The Bull Case for a Multi Trillion Dollar Altcoin Market

[00:00:00]And so if you go back to kind of like the ICO boom of 2018, people just assumed all these things would happen by like 2020 or 2021. And so we just got over over our skis, but actually all that stuff will happen by 2028, right?

[00:00:11]We're like right on track actually. Like I think people will wake up in like 27 and say, "Holy moly, all that stuff that we were talking about in 2017 actually happened and then people will chase it."

[00:00:20]And this is exactly what happens with every technology cycle.

[00:00:22]>> Bitcoin has been chopping sideways at the $64,000 level. Altcoins are showing strength, but stalling out. Is all of this bullish or bearish for crypto? And what's the difference between a missionary and a mercenary in the world of investing? Hello and welcome to the Milk Road Show, the podcast that's here to ask the important questions like if the Clarity Act passes, do we hold it in a hot wallet or in cold storage? Today is Monday, July 20th, and today we are joined by Avish Guard. Avishall is the co-founder of Electric Capital and the chairman of the crypto council. Avish was a leader at Facebook and an early investor in notion, Figma, Bitwise.

[00:00:56]because I think he was actually the first in investor in Bitwise and a lot of other great tech and crypto businesses. He's going to share a ton of crypto wisdom and alpha with us today.

[00:01:04]So, if that sounds good to you, make sure you like and subscribe, share this episode with somebody who's down bad and needs to be up only. And as a reminder, our Milk Road Pro analysts have been busy in this market. We have made 12 trades in the last week. Yes, really. If you want to see what all of our analysts are trading, join Milkroad Pro today.

[00:01:20]Link in the description. It's just $1 to sign up and you can see what's on my watch list for alt season and a lot of other things. Today's episode is brought to you by Securitize, the regulated rails for tokenization and BitGet stocks 2.0 with real liquidity and real dividends. And without further ado, welcome back to the Milkro Show, Abishaw. How are you, sir?

[00:01:38]>> Good, good, good to see you. That was a great intro. Thank you.

[00:01:42]>> Thank you. I'm getting better at these.

[00:01:43]I've been getting a lot of practice in.

[00:01:45]Um, Abby, on a recent podcast you did, I saw that you said that there's a huge difference between missionaries and mercenaries in any industry. And I thought this would be a good place to start the conversation today. What's the difference between a missionary and a mercenary in crypto and how do you tell them apart as an investor?

[00:02:00]>> Well, I think they're they're no different in in crypto versus any other industry. I mean ultimately what that framework is trying to get at is that there are people that are doing the thing that they're doing almost irrationally, you know, like even even though it's hard, even though the expected value may be low, even though there are other things they could go do um in some other industry and that might lead to more short-term profits or even um appear to be more more net gains, they're doing the thing because they believe in it for some fundamental reason outside of money. Um and that could be personal experience. you know, they grew up in a high interest rate, high inflation u regime in some country.

[00:02:37]It could be um you know, their their family was scammed at some point and and cryptography solves this. It could be that they come from some oppressive regime and they think privacy and cryptography are fundamentally important and useful things in the world, you know, but but you need some some personal motivation. And I think the the reason that's important is because a lot of things look uh small in the short term and actually can end up being very very big. But the path to getting there is really painful.

[00:03:07]Uh it's never a straight line. It's very rare that you that you have a thing where you know it just works on day zero and then you keep going and it works day after day, year after year. Um, you know, like I think people even people people even forget, you know, like Facebook did a down round and so you really have to believe in the thing that you're doing because because usually the down round is not going to come when you're worth 15 billion. Usually that pain comes when you're, you know, in the early days. Um, and so why are you going to keep going when it doesn't make sense to keep going rationally, right? Or why are you going to keep going when it looks like the thing's going to die?

[00:03:35]Like somebody has to put it on their back and carry it. And that often happens in Star Plan. You know, founders founders know this intuitively. We say it all the time is like, you know, in year one of a startup, it's the intellectual novelty of the thing will carry you. It's going, you know, it's going to be awesome when you build it, you ship it, and the whole world's going to use it. And that's that's kind of the mindset that you're in. And then year two hits and you're like, "Oh my gosh, like this was a terrible idea. Like, why did I do this? This is a you know, this is a career mistake. Like um you know, am I am I going to be employable after this? Like I raised this money, now these people are counting on me." And like all that stuff kind of hits in year two um in year three. And so, you know, really great startups and really great companies are kind of built in years two and three when when it looks like maybe this was a terrible idea or it's not going the way you thought or you raised too much money and you're under this, you know, capital overhang, all this kind of stuff. And somebody's got to kind of carry the thing on on their back and push it through. And so then the question is, well, why are you going to do that? Why are you going to why are you going to deal with all this pain and incur all this pain for for years to to make the thing work? And almost always, that's, you know, it's it's 100x easier to do that if you believe in in the thing for its own sake and you believe in the thing for more than money. Um I mean you know how do you know that as an investor is um you know I think you have to sort of talk to people and understand what the motivations are. Um it's um that's that's not to say you need to be like an armchair therapist or anything like that. It's just like you know people who are doing the thing you can ask why they're doing it and a lot of times people have very good answers. They'll just tell you and it's always surprises me how often people don't even ask a founder like why are you even doing this? They just assume it's to make a ton of money when really actually doing a startup is a terrible expected value. Like you shouldn't you shouldn't do it to make money. It's really startups and in in some sense are just an act of desperation. You know, it's just like a desperate person looking at this and being like, why isn't anybody solving this problem? Like this is clearly an important problem in the world and if nobody else is going to do it, I have to go do it. You can usually sus that out if you just have a conversation with somebody.

[00:05:26]>> We are at a very crucial point in time right now. AI stocks have ripped.

[00:05:30]They're going to keep ripping. Our analysts on the AI side are up like literally a 100% or more on quite a few calls and crypto is about to boom again or at least it feels that way. If you want all the insight on what we're buying, what our analysts are doing, what's on their watch list, all of that is in Milkro Pro. So join at the link below.

[00:05:49]>> Avish, this bare market has been brutal for a lot of people in the crypto industry and many people have either rage quit or pivoted to AI or some other industry. I'm curious to hear your why as to why you're still here, why are you still uh a missionary for digital assets um and uh instead of the you following the crowd somewhere else or or you know pivoting to another industry, what what's that that reason for you?

[00:06:12]>> There are a lot I mean I think for me the way I sort of came to this space originally was um was more through the privacy side of things like cryptography, number theory and privacy and um you know there there's sort of um there's like an elegance to that. This is like how like you know I always I always joke like a long time ago I used to be good at math. I'm not good at math anymore. But you know you talk to like a mathematician and they'll describe a proof as elegant. And I think there is an elegance to things like number theory and cryptography. It's really kind of crazy if anybody goes down like you know elliptic elliptic curve math or anything. You're just like how this is like crazy that this works this way. Um and and I think there's something elegant and and sort of interesting about that. Um, and I think the idea of privacy and cryptography, I think, is also really really important. Um, and I think it's it's um, you know, having worked at some of these big tech companies, um, we sort of I think over the last, you know, 10 years in particular, but but maybe more like 15 years now, have started to see the erosion of of um, what we would have considered sort of basic rights in a lot of ways, right? Like I think you you sort of have um surveillance technology that's watching everything you do and and and we live in this sort of situation where these corporations have access to to everything about us. Um, and yes, there are certain guard rails, but you know, I think instead of requiring that these companies sort of follow the law and maybe they break the law and the punishments aren't that great, I tend to think that that at the infrastructure level, if we can build systems that are um much more secure and much more private and um and and then you don't have to rely on human systems, you don't have to rely on the law to protect you is is a much better place to be. Um, and so what's really amazing to me about the cryptography stuff is that especially in an era of GPUs and AI, like you know, AI and foundational models are in some sense like I always describe them as offensive technology. They're asymmetric offensive technology. Like now one human or one small group of people you give them something like um you know myth mythos level or you know GPT 5.6 soul or even you know Kimmy 3 just came out. I mean these are remarkable technologies where one person can can do the work of a hundred engineers now right. It's pretty crazy how how asymmetric they are. And um and in some sense, the more money you have, the more GPUs you have, the more token access you have, the more power you have now. And and you can see that play out for the next 10 years, right? Like you're going to get superhuman intelligence, you know, at some point in the next 10 years, let's say. And the people who have the most direct access to that and have the most GPUs to to run inference on that and control that have asymmetric power.

[00:08:48]What's remarkable about cryptography is that it doesn't matter if you have more compute, right? The math is what protects you. So you and I get the same digital body armor basically that that the NSA has or that the US government has or that the Chinese government has or that any oligarch or any dictator has like you can't buy better math. Um and I think that's that's like a remarkable thing actually and there's something elegant about that. Um and so being able to push the frontier of that kind of a technology I think is is a really useful thing in the world as a counterbalance to all the other stuff that's happening which is asymmetric offensive software.

[00:09:22]So, we sort of came at it from that perspective and then and then got up to speed on all the money aspects of this stuff like we don't you know Curtis and I didn't have any sense for um economics or monetary policy or you know how um you know stores of value work or any of this kind of stuff or how how you know the financial systems of the world work and over the last several years we we've come up to speed on that but I think the idea of being able to reimagine those systems in a permissionless way in a in a more private way in a more secure way um especially as a counterbalance to what's happening in the rest of the world I think is important.

[00:09:53]>> I want to ask you about this idea as it applies to altcoins. Anthony Pompiano recently said that crypto outside of Bitcoin is dead and that these projects should be shut down and the talent and resources should be reallocated. As a leader in this industry, why do you think there's still value in the altcoin space? And I want to start with, you know, the biggest one, which is Ethereum and ETH. Why is this project still valuable and important in your opinion?

[00:10:15]>> Yeah, well, I love I love FP. I've known him for a long time. He's also a former Facebook guy, actually. Um, you know, I think what he's really saying, if I if I give him the most generous interpretation, is um most of the other altcoins probably don't don't deserve to to be around. And I think there there's he's probably right about that. That doesn't mean though that all of them shouldn't be around. I think there are actually pockets that are really really interesting. Um, you know, whether it's Ethereum or or Near or Venice or Hype, you know, I think there there are clear examples of things that that are working and are interesting. Um on Ethereum specifically, I think actually Ethereum, you know, our our perspective on it is it is it is another store of value coin um similar to Bitcoin. Um you know, if you look at the properties of the thing as a as a distributed system that is, you know, has has a a base collateral in the form of ETH. Um you know, it's it's a resilient network. It would be very hard for for a state to take it down. It has seizure res resistance properties.

[00:11:14]you know, it has uh if you sort of like you look at a store of value like gold, right, or or bitcoin um and you look at the properties of it, um it it basically checks all the boxes, right? It's you know, seizure resistant, it's easy to transfer, it's easy to subdivide, it's easy to assess the value of, it's a global liquid market. And I tend to think that, you know, I think there's this worldview that says that there can only be one store value. Um, and I I tend to take the other side of that, which is I think um, you know, Bitcoin in some sense is an existence proof that the internet can birth uh, a store of value. And um, you know, the existence proof of Bitcoin means that because there's one doesn't mean there can't be others. It actually means that there will likely be more than one. And I think there are many many cases and examples of this on the internet where where actually the the first instance of the thing just proves that the market is large and and actually you know I think there are two rules on the internet to think about. One is generally if a hundred million people do a thing like two billion people are going to do the thing. It's not it's not it doesn't just stop at 100 million people. It's pretty rare. So take something like social networking you know it's like once once there were about 100 million people on it you could you could sort of say you know what just everyone is going to do this. The second thing that happens is that as you get to that kind of a scale, you t you tend to get market fragmentation and you get alternative versions of that thing sort of emerging.

[00:12:29]And that doesn't mean that they take away from the first one. They actually tend to be additive, right? So Facebook can be successful, but so can Twitter and so can Snap and so can LinkedIn and so can Pinterest and uh so can Tik Tok and so can YouTube, right? And so you can actually get multiple flavors of the thing on the internet. Um and these not exclusive because really the internet is not cannibalizing other things on the internet. the internet tends to cannibalize things off the internet, right? And so I think that the right frame here is Bitcoin is an existence proof. Ethereum is is perhaps the second example of a of an internet native store value. Um, and it just has different properties and and and it's useful in its own way. Um, and the fact that you can actually build on top of Ethereum that it's a programmable store value, I think is what's really fascinating, right? In theory, Bitcoin is is programmable, but it wasn't really designed for that. And it's in many ways, it's sort of antithetical to the base layer one, you know, being being static, like you don't you don't want it to change. That that's sort of actually the superpower of Bitcoin. Um is is you know what you're getting and that stability is really important. Um but with Ethereum, you have stable coins on it and and that's where all the stable coin volume is. And ultimately, if you look at where the global financial system will be built, I think it's it's going to be built um you know, in a sort of non-s sovereign space. Um it's going to it's likely built on top of Ethereum.

[00:13:42]I think parts of it um likely built on Salana, but you know the Ethereum um ecosystem I think is just a different ecosystem than Bitcoin, but but effectively underneath it, ETH behaves a lot like a store of value.

[00:13:53]>> I want to hear your thoughts on Salana.

[00:13:56]I'm glad you mentioned that there because Salana has been I think having one of the toughest bare markets of any asset in the the crypto majors right now. Um there's been a lot of competition from Hyperlquid and and other things. Um, but what's the thesis on Salana for you? Are you are you still bullish? Do you still think that's an interesting project? And do you still think that has a long-term thesis there?

[00:14:14]What what's your outlook on Salana?

[00:14:16]>> Yeah. Um, well, you know, to to be clear, as I always say on all podcasts, this is not financial advice, like you shouldn't make, you know, any sort of investing decisions based on anything I say. Um, this is, you know, we we tend to look at these things more from like a venture lens. Like, is there value being created here? And, um, you know, value capture is a is a is a sort of a different dimension than value creation.

[00:14:36]Um, and people should do their own research on that. But, you know, I think Salana is really interesting. I think people people underestimate what they've built. Uh, you know, building a high throughput chain with fast settlement that has, uh, you know, an ecosystem around it. They're plugged into um, you know, they have they have stable coins.

[00:14:52]They're plugged into every exchange.

[00:14:54]They have a robust wallet ecosystem with a good wallet with Phantom. Um, you know, uh, they have, um, native exchange support. They have really good people building. And if you look at the Ellipsus Labs teams that have built uh Eene and Jerry that have built Phoenix decks and are working on on you know the new per stacks um you know they have really good talent and I think the space that they can occupy as an ecosystem in my opinion is is um the sort of retail end user and consumer ecosystem because um you know lowcost transactions at the all one and the ability to have all of this sort of um ecosystem wired up I think is is really underappreciated um and and that can be valuable even if you know even if Salana doesn't become a store of value that can be quite valuable right like I think if you look at something like hyperlquid even just that one application for end users to to trade generates so much profit that can then be passed back um and I think there are likely you know dozens if not hundreds of such applications that you could build um and Salana actually has that they have a robust ecosystem that they can build these kinds of things.

[00:16:04]Um, and and a lot of sort of um free infrastructure that any of the builders in in that ecosystem can get by building on top of this, which I think is underappreciated in a bare market. And this this always tends to happen, right?

[00:16:14]It's like when when things are beaten up, they they tend to get beaten up unfairly and then when they come back, people get sort of unfairly bullish and and excited and over their skis a little bit. Um, and so we're just in that part of the cycle, you know, but like our our sort of leading indicator is always are there great builders here? of real builders, not um you know one or two or three people but both you know quality people in scale and I think if you go poke around in the salon ecosystem they have really excellent talent and that's always the leading indicator right it's like is there enough excellent talent here to kind of keep things moving I think that's absolutely the case in our ecosystem >> yeah I think there's a lot of bullish divergence between the fundamentals the talent the value and the sentiment right now so I appreciate that insight um we talked about a couple projects that have had you know a tough time in the bare market there are some digital asset projects that are doing great in this bare market. One of them is Near. Um, and I believe you were invested in Near back in 2018, so you've been on this train for a long time.

[00:17:05]>> Yeah. And so this is this has been through a lot of changes as a product.

[00:17:08]Um, but Near Intense seem to be getting like a huge amount of adoption here. And I wonder if you could share a little bit with our audience about what that product is, why it's in such demand, and and why Near is seeing such such demand in the bare market right now.

[00:17:21]>> Yeah, I think Near's a um Near's actually a great example we're talking about with Salana, too. So for for folks that don't know Ilia uh one of the founders uh for Sukin was uh one of the authors on the transformer paper at Google the attention is all you need paper that created ultimately LLM's um in modern AI sort of as we know it and um his co-founder Alex um was already senior here at MENSQL a high throughput database company so like very very good technical talent on this team um and you know the network's been live it's a it's a distributed system and hasn't had any downtime in five years it's it's a remarkable piece of technical accomplishment it. Um, and it works. And um, you know, I think they were just way ahead of their time actually. They they built a lot of really really good tech.

[00:18:01]Um, and I think it it took uh it took some time for people to kind of get their heads around what the hell this thing is. Um, and yeah, you're right.

[00:18:08]They're starting to get some traction now. I think near intense is is a um is basically a way to route transactions across chains um and do it in a distributed way using um solvers instead of like an AMM model. And so you have these sort of um pieces of infrastructure, these nodes that are competing for um for these transactions and and sort of the bounties that will come with with those. It could be spreads on a transaction or it could be additional bounties that people pay um for for solving these things and you can make money doing that. So they built a distributed system that allows uh computers to go essentially make these trades across chains. And so maybe you want to swap like, you know, Ze for for Bitcoin or something, right? And there's a lot of technology. I'm glossing over a lot of the tech that they both make this possible which is obviously a big um you know set of accomplishments uh to to be able to do that in a decentralized way um and make all that cryptography work.

[00:18:59]Um but uh but that seems to has to have real traction now like the sort of the numbers actually are looking great for near intense and I think it's partly because you're seeing real things like people actually you know there are fundamental reasons they want Bitcoin there fundamental reasons they want ETH um there are fundamental reasons they want Ze um you know Hyperlid is the is a thing Salana is a thing like you have Venice is a thing so you have you know these these uh ecosystems that are real that that people actually want to be able to have access to and this is the often the fastest cheapest easiest way to to get those um as a piece of infrastructure. Zooming out, I think even more broadly, you know, like Venice is is built on top of the near ecosystem as well. In addition to the intents, there's sort of a confidential compute layer that they've built, which allows um code to run and and be attested and you can say, "Hey, look, I I I want this code to run in such a way that I'm I know the computer, you know, the type of compute that I'm getting." and you can cryptographically attest to that and um I have confidence that my data is sitting inside a trusted execution environment and and nobody else can access that data um while it's in that enclave um and these kinds of things um for for um compute reasons I think are really valuable too and so that's why Venice you know is built on top of near um that infrastructure is quite valuable and and I think if you start looking at some of these components that they that they've built their perspective really is that you want to build these things in in an agentic first way like you don't even want to assume that there's a human on the other side. And so there's a lot of little assumptions that they make that make the APIs really easy to use if you just sort of assume a programmatic end user. And that's of course could be a developer or piece of code, but it could be an agent, right?

[00:20:35]Um and so I think they they're just really really ahead of their time. And I think as people get their heads around what like a proper agentic economy looks like, something like near starts to be very very interesting and they have all the pieces there for that. And I think they're they're they're a couple years ahead of the curve actually on that.

[00:20:48]Real world assets like funds, treasuries, and private credit are still running on rails built decades ago.

[00:20:53]Gated, paperwork heavy, slow to settle.

[00:20:56]Everyone's talking about tokenizing them, but far fewer can actually do it and do it without cutting regulatory corners. Securitize can. It's the SEC regulated infrastructure bringing real world assets onchain. Nine years in native tokenization not wrapped backed by Black Rockck, Morgan Stanley and Kathy Woods Arch Invest and chosen by the New York Stock Exchange VanbNy and Apollo to do it at scale. It's the regulated bridge between traditional finance and crypto. Tokeniz the world at milkroad.com/securitize.

[00:21:26]Everyone's tokenizing stocks these days, but almost nobody's doing it right. Thin liquidity, prices that drift from the real thing, dividends that just vanish.

[00:21:33]Bit stocks 2.0 is different. real NASDAQ and New York Stock Exchange depth through licensed brokers. Prices mapped one:1, dividends paid to your account in real time. Plus, you get the lowest fees in the market at just 0.04%.

[00:21:48]And you can trade them like any other crypto as margin in earning in grid trading. Tokenized stocks finally done right. Head to milkroad.com/bitgget to get started. Yeah, I think a lot of the digital asset ecosystem has been a couple of years ahead of the industry of the curve of of so many things for a long time. Um, but yeah, I appreciate the perspective because there's just a lot of interesting things being done.

[00:22:10]Uh, Abisha, I want to spend some time here on institutional DeFi and one of these projects I think you've been working on I want to get some more information on. It's called the RE token and re as a project. You've described this as a Lloyds of London but onchain and I thought this was a great description but I think nobody is going to know how what Lloyds of London is, how it works or what it means to bring it on chain and I thought that might be a good place to start here is what is reinsurance what is the retoken just explain this to us and what's going on here. Yeah. So, okay. So, I'll walk you through there. There are actually a lot of pieces to this to understand and so hopefully um useful for people. So, maybe we can talk about like what is reinsurance, you know, what does what does RE do as a company um how do FinTech work in general and kind of why is there an opportunity on chain with FinTech and then we can talk about the Lloyds of London example. Starting with with um with uh what is reinsurance and how do fintex work. So, reinsurance is just the business of insuring insurance companies, right? Right? So you're an insurance company. You have some basket of workers compensation or auto or life insurance, whatever, and you want to get insurance on your portfolio just in case, right? And and that lets you sort of offload some of the risk in case you have something catastrophic happen, some tail scenario. So actually these things generally if you have certain non-catastrophic kinds of insurance are um generally pretty predictable like the the actuarial tables and and sort of the law of large numbers, you know, there's enough data to kind of know how these these books will perform. Um and so you want to get insurance on this. Now, it's a it's a pretty esoteric thing. It's like a it's a it's a huge ecosystem in terms of, you know, net dollars flowing through reinsurance and insurance companies. Um, but not that many people in the world really understand it. Um, and so the the re team had previously done an insurance business. Um, they went through Y cominator and scaled that up and it was it was actually quite a good business, but they realized that there was this this other business underneath it that was even better, which was the reinsurance business, right? Because they had to reinsure their book. um and they became experts on that and started this reinsurance company um which uh at its core is um is doing phenomenally. I think um the public numbers they've talked about are are about half a billion about $500 million of written premium um and uh and it's a it's a very profitable business um with a with a very small team and uh and I think we'll continue to do great as just as a business. Um now why is this potentially interesting intersecting with crypto?

[00:24:30]Well, if you look at a fintech, any fintech, right? An insurance company, a reinsurance company, a credit card company, a lending company, you can think of it essentially as as a as a, you know, there's sort of borrowers and and lenders, right? And and you sort of need as a business to sit in between these. You got to have some pile of money on the capital market side and there's somebody that needs it and you're you you in the middle as a fintech are doing things like underwriting the risk. So if you look at the net rate that an enduser that's borrowing money or insuring something has to pay, it's basically can be expressed as an interest rate. Um you can decompose that interest rate into three components. The first is the risk-free rate, right? Like what is just the base cost of borrow borrowing let's say dollars, right? And that's really set set at the Fed set by the market slash the Fed, right? Um you don't really have influence over that. That's just you just got to accept that that that there's some base rate there. The second component is the risk part of it, right? Which is who is borrowing the money. And like in a consumer context, people might be familiar with FICO or people have a FICO score in the United States. Um, and it turns out these things are are actually pretty good.

[00:25:34]Like FICO is a pretty good assessment of somebody's risk. There are other things you can do to layer in there like income verification on top of that, but FICO is actually pretty good. And I think a lot of them uh the mistakes that Finex have made over the last 10 or 15 years is they went in and said we are going to innovate on this second component like we have some data or we have a better way to underwrite and assess risk and and the market is mispricing this risk.

[00:25:56]And by and large that turned out to not be true. Like yes there are absolutely some some cases that you can point to where um somebody appears to be a bad credit risk but turns out they're a good credit risk and you can do the underwriting in a different way. Um, but a lot of those, the vast majority of those were actually just a bull market phenomenon. Like it's just while you're in good times, that turns out to be true and then as soon as there's a little bump in the road, the whole model kind of falls apart because it turns out things like FICO are actually pretty good at assessing risk. Um, and so there's not a lot of inefficiency in the second bucket. The third component of your rates, the first was the the risk-free rate, the second is like the risk of the borrower, the person that's borrowing the money, and the third is um your operational efficiency as a business, right? Because you have to have, you know, you have to pay your bills, right? And so if you're a really inefficient business, that gets passed through to the end customer net in a higher rate. And so if you can be more efficient as a business, as a fintech, you can just pass that c to your customers, have a lower rate and and anybody who knows like you try to get a mortgage like five bips or 10 bips, you win. Like if you're if you're like five bips lower on your mortgage, like you'll just get all the customers because on the internet, people just shop around and they'll they'll go to some random bank in South Carolina that they've never heard of because they're getting, you know, you know, 5.5% instead of 5.6.

[00:27:07]6% right like you can win in the market with 10 vibs. Um and if you look at that third component of operational efficiency, what are the what are the places where there's a ton of overhead in a fintech. Um one is of course your compliance function, right? There's there's just a lot of overhead in maintaining licenses or make sure the regulators have what they need. There's um often a very human component to it, right? There's there's salespeople, there's like human relationships, there's underwriters. It's it's a very manual process. Sometimes there's even regulatory things that create um operational inefficiencies, right? Like in um in certain kinds of real estate, for example, you have to have a wet ink signature. So like somebody has to show up at an office and like use a pen to sign a thing and then all of a sudden you're like, "Okay, well this is just creates like two weeks and I have to go somewhere and get it notorized." Right?

[00:27:49]So there's operational efficiencies caused inefficiencies caused by regulatory. Um and the third is the capital markets function right there there are these businesses um like Blackstone which are phenomenal businesses um and they pull a bunch of capital from let's say pension funds or sovereigns on one side and they um aggregate that and they have to have a team of people and they're doing underwriting and warehousing and securization and important functions in the capital market. But then you got to pay all those people on that team, right? You got all these people that are dealing with billions and billions of dollars. And so they're looking at these large numbers and they're looking at the amount of money that the Blackstone's going to make on, you know, 1% fees and they're like, "Well, you got to pay me millions of dollars. Like, if you're gonna make billions, I should at least get millions, right?" Um, and then the people on the capital markets function inside the fintech are looking at those people saying like, "Well, if those guys are making why would I be on this side of the transaction? If those guys are making millions, shouldn't I get millions of dollars because otherwise I'll just go work at Blackstone? Like, why would I even work at this fintech?"

[00:28:40]Right? So, you start playing that out through these intermediators and you realize the capital markets actually have a lot of inefficiency. like there are a lot of middlemen taking a lot of fees. Okay, so you look at that third bucket inside the fintech of of the operational part of running a fintech and you realize it's extremely inefficient. Um these are very very human businesses that scale. You look at a bank and you're just like how does a bank have hundreds of thousands of employees at scale? This is crazy talent, right? Um and and so I think that third bucket is actually where fintex really can be innovating and and the best ones are. Um and so the whole question is how do you make these things efficient? Well, it turns out if you can build things on smart contracts, you know exactly where your money is at all times. And so all of a sudden, compliance gets way faster and way easier, right? The regulators can just assess your books pretty quickly and you can run a cryptographic proof that just says here's where the money is. Um, if you have AI workflows using, you know, pretty simple from from like a technologies perspective, pretty simple tooling um, off the shelf and have a couple of engineers on staff that understand this stuff. You can automate a lot of stuff in these businesses which is really manual. And now you need one as many people. If you look at that capital markets function, instead of hiring, you know, people and paying them millions of dollars on both sides of the transaction, what if it was just a smart contract and and onchain stable coin depositors can just put money into a contract and they're getting their 14% contractually and that money gets offboarded and now you don't have to have somebody, you know, taking people to dinner in Manhattan and paying them, you know, paying for all this expensive wine and and making a million dollars.

[00:30:01]It's just like a billion dollars can show up in a smart contract. So if you look inside the fintech at the things that a fintech needs to do, it turns out this infrastructure is remarkable like you you can actually have tremendous operational efficiencies and then that gets passed as lower rates ultimately out to to the end customer. And so you look at a business like REI which is doing all of these things um uh uh or a company like Aan which is a credit card company which is also a portfolio and they're just phenomenal businesses like they're just they're just operating often with um you know five or 10x fewer people than the incumbents like literally an order of magnitude efficiency which gets passed through the end customer and profitability in the business. Um, and so that's how at a high level we think about fintexs. I think in general it's like actually this third bucket is really where a company should be focused. And I think for anybody who's thinking about doing fintech out there or you know early stage founders like I think um they're going to figure out that you know people talk a lot about stable coins right now as a as a way to do more efficient payments or or remittances and all kind of stuff. And I think that's true but to me the more interesting piece is stable coins as a capital market. Like once you have five trillion dollars on chain all of this dollars are going to be looking for yield. um and where where do people put those assets, right? Where do where do people want to generate yield on those assets and what kind of financial products can you give them? Which then speaks to the Lloyds of London. So Lloyds is this um insurance company and and what they have is essentially this model underneath it where you have a giant pool of capital. You have all these people that that want to come in and um and make yield on their dollars on one side of the market and you have these um risk-seeking entities on the other side and they'll go find pockets of risk and they'll say, "You know what?

[00:31:35]here's this like weird esoteric thing and I can underwrite and I can create a model around that and they'll come back with a proposal to the capital pool and basically I'm obviously glossing over a lot of important details here right this is high level conceptually what's happening they'll come back to the capital pool and they'll say hey you know we have this really interesting opportunity we're going to underwrite I don't know I'm going to pick something like we're going to underwrite the ability for certain countries ships to make it through the straight of Horus right now and I think if we do that we can make like 24% a year I'm just I'm making I don't know if they do this I'm just making like a random example, right? Um but you could imagine, you know, Lloyd sort of underwrites crazy stuff. Um and um and somebody will go figure out that that that's an opportunity and then bring it back to the capital pool and there there might be enough capital in there that that they'll actually underwrite that and take that risk and generate a bunch of yield on that. And that's a really powerful thing, right? They sort of took the idea of these risk-seeking people um finding these pockets of inefficiencies and and pursuing that risk and creating proposals around it with the other side of the market with the capital market and sort of bundled it into into one entity and then all and then can make that market happen. And for anybody who's who's um understands DeFi, you're looking at that you're like, "Wait, that looks a lot like just onchain. Isn't that just capital markets on chain?

[00:32:45]Isn't that just stable coins?" and and all these DeFi protocols sort of like pitching all the stable coin people to come in and deposit their stable coins into their thing because they've created some esoteric thing that that might scale and might generate yield. And that's exactly what it is. Um, and so what R is really saying is that's going to happen entirely onchain, but but there are going to be all of these opportunities offchain. They're going to be all these places where you want to take those dollars and offboard them and go pursue uh risk opportunities offchain. Um, and that's really the the platform that they're building, right?

[00:33:14]like RE is the first reinsurance protocol is is the first application, right? It's it's a it's a very well understood set of numbers and you can underwrite it and and see the numbers on it and take those dollars off chain and go do productive things. But there might be a hundred other such applications where where somebody who's very credible can create proposals and bring them into this community and offboard um these stables and you need the infrastructure to do that. You want to do that in a compliant way. You want to do that in a way that has the proper disclosures. You want to do that in a way that people understand what they're getting. um you can enforce that um and so they built a lot of that infrastructure for themselves and I think that that's the promise of what they're building here is you could you could do this for for any number of other things and that all of a sudden makes the dollars onchain useful right and if you're um if you're sitting in Nigeria or Vietnam or or Indonesia or Brazil first of all you would love to have dollars and of course the United States government would love for you to have dollars um and you're now already doing great relative to your high inflation local currency which is getting inflated away relative to dollars and And now you can go to these people and say, "Hey, would you like to make 12% a year or 14% a year?" And it's not speculative like, you know, three three feedback loop kind of stuff. It's no no we're going to take it and do really productive things in the real world with it. Um and and things like reinsurance are very important parts of the economy that just make the whole that makes insurance work and insurance makes like people pursue risk. And so these are really important things. Um and and uh and we can get you that yield. Now, if you're in Vietnam or Nigeria or Brazil, you look at that, you're like, "Man, not only am I am I making 10% a year in my local currency just by being in dollars? Holy moly, I can make 12% a year in dollar terms, like I'm I'm crushing." Like, that's that may be the best investment that's available to to a bunch of these people all over the world. So, we tend to think such a platform that allows these capital markets to to coales on chain and bring assets offchain is going to be really powerful and really useful in the long term. big open questions around how quickly that happens and how many applications can be built securely and how quick you know there's a lot of complexity there but but at a high level I think that's that's what they're building is and the closest analog I think offchain other than broadly speaking the capital markets is Lloyds has already done this and shown that you can do this as a platform >> Abby that was a a long answer but it was full of wisdom and alpha and I would really encourage our audience to kind of deeply understand this like what he's saying is this technology digital assets is able to take businesses that are already proven in the legacy system, but that are working at horrible levels of inefficiency. Make them much more scalable, secure, efficient, then pass those benefits on to the market, to users, to consumers. This is one of the big reasons why Pomp is wrong when he says that digital assets are dead outside of Bitcoin. There is trillions of dollars of valuable and addressable market here. Um, so I just want our audience to understand that and kind of like put those pieces together there.

[00:35:53]Um, Aish, one thing I saw you say on Twitter about this, and I wanted you to unpack this because you you said in your answer that there's a lot of these different applications for this kind of digital asset solution, but you called this the ETH ICO moment, but for RWAs, and I wonder if you could expand on what that means or what you're seeing there.

[00:36:10]>> Yeah. Um, well, I'm glad you follow me on Twitter. Um, >> I pay attention.

[00:36:17]>> Yeah. No, it's great. Good research. Um my sort of intention with saying that was I think people look back at you know that ETH moment and say oh wow like it was possible to do something at least I look at it this way it was possible to do something natively on the internet like we crowdsourced the thing and and the capital markets kind of worked and we built this thing that was entirely built on the internet um and um and people actually used it like people all over the world jumped into this thing and said yeah I'll I'll use that thing um and and it basically worked um and it it sort of kicked off ultimately I think what what we now think of as DeFi. it kicked off and enabled um Salana and Near like people started to believe that they could actually build these kinds of technologies um at the layer one and I think um we're just starting to see these moments where people are saying wait a second the there's a whole set of utility here in the stable coin markets where you can take the stable coins and move them back into the real world to do really productive things with them like it's not it's not that the onchain stuff just needs to be like self-contained and self-referential and you're just going to get these like, you know, feedback loops where things go parabolic and then they crash. Actually, this is not different than the rest of the world.

[00:37:34]Like it's going to the dollars will need to go where they're most productive and there's actually a bridge that you can build back to the real world. Um, and I think this is one of the first examples where it's truly truly truly useful beyond treasuries. Like treasuries are sort of this like no-brainer. Okay.

[00:37:49]Yeah, like I'll go put some, you know, money in a in a treasury and offboard the dollars. I think the additional plumbing that's required to do anything beyond treasuries um and deal with the ill liquidity, deal with the underwriting, deal with the regulatory complexity, deal with the lensure.

[00:38:04]There's like a lot of complexity there to make that work and then then just abstract all that away and just say, you know what, all you have to do is put the money in the smart contract and like we'll just take care of the rest. It's almost like this magical black box. You put the money in, you're locked up. You have a receipt token. you can't, you know, we have we have to have some controls around this, but you're getting your yield and you can be relatively confident that that the people that have built this have done this in a compliant way. Um, it's just sort of the first instance where you're like, "Wow, this thing actually works." Uh, we talked about it for a long time, but it actually works. Um, in the same way that, you know, people may not remember, but you know, there were there were a lot of things um, Namecoin and Mastercoin and like people tried to do this stuff before ETH on top of Bitcoin as an 01 and it never quite worked. And then and then ETH was the first one where it basically worked and people like oh you can actually build a layer one separately and that sort of created this new Camry explosion of innovation and experimentation which gave us um all these other ideas right. Um I kind of look at re that way which is like I think people will say wait a second this actually works like you can package all that complexity up and people will actually use it. They have you know I think north of hund00 million in smart contracts now. Um and and so I think people look back and say, "Oh, that was actually the first case where it worked." And now a lot of other founders look at that and like, "Wait a second, this kind of works. Um I should pay attention here." Um I can actually I can actually offboard dollars and do it in a compliant way and use that to to create real yield in the real world. Um uh and so to me that's that's it's really the first example like all that complexity actually works. Now >> this is a great segue because I wanted to kind of broaden the scope here to institutional DeFi onchain finance. Um you said recently that you uh think that we have tipped on this and that you're more excited and bullish on on DeFi onchain finance than you've been in over a decade. Was there a specific thing that caused that turning point for you or is it just like we've finally gotten to a version of this that as you said works? What what's driving that thesis and this tipping point for you?

[00:39:59]>> It's um it's basically the conversations that I'm having and that our portfolio companies are having with Wall Street.

[00:40:06]I've never seen this degree of delta between uh what the retail markets or what the media thinks is happening and when you go talk to people that are actually building and the long-term potential users on the institutional side. Um how big a gulf there is right now. Um and you know I think for for anybody who's building in this space and having these conversations um you know the the scale of institutional capital wealth management you know capital markets um these like really really really massive pools of money and institutions and how they're thinking about this infrastructure and how it's actually fundamentally useful to them. It's just remarkable and and it all works. That's the thing, right? It's not theoretical now. It's like you can actually do the thing. You can actually move dollars around the world at large scale. You can actually tokenize stuff. Um you can actually act on those tokens. And um it's just a massive delta right now between what what sort of the sentiment is as reflected in price or you know retail sentiment or on YouTube or whatever versus if you go have these conversations with very large asset managers or very large um capital markets you know um people who sort of play in these markets in um you know Wall Street or London or wherever. Um it's just it's such a big delta right now. Um and and those are, you know, it's hard to it's hard to beyond the hey look, Robin Hood is, you know, securitizing things. Coinbase is, you know, tokenizing things and has launched an L2 and um Coinbase has an L2 and is going to do this and Kraken is playing with, you know, um tokenized equities and um you know, the hype hype ecosystem has has this and um you can kind of look at these signals and there's some semblance of like something is happening. Um, and I I I I not intended as a criticism of of people on the retail side or or or the media or anything like that. It's just I think that they are not uh privy to some of these conversations that are happening.

[00:42:09]Um, and for the people who are in the know that see these conversations happening, you're it's just it's like, wow, this is the stuff that people have been talking about for for a decade or people talking about, hey, one day the institutions are going to come and they're actually here now. Um, it's just people don't realize it yet. Um and so when that when that when those conversations can happen publicly and people can talk about specific names or specific applications which you know I think happens over the next year two years you know it'll it'll happen but when it happens it'll happen really fast and when it happens really fast people will sort of sit up and say wait a second how did this happen this always what happens with technology right people get overhyped about it and then they're like oh it's going to change the world I mean you've seen this happen with AI people are like oh yeah we're going to have you know superhuman intelligence by 2027 and you're like yeah okay in retrospect maybe that was that was too early, right? People were making these these claims in 2022. It's the same. There's this adage, I forget who who said it, but you know, it's basically people overestimate what's possible in two years and and dramatically underestimate what's possible in 10 years. Um, is if you go back to kind of like the ICO boom of 2018, people just assumed all these things would happen by like 2020 or 2021. And so, we just got over over our skis. But actually, all that stuff will happen by 2028, right? We're like right on track actually. Like I think people will wake up in like 27 and say, "Holy moly, all of that stuff that we were talking about in 2017 actually happened." And then people will chase it. And this is exactly what happens with every technology cycle. And so we're we're right on the cusp of that.

[00:43:32]So you know, in some sense, um this this ecosystem is no different. I think AI is going to go through the same thing. I think we're we're just we're starting to see it happen, I think, with like the the open weight models. People are like and how long it's taking to get to AGI ASI. And people are like, "Well, did we overestimate? Did we overshoot here?"

[00:43:47]And it's because we're kind of like threeish years after GPT, right? Three or four years. And so that's when people start to sort of say like, wait a second, maybe this is going to take longer than we thought. And then maybe there's a little bit of a correction for a while. And and and if you're patient, then at year 10, when we get to like 2031, 32, 33, about 10 years after GPT3 launched, ChatGpt launched, um people will sit up and say, "Holy moly, all those things we were talking about 10 years ago actually happened." And that that's we're just kind of in like year eight now for crypto, right? So, I think people will wake up in the next year or so and sort of say, "Oh, wait a second.

[00:44:19]All those things people were talking about 10 years ago actually happened."

[00:44:21]>> Aelle, I have thoroughly enjoyed this conversation. This has been full of alpha and enthusiasm and just real wisdom and insight. So, thank you so much for being on the Milk Road Show and sharing this with our audience. Where can we send people to find more of you and your work online?

[00:44:33]>> Oh, just on Twitter. It's probably the easiest just we're also at electric capital.com if anybody wants to go see there. We we publish stuff on our substack every now and then.

[00:44:41]>> Well, there's a lot of topics we didn't get to, so we'll have to have you back on again. But until next time, Abishaw Gar, le leg legendary investor, founder, and digital asset missionary. Thank you for being on the Milkro show.

[00:44:51]>> See you soon.

[00:44:52]>> And thank you all for joining us. I hope you all learned something today. There's a lot of alpha in this one. I'm meant to re-watch this one again and unpack this myself. But until next time, stay safe, stay educated, stay bullish, and we will see you all on the next episode of the Milk Road Show. Thanks for being here, everyone. Bye. Want insights on what's moving crypto markets and how we're trading each event? Subscribe to our channel and join the Milk Road daily and pro newsletters and start investing like the top 1%. This show is for educational purposes only. Nothing we say is financial advice. Investing is risky.

[00:45:20]Never invest more than you can afford to lose.