WisdomTree Digital Assets BD: Tokenization Is The Biggest Shift In Finance Happening (Full Thesis)

[00:00:00]All righty, guys. Welcome back to Stabled Up, episode number 42, our premier weekly stable coin show powered by our friends at Frack. Visit FR or FRA.com to learn more about their FRXUSD product and more. We've got Meredith Hannon, the head of BD at Wisdom Tree Digital Assets. Meredith, great to have you.

[00:00:15]>> I know you are uh familiar with this area. It's bit of a cloudy day, but still a great view. It's good to have you.

[00:00:20]>> Thank you so much for having me. And yes, always a nice view in New York, even on a cloudy day.

[00:00:24]>> You're a New Yorker.

[00:00:25]>> I am a New Yorker at heart. So, >> absolutely at heart. Yeah, we were talking about this before. 15 years.

[00:00:30]Unbelievable. But the skyline's still pretty amazing. So, thanks for having me.

[00:00:33]>> Well, Meredith, uh, Wisdom Tree has been, some could say, early to the punch on digital assets, recognizing the power of what's possible here and really just understanding what's happening. And I think the way that we're currently framing it within our, you know, show and community is like there's these mega trends that are forming and they're all they're basically the exports of the industry that are the most successful and very clearly stable coins are are one of these and tokenization has become I mean now kind of like the you know the the more loved child in the room. Stable coins a little less exciting to you know you can tokenize anything right and so these two mega trends stable coins about five years or so in tokenization still in you know in the earlier years and it feels like these two exports of the industry um they are kind of powering this convergence between finance and defi so you know given that context given what you're doing at wisdom tree would love to just understand what your purview on this kind of mega trend is and how you guys think about uh you know allocating, investing, building and how you guys see this kind of convergence.

[00:01:37]>> Absolutely. And and thanks so much. And I think what's a bit different about Wisdom Tree is that we've been doing this for over five or six years now. So while to many this is um a new mega trend for us this is something that we've had conviction in for many many years. And the reason for that is Wisdom Tree as a publicly traded ETF and ETP sponsor with over $170 billion globally.

[00:02:00]We've been thinking about what is the future of asset management and what that really means is investing but also how do you use your money and what's the utility behind that and how do you create the best investor experience and from that that's where we found tokenization because we see this as an opportunity the way that ETFs were that gateway to access for all investors through a brokerage account tokenization is that access for global investors all through your phone or all through the internet. So we find that to be really powerful to go to our ethos of the democratization of finance. So what we've done is stable coins is definitely here to stay. I know we'll talk about the genius act and I'm sure clarity later but really what our focus has been is around the tokenization of real world assets. We also have crypto ETPs and ETFs a healthy part of our business in the traditional space. But really the tokenization of real world assets is where you where we think you're going to get that newfound utility. you're going to be able to do things with your money that you couldn't do before in a really powerful way for both retail and institutional investors. So, what we've done is we've built a platform. So, we own our own technology. We run our own full tech stack. So, very different than some of our competitors. And what that enables us to do is to not only issue products, but also issue really experiences and user journeys that make use cases very clear for our clients.

[00:03:21]So, if you're a CFO and you're managing money across the world and you want to be able to move between a stable coin or a money market fund seamlessly 24 hours a day, 365 days of the year, you don't have to go through a bank. You're able to use our platform to do that. If you're a retail investor and you want to buy Bitcoin or a US 500 large cap product or um gold, tokenized gold, you can do that through our retail app. So really creating defined user journeys that are enabling the access of money um in a really differentiated way is what we're focused on. So it's not only products but it's also platforms. And right now like a lot of us but really where we've technically excelled is through our money market fund to provide access to yield that you're not getting through a stable coin. Um but it can move and it can trade like a stable coin which I think is really powerful. Yeah, I'm a very very onchain native investor and DeFi native investor and not a big brokerage guy. And I re I I I learned this year that the the T+1 settlement time on money market funds is real and is quite annoying when you're used to everything being very instant.

[00:04:34]>> Absolutely. And that's why we have T plus0 and 247 trading because we completely agree. And how can these traditional assets, our goal is to make the traditional assets move and trade like crypto assets and how do we create that convergence and it doesn't mean just necessarily like you said you can tokenize anything but that doesn't mean that the underlying utility is better than what you'd get through a traditional investing experience. So we're really really focused on not just issuing these products that are tokenized but actually really improving the utility and the user experience.

[00:05:05]>> Yep. Love it. And so one of the kind of core constructs and mental models that we keep asking folks about and trying to understand is if this kind of tokenization thesis is correct and we get this massive onboarding of assets on chain, equities, money market funds, stable coins already tokenized deposits.

[00:05:23]Then we get into, you know, further down the risk curve, real estate, private credit, etc., etc. Who are the largest um winners in this scenario? Right? So there's, you know, a couple trillion dollars of total crypto market cap right now in terms of assets, about $150 billion or so in TVL and DeFi.

[00:05:40]>> We're expecting, you know, 5 10 20 trillion of assets coming on chain in the next, let's call it a decade or so.

[00:05:47]>> Who wins in this scenario? Who who is the outright winner, whether it be protocols, primitives, issuers? How do you think about this kind of like unfolding landscape of this tokenization stablecoin mega trend as it pertains to kind of the competitive landscape uh as it stands?

[00:06:04]>> Absolutely. And and it's a good question because I think the market as it stands today is going to be very different than the market that it is in five or 10 years and a big reason of that is going to be for mainstream adoption. And this is something that's been talked about.

[00:06:17]I've been at Wisdom Tree for over four years. It's something that's been talked about for a long time. Not only the instit in institutions are coming but retail investors are coming and I think we're finally at that crux and at that point because it's when you start to replplatform existing businesses like the work with DTCC or many of the large banks a lot of what we're doing to provide that access in a really easy seamless way where four years ago you were talking about managing your own wallet you're talking about managing your own keys that's pretty cumbersome for a traditional investor. Now, we're talking about it's one click. It is through your Stripe account. It is through your Robin Hood account. It's through whatever other types of accounts you might have, your wisdom tree account. That is, I think, what's really powerful is that all of that technology is creating those efficiencies and that new utility without being cumbersome to the end investor. So, I think who wins is who makes that the easiest. And that's what we're focused on is that we are meeting our clients where they are.

[00:07:12]we are integrating into existing platforms and also building our own platforms so that wherever you are in your investing experience you can get access to it. So I don't know if it's going to be one specific protocol. I think like the existing financial service industry there's going to be a few big winners. But I think what's going to be very different is who those winners are going to be because you can get customers and you can get assets from around the world in many different ways versus the more localized um constraints of today.

[00:07:40]>> Yeah. And so then specifically on some of the kind of decision-making processes for like in a firm like Wisdom Tree, you know, there's tons there's so many blockchains out there. There's so many uh different types of DeFi protocols, primitives, uh infrastructure, >> and you know, there's obviously a couple big stable coins, tethers, uh and circle obviously. when it comes to like deciding how you are creating your strategy within these kind of two vectors. How do you think about you know allocating resources, time, capital, building specific products for different user types or like what is that that kind of process look like for Wisdom Tree and kind of what you know who do you talk to? What what is like the insights that go into the Wisdom Tree digital asset strategy for you know stable coins and tokenization?

[00:08:29]>> Absolutely. and well so we have a great team and again most of us have been doing it for quite some time. So we we like to say we know almost everybody but want to get to know everyone. Um I think a big part of our strategy though is being commercially forward. So was saying what are clients looking for what are end investors looking for and how can we bring added value and how can our partners bring that added value. So as we start to think about different chains and we do have a multi-chain strategy.

[00:08:53]It's really focusing on where are people building, how are they using these chains, how can we be additive to that ecosystem and how can we really partner.

[00:09:02]Same thing on the platform side. We've done a lot with uh B2B and B2B TTOC distribution this year. Really focused on how can we scale ourselves? How can we connect with the right partners and how can we get to that mainstream adoption I was talking about before while also at the same time it's about building the best products that we can.

[00:09:20]So we have 247 trading. We have a secondary market. We're the first and still only tokenized money market fund that has a a 247 secondary market. Um we have on and off ramps for stable coins.

[00:09:34]We have $1 minimums. Um and we have equal access to retail and institutional investors while all still being a regulated US business. That's where our power comes from. And I do think that that's a differentiator for us. So when we think about partners, we want to think about partners who are differentiated um and how we see this see the world. So whether it's on the DeFi side, we're doing a lot of work there. Of course, I think that's if you went to to the second level of mega trends, it's definitely on the DeFi front. Um but also on stable coins, we work with many stable coin issuers. Um focus on reserve and treasury management. And now we're even expanding our um really our remitt out to think about corporates and think about other institutions and how we can better serve them than how they're served today.

[00:10:15]>> Yeah. Yeah. It's awesome. and and the numbers don't lie. The WTGXX product has grown from, you know, you know, a couple tens of millions of AUM to nearly a billion. Um, clearly a lot of demand coming from different users, whether they be onchain, allocators, offchain that are coming and kind of using the app or the tokenized product. And so, you know, when we think about this kind of so you just kind of explained how you think about uh, you know, choosing partners and your strategy and then obviously something's working, right?

[00:10:45]because it's growing significantly. You guys are kind of at the right place, right time with with the right product, licenses, etc. >> How do we get to like 10 billion, like 50 billion? What is that like? What is the step function change? Is it a distribution game? Is it a um products game? Like what is it that you guys think is um going to like when you're speaking to large firms, allocators, high net worths, and they, you know, they may talk to your advising side or whatever it is. Is there things in specific that you've noticed that they are or that are in more demand than others? Um, and then how do you take that information and and kind of, you know, 10x this thing?

[00:11:23]>> Absolutely. And and that's the literally the billion dollar question. Um, so and I think the main point though is >> it is products, it is platform, it is distribution and it's having ones that are built that reflect what the client need is. So I'll give a great example about the money market fund. Uh, our tokenized money market fund is the first money market fund wisdom trees ever had.

[00:11:44]We don't have a traditional money market fund. The only money market fund that we have is tokenized and we believed so strongly that the market needed a tokenized money market fund because of the stable NAV because of the rigor that we could bring from a bankruptcy remoteness and lack of a counterparty real issue which we saw a few years ago as you all know. um and really bring that rigor but also bring the access points so that with this product you can send us USDC or PYUSD and we will send you back onchain natively so just to a wallet address and we will send you back money market fund tokens. That ease of access has really driven a lot of that growth and that came from client feedback that we received of why do I have to use a web portal? Can I do this on chain? we're all on chain and we said absolutely why not make this easier and better and so I think that's really the focus of us is that it's not just building products because we think it's a good idea it's building products that the part that the market is asking us for and that's a lot of my role is to go out and say this is what we're thinking this is interesting does this work for you and the feedback is great and this is what I love about this community is they'll say yes but and the yes but is where we've been able to really grow because we've been able to build for clients, not just in the abstract um hoping that it works.

[00:13:04]>> Yeah. Yeah. Totally. Yeah. I mean that that era that you speak of which is this kind of client first, product first, customer first. Uh you guys have been living in that world for a long time.

[00:13:15]But I must say that the crypto industry has has slowly matured to being like there's products and product market fit and revenue and businesses and this is how the world works. It's not just a token game. Um, but there's a lot there's tons to be optimistic about when when you're looking at kind of thinking about the uh growth of this kind of market. One of the largest like blockers has been regulation. And so we're two weeks out of the Clarity Act deadline on August 10th, but we're past the Genius Act signing and into the kind of implementation phase. I'm just curious from your perspective as far as and it kind of goes back to that kind of 10x question is how much do you think that the onchain world is being inhibited by the lack of regulatory clarity? No pun intended. And um you know is this something that you're hearing from >> other allocators, firms, high net worth?

[00:14:07]Oh, I'm waiting to get some clarity. I I I don't know if I can do this or other banks. Like what's kind of happening behind the scenes with regards to the rhetoric on on the regulatory side?

[00:14:17]>> Absolutely. And um I know and they really got us with these Genius Act and Clarity Act because there's so many puns intended. Um I know for what they choose. Um but I I agree. I think that many investors um especially in the on the larger side and also for banks are waiting for this clarity again lack of um pun intended that it really has been a focus point to say we just need to wait for this. We need to wait for this.

[00:14:43]we need to wait for the for the next iteration of it and to really understand what's going to the be the bounds that we can operate in because there is an area of gray right now and I think what we how our response is though is that we have 15 tokenized products today we have our own stable coin we have our own gold token all of those launched in 2023 so in the prior administration under a completely different regime so it is possible you can do it you do have to go through the regulatory front door of working with the local regular regulators, but I also mentioned before we have 24/7 trading that was made effective through the SEC and through our existing US-based money market fund.

[00:15:23]So, it is possible. Um, but I do think that there's many, many people in the industry who are waiting to understand what the rules of the road are. Um, but I think that we're getting there slowly but surely. And I think Genius Act was a great example of what we can expect to see for traction because if you look at stable coins before the Genius Act and after I mean now the engagement on of the US market is exponentially higher than where where we were before. Um obviously circles IPO as well. So I do think that with regulation will become a title wave of positive growth. It's just getting there. And I do think um for us though, it hasn't stopped us um because we've been able to still operate within whatever regime it may be to put out compliant products that are still innovative and are still tech forward.

[00:16:11]>> Yeah. And I mean it's funny the there was such an offshoring in this industry.

[00:16:15]Like we have a like a small little fund that my partner and I invest through and we had to do it you know in some islands that I've never heard of that was like the you know the right structure and you you know you you don't market to US citizens.

[00:16:30]And now it's just like the complete opposite. It's like really floodgates and then all of a sudden people are like, "Oh, well of course the US has the most amount of capital in the world and the largest investor base. We need to talk to them." So it's almost like this industry is going through like this >> insane transitionary phase back to the US and kind of onshoring >> which is great. Uh crypto is obviously and blockchain is a global technology.

[00:16:54]It's not bound by any single uh you know state or anything but it it it is great to kind of see that you know come back to the US.

[00:17:02]>> Absolutely. And I do think though it still is important to note that the people ask me oh can I tokenize X Y and Z and there's still a legal structure underlying all of these products though right and those legal structures are going to be within a certain jurisdiction or a certain state. So there is a bit still I think that's one of the bottlenecks is that there still is um you still need to register a fund or a product out of a certain jurisdiction. They have different rules.

[00:17:28]They have different regulations. So navigating that in a global um a truly global economy has been really interesting [snorts] um and definitely something that we've spent a lot of time working towards to ensure that we can onboard as many customers as we possibly can but also being thoughtful about what that looks like and the experience for them as well.

[00:17:47]>> Yeah. Like on that note, specifically composability is a beautiful benefit of blockchain and DeFi. You get all these interesting um concepts and vaults have become a very prominent uh topic as well. You could put a >> a wisdom tree tokenized T-build product or money market fund. You could put in tokenized S&P in there. Put in some Bitcoin and all of a sudden you've got this product that is like a you know riskmanage portfolio. Yeah. An actively managed vault portfolio that has three different asset types all on chain. 24/7 liquidity with very low fees and you look at the typical ETF space right now in brokerages and you're like this is just simply not possible and so like the whole vault complex is really really growing >> and it's because of this composability of multiple chains different types of assets on chain etc. So the question is how do you guys think about that as a unfair advantage or as an edge for wizry and how do you navigate the let's call it regul regulated assets tokenized money markets stable coins if you will and you know defy token a um you know digital commodity collectible like is there a world where you could have more composability with uh kind of uh different types of products? How do you kind of think about the composability as a benefit for what you guys are doing?

[00:19:05]>> Absolutely. And um we're we're not a vault curator today. Um but I I'll at least speak broadly about what we think about this for the asset management industry and also for um for model portfolios and also frankly for customized portfolios. Before I came to Wisdomree, I did a lot of work on custom multi-asset class portfolios um as well as the models portfolio business. And we did a a proof of concept. This was years ago with JP Morgan and Apollo to prove out that you could rebalance a thousand custom portfolios within three clicks and that is still very very possible today. It just has not been brought to market in the way that I think um it can be now with this new vault structure which I think is really interesting.

[00:19:49]There is still a regulation question around the vault infrastructure and how it's built um and who is doing that action.

[00:19:56]>> What are they >> right? And I think there's a lot of work being done in in that front. But from our perspective as an asset issuer, um we love this as an option because for us it's a it's a different type of distribution model for us. Um but obviously have to be thoughtful about how we're integrating, who we're integrating with. To your question around partners before um obviously looking at this very very intently um and and deciding how it makes sense for us to fit within this. But if you think broadly about what this means for financial services or again back to my earlier point about what this means for investors, I mean imagine that you could have a via smart contracts a completely customized portfolio to your specific needs, wants, types of um equities you want to invest in, what you want to be out on the risk curve, and all of that would be managed for you. And then you add on an AI agent on top of that. But seriously, and then now what do you think about the future of the wealth management business too enable to really customize what you could invest in and then also do a bit of your homework for you. So I think there's >> a lot of work to being done and I probably there's a a regulatory team that has a million questions. But I think the fact that the technology is there, this is another example where the technology is there. How are we from a business and a legal and compliance perspective going to meet that and get to a place that again focused on the end client are going to provide the best investing experience? And I think vaults for a lot of reasons even just being able to bring together um crypto assets and real world assets to make it easier to manage um or even to be able to do leverage types of trades. I mean, there's just a lot of benefits that you can see that it takes the onus off of the end investor and puts it onto a professional who can manage this. Um, I think that that is really powerful. A lot of work to still be done on it. It's something that we're looking into pretty heavily. Um, but it'll be interesting to see how how it builds out over time.

[00:21:57]>> Yeah, a bit of a nuanced uh question here is there's a a partner of the show, Zama. They have a uh they have confidential technology basically that enables you to do transfers on Ethereum and other EDM chains. Um and they recently launched a vault product with Morpho that allows you to deposit USDC privately on Ethereum mainet into the product and have your you know generate yield onchain completely privately with no exposure publicly of your wallet or of the quantity of you know >> it's incredible >> fully private. Just curious like do you see do you see that as like >> a non-negotiable? I I think privacy is absolutely something that needs to be solved and there's a lot of different ways that's that's interesting. I haven't heard of them, but I there's a lot of different ways and a lot of different protocols that are attacking this. Yeah. From different angles, but privacy is absolutely key, I think, especially to your question before about what's going to take to get to 10 billion. um serious investors are not going to although except for um an example early this year where someone's you know placing a $50 million trade on their phone most people would not do that and don't want that to be um don't want that to be seen so I do think the privacy element is important I also think the identity element is also very important so that you don't have to onboard to every single protocol to every single app to every single insert what vault whatever it may be um I do think those are two that we do need to solve and I think privacy in particular is one that's going to be important and I think if you look at a lot of the major um banks with um with Bitcoin ETFs and many people have asked me you know there's so many in the market why would they launch this and you look and it's it's because they take inind so meaning that you can send your Bitcoin to that ETF and not be exposed correct um and then that takes a bit of the risk off of you right I do think that that is a powerful tool um that is going to need to be also figured out.

[00:23:48]>> So, I can't help but think through this that Wisdom Tree is almost becoming like a verticalized, you know, DeFi stack or verticalized crypto stack in our own tech.

[00:23:56]>> Yeah, exactly. So, you've got this platform, this front end. You've got uh the the tokenized money market fund that's grown significantly. You mentioned you have your own stable coin.

[00:24:05]There's obviously an easy entrance into vault curation just based on the prowess of the of the asset management business.

[00:24:10]Um there's the ET the ETFs and ETPs. So it's like the the whole kind of verticalization of the stack is you know you come to Wizantry and you effectively have your entire portfolio if you want to do anything to to do with crypto in a regulated fashion on chain you you have it there. You know when it comes to this kind of verticalization just curious how you think about it. I know it comes down to customer product users feedback but just give us a bit more into like um maybe what the vision is.

[00:24:38]>> Absolutely. So uh and I can't talk too too much about specifics but something that we are really focused on is now 247 liquidity of course and how do we think about what I was mentioning before of having our assets trade like crypto assets but still have the rigor and the regulation of um being US regulated. So a huge focus of ours is that 247. Um, and what that means is that um, and and people have asked me, you know, well, I don't want to trade at two o'clock in the morning. That is not necessarily why we're doing this. We're doing this because we have launched partnerships with broker dealers in Singapore. So, how do you think about a world that is global that is always on 24/7? How do you actually create economies of scale across different markets, which today they're everyone is siloed, right? The wisdom tree products that would trade in Europe are not necessarily the same that trade in the US. you don't get that combined liquidity which is where power can come from and a lot of scale can come from. How do you think about making this 247? So that's where our road map is really focused on and today our products are mutual funds technically that's how they're regulated. So they're striking a nav once a day. We recently filed for a tokenized ETF. So also how do you think about intraday trading? So how do if you think about these stepping stones we started with the money market fund then we have 14 other products of equities fixed income. We've got a liquid private credit product gold.

[00:26:04]Those are accessible between uh Wisdomree Prime, our retail platform, and Wisdom Tree Connect, our institutional platform.

[00:26:11]>> And now, how do you make the utility of those actual assets even better? That's through ETFs. So, tokenized ETFs, and that's through 247 trading. So, that's really what our focus is on improving that um utility. And then also thinking about um how to going back to the question around conversion. I mentioned before we do our own stable coin conversion. Right now it's for USDC and PYUSD. How do you expand that to more stable coins, more opportunities, and really focused on making it again as seamless as possible and as easy of an experience for as many investors as possible to interact with us in a really thoughtful way. So that's our our roadmap and a lot more. We will come back later this year to talk about the 247 trading because I think that's a game changer.

[00:27:00]>> Yeah, growing up as a you know late teenager early 20s in the crypto first world feels like I'm living in the future when the entire traditional finance world is going 24/7.

[00:27:10]>> It's just it's when things are more efficient and they create >> less friction, humans just tend to just they >> actually gravitate. Yes.

[00:27:19]>> Absolutely. Absolutely.

[00:27:20]>> So it's just a snowball.

[00:27:22]>> Yes. And that's to to your earlier question too. That is what we continuously go to of well why would someone do this? I get this asked this question all the time. Why would someone invest in a tokenized money market fund instead of a traditional one? Because it's easier. Because it's faster.

[00:27:36]Because it enables them to do essentially crossber payments without having to get out of a brokerage account or a bank account and wire money to another bank. That's why you would do this because it's just a better investing experience. And the more that we can make those touch points easier for regular mainstream investors, that's where we're going to get the exponential growth.

[00:27:55]>> Beautiful. Ladies and gentlemen, Meredith Hannon from Wisdom Tree Digital Assets, head of BD on today's Stable Up episode number 42. Thanks for watching, Meredith. Great episode. Thank you for being here. for being part of the tower