Digital asset treasuries and the Ethereum supply squeeze

Transcript

GM. Good morning. Welcome to the Milk Road Show, the daily crypto show where we wake up every morning one candle closer to the exit plan. I'm your host, Jay Hamilton. It's Tuesday, August the 12th. Crypto had one of its biggest months ever in July, outperforming many other asset classes, including the S&P 500 and gold with Ethereum leading the way. Can crypto sustain this surge? We're going to talk about that today. Also, Ethereum digital asset treasuries and other digital asset treasuries nonthereum based. You go down the stack of the top 50 tokens are buying billions every week. Will this continue? What is the future of digital asset treasuries and what's the opportunity to invest in

them? And then finally, Stripe and Circle just announced that they are building their own L1. What does this mean? What will the impact be of this? Is this a new playbook that we're going to see and how terms of how fintexs are going to enter the space? Today we're joined by Avichel Gar, the co-founder of Electric Capital, a leading cryptofocused VC fund with investments in Kraken, Bitwise, Near and many of the digital asset treasuries we're going to talk about today. Before we jump in, if you guys want to understand what is happening on the macro side, and let me tell you, the macro setup is so important to understand right now when we talk about rate cut season coming possibly in the fall, changes that are happening at the Fed, Trump's impact on

that liquidity, where is liquidity at, global markets. If you want to understand all of that, you're going to want to subscribe to the Milkro Macro podcast, the new podcast that we just launched a few weeks ago. We just interviewed Michael Howell. Highly recommend you go back and check that episode out. Hit the link in the show notes. Today's episode is brought to you by Figure Markets. Grow your cash like a bank. No lockups, just real returns. It's also brought to you by Nexo, the platform that grows your crypto without locking it away. With that, Avichel, welcome back to the Milk Road Show. >> Good to see you, Jay. Thanks for having me. >> Yeah, pleasure to have you again, my man. Uh, okay, let's start. I'm going to bring up this uh chart. For those listening, I'll read it. I got a chart up here of asset price performance in

July. And what this shows is that total crypto market cap is up 16% in July. Bitcoin up 9%. S&P 500 only up 2% and gold down 1%. A when you look at this chart, what's your takeaway? >> My quick read on this is I this this is kind of typical for what you see in a lot of uh markets where people are front running the rate cuts. So my my read of this like on a from a macro perspective is the market is basically saying the Fed's about to cut rates and you know President Trump has more than intimated that he would prefer the rates be lower.

Uh you know Jerome Pal's term ends in May of 26 and so the market is basically saying look the Fed has signaled rate cuts in September maybe another one after that. Um PAL's out in May like party's back on is kind of like I think how the market is think about this. And I I I don't remember what the exact number is, but there's something like $7 trillion sitting in money market accounts. And so, you know, the the sort of bullcase here, obviously not financial advice, you should never listen to anything I say, but you know, the bull case I think a lot of people would point at is like that's a lot of money on the sidelines. And so, if if that money starts to rotate back into risk on assets, then then you might you might see some pretty significant appreciation in in some of these assets

over the next 12 months. you know, worth noting that the the opposite side of this too is you you do see a lot of rebalancing into money market accounts right before major crashes as well. Um, so it's it's not just because there's a lot of money sitting on the sidelines that markets are guaranteed to go up. You also see that a lot of people will rebalance into cash in anticipation of the markets getting too overheated. Um but yeah, this is this is kind of if you've been around in crypto for for the last two or three cycles like we have, um it's pretty typical that the market starts to front run the recuts.

>> When you look at it, what would your positioning be heading into late Q3, early Q4? >> Yeah, it depends. it. Positioning is always really tricky because there's so many variables that go into it like on a personal basis. Like what percentage of your portfolio is a particular asset class? What's your risk tolerance? You know, are you a 65-year-old retiree versus a 21-year-old college student? It's just like all over the place. So, it's hard to answer more generally. Our approach has always been we think that these things are really undervalued in the long term. Um and so you know we we've been we've been around since 2018 as electric and been investing in the space uh personally since before then and kind of our our take has always been you know what you really want to do is

um think about where uh where is value cruel long term and I think one of the lessons from the internet era was really if you looked at companies like Facebook or Uber um or Nvidia we were talking about Nvidia just before we got on you know these companies ended up being 10x bigger than anybody thought they would be, right? Uber at 100 billion is is sort of, you know, crazy or or Facebook at two trillion. You know, it's just these are these are wild numbers. And um and so when we look at these assets, we say it's still most of the world hasn't figured out that that Bitcoin is a digital store value. Most of the world hasn't figured out that Ethereum is where the future global capital markets of the world will will be based. And um you know, what are those things worth?

they're probably worth a lot more than than people think they're worth even. And so our our approach has been buy the good stuff, hold it, and don't overthink it. And um the hard part with that strategy, of course, is you get punched in the face for a couple years at a time, right? Like you can just be willing to to look dumb for two or three or four years at a time before you look really smart again. Um and so, uh it's it's a little bit in some sense easier of a strategy. You know, it's like if you know something is really good over a 10-year time period, just like being patient is hard, but if you're willing to be patient, you'll do well. So, that's that's kind of how we approach it. It's why we're a venture fund. It's a it's a better fit for our mandate is

like buy and hold really good stuff and don't try to trade in or out. It's just it's really hard to time the market. I mean, it's the biggest thing that we we are constantly trying to remind our listeners of is that the the easiest way to success as an investor and easy is a maybe not the right word to use, but the I'm going to use that that simple word is is to be patient and to buy and hold, right? like it is much harder to be successful as a trader and as as an active, you know, as actively trying to outperform the uh even even most people shouldn't even most people just buy an index and buy the S&P 500 and forget

>> I Yeah, I know. I agree. It's it's sort of the the language I always use is simple but hard. Like it's actually pretty simple. What you need to do is buy really good things and then don't trade in or out of them and hang on um and hang on for a long period of time. And as simple as that is, it's really hard. It's like emotionally hard. It's like emotionally taxing. It's it's just hard. I don't know if you saw that, there's there's some stats floating around previously around like the Pump Fund ICO. And uh it it's you know, like you look at the number of people that have actually made money trading Pump Fun um you know, meme coins and it's it's tiny. It's you know like 1% of people 99% of people lose money. And so I think if if you sort of see numbers

like that, it's just if if you think of it as a game, you're going to the casino, fine. Like it's just your entertainment budget. But you shouldn't conflate your entertainment budget with your investment budget, right? If you're going to Vegas, don't don't take your 401k, right? These are these are two different piles of money and think of them as different piles of money. >> Yeah. Okay. You mentioned Ethereum is the future of capital markets. Uh I want to look at I'm going to bring up a couple of uh of charts and then I want to talk about where Ethereum is right now and dive into that. First, I want to bring up the uh the Bitcoin spot ETF flow inflows. And what's interesting here is to see that Bitcoin on the ETF side had its second biggest month ever. Almost 6 billion in I think

it actually was either just below or just above six billion in July. All right. So, that's that's amazing. No one's really celebrating. And you know, Bitcoin didn't really have a big big it was it wasn't the outlier in July. The reason I bring that up is more so to compare it to the Ethereum ETF. >> That's a wow graph, by the way. I hadn't seen this before. >> So, look at this. The Ethereum ETF. So, if you're not, if you're listening in, you could see that Ethereum has did over 5 billion into the in net inflows in July, but it never done anywhere close to that. It had one month of two billion, but it's had a bunch month bunch of months basically zero or even negative months. So this is the first month that we've really seen the Ethereum ETF almost it was like 90% of

what the Bitcoin ETF did when when you look at that what is that what does that signal to you is this is Ethereum got a new narrative that can continue here my my sense is yes I think the way we've thought about it you know most of the world well maybe starting with Bitcoin you know on the Bitcoin side I think one thing people don't appreciate this is a stat from Bitwise um you know Hong and Hunter the founders there the CEO CTO we'll talk about this people don't realize like when the gold ETF came out it was a blockbuster ETF and then some it's I don't remember the exact number but I think it's like something like 10 out of the next 11 years every subsequent year there was more inflow into the gold ETF than each prior year.

Um and so like when the institutional like when the when the institutional capital markets like pivot they're slow to pivot and the the capital pools are just crazy deep and so you know I wouldn't be surprised if the Bitcoin inflows actually continue for a long time much longer than people expect. I think what's happening with Ethereum to your question, our our take has always been Ethereum is roughly where Bitcoin was in 2019. So Ethereum just turned 10 a couple weeks ago. Um and Bitcoin turned 10 in January 2019. And in January 2019, the vast vast majority of people did not understand Bitcoin. The institutions did not understand it. Paul Tudtor Jones did not understand it.

There was no ETF. Larry Frink from Black Rockck had not gotten his head around Bitcoin. I think what you have is, you know, and in in that sort of like 2019 to 2024 window is when all of that institutional understanding happened. Um, and I think Ethereum is now going through that. I think Wall Street is kind of getting its head around ETH and saying, "Wait a second, this is an interesting thing." And I actually think that the fact that we now have an existence proof. Like if you think about how remarkable Bitcoin is, I I I don't know if it's the only thing that's done this, but certainly the first thing that comes to mind for me is I think it might be the first thing that was birthed entirely on the internet and then got backported into society like in the offline world, right? So like the

internet created this thing, right? Purely digitally and then it became a part of the financial system. And so the fact that that's happened once to me means that it dramatically increases the likelihood that it happens again. It's not that like it only happened it can only happen once. It actually means that like once we've done that actually you've increased the probability that happens again. It'd be kind of like find if we found life on Mars actually you would have to update your priors. You'd have to say like wait a second if like the the planet next door has life probably there's a lot of life because like what are the odds that it's right next door and there's life right? So it's like the existence proof changes the probabilities. And so I look at ETH kind of like that, which is I think it's set up kind of the way Bitcoin was set

up in 2019 and institutions are just starting to get their heads around it. And that machinery will take a couple years to turn, but but it's really deep capital markets when they turn. And there are a lot of very unique things to ETH. I mean, it's the only thing other than Bitcoin right now that that the US government has said is a commodity. I think there are other things that in theory could qualify, but you know, that hasn't been definitively done. The ETF um infrastructure is real. you know, the fact that so many people are building on top of it, Coinbase and Robin Hood, and it has real capital markets, you know, there's there's a there's some really unique properties to this thing. Um, if you appreciate the origin story, I think is fascinating. The fact that it was a crowdfunded thing. Um, the fact that it

started as proof of work and then became proof of stake over time, which created a really unique distribution of assets, um, makes it unique. Um, and so yeah, I think it this might just be the beginnings of institutions and Wall Street kind of getting their heads around this is this is also a unique thing. >> Why do people invest in real estate? Because it spits off cash flow. But I'm not here to manage rental properties. That's why I'm looking at Figure Markets. Their new democratized prime product backs your money with real cash flowing assets and returns up to 9% APY. It's the first real world asset borrow lend pool built for everyone, not just institutions. Ready to lend like a bank and get more than the 5% A is offering

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Your assets need a platform built for growth. join Nexo, >> which would say that Ethereum has a long way to go in terms of price and market cap. And you're certainly not the only one that believes that. I want to use this to kind of jump into digital asset treasuries. Uh you and I were chatting a bit before recording. Let me just pull up a couple headlines here. Uh so yesterday, Sharl Link announced that they this is yesterday. Yeah. That they're going to uh purchase another 400 million uh in in Ethereum. So to bring their total ex their total Ethereum holdings up to three billion. Uh and then Bitline also announced they were

going to purchase another 300,000 ETH, bringing their total holdings up to 5 billion. And then just today, I believe this is today. Yeah, earlier this morning, Bitmine filed to expand their atmarket equity program by 20 billion to 5x increase their issuance capacity so they can fund more. So they're at five, they're about five billion right now. They want to get to 20 want to add another 20 billion so they could get to 25 billion possibly in ETH. break down break down digital asset treasuries for us and why why they exist and like is this a moment or is this going to continue?

>> Yeah, there's a lot to unpack. So maybe maybe starting at the at the highest level, the guy who really pioneered this is Michael Sailor with um uh Micro Strategy. And I think you know he's a true Bitcoin believer. He's of the community. You know the Bitcoiners want him to succeed. I think what he's done is is pretty remarkable. I think he's he's a world-class financial engineer. Like I think a lot of the stuff that he's figured out is just pretty amazing. And so what he really figured out fundamentally from his perspective was well the capital markets will lend money to me at 10% a year, 0 to 10% a year depending on the terms and the conversion and and so on and so on. And he can turn around and buy Bitcoin with it. And he could buy Bitcoin uh which goes up, you know, 30% a year. Kagger.

Um, and if you have an asset that can go up that much and you can borrow 10%, you should just do that all day, right? Like it's a that's a money printer. Why shouldn't you just do that? And so he started to do that several years ago, about four years ago, uh, almost 5 years ago at this point. And he's now stacked something like $50 billion of Bitcoin on his balance sheet. And the company's worth about 100 billion. And, you know, part of what ended up happening as he was doing this, as he was issuing these sort of credit, you know, and debt facilities and convertible notes. And, you know, as he was doing this, the market started to say, "Wait a second. You know what's going on? If I just held a share of uh of Micro Strategy, I could have stacked Bitcoin behind the scenes.

Like you did all of this work with the capital markets to go acrue all of this extra uh Bitcoin. And so the Bitcoin per share I would have had went up and not only did Bitcoin per share go up, but of course Bitcoin is going up over time. And so you get sort of this like levered Bitcoin kind of exposure if you hold Micro Strategy. Um which is better than an ETF then, right? And and so if you're long Bitcoin, that might be a great way to to be extra long Bitcoin. Um and so what the market started to do was essentially frontr run sailor. So they said, well, if Michael's going to go out and and keep acuring more Bitcoin, and he's going to end up with 2, three, 4x the Bitcoin per share, I'll just value his shares at 1.5x the current value of the Bitcoin, which

creates this like strange capital markets behavior where you have a billion dollars of assets on the balance sheet, but the market is valuing you at 1.5 billion. because what they're saying is I anticipate that you're going to go out and raise more debt against these assets in order to go buy more assets and so I'll just frontr run you on that is in my opinion is what's what's happening here. And as a result of that you get an entirely new capital market strategy which is you can issue more shares, right? So and the math gets really crazy. You have a billion dollars. Let's say you have a billion shares and a billion dollars and uh you know you you issue you your your shares are trading at $2 a share let's say. Um, and this is sort of one of the techniques that like uh Tom Lee at bit

uh BMR and and Joe Luben at Esbet are using. These are called at the money share offerings. So just if you do the math, let's say you have a billion shares, you have a billion dollars, you should be worth a dollar a share. But if the market is going to make you worth 1.5 or let's say two billion, right? So you're worth $2 a share. You look at that and you say, "Wait a second. I could issue 500 million more shares at $2 a share. I pick up a billion dollars. I take that billion dollars and I go buy another billion dollars of Bitcoin or ETH. Right? So now I have $2 billion on the balance sheet. I have $1.5 billion shares because I only had to issue the 500 million shares to get that billion dollars. And the market is going to value me at $4 billion because I have $2

billion worth of shares. And so my share price actually goes up to $2.66, right? Because it's four four billion divided by 1.5 billion shares. So I printed more shares, bought more stuff, but my share price went up. Um, right? Which is a totally counterintuitive like what the heck is going on? Um, and as long as that's true, what the financial markets will do is keep doing that, right? And so what you now have are these digital asset treasury companies which have have sort of like found this weird capital markets arbitrage of pulling in debt capital, levering up and and creating a flywheel.

And if you do that well, you can you can actually acrue a tremendous number of uh assets onto your balance sheet. Um and and so like Tom Lee I think has crushed it. Um uh Joe Luben at ESB. We're for for um full disclosure we're investors in both ESBET and um BMR, Tom's thing and Joe's thing. We're also investors in um the third largest is a Spack that's going to go out on the on the ETH side. Um Ether Machine. We're also investors in uh Ethzilla which was just announced today that they're um I think they're the fourth largest now. And so we think it's a it's a fascinating strategy to be able to acrew these things. Now, I think what started to happen is it's gone out the risk curve and so you're seeing much smaller non-store value characteristic sorts of companies that are doing this.

I'm not going to pick on anybody in particular, but those are quite risky um and and much riskier for a lot of reasons. Some of them will survive and some of them will do well, but um a lot of them I think are are sort of, you know, chasing capital and chasing the sort of capital markets arbitrage. I think many of those don't survive in the long term. >> Do sorry, do you mean that they're doing this with non-stero value tokens? So somebody doing a I saw a DAT with uh with Bonk for example like is that that's what you mean? Yeah, those and also I think some of even the ones that are pursuing let's say Bitcoin or ETH or Salana like things that that are really high quality that will be around for a long time um if they're subscale they'll have a very hard time in the long term

right so I think you have to get over like a billion or two billion market cap really to be sustainable long term >> like running a public company is expensive right and so you don't want to be like sub a billion dollars in a public company and there will be a crypto bear market one day and so if you can't hit escape velocity in this bull market Um, I think you end up with a bunch of these DATs that are subscale and and that opens up a whole like bare market phenomenon where I think activist investors will come out and and try to, you know, get these things to liquidate cuz cuz one day these things, you know, in the bare market when the capital dries up and crypto keeps looking like it's going down and it's going to go down 50 to 80% for the next two years,

these things will trade at a discount to NAV. So now they're not trading at $2 a share, they're trading at 80 cents on the dollar. And that presents an opportunity for uh for people to come in and and um activists to come in and say, "Hey, look, you need to liquidate. You need to sell. You need to, you know, swap all these things out and and pay us back the cash." Um and so I think that becomes a whole thing in the bare market. So you have to be large enough to survive that. You have to be large enough to be able to push back on that and have the assets and have the resources to to not get swallowed up that way. So, like are these focusing on the DATs that are large enough? The strategies, Bitmine, uh, ESBAT, um, those aren't the only ones.

There's others as well. Uh, do these fit into the the original comment we had at the beginning, which was that buy and hold good things, or is this more of a you got to watch it closely because you might want to buy it when it's risk, but then you might want to play it differently in risk off market. >> Yeah, it's it's an excellent question. So, I think there's um there's two dimensions to this. So, one is the short-term, one's the long term. So in the short term you got to be certainly careful because these things are trading at a premium to NAV in many cases um not all cases but in many cases and so what that means is um the market is front running the expectations for the company to acrew more assets and what that means is that you might be paying if you put

it in let's say uh Bitcoin terms you know like if if Bitcoin's at 120 today and the the DAT that you're buying into is trading at a 1.5x mAV that's kind of like buying Bitcoin at 160K right you're paying 1.5 5x. Um, and that's fine if they go and acrew 50% more Bitcoin or, you know, more Bitcoin maybe, you know, that's okay. U, but there are certainly going to be cases for some people buying into these things where they bought into some DAT, the price of the underlying asset went up, but because the premium to NAV comes down, you actually don't make any money. So, there's some scenario here where Bitcoin goes up 20 30%. and your DAT investment into a Bitcoin treasure company actually comes

down 20 or 30%. Which, you know, I think would would be unpleasant um if if that's the exposure they took. So, in the short term, I think you have to be really careful about where you put your money and be really thoughtful about what is the premium that you're paying. Do you really trust the management team? Um you know, do do you have some sort of differentiated strategy for what they're going to do with the assets and so on. In the long term, I think some of these will be really interesting. Um the the highest quality ones I think start to me look like cryptonative Birkshers. And what I mean by that is that what you have is some really valuable core asset which is growing over time and you might be able to generate yield off of whether that's through financial stuff on the

Bitcoin side or or the base staking rate on something like Ethereum or Salana. And those assets, you know, if you kind of do the math, let's say, you know, Tom Tom Lee has talked about getting to 5% of Ethereum. So that' be like $25 billion today. So, let's say he manages to get to something like 25 or 30 billion, you know, with like a a 3% staking rate, that entity is producing a billion dollars a year in free cash flow. >> Um, which is pretty wild. And that starts to to me look like, you know, a Geico insurance setup where you got this thing that, you know, is around for a long time, effectively behaves like a store of value that spins a little bit of cash. And so, the question is, what can you do with that cash? And you can take that cash and reinvest it into

other high uh cash yield sorts of uh investments over time. Um, and so, you know, in the long term, I think some of these will be very interesting. Now, picking which ones and how do you pick them and so on and so on is is not easy, but I think there's a really interesting opportunity for somebody who's really long-term minded. And I think Sailor has sort of shown this as he went through an up and a down and another up. And, you know, you you kind of get the sense that Michael Sailor's never selling his Bitcoin. He's he's truly committed to this. And I think there will be a small number of such things. Um, you know, the parallel people draw is the ICO bubble in 17. There were a lot of things that a lot of people lost money and the average ICO was was a money losing proposition.

But we also got Ethereum out of that and Ethereum, you know, as a as a $500 billion platform and and you know, like the stripes and circles of the world and Robin Hoods and Coinbases of the world building on top of that is a pretty remarkable accomplishment. And so you you certainly could have both things be true, right? You could have a situation where most DATs don't do well. A lot of people that invest money into DATs lose money, but a relatively small number of these DATs actually produce something really interesting in the long term. Like both both of those statements are they're not in opposition to each other. Like both things could be true >> and likely will be true.

>> I think will be true. >> I mean, it's funny. It's I I think you could you could make that parallel to uh any segment within the market. I mean, we made the parallel to meme coins earlier, right? Like there's a small percentage that do well and win and most people get burned. Let me pull up I want to pull up. Have you looked at at this site yet? The strategic ETH reserve site. So I just want to pull this up because this is you were mentioning that Tom Lee's goal is to get to 5% of ETH. So if we look at this before the strategic Ethereum reserve strategy really took flight back in April, you had about 3 to 4% of ETH was was owned by the ETF. That was like just the ETF. Now, fast forward today, you've

got about 4% maybe about 3% that's held by strategic Bitcoin reserves and then about 5% that's held by the uh by by the ETFs. So, this is increasing at a rapid rate. Does this My question to you is like how do you project ETH from here, right? Does this is it possible that this continues and Ethereum could blow us all away and get into five digits this year and go beyond that? And maybe one parallel I', you know, one simple parallel that I've heard Tom Lee make a bunch is you look at ETH to Bitcoin ratio. Where was its last peak? Based

upon its last peak, ETH could achieve 16,000 uh $16,000 price. How do how do you think about where Ethereum goes from here and how the these large buyers will continue to operate? >> Yeah. So, I think the appetite there's kind of two questions rolled into your question. So, by the way, um the guy who makes this um you follow on Twitter um he probably is linked off from from strategic reserve, but he's he goes by fab. So, it's fab da i fabda rice on um on Twitter. He's he's all about this.

Yeah, he's great. Um uh and like this is like a labor of love for this guy. He just was like I'm going to start tracking this stuff and he just hacked it together. It's pretty cool that it became like the deacto source to track these things. Um so you know I think there there's kind of two things here you know and actually if you go to that second tab maybe on the bottom there the the strategic youth reserve treasuries tab right there. Um yeah you can kind of see like if you scroll down that these are the these are like the entities that are specifically pushing in this direction. Um and um and and you can see like how how many of these are basically brand new entities. These are not things that have been around for a long time.

So like the of I think uh maybe Bit Digital is the only one that's been around for a little bit, but a lot of these other ones like four out of the top five are basically brand new like in the last you know 3 to six months and ETH Zillow I'm I'm involved with um as well and and that one we just announced uh the company just announced the the ETH um purchase like this morning or yesterday. So, you know, this this is like real time. Um, I think this this sort of phenomenon, we're still in the relatively early days. Um, like I don't think we've hit the the end stage of this. Um, one of the signals I always think about with these kinds of market cycles is it's only when people start believing that these things can't possibly create a bubble, that it

actually is a bubble. You know what I mean? >> And I think right now a lot of the discourse is like, wait a second, is this sustainable? Like, can all these things keep raising money? like what happens when they've all levered up, you know, like if people are sort of questioning and when you're in the questioning phase, it's not like the actual, you know, you're not far enough along basically. And so I think there's actually some some room to run here for for these guys in terms of like I don't think not from a price perspective per se, but just in terms of like the sort of the theme and the meme and and like if there's going to be a speculative bubble here, we're we're in the early stages of that. I don't think we're in like the ninth inning or anything.

That's my read. I don't know how that plays out or what that means and certainly not financial advice. You know, I think the like sustainability of these things is is the big question in my mind is like can can these things persist for long enough and get through the bare market and I think that will be the big question here. Um, but I I think there's a lot of room to run. Like I think these guys actually could be could run for a bit in terms of just borrowing more capital like capital markets have shown as a as if you look at Bit Mine and Sharpen the capital markets have shown a willingness to to let them run >> big time big time. and and and I as you said I don't I don't see it slowing down anytime soon either from like Bitmine, Espet,

ETHZilla the you mentioned every day, every week more announcements, more buying opportunity >> the and then as well the any new entrance the whole the whole narrative just feels so new. It also goes back to what you're talking about at the very beginning, which is like we haven't even hit rate cuts yet, right? And so like what happens when when you hit rate cuts and then people are looking to be more risk on and they're looking to, you know, be in higher risk assets and and they're looking to be in things that are not only high risk but generate yield and, you know, like I I don't know. I I have a tough time imagining that if rates are at 2 and a half% instead of 5% that that this is somehow like over, you know.

>> Yeah. I think I think we've got a we got a ways to go. >> Yeah. Let's let's shift to we I I want to stick with Ethereum but sort of broaden a little bit. You're such a great big picture thinker and big picture tech thinker and one thing that uh I think everyone is trying to understand is how how the future of finance will be built and how blockchain will be integrated within that. And there seems to be a few different playbooks in terms of how the infrastructure is going to be built and how the incumbents are going to enter the space. And so we have what I would call the Robin Hood playbook, which Robin Hood announced back in June that

they are going to launch their own L1. They're going to build it on top of arbitrum. Sorry, their own L2. They're going to launch their own L2. They're going to build it on top of arbitrum and they're going to take advantage of Ethereum's network effects and not not enough not fuss with all the bootstrapping and the difficulties of starting an L1. Right. >> Then we have Stripe has just officially announced that they're building their own L1, which I could see. I can get behind that. They're they're a payment infrastructure player, so maybe it doesn't make sense for them to do the L2 play. Circle also just announced they're building their own L1. H how is what how is this going to happen over the next 5 to 10 years? How are fintexs and banks

going to enter crypto and how does that impact Ethereum or other chains? >> Yeah. So I think at this point they almost certainly have to and so you're asking the right question which is how do they? But maybe as a step back, there may even be people who don't who haven't kind of gotten their heads around the fact that they have to. And I think in part they have to for operational reasons, which is just this is the best infrastructure ever invented to move money around. And so if you can tokenize things and move them on chain and it's 100x easier and cheaper and faster and it settles 24/7, this is clearly better infrastructure. The second aspect to this, I think, is that you've now created and bootstrapped an entirely new capital market. And so you have $250ish billion dollars of uh stable coins sitting on chain. I think that number

goes to like five trillion. That $5 trillion is going to be looking for yield. They're looking for productive places to put that money. And so um you know, Wall Street or institutions or banks or financial firms have to look at that and say there's another 5 trillion here. I have to go after that. That's just too big a piece of the pie to not get. And so they have to figure out how to access it. So then the question becomes, okay, how do we if that's the the the operational efficiency you're going to get? and and um there's a huge capital market. How do you go about doing it? And I think there are a couple of different options. Uh you might be able to go get like uh your own L1, which I think some of these folks are doing. It might make sense to just tap

into something like Salana uh and build it on the base layer of something that already exists, or you could build your own L2. So if we look at these um you know like stripe and circle building though L1 we I I I want to reserve judgment fully until they have sort of published why they're doing this. Maybe there's some really really good reason. It comes at a big cost and so I think this is not the preferred path as Robin Hood and Coinbase and Kraken have demonstrated. It's it's interesting that the like extremely extremely cryptonative companies have by and large chosen to go this sort of L2 on top of Ethereum route. And so you know it'll be interesting to see what their justification is. Maybe there's some technical reason that they need to be EVM compatible but not be on ETH. Or maybe there's some compliance hangup

that Circle and Stripe have and that that they're worried about. Um, but my instinct would be that building an L2 is a little bit better and easier if you're going to be in EVM land um, operationally from a cost perspective and you get actually a bunch of free tech out of the door. Um, I also think it'll be interesting to see if there are use cases that make sense to go into the the broader capital pools like on Salana. So certainly for example if you're talking USD uh stable coins stable you know that should exist natively on Salana I think that probably means that things like treasuries should exist natively on Salana on the L1 you know likely means that cash equivalents of other forms um you know sophisticated stable coins or money market accounts should probably exist there I think it's a little bit of an open question about

whether some of the um institutions will choose to tokenize their assets and put them there. I think some things that are like not securities and you have minimal KYC could make a lot of sense there too. And so, you know, I think there it'll sort of segment by asset type. Um, but I think right now if you look at where the momentum appears to be, if you look at, let's say, something like RWA.xyz, which looks at real world assets and where they're tokenized, um, you know, Ethereum L1 and the L2s have a have a pretty big lead in this regard. So, that's that's kind of I think if you look at the data, that's probably where things are going. Um, but it'll be interesting to see what Stripe tries to do. Um, but I'm I'm sort of reserving judgment personally until the Stripe guys, Patrick and John are extremely

extremely smart. Uh, you know, Matt from Paradigm is on their board. He's extremely intelligent. He understands the stuff deeply. Jeremy from Circle has been in crypto for, you know, 10 plus years. He has a really really good team. So, when I look at those companies making this decision, I I sort of I'm like, okay, there's enough smart people there who actually understand crypto that there's probably some reason they're doing this. And so reserve judgment to sort of understand why they're doing it that way versus building it on top of Salana or building an L2 on top of ETH. You know, I I'm sort of reserving judgment for a couple days to see >> do do Salana and ETH just to pick on on those two and you could add in other general purpose L1s as well to this question. Do they need these large incumbents to

build on top of their chains in order to be long-term successful? >> That's an excellent question. I actually think the answer is no. Um, Bitcoin is a great example of this. Like I think you can be a store of value without having this all this other stuff on top. Um, and I think and I think actually Salana is a great example of this too. Like I think there's an end state of the world where institutions don't touch Salana at all but everybody retail does, right? and and like uh you could imagine social applications happening there. You could imagine real money um gaming sorts of activities happening there. You know, you could imagine um you know, non-custodial self-s sovereign wallets happening there and it's just like fast and cheap. Um and so yeah, it's entirely possible that you don't need the institutions to be really successful. A

sort of a a data point in this regard might be something like Tron, right? Like Tron has huge remittance in stable coin volume because they just got on the ground connectivity. And if you're trying to send money from like the UAE to Pakistan, you kind of don't care that it's going across Tron as long as it gets there and it's cheap and it's fast, right? And so, um, I think it's entirely possible that something like Salana giving architecture is a really really good fit for end users, consumers, social applications, games, like there's a lot of stuff that that doesn't need to be Apollo and Black Rockck. Um, and you could still be tremendously successful.

>> Avich, absolute pleasure as always to get you on the show today. really appreciate you joining us. >> Thanks for the time. >> Thanks for listening in everybody. I have to remind you know today's episode is financial advice. I'm not your financial adviser. Avichel is not your financial adviser. As we said throughout the episode, you should do your own research. If you need help with your investments, speak to a professional. As I also mentioned, if you need help understanding the macro setup that we're talking about throughout the show, make sure you tune in to the Melro Macro podcast. Subscribe wherever you are listening YouTube Spotify Apple and get up to date on everything in the macro world to make sure that you are ready for the riskon environment that looks the business cycle. Everything's lining up in a way very I hate to use the term Goldilocks, but it certainly

feels that way. So, check that out. Have a wicked awesome day, y'all. We'll see you back again tomorrow. If y'all are making swaps or trades right now, highly recommend you check out Milkroad Swap. This is a DEX that we built in partnership with Cow Protocol. Why do we build it? not to make money, just honestly so we could have a place to do our swaps for the lowest fees that we could find. This is the fees on Ethereum, Arbitum, and Bass are only.15% fees. Uh this is a huge difference from uh other centralized exchanges that charge half a percent or even up to 1.2% fees on their swaps. Also, you can swap on Salana all at swap.mmillgro.com.

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Investing in crypto or any asset is risky and you should never invest more than you can afford to lose. Thanks so much for listening in my friends. Have a wicked awesome