Transcription
I believe Ethereum to be the next generation of the internet. It is experiencing parallel dynamics similar to Google with search, where with Google, 90% of searches happen there, and 1% happens on Bing, 1% happens on Ask Jeeves, 1% happens on Yahoo. And 90% of high-quality liquid assets, which is a defined term by the Financial Accounting Standards Board, HQLA, are settled on top of Ethereum. GM, good morning, welcome to the Milk Road show, the daily crypto show. We're missing that trade feels like watching your Uber drive by without you. I'm your host, Jay Hamilton. It's Thursday, September the 11th, and if you are listening to this, then you have been in crypto likely for a while, or maybe you're new to investing in crypto, but you likely understand crypto. I really want to make sure that everybody here today is taking the time to learn how to invest in DATs because there is a big opportunity. This is one of those moments where if you have been early in crypto, and early in that technology, early in blockchain, you understand half of the equation of DATs. Most of the world doesn't understand both sides of the equation of DATs. The thing that I want everybody listening today to really understand is the public market side of DATs and the financial engineering side of the equation, which will give you the conviction that you need to invest in DATs because, well, 85% of debts that exist today will probably fail. 15% are going to make it, and they are going to be huge in my mind.
So today, to break this all down, we are joined by Andrew Keys, Chairman of the Ether Machine. He was in the room day one of Ethereum. He worked alongside Joe Lubin and other Ethereum builders at Consensus. He then founded Dharma Capital, which is one of the largest ETH staking providers you've never heard of. And then he took $600 million of his own money and put it into the Ether Machine. We're also joined by Andrea Bernova, the CEO and Chair of Dynamics Corp., which is the SPAC that is forming the Ether Machine.
Before we jump in, I got to tell you guys about an amazing pro report that's coming out from the Milk Road team this Saturday. It is all about the new era of DeFi and the platformization of DeFi. If you don't know what that means, you're going to want to check out the report. Part of what is happening within DeFi, especially Ethereum, is impacted by DATs, such as the Ether Machine that we're talking about today.
Today's episode is brought to you by Figure Markets. Grow your cash like a bank. No lockups, just real returns. It's also brought to you by KGEN, the vertical distribution protocol, changing the growth game.
With that, Andrew, Andrea, welcome to the Milk Road Show. Andrew, welcome.
Thanks for having me, Jay.
Good to see you, Andrea.
Good to see you guys. Pleasure to have you both. Very excited about this conversation. It's been a bit. It's been DAT season recently. We've had a lot of DAT episodes. We've got more to come. But there is a big opportunity here. I want to, uh, step back for a second just to kind of introduce both of you to our audience. Um, Andrew, you were at the first Ethereum meetup. Um, and I've heard you say that you read the Bitcoin white paper and then you read the Ethereum white paper. And the Bitcoin white paper didn't get you as excited as the Ethereum white paper did. Why is that?
So, Bitcoin was a great opening act, a funky experiment in monetary policy. But simply put, there's one asset on the Bitcoin blockchain, and it can do one thing: send. Uh, there's the one asset being Bitcoin. And with Ethereum, we can tokenize any assets. So, we can essentially have infinite assets and infinite functionality, anything we can programmably dream of. And with that, uh, I thought that this white paper of Ethereum could be the substrate of the next generation of the internet. And here we are, 10 years later, and we'll get into more of, uh, the story of what happened in those 10 years, uh, in a second. But first, Andrea, on your end, you've had a bit of a different path. You've gone from Harvard to Wall Street to energy infrastructure, uh, and SPACs, and now into a public Ethereum vehicle. Why now? Why make this transition? Why make this move into digital assets?
So, I come at it from a very different direction. You're right, Jay. And, and I have to fully confess that earlier this year, I was a crypto skeptic. Uh, I knew nothing about the space, very limited knowledge. And, you know, uh, Andrea and team taught me everything I know. And obviously, it's been an incredible learning experience. But, you know, the real reason why, Jay, is if you really take a step back and as I was going through my educational process, is I, you know, one of the, um, interviews I listened to was, uh, Bill Gates's interview on David Letterman show, um, when David makes fun of Bill, you know, we, what is this internet thing? We already can share information. We have radio, and we have TV, and we have newspapers and telephone, etc. Uh, why is this necessary? And obviously, fast forward to today, and, uh, you know, to Andrew's point, this is the internet moment. And so, uh, it really was an eye-opening experience for me just to study the asset class and really taking a step back, Jay, and, um, studying how it's going to influence everybody's daily life, uh, in a measure that we can't comprehend today, or the majority of the population cannot comprehend today. So that's why Ethereum now, and that's why we partnered with Andrew and his team.
Andrew, you've been in tech for a while. How big of a tech innovation is crypto and blockchain?
So, so I would say we can't put a TAM, we can't put a total addressable market on this because we've never been able to value the internet. We, and, and furthermore, we've never been able to value the concept of trust. And, and, and basically, what we're doing is we're codifying agreements, right? Uh, you know, our Microsoft Word documents are going from words, legalities, to if-then-else statements that instead of a breach of contract having to be litigated, that breach essentially can't exist when you have your agreements codified. And, and, and, and that aha moment, uh, is, is, is an, is a change of the gear of how humanity can agree and disagree with each other. Uh, so, so basically, I think once we have this trust base and, you know, digitized assets that are embedded into digitized legal agreements, we are going to see an increase in the velocity of capital, and we're going to see, you know, changes in liquidity profiles where, you know, in, in a previous, uh, world with paper-based legal on Microsoft Word documents, one may have to have a loan to value of 50%, where now that it's a digital-based smart contract, it could be 15%. And, and that kind of inertia, uh, in real-time gross settlement is going to have a profound impact on Earth.
It feels like what has happened in the last, I'm going to say, two years post-Bitcoin ETF, I'm going to take that as the tipping point, has been an acceleration of not necessarily the outcome of where we're going to be in decades from now, but the adoption of institutions to trying to figure out, okay, to accepting, oh, the future of finance is going to be on-chain, and we want to be a part of that. And the stakes of that are massive. Like, we're talking stakes that I don't even think crypto people fully appreciate. And I don't think it's, it's, as you said, Andrew, it's very difficult to estimate the TAM of the internet. This is, this is so big. It is something bigger than I think anybody can really appreciate. And in the day-to-day, we sort of lose that. Like, I remember, and you probably feel the same, back in the beginning, we were very visionary and very, in crypto, it was all this theoretical talk about what it could be someday. And now that we're in it and we're making that happen, it moves a little bit slower than we want it to. And we need to be patient, and we need regulators, and we need all these things to happen. But it feels like there was a tipping point in the past few years, and now we are on a different trajectory. And that trajectory is something that you can't stop. That is inevitable, and that is the future. Where that shakes out and how that shakes out, I mean, that's why we have conversations like today.
I want to rewind the clock for a second. Andrew, you mentioned that, you know, the 10-year period from, uh, early days Ethereum to where we are now. Can you just give us a bit of the backstory and the origin story of the Ether Machine into why you identified a problem within, I mean, really a technical nuance that I think you saw within Ethereum and Ethereum ETFs and staking that led you to create it? Can you, can you run us through that?
Sure. So, to your point, there's a great quote where, you know, there are decades when nothing happens, and then there are days when kind of everything happens, or decades happened. And, and, and to that point, uh, you know, there has been, kind of this aha theoretical point on what is blockchain, what is Bitcoin, what is Ethereum. And then there's been this long slog, frankly, because innovation takes time, where you've got the world the way it works now, and, and incumbency doesn't want to seed their power. Uh, and, and, and, and basically, a decade ago, every Fortune 500 had a smart young software engineer that kind of read the early Bitcoin or Ether white papers, and, and she or he, uh, kind of asked their boss, you know, "Can we create a proof of concept? And can we, you know, can we put that proof of concept into MVP? Can we put that MVP into production?" And over the last four years, you know, let's call it the prior, uh, political administration, many of, uh, the many of these projects were stymied. And, and now those headwinds have turned to tailwinds. And I think that confluence of factors kind of led us here from a regulatory standpoint. But to your question, uh, there, I was approached by one of the large ETFs, the Ether ETFs, and, and, and basically, they asked me if I would be their market maker because I run an institutional staking provider from inception of Ethereum's proof of stake. Uh, and, and, and basically, what their problem that they were trying to solve, and it's very topical right now, is they were trying to solve the technical issue of the withdrawal queue. So, there has been a potential hack, uh, that happened with respect to a Solana staking, uh, team, uh, over the last couple of days, and they have exited all of their Ethereum staking. And what happened is the withdrawal queue to unstake one's Ether has gone from a couple of days to 40 days. And if there were a black swan event to occur, that withdrawal queue could go from the 40 days it's at now to six months or a year. And that does not jive well with the 24-hour redemption mandates of an ETF. And right now, in America, the ETFs currently do not enable staking, but we believe in time they will enable staking. And, uh, but as a proxy, you can look at Canada or Europe, and they're staking at what I call 50% capacity. Meaning that if one had a billion dollars in a Canadian ETP, and they would be staking $500 million Canadian dollars, and they'd be earning the 3% yield on the $500. So on the total billion, they'd be earning one and a half percent. Uh, and, and basically, they are only doing that with what I would call vanilla staking, which is one of three buckets, broadly speaking, of ways to earn yield using Ethereum: vanilla staking, restaking, and decentralized finance. And, and basically, I said, well, that's not the right way for a public market investor to have exposure to Ethereum because, A, the public market investor wants to have full capacity of staking, plus the ability to do restaking and DeFi. And so with that, we set out to create the institutional vehicle to do this best.
Yeah, it's a, it's a clear opportunity that you saw in the market. I, I want to take a slight step back for a second. Why employ an Ethereum-based treasury strategy? Why not a Bitcoin or, or Solana or another token?
Sure. Sure. So, I believe Ethereum to be the next generation of the internet, and it is the only available substrate that nation-states, Fortune 500 corporates, and regular people like you and me will be able to trustlessly interact on a global scale. And, and, and it is experiencing parallel dynamics similar to Google with search, where with Google, 90% of searches happen there, and 1% happens on Bing, 1% happens on Ask Jeeves, 1% happens on Yahoo. And 90% of high-quality liquid assets, which is a defined term by the Financial Accounting Standards Board, HQLA, are settled on top of Ethereum. And, and basically, the next largest competitor has about 9%, and then the, the, it, it continues to kind of fall off, uh, the, the beaten path. So, basically, liquidity begets liquidity. B, it is the only one that has an, there's a point of client diversity. So, there are 12 implementations of Ethereum now. Uh, there's a Java client, a .NET client, a Haskell client, and all of these clients have to form consensus with each other, uh, every six seconds as a block, uh, propagates. To give you an idea, Bitcoin has one, Bitcoin Core, and Solana has one. Just to give you kind of an idea there. It is the most decentralized. The, it has the most validators around the world that are forming consensus and has had 100% uptime, uh, since inception. And, and so basically, we've gotten this platform that works, that has attracted the most amount of capital, that has decentralized client diversity. And lastly, it's, it's kind of a historic technology lesson. Java became J2EE, Java 2 Enterprise Edition. Uh, and it became the most permeated software language in the world when it converted from Java to J2EE. And what that basically was is it created standards, and it had clean web APIs and clean database APIs. So if you were a developer in Mumbai, Paris, San Francisco, New York, Houston, wherever you were, you were using the same standards. And what we've seen is the modularity, uh, of standards that are created. So, basically, one example is the ERC20 token standard, and that ERC20 can go into the wallet standard. So, basically, anyone in the world could create a token that represents some type of asset, and that asset would fit safely into a wallet. And because of this, we've been able to build different types of tools that all work together. And that's created this zeitgeist, Cambrian explosion, whatever cliché you want to use, and, and, and has propagated Ethereum to kind of the most used developer ecosystem with the most distributed validator set, uh, and, and, and, and I guess most importantly, the most amount of assets by a factor of 9x.
Yeah. Yeah. And if, and if you're listening and you know, you don't know the different standards within Ethereum, don't worry about that. If ERC20 isn't necessarily mean anything to you, you don't need to know that. What you need to know is you need these standards in order to achieve mass adoption because you need millions of developers around the world building in your ecosystem. And these standards exist very strongly, and we're really a part of the initial building of Ethereum. These standards were very well thought out by the team in the early days, which, yeah, exactly. And it, it shows how earlier, I mean, you use the JavaScript example. What is there, 16 million JavaScript developers in the world? And there's about, uh, 20,000 Ethereum developers. Like, you know, we're so early, so early. Uh, okay, I want to, I want to shift gears for a second to, uh, to DATs. So, um, I want our audience to understand the difference between different DATs. And this is going to get a little bit nuanced because I think you can really get into the weeds of the differences. Uh, but let's start by talking about the Ether Machine and the way you're building the Ether Machine, and then we can talk about the other DATs and how they're built differently.
Sure. So, so, so I, I, I, I guess I'll, I'll talk about this from kind of being patient zero, and I'll, and I'll let Andrea chime in, and I'll shut up. But, but basically, I was going to commit capital to this endeavor because it was my, uh, strong opinion that this was the best way for public market investors to have access to Ethereum and Ethereum's yield generation. And, and, and basically, we've talked about the on-chain yield generation, uh, and then that there are other things that one can do when one has a public company, uh, and, and, and that is, let's call it, off-chain ability to increase one's Ether concentration per share. And that, I think, is an important topic for us to understand. Our north star metric is, if we have an investor that purchases a thousand shares, for example, and that thousand shares equals one Ether, we have to be able to increase the amount of Ether they have per those thousand shares. So the goal would be to increase that, you know, one Ether to two Ether. And we can do this on-chain by, uh, participating in staking, restaking, and DeFi. And we can do it off-chain by using the public equity and debt markets to, uh, basically acquire more Ether. And this is really what Michael Micro, Michael Saylor with MicroStrategy, uh, pioneered, and, and he should be given credit. And basically, what he was able to do was he was able to issue bonds, and, and with those bonds, there were, uh, bondholders that wanted to acquire volatility. And then with the dollars he received from those bonds, uh, he was able to purchase additional shares of, excuse me, additional Bitcoin for the shareholders that wanted additional Bitcoin concentration per their shares. So I thought that this was the right vehicle because we, Ether has double the volatility of Bitcoin, and it has the ability to generate yield, which Bitcoin doesn't have. So when I went down the rabbit hole, I said, well, Ether is a better mousetrap than Bitcoin because it's a productive asset that has double the volatility, which would be more valuable to bondholders. Uh, and then I went down the path, and broadly speaking, there are two paths one can go. One can do what's called a reverse takeover of a shell company, or they can create a de novo, or a brand new entity, and, and do a merger with a special purpose acquisition company. And, and, uh, and can is, is the subject matter expert of special purpose acquisition companies. And I had a few conversations with a few shell companies, and I knew that I wouldn't feel comfortable putting my capital there. And as patient zero that deployed 170,000 Ether into this vehicle, uh, to lead by example, as I wouldn't suggest someone else do something that I wouldn't do. Uh, I, I learned very quickly, I didn't, I wasn't comfortable with what I would call contingent liabilities. And I'll just give you a quick anecdote on some of these types of contingent liabilities. I talked to one, which was a dying biotech, where the, uh, the drug didn't make it through clinical trials. And then, and so basically, the company was going to go bankrupt, and the CEO would have to stay on the board due to, uh, control provisions. You can't just, if you have a publicly traded company, just change the management, you know, willy-nilly. And, and, and the CEO wanted $5 million a year and couldn't spell Ethereum. And, and, and basically, I didn't want to deal with a pre-existing operating business. Another one was a Bitcoin mining company that had a data center lease for 10 years. They were in year four of 10, and it cost $10 million a year for this data center. And with Ethereum, you don't need the data center because they don't do proof-of-work mining. And so that would have been a $10 million a year leakage, you know, ongoing. There are other ones that, uh, are, are, are, are basically saving capital that are invested in these treasuries to potentially settle lawsuits because, you know, you basically are inheriting a company that has a four-year statute of limitations. So what they've done for the last four years, maybe while their micro-cap or their market cap is, you know, effectively zero, isn't worth, uh, a lawsuit. But once a billion dollars is put in of digital assets, that becomes kind of a honeypot for class action lawyers. So very quickly, I, I, I said I didn't want to inherit an existing operating business, an existing management team, uh, existing potential liabilities in these, you know, these lawsuits that have statutes of limitations of the last four years that I don't know. Um, and so what we've done is we formed a de novo, brand new LLC, and we merged that with a special purpose acquisition company. And maybe Andrea would be best to explain, uh, kind of what a special purpose acquisition company is and, uh, kind of the value, uh, that a special purpose acquisition company provides.
That's great. I'm going to exit the interview. Actually, you guys can interview each other. Perfect. That was my next question, Andrew. I love it. Okay. Why do people invest in real estate? Because it spits off cash flow. But I'm not here to manage rental properties. That's why I'm looking at Figure Markets. Their new democratized prime product backs your money with real cash-flowing assets and returns up to 9% APY. It's the first real-world asset borrow-lend pool built for everyone, not just institutions. Ready to lend like a bank and get more than the 5% APY offering you? Download the Figure Markets app today and get 9% on your idle funds. Go to milkroad.com/figuremarkets. The best audience to distribute your product to is your super fans. Duh. But what if you haven't found them yet? That's where KGEN comes in. They help businesses scale digital distribution at a price that makes sense. KGEN's verified distribution protocol identifies the best users for your product and connects you directly to them. Ready to find real, meaningful users for your next big product? Join the KGEN network today at milkroad.com/kgen, spelled K-G-E-N.
Uh, Andrea, explain us back to us, and then afterwards, I do want to come back, Andrew, to, uh, that risk, because that risk that you mentioned is significant for a bunch of the DATs that are out there. So, but give us the background on what a SPAC is for those of our listeners who don't know.
You know, I like to actually take it a little bit, uh, sort of more macro, Jay, Andrew. And, you know, I come from an oil and gas space and infrastructure space, and that's a, you know, well-developed arena, but it has gone through very similar evolution that, you know, likely the Ethereum and the crypto space may head into over the next few years. But if you are an investor in 2008, when shale started to boom, and, you know, America was on the path to become the biggest oil and gas producer on this planet, you essentially had three options. And you have three options today, uh, in the crypto space. So, option one is you can buy a barrel of oil, um, which is hard to do, cumbersome, etc., etc., but you can do that express review in 2008. The second was, uh, you can express it via ETFs, again, similar to what you can do today, uh, in the crypto space. And the third was, well, let me just make my life easier. Number one. So I can invest in Exxon or Chevron. But not only easier, but also a company like Exxon or Chevron, or Ether Machine, should create more value than my barrel of oil because that is, obviously, a barrel creates energy, but it's a more of a passive asset. But what, you know, we, and Andrew and the team, are planning to do with the Ether Machine is we are going to actually create value that's incremental to the value of ETH. So I would say that's, you know, step number one why you should be thinking about investing directly into companies and not, you know, just the assets. Essentially, the second piece, and to tag along on Andrew's point and what SPACs are, so, um, you know, I've been in the space of taking multiple companies public via IPOs or via SPACs and via different structures. And a SPAC is essentially a blank check company. It's a company that has, you know, a certain amount of capital. We have $171 million in trust capital and cash. And our sole purpose in life is to look for another business or two businesses, but generally one business that's going to acquire another company that essentially will survive to be the public entity. In this case, is the Ether Machine. Now, why do you do that? Right? So, um, in IPO format, it's a long drawn process. It's, it's, um, full of a lot of surprises that you can't expect. Versus in a SPAC format, you can run a very quick process. You can raise a lot of capital, and you can make sure that you have the, you know, the capital base from an investor perspective and balance sheet perspective that's adequate for the company that, um, you are looking to build. And so, you know, when we think about the Ether Machine specifically, and the reason why we partner with Andrew's team, uh, and, and we think that's the, uh, you know, best team in the market, uh, today, is number one, um, when you look for companies to go public, um, you look at a company that's highly scalable over the next five to 10 years. That's not a little zombie that nobody's going to like in the next, you know, six months. So, that, that was the first component. Is this company backed by a team that knows what they are doing, who's been doing it for a long time, and who is the best-equipped team in the industry to actually take it to the next level? So that's sort of the criteria number number one. Uh, and number two, and I do want to highlight this in this context. I mean, Andrew's alignment in, uh, in terms of his contribution to the Ether Machine is unprecedented. Right? He, he, he, he is forced to do what's the best thing to do for public investors, uh, that are going to invest or that are invested currently in the Ether Machine. So that's very unique, very unlike, you know, some of the others. And, um, and that really is an extremely important base to scale the business to the next level, just like Chevron, just like Exxon. You got to have a business that can scale to the next level.
So, we're hearing so much about DATs right now. And depending on where, where you would like to put the starting point of DATs, whether you go back to Michael Saylor and MicroStrategy, or whether...
Absolutely. I would, I would absolutely. I would go back there. But I kind of, I kind of like to say that the, not the starting point, but the moment is more like three months ago, four months ago, like really the moment, right? And so, um, the only reason I say that is just that we're so, we're, I'm trying to paint the picture that we're so early. Is this a, is this a, is this a meta right now that is just a moment in time, or are we going to be talking about DATs for a long time? And I really like your, Andrea, your example of comparing DATs to oil companies, and that is a common example that's made. We've also heard the example of DATs are just the future banks. What are DATs going to be long-term?
I'm happy to take a crack at this. Uh, I think that the digital asset treasury, specifically for Ethereum, which is a productive asset that we've spoken about, is the best way for public market investors to express their view because one can acquire Ether and, and, and stake it on a retail exchange and get charged 30% plus. I think that's inefficient. One can put, acquire the ETF, but only have a partial capacity of one bucket of yield generation. You know, they, they get 50% of the vanilla staking. They don't get restaking or DeFi. Or this vehicle, you can have full capacity staking plus restaking plus DeFi on the on-chain world. And then we can also add what the American capital markets, which are the best in the world, are good at, which are basically adding financial instruments. You know, I can, I can pick it up, Jay, too. I mean, you know, from our perspective, again, this is not, you know, a, uh, sort of revolutionary time. If you really take a look at the past 100 years, you know, plus, uh, of capital markets history, um, this is a time where you are facing an industry at a transformational point. And what you're likely going to see is a number of companies entering the DAT space. They are going to enable, essentially, the entire, you know, ecosystem to grow. And I think what's, what's really important for investors and newcomers into the space is, uh, understanding that, you know, you have to evaluate those companies on an individual basis. And, you know, pick, just like you do in, you know, in healthcare or consumer products, pick the ones that are, you think are the strongest ones that are ultimately going to, you know, consolidate the space and are going to be the leaders in the space. But you, from our perspective, again, we've, we've lived through it in the energy space. You know, you are going to have ups and downs. Um, but what you really want to see, and obviously that is, you know, where we are hoping the space will end up, is you are going to see an upward trajectory, right? So this is not going to be going this direction, it's going to be going more in this format. And so that's where we see the ecosystem is going to grow. There are going to be more players, and essentially the strongest players are going to be the ones who consolidate, who are the leaders in the space, just like, you know, Walmart is, or Google is, or, uh, you know, ExxonMobil is.
Andrew, you're back. We lost you for...
Sorry about that.
It's all good. It's all good. Uh, uh, and Andrea picked up where where you left off. I just wanted to give you a chance, uh, to finish what you were saying before.
Yeah. So, so I, I mean, so, so I, I kind of spoke specifically on, on like the Ether, uh, example, but I would say, you know, our DATs, banks are, you know, our, our DATs just a flash in the pan? Um, the American capital markets aren't going anywhere. They're the deepest, most regulated, uh, place in the world. And I think that what this is doing is meeting institutional investors where they are. So 90% of pension funds or endowments can't open up a Coinbase account and go and buy Ether or Bitcoin. And, and basically, what we're able to do here is create a vehicle with, uh, the, in, in nomenclature that they understand, uh, where they're able to express their interest. And with that, we get a microphone to explain what is Ethereum, what is staking, what is restaking, what are the use cases that this technology enables. So I think that that's an important consideration. And then, like, are these potential digital banks? I don't think they are. I think that, you know, there are different iterations of this. What we are, are expressing is a pristine expression of Ether-denominated yield generation, uh, for those that are looking for a beta play on the next generation of the internet, meaning that, you know, all of the applications that run on Ethereum. And, and if you kind of think about, you know, do 85% of apps went to zero? Right? 85% of dot-coms went to zero. The other 15%, uh, changed the way the world works, but all of them ran on HTTP. And, and, and similarly, uh, the majority of applications, the majority of assets are sitting on top of Ethereum. So while the application layer finds product-market fit, and we've seen kind of early product-market fit with things like stablecoins, uh, 80% of stablecoins are settled to Ethereum. And each time there's a transaction on an Ethereum Layer 1 stablecoin transaction or Ethereum Layer 2, that burns this micro-payment, this commodity. You know, and it's interesting, you know, that we, and, and, and I think intentional in hindsight, maybe it was supposed to happen that we, we, we, we merge with an oil and gas subject matter expert, because basically, this is a digital commodity that for every computational step, it requires this digital fuel. And I, I would just add one thing to Andrew's, and maybe, you know, when you asked that question, Jay, you know, has there been really a sort of this renaissance in, uh, the past three months? I mean, the factors, and again, this is not the first industry that's going through this, it's just the scale, scale of this industry, we believe, is much larger than others. Is number one, obviously, have regulatory, you know, support that is very important. But really, what's important, and that's, you know, again, how, uh, why we decided to wrap our head around, uh, partnering with Andrew's team in the Ethereum space, is consumer, uh, sort of adaptation to the space. So that's from an institutional perspective, you know, have JP Morgan, you have BlackRock, you have Robinhood, you have Deutsche Bank, etc., embracing this digital asset class. That's number one. And I think the moment where we are standing at right now, it's, it's a really pivotal moment where we need to, we actually need to do a better job, I believe, than the oil and gas industry has done, because that it became a little bit of an echo chamber, right? At some point, this is some guys in Midland, you know, you watch the Landman series, this is how these people roll. We don't understand the space, and, you know, uh, we don't know what to do with it. What we see now is an opportunity to one, educate institutional investors. You really need to get people at large scale to learn about the space. And I know that, you know, a lot of the viewers here, they've been living and breathing it for a decade or a long time. That is not the vast majority of institutional investors, and I would say the second piece, it's certainly not the vast majority of consumers. So that is the other piece. I literally had probably 150 discussions with individuals from, you know, very, uh, successful individuals, very smart guys, to, you know, my dad, who is a car mechanic, and explaining to all sorts of people, you know, sort of, you know, I would like to be like, you know, I would like to be somebody like Steve Jobs, who is in very simple terms, is able to explain how it's going to affect my dad's life in the Czech Republic as a car mechanic, and how it's going to, you know, uh, affect the life of a Princeton University professor. But I think that's the piece where I feel I'm, I'm the biggest excitement I have about this space is introducing this to the general population and inviting consumers, but also investors from institutional to retail. And I think we should not miss that moment. That is critical.
It's, it's certainly a big signal that you chose digital assets as your next venture for your SPAC. That's a massive signal. You could have gone in many different directions. You could have gone in a different, completely different industry. You could have stuck in energy. You could have gone into AI. Like, there's so many, so many different ways you could have gone. So that is a, is a large signal in itself. And I, I completely agree with the, the learning and education that needs to happen for all, basically everybody is, is an uphill battle. And I mean, that's why we do this show. Before, before we wrap up, I have two quick questions that I want to ask. I hope, I hope they can be quick, but it's always difficult to do quick questions. First is, and Andrew, you kind of touched on this, is what's the, what is, what's the impact to Ethereum of these types of vehicles being being available to public markets?
So, I think you get an additional bid on Ether, which we saw happened with Bitcoin and Michael Saylor, that there was an institutional bid. I think that's one consideration. So I think it'll be beneficial for the price, and when price goes up, people talk about it, and people learn about it. I think that's one consideration. Two is the education that Andrea just touched on. Uh, we wouldn't be having this conversation, and the other thousand conversations we've had over the last three months, uh, had this not occurred. Uh, we're also going to get what's important is sell-side research, meaning, you know, City Bank was our banker, you know, a lot, and a lot of these DATs have these banks that I've never even heard of, but, but, but we worked with City. KPMG is our auditor, you know, Big Four auditor, uh, and, and, and basically having these types of institutions publish research for analysts, investors to understand, you know, what is the discounted cash flow of Ethereum, what is the value of, uh, of a smart contract-based transaction versus how one would happen in a legacy environment. And, and basically, kind of broaching all of that, uh, occurrence. And that plays, right? These institutions have operations that could be upgraded. You're hearing about, you know, all of these institutions, due to the Clarity Act, where we just got stablecoin clarity, becoming custodians. And, and the largest beneficiary of this, of the Clarity Act, is Ethereum because over 80% of the stablecoins settle to Ethereum. So, so I think we're basically creating kind of infrastructural rails, and this is one of the many pillars of a new ecosystem. This isn't the be-all and end-all, right? There's going to be a decentralized environment. There's going to be venture investing in the application layer. But what this does is it creates the ability for anybody who doesn't want to deal with a public-private key pair and, you know, two-factor authentication to be able to express their view. You know, the dentist in Chicago can buy some of this stock, uh, and have that exposure and sleep well at night. So I think there's, it's kind of multifaceted. It's, it's such a reminder that not everybody wants self-custody. Like, it's me, we all, I'm my own worst enemy. I don't want a gun because I'd shoot myself. Like, like, I don't want, I don't want self-custody. I don't want anything. Right. Yeah. I, I'm my own worst enemy in, in basically all of my life.
Okay. What's, what could break this? What's the downside? We talked a little bit about this at the beginning. Uh, there is a massive opportunity happening right now. There's a lot of capital flooding in. A lot of people trying to get on top of that opportunity. Bubble is what everyone's thinking. Is this a bubble?
So, I, I don't know. I don't know if I think about bubbles as much as I think of this industry is good at at being grouped. And, you know, FTX blew up, everyone in crypto is bad, uh, you know, is, is, is just like my naive kind of first response. And, and what I'd say is, you know, all of these digital asset vehicles are not created equal. And, and I use a term, if you play silly games, you win silly prizes. And there are lots of, as an example, there are lots of venture capitalists that bought application layer tokens. They're not protocol tokens. They're not commodities like Ether is this digital oil that's used for any application. But let's say they built, you know, some type of .com website and issued some type of token, and that token is in a vesting schedule where it's locked up. And in any transaction, if you're my counterparty and I'm selling you something that's locked up, you would typically ascribe a discount to that. Maybe you say, you know, if we value this asset, you know, this locked-up asset at $100, you say, I'll buy it for $50 or $75 because I have to deal with that time duration risk. And, and, and that's just how the world works. And, and what we're seeing in some of, I would say, kind of the lower-effort vehicles is maybe retail doesn't necessarily understand that. And retail doesn't understand that they're acquiring, and they're essentially buying someone else's liquidity path, right? Venture capitalist XYZ now makes this vehicle. They, they buy some shell company, and so they're basically exiting their position to get dollars, which they'd love so they can make other investments. Uh, and, and, and basically, the other side is stuck with this locked asset that may or may not be at that true value. So I think, you know, a lot of what the SEC is very good at is consumer protection. And, and basically, we're trying to do this by the books with the right auditor, with the right banker, with the right legal firm. You know, we're probably the most prudent on the scale and, uh, and, and, and we'll see how that goes. But I think there are issues in that regard. And then I think there are these issues of pre-existing liabilities, these kind of skeletons in the closets of these shell companies where, you know, which is, sorry, just to interrupt, Andrew, which is how most DATs so far have been created, right? That would be the more common structure is by a shell company over...
Yeah. Okay. Yeah.
And, and, and so I, I think because we're in month three, and the class action lawyers of the world take, you know, a couple months to prepare their complaints, um, I, I bet, you know, you know, let's call it nine months from now, a year into this, a bunch of these are going to have, you know, skeletons in the closet come to light. And then lastly, I would say, uh, these vehicles, uh, can employ leverage, meaning they can issue bonds and, and basically maybe potentially borrow too much, and there can be a down cycle. And, uh, I think there is a place for leverage, but leverage has to be properly managed, right? And, and you can't get over your skis, and you have to basically splay. And I think MicroStrategy is a great example. You know, people go out and they put 20% down on a house, and they take 80% leverage. So they basically go out 5x or 4x their their downside. MicroStrategy kind of inverted that, where they've got, let's call it 20% leverage and 80% equity. Um, and they also split it where some of that was in convertible bonds that really has a duration. You know, you know, this could end in two years or three years and convert. And then they have preferred shares, which doesn't have a duration, but has an ongoing coupon that they have to pay. And so they've splayed that leverage, uh, risk, which I think one has to consider. And this is professional risk management. You know, we've got, you know, chartered financial analysts that that have been doing this at places like JP Morgan and SAC Capital, Steve Cohen's shop, which is one of the largest hedge funds in the world, that that basically, uh, can, can, that create risk models accordingly. Um, and I don't know if the, the, the low-level, low-effort, you know, hundred million dollar vehicle that someone's trying to, you know, get rich quick on, uh, is going to employ those same types of risk management, uh, considerations that that we're employing.
Yeah. I mean, Jay, you know, from my perspective, um, you know, the American capital market is a very exciting one. There are certainly booms and busts, and it always swings too much one direction and then the other. So, uh, you know, I, I want to be very clear that this, this has been happening for a long time. It will continue to happen. But, uh, you know, what, what, uh, how I feel about the space, and I've run, you know, public companies, um, what's really paramount about, uh, this time and the new companies entering the public arena is, this is a serious business. To Andrew's point, you are regulated by the SEC, a number of other regulators. You are, uh, you have very serious and large institutional investors. And this, uh, you know, running a public business cannot be taken lightly. And so, from balance sheet to having the right, you know, uh, processes in place, and, uh, you know, focusing on the right disciplines, not, you know, getting swayed, "Oh, this is an exciting shiny company, I want to go for that, and I want to acquire another business," and then, you know, two years later, you are sort of left with something that's totally different from the type of company that, you know, investors actually initially invested in or are interested in. And so I think the really critical piece of the equation is, uh, you know, having serious management teams, one, two, three, or a number of public companies in the space. It is important to have a number of serious players to get scale in the, you know, and credibility in the public arena in the Ethereum and generally digital asset space. But I think again, going back to what I, I feel it's critical, I know it's critical because we've seen it in other industries, is if you run a serious business, and you, you know, are sort of good stewards of the capital, you will attract the large institutional capital, which is really what's, um, ultimately going to be, uh, you know, one of the biggest drivers, uh, of this space in the next, uh, years and decades to come. That's, but, but that money is not going to come in unless, you know, we run really, uh, high-quality public businesses at, at scale, and, you know, high, high level of stewardship.
Well, I can't wait for a decade from now to give you both a fist bump and a high five for doing exactly that for us and for all asset ecosystem. I know, I know you will. I have nothing but faith. Thank you so much to both of you for joining us today. It's been a pleasure to have you on the show.
Thank you, Jay.
Thank you, Jay.
Thank you, Andrea.
Thanks, Andrew.
Thanks for tuning in, everybody. I want to remind you, as always, none of today's episode is financial advice. I'm not your financial advisor. And Andrea and Andrew are not your financial advisors. If you're going to make investments, you should speak to a professional because investing is risky. And the show is for educational informational purposes only. As I said at the beginning, check out our pro report coming out this Saturday, where we talk about the next phase of DeFi and the, what we are calling the platformization era of DeFi. It's got tons of alpha. Thanks for tuning in, everybody. Have a wicked awesome day. We'll see you back again tomorrow. If y'all are making swaps or trades right now, highly recommend you check out Milk Road Swap. This is a DEX that we built in partnership with Cow Protocol. Why did we build it? Not to make money, just honestly so we could have a place to do our swaps for the lowest fees that we could find. These are the fees on Ethereum, Arbitrum, and Base are only 0.15% fees. Uh, this is a huge difference from other centralized exchanges that charge half a percent or even up to 1.2% fees on their swaps. Also, you can swap on Solana. All at swap.milkroad.com. Check it out today, you won't be upset, and you can join me in my favorite place to make swaps on-chain. As always, if you liked today's episode, please hit subscribe and make sure you follow us so you don't miss out on the next one. There's also a link in the description to our free 5-minute daily newsletter where we simplify crypto for you while making you laugh. And if you're willing to step up your crypto investing game, we're going to also leave a link for Milk Road Pro. You get access to our portfolio where you can see exactly what we are buying. This is your number one resource to help you invest successfully in crypto. One final note, this show is for educational purposes only, and nothing we say is financial advice. Investing in crypto or any asset is risky, and you should never invest more than you can afford to lose. Thanks so much for listening in, my friends. Have a wicked awesome.