Bankless - What Are BlackRock’s Crypto Plans? | Robbie Mitchnick Head Digital Assets at Blackrock

Episode Date: September 16, 2024

That’s right, Bankless Nation, BlackRock on the podcast today. BlackRock is the world’s largest asset manager, a company that manages over $10 trillion dollars in assets around the world, to put it in perspective, that’s 5 times the crypto market cap. Let’s just say what they do has ripple effects in global markets. But here at Bankless we wanted to figure out what they’re doing in crypto. That’s why we brought Robbie Mitchnick, BlackRock’s Head of Digital Assets. We explore Crypto narratives in TradFi, how they measure the risk profile of Crypto, their plans for the future of ETFs, Tokenization and even DeFi. ------ 📣 SPOTIFY PREMIUM RSS FEED | USE CODE: SPOTIFY24  https://bankless.cc/spotify-premium  ------ BANKLESS SPONSOR TOOLS: 🐙KRAKEN | MOST-TRUSTED CRYPTO EXCHANGE https://k.xyz/bankless-pod-q2    ⁠ 🦄UNISWAP | BROWSER EXTENSION https://bankless.cc/uniswap  ⚖️ ARBITRUM | SCALING ETHEREUM ⁠https://bankless.cc/Arbitrum  🛞MANTLE | MODULAR LAYER 2 NETWORK https://bankless.cc/Mantle    🗣️TOKU | CRYPTO EMPLOYMENT  https://bankless.cc/toku   ------ ✨ Mint the episode on Zora ✨ https://zora.co/collect/zora:0x0c294913a7596b427add7dcbd6d7bbfc7338d53f/63?referrer=0x077Fe9e96Aa9b20Bd36F1C6290f54F8717C5674E  ------ TIMESTAMPS 0:00 Intro 5:36 What is BlackRock? 7:33 BlackRock’s Crypto Arc 14:42 Digital Assets Team 17:01 BlackRock Bitcoin ETF 20:33 Investor Education 22:48 Narratives 24:58 Risk Management 34:04 Regulatory Environment 38:27 The Future of ETFs 42:30 Tokenization 51:00 What Needs to be Built 54:26 The State of DeFi 57:03 BlackRock’s Crypto Mission 1:00:44 Closing & Disclaimers ------ RESOURCES Robbie https://x.com/robbiemitchnick   Blackrock https://x.com/BlackRock   ------ Not financial or tax advice. See our investment disclosures here: https://www.bankless.com/disclosures ⁠  

The properties that you can build into a system that is tokenized versus our legacy system are immense, right? When you think about liquidity, real-time, instantaneous, riskless settlement, 24-7 trading, the fact that these assets become digitally native, transparent, interoperable, that we can remove a lot of the layers of intermediaries that had to exist in the current system, right? All these things create massive opportunities for deficiency, for financial inclusion, for access, to a wider array of investments in a more efficient way. So that's what gets us excited. Welcome to bankless, where we explore the frontier of internet money and internet finance. This is Ryan Sean Adams. I'm here with David Hoffman. And we're here to help BlackRock become more bankless.

That's right, folks, BlackRock on the podcast today. The question is, are they going bankless? What are they up to in crypto? BlackRock is, as you know, the world's largest asset manager. And they've entered crypto in a pretty big way this year with both the Bitcoin ETF, which is a massive success and also the Ethereum ETF. Now, this is a company that manages over 10 trillion in assets. It's absolutely massive. So what they do has ripple effects in the broader global economy. So the question David and I posed to Robbie Mitch Nick, who is the head of digital assets at BlackRock is, what are you here to do? What are your intentions for the space? I think listeners will be maybe surprised that it was not the Bitcoin ETF that was BlackRock's

first foray into crypto. Actually, BlackRock has been interested in blockchain technology for almost a decade now, seven years, eight years, and they have just more recently accelerated what they are doing in crypto with the Black Rock digital assets team. I think that was kind of the thing that I was most interested in seeing about is like what are the ambitions of this like kind of small SEAL Team 6 digital asset team inside of Black Rock? Like they've done the ETFs. They've done one tokenized project. What are they up to next? And now that BlackRock is our friendly neighbor, we want to take the opportunity to kind of peek over the fence and see what they're doing over there. Yeah. See how friendly they are. Yeah. See how friendly they are. Because now we got to live together.

I would say one thing about this episode is they are experts at pitching to institutional investors. Right. And Robbie even had some insights into like how to better position and talk about crypto to institutions that I think listeners will want to tune in for. All right, guys, let's get right to the episode. But before we do, we want to thank the sponsors that made this possible, including our recommended place to go purchase your Bitcoin and Ether and other crypto assets. That is Cracken. If you don't have an account already, go create an account now. If you want a crypto trading experience backed by world-class security and award-winning support teams, then head over to Cracken, one of the longest standing and most secure crypto platforms in the world.

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and they know what BlackRock is. They've heard of the organization, but they may not know exactly what it does. So in your words, what is BlackRock? What do you guys do over there? Sure. Well, BlackRock is an asset management firm primarily. We manage investments for clients all over the world in a multitude of asset classes. And to our clients are, you know, many of the largest institutions in the world think pension funds, insurers, sovereign wealth funds, endowments, as well as end investors directly. And we also are a provider of financial technology, primarily through our Aladdin platform, which you can think of as an end-to-end technology solution for managing the investment process that we deliver.

for some of the largest by-side investors in the world. And how big is BlackRock in terms of scale? I mean, like one measures maybe assets under management. Is that sort of a way to describe how large BlackRock actually is? Like, what are the other metrics that come to mind? Sure. Well, we are a global company, obviously, headquartered in the U.S. in New York. But one way to think about size and scale is that we manage roughly 10 trillion for our clients around the world.

But it's important to remember that's money that we manage on behalf. of clients. Those aren't BlackRock's assets. BlackRock doesn't own those assets. Ultimately, those are managed for the benefit of our various clients. That's still big, though. I mean, your size is size. It's about five crypto worths of assets over at BlackRock. Yeah, you could look at it that way, I guess. So, Robbie, how did you guys find yourself in digital assets in crypto? Like, what's the full story? Because it seemed, I think, to a lot of folks in the crypto industry that just like suddenly BlackRock was here. And it caught us by surprise a little bit. But I'm sure internally, it's been kind of an evolution. So what's the full history here? Yeah, well, it's been a

many-year journey, even though, you know, maybe the headlines are more concentrated to the recent couple of years. I think the firm's exploration kind of began in 2016 that predates my time here. I think initially there was a view that the technology and asset class was not quite ready for prime time for our largest clients, for our usage at that point. It's our 2016 time frame. I joined in 2018. I was the first fully dedicated employee to the space. That was a very kind of wide open mandate to figure out what we could do with this exciting new technology and this new asset class. The early years, though, were focused much more on kind of blockchain innovation and applications. That was certainly where there was more comfort. So we explored all manner of use cases across kind of our financial ecosystem built. a lot of learning and know-how around the space, built some comfort as a firm, and ultimately that paved the way for some of the evolution that was to come. And that evolution into the presence that we now have, which we think of the digital asset space broadly as crypto, stable

coins and tokenization. But that evolution, really, I would say, started to accelerate in kind of a 21, 22 time frame. And there were three big things that drove that. One is that the state of infrastructure around this ecosystem started to mature meaningfully as a result of all the human and financial capital that had flown into the space, and it started to institutionalize. Second was that there was, I would say, a growing recognition from a regulatory and political perspective that this was something that was here to stay, and it was just a question of how it ought to be regulated. And third, we saw this kind of durable trend of our clients becoming increasingly interested in this space. And obviously, there was some waxing and waning

through the cycles, but the sort of long-term trajectory was up into the right in terms of that interest. And so the confluence of those factors led to us taking a series of steps that ultimately paved the way to some of the things that you see today, whether that's our Coinbase Prime Partnership into Aladdin supporting crypto, whether that's our originally Bitcoin Private Trust, followed by our Bitcoin ETF, Ibit, now our Ether, ETH. as well as some of stuff we've done in tokenization, our partnership with Circle, as well in the stable coin space.

As this happened fast, we've watched in the crypto space, we've watched interviews with people like Larry Fink, of course, who kind of tells this story, right, about tokenization and stable coins, the interest areas of Black Rock. And I think I saw one interview where he really describes his own pivot on Bitcoin,

right, where he was like, I didn't think it was a thing, and now I do. And that has been kind of like a change. I imagine that's part of the story of getting comfortable with this asset class, has that happened fast to you, or has it been, like, a gradual series of steps? And what sort of things did you really need to feel like at an institution like BlackRock in order to feel comfortable here?

Yeah, it really is a multi-year progression. It's not something that happens overnight. And some of the steps along that journey that I alluded to, I think we're critical as a firm in building that comfort with the space and the conviction. that we could provide BlackRock quality solutions for our clients in it. So, you know, there's a lot of education that happened, obviously. There were waypoints that were significant in terms of building our own capabilities. You know, you talk about the Coinbase Prime Partnership with Aladdin. That was a fundamental technology capability that we started working on in 2021. That ended up being critical to us being able to build Ibit and Ether in a way.

that was consistent with an iShare's quality standard of robustness. I think about the Bitcoin private trust, which was much smaller, obviously, than Ibit has since become, but that gave us the fundamental capabilities on the asset management side around crypto. Our partnership with Circle, which really began in 2021, building familiarity and conviction around the stablecoin space and working on innovation opportunities around that. So all these things kind of come together and they build. And in the case of Larry, obviously he also deserves a lot of credit for the way that he leaned into this space.

You know, we talk a lot at Black Rock about being students of the markets and students of technology. And Larry is really the ultimate embodiment of that. And his open-mindedness and intellectual curiosity is how, you know, he's become so insightful on the space today. I think the average listeners would probably say before listening to this interview that the first thing that Black Rock ever did in crypto was the Bitcoin ETF followed by the ETHETF. I think that's maybe just like the typical perception that people might have. And so it's perhaps new to people that BlackRock has had a digital asset team for coming up on almost a decade now and has been working in the digital asset space, maybe perhaps experimentally at first, but now in the era of 2023, 2024, like really committing

to the space and things have started to move much quicker. How would you illustrate the arc of Black Rock's like involvement with crypto? definitely accelerating now, but still looking to expand even further. It was just experimental at first, and now the rubbers really meet in the pavement. How would you characterize just like the arc of Black Rock in its relationship with crypto? Yeah, well, I think it's been an evolution to date that reflects the evolution that was happening externally in terms of where our clients were, in terms of where the state of industry, infrastructure, and development was in terms of where the state of the regulatory climate was. And so I think you're going to

continue to see us respond in kind in a fairly agile ways, as I think we've done, to those evolving dynamics. I think where we are today, you know, we're quite proud of the, you know, handful of pretty significant access solutions that we've built for clients in this space. You know, obviously there's lots of things that we continue to work on. And when the time is right, you know, you'll start to see that progression unfold. Can we get a little insight into the makeup of the Black Rock Digital Assets team? Who are you guys? What kind of skills do you have on the team? What are you guys working on? How big is it? Yeah, it was a great team. You know, obviously, we're quite proud of what we've accomplished. But the centralized digital asset team is really just one piece within the larger BlackRock

machine that you know has built all these kind of products and solutions that we've done so you think about you know ibit and ether for example that's the built in concert with our you know i shares org of course but also folks from aladdin from our technology org from our operations org from risk and you know myriad other parts of the firm that is what enables us to build it in kind of a black rock quality way same thing we think about you know what we do with circle on the cash management side or also the largest cash manager in the world, and that, you know, whole team supports that. I think about what we built with Coinbase and Aladdin, you know, a huge Aladdin engineering effort to make that possible. So Digital Assetson team itself is a very kind of interesting,

varied skill set of folks. You think of a mix, basically, of like consulting, investment banking, product strategy, investing, product management, engineering, sort of wrapped into this tightly knit centralized part of the org that has helped drive the strategy across the various parts of our business. Inside of the crypto culture, we call ourselves crypto natives. And just because it's kind of like a little test of like, are you one of us or are you not one of us? How would you illustrate the crypto-nativness of the BlackRock team? The digital assets team, it's a fairly crypto-native group, but it does have a mix of folks who, you know, spent a lot of time in crypto, maybe, you know, for some of our younger folks, nearly all of their careers in crypto, and then other

folks who had more of a traditional finance or traditional technology engineering background before they ended up in crypto or ended up on this team. So, Robbie, let's talk about the big launch this year, which is the Black Rock Bitcoin ETF. I think you called it Ibit. That happened in January, right? Was it January 11th? Okay. What were the expectations going into this launch? How did you guys think it would go? And then how did it go? Well, I think we did have reasonably high expectations for the level of client demand that would be there because we'd been having conversations with, you know, frankly, hundreds of conversations with clients over multiple years and understood the significant frustrations that existed for many in particular of our institutional and

wealth clients of not being able to have a convenient turnkey, low-cost access vehicle in this space for Bitcoin in particular. And I think that what we discovered was that demand was maybe even larger than we thought it was. I personally had some very high expectations and estimates for it. It's exceeded even those. I think it's just a reflection of, for a lot of investors at this stage, they are resoundingly choosing IBIT as kind of the preferred vehicle for Bitcoin exposure. So it went even better than you thought it would, and you thought it would go pretty well. So who's buying IBIT? Like, what's the kind of the profile of a typical investor who's investing in this. Does it skew smaller? Does it skew larger? These are institutions, I would imagine,

but what's kind of the general makeup here? Yeah, so think of our client base for Ishare's ETFs is really in three buckets. One is institutional. One is wealth advisory, and one is end investors direct. And out of those three, on day one, the only one that was really sort of had the pipe unlocked in full was end investors. And so right out of the gate, the end investor demand was massive. For institutional wealth, it's a little bit of a different journey. Just because an ETF is listed in trades doesn't mean it's necessarily accessible. So when we think about wealth, typically for a wealth advisory firm to actually allow its advisors to put their clients in a new ETF, it's often a multi-year journey to get approved on these platforms. And so many of those firms are actually expediting their

processes in response to what's been obviously very significant demand, both from their advisors, as well as their end clients. But still, we're talking about taking multiple years down to perhaps multiple quarters, right? And we've seen the first firms come online and approve that just in the last month or so, other than the RIA channel, which is a subset that moves a little faster. When we think about institutional, that's another matter entirely where there's a lot of research and education and diligence that goes into institutions making a decision to actually make a strategic or tactical allocation to Bitcoin. And so that's a journey that we're on with them. We're having lots of conversations with institutional allocators, but, you know, it's still pretty

early. I think that education piece is something that excites the industry the most. Me and Ryan have been doing our best to educate as many people as we can on the bankless podcasts and ever since we started it. But there's just so many people that we just don't reach. There's many institutional investors that simply just don't listen to bankless. There's just, we're just not the right audience for us, which is why when BlackRock comes into the space and Black Rock starts educating people, everyone in the industry gets really excited because I think everyone in crypto understands that the most bullish thing for crypto is to simply be understood by more people. Can you just illuminate a little bit more about that

educational process. How is that going? Is it hard? Is it an uphill battle? Are people interested in learning or are they just doing the bare minimum to justify their investment? Speak a little bit more about what it's like to educate your investors and clients at BlackRock. Yeah, well, I think you can imagine that there's a pretty wide breadth of where our institutional clients, where institutional investors generally are with respect to this. There were some that already had positions in it, you know, before these ETFs got approved. That typically was a very burdensome process for most institutions to get through to set up trading, custody, operational procedures, risk management, etc.

For this new asset class. But there are a few that did. And then there were a few that actually moved pretty quickly out of the gate once these ETFs were available. But there are a lot who had never really, you know, seriously dug in and considered the question of whether they would out. allocate that when these ETS launched for the first time they started to do that. But that's still, you know, in many cases a long journey. You think of, you know, most of the Tradify firms that

have become players in the space. They went on multi-year journeys to get to that point. Maybe for an institutional allocator, it's a little shorter now with all the, you know, work that's been done and infrastructure that's been created. But it is something that we're seeing obviously a lot of interest on. and I think there's frankly a lot of confusion around how to think of this from a risk and return perspective. One thing that the industry was all kind of like placing our bets on was how BlackRock and other ETF issuers were going to pitch Bitcoin and Ethereum to interested clients. Like Bitcoin is digital gold, kind of a very simple narrative. Ethereum not as easy to speak about. So how have you guys landed on the right ways to convey the significance of each.

these respective ETFs. Does the Bitcoin digital gold narrative land? And if not, what do investors like about Bitcoin? And same thing for Ethereum. Yeah, I think the digital gold narrative is a relatively simple and digestible one that tends to resonate with a lot of institutional investors as well as advisors. As you know, ETH can be a little more challenging. And so, you know, sometimes we think about kind of these two overarching narratives as global monetary alternative, which kind of rhymes with digital gold and store value, right? And bet on blockchain technology, innovation, adoption, right? And the latter, I think, is, you know, more consistent and more predominant with ETH, and the former is more predominant with Bitcoin. And I think the resonance of the two,

kind of depends on a person's for background and interest and expertise, right? If I go to, you know, the engineering part of our digital assets team or our engineering org broadly, I would say, you know, it's probably four to one, people are actually more interested, more excited about ETH. If I go to, you know, part of the firm that's more sort of portfolio management, trading, macro, etc., it's probably going to be the inverse of that, right? So, So for folks who are more sort of economics and finance versus the Bitcoin story resonates more naturally. And I think for folks who are more interested in the technology, they tend to get more

excited about EAT. Can we talk about another dimension of the pitch here, which is like risk return kind of profile in a diversified portfolio? I mean, I'm sure there's a conversation among BlackRock clients of, okay, we're bullish on this asset class, we're bullish on Bitcoin, we're bullish on ether. But like, how bullish? How should we express that? how much of it should we hold? Can you talk about kind of the risk return profile? Is there like a

black rock recommendation of if you are X, then you should have Y amount percent of your portfolio dedicated to this asset class? Sure. So you know, you talked about education and what that journey has been like. I can tell you that a significant part of the challenge that our clients, particularly our institutional clients are having, is the narrative around how to think about Bitcoin, from a risk perspective has been muddled. And I think it's actually just this amazing own goal that the industry has scored on itself. When we think about sort of crypto market commentary research type notes that exist,

you know, our view would be fundamentally Bitcoin is an uncorrelated asset. It has its own unique set of risks that are very distinct. And in some cases probably you could argue inverted, versus the risks that stocks and other so-called risk-on assets hold. But for some reason, and I have some theories as to how this happened, I don't think it was intentional. I think that sort of crypto research community has perpetuated and reinforced this narrative that Bitcoin is a risk-on asset.

Interesting. And that's been very damaging and confusing because a lot of institutional investors, they kind of see and hear the digital gold thing and they get it and they see that role in its portfolio as a result that's a little bit like gold, but it's going to be more volatile,

more risky, higher upside, higher downside. But nonetheless, something that you think about as a potential hedge against money printing, currency to basement, inflation, geopolitical disorder, political fiscal stress in the U.S., etc. But then, you know, people talk about it, but, well, Bitcoin's down because, you know, non-farm payrolls came in weak, or the ISM

manufacturing index was soft. And they go, what? And so it's fascinating because the industry has taken something that doesn't really have a fundamental basis and repeated enough times kind of blindly that it's starting to actually seep into the narrative and the trading data in a real way. And so now you have to go, is it going to be? be more driven by what fundamentally makes sense, or is it more driven by what the narrative is saying? And that's where perception can become reality. So, Robbie, are you kind of saying,

like, we've got to pick a lane here in terms, like, it's either a risk on asset or a risk off asset and sort of can't be both? Or like, what is the correct way to think about this and to talk to investors from a risk return profile about this asset class? Yeah. Well, Bitcoin is obviously a risky asset. Okay. But our view would be it is not a risk on asset, that that risk on, risk off framework that exists for traditional finance, and it has its shortcomings, obviously, as well. But it really just doesn't apply to Bitcoin. So when you try to extrapolate this idea of Bitcoin as a risky asset that makes it risk on, you know, we think that fundamentally doesn't make sense. Nonetheless, you see a lot of these crypto research outlets saying it, and to some extent, perception can become reality.

And so when you look at, you know, some of the major disruptive events the last five years, Bitcoin has generally performed very well coming out of those events, but sometimes it sells off at the start because of that reflexive programming to think of it as a, quote, risk on asset, but then people look at it and go, wait, you know, chaos. turmoil disorder, potential for money printing, government stimulus, et cetera, that actually is perhaps bullish for Bitcoin. And then you see the market reaction. If you look at the Silicon Valley Bank and regional banking crisis in March 2023, that was probably the best example of Bitcoin behaving kind of as a hedge, right? Bitcoin was up 30% in the span of a couple of weeks,

as fundamentally would make sense when there's stress in the banking system and fears over that. I think the main reason that was such a clean anecdote for it was the crypto research community didn't have time to screw it up. It happened very fast. When you say crypto research, is that us? Is that basically the crypto industry? You think we're kind of like missing the ball here? It's really weird to talk about sort of the daily market commentary type stuff.

You know, Bitcoin's off today, you know, this print, that number, whatever, you know, just reflexively linking everything back to something that must be happening in traditional markets and the economy like you would. do for stocks, right? And so it happened so fast, market moved up. I'll bet you if that was a slower breaking crisis, we might have seen headlines like, oh, you know, headwinds for Bitcoin as fears exist in the financial system could be damaging for risk on assets, right? They would sort of program that narrative in. So that's what we're seeing. So that's confusing a lot of our clients. Right. And that's part of the education journey we're on is trying to make sense of these

competing dynamics to them. So I think maybe if I'm understanding your message, for people, communicators, news outlets, market commentators in the crypto space, it would perhaps behoove us to position Bitcoin as just more of a risk off uncorrelated asset more than it has been what we've previously been doing of kind of saying it's more of just like a risk on low interest rate phenomenon type asset. Well, I think that we're more interested in the truth, but I think that when you look at it from a fundamental perspective, this is a non-sovereign, scarce, decent. centralized asset has no traditional counterparty or country-specific risk, that those properties

would suggest that it has a very distinct set of risk-and-return drivers than what's going to drive the value of equities, fixed income, and other, you know, so-called risk assets, right? So I think that just fundamentally, that is true. Now, it also happens to be massively beneficial for Bitcoin to the extent it is true. and it's understood, right? Because when you look at this from a portfolio perspective, correlation is absolutely critical, right? So you'll see that and, you know, we have some work coming out around this, but we hear it all the time from our clients, from allocators, is they say, truly, the one thing we're watching is the correlation. If that correlation is elevated,

as at times in its history it's been, it's not that interesting of an asset. It just looks like another kind of high beta tech play. If that correlation is zero, or even more so if it turns negative in certain periods of disruption in macro and in geopolitics, then that becomes really interesting to institutional allocators, right? So it's all about that correlation. All right. Well, I mean, that's why I would say echo what David was saying earlier is like, welcome to the crypto education team, to BlackRock, because you can put this in terms that I don't think the existing crypto education media like market has. And it's like, you referenced some research coming out about this. I think prior to us hitting the record button,

Robbie, you mentioned that this episode is probably going to come out on a Monday. So it's probably going to come out on the 16th. Do you guys have some research that you're going to be issuing this coming week, like about what we just talked about, kind of correlation, what Bitcoin can do inside the typical portfolio? Give us a peek into that. Sure. So we do have a piece coming out and it's aimed at really being educational for our client base, particularly our wealth advisory and institutional client base, and it's focused on exactly what you describe, which is how to think about the risk in Bitcoin, how to think about its return drivers, and what does that mean for it in a portfolio? And so I think it's going to be a piece that probably a lot of your viewers will be interested in,

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as well. Easily onboard to the extension using the Uniswop mobile wallet to begin managing your assets across platforms and take advantage of smooth, seamless synergies with the Uniswap web app. So go and download the Uniswap extension today by clicking the link in the show notes. Just another way Uniswap is helping you swap smarter. Let's talk about the ETF with respect to kind of like regulators because that has felt like to us that it's been hard to get regulators to also pivot their position on crypto. I mean, in the early 2010s, the first decade of crypto, let's call it, were thinking like crypto is like, you know, drug money, it's something nefarious, it's something in the dark web. I think that kind of narrative has held off U.S. from giving the regulators the stamp of

approval to crypto. That's why the Bitcoin ETF was a major breakthrough. I mean, like, we've been trying at that thing for an entire decade. And then to see the Ethereum ETF, like shortly after that felt like a Christmas miracle. When that happened? That happened in like springtime, but it was surprising to us, let's just say, because regulators traditionally, particularly the SEC, have been a bit more bearish on crypto, let's call it. So can you describe, do you think that the regulatory environment is kind of like softening with respect to crypto? And can you just describe the overall process of like working with regulators? Like how has that been? Yeah, I think that there is a clear trend towards greater recognition of this as a technology in an asset class that has transformative

potential in a number of positive ways and that is here to stay. If you think back, not that long ago, maybe five years ago, was the last time we saw some serious consideration being discussed about whether Bitcoin would be banned in the U.S. Right. Right. No serious. person is talking about that today. So in the span of five years, it's gone from that conversation to, you know, what are the right guardrails and regulatory regimes, et cetera, to harness the innovation from this, allow access in an effective way and manage, you know, some of the risks around it that regulators are worried about. So, you know, that feels slow for the industry, obviously, the times it can be painful and frustrating, you know, it's a new industry that's grown

to prominence very fast. There's a lot of energy behind it, a lot of capital behind it, you know, people building really exciting, disruptive things. And that energy, you know, wants to be able to progress. But I think, you know, I'm encouraged by this trend, even though maybe taking longer than some would hope to that point of recognition. And I do hope and believe, you know, we'll start to have more comprehensive and supportive regulatory regimes in the U.S. in relatively short order. So, Robbie, the Bitcoin ETF is about nine months old. The ETHETF, six weeks, seven weeks old, really young. And really with ETFs, as far as my education has been around them, they age well over time. People, financial institutions

get more comfortable with them. They get integrated into the financial system in different ways and we're not even a year into this whole process. Can you kind of illustrate for us what the next few years of the crypto ETFs, Bitcoin Ether ETF's integration to the financial system looks like. Like, what's left? There's juice left to squeeze. What does that look like? Yeah, well, this is very early, as you know, most ETFs don't really start to blossom until multiple years after they were launched. So the Bitcoin ETFs were quite an anomaly. And if you kind of put it into historical context, the fastest prior ETF to reach 20 billion in AUM was actually QQQ, which has been an extraordinary ETF, obviously. That did it in 661 days.

and Ibit hit that in 144. Wow. So it really has been unprecedented in a lot of ways. And that's, you know, I'm trying to pat myself or ourselves on the back. It's a function of the demand that exists for this and the convenience with which a number of investors across different archetypes view the ability to access this in an ETF. But as we talked about a bit ago, it's still early in the process with a lot of, the wealth advisory channel and with institutional. And I think a lot of institutions are looking at just what I described, which is they want to see consistently that correlation being low or even

negative. And then the question shifts from, is this too risky for me to own to potentially, is it risky actually not to own any of this? Right. And so, you know, if there were another event that happened that were disruptive in traditional markets or Bitcoin performed very well, I think you would see that be a pretty significant catalyst to adoption. But for a lot of our clients, it's just a continued education journey. It's a continued journey of getting approved for advisors on more platforms. You know, we're going to continue to be along that ride. What can you say about any interest or demand for ETFs beyond Bitcoin and Ethereum? I know these two assets represent something like 70% of the total crypto market cap. But might we see further

crypto ETFs out of BlackRock in the future? Is that something that you guys are interested in? Do you guys know if there's demand there? What can you say about that? Yeah, I think, you know, obviously these things evolve over time, you know, and so our approach to it will as well. I think today, what we do see is from an investment perspective, overwhelmingly the interest is on Bitcoin and then Ethereum is a clear number two, and then not a whole lot for kind of the longer tail of crypto assets. But there are obviously some interesting projects being built in that longer tail. Some of them we're engaging with from a sort of operational and technology innovation perspective today.

That may be part of the journey that ultimately leads to their greater interest. adoption, including potentially as ETFs, but I don't think we're particularly close, frankly, to seeing more ETFs beyond the Bitcoin and ETH that we have today. I think the ETFs are certainly exciting, and it makes sense that this is a very big way that BlackRock is very involved in crypto. But I think we're all kind of excited to see what's over the horizon here, because the ETF is actually more of a Tradfi product. And we like Defi.

We like smart contracts. And so I kind of want to get into the world of tokenization. Larry Fink, in an interview, he alluded to that his eyes are beyond the ETFs and he's more interested in this concept called tokenization. And then not too long after that interview, the Black Rock Bale Fund got launched, which now has over $500 million of AUM. Of course, tokenized treasuries on Ethereum. Talk to us about the aspirations of the Black Rock Digital Asset team when it comes to tokenization. Yeah, we're very excited about tokenization. A lot of the firm, as you noted, Larry, as well, is excited about tokenization.

this is something that has the potential to be massively transformative for financial infrastructure, particularly when paired with some of the defy applications that you can build around tokenized assets. I think we have to remember that we are super early on this journey towards tokenization, right? And I think there's three big things that need to happen for us to have kind of that inflection point moment where this really starts to accelerate in terms of its adoption. And that's one, a breadth of institutional-grade custodians who can support, you know, both crypto and tokenized assets. Two would be big, credible trading marketplaces for tokenized assets, such that the

liquidity value proposition that today is mostly theoretical around tokenization actually can manifest. And the third is regulatory clarity and a big part of that. that is simply the recognition that if I tokenize a bond, that's a bond. If I tokenize a stock or an ETF, that's a stock or an ETF, etc. So we're building on this journey. It's still super early, but if it happens, if that vision is realized, you know, we would have a vastly more efficient, accessible, low-cost, flexible financial system potentially than, you know, what exists with traditional rails. I think that's what gets everybody excited.

you guys probably have sort of a framework or roadmap for like what gets tokenized first. And of course, like in crypto, we call these real world assets just to distinct from our like imaginary, like, you know, internet money type of things that are crypto-bearer instruments like a Bitcoin or ether the asset. But so let's talk about tokenization from the perspective of real world assets. Like what asset classes happen first? I would say the original, you know, tokenized assets, probably dollars, right? The stable coin is an example of tokenization. And David was mentioning the Biddle Fund. There are others that are trying to tokenize treasury. So maybe bonds come next. But how does BlackRock think about this in terms of asset classes? Are there some asset classes that are more

conducive to this? What are their criteria? How do you guys think it's going to happen? Yeah, well, obviously a lot of the focus today after tokenizing cash, i.e. stable coins, has been tokenizing sort of stable value yield instruments of various forms. And there's been coalescence around that use case, and there's lots of good reasons for that. Once you move beyond that into what comes next, I think there's not nearly as much consensus today around kind of the second, third, fourth, fifth, most addressable biggest value ad asset classes. But certainly when we think about tokenization and what it could mean for our clients,

the two headlines that we're focused on are access and cost, right? So what are some asset classes that are hard to access today for a lot of investors? And what are some asset classes that are really inefficient and costly to operate today? The tokenization can make more efficient. That's interesting. Access and costs are two interesting dimensions here. And I want to ask the question because, you know, in the same way five years ago, there were a lot of people in traditional finance that were skeptics on Bitcoin and Ether as an asset. There are also some skeptics that are bearish on tokenization in Tratify. Of course, like, no one that listens to Bankless because we've been talking about this for years, but outside of Bankless, they would say something

like, well, Robbie, we already have tokenization. You have tokenized products at BlackRock. They're called ETFs. That is the ERC20 of finance and ETF. And we already have representations of bonds and stocks and securities markets. What is your pitch for the benefit of tokenization? You mentioned kind of like defy earlier and maybe the ability to kind of like program smart contracts that have if then statements for like what you can do with certain tokens. But then you mentioned access and cost. So what's kind of the elevator pitch for someone who's a nonbeliever for tokenization and who says we already have a traditional finance system. It works great. You know, like have you seen securities?

Like the market's going well. What do you say to them? Yeah. Well, first actually, I'd say that that viewpoint within traditional finance, is actually not that prevalent. That, you know, if you think back to kind of the first mainstream explosion of crypto and blockchain onto the consciousness of a lot of people, that was 2017, right? And in 2017, you heard a lot of blockchain, not Bitcoin, right?

Now, there's some sort of challenges with that for a number of reasons, but putting those aside, that trade, so to speak, has been wrong, right? in this intervening period. Bitcoin and crypto, despite the boom and bust cycles, has, you know, continued to ascend. And a lot of the kind of early blockchain applications and these networks and consortiums that were built, oftentimes, you know, private blockchain applications have not flourished. That sentiment, though, still exists today. And it often takes the form of tokenization, not crypto.

And I think that that is. flawed as well. And in fact, a critical unlock to tokenization is going to be likely the adoption of crypto. Because when you think about it, what's riskier for large trad-fai institutions? To have allocations in, you know, one, two, three percent to this new asset class, which is, you know, risky and somewhat unproven high upside, you know, high potential downside. Or is it riskier to migrate potentially tens of trillions of existing financial assets onto this new technology paradigm. Well, when you think about that way, the latter is obviously way riskier. So one of the ways as an industry we're likely to de-risk that is to build solutions and comfort and adoption

around crypto that gets firms used to using blockchain rails. And ultimately, that's going to support the adoption of tokenization. Now, why do we think tokenization is valuable? The properties that you can build into a system that is tokenized versus our legacy system are immense, right? When you think about liquidity, real-time, instantaneous, riskless settlement, 24-7 trading, the fact that these assets become digitally native, transparent, interoperable, that we can remove a lot of the layers of intermediaries that had to exist in the current system, right? All these things create massive opportunities for efficiency, for financial inclusion, for access to a wider array of investments in a more efficient way. So that's what gets us excited. So, Robbie, our industry is still very

young. There's still a lot of things that we're learning how to do in the crypto industry. There's still a lot of infrastructure that is not totally mature yet. What kind of technology or like crypto-native infrastructure is, still missing that would be very useful for BlackRock to become even more involved. For example, like digital identity has been something that has been an idea in the crypto space and not yet, like, a solved problem. And there's a handful of answers like this that I could give. What's kind of holding you back that still needs to get built out in the crypto side of things that would allow BlackRock to kind of operate more heavily in crypto? Well, digital identity

was actually the first answer I was going to give because I do think that is absolutely critical. we have to figure out a way to be able to apply some of the, you know, KYC and AML practices that exist in traditional finance to tokenization for that to work, right? But we also need to be able to preserve privacy in the same way that privacy is critical for financial transactions today, right? So that hasn't been figured out. And thankfully, there's, you know, lots of smart people working on the digital identity piece. And, you know, we hope to be able to contribute to that and come up with something that becomes a powerful industry utility. I think we're also at a position where these two worlds, for the most part, live in separate silos.

When you think about exchanges, there are crypto exchanges and there are traditional securities exchanges. It's just not a lot of overlap. For the most part, today, are crypto custodians. Then there are traditional custodians. Again, not a lot of overlap. Ultimately, the point where this becomes very, accessible and adopted, you're likely to see these things fused together, right?

When you think about kind of two seminal things that we did this year in terms of IBID and ether, the ETFs, as well as the first public blockchain tokenization that we did, which you alluded to, in some sense, those look contradictory, right? Because the ETFs are taking a crypto investment exposure and putting it in a tradify wrapper, but tokenization is taking a TradFi investment exposure and putting it in a crypto wrapper. But actually, there's nothing contradictory about it. What it reflects is we have different clients who are at very different stages of their journeys around adopting this new technology paradigm and these rails.

So for a lot of our clients today, it is much more convenient. They're much more comfortable holding Bitcoin or ETH through a Tradify wrapper, through an ETF. And for some of our clients, they're now integrated into the digital asset world, and they want the utility of being able to hold a traditional investment exposure, but hold it in a token that can move anywhere in the world in near real time and near zero cost and unlock some of the utility and liquidity benefits that that provides. And so for a while, we're going to be in that parallel universe, but the faster they can converge, I think the better it's going to be, you know, obviously for crypto, but also for tokenization adoption.

Robbie, what's interesting to you guys to BlackRock about, and maybe just TradFi more generally, do you think about, like, a defy, let's say, because there is one view of the world, which is like, let's call it a, you know, a crypto-maxima's view of the world. It's basically like, DFI is going to put all of Tradfi out of business, all right? And this was a, you know, a view that was maybe popular, like, you know, in 2010s. And, like, the truth is probably a bit more that there's some kind of a convergence, as you were saying. That said, I mean, if DFI was fully realized, then maybe we wouldn't need exchanges or like, you know, things like the NASDAQ in their current form. Maybe it moves into some other form. So there is something to do with this idea of like, you know, mark entries and calls it software eating the world.

So like what is here interesting to BlackRock about defy? And do you view it as a, you know, competitive threat at all? Or do you view it as a technology that you want to marshal and use? Yeah, it's a great question. I think that there are elements of it that every traditional financial finance. firm should be excited about in terms of the innovation and efficiency and new opportunities that this technology can unlock. And when it comes to true defy, there are also elements that are clearly disruptive to a lot of parts of traditional financial services. That should get everybody's attention. It's not a good strategy to, you know, duck and hope that it passes and never comes to fruition. and I think to a lot of firms credit that I see, you know, there is a sincere, genuine effort to

lean in and understand Defi and think about, you know, what TrotFi can participate in and help build in that defy space. I think there will always be some demand for intermediaries, for trusted intermediaries. Most people do not want to run their entire financial life by themselves. You know, Obviously, there's a role for self-custody. Many people like self-custody of crypto, but it's certainly not for everybody. And we all know lots of people who've lost assets via self-custody, right?

And so, you know, that's just one example. But when you think about the role that trusted intermediaries will play, I think they will be streamlined. I think they'll be more efficient. They'll be competitive disruption. But there'll still be some role there. So as we get to the end of this conversation,

Robbie, I think an overarching question, question that bankless listeners were probably wondering coming into this conversation is like, you know, one of the first times we've talked to BlackRock is, all right, what is BlackRock here to do in crypto? And we're sort of seeing it by action so far. So it seems very clear that Black Rock is here to trade ETFs. And that's great. And that's been a, you know, like a net good. And, you know, everyone in the crypto industry is very excited about that. Also education, educating investors. And I think a question is like, okay, what else? So maybe you could give sort of your answer to that question. What is BlackRock here to do in crypto? Well, I think when you look at what we've done,

it's kind of an extension of what we do in our core business today, right? Which is we provide access at low cost to investments and we provide technology capabilities to our clients, right? And so when we approach this space, we found a pretty clear need, a pretty clear signal of demand from many of our clients for that same concept. So when you think about what we've done from an Aladdin perspective with our crypto capabilities from a iBit, ether perspective, our work with Circle in the stable coin space and now our work in tokenization, it kind of all fits in. that. So as this industry evolves, I think you're likely just to see that same pattern. So what are we going to see next, Robbie, as we close this out, like, what's next for BlackRock or what's next in this arc of, you know, Tradify adopting crypto? That would be a hard one for me to, you know, share too much of it. But I do hope people enjoy that leadership research piece that

will come out this week. I think there'll be a lot of interest and appreciation for, you know, some of that thinking around Bitcoin and its role in a portfolio. Robbie, let's fast forward to 2030, so six years. Does BlackRock have like 10 tokenized projects or like 100 tokenized projects? Like about what kind of number are we working with in the long term here? Well, I think once you get to longer time horizons, it starts to become more binary, right? You know, I think it would be strange if 10 years from now we had like seven tokenized funds, that would be an unlikely outcome in my opinion.

you. Yeah, it's more likely none or it's many, many, right? And the journey we're on today is experimenting and proving this out. The industry's maturing. I think anyone who proclaims that tokenization is absolutely definitively going to be the future state of finance, I think that's a bit of an extreme view and reflects undue certainty. Anyone conversely who says, you know, tokenization is silly and it's not going to work, I think that's also an extreme view. So the truth is somewhere in the middle. There's some probability that that future state happens and we're investing a lot of time in resources and energy into building around it. And hopefully, you know, we've got lots of tokenized funds, you know, five, ten years from now.

Well, as you know, Bankless Nation, we are betting on the latter, a world of much tokenization and many use cases for blockchain and crypto. Robbie, thank you so much for joining us today and guiding us on what's up at Black Rock. And yeah, looking forward to seeing what's next. Yeah, this was fun. Thank you, guys. Bankless Nation, got to end like this. Of course, you know, none of this has been financial advice.

Standard legal disclaimers apply. Crypto is 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 glad you're with us on the bankless journey. Thanks a lot.