← CRYPTO 101
CRYPTO 101
Ep. 639 How Crypto Native Investment Firm CoinFund Sees the Crypto Markets w/ Chris Perkins
00:47:21
Loading summary
Transcript59 lines
- [00:00]
Bryce Paul
Foreign.
- [00:10]
Brendan Veeman
Everybody. Welcome back to another episode of the Crypto 101 podcast. I'm your co host, Bryce Paul, as always, joined by my good buddy, Brendan Veeman. Brendan, no bad days in crypto, whether the markets are up or down. Today we got lucky with some up. Who knows what the future holds? But all things considered, how are you doing?
- [00:32]
Chris Perkins
You know, Bryce, I'm doing good. You know, you're right. There are no bad days in crypto. But you're always asking me how I'm doing. I'm going to flip the question on you today, Bryce. How are you doing?
- [00:41]
Bryce Paul
Wow.
- [00:42]
Brendan Veeman
It's the first time you've ever asked. No, no, I'm doing really good, actually. I'm excited. You know, we're. We've got our baby boy, so I'm, you know, a few months into fatherhood, which has been great. I'm learning a lot, and it really helps me to stay cool during the market volatility. You go, things are going up, things are going down. You're freaking out. And then you go, you wake him up from his nap and he just smiles at you and you're just like, oh, wow, okay. None of it really actually matters, you know, if it's up five, five bucks or down five bucks. So, yeah, yeah. Appreciate you asking. Things are good. We've got an awesome guest today. I mean, this is really the, the creme de la creme when it comes to crypto investing and trading. A gentleman who has, you know, served our country first and foremost, you know, and also has started an incredible crypto fund. This is Chris Perkins, actually, who's joining us from Coin Fund, who's the president. Chris, welcome to the show and how are you doing?
- [01:39]
Bryce Paul
Thanks, Bryce. Good to see you, Brendan. And I hope you're getting some sleep with that baby. It's great. When you get up with those midnight feedings, you can just, you know, look at the markets because they never sleep, do they?
- [01:49]
Brendan Veeman
Yeah, I'm getting real good at scrolling trading view tickers and changing diapers with the other hand. And it's a new skill. It's a new skill. It's the kind of stuff that the intangibles that don't show up in the, you know, the leaderboards. But no, things have been good. And we're really excited to have you on. You're a veteran of, of investing period, not only in crypto investing, but you've been trading, you know, I believe you were in the bond markets way back when and, you know, and you've started this venture Liquid venture hybrid fund. We want to know everything, but we're going to try and break things down, slow our roll here. Start with some, you know, introductory questions just to get our audience acquainted. Chris, could you just tell us a little bit about your background prior to founding Coin Fund? And then really, what was it eventually, that. That got you to starting a crypto fund?
- [02:41]
Bryce Paul
Yeah, I'm actually not the founder of Coin Fund. I'll get into that. But I started my career as a US Marine and I served in Ramadi back in 2004. It was a really, really rough fight. You know, my unit took a number of casualties, but that gave me a lot of perspective. It gave me perspective about things like risk management. I left the Marine Corps and I went into traditional finance. I was first at Lehman Brothers. And so the joke was I was blown up in Ramadi. Then I went to Lehman Brothers and I got blown up again. Oh, my Lord. But you know what, whenever you go through these types of experiences, you really learn so much about yourself and you can build the best relationships you could imagine. And so after Lehman got a call and Citigroup wanted me to come across, I got on the train the next day, had to clean up my own mess at Lehman Brothers. And then the world changed. We had the global financial crisis, we had Dodd Frank, and we had to take this entire industry of derivatives from unregulated to regulated. And there was a guy who jumped into my life. His name was Gary Gensler. He was my regulator.
- [03:47]
Brendan Veeman
Did not see that coming.
- [03:48]
Bryce Paul
Yeah, yeah, yeah. And he's going to be leaving us here soon. And I'll reserve my comments, but the point is that that was my first experience of taking a market from unregulated to regulated. I got into the FX space after that. I ran our fxpb. After it blew up, they shipped me in. I was the cleanup guy. And then the last job on Wall Street I had was I was running our global futures business. So the three of those businesses, voice and electronic execution and clearing across those three business lines. I got into crypto 2013, 2014. I used to sit next to a woman named Sandy Call. Sandy is now the head of strategy at Franklin Templeton. She's a massive crypto nut. You should get her on the pod. She's a wonderful human being. Loved it. We started digging into it and we realized something was really interesting. But I was going to be a founder in the bull market of 2017. Had a little kid, wasn't ready for it. But eventually I couldn't help it anymore. Because I realized that the technology I was dealing with in traditional finance was awful. I mean I was using 1990s green screens, but I would go home on the night and weekends and I would mess around with this thing called DeFi or AAVE or compound on trade. And I could move stuff wherever I wanted instantly. And I was like, oh my God, this is huge. And then I developed a thesis and I'm like, wait a second, this is a very important iteration on the Ledger. Ledgers started 7,000 years ago in Mesopotamia. And if you know your history, that's when you saw an incredible amount of innovation. And there were advancements in art, science, mathematics. That's where algebra came from. And I think it all predicated on this fundamental ledger. There was a second innovation to the ledger in the Renaissance. We know what happened there with double entry bookkeeping. And then again, right out of the financial crisis, the bitcoin blockchain was born. This is a real third iteration on the ledger. And again the thesis is that the ledger is the backbone of civilization. It tracks who owns what, right? So thesis in hand, I knew I wanted to move across. I, I did some networking and I was introduced to the team at Coin Fund. Coin Fund has been around. We're actually in our 10th year, if you can imagine that. That's like 100 years in traditional doggy life or whatever. It was founded by my partner Jake, he is a computer scientist, mathematician. We have four strategies. We have a flagship pre seed and seed strategy. And so what we do is we find the best, the best entrepreneurs in the world and we help them, we help seed their strategies. And so that's the first of our strategies. The second strategy that we have is we call it our venture strategy. That's series A and B. Again we have these amazing founders. We look for humongous tams and big markets. With the Series A and B fund they generally have a little bit of product market fit. And so then we come in and we're really company builders. We help scale them, we help them with they're resourcing across people and marketing and regulatory etc. Our third strategy is our liquid strategy. And that's where we're looking at investments in liquid assets. And then the last thing, I couldn't help it, I come from a fixed income background. When Ethereum moved from proof of work to proof of stake, I realized that those million validators now are receiving a certain like yield. And I was like, guys, this is the risk free rate of Ethereum who's building this? And they said, no one's even thinking about that, Chris. And I was like, well, we need the risk free rate. It's there. I see it. So we launched it. And it's really cool to see that traditional finance concept now being embedded into insurance companies. Futures are about to be launched. We've already traded swaps and derivatives because ultimately you need standardization for scale. And what our benchmark does is, hey, here's the floating rate benchmark and you can build all different things on top of that, even track returns against a risk free rate. So long story short, it's been a real journey. There's a lot of parallels in my life between traditional finance and working through institutionalizing asset classes and scaling them. Last thing is, I spent a lot of time on the regulatory front, so I'm on the Global Markets Advisory Committee of the so my job is to serve as an advisor and to put forth recommendations. Sometimes it's quite a battle, I'll be honest. Testified in front of Congress. And so I've been really working to proactively work with policymakers to get the regulatory picture right. Because like a word or a sentence, I learned this during Dodd Frank. A word or a sentence of regulation or law translates to billions of dollars of downstream value creation or destruction. So you got to get that part right. And that sets the stage and really supports the entirety of our over 100 portfolio companies.
- [08:50]
Ad Voice
Guys, it's been a massive year in crypto with big price movements, headlines everywhere, and major institutions with even countries getting involved. That's why you're here listening to this podcast right now. And if you've been curious but feel like you've missed the boat, don't worry, there's still time. Like we talk about on these episodes every week. With only 21 million Bitcoin ever to exist, it's designed to be scarce and that scarcity can mean real staying power. And the team at Coin Flip Preferred believe stepping into crypto should be simple, secure and on your terms. That's why they pair you with a dedicated crypto expert who guides you through every step, from your very first transaction to more advanced solutions. Plus, Coin Flip is a registered money services business and does not custody funds, so you stay in control and protected. With nearly a decade of collective experience, Coin Flip Preferred's client managers know the space inside and out. If you are ready to explore the world of digital assets with confidence, visit CoinFlip Tech Crypto1.01 or use the promo code Crypto101 for 50% off transaction fees Valid 1 per customer until May 30, 2025 at the UPS Store, we know things can get busy this upcoming holiday. You can count on us to be open and ready to help with any packing and shipping or anything else you might need.
- [10:05]
Bryce Paul
Is there anything you can't do?
- [10:07]
Ad Voice
Actually, I don't have a good singing voice. The up Nope. But our certified packing experts can pack and ship just about anything.
- [10:16]
Bryce Paul
At least that's good.
- [10:17]
Ad Voice
The UPS store be unstoppable.
- [10:20]
Bryce Paul
Most locations are independently owned.
- [10:21]
Brendan Veeman
Product services, pricing and hours of operation may vary.
- [10:23]
Ad Voice
See center for details. Come in today to get your holiday goodies there on time.
- [10:27]
Chris Perkins
Yeah, I mean it's, it really is a hard process to narrow it down. I mean, investing in trends before their trends is easier said than done. So how do you really go about narrowing down what to invest it? Because you said it yourself, you know, there's a growing number of of trends and you mentioned defi before. But you know, now we've evolved from having layer ones, to layer twos, to layer threes, to defy gaming, you know, Deepin and the list goes on. So like, how do you narrow down what you're interested in investing in?
- [11:04]
Bryce Paul
It's a great question. I think it really everything in the business world really starts with people. Speaking for our company, I'm blessed to have some amazing partners and colleagues with really amazing capabilities and distinct knowledge bases. So I'll start with my founder, Jake. Computer scientist, mathematician. He's been in the space since it started. He can get in and he can rip apart technology like no one I've ever seen. He started talking, he was one of the first guys to start talking about NFTs before they were a thing. He started talking about AI and the intersection of AI and crypto like years ago. And in fact he led our first investment in 2021 at the intersection of AI and crypto. We focus fully on the decentralization crypto space. But this intersection he knew was going to be big because of his in depth technical knowledge of the stack, the infrastructure, et cetera. We published a thesis On it in 2022 with our colleague Rishin Sharma and we've been in this space ever since, looking at decentralized data, to inference and et cetera, to decentralized training. Look at what we've seen with AI agents in only the last few months. The light bulb is starting to go on. That proof of personhood is probably going to be really, really important. I'm very grateful that my partner Jake and others had the foresight to see that with Worldcoin back in 21, that's just one example. But I've got some amazing other partners that have incredible background, like Alex Felix. Guy comes from a PE background. Been looking at different deals across CEFI DeFi forever. David Pakman, one of the leading Web2 investors in technology, has an amazing portfolio and track record. He's looking all day long at a number of different verticals, including consumer, because that's his background. Seth Ginns on the liquid side, then we have an entire array of investors who have differentiated expertise. What we try to do is stay as close as possible to the founders. You got to get out there, you got to meet the founders, you got to hear what's being built. You have to be in those conversations. And it's been quite a journey. But at the end of the day, when you've been around that long, you really get a feel for the tech, the infrastructure and the people. It's really a small industry. And one of the things that gets me excited is that I think there's less than in the world right Now. There's probably 30 million or so developers, but in crypto, I think it's less than 25,000, probably half that. It's a small industry, so you know the people, you know the tech, and you can find the value. What gets me excited is to see that number grow exponentially, which I expect. And we can talk about.
- [14:04]
Brendan Veeman
Yeah, no, we should definitely get there. But just to echo kind of what I heard, when it kind of comes to finding success in the investing world is really two things. One is, you know, good partnership, right? Finding partners that do things that you don't do, that are in. The second thing was really specialized. Right. And so when you find good specialized partner, and I could definitely attest to that, like for the businesses I've built, you know, all my partners all do radically different things. They have radically different personalities. But we all synergize. And so I think, yeah, it's, you know, it's a really good, you know, kind of word of wisdom, you know, for other people who are out there, maybe trying to start up, find partners that do things that are specialized and different.
- [14:49]
Bryce Paul
Yeah, and what are you trying to do? You're trying to find truth. And truth generally doesn't come from consensus. It comes from conviction of a stakeholder who wants to put their reputation and their track record on the line, who has an edge, who has differentiated experience. Now it's really important to be to also surround yourself with people of different backgrounds because they're going to have a Lot of questions. And sometimes if you are an expert in a particular field, you have blind spots. And so, like going through a really robust process, ripping apart an investment. Can you explain it to your grandmother? But it's very helpful to have that perspective, that unique, very smart, informed perspective to try to. What would, what we're trying to do at the end of the day is find truth. And, and that's what we seek to achieve.
- [15:40]
Brendan Veeman
Yeah, no, and, and kind of dovetailing on that, you know, there's, there's lots of truth and there's lots of fiction that the markets could spin. And you guys do a lot of early stage investing in crypto, and I can't think of an area where there's more fiction being spun than like, you know, early stage, you know, and from an early stage sort of investing, sort of crypto guy myself. But I want to know, how do you find truth? And how is Coin Fund really survived since 2015amidst all of this kind of chaos in the wild west of investing, which is crypto?
- [16:15]
Bryce Paul
Yeah. I think we have a word in our space called aping into stuff. You can't ape into stuff. You can't do it. Right. You have to have. You can't. You can't shortcut due diligence. Right. You have to know the tech. If you know the tech, you'll be able to understand the value. You have to know the founder. Because if you don't understand the founder, that's what you're investing in. You're investing in that founder. You need to do reference checks. And I think one of the edges that we try to deploy is just having been around so long, we've got great networks. We know people, we know people who know people. We know the history. We don't like operating in markets where we're blind. Like, it's always helpful to have a bit of an edge. So I say due diligence is. You need to be even more due diligent in this space because that's what your investors expect. And it's imperative that you don't cut corners. I mean, we've seen a lot of people get burned over and over again. People go out of business, and that extends to just how you operate. You have to have the most robust operational infrastructure imaginable. This is almost a gate. You mentioned it earlier. These markets, in a way, they're not true venture markets or traditional venture markets because they go liquid very fast. When an investment becomes liquid via a token, you also have a massive amount of operational risk. You have to have the custody, the compliance, all of that foundational background to protect that asset that you, that you invested in on behalf of your investors. And so I think the other thing that's really helped us and been a differentiator is that operational foundational edge bringing best in class GC and operational folks who can really make sure that the assets are looked after as they should be.
- [18:07]
Brendan Veeman
Yeah, I completely agree. And there's so much to invest in. Like you mentioned, you know, defi decentralized artificial intelligence. And I think AI has really kind of become the biggest, hottest thing, particularly with these AI platforms that enable AI agents. And so I'm curious, kind of from your perspective, and we had a, you know, gentleman on from Coinbase, he said that the, the word of the year, the term of the year is going to be AI agents. Like we're just getting started. So where do you kind of fall in the spectrum of like, is this hype or is this maybe near term hype, but long term there's potential here in this AI agent market.
- [18:49]
Bryce Paul
Yeah, we've been through a lot of cycles. We use these wonderful words like mimetic and agentic. There's this whole mimetic theme that you're seeing in crypto. I would say we saw a little bit of it with NFTs. NFTs are not dead either, by the way. But what they're great tools for are they're tools for community formation. I may be one of 8,888 pudgy penguin holders. Right. And that makes me unique. It's part of a community, part of a club. If I want to go down the street and join a country club, that TAM is limited because it's only people within maybe 100 miles. But here it's a global community of people that identify with something from NFTs. We said, well, wait a second, we can create fungible tokens like meme coins, right? That seemed to be the next iteration. Some will say that bitcoin started off as a meme, but one of the trends that we're also seeing is that memes are able to transition into having utility. Right. Bitcoin is a store of value. It has great utility as a store of value on the meme side. Now that we're starting to see agents coming out, they're delivering some utility with that meme vibe attached. Like, you know, we were talking about a couple projects earlier. Some of them are offering, you know, market color like aixbt. And again, this is not investment advice. I'm just talking about various projects or AI16Z. We're also seeing interesting opportunities to look at projects that are platforms versus agents themselves. And so it's a really interesting space. Is there going to be hype? Well, yeah, that's what we see in crypto all the time. Is there value? For sure, you can't ignore the value. Some of it may be mimetic, some of it may be based on utility, but our job is to find out where we think that utility lies. What's the size of the market? But gosh, it's a really fascinating space, isn't it, as you're seeing these agents on your Twitter feed giving you market color, starting to pay each other, starting to do a variety of tasks, and then really bringing together these very, very powerful technologies, AI and crypto together. I mean, it's no surprise that David Sacks was appointed. Not as the cryptos are, not as the AIs are, but the AI and cryptos are together. I think that was smart because you can't look at these technologies separately. They're definitely crashing together.
- [21:25]
Chris Perkins
Yeah, no, I think you make a great point there. And we've seen this explosion of a couple of these verticals, you know, AI, and you just mentioned meme coins. You know, the meme coin space has exploded bigger than I think anyone ever expected it to, because for the bulk of crypto's life cycle, it was exactly that. It was a meme, it was a joke. It was never really any. It was never anything more than that. And then now we look at it with kind of the launch of Pump Fun and everything else. And now it really is this thriving ecosystem where over the last year there's been countless projects go from zero to hero, where they launch, they reach a billion plus dollar valuation, millionaires are made overnight. And it's become a gigantic part of the crypto industry. Again, bigger than a lot of people expected. So, you know, with so many meme like projects coming onto the scene and exploding and being hot as a narrative, you know, what would it take for one of these meme like projects to come to coin fund and partner with you? Like, is that even in the realm of possibility? Because I think if we were to propose this question a couple of years ago, it might have been like insultive in nature, but I think now, because of where meme coins are, like, is that an idea that you would even entertain?
- [22:42]
Bryce Paul
Look, I think we're very entrepreneurial. We're always thinking about, like, you don't. It's important not to let dogma mess with your view of Value. What are we here for? We're here to seek truth. We're here to seek value. We're here to drive top returns for our clients. And so it's very easy to let your biases stop you from doing that. And so it's really important to have an open mind. As you see technology, we're super compliant. I was telling a friend of mine, you have to dog food this stuff, you have to try it. So I messed around and I tried to launch something on virtuals, and obviously I cleared it with compliance, because you have to touch it, you have to feel it to understand that value. Just personally, just to dog food the stuff. So you have to dog food it, you have to understand it, and you also have to understand what drives that value. So in the case of some of these meme coins, maybe at some point they're going to introduce some value. Perhaps there's sentiment analysis that you need to undertake using some amazing tools that are out there that are powered by AI, that help you track sentiment. It's an evolving landscape. I would never rule out anything. But it's also important to note that I said it earlier, as professionals, you don't ape into stuff. You conduct very robust, you follow robust processes, you undertake deep fundamental research, and you draw conclusions from that research. That's subject to challenge as well. So there's no straight answer here.
- [24:27]
Brendan Veeman
I love it. Well, it really sounds like the institutional mindset is thick and very thick over at Coin Fund. And I think it's a. It's a kind of a good jumping off point to talk about some of the institutional developments that we saw last year. But really, your projections for the institutional development this year in 2025, what do you see that maybe most people don't have the same vantage point as you have? You know, what edge are you willing to share with us on that front?
- [24:57]
Bryce Paul
Yeah, Bryce, this is super exciting. A few trends to notice in bull markets. It's really hard for institutions to hold onto their staff. You take people from traditional finance, you expose them to crypto, the light bulb goes on and they run off into crypto land and try to make their way. We didn't have that for the past few years. So guess what? Those institutional folks, they stayed and they built. So now we're coming out a few years later where there's actually products that are ready for mainstream adoption. But what gets me the most excited about this cycle is we're going through a period of regulatory de risking. I think it's very hard to think about it any Other way, there's going to be an inauguration, and hopefully by the time this podcast comes out, that's going to relate. For the first time in its history, crypto is not going to be challenged by the US Government. It's actually going to be supported. Maybe it was ignored at first, but in the last couple of years, it was definitely under massive scrutiny. Even the best players in the space were enforced against, let's just say. But now you're taking that off the table. And what does that mean? Two things. I think the obvious answer that most people understand is that, okay, institutional capital is going to come back into the space. Why? Because if you're an allocator at one of these institutions, you're happy to take market risk, but you don't want to take reputational risk, which is predicated on regulatory risk. You don't get paid to take regulatory risk. And God forbid you invest in something and there's a regulatory issue. Now you have reputational risk. Oh, and you also don't want to take operational risk where, oh, I invested in this, but they got hacked and forget it, it's over. You don't get paid for that. Right.
- [26:49]
Brendan Veeman
In fact, there's even a double sort of edge here. Is like that operator at that Tradfi place, he might think if I do this, I could get sued by this company I'm working for, so I might even lose my own livelihood here if I try this thing.
- [27:03]
Bryce Paul
Yeah. And a lot of these institutions, they've never invested in crypto before, and so they're nervous. And so by taking the regulatory risk off the table, and by the way, the amount of building that we've seen in the last couple of years to really abstract the user experience, to make the infrastructure more robust, that helps on the operational risk side. So together, it opens up the opportunity for new institutional capital to come into the space. That's one side of the equation. What gets me even more excited that people talk about less is what I went back to around the developers previously. Today, we think there's about 30 million developers in the world. We think there's less than 25,000 in crypto full time. That's insane. Think about that, think about that. Meta employs way more developers than there are in crypto. So what happens when you take that regulatory risk off the table? And for developers, in certain cases, it's personal liability. They're scared about going to jail if they build a derivatives platform or a mixer or whatever. They don't know. But they're seeing developers be enforced against with Regulatory de risking. It gives entrepreneurs the courage to come into this space, to leave their job, take that risk. And so when you step back, you have this amazing collision of capital and entrepreneurship coming together, which makes me super excited. Now, I'm not here to say that we're not going to be in an era that there's going to be risk. There's going to be a lot of risk. Things are going to break, people are going to fail. And that's okay, Right? Because we improve the economy. You asked about agents, like there are going to be some incredible changes that are going to come out of this cycle when you bring together that innovation and capital. And there are going to be plenty of failures, but failures should be encouraged. And maybe some of those folks who fail are going to come back and build it even bigger. Right? So it's an incredible exciting time in the institutional landscape. Every institution I know has a regime, they're building, they have a vision. Tokenization is going to be massive. We haven't even explored certain market segments that I think are going to be huge. Like FX $7.5 trillion market trades every day. That's like more than double of all of crypto that trades every day. Hello. People don't even realize how big these markets are. That market settles T +2. Why? It makes no sense. It should be ripe for tokenization. Right now we have this problem where 99% are dollars. That's going to change. And once it changes, it's going to unlock. Stablecoins are going to be big this cycle, by the way. We're going to have a bill that's going to get passed pretty soon. You're going to see stablecoins proliferate. I personally have predicted 500 billion this year. We're going to have a market cap of 500 billion more than double. And I think the next phase after that is seeing more and more non US stables. And then you're going to see trading markets, collateral. It's going to be awesome. Payments. It's going to be great. That's a huge vertical. And then the other thing that we haven't seen yet in this space that's going to be big, I think, is fixed income. There are rates everywhere in crypto and you're going to start to see people trading them. That's the largest market in TradFi, by the way. I think interest rates are a $500 trillion notional market. That's a lot of notional guys. And it's only starting here in crypto now. Um, but there's rates everywhere. There's staking rates, there's funding rates. No one's really trading them yet as they should be traded. And I can't wait to see it happen.
- [30:35]
Chris Perkins
Yeah, I mean it really does seem like the best is yet to come. And the doors are, it's like we're in the opening ceremony and in a sense we literally are because the opening ceremony is, is a week from now at the time of recording this, probably in the past for the listeners, but we are at this opening ceremony and there's so much potential, there's so many use cases and it almost brings me back to the, to the like earlier days of the Internet. And you know, if we kind of fast forward down the road and you were to tell people that what, you know, meta has done and what Google has done, what Amazon and all these different web based companies have done in the future, if you were to go back in time and tell people that, they think you're crazy. And not only that, but they probably want to be able to fully process what you're saying. And I think the crypto space is kind of at that same stage of the life cycle where we're going to look back, you know, in 10, 20 years and we're going to be like, why didn't we use blockchain technology for this or for that? And like what were we thinking? Like how are we so narrow minded on some of these, some of these verticals? And so it'll be cool to kind of look back in hindsight, but you know, I think you're, you're spot on and you're right. And you know, when it comes to policy as a fund manager, like what is your policy wish list? Like when you go to dc, what are the practical things that you might be fighting for to enable all these great things that you were just discussing?
- [32:03]
Bryce Paul
Yeah. I actually just published an op ed in the ft, the Financial Times about this. I have one basic ask that I make today. You find out the jurisdiction of a token whether it's a security or not. Only once there's an enforcement action. That's crazy, right? I have token, it's out there and you go and you say, guys, is this a commodity or security? No answer. And then you get enforcement action and they say this is a security and you're in trouble. Right? That is insane. What we need is we need clear guidance that says this is a security, this is a commodity, and this is even before, like you don't need new laws to pass this, you just need clarity. Like why wouldn't we give our people clarity on the rules? It's crazy. So that's the first ask is. And I literally presented to the CFTC a couple months ago and I said, hey, here's a strategy, here's a framework. If it satisfies these things, it's a commodity. If not, well, it's a utility token was the actual presentation. And then an MIT researcher reached out to me, he's like, hey Chris, I heard your presentation to the cftc. Here's a GPT bot that will. You type in the. We integrated your methodology. You type in the token and it'll score it for you.
- [33:32]
Brendan Veeman
Wow.
- [33:33]
Bryce Paul
And so we get pushback all the time saying, oh, the regulator isn't staffed for that. They don't have the budgets to do these things. If you want them to immediately adjudicate things. Well, actually they do. The technology is there. And so we have to be a lot more forward thinking and creative and we need to give people clarity. It's very simple. Of course, clarity is not good enough. You need to be principles based. And the entire financial services market structure is based on intermediaries. Then along comes this technology that doesn't require intermediaries. And it's like, guys, what do we do? Well, your regulation shouldn't force intermediaries, it should force principles like looking after retail, et cetera, like that. That's the next phase. The first thing we think that's going to happen in regulation though, or in legislation, I'm sorry, is stablecoins. This is going to be humongous. Stablecoins are the greatest thing that ever happened to the US dollar. Greatest thing. You couldn't come up with ideas on a whiteboard that were better for the US dollar. What do they do? It forces demand for Treasuries. They're already a top 20 purchaser combined of Treasuries. We like that. When people buy our debt, I think it's going to probably go to top five, maybe in the next year.
- [34:47]
Chris Perkins
Wow.
- [34:47]
Bryce Paul
Then it perpetuates the US dollar as a reserve currency. People all over the developing world, they don't want their local currency, they want dollars. It's such a wonderful instrument for the dollar. You'll see that happen. I think that's going to result in incredible innovation. I'm excited about it. There's a lot of work to do. I know Paul Atkins is a great guy. Incoming SEC chair. I'm really excited to see who the CFTC chair is going to be. I know that space pretty well. I think a lot of the like, a lot of responsibility for the asset class will fall with the cftc. That's great. We'll continue to engage and I feel like there's going to be a fully concerted effort to get it right, which makes me so happy.
- [35:26]
Brendan Veeman
Wow, I love it. That is a great sort of explanation of everything that's going on. And your point about stablecoins is fascinating because it almost might be like stable coins. Because if you think about it, you're like, okay, well if everybody around the world wants to use US Dollars now, they could use the stablecoins. Well, why are they ever going to have to use Bitcoin? But it's almost like the Trojan horse, right? They're like, oh, I could use, you know, US Dollars anywhere in the world. And then, you know, they might hear, okay, some of the FUD around the government debt or FUD around, you know, why ever the dollar. And they're like, oh, you know, how do I opt out of this? And they'll be like, oh, I could in one click go to BTC or this whole other world of, of currencies that aren't tied to any government. And it just opens, opens people's mind.
- [36:10]
Bryce Paul
Yeah, I don't, I don't think stable coins are bad for bitcoin. I mean, to the contrary, I think they're good. To your point, Bryce, on Bitcoin, the thing to watch is this whole concept of a strategic reserve. And I've seen a couple people come out against it, like, whatever, but like, if you step back, Bitcoin is a commodity. It's a very precious commodity. I think we all agree. So about $100,000 of Bitcoin. Right. So it's precious. It's very, very common for us to have strategic reserves in precious commodities. So why would we want to treat this any different? Right. Yeah. Then that brings me to eth. ETH is another commodity. It's also kind of precious. We need it to power smart contracts. It's been talked about as digital gold. We have a strategic petroleum reserve, so why wouldn't we have a strategic ethereum reserve? Yeah, right. Digital oil. And then you could say the same about Solana. You can go down many directions. But I think the point is that these are valuable commodities and we need to treat them as such. So that's another really interesting for your listeners, watch that narrative because if the US decides to have a strategic anything reserve, other countries are going to need to, to. To. To look at doing the same. And I do think you're going to see a lot of, a lot of countries moving in front of the US because they think it's going to happen. So that's going to be very, very interesting thing to watch.
- [37:32]
Brendan Veeman
It's really a. The game theory of like other countries wanting to front run the U.S. i even see states, Ohio, Texas, Pennsylvania, New Hampshire trying to, the state governments, trying to front run the federal government of getting their reserves set up quickly. And it's going to be a really crazy 2025. But I think you mentioned that you think one of the big themes of 2025 is going to be stable coins, the proliferation of this tokenization. And I'm curious for folks who are listening at home who are like, stable coins are cool and all, but, you know, they, they don't. They, you know, I'm here to trade crypto and learn more about opportunities and stuff. And you can't trade stable coins, although you could. I mean, you can, but they don't go up in value. So my question would be how can. Again, not financial advice. Nothing that you guys ever listen to on the show should ever be construed as investment advice. But generally speaking, how can a person or how do you at your fund think about capitalizing on this sort of, you know, growth of stablecoins and tokenization?
- [38:32]
Bryce Paul
Yeah, it's a really wonderful question. I had a friend, not in the crypto space reach out to me and said, I hear you talking about stablecoins. I want to invest in stable coins. And I'm like, buddy, don't do that. They're not going to go up. They're stable. They're going to stay at a dollar. Right? So again, no financial advice. Stablecoins bring a lot of efficiency to our space. It allows you to move your capital very quickly, and there's a lot of cost savings associated with moving money vis a vis payments or otherwise. But what stablecoins really unlock is the concept of defi. And like any other market, supply and demand drives things such as yield. And so we talked about the rabbit hole earlier, Bryce, about Bitcoin as stables, et cetera. Stables are a wonderful gateway to this world of defi, where you can access financial services on the Internet in a permissionless, trustless, permissionless way. You'll find that there are a number of different opportunities to deploy those stablecoins in your economic interest in the defi protocol. So the defi protocols have all different types of utility. They're bespoke. Some of them are borrow, lend. Some of them are various other types of ways to participate in financial services. So those are some things to consider. But our sense is that this regulatory de risking, we have an entire world of defi and defi decentralized finance. It's different than centralized finance where you can access it yourself on the Internet. We think that a lot of the regulatory de risking is really going to fuel another renaissance in defi. We saw part of it back in DeFi Summer 21 and I think defi is going to come roaring back. There's been a lot of innovation in that space.
- [40:16]
Chris Perkins
Yeah, stablecoins are fascinating because I was just reading a 2024 report from, I believe, the Business Times and what they said is Tether was the. Which is the largest stablecoin for the listeners who might not know, but they said tether did over $10 billion in revenue last year, making it the highest revenue crypto project out there. And that's fascinating. It's kind of mind blowing because when people think about profits and revenues, number one, they typically don't even think about that happening in crypto projects when in reality there are a ton, there's countless, you know, more than I could even list off before we would have time to go here.
- [40:57]
Brendan Veeman
But I think that was profits, by the way. I don't think that was revenue profits.
- [41:02]
Chris Perkins
Correct. Thank you for that. Thank you for the correction. It's, you know, it's still a massive number. So do you think that we could ever see like maybe profit sharing for stable coins in order to create a yield? Because that's a lot. And what that could do is open up just a new like kind of side avenue of investors. A new, a new yield bearing opportunity for people to come in because people like their passive income.
- [41:31]
Bryce Paul
Yeah, great point, Brendan. The brilliance of Tether is the simplicity of its business model, right? Take dollars, tokenize them, invest in treasuries and pocket the coupon. It's brilliant. To your point, once we have a law and the law is really standing in the way of a lot of benefits that could accrue to people who use the product. It's been challenging right now. And even if you look at Europe, European markets, mica, the rule that regulates stablecoins there forbids the payment of interest to end users. It's pretty crazy right now. I do think that yield bearing stablecoins are going to be a thing and then you're going to have a lot of competition. That's a good thing too, right? But the cool thing about tokenization is that now stable coins start looking yield bearing stable coins start looking an awful lot like Money market fund tokens. And so this stuff starts bleeding together, doesn't it? And so what I think what's important is regulatory clarity. Right. Why are you trying to protect people from receiving interest? I can't think of a good reason for that. Guys, let them have their interest, right?
- [42:45]
Chris Perkins
Yeah.
- [42:46]
Bryce Paul
Because it becomes a security and you gotta da da da da. Let's step back to first principles. If somebody's receiving interest, it's a good thing so we should kind of let it happen. I think that that's going to get sorted and then you're going to see a number of different folks come into the space. My experience with regulated markets and I do think they'll be regulated because you also have risk. Right. The risk is that there's an issue that the reserves aren't protected. There's risk that, like we saw it with, with svb, there could be counterparty risk where the underlying fiat organization that holds those Treasuries has a bankruptcy issue. Right. So laws can take care of that. They can address some of those bankruptcy issues, make it bankruptcy remote. You can have reserves and transparency. It's very difficult to stop fraudsters but like through transparency you can kind of do it. But yeah, I do envision a world where, where stablecoins will proliferate. There will be costs associated with that compliance. Hopefully there will be an ability to pay interest and then you'll see some consolidation because you're going to really have to scale and that's really what it comes down to. But I hope it's a robust market. I hope there's a lot of choices. I hope the consumer wins, I hope they make a lot of interest and I hope that the law and regulators allow that because again, I always struggle with the risk of people receiving interest and stopping them because it's so bad.
- [44:02]
Brendan Veeman
Oh, I'm with you. I think the most obvious, glaring, sort of just like head scratcher, just along the same lines of you're talking about is that the Ethereum ETFs aren't allowed to have staking rewards distributed to the holders of the Ethereum ETF currently. Do you think that'll change 100%?
- [44:20]
Bryce Paul
I'm all over the space. There are some actually really good reasons why you have to be mindful of that. I'll just get a little bit technical. So when you stake, you, you stake tokens and there's something called unbonding risk. So if you need, if somebody redeems the etf, you need to give them their money back and to get them their Money back. You have to unstake those assets. There's. So there's some latency and there's some basis because if that queue gets big and it takes me 10 days, let's just say, to pull out my assets, but I'm redeeming on day one. You need to have some contingency liquidity to be able to affect that redemption.
- [44:58]
Chris Perkins
Oh, wow.
- [44:59]
Bryce Paul
So it's really hard for somebody to give you full staking yield. And this is like a really. This is just the risk of the situation. Right? And so what you have to do is you have to keep some reserves. So that brings it down. The Canadians are allowing ETF issuers to issue 50%. I'm hearing it's going higher now because guess what, the markets are awesome things. And what you're seeing now is you're seeing companies come in and say, well, wait a second, I know how to solve the contingent liquidity situation. If you need to redeem, you can redeem. I will come up with a marketplace that will help keep those costs material. It's hard to get to 100% staking. We have a rate called Caesar that helps track what the staking rate is. But the cool thing is that the market's solving for the risk. And so you may not be able to get crazy yields, but you can get close because the market's solving it. I think that's absolutely going to happen in the next. This cycle for sure. I'm excited about it. It's going to be awesome.
- [45:54]
Brendan Veeman
No, I could tell you're fired up and kind of like it reminds me, or I mean, doesn't remind me, but maybe it reminds you. Somebody who knows the intricacies of the plumbing of the bond market and the liquidity and all that kind of stuff. I mean, it kind of sounds like what you just described of, like, that sort of latency. There needs to be a little bit of liquidity. It's almost like an overnight rate or a repo market and all that kind of stuff. And like, crypto doesn't really have any of this foundational stuff that the traditional markets do, but maybe we're going to be building that. And like, did the traditional markets, like, overnight? Did they just have all of these fancy plumbing to make, you know, the markets work, or did it kind of build up over time?
- [46:36]
Bryce Paul
It build up over time in a weird way based on technology constraints. So, like, after the global financial crisis, the. The solution was hyper centralization. Because we don't have any tech, we can't decentralize. Well, we're going to all put it in one place, right? Yeah, it's a super. But I'm going to push back on one thing. Bryce. They're not going to build it. They're already building it. The number of traditional players that are building Borrow Lens would blow your mind. And you're going to see some big announcements here pretty soon because you're taking these folks with that institutional knowledge. It's pretty cool, because they know how it's done. And now they're thinking about, how can I make it better with this asset class? Because we do some. Really. When I came to crypto the first time, I'm like, I have to unlearn a lot of stuff because we do a lot of stupid things and it doesn't make sense. And people used to ask me all the time, why do you do it like that? And sometimes I'd be like, well, we do it because of this. And I had a good answer. But a lot of times I'm like, I don't know. That's just how it's so. There are a lot of smart people working on things exactly as you described. Repo markets, funding markets, lending markets, both centralized and decentralized, which is really cool, man.
- [47:39]
Brendan Veeman
I can't wait. It's going to be a big, beautiful 2025, and I'm excited that we're going to be trading these markets together, investing in what is going to be a really, really exciting new, you know, kind of, you know, a lot of new avenues. The AI stuff, getting married to crypto is going to birth all sorts of new things that we're not even thinking about. Kind of. Brendan, to your earlier point, is like, you know, by the end of the year, we're gonna be like, I can't believe nobody thought of this yet. And it's just gonna be awesome. So there's a lot of excitement in the markets, Chris, where can we just, you know, have listeners kind of go to, you know, stay in touch with your story and with Coin Fund, any links in the show notes you want for listeners.
- [48:20]
Bryce Paul
Yeah, thanks. Thanks, Bryce. Yeah, just hit me on Twitter, Perkins CR97. I'm on LinkedIn as well and always around and available, so happy to have a chat.
- [48:31]
Brendan Veeman
Awesome. Well, thank you so much, Chris. We hope to have you back on again soon when things materially change in the market and we need commentary and coverage. We'll reach out and if anything changes over at your. Your fund, please let us know. We'd love to have you back.
- [48:46]
Bryce Paul
Thanks, fellas. Appreciate it.
- [48:58]
Ad Voice
You're a startup founder, finding product market fit is probably your number one priority. But to land bigger customers, you also need security compliance. Obtaining your SoC2 or ISO 27001 certification can open those big doors, but they take time and energy, pulling you away from building and shipping. That's where Vanta comes in. Vanta is the all in one compliance solution, helping startups get audit ready and build a strong security foundation quickly and painlessly. Vanta automates the manual security tasks that slow you down, helping you streamline your audit. The platform connects you with trusted experts to build your program, auditors to get you through audits quickly, and a marketplace for essentials like pen testing. So whether you're closing your first deal or gearing up for growth, Vanta makes compliance Easy. Join over 8,000 companies, including Y Combinator and Techstar startups who trust Vanta for a limited time. Get $1,000 off vanta@vanta.comsimply that's V A N T A dot com simplify for $1,000 off.