Bankless - 45 - Taking Ethereum Public | Ether Capital's CEO Brian Mosoff & CFO Stefan Coolican

Episode Date: December 28, 2020

🚀 SUBSCRIBE TO NEWSLETTER: http://bankless.substack.com/ ✊ STARTING GUIDE BANKLESS: https://bit.ly/37Q17uI❤️ JOIN PRIVATE DISCORD: https://bit.ly/2UVI10O🎙️ SUBSCRIBE TO PODCAST: http://podcast.banklesshq.com/ 👕 BUY BANKLESS TEE: https://merch.banklesshq.com/ ----- GO BANKLESS WITH THESE SPONSOR TOOLS: ⭐️LEDGER - BEST HARDWARE WALLET TO SECURE YOUR CRYPTOhttps://bankless.cc/ledger 🚀 ARGENT - INVEST IN DEFI FROM ONE PLACE (download it now!) https://bankless.cc/argent 💳 MONOLITH - GET THE HOLY GRAIL OF BANKLESS VISA CARDS https://bankless.cc/monolith 🤖YEARN - YIELD-SEEKING MONEY ROBOT THAT FARMS DEFI FOR YOU http://bankless.cc/yearn ------ 45 - Taking Ethereum Public | Ether Capital's CEO Brian Mosoff & CFO Stefan Coolican Ether Capital is a publically traded company out of Canada, and Ether Capital's job is to get ETH on the balance sheet.  The company is centered around ETH the asset and Ethereum the ecosystem, and offers a bridge for investors to be able to access exposure to the Ethereum ecosystem via public markets.  We dive into the background and context of the company, as well as how the company structure gives them a competitive advantage.  Ether Capital is the first public company to stake ETH, and has big plans for the world of ETH staking.  These guys are on the frontlines of getting investor awareness about the opportunity that ETH and Ethereum offers, and has been sharpening their ability to explain why the opportunity is so compelling.  Resources: Ether Capital Newsletter and Ether Capital Podcast - https://www.ethcap.co/blog-media Their podcast is great 101-202 level content! Perfect to share with your financially minded, crypto-novice friends! Ether--the birth of the digital bond, written by Stefan https://bankless.substack.com/p/ether-the-birth-of-the-digital-bond Ether Capital Staking on ETH 2 https://www.ethcap.co/pr20201201 Ether Capitals presentation on ETH https://ethcap-co.s3.amazonaws.com/Docs/2020.11.30+-+ETHC+Presentation.pdf ------ Don't stop at the video! Subscribe to the Bankless newsletter program http://bankless.substack.com/ Visit the official Bankless website for resources http://banklesshq.com/ Follow Bankless on Twitter https://twitter.com/BanklessHQ Follow Ryan on Twitter https://twitter.com/ryansadams Follow David on Twitter https://twitter.com/TrustlessState ----- Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time we may add links in this channel to products we use. We may receive commission if you make a purchase through one of these links. We'll always disclose when this is the case

Welcome to bankless, where we explore the frontier of internet money and internet finance. This is how to get started, how to get better, and how to front run the opportunity. This is Ryan Sean Adams. I'm here with David Hoffman, and we're here to help you become more bankless. David, it's been a long time since we had a really bullish episode on Ethereum. We just had that today. Can you talk about it? Yeah, the first of many, bullish content specifically about Ethereum, is coming. coming to the Bankless podcast, starting with this episode with Ether Capital, a publicly traded company based out of Canada that has already done some of the things that we are seeing

micro strategy do today, but did them back in 2018. The whole intent of Ether Capital is to put ether on the balance sheet and watch that ether grow. So they are inherently bullish Ether. They understand Ethereum and they are pitching Ether and Ethereum to investors. And so they are on the front lines, doing the dirty work, getting people's minds wrapped around ether and Ethereum and what that means for the future of money and finance. They understand it all. And it was a fantastic time getting both Brian and Stefan onto the podcast to talk all about our favorite asset on top of our favorite ecosystem. Do you know what I love about these guys, David, is they are not just Johnny Come Lately's. They're not tourists in this space. They just endured a two

and a half year long bare market with ether on their balance sheet and they didn't sell it. They didn't sell any. They have a long term, long time horizon thesis about Ethereum, about Ether, about the economy that is growing on top of Ethereum. And they've stuck to their thesis all along, including they are now staking Ether, the first publicly traded company to actually stake their ether and run a validating. That's how committed to the original thesis they are. I love talking to investors who are long-term oriented in this space because there's too many people that just chase the hot new thing and jump on it and don't have conviction

about what they're doing in this space. The relationship that Ether Capital has to Ethereum is really interesting to me because companies inherently are self-interested, right? each organization that you see on like a public stock market or any private company is inherently self-interested in its own growth and flourishment. But ether capital is an entity that is focused on, you know, putting ether on their own balance sheets and then also actively participating in the Ethereum economy, which makes ether capital inextricably, oh boy, inextricably related, inextricably connected to Ethereum and the health of the Ethereum economy.

So like Ether Capital as an entity is increasing the security of Ethereum by staking their ETH. They're increasing the monetization of ether the asset by holding it on their balance sheets. So what's good for Ethereum is good for Ether capital. And what's good for Ether capital is good for Ethereum. And so it's very interesting to see a publicly traded company operating as a steward of the protocol, a steward of Ethereum. They're also providing a narrative bridge to traditional investors.

They're talking about ether on three value points, which sounds a lot like the triple point asset that we talk about on bankless so often. But specifically, talking to investors about ether as a store of value, a digital bond, and also as a commodity for block space. Fascinating that they are bringing that dead simple message to the massive pool of investors. and they've been doing that all the way back in 2018 up until now. So let it be known that like it is possible to be right really early, even in an environment where people tell you that you were wrong. Like the ether capital boys have been beating the same drum for years and years and years now. And now it's finally coming into fruition.

Some more topics that we talked about on the podcast are how they get yield on their ether. Obviously an answer to that is staking, but we ask about getting yield in defy. We also talked about how Ether Capital evaluates making investments, especially in a world where you denominate in Ether, not in U.S. dollar. And they also talk about the complexities of being, you know, a publicly traded company and having to, like, work with code and having to deal with things that are simply undeveloped in this ecosystem that they are on the frontiers of. So, you know, really wide-ranging conversation. It's all about Ether and Ethereum. So we know you guys are going to love it. So we're going to, without further ado, get right into the episode.

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in Argent, you get access to the best rates across the top 10 exchanges in one tab. You can go to Argent. Link slash Bankless to download the Argent wallet on iOS and Android and get started. That's argent. That's argent.com link slash bankless. All right, guys, let's get to this incredible interview with the gentleman from Ether Capital, Brian and Stefan. Bankless Nation, I am super excited to bring a two guests from Ether Capital. We'll tell you about Ether Capital in just a minute.

We've got Brian Mossuff, who is the CEO of Ether Capital, and Stefan Kuliken, who's the CFO of. ether capital. What is ether capital? They are a publicly traded company based in Canada, super bullish eth. In fact, they've got 90% eth on the balance sheet. That's 32,000 eth on the balance sheet. As we are recording this, gentlemen, it's fantastic to have you in front of the bankless nation. How are you doing? Thanks for having us here. We're doing great. Yeah, we're excited to be here. I'm going to start off with this question. Are you the micro strategy of Ethereum, guys? I don't think so. I think we're focused solely on Ethereum and being an ecosystem investor.

Stefan, do you want to add anything to that? We are an Ethereum ecosystem investor that gives public market investors access to the ecosystem. We don't have an operating business as it currently stands, but we are sort of an access point. And to the extent that micro strategy is an access point for for investors in the public markets that are looking for Bitcoin exposure. You know, I think that you could, you could certainly make the comparison there. But, you know, we're focused on the Ethereum ecosystem and we're excited about it. And we think we have a lot to offer.

And so that's basically it. That is awesome. Just curious on that micro strategy point, because it's making news as we're recording this. You know, micro strategy, of course, is a U.S. public. traded company. They've been historically a business analytics shop with some software tools. And recently, they've just started using their balance sheet to buy up a whole bunch of Bitcoin. As we're reporting this, they're talking about buying up, I don't know, David, is it like 400 million more? I thought I saw that they up that. They are issuing 400 million in debt,

but it was oversubscribed, so it turned into 550 million of convertible notes. Yeah. So just quick takes on that, guys. You guys are in the publicly traded company kind of game. Is this sort of odd from your perspective that they're doing this in this way? It's like a business analytics shop becoming a Bitcoin holding company. I can't comment specifically on micro strategies history and what their vision of the future is. But I think what we can all agree on is that the public markets are looking for access points into the space and figure out how can they get access to these assets in a way that's familiar to them? Depending on where you are in the world and how long you've been in the space,

there have been a host of crypto-native exchanges that have been hacked. And I say crypto-native because I mean access points that are not wrapping these assets into a traditional security where people can buy through their brokerage account and say, abstract away the custody, abstract away who the people are. we don't care and we can trust that the assets are going to be secure. And so people are looking for ways in the public markets to have exposure to Bitcoin first. We hope that they will also seek out ether. I think that the narrative is a little bit more complex around why people want to own

Ethereum different than Bitcoin. But what the micro strategy news is proving is that people want exposure, whether it's direct or it's through a company putting it on their balance. there is certainly appetite out there now more than ever before. And that's what's really exciting to us. One thing that really excites me about Ether Capital is the intent behind the entity. And that's something that always perplexes me about micro strategy is like it's got its core business model, its core way of making revenue.

And that's entirely irrelevant to putting as much Bitcoin as possible on the balance sheet and like being a Bitcoin ETF, a backdoor ETF, as I've heard it described. But I want to talk about ether capital. So like when you buy a share of ether capital, like what are you getting? Like what is ether capital and what does it track? Is ether capital meant to track ether the asset? Is it meant to track Ethereum the economy? Like what is unique about ether capital and its relationship with its balance sheet

and asset price and also the Ethereum economy? Like what are you getting when you buy into ether capital? I'll go first and then let Stefan chime in. I think what's really unique about ether capital and our structure specifically is that we're not set up as a fund and we don't intend to be a fund. I think that those are important products to come out to the market like the grayscale trusts, whether it's the ether or the Bitcoin trust. But what we see is that people should have exposure to not just the assets, but other things

that you can do with the assets like staking, like generating yield through defy lending protocols. And when you're boxed into these fund structures, you don't have the flexibility as if you were set up as a corporation. And so ether capital was put together a few years ago. It basically in kind of mid-2018 is really when it started trading. But the idea was never just to passively hold ETH. We think that that's great and important. But what else is there out there? What about the makers of the world that we think are extremely valuable? What about companies like wire that are really valuable to us? providing really important services. People should have more exposure in their portfolios to things

beyond just passively holding the token. And because of our structure, we're able to offer that to investors and to give the public markets an access point to, again, wrap these kind of weird assets to them into a traditional security and say you can have a piece of your portfolio exposed to crypto that's beyond just Bitcoin. Yeah. And I'll just kind of highlight or add on to that. I think with micro strategy, you see crypto as an asset class as being a little bit of a square peg in a round hole as it relates to the public markets. So if you think about Bitcoin sort of from 2013 to today, it's kind of become a more accepted commodity, more of an accepted asset.

But there's really no way for public market investors in the U.S. and in Canada to get access to that Bitcoin in a public structure. And certainly in the U.S., that's a result of not having, let's say, an ETF or an exchange-traded fund. You know, there's been a history around the SEC on people applying and getting rejected. Actually, in Canada, that's sort of changed because there is a what's called a closed-end Bitcoin fund that's now listed in Canada. But one of the sort of knock-on effects of not having Bitcoin exposure in the public markets is that

you have entities like micro strategy kind of pop up and they say something like, well, we have a thesis around the US dollar and all of this inflation or not inflation, this money printing that may give rise to inflation in the future. And we want to hedge that risk on our balance sheet. So we're going to invest in Bitcoin. And we want to increase our exposure to that. And as a result, micro strategy takes on this status as a sort of a quasi-etf or sort of Bitcoin exposure in the context of the public markets.

And so it will be very interesting to see how that sort of unfolds and develops in the U.S. as it relates to Bitcoin, you know, ETF or public market exposure. Obviously, there's the gray scale fund as well, which is passive exposure, but it's not traded on a major exchange, and they've obviously done very, very well. And gray scale is an unbelievable kind of entity and good for the space. I think that where ether capital differs is, you know, we never, we never thought of this as passive exposure to ether. We were trying to create an ecosystem investor. So getting public market investors exposure to what's going on in the ecosystem. And in 2018, that meant putting ether on your balance sheet because we have a thesis around

Ethereum being this kind of next generation of the internet and owning ether is like owning a piece of of this internet. And so that was kind of an early thesis of ours, which developed in into an investment into wire in 2018 and an investment into Maker in 2019 and has kind of become ether as kind of a yield generating instrument through staking and through defy is is really exciting. So I think it's kind of like two two ways of getting to kind of the same the same sort of destination, which is exposure to the underlying crypto asset in a public market context. This is so interesting. So like would you guys say you're almost like a public version of a crypto hedge fund that's a bit more Ethereum focused? Is that a good characterization?

I would call us a public market ecosystem fund. And sorry, not it. Sorry, let me step that again. I would say we're closer to a public market ecosystem investor and less of a hedge fund because we basically, we bought our ether in 2018 and we hold it to this day. We're not making active trades. Like we're not, you know, yolo yield farming as a public company as much as we would kind of like to. But that's really not the strategy. It's kind of access and exposure to the ecosystem. So in lieu of a hedge fund, I would call us more of a venture fund where we can we can make portfolio investments along with our with our ether into things that have the potential to outperform ether and and things that are really important to the ethereum community so things like maker

you know obviously maker is is the backbone and the cornerstone of of defy right and and it's just it's an incredibly unbelievable project that really for me was was the reason that I'm in the space full time and why you know I joined ether capital I ended up going to down the Bitcoin rabbit hole when I was an investment banker in 2015, and I'd spent 10 years in traditional finance. And Bitcoin was kind of an incredible innovation, and I almost immediately understood this concept of digital gold. And then when Ethereum came around, and Brian and I had been talking about Ethereum, he kind of pulled me down the rabbit hole. It made sense. And then something like Maker was the thing that really crystallized, you know, why this platform is so incredibly

innovative and the interesting things that you can do. It's funny you say that because Maker for me was one of the first magic moments I ever had with Defi. First time in that very clunky interface. You'll recall it, of course, from 2017, where you go and you create this thing called a CDP. And I just remember doing that. And there was no one in the middle. There was no bank. And comparing that to taking out, say, a mortgage where you have like floors of people and entire banking infrastructures. And this whole process happened in a matter of seconds for like cents. That to me was a very magic moment. But I guess maybe to sort of summarize the way you guys are articulating ether capital, it sounds like the problem you're solving is that investors

don't have a way to gain access to crypto in. public markets while they're locked inside of their their brokerage accounts, let's say. So this provides that. And I guess there are a few different ways that investors can do that, whether than the U.S. or Canada today. One is, of course, now like these, like they could buy a micro strategy, gain some exposure maybe to Bitcoin. The other is, you know, trust like Grayscale. We had Michael Sondenshine from Grayscale talking about ETH and Bitcoin. And the third, which hasn't really come out yet is some sort of an ETF. I just want to ask you guys a question about the third path here, the ETF path. Are you surprised that the U.S. doesn't have a crypto ETF of any kind,

whether it's Bitcoin or Ether today? Like, does that lead to a lot of inefficiency? Why is that not happening? It sounds like it's happening maybe in Canada. Why is it not happening in the U.S.? So we don't have an Ethereum ETF, a true ETIF. yet in Canada. I hope that we'll see one soon. And I think that the U.S. will have one soon as well. But I think if you rewind three or four years ago when ETFs were starting to be proposed or submitted to the regulators for review, problems in the space had not yet really matured like custody and insurance. And before the regulators are going to approve a product like that, they want to know that it can get to scale with appropriate controls in place where nothing will

blow up on their watch. And I think that they're fair and right to have those concerns. I think we're at a place now in 2020 where we are seeing real robust forms of custody emerge. We are seeing types of insurance be possible in this space where it's getting more appropriate for a true ETF to be approved by a regulator, whether that happens in the U.S. or Canada first, I don't know. but I think that it's a question of just if is it going to happen in the next few months or in the next year? I don't know, but I think it's coming. And it's really exciting. And I think now is the time where looking back, it's more appropriate than ever before.

Stefan, you mentioned, I think, is it the equivalent of a gray scale in Canada that was set up that that's gotten 300 million or so in Bitcoin? Can you talk maybe about that? I'm not really familiar with it. And I understand there's a company called 3 IQ. Maybe it's the same one that is actually doing the same thing. Okay, it is the same one. That's actually doing the same thing for ETH. So they're raising right now and they're creating sort of a trust type structure maybe for ETH.

What is that? Help us understand that. So you can think about it in three sort of buckets. You can think about an ETF, which we've spoken about where there is access to the underlying commodity, whether it's Bitcoin or Ether, and the liquidity is done on an hourly basis. So you're effectively, you're making an order to the ETF, and there are market makers on the exchange that are buying from and selling to that ETF structure. And we don't have those in either Canada or the US yet. So the other way to get sort of passive exposure to one commodity, whether it's Bitcoin or

ether is to create what's known in Canada as a closed end fund. And that's what 3 IQ has put together on the Bitcoin side. And that has attracted, I think, around 300 million of capital. And what the 3 IQ is currently putting together on their either fund. Now, the way closed end funds are structured, I believe it's very similar in the U.S. around the gray scale products like GBT and ETHE, although I'm not an expert in sort of the regulatory environment and sort of structures in the U.S. But think about a closed-end fund as, you know, issuing shares or units that reflect a

proportionate ownership in the underlying crypto assets. So they, you know, they go out and they'll buy $50 million worth of Bitcoin. And then you own that share of the Bitcoin. You can potentially redeem that, but on fixed periods, so either quarterly or annually. But generally, if you want to sell your position and you don't want to wait until the redemption periods, you can sell those shares on an exchange to another counterparty. And what that introduces is this concept of a discount or a premium to net asset value. And so that's what we've seen.

For example, in the grayscale products, they trade at a premium to their net asset value. We've seen that in Canada with the closed end funds. So, you know, that's sort of a passive bucket. And then we have the active operating business, which is what we are as ether capital. And what that allows us to do is hold a commodity like ether as a big part of our portfolio, but make other venture-type investments. But we're also able to do things like staking, where that's an active, that's an activity that you do. Running a validator node is something that a passive vehicle is not able to do.

do. And it really differentiates us. You know, think about putting funds into defy, putting ether into defy, or doing all sorts of kind of ecosystem type investments. That is what structurally we're able to do because of our corporate structure. It's funny, too, because I see this three IQ is raising up to $107 million US dollars. And this could all go into ETH. And the interesting thing is, from what you're saying, right, this is different structure. You guys are differentiated. more active. This is a passive mechanism. But if they raise that amount, you win too, because it increases the size of the Ethereum ecosystem, the Ethereum economy. Ether becomes sort of this asset that's just gobbling up capital. We've called it on bankless before this like gravity well that

just sucks in all of this capital. And because Ether Capital has Ether on its balance sheet, you know, and if price go up, that's good for Ether Capital too. So it seems like we're all kind of succeeding as an ecosystem as some of these assets start to attract institutional money. Is that the case? I think so. And it definitely is good for everyone in the ecosystem as a whole. But when Stefan and I, and I think most people who are in the Ethereum and crypto ecosystem as a, you know, everyone, they think about this isn't just about buying exposure to these assets and then wait for the number to go up. the question is, how can you use these things in really interesting ways? And so sometimes I get frustrated by the idea of these, you know, Bitcoin closed funds or a Bitcoin ETF. The idea isn't just to say,

go and get exposure to the price. I mean, that's good and important. But you want people to say, wait a minute, this is a bearer asset. It has the potential to be custody on your own, different than almost any other asset that's come before. And that's really exciting. And then in terms of ether, being able to interact with various applications, whether it's in Defi or gaming or NFTs and art, that's the point of having ether. So we think that we serve an important function, but we also really want to see people go out and find ways to get exposure to the asset where they take control of it, where they play with it, where they test things, they get a Metamask wallet, and they go and interact with various applications that run on this network.

That's the point why we're all here, right? Well said, sir. That sounds very bankless of you. And listen, wait, wait, listen, we benefit if people are boxed into having to just get their exposure through these wrapped up traditional equities. But that's not the ethos of the space. That's not why we're all here. That's right now why we're here. And it does serve a specific purpose. But we do want to see other people long term going out and finding ways to touch the assets themselves. That's really important to the narrative.

Otherwise, I'm not sure how successful these networks are going to be if no one actually holds in custodies them on their own. And one thing I'd add is it's totally a net positive that you have public market investor money or just investor money in general trying to get exposure to these assets. But as Brian noted, the interesting part is using them. And when you think about something like Bitcoin or even Ether as almost a gateway drug to the extent that, that once people understand sort of the decentralized network thesis with, say, Bitcoin, and then they start to understand Ethereum as an operating system versus Bitcoin as a calculator, which is Brian's phrase that we use with investors.

You know, you start to get, go down the rabbit hole. And then, oh, interesting. So what's next? Okay, well, there's stable coins. There's Bitcoin on Ethereum. There's decentralized finance. And what we've started to do is, you know, we've sat down with some investors and, you know, we start from the beginning around getting ether into a wallet and then trading some of the

ether for dye on uniswap and then using that dye and putting it into compound and earning a yield. And so these are sorts of things where you actually have to use the protocol or the platform to really understand what it's all about. And we often struggle with traditional traditional finance investors because they say what can you use Ethereum for? And you really kind of, you want to show them, you know, what these things can be used for and how they are, you know, very game changing in the way that they're built. Stefan and I always like to draw parallel to an early clip of David Letterman and Bill Gates sitting and talking about what is what is the internet all about. And it's the mid-90s and David Letterman says, so what can you do with this thing?

And Bill Gates says, well, you know, you could listen to a baseball game. And Letterman says, ever heard of the radio? Yeah, that's, you know, like, that's true. But, you know, maybe you could listen to it at a later point in time. And Letterman says, ever heard of a tape recorder? And so I think it's hard in the early days to imagine just how powerful these open networks can actually be. And you saw this with the internet. And we're not even talking 30 years ago.

And now it's so obvious. how the internet has changed everyone's lives, the way we interact, the way we do business, the way we set up companies. And people still have a hard time imagining, okay, great. So you have this global financial system that everyone can plug into and a standard protocol that anyone can use and interact with and have something secured. But so what? And I think we're still in that infrastructure wireframe phase where the developers are tinkering and getting really excited. but what we need is over the next five or ten years to abstract away all the technical complexity. And we will get there.

And that's when this is going to be such an, of course, it was so obvious that you would have all these transactions and lending happening through this platform. And that traditional banks that currently really don't pay out any kind of interest to people will use some type of crypto network to generate yield and abstract away the complexity and let everyone participate. it's hard to imagine now how it's going to change the world unless I think you're deep in the space and you can see there's something really special happening here and that's why so many people are getting really excited and there's sort of a light bulb moment with I mean all of us I think for for me it was probably where I bought a treasurer and I got some Bitcoin on it and I sent some to my brother and it's like oh my gosh this thing works and there's there's no centralized counterparty it's a distributed network, oh my God, this is game-changing. And, you know, we're trying to find that point

with traditional investors. And it can vary between between who it is and sort of if they have an understanding of gold, if they're resource investors or if they're fintech or internet-type investors. But it's just that sort of tipping point. And typically, the narrative that we use that can resonate is tokens, right? The thing that makes these networks interesting is the tokenization. And, you know, we talk about investors want to invest in businesses, and you can't blame them. That's kind of the goal of capitalism.

That's what happens in the public markets. But when we talk about tokens being this kind of step function change around economic incentives, we really need it and we try and drive it home. And that's sometimes when people say, okay, I get how the token works. I know why it's important is where people is the lightbulb moment for traditional finance. And we're still working on it. We still have a ways to go. But, you know, that's one of the strategies that we use. You're also trying to help them understand, though, just to add on to what Stefan was saying, that they want to invest in the intermediaries and the whole purpose of these networks was to remove the intermediaries and to facilitate

all of the transactions or a host of activities without having to rely on any centralized third party to do it on your behalf. And so that's where you have this bit of a roadblock where you're trying to help them understand that the token removes the agency. That's the idea here. And you're better off just to invest in the token most of the time than the businesses. So the specific application that's built on top of a blockchain, or the exchange could fail, but Bitcoin and Ethereum probably aren't going to. And I like to think

about in my early days in the space, the biggest, the biggest exchange was Mount Gox. And Mount Gox was set up in Japan. And then I think about $400 million was hacked. And so Mount Gox blew up. And so that didn't make sense to invest in there. And so then along came Polonex. And of course, there were other smaller exchanges along the way. I'm just highlighting the big ones. But Polonex was the first big alt coin casino if you want to call it that and polonyics did very well i participated i was on it all the time and then poloniacs got disrupted for a number of reasons but along came binance around 2017 and binance exploded onto the scene and now where we're at today is seeing that well coinbase and binance even were disrupted this summer when the explosion of defy yield farming came about and you had on one day of

uniswap trading, the 24-hour trade volume exceed that of Coinbase's 24-hour trade volume. So the thing that I'm trying to point to here is that you could have invested in any of those exchanges, those corporations, those traditional-looking businesses along the way. And you would have probably gotten disrupted. But what you could have done instead was said, I'm just going to go out and buy Bitcoin at 50 bucks in 2013, had liquidity, and know that Bitcoin itself is probably not going to go away. And that's the part that you're trying to help people connect the dots on that. The tokens themselves are probably here to stay and going to succeed.

Picking the businesses is going to be much, much, much harder, and they will get disrupted by other things that are more efficient. And maybe there's ways to build those businesses on chain, like Uniswap is a more efficient way of trading with less risk than a centralized exchange. Hey, guys, there is so much left in this conversation with the boys from Ether Capital. We talk about their investment and thesis into Maker Dow and why die is so awesome. We also talk about how they pitch Ether as an investment to investors. What explanations do investors resonate with?

And then we talk a ton about e-staking. Ether Capital is a public company that is staking eth, their long-term plans for ether staking. And finally, we touch on the nature of exponential growth and how many people aren't well-prepared to think in exponential terms. So we're going to get to all of those subjects. But first, we're going to take a moment to talk about some of these fantastic sponsors that make this show possible. Bankless Nation.

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We started this conversation out asking you guys about, like, what does Ether Capital track? Does it track Ether the asset or Ethereum, the economy? And it seems to you guys' as answers is surrounding Ethereum as an ecosystem and Ether Capital as investment into the ecosystem. And so it sounds like Ether Capital is meant to track Ethereum the economy. And that makes sense as to why you guys are going to do. are focused on tokens as a mechanism that disintermediates people, yet it is the investable asset itself. If people, traditional investors are looking for intermediaries to invest in, look no further

than a token on Ethereum, which is the expression of Ethereum's best features, which is being able to cut out middlemen, but yet that intermediary force still exists in the token itself. The token is now the intermediary, except the surface area of the intermediary has been just reduced and reduced and reduced down to the point of a token that governs a protocol like compound or uniswap or AVE. And that seems to be a way of accessing that ecosystem growth from ether capital accessing the growth of Ethereum is not just ether the asset and ether staking for Ethereum 2.0, but also the tokens that exist inside the ecosystem as well. Because if Ethereum doesn't this intermediate people, then it probably won't

have any tokens and it also won't be all that interesting. Does this all resonate with you guys and what you guys are trying to get done at Ether Capital? Absolutely. And I would say that the way we look at most things, whether they're tokens or traditional businesses, is do they perform some basic form of infrastructure that is going to play out for supporting this entire space? And Maker is exactly that. Maker is infrastructure. The Maker token, we believe, is very important because we think that a decentralized stable coin is going to be paramount in this space. And no one has done it better yet than Maker. And I don't know that anyone will be able to do it better. I think that their timing was incredible. And we think that there's a lot of advantages, certainly over getting to scale with a centralized stable coin.

You know, Fiat back deposits represented by a token like USDC or Tether. But we do think that a decentralized stable coin is very, very, very important. And so we look at Maker and Die as key pieces of infrastructure for this ecosystem to flourish. And that's where we want to invest is at that protocol layer. And whether that protocol layer is the base layer of ether itself or the next level up where you have an application like Maker that gives rise to a whole other set of applications, that's what we want to put into our portfolio. That's what we want to help people get exposure to.

Yeah. And also I would add our investment in Wire is an example of trying to facilitate onramps into the ecosystem. And notwithstanding that Wire is a traditional business and not a token, they have a developer solution around onboarding. And that's really important in this type of environment. And so it's, you know, we have kind of a three-pronged thesis around, you know, what type of, infrastructure investments we were aiming to make. So, you know, I think the first one is around scalability, and that's where ETH II comes in. That's where staking comes in. You know, stable coins is another one, and that's where maker and dye come in, and on ramps, which is where wire comes in.

And this is the sort of thing that will evolve. It will change. You know, you could envision a world in, you know, five or ten years where, you know, ether is just in the background, you know, it's staked. There's many ways to get access to it. And at that point, there will be, you know, new, interesting crypto economic platforms at the application layer, much like sort of Defi as today or say NFTs. But, you know, these things change so quickly. I mean, at the beginning of the year to predict that Defi would have the year that it has to, you know, to think about ETH2 shipping on time. You know, before the end of 2020, there were a lot of predict. markets where people said it's never it's never going to shift and you know people on

Twitter mentions are always just you know trolling about that sort of thing but it's constantly changing and we're trying to stay at the front of that and that's really the goal of either capital as a company is to try and you know provide either this kind of you know forward thinking sort of investment thesis around the ecosystem it's it's super interesting because the portfolio in terms of how you think about it is very similar to what we talk about so often on bankless. Of course, guys, none of this is financial advice. But when people ask the question of, like, I'm new to crypto, where should I start? What we always talk about is, well, the best thing you can do is buy some ether, buy some Bitcoin, right? Those are the reserve assets of this

space. If you're particularly bullish on the Ethereum economy, then you weight that much more heavily towards ETH, which is the reserve asset of the space. And then what you want to do is look for some of these disruptive protocols that are built on Ethereum that essentially give you exposure to the defy ecosystem. But what you probably don't want to do is sit out too long from the reserve asset of the Ethereum economy, which is ETH, right? You want to be almost denominated in ETH and then sort of measure your investments in ETH appreciation because that at the end of the day is the value accrual mechanism for like ether the economy. And it seems like the way you've constructed ether capital's portfolio, you've sort of done it in the same way, right? So you are

heavily weighted ETH as the reserve currency. for Ethereum, the reserve asset. And then you go into these different opportunities, whether it's something like wire that is a bit outside of tokens, but still provides a fiat on ramp into the Ethereum economy. Or you're doing something like Maker, which is, of course, like a bankless bank, as we would call it, and essentially investing that way.

But I want to ask the question about ether, the asset, because there are some people out there, Believe it or not, guys, that don't think Ether, the asset is very important. They don't think that Ether the asset is anything like Bitcoin. They don't think it is a value accrual mechanism for this Ethereum economy that we've been talking about. What is your take on Ether as an asset? And how do you articulate its value proposition?

I don't think it's any different than Bitcoin in that you need a native token of these networks as part of security to the protocol. When you have mining and people who are securing transactions, including them in blocks, they have to be rewarded with something that's native to the network. So they're giving up a commodity external to the network. In the case of proof of work, it's electricity and hardware. And they're being rewarded in the native token. What's really exciting about proof of stake is that you can align the incentives of the validators and the token holders. And that happens through the native token on that network. So a problem that you have in proof of work is that the miners may be just people who want to arb the cost of electricity.

They don't care about Bitcoin at all or they don't care about Ethereum. They're going to immediately dump that token and just capture that value, you know, the difference between whatever they paid, you know, two and a half cents a kilowatt hour and whatever they mined and off they go. And what's really exciting about proof of stake is it says this native token to this network is the thing that you can put up as the bond. It's part of the security. It aligns the token holders, the users of the network with the people who are doing the validation. You can't remove that token from this process. It's not possible.

That to me is what people are missing. And Stefan, do you want to add anything into that? Yeah. So, I mean, when we talk about Ether and why you need to own it, I mean, for us, it's kind of a, it's a three-prong thesis. The first is that it's a store of value, just like Bitcoin is. And we refer to as a store of value plus, which is effectively it has the same scarcity properties that Bitcoin has, but it also provides this venture type upside to the usage of the network. And so that's really compelling, and particularly in the environment that we're in

where there's money printing everywhere, to be able to, you know, go towards a store of value asset that not only has that property, but provides some, you know, additional upside. And it's interesting because when we're, when we're interfacing with traditional investors, we kind of leave it there. But, you know, one of the things that I think your listeners and people in crypto understand, which is important, is that, you know, you have Bitcoin's inflation schedule, you know, we have a halving every, every four years. And that's very compelling. And it sort of makes the case for digital gold. But when you have, you know, staking and you have, for example, EIP 1559, which, where the network gets a lot of usage, you could potentially see a disinflationary environment

for Ethereum, which is, like, if you want to store a value thesis, like that is, that is, the one. So, you know, I think that's the first prong, is the store of value plus. The second one is the usage of the network where we've seen usage at all-time highs. Just compared to any other blockchain, we put out in our newsletter last week, comparing sort of fees generated by different protocols. You know, Ethereum is right up there at the top, and then you have Bitcoin, and then you have all of the applications on Ethereum that, you know, if you add them together, they would take out Bitcoin. And so, like, it's just undeniable that Ethereum is being used and that it's sort of garnered this network effect. And then the third thing I'd say is this is an asset that is becoming,

or it is already, it's a yield generating instrument. So instead of sort of taking your Bitcoin, just like gold, putting it in, you know, in storage. and waiting for the price to go up, you can actually contribute to the security of the network and get paid to do so by a yield. So, you know, I think those are the three things that we speak to that hopefully makes the case for Ether as an asset. We have our co-CIO at either capital, Ben Roberts. You know, he refers to Ethereum as a toll road and as this kind of base infrastructure for the world. So imagine owning sort of a share in a toll road that spans the entire globe.

You know, that's another kind of analogy or thesis that we use. But, you know, at the end of the day, it sort of, it doesn't really matter, you know, how you pitch it. It's what happens, you know, practically speaking. And I think that the last year has shown us how important ether the asset is to, you know, the Ethereum network to just, you know, the general investment philosophy around crypto and around these decentralized networks. So here's a take. I think you guys are explaining Ether to the interested parties, right, your investors, in this three-prong thesis, do you find that one prong particularly resonates better with

certain subsets of the audience or one does better in certain context versus another? How has these different ideas or theses around Ether land? depending on who you're talking to. I think we're at a time now where people are certainly warming up to the idea of a monetary policy that's not controlled by a corporation or any one government's interest. And so Bitcoin is certainly the first way that they come down that rabbit hole. So I think Ethereum is hard to pitch in that sense because they just say, well, why don't I just go own Bitcoin? The thing that currently is waking up a lot of people is staking and the idea of generating cash flow, a yield, off holding what was otherwise a passive commodity that was fairly unproductive. We're constantly trying to get people to understand that the network usage is really exciting and we will pull up a chart that shows the history of Ethereum and the number of daily transactions.

and you can see in 2018 when the price of ether is over $1,000, that when the bare market hit, the network activity didn't stop. The developers didn't stop biddling. And that's something that traditional finance doesn't see. We might see it because we're part of the community that the developers never left the table, but mainstream people just see the price.

And so it's really hard to get people to understand that outside of the price, the demand to use this network and the use cases that are emerging are growing faster than ever and that that's something worth paying attention to. They don't seem to lock on to that. They do seem to lock on to proof of stake and the opportunity around saying you can generate this yield by just holding this asset and generating some type of cash flow. Let's talk about that a little bit more because I think it's super interesting. You're right. Of the kind of the three-prong thesis, the triple point thesis, you know, ETH has a store of value. I think once people understand the Bitcoin story, they start to understand ETH as a possible contender for

store value. So like Bitcoin is almost, I don't think so. But they don't because they just see, why don't you just buy Bitcoin then? Well, well, they partially do. I think it opens their mind to the idea that, let's say, a digital currency that is non-sovereign could be a store of value. Now, most, many are right now persuaded in the argument that, like, and there shall only be Bitcoin because Bitcoin is Austrian and 21 million.

And they seem to have this very shaky idea that Ethereum has no monetary policy or a monetary policy that is constantly inflating or something to that effect. But I would still say I feel like Bitcoin has helped open the door to something like ether being a store of value. And once those arguments land, then I think it's going to be inevitable. once like inflation cuts below 1%, and then maybe goes, as Stefan was saying, to the negative territory, that will become obvious over time. So you've got that path. Then you've got the path that has been popular in Ethereum, it's kind of undeniable, that ether is definitely being used

as gas, as a commodity, right? And so Ethereum as an instrument for that is obviously showing promise. But it's this third thing that I want to talk about because it feels like Ethereum is really opening the door for the ability of investors to think about ether or digital currencies in this way as almost like non-sovereign bonds. And Stefan, you wrote this post for bankless not too long ago about the idea of ether as a digital bond. We've talked about this a few times on bankless. can you articulate that thesis and maybe give the pitch for how you explain Ether as a digital bond to investors? Let me take a step back and I'll give you a sense of how this kind of idea came into my mind, which was at the beginning of this year, staking was on the horizon.

And as you started to dig into the numbers, you saw that there was a, you know, a potential significant double digit yield that was going to accrue to ether holders who were staking sort of early in the network. And to me, I felt that this was something that traditional finance, like our investor base, and just people outside of the Ethereum community were completely missing. And so I kind of, I went on Twitter and I just, I did a tweet storm around this, just saying like, this is a big deal. This is what people, are missing. Ethereum is a very consequential asset in the crypto ecosystem and people just are not paying attention. And it ended up, you know, getting some traction. And when I wrote the piece for

bankless, you know, I started to think about what does ether as a digital bond mean? So, you know, how can you put into context what is happening with staking? And so, you know, one of one of the concepts was Ether is becoming a productive asset. So you're generating an ether denominated return by providing sort of a service to the network. And one of the interesting things about that is it's similar to a, think about it like a T bill or think about a government, a bond, a treasury, where you know, you invest money with the government, and they pay you a yield that they effectively print. So they effectively control it.

And that's unlike a scenario where you're investing money into bonds for a corporate entity, because the corporate entity actually has to generate the cash flow to pay you back. In the case of a treasury, there's really, there's no constraint. They just kind of, you know, print the money. And for me, that was kind of the analogy that made the most sense to me. around ether as this kind of digital treasury bond. Because ultimately the protocol itself is issuing the ether. And there's no constraint to it because it's coming from the protocol itself,

unlike, let's say you lend money into a compound lending pool where, you know, that money is coming from somebody else on the other side, you know, notwithstanding that it's collateralized. you know, that introduces separate risk. So how I tried to explain that was this is an intrinsic yield instrument, which sort of is what makes it kind of special. But I didn't want to say it was a digital T bill because who knows what a T bill is. I mean, people in traditional finance do. You know, so I kind of settled on it's a digital bond.

And so I thought that it was a way to illustrate what is going on because everybody understands what a bond is. And people talk about Bitcoin as digital gold and ether is digital oil. And, you know, this is a digital bond. It's kind of, you know, I feel like it flows. So, you know, that was kind of the thinking behind it as an intrinsic yield instrument. And, you know, part of part of the thinking there. too is that unlike Bitcoin, which is an unproductive asset, you know, you can't get intrinsic

yield from Bitcoin. You can get a yield by either lending it to a counterparty or you can, you know, you could potentially mine it, but it involves, you know, another sort of risk. So, you know, one of the other things that I talked about is there's protocol risk, but not counterparty risk. And so, you know, one way of thinking about it is there is counterparty risk. and that's protocol risk. But I think that ultimately it's a very unique instrument and something that people weren't paying enough attention to. So, you know, hopefully that provides some color.

It does. Oh, so here's the thing is they're still not providing enough attention to it. This is still like a narrative that, you know, some of the insiders in Ethereum kind of know, but has not gone mainstream. It almost feels like the Bitcoin is digital gold narrative in 2000. And of course, we talked to lots of folks that are on the bankless program. They've heard us articulate this digital bond narrative. But we don't talk to as many institutions. How is that digital bond narrative landing? Is it a helpful analogy and framework for helping people understand the value of ether as an asset? What are these institutions? How do they react these investors when you talk to them about it in this way? Yeah, so I think there's a lot of resonance. And it is, it's a very short and quick pitch, right? You're effectively saying Bitcoin is an unproductive commodity. And with ether, you're able to generate a staking yield. And, you know, we talk about mining in the context of Bitcoin mining, proof of work mining versus staking. And ultimately, it's a digital bond that pays an ether denominated yield. And really, that's that's kind of it. Like, we don't want to, uh, muddy the waters here. I think it's a very important point to get people to pay attention.

But the more you go down the rabbit hole, the more questions people have and we're happy to answer them. But we don't want people to lose the fundamental message here, which is that this is a yield producing instrument. Now, one of the things I should say is it's not, this isn't passive yield. So you're still operating, you know, a validator node. And that entails, you know, risks of, you know, slashing and offline penalties and that sort of thing. So this isn't a passive yield, but it is a yield nonetheless. And so, you know, these are, these are nuances that are important to people, you know, like me. But ultimately, we just want to try and differentiate it from something like Bitcoin. And when we make the case around the digital bond, sort of

articulating that ether is this the most used platform. When you put those two together, people say, wow, this is a very, a very sort of compelling pitch around not only usage, but my ability to generate cash flow. Do you guys find that it's helpful to bring in ether as a non-sovereign yield important in these conversations when you guys are explaining things to investors? Because, you know, Bitcoin is digital gold or Bitcoin as like a non-sovereign money is really compelling to a lot of people, and especially during the days of money printer go burr, people can really empathize and resonate with that narrative where this is an asset with a

monetary policy outside of the purview of any state. And ether and the bond and the yield coming into ether is also similarly non-sovereign, right? And ether, in my mind, is one of the world's first sound money, hard money bonds. Does adding that non-sovereign emphasis into your pitch to investors, Does that resonate with people? Or do they kind of just see Ether as like, you know, you take Bitcoin, you add yield, and that's what's attractive to it? Never mind why that yield is unique or important. I don't think so.

We haven't articulated it in that much of a succinct way where it is framed within two sentences, connecting all those dots. I think in general, what people are latching on to is that they want crypto exposure. And that's relatively recent, right? I mean, there was some interest in the second half of 2017 when the price of Bitcoin, you just couldn't ignore when it's moving from 4,000, crossing 10,000 up to 20,000. Institutions were waking up and saying, what am I missing here? I need to be a part of it.

The space wasn't as mature then as it is today. And now what we have is a mature space plus the backdrop of all the, as you say, money printer go burr that's waking people up. So they are warm to these assets. They are curious and want exposure. and the question is, how do they participate? I do think that there is some resistance around the monetary policy of ether versus Bitcoin, where they just latch on to Bitcoin.

It has the biggest brand. It has the biggest market cap. It's a very clean and easy to understand thesis. The thing to really get people to be gravitated to with Ethereum is a chart effectively that shows here's how much ETH has moved over from ETH one onto ETH two. Here's how much is sitting in that contract today. here's what the yield is currently. That they understand, that they,

they connect the dots on why that's valuable and important and really compelling. For us specifically as ether capital, we are the only public company that I think has the flexibility to participate in phase zero because there, as you know, there's no liquidity or transfers or anything that you can do with that asset for the time being, whether it's, you know, 10 months or 12 months or longer, that puts us in a really unique position to take advantage. advantage of our unique structure. Again, we're not a fund. We're a corporation. Participate in staking and say, if you want public market access to staking your ether,

then this is the best way to do it. And that's a really interesting moat for us. And it's really exciting. And we want to be at the forefront of these things. We want to be the leaders in the public markets for the ones who understand these assets. We understand what's happening in the ecosystem, the excitement, the developments, what's coming up next? And if we just take a step back to when ether capital was formed, because I think it's a little bit helpful here, the 2017 Bull Run had, you know, this is all the ICO boom going on in the backdrop. There's a token coming out every week, a new website, and no one knows where do they invest. I'm sure if you guys were around, you remember the complete ICO mania. And when ether capital was put together,

The idea was to have a very clean thesis on what was going to happen in the digital asset space and pick one of those assets, which we thought was really going to have meat to it and longevity. And that was Ethereum. And sure, there's hype around a whole host of ICOs at the time, but we thought that Ethereum was the one. It was the thing that was an order of magnitude of improvement over Bitcoin that offered a new set of properties that was going to excite and maintain a set of developer interest. And if you go back to 2013 and you see, maybe it was 2012 when light coin came out, I don't remember, but all of the

light coin, peer coin, feather coin, doge coin, none of those were orders of magnitude of improvement over Bitcoin. And so when Ethereum comes along in 2014 and you have this completely new way of building a blockchain, well, that was really exciting. And when 2016, 17 comes about, the question was, how do you isolate the signal through all that noise? And how can you create a access point for the public markets to say, here's a group of people who are in the community, who are very high caliber, who have a very specific thesis. And I'm going to follow them on their journey through navigating this insane world with terms that they've never heard of, with assets that are hard to secure. And that's what Ether Capital was about then. And it still is today. It's we

remain dedicated to this thesis, this thesis around why is Ethereum so valuable and how do you play it? And how do you say you can have that access in your portfolio through us? And we are going to know about staking. We're going to know when it's appropriate to move a large amount of our assets into that new network and what the appropriate controls are around doing it. That to us is what this is all about is finding that signal through the noise and saying you're going to play. You're going to it alongside us and follow us on that journey. And David, I would just say on your sort of non-sovereign bond, I mean, it's your bang on.

The challenge that we have in some sense is communicating that. I mean, you're deep in the space. You've done a lot of thinking about this. And non-sovereign bond makes a ton of sense. But if you go into a generalist investor who maybe understands a little bit about the gold thesis and you say, this is a non-sovereign bond, they may say something like, what the heck does that mean? Yes.

And so we really have to, and it's, again, it's bang on, but you have to approach it a little bit from first principles. And so, you know, that's what Brian and I have spent, you know, two and a half years trying to do is just distill into why this matters. So, you know, staking matters because you can earn a yield. And that's really all you can say about it. We even talk about scalability as an important sort of goal. But if you say sharding, like you're in the penalty box because it's not something that any sort of traditional fund manager or investor would have any clue about it.

Now, would they obviously want, you know, 1,000 transactions per second and to be able to have a decentralized network sort of, you know, execute that? Of course they would. But you really have to be careful in your language. Even something like Ethereum as a smart contract platform or, you know, Ethereum. Ethereum is a general purpose blockchain. These are things that resonate with Brian and I and the rest of, you know, the team at Heathcab. But it's, it's, you know, you risk sort of alienating certain public market investors when you get that deep into the granularity. So it's kind of a push and pull that we've, we've had to achieve over the past couple of years. I'm going to quote my co-host here,

who said the most bullish thing for Ethereum is to be understood. And I think that, is so true. Part of the challenge of the Ethereum community is that we speak in these technical terms, right? So you mentioned sharding. Like, that doesn't mean anything to an investor, right? It leads to a lot of jokes, though. It leads to a lot, right? So, or like, take EIP 1559. What's an EIP? Why the numbers? What does 50 and 5-9 mean? And how is this related to Ether as a better store of value? And like, we see it and we're like, okay, well, that's Ethereum scarcity engine, basically. And that just links usage of the Ethereum blockchain to the store of valueness of Ether as an asset, right? But like when we use these terms, investors can't understand this sort of thing. So you guys are doing

God's work and educating investors about these things and translating the the Ethereum community speak into what this actually means for Ether as an asset. And I was connecting some dots too on something that you were just saying, Brian, which is super interesting. I want to make sure the listeners understand this too. It can be enough if you have an asset like Bitcoin to just buy and hold, essentially. You don't have to do much more with Bitcoin. But that's not enough with Ether as an asset.

And I think this is a link to why you set up ether capital as being not a passive instrument, but being an actively managed asset and instrument is because if you have ether and all you're doing is holding it, you are missing out on a whole bunch of yield, guys. Yeah, like you are falling behind. You are falling behind. You are actually like, if you're not staking your ether and taking basically the same protocol risk as holding your ether, you're losing what? like in the future, maybe that's 5% per year. So if you have Ether on your balance statement,

you almost have the fiduciary responsibility to go like do something with it. And I think that's why Ether Capital sounds to me structured as more of an actively managed type of thing because you guys are doing this sort of thing. In fact, press release, I believe it was last week or the week before, Ether Capital is the first public company that I know of. Maybe you know of some other but the first public company to actually start staking ether, the asset. So you guys are actually taking a portion of your theater. It's a small portion today, but you are doing that in a public entity and running a validator and staking it.

Can you tell us about that story? Like, how are you actually doing this? So staking has been something on our roadmap since 2018 when the company was put together. We were very excited about staking. unfortunately it took a long time for staking to finally come to fruition and the launch of ETH2. But these are very hard problems to solve. And we respect that the developer community and the research community was going to go slow and only do it when the time is right. Now, along the way, Stefan and I are out beating the drum saying, you should invest in ETH now

because there's going to be this potential price explosion when ETH2 actually launches. And the question was, well, when would that be? We would say, well, we don't know. But it's soon. Four more months. You know, it was four more months for two years. But the point is we knew it would happen eventually and we knew that it would be successful. And it was important to us as a company and as a leader, I think, in the Ethereum ecosystem or in the public markets to bridge that gap and say this is a historical moment for crypto assets in general, but specifically the Ethereum community. And to show that we were at the forefront by putting our money where our mouth is or in this case, putting our ETH where our mouth is and say, we are going to stake. want to be part of the Genesis block. Now, after we all got excited and said, yeah, we should do it, let's do it, let's do it,

it raises a whole host of complexity around, how are you going to do it? Without going too deep in the weeds, we use the NOSIS Multisig, we don't use a third-party custodian, it's something we pride ourselves on that we have 10 directors, everyone has a hardware wallet, and we all sign off on transactions. And the multi-sig doesn't support the curve used in ETH II. And so we had to go on this long winding road to figure out how will we actually run a validator here when the multi-sig doesn't support ETH too. And so we spent a lot of time researching the best ways to do it. And we came to a bunch of conclusions and figured out how we would.

And we're currently running one validator. So it's not significant in terms of our total balance sheet. But it was important to us to be part of that Genesis block and to say we did it. We figured it out. And we think that this is an important milestone for. Ethereum, and we are going to signal to the market that long term, it's likely that we will stake more of our assets and participate in a more meaningful way as the network continues to be live and without issue. And we resolve things on our end and work with auditors on how they're

going to look at ETH two. It's a whole different beast to be in the public markets. And Stefan takes the brunt of that complexity and figures out how to interface with them. So maybe he wants to jump in a little bit here and give some color on what it's like to operate a crypto company in the public markets. But we did it. We're very proud of it. And we're really excited about exploring how we would further delve into more exposure into ETH II. So you may be the first company to launch an ETH validator and starts taking ETH. You will not be the last. If we are all right about this ETH economy thesis, then I think there's a day where we see most large, at least financial companies in the world, maybe tech companies too, running validators

themselves and staking ETH on their own balance sheet. But as I guess the people who are first in the journey, there's probably a lot from a regulatory perspective to get through as a public company. So, Stefan, what's it like to try to stake as a publicly traded entity? What hurdles do you have to jump over. It's part of the, it's a benefit and a burden to, to bring this kind of access and exposure to our investor base, which is traditional public market investors who would otherwise not have an ability to get meaningful exposure to, let's say, staking. But, you know, listen, it's, it's an everyday thing where you take for granted how, let's say, integrated custody. is in the traditional finance system, like, you know, share certificates and custody of those,

when you come down to the NOSIS multi-sig, which is, you know, heavily used. And we kind of, you know, Brian and I, we talk about it as being, oh, it's just the multi-sig. But, you know, imagine our auditor, KPMG. And I believe we're the only publicly traded company. I'm not 100% sure that has a big four auditor. So, you know, the KPMG has been. great. But listen, we get quarterly reviews on our financial statements because we issue our financials on a quarterly as well as annual basis. And, you know, there's a lot of operating controls around our multi-sig. And so, you know, those are things that are maturing. They're not quite seamless yet, but that's sort of the part about being a pioneer in the space and sort of being

on the frontier. I mean, it was the same thing operating. an email server, you know, 10, 15 years ago versus today, you know, they're these same types of issues, you know, whether it's around accounting, operating controls, and that sort of thing. So it's interesting. It keeps things, it keeps us on our toes. And so, but we're happy to do it, because that's our job and we take our mission seriously. yield on your ether is not only possible via staking, right? And perhaps staking is most resonant to ether capital because of how intrinsic it is to the actual protocol of Ethereum. However, when there is yield to be gained from staking ether, that means borrowing and lending rates in defy also offer yield on your ether. And right now you can get yield on compound and Avey and all these other defy protocols, albeit it's extremely low because generally there's no place of sourcing yield on your ether up until now. But there are things like the Yeth volts from Yern. And there are other places, there are other mechanisms to get yield in DFI as well. How do you guys think at Ether Capital about DFI as an

opportunity to increase the value of ether capital? Are you guys tinkering inside of DFI? Do you guys have like a DFI strategy? How do you guys think about DFI in relationship to Ether Capital? We think it's really exciting and going to be an important part of our narrative. I don't think it's something that we'll dip our toes to in the near term, we definitely have to be mindful of our structure and respectful of the risks. You know, we're playing in the public markets. This isn't a private fund. And so the Y8th Vault is something that we talk about constantly. It's something that we would test personally with ether that we hold, but to do it inside of a public structure has to be once the code has been battle tested enough that it's appropriate to move. We're not just

talking about a few hundred dollars or a few thousand dollars, but a meaningful amount of money in the form of millions of dollars of our ETH. And you constantly see various bugs in the code or something gets hacked or drained or exploited. And that's an important part of these networks or these defy applications developing, right? There's some bug. People go back to the drawing board and say, let's close the loop on that and relaunch. Like, you know, what happened with Yams in the summer? So it's something that we're going to monitor. It's It's something that we watch in awe and excitement of. I think it's the coolest thing.

There's a lot of late night texting that goes on between Stefan and I. Did you see this bug? Did you test this thing out? And when the time comes where we can participate, we will. And we'll have to benchmark that against something like staking. I imagine that most people in the community will be doing the same thing. They will be looking at what is the yield on stake teeth versus something happening in defy. They'll set some dials around risks and then say,

Maybe I don't want a stake for the next month because there's this opportunity with the Yath fault or something else and take advantage of that. Either way, it's definitely exciting. I also think it just shows we're personally committed to this outside of our professional capacities at Ether Capital. There is no off switch for us. There are no vacations where we just turn our brains off from looking at Defi. This is the coolest thing.

You're never going to leave this space. There's so much innovation happening here. You can't walk away and say, all right, I've learned enough. I don't care anymore. No, the pace of innovation is astounding and exciting and you're watching the birth of an entirely new asset class and you want to participate. And so we look at it personally first and then we'll figure out long term when we can do it inside of a public structure. Stefan, do you want to add anything to that? Yeah. So, I mean, having spent 10 years as an investment banker in traditional finance and sort of going down the rabbit hole on Bitcoin and then sort of

seeing maker as this decentralized central bank. And it, you know, I became very, very excited and passionate about it. And I think defy is just sort of an extension of, of that sort of excitement. And when I speak to my former colleagues who are still in traditional finance, you know, imagine saying, oh my gosh, you should check out the Yath Vault. And they look at me like, like, what are you speaking about it? And it's, and so you could say something like, okay, cool. So what you do is you put ether into this vault and, you know, it opens up a CDP. You take the dye and you put it in curve and yield farm on curb. And then they're like, okay, we need to get this guy like a mental hospital like stat. But, you know, ultimately these kinds of things are

financial innovation. And, you know, Joey Kruke, who's who's on the board of Ether Capital, who's, you know, an insanely smart guy and a great, you know, resource for us. You know, he talks about, anyone in the world being able to create a financial instrument via Ethereum and via, you know, all these wet three technologies. And so to me, like when Brian and I are sitting and we're chatting about, you know, the future, like imagine a public company being able to deploy ether into something like the Whitefault. And it's not necessarily, you know, Yath, but some sort of robo advisor, a smart contract where there's an automated yield strategy. It's been, you know, battle tested and like imagine being able to generate that sort of yield and being sort of where what what

separates you know a someone that knows what they're doing versus someone that just you know for example just wants to hold ether and state is that you have this ability to understand the risks in the smart contract and understand you know the code and when I was when I was starting investment banking you know the mining space the physical mining world was, you know, really, really hot. And one of the great skill sets was having a traditional finance education and also having sort of real world mining experience, whether it was, you know, professional engineer or some sort of thing where you could look at, you know, a mining, a resource report and be able to say, okay, like, not only is this, is this a really

interesting resource that I think could, can, you know, make a lot of money, but I'm looking at the capital structure at the company and I'm able to make an assessment. You know, I view the next five years is imagine somebody from traditional finance can come in and read a smart contract. And we're already seeing that in terms of, you know, obviously some of the exploits in DFI. But imagine that, you know, even even a few years ago. It's just very exciting. And it's what I try and articulate daily to our investor base and, you know, my former colleagues and friends that that this is here to stay and just the level of innovation, it's tough to describe without sort of getting Well, think about flash loans. Flash loans are such an incredible example of something you can do

natively in this space that traditional finance, just their heads will spin if you try and explain how it works and why you would do it. Guys, I want to underline, this is for listeners, I want to underline the point that Brian and Stefan are making here because we talk about this so often. But what they're saying is like get your defy education started now we are not just investing in assets here and the Ethereum economy we're also investing in ourselves our own skill set this if this is the the future financial ecosystem open finance if this is the future for the world and you are starting now and you're starting to acquire this the skills either like how to communicate them or you're starting to use these protocols, you understand what they mean.

You can be a bridge to the old world. And that career skill set is incredibly valuable, maybe more valuable than some of the assets that you're acquiring now. So start investing, continue investing. Obviously, tuning into bank lists is one way. But make sure you're actually using these protocols and products too, because that's how you continue your investment. I think It's such an important point you guys are making right now. Don't forget, Ryan, that that's not investment advice. So you're totally right, though, that the best way to learn and understand is by touching the assets yourself. And that goes back to my point that I was making earlier about I fantasize that people don't just want exposure to number go up,

that they want to understand why these assets are so important to the future of the Internet and how they're going to reshape things. Filecoin isn't just another ICO, another token. I mean, it is in some ways. Sure, it's, it's another one, but it brings with it a new set of properties, a new set of possibilities for how the internet is going to be shaped in the next two to 10 to 20 years. And you have the opportunity this generation can be a part of that. We weren't around for the birth of the internet, but there's a birth of this whole new thing that's happening here that everyone's getting really excited about. And I remember in an early Toronto Bitcoin meetup group, it was probably under 10 people at some bar in Toronto. And I went, you know, I'm nervous. I don't know what they're going to talk

about. I don't know if I'm using an Electrum wallet. And Electrum is the thing that is socially acceptable with these people. And you felt like you were part of something that you saw and understood that the rest of the world thought you were a crackpot and you were crazy to think was valuable. And I had the same feeling when Stefan and I went to an early hackathon in San Francisco and they're happening in these warehouses and people are in ripped jeans and T-shirts and they may not even be 20 years old. But there's something special happening there. And I would imagine that the early days of the internet in the late 80s, in early 90s, when people are getting together and talking about that they've upgraded their modem from 144 to 288 and that's so cool and what could you do,

you know, if you have an even faster than 28K modem. That's the same thing that's happening now just with a different asset and a different set of protocol standards. But that excitement, that electric feeling that you're at the forefront of something that's going to be really big is really cool. And anyone can join today. And we're still scratching the surface. We haven't even begun to see what happens.

when you have millions of developers rallying around these protocols, rallying around these assets. It's just beginning. And the ETH Global Events are perfect examples of that. These hackathons that happen in different countries around the world bring together people who speak different languages or different age groups or different ethnicities. And they're all rallying around something really exciting. And they want to piggyback off each other's knowledge and education and what they're able to build and say, well, this is the point of money legos that I can take that and maybe

build an on-chain insurance product. This is really, really cool. This isn't just about number go up. That's what's exciting to me is to see that. I'm not a programmer. If I can program, it's terribly. But seeing people get excited in that way is the thing that draws me to this space. Totally great. Guys, don't stop at number go up. Go use. Go build. Number go up will take care of itself. You don't have to worry about that part of it, if we are correct on this space. All right, let's talk about Ether Capital's plans for the future, guys. So you've just released a $125 million shelf prospectus, which, and correct me if I'm wrong, this allows you potentially to raise an additional $125 million in the next few months.

Does this all mean that Ether Capital is going to be buying a bit more eth? So our shelf prospectus is a regulatory document. that we filed with the Ontario Securities Commission. And it's on a website known as CEDAR, which is effectively the same thing as Edgar in the U.S. So, you know, I invite, again, this is not a solicitation. This is not investment advice or anything. It's a public document that we've issued.

And we are awaiting comments from regulators around the potential finalization of that document. But assuming that we're able to do that, then that shelf prospectus would run for, I believe it's 25 months. And it would allow us to open up the investor sort of universe for ether capital and potentially raise money. But again, I do, because it's in the public record,

we spent quite a bit of time going through the thesis on Ethereum in that document around ether capital as a company around, you know, staking and interesting sort of statistics around DFI. And so, you know, it's it's something that is, it's important to us and, you know, as part of being a public company. What about other plans? What do you guys have in store for the next 2020? 24 months or so. I think what we can talk about right now is what we see in the immediate future for ether capital. And that narrative is all around staking and figuring out how we can appropriately move a bigger portion of our balance sheet onto ETH2.

It's not 100% that we're going to do it, but it's something we would like to explore and test because we think that the uniqueness of our structure allows us to take advantage of the opportunity of doing that now versus three years from now. And again, being a leader in the public markets and showing how. we do that. At the same time, a lot of the DeFi protocols, like you talked about the Yeth Vault, are very interesting to us. That's something that we'll certainly explore and monitor and test. I think Maker is still a very undiscovered asset. I think a lot of people use Dye and they understand why Dye exists, but they don't understand why the MKR token specifically is valuable, despite there being really great tools like MakerBurn. I think it's MKR. MKR burn.

Dot tools or dot com. Makerburn.com. That shows you what's owed to the MKR token holders. I mean, people don't seem to see or understand the value of that token yet. I would love to get more involved in Maker as they start moving real world collateral into the system. I think that's a very important part of their narrative.

That's something I can see Ether Capital participating in in the next 12 months. But it's not. the sole focus of what we're up to where we'll be the first. I think there's companies out there right now like centrifuge who are working on those problems with very closely with the maker community and trying to figure out how to do that. It's something we'll monitor. I think we have a very unique platform and structure and access to understanding the regulatory landscape and how we would be able to participate in some of those activities like moving real world collateral into a system like this and helping issue loans, you know, against that collateral in the form of die.

But that's not on the immediate roadmap. Currently, it's all about yield. And that's staking and defy. You know, we haven't gotten to this, but I just want to make sure that this detail is clear. So who can buy ether capital shares, right? So can Americans buy it? Can retail buy it? And if they wanted to buy shares, of course, none of this is a solicitation.

But how practically would a retail investor do that now? So we're listed on an exchange called the Neo in Canada and in Toronto. And it's quite easy for Canadians to buy it, both retail and institutions. But unfortunately, because we're listed in Canada, it can be a challenge for people outside of the country. And it's just part of, again, we talk about Ethereum as being this sort of global borderless system. You know, capital markets are certainly are certainly not there yet. And so we, you know, we market to our, you know, Canadian investor base. And we are publicly traded and to the extent that, you know, investor access is available,

we are listed on the New York Exchange. Again, not a solicitation, but that provides some color, hopefully. There's no way you guys are able to do price predictions, are you? Can we do that? We love to ask our Heath Bullseck question. I don't think either of us, and in general, even outside of Ether Capital, I've never really made predictions on the price of things. I think the important thing to really pay attention to here is, are these networks being used now more than ever before? Do you expect in the next five years there to be more people using, transacting, building on these networks?

and if the answer is yes, then it's worth exploring. If you think that the answer is no, then maybe you don't want exposure to these assets. I've always looked, as I said earlier, to the developers, follow the developers, look at what they're getting excited about, look at where they're building, and invest in and around that. That's what excites me. That's where I look, and that's where I'll invest personally and guide ether capital to follow. So, Brian, we've got about a million defy users right now. that number, what do you think that's going to look like at the next five to 10 years?

I think it's orders of magnitude bigger than it is today. And a parallel that I like to draw or something I think about often is people underestimate how fast these protocols or applications have the potential to grow. And in maybe early 2019, I joined a regulatory advisory committee to talk about crypto assets. and a large part of their thinking was to figure out how to solve for custody. And out of curiosity, I said, what does everyone here think about decentralized exchanges? And Uniswap was around then. And I think that the daily trade volume was a couple million bucks.

It was nothing significant. And they said, well, we're not paying that close attention because it's only a few million dollars. So it's not really an area of concern yet. And I laid out a few technical points on why that, volume might be low currently and how it may scale up in a significant way down the road. And they kind of did a hand wave and said, I don't know. Here we are. It's one year later. And as I was saying earlier, you had that week in late August or early September where uniswap passed Coinbase in daily trade volume. This is not insignificant. This is an order of magnitude or

many orders of magnitude larger than it was just a year ago. And so as you have more people moving on chain onto these assets, onto these protocols, and getting curious and wanting to explore, the growth is going to continue in ways that people, your brain is not wired to think about how hockey sticks work, right? I don't mean hockey sticks, the physical hockey stick. I'm saying hockey stick graphs. We just don't interact with the world in a way that grows at an exponential rate. We interact in a world where things are very linear. And so that's the hard part for people to imagine is there a possibility that uniswap sloshes around a trillion dollars a day of trade volume? Absolutely.

That seems crazy to think of today, but it's really not that far off. That is absolutely possible in the next five years and really exciting to think about. Also very challenging for regulators to imagine how they would want to try and put in the appropriate protections around people touching those assets. And I think this highlights the venture type returns that you can see just in the space. So if you think about Bitcoin as digital gold and you look at the market cap of above ground gold as being between $7 and $8 trillion, Bitcoin is 3% of that. And so that is, that's a credible investment thesis. It's much tougher on Ethereum.

But, you know, one of the mental models that you can say is like, oh, owning a piece of the internet. And the internet is worth trillions of dollars. And, you know, sometimes we want to put kind of a price to earnings or a price to sales multiple on certain things. And, you know, that's where transaction fees come in. But the way that you might want to look at it is just this venture type bet where you're making an asymmetric bet on the potential growth of this, of this network in a venture sense. And I think it was, might have been Chris Dixen at Andreessen Horowitz, who is saying, you know, in 10 years, so what people are doing in their basements on the weekend will in 10 years be a real job. And so, like, I think that thesis has played

out around crypto. And so it's exciting to see. And the next five to 10 years, I mean, we're going to be on the ride. And, you know, Ryan, you and Dave are going to be on the ride. And, you know, let's meet up for beers in about 10 years and sort of see where all our predictions I think one other thing to point out here that my CIO said to me about a year ago that frames Ethereum in a really interesting way, which is if you believe that Bitcoin and Ether act as this hedge against inflation, it captures that hedge part of a portfolio. Okay, that's pretty cool. But what does Ethereum do different than Bitcoin? And that is it captures all the building that happens natively on top of it. And so it's wrapping that venture bet, those applications, those new, you know, in quotes, companies that could have wild growth into the same bet.

When you buy ether, you're getting the hedge against inflation and you're getting the venture bet at the same time. Because if there's five applications, if there are the Googles and the Airbnbs and the Facebooks that exist in this new world, well, sure, maybe you can cherry pick those specific things to invest in direct. but the reality is they're all going to be paying transaction fees to have their activities secured by this network. And when you own ether, you're going to capture some of that value at the same time. And so ether is going to wrap those two things into one bet. And that's why you want to own ether. Going back to the conversation of how humans don't really think in exponential scales, like the people that bought Bitcoin at $1,000 and then proudly sold Bitcoin at $2,000 missed out on Bitcoin. right like if you are in this space and you're thinking in a linear mindset you're you're missing out like

the entire crypto economic industry is a lesson in exponential growth in exponentiality and that's just kind of just how nature works nature is a is a exponentially growing entity and ethereum is in my mind is an extension of that where you do have exponential growth of just the native ethereum ecosystem but what's unique about ethereum is that like bitcoin it can grow exponentially, but also it is a platform for things like uniswap or things like wiren or things like makers who also grow exponentially on top of Ethereum's own native exponential growth. And so that's what gets me really excited about that future. And, you know, if things do move in a pattern like that, like I am describing, I think

the beers that we're going to get are going to come a little bit sooner than 10 years, guys. I think that's going to be a little bit sooner. Can we have Canadian beers, though? They're a little bit stronger like those. These are very binary bets. I mean, these networks are either going to work out tremendously or somehow they will retreat. At this point, I'm not sure what would make them retreat, but I still think it's a very binary bet that it's going to pay off in a explosive way. And Bitcoin was like that for me in the early days when I first got involved sub 100 bucks.

And this was late 2013 when I meaningfully started trying to invest in it. And there was a C-SPAN hearing at the time where the narrative for people who are outside of the crypto space were wondering, well, is the government just going to come in and find a way to squash this? And there was a hearing on C-SPAN with the head, the Department of Homeland Security, you know, just various government regulatory bodies come along and give their opinion on Bitcoin. And everyone was very positive. They said, you shouldn't snuff out a new technology. You shouldn't be scared of it. Instead, you retrain your staff, you hire new people, you put in appropriate measures in place, and you don't stifle the growth in the innovation.

You just monitor it in new and novel ways. And the price of Bitcoin quickly shot up over a thousand bucks. Everyone was so excited because the narrative of the government's not going to squash this thing, well, it quickly went away. And Bitcoin went up to maybe as high as $1,200, and I thought I was a genius. And then Bitcoin retreated into this bear market where it touched maybe as low was 250. I don't know the exact price. That's really where I learned to separate my stomach from my head and say, you had a thesis when you got involved. You thought long term this had the potential

to be a very asymmetric bet, ignore the volatility in the short term, and look away. Go about your life and focus on the technology in the building. And let's see what happens. And here we are, years later, there was another bull run and then bear market starting in 2017 down through 2018, 2019 and half of 2020 where, you know, again, some stomach volatility. But if you just zoom out and say, are these things going to continue to grow and be more used and more accepted and built upon by a new set of people, then I think that this is a really interesting time to participate and consider it as a piece of a, you know, diversified portfolio. Gentlemen, this has been such a pleasure to talk to you both from Ether Capital. Uniswapast,

Coinbase, ETH2 launched. Mainstream didn't even notice, but you guys are noticing, and you're serving as a bridge from Ethereum and the Ethereum commodity to traditional investors. We greatly appreciate the work you're doing, and thanks for joining us on bankless. Thanks for having us. Thank you for having us. Well, guys, we told you this was going to be an episode that was bullish Eith, and I think we delivered. We even got a hockey stick analogy in there for the Canadians that list.

to bank lists. This has been a lot of fun. Some action items for you. A few things to check out. The Ether Capital Newsletter and Ether Capital Podcasts are really fantastic. Ether Capital is putting some resources into making really good 101-202-level content. Good to share with your family. They're financially minded.

Maybe they're crypto-novices. They don't want to hear terms like sharding in EIP 1559. These podcasts and this newsletter, letter breaks it down. We will include a link in the show notes so you can access them. Also, we'll include a link to Stefan's amazing article, Ether, The Birth of the Digital Bond, that was publishing bankless back in the summer. I think we'll also include a link to the Ether Capital Shelf Prospectus. It's, you know, if you've never looked at a publicly traded document, there's a lot of kind of regulatory verbiage in there, but it also makes a really compelling case for Ether as

and assets. So that is just of interest, I think, to anyone who is looking in this space. Good, good, definitely some good material in that document. And don't forget, you guys, we are trying to get the bankless gospel in as many years as possible. And the way that we do that is by climbing up the ranks of iTunes, finance, and investing podcasts. If you want to help grow bankless, if you want to help grow Ethereum, And if you want to get as many people on board the ark as possible, please give us those five-star reviews wherever you listen to podcasts. We appreciate it.

As always, risks and disclaimers, ETH is risky. So is crypto. So is D-Fi. You could lose what you put in. But we're headed west. This is the frontier. It's not for everyone. But we're glad you're with us on the bankless journey.

Thanks a lot.