Bankless - SotN #36: DeFi Crypto Index For Financial Advisors | Bitwise CIO Matt Hougan

Episode Date: March 3, 2021

Matt Hougan, CIO of Bitwise, joins Bankless for this week's State of the Nation! Founded in 2017, Bitwise Asset Management pioneered the first cryptocurrency index fund and provides rules-based exposure to the cryptoasset space. Learn about Bitwise's newest product, their DeFi Crypto Index Fund. ------ 🚀 SUBSCRIBE TO NEWSLETTER: https://newsletter.banklesshq.com/  🎙️ SUBSCRIBE TO PODCAST: http://podcast.banklesshq.com/  ------ GO BANKLESS WITH THESE SPONSOR TOOLS: ⭐️ AAVE - BORROW OR LEND YOUR ASSETS https://bankless.cc/aave  🚀 GEMINI - MOST TRUSTED EXCHANGE AND ONRAMP https://bankless.cc/go-gemini  💳 MONOLITH - GET THE HOLY GRAIL OF BANKLESS VISA CARDS https://bankless.cc/monolith  📈 KWENTA - DERIVATIVES TRADING WITH INFINITE LIQUIDITY https://bankless.cc/kwenta​  ------ SotN #36: Bitwise DeFi Crypto Index | CIO Matt Hougan Bitwise is connecting DeFi assets to the world of ‘big money.’ Matt Hougan is CIO (Chief Investment Officer) of Bitwise, and before moving into the crypto space, he pioneered the ETF investment vehicles in the world of traditional finance. Matt, with his dog by his side, posits that there are three ‘buckets’ of wealth in America where capital is pooled. The first is ‘Self-Directed Retail Investors,’ who has bootstrapped crypto from the ground up. The second is ‘Institutional Investors,’ including Venture Capital Firms, Endowments, Foundations, and other large funds. The third – and most neglected – is capital under the ‘Financial Advisor’ umbrella. This is where the 1%-er money is, and this bucket is just now gaining access to the crypto space. The Financial Advisor bucket holds $30-$40 Trillion in assets, and the minds in this space are changing as crypto is increasingly legitimized through improving infrastructure and the strong recovery from the 2017 cycle. Building efficient vehicles to bridge this wealth into crypto is critical for large-scale adoption. This is where Bitwise comes in. Bitwise manages around $1 Billion in assets and created the first Crypto Index Fund, offering a variety of products to retail investors, accredited investors, and financial advisors. Most recently, Bitwise launched its DeFi Crypto Index Fund, exposing financial advisors to the world of DeFi. Analogues to Legacy Finance like Price-to-Earnings Ratios and Cash Flows make DeFi compelling and understandable, but DeFi is showing itself to be “cheaper, more efficient, more open, more transparent, [and] more verifiable.” ------ RELEVANT LINKS: Matt on Twitter: https://twitter.com/Matt_Hougan?s=20  Bitwise: https://www.bitwiseinvestments.com/  Matt's CFA Report on Cryptoassets: https://www.cfainstitute.org/-/media/documents/article/rf-brief/rfbr-cryptoassets.ashx  Makerburn https://makerburn.com/#/  ------ 📣REGISTER FOR COINDESK CONSENSUS 2021 AND SAVE $20 W/ BANKLESS http://bankless.cc/consensus2021  ------ CATCH UP ON BANKLESS: 🗞️ Weekly Rollup (2/26): https://shows.banklesshq.com/p/-rollup-big-dip-nft-culture-coinbase  🧢 Weekly Action Recap (2/28): https://newsletter.banklesshq.com/p/weekly-action-recap-f41  📈 Market Monday (3/1): https://newsletter.banklesshq.com/  🎙️ Podcast with Mark Cuban (3/1): https://shows.banklesshq.com/p/-why-defi-is-the-future-mark-cuban  🐦 Follow Bankless on Twitter: https://twitter.com/BanklessHQ  ----- 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 I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here: https://newsletter.banklesshq.com/p/bankless-disclosures 

All right, bankless nation. Welcome to another episode of State of the Nation. This is our opportunity to talk about what is happening lately in crypto related to some the big picture stuff we talk about on the podcast and in the newsletter and drop some insights and action items. I am super excited about the guest we have today. He is the CIA chief investment officer of Bitwise. Matt Hogan.

We're going to get into how defy is going mainstream. with traditional investors. But first we're going to give you a bit of intro information. David, how are you doing today? Absolutely fantastic. Well, the markets are doing one thing. The crypto world, and specifically defy, is continuing to march forward unhindered.

And I'm super excited just to get into the conversation about how Bitwise is connecting defy and defy assets to the world of what I consider big money, which I like. Yeah, absolutely. This is going to be an exciting. conversation because Matt really comes from that world and he he basically helped to mainstream ETFs at the very beginning of ETFs. Now, crypto is sort of entering its, it's close to mainstream moment. There's a big educational campaign with traditional investors. We're going to get to all

of that and introduce Matt in a moment. But first, let's talk about what is new in the nation. David, we're getting ready to celebrate our one year anniversary. In fact, the podcast is now officially as of today one year old and we're going to be I know dude I can't believe it well this was all your idea so for the good and bad guys David was the person who convinced me to do a podcast and I was like I don't know what are we going to say well we have enough episodes well here we are is there going to be enough content yeah that's what I said here we are 150 plus episodes later just just back from mark Cuban on the podcast in their first year. Pretty exciting.

Anyway, we're going to be doing a one-year anniversary episode. David, do you want to tease that? Yeah, yeah. So it's going to be kind of a bankless episode zero reprise where we go in and introduce like what is the, what does it mean to go bankless, right? And we talked about in our second episode, which actually we labeled number one, it was like all about crypto monetary policy. It's just going to be, I think, a synthesis of a lot of our introductory content.

But now that we are a year older, a year wiser, which, I mean, for the crypto space, that's 10% of all of crypto history. And it's 25% of all of Ethereum's history. So there's a lot that we've learned in the last year. And so we want to kind of a little bit redo some of our initial content, but do it, I think, with more precision and more information and better perspectives. And I think that's going to be a really valuable takeaway. Yeah. So this is going to be on the podcast stream next Monday. And what we're really trying to do is have a canonical episode.

when someone goes and asks you, okay, what is Defi? What is this crypto thing? You can send them to this one episode that spells it out. We're trying to fit like six or seven episodes into one, so we'll see how this goes. But you let us know if we're successful. We're going to test our skills that we've developed. We're one year vets now. So I think we can do this. David, we've also got some awesome content coming out on YouTube. I know you're doing some Meet the Nation videos with all of these different crypto projects, some digital arts. stuff. Any teasers there? Yeah, we're doing something with Connects, and I specifically have questions about how Connects is going to help bridge liquidity across L2 roll-ups. I know that that is a huge conversation, so we're recording that this week. I also have a meet the nation with B Protocol, for those that are interested in that. I'm going to learn all about that. But something I'm recording

today with my good friend Kitty, who people on the, our ETH Finance Reddit, will be all too familiar with. I showed him, I know he's a digital artist. So a 3D digital render artist. He's not a cat. He's not a cat. And I showed him a picture of something that Beeple put out on Twitter. And I was like, wow, this is really cool. And he was like, no, no, no, dude, this is like really simple, like just slap some

stuff together. Digital artists would know how to identify that. But typical people, like more people that are just trying to get into the world of digital art might not be able to know some of these things. So Kitty and I are going to go through some of the digital art NFTs that are out there and he's going to evaluate them, them. And he's going to, I think, use his thought process and his mental, like, knowledge about digital art to kind of explain to us how he evaluates digital art. And I think that's going to be useful for people that are getting into the world of digital art and NFTs.

Yeah, for sure. Also, some stuff coming up. David, the Yang speaks episode is coming up this Thursday. So I, Yang speaks, so this is Andrew Yang's podcast. They invited me on for a podcast episode. That's for like an intro to crypto. that releases this Thursday. I'm super excited about this. And I think this kind of will help open the door to some traditional channels we haven't previously. Like folks are interested in crypto. So

subscribe to Yang. Yang speaks. If you don't listen to that podcast, stay tuned for that. And I hope I did the crypto and bankless movement some justice on that episode. I was a little bit nervous. I got to confess going in. This is Andrew Yang. But that comes out this Thursday. The last thing is David, the consensus conference is coming. I believe that is May 24th. So that is a fantastic crypto conference. This year, of course, it is virtual. But Ray Dalio is speaking there. And David, I heard that you are speaking there as well. Do you know what your subject is? Yeah, even bigger than Ray Dalio, right? I'm still chewing on my subject matter, but I'm something I've really been fascinated about is the job opportunity, the labor monetization opportunity surface area that

Ethereum creates. And I think that really fits in well with CoinDest, which is not an Ethereum centric company, right? They are just crypto. They are whatever, like all the blockchains are going to be there. Remember, even though we kind of say it on bank lists, it's just Bitcoin and Ethereum, on CoinDes, everyone's going to be there. And so I think it's a worthwhile conversation to talk about the job surface area that crypto is creating specifically Ethereum. And like there's conversations with NFTs, with defy treasuries. There's so much potential for Ethereum to pay people's paychecks, right, and help them live in this world. And I think that's a really valuable conversation, especially when the greater societal conversations are of wealth

inequality, gargantuan Silicon Valley monopolies. I think that is an interesting conversation. I think that's a good topic to talk about at CoinDesk. Absolutely. Do not miss a crypto conference during the Bull Run. There are a lot of fun. So go check this out. We have a link in the show notes. You can get $20 off with the bankless code. That's bankless as the code. There will be a link in the show notes here shortly if there's not already. David, all right.

Before we get in, what is the state of the nation today, my friend? Yeah, the state of the nation is recovering, right? We had our first, I feel like we had our first major pullback in crypto prices. To me, it was like every individual crypto person has their own, like, pain threshold. I was on the verge of mine, but we didn't actually go there. I was making the joke about how, like, ether price can't actually go below 1,300. It doesn't actually, there's nothing that actually exists down there.

And that was right. That was right at the bottom. If that actually holds, then that would be pretty cool. But like I said at the beginning, like Defy Innovation, developers, protocols are continuing to build while the prices are doing their thing. So this week on the state of the nation, we are recovering. Pullback, 35% or so pullback, pretty normal for the blog. run. It still feels very much like we are in a bull run. All right, David, before we get to our

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We want to introduce you to our guest, Matt Hogan. He's the chief investment officer at Bitwise. He spent 15 years in ETFs when they were first invented. So he knows that space very well. He saw it emerge. And now he is seeing the emergence of crypto as an asset class for traditional investors. And that is the subject of today's conversation. We're going to talk about how crypto is going mainstream with traditional investors,

how defy is now going mainstream with traditional investors. and how they understand it. Matt, really excited about this conversation because I think there's so much the crypto world just doesn't understand about traditional investing. You are here to help us out with that. How are you doing today, sir? I'm doing well. Thanks for having me on. Happy to be that bridge for you. Very good. That's what we need. We need bridges because for a lot of folks tuning into bankless, they don't really understand how the traditional finance world works. I guess I want to start with this question, Matt, is when we think about traditional finance in general, where's the money? So like, who holds the capital? Where is it parked? I think we have this general sense that if you look at dispersion across generations,

of course, baby boomers have far and away the bulk. Millennials still trying to buy their first house in general. So we understand that generational dispersion. But how would you split out where the wealth is and where the capital, the investing capital is today. And maybe focus on the U.S. first. Yeah, sure. It's an amazing question, actually. It's one that most of crypto misses for reasons that aren't clear to me. The way I think about wealth in America is that there are three buckets. So there's self-directed retail investors, which crypto knows very well, right? That is the group that built crypto from the ground up, the early adopters. There's institutions that people talk about as this sort of pantheon of the capital gods, right? Endowments, foundation. The institutions are coming. That's right. We've been hearing that forever. And they control a lot of capital.

And crypto has been serving that market for a long time as well. You mentioned institutions are coming. We have major venture capital firms that have marketing to that group forever. The piece of the American capital distribution pie that people miss is that the fat center is financial advisors who control the wealth of most Americans. So if you think about how big these three things are, are self-directed retail investors really small. You're talking like 10 to 20% of all wealth in the U.S. Institutions pretty big, 40% of the wealth. The other 40% is controlled by these wealth advisors.

Like we laugh at names like Morgan Stanley or RIAs, but we all know that wealth in America is mostly concentrated amongst a relative few. All of that relative few have their money with financial advisors. So it's this huge segment in the market that in crypto, no one has really marketed to. and is just starting to come into the market right now. So, yeah, that's the area that Bitwise focuses on. And it's an area that I think is going to be critical to the growth of crypto. It was the reason ETF submerged. Those were the first adopters.

And I think you're going to see that. You're starting to see that in crypto as well. So, Matt, my parents have a family friend that works at Edward Jones. And he was my old baseball coach when I was in Little League. And he manages my parents' money. Is that who we're talking about? Is that the cohort that we're talking about? That's definitely a big piece of the cohort is your baseball coach.

That's an example. They're also independent RIAs. So they're really two groups. They're big groups like Graham and James or Morgan Stanley and then they're independent people with their own shingle. But that's exactly it. And they tell your parents where to invest and they set the capital allocation. And they control, again, something like, you know, $20, $40 trillion of wealth in America.

I mean, just a huge amount of. Wow. Yeah. Wow. Okay. So we want to dig in more to make sure. we understand it because, because again, we're talking to crypto people who are in sort of that retail bucket primarily and they may not know all these terms. You laid out the term RIA,

which stands for registered investment advisor. Can you talk about what an RIA is? Is that the same thing as a CFA or is CFA sort of a subtype? Break down some of these financial acronyms for us. Yeah. So CFA is chartered financial analyst. This is an independent designation. You can think of a graduate school for quant finance, right? You go there and you take tests and you study for a billion hours and you suffer for three years and then you get this designation. An interesting fact, the average salary of a CFA higher than the average salary of an MBA. So it's actually a good approach to take much more cost-effective way if you're looking for graduate education. Those people can, CFA is operate in all parts of the financial ecosystem. You'll find them in banks,

you'll find them at regulators, you're finding them at RAs. The way, the way. The way of them, wealth management market, they're really two kinds. They're people who are affiliated with large broker dealers like Morgan Stanley, where Morgan Stanley direct some control over what they choose. And then there are RIAs, which are typically independent people. For instance, if I opened a shop to manage money for my friends and I didn't have Morgan Stanley sitting on top of me, I would be an independent RIA. And typically the way adoption moves is those people are the first, right? They're the first to adopt new things. They've typically left firms like Morgan Stanley because they're more experimental because they want exposure to things like crypto, like art, like real estate, like

alternative lending platforms. And that's really the early adopter market. But that's the group. CFA's just a designation that means you've studied a lot of math. RAAs mean you have to manage money for people in a fiduciary manner. And then Roker dealers, which have have lower fiduciaries. standards, but still try to do the best for their clients. That's, that's more or less the breakdown. Okay. And to be someone like David mentioned, Edward Jones, for his parents, what designation is required? Yeah, you have to typically go through some sort of training. There's certain SEC level designations that you have to get, but they're relatively low. I think the important thing to realize there are people in that market who are extremely sophisticated and know a lot about portfolio

management. And then there are people in that market who are primarily a relationship people, right? They are my kids soccer coach or they are a retired school teacher who have relationships in the community who basically use other people as portfolios to allocate. So the barrier to be a financial advisor is relatively low and the dispersion of quality and experience is relatively wide. But it is a huge market. There are 300,000 of these people in the U.S. Again, they control something like 30 or 40 trillion dollars of wealth. And that's just, that's a lot. That's as much as the largest endowments in the world. Yeah, that's massive. Now, in general, across these categories, obviously we understand what retail represents, you know, generally not people who are accredited

investors, right? But in these other two categories, we've got institutions and financial advisors. Is it the case that the institutional money skews more high net worth individuals, whereas the financial advisor category is more middle America, upper middle America. Is that generally the case unaccredited investors? It's close. Yeah, the way I think of institutions is like the Stanford endowment or the Harvard endowment or the Yale endowment or the pension funds that run like, you know, the teacher union money or the firefighter union money. Those are really true institutions. And what's distinct about them is there's typically a board that makes decisions about how they invest. And that board tends to be relatively sophisticated. RIAs and financial advisors serve a wide spectrum of

people. So they're RAs who have average clients who have $50,000 or $100,000 to invest. And there are As who dress themselves up with fancy names like family offices or multifamily offices that sound fancy and allow them to charter more, which managed clients who have $50 million, $100 million in wealth. So anywhere between, you know, like $100,000,000. to a couple hundred million dollars, you typically have some of this financial advisor action taking place and controlling where the portfolio is out. It's a big space. So I want to get to bitwise in a second because I think that's helpful to understand it. But give us the real high level here. So in this financial advisor class,

which represents $40 trillion in capital in the U.S., what do they think about crypto right now, just a high level? Because we're going to spend some time camping on this, a little bit later. But just give us the broad strokes. It's 2021. Do they think crypto is a scam? Are they able to buy crypto? What do they think of it? Yeah. I think it's 2016 in crypto for them. So there is a there is a small sliver of them. It's not zero at all. I mean, these are bitwise as clients who are a billion dollar asset managers. So they're a number, maybe 5%, maybe 6%, maybe 10%, who are already allocating the crypto for some clients. There's a very small fraction who's very excited and thinks it belongs in every portfolio. And then there's a huge swath who is distrustful and uncertain.

I will say, however, that it is trained dramatically in the last year. And we can get it to the reasons why it has changed. But a year ago, the vast majority of people I talk to were simply dismissive of crypto. They thought it was rat poison squared or harvested baby brains or choose your favorite epithet. People have a different view now, right? Particularly because they saw it run up in 2017, pullback, and then recover, which is really a unique characteristic. That recovery has brought a lot of people into the market. The infrastructure has improved. So you're starting to see rapidly spiraling adoption. I'll throw one stat in just to give you a view. We do a survey of financial advisors. We have about a thousand people fill it out each year. Now, this is self-selected,

so don't take these numbers in isolation. But last year, 6% said they were allocating this year 9%. So it was up 50%. Last year, 7% said they planned to allocate. This year, 17% said they plan to allocate in the year ahead. So it's more than doubled in terms of adoption. And I think, particularly if we get an ETF or other easier ways to access, I think this can become the single fastest growing area of money moving into crypto in the U.S., much bigger and faster than even the institutional side. When we talk about numbers like 9% and 17%, what? while they doubled from last year, we can see this is just a tiny part of the pie. There's so much growth potential there. We do want to get back to that because I think that's a bulk of the

story of what these financial advisors, how they think about crypto and how that's evolving and what's going to change for them moving forward. But before we do, I don't want to spend too long before we actually talk about what Bitwise is because I think that's important context for understanding. You've alluded to this that Bitwise was sort of constructive. in some ways to help these financial advisors to help unlock that 40 trillion in capital. But what is Bitwise and what are some of your core products? Yeah, that's exactly right. Bitwise is a specialist crypto asset manager. We manage about a billion dollars. We're best known for having created the first crypto index fund in the world. So it holds the 10 largest crypto assets, mostly Bitcoin

and Ethereum, but also chain link down to Uniswap, Ave even is in there. The 10 largest crypto assets and it makes it easy for people to make a bet on allocating to crypto without deciding which particular asset they want to hold. So yeah, there's our website. You can see $805 million in this product that's up significantly over the last six months. If you scroll down, you can see the returns and the portfolio allocation there, Bitcoin Ethereum, Lightcoin, Chain link, Bitcoin Cash, etc. We've run this index in a very institutional manner. So for instance, the former head of indexing for S&P, he used to sit on the S&P 500 Index Committee, advises our index. But what's unique about Bitwise is we try to combine traditional finance experience

with crypto expertise. So alongside the former head of indexing for S&P and a member of the S&P 500 Index Committee, Spencer Bogart from Blockchain Capital also sits on the Index Committee. Actually, I hired Spencer. I gave him his first job back in my ETF days. He used to work for me. so I've known them for a long time. But we try throughout to marry crypto expertise, traditional finance expertise.

People at our company come from companies like Google, Facebook, Instagram, from software backgrounds, but also BlackRock, Deutsche Bank, Goldman Sachs, et cetera. So we marry those two together. And then mostly what we do is we educate people on why crypto isn't insane. And we do that around the world. We talk to them about what it really is, what it really isn't, why their opportunities, why their risks. And just today, I was talking to a group of financial advisors for an hour, an ETF-focused podcast

earlier, the CFA Society of Slovakia. There's huge interest in crypto. And we try to sort of bring that to them and then provide simple products that let people invest. So, Matt, I want to ask about your guys' relationships with your customers. I would imagine that customers who are interested in exploring the crypto space, probably an index might come into their mind first because they're like, well, there's a lot here. Maybe I'll just go the simple route and get the index, right? But I'm assuming that they're still going to have questions, right?

So what's the relationship between you and your guys as customers? How much handholding do you guys do? How much questions do you guys? How many questions do you guys answer? What's that process like? So much handholding. I know this sounds strange for the crypto world. But we have a full traditional sales and distribution team with six people.

in six different categories or six different parts of the country who do thousands of meetings with financial advisors every month. Before COVID, I used to joke that like the future of the crypto industry was being built in Morton's stakeholders because we would travel around the country and have 10 financial advisors. And the questions you would get, they really start from the beginning. How can this thing have any value if it doesn't have any cash flow? Is the government just going to shut it all down? Isn't China controlling crypto? We still answer those. The real interesting thing is the questions have started to get a lot better. They've started to get a lot better. And people have started to move beyond Bitcoin, which was the only thing they knew,

down chain into ETH, into DFI, and further on. And that's really happened in the last year. The sort of existential questions that dominated 2018 and 2019, which were anchored on this idea that crypto was just going to go away. Those have evaporated in the last six months. And now it really is, how big is this opportunity? What are the risks? And what should we monitor to see if this is succeeding or not in the future? Yeah, let's go further down that hole. One of the biggest things that I enjoy about this particular bull cycle, if we're calling this a bull cycle, which I think we will, is that, you know, in 2017, people will say, like, you know, don't invest more than you can lose because it could all go to zero. No one is saying that it can go to zero in this

in this cycle. Like no one believes that anymore. And earlier in when you were talking about how the recovery aspect is the uniquely compelling aspect about Bitcoin, the fact that it did go from $20,000 in 2017 down to $3,000 and then it came back, right? And so you alluded to some shifting sentiment in people's questions. So let's go into that a little bit more. Like what, in addition to Bitcoin as hard money and perhaps the money printer go Burmian, first, first, first question is that is that part of the conversation? And then also what else is part of the conversation, especially when it comes to defy? Yeah. So that definitely rising concern about inflationary outlooks and the ability that a search for an efficient head is part of the conversation.

A fundamental understanding of crypto as a technological breakthrough built on decades of computer science work is becoming an important part of the consideration, right? There's still a lot of people out there that think some guy created a spreadsheet like a Google Doc online and keeps track of things and now it's worth half a trillion dollars. People are starting to step through that and understand the fundamentals of blockchain and what they are. Defi is really unique because it took years and lots of meanings to get past these sort of existential core questions about what Bitcoin is and people still really wrestle with it. How can you have this thing that's so volatile that's a store of value. I don't think they're that complex questions. It seems obvious to

me a new store value can't emerge and be fully formed and not volatile. It has to go through, but people still wrestle with that. But the thing about defy is people get it instantly. So the idea that the traditional banking system needs to be disrupted by finance is something that takes exactly that long to explain. Once you say that, once you say a lot of what happens on Wall Street is just if-then statements that can be replaced by software. People are like, aha. And the investment and the speed at which people have invested in our Defi Index Fund swamps what happened in our index fund, even though it's a tiny slipper of the market. I mean, I've never seen something where it's so instantaneous. Does Wall Street need to be disrupted?

Yes. How do I invest? It just is obvious to people. So it's been a really fascinating phenomenon. So when people ask about defy, how granular do their questions get? Like, do, because there's some aspect of cash flow with these defy tokens, which I would imagine investors can resonate with. But like, I can imagine if the further and further you go down this rabbit hole, eventually you're going to have to talk about this thing called Uniswap, which has this unicorn branding thing. And it was made by this guy with, you know, a $10,000 grant.

And then if you go even further, you ask, you have to talk about sushi swap, which is based off of sushi. Like, how do these conversations play out? Yeah, you know, it's fascinating that you ask those questions. I don't think the unicorn brand definitely helps. But I use Uniswap all the time. It's really easy to talk about Uniswap replacing some combination of the New York Stock Exchange and firms like Jane Street, right, these institutional market makers that make huge amounts of money managing tiny spreads in the space. So I can talk about Uniswap. The thing that makes, it lets you get over the unicorn hurdle, if you want to phrase it that way, is it did $37 billion in training volume. And it's generating huge amounts of fees. And you could talk about

how the token is pre-revenue, just like traditional technology stocks were pre-revenue, but went on to be multi-billion dollar behemus. You can look at Coinbase in the valuation that it's getting. And even though it has a unicorn and was founded by a guy who didn't have any money and barely snuck by and there's the beautiful blog. on Uniswap of this phenomenal sort of classic entrepreneurial. It doesn't matter. 37 billion dollars in volume, pocketstick growth, massive fees.

People get it. And you don't have to get to flash loans and synthetics and like how does urine finance work. People just accept that there can be a software-driven analog of everything that exists in traditional finance and probably 80% of it can be disrupted. And you just need to give them one or two examples and they're in. This is amazing hearing,

you say this, Matt. I saw this tweet from Hunter Horsley, who's your CEO, and I retweeted this out, but it's so important, this kind of underlines it. He said, I've been surprised to notice that in many ways, defy makes more sense to many mainstream investors than Bitcoin does. Bitcoin is digital gold, sure, but most don't like real gold either. Defi, which can be used and has free cash flow, or fee cash flow, much easier for many to wrap their heads around. That sounds like he's summarizing it too. So it's exactly what you said. It sounds like the narrative of financial advisors know that traditional finance is broken,

that there are all of these rent-seeking intermediaries that it needs to be disrupted. So that's already a mental model that they understand. They understand how to do discounted cash flows, right? because that's how you value a stock, so they understand the nature of capital assets. And the Hayden Adams Uniswap story doesn't sound so crazy to them because they live through an era of Mark Zuckerberg and Facebook who created this weird thing from his college dorm room. And they know that weird tech things can get really big really quickly. And now they're seeing actual volume and they're seeing cash flow as a result of it.

So who the hell cares if it has a unicorn? I'm in. Is that kind of how it goes? That's exactly how it goes. That's exactly how it goes. And the tech piece is so important. They have seen it multiple times. It's not just Zuckerberg.

It's slack. I mean, there are a million examples. We've seen it over and over again. And some of them are goofy. Like Airbnb had the whole Cheerios thing and people sleeping on their seats. I mean, we've seen these goofy stories. And yeah, it is just so visceral. And the market is so large.

And it's so easy to see how it translates into the broader economy. the people from my industry, the ETF industry, had mixed reactions when I moved into crypto, but they have all come rushing to this defy index concept. I mean, it's incredible to me. It really is so resonant. We do want to get to ETFs in a minute because I think there's some interesting parallels that you can help pay. But I also want to underline this point for them. So at bankless, we tend to categorize crypto assets into three asset superclasses. Chris Berninski does this really well, right? And so one is a commodity.

What's a commodity? That's something like wheat, for instance, or oil. Those are commodities, right? Supply and demand driven as far as valuation goes. And then we also have the store of value assets that are monetary premium type assets. So Bitcoin is an example of that. We would certainly argue that ether also exhibits store of value qualities. And then we've got this whole other category, which is everything that traditional investors

typically buy. These are stocks and bond. These are capital assets. So that's the third asset superclass. And defy assets, tokens, when they throw off cash from fees, essentially, they occupy this capital asset space. So free like cash flows, for example, that's how you value them. How important is that piece of the discussion? Because the comment that Hunter just made, and I think you're echoing it, is traditional financial advisors, they're kind of bearish on gold.

too. I mean, like, they've made all of their, their clients money through capital assets, through stocks and bonds during other market cycles. They haven't made their clients money through gold traditionally. So can you talk about defy tokens as a capital asset and how important that is to the narrative here? No, it's exactly right. I mean, there is a small sliver of the world that loves gold. And some small sliver of the world that loves gold also loves crypto for its gold-like characteristics. But this idea of crypto is capital assets, this idea of crypto is doing things that you can see and that you can participate in is huge for two reasons. One, it's very visceral. I can explain it to my wife and she's like, oh, that makes sense. I see where that will go. And two,

it has cash flows. It doesn't actually matter that much what the price to sales ratio. You know, we can all track that on token terminal. It's fun to watch. And it can look quite attractive versus their growth. But what matters is that it's early stage and it's hockey sticking up to the right. I mean, one thing I think people do understand about crypto is this is like early stage open architecture venture capital investing. These are new experimental protocols, ideas, companies, entities, DAPs, whatever you want to call them. They're showing significant traction. And just like early stage venture capital rounds can look like they're overvalued. You're paying what for a company doing what revenue? As long as they're showing product market

it fit generating cash flow and you can see it go up into the right. They can make strong senses and investment. So I think people are able to put them into a traditional financial framework and attach valuation assets. The other side, digital gold, look, there are a bunch of valuation characteristics or protocols. There's stock to flow. There's there's MPV. There's lots. They're all terrible, is my view, in the Bitcoin space. Bitcoin is really hard to value aside from like total addressable market. We wrote that in our CFA guide to crypto. I think they're all pretty terrible. I admire people for trying, but they're pretty terrible. This other one on when you look at discounted cash phone, you can look at, it's much easier to fit in the traditional

allocation framework. And that makes it much more easy for people to get and want to get exposure to. Matt, there's one part of defy and we'll crypto at large, but specifically with these defy assets that I think is uniquely compelling. And I want to ask if this is a conversation that you guys have with your customers, which is the inherently verifiability and auditability of these capital assets, right? Like, we know exactly how much volume went through Unoswap over the last month, week, day, one hour period, three years ago, like, as granular as you want to get. And like, one of my favorite websites is makerburn.com, which literally just shows where all the revenue is coming in real time. And this is something that's uniquely different from quarterly reports, which not only

are they once every quarter, but they're also slightly subjective, right? Like, can we put like this balance, this asset into this column or like where do we put this? Can we kind of tweak this to make ourselves look better? There's an inherent difference between these two worlds. Does this conversation come up with you guys and your customers? It comes up in a major way and it's such a major proof point that this whole thing is real. Look, before this, before those sorts of statistics, we were living on air. You could see market cap. You could see volume. You couldn't really trust the volume. We had a few examples of how significant companies in this space where you could see finance burning B&B and proxy out their revenue. We just got the Coinbase S1 and people dug into it.

But you can see all of this in real time. You can see it, as you said, over the last 24 hours. And the important thing about that is that the most difficult step to take with traditional financial investors is to get them to go from zero to one on crypto, to get them to go from like, this is a ridiculous tulip bubble that's going to burst and end in nothing. To O, there might be something here. Once you do that, one to 100 is super easy. And the fact that you can point to these revenues and trading volume and loans and derivatives that are being created and insurance pools that are up and operating. And you can show them that in real time. Makes it impossible or not impossible, very difficult for them not to go from zero to one. It's just this irrefutable proof point that you

can point them to. And it's a beautiful thing. Guys, this is super exciting, and we've got plenty more to talk about with Matt. In particular, we want to dig into the new Defy Index product that they launched and talk about what that's composed of as we explore this conversation further. But before we do that, we want to tell you about the fantastic sponsors who made this episode possible. AVE is a borrowing and lending protocol on Ethereum and just recently released Avey Version 2, which has a ton of cool new features that makes using AVE even more powerful. With AVE, you can leverage the full power of defy money Legos,

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market. Open a free account in less than three minutes at jemini.com slash go bankless. Get $15 in Bitcoin after you trade your first $100. That's jemini.com slash go bankless. Guys, we are back here with Matt Hogan. We are exploring bitwise and how crypto and defy is, is bridging really to the mainstream traditional investor market. Now, Matt, before we cut for break, we promised that we would talk about this. I was super excited to hear you guys announce this. So of course, bitwise, as we talked about, has all of these different crypto index funds. But this is your first defy-specific crypto index fund, which once again is now available to traditional financial advisors. Can we talk a little bit about this? So first of all,

maybe you can guide us through when did you have the idea to create a defy crypto index fund And what were the seeds of that idea and how did this product come to be? Sure. It's always been our intent to move down from the broad-based index fund to sector funds, right? In some ways, we're not reinventing the wheel. This is something traditional asset managers do. They start with a broad-based index fund, and then they have a financial fund or a technology fund. And crypto has a few interesting sectors.

Regarding DFI specifically, it was hard not to notice starting last summer, just the spectacular your growth in assets. I mean, you can look at total value locked. You can look at whatever part of the store you want. But as we started to see compounding monthly growth of 100% or more, we started talking more about defy internally. Around the turn of the year, you started to see the assets become liquid enough to support real investment. One of the issues we don't want to run into is building a fund that can't handle the kind of investment we expect. Like if we get too much money in and we can't actually purchase the asset, that's a bad thing. So around the start of the turn of the year, we started to believe this market was big

enough to support a traditional financial product. And we started working on the index, right? There were some big questions. What is a defy asset? How do you grade out security risk? How long should assets have to exist? Does Ethereum belong in a defy an index? Does chain link belong in a defy asset?

FI index. And so we went through a whole process. We pulled together an advisory panel of some of the biggest venture capital investors in the DFI space. And we started to build an index for it, really starting around the first of the year. I come from a deep indexing background, if you can believe it. I edited the journal of indexes and academic publication on index investing for a decade, literally the most boring magazine in the world. But it's come in handy in terms of trying to build a high-quality index in this space. So I love to dig into that more. All right.

Let's first talk about because listeners to bank lists are familiar with all of these defy tokens, we talk about them all the time. Let's talk about what's in the Bitwise defy index and why. Sure. So the core defining question is what is a defy asset, right? Is Ethereum in, is chain link in, and what goes below that? The way we answered that question was pretty simple. we looked at the traditional financial sector, right?

They're financial ETFs that capture all the lodgers financial names. And we asked ourselves, does this particular asset compete with a business line of a holding of a traditional financial ETF? So does it compete with the New York Stock Exchange? Does it compete with a business line of J.P. Morgan? Does it compete with a business line of a major insurer? And if the answer was yes, then it went into the index. Right.

And that's our saw. Does it compete and directly try to? disrupt a traditional financial firm. Then it goes into the index. Now, beyond that, there are a huge number of screens. So we can't just let everything into the index. We have to evaluate things. Is it likely to be labeled a security by federal security regulators? Can we custody it with our custodian or with any U.S. registered custodian? Is there actual liquidity? And so there's some big projects that haven't made it in for those reasons, sort of existential risks that maybe traditional investors aren't ready to handle, things like pancake swap, which just emerged, or even sushi,

is on the out of that, although we continue to evaluate it. But that's the core metric. Does it compete with a traditional business line of a major financial institution? If it does, let's put it in, disrupt the banks. And so that's why we actually don't find ChainLink in the Bitwise Index, right? Because ChainLink is an Oracle providing service, which is not necessarily a financial activity. Is that the analysis? Chain link was the hardest one, but that's exactly right. The analogy we made to chain link for those familiar with traditional financial services is the company it's most like is Thompson Reuters.

And Thompson Reuters is this big provider of financial information. But the interesting thing is from a traditional financial perspective, it's not actually a financials company. It's in the industrial sector. And the reason is it basically doesn't handle money. It's digits and data. And that's what ChainLink is providing. Now, we love ChainLink.

It's in our Bitwise 10 index. I think it's phenomenally interesting. It's obviously an important cog in the defy system, but it's not a pure play on defy. It does other things as well. But that was definitely an edge case, one where we relied on our advisory panel, and I'm happy where we ended up. I love this mental model because it fits the bankless mental model, right?

So like this entire movement, Matt, is about disrupting the traditional financial system. It's about having less banks and doing, and doing. more banking with less banks, right? That's what we see this entire industry, this entire D5 space moving towards. Let me just ask you a quick segue question of like, do you think the banks see this coming? I mean, are they paying attention to like un-swap volumes? Are they paying attention to what AVE is doing with loans? Do they, do they, is this even on their, you know, radar? No, no. No is the answer. They have no idea what's coming. And if they do, if they have this inkling, I mean, look, the word decentralized finance has been used in the Wall Street Journal four times in its history, four times.

And this is something where you're doing $37 billion of volume in February on unisphousal. You mentioned four times? It's unbelievable. So no, they don't see it coming. It's coming much too fast. And they face a traditional dilemma where it's going to be hard for them to compete otherwise. So, yeah, I'm totally on board. Cheaper, more efficient, more open, more transparent, more verifiable.

No, they don't know what's coming. but they're going to find out, you know, soon. Let's talk about some of the more granular details of the inclusion criteria. How long does an asset need to exist before it can be included in the Bitwise Defi Index? Yeah, pretty quickly. So we rebalance it every month. Assets have a certain seasoning period. I think it's a couple months in terms of their liquidity,

so it can't just emerge overnight and be there. There is some level of discretionary adjudication of it, such that a new asset that hasn't gone through, of a security audit that hasn't proved itself in the market probably won't qualify. Our advisory panel probably wants to see it mature a little bit longer. So you're going to see assets take a few months. Look, the one risk that we can't have happen, we can't bring in an asset and have a major hack and all the money be lost.

That would be bad. That's not the service we're trying to provide. But we do try to be pretty quick, right? So we reconstitute monthly. Assets can move in pretty quickly. But you'd expect to see them exist on the market for a handful of months. before they're really eligible to qualify. So there's definitely some sort of balancing act to go here, right?

And some of the most lucrative defy opportunities are from just really down in the weeds anonymous projects, maybe like sushi swap, right? And except sushi swap, you know, anonymous founders, right? Anonymous creators, anonymous team, or pseudo-anonymous at the very least. Yet it's also doing an insane amount of very legitimate volume. So how do you guys balance? because like if you if you ignore all of like the lower cap stuff that are that is provably legitimate then you are actually perhaps having a lesser quality defy index if you forget to include those

things yet those are also like it's weird to include an asset that was produced by an anonymous set of people like that's just not what somebody at like the traditional wealth advisor space would be able to get their head wrapped around how do you guys balance these things it's it's a great question i mean when you take sushi particularly we would love to include sushi. Right now it doesn't pass our tests for whether it may be deemed a security by federal security regulators. That doesn't mean it will be. We just think there's too much risk, given the current distribution of tokens in that ecosystem. We're not concerned about where it's come from, right? We just talked about where Uniswap came from and look at it today. It's really,

does it pass these existential hurdles? One of which is that federal securities risk, you know, sort of has it passed through the Ethereum-like process from centralization to decentralization. Another, can it be custodied with a leading custodian, right? We use Anchorage. They're very, you know, fast moving forward tech savvy. But many of those really rapidly new emerging assets, it's not going to be the single best investment in defy, right? That's absolutely true. If you can pick the new up-and-comer and get it before it gets into our index, you're going to get an exponential return. But it's still pretty early, right? You still have some relatively small. assets that are making it in. But you're pointing out a risk in any index strategy. And this,

this one definitely applies to us as well. Yeah, everything you said so far resonates sort of with what I've seen, like my parents in particular, their retirement age, they have a registered financial advisor, basically advising them. And I, you know, they know their son is really into crypto. I've been like preaching the gospel to them. But when they when they talk about crypto to their financial advisor previous to this year, it's been like, oh, you know, maybe 1% if you like to gamble. Now, this year, the tune has somewhat changed on crypto. It's like, oh, like Bitcoin, maybe some of the other things. You should have some allocation. So that's completely changed. But I'm curious, like, if their financial advisor wanted to get some exposure into defy, how would that process work with

Bitwise? Because, you know, I, I see. see this investor qualification section, that investors must be accredited investors. Obviously, like, none of these assets that we're talking about, they don't trade on the New York Stock Exchange or the NASDAQ. They're not in the, you know, Charles Schwab accounts that many of these wealth advisors are generally using. They're kind of outside in this other world. And are there accredited investor regulations around this? Like, how does a registered investment advisor get exposure to these things with BitWise. And can they do it with all of their clients or must they be accredited? Great question. Right now, well, the way they do it is they come to BitWise

and they can open up what's called a dual C account. So they have an account for your client at BitWise or for your parents at BitWise and they can see the results of that as well as your parents can. It is only available to accredited investors at this point. So only a financial advisor's accredited investors can come into the fund. We're working to make it available in the same. way that GVTC or index fund BITW is available, where you can buy it through a traditional brokerage account. The thing about those products, as you know as well as anyone, they can trade its significant premiums to their real underlying value. So there's hair on it either way. The way I think about it is there's no perfect way right now to allocate to crypto. You could buy it

on an app on your phone and your phone could be SIM hacked and you could lose your money. you could buy it through an accredited investment like Bitwise at net asset value, but it's only available to certain investors, and there's a paperwork burden that makes it a little bit of a pain. You could buy BITW or GBTC, but it trades at a potential premium. It's difficult. You're being rewarded for being early and dealing with that difficulty with the kind of returns that we've seen. Eventually, you'll be able to buy it in an ETF at the push of a button from your Charles Schwab account,

and it still may be a good investment, but some of that early return, is going to be a way. So there is no perfect way right now. Everything has its pros and cons, and advisors just have to decide what's right for them. But we'd love to speak to your parents' advisor. Yeah. Well, so like, can you talk about why it's so hard, Matt? Right. Just like, like, skinny it down for us. Like, so we know there's no such thing as a crypto ETF. We know that crypto custody is hard. You know, those two things aside. Why is it the case that it's so difficult for, you know, middle America who's not an accredited investor to get exposure to these assets through the channels they traditionally would for all other assets.

Is this a regulatory gatekeeping thing that's just kind of keeping them out through some loophole or like, what's the bottom line reason for this? Right. So the ETF specific thing is a regulatory thing that I think we'll get through on Bitcoin at least in the next, say, 12 to 24 months and other assets eventually. But what you're pointing to, like our funds and other funds aren't available through the Schwab platform, is an individual company decision perspective. And what's keeping it out is what I call the ghosts of crypto past. Look, the thing about crypto is it emerged from this anarchic world with lots of issues, right? There was Silk Road.

There was Mount Gox. There's Quadriga. Like, it was messy. There was bad arbitrage. There were all sorts. And so many people first. encountered crypto at that point, that they're anchoring on what this asset class is, is so far behind reality. If they were to approach it de novo and say, hey, this is an asset where you can

custody at Fidelity and you can trade it with Jane Street. The largest single market is the CME regulated futures market. There's federally chartered crypto banks. There's a huge well of regulation. The travel rule applies. This is a beautiful, well-regulated market. Of course, they would have no problem allocating to it, but they have these ghosts of Quadriga, Mount Gox, Silk Road, Ross Albrecht, lingering in their heads. And so not, it doesn't have to get over the 50-yard line. It has to get to like the 99-yard line of security and comfort before they're willing to allow people to invest. And the impact of that is that their customers are missing out on one of the great wealth creation opportunities of the last generation, right? Bitcoin's up 43 million

percent since it came to market. It's a 4,000 percent over the last four years. It's been the best performing asset class in nine out of the last 11 years. And these people are protecting traditional investors from accessing it. I think just for that reason, they're just anchored on a story that's no longer true. One thing I've been fascinated by is that being mindful in checking one's bias and being zen and being open to new experience. is incredibly lucrative in the crypto industry, right? And if you can't get over that hump, you actually aren't rewarded for having those like personality dispositions. It's so true. It's so true. You need to be a contrarian optimist and open to new ideas. And then you need to

size your bets appropriately, right? Because they won't all work out. Naturally. Matt, I have one question about the more of the internal constructions of the defy index. A lot of these defy assets, Avey would B1 and Ether itself. I know it's not in the Defy Index, but a lot of these assets are productive, right? You can stake Ave to the Ave protocol and get 4% of a denominated yield. And this is going to be true for many other defy tokens down the line, which means that if you have these tokens in the Bitwise Defy Index and they aren't being productive, you might be falling behind on some of that yield that you could be getting in the background. How does BitWy think about this? Did we just lose him? Oh, we did just lose him.

He's gone. He's gone. He's gone. Hey, live stream viewers. Hey, what's up? What happens? Well, we're just going to hang out and wait for Matt to come back. That was an abrupt cut.

Here he goes. Here you guys. All right. We're just making sure, Matt, we didn't offend you with David's last question there. Hey, Matt. Hey, Matt. Welcome back. My computer literally just blacked out and died.

Oh, no. A battery? I actually don't think it's a battery. I think it might. might be the end of my MacBook. So I don't know what you guys have done, but we'll see. Oh, no. Okay. Well, where did we, where did you hear me leave off? No, I, I heard you framing a question about the productivity of the assets, which is a great question and one that we thought a lot about. And one of the reasons why we went to work with Anchorage

is our custodian. For what it's worth, we use Coinbase custody for our other index. We used Fidelity for one of our, for our Bitcoin fund. We went with Anchorage in part because what you said is true, you have to do things with these assets. So you have to be able to stake them to keep track. You also probably owe it to the community to participate in governance activities and have a real view on how these protocols are developing, particularly if as we hope to be, you plan to be a significant, you know, player in the DFI space. So it's not the case that you can always participate in all of the sort of use cases of these assets in this fund, but we do work with our custodian to make sure that we're staking where it can be done safely and securely

because you have to or else you're you're going to get passed up by inflation initials. Interesting. Okay, so you're, you kind of leave it up to your custodian, which makes sense to me. They're the experts. That's kind of their job. Who does the smart contract security risk analysis? Is that you guys, or do you guys also leave that up to the custodian? I mean, I think it's parent, even in terms of the underlying assets themselves and whether they they themselves are secure. You know, we do that on one end when it comes to entering the index with the advice of the advisory council, right, who are people who are very close to many of these protocols. And then in terms on utility and staking in action and whether that's secure,

we push our custodian to do as much as possible in a secure manner and ultimately they let us know if it's possible. Matt, do you think there'll be a time where you actually like tokenize these funds themselves? So we've seen this, of course, with token sets. they're able to create these fund compilations and create an ERC 20 out of them that gives them exposure. Does Bitwise have any plans to do that? I know mainly your customer focus seems to be bringing traditional investors to crypto, right? But these crypto rails are also very powerful. Any plans in the works there?

Yeah, it's definitely on our long-term players plans. We're aware of the irony of being a crypto asset manager sort of bridging into the traditional C-Fi world. And so we would love to make our indexes the standard in the industry, which means making them available crypto platforms. Right now, I think we're dealing with so much opportunity on the traditional side that we don't have that as a top priority. But it is important to us, and we're always excited to see development activity taking place, whether that's something a simple of FTX, you know, offering synthetic exposure to our indexes or eventually a token of our own is something we'd love to do in the future. No immediate plans, but stay tuned. Yeah, this is kind of a message, I think, to the bankless nation is very much, we want as many people and as much capital as possible to jump into crypto. And to the extent that whether it's Coinbase or Gemini or whether it's Bitwise serving as that bridge, that's all all boats rise together.

And that's all net beneficial for the bankless movement. So even if it's not like pure self-custody, what you're doing is essentially getting like David's parents financial broker. for instance, or my parents, into crypto where previously they couldn't because you're never going to get a financial advisor from Edward Jones to like open up an ERC 20 on MetaMask, you know, for their clients. Like, that's just not going to happen. So if you're requiring that, pressing their leather. Sitting at their desk, reading bankless with MetaMask on their ledger, it's not going to

happen. Right. And like it's not even legally. They're not even able to do that. right? So these bridges, I guess is my general commentary that the Bitwise is providing is super important because it unlocks this whole, this very large set of capital into crypto that's only going to help our industry grow. So all of these things are very important. I have a question about kind of education, Matt, and just in general. So there's so much to do on the education front

with traditional investors. Read your report that you put together with the CFA to traditional investors. That was fantastic. It's the first time I've seen the CFA Institute put something out around this. That's amazing. I guess maybe my question is two parts. Do you see the education process sort of similar to when you started with ETFs? Like that was a whole new asset, I guess, asset type or asset category. And there's some of that in crypto. And what's what's the work that's required to educate traditional investors on this space? Maybe those, thoughts. It's such a great question. And there's so many similarities to the ETF land, which I think people don't understand. Today, people think of ETFs as sort of the mother's milk of investing,

right? They're the core of traditional financial advisor and institutional portfolios. They're thought of as a net great good. Back 15 years ago, that was not the case. The financial times called the ETF's weapons of mass destruction. People referred to them as EFTs. There were congressional hearings where they brought the ETF industry in front of Congress and grilled them about whether ETS were destroying American entrepreneurialism and ending the American dream. So it is not the case that these were always like a beloved tool of investing. Vanguard, you know, the sort of largest, one of the largest asset managers in the world, was very reluctant about ETF. Jack Bogle, who famously poo-poohed Bitcoin, said ETS were weapons of destruction for investor capital as well.

So, you know, what happened in ETS was there was a fundamental technological advance. That's all ETFs are. There are new technology that lets you gain exposure to the markets in a more efficient manner than traditional mutual funds. And a lot of people did a lot of work after recognizing that advance doing core ETF one-on-one presentations. I co-authored a report for the CFA Institute called The Guide to ETFs. I co-authored the same thing for crypto.

I mean, one of the reasons I moved into crypto, four years ago was I saw that there was this major technological advance and that there was a terrible quality of information. Crypto was the land of hyperbole. Either it was going to, you know, save the world or destroy everything. And what was needed and what still needed today is people to tell the core story over and over again. It's podcasts like this. It's publications like the CFA Institute. It's the Wall Street Journal finally tackling defy, which is going to happen at some point this year in a serious way. And it takes time. But it can happen to a bigger degree than you think. If you always think crypto is going to be on the outside, if you always think Congress is going to hate crypto,

if you always think regulars are going to be uncertain about that. That's not true. It was, they felt the same way about ETFs and now they're front and center. And I think eventually, you know, crypto is going to be boring and traditional and everyone's going to accept its place in society. And, you know, they'll be, you know, they'll be, you know, lingering for the good old days when we were a band brothers tackling, you know, the traditional finance market. But the market will be much bigger and much more robust. So it's going to happen. We've made a lot of progress and we continue on that road. Well, Matt, it makes me feel very good that we have people like you and people like you on Team Crypto. So thank you for doing everything that you were doing to help promote this industry.

I have one last question. And I think you briefly mentioned it, but I just want to address it directly. The possibility of the Bitwise DeFi Index actually becoming an ERC 20 token, on Ethereum. Is that in the playbook, in the cards, or not? Well, if people are interested in that, drop me an email, Matt at bitwiseinvestments.com. If I get enough of those emails, then it'll move up the stack rank of priorities at Bitwise. So there's one way to make that happen, and I appreciate you bringing it up. You heard them, Bankless Nation. That's what we have to do if we want this to move even more in the direction of banklessness. Matt, this has been such a pleasure. You are a true

professional. Like your computer goes down, log back in, we're doing the live stream. Like, amazing. Like, fantastic. You know, I, uh, maybe I have one last question for you too, which is what, what would you say is one thing that crypto investors need to understand about traditional investors? And then vice versa. What's one thing that traditional investors should understand about crypto and crypto investors? What's one thing that crypto investors need to understand about traditional investors. I think at the core, look, they're trying to do a good job. Financial advisors aren't out to hate on crypto. They're trying not to put their investors into an asset that historically has gone down 60, 70, 80 percent of the time, which is a lot for most investors to

stomach. And so you have to understand that they're wrestling with and looking at that volatility. They're naturally skeptical, but eventually they're going to get on board. So you just have to be a little bit patient. You know, what's one thing that the traditional investors need to understand about crypto? They just need to understand that zero to one is done, that this thing is here and it's not going away, that there's real activity in the decentralized finance space, that major institutions and corporations are using Bitcoin in lieu of gold as a store of value, that regulation is here, that this is not all used by criminals. I guess that's like seven or eight things, but There's a lot of traditional finance needs to learn about crypto.

But look, the two worlds are going to come together eventually, right? If we're talking about bankless nation disrupting traditional finance, eventually, you know, it's going to move into be more of traditional finance. It's going to get bigger. Let me think if there's one more thing. One more thing I would say regulation is not always a bad thing, right? In part, the increases in regulation that crypto was sort of reluctant about over the last five years is what's made it possible for the market to get as big as it is today. And so while regulation is a

risk, you have to evaluate each regulatory step independently. Some will be good and help guide this asset class forward and some might be overreaching. But don't look at it as a singular hole. Oh, fantastic advice toward the end there. And as we said so often on bank lists, you know, the end state for decentralized finance and defy as we drop the D and it's just finance. This is a melding of the worlds here. Well, Matt, it's been such a pleasure to have you. Thank you so much for coming on the bankless podcast. Thank you for having me.

This was great. All right, guys, some action items. We are going to put the show notes full of some fantastic reports from Bitwise, in particular the CFA Institute Research Foundation, the report that Matt co-wrote called Crypto Assets, the Guide to Bitcoin, Blockchain, and Cryptocurrency for Investment Professionals. So this is how Matt and Bitwise are educated. the investment professional space will include some links like that in the showdown action items.

Go check those things out. Of course, risk and disclaimers, crypto is risky, defy is risky, Bitcoin is risky. All of these things are risky. You could lose what you put in, but we are headed west. This is the frontier. It's not for everyone, but we're so glad you're with us on the bankless journey. Thanks a lot.