On The Brink with Castle Island - Teddy Fusaro (Bitwise) on the Bitwise DeFi Index Fund (EP.181)

Episode Date: February 17, 2021

Teddy Fusaro, the President of Bitwise Asset Management joins the show. In this episode we discuss: The new Bitwise DeFi Index Fund The decentralized finance opportunity set and the narratives driving the space Teddy's career path to cryptoassets and joining Bitwise The prospects of a Bitcoin ETFs Cured meats To learn more about Bitwise visit their website.

Today on the podcast, I had the pleasure to sit down with Teddy Fusaro, the president of Bitwise asset management. I'm a big fan of both Teddy and Bitwise and Castle Island is an investor in the company. And it's an exciting day for Bitwise today as they're rolling out a new product, a defy index fund. So there's a lot to catch up on on the new fund in addition to just the state of the market, the regulatory landscape, the prospects for a Bitcoin ETF. And of course, we got some good food recommendations from Teddy as well. So this one was a lot of fun. Without further ado here's my conversation with teddy fissarro brought down by bad mortgage investments leeman which has 25,000 employees will be liquidated the federal government loans american international group

a ig 85 billion dollars this is a different kind of market and the vet is asleep the federal government is stepping it to stabilize fanny may and freddie mac the two mortgage giants that have been threatened by the housing crisis the bank of england has pumped 75 billion pounds more to britain's ailing economy with a new round of closer to it easy. You print a couple trillion dollars and all of a sudden people start to worry. So out of this worry, we have something called a Bitcoin. Bitcoin. Well, Teddy, I am very excited to have you on the podcast today. This is your first appearance on the brink and there's a lot to talk about. So thanks for joining us. Thank you for having me, Matt. I am super excited to be here. One of the on the brink,

one of the great crypto focused podcasts that we have. First time caller, long time listener. And looking forward to the conversation. Well, I love that. And you're the first person who's ever sent me cured meat before a podcast. So I have in my hands soupy right now. So talk a little bit about what this is. And I have to say this is delicious. So as excited as I am to be on the podcast, I'm even more excited to bring your listeners into the world of highly specialized, regional cured meat from westerly Rhode Island. So what you have in front of you is called Supi. It's known as Supi. And some people incorrectly confuse it with Suprasata, which is a relative,

relative, but not the same. Supi is, it's funny, it's a cultural thing in the town that I grew up in, in Westerly, Rhode Island, where the people of the community who are large, descended from Calabrese, Italian immigrants. They come together once a year and they make this soupy, they cure this meat, and they hang it in their basements. It really becomes cured. Yeah. How about that? It's amazing. It's, it's similar to pepperoni, I'd say. It's a little bit different, but it's, I like it a lot. Yeah, one way to think of it is almost like a homemade pepperoni. Of course, no preservatives, only the finest ingredients, handmade and small batches in westerly

Rhode Island. But yeah, like similar, similar idea. Well, it's really thoughtful jeshire. And people, the listeners of the podcast won't know this, but you and I actually go way back. So I first met you when we were 18 years old when you were a freshman at Providence College and I came to visit a friend of mine. And if I recall correctly, you were a, you were a, you were a. a bouncer at a local hunt called primetime, if I'm not mistaken. So a lot's changed between that job and

your current job. That is a well-documented part of my history, which is that I checked IDs at certain drinking establishments in Providence, Rhode Island, early on in my career. As a working man, I've always been a lunch pail hard hat guy, man. And, you know, the funny thing about those bars in Providence is that at least back then, the scene was very much one that was open to non-legal drinkers. As long as you presented an idea of some kind, the instruction was that people were allowed to go in. And the bars at that time were operated, I believe, by people who were involved in organized crime and had protection from the local police. I don't know if that still goes on. But that was a special time in my career. Yeah, having you as an 18-year-old,

you know, bouncer was a little bit like having the fox guard the henhouse, but I guess that's neither here nor there. Well, a lot's changed. So while we fast forward a little bit, and let's get into it. So now you are the president of Bitwise Asset Management. So why don't you just start us up with a little bit of introduction on yourself? And what led you from the bouncing at Providence Barr's to bitwise. I'll try to I'll try to tie the two together. It's a little easier to talk about Bitwise's arc a bit and then tie mine in than to do it in reverse order. So I'll talk a little bit about Bitwise. I'm sure we'll talk more as we as we go forward. But Bitwise is a company that is is built to, it's built on a couple of ideas. And one of the ideas is that the cryptocurrency

market, the digital asset ecosystem is a new asset class. And related to that is that investors, traditional mainstream investors are going to need education and help as they enter into and begin to understand and ultimately likely invest in this new asset class. And it then follows from there that that Bitwise will have products that they can use, that investors can use if they do decide to enter into this journey. And so that's the idea of Bitwise generally. And so for me, as in my career, besides bouncing at bars in Providence, Rhode Island. I have in my in my post college career I have always, I got into finance, I got into I parlayed my my my bar experience in Providence to a job at Goldman Sachs where I was

in equity derivatives and credit derivatives for a couple of years. And then after that I I moved over to the asset management side of the business and I had two different roles at two different early stage exchange traded fund issuers when that was new and cutting edge and ETFs were this emerging theme for investor portfolios. But all both the thread that goes through the my time at Goldman and the two different ETF issuers that I helped to run and manage is that we were always doing something that was that was unique or novel or slightly non-vanilla. So I was involved in derivatives at Goldman at, at my,

My first ETF issuer, it was a company called Direction Shares, which is now a large and very successful ETF issuer, where we were the first, or one of the first two ETF issuers to put derivatives, package derivatives into exchange traded products. And then at Index IQ, the second ETIF issuer where I was the head of portfolio management, head of capital markets, we were putting hedge fund replication strategies into exchange in a way that was efficient and transparent. So to tie the the thread together, what I was always doing and what we do at Bitwise

is we take this sort of new or novel concepts and try to put them into financial products, make them transparent, help people understand how they can access them, and then if it's right for them, we deliver that product to the investor. And that's a way that's a way. That's a little bit about how my career arc has meshed into what we're working on at fitwise. It's a little bit of a long story, but that's the background.

That's awesome. And you can definitely see how your experience in financial services really probably led you to seeing crypto assets as just a new esoteric thing that you could build products around. But what was it that originally got crypto on your radar? What made you think that this was an opportunity? right so we sold index IQ to new york life the insurance company in 2015 and uh new york life is a wonderful company um one of the oldest companies in in the country um but for me at that point in my career it wasn't the time for me to spend the rest of my life there is still on no very well the some of the management team at the asset management unit.

They have a wonderful business. But I had a period of time where I was destined to stay at New York Life for a couple of years, but not forever. And I spent that time with my head down learning about what I thought were the interesting themes in asset management, in fintech, and where could I go next? And it just so happened that during the tail end of that period of time, I met Hunter, Horsley, who's the founder and CEO of Bitwise, who you know, Matt, is one of the, he's one of the most exciting CEOs and founders that we have in Silicon Valley in general, not just in crypto.

But so I met him towards the tail end of 2017 or early 2018. and somehow he had already convinced Matt Hogan, who is our chief investment officer at Bitwise, and to the extent there are celebrities in the world of ETFs, Matt is a celebrity in the ETF world. He's the former CEO of the main industry publication called ETF.com, and he used to run the world's largest ETF conference, which is where all people in the ETF world,

would go every year down in Florida inside ETS. And Hunter had somehow convinced, along with Hong, whose Hunter's original partner and our brilliant chief technology officer, had already convinced Matt to join. And when I met and I realized that what they were working on was trying to figure out a way to bring crypto to mainstream investors with a focus on educating them about it first, teaching about the opportunity, explaining the asset class.

And I had this other experience that I could bring to the table, which is structuring products, putting derivatives and other exposures inside registered, regulated, transparent funds, managing the trade execution operations, executing the business strategy of growing small asset managers, I thought, we got to do this together. And here we are. So that's the story. And you guys have built quite a, quite a dream team. And it's funny, we were talking a little bit about this before we hit record, but it's obviously the business is doing great and firing on all cylinders at this point. But it wasn't an overnight success by any stretch. I mean, this whole industry, if you look back on it, I think Tails will be told that, you know, we had this emergence

of a new asset class and obviously there is going to be asset managers but it takes a while to build that up and so maybe use that as a way to just speak a little bit about the state of the business today the product offering and how you guys describe yourselves absolutely so you're you're right I mean right now we're the leading index fund manager in the ecosystem but that means something a lot different today than it did even three months ago and I think we've spent most of the last three or four years now, providing education primarily to financial advisors. We work with financial advisors. We work with hedge funds. We work with institutions and endowments and other professionals. And we have always taken this approach at Bitwise that, and this is a part

of why having Matt Hogan as our CIO is so powerful. We have always taken the approach of we want to educate on the asset class. We want to tell truths about what's going on here. We want to talk to you about the asset class. And that has led us, I think, to having slower conversations initially. We're not selling things to people, really. We are talking to them about the asset class. But it has also resulted in a business circumstance where when people are ultimately ready to go, when these RIAs, investment advisors, or hedge funds, or other institutions or high net worth individuals, when they're ready to make that allocation to the space, they want to work with someone that they know, someone that they trust, someone they have a relationship with, and they've come to us now for that exposure.

We have, we're known for having the first and largest index fund, the Bitwise 10 crypto index fund, which also now as of December trades publicly on the OTCQX market under the ticker symbol BITW. That's our flagship product. That's our most well-known products. We're most well-known for having that product in the market. But you see this, Matt, from your seat as an investor in companies. the time to invest in crypto, timing of that investment can be really hard, but everybody, whether it's a bear market or a bull market, everybody wants to talk about it and learn about it.

And so we've spent a lot of time with people who don't invest over the years. And then when their situation changes, when their investment committee finally gets comfortable, when the market scenarios have changed, then they've decided. many of them have decided to work with us. And so that's what's happening with Bitwise. Yeah. And certainly you guys have built a great infrastructure to be ready to go as this market has accelerated.

And maybe that's a good transition into the new product that you're announcing today. So talk a little bit about this new product. And, you know, DFI space, just in general here, is on fire. Yeah, we're really, really excited about this. We are not a firm that brings new products. to market often. We have a really strong thesis, an investment thesis, which is that index-based investing works for most investors. Index-based investing is the best way for many investors to get on the theme of the asset class where the people that we talk to, Matt, they don't often have

time to analyze coins or study networks or figure out the difference between Doge coin and Dragon Chain. And so we think that index-based investing can get investors on the theme, allow them to express with a small part of their portfolio, a long-term view on the space, and then have a professional asset manager who's able to rebalance, screen for risks, use a professional custodian, handle your taxes, your audit, et cetera.

and that's the story behind the Bitwise 10 crypto index fund, which is the flagship product. We also have a Bitcoin fund and Ethereum fund that are popular with investors. But today, the news is, after the long wind up, that we are unveiling the Bitwise DeFi crypto index fund. And it really is, as you know, one of the most exciting and fascinating corners of this market is this decentralized finance or defy part of the market. There is so much going on here. A lot of it is radical and concept testing.

We don't know if it's going to work out. But we're really customer focused at bitwise as well. People want this. They've asked us for it. And so we're really excited to have a new index fund today, which is a defy index fund that allows investors to get access to the defy decentralized finance portion of the market in an index format. And how does the fund work? Will there be 10 names? Will this be similar to the BITW fund and 10 names in the fund?

It's very similar to the index that underlies BITW in that it seeks to create a market cap weighted basket of names that are in the decentralized finance or defy sector. It doesn't launch with 10. It launches with nine. Part of the reason for that, is that there are a variety of screens that assets need to go through, including trading on multiple trading venues, custody available from regulated custodians such as Anchorage, Coinbase, Fidelity, Fidelity Digital Assets, BitGo, these coins need to have custodial support. They need to have the ability to demonstrate liquidity on multiple trading. venues, they need to be screened for other types of risks. And so that's part of what we think the value proposition is here in this sector in particular. It's so new. It's so emergent that an

index properly constructed and designed can screen out for those risks. It doesn't mean there are no risks, of course. It's a risky and new product. But an index can allow you to screen out those risks before bringing a product to market. Yeah, that makes a ton of sense. So, you know, you're someone that's been deep in these conversations with RIAs and hedge funds and institutional allocators. What would you say are the kind of major narratives that are driving interest from those type of investors in this market right now? Like, what did they care about? It's been fascinating to track the changes in those conversations over the past year. Certainly returned. are a huge driver of the conversation.

You can't ignore the eye-watering returns of crypto in general, Bitcoin in particular, all of the other assets that we look at. Things are up big. You know how it goes and people chase performance. But I think primarily, particularly with the core audience that we have, which is financial advisors, some hedge funds and other institutional investors,

high net worth individuals, particularly in that group, inflation concerns are a real thing. We could argue for the whole podcast about whether or not we're seeing any inflation in the data. But people are concerned. And it's no longer just a small group of people led by your partner, Nick Carter, talking about inflation resistance and non-sovereign currencies. there's a whole group of serious people who live in the adult world of finance that are concerned about inflation and understand the hedge characteristics of a non-sovereign deflationary issuant schedule digital asset. And so that's a lot of what we're seeing driving the interest to Bitcoin in particular.

And then I think with Ethereum, it's always. the same to me in these bull markets. People who have the intellectual curiosity to go deep into Bitcoin, many of them inevitably graduate to looking at the things that are possible with Ethereum. And that, as you know, leads down a different rabbit hole. And we get a fair amount of those folks as well. Yeah. I think the narratives have been so interesting to watch over the years. You know, when I first started working on this professionally, there was a big narrative around Bitcoin being a payment rail and kind of a credit card killer. And there was obviously still the digital gold narrative back then, but it wasn't as powerful.

But I think from a memetic value perspective, just the fact that Bitcoin is so easy to describe and people can think about it in terms of total addressable markets by looking at the size of gold or looking at the size of offshore bank accounts has really been to its advantage. I'd say as an asset that investors understand. What about D5 from that lens? I mean, I think that is another kind of leg to get to in terms of thinking about decentralized financial infrastructure on the internet. And, you know, just understanding that is difficult, but then understanding how value

would accrue to a network like that is probably something that most institutional allocators I would have to guess don't have like valuation frameworks for yet. So, you know, how will that work? over time, I guess. It's a big question, Matt. Big question. I'll tackle it philosophically at first, I think. You hit it, obviously, you've been around this space thinking about it deeply, looking at it closely for a long time. And I think you hit it on the head with the Bitcoin story right now and what has really stuck with institutional investors in Bitcoin. I think about Ethereum, there's something unique about the Ethereum community, which is that for people who

are deep into Ethereum and the things that the Ethereum network can do, they universally believe that Ethereum is going to change the world. And we saw the ICO boom in 2016 and 17, which really wasn't an expression of how Ethereum can change the world. It was an interesting thing that it was a taste of how it could do it. It was capital raising on the internet. It was mostly illegal, but it was capital raising on the internet without the existing financial structure or financial, without the existing entire regulatory environment, without the entire rails that exist for most of the types of ways that companies raise, raise capital today. But what we're now seeing with decentralized finance is that there is a window into a future where in all these other ways,

besides the Bitcoin store of value use case, there are all these other ways that you might be able to cut out middlemen wherever they exist in financial services. When someone sits down with a pen and a pencil and a scratch pad and really sees what's happening in some of these defy protocols and the amount of money that's already being contributed to them, the amount of transactions that are already being carried out in them, it's mostly a mind-blowing experience for them if they really see what's happening. I think Uniswap, the decentralized token exchange protocol did over $30 billion. worth of transactions last month. And then you tell people that this is not an exchange operator. It's a software code where anyone can participate. You're trading with other people who have decided to participate. There's no New York Stock Exchange or NASDAQ or Coinbase sitting in the middle taking that fee. This is just a software program. Or you look at some of these

lending protocols where people are lending and borrowing hundreds of millions of dollars. from others who are putting it up online. And you start to envision a future where the internet is not just a place for posting pictures of your kids or your soupy. It's a very different place where finance changes. these financial services, who delivers them, changes really deeply. Many of these things won't work out. We know that. But some of them may.

And the way that they work are really, really interesting. Yeah. It's been great just to see this evolution over time. I mean, during the private blockchain hype cycle, all of the effort was around taking the existing, you know, structure and figuring out a way to immobilize an asset that was already at the DTCC and issuing a private token. But what ended up happening was basically none of those things worked because everyone was sitting around a conference room table looking at each other trying to figure out who was going to go first. And in the meantime, there's just this parallel financial market structure based on open public chains that was getting built.

So it's been fascinating to watch. And I just wonder from your perspective and from the company's perspective, how do you just stay on top of all of these new protocols and anticipate where the puck is going here? Bitwise sits in a unique place, I think. From a business perspective, the people that we talk to are different than the people that most crypto companies talk to. We don't really talk to retail individuals. We talk to financial advisors. We don't really talk to people who create an account and trade on an app. We talk to either high net worth individuals, endowments or pensions, family offices, et cetera.

So the conversations that we have are a different level of conversation. That's on the business side. That's who our audiences. But then from a DNA perspective and from a sort of origin story perspective, Bitwise is a San Francisco-based venture capital-backed startup company. I mentioned Hunter before Hunter is very close with the venture capital community. We are very close with a number of the actual projects themselves that are working on contributing to or developing new blockchains or new protocols. we have relationships with firms that with venture firms that are studying the space very, very

closely like Castle Island or like electric capital or like the other venture capital firms who have really sort of been bitten by this bug as well. And that allows us to stay in touch with what the real market is interested in learning about on the one hand in the financial advisor, institutional investment community, but also with what is really happening in development in the venture community. And then, of course, there's a third sort of constituency, which is, as we'll talk about later, Bitwise has a vision of operating in this space for a very, very long time. We want to offer regulated products. We want to offer registered products. We want to do things the right way with the regulators that oversee the parts of the market that they oversee. And so we also

spend a lot of time and resources committed to making sure that we are a good corporate citizen in D.C. with the regulatory community. And so we try to get a sense of what the sensitivities are there as well. And by triangulating those three categories, I think we, we end. We end. We, up as a company with a really good sense or with a really good seat as to what's developing, what's real, what's not, who the real players are. And, you know, people have reputations. It's a small business. The people who were around in 2016 posting white papers online and then moving to an island in the Caribbean

with their Ethereum are not here. anymore. They've either been chased out of the community, chased out of the country, or had an action brought against them by the SEC. So I think one of the really exciting things that we see about this phase of the markets development is that many of those bad actors have already been chased out of the space. Yeah. Well, that's a great point and a good dovetail into just the regulatory landscape. So Bitwise has in the past filed for a Bitcoin ETF. I thought it was a pretty pretty spectacular proposal, well researched, obviously not approved, but there was a dissent. So just maybe speak a little bit about the ambitions for the company in the exchange traded

product space and just what is the state of play as it relates to a Bitcoin ETF right now? Yeah. So as I mentioned, we BitWise does want to be an issuer of fully registered, fully regulated, non-exempt public products in the future. The question before all of us is, when can that happen? The answer, I'll take a little walk around the park as I answer this one. I think it matters a little bit less when we get a Bitcoin ETF now than it did five years ago or even two or three years ago. My view on this is that people now know how to get exposure to Bitcoin if they want it.

They can buy publicly traded trusts that invest in Bitcoin. More people have Coinbase accounts than have Schwab accounts. They can trade in the futures market. They can buy BITW, which has exposure to Bitcoin and to Ethereum, or they can invest in private placements. like the Bitwise 10 crypto index fund or like the Bitwise Bitcoin fund. So I think that on the one hand, there's no longer this sort of destination of success for Bitcoin that will be arrived at once a Bitcoin ETF is approved. On the other hand, I will not hide the plain fact that we want to be an issuer of a Bitcoin

ETF and other ETFs in the future, and many other issuers do too, as you know and as you can see on the internet. And I'll say two things about that. One is that there's been a great misconception over the years that the SEC staff and the securities and exchange commissioners and chairpersons do not understand the market they're looking at. or the challenges before them with approving a Bitcoin ETF. The community has gotten that wrong. The staff very much understands the challenges and concerns around

whether or not to allow a Bitcoin ETF to come to market. They're far more well-educated on the matter than most people who weigh in on it online. And they have questions that need to be answered that are not easy to answer. You know, one of the things that we did in 2019 was we tried to answer those questions in in our ETF filing by pointing out and doing a study on how much of the Bitcoin market's volume is falsified or fake. I think the market has changed a lot since then. But that's an example of smart regulators looking at the market and saying, what's going on here? What is happening with the

underlying market? What's happening with the underlying infrastructure and asking serious questions about it? Now, you have to do the work. You can't just look at the disapproval and and complain about it, there's hundreds and hundreds and hundreds of pages on file, questions that have been asked about the underlying market. And at Bitwas, we believe that our prior application fell short, which is why it was disapproved. Now, philosophically, we are on the other side. Of course, we want an ETF, we wanted it last time and we want it next time.

But there's no shortcut around these questions. And I think that we're getting a lot of commentary now, which is sort of runs that, well, Bitcoin now just traded through 50,000. And we have a new SEC commissioner who is incoming, not in the seat yet, by the way. And therefore, we're going to have an ETF that's going to get approved. That's not how any of this works, right? Like the questions that were asked before still need to be answered. They're not any easier to answer. They're very real.

And the people who are looking at those questions are very, very well educated. And you can't just run around them to get something improved. So we want to have one. It could take a while. I don't think that the people that will need to look at the applications are influenced by whether the price is up or down. I think they're influenced by the very real questions that they've asked. And without going into all the details, what are the hardest questions to answer? Is it around quantifying sort of the dynamics of the spot market that is the most challenging right now?

Yeah. I think that's broadly a good way to think about it. There are hard questions that have been asked about the underlying spot market. that in all other ETF approvals, where you have to go through this process to request a rule change to get the ETF listed. So the way that it works is that a stock exchange needs to request a rule change that the SEC needs to approve on a form called a 19B4. The SEC needs to approve that in order to allow the ETF to go to market. And in all the prior approvals of such rule changes, they've been able to get a measure of comfort somehow related to the underlying market that they haven't yet been able to get with Bitcoin. And when people say things like Bitcoin has been around forever now, well, no, that's not true.

Bitcoin has been around for a little bit more than a decade. And when a gold, ETF was approved, gold had been around for how long? Yeah. So I think that the market has to mature. The market has matured a lot, but the market has to mature. And there are a lot of questions right in the vein of what you asked about the underlying market that need to be answered. And they're interesting questions. We love, as I said, you know, Matt and Hong, who's our chief technology officer, they love spending time on these questions.

It's obviously, it's resource intensive and it's expensive to just spend time on them. But they're interesting questions. And we want to understand the market so that we can communicate about it. And we want to tell the truth about the market once we have a good understanding of what that truth is. It's just crazy to see on the public markets that innovation is, is flea. flourishing and there are kind of ways to get exposure to this that are that there were not last year. I would even say like micro strategy, what they're doing is kind of a function of not having a Bitcoin ETF. I'd be curious your point of view, but it's kind of clear that people are seeing

that as an exposure play. Agreed. 100%. And that's why I say the high level, the high level question matters a little bit less to me. I believe that if people want exposure to Bitcoin, they have ways to get it now. And whether that's buying micro strategy, because they're investing off of their balance sheet into Bitcoin, or buying an OTC traded trust or opening up a coin-based account or trading futures, people have ways to get the exposure now if they want it. And so that's why I think there's not this big moment on the horizon in the future

related to a Bitcoin ETF approval. But other regulators are moving too, right, Matt? I mean, we saw last week that the Canadian regulators appear to have approved the first Bitcoin ETF in our gentle neighbor to the north. And we've seen innovation in European exchange-traded products and in other foreign jurisdictions. And the U.S. has the best financial system in the world because we have the best laws and the best regulators. and sometimes we move a little bit more slowly than others, but that's also because we get it right.

And I think that we will get it right here over time, and that's part of the market's maturation. We've seen some products over the years that seek to have equity exposure and crypto assets within the same structure. The Horizon Kinetics Internet Fund comes to mind. Do you think we'll see more of that over time where crypto assets and equity can both sit

within the same, you know, mutual fund or ETF? Yeah. Once it's allowed, once products are approved, I think that we will. I would expect our view is that this is an asset class that's here to stay. And what I think we'll see in the future is that ultimately the lines are going to become blurred. And we have a lot of, there's going to be a lot of overlap, whether it's just the technology itself, whether it's the actual diversification benefits of having an exposure to Bitcoin

added to an otherwise already diversified portfolio, Matt Hogan and his team have done some fascinating work about what happens to an otherwise balanced 60-40 portfolio when you add Bitcoin to it. Portfolio simulators love adding Bitcoin to a portfolio. Obviously, it's up massively. So that always helps. But our research shows that even during periods of significant drawdown, I think what, it was down 85% in 2018 or so, if rebalanced regularly,

because of the fact that it's non-correlated, it's popular right now to say Bitcoin is correlated. Our research shows that it isn't. Because of the fact that it's non-correlated, it has its own return drivers over time that very small allocations to it make really, significant differences to the risk metrics when you evaluate how it impacts a portfolio. So I absolutely think that you will ultimately, when available, you will see different types

of crypto exposures that have different types of risk and return profiles added to normal portfolios. Yeah, it's going to be fascinating to see that over time. It just makes a ton of sense that you would have these thematic groupings because there are different ways to express these these theses. Yeah, absolutely. And not to not to riff too much on on defy. I know we're here talking about the launch of our defy index one today, but once you

start to go down the defy rabbit hole and you you understand the ways that these smart contracts can be programmed, you can build portfolios or tokens or other things that

automatically add other assets based on any number of factors. You have, you, you see these, these concepts being tested in, in some of these protocols where, where, where they add a token if, if, if, if, if, if X, Y or Z happens or you can build a, a portfolio of other tokens based on certain triggers. And so I think that's another area, uh, in the defy landscape where you can can build these products to do things that are that are programmed up front that will see a lot of mixing of different exposures and assets yeah that's going to be fascinating because you know even within the context of a bitwise defy fund you might hold an asset that holds other types of assets it's

almost like i don't know buying DCG or something and then you have the venture exposure underneath DCG, you know, if that were even possible. Right. I mean, Vitalik Buterin has this, uh, wonderful expression that is in the Ethereum white paper, which is that everything is a contract. And when you, when you think about financial services in particular, everything is a contract. And I don't mean that in the legal sense of the, the word contract. I mean that in the, the sense that everything is really an if-than statement, right? If you pay your mortgage on the first of every month, you can continue to stay in your house.

If you want a mortgage, you must pay 2.5% on it. If you, if the price of GameStop goes through $100, dollars, then your option is in the money, right? Everything is programmable. And as these things come on to blockchains and the contracts are executed without a human being in the middle, the possibilities are really pretty endless and it's really interesting. When you start to think about the total addressable markets for these things and you think about just the theory of the firm and why corporations have to exist and you frame this in the context of, well, you know, this is disrupting things like just the joint stock corporation.

You know, it gets pretty heady sometimes when you think about how big this could be. Yeah, it really does. One of the original use cases, the original things that notoriously went wrong on the Ethereum network was the decentralized autonomous organization, right? Where you don't need a group of people to run the corporation. You issue tokens to people. and then you vote. And a lot of the governance that takes place within these new DFI protocols is through a really

it's like democracy on a blockchain, but for governing a protocol. One token, one vote. And you can get as complicated as you want from there. You can have committees. You can have elections. You can have different ways of deciding things. So you see a lot of this radical concept testing. not just in the, I hate the phrase tokenomics, but not just in the sort of potential economic

benefit that might accrue to a token, but also in a weird way in like a political theory or a political philosophy or political design construct where different DFI protocols have different governance mechanisms for how decisions get made. Is it one token, one vote? Who gets to advance proposals? How do they get implemented? And there's really interesting things happening there too. I think about this a lot in the context of, you know,

we're using defy right now for financial services and trading and things like that. But, you know, I think we're going to be moving to a world where people spend more of their time in kind of augmented or virtual reality settings. And people are sort of escaping into different metaverses. If you think about it in that context, some of these protocols are likely to be, you know, the basis for which the GDP of these like cities or countries that exist only on the internet or established. So I think, you know, one way to think about this is just the underlying financial infrastructure for coordinating a group of people in the same way that a government would. Yeah. I agree with you, Matt.

I think philosophically now, a lot of what we're seeing in. the world today, whether it's our presidential elections. You go back to 2016, with Donald Trump winning the election. You think about Brexit with the UK leaving the euro. You think about involve in that mix, the dynamic that we saw with Reddit and GameStop. What we have is a real decaying of what have for a long time been our established institutions. And the, a breaking down of the relationship that used to exist between authority and all of the people in general. And crypto networks are, I think, an optimistic vision of how this thing can resolve itself, where people can vote on things, groups can come together.

Whether coordination at a large scale is possible quickly and fairly, you don't have to trust that the government is going to make the decision for you. You can go and have a transparent vote on a blockchain that runs according to a smart contract and you can see where everybody came out and how the decision was advanced and decided. And that's a big vision, right? That's a long ways off. It's not possible right now.

we're going to have people in the Twitter mentions who are going to jump on us about throughput on blockchains, gas fees. But that is something that is possible. And that's where the comment I made earlier about Ethereum community members believing that Ethereum is going to change the world, they believe in these types of things. And once you start to study how these contracts work, those types of things are possible. It's bigger also than just decentralized. financial services. Now, defy is a huge idea. Bitcoin's a huge idea. But these other things are also very, very big ideas. And decentralization in general is made possible by the internet and by blockchains. And it allows for authority and power structures that didn't exist before.

I could talk about this with you for hours. I think we're going to have to do it over some soupy and some crab rangoons next time in person. I agree. It's something we could go on for a really long time. And I don't know if our interest, if your listeners would be as interested in it as we are, but I've enjoyed it. Well, Teddy, where can we send people to learn more about Bitwise,

learn more about the fund that you're launching today? Yep. www.bitwiseinvestments.com. You can also find Bitwise on Twitter at Bitwise Invest. And you can find me on Twitter at Teddy Fuse. Well, this has been awesome. Thanks so much for joining today. Thanks for having me, Matt.