SharpLink & Lido: This Changes Everything For ETH Holders (Here's Why)

Transcript

It can also come by putting it into fund structures like we're doing with Galaxy. >> The idea that cutting issuance and effectively cutting staking rewards to nothing doesn't necessarily mean it will solve the problem that it's trying to solve. >> Just like the streets of Manhattan, I'm going to keep this quick. Over 70% of our viewers are [music] not subscribers. Yes, you. Every week we interview some of the best entrepreneurs and investors in the financial industry. The easiest way to support our channel is to hit the like and smash [music] the subscribe button. Now, sit back, relax, and enjoy today's show.

>> Joe, from the perspective of really trying to maximize, you know, ETH per share from the Sharapnel perspective, when you think about allocating capital, whether it be through this initiative or other similar previous ones like through Linea and through that kind of initiative that you did with Joe Lubin over there, and kind of just looking to maximize maximize ETH per share while obviously, you know, kind of you know, navigating on-chain risks, smart contract risks, regulatory, and compliance risks, how do you think about more broadly the strategy as it has changed throughout the last several months, and then looking forward about the strategy to maximize ETH per share?

And then I think that will take us into the whole issuance conversation as well. >> So, to us it's very simple. Unlike Bitcoin, who I'm a huge fan of, ETH is a natively productive asset. So, if you own it, and you own it on behalf of shareholders, you damn well make better make it fully productive. And for us, that doesn't mean just achieving the Ethereum staking rate. But, we use Caesar as our benchmark. To me, that's the risk-free rate that you want to actually try to exceed. Um we call that alpha, and uh it's actually portable alpha in the sense that the sources of that excess return can come from lots of different places. It can actually come from optimizing uh uh the validators and the staking operations you use. It could

come from allocations to DeFi, and earlier this year we allocated 200 million uh through EtherFi. And then it can also come by putting it into fund structures like we're doing with Galaxy. And the reason why we purchased 200 million of Lido is you could have funded that type of investment with dollars or stable coins, but you wouldn't be directional ETH. And if your conviction is that Ethereum is the future settlement layer, and you your whole purpose of your digital asset treasury is to give investors exposure to ETH, you can own Lido, you can pledge it, and you can be directional ETH. So that that's very easy. And then the ETH we earn in staking rewards, you just put

back into the treasury and it compounds itself. When you talk about risk and compliance, we were the first to go out into DeFi, but we didn't do it by leaving our qualified custodian. And in the case of this leave, this 200 million allocation to Lido, we're taking that token and keeping it in Anchorage Digital, a federally chartered bank. So you don't have to compromise on smart contract risk, security risk, go into a Web3 wallet and leave your custodian. You could do it all uh as institutions do in trusted counterparties. So um we're really excited. I think you're going to see a new wave of productivity coming from digital assets treasuries. Some are going to choose to build staking

operations. Some people like us will choose to be the most sophisticated deployers of our ETH because it's permanent capital. And maybe later we can talk about what it means to have permanent capital versus what you see in crypto, which is a lot of short-term mercenary capital. >> Yeah, we we've certainly seen uh you know, the merry-go-round of merth- mercenary capital uh as it, you know, goes through the L1s, it goes through DeFi. Uh the entrance of permanent capital is a is a welcome uh occurrence.

I I think, you know, 8363, this EIP that was proposed around the issue and schedule, you know, caught a lot of people by surprise. It felt like for once the Ethereum community actually came to consensus on a thing and it was against this thing. I I didn't see too many positive takes on it. Joe on a post August 8th you said it would undermine DeFi and erase the native yield advantage driving billions in institutional adoption. Maybe you can just like just from the institutional perspective, you know, you guys are pioneers and and showcasing what it means to have institutional Ethereum access and exposure.

Why is this so detrimental? At the face of it, I guess if I were to strongman, you know, the proposal it would be bringing down issuance, less supply inflation would mean uh, you know, overall a higher ETH price. Why is that the wrong thesis, the wrong perspective to have from someone who's on the ground working with Ethereum day in and day out? >> Yeah, I I wrote a piece and I wanted it to be very thoughtful and I want to start by saying the folks who proposed that um, are not bad people. They actually have ETH and Ethereum at their heart. I find them to be a more academic crew.

Um, but when I wrote the title of my piece, I tried to keep it as simple and uh, digestable as possible. The wrong proposal at exactly the wrong time. Why do I believe that? Ethereum has been um, in a bit of a leadership crisis for the last 6 months to a year. It doesn't have this Solana treasury with built-in BD. It doesn't have, you know, vast swaths of token they can give out to win business. What it does have is 11 years of exactly what institutions are looking for, security liquidity uh and trust. And the reason why this is exactly the wrong time to mess with the monetary power uh

policy of Ethereum is one, this uh Ethereum staking rate, pol it dynamically in the mid 2% range, is essentially the risk-free benchmark for most of DeFi borrowing and lending. And DeFi was built on Ethereum. Ethereum has a massive moat around DeFi. Why would you want to undermine one of the most successful elements? And that DeFi, the swapping, lending, borrowing that that Ethereum dominates with that risk-free Ethereum staking rate, then allows many more stablecoins and tokenized assets to enter the ecosystem.

So, one is you'd undermine the core strength. Second is there's a view that the staking rate is just giving out rewards to validators and big institutions. But as you see about a third of all ETH being staked, that money is not leaving the ecosystem. It's going right back into it. What do I mean by that? Chainlink takes a significant portion of our ETH rewards, puts it back into DeFi, puts it back into blue-chip protocols, pledges, and invests in projects like Lido. It's permanent capital. It's not being taken out and dividend to investors.

And then the final thing I'll say is really is a differentiating factor from Bitcoin. If you're an institutional investor and you want exposure to the future of crypto, you can own Bitcoin, but you get no yield out of it. One of the reasons why institutions really like Ethereum is the fact that it has a native productivity. And if you want to get the upside of a network plus yield productivity, it is massively differentiating. And when Ethereum is finally on offense and winning, 55% of stablecoins, over 50% of RWA, it dominates DeFi.

Why would you want to rug pull the monetary policy that is the future of growth of the ecosystem? So again, we don't think these people are ill-intended. We do like the idea of scarcity and some limit on staking. But wrong proposal at exactly the wrong time. >> Absolutely. Yeah. >> Kind of passing to your side from the Lido perspective, from what you've seen over the years of liquid staking, staking, you know, through through the merge, 2022, just been a just a ton of monetary policy changes, economics, right? The the the industry is kind of going through this coming of age of trying to look at these blockchains more like a a ledger and and and a business with with a profit and loss looking to

kind of you know, turn these things into you know, very investable assets, perhaps missing the whole, you know, store of value and monetary, you know, premium thesis here that I think a lot of Ethereum folks have been, you know, pioneering and pushing forward. From your From the Lido perspective, do you agree with Joe here? What are some other kind of nuances that you think are a bit a bit a bit important to to note? >> Yeah, like I would definitely echo and agree everything that Joe has said. Like I I think the approach is misguided. I think obviously from a Lido perspective, we're we're not in favor of this. Um I think the idea that cutting issuance and effectively cutting staking rewards

to nothing doesn't necessarily mean it will solve the problem that it's trying to solve. From an institutional perspective, we were conducting interviews over the past kind of two months. I think I spoke [clears throat] to maybe 10 or 15 different institutions. Tier one managing billions if not trillions, I haven't met anyone that is supportive of this idea. I think everyone knows that you're effectively like you're shooting yourself in the foot. Again, as Joseph mentioned, you're just making it an incredibly easy for institutions to move to Solana.

Yeah. And the other big thing we've noticed, which is again critically important, is just to keep the network decentralized. We've met a lot of people where if the staking rewards rate was to go down to 1 1 and 1/2%, they don't see the point in running a community staking node, helping to support decentralization, because there's I suppose no meaningful upside to that. There's a lot of effort and no reward. And then the final thing I would say from again speaking to different asset managers and ETF issuers, they've spent millions launching these stake products, lobbying governments. There's been a huge amount of due diligence. There's been an ecosystem launched over staking.

And the idea of cannibalizing it right now just doesn't make sense.