Why a $76B Asset Manager is Unlocking Onchain Yield to Institutions | Jan van Eck & Martin Leinweber

Transcript

this episode is brought to you by toku if you are planning to launch a token already have a live token are granting employees or contractors investing token Awards or just trying to figure out how to take care of taxable token events for your team from easy to use token Grant award templates through tracking vesting to managing tax withholdings make it simple today with toku all right everyone welcome back to another episode of Empire very special F today we have Yan vanex CEO of Vanek funds and Martin lineweber I have a horrible German accent so I'm sure I botch that but uh digital asset product strategist at Market Vector indexes which vanak owns So Martin Yan welcome to the show great to be here thanks Jason great

to finally talk yeah thanks thanks for having me so Yan are I have to ask are the rumors true so our producer said that he was listening to a podcast episode with uh Howard lindsen actually and you mentioned that Empire is your favorite crypto podcast we got to get it out of the way is that a is that a true statement that's my it's my most favorite listen absolutely um you know I I I I'm a trafi guy let's get that um on the table right away and um I think Martin you're a listener too um I had a lot to learn on the tech side and uh after a couple of Patrick o shanesy uh you know pods in 2017 yeah I tried I try to understand most of what you guys talk about it's funny I feel like the the the Patrick 3 part series I think he called it hash power or hash

series I forget what it was but I remember that Series in 2017 my co-founder and I would just play the podcast we would listen to like three minutes like did you understand that nope didn't get that all right Google something but I feel like a lot of people got pulled into the industry that way so Yan I want to start actually with macro before getting into crypto I've actually heard you describe vanc uh not as an ETF provider or ETF firm but as a macro firm at at a whole I'd be curious what do you think is the when you think of about just the macro landscape right now we've got this like yield curve that's flipped upside down you've got I feel like the the debt crisis is what everyone's talking about right now we had Commercial Bank you know commercial Banks collapsing six months ago what are you paying attention to right now in

macro what do you think is the most important thing in macro right now sure let me let me talk uh talk about what I what I mean by macro and and what I mean is that there's a lot of people who build their whole career around looking within the Bloomberg like all the Dynamics Within the financial markets and we say hey wait a minute before you do that take a step back what's happening in the world from a political economic and Technology perspective because some of those Trends are going to be very important and very investable so the way you know trafi people think about their portfolios and asset classes very simply take the rise of China right dong shaing moves as a country towards open markets there is no asset class called Emerging Markets but there is

this clear political move in one of the world's biggest countries and you know I traveled there in '92 I said this is going to be one of the biggest moves in my career and so uh that has investment implications so my our point at Vanek is look at what's happening the world let's have a dialogue with our clients we don't know all the answers but let's have a dialogue and say Hey listen what's likely to be sustainable in terms of Trends what's what's likely to impact the financial markets and your portfolio from either a risk or return perspective so all right to answer your question um the FED is and interest rates are the biggest driver of financial markets no doubt right and so the FED has said there's one time where you really don't want to be invested in stocks and bonds

as a tried five person and that's when the FED is raising rates and the FED said hey we're going to raise rates aggressively they're clearly 90% done with the raising rates part the second part which doesn't get enough air time in my mind is what they're doing with their balance sheet it's the quantitative easing moving to quantitative tightening and if you listen to that narrative what that what that means is there's no to oversimplify no government coming to the table in the bond market anymore so since the financial crisis every day I I kind of exaggerate but either foreign central banks or the US Central Bank was bidding up a lot of the bonds and it wasn't just us treasuries right it was mortgage you know the Swiss Central Bank bought

all kinds of different investments in their balance sheet so that that if that game is over then who is setting the prices of interest rates in the United States well it's the private investor and if that's the case then to me it's very clear that 10year rates should be higher than one month or three month short-term interest rates why because the risk of Interest PR price movement out the further out is dramatic so more risk more return and so I think if you go you know say the FED is 90% done with raising rates at the short end eventually we're going and shortly I think we're going to have an inverted yield curve I started saying this a week ago and now we're almost there it feels

like and we don't know the path that we're going to get there Jason I think that's an important question to ask you know does the 10year go to 6 and a half% and then the whole curve sh that that I don't really know but yeah this chart is is the best indicator what it does goes back to the 1980s and what you can see in green is that's when the 10-year interest rates are higher than normalized y yield curve higher than the three month right so this period where long-term interest rates are lower in red is very rare um and it doesn't persist and so it's all down to people's psychology of do they think the fed's going to come back and intervene in the bond markets or not I'm

betting not and so I bet on a normalized yield curve okay so but we we so we have this inverted bond market right now which doesn't really make sense right less yield for more risk how do you get out of that if you're if you're the fed well if you just keep doing quantitative tightening and stop interfering in the market it will happen uh what's what's funny is when you debate with people is when you have regime Chang is like this right because this has been something that's been around since the financial crisis and frankly a lot of people in our in in the investment industry uh haven't you know really kind of experienced this sort of combination of inflation and the FED fighting inflation which happened in the 70s uh it's just takes a long time for

for these changes to kind of get into people's psychology but if if quantitative tightening continues and the FED really doesn't come back the market will it'll normalize the yield curve that's just Norm noral Behavior Uh I think the question the tough call is okay so what Yan what does that mean for my portfolio um and I think one thing that you know to to jump to the to the crypto is I do think that the hedges against um you know kind of higher interest rates are bad for for gold that's that's for sure a wellestablished narrative if Bitcoin is the modern gold then I think High rates are bad for Bitcoin and that would expl kind of the the bare Market that we've seen uh I don't think Bitcoin matches

gold one for one I call it like an 8-year-old like a an underdeveloped asset but I do think that this is the time if you believe that you want to be positioned for an eventual change in fed policy you have no idea when the Market's going to price it in you know do your buying now H when you talk about a regime change there's two things that come into my mind there's what I like a short-term regime change with a presidential election next year but then there's the Glo like the this uh colossal regime change around the dollar and I think the big conversation right now at dinner tables with if you meet with you know portfolio managers which I know you do a lot of is the budget deficit I'd be curious how you think about the concern of the budget deficit and really maybe the the timeline of the concern there

yeah listen the hardest thing in financial markets is timing uh so that's why if you can do your portfolio construction with a big time budget that's super helpful uh so uh you know many people have have gotten caught up and and you know predicting the decline of Japanese Yen or whatever based on these kinds of budget analyses so this uh these charts here are just straightforward they're they're not even anyone else's guess it's the CBO so this is what the government is saying and it just shows given our mix of fiscal policies that interest costs even at basically current levels as you can see on the right are going to become a crazy amount of government spending now this

is a very static view of the world uh I'm probably in the in the more half glass half full camp where there's a lot of policy changes whether it's you know raising the retirement age or uh you know reducing the amount of benefits they spend and all that kind of stuff uh it would have to be bipartisan so I'm not saying this is like baked in the cake uh but the timing is is very difficult and if you could go to the the next slide um a lot of life is you know kind of in the financial markets there's so many thousands of charts and data points is like what's the one that speaks to you so because it it could very well be Jason that we live another 20 or 30 years and the dollar doesn't

collapse and you know this interest rates don't Skyrocket because of Us's fiscal position but but here's my favorite uh sort of data point which is it's a little complicated but it's basically the chances that the market thinks that the government US government is going to default on its debt so these are effectively the markets saying I'm worried about to me the US federal budget deficit you can see early in the chart goes back to 2008 uh there were a lot of concerns about Sol solvency of the US government then it kind of went away it spiked earlier this year during the march shutdown um you know discussions and it's kind of at an elevated level but stepping back these are not high levels to me if you look at like what Deutsche Bank was during the

financial crisis and all the kind of chance it was like much higher so I think we you know it feels like most macro strategists are bears um a lot of them are my age and they like to stress the negative and inevitability of all these crises and and maybe you know some Bitcoin Maxis do do too but this is kind of nah maybe not so much like yeah it's a problem but you know maybe we can work our way through it so um you know that's that's kind of what I look at don't let's not get ahead of ourselves on the Doomsday scenario yeah though if you go back to this slide like this uh the net interest cost as a percentage of Revenue is um I don't know does kind of make you think like if you if you expand if you

extend this out far enough there's kind of three ways to fix this problem what we're looking at is a problem and there's three ways to maybe address the problem there's you can inflate away the debt costs you can build your way out out of it with maybe AI Andor crypto as the Catalyst or you could forgive the debt is that does that feel like a fair assessment of this well I would adjust forgive and say um tweak your promises yes and some of those are intergenerational concerns so okay old people like me been working in the market I'm not going to change your retirement age but you know youngsters like you yeah maybe you have to work till you're 90 or something so uh something that's more demographically appropriate so yeah um I don't think it

has to be a my point is doesn't have to be a Flatout default if you just change some of these assumptions you can bend this curve yeah that's interesting I'd be curious how you think about uh a lot of Founders that I talk to and our you know Mike and I have these conversations all the time is like what's happening in 2024 and it feels like when I think about the economy if someone told me two years ago that the Fed was about to rake hike rates by you know 500 points impending recession imminent right but it does feel like there's been these like pockets of recessions like B2B SAS had a big recession and there were big layoffs but it doesn't feel like the economy has had a big recession um and it feels like the economy almost like sidest stepped these rate hikes is that

how you view the economy as well right now responding to the rate hikes or I'd be curious how you how you think about that now and how you think about that as you look forward to 2024 yeah I mean my biggest um Factor when I think about the economy is actually the labor market and the labor market is just so strong and so whether you look at unemployment statistics um you know the part participation rates have started to normalize uh po postco but frankly I mean I see this with all my co-workers and and and everyone you talk to in the economy right there attitude towards work have changed whether it's work towards you know work from home or whatever um and and the and listen the consumer is super strong Corporate America is super strong yes there's a

you know kind of refinancing risk a couple of years out but it's really the government that paid for all the the bills on coid right none of the rest of us did so I I feel like until that really manifests itself I'm not you know that concerned about the economy um and you know the technical GDP numbers just you know to me I'm like well listen if we're at low almost full employment right very low unemployment statistics uh that that's that's a good Eon main Street's happy um as long as inflation doesn't eat away all their earnings maybe you could actually share the the original vanx story and you know tied into gold I've heard you share this wonderful story I think it was your father started the firm and gold you can you can share the story instead of me

because I'll I'm sure I'll bot it but would love listen it's it's it's it's a it's this High conviction macro approach to the markets so uh my father started the firm in 1955 uh and as an American he said listen the the the recovery and growth in Germany and Japan after World War II is great you can buy these companies cheaper than American companies this is something that people should put in their portfolios and the logistics at that point of actually buying International stocks in in foreign currencies it was much better to doing the mutual fund so that was his thesis um he was a little bit more of a a wonk and an economist than a great marketer so the the business didn't grow very much um and then uh as as the uh as the

nerd that he was um in his 40s he decided to get a PhD in economics at night even though he had two little kids at home and two jobs and he studied under an Austrian Economist that many crypto people know well lud Von mes at NYU Who convinced them that government spending um and and uh you know effectively money uh easing was going to cause uh inflation in the United States at that point uh gold uh was a way to take advantage of that right that was the established counter currency to everything um but gold was fixed against the dollar um and and as I like to point out it had been fixed against the dollar for the ENT entirety of US History right gold really was the basis of value um

globally and he said listen that that's GNA Break um I don't know when but it's GNA break so he sold 80% of his fund and bought gold mining shares uh which uh he had to buy shares because buying gold wasle illegal yeah yeah which is a crazy thing to do because the price of gold had stayed flat for for for for for for over almost 200 years a crazy thing to do I I recall like at The Breakfast Table like you know T tuning into 1010 WINS radio and what was the gold fight price fixing in the morning uh this was after it it started moving but for for three years um the price of gold did not change against the dollar and you know

my dad would pull out the chart of Home stake Mining and the recess and the depression saying well you know one the uncertainty gold shares can actually rally but I mean it was it was it was an outlier story at best um but then you know when uh when we got off the gold standard in 71 you know gold went from $35 to $800 an ounce so again it's that kind of macro View and understanding that what what historians I think appreciate more than everyone else is that the future forget the past the future can be of outcomes you that are crazier than you know everyone else sort of just pivots towards the the recent past so anyway so that's the story um yeah of the of the company and and I

think I've learned a lot from that and it informs a lot about how we think about portfolios and Jason one last comment you know what I think is it's only odd for Americans right the rest of the world you would never think oh I'm if you're Argentinian oh yeah I'm going to be 6040 invested in the Argentinian markets you know as as the core and never question that NE never you would go broke within 10 years every every decade H what do you think your dad would have thought about uh about Bitcoin oh I think he definitely would see its value he wasn't like a tech lover per se but I think all the the logic behind it um and the concerns about governments in general being unable to stop spending uh is just something that resonated with

him yeah uh so when you think about the ideal portfolio this like 6040 portfolio how much do you think the uh from a from a historical lens like how do you think about how macro and Technology changes impact that 6040 portfolio does the portfolio allocation change or does what's inside the 60 and the 40 change that's what I focus on right so if you think about as I do most most crypto um EX X Bitcoin as just aggressive growth Investments that's the sleeve right um that it should come out of your portfolio if you're you know a more aggressive and the 60% is equities you know it's just sort of saying listen a if you want some growth exposure this is something you should definitely

consider as disruptive change number one and number two be aware of the other parts of your Equity portfolio what might get disrupted what you know might lose a value uh BEC because of this technology um on the fixed income side and I won't do a long diversion there uh there are a lot of exciting options in in fixed income as well so I I've been very bullish fixed income coming into this year but it's certainly not just by the tenure right there's a lot of uh investment grade paper available at the short end that was high single digits yeah are Bitcoin and eth in your mind when you start to think about there's almost two ways I wanted to ask you about about crypto as a whole there's as the investment for financial advisors and and for Port portfolio managers and then there's the crypto as a corporate

strategy basically um but maybe we can start with the investment e yeah go ahead go ahead I mean Ethan Ethan and a lot of the over other really foundational projects to me are growth you know kind of Investments through the token or the or the VC is almost more of a technology investment bitcoin's more of the digital gold investment to that exactly and and I so you know Yan not a 60 I you know shouldn't say 6040 or 4060 right because Yan's probably a a 60310 person like I you know I'm I'm probably more tactical than my dad would have been but I definitely want gold and Bitcoin in my portfolio knowing that the biggest risk is out there the federal budget deficit and so and and given that we know that well we don't know but we I think that

we're near the end of this fed cycle of tightening we're certainly closer to the end than the beginning then then don't don't try to guess the timing of the move listen crypto people be like you're crazy The Happening is next year like you're insane this is the best technical you know opportunity I think of it more just if you look at the FED cycle uh you don't know the timing of when this gets priced in and it it's this is a great time to own it but I've been saying that for several months yeah I've got a I've got a tweet lined up for you that I'll tell you on the podcast which is we've got q1 Bitcoin ETF launches Q2 we've got the having Q3 we've got rate cuts ahead of the election how do we feel about uh and that I mean lines up with the kind of historic four-year Bitcoin cycle how

do we uh how do we feel about that um if one is cynical about the election then you want at least six months for uh lower rates to kick in so I'd be like a very exciting spring with the havening um and the Bitcoin ETF but uh and end rates being cut all maybe all at the same time yeah what do you think the uh so you guys F uh you guys got into the ETF business a lot earlier than a lot of other folks you guys saw the kind of writing on the wall with ETFs I think it was 2006 I want to say yeah um and then you I think filed for your first Bitcoin ETF in 2017 what do you think the I want to start to transition this into the vanc products around crypto and Martin will'll uh we'll bring you in in a second here thanks for being patient

with us but um what do you think the likelihood that Bitcoin ETF gets approved in 2023 is which is probably very low like likelihood versus maybe March of 2024 which is when I know a lot of folks are waiting for that timeline um there's I can say is there's obviously movement at the SEC now um where there there was absolutely no movement until a month ago so whether it's just you know dece I have no idea December or March I I'm not a mind reader but what I would uh point to well obviously they they didn't appeal the grayscale decision but um I think more interestingly should look at and listen it's super frustrating to vanc because we were first to file in almost all of

these categories like by years like e spot eth Futures Bitcoin Futures like anyway but it we are where we are and the SEC said listen we don't want to give anyone issue an unfair Advantage so what they did with eth Futures is they effectively said to the firms that had shown an interest in that we're going to try to get you all to Market on the same day and they did it's really the first time in ETF history where something like that has happened now there wasn't a lot of market demand for for the eth Futures products uh so I would imagine a similar thing is in their mind for for uh spot Bitcoin is the Bitcoin ETF important because it puts a stamp of approval on the industry or because it basically allows financial advisers to be able to recommend this for the first time like

why why is this such an important Milestone well listen uh two things one is more SYM symbolic than anything else uh I mean it's important because everyone thinks it's important um so you have this circular argument you know I I like gold uh I like Bitcoin you know what's the value well the value in it is there's limited Supply and then the crowd thinks it's valuable but you go to like a Warren Buffett he will never like gold he will never like Bitcoin because there's no income stream associated with it not true for maybe some other crypto but let's just say that for argument sake uh so you get into the circular argument uh so you know to to that extent the spot Bitcoin ETF launching is important why because everyone thinks it's important I mean globally everyone

has their eye on the SEC on this on this issue but practically speaking it's going to be a a great product as well so if you look at the spot Bitcoin products that trade in Canada Brazil and Europe they trade it really tight spreads and the infrastructure I mean I I don't like these institutions Jon don't get me wrong but the established stock exchanges around the world have very hardened infrastructure so you're finding a product that trades really tight uh very reliably in a regulated manner um and also it's super tax efficient for Americans it's way it's way better than these futures-based uh Bitcoin and e products how would you

recommend someone who has a large risk appetite be POS IED in terms of like going into next year so like I'm so take someone like myself like on you know on the younger side like like crypto a lot how would you recommend someone like myself basically position their portfolio all in I mean listen who who knows it feels the reason I asked is it feels impossible to position a portfolio in this market like I I'm not sure if it's if it's ever felt easy but like like it does feel very difficult right now to try to think about how to allocate your portfolio listen th this whole thing could be a sham like a lot of people think it is um it could be that web two

companies adopt some crypto technology yeah some Wall Street firms do permission blockchains and you and I will have other jobs in three years right it could be but so you have to Discount the future because no one knows right but but if um Bitcoin has now been established which I think it has been and I've thought so for five years as an alternative just like silver has or platinum to demand for gold as a store of value then you've got a almost close to perfect setup as a trade right you've got the like you said it your Tweet storm of next Spring right you've got the FED changing its policy or you know nearing the end of it uh you've got the havening um you've got other

uncertainties that are and you've got the liquidation that has occurred in the market I mean I've been involved in some really blown up asset classes in my career Emerging Market debt was was one of them where the the bonds issued by countries were trading at like four five 10 cents on the dollar um and so you know what do you see you see everyone liquidating you see the market makers liquidating so there's no infrastructure and now I guess the narrative around the FTX uh bankruptcy is their portfolio will be liquidated I I just can't imagine who else there is to sell and if you look at the statistics on you know onchain and CI sales of of Bitcoin and other coins I mean it's all supportive

of that simple Story the only thing that doesn't make sense is if y if this is true with Jason and Yan are saying then why doesn't the market price it in and this is one of the Mysteries of the financial Market it's like you know the happening always leads to a bull market why don't people yeah I mean you've how many I the happenings you've lived through like you were like why don't people anticipate this and there's no accounting for the crowd this episode is brought to you by toku toku makes implementing Global token compensation and incentive Awards simple with toku you get unmatched tax and legal support to Grant and administer your Global teams tokens from from easy to use token Grant award templates through token vesting to

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click the link in the description Martin Let's uh I want to pull you in now so I I've agreed with nearly everything Yan said so far except U well I don't actually think he agreed said would would agree with this but it's the buffet thing about there's no cash flows in crypto there are cash flows in crypto and it and it it's it comes from I know I know you don't actually think that y i saidit I said Bitcoin but yeah yeah exactly okay so no cash flows from Bitcoin but there is something which is eth and I know you spend a lot of time trying to think about um okay maybe it's not just an eth uh like a spot eth ETF but maybe there's more that we can do and maybe we can capture me and and give that back to institutions or maybe there's something

that we can do with um with staking so I'd love to just hear more about like how you and and and Market vector and Y and vanc as a whole like are thinking about capturing more of the value like what I'd call crypto native value and packaging that up for the institutional crowd can I can I sorry to interrupt but let me just frame Market Vector right so Market Vector is a wholly owned uh subsidiary of vanac uh it was when we set up our ETF business and had some ideas we said well there is no good ETF sorry no index to track this ETF we want to do let's create our own and um but Market Vector has grown beyond that they have a hundred non vanet clients and they have 20 nonv vanet crypto clients right including coinbase and a whole bunch of other people so I just wanted

to frame before Martin answers that more narrow question you know we want to be a really um thoughtful and research forward provider of data and indices in the industry and and so far some other people have agreed with us so when someone so so when someone wants to build an ETF they will go to market Vector to help them construct that ETF yeah that I mean the first retail uh Bitcoin funding candid used one of our indices we've got you know an ETF company in Brazil we've got other companies in Europe uh besides our our own offering so yeah sorry I I will now be quiet and self mute go ahead yeah no no I mean it's a good question before we start with E maybe why an index yeah because uh in crypto there is no standard and especially if I ask you for

the Bitcoin price yeah what's the Bitcoin price do you look at coinbase at binance uh at bitfinex there are huge differences and so we we really have sophisticated algorithms uh where it exchanges to come up with a reliable referrence price which is important for an ETF especially for regulated products but also for derivatives and so um we do that for a lot of single token uh indexes but also um baskets of course and uh when we come to ethereum uh I think the latest Innovation and and and the thing I really am excited about is uh that we finally have uh a cash flow product yeah um if you look at the and

we talked about the rates market right um it's a huge Market in in in trefi yeah if you look uh at the derivatives Market yeah at ISTA figures I think uh swap markets is around $500 trillion dollar yeah trillion with a t uh and and ask you how large is the rates Market in crypto zero more or less right and so with the change from proof of work to proof of stake in ethereum I think uh it it really uh is the new driving force and suddenly uh you have a cash flow which is I mean a lot of people say it's a risk-free rate that the staking rewards rate I have a problem with risk free but I would say it's the lowest

risk rate you can get in crypto when you compare that with Landing your usdc out where you have counterparty risk or uh if you are in a liquidity pool and and face impermanent loss so what we did here um is that um together with our partner figment uh we ask the question what is the staking rewards rate because if you look at coinbase yeah if you Stak coinbase Kraken figment block demon they all have different staking rewards rate yeah um and what we see here is we index siize the whole ethereum chain so all 800,000 plus validators and come up with a daily

annualized staking rewards rate or Staker rate yeah uh comparable what you have in the money market with uh Liber on our software and if you go back to this um daily rate I think it's a slide three right what you see is there are two components yeah there the consensus layer Rewards uh that's the orange area which is basically um uh the inflation yeah the newly minted Eve and what is super interesting is the execution layer reward you get since the merge since September 2022 yeah that's basically the priority fees and the me part and and I'd like to say it's the heartbeat of

ethereum because whenever the economic activity is high the rate is shooting up and here I love this chart if you do the Deep dive so what is uh what are layer ones doing they sell block space right and whenever block space demand is high yeah people are getting crazy they are bidding High transaction fees there are a lot of MAV opportunities and then this this this rate is shooting up yeah and you saw that during the FDX debacle yeah when people wanted to get their assets off the exchange to their wallet um or an extreme example is uh the March banking crisis we had so the staken weight shed up from 7% to almost 16% in

a day and then down 7% why because um silicon valy bank went under uh usdc had large deposits at this bank and suddenly we have this dpack so a lot of people were selling the USC and bidding up the fees again and it does doesn't always have to be related to negative events as so you see for example during this pipe mcoin craziness yeah we also had a lot of block space demand um and during the curve exploit so what's interesting is um you can look at the plethora of onchain fundamentals or you can just look at our a stake array to see what is going on on the ethereum

Chain why is so important [Music] um to unlock Financial Innovation you need a benchmark you need some kind of standardization yeah as I talked to you yeah you can't use different staking rates from coinbase or block demon or what have you um whenever you have standardization the Commodities Market yeah standardized Futures Market standardized uh teners and notional values um you suddenly need that to for this etherum rate and with this um Benchmark rate you can really do a lot of uh interesting things yeah for example um you can do swaps on this take rate yeah for example if you're a validator and you get the variable rate

uh and you want to have a fixed rate maybe you get into an to an fixed to variable swap with a hedge fund who wants to bet on the movement of this variable rate and you suddenly exchange this yeah um you can also do basis spots and merge two worlds with uh for example go long the Staker rate and you get get short the fat funds rate for example which which is very similar like basically what you're saying is all right so now you have this base rate in Defi and what that does is it unlocks a bunch of financial Innovation on chain so if you think about like uh interest rate swaps for example uh a company wouldn't be able to take out a variable you know rate loan or that

could crush them or my mortgage for example like I got a fixed rate mortgage because I didn't want a variable rate mortgage those Pro types of products don't yet exist in defi because there's no rate so yeah yeah so for example if you lend your eth out on what rate is this based I mean now it's a a bilateral negotiated rate based on I don't know but it should be at least based on the Staker rate plus a spread for example and so um what we also did is um and I think why getting back to this um why this could be an a really an important Benchmark for the crypto space um what I like about this taking is it's

non-custodial yes you have no counterparty risk and um that's I think an an an important differentiator when when it comes to the rates you you normally have yeah H and you have no smart contract risk as all the things are in shrined in in the base protocol yeah um I think a more intuitive product is if you apply the staking rewards rate to an existing ethereum product yeah to the price index to come up with a real Total return products yeah and that's something you see on slides um on the next slide or this uh slide seven yes so we are all familiar with

the uh plain vanilla ethereum products um but um why shouldn't you get the ethereum price plus the rewards yeah similar to if you invest in a stock fund yeah you get the stock price the stock price development and the dividend yeah you don't talk to the portfolio managers and say keep the dividend yeah I'm just interested in the price development and what you see here we've done that for our normal market like the ethereum index that's the purple line so since the merge it's basically flat but if you include the staking rewards rate you're suddenly up 15% huh and that's a that's here compounded uh you can set this index with a compounding feature so for

example um let's say you have a large fund you can set up new validators for the um with the eve you've you've earned you can also set that just for accumulation but I think it's it's really intuitive that you see okay um in the long term um I think that will establish as a standard yeah yeah and Yan when you think about this and you I mean you meet more portfolio managers and financial advisers than most people on this Earth what is the demand for something like this are they talking about staking and talking about capturing meev Rewards or this is a you're maybe planning for 20 2030 by building things like this yeah I mean Martin could probably answer the

question better than me because this isn't something that's easily uh deliverable through an ETF because the ETFs right you can't stake because you need to have the daily liquidity so I think it would be for other financial advisors I think uh if you ask me a question today where's the you used to have this concept in emerging markets called crossover money because the Emerging Markets people were all weirdos right and they had passports and things like that and most people were trading US government bonds or corporate bonds but once in a while things became so you know interesting there was this crossover demand which is huge if you ask me what the biggest crossover demand potential is in crypto right now I think it's people buying Bitcoin like macro

funds and this is I think some of the narrative out of Black Rock as well where through their Aladdin technology platform I think they see um you know I'm guessing but I think they see a lot of crossover generalist investors saying you know what I I'd like to leg into Bitcoin here as a tactical trade so it I think there is demand in the crypto ecosystem for exactly what Martin was talking about but I think that's probably smaller than the Bitcoin crossover trade yeah so it's funny because or anything you'd add to that I think you have to have a Global Perspective um I I do think um in the Years uh I absolutely agree uh we are happy if we get the spot Bitcoin ETF and then a plain vanilla ethereum ETF right um but we are really talking uh with

European investors who are interested in it also with Asian investors and the liquidity part is something I think you can solve yeah you don't have to stake 100% of your portfolio you so you can set a utilization ratio meaning the proportion of your fund maybe just 30 40% is is staked with the staking as a service provider and in addition to that you operate with a liquid staking derivative right for example with liquid Collective uh they also do kyc AML and then suddenly you you can play around with it so uh that's it yeah it's interesting because we're talking about i' would call this a very Crypt native product and it actually ties into a question I want to ask you

Yan um when I look at the Vanek Twitter which I'm going to link to the Twitter in the show notes because it's a very interesting uh it's a very fun Twitter account I would say when I think about vanc very traditional firm been around you know 70ish years uh when I look at the Twitter it is run by a very Crypton native probably on the younger side like type of person and that's telling me a little bit about how you view who your end customer might be maybe not now but maybe in the future who who is so I guess I just ask you point blank who is your end customer and how crypto native is that person when when you when you picture someone in your head uh we have very different customers um our trfi I mean our trfi and and crypto customers there's almost

no a vend diagram and there's no overlap um it's really crazy um so to your point yes on our Twitter account we're trying to reach our crypto native uh uh uh customers and you know crypto twitters or fin twits a big a big thing you know you and I talked about vanex strategy and crypto and all this kind of stuff and I think um you know big big picture it's just been super frustrating how hard it is in the US regulatory environment to get more crypto native faster right if you believe that the technology offers cost uh and networking advantages to users and can disrupt existing um cost structure rures wow it's the last several years have been pretty frustrating how fast that moves

so I almost feel like we're trying to keep our Crypton native friends uh entertained um and engaged while uh we kind of catch up to that that potential yeah how how deep do you think about when you when you think about your corporate strategy as a whole you're doing you know it's October doing end of your planning thinking about the future how deep do you want to push into crypto like will you start running nodes for example will you become an LP on chain like how how deep do you see your vanak pushing into crypto um so sort of since our reemergence after defi summer in 2020 we we've gotten pretty aggressive we have an active research and investing team here out of New York we've expanded

uh we we offer 12 uh funds in Europe that offer exposure to to one or more tokens um you know we've talked about Martin's effort so uh but we have some onchain uh I mean we've invested through Venture Capital funds that connect us directly to developers uh and we are partnering with um well we have actually this is for topic for another day we have our own uh onchain project um ourselves but we're also partnering with a lot of those projects so it's very important that we do that in a very regulatory compliant manner because that's our firm's ethos um to to begin with uh but you know as we know the the rest of the world is much more friendly towards these kind of

developments you know especially Europe and I think that was Martin's Point and a lot of there's a lot of liquidity and interest that comes out of Asia even you know forgetting kind of recent uh developments in Hong Kong and Singapore so um yeah it's stuff I can't fully talk about now but very much feel like a Outsider looking in uh but we're getting there we're getting there yeah I mean we've seen it right because we have all this insights into who's listening to our podcast who's reading our newsletters who's attending our conferences and we made the decision I was telling you over the weekend to move our digital asset Summit from we were going to do it in DC turns out not a great idea to do it kind of in the belly of the Beast we're going to London right and the and the interest has been nuts for us um I mean you know just as an

anecdote what's interesting is you know some of my colleagues are meeting with banks in the mid East and Asia and they have a mandate almost from the government that they have to have crypto capabilities right one of the biggest banks in Japan I'm not sure if this is public yet or not so I won't say the name but they are offering staking rewards to all of their customers R retail and institutional and they're offering staking rewards so here we have it that's with you guys yeah no no that's not with us uh but um I think that's another proof for the taks and may maybe Warren Buffett some someday invests in you I mean he invests in not in Gold but in gold mining stocks I mean if you the what I'm what what what bank

does Buffett own a lot of Bank of America or some what wells part one one of those big ones and uh the what I'm earning in my Bank of America account right now is and I don't even know if I'm earning anything I don't even know if I'm getting any yield if I just sit in cash in my Bank of America account there's you could quickly see a future using uh I don't know maybe using your guys's product where the cash in my account you could either allocate it to treasuries right or you could start to allocate it to the to the staking rate so Mar why not yeah what what other products are you excited about right now so uh definitely uh the staking thing but uh the other the other big innovation we will launch soon is uh a new breed of of baskets yeah

fundamentally weighted uh you know normal baskets are market cap rated and I have to say it's good starting point yeah a market cap rated index if you know that you don't know anything it's good start um but um as you know a lot of people sometimes especially in the crypto space then have problems with some of the tokens in the top 10 yeah for example is e nothing going on for example with cardano uh or you have a meme token in it Dogecoin nobody want wants to invest or uh there are still it's surprising but but still uh Litecoin yeah the poor man's Bitcoin and and Bitcoin cash is still top 10 and so we thought maybe we can improve the the selection process

yeah there is you have all these onchain fundamentals real time and why shouldn't we use that and so um we partnered with token terminal to get their data to use their data and so so we will select tokens and coins according to their economic traction meaning what do they earn uh or uh how many active users do they have yeah to account for for Network effects yeah and adoption and the interesting thing is that um it's it it looks a little bit different yeah you still have Bitcoin and ethereum but um you are catching more of of the smaller altcoins earlier for example and actual snapshot would also consider arbitrum Layer Two or Lio uh which which would never enter

a classic top 10 index yeah so we will do a top 10 fundamental index and uh that will allow for for investors who are yeah maybe more deep into it and and and want a second iteration also an iteration which performs better than our market cap you know I just like to say to say to our traditional customers like what are you doing with crypto it's all speculative and I say very quickly look there's 20,000 tokens out there that represent software projects but there are a handful the 50 or a hundred that actually generate some kind of fee income uh either directly or through their ecosystem that's what we're paying attention to right and why can't you do analysis on that income stream and that

possibility just like a traditional company so it's it's sort of yes let's create an index I'm so excited by what Martin is doing that actually takes away listen Dogecoin is great but it's all optionality at this point so let's just take out those kind of Investments um because they're very speculative and look maybe all of crypto speculative but there's there Shades so I find this I mean we're it's the conversation that we have internally especially on the uh on the research side of our business with with blockworks research which is uh everyone basically treats these protocols as these like weird esoteric protocols but a decent number of them now have real financials and real real user metrics right so why are we talking about maker Dow is this like weird

esoteric protocol instead of talking about it as something that'll do like 150 million in Revenue this year and has a cost structure and has revenues and spits off profits right I love that you guys are doing that yeah it's still underestimated um people still don't know that they are protocols producing which reduce cash flow right um they all think it's it's nothing they do nothing it's it's it's just price appreciation and that's not true and and I hope that we can change that with that index and and we definitely also have to do more uh on the educational front yeah yeah folks can subscribe to blockworks research if they want to see that sound for example Yes actually you guys are pretty active in our chat we have a we have a subscriber only chat and

there's some some bck folks do you guys have a liquid fund I feel like there's some people at your liquid fund who are in the chat yeah yeah Prav yes exactly exactly so um Yan I heard you say in a podcast the other day um or it might have been with Mike on on the margin earlier this year that you thought a central bank could buy Bitcoin um at some point in the next 12 months I'm curious if you think that that that has already happened or if you still think think that that's a a high likelihood probability yeah I mean it's it's sort of I guess more specifically a Frontier Central Bank right so not maybe the United States or Canada but uh you know as part of the evolution and maturation of Bitcoin going from an eight-year-old to like a 12y old uh you know there

there are some government institutions that um you know are are very close to that right they invest in in mining assets right so if you're own a miner then you're pretty close to getting an income stream in Bitcoin right last I checked so um you know so but but in a major symbolic way I guess we probably haven't crossed that but but absolutely um I mean you do have countries that in the short term are sort of dollariz so Ecuador now Argentina with their election a couple of days ago uh so we we just forget how the rest of the world has a demand for an open payment uh protocol H yeah I think that's all and their central banks reflect understand that yeah Yan I said I wasn't going to

bring up regulation but I do have one question for you which is um I'd be curious if you think that this regulatory regime with with with Gensler and stuff is everyone everyone I feel like I'm sure we're all on the same page that it might be feels like a bit of an overreach but uh do you think that this is where the US is headed as a whole like it's just almost going to get worse and worse or do you think that this is just a spect spum and regulation tends to e and flow back and forth and we might be at a more intense point in that spectrum and then it will will e back um it's it's it's kind of simpler than that I think if you look at look at China right under dun sha ping they adopted free market policies 30 years of tremendous growth uh Xi Jinping a

different mix of policies right slower growth more regulation I think this is just a one Administration to the next uh although I'll caveat that with we don't know what a republican Administration would do with respect to crypto so I think it's it's very much topped down um so I you know I I think policies can change dramatically I mean you see that for in so many areas between the you know between Biden and Trump so we'll just have to see do you think a republican Administration would be more friendly to crypto it's hard to know right it is yeah I actually don't think they'd be more friendly I just think they'd be more hands-off which inherently would probably be good but who knows I don't know um all right guys this is a great chat anything uh

Yan anything I'm missing Martin anything that uh that you really wanted to talk about maybe maybe from a European perspective yeah because you asked is this a big thing the the US ETF and I think although or despite having a very Pro crypto regulation in Europe it had no price impact yeah suddenly you have the announcement in us with the spot Bitcoin ETFs and and everything is blowing up to to to 30k and I think we still need the US yeah to to to lead this and and to to have higher adoption and and and I think that's also good for Europe and and for the rest of the world yeah that's my opinion I I would say I do think for crypto um and I mean more eth plus plus to get out of this bare

Market there has to be better user adoption I there's so much Dev development happening um you know compared to 2017 it's a different order of magnitude but even compared to 2020 there's so many projects with potential even with web two companies but I kind of feel like real adoption and onchain activity is going to have to drive a bull market in crypto here I think Bitcoin is a different kind of asset as we've talked about but I do think that's possible like you know I I I like the salana you know Visa kind of project boy man if you get some traction around that it it's it's the fact that we pay 3% on all credit card transactions in the United States is insane it's insane yeah do you think that'll be led by what I'd bucket as like stable coins and defi or

will that be led by maybe something like decentralized social or onchain gaming which which side of that I'm a payments defi guy but I I work on Wall Street like what do you expect I'm with you I'm I'm with you I'm with you cool um all right guys this is awesome Yan really appreciate it Martin appreciate it as well thank you so much excit very excited about this big macro firm 70 plus years old pushing pushing deeper into crypto it's really cool to see so congrats on everything thanks Jason thank you very [Music] much