← The Wolf Of All Streets
The Wolf Of All Streets
Wall Street’s Big Crypto Bet – The Truth About Tokenized Securities | Michael Sonnenshein
00:51:23
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- [00:00]
Michael Sondenschein
See, here's where I'm going to disagree with you.
- [00:03]
Scott
You said you've been in crypto for 10 years, which is 70. It's dog years. Right? So you're 70 years old in crypto.
- [00:09]
Michael Sondenschein
More than 10 years. This is where the conversation starts to get a little bit tougher because bitcoin good, Blockchain bad. Blockchain good. You know, bitcoin bad. You know what it was? It was a big fight.
- [00:22]
Scott
Tokenizing real world assets has been one of the hottest narratives of this cycle and is driving blockchain technology and the industry forward. No company is doing that more than Securitize. Today I spoke with their chief operating officer Michael Sondenschein about everything that Securitize is doing with the largest institutions in the world like blackrock and Apollo. Well, spoiler, they've got a lot more coming. And this is just the beginning. You don't want to miss this conversation. Let's dope. So last we spoke, you were not at Securitize, but here we are. And now you've, you've gone from obviously from grayscale to tokenizing everything. So I guess we'll start with the most broad topic. Are we going to tokenize everything?
- [01:15]
Michael Sondenschein
We are not going to tokenize everything. Right. And I think when a lot of folks think about tokenization, you know, hopefully more folks are thinking about securitized than ever, but we actually just focus on tokenizing securities. Right. That's really our area of the sandbox. So to date we've tokenized everything from treasuries to private credit to venture to public equities. So we are certainly continuing to broaden the types of products, the types of securities rather that we are tokenizing. But ultimately, will we tokenize everything? I don't know. We'll talk about it.
- [01:54]
Scott
Maybe as an industry we'll try to tokenize everything, but not Securitize specifically.
- [02:00]
Michael Sondenschein
Correct? Correct.
- [02:01]
Scott
So let's talk about what you have tokenized so far. You just mentioned a few of those things. There's some that have obviously made huge headlines. We can just start right at the top with BlackRock, obviously, and their BYDL. I never know if I'm supposed to say BILD or Biddle, but I think it's cool.
- [02:13]
Michael Sondenschein
You can say Biddle. Biddle is correct.
- [02:15]
Scott
I like Biddle. It's very colloquial for a crypto. Yeah. So talking about Biddle, it's obviously grown tremendously multiple billions in AUM and with the largest asset manager in the world. So I think in My eyes, I saw that sort of really open my eyes to what Securitize was doing because it was such a big headline. But maybe talk about how that BlackRock sort of partnership actually happened, how you're working with them, what that actually means.
- [02:43]
Michael Sondenschein
Yeah, so I don't want to take too much credit for it because I've obviously only been with the team over the last couple of months. But we started working with BlackRock, call it about 18, 20, 24 months ago. And really the thought was working on bringing a tokenized treasury, you know, money market like fund to market. And I think because BlackRock is obviously the world's largest asset manager, they have extensive, extensive experience in managing these types of products. I think for a lot of reasons there was talk about Treasuries being a great asset to tokenize because it's liquid, it's, you know, priced, you know, very, very consistently and it's interest bearing. And in a world in which we really used stablecoins as the substrate to collateralize all of our trading across OTC desk exchanges, you name it, there was thought as to whether or not we could see investor behavior move to perhaps tokenized Treasuries where they'd still have this stable, high quality form of value. But that was actually yield bearing. And so the Biddle product launched about a year ago and again just holds, you know, primarily short dated Treasuries. Securitize focuses on serving as the fund's tokenization partner and broker dealer, but it is BlackRock's product. So we are a service provider to the fund itself. And I think over the last year the team has really focused on just improving the product. And this is kind of a broader theme which I hope we'll talk about, Scott, which is not tokenizing for the sake of tokenizing, but tokenizing because we can actually provide investors with objectively something better, a better attribute, better liquidity, better experience, whatever it may be. And so like in the case of bidl, it offers daily dividends, right? You compare that to your average money market fund or even just owning Treasuries directly, you're not going to get access to capital daily, you're going to get it quarterly or maybe even monthly. So the fact that you can own Biddle and get that payout on a daily basis means you get immediate access to capital as an Investor. You also get 24,7 liquidity. So when you think about owning a money market fund or even owning Treasuries again directly, their dates, fixed income markets are closed, there are order cutoff times for money market funds, usually around, you know, 2pm Eastern on most days. But owning an asset like this, you've actually had the asset on chain in your wallet to use as you see fit. And you can get liquidity 24, 7. It doesn't care about holidays, it doesn't care about order cutoff times, etc. So we're really starting, I think, to define, you know, and bring to life rather what the on chain investor demands out of their tokenized securities. Tokenized investments.
- [05:32]
Scott
What is it functionally about it that allows for that daily dividend? What about the process? Why does tokenization unlock that ability when it doesn't exist elsewhere?
- [05:43]
Michael Sondenschein
Well, it's really a function of knowing where our holders are in real time and in what quantities they own the product. And so because it's mapped to each investor's wallet, we're able to spit out dividends to each investor on a daily basis. Right. There's nothing kind of in flight at any one time. The blockchains, which the product resides on, knows who owns what and how much.
- [06:07]
Scott
Does that improve the compounding in any way, shape or form? Or does it end up being the same amount that is gained, you know, based on the yield of the treasury over time?
- [06:15]
Michael Sondenschein
No, no, no. It improves the compounding. Right. So if you're, if you reinvest those dividends on a daily basis, for sure.
- [06:21]
Scott
That seems like a humongous improvement over just buying a Treasury. Because I think everyone who has bought Treasuries or money markets, their first question is, okay, I can buy Treasuries and money markets, although that is not frictionless and it's not available to everyone, obviously. But that's a meaningful improvement.
- [06:39]
Michael Sondenschein
It is. And listen, I think it's really important that we capitalize on the experience we have with Vittle and some of the other products. I'm sure we'll talk about to keep pushing the limits of what tokenization can offer us when it comes to our investments. Because I'll be honest with myself and you and your listeners, it's not always easier to buy a tokenized security as compared to, you know, just logging into your brokerage account and, you know, buying something, you know, immediately or things like that, there are additional hoops and additional complexities. But if you have value already on chain, for an increasing number of investors, keeping that value on chain and moving it into assets like Bittle or into some of the other products that we offer increasingly makes sense for them. And, you know, I think the numbers speak for themselves and the kind of growth we've experienced.
- [07:28]
Scott
So that's it leads an interesting question. So you have these institutional products with the biggest institutions in the world, but primarily being assessed by people who are already on chain. So there has to be some sort of bridge there. Right, because people who are on chain are not necessarily the largest institutions who would be interested in these products like natively, they're crypto natives. And you want to unlock the bigger wall of money that is not yet on chain.
- [07:54]
Michael Sondenschein
Well, I think that's just a function of where we are today. There's a pretty consistent comparison between the growth of stablecoins and the earliest days of their entrance into the crypto ecosystem and kind of the growth of tokenized treasuries and where they are today. And tokenized treasuries are growing 20 some odd times faster then you saw the growth at stablecoins in the earliest days. I think some of that is because we are unlocking utility like we just talked about. But it's also because we do have the support and very public participation of household names like blackrock, Apollo and you know, all these types of institutions bringing, you know, these products online. Ultimately though, what we have seen is it has become orders of magnitude both for stablecoin usage but also crypto directly for more and more users to access it. So just because today RWAs and tokenized securities are really mostly being accessed by the on chain investor doesn't mean that over time that that won't continue to be a market that opens up to more and more investors. In fact, I think we're banking on it and most people are as well.
- [09:04]
Scott
Right. So I look through your primary listings on the website and it seems like you actually run the gamut of who has access to different products. So BlackRock product minimum investment 5 million. You have to be a qualified purchaser. Right. That's not for your average person. Next to it, you have arca one $1,000 minimum investment retail. So you are covering everyone here we.
- [09:22]
Michael Sondenschein
Are and I think where we are today, as you know, compared to maybe we talk again in a couple months, I think you're going to see both securitize innovating as a service provider to the asset issuers and the asset issuers themselves innovating as well in both not only the product structures that they want to bring on chain and into tokenized format, but also the underlying investment exposure that they believe may be good candidates for being tokenized securities.
- [09:51]
Scott
Right, that makes perfect sense. So obviously beyond the tokenized treasuries, you're offering quite a few different products, maybe we could talk about what those are. But even more interestingly, how you choose, how you decide what's going to be next, what the roadmap is moving forward from the products that you have now.
- [10:07]
Michael Sondenschein
Yeah, so I think that there are some historical products that were very early within the securitize ecosystem that were probably a little bit more about democratizing access to otherwise difficult areas of the market for investors to have access to. So things like venture and you know, maybe even things like healthcare that really was probably reserved for, you know, those that have those types of relationships, private bankers, etc. I think more recently what we've been able to do is really tap into things like public equities and there's a project I definitely want to make sure I hit on tokenized Treasuries and then private credit, which as I know you know all too well, has been a really popular area of investment amongst institutions and investors in general. And so when we kind of look at the criteria there's, you know, as we said at the beginning of this chat, there's an almost endless number of things we could tokenize. But generally speaking, the attributes, the qualities that probably make something a better candidate for tokenization are those investments that are liquid in general have the most frequent ability to buy and sell them or subscribe and redeem from them. And then these days I would say the on chain investor, the investor looking for these types of instruments generally wants cash flowing or you know, yield bearing products. Those are kind of the most high level criteria I can share with you.
- [11:34]
Scott
Yeah, and interestingly we're sort of going through the throes of stablecoin legislation as we speak. And yield has been probably the largest sticking point at least between the industry who wants the yield and legislators who have been pretty outright against doesn't look like yield is going to be included in that. So I don't think that's going to happen on stablecoins. But if it did, would that in some way become competitive to your products?
- [12:01]
Michael Sondenschein
Well, I think it's a different product altogether. Right. I think one of the trends we're starting to see, and we started to see over the last couple months is places within the crypto ecosystem where stablecoins had historically been kind of the only contra asset or collateral asset. And assets like bid are now beginning to show up. So you could be an OTC desk that was maybe only letting users that transact with them collateralize trades with stables now being able to accept biddle as a form of collateral and as an investor, as a user, it's kind of undeniable or almost unquestionable why you would obviously want to maybe move away from collateralizing with a non interest bearing asset to collateralizing with an interest bearing asset. Right. And so I do think you're going to see this trend continue where the listing venues and the counterparty acceptance rate of tokenized Treasuries, as that ecosystem expands, is only going to grow with it. And so investors are going to start to have more choice in what is that ultimate common denominator that underpins a lot of the investments they make.
- [13:07]
Scott
Can these be used like stablecoins?
- [13:10]
Michael Sondenschein
In many instances, yeah, because they're highly liquid, they're redeemable, they're, you know, backed by, you know, U.S. treasuries. Right. In, in traditional Rails, Treasuries are what some of the largest institutions in the world are consistently posting and reposting to be able to collateralize the trades they're doing on those types of Rails. So it's hard to see a world in which that narrative and that kind of investor behavior wouldn't also take hold on crypto Rails as well.
- [13:40]
Scott
So then let's talk about more of the longer term vision. Not how you've chosen what you have, but where you see the puck sort of going. Right. I mean, what do you think Will, maybe even a more interesting question is like, where does it stop? Where do we go? This is ridiculous. We don't need to, you know, we don't need to tokenize this next thing. Do we need individual equities tokenized, for example?
- [14:00]
Michael Sondenschein
Yeah, in many instances I think we do. Right. So securitize, tokenize the first public equity here in the US a crypto company called Exodus, which now trades on the New York Stock Exchange. And so if you hold shares of Exodus, you can actually put the shares back to your transfer agent and take back tokenized shares of Exodus. Right. I think that type of investor behavior, that ability to do that is really, really interesting. There's some benefits that I think issuers are going to be excited to see where it gives them much more direct line of sight into who actually owns their stock and what else you can do, communicating with investors, corporate actions, all kinds of things that maybe you can speak to using blockchain technology and wallet infrastructure and also to the investors themselves because then they actually have direct control of the asset. It's not being rehypothecated without them knowing about it. And perhaps they can take it to other places, whether it's into the world of defi or trading it on other venues. So if you kind of shrug off for a minute, Scott, the like, you know, very US centric view of the world that we often have where we just have access to all these different assets at all times and certainly between 9:30 and 4 and you look at all these other places around the world that don't necessarily have access to the same securities, you could see a world in which tokenizing assets here that are US listed and giving them on chain accessibility to other jurisdictions could potentially be a really large unlock and really good use case for tokenized equities.
- [15:38]
Scott
Now do we think that this gets then beyond the accredited investor and beyond the institutions? Because obviously you're still doing this in a regulatory compliant manner. Sure. Right. Which usually means that it's accredited investors and only certain people have access. So it's starting the process of democratizing access, but it's not giving it to everyone yet.
- [15:57]
Michael Sondenschein
Well, I think over time we'll see what that looks like and it may differ jurisdiction by jurisdiction. Ultimately though, where we are today, mid-2025, is you have an increasingly large number of investors that are amassing wealth and activity in wallets and they continue to have massing wealth and you know, investments in a brokerage account. And so like, is the brokerage account going to merge closer towards the wallet or the wallet going to merge closer to the brokerage account? Right. You know, if I was a betting man and because I worked in crypto for over a decade, a lot of people would say I am. I would bet that the opportunities today that are available to you in a brokerage account are going to be sooner made available to you in a wallet than the other way around. And that's just, you know, that's just my personal view.
- [16:46]
Scott
Right, I agree. And so what does that look like? That means that your Biddle and your Solana and your stocks are sitting in one wallet and you can cross collateralize all of that for margin and for taking loans and same kind of loans people take across. Right. So this is going to unlock massive potential for everyone, but definitely for wealthy people who are on the buy, borrow, die schedule. Right. Who sell nothing. But if you could borrow against everything in one place, that's a huge, huge hack.
- [17:16]
Michael Sondenschein
100%. And I'll take it even a step further. I was talking with my friend Christine Moy at Apollo and we can talk about the product we did with Apollo earlier this year. She and I were at a conference and she was actually speaking about a future state that actually Sounds almost realistic because the infrastructure is there for it where perhaps you're like, you have a job, you're a W2 employee, you get your paycheck every two weeks or monthly, whatever it is, and when the money drops into your wallet rather than your bank account, that perhaps there are smart contracts that automatically allocate that money into a pre programmed set of on chain investments. Right. Like that's, that's possible. Right. And yeah, sounds awesome. Like I would sign up for that.
- [18:03]
Scott
I'm sure for that in a second. Yeah, it's like a much cooler 401K.
- [18:09]
Michael Sondenschein
So, you know, these aren't maybe as far flung ideas as maybe we might think that they are.
- [18:15]
Scott
So actually I'm curious on a personal level, this was a pretty big pivot for you.
- [18:22]
Michael Sondenschein
Sure.
- [18:22]
Scott
Why, why take on the role here as COO of Securitize? I mean, it is in line obviously with what you were doing. It's same industry, but I mean, this is a very different focus, I would say, than what you were doing before.
- [18:35]
Michael Sondenschein
See, here's where I'm going to disagree with you. It actually feels like a natural next step or it's been a natural next step or linear path. For me, the last 10 years that I spent at Grayscale, essentially the mission was taking crypto assets and putting them into traditional wrappers. Right. Everyone knows we were perpetually on the hunt for bringing Bitcoin ETFs to market and fought that good fight. And now what I'm doing at Securitize is actually the exact opposite flow. Taking traditional investments and bringing them onto public blockchains. So in many ways it's a lot of the same rules and regulations, same acronyms, same players, same flows. It's just directionally going the opposite way. So it actually has been a really natural fit and work. Candidly, that has brought me a little bit closer to the underlying technology itself, which has been really rewarding so far.
- [19:36]
Scott
And when you were at Grayscale, it could be argued that the suit that you guys won effectively unlocked the ETFs for everyone and open this entire path.
- [19:45]
Michael Sondenschein
Yeah, you could say that it did. It was certainly a team effort. I look back on that time and just think about, you know, how many people in the industry rallied around us, you know, lobbyists, investors, the crypto community as a whole. And yeah, ultimately we, we persevere. It was, it was a big fight.
- [20:06]
Scott
But interestingly, I mean, you joined Securitize when we were still under the same administration. Right. We still had the same anti Crypto army and we a very contentious, I guess, relationship with the government. Talk about what it's like to see the transition to a less contentious government. Not, not from a political perspective, just where it seems like you can do more with, with less fear, which seems to be the situation now. Has it made it a lot easier?
- [20:33]
Michael Sondenschein
Well, I think there's, there's two things there. So one is, you know, publicly, you know, I'm not disclosing anything that isn't already out there. I've been down to visit with the SEC since joining Securitize and it's been, you know, very different conversations. It's been great to meet with the, you know, crypto task force. First of all, it's great to even.
- [20:54]
Scott
Have a crypto task force.
- [20:56]
Michael Sondenschein
Right.
- [20:56]
Scott
Let's start there instead of crypto enforcement. Right. I mean, it's a pretty big pivot.
- [21:00]
Michael Sondenschein
Yes. And so it's been really great to be able to have that open dialogue and be able to talk openly about projects and spitball ideas. And it's very clear that they're posturing is in fact in person what it is publicly, which is come in, talk to us, talk about your projects, talk about the things you want to be doing. You know, write into us, follow, you know, the, the, you know, respond to the request for information we're putting out. You know, those are the types of things that type of engagement that in my, you know, over a decade of being in crypto, we've never, we've, we've kind of heard those calls, but we've never had them answered in this kind of way. So it really has been night and day and it's been wonderful. I think what's interesting about Securitize's role in the industry is that while yes, we'd certainly like to see further clarity on certain areas, crypto commodities from crypto securities, things like that. Things that the industry as a whole has been waiting a long time for. There's actually nothing within the existing rule set or legislative set rather that we're waiting for or that Securitize needs in order to continue doing what it does.
- [22:11]
Scott
Right.
- [22:12]
Michael Sondenschein
We're a broker dealer, we're a transfer agent, we're a fund administrator, we're a technology company. And we kind of bring all of that together to be able to package up this, this kind of fulsome offering. So for us, you know, any tailwinds, we get, commentary, legislation, etc. We support for the industry as a whole, but it's certainly not stopping or prohibiting the Kind of growth that we're experiencing.
- [22:37]
Scott
Well, it's interesting. The industry has been embattled in this, in this commodity versus security versus whatever other definitions they may come with. You are tokenizing things that are very clearly securities outside of crypto. So it doesn't really affect you.
- [22:54]
Michael Sondenschein
These are like, and I want to be clear about that, these are securities. They were always intended to be securities. These are not assets that are born that then morphed into securities. These were always meant to be securities and always intend to stay securities. It's just that we, it's securitized. Rather than using a mainframe, you know, system to monitor who owns what or the dtcc, we're using the power of public blockchains to maintain the record and ownership of the assets that we're issuing, the tokens that we're minting. And it's really our opinion that. And there is no rules around what technology you must use. Right. So as long as our regulators remain technology agnostic, we would certainly be proponents that this is the most robust, most secure, most, you know, important innovation that really should be utilized for the tracking, transfer, ownership of things like securities.
- [23:52]
Scott
It's simply a technological advancement, correct? Hard to argue with.
- [23:57]
Michael Sondenschein
Correct.
- [23:57]
Scott
Let's talk about the other benefits we talked about. Obviously with Bittle, you can get, you know, daily, daily yield. That's incredible. But there are other huge benefits, Right? I would imagine that being 24, 7, 365 to some degree means that you can trade these when even the underlying asset maybe can't be traded. I would imagine for liquidity, it's huge. What other benefits are there?
- [24:18]
Michael Sondenschein
Well, I think a big focus of ours as we kind of move into the middle part of 2025 is really establishing an important linkage that today doesn't really exist between tokenized securities or just securities in general. But yes, in our case, tokenized securities and the world and opportunities that exist for investors in DeFi. I think by and large investors, and certainly your institutional investors who often participate in our products haven't really participated in DeFi. They understand there's opportunities for decentralized exchanges to lend, to borrow to. You know, there's certain strategies out there, but they haven't really participated. And so some of the things that we're working on and have been producing at Securitize are making those opportunities available. So we established a construct a couple months ago called S tokens, where investors are essentially buying assets from Securitize. It could be Biddle, it could be the Apollo product, a cred and they're able to actually vault that asset to be able to then mint a tracking asset or another asset on top of it. That then allows them to engage in different defi strategies. It could be looping, it could be leveraged, different strategies that may exist depending on the defi provider they're using. And so the acceptance on this has actually been really strong because a lot of these investors have long term views for the underlying on chain investment they made. And if they can take the 4 or 5% on Biddle and then go earn another 10, 11% on top of it in defi or engage in a looping strategy on top of the diversified Apollo credit fund, all of a sudden what is, you know, let's call it what it is, tokenized treasuries. They're kind of boring, right? It's just that it's just treasures. Right. But if you can make it interesting and actually then again make it worthwhile for someone to make these investments and then go enhance their return, then it becomes something really interesting. So a lot of our focus on kind of where this is going is increasing the utility and having tokenized securities take on, I guess, new roles or new ways of thinking about them or new ways of using them that would just never be available to investors in a traditional Rails ecosystem.
- [26:41]
Scott
So you can take a yield bearing instrument and send it into defi and earn yield on your yield bearing instrument in a relatively safe manner, assuming you understand smart contract risk and such. And as that becomes safer and evolves, it's going to just become an everyday, an everyday way to earn more yield.
- [26:58]
Michael Sondenschein
Exactly. And so one of the projects that we're working on, in addition to S tokens, we announced a couple couple weeks ago that we were actually working on a new blockchain with our friends at ena. Yeah, the blockchain's going to be called Converge and we're hoping next couple weeks we'll have a test net and hopefully Q3 mainnet. But ultimately we think Converge can really be this, this kind of substrate, this, this common denominator for institutional defi. Kind of capitalizing on what securitize does with RWAs and what the Athena team has really captured in terms of Defi.
- [27:38]
Scott
That's interesting. I didn't even ask. And most people probably don't know the existing products, are they blockchain agnostic? Are you minting on multiple chains? Is everything on Ethereum? I know the, I know the answer to Biddle obviously is in multiple places, but are you generally focus focused on certain Chains and then how do you deal with interoperability?
- [27:56]
Michael Sondenschein
Yeah, so we are blockchain agnostic. So we work with and have integrated with quite a few public blockchains today. Everyone from Solana to Inc to Avalanche, Arbitrum, Optimism, Ethereum, zksync. I'll stop there because then I'll start repeating blockchains because I can't remember them all. But yes, we are blockchain agnostic and we work with Wormhole on interoperability. So for instance, you can make an investment on Ethereum and Biddle or whichever share class it may be and you can bridge across to other blockchains. Right. And again this is that functionality that again can only be unlocked in an on chain environment. But that's pretty exciting to a lot of investors.
- [28:44]
Scott
Yes. Let's talk more about Converge. Why build your own blockchain? What advantages does that give you over utilizing these already accessible blockchains that we just mentioned?
- [28:55]
Michael Sondenschein
Yeah, so I think that there's a lot that we can certainly bring to Converge, which is the asset issuers that we're already working with, folks like BlackRock, Apollo, Hamilton Lane, KKR, et cetera that are looking to expand their distribution and move into additional ecosystems. And certainly with Athena and some of the native tokens that they've been able to create, whether it's USDE, USDTB, et cetera, and all the integrations they have with DeFi, we want to build something that's highly performant and that's well suited for these types of applications. And it's not to say that these assets won't continue to engage in DEFI activities on other chains as well. They certainly will. But we believe there's an opportunity to work closely with the Athena team to build something that is specifically for this use case. Really institutional DEFI makes perfect sense.
- [29:50]
Scott
You said that you want to talk a bit more about the actual Apollo product, so I would love to hear more about that.
- [29:56]
Michael Sondenschein
Yeah, so you know we were, I touched on it earlier, but private credit is an area that a lot of investors have been trying to get focused on. I believe there might already be or there soon could be a private credit etf. Right. So I think you're starting to see, you know, this making its way into more and more retail hands as well, just because it's a hot area of investment. And we have two credit funds. One is with Hamilton Lane which is called Scope. And then we launched this fund with Apollo which is called acred. And for a lot of investors their looking for these yield bearing opportunities and if they can, you know, get comfortable with tokenized Treasuries, which most of them can for some part of their treasury or some part of their balance sheet, they want to move a little bit further out on the risk spectrum and maybe do so and be compensated for that additional risk with a little bit more yield, such as private credit offers, could be 8, 9, 10, maybe in some cases almost 11%, depending on kind of what's going on in the space, but still do so from some really high quality asset issuers who have a strong track record of delivering on these types of returns. So we've been really excited with the reception in both the Hamilton Lane and Apollo products. And I think you're going to see more of those types of strategies coming to market.
- [31:20]
Scott
And largely who is interested in this exposure to private credit that doesn't have it otherwise? Or is it the same people?
- [31:28]
Michael Sondenschein
It's a lot of similar people. So again, if you have X amount of treasury as a dao, as a cryptocentric organization or whatever you may be, there's certainly some assets that you want to have in a super liquid underlying, super liquid format into assets like Biddle tokenized Treasuries. But there's probably some other portion of your balance sheet that you may be comfortable with perhaps being not as liquid, could be monthly, could be quarterly redemptions, and that give you a little bit of a higher yield. So it's really a diversification play, I think for a lot of those folks.
- [32:01]
Scott
But at the end of the day, this could eventually unlock this for your average person. It's kind of like bringing Wall street style returns to everyone. Right? I mean, these are the things that your average person doesn't even know exist probably, but doesn't, certainly doesn't have any access to.
- [32:19]
Michael Sondenschein
Correct. And accessibility is I think a really important part of investment product structuring. Right. We've obviously seen the unlock that has occurred as a result of Bitcoin ETFs coming to market. And just how many more people could access them in a familiar traditional format? And much the same, I think can be true with tokenized product structuring, where we'll be bringing opportunities that perhaps investors couldn't access before.
- [32:46]
Scott
Do you think that we'll see a change in accreditation laws like potentially under this administration? And what do you think that that would mean for securitize?
- [32:55]
Michael Sondenschein
I think it's possible. I think anything's possible at this juncture. I think, you know, there are certainly calls not just from the crypto industry, but from other Parts of the investment, broader investment management ecosystem that would like to see the accredited investor definition relaxed. Right. I think some movement on that in the last few years where those, I believe if you're, if you hold securities licenses and you don't meet kind of net worth accreditation standards, you can be qualified as accredited investor. But perhaps there are other ways to, you know, assess people's investment prowess or acumen and that would just unlock, you know, the ability for more investors to participate. Right. Our regulators, and we learned this through the grayscale lawsuit there, or showed this really rather to the grayscale lawsuit, is that they're not and should not be in the business of deciding what is and isn't appropriate for people to invest in. Right. Provided all the risks are disclosed and people know what they're getting themselves into. Investors should have the wherewithal to deploy capital into the places where they want to. Right. And that may include things like private credit that they haven't historically had access to.
- [34:07]
Scott
You're obviously focused right now on large institutions and working with them on tokenizing securities. Do you think there's a world where we start seeing tokenized sovereign debt and working with the governments in ways to tokenize their FX reserves and debt?
- [34:24]
Michael Sondenschein
Yeah, it's funny you say that because I think some sovereign at some point, sooner than maybe we think is going to be almost like duped into that kind of a project. Because I think oftentimes when we say tokenized Treasuries, people immediately think that we're working for the US Government. And like when Treasuries get auctioned, they're being directly auctioned and minted onto a public blockchain. So if folks want to take that as what we're doing. Sure. But in fact, what we're doing is creating funds, tokenized funds that hold Treasuries. The Treasuries themselves are not tokenized. So yeah, who knows? I mean, we have stablecoins, we had tokenized treasury funds, we could have tokenized dollars. And that could mean tokenized direct debt instruments from. From sovereign nations. Why not?
- [35:22]
Scott
Yeah, outside of specifically what securitized is focused on, obviously you're looking at the entire tokenization world as the broader conversation. Where else does this make just a ton of sense in your mind? Like where is this a layup to focus on tokenizing? A lot of people obviously point to real estate or mortgages or actually a lot of things we talked about for NFTs many years ago. But yeah, yeah.
- [35:47]
Michael Sondenschein
Well, I think this is where the conversation starts to get A little bit tougher because when I think about Scott and Michael finding a piece of real estate that they want to jointly own and all the paperwork and the entities and the this and who owns what percentage, I think there's a role that blockchain technology could play in making that faster, simpler, less paperwork, intense, you know, less, you know, intermediaries and whatnot. But that doesn't necessarily mean that it needs to be a token or, or a tokenized security. So historically, and I think generally a lot of people feel this way, is that, like, real estate isn't necessarily the best or kind of lowest hanging opportunity for tokenization. Just because, again, it doesn't meet a lot of the criteria I talked about doesn't mean it can't be done or shouldn't be done. But it's, generally speaking, not valued all that often. Right. Real estate doesn't typically move in prices meaningfully day to day, week to week, or even sometimes month to month. Right. It's not always super liquid. And so it doesn't necessarily kind of hold itself out from an attribute perspective as the best candidate for tokenization. But could real estate transactions, real estate ownership, or things of that nature be, you know, probably augmented by blockchain technology? Sure.
- [37:11]
Scott
Right.
- [37:11]
Michael Sondenschein
But it's not necessarily the same thing as, you know, fractional investing or things like that where tokenization may actually play a role. Oh, you got yourself on mute, Scott.
- [37:23]
Scott
I did, because I was sneezing, like coughing in the background. But for you, really, that's the reason you're focused on securities.
- [37:33]
Michael Sondenschein
Correct.
- [37:34]
Scott
It's just so obvious.
- [37:35]
Michael Sondenschein
And for now, that's why we're focused on securities. Correct.
- [37:39]
Scott
So are other institutions knocking down your door? I know you can't give away any of the secret sauce, but I've got to imagine that when BlackRock is doing this and other institutions are seeing this massive success.
- [37:49]
Michael Sondenschein
Right.
- [37:50]
Scott
Billions, as I said, as you said, growing faster than stablecoins even did. You have to imagine that that's getting the attention of everyone else.
- [37:59]
Michael Sondenschein
It is. And I also think to your earlier point, the regulatory environment and this administration's posturing towards the crypto ecosystem has certainly caused a lot of people to move off of zero and want to have more of those conversations. So we're talking to a lot of folks trying to figure out what their strategy is going to be. Is this a proof of concept? Is it a, you know, mvp? Is this something they're ready to bring back to their risk committees and their legal counsels? And ultimately, do they want to stake their you know, pun intended, you know, their careers on it. Right. Because for some people over the last decade plus I've seen this, I've seen a lot of people grapple with that, you know, do they, they're, they're personally invested, they're personally believers, et cetera. But do they want to stick their neck out there on this stuff professionally and increasingly. So they're doing it. And I think you will see us hopefully come to market with a couple of other asset issuers over the next couple months with some new product offerings.
- [38:59]
Scott
I mean, there are larger institutions that have somewhat been doing similar things internally. Right. As much as, like, Jamie Dimon speaks aggressively against the industry, there's JP Morgan Coin, and they've, and they've done tokenized bank deposits, you know, between BlackRock and others at the Onyx platform. So you do have even competitors within these institutions, I would imagine, to some degree. Some might partner with you, some might build this themselves. Right?
- [39:24]
Michael Sondenschein
Yeah. And the funny thing about a lot of those projects, and I'm not speaking about any one of them in this, what I'm about to say is that they've often, what I'd seen at least, kind of hedge themselves by making sure that these kind of federated blockchains and projects they've set up are positioned for future growth to be able to be capitulated over to a public blockchain. Right. So if they ultimately do part ways with this walled garden they've created, they can actually ultimately utilize the, the, the security and the transparency of public blockchain. So I think that's also kind of a pretty telling aspect of ultimately where I think we believe a lot of this will go.
- [40:06]
Scott
We talked obviously about tokenizing individual securities. There's reasons you would do that, as you said, to democratize access around the world. People who don't, who can't buy Tesla stock in a foreign country, for example. One of the biggest arguments this industry has made is for the instantaneous settlement effectively. Right. And obviously having 24 7, 365 markets, NASDAQ has already said they're going to probably go 24 5. Right. So it looks like maybe with an hour off to, for the janitor to come in and clean out the trash cans, but it looks like blockchain is forcing other markets certainly to be available more often and to more people. But what about, I mean, the instant settlement side of this? Even the DTCC just did a whole panel and study on using blockchain technology. It feels like it's really happening.
- [40:58]
Michael Sondenschein
Yeah, I mean, Listen, the proof will be in the pudding. And mean, in my career, I've seen us go from T plus 3 to T plus 2 to now T plus 1. These are leaps that took a very, very long time. Again, it goes back to kind of what I said earlier and it's, are those investment opportunities going to make their way into a wallet faster than they're going to see crypto assets from wallets make their way into, you know, brokerage accounts? We just saw announcements from, I think it was Schwab and a couple of other folks that they're going to turn on spot, you know, bitcoin trading in the next 12 months, right? I mean, you've been around this long enough to know, Scott, where, where's this industry going to be in 12 months, right?
- [41:39]
Scott
It's so far beyond, hey, we can trade bitcoin now on Schwab, right? As important as that is, because it is, I don't want.
- [41:47]
Michael Sondenschein
It is important. But 12 months from now, there's going to be something that is going to be some innovation that we were not thinking about talking about or even ideating on that is going to be become part of the vernacular and something that's going to be actionable. And that's what this industry does and that's why it's so great to be a part of it. So I don't want to get all sentimental, but that is the God's honest truth.
- [42:08]
Scott
No, it is. And it makes you wonder if some of these larger institutions are going to become the blockbusters and Kodaks of the future, if we're going to see even some crypto natives step in. I guess the bigger question there is as crypto natives and believers. From the beginning we have this weird cognitive dissonance about cheering the blackrocks and Goldman Sachs and JP Morgan's coming into the industry when I certainly first bought bitcoin because I was trying to opt out of all of that.
- [42:39]
Michael Sondenschein
It does come down to a little bit of a philosophical question, but you walk down the street and you survey a couple people. Most people probably still don't own crypto and most people then certainly almost do not own a tokenized security. So to me, that spells more opportunity than, than kind of failure or characterizes, you know, where we are today as plenty of room to grow for sure. And it is, however, still the participation of the blackrocks, the Apollos, you know, the Hamilton lanes of the world that are giving investors increasing comfort, that make this on chain economy actionable for them. And quite frankly, I don't think there's anything wrong with that.
- [43:23]
Scott
I agree. I mean, listen, Bitcoin, even if you're the most die hard bitcoiner in the world, you can't really believe that it becomes a global reserve asset, which I don't necessarily believe, although Larry Fink apparently does now because I heard him say that, which blew my mind. But without it being adopted by everyone, you can't get to the bitcoin end game without institutions in the big wall of money participating.
- [43:45]
Michael Sondenschein
Correct? Correct. So, you know, time, time will tell, but I think that 2025 is definitely shaping up to be a very exciting year for growth across the ecosystem, tokenized securities and certainly beyond.
- [43:59]
Scott
Is there anything in your mind at this point that's glaring that could stand in the way or stop this progress or they could throw a hitch in it at least. I mean, we've had our, I'm not speaking specifically to tokenizing, but we've had our ups and downs in this industry when, sometimes when we least expect them. Right. So you never know.
- [44:20]
Michael Sondenschein
Yeah. I mean, one thing I would say, and because I've seen it before, I had a front row seat to see the ICO boom and bust and countless other things over the years is, you know, just because our, you know, here in the US we are holding ourselves out to be a jurisdiction that wants to be the hub of crypto innovation. And our regulators are, are calling upon us to come in and talk to them and participate and, you know, help shape and craft narratives and new legislation. Let's as an industry, not, not take that inch or two inches they've given us and somehow take a, you know, a foot or a yard. Right. Let's continue to work collaboratively with them to create sound frameworks. This is an industry has been what we've been waiting for, this level of engagement, this need or desire to engage in constructed dialogue. So my fear would be that folks in the community kind of take this level of optimism and this kind of loosening attitude and just run too far afield with it. We still have to, you know, comply with existing rules and regulations and there's really just no reason to repeat mistakes of the past.
- [45:35]
Scott
And President did it, you know, the weekend before he went into office. So, you know, go ahead and launch a meme coin. We know that people, when given the opportunity using crypto will push the envelope as far as humanly possible.
- [45:46]
Michael Sondenschein
Right. So I guess that if anything, is my fear. Right. Let's, let's make use of frameworks we have, when we have questions, let's go and let's ask about them, and let's try and get the answers that we need. Let's keep building this together and kind of not capitalize too quickly on this newfound optimism.
- [46:04]
Scott
I wouldn't say it's a fear, but I have concerns about almost 180 degrees from that, which is that we have the attention of the legislators and regulators. But maybe in some way, even if totally unintended, they'll get it wrong. They'll put something into law that will have some unintended consequence in a few years that will be contentious or confusing because it's. I mean, it's, as you said, like, who knows where we'll be in 12 months. How can they possibly craft sensible legislation?
- [46:34]
Michael Sondenschein
That's possible. But I think as an industry, we've seen those types of curveballs show up in legislation, and I think, you know, our industry groups and associations have done a really good job of very quickly addressing those to make sure that they don't, in fact, become law. So I worry less. I worry less about that, perhaps.
- [46:58]
Scott
Yeah, that makes sense. And obviously, I think what we hope for is just a very basic framework, and then, you know, people can kind of operate in those guidelines, and the regulators will maybe give more clarity down the road, assuming we have favorable regulators who understand it. You, I mean, you said you go into the SEC now, Esther Peirce, it's incredible. I mean, she proposed Safe harbor years ago, which still is the. The best system I've seen proposed for determining what is or is not a security and the path to not being one.
- [47:27]
Michael Sondenschein
Correct, Correct. But, you know, these are frameworks that now can get further developed, and hopefully we get some additional clarity on them in this Congress. We'll see.
- [47:37]
Scott
You said you've been in crypto for 10 years, which is 70. It's dog years. Right. So you're 70 years old in crypto.
- [47:43]
Michael Sondenschein
Morgan tenure.
- [47:45]
Scott
Okay, so you're in your 80s. Congratulations. There has to be some level of satisfaction and vindication to see where we are now versus where it was even a year ago, but much less two or three years ago. And 10 years ago, I mean, even your probably wildest dreams is about as good as it could be in 2025.
- [48:05]
Michael Sondenschein
Oh, for. For sure. And I think even more importantly than that, you know, I sat in seats where it was bitcoin good, Blockchain bad. Blockchain good. You know, bitcoin bad. You know what? You know, you name it. Regulators saying insane things, sovereign nation saying insane things, influential companies saying same things. You know, massive volatility Three, four, three crypto winters. Yeah. You know, and so as an industry, we've just continued to kind of persevere and keep building. So, yeah, I think we're infinitely further along than anyone could have even dreamed. And I think it still feels early. Even as a 70 or 80 year old, it still feels early.
- [48:55]
Scott
Well, I'm 48. I still feel like I'm 20, so I'm good for you in real world. And so outside of specifically your role at Securitize, having been in this industry so long, is there anything else that you're looking at that's just exciting to you personally that's being built in crypto outside of Securitize?
- [49:11]
Michael Sondenschein
I think some of the things that I've been paying attention to is the way that a lot of companies are really starting to capitalize on putting crypto on their balance sheets. You started to see now actually even whole ETFs created to help investors with a single investment access all the companies that have Bitcoin or other crypto assets on their balance sheets. It's obviously been, you know, a massive, you know, tailwind and very smart strategy. On behalf of strategy and Michael Saylor, and I think you're seeing a lot of people begin to mimic some of those behaviors. And it's going to be fascinating what that ultimately does to kind of those that do and those that do not. Right. And whether or not it's really going to be that binary how much that set certain companies on different paths over time.
- [50:09]
Scott
And I wonder when we extend that to nations, what that will look like. Because if the United States actually actively pursues a strategic Bitcoin reserve, you'd have to imagine you have the same game theory with central banks around the world.
- [50:22]
Michael Sondenschein
100%. It'll be very interesting to watch, but that's definitely, I think one of the things I'm just watching closely outside of.
- [50:29]
Scott
Securitize, that makes perfect sense, Michael. And thank you so much for the conversation. Where can everybody check out what you're doing? Follow you?
- [50:37]
Michael Sondenschein
Yeah, follow me. Unshine on X and certainly follow us. At Securitize, we're constantly coming up with new products, new ways of engaging with investors, and hopefully we can be a resource to anyone thinking about tokenized securities. And let's come back and chat again. So thanks for having me.
- [50:58]
Scott
Anytime. Absolutely. Anytime. I love talking to you in this new role. Seem very invigorated. It's exciting. I think you're on the cutting edge once again.
- [51:05]
Michael Sondenschein
Cool. Thank you, Scott.
- [51:07]
Scott
Thanks, Michael.