Tokenization as the catalyst DeFi needs, with Castle Island's Wyatt Khosrowshahi

Transcript

So, I think if you are a DeFi user, you would want to be looking from the lens of those two lanes and know exactly what game you're playing of like, okay, I'm buying something because I think it has fundamental long-term value. I believe in the people behind it or like I'm looking to find the next runner. DeFi is back and booming, but what does it take to bring more quality assets on chain? What do you need to know about all of this? And when will all of this mean number go up? Hello and welcome to Milkroad Crypto. podcast is here to remind you that Luna Classic still has a market cap of $230 million. So, there's still hope for you, too. I'm your host, John Gill, and today is Tuesday, September 8th. We will be releasing this episode on Friday, September 11th. And today, we are joined by Wyatt Kazra

Shahi. Wyatt is an investor at Castle Island Ventures, where he focuses on the onchain economy and DeFi lending. He also co-hosts the firm's own podcast, On the Brink, with Castle Island, which is a lot of fun. I recommend it. Wyatt thinks about blockchain based capital allocation for a living. He is full of alpha about all things crypto and he's going to share a lot of information with us in this episode. If that sounds good to you, make sure you like and subscribe. Share this episode with somebody who's going to enjoy it. And as a reminder, our podcast today is free and that would not be possible without our wonderful partners at saber.money, the stable coin payments platform built for Asia. So keep an ear out for more information on them later in the episode. But for now, welcome for the first time to the Milk Road Show. Wyatt,

how are you? >> John, I'm doing great. Uh, thank you for having me. A great introduction. I'm I'm excited now. Uh, I'll try to live up to even a part of that. Um, but I've been a fan for a long time, you guys. So, excited to be here. >> Well, I've been a fan of Castle Island for a long time. Wyatt, I'm happy to have you. I thought that would be a good place to start the conversation. Tell us a little bit about Castle Island Ventures, what you guys are, what you do, and a little bit about your role there at the firm as well. >> Yeah, definitely. Um, so by background, the firm got started in 2018 by Matt and Nick who who were the founders. Uh, they'd previously been a very early part of Fidelity's digital assets practice.

Um, which goes back to about the mid2010s, Bitcoin, early days, very early days of Ethereum, I should say. And we're doing a lot of work in this space. And then one of the things they realized is from the lens of a brokerage like Fidelity, there was a lot missing uh in terms of infrastructure to make crypto work properly alongside other traditional financial assets like equities and the other things that someone like Fidelity would would be working in. So they started Castle Island with the idea that there would be a lot of opportunity to invest in technologies that would be required if crypto were going to become a financial asset class uh mature asset class I should say and blockchains were actually going to be a cornerstone part of financial markets. So that's things like data services to make sure that Bitcoin

trades at the same price across exchanges, wallets and ways to custody assets safely. things like key recovery in case people lose their keys, past keys to make sure that it's easier to store your crypto, compliance to make sure that people aren't breaking rules, ways to issue new assets on chain and tokenization, which is coming into the for now and we can talk about later, but effectively we focus on investing on all these technologies that underpin onchain technology and and the idea that this can be used more widely for for financial asset classes. So, we're actively investing. Uh, continue to be excited about the next wave of startups.

Uh, and then I joined the firm a bit over three years ago. Uh, got into the crypto industry around 2021 and was working on the traditional equity side at a hedge fund before. So, again, appreciate you having me and and excited to to be here and chat about things in the market and beyond. >> Yeah. Well, I think there's a lot to unpack here. Castle Island is known for, as you said, trying to invest in the gaps in financial market infrastructure for digital assets. And I'm curious what opportunities you see there today because a lot of these problems are, you know, you talked about are problems of the past that have sort of been solved, but what opportunities are you seeing there today? And and where are you seeing those opportunities?

>> Yeah, I'll rewind a little bit. Early on in 2018, 2019 before I joined, things were pretty raw. So it it really was like Bitcoin is trading at a different price on Binance and Fidelity and and Coinbase and how do we solve that? So you like needed data feeds. Uh Nick on our team founded we incubated a company called Coin Metrics which was doing that. We invested a company around then called Talos in the trading space uh doing order routing. So it was really like the early market structure at that point. I think since then we've seen the emergence of some exciting new technologies and themes. stable coins.

Stable coins are well documented. So I won't belabor it for too long, but we got really excited about stable coins and the growth there in 2020 2021. People globally sending, saving, spending US dollars. Everyone wants access to US dollars is what it turns out to be the case. And that's been an awesome story and we continue to see growth there globally. Cyber security is one that's been a more stable theme for us from from start to to present and I think we're actually seeing being really topical now. And this is just the idea that whether it's crypto or digital financial services, there's a lot of potential vulnerability surface area. So with something like onchain assets, there's smart there's smart contract security, there's access security. So

there's going to be a lot of fishing in today's day and age for people trying to get access to parts of a multi-IG, trying to scam and get people to send their crypto somewhere. There's web two software security. So really, you have to be on top of a lot of different parts of the security stack. And if you go back to the pre-crypto era, if there was some sort of digital exploit, usually it's a data breach of, you know, maybe it's a CRM tool, maybe it's some kind of digital software product, but when it's digital money online and especially bearer currencies, that's really dangerous because if someone just gets access to your Bitcoin or Ethereum, as we know, there's there's no chargebacks there. With something like USDC, even the nice thing is at least it's not a bearer instrument. So someone might have

the USDC, but it can be frozen and they can't actually redeem the underlying current currency. But with something like Bitcoin or Ethereum, that cyber security issue is a big issue. So we're spending a lot of time trying to invest across the cyber security spectrum. Unfortunately, as I'm sure you guys are aware, we've seen it's got to be north of a billion dollars in in exploits this year to date because I think April or May was a big month. So we want to keep being very active there. And then very recently I think asset tokenization onchain asset management uh curators vaults has been a really interesting category and people are talking about it a lot but but we're very excited and and want to be active there as well and happy to touch more on on any of those obviously. Hi everyone, this is John.

Listen, our Milk Road pro analysts nailed this AI bull market. They had dozens of calls pay off in a big way for our community. If you want to see how our entire team of analysts are positioning for the crypto bull market that's going to come after this bare market finally ends, you can join us now at Milkroad Pro. It's just a dollar. Link is in the description. You'll get access to all of our analyst trades, their watch list, and see how they're navigating this in their portfolios and get access to ask us questions in Discord anytime, day or night. It's just a dollar. Links in the description. Milk Road Pro. Join now. I'll see you there. Well, there's a lot to unpack there. I'm sure we'll try to cover some of that in this conversation. Um, but Castle Island, you guys are in the process of

deploying your fourth fund at $250 million raise here. Um, talk to me about what that process has been like. You know, crypto has been in a a very deep bare market for a long time and has suddenly gotten very volatile and roared back to life. What's it been like doing this this capital deployment into this kind of an environment? >> Yeah, I think it's important to touch on the capital environment in crypto pretty broadly. And in the 2021 cycle, we had a lot of money that was raised into crypto investment funds. And on the other side of that, you had a lot that was deployed. And we're at a time where the crypto industry really just meant DeFi, gaming, and then some infrastructure, which was like layer 1's, layer 2s, wallets, some trading. And at the time,

that was probably about 80% tokens or protocols and 20% equity, at least from what I remember seeing. And at the same time, pretty much all the money that was being deployed was out of venture capital funds. There wasn't a lot in terms of like hedge funds or liquid funds or any sort of public investment vehicle. So basically all the money was being deployed into pre-launch tokens or projects. And then we collectively also thought it was a really good idea both from a compliance perspective but also from like an alignment perspective that investors and insiders would be locked up for three to four years which created this really negative environment unfortunately where you had a lot of these venturebacked token projects which then had these prolonged unlock cycles for like 3 four years. And as a retail

investor, you wouldn't really want to touch something like that because you just know that there's going to be sell overhang for a long time. And at the same time, the team is sort of locked into this scenario where there's sell overhang and they have to create demand, which is somehow going to outrun this long-term unlock, which is really hard to do. And I don't blame teams for for struggling with that, which I think historically they have. And a lot of the tokens that you've seen actually stand the test of time or ones that did fair launches or didn't raise money or did some kind of other format like that. And so that that dynamic created like a little bit of a tough pattern of events in the industry where you had a lot of these tokens which would do pretty poorly a few years post performance led

to a bit of an erosion of confidence and then we get what we see now which is a lot of the funds have struggled and it's been a generally difficult fundraising environment um both for funds and for companies. So it's it's more difficult to rate raise for seedstage companies and at the same time you've seen a consensus around people get very excited about a very small number of companies or protocols. So Hyperliquid's done extremely well. Zcash has done extremely well. Uh there's bridge in the stable coin space which did did well. So you see like a small concentration of those but but it's pretty isolated versus the spectrum things that you saw funded in 2021. I think we'll be in that period for probably a little bit longer. I think frankly like private investment into tokens is something that's not really figured out. And I wouldn't even

say I'm confident that that will be a feature of the market in the next couple years. I'd say that when you take venture capital firms with a crypto or blockchain focus, they're probably doing 80% equity, 20% token now, maybe less than 20% token. So it's completely flipped. So we've seen just a completely different environment versus what we saw in the last cycle. I think there's probably a little bit more proportional dollars that are going into the liquid token markets relative to pre-launch tokens, which is a good thing because that will just produce better outcomes for the tokens that are live in market.

And unfortunately, you do see a longtail these tokens sort of die out, which I think has to happen for us to be in a better altcoin market. And I do see that happening. It just takes time and we're kind of sweating through that period right now. >> Yeah. Well, I think that there's a lot of alpha in that and I think yeah, the environment has evolved rapidly and in many different ways. Um, I want to ask you, White, about something I've seen you writing and talking about a lot, which is that onchain capital aggregation and allocation like the technology, the infrastructure for that is is in place, but I've seen you say that we need better quality assets in some of these DeFi products and vaults and things like that. Talk to me about the problem you're seeing there and what what just yeah frame that for me. So,

one of the things that I personally got really excited about when I was into crypto, and this wasn't even something that I'd say we were investing in at the time, but I when Uniswap came along and you had some of these pools and some of these early vault products, they did a really good job of letting people deposit capital into one place for a given cause, whether that's for trading or that's for lending or something like that. And it became clear that that that was an interesting use case. You were able to like aggregate people's capital and give people collective access to a given opportunity. I think what has been the problem with some of those some of those instances so far is that the actual things that they've been depositing into some have been good some haven't been that good. So a lot of

these RWAs which are say are dollar pegged and they're yield instruments. We've had a bunch of DEGs. Some of them are disclosures or black boxes. You don't really know what they are. So I think we're going through like a learning phase of okay what should disclosures look like? What assets are sort of the right ones that people should be able to access through vaults and which ones aren't. But I think that asset quality is increasing and we've seen some some really good issues in market. Athena is probably one of the best examples of the last few years of someone who created a really good onchain yield asset that a lot of people in crypto have used uh that I think serves a real purpose. So I think we'll see more things like that. But it's great that you just have 24/7 markets where you can deposit capital into a

given place. It can be taken out. It can be programmatically caps can be expanded which if you look at like traditional fund structures like in in traditional finance you don't really have that and people have been talking about private credit for example as having these redemption cues and sometimes the redemption windows are changed based on terms in the fund they're not that accessible for for a wider tail when there could be secondary market discovery there so I think the ability for these vaults to like actually have capital in a given place is really powerful it's just about now like creating high quality investment opportunities ities.

>> Gotcha. Okay, that framing makes sense there. A common metric that's often cited in DeFi by projects in general is this TVL, total value locked. I've heard you call this more of a marketing thing than an actual indicator of success. Why are you critical of this or suspicious of it? And what do you think is a better metric to use for measuring the health of a DeFi protocol? Yeah, I think TBL is something that we started using because we needed like some sort of unifying measure of the like what I would call the bigness of a given protocol or a given chain or something like that because it really just speaks to let's try and quantify like how many dollars are evolving around a a certain ecosystem which is worth something but the problem is these businesses are all different. So, it's a little bit like

you wouldn't want to take a bank and a brokerage and a neo bank and let's say like a private credit fund and say like they all have this much TVL and let's compare them like for like on TVL. But again, we we didn't really know what these businesses were early in crypto. So, I don't blame people for doing it. But now, I think you probably need to categorize the businesses the way that you would have comp sets. So you have DeFi lending obviously you have like these vault based curator businesses which we can talk more about like what those are because I think that's being discovered a little bit. You have AMMs and trading um exchanges and so I think it's better to break down like okay what actually drives revenue in a given business. So with something like a lending business it's probably actually

the active loan book. With something like a vault based business it's probably the amount of capital in each vault by vault because each product's different. You're going to want to look at each product and like what the margin profile of each one looks like. And I think candidly we people who ran these protocols or ran the data services like danced around this cuz they figured it was probably more advantageous for them to be priced on TBL for a while, especially if you don't generate real revenue. But we're at a point now where like you can actually identify what like these revenue drivers are, at least what the future revenue or cash flow drivers are. So you're going to want to put them into like specific buckets. And I give a lot of credit like Block Works is doing great job a great job doing this. Some

of the protocols are being very proactive about disclosures now. So I think that we're getting there. But I think that TVL Yeah. has historically been a bit of a misleading metric in that regard that tried to like put apples, oranges, peaches all in the same bucket. >> Okay. Yeah, that makes a lot of sense. So it's it's a little bit too high level and it loses a lot of the important nuance in terms of what these businesses actually are and how they're actually generating revenue. I think that's that's important to understand that context. I something else I've heard get a lot of attention and criticism or questioning in the DeFi space is this notion of looping and this I think gets back to the same issue you've pointed out about like we have great aggregation and allocation mechanisms and infrastructure but asset quality is questionable. How big of a concern to

you is the looping that we're seeing happening in DeFi and how is something like this even measured or protected against or yeah what's going on there? >> This is one of my favorite questions. Uh I think it's super interesting. I kind of want to hear what you come down to. I mean the thing I think is really valuable about DeFi markets I think lending like really serves us well per to some extent is like you can tell what the cost of capital is pretty readily. Like that's one of the beautiful things about variable rate lending is like sometimes USDC borrow rate will be 5% and then sometimes it'll be 7% sometimes it'll be 9%. So you you have a bit of this gauge of like where is the market right now from a speculative perspective and I think what looping does is it lets you know what sort of the de facto

risk-free rate is. So I remember like Athena was doing something like 9% in yield USD for a while and the USDC yield rate sort of pushed pretty close to that because people were very content just looping USDE and they viewed USDE as sort of the canonical close to risk-free rate. And so what this looping does is it it allows you to very easily identify like what people are perceiving as the risk-free rate, what they'll borrow and go do. And then if you're someone who wants the stable coin rate, it's kind of great for you as long as the markets are set up in a sober fashion where loan to value is not too high and they're not too risk on because you're going to get a USDC yield that's just going to be comparable to what other people are

saying is the risk-free rate. So if there's something like Athena or Maple where which is given at a given rate, then like that's going to be good for you. If you're just a vanilla USDC lender, your your yield is going to go up. At the same time, you can tell if the market's pretty risk off from the perspective of like, oh, USDC is only 4% or 5%. Now clearly people don't feel comfortable when they're looking at all these things around them whether that's being long ETH or whether that's owning some kind of Y instrument that that will be safely yielding or they're worried about DAGs or something like that. So I think that's what's great about looping to our TVL conversation. it creates like really vicious TVL cycles um because you get these mass liquidations like we had

on 1010 which can be buoied by things like actual volatility of like let's say tokenized private credit asset or tokenized real estate asset if there is volatility in that and I think if you're running a business that involves looping you would want to be like very cognizant of what the amount of leverage in your given asset is I'm not convinced everyone who's like tokenized a DeFi asset knows the answer to that question of like how much leverage their own asset has in it, which is like something that worries me a little bit sometimes if you were underwriting it. But I've actually become more comfortable like functionally with how it exists. And I don't think I think we can we can allow looping in a way that's not going to create like a crypto market cascade, but bull markets always surprise me in the

extent of like how crazy things go quickly from a leverage perspective. So don't quote me on that. >> Yeah, no comment. Uh I don't think anybody wants to be quoted on this right now. Exactly. I look I agree. I think we're we're all figuring that out. And I think just talking about the problem and making sure people are aware of some of these risks and then having that dialogue about how to protect or like you know enable it without creating enormous amounts of risk is is a healthy thing. So I appreciate the thoughts on that. Um I I I want to get some more thoughts on a couple of projects you've mentioned here as being examples of of good things that are happening in DeFi, which is Athena and Maple. You mentioned both of those. What about these two projects and how they're conducting their businesses stands out to you? And

what do you think um should be emulated by other projects in DeFi about the way Maple and Athena are operating? >> We've worked closely with both these teams for investors for for disclosure. Um and I really like the way they operate. I think they're very forthcoming. I think Athena historically with the basis strategy and then Maple in terms of being like some of the best in in onchain or cryptonative credit have created like sticky durable products where people know what they're offering. They know what they're buying. There's appeal in the yield. At the same time, they haven't overstretched or overreached because I think it's very easy, especially when you're actually doing quite well, to say like, "Oh, we should go further out on the risk curve and allow more leverage in the system.

We should get our assets to more venues." Because I'd say in crypto, so nice, when you're like one of the larger players in DeFi or in the onchain finance market structure, one of the biggest risks is that you just integrate with someone that you kind of wish you didn't in retrospect since you inherit the security or financial concerns of other protocols. And again, this is it's not to place blame on anyone, but you see something like kelp affects a like there's contagion that happens aware of. So, I think they've both done a good job of like managing where their footprint is and at the same time a reliable product that that people know what it is and and see real appeal for. I think other asset issuers should follow that model. I think Figure, we're not investors, but has done a relatively good job here too of of bringing a

product to market that people see the value and people want. And I think there's room for a lot of that. I think there's room for more high quality entreurs. I think these yield assets are um desirable in DeFi right now. Again, if people have proper disclosures, do a good job. And you have more and more curators and vault venues that like want to work with asset issuers. So, I think it's a great time to to be doing that. >> Can you talk to me a little bit more about this? Maple and Athena, there there's been something that's happened that I want to like get your thoughts on here. Maple has built about $400 million of its liquidity buffer out of Athena's USDTB, which is effectively just Black Rockck's tokenized treasury fund wrapped as a stable coin. Talk to me about this in terms of the significance this like

means to the market. Like is this just like like the first example of getting some real high quality collateral on chain? Do you think that this is something that's going to scale and other people are going to start using this like way of getting tokenized assets from some of these more respected asset managers on chain? Like what is what what should we know about this and and what do you think this bodess for the future of DeFi? >> I think this will definitely happen. I think especially like as you see players who have actually been in market for a longer time like put differently you start to recognize how shortterm the like the lifespan of some of these onchain businesses is when like you finally have a couple that have been around for like three four years and and like Maple for example had to recover

from some bad debt the last cycle and they've sort of stood that test and then Athena has now been around for like a proper cycle and I think you'll start to see like more collaboration like you're saying once you get to like some level of of maturity. I also think that you will see centrifuges working with the NS Henderson for example, but you'll start to see like treasury assets or like tokenized rappers being inherited and those might be like more DeFi native issuers from a Fidelity or Franklin Templeton or some of these major offchain firms. You'll see them maybe start to look to work with existing onchain issuers like an Athena and do a raft product, their own version. So, I think it's really exciting. I I just think you like really can't rush these things and in crypto people like want

things to happen really fast and and it just takes trust. Like these are financial services businesses and those take trust to build. You look at the ones that people use in the real world and it's it's decades worth of of sewing those seeds. But again, I think we're getting there. >> You know, one thing we've talked about a lot on this show is that crypto is quickly becoming a huge part of the global payments infrastructure and nowhere is that more obvious than in Asia. But if you're actually running a remittance company or a payment business, you know that the hard part isn't moving the stable coins. It's dealing with local banking partners, compliance, liquidity, and all of the operational headaches that come with sending money into places like India and Southeast Asia. That's why today's partner is Saber. They give payment companies stable coinpowered infrastructure to collect and make

payouts across Asia without having to build all of that complexity themselves. They've already processed more than $3 billion in transactions across 40 different countries. So, this isn't just a concept. These guys are actually doing this for real. If you're building payment infrastructure or expanding into Asia, make sure you check out saber.money. Let's talk about how tokenization unlocks, you know, progress on this because it's gotten a ton of uh attention. Obviously, the example I just gave is is a tokenized version of a US Treasury. Um, but as tokenization starts to grow, more assets, more high quality assets start to come on chain in that way. What does that unlock for DeFi?

What does that intersection look like in your mind? >> Yeah, so it's a great question. I wondered this for a long time cuz I feel like people were put the what is it the cart before the horse a little bit and the fact that like they got really excited about tokenization where you didn't really know where to put tokenized assets uh yet. I'm trying to remember which there was a firm last cycle which tokenized a fund and it was a little bit like okay what do we do with it now? But anyways, I think one of the major unlocks actually is crypto is really good at drawing in capital especially during like fervent periods.

Like I think everyone gets those texts once Bitcoin rallies to 80k from friends who are like okay should I put money in bitcoin or ether salon or whatever it is and like we actually have drawn out a lot of I'd say like the downstream or or incremental capital base that's interested in crypto. The mind share is pretty good. Part of the problem is that it's not looked at as a sustainable environment for capital when the market's not doing well. So when Bitcoin draws down from 120 to 60K, then all your sort of semi-crypto friends are tell taking their money out of crypto.

They're taking money out of DeFi and they're putting it into money markets or they're putting it elsewhere with their asset manager. And I think what these tokenized instruments do like tokenized yield products, tokenized RWAS, is they'll actually keep capital in the crypto system during periods where the market's not doing as well. Guy Young was talking about this when I hosted him on our podcast recently and I was like, I'm going to take note of that. I think that's really insightful that you'll actually be able to maintain these capital bases versus having them flee away. The vaults can do that well because some of these you can just park your money and you know you're going to get like a solid six or 7% yield, 5% yield. If you're with a good curator who's selecting good assets, you know exactly what's in there. You've live

monitoring on it. Um so I think it's about that stickiness. Uh which is kind of what the industry's been lacking because I think if you take your average tourist crypto user, they would say like, "Oh, this is where I go and speculate when the market's doing well." And then you kind of forget about it for a couple years. >> Why? I think regulation has been a big focus in the digital asset industry for a long time in a negative way. It's starting to become a more positive thing. Uh just this last week, the SEC proposed updating their transfer agent rules, which is the first time they've done this in over 40 years now. And I'm curious if you have any thoughts about how modernizing the transfer agent rules might unlock things for DeFi protocols to be able to do things with securities or or just tokenized assets in general

that they wouldn't be able to do before and just how that factors into your thesis here. I mean that could be really exciting frankly like I don't envy the position DeFi protocols have been of like effectively operating in the dark from the perspective of like how you should be registered what it means to have a permissionless AMM swap like there's just no regulatory basis for that as much as people want there to be. I think if you're setting up a vault it's unclear if you should be a registered investment advisor. It's unclear if maybe you should be a broker dealer. It's unclear if like that should be a fund offering or not. And I don't think that's like a matter of reading the fine print. It's more a matter of just like we don't have a a basis for this. So the like the fact that they're

re reevaluating what a transfer agent looks like. I think that's like very exciting. Hopefully we get some like clear guidance. That's like really where we'd like to get to. I think some of the vault players will have to reexamine what they're doing probably in the wake of like some of the early guidance that the SEC has given. But the truth is like we don't we don't have a clear framework here yet. I think that there's a lot of good faith efforts being made by curators, by pool operators to say that we're playing within the rules that we've effectively been given. And to be perfectly honest, like I think there are other folks who are being much more risk. So I think like that that best faith approach or good faith approach gives you a good chance cuz the

regulators will go elsewhere first especially probably in in a few months or a couple years down the line. So I'm hopeful that we'll get new regulation in that regard. But um right now I would say like if if you're a protocol founder unfortunately it's just not the rule book's not there for you yet. >> I think that's an interesting approach. It's kind kind of like hoping that the regulators sue you last if you're the most least non-compliant or whatever. Like operating in good faith is a good starting point at least. Um I mean obviously to to be clear like we vet the approaches of our portfolio companies.

There are things that we won't touch because it's like okay like I really hope this is legal but it's like not within our comfort zone. But the good bait approach is a good start. >> I really hope this is legal as a good coverall for a lot of things in crypto. Um, if I'm if I'm a DeFi user, if I'm a cryptonative investor, what do I need to know about all of this, right? Like, is DeFi about to 100x overnight? Is this like something that's going to be like some slow changes in the background that don't actually move markets too much for a long time? Like, how does this actually impact me if I'm just like an average DeFi user today? Yeah, I the the one of the key things I would say for my opinion at least is I think and for the better the like the middle tale of

tokens has gone away a little bit. I think we've landed on this market structure where you have a a long tale of just runners. a lot of them are meme coins or they look like meme coins and you know you can critique let's say like the behavioral nature of that side of the industry but it sort of is more honest about what it is now versus I think if you go back a few years there were some things that were sort of looking like serious projects but they weren't really and you didn't know exactly what they were about and now there's not a lot of ambiguity that there's just like a bunch of meme coins that people want to earn a return on and then I think on the other end, you have a much smaller um series of of serious projects and builders who want to be around for

multiple years. They have revenues which are hopefully growing. They have real businesses that you could artic articulate to someone. You know who's behind them. The disclosures are increasing. Um, so I think if you are a DeFi user, you would want to be looking from the lens of those two lanes and know exactly what game you're playing of like, okay, I'm buying something because I think it has fundamental long-term value. I believe in the people behind it or like I'm looking to find the next runner, which is fine, but you should be intellectually honest about what you're actually doing. Because I think when you get stuck in the middle of like, okay, I have a thesis around this thing, but I don't really know who they are or if they'll be around for in a year later or not, then I would try and and separate

yourself into one of the two camps. And then I'd say aside from call it like the altcoins, um these these tokenized assets which are yield bearing, I think some will be very interesting. I would really do your research there because again, these things will be talking about like what the underlying assets are. I would try and make sure you're not buying something that's sort of like a rapper of a rapper of a rapper like you can get this recursive nature where you're kind of just probably buying something downstream that someone else didn't want. But when you're working with again original asset issuers who are bringing interesting assets to market, you can learn a lot about them.

Um I think there's a lot of interesting opportunity there too. >> Okay. So, let's talk a little bit more about that interesting opportunity because we talked about some of the like the risks from looping strategies and other things, but you're also saying that there are some really good quality yield products. I've heard a quote I heard from you, I wanted to ask you about this directly. You said um on the retail side, there are capital aggregation platforms with quote legitimately compelling looping uh yield products. And that word legitimately, I think, is doing a lot of heavy lifting there. But talk to me about what some of those are in your mind and and you know, just differentiate those from me from some of these other things. Yeah, I think we invested we have a company that's trying to be in this category.

For example, it's called Groma. Uh, and they're the issuer of an onchain real estate assets and onchain REIT called Gromacoin and they own 2 to 20 units small multif family buildings and effectively the yield is the combination of the dividends and then long-term appreciation on these real estate assets. So, I think something like that I think real estate with a long-term view that that can be a really high quality asset. I think some of the credit opportunities that are emerging like you have working capital needs for stable coin companies. You have companies that are going to be lend lending to them and they're looking to spin up onchain vaults and and token based opportunities. I think that'll be interesting. I typically like these situations more where you have a yield source that's very direct as opposed to

something that's like a claim on a private credit fund from a number of years ago that's now been tokenized and again it's sort of longerlasting or a little bit dated and it's like a bit of a rehypothecated opportunity. I prefer where it's like okay this is a vault that's being used for financing into this company today and it's like a newly formed asset uh or the figures helocks are newly originated assets. So I think things like that are typically more interesting and then it's always good if a company has like a little bit of a track record I would say especially by the time that you as a retail investor are investing. I I would leave doing the very new yield assets to to you know opportunistics or seasoned special situations investors which I am not. So I'd look for something that's a bit

tested uh again a newly probably originated interesting asset and then those can be great. You'll see people building markets for those. >> That's very helpful insight and wisdom on that. Uh Wyatt I I have a few more questions here I want to get to. We're not going to get to cover everything I wanted to today, but I'm curious to know what you're most bullish on for the rest of 2026 because the the Bitcoin bare market seems to be ending. There's been a huge explosion of activity on chain. Um, and I'm curious what you think is the most bullish sector to watch for the rest of 2026. >> Yeah, I think stable coins have created a growth of the onchain capital pool.

There's like more money that's just on blockchains now. And at the same time, we've had a bit of a rally. Bitcoin which has been nice and such and I think that is going to create some of the stickiness that we talked about and even in the face of regulatory ambiguity I think we will see one of these major Wall Street firms that effectively has all the licensing that you could possibly want already make an announcement of how they're going to be active as a curator, how they're going to be active with a large tokenization push and that that will be like something of a market catalyst but also just really exciting from like okay these guys are doing it. they ventured out to show a way that they're going to uh and that could hopefully give some kind of precedent to the rest of the

market either because the SEC or someone will comment on that approach which will give some degree of clarity because I worry that we might not get a market structure bill by the end of the year now which means we might not get one for a long time or that that will just catalyze a host of following actions because a little bit like okay if this large actor is doing this then then I feel more comfortable following suit. I'm going to skip over your bearishness on the Clarity Act and hope that you end up being wrong in that one. But I I do want to ask a final thought here on Bitcoin. Do you think we're going to end the year with Bitcoin over or under 100K? >> I'll say under, but I'll say just under.

So, I'll take something in the 95 range. >> Okay. Well, that's a fair compromise. I can live with that. Wyatt, I really appreciate you coming on the Milk Road Show. There's a lot of things to learn from what Castle Island is doing. So, I really appreciate you sharing some of the the front row seat information you've gotten with our audience. Where can we send people to find more of you and your work online? >> Yeah. Uh I'm on Twitter, so I would encourage people to reach out. I always love chatting about ideas or things related to the industry. My handle's Wyatt cause uh because my last name's too long. And John, yeah, thank thanks for having me on. It's been it's been a pleasure and looking forward to to doing more with you guys.

>> Absolutely. I'm sure we'll catch up again soon. Thanks so much for being on the Milkro Show. >> Thanks, Sean. >> And thank you all for joining us. I hope you all learned something today. So until next time, stay safe, stay educated, stay bullish, and we will see you all on the next episode of the Milk Road Show. Thanks for being here, everyone. Bye. Thanks for listening to Milk Road. If you enjoyed the show, make sure you like and subscribe. And if you're struggling to find winners in the market, that's exactly what Milkro Pro is built for. Our analysts have called some of the biggest winners early, and Pro lets you see what they're buying next, every trade they make, and the research behind every position. Check out Milk Road Pro at the link below.

Everything you hear on Milkroad is forformational purposes only. These are our personal opinions, not financial advice, and we may own some of the investments we talk about. Always do your own research and make the decisions that are right for you.