The Wolf Of All Streets - Total Tokenization: The World Will Not Be The Same | Raoul Pal & Jeff Dorman

Starting point is 00:00:00 There's endless conversations about what the future of crypto and Web3, the metaverse, NFTs, the entire ecosystem will look like. Now, I do these incredible live streams every single Thursday where I have roundtables with industry leaders, thought leaders, people who are just much smarter than myself who come and talk about these topics. But recently, we had one that was absolutely mind-blowing. It left me speechless. First of all, you guys need to subscribe to my YouTube channel so that you can check those out every single week. But I had Raoul Pal, of course, you all know from Real Vision and Jeff Dorman from ARCA,

Starting point is 00:00:30 and they presented a vision of what institutions and corporations will be doing with crypto in the future and how it's basically going to eat the entire world. It's a conversation that you do not want to miss. This podcast is sponsored by Arculist. Stay tuned for more information on them later in the episode. I spoke to someone from the Wall Street Journal yesterday for about 45 minutes.

Starting point is 00:00:57 And the question was about tether and shorting tether. And we spent 30 seconds on that. And we spent 44 minutes going over like the taxonomy of digital assets. And this is a very knowledgeable, very senior Wall Street Journal financial reporter, and literally didn't even know what DeFi was or what, you know, gaming tokens were. And I'm just like, you know, that's the education that we have to do out there is get them to write stories about these different sectors and these different token types and not

Starting point is 00:01:22 just, oh, Dogecoin went up today or, you know, some, you know, first reassuring tenant. Yeah. Guys, welcome, Raul. I think you all know him probably by now. Morning, gang. How are you? I don't know if you were listening in, but obviously we were sort of having a conversation at the moment about how the mainstream media is somewhat falsely portrayed the crypto market

Starting point is 00:01:42 and seems to be driving the narrative that they're, he based, Jeff Bitcoin Doge and SHIB and that's what you hear about curious your thoughts um yes and no but it changes at the margin right if you if you to go back two years and look at the narrative then a year ago then now then to Goldman Sachs' homepage being about digital assets. The world is waking up. As Jeff said, a lot of the journalists are behind and they're forced to write stories because crypto is engaging. And so they come at it with not enough knowledge yet. But over time, I'm seeing more and more people getting a little more comfortable with the space. But journalists have this habit of always wanting to find a balance to a story so that they use the FUD, even though most of it is completely wrong, as their balance, as opposed to writing something more nuanced.

Starting point is 00:02:38 And I think that's the issue. But over time, at the margin, it's changing. And the FUD is rolling, right? I mean, last year it was energy and China, et cetera. Now it's sanctions or choose what you want. But why does it always have to be some sort of- Well, because if you go back and think where narratives come from, they don't come from nowhere. So where did the narrative about energy use come from? Because obviously it's ludicrous. I think if everybody put on their kettle at the same time, we'd use more energy around the world than crypto mining, right? So Bitcoin mining. and they've got an ESG mandate. So if they knew it would bump up against that ESG mandate, they could slow adoption. And they're not trying to slow adoption necessarily to stop it, but just to give by them time to figure stuff out because they're feeling like they're out of control of a situation that's moving too fast. So that's what they're doing. And now

Starting point is 00:03:39 sanctions is another way is, you know, they're going to use this for bad gains. What they're trying to do is like, please stop adopting it. But meanwhile, when you go to Wall Street, they're adopting it really fast now. Having spent a lot of time in that world and still speaking to a lot of people, whether it's the giant asset management firms, whether it's the giant pension schemes, or the investment banks themselves. So basically, those guys don't make a move without the regulators giving them the nod saying it's fine. Of course, yeah.

Starting point is 00:04:10 So it's really, it's just tactics. It's tactics in a situation where technology is going so fast that they don't know how to keep up with it. Because, I mean, they still haven't regulated, they still haven't ruled on bloody Ripple. And what are they going to do with all of the dow's all of the nfts the social tokens you know it's they're so far behind that they're going to have to draw the line somewhere because what are they going to do just keep fining everybody give them a slap on the wrist and

Starting point is 00:04:35 letting them move forward and this goes on in perpetuity i get it it's a tax so they're going to do that a bit and that's fine that's the cost of doing business in the end everybody in the space kind of understands that but at some point they have to draw the line jeff what do you think well i'm going to go back to i don't know if there's 100 where we needed to go next but i'm going to take one thing that raul said and by the way Raoul. Good to talk to you again, my man. Good to see you. I think how the narratives get set is really important because we're seeing entrants from everywhere right now, right? Whether it's Citadel saying they're going to make markets or PIMCO and BlackRock saying that they're getting pressure to start investing or it's new custody from BNY. I mean, we know the entrants are coming. We know the investors are coming.

Starting point is 00:05:24 We know the service providers are coming. The banks and brokers, they're all coming. I didn't even realize Goldman on their home page is now talking about digital assets. That's awesome. Obviously, you're seeing reports from the second and third tier guys like your BTIGs to JP Morgans and Morgan Stanley. It's all coming. The most important narrative right now that I think that is going to lead to the biggest aha moment, as well as like everyone the sanctions through SWIFT, to even what happened in the London Medals Exchange, right? The LME just flat out canceling, you know, a bunch of positive P&L on shorts in NIFCO. What you're basically saying is the world is now waking up

Starting point is 00:06:21 to the fact that what you thought were your assets are not your assets. Your assets are somebody else's liability. And whether or not they pay off that liability is now in question. Whether or not your government, your bank, your exchange, your brokerage, whether or not they actually release those assets to you is now in question. And that is going to be the biggest driving narrative of the adoption of bearer assets and digital assets that we've ever seen. And I really believe that there is a very good chance that when ETH is at 10,000 and Bitcoin's at 200,000, maybe as soon as like 12 months, you're going to look back and say, well, yeah, based on what happened in January and February of 2022, that was obvious. I mean, Jeff, I mean, the reason I got into Bitcoin originally back in 2012, 13 was Cyprus. It was exactly the same. They took the entire savings out of the banks and said it's ours now.

Starting point is 00:07:15 And I realized that we didn't know anything. So, yeah, I mean, these and what happened after Cyprus obviously was a huge run in crypto for the same reasons. I think you're dead right yeah so i think i think that narrative is really going to start sweeping in um you know and right now it's a footnote rather than the story right um and i'm forgetting the guy's name but the uh the strategist at credit suites who just wrote that you know brett woods zoltan zoltan yeah um you know bitcoin was literally a footnote at the bottom of the article right it was like four or five pages all about what money means and bretton woods one two and now three and it was like i think the line was if bitcoin still exists

Starting point is 00:07:56 it'll be bullish for bitcoin right and it was like you know a little tongue-in-cheek it's going from a footnote to the main event. And we're feeling it with the amount of inbound interest we're getting from investors. We're feeling it in terms of the conversations we're having with investors. You know, again, the pressure that the non-crypto native asset managers are feeling from your BlackRock's, your PIMCO's to offer products.

Starting point is 00:08:22 I mean, it is bubbling and it may not be explicit yet where it's like, this is an obvious moment to get in. But it's going to be in retrospect, an obvious turning point. Like I really believe we'll be pointing to February 2022 for decades to come. And also, I think there's the other thing at the same time that's come, which was the shift from using crypto and digital assets to this soft term of web three it's much easier for regulators say of course we should upgrade to web three if we're on web two now and web three's better we should do it it doesn't have the word currency in it which was the big toxic word and so i think that creates a decent trojan horse as well to make it easier for people, the regulators or the politicians particularly to say, yes, we need to be pioneers in Web3 as opposed to we need to be building cryptocurrencies.

Starting point is 00:09:13 So I think those two things, the narrative, which is, as you said, the core case of why these digital assets really matter, plus this new kind of fancy dressing for it all. I think this is a very significant moment. plus this new kind of fancy dressing for it all, I think this is a very significant moment. Well, Jeff, you said before that you dislike the term altcoins. I think the word cryptocurrency is even worse, to Raoul's point, right? Because 99% of these are not even attempting to be currencies. Not only are they not currencies, they've never even claimed to be such. It's really a horrible term, I think, for people's first intro or understanding of the asset class.

Starting point is 00:09:47 Oh, 100%. I almost always, in fact, I probably use the word crypto more on this podcast than I've ever done in the sense that, or on this show, than I've ever done. I usually just use the word digital assets because I think we actually built a taxonomy at Archive. If you go on our website at ar.ca and you look at our resources section, we built a taxonomy because nobody else has done it. In the equity and debt world, that's everywhere, whether it's from the rating agencies or from different independent research reports. Masari is probably the closest in the digital asset world to have built a taxonomy, at least by a sector. We had to start from the top. We were like, let's think of this like fixed income. In fixed income, you have different issuer types. You have corporations, you've got govies,

Starting point is 00:10:23 munis. You have different asset types. You have different income, you have different issuer types, right? You have corporations, you've got Govies, Mutis, you have different asset types, you have different sectors, you have different callability structures, different covenants. The same thing is true in digital assets, right? You have different issuer types. You can have an individual issuer, a corporation, a decentralized autonomous organization, et cetera. You can have different spectrums from decentralized to centralized. You can have different token types. All these things I mentioned half an hour ago. Building that taxonomy is really important. And when you do, you realize that cryptocurrency is a very small sliver of what is happening in digital assets.

Starting point is 00:10:52 I don't even think of, I'm not even sure digital assets are an asset class anymore. I used to be. Three years ago, I thought this was an asset class. I don't think it's an asset class anymore. I think it's a technology that now underpins all asset classes because I think every equity is going to be represented as a token. I think every fixed income instrument is going to be represented as a token, real estate, commodities, hard assets, you name it. Anything that can be owned is going to be represented in digital asset form at some point. And then we start to look at, this is why

Starting point is 00:11:17 I used the ETF analogy earlier. You start to look at this like ETFs, right? It's just a packaging that can package any asset, right? ETFs can have fixed income commodities, real estate equities. That's the same thing as a blockchain-based asset. So as soon as we recognize that a cryptocurrency is just a very small sliver of what this package now offers, it starts to recognize, okay, well, that means we can't even think about valuing digital assets all the same. Each type of digital asset needs to be analyzed differently. Just like Frank Fibozzi came out with the way the fixed income handbook on how to value fixed income and Graham and Dodd came out with the valuations and equities and it's

Starting point is 00:11:54 all just adopted now. That same thing is going to be true in digital assets. You're going to have different ways to value protocols. Shout out to one of my best analysts, Nick Hotez, who wrote an awesome blog a few weeks ago saying, our blockchain, should we be valuing them as businesses using the cash flow from fees, or should we value them like nations? That they're basically these ecosystems that have their own native currency inside of them. That's the kind of valuation techniques that we need to develop. You're going to value a DeFi or a CeFi token purely based on

Starting point is 00:12:26 financial cash flows. You're going to value a Web3 token totally different, based on net cash law and based on adoption, which is very different than how you might value a layer one protocol, which again is either based on cash flows from a business or through its own native economy, like a nation. So once we start to separate this out, the term cryptocurrency just goes away. And it's going to be hard because it's so entrenched in people's minds. But I think a cryptocurrency is just going to be a sliver of what we're ultimately talking about and looking at in this industry. We all believe and know that cryptocurrencies are the future, but it's still very scary to be your own bank and have to secure your assets. Most of

Starting point is 00:13:06 the traditional hardware wallets are hard to use. They're clunky and people lose their private keys. It's not really that efficient. And that's where the Arculus key card comes in. I absolutely love this thing. I've transitioned largely to using it for most of my assets. It's literally just a card that you tap right on your mobile device. You can send, receive, swap, buy and sell crypto with that simple action. It's literally amazing. There's no cords, there's no charging, there's no Bluetooth. The only person that has access to your crypto is you. You guys have got to try it. And guess what? You can buy it right on Amazon. Go buy your Arculus on Amazon now. Doesn't that mean that the technology can succeed without most of the coins

Starting point is 00:13:54 that we see now succeeding? Right. It becomes this underlying layer or infrastructure for all of this technology of the future. But that has nothing to do with the individual coins necessarily that exist now. It depends. I mean, what we're seeing is the market figuring out that it's no longer good enough just to be faster, cheaper, alternative to Ethereum or whatever it may be, or more private than Bitcoin. What people are starting to see, and I've been definitely having conversations with people at the protocol layer talking layer talking about okay what can we be known for on this chain so people are going to split down to use cases i think so if you're really fast and you're not super decentralized and you're very cheap then you're very useful for the securities industry because they have massive volume and they don't care about decentralization at the level of which

Starting point is 00:14:49 private money does. So there's whole different people. I think music industry splits one way. Different application tiers will use for different things. Real estate, they all have different functions. So there's still a lot of space for this broad number of tokens. Obviously, a bunch of this stuff is never going to gain network adoption. That's fine. It's just the same as a VC portfolio where you understand that a bunch of these firms just won't get traction, and that's okay. Yeah, man, I want to go, Raoul and I had the pleasure of talking a few weeks ago as well,

Starting point is 00:15:24 and he said something that blew my mind. And I like to think of myself as the king of analogies because I try really hard to bring everything back to what my 73-year-old parents would understand. And, you know, mainstream kind of, you know, this is how digital assets compare to other things. And I've been a long believer that what exists today in digital assets is awesome. There's a lot of really cool projects and ideas and companies that are awesome that are going to withstand the test of time and be worth probably trillions of dollars. Certainly Bitcoin and Ethereum fall in that camp, and I think there'll be others as well. But also, we haven't even scratched the surface in terms of the type of token issuers we're going to see. I really believe that

Starting point is 00:16:03 digital asset is now part of the capital structure. You're going to have your equity, which is your run cash flows, your debt, which is your claim on assets, and you're going to have your token, which is a claim on network effect and customers. And we barely have any corporate issuers at all. There's things like Binance and FTX who have issued tokens, but we haven't seen anything close to corporations issuing tokens. I also think every municipality is going to have a token, right? We're not going to see revenue bonds and general obligation bonds anymore. You're going to have a token specific to build a park or a subway system. I think every university is going to have a token. You're going to see Notre Dame coin and Stanford coin and Harvard coin. You have a kid and you buy that

Starting point is 00:16:41 token for them the day they're born. And if they don't go to school there when they're 18, then they trade that token for another token for tuition. I think, you know, the type of issuers of digital assets, we haven't even scratched the surface yet. There's going to be so many different token types. And what Raul said to me blew my mind. He said, wait till Disney realizes that a Disney token is going to be multiples more market cap than Disney equity. And I thought about what he's saying. And I'm just like, it is so true. I mean, Disney stock, what has a market cap of, you know, I'm sure it's in the hundreds of billions, but it's true. I mean, if you introduce a Disney token, and that Disney token gives you discounts on, park access or maybe you get the fast pass to get into the line at the park differently if you own the token.

Starting point is 00:17:31 And not to mention the subscriber benefits of Disney Plus and merchandising and all the other things. He's absolutely right. A Disney token would be 5 to 10x as large as their current market cap or even their enterprise their enterprise value, and you include all their debt and equity. And when these companies start to realize that, and when the investment banks start to realize that they should be pitching tokens rather than just debt and equity, you know, case in point, I think it was a couple of years ago that it was either United or Delta was like, hey, you know, we're the worst industry in the world, we go bankrupt every seven years, we encumber every asset we have with debt. Oh, we can now issue debt against our miles. Let's do

Starting point is 00:18:04 that. That's a great idea. Like, what are you what are you doing? Your miles, your Delta miles and your United miles is the most perfect thing to be tokenizing. Yet you're just thinking, let's go add more debt to our balance sheet and issue debt backed by our miles. This is crazy. Why is there nobody innovative pitching these companies on how to issue a token? Now, granted, part of it is because of regulation here in the U.S., certainly. But that's where we're headed. We're headed in a direction where every company has a token. And that means the original token today. And brand is undervalued as an intangible on the balance sheet.

Starting point is 00:18:40 So what you're going to do is turn brand, and brand is community and network, into a tangible. So what the hell are all of these companies going to be worth? I saw some report that's like $43 trillion in the S&P 500 intangibles. And all of this comes tangible. I mean, it's a complete revolution. And what I think the key concept that get out of it is if you're a 12 year old today, you are unlikely to need to work for a company. Or go to college. Or go to college because you can actually participate in these cultural communities of which you are both a network participant and a network kind of motivator and activator. And you get tokens. And therefore, you create universal basic equity. You're taking an equity stake in the cultural communities that you're part of, be that Disney bit, the favorite music artist bit, gaming.

Starting point is 00:19:37 That is an incredible difference. So you're doing community work for income or income or assets. And that solves a lot of the problems that technology is creating, where technology, AI, robotics are eating the world. Well, we create something different. And I kind of like it. It also creates a very different community. If you're on Twitter, it's a toxic cesspool of people insulting you all day and a bunch of really nice people trying to learn from each other and it's really difficult but when in a token world what happens is if you want your community to thrive and your token to to therefore maintain value or increasing value you're going to only encourage certain types of behavior and generally good behavior is going to be rewarded by the community so you're going to change the

Starting point is 00:20:25 nature because we all are overwhelmed by social media and what it means to us and how complex it is to have everybody shouting at us all day but when you go to a environment where it's driven by the token it changes you see that in discord channels people aren't mean to each other they're just enthusiastic because they're all incentivized by the same thing. So there's a huge change coming here that's going to solve a lot of problems. David Steinberg 00 00 00 00 And we wrote a white paper maybe five, six months ago, and we said, not ESG, it should be GSE. And the focus on like Bitcoin and its environmental impact was so damaging. And obviously there's a lot of nuances to whether or not that's true or not. But regardless, it was all focused on the E in ESG. Nobody was focused

Starting point is 00:21:08 on the S and the G, which is really all digital assets is accomplishing. The societal benefits and the governance benefits of digital assets is something that we've never seen before. And it's incredibly powerful because of those incentives that Raoul's talking about. And if you look at, let's take the societal aspect for a second. And I talk about this all the time. So those who have heard me, you know, apologize for being repetitive. But if you look at some of the biggest companies and success stories in the world, where the equity holders benefited at the expense of the customers, right, whether it's McDonald's, right, McDonald's shareholders are almost never the same as McDonald's customers, whether it's the newcomers like Airbnb or DoorDash, where regular people made those companies work, but only a handful of VCs made all the money on the stock. Or even something like Amazon, where you could be an Amazon Prime member, which is basically being a network member without necessarily being an Amazon shareholder, which is the ones who benefit from the growth of that. Well, what tokens are doing is they're combining that. They're saying there is no such thing now as customer versus shareholder. You're all the same people

Starting point is 00:22:04 in the network and you're part of it. You're going to own tokens and you're going to benefit from the financial upside as well as from the network benefits. And when you think about what that does from a societal impact, it is probably the most positive development we've ever seen from wealth equality. You no longer have to be in a lead to make money. Everyone always talks about you have to have money to make money. Well, that's not true anymore. Here, go be the first gamer on a new game and earn some tokens. Go be the first user of a DeFi application and farm for some tokens. You now don't have to come in with money to make money.

Starting point is 00:22:35 You can be an active participant and be rewarded for what you're doing. Now, let's go back 15 years ago when Facebook was started. It's a very famous story now that Facebook figured out growth hacking before anyone else. They realized through data that if you could get an early user of Facebook to like 10 posts and to follow 10 people within the first week, that they were going to be very sticky customers. So Facebook did everything they could to trick people into doing those actions. Well, digital assets is doing the same thing, only instead of tricking you, they're paying you for those actions. They're saying, if you do the things we want you to do, we're going

Starting point is 00:23:07 to give you a piece of our upside. That is incredibly, incredibly powerful. It puts all of the growth back into the hands of the people who make the growth possible. So when you focus on that societal benefit, not to mention the governance, which we didn't even talk about, the ability to actually have a voice, digital assets is the most powerful instrument we've ever seen in terms of capital formation, network effect, evangelism, and equality. And once these companies figure that out, again, it's not going back, right? It's just a matter of how fast we can get a regulatory framework to allow for this. And then back to 15 minutes ago, the question about the current crop of tokens versus what's

Starting point is 00:23:43 coming, some of the current crop of tokens are still going to be amazing and powerful, but others are going to be a blip relative to Disney token or Delta token or a California token or Duke token. I mean, this is where we're headed. And I think this industry is going to be, we talk about 5, 10 trillion. I mean, this could be hundreds of trillions when you talk about all the different wealth effects that are going to be, we talk about 5, 10 trillion. I mean, this could be hundreds of trillions when you talk about all the different wealth effects that are going to come from this. And you guys are blowing my mind. People are saying it in the chat, but I mean, that vision is incredible. The question, Rahul, when we've talked in the past, you've always sort of believed that we would have a much more accelerated timeline than people probably assume, right? We would sort of joke, oh, this will happen in 10 years. You're like,

Starting point is 00:24:28 no, six months, right? But this requires, as Jeff said, this requires sensible regulation, and it also requires a voice inside these institutions. It's coming. I mean, I'm working on this actively in the background in various projects. It's coming at you much faster than you understand. You see me with that adoption curve chart all the time, just trying to get people, people don't really yet understand what that means, right? We're 300 million active users worldwide in digital assets. It means it gets to, essentially, it's growing at 185%. We get to 600 million plus, call it 750 million by the end of this year. Even if we have a slow year, we get to 500 million. The year after, it's a billion.

Starting point is 00:25:16 The year after that, it's 2 billion. The year after that, it's 4 billion, right? So the speed of which this is coming, people do not comprehend. And the movement, I think, from the $2 trillion asset class today to the $200 trillion asset class that Jeff's talking about is by the end of the decade. It's the fastest growth of any asset class in all history, the fastest adoption of technology in all history, and it's going to be the fastest generation of wealth in all history. That's what's going on.

Starting point is 00:25:43 And we all get lost in the day-to-day of the ups and downs of the market and shouting at each other over Carano versus fucking whatever. And it's just all noise. It's just noise because you've got the biggest, fastest secular trend any of us will ever live through. And we can participate. We don't have to be VCs. We don't have to be the rich dude who's got the access. You just need to get involved. And also keep a very open mind. As Jeff and I have been trying to explain here, this is not about Bitcoin. It's not about Ethereum. It's about a complete and total business model revolution. So it's not just financial. It's everything.

Starting point is 00:26:28 And once people open their minds to it, you'll see how big this is. That last 30, 40 minutes was really compelling because I think, as you sort of said, we get very bogged down in what's happening today and the macro situation and what will happen in the war and hawkish fed and et cetera. And it's literally irrelevant. It really is, unless you're a trader. And fine, some people are traders and that's okay too. It gives everybody the opportunity, but just don't lose sight of, if you take the adoption chart, when I always talk about living in the future, what does that mean? What does it mean to have three or 4 billion people in six years time? Well, it means a complete change in everything

Starting point is 00:27:10 we're doing. And that's not Bitcoin and Ethereum accruing all the value. That is what Jeff's talking about. That's social tokens, community tokens, NFTs, and that's putting up all of the other assets on chain as well. So it's a lot. There's a lot about to happen. I know we have to go, but one more question. Can the technology actually scale to that level of adoption? Again, people have a tendency to look at today. Well, we can't do that speed. Of course you know we can't. No, but everyone's going to build it. That's how it works. Everyone does this all the time. They always take the present and say build it right that's how it works everyone does this all the time they always take the present and say well that's impossible but the present is not static because every day is a new day and every day things move forwards so if you were to extrapolate

Starting point is 00:27:53 the rate of change of development within these protocols well they're moving at lightning speed you know lightning being a classic example that didn't exist two years ago, and now it exists. So who the hell, what is going to come out of this space? Well, soon you'll be able to have massive video file on blockchain, these huge dense files, all data, all scientific research, all of this onto blockchain because the technology will allow it to happen. Well, God forbid any of us being the guy who's saying because the technology will allow it to happen. Well, God forbid any of us being the guy who's saying that the internet

Starting point is 00:28:29 will be no bigger than the fax machine. Never scale, can't happen, can't happen, right? Or not imagining that we would ever be streaming video or audio, right? And every example in history of technology evolving has been at this point where people said it couldn't happen and it couldn't scale. Raoul, thank you so much for joining.

Starting point is 00:28:49 I really appreciate you, Poppy. And I know you're like the busiest man on the planet. So we really do appreciate it. Thank you so much. Good to see you, my friend. Take care.

The Wolf Of All Streets - Total Tokenization: The World Will Not Be The Same | Raoul Pal & Jeff Dorman

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