← CRYPTO 101
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- [00:00]
Host 1
All right, Crypt Nation fam. Let's pause for one second and talk about an important issue going on right now, and that's sim swap attacks. Sim swap attacks are becoming a serious threat, especially in crypto. If someone gets control of your phone number, they can access your bank accounts, your exchanges, emails, and even your private messages. That's why the Crypto 101 podcast is partnered with Afani. It's America's most secure mobile service, offering a guaranteed protection against sim swaps with added privacy. Since launching, not one single Affani user has ever been SIM swapped. And and for some reason, if it ever does happen, you're backed by up to 5 million in insurance against financial losses. This is literally why we chose to partner with them. It is. Our favorite thing about Afani is the insurance policy of up to $5 million if it does happen to you. Afani runs on either AT&T or the Verizon network and you get to choose which one. There are no contracts and it is super easy and seamless to sign up. You also get a 60 day money back guarantee, so there's zero risk in trying it out. Or right now for our listeners, you get $99 off when you sign up at a funny.com crypto 101. That's a funny.com crypto 101.
- [01:06]
Mike Reed
Or check the show notes below for a link.
- [01:09]
Host 1
These days your phone number is probably more valuable than your Social Security number, so make sure it's protected with a funny.
- [01:24]
Bryce
All right, everybody, welcome back to another episode of the Crypto one on one podc. I'm your co host, Bryce. We've got an awesome guest for you today, but I'm joined as always by my good buddy, my compadre across the nation, Mr. Brendan Veeman. How are you doing, Brendan?
- [01:42]
Brendan Veeman
Bryce? I am doing good. I mean, like you said, we got a very special guest and we've seen a lot of conversation about what's happening and how the world of crypto is intersecting with TradFi. So we brought on one of the best guests possible to talk about exactly that.
- [01:57]
Bryce
Yes, Mike Reed is joining us. He's the head of partnership developments at Franklin Templeton for digital assets. Mike, thanks for joining us. And how the heck are you today?
- [02:07]
Mike Reed
I'm doing great, Bryce. Thanks a lot for having me. Really appreciate it.
- [02:10]
Bryce
Yeah, we're excited. You know, market's volatile, but generally things have been up and to the right and yeah, we're super excited. But yeah, Mike, we'd love to just dive in to Franklin Templeton. At a high level, you know, we see the numbers, one and a half trillion dollar, sort of traditional asset manager, but who's also breaking into the on chain world, the crypto world, you know, the RWA world, you could call it a bunch of different things, digital assets. But we, you know, we want to start with a high level. What does, you know, Franklin Templeton do? What is their mission?
- [02:46]
Mike Reed
Oh boy, we do quite a bit. You know, we, we build and we invest. We, we build directly on blockchains ourselves authentically. We have a. Our own team of engineers that built a digital wallet infrastructure on chain transfer agent, all that kind of stuff, and then we invest in the assets ourselves. We have multiple track records of different disciplines ranging from index aware to fully discretionary and everything in between. We have a venture capability and then we also run validator nodes on multiple chains. So we got our hands on a lot of different pots. I like to tell people we are, we are authentic and our learnings have all been very organic. And by that I mean, you know, authentic in that we build authentically on chain. We're in it. We're investors, we're enthusiasts. We use the tech, we love it ourselves in our everyday, but then get to do some of it for our real jobs as well.
- [03:43]
Bryce
When did Franklin Templeton kind of break into the tokenization trend and on chain management and stuff?
- [03:52]
Mike Reed
Well, I started learning about the first time I heard anyone talk about crypto. My boss came in maybe 15 years ago, came. We were. There was a whole bunch of us who were in fixed income in Franklin fixed income years ago. And we were super interested in just looking at different asset classes, esoteric pockets of capital, just all sorts of stuff. And he walked in one day and he said, my son was playing Call of Duty and some people paid him. He was on Stitch and he's like, somebody paid him in bitcoin to solve a level. Do you guys know what that is? And none of us had ever heard of it. And so we were like, let's dive in. So we started learning and then when Ethereum launched, we start to learn about smart contracts and programmable money and all that kind of stuff. And to a bunch of fixed income people thinking about if this, then that statement's coded into your cash flows. That came supernatural to us. So we started diving deeper and deeper and deeper. And then one day we were like, well, why don't we try and do a project here? We, we, we got kind of lucky. The, the woman who's our president, CEO Jenny Johnson, used to run operations for the company. And so the idea of ledger efficiency was something she was really psyched about. And so when we came to her talking about these distributed ledgers, she was like, what can you build? Can you, can you use those ledgers in our own business to try and build something, you know, differentiated and build ledger efficiency into our book. You know, we're in finance, so ledgers are everywhere. And so we began the process of tokenizing a money fund at that point and launched that product a few years later.
- [05:27]
Bryce
That's crazy. It's a crazy story. You guys, you know, went from the traditional financial world to realizing, you know, more than an experiment, this stuff might actually bring efficiencies to our business. You know, we want to enhance things that we're working on, but we could enhance things for customers. So you guys, you know, really sit at, you know, at the crux of crypto and traditional finance. You do many different things. You also, I believe, are in the ETF game as well. Does Franklin Templeton, you know, manage Bitcoin ETFs or anything of that nature?
- [06:03]
Mike Reed
We do. We have a Bitcoin etf. The ticker is ezbc and the idea was making bitcoin investing easy. My own father was really interested in investing in bitcoin, but the whole idea of a wallet was pretty scary and cumbersome and he didn't want another account. And so, you know, as soon as we launched the ETFs, he started investing in bitcoin just because it became a lot easier. So our bitcoin was called Easy BC our Ethereum one is Ezet. And then product I really like is one called Easy Peasy, which is a multi token product that adheres to an index. And what makes it into that index are assets where there's potential for value accrual and stuff like that, but that have been approved by the regulator. So you can think of. So right now it's just bitcoin Ethereum in there at a market weight. But as more assets get approved and make it into that index, the portfolio will expand over time. So it's kind of set it and forget it crypto. It's like I, I want market beta. I don't really know what I'm doing. I can just allocate to this and, and know I'll have that, that exposures. It's, it's a pretty cool product. I'm pretty psyched about it. Wow.
- [07:14]
Bryce
I could definitely see, you know, we were just talking the other day to somebody and they were talking about all The Bloomberg odds for all the different altcoin ETFs that, you know, 95 to, to 80 or whatever odds of approval this year for, for like you know, a half a dozen or a dozen altcoins. So are you saying that like if they get their spot ETF approved, then they could be maybe added to this easy peasy etf?
- [07:42]
Mike Reed
That's right. Yeah. It's, it's, it's. I hate to mention a competitive product on a, on a, in a public channel, but it's kind of, it's kind of like qqq, but for crypto it's like, like an index oriented beta play for again, people who, who just know they like the, the interesting asp. You know, they think there's a cool space, a lot of really interesting technology, but they don't really know how to allocate. And so they're, they're like, I'd like a market weight exposure to a bunch of different assets. And, and as time goes on and more assets get approved, the, the index will grow and so too will the composition of the portfolio.
- [08:14]
Brendan Veeman
So I saw that Templeton has the basket or the index like you're talking about pending still. And then you also have a Solana and an XRP spot ETF that are pending. Is that the, is, is the basket that you're talking about right now? That one that is pending?
- [08:31]
Mike Reed
It's live, actually. It's live now.
- [08:33]
Brendan Veeman
Wow.
- [08:34]
Mike Reed
Yeah, we have hats somewhere that say easy peasy with a lemon beside it because. So I thought easy peasy lemon squeezy was kind of a fun thing. But yeah, it's approved and, and available. I mean, I buy it myself. It's approved and available.
- [08:49]
Brendan Veeman
That's awesome. And then you have a couple more that are on the way, I guess. Walk us through the mindset here because now what we're seeing is that a lot of asset managers are exploring beyond Bitcoin, beyond Ethereum and they are creating these, these baskets or these indexes where they can encompass all of the products that they get approved for in the future. And there really is just this push right now to get other altcoin spot ETFs approved, I guess. Why is that and what's the interest there?
- [09:18]
Mike Reed
Yeah, so I'll say this, I can't comment on an ongoing filing with the sec, but I would say that to me, there's kind of Bitcoin and then everything else kind of not, not really. But you know, bitcoin's got, got its own investment thesis that I think is different than a lot of the rest of rest of the space. And I think a lot of the really interesting things that are happening are happening in the rest of the space. A lot of the really interesting projects that are being built on the protocols. And like, like I said in the beginning, I actually use some of the products myself. So, so like helium, for example. I'm a helium subscriber. I use the phone. My phone is a, a helium phone. I, well, some Helium is the service provider. So I enjoy the services as a subscriber. But then I also operate a hotspot out of my house so, you know, I can earn doing that. Token exposure, salon exposure, broadly. I think that Deepin narrative is like, still interesting and I think super relatable. Yeah, that's something that a lot of people in crypto really don't think that much about for when it comes to talking to traditional investors. There's a real translation function that has to occur where things we do in crypto are things that are done in traditional finance. In some cases they're just, they just look slightly different. So for example, you know, burning tokens kind of feels like a share buyback. It's not quite the same, but it kind of feels that way. Think about paying out validators for doing the validation work. That's almost kind of like reinvesting in your, in your business or paying, it's paying to secure the network, but you know what I mean? It's like when you start to think of it in those kinds of terms, we've noticed the lights really turn on for a lot of traditional investors. And I think some of those things that are happening in, in Deepin really let people say, oh, that there are real businesses, there is real cash flow, there's real product here, real interesting ways of doing things. So I, I like using the products because I like trying it all out. I like seeing what works, what doesn't work really. I have one of those, you know, Kudas, the, the rings. I have one of those, I'm wearing it right now. So you can like mint your own healthcare NFTs and, and really fully realize, you know, the economics of that rather than having a third party sell your data if you choose. So I like trying stuff out and seeing what works and, and you know, what doesn't work. So anyway, point is, you're sorry, back to your question, which was like altcoins in general in the space, I think a lot of those things that are happening outside of kind of Bitcoin, even Ethereum, a lot of the things that are happening in the altcoin space are really interesting.
- [12:06]
Host 1
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- [13:45]
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- [14:14]
Brendan Veeman
Go to wix.com yeah, like even recently. Bryce, I know we were just talking about this but you've seen a lot of different players Want to get involved in altcoins or want to get involved in crypto one way or another. J.P. morgan was just talking about it. Bank of America was just talking about it. Robin Hood came out yesterday and said, hey, we're going to be launching our own chain on Ethereum so that we can tokenize assets. And there's just been a lot of, of discussion. Whereas for a while it was like it started out as we don't want to touch crypto and then it was we want to look at Bitcoin. And then now we're kind of entering into the next stage of that is how can we not only offer altcoins but how can we use this technology and get plugged into the ecosystems which, you know, you all are doing here. You always are all actively in stage, in stage three and doing this. And it's fascinating. It's fascinating because I think everyone has crypto's so vast so that everyone has a little bit of a different approach as to how they want to use it and how they see it fitting in to their own like, agenda.
- [15:20]
Mike Reed
And like a good, I, I think like, so that that kind of progression, you talked about something that kind of hit. Do you remember like a couple minutes ago I said we're authentic and organic. I didn't choose those words by accident when I said organic. What I mean is.
- [15:35]
Host 1
All of the.
- [15:36]
Mike Reed
Learnings kind of build on each other, right? So like you hear about Bitcoin and you're like, what's that all about? And then you learn about Ethereum and what's that all about? And even when it came down to chain selection. So our, our money fund is called Benji. The token is called Benji. It's an authentically tokenized money fund that's available. You can download an app, I think it's called Benji Investments. And you can download the app kyc your way in and then buy a money funds token. One token is equivalent to one share of the underlying fund. So when I say again, like organic. So we were like, we were looking at this and we're like, okay, what change should we launch on? And we were trying to decide, looking at all the chains, we want to do it in a regulatory compliant way. And so we launched initially on Stellar and one of the reasons we chose Stellar as our launch partner was because Stellar at the time, things, you know, things change. But at the time didn't have any smart contract capability. And it felt to us like from a regulatory standpoint that was just a cleaner story. So we launched on Stellar. But when we were, when we're choosing the chains, you start to learn some of these chains, they have different, like transactions per second, certainly different cost structures available. And so you start saying, okay, well if all these chains have like slightly different cost structures, are there people who are interested in them for different reasons and they start to learn about the communities on them. And so then we started saying, okay, well we want to be available wherever those communities have a desire. So we started expanding. So then we went live on Polygon, Aptos, Avalanche, Arbitrum, Eth, main Net base, and then Solana a couple months ago. And so you start expanding to go to where the users are and then.
- [17:11]
Bryce
Where all the users are. Nobody's stellar.
- [17:15]
Mike Reed
Yeah, I mean we're trying to be in as many places again like meet people where the demand is, you know, and then, and then you're like, okay, so these tokens, like the price of the moves around are these investable assets? And what happens if I just equal weight them? What happens if I use like factor based investing? What happens if I just have like a, I don't know, like an infrastructure thesis or whatever? So you start to learn all these things and how the assets move over time. And what becomes super apparent to you the deeper you go is how not only is this asset class big and it can't be ignored for, for that reason alone. Right? Like it's a huge asset class, it's bigger than us, high yield. So you can't ignore it on that reason alone. But then you say there's really compelling narratives in here for me to want to invest in. So that like altcoin thing that you mentioned is something that became apparent to us right away, like really early on. So that's why we started building track record, you know, just, just to kind of build on looking, looking further and further out and seeing what else there was available to invest in.
- [18:17]
Bryce
It's so cool because, you know, you guys are like a traditional financial firm, but you're not just focused on like tokenizing treasuries or you know, whatever, you know, just make, I mean you're doing that, but you're also doing so much more in the space and kind of really rolling up your sleeves and you know, making this stuff from the ground up. And so yeah, I like, I like that organic and authentic sort of motif throughout everything that you do. But I want to dive in specifically to that money market fund on Solana. You guys chose Solana primarily because of its speed and security or what, what kind of went into the thought process there With Solana.
- [18:59]
Mike Reed
Yeah. So I would say with, with all the chains that we, that we launched on and Solana, certainly like exemplar of this is that we have two kind of basic frameworks that we look at. One is a tech suitability framework which is available in our prospectus. It's something codified into the way that we build, so just make sure the technology works for us. And then the other thing that we look at is kind of a business development suitability framework. So like I said, like meet the users where they are. Are there enough, is there enough thing, Are there enough things happening on this chain where we might be able to integrate with different projects where it makes it kind of like, you know, you don't want to just dev on a chain and then have it live with no assets because you, you know, you paid to have that work done. You want to be able to, to have, you know, different economic opportunities present themselves, I guess.
- [19:50]
Brendan Veeman
Yeah.
- [19:50]
Mike Reed
And, and one of the things that became really apparent to us early on like that again, like this organic thing. By the way, if these answers are too long winded, feel free to say.
- [19:59]
Bryce
Like, hey, I love them.
- [20:02]
Mike Reed
I get kicked under the table at cocktail parties like all the time by my wife who's like, hey, nobody wants to know about this, but, but we're super excited about it. So, you know, when we launched the money fund, in the beginning, yields were at zero. And so really no one cared. Right? And what happened was rates started to back up. And right as rates were backing up, Silicon Valley bank failed. And there were a lot of Web3 natives who had treasury at Silicon Valley bank and they didn't want to park it in a small regional bank again. And so what they thought, what happened for us is that people knew we were developing in the space. They knew we had engineers, we weren't just tourists. And so they were like, would you guys take our money? Could, could you hold on? You know, so we developed this like the thought exercise, for lack of a better term, we developed this like really thing that we were high fiving about but no one cared about. And all of a sudden everyone cared. So but what became apparent to us really early on in that journey was that this is, this is not a money fund. If you talk to people about this, like, I work in partnerships, my sales is not in my, my job title for a reason, because we're not selling money fund. We're talking about a tool that can be used in different ecosystems. So we started thinking to ourselves, okay, if people are going to use this as a financial tool, what kind of functionality do you want? Because there's a million money funds already in the market. They all work with the existing systems. It's a totally commoditized space. So how can you differentiate yourself? Why is it being on chain important other than the fact that you have a new customer base, which is great, but why is that an important thing? So the thing that makes it important is that if you mint authentically on chain. So we don't use a third party to go on chain, we do it ourselves. So the asset authentically lives on chain. There's no off chain book of records that we have to reconcile with, which means things like transferability can all sudden be coded into your asset. So, so we did that, we coded in transferability where users could, could send it to other users. So we had a user, you know, we have a large multinational that invests some treasury capital in our whitelisted users basically. Yeah, yeah, correct, correct. They, they move money around OPCOs in Benji because historically all these OPCOs held money in money funds and if they want to move money from one entity to another, they have to sell out of a money fund, transfer the cash over and then reinvest in a money fund. And that can take like three to five business days where you're yielding nothing.
- [22:32]
Bryce
Yeah, it's a lot of friction too.
- [22:33]
Mike Reed
So much, so much friction. And now you've not only removed the friction, but their money's always working for them. Yeah, right. You're, they're fully realizing the economics of their trade because it's an instant transfer of a yield bearing asset that they wanted anyway. We had a VC investor who asked us if they could fund portfolio companies in Benji tokens. We had a group wanted to make a payment to a vendor in, in Benji instead of doing it, I mean, shoot, I have literally been out for drinks with a friend and paid my share in Benji tokens using, using the mobile app. So this transferability thing was something that we, we knew had legs immediately and we sprinted towards it and added that in the asset. We've also added other functionality too. So we have a USDC on ramp for our institutional investors where they can buy and sell the product with USDC through a third party facilitator. We are working on some other functionality. The thing that we're the most excited or I'm the most excited about again like I'm an, I'm a fixed income person for a couple decades before crypto. So the thing I'm the most excited about which we Just announced within the last two, three weeks is a function we're calling intraday yield. And what it means is that if I transfer you that asset at noon, I accrue yield from midnight to noon. You accrue from noon to midnight and then at the end of the day. Because our fund pays every day, it doesn't just accrue daily, it pays daily. So when the airdrop of new tokens occurs, we each get it proportional to how long we held the asset. Now if you and I go out for drinks and I transfer you tokens, it's not that, you know, it's like 10 bucks, I don't know, 20 bucks of yield for a few, for a few hours. It's not really that big of a deal. But if you start to think about the institutional use cases like collateral, repo trade, finance, you know, situations where Sometimes people hold $10 million on their books for four hours a day, every day, but they don't own it when mark the market closes. So they couldn't realize anything in that. Now they can get four hours worth of yield. And over the course of a year, that, that adds up pretty significantly. So we actually have a patent pending on that technology because we're, we're like super psyched about it. That only comes because the asset lives on chain and you can cut the rewards up to the block. We say to the second when we're talking to people, but this is crypto to us. Yeah, right. So we can cut it up to the, to the, to the block, which, which, you know. And that Yield clock runs 24, 7, 365. So you transfer the asset on a, I don't know, Sunday morning at 2 in the morning, it settles authentically at 2 in the morning. And then you can do that intraday yield calc to figure out how much yield you would get over the course of the period you held it.
- [25:18]
Brendan Veeman
It's crazy that this didn't happen faster because when you think about this, you're like, it's 20, 25, like, this is the future. Like, why can't I send a transfer Sunday at 2 in the morning if I want to? Right. Why can't it happen instantaneously? Why can't it happen cross borders? Like, why can't we have all this stuff happen? And you know, the answer now is like, we can. And it seems like this super clear like solution, but, you know, I think in the past, you know, regulation did get in the way of parts of this happening. And I'm curious just to get your take on like, like what is happening with regulation and if you think that the US framework is evolving fast enough to support tokenized products or I guess even like how this regulation in facts or, or impact something like Benji for instance.
- [26:14]
Mike Reed
Yeah. So I got a whole bunch of thoughts on everything you just asked. One, one is just to like level set. We, we actually took the approach with the regulators of being collaborative and not combative. So when, and I'm not just saying this because this is recorded and is going to be published but, but truly we felt like it was much better to like go on an educational journey together and learn together. So when we launched our products we actually worked in conjunction with the regulators on them and educated them on everything. We had, you know, kind of a strategy around communicating with them and things like that. So we never really had had like a problem with the regulators. It's more just like let's, let's learn through, through this together. I think it's an apolitical statement to say that the regulatory environment today is a lot more favorable for crypto than it was a year ago. That's level setting. I think some things like you know like stablecoin act, that, that kind of stuff. We, we kind of. So, so let, let me say this about Benji in particular. With Benji, we are not trying to blow up the banks, right? Like we, we are not anarchists. We are, we have a huge franchise like one and a half trillion dollars that live on those ramps. So we're not, we're not trying to blow up the banks at all. We are also not trying to blow up stablecoins because stablecoins provide an essential service in this ecosystem that our asset can't provide because we are a permissioned asset. So we have to know who owns every Benji token at all times. We have to know, we have to know those users. Stablecoins KYC at the point of Mint and Redeem there's the under like don't forget. So, so the, the underlying for Benji is an SEC registered 2A7 government money fund with a ticker a very traditional vehicle. It's, it's a security, it's a digital asset security. Benji is.
- [28:15]
Brendan Veeman
Yeah.
- [28:16]
Mike Reed
So it's, it's much, much different than a stable coin. So we kind of think about, think about like if, if stablecoins are your crypto checking account, Benji can be your crypto savings account. It's, that's money can move freely between those two things and one, one provides an essential service. Well I would argue both provide an essential service because people want to yield on their assets and people want to have their money always working for them. Like I said, fully realizing the economics of your trade, that to me is a huge part of the ethos of crypto.
- [28:50]
Bryce
I got a question on all this. To this point, you know, why do we even need to have two separate things? Why can't our USDC just automatically bear interest for us? Why do we need to have to go from USDC to Benji in order to get that yield? Why can't the usdc, which is already backed by short term government debt or whatever, why can't it just automatically flow through to holders?
- [29:18]
Mike Reed
So I'm, I'm not a securities lawyer, but I think, I think if you start paying out that income then you start bumping up against securities regulations and the. Again, the key difference here is a stable coin is a stable coin. Benji is a digital asset security. So things like KYC controls are deep in place for us and they aren't necessarily as stringent for stablecoins. So they're, they're kind of. I hear, I totally hear what you're saying. And, but, but it's, it's a. They're, they're kind of, they're kind of two separate things right now. I mean in the future, who knows. But, but I know people can't have.
- [29:58]
Bryce
Our cake and eat it too.
- [30:00]
Mike Reed
Maybe not yet or not now, but you know, I think that's something that a lot of people are looking at and I think, I think codified into the legislation is that stablecoins can't pay yield. So.
- [30:12]
Bryce
Right.
- [30:13]
Mike Reed
Yeah, yeah, yeah.
- [30:14]
Bryce
So you can't like automatically be yielding or something?
- [30:17]
Mike Reed
Yeah, I think, I think it's be. I think that's because then all of a sudden they start to bump up. They start to look more like a security.
- [30:24]
Bryce
Okay, interesting. What do you think about that, Brendan?
- [30:30]
Brendan Veeman
Yeah, I mean it's, it's fascinating especially when we have so, so much going on, especially in regards to stablecoins. I think that's the part that's fascinated me the most here lately with the genius act going and being like at the forefront of conversation and seeing how people want to interact with that. And just also the reaction that we've seen from the tradify markets and immediately I think it was, when it passed the Senate like a week or two ago when that happened, we saw a huge reaction from. It was J.P. morgan, bank of America. There was one other. And then even I think it was. Who was it?
- [31:14]
Bryce
I think Citi. Yeah, they all announced they're like doing a stable coin together.
- [31:18]
Brendan Veeman
Yeah. And then I think Amazon and one other player also came out and it was just like companies like, you know, financial giants, everyone all of a sudden was like, hey, if this goes through, like, it's the green light.
- [31:31]
Bryce
And Uber I saw as well alluded to including stablecoins into their application too. It's probably going to just end up being as easy as Apple pay. Like I use Apple pay for everything. You know, you double click on your iPhone on the side and then you just have your cards loaded in there. You'll probably just have like your wallet just in there already.
- [31:51]
Mike Reed
And I think.
- [31:52]
Brendan Veeman
Sorry, no, I was just going to agree and say, I think what Mike has said so far and probably what you're about to say helps everyone understand, like, the pros of this and why it's happening and why it's being used. And again, back to just the original point. It seems like a logical decision. And you've made a great point for this already.
- [32:13]
Mike Reed
Well, I mean, let's remember one thing about stablecoins. If there's no adoption, then no one will care. So you have to find use cases for the stable coins. You're right. There's product. I mean, quite frankly, there's been product proliferation in the stablecoin space for quite some time. I know it's US Regulation is relatively new, but this is a narrative that's being been told for a long time. Yeah. And what we found is that there's people who have created new stable coins where those projects have taken off because there's tremendous use cases for them, and then there's others that have not. And usually it's something like the, the asset can be used in pair trades. There's, you know, spending venues for the asset. There's all these kinds of things. And so I think if you're going to like saying you're going to launch a stable coin is one thing, but having a real business strategy around it is a whole other ball of wax. And you have to figure that second part out before you can launch it with confidence. Because quite frankly, I think there's a lot of people who already have that business strategy set up and have built successful ventures in that space.
- [33:20]
Bryce
Yeah, no, I love it. I'm curious, do you see the world kind of evolving more like, I feel like there's two pathways and maybe we'd probably go down both pathways. Pathway. One is like centralized companies, kind of like what Robinhood announced, like basically trading, you know, stocks on chain 245 or whatever. But you're like doing it through like this permissioned world or do you kind of, kind of see like this other world unfolding, like where you're trading, you know, tokenized stocks on Uniswap, like permissionlessly and other sorts of, you know, products that are, you know, assets that are issued by folks like yourself or the team.
- [34:04]
Mike Reed
I'm going to say a little from column A and a little from column B that way, but it really feels like there's. Both worlds are. Have evolved. You know, people are exploring institutional defi right now and I think there's a lot of really interesting things happening there. Again, going back to that idea of translation function, the looping strategies feel to me just kind of like leverage, which, you know, not there's anything wrong with that. I'm just saying like that, that to me, like I spade immediately you're like, oh, I know what that, I know what that is. You know, a lot of these constructs. So I think, you know, figuring out what to do with these kind of permissioned assets and some of those permissionless spaces and, and a lot of people are sorting that out right now. Is, is going to be kind of a next big hurdle for large institutions like us to get involved in that space.
- [34:59]
Bryce
Yeah, no, it makes a ton of sense. And like, do you think that like people are going to be having wall, like more and more wallets or do you think the banks are going to be integrating wallets and people aren't even going to really know about it? Like, I'm just kind of curious like what you think about from the UX perspective, how people are going to be most interacting with crypto. Is it like gonna just be under the hood? They're on bank of America, they don't even realize they're using crypto. They're just, you know, having a better, you know, experience 24 7, 365 access to their money and their assets, or is it going to be like they're going to be on different newer wallets and platforms and stuff.
- [35:36]
Mike Reed
So, so borrowing from my colleague Sandy Call, who's the head of innovation at our firm, Sandy's long had a thesis that the wallet is the account of the future and all of these assets can live alongside each other. And I definitely not just because we work together, subscribe to that, that thesis. I think that, you know, I've heard different people say things like when everyone just thinks of this stuff as money, that's we'll all be a lot better off, you know, about it. But I think there, I think it's not just going to be invested assets or investable assets. I think it's going to be other things that are living alongside those things. Like you have, you know, an nft. So like Sandy and, and I were both big Pearl Jam fans. So say you have a big. Say you have like a. Yeah, I like Pearl Jam. So say you have like child of the 90s, but say you say you have like a Pearl Jam NFT that might give you royalty rights, maybe a meet and greet with the band every year, you know, the new album, like whatever it is, say it gives you all these kind of benefits. I could keep that alongside my Solana tokens. I could keep that alongside my tokenized equities or whatever I end up holding in that portfolio. And then also you start to think about all these assets. So like let's go with the Pearl Jam example again. So let's just say like I've met the band a bunch of times and I'm satiated. I think that, you know, I've had that experience. It was great. And I could, you know, figure out is there a market where I could lend this NFT out and someone else could borrow it for a fee and they could have the band experience again. I mean, this is the third or fourth time I said this, but like fully realizing the economics of, of your trade, right? Like you're like, okay, I own this. It's a cool thing. And there's other people who might not want to lend out their Pearl Jam NFT or you know, pick, pick whatever it is, the sports team that sells an NFT to, you know, like the Green Bay Packer shares, you know, that kind of idea where you could lend that out for some kind of benefit. I think all of these assets are destined to live together. So I think, I think for advisors, traditional financial advisors thinking about asset sourcing is going to become paramount because they're going to have to have wallets on chains where they can source good investment ideas for their clients alongside things that investors are passionate about. Because the, what we've seen over time is the investor desire to have assets that mean something to them emotionally is consistently going up over time. So people care more. They want to feel good about something. You know, my kids have, excuse me, stock accounts. And I'm like, what do you like? And they're like, I like to eat here at this restaurant, at this place. And so we buy this game. Exactly, exactly. So, so that's kind of how so now think about that from a grown up perspective. Maybe you like really like, you know, a certain asset. And you also think that the company's got a great, great chance for growth. Now you're investing something you're passionate about where you think there's going to be good return. So I think all of these assets are kind of destined to live alongside each other in a single wallet.
- [38:47]
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- [39:47]
Brendan Veeman
You know, the. The conversation of wallets is interesting because I agree. I mean, it does feel like the future. One of the hurdles that I would like to see solved is how do we have this balance between security and making it. I don't know if accessible is the right word, but people get scared. Convenience. Say it again.
- [40:11]
Bryce
I was gonna say like the trade off between security and convenience kind of thing.
- [40:15]
Brendan Veeman
Exactly. Because that is the biggest gripe that I see from people who aren't super deep into the weeds of crypto. They go, oh, well, it seems either complicated or they get scared with the fact that if they don't remember their seed phrase or they don't write it down and store it somewhere the proper way, that they could lose everything. And I think that idea makes them nervous even though, you know, in a perfect world it is more secure. It is the best. Like, it is this brilliant solution. But I think that people realize that sometimes that they can be irresponsible and they view that as almost a security risk because it is inherently more secure. Like if that makes sense.
- [40:57]
Mike Reed
No, I know what you mean. It's. It's like the fear that, you know, you hear a story, it feels like I hear stories all the time of somebody who threw away their thumb drive.
- [41:03]
Brendan Veeman
Yeah.
- [41:04]
Mike Reed
With the bitcoin on it. So like I totally, I totally get it. So I would say two things about that. Number one, I think that you can just use the ETFs, right? Like yeah, again we didn't name them easy by mistake. Right. You're making, you're making life easy for people. But then number two, I think like it depends there, there is always with any adoption of technology like there's time until that technology gets accepted and more broadly used and things like that. Now you could argue that, that to someone like my kids having to write down a seed phrase is like my kid, my oldest is 16. So you could argue that for like my 16 year old having to write a C phrase. Not a big deal, he doesn't really care. You could also say he has nothing, he has no money, he has no assets, broke all the time. He has to borrow money from us for gas. So like.
- [41:53]
Bryce
And I'll never let him forget it.
- [41:57]
Mike Reed
But, but you. So you could argue like someone who has nothing has a very low risk if they lose their seed phrase. It's a good point. But, but you know, I think over time a lot of these things will become institutionalized and that user part of it is going to become experience going to become a lot better.
- [42:15]
Brendan Veeman
And I'm sure in the early days of like the Internet with like passwords and all this stuff, people probably got the same kind of scare back then. They're like hey, this is new. What do you mean if I don't remember my password or something?
- [42:28]
Bryce
Yeah, nobody wanted to put their credit card on online ever. I remember those days even.
- [42:32]
Brendan Veeman
Yeah. And there is nervous about.
- [42:35]
Mike Reed
So, so like totally for our, for our Benji product, I'm not trying to sell you money fund but for our Benji product it's. We have, we have biometrics, right. So like it scans my face and then logs me in once, once you set it all up in the account. And what's happening in the background is that we have spun up a wallet for every client. Every client gets their own wallet on, on, on, on chain so that you're kind of like obscuring that seed phrase portion of it with our, with our wallet infrastructure. So like I said like I think a lot of the UI for this stuff is going to change over time. But man, I, I really think one of the best things that anybody who's never experienced this space can do to learn about it is like you, the great thing about it is these assets can be cut up in these infinitesimally small amounts which means you don't have to have a lot of money to try things out and just see what works for you. You know, I think my first crypto account was maybe five hundred or a thousand dollars. I can't remember. It wasn't a ton of money at the time. It felt like a lot, but, you know, it's not a lot of money. It was just like, let's see what this is all about and see what, what, what happens here. And then the first time I, you know, I went out and I bought an nft and then I moved it from the provider's wallet to a different wallet. And then there's this period where it's like, not sitting in any wallet and I'm freaking out, like, oh, my gosh, I just lost that. And then all of a sudden it shows up and then you learn, oh, the block had to be written. Right? That's. That's what was going on there. And so you learn these things by doing it over time. It's not just like investing in something where you're like, I can feel the volatility, so I understand how the asset performs. It's also understanding the underlying tech and why these things are good that really helps you, I don't know, feel good about not just investing in this space, but participating in it as a user as well.
- [44:24]
Brendan Veeman
Totally.
- [44:24]
Bryce
It helps you kind of strengthen your conviction, too.
- [44:27]
Mike Reed
Yeah, for sure.
- [44:29]
Brendan Veeman
You know, I've got one final question, because we were just talking to Matt Hogan from Bitwise the other day, and we were asking him what he thinks about the future, the ETFs. Because so far, I mean, the Bitcoin ETFs have gone down in history, is like the most successful ETF launch ever. And my question to him was, like, can we continue to see that same level of adoption and growth and inflows? Because it seems like it's been monumental. But is that something that is a sustainable or can be actually increased from what we've seen so far? And his response is, we're actually anticipating it to beat last year's record this year and then beat this year's record next year. And saying that he thinks that the adoption curve is going to continue to, to improve and surpass what we've already experienced at Franklin Templeton. What do you all see? I guess, what are you all expecting in terms of adoption and just overall performance when it comes to these digital assets?
- [45:29]
Mike Reed
The assets or the ETFs?
- [45:31]
Bryce
The ETF involved.
- [45:32]
Brendan Veeman
The ETFs.
- [45:33]
Mike Reed
The ETFs. So I don't know if you're familiar but there are These filings called 13F filings where you can see who owns the assets but there's a cutoff where if it's an advisor that manages less than might be 100 million, I can't remember what the number is. But you don't, you don't get to see who it is. If you look the vast majority of ETF assets are owned by that unknown bucket which is like people like me. You know, I buy our ETFs through a retail brokerage account and there's nobody advising me on that. It's not advisory business, it's just I buy them retail users buying the ETFs. I think there is a huge potential for growth here. When you start to see the advisor community start to adopt these assets in overall portfolio models. Thinking about optimization, we've actually gone to great again old fixed income person. I was raised on correlations, efficiency, frontiers, Sharpe ratios, like all these investment metrics. It's kind of what I was raised on. You start plugging these assets into, into some of the, and to figure out what the metrics look like. It turns out the investment metrics historically have been really good. So it's really a question of like any asset, it's really a question of how much volatility are you willing to assume for the reward that you're getting for that volatility? Am I getting paid for the volume I take and then how much volume am I willing to take? I guess it's another way of putting it. And I think, or we think and we papers put out about levels of allocation that people should have in portfolios and things like that. We think that as the traditional investor community continues to adopt these assets and look to them as a, as a way to invest in really exciting new novel technologies. There's tremendous potential for growth.
- [47:21]
Bryce
Somewhere between 1% and 10% is the right allocation you think for kind of the average. I guess there's no typical person and of course nothing's financial advice. But how do you kind of pair it, you know, I know, I saw Rick Edelman who's a big wealth advisor said up to 40% for, you know, more risk seeking clients of his.
- [47:43]
Mike Reed
I saw that as well. I'll tell you, I am, I am a, I am a raging crypto bull. This is my career, this is. But it's also my passion and my interest. And at any point in time our family's net worth sits somewhere between 5 and 10% in crypto because as Much as I love crypto, I love knowing that my kids 529 plans are funded and knowing that I can make my property tax payments, you know, knowing that kind of the things I need stable cash for are going to, going to be able to be serviced. So fixed income guy, what's that?
- [48:16]
Bryce
Fixed income guy?
- [48:18]
Mike Reed
Yeah, yeah. I mean, sure, sure, sure. You can say that and say like, maybe I don't have an appetite for volatility, but like I have an appetite for a lot of volatility in certain parts of my portfolio. But again, like I don't want to not be able to afford my house because I bought something super volatile and it went down a lot in a year. So, you know, I think we're actually, if you look at the, and I, I don't know what some of our official models state, but I'll tell you this, if you look at efficiency frontiers, like Markowitz efficiency frontiers is like classic portfolio theory things you get a significant lift in your portfolio from a risk and return perspective by just including 1%. And there's a lot of people, you know, take 1% out of equity and put it into, into crypto. You get a really nice pop in return for a really small pop in volatility. And if you think about just nominal risk, like if it goes to zero, what happens to my overall portfolio? Fine. If you think about just like the stomach risk, it's, it's 1%. But you have to remember for investor portfolios, and I think when we, when you hear people like say massive numbers in terms of allocation, you have to remember volatility of returns directly trends into volatility of relationships. I mean, I hear a lot from my dad when bitcoin is over 100. I hear more from him when it's under 100. And like you have to remember this is kind of the way. And I didn't give him any advice, he just did it right. So this is the way people have to understand is that if people are making investment advice and recommending huge allocations when the volatility comes, how good is that relationship? And is that relationship going to abandon you because you recommended a massive allocation, something that's supremely volatile. So yeah, price, way too many words to say what you already said, which is there is no typical investor. Everybody's got their own risk return appetite and you kind of have to figure out what fits for them.
- [50:15]
Bryce
Now you totally nailed it. And I love the explanation and it kind of makes me. And this is, by the way, this is why we asked the pros, we want to hear from them. So take as many words as you feel like you need, you know. But, but really what, what I'm curious to get your insight on. And you've also been in crypto for a long time. There's this thing called the four year cycle, right, where we've got the having. Every four years there's a having and it drives liquidity and it drives supply from miners and all that kind of stuff. But like we've never had, and there's a big risk in markets saying this time is different, but like this time is different because we've never had institutions, like we've never had these ETFs that have, you know, billions and billions of dollars of flows. We've never had, you know, the Morgan Stanley wealth advisors and the Wells Fargo wealth advisors, like start to come online and say, yeah, we're going to be able to pitch Bitcoin ETFs. So I get, and this is kind of in a sense also like lowered the volatility like we've talked about, like the volatility like each cycle, you know, every four year window, the volatility is less and less and less and less and less and probably will be over time. Is the, is the four year cycle done now that we have these new market structures?
- [51:22]
Mike Reed
Well, I mean, no, it's a real thing. Right. Like it's, it's coded into the asset. So it has, it'll happen. Okay, but, but to your point, I think it's really, anytime you see more participants enter a market, historically what you've seen is volatility goes down, return potential also can go down. You know, it's harder to replicate the returns that you've already received when asset prices start to go up. So you see that kind of behavior with every, every asset that exists, you know, almost every. I shouldn't say every because I haven't studied every asset under the sun. But like generally speaking, that's something you see, more market participants tends to equal lower volatility.
- [52:00]
Bryce
Yeah, no, I'm, I'm very curious to see how it plays out. And if the October slash November sort of market top that's projected by these four year cycles stays in and then we're going to be in for another correction of a year or so as it typically is. But who knows? I know one thing's for sure. Crypto 101 will be still there reporting on things and I'm sure Franklin Templeton will still be building things. Bull market or bear market? Man, Mike, we really appreciate kind of bringing you on. Is there anything else that we didn't ask that we really should have? Maybe anything that you're building, any strong opinions that you or the firm have that we kind of didn't dive into yet?
- [52:43]
Mike Reed
Well, I mean, I kind of mentioned everything that we do. We have this investment capability. We have everything. We build on chain as well with our Benji products. We also validate as well. We operate 11 validators, sorry, 30 validators across 11 different blockchains. I think what you're going to see over time is more people taking a much more comprehensive approach because all these things feed into each other. The fact that we operate validators means that when we have our product living on chain, we have our own copy of the records. It also means that we have all of the data on that chain. So if our analysts want to use that data in the analysis of the chain and come up with a price target for the token, we have it all ourselves. We don't have to buy. So the chains inform that if you invest in an early stage chain and they're like, we're going to need validators eventually. We have that service that we can help to offer if it makes sense. If they say things like, oh, you know, we could really use help with our coding, like, we feel like it's good, but we're not 100% set. We have our own team of engineers that can help with that. And all these things relate to the engineers. Talk to the analysts. When we're trying to decide what chain to go on next, we talk to the analysts and say, is there actually something happening here? Is there a real movement going on or is this just, you know, is it a zombie project? Is, you know, so we, I think, I think you have to have this kind of comprehensive approach to the space to really understand what's under the hood, which will come to, you know, eventually lead to better outcomes for your clients.
- [54:19]
Bryce
Totally there. I feel like I read a study and I could be hallucinating, but I think it was done by Franklin Templeton. It was about transaction cost savings, like $50,000 for 50,000 transactions and then 50,000 transactions on. I think you guys used optimism. It was like a dollar and 52 cents. And so the math was like a 30,000 times efficiency in. In cost. Was that your department that kind of did that study?
- [54:45]
Mike Reed
We don't actually publish the cost savings we've achieved by running things on chain, but suffice it to say, it's. It's pretty. And we're not on optimism. But it's suffice to say it's, it's pretty intense. It's the kind of thing where we, we, we put this money fund on chain and then we have, oh, someone's gonna get really mad at me for not knowing this. But we have a whole bunch of these specialized investment managers that specialize in different disciplines. So like you know, real estate, private equity, private traditional equity, all these different things. And when we had the cost savings data, we went around to the CIOs of all of these different investment groups and to a person the reaction was the same, which was how do we do this sooner rather than later? Like that, that's, that's too intensive a cost saving to, to ignore. So I think, and, and look, there's a lot like anytime you want to change the transfer agent for a fund, there's board meetings that have to occur, there's filings that have to occur. So it's actually a pretty heavy lift to be able to put funds on chain. We started with Benji. We started with a brand new fund structure and a brand new fund board. So specifically because of that, because it is quite, quite, quite a lift. But to anybody, it's apparent the cost savings are so intense, moving assets on chain seems to make a lot of sense.
- [56:01]
Bryce
Love it. Mr. Mike Reed, thank you so much for coming on and talking to us. All things about digital asset partnerships at Franklin Templeton. We hope to have you back on again soon. Talk about some more updates. Anything that's kind of going on in your world that you know, the good citizens of Crypt Nation should be here and we'd love to have you back on. And thanks for coming.
- [56:22]
Mike Reed
Love to be on again and thanks for having me. Appreciate it.
- [56:36]
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