crypto what's kind of the unifying theme of of your career so far your and your life experience yeah I I guess um always wanted to be on The Cutting Edge uh went to the Naval Academy studied uh National Security of all things at Georgetown after that and then I went into this um Adventure called the Marine Corps I volunteered um in Iraq you know my my family was impacted by 911 I'm from the New York City area couldn't get out and um volunteered to go really to the front

lines um ended up in part of the battle of fuia and then also really the Battle of ratti for nine months in 2004 to 2005 um saw a ton of combat there um and then long story short I was going to go in a bunch of different directions I came back home uh knew a marine who was at Leman brothers and um went down there they actually hired me on the spot when you say Leman Brothers what day are we talking because that's uh like very very important I guess I guess um it was before the collapse right there's only the before and after but when when did you join so I joined in 06 um and literally started building out a derivatives business um and then you know tldr was got blown up in Iraq and then I went to Leman brothers and I

learned what it was like to get blown up there uh I was on the ground floor of lemon when we went bankrupt right I had a deriva book um awful awful experience um but man when when you hit those types of experiences it's also where you learn the most and I'd been in finance for two years but coming out of that um incredible learning that happened and you learn that like when when you hit the biggest crisises like that's when you build the biggest relationships I could tell you all different types of stories but phone rang and uh it was City group and they said hey do you want a job and I said well what kind of package do you have arrogantly and they said it's called a great package it's called the job so I I literally had to get on the train on the next day and I

had to go to City Group where I started cleaning up my own mess um and then okay so I'm at City group and then I got involved in the derivatives industry and we had to take the 00 trillion derivas industry from unregulated to regulated I was I I led that initiative and guess who my regulator was it was chairman Gary G chairman Gary G know him right so um you know under you know it was different back then he was totally empowered by Dodd Frank um and and built the largest uh regulated derous business in the world uh took over a few other businesses by the time I left City Group um I ran our foreign exchange Prime brokerage business and then I took over

our futures business um so I've had about 725 direct indirect reports I found myself running Ryan the largest derivatives intermediary in the world but by nights and weekends and I'd gotten into you met you know you had Sandy on like we had gotten into crypto years prior and I'm like what am I doing man I'm running the largest intermediary in the world but I can go home I'm I'm scared to death because my Yen's not settling for days I go home and I'm messing around with a and compound and I'm seeing technology in fact like I'm like why am I I even needed at this point so rather than um I decided to go all in and yeah this my third year at coin fund um having a great time and um it's been quite an experience I I uh

it's such an interesting background I don't I I want to camp on that for a while I know we're going to talk about something um a little bit more financially geeky uh something that uh I'm calling at least you got to educate me in this Liber for eth uh so we we we'll talk about that in the context of a reference rate and why it's important what you're building over a coin fund but um I you know I've got to ask a bit more about your background because it is just um I don't know you you you've led a very interesting life my friend uh I guess maybe maybe starting from the last part so uh give me give us some more detail on how you went from derivatives and traditional finance and one of the biggest banks uh in the world to crypto like how did that happened because not

many people um cross that Chasm right there's a lot of people in trafi who even still today and certainly at the time when you join think crypto is smoking mirrors uh a scam overrated or something technical doesn't really impact them but you somehow found a reason to to move over why I mean it it was pretty obvious to me years prior um you know we all learned about Bitcoin I I couldn't tell you what year it was 2014 or something like that and um read a a book and I'm like wow um these smart contracts are really interesting and and the utility of settlement was so obvious to me right when you're sitting and running a big derivatives um clearing business it's all about settlements and the latency

you just accumulate so much risk when things don't settle appropriately and so in the beginning you know started to think wow this blockchain thing can really solve a lot of our problems but and I kept trying and trying to implement it and and get it off the ground and there was incredible resistance to to Really Embrace Superior technology that could have actually lowered risk um and then um you know as I started getting into understanding um really I dove deep into the ethereum ecosystem and and really understand the financial applications of ethereum and how how it could change the world and lead to much more accessible so I bought into the uh to the ideals right and the last thing I did at City group was I was actually able to get Bitcoin and

ethereum Futures approved on the CME um this was a brutal brutal feat um you know you could imagine I think there were like 65 people that tried to say no um and like I'm a marine right so I decided to battle battle battle um and explain to them how you know we could risk manage the product why it was it was useful um and look I've spent a lot of time even in my current job I'm I'm on the cftc's global markets advisory committee um I testified in front of Congress on on on derivatives Market structure we have a lot of work to do um and you know here's the tldr it's that our entire regulatory apparatus is predicated on intermediaries now we have Tech and the

reason for that is because we didn't have technology prior um that would that could allow people to Monitor and regulate it effectively but now we do and so it's it's very scary um for you know for certain regulators and I feel for them right they should when I went through um what I went through with derivatives like they were fully backed byfrank their their mission was clearly articulated now they're really not empowered by legislation and so it's a very challenging um position that they're in but like what I'm trying to do is not post on crypto Twitter but rather engage right like try to explain to them look I understand how it works I I I built businesses in try we can use the technology to make the market safer more efficient and more

accessible and so um I'll keep trying and uh you know we're engaging wherever we can look thanks for doing that thanks thanks for trying thanks for Bridging the Gap we we need a lot of that with respect to to um trafi and certainly uh Sandy from Frankin Templeton who actually connected us Chris we had her on the podcast um a few weeks ago she's kind of fighting that that same fight um I got to ask you though because you've had experience with you know like uh Gary gendler in the past and and Dodd Frank and now you're kind of like um Talking to Regulators right now um You said you feel for them and uh that there's kind of like there there maybe scared of the future they're a little bit uncertain that sort of thing I think that's a great framing of it and also

Chris it assumes good faith and sometimes when we're in crypto uh I know crypto Twitter can like dial it up a lot and turn extra to toxic but some of the actions coming out of uh some of our Regulators some of the time and maybe particularly the the SEC a lot of the time and Gary gendler himself don't actually seem in good faith it it it doesn't actually seem like it's coming from a position of um we're uncertain about the future we're scared there's no good uh like regulation legislation it it seems to at least that the tone and tenor of it has seemed like there is this kind of grasping for power maybe or control and it's not like good faith engagement disabuse me of that if if you

will or maybe you think that's the case in some Corners not in others how should uh crypto natives think about our regulators and some of the um I guess actions that that are coming out of like the US has really turned hostile Chris and we're not we're not really sure why they're so hostile to crypto yeah a couple of thoughts I think the what what I try to do is stay maniacally focused on the truth right and the truth is is that this is a technology that's very good for National Security it's a technology that's very good for our markets it it it follows American ideals and so you just got to stay really really focused on the truth um would love to talk about some of the work we've doing around the National Security front as well um but the good news is is

that like we're on the right side of History you and I both know it Ryan right and when you talk to you know the younger members of Congress they get it and and like my son is 16 he had a real difficult job opening a back bank account but you know what opening up a wallet on metamask no problem and so I think that the inevitability is that you know we're on the right side of History um we need to stay focused on engaging and focused on the truth and really educating and engaging because like we know how this how how how this is going to end um but yeah it's unfortunate When Things become political um because that's not good for anyone so like I continue to stay focused on the truth do you think it's the right framing that there are uh many Regulators who are

operating in good faith and some that are not operating in good faith um I I can't speak for their motives or their career desires um but there are some that are working in good faith like you know I work closely with Caroline fam um she's asking for Reg recommendations and so one thing that we're doing right now um on the cftc committee that I'm working on is trying to put forth recommendations on how you know working with like powerhouses like Rebecca reading um you know how do we put forth recommendations that they should follow and and a lot of it is like on us to educate and engage as far as other folks um look I can't speak to their political agendas or motivations uh but all I can do is continue to speak for the truth um you know maybe we can

talk a little bit about National Security because that also seems to be a huge issue right now um is that all right yeah I I would say Chris that yeah let's do that because um the conversation is really shifted I think I mean there's less talk of um like Bitcoin being kind of like a Ponzi scheme I would say and a lot of the conversation has shifted to National Security uh concerns to financial surveillance types of concerns I know um there there have been many uh call it kind of Elizabeth Warren anti- crypto Army uh kind of types that have said that crypto is actually a tool that is being used by by um terrorists by being used by um just like bad illicit illicit Finance enemies uh of the United States

and I know you've you you you've had some takes on that and uh I think you you came into your professional career it sounds like from a national security perspective so I I would love to hear a bit about that one note for the audience and I learned this when uh we were first uh like meeting Chris is Bank list listeners might remember a a letter that um Elizabeth Warren sent uh I'm trying to look this up here um it was a letter that basically targeted some folks in the crypto industry you know crypto lobbyist type groups um you know coin Center Rebecca's group others and basically charged crypto with um per perpetuating kind of a um a revolving door basically taking folks from um DC and then plugging them into the crypto

industry and using that to kind of Bend policy uh to their will and I think this letter from uh Senator Warren was basically like stop doing this uh kind of implying that that crypto was uh kind of corrupting the process of of Engagement with lawmakers and DC I believe Chris were you actually named in that letter uh I wasn't named but um I I did sign the first letter and and and I have visited Congress and talked to them about the imperative of national security so yeah I've been involved in those circles okay so tell me about it what's what's the context for a letter like that and um yeah what what's your take on this concern about National Security in crypto yeah so like I said Ryan um I was

in radi in 04 and 05 it was a super violent place uh I was shot at I was RPG was blown up by IEDs um you know and there were some really bad dudes in that town um and they were terrorists they foreign terrorists um and all that funding that they received to to you know come after us that was all before blockchain right and they they made very good use of Technology they they used the internet they would make these video CDs they use cell phones and their one of their we Technologies of choice were garage door openers right so as we would drive down the streets they would have these iids and they would trigger them with garage door openers and so like as you move forward now you say okay this

these Technologies are so dangerous like I don't know why we haven't outlawed garage door openers because you know they're so dangerous and and they were used to attack me for for nine months in Iraq and so like that's the Paradigm that I'm attacking this problem with right anti- crypto Army what is crypto it's technology it's not good or bad it's just technology right and in fact if you if you look at all the the analytics that we have it's an Inc you know with crypto you can generally find the transactions and it and it leads you to the bad guy whereas you know Fiat is pretty so had the opportunity to work closely with xcia officers Military Officers we go down and say look this is how it works today Fiat has failed us

Fiat um the sanctions regime that we have today is just not working I mean before I came into crypto I did a lot of research and I looked across the ofac uh sanctions list and the amount of violations that we've seen amongst the banks you know people don't know it even Berkshire hathway got in trouble for funding uh Iraq or sorry Iran take take a look at it um so the existing systems is not working however this technology that we have I believe is an improvement um and and I don't know why you know we're focusing on a technology we should absolutely focus on the illicit actors right and oh here's the other trick we don't need legislation for Regulators to go after elicit actors they're fully empowered so when you hear Regulators

say it's full of husters or frauders that's great please please from the bottom of my heart go after them right you have the power to do that please do it and you'll hear as you know any crypto native will tell you we have no time for fraudsters in our space they're stopping us they're slowing us down so that's my take my friend where do you think that energy is coming from sort of the the anti- crypto uh energy just just in general is it um is it is it a place of just not understanding a place of ignorance is it a place of fear or like once again is is it sort of some malevolence towards crypto um coming from like a I don't know an undetermined Source yeah I think it comes back to a lack of control and understanding and I

think if we were to step back and look at first principles and values um you know obviously the technology that we work in every day is actually very congruent with American values of exess of of like providing additional access to markets um so you know I think time is on our side I think we're going through elections here shortly I think as as time moves on you know you know we're going to be in a very good spot I'm I'm very long-term bullish um what what's your take on what the regulation should be with respect to uh crypto then so um I like maybe just to Steelman the arguments a little bit um like against crypto and in favor of the existing uh banking structure that at least the US

and the West uh kind of has today right now they have the power to freeze bank accounts let's say in a in a crypto World they lose that power um they can't freeze an individual's ethereum address uh necessarily Maybe have that power of stable coin like usdc in tether but if it's denominated in Bitcoin if it's denominated in ether they lose that ability um there are as well privacy mixing types of uh tools and uh many and the vast majority of uh usage of of those privacy mixing tools are um you know basically people wanting just individuals wanting privacy so that you know somebody can't like connect all of their uh all of their addresses together and drive their full Financial history

and yet that can be used by um actors that are you know like acting against the US it can be used by terrorists it can be used by uh North Korea and indeed uh has been in some uh small cases so like what do we do about this because if if you if you say that crypto is a uh permissionless uh censorship resistant technology it's a money outside of the existing uh Fiat system right that can sound scary for someone who is trying to like um centrally control the the flows of money uh across the world in order to stop the bad guys so I mean is there is there some Merit to the um National Security arguments that the the critics of cryto of of crypto might might be

making here the important thing to do is to have very clear guidelines and definitions right and and so like let's look at it a couple of ways there's a difference between technology and individuals that use that technology Tech ology or entities that use that technology um and so we need to have an activities based regulatory regime and so a couple of the things that I'm trying to advance in in my work is as follows clear guidelines right so today what is a security and what is a commodity it shouldn't be that hard and what I'm trying to push through are working with Regulators to come up with clear empirical measures about which

goes into which bucket okay if it goes into a security wonderful we have we have a lot lot of regulations that that that apply perfect if it goes into a commodity guess what the cftc still has full authority to police for instances of fraud manipulation and abuse and we really really owe it to our entrepreneurs that I deal with every single day to give them that Clarity right the other thing that we need to have very clear guidelines are is what is the separation between technology and entities and activities right and so like what does that mean the internet today right it's nobody controls it it's it's available for use bad guys use it good guys use it I don't think we want to take it away at this point I think it's here to stay right

but you know regarding crypto what are the pro what are the properties upon which you know a technology is not controlled it is technology available to all that doesn't mean that you shouldn't you know ruthlessly pursue any kind of elicit activity that uses that technology right and so if a bad guy is using the internet today well go after the bad guy you're not going after the internet right and so working closely you know which is which is separate and distinct from an entity that builds technology for something the farus that's different right so really working on with Regulators to come up with clear guidelines around that and and frankly um lawmakers as well I'm wondering how this argument is is landing it's it's been something that

um I I've been uh thinking about a little bit you know like it it felt like very much uh the the United States in the 90s was um all about finding ways to uh export uh Freedom uh export kind of like Democratic uh principles to the world and the the US government of the 1990s saw the internet as a way to do that and now we're in 2024 and we see this kind of like Rising let's call it authoritarian axis right that's just RI Rising throughout the world in in uh other countries and like from my vantage point Chris like uh crypto is instilled with values of of Freedom values of of democracy values that the the United States our nation was founded on and

this is a a confounding factor to authoritarian regimes any free Society should be wholly embracing of this right it's a problem if you're Russia it's a problem maybe if you are CCP China and you're trying to maintain to totalitarian control of of of your capital and who uses your money system why would it be a problem for a uh democracy that is trying to advance freedom and um I I haven't heard a response uh like on that point from from DC they just kind of continuously point to well crypto is full of frauds and huers and look at Sam bman freed but do you think that argument can land over the long term you know I was at uh black Rock's digital asset Symposium yesterday

and they had a human rights activist on stage and that's the exact point he made uh it was that these dictators um these regimes they are scared to death of crypto why because it espouses all those true American ideals that we believe in um so I couldn't I couldn't agree with that more how about uh trafi Chris so um we're moving maybe from your U Iraq U Iraq era and in the Marine Corps to kind of like Leman Brothers into into City grip so um what what's your sense of the relationship between crypto and trafi now in 2024 so are we making progress is is trafi starting to really understand the potential here it felt to me like

the Bitcoin ETF was maybe a breakthrough moment but um like maybe maybe you know like it's happened before that anyway what's kind of the temperature and how well trafi is responding to crypto at this point yeah it's a great question I I think within every single trafi shop there's the resident Deen at this point who's trying to Advocate to get things off the ground um I think the Bitcoin ETF was a really really big deal right because it's um it's so funny like we made a lot of progress in explaining how Bitcoin is not a security but then we make it a security by wrapping it in in an ETF and it and it starting to scale um very excited about the uh the E ETF as well um but but you know I I think a

light bulb is going on now I think when Black Rock really engag like black rock moves moves markets um when I was at City they they're the biggest most important client in the world when they say they want something it that generally gets done um whether that's through a regulatory lens or otherwise because you know they they're huge and they represent a huge amount of of of of wealth so that's a big deal um that said it's going to take time um the banks are going to be constrained by their ability to embrace crypto because of these things called the bosel rules I don't want to get too technical here but like there's Capital that they have to hold against their exposures and that capital is just too high and so it's very difficult for them to be profitable so it's going to take them a long time uh

because these BOS these Capital rules are going to hold them up but um and again we go through these crazy Cycles where it's like oh Bitcoin blockchain not Bitcoin and like public no private so I think like currently there's a little bit more focus on this like uh private DT stuff but everyone knows where we're going I think Sandy articulated it brilliantly we're going to end up in a in in a public Arena um and I think trafi is going to come along it's just going to take some time um and and there will be naysayers because it's scary uh but tokenization is important for for for trfi right now because of because it addresses some real utility which is quicker settlement lowering risk um but yeah it's just a process and and they'll come around um but it's also

scary right because it undermines business models a lot of trafi is predicated on intermediaries and now you don't need them as much in certain places I don't think you're going to get rid of intermediaries because some clients want that high touch um but other other folks are going to say I don't need that intermediary I can go Direct so it'll be a process so Chris you said uh black Black Rock being the size that it is Black Rock uh gets what Black Rock wants and black rock at some point wanted a Bitcoin ETF and uh poof there we go we have a Bitcoin ETF I've heard Larry talk about tokenization as well is kind of like a you know some excitement for Black Rock there I I imagine he sees kind of a you like a budding growth opportunity um but

another another thing kind of on the list for Black Rock and you tell me might be the uh ethereum ETF and we're going to talk about uh ethereum a lot in kind of the next part of the conversation but does Black Rock want an eth ETF because if so you know that that bows well for our chances here do you have any takes on this yeah so let me flash back to um back in the day when after the global financial crisis um Dodd Frank came out right and Dodd Frank was very prescriptive about what was required for The Regulators to execute it's so funny because the cftc divert Ed uh away from that Playbook once and that was because Black Rock didn't like the level of of asset protection that the

law was delivering and so they said we need to change you know guys Regulators we want you to to to better better uh Safeguard our collateral and that was the only real deviation from that Playbook with the cftc back in the day and so yes I think uh Black Rock is focused on the EF I think the correlations that we saw um that stood up in in some of the uh the Court ruling that we saw with with dcg stand up I think um it's not a matter of if it's a matter of when um but I think the challenge and and by the way I think it's gonna I think the trafi mind really understands ethereum because like Bitcoin it's like okay what makes Bitcoin special all right there's there's 21 million coins that there

can't be any more than that so like it's limited Supply totally okay I get it store value then they go to like ethereum and they're like wait a second you're telling me that there's yield on this thing and I can have Smart contract tracks that's pretty cool and so I do think that that eth as an asset class is going to be super appealing um as people take the time to really understand it a little bit and so I look it's it's a matter of uh of when not if and um hopefully sometime this year so you're doing some work on that front Chris at uh coin fund and uh that's where we get into kind of the the more financial geekery point in the conversation but I think this could be absolutely massive in terms of advancing trad's ability to understand ethereum and maybe their

ability to build products uh in the ethereum ecosystem in general and and based on ether as a productive yield bearing asset and I'll just maybe frame this up for uh Bank list listeners and kind of like um give folks a sense to to the the extent of my understanding and and I'll be kind of dependent on you Chris to to sort of take us forward so after our conversation uh with Sandy from Franklin Templeton um we were just having a chat after the fact and she said you know what you got to check out Ryan this is going to be and David was there too this is going to be massive uh for crypto is um there is a a new um I'll call it a benchmark but you might use a different word like reference rate for instance uh for crypto that um this

guy named Chris is uh heading up over at coin fund and it's called Caesar and uh I said okay well tell me a bit more and um she she told me more and I said well that sounds a little bit like Liber lior for eth right a reference lior which I understand is kind of like a big deal in traditional uh finance and I said those words um not fully understanding actually what um what lior is used for in trafi just knowing that it's one of those things that is incredibly important and um I'm wondering if you could kind of take up the conversation from there both tell us what you're building and why it's relevant for uh ether and ethereum and and what you think the potential is here but maybe start the conversation in this this

context of when uh somebody talks about a liore for eth what are we talking about like what is liore maybe we'll we should start there yeah let's step back so interest rates Drive they're the pillar of modern day Finance right there's nothing more important than interest rates you turn on your Bloomberg in the morning they talk about companies a little bit but they mostly talk about the fed and they talk about interest rates because interest rates Drive everything um the thing about interest rates previously is that they're very centralized and highly controlled whether that's the FED that sets rates um they do it a few times a year you know it's it's not open it's not

transparent per se uh and people are always betting what's the FED going to do right that that is modern Finance like it or not liore was a rate and I said was um because it was it was incredibly important back in the day it underpinned hundreds of trillions of dollars in underlying U Financial assets right it underpinned loans it underpinned hundreds of trillions of dollars in derivatives everything keyed off of this rate and this rate was set by a bunch of um it was the London interbank overnight rate so it was a function of of the the U the rate at which banks lended to each other and the funny thing was was that it was um it was determined by a handful of Traders

at a couple of banks where they would submit bids every day and that rate would be produced um over time it suddenly leaked out that that rate was being manipulated and think about it you have hundreds of trillions of Downstream products that are going to that people either have to pay or receive based on this rate highly controlled and totally manipulated um insane and so um after that and I don't even think they understand yet just the financial consequence of this manipulation go back and you can read about it um but fast forward to today there's been a lot of rates reform uh across traditional Finance they've replaced Libor in many

cases with a new rate called Sofer in the US the other thing about rates is that they're very Regional right so you have eonia you have Sonia you have all these different rates throughout the world set by different governments um but let's fast forward now to why this ethereum why ethereum staking is so so incredible right and by the way in traditional Finance even today the largest derivatives Market in the world is the interest rate swap Market interest rate derivatives this is a $500 trillion Doll Market right just a like I mean the size of this is incredible um and why why is why are interest rate derivatives so important

because they give incredible utility right if you want to go get a mortgage you know you can get a floating rate or you can get a fixed rate well you know how do you get that fixed rate somebody swaps fixed versus floating right so it gives incredible utility to the consumer so before the merge we were sitting around at coin fund and we were just like wow when we go through the when when when we transition from proof of work to proof of stake oh my gosh we're going to have the first real interest rate in crypto and this is going to be incredible because and and really what it comes down to it already exists right like it's out there you can observe it it's on chain um but if we can build social consensus around an

observation period right you can compose so much around it right and and again how do we bring in all of that utility of whether it's the interest rate swap Market um there's a bunch of different applications I'll get into but the whole idea here is that with with proof of stake you essentially have have a kind of like a liore but it's Global in nature it's open source it's completely observable and completely replicable and if you build social consensus around a standardized snapshot you can effectively build like what we have in traditional Finance which is a forward

curve so you can project that rate in the future and you can build all Next Generation Financial products around it um and so really there are two primary use cases for a benchmark of this nature and maybe I can talk through before I get into that maybe how how we constructed it um but but really there's two fundamental use cases one is for benchmarking and the other one is to transfer risk in in one way it seems like this reference rate is kind of like a what we in crypto would call an oracle right it's kind of like a a data feed that power you know how like chain link oracles power so much of of defi you know Liber was essentially a reference

rate that powered many of the we'll call them contracts trafi contracts in real life um is that a useful way to think of that for a crypto native like lior just being sort of like an oracle no not really an oracle so like an oracle would deliver that rate to a Smart contract that makes better sense okay yeah so so it would like it's more it's more of a price itself rather than an oracle it's more of a price itself rather than the Oracle and and yet maybe the way it was related in my mind is that it um that rate really matters right like it sets a lot of the um I guess like you you said there were hundreds of trillions of dollars that were un underpinned by uh liore when you say underpinned by by

lior what do you actually mean so how is this price feed essentially being like fed into the hundreds of of trillions of dollars and what happens or what did happen in the case that there's inaccuracy yeah so one of the most uh prolific products in traditional Finance is something called an interest rate swap okay we call swap something different in in crypto land but in traditional markets a swap is a derivative and usually it's with where one side pays fixed and the other side um re uh receives float okay and so or you can have something called a basis swap where it's floating versus floating which I'll get into in a second right but

why would somebody want to receive or pay fixed is because they have a view on where those interest rates are going and if somebody wants to hedge themselves from a spike in in in the rate um well then maybe they're going to pay fixed and receive floating if that makes sense or the opposite way around where they want to understand um where where they're Keen to have receive a fixed cash flow uh they're happy to pay a floating rate and so like a good example of that is like a fixed rate mortgage right people want a fixed rate mortgage and so what the bank does behind the scenes is they'll swap out uh fixed for floating in order to give that that product out to a consumer and so

interest rate swaps and and I think you guys had simonon from Voltz back in the day he talked about this Market um but but it is the largest derivatives Market in the world um or you can have a view on two different floating rates that's called a basis swap which is floating versus floating and so like you know I can talk about why that's applicable in ethereum land but but this is a very very it's the most common most prolific derivative in the world okay and I I called it an oracle earlier and and your comment was maybe it's it's it's more like a think of it as a price feed but it is um determined by you said a handful of uh Traders right and I I you you were talking you kept using the term was for liore

because it sounds like maybe it doesn't exist in the same form it used to I I recall in was it 2012 kind of the the liore Scandal um you know took hold or or became uh evident and became public information and um it was essentially being corrupted right so this is sort of um like the the traders who were corrupting it like what what were they doing what benefit were they were they sort of corrupting it in ways that would give them an advantage or how exactly was it being corrupted back in 2012 so they would have a a Traders would have a book and they would be positioned in that book um to make money depending on whether that rate went up or went down and so um or people within the bank

would have certain positions where like if the rate went up or down they would stand to make or lose a lot of money and so there would be you know according to public documents they would whisper in some of these folks ears and say Hey you know bump that rate up a and a little a little change could result in billions of dollars of of of p&l and so there was manipulation of that rate and when they submitted those um their levels uh to to create and and and settle that rate every day um it reflected the the risk that they had on their books and so that they could profit in certain cases rather than lose money for their own books but the downstream implication was just massive this was a huge scandal at the time right like what happened in CFI

when this was revealed yeah huge issue um there was all types of fines billions of dollars of fines to various Banks you can go back in history and look at it um and then there was a number of Benchmark reforms where liore was was essentially phased out in in favor of of rates that were more transactional based one one of them was called Sofer as an example so there was I mean it was a massive massive um issue um cost cost the banks billions of dollars and fines and then even more money to to try to figure out the way forward so it was a it was a huge challenge yeah I was going to ask you because it's so fascinating because in uh you know in crypto we're we're we're all about creating corruption resistant protocols and it it sounds

like this price feed in particular was not uh as corruption resistant as it needed to be and I'm wondering with some of these other reforms like the the suur that you mentioned are they I guess they're they're trying to add a layer of corruption resistance through through better protocol design just trying to translate this for for crypto natives a little bit and and through regulation right and so um that's kind of like I guess the traditional Financial uh system that's their way of of doing it hey we'll we'll kind of design this a little bit differently we'll uh add additional regulation we'll put some more kind of like uh checks and balances and are these new uh reference rates these new benchmarks are they more corruption resistant are they better did

they like quote unquote fix the problem that was with liore or do they still have like some uh some holes in them as well well I guess time will tell but um they they tend to be more transactional based now now um but you know this is just one of many different rates I mean look look at the FED itself it sets rates as well um and it and I think the point with traditional rates that we see is that they're very centralized right and wouldn't it be amazing if we had decentralized rates um that were more transparent and and observable so you know is anything perfect um maybe maybe not um but they're trying to get away from this like dark room um manipul they're trying to abstract eliminate an ability to to

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designed yeah so before before the merge uh before the movement to proof a stake we realized that gosh these validators and at the time um it wasn't the close to a million now um but they're receiving reward rewards every single day and they're receiving those rewards in the form of emissions and transaction fees and if we're able to look across now it's between 900,000 and a million different validators and if we were to take those rewards of those emissions and those transaction fees take the mean and annualize it we would essentially have this and and I don't want to use the word risk-free rate but we'd have this like standardized rate for ethereum

and if we can build social consensus around it you can really build on top of it and so there's two components to to Caesar um there's those emissions and transaction fees emissions are a function of the number of Val validators and we're watching this this number grow there's a lot of talk within ethereum circles around you know you know what's the endgame here um but generally speaking the more validators you have the lower the emissions okay and then you have transaction fees and transaction fees come from an existing Supply those get rewarded to those 900,000 validators um and when you step back and we started

observing this rate it was fascinating because of course as you saw more validators come on you see the Baseline rate come down the emissions come down but those transaction fees were really really interesting um the first thing that we identified was during FTX um November of uh 22 right massive spike in the rate and why is that it's because those transaction fees went through the roof people were willing to pay whatever they had to pay to get those assets off of The Exchange on chain get them safe right so it jumped you know up to like 7% it was it was it jumped materially fast forward then uh to March of of 23 another like massive Spike and

we're like gosh what what's happening what's happening and wouldn't you know it svb happens and again whether it's the activity between tether and usdc or again fear of something terrible happening I got to get my assets on chain we again saw those ethereum transaction fees go go through the roof and and the rat spiked materially but then the one thing that people don't get and like I I I show them the graph we maybe put it in the show notes but we saw U the staking rate go through the roof in May of uh 23 and and you know what happened in May Ryan what's that Pepe right so Pepe started happening and you saw that all this

activity on the layer one and again those transaction fees went went very very high and so this is really important because this rate is now showing a lack of correlation to like external macro Market factors which is which is very important but anyway that's how it's constructed um what we do is we take the mean annualized return of emissions plus transaction fees and what we see is something that's really interesting um right now like yesterday uh the print for Caesar was about 3.5% okay and people are like oh that's terrible e staking rates are so awful um trfi rates are so much better right now

but that's actually not true um because there's a concept of something called a real yield and when you adjust for inflation you'll find that that this ethereum rate Caesar is actually very very competitive uh when it comes to uh the yield that you can get through traditional Finance so that's the construction okay so so many questions uh about this then uh Chris and like one one basic question is so there is sort of a um a percentage uh yield on like websites like um ultrasound. money uh for instance right so if I go to ultrasound. money right now um I see the issuance reward uh that that you mentioned that's about 3% per year and

then um yeah I I think I also see a transaction reward and you can kind of calculate the like how much e field you have or if you deposit your funds into like a rocket pool or a Lio you know you generally know what you're getting you're getting like 4% you're getting 4.2% how are those numbers different than Caesar yeah so it all depends like what we really need to do as an industry the most important thing we could do is is build social consensus on an observable rate because if you have social consensus then you can start like I'm an old naval officer and if you look at like containerized shipping right like ships are really hard to pack back in the day and then all a sudden one day is like a guy's like listen if we put them

all in a box we can really stack them and we can build all types of things and so those rates um they use different types of methodologies um um you know our methodology is is transparent and online and and we're not competing with them in any way shape or form um but what we've done is we've laid out a methodology um and we've used some of the regulatory um there's a there's there's principles around constructing a benchmark it's called the these it's called an iosco principle so we we've followed iosco principles in creating this rate ensuring that there's sufficient redundancy Etc um and then when you Institute uiz a rate you have someone who administers The Benchmark

and then you have somebody who um calculates and distributes it and so we've got a partnership with coindesk indices um you know what we do is like we're trying to find like the the the Baseline return uh across the ecosystem and so rather than take a small number of validators we try to take as many as possible um and then what we do is we've actually found that some of them um some of these validators don't operate very efficiently and so um and that's okay um and so what we're trying to do is take that mean annualized return um standardize it and then allow institutions to use it as a benchmark upon which they can build like you know

why was liore so adopted it because it was a standardized rate and if that was the standardized floating rate then you can also build because everyone observed it socially then you could observe these products okay hey I I need a fixed rate so I'm going to trade fixed versus floating um today when you go to um a staking protocol right um do you know what rate you get it's uh like their pool right the rate you get what you get you get what you get and they take five or 10 percent right right as we get into more of an Institutional Market I think things are going to shift a little bit because a lot of Institutions are going to say well wait a second I want you to

to to achieve the the minimum standard right if you earn above that then yeah I mean you earned it um but what what consumers will want is they're going to want transparency of a third-party calculation um and of course that provider can price you know either above or below but that's a much more sustainable transparent model than hey you get what what I get and I take 10% by the way like having been around for a long time when you have a model like that pretty soon people are like oh I don't want I don't want you to take 5% you know show me a better price and then those fees get compressed very closely to zero I think by introducing benchmarks it's actually going to be

really healthy for the staking Community uh because they can price relative to that Benchmark I think what you'll find is that most professional stakers outperform that Benchmark and then consumers want a third party transparent Benchmark rather than saying oh what's my rate well I don't know whatever I get well what is it so that's one instance and then you can actually get even more sophisticated and remember that that thing I talked about fixed versus floating um if you have a standardized rate you can say well wait a second um you don't want three and a half% you don't want this floating rate what if I pay um you know if I give you a fixed rate of three of 3% right U and you can

do that through swaps and so I think you're going to see a lot lot more sophistication around the staking industry um because like this is like this is what makes ethereum great the staking yield is is a beautiful structured product and and so many so many things can be composed around it to meet the financial obligations of of the consumer on the other side I see so this is just a a mass standardization it's it's kind of the mean it's kind of the average of of all validators basically and it's not specific to one pool like Lio and it's not constructed in in like kind of like a we we don't really know how maybe uh ultrasound money sort of deres its percentage this is meant to be a standard representation of how much

yield uh the average Staker will get at a particular period of time is that right so if Chris if this says like 4% if the Caesar says 4% then that's basically what uh the average Staker is making less any fees that they pay to a third party that's kind of like the 4% is sort of the number uh you know of E staking on that particular for that particular time period is it like how often is it refreshed is it like daily is it like you know minute by minute is it hourly yeah so we can do it fairly often but what we do is we publish it once a day we publish it at 4M New York we calculate it over a 24hour period um we we we start calculating it right after 1:00 we look back 24 hours and then we

produce it at 4M what we don't have yet and what we're really excited about is is a forward curve right and so we have the Baseline rate that we set every day but now the question is going to be hey what's it going to be like in three months and and as you start seeing derivatives trading and we're hopeful that that's going to happen pretty soon you can start having this thing called a forward curve and that will start informing um a lot of really interesting applications so Chris um you hesitated uh when using the term um risk-free rate uh to describe this and I I want to talk about what risk-free rate actually means in additional finance and why you like reach for that word and then also kind

of hesitated or or put a caveat around it and applying it to this particular instance my understanding of like risk-free rate from just an investor perspective or like you know a uh you your business class 101 is that is kind of the the cost of capital the cost of of money so you can evaluate all your other existing uh Investments if you are making more than the risk-free rate let's say which is again determine generally by um by kind of like the fed and that you know that's where you get the rate and so if the FED is is paying 5% interest uh as you're paying now and um you make an investment and that investment is only yielding like 4% annualized per year well you're not

doing very well in that investment right because 5% is the threshold that's the risk-free rate like why would I do any other investment at less than 5% or less than the risk-free rate so it's kind of like call it the cost of capital in in general anything you consider investing in it better make over 5% why because if you can't make over 5% just put in in t bills you know you're going to get the money back the US has a money printer it's going to pay you that 5% so your Investments need to be making six seven 8 9 10% and out on the risk curve that's why the concept of risk-free rate is is so important and it's generally for the entire world because the US is the um you know the global money basically is kind of determined by uh the Fed rate

and so that's the concept of risk-free rate Chris would you add anything to that no I think I think you nailed it so if I'm by the way I I wouldn't even say like the risk-free rate is risk-free at this point um there's been a couple of that we've seen over the last few years but um yeah in theory if if you don't take any risk that's the return that you should achieve right and we've and the other thing is like you did talk about how the US is global Reserve currency for sure but like ethereum is actually truly Global right and in a way we constructed this in a similar manner right if I have capital what's the minimum that I should be able to achieve without you know liquid reaking or anything else we can talk about that another time right so what is that

Baseline foundational return that I should receive and like that's how we constructed Caesar right because you should be able to achieve pretty much that mean annualized return yeah so I I want to apply this to um to to crypto then Chris and and maybe you were you were kind of going there um so basically when I think about um the Fiat world and the traditional Finance world or just you know General investing any sort of investment I want to make with my dollars right it better achieve more than the you know whatever the fed's paying the the risk-free rate and um at least I view this in a similar way um in the crypto uh ecosystem the crypto economy I sort of have selected for myself either the asset as kind of the

uh denominator right as kind of like the um the unit I I know others use Bitcoin other things but like for me it's it's actually um been ethereum the the entire time and so the eate and so if I making an investment in let's call it a um some yielding product that's taking my eth and like reaking it something in igen layer let's say or if I am taking my uh ether and I'm selling that for some sort of alternative investment in crypto say a token I want to go buy some some hot defi token well um my risk-free rate is actually basically what what what C Caesar is saying so it's it's you know if it's 4% right now the investment that I'm about to make had better make over like using that equivalent eth uh and

like 4% in a token investment otherwise it's not worth it for me why because I could just take my Capital I can you know transmute it into ether and I can get the kind of the internet bond yield if you will of of the Caesar rate and i' I'd be quite happy with that so from that vantage point I kind of have started at least from my own calculation to consider the the yield on ether the Caesar type of rate to be the the risk-free rate for me and kind of the cost of capital rate for me what's your take on that do you think that Caesar can be used in in that way am I alone in thinking this does it really depend on how um the world basically uh thinks about ether as an asset in comparison to

to bitcoin or other assets yeah what's your take on this uh overall you said it much more more eloquently than I could have ever said it my friend that's exactly what we we set out to design um you know if you're and and when in finance you're taking you take risk and you want to be rewarded for that risk that's something called the efficient Frontier um this is exactly it like if if if you have Capital um you know what's what's the minimum you should achieve in crypto it's it's hopefully it's Caesar now what gets really interesting is how does this rate compare to Fiat right and everyone's like oh you know 5% you know treasuries are at 4% again when you adjust it post EIP 1559 and you look at

inflation this is actually a very very interesting yield because it outperforms Fiat from a real yield perspective and so now you start thinking about even productional liing like how can you express a view on this rate well maybe I have a view that like that that rates are going to come down in Fiat um you know versus ethereum you can actually do a swap a basis swap floating versus floating and I think that's going to be a really interesting onramp uh for rates um as as you look at e relative performance to other rates around the world like super super interesting going forward so talk about um real versus nominal uh returns a little bit in kind of the the Fiat context which you just

kind of cated a little bit and versus um the the ethereum uh context so Chris correct me if I'm wrong but when people are talking about um nominal rewards versus yield Rewards or or sorry nominal interest versus um like real interest rates right if you take something like a a treasury and you are uh receiving 5% in terms of yield on your uh interest that is the nominal yield right is 5% as denominated in US Dollars the problem is if uh inflation and your your purchasing power uh of those dollars decreases um then you have to kind of like uh sub subract that from and and get the real return so if you are 5% nominal return

but inflation in any particular period of times is 8% well your net losing in terms of real returns 3% right so you kind of like do the math there um you're only making real returns if the uh inflation is kind of less than the the nominal return that you're getting so ideally like 5% inflation would be 3% all right I'm making making 2% now this depends on some calculation of um purchasing power right which traditionally we also depend I believe on the US government for that calculation with like some form of a consumer price index type of calculation we don't generally use I mean correct me if I'm wrong in finance circles but we don't generally use like issuance as the

uh inflation rate so the supply of money if you go look at kind of like base money m0 or M1 the supply of Fiat money man that's a weird denominator and it's not generally what people mean when they say um real returns is it and yet I think you are using that as as sort of issuance as the denominator for um ethereum and you're saying well positive real returns because um the protocol itself is uh issuing less than uh than the kind of the the actual return on the on the yield and what Caesar says and therefore it's uh it's always real return I I'm wondering if you could you square that a little bit for me because we don't have this notion of um uh pricing I guess do we or CPI inside of

uh an ecosystem like uh crypto did does that line of questioning even make sense to you yeah I guess so it's I guess it's just a much more pure cleaner uh observable calculation to do with ethereum right we you know post EIP 1559 you go to Ultrasound money you know exactly you know how inflationary or deflationary ethereum is and you know the point that I'm just simply trying to make is that um this is very transparent it's very open it's very easy to to see that the real rate here um does just fine against um the real rate of traditional of of you know things like like treasuries today so um a lot of times in cryptool land we get very focused on nominal rates but I think if you step back a little bit maybe it's a

little bit more interesting what do we make of these uh spikes so um you know I think uh listeners will be looking at or if you're watching this on YouTube you you'll see kind of the the Caesar historical values uh on the screen hopefully and when you were talking introducing us to Caesar Chris you you mentioning these various spikes you know one in kind of like the octob October November 2022 period of time where we jumped up from something like it looks like like you know 6% to an 8% or something like that and there's some other spikes and these are primarily like usage based spikes I would think because the bulk of this is not consensus rewards that is as sort of issuance the bulk of this is um in ethereum what we call me or transaction

fee right so it's like The Ordering of transactions the tip it it just indicates I would guess a time when the um the gas fees on ethereum were particularly high and so they Spike up this is a much different set of values than you'd see for like a a a Fiat liore type of rate which I would imagine would be dependent on like fed policy a lot more wouldn't be as spiky I I don't know what do you make of this and what should we learn from from the spikes so it depends right lior had a counterparty risk element it and so when the banks were really teetering those rates had had idiosyncratic impact but huh this is really important because why why does why are rates important one of the reasons is for risk

transfer and hedging okay our entire derivatives industry actually started with Agriculture and it was it was it was designed to hedge against price right so let's talk about the use cases because this is very important today you have a lot of people who are focused on tokenization you have layer twos that have to pay gas you have exchanges that subsidize gas they get very very nervous when gas prices Spike materially right and and that's a bad day for them um because it's coming out of pocket okay so gosh wouldn't it be wonderful if they um paid a fixed rate and received floating because if they're receiving floating and gas prices transaction fees

go up well they're hedged because that they're paying that fixed rate and and the receiving floating all right so that's one side of the trade who's on the other side of the trade who would want to receive fixed well remember those stakers um you know they have big teams they got to feed them they got to pay them um what rewards do they get if they're staking well they're getting these variable rewards and so if the if if the rate goes way down um how do they run a business right and so what they want to do they would love to receive a fixed return and they would love to pay floating um because that allows them to run a sustainable business model or you take it a next step further if they receive fixed they can actually pass

that on to a consumer that wants a fixed rate of return and so it unlocks a lot of opportunities and so now you have a two-way Market that's starting to form where people some people want to pay fixed some people want to receive fixed um because it it helps their business model um and and that's the beauty and this is the reason why interest rates derivatives and traditional Finance are so big because you have a two-way Market where you have people that are trying to hedge real risk and you can only do that if I mean you can create the most liquid products only if you have that social consensus around a standard um look you know there are ways you can design things much more specific and bespoke

and that's fine and people do that all the time in structured Finance or you can have a baseline um reference rate that allows people to to help accomplish their goals and so that's why these spikes are so material that's why people need to figure out how to hedge against these spikes um otherwise they're they're taking risk that that doesn't help their business model what's the early way we should be kind of uh thinking about this then Chris is it a bit more like um a typical commodity like an oil let's say or like um I don't know wheat all you you mentioned um derivatives were were basically based on these types of of Commodities and I can imagine at least right now now with respect to ethereum you you could have some parties that are purchasing uh

blocks based or denominated an eth that want to just hedge various positions so for example um just this week Reddit added um ether and Bitcoin to its balance sheet and according to its um it's SEC filings one of the reasons it added ether as a store value but also because it anticipated purchasing blockchain block space in the future right so it's like buying some ether in order to purchase it and so you can imagine let's say say we get into a world where all of the banks you have like coinbase and such they're going to need to settle some transactions on uh ethereum in some way and so they want uh like to kind of hedge those uh types of positions and so they might uh purchase a product like this right and it' be

similar I guess to maybe an airline or something that is looking at the you know the cost of um uh fuel as being an important you know cost of goods in terms of providing its product and it watches some some Hedges against that and so is that where you kind of start to see this Market evolve because if we go all the way to sort of dollars right it is uh dollars are much more than a than a commodity right it's like um well I mean you just gave the example that's very consumer Centric of how a uh a mortgage interest rate is kind of you know moves from a Flo floating to a fixed and then I can you know take a mortgage out at a fixed rate for 30 years in the US because of these derivatives products basically but I

don't know that we'll get there or like we certainly won't immediately with ethereum uh at least I don't think is it more similar to the Commodities type case yeah so those are the businesses I ran in trafi and to your point Airlines hedge their hedge their gas or their jet fuel all the time um so this is an obvious um beautiful uh example of of ways that industry participants can mitigate their risk um a couple things to to unpack number one like I see this as a rate just like any other rate and for that matter like the ETF right it fits really really cleanly into Legacy systems um so I do think it can be pretty easily adapted the regulatory construct should be very clear as well

um interest rates are Commodities under you know it doesn't sound like it but like under under the law um interest rates are Commodities that's why we have Futures on interest rates like this the euro dollar contracts and so literally we're working with um a number of different regul at ated exchanges Futures exchanges right now on offering fixed versus floating contracts you know or the other one that's really neat right now is Total return and you know getting back all the way to the ETF right the ETF is going to be awesome um the problem with the ETF is it's going to be really really hard to give yield which is like one of the greatest benefits of ethereum is yield right and so why is that it's because like bonding and unbonding um and redemptions are

going to be you know there's going to be some liquidity risk on bonding and unbonding periods when you have to unstake versus liquidity risk and so my sense is that the SEC is not going to allow staking out of the gate if you look in Canada um the the Canadian Regulators have approved 50% staking so it's kind of like a partial return uh not a total return and so it's going to take some time to enhance that yield for ETF products and so you know in the meantime I do expect for a for a very for a number of and we're already talking to a number of players in the space and how can you deliver like truly benchmarked total return institutionally because that that's that's what we want

right like you know do do you want to have like just eth sitting there you know if you rdit no you want eth plus yield and and you and and you want to make sure that that yield that you that you receive is you know for most institutions benchmarked and and and very observable so that those are some of the things that we're we're looking at but yeah this is very much like a commodity um and and that hedging this is what's exciting about these next Generation products that are coming in right we're going to allow industry participants to hedge their risk or to to Express Market views on the direction of and what is this it's about it's about the the vi the liveliness of ethereum ethereum gets very busy rates go up right and so uh yeah very very

exciting applications going forward that's very very interesting yeah ethereum gets very busy rates go up and sort of the the cost of capital for the the crypto uh I guess ecosystem the crypto economy kind of goes up and you have to reflect that in all various ways is this a um is this a a a price feed that can be used it sounds like definitely in in traditional Finance can it also be used uh on chain as well and uh yeah like is it is it kind of amodex in that way it's both offchain and it can be onchain for defi yeah totally um super excited about some def applications um we're integrating with with a couple oracles um as well we're delivering it I've got Partners at at

coindesk that that deliver it via API so so yeah it's totally applicable on chain um we're excited about that like we're crypto natives always want to do whatever we can to help the defi ecosystem um it's one that we love so so first for sure and you can see those same products apply on chain as well um so yeah very excited about that how do you um make sure you don't become liore and uh get get corrupted in that way um are there some mechanisms against that is it sort of more onchain is it more auditable than something like liore was 100% yeah I don't I don't touch this thing at all um we have the methodology we run it um very clearly everything is

transparent um so 100% like everything here is designed to to read off the beacon chain and produce those results and so there's no manual intervention or anything else again like if there's one thing I can EMP emphasize we need social consensus around a benchmark you know we design we designed it one way we threw something out there um if not if if our rate I I like the way we constructed it but like the industry needs a benchmark um or series of benchmarks so that we can build and compose and allow people to hedge risk but of course um you know unlike lior that was centrally controlled and manipulated ated you know the methodology is public it's on our website um happy to walk anyone through you know what we observe um anytime so

it's social consensus around that Benchmark is the important thing and uh you know I'm wondering going back to like traditional finance and Sandy who set up this conversation she was he was very excited about this right what are the wins for traditional Finance when we have social consensus around a benchmark for um ethereum rates and and ether rates like you mentioned the ETF so possibly this gets used in that to um have us have it like a more productive yielding asset inside of a future ethereum ETF um like what else why why was Sandy so excited about this yeah so trfi understands rates right it is a huge part of of traditional Finance the thing that they struggle with are all

the operations around custody of eth and you know safeguarding and all other stuff this is fully synthetic right it's just a rate you don't have to you know you don't have to to you know you don't have to hold that eth to earn the rate you can find a dealer that will trade synthetic products or Futures products that allow them to get access to this very exciting real yield that we talked about right so you kind of abstract all those operations you give them something that they they get like oh it's just another Benchmark okay I can trade that I think it's going to go up I think it's going to go down I think it's going to perform this way or this way against these other rates which is like again

the largest derivatives Market in the world um so that's interesting the other thing that they love is like this whole idea of you get what you get and I take 5% or 10% that doesn't work for Trad the traditional mind they say Hey listen no you're going to pay me relative to a benchmark and and and that's what I expect and so those are the two things whether it's the total return aspect or you know what I just described that that is really appealing like like you know the ETF is you take it you make a security and it fits into their into their Ops here it's just another rate just another rate and yet you can build so much in uh traditional Finance on obviously in defi you can build a lot into it but in traditional Finance you

can build so much more I guess it's you know uh coming full circle on this conversation you said at the beginning there were like $500 trillion doar of uh derivatives built on top of these these types of rates in traditional uh Finance um those derivatives right it's not like um like if you add up all of the accounts there's like there's not like $500 trillion in actual money that people are are cusing right it's just like the contract value of these derivatives and I'm wondering if you could fast forward a little bit and uh forecast how this could maximally work with uh ethereum so could we come to a place where ethereum is say worth like you know5 trillion or something like that that's the um like the base money of ether maybe that's like ether

equivalent of uh you know an m0 or something like that and then we kind of go all the way up and then we have a multi- um trillion dollar like tens of trillion dollar uh markets of derivatives built on top of ethereum in the way that it's it's built on top of um you know trafi reference rates could you see a world where where that's the case and what would have to happen to get us there 100% I mean such a no-brainer as markets mature um derivatives markets tend to be much significantly larger than than things like spot market so yeah you know it look it's it's early right but but you could definitely see if we do have uh social consensus around benchmarks and you're start and you're able to compose

and you know if you see the adoption of ethereum like we think there's going to be and you see continued explosion across layer 2os and and applications um the need and desire to to to hedge risk um is going to be you know profound and so you you know to the extent ethereum keeps building like it's building um I I think yes you're going to see you know a possibility of trillions of dollars of derivatives so that people can Avail themselves of of risk management like like this stuff needs to be managed and so yeah super excited about that that future State and um hopefully we can help get there you know another form of uh social consensus that I think is

important in general in trafi and crypto anywhere is sort of like a you know Central meme uh to kind of illustrate uh illustrate the concept and I think um Bitcoin is really taken off in trafi under this meme of like gold right it's like it's like gold except it's digital gold uh one meme that we've been kind of early on at bank list we've been talking about it for years because I think it really fits uh and when I say meme I I don't mean that it's just it's just a narrative just a way of describing what's actually going on right we're not building this out of a whole cloth we're sort of like synthesizing what the thing is and we're uh using an analogy um is ether as an internet Bond basically right ether is kind of like a when you stake it it becomes a treasury right

when it's unstaked it's kind of like a dollar and then you build these uh Global reference rates on on top of it and you can build massive derivatives uh markets and so I'm I'm I think that is a meme that is catching on and that will catch on again crypto natives are always early to these things but trafi I think will catch on to this and I'm wondering how uh the Caesar rate like can help with that do you do you think it will help with that do you think it will sort of cement this in uh you know you've got Bitcoin that's the gold and you have ether as the internet Bond and look it has this uh you know like daily reference rate and we're building derivatives on top of it and they go oh okay I I see it's it's kind of like the

dollar it's kind of like a bond it's kind of like liore or other rates that they've been familiar with do you think it helps in in that cause totally right like again the traditional mind as you start looking at ethereum there's two things that like jump off the plate first are smart contracts you're like wow all this defi stuff wow it does stuff better than I can do in traditional Finance but then the other like really really cool thing if you're if you have a traditional mind is this yield and you're like wow this this is I I get this I understand yield I understand the internet Bond and what we're proposing here with Caesar is okay traditional Minds here is something else that you understand it's that composable observable Benchmark that you can that

you can build upon um and you can build upon it to hedge your risk you can build on it to speculate and to and to take risk and so it like feeds so naturally into like how this Mark how an internet Bond meme will evolve I mean it's it's just such a no-brainer so very excited about it um I think you can see um just the amount of of of utility it would bring to the to to the ecosystem um because again it's about about about risk management and uh and there's just so much utility for all the players and look I get even more excited as the busier that ethereum gets the more activity the more you need something like this we we still haven't seen like um a a scaled out version of an interest rate swap um type of um type of product

in in defi or in crypto and like what do you think is necessary to get there why why haven't we seen that yet Chris oh it's because you don't have social consensus around around standardized benchmarks right it's really hard to you know most dii exchanges Etc like they they benefit through volume and scale and again getting back to the containerized shipping reference you can only build scale through standardization and so hopefully and again like I hope that by offering some standardization you know those D5 protocols will be able to to put much more activity and volume through um and also attract a new

generation of users and those users are not using it just to djen they're using it maybe to hedge risk and to actually you know deliver real like utility so yeah I think that's the reason is we've lacked these standardized benchmarks um across the board I uh I I'm wondering Chris as you think about a standardized Benchmark Benchmark and Caesar you how does coin fund uh think about this as a product is it sort of like um is their revenue uh being being built off this or is this like a public good as I was looking at some of the how the other benchmarks were made it's basically like Banking consortiums and uh Financial consortiums that kind of come together and I think one of the rates you mentioned the sofa

rate looks like that is uh secured by JP Morgan uh I believe right so it you know are these like public goods for anyone to use like why is coin fund uh even doing this yeah uh I think I think it's a combination of a couple things so we have a commercial relationship with coindesk indices they they go out and they license it and so there are some economics uh for sure at stake um but I also do think that you know we haven't made any you know we haven't made any money yet um in in time you know we do think that it's going to off also offer utility so I don't think like making making some money and also um providing utility are like mutually exclusive uh so that's that's where we are today well

as we end this then Chris um uh this has been really really cool actually it got it got nerdy but I like and geeky but I think most folks will be able to to kind of keep keep up with the flow of the conversation it's a really interesting product you guys are are building uh just want to end with this so like who are you looking to talk to about Caesar who who should get in touch with you uh who should start thinking about um integrating it what are the next conversations you'd love to have yeah we we've spoken with a number of of different industry participants everyone from trafi to exchanges to emerging defi protocols um and so yeah anyone who's interested you can reach out to me U Perkins cr97 on Twitter uh or I guess we call it X these days um and and yeah I

just think there's so many there there's a vast amount of applicability um so happy to partner with anyone to help them get this off the ground all right we are happy to promote the The Narrative of ether the internet Bond at bankless of course um very very exciting times uh Chris thank you so much for joining us thanks Ryan really appreciated it and again thank you so much for educating so many people people um you provide an incredible public good and I just want to say thanks again hey we wouldn't be doing anything else it's just uh it's never boring here and we are uh speedrunning the history of Finance I think benchmarks and reference rates are the next area that that we have to cover here so thank you for your work in putting this together Bank list Nation we'll have some action items for

you so Chris sent me a whole list of details about Caesar itself we'll include those including some articles on the concept that you can go research got to end with this of course crypto is risky so our reference rates you could lose what you put in but we are headed west this is the frontier it's not for everyone but we're glad you're with us on the bankless journey thanks a [Music] lot