Wall Street Is Going All In On Digital Assets

Transcript

It's been funny to watch the evolution go from us being like, "Will you please have a conversation with us?" and them not picking up the phone to now them they, you know, inundate us in our our emails to please educate me. Please tell me more. My clients want this. How can I give it to them? >> My name is Robbie and you're watching the Rollup. And today I'm asking you to please subscribe, comment, like, and support our channel. We interview some of the best and brightest minds in digital assets, digital finance, and tokenization. We are doing this for you. So, please sit back, relax, enjoy the show, and thank you so much for all your support. All right, guys. We got Christa Lynch from Gayscale here, and we're excited. Yes, >> it feels like an institutional bull market, and uh you guys are leading the

charge. So, welcome to the show. >> Thank you for having me. >> It's a pleasure to have you. Like I said, we've had uh your your uh your partner, Zack Panel on several times. Uh he's always a pleasure. And we've chatted Zcash. We've chatted several things that you guys are, like I said, leading the charge on. You're the inkind transaction queen. So, we're gonna be chatting about that. Maybe we can just start. What What are you most excited about? Because Grayscale's got a very broad product suite. You guys have been around a long time. Give us a sense of what you're most excited about, where you're spending most of your attention. >> Yeah. Well, you hit on two of them. So, I would start off with inkind. Very flattering introduction. Uh, by way of introduction, I've actually been in ETFs for many years, not just crypto, but

actually fixed income ETFs before this. So, I have a lot of experience with the primary market for ETFs. That's how they're created and redeemed. Now, typically that's not available to end investors. That's really only an institutional market that's facilitated by something called an authorized participant. But what we're finding for the crypto products is we've actually been able to partner with authorized participants and other facilitators to open the doors to individual customers who want to put their tokens into the ETF. It allows them to get margin, collateral, institutional custody. With all the news about hacks recently, a lot of people feel more comfortable with that. And so we've been very proud to be able to facilitate that for our clients.

Now Zcash, it all ties in nicely >> because we've just launched an ETF on Zcash. So we can now also offer this in kind capability for maxis potentially who have Zcash laying around and want to put it into an institutional grade solution. They can now inkind it into the ETF. >> Okay. And so in kind transactions, let's just start holistically. you're talking about. We have a a bare instrument, a spot asset that represents the token, the the you know asset itself, and then we've got an ETF, which is this vehicle that is going to live on a brokerage and and the inind aspect to this allows people to redeem and swap in and out between the ETF and the asset itself.

What are the implications of this? What is the value proposition of an inind transaction here? >> Yeah, so it's really caught on because of things like tax planning. For example, if you have a big position and you want to ensure that your family gets it if something happens to you, this is a way that you can put it into a brokerage account and have those rules and regulations surrounding it. Then there's also those who like the convenience of having everything in one place. Now, we originally thought that the Bitcoin and so on ETFs were really going to be more for the user who was afraid or hesitant to do some of these cryptonnative actions like opening a wallet. But we are increasingly finding that inkind is something that is [music] very appealing to cryptonative investors wanting some of the benefits of being on

the traditional rails. Now to take it a step further, we've recently had some conversations especially here at token 2049 about then retokenizing that to bring it back to the digital rails. Now if that catches on, it remains to be seen. Uh but you know, you can really take things full circle and I think that's some of the conversation that we're having here. and what okay so I think from a regulatory perspective this is now possible with some of the tokenization exemptions yes that we've seen out of the out of the SEC and so I mean for one it's it's really really you know encouraging that we're now seeing very thoughtful regulations they're listening to this industry and they're allowing us to experiment a little bit and see what investors demand and so we've seen a couple of products like

this go live what is the demand for these products that you've seen and what is the value proposition position for, hey, you know, I could go get Zcash on chain, but I choose to get in an ETF, but then I'm going to retokenize and bring it back on chain. What is the the value proposition of this? >> Experiment is the perfect word cuz I think we're still really finding the highest and best use cases. We're still finding our way as tokenization becomes a reality now, we filed to tokenize two products last week. We actually went for 40 act funds. They're Bitcoin and Ethereum covered calls, and that brings onchain the ability to get yield in a traditional vehicle. Now to answer your question on why would someone then take a token, put it into an ETF and then retokenize it. I think the use cases are

going to continue to play out. But what we have heard is that allows for the best of both worlds. Potentially one could get the uh you know brokerage account, the tax planning, succession planning, things like that. But then in addition to that, they could continue to live on chain which might be their preferred way to interact with investments. >> Okay, makes sense. And and I take it that, you know, there is now going to be some new use cases that, you know, the the wisdom of these people dream up and then we're going to see all these non-skeumorphic kind of use cases that are extra creative on top once we see that come onchain.

>> The inkind transactions as well. I take it and and maybe there's some data on this. I'm just curious. Does this help kind of close any dislocation in prices if you do see the ETF sort of diverge from the spot asset? Now with ink kind you can kind of arbitrage that more easily. >> Yeah. So inkind exactly is typically how grantor trusts are created and redeemed when and these are grantor trusts for context. When the first approved bitcoin ETFs there was a lot of hesitation around allowing broker dealers to touch crypto. Now authorized participants which are this necessary actor in the creation redemption process are also required to be broker dealers. And so we had a conundrum on our hands. Now, how the SEC dealt with that was saying that

we could only do this in cash. Last summer, they had a change of course, and that's when they decided, okay, we've gotten comfortable. We're going to allow in kind, and it really opened the doors for this type of transaction to be possible. But yes, to answer your question, creation redemption is exactly how you're able to keep ETF shares trading at NAV. And so we're very excited to be able to bring some of our previously uh private placement vehicles into the the two-way flow of creation redemption to really trade at par. >> Yeah. And this ultimately helps capital efficiency, capital formation, and and this is a mandate of the regulatory agency. So it makes sense. Now we're going into this direction. You know, you you mentioned that the value proposition of a lot of these vehicles is, you know, tax planning, estate planning, secession

planning. you know, we've got an audience that is moderately cryptonative and has, you know, some experience in the traditional markets. These are people that have, you know, accumulated wealth primarily in cryptonative vehicles. And so maybe they >> understand at a high level the idea of tax planning or estate planning, but can you give us a little bit of a deeper dive into the tax or or yeah, the tax benefits of these vehicles beyond what someone can get through spot assets? I think the reason that tax comes up a lot for inind is because now can't give tax advice, but generally speaking, people have gotten comfortable that if you're putting token into a 33act grant or trust, your basis transfers and that's not a taxable event. So, it's not like

you're selling your assets in order to get it into the ETF. >> Now, once it's in the ETF, because it's in a brokerage account, perhaps you have an adviser who can help you put it to work. Even if you don't, you still have the same kind of structure around those shares. if something happens to you, you know, you can say, who is my account going to? That doesn't really exist on chain as much as it does in the traditional broker world. Now, a second benefit that we're seeing is for some, they're then able to put the assets to work. Some programs will allow for these shares to be used as margin and collateral. So, if you have Bitcoin laying around that you're not able to harness, you could potentially put it into the ETF. Your adviser potentially would be able to give you a better

mortgage rate, you know, better loan rates, some things like that. when you bring held away assets in scope to your bigger financial picture and then additionally potentially use it for margin and collateral to put it to work further. >> Got it. And you guys aren't advisers. You're not part of that complex, but you do create these products that advisers would then recommend and deposit into. How do you work with the financial adviserss at large? How have you seen the evolution of that industry? I mean we're talking we hear people talking about you know agentic you know asset managers and advisers. How do you see the the evolving landscape of the financial adviser you know world and and how have you evolved your own strategy

to to prepare for that? >> Yeah. So we aren't ourselves advisers but we work in lock step with them. It's a ton of education that's really been the name of the game for the past few years honestly. But uh it's been funny to watch the evolution go from us being like will you please have a conversation with us and them not picking up the phone to now them they you know inundate us in our our emails to please educate me please tell me more. My clients want this how can I give it to them. So that 180 has been very uh nice for us to see. >> It really does boil down to education. Now where it's going, I think there's overwhelming demand from their end clients, especially as clients become younger. As the younger generation becomes older and becomes their client base, they are asking for digital

assets. We actually did a study with the Harris poll, which is a think tank, >> that looked at how the younger generations interact with investments and overwhelmingly their first experiences are digitally native, whether that's a token or whether that's some sort of crypto asset. Uh but you know if you think about my investment experience it was logging into my Fidelity account and buying S&P 500. That is not the case for the younger generations and advisers are having to pay attention to that. >> And and where are we on this financial education journey for these adviserss you know at least they have the evidence to you know reach out and and you know they hear the demand from their customers like hey I want these assets I want these products and then they have to go and educate themselves on these

things. How far along are they? Like, you know, I get I got to imagine they understand Bitcoin, maybe ETH and Salana and Hyperliquid if they can wrap their heads around it, but like when it comes to some of the more creative vehicles that we're seeing emerge, how far along are they on that journey? >> We're still pretty early days. A lot of our conversations center around Bitcoin and Ethereum, but they ask very good questions. They are getting into the nitty-gritty. They're asking about all the nooks and crannies of staking, if it's Ethereum, Salana. Uh I've been very impressed by the level of rigor and a lot of these conversations have persisted for over a year before they will give their clients access and that's because they really want to be comfortable and diligent. Now, we've

developed some educational tools that I think have been helping them a lot. We've gone around the country in the US doing something called Cryptoconnect. Okay. >> It's a half-day series for advisers to educate themselves. Gayscale.com has the stack, which Zach, who you mentioned, uh, is a frequent author of, they're really bite-size articles to help people that are not crypto native or even if they are, understand the talking points of whatever the trending topic of the day is. >> Yeah. How how much of the financial advisor landscape has been unlocked? And and I guess just to dig into that a little bit deeper, like have are there any kind of mandates that prevent financial adviserss from exposing their clients to some of these products before they reach, you know, some sort of critical threshold of Yeah. So maybe you

can just explain like what it takes to get a financial adviser from, you know, non cryptobearing in terms of the product offerings to ultimately, you know, taking the leap and offering those products. >> So I think the familiarity of the ETF has been very very helpful. they are much more comfortable investing in something that feels like a stock than going straight into the token. That said, they look at things like liquidity. They want to see that the the product is sizable. They want to make sure that their investor can get their money out if they need to. And so, typically, they're not going to engage unless the product is $100 million or so. That's kind of like the starting talking point um or the starting conversation point, but these ETFs have quickly eclipsed that. Uh so that hasn't

been a problem but they do look at things like liquidity spreads. They are very very robust in their diligence and and I've actually found that to be quite refreshing. >> Yeah, absolutely. Which is you know like uh it it is I mean refreshing to say the least because you you've got you know a new uh cohort of market participants that are very familiar with assets and markets in general now bringing their expertise into this industry. Um and so it is sort of like this you know uh colliding worlds melding of the minds and ultimately everyone is better off.

>> How much of this of this financial advisor landscape do you think we've unlocked when it comes to the amount of liquidity that's out there and it's you know capital that these clients they just trust their adviserss to go ahead and allocate. >> I mean you know h how much are we talking that's still out there to be on board? >> I think there's a ton left to go. So, some of our conversations have just started to come to fruition. We're on a couple of platforms now, but you know, a couple of platforms, how many hundreds of them are there? Um, so I think that there is a lot of room to go. Like I said, a lot of our conversations are still centered around Bitcoin and Ethereum, too. So, once you get them comfortable with one asset, then they start thinking, okay, there is more. Let

me learn about that. So, I think we're very, very early innings there. And when it comes to introducing them to a new product like a Zcash, >> you know, are they >> we just heard about Bitcoin, now we have to hear about Zcash. Like what, you know, and and are somewhat, you know, taken a back or they now, like you said, they're they're they've now got the the proactiveness to come to you and in search of new products. >> I think it goes both ways. If you think about it, the advisor's role is to bring value to their customers. So for those who have gotten more uh educated about the asset class then they might be willing and able and ready to go beyond it. But will their platform support it?

It is there is a lot of diligence that has to go into that. But like I said clients are also part of the conversation. They drive the conversation. So if they've had success with Bitcoin, they might be hearing about Zcash thinking this privacy thing is real. I want to get involved there. Especially with things like AI and quantum computing entering the conversation. So again, advisers have to listen to their clients. >> Yeah. And that's a big part of the value proposition of Zcash. We've said that this is a very natural reaction to the AI surveillance state. This is effectively AI resistant money. Um and people are uh very much looking for source of ownership and sovereignty and they're looking at Zcash for exactly that. Just kind of zooming out here. Uh I'm just you know curious as far as how

you see the industry like what is coming up next when it comes to the product suite anything that you can share uh and then just yeah broadly. Yeah. >> So I think that convergence is the name of the game. I also spend a lot of time at traditional finance conferences. I'm actually going to Washington DC next week to go to probably the you know most traditional of conferences you could go to and I guarantee we're going to be talking about tokenization 245 trading 24/7 trading. Uh so I think convergence between traditional finance and digital finance is going to be the way of the future. I think tokenization is going to be an important part in that. We actually just hired a head of onchain asset management Seth Pledo who's going to be leading our tokenization efforts.

We filed for two tokenized products. So we're in it like I said or like you said um you know the innovation exemption is a positive byproduct of clarity not getting passed but it has created this sandbox for us to experiment in and I think that experiment we shall and we'll see some cool things coming out of it. Absolutely. And you you've le led the way. Grayscale has led the way when it comes to pioneering some of these products and ultimately onboarding some of the traditional capital market allocators that have brought a ton of uh legitimacy into the space and liquidity into the space. And so as we sort of continue to embark and and and you know chug along, it's I'm curious like what is the north star? What is going to continue to drive view and ultimately

continue to stay ahead? Yeah, I think I'm excited about all of the opportunities to innovate ahead. Even just being here at Token 2049, there's so much buzz around opportunities, things that we can build. We don't necessarily know which one is going to be the highest and best use case, but we're going to find it. Uh, and so I think that tinkering, finding what what do clients need and building things that help them get there, that's really the name of the game. We can build so many cool things, but ultimately it needs to fulfill some sort of client need. So, I love being at events like this, hearing what's interesting to people, and and broadly speaking, we're having a lot of conversations here about bringing assets that are not as accessible, making them more accessible, whether that's via tokenization, whether that's via an ETF.

Uh that is another theme that runs strong. >> Yeah, absolutely. Well, we've said for several months now that we are in the throws of an institutional bull market. It feels like we're on the precipice of a big broad bull market as well. um and you've certainly helped to uh steward this institutional bull market. So, thank you so much for coming on and and for all the great work at >> Grayscale. Thank you. It was great talking to you. >> Absolutely. Do likewise.