ETHZilla: Ethereum Treasury Strategy | McAndrew Rudisill & Avichal Garg

Avichal:
[0:00] Like, why wasn't this possible 10 years ago? The credit guys,

Avichal:
[0:02] the debt markets are now willing to consider Bitcoin and ETH as collateral. And that was a thing that you didn't have five years ago. Like, you just didn't consider this worthy collateral. But now that like the ETH markets have gotten deep enough, all these convert guys are like, look, my mandate, the reason my LPs as a debt guy give me money is to go generate yield and find these kinds of opportunities. Here's a new form of collateral to the tune of, you know, in the Bitcoin case, $2 trillion. In the case of ETH, $500 billion. These are now sufficiently large types of collateral The SEC is cool with these now. They're ETFs. So I'm now willing to consider this as a new form of collateral against which I can lend.

Ryan:
[0:39] Welcome to Bankless. This is Ryan Sean Adams. It's just me today. David's out. So I'm here to help you become more bankless. We have ETHZilla on the podcast. This is Ethereum's monster treasury company. All right. This is a new ETH treasury company that's launched. I guess this is the fifth episode in our ETH Treasury company series for those keeping track. We had Tom Leon, Joe Lubin, Andrew Keyes, Sam Tabar. Each of these conversations had a unique vantage point. I think you really have to listen to them all in order to get a sense of what's going on in this ETH Treasury meta and what the future is for Ether, the asset. I asked many of the same questions I asked of previous guests and many new ones as well. Some of the common questions like why ETH? Why a treasury vehicle? What's the bull case for ETH? What I found is the one thing they've had in common is they all view ETH as an institutional grade asset, the same type of asset that Bitcoin has emerged into. Also, this is a multi-year macro trade for each of these treasury companies. The guests today use the term store of value to describe Ether,

Ryan:
[1:48] A store of value, of course, with massive upside, some comps to gold and other crypto assets, as you'll hear. One unlock for me in this episode was the depth we got to in the reason treasury companies have become so viable right now. This is the first crypto cycle that ETH and also Bitcoin have turned into something unique, which is a high quality liquid collateral asset.

Ryan:
[2:12] Okay, remember that term because that collateral asset aspect has made these very attractive to US capital markets. You'll find out why. This is almost the infinite money glitch that Michael Saylor has tapped into. It was nice to have two guests in this episode. Mac spoke TradFi, Vichel spoke crypto, and I had the opportunity to pick Vichel's brain at the end. Some deeper crypto questions I wanted to ask them, including this one. Will the ETH treasury boom cause a DeFi after boom? That could be some investing potential. Stay tuned for his thoughts on that. Bankless Nation, very excited to do another deep dive into an ETH treasury company today. So this one is called ETHzilla. Yes, you heard that right. This is the Godzilla monster of Ethereum, devouring all ETH in its path. The ticker is ETHZ, that is new. They're number five on the ETH treasury leaderboard and they're closing in on 100,000 ETH. I'm joined by two guests, Devichal Garg. He's a repeat guest on Bankless. He's a partner at Electric Capital. They are an anchor investor in ETHZilla. Also have Mac Roussadal. He is the chairman of ETHZilla and together they have formed this entity. Guys, welcome to Banklist.

Avichal:
[3:20] Good to see you. Thanks, Ryan. All right. I got to tee.

Ryan:
[3:22] Up with this question. So Tom Lee, he's got 1.5 million ETH in supply. That's $7 billion. Are you guys going to be able to catch Tom Lee?

Avichal:
[3:31] That's a question for you, Mac.

McAndrew:
[3:32] All right.

Avichal:
[3:34] Ryan, we are going.

McAndrew:
[3:35] To make a really hard run at it. And the answer is, I think we can do it.

Ryan:
[3:39] You think you can catch Tom Lee. So what's the plan to do that? Like, what's the ETHZilla plan to go accumulate a whole bunch of ETH?

McAndrew:
[3:45] We've been in the market buying ETH on a daily basis. We've got access to a billion shares of shelf availability on our ATM. And we're in a very similar place to where Tom Lee was when he launched his Bitmine Immersion deal in, I believe it was late June when they got started. We just got started not even 10 days ago, and we're already going to be over 100,000 ETH pretty quickly here. We're on a run rate that's very similar to what he was on. So I think we have this same conversation in a couple months. We're going to be substantially higher.

Ryan:
[4:18] Yeah, it's not bad. I guess for 10 days in, you've got almost $500 million worth of ETH, so it's a good start for sure.

Avichal:
[4:25] Well, the other thing to note is I think with Tom's stuff, he set this target of 5% ETH. And so there is a little bit of like a diminishing return at some point, you know, like on the one hand, it compounds with the flywheel. So he can keep buying more and more and more because, you know, he's scaling up. On the other hand, I think at a certain point he starts having to pull back, you know, like having too much ETH is also not good for the ETH ecosystem. He recognizes that. So I think there will be a window there where some of the other treasuries like, you know, SBET, Joe Lubin and other Joe and ETH still have a shot to sort of make up some ground at that point too, I think.

Ryan:
[4:55] One thing you guys share actually with Bitmine and Tom Lee is some of the investor pool, one of which is a notable name, Peter Thiel. Okay, so Peter Thiel owns ETHZilla. So this was disclosed in public SEC filings, I believe. And it's a substantial portion. It's a pretty big investment.

Ryan:
[5:13] What does it take to land someone as an investor like Peter Thiel, Mac?

McAndrew:
[5:18] We met with the Founders Fund team on the roadshow, And they are really experienced Ethereum network investors. And I think what they saw in us was this is a differentiated strategy to what you see with some of the other Ethereum treasury plays. We are partnered with Electric, with Avichol, and they're managing our Ethereum. And we're generating a lot higher yield than all the other players in the market because of all the various things that we're doing. And I think that is the primary differentiating factor front. And then I think the second thing that they saw was our connection to the Ethereum network. There were just a ton of DeFi founders that came into this deal who owned some of the largest protocols. And by having access to those people, it gives us access to not only their yield-oriented protocols, but also all the things that are going on in the real world to bring, to codify real-world assets using Ethereum, ETH still is going to have access to. And I think when you bring the two together together.

Avichal:
[6:13] That's what they're investing in.

McAndrew:
[6:14] Is there's a really differentiated component to the business that we're creating that generates a ton of free cash flow that we can then use to go buy more ETH with.

Ryan:
[6:23] So what does someone like a sophisticated investor, Peter Thiel, Founders Fund, why would they go with an ETH treasury company rather than some sort of vanilla ETH buy or even an Ethereum ETF of some sort?

McAndrew:
[6:34] I think that's actually a great question. I mean, ETFs, you're paying like a one and a half, 2% fee to the ETF manager on average. Whereas if I was a public market equity investor and wanted to invest in Ethereum, I would definitely invest in Ethereum treasury company because you're getting, you're receiving cash flow as a shareholder. So you have this kind of base level of cash and Ethereum that you're investing in, which is NAV. And then you get a multiple on the cash flow that the company generates above it, which generates that premium to NAV. You're never going to get that investing in Ethereum ETF. And you're not going to get it just buying ETH outright. The scale matters a lot in this accumulation of ETH. And I think that's what you're betting on when you're buying an Ethereum treasury company. The pure scale of cash flow that compounds as you buy more ETH.

Avichal:
[7:22] I would add, I think there's two things going on here. One Mac just identified, which is, you know, would you rather have an ETF, which today they can't stake, maybe one day in the future they can in the United States. And even if they can, they can't do anything beyond the staking. And then they'll always underperform just vanilla staking because they have to manage the liquidity. So you need some ETH that's unstaked to manage your redemptions, right? So kind of by definition, the ETFs will always underperform staking. And so it's a tough place, if you want to max yield. And so the DATs can outperform. And there's a sweet spot there.

Avichal:
[7:55] Just the larger your DAT gets, the harder it is to outperform ETH staking yield because there are not that many other places to put it beyond base staking. So you sort of converge to staking yield. So there's actually an advantage, I think, if you're thinking as a public market investor, having exposure to ETH, DATs may actually be the right way to do it relative to an ETF. And then if you're not a public market investor per se, you could go buy vanilla ETH on your own. So let's say your mandate lets you do that. then the question you have is, okay, well, do I want to go manage any of that additional yield? Like, do I want to go put money into DeFi and set up, like, I have to have assets that are qualified custodian, I got to set up like a multi-sig, who at my firm knows how to do this kind of stuff? It can actually be quite painful. And so, in effect, if you can just get that sort of DeFi exposure, that yield exposure that you get on chain through a DAT, effectively passively by holding the shares in the DAT, that starts to be a pretty compelling offer. So I think there are Are these like two pools of capital? Institutions that may otherwise have considered an ETF. And you're like, wait, this is better than an ETF. And then some institutions are like, well, I could buy the ETH, but I don't want to deal with any of the DeFi stuff. And so this lets me get outsized yield through exposure DeFi activity without having to hold the ETH. And so I think there are large pools of capital that would pursue that.

Ryan:
[9:02] Interesting. So even on that first point of each other, even when we have Ethereum staking ETFs, your point is not 100% of that ETH will actually be in staking, receiving yield. And it can't be because there's redemption, I guess, like laws and you need some liquidity and vanilla. Because I mean, people may know like right now, the ETH staking exit queue is pretty high. It's like takes about 20 days to withdraw your ETH. And an ETF for redemption purposes needs that liquidity immediately. And therefore they can't have all of their ETH in a stake, staking be subject to a 20 day withdrawal staking queue. And so they have to, you can only stake a portion. You're saying that alone juices, like treasury companies can put all of their ETH.

Avichal:
[9:43] Because with ETS, when these like, when the shares are being created or redeemed, you're liquidating, you have to move the underlying, right? You got to go get some ETH or you have to get rid of the ETH. And so you got to manage your liquidity. And so by definition, you know, you're going to be, and if you're conservative, you know, you can probably look at what BlackRock does or what Bitwise does. You probably have to conservatively keep 20 or 25% of your ETH, you know, on the balance sheet because you could have significant liquidations, right? You could have, you could run into real issues. Like imagine a situation where, you know, I don't know, the SEC says something, does like 20% of your ETH just change and redeem out? Like that doesn't seem crazy, right? Given how volatile these assets are. So yeah, so almost by definition in the current incarnation of what the rules are, you're going to, in the ETF, you're going to, even if staking were allowed in the ETF, which is not today, even if it were allowed, I think by definition you end up underperforming vanilla staking.

Ryan:
[10:31] Does this explain the rise of treasuries in general? I was really interested, like even this week I was looking into, there was a crypto headline. It was basically like the Sovereign Wealth Fund of Norway. It's their Norway Sovereign Wealth Fund. Double the amount of Bitcoin that they had in the second quarter. And I looked at that and I was like, oh, double the amount of Bitcoin. That sounds fantastic. Well, they were actually holding MicroStrategy. That's how they were measuring the Bitcoin. It was not Bitcoin in an ETF. It wasn't vanilla Bitcoin on spot or held in custody or anything like that. It was actually, they're getting all of their Bitcoin exposure by route of a Bitcoin treasury company that is MicroStrategy. And so, I mean, these are smart people. They run sovereign wealth funds, okay? There's got to be a reason they're choosing treasuries. What accounts for this?

McAndrew:
[11:17] I think number one, there's a lot of liquidity and MicroStrategy on a daily basis. I'm not sitting in front of Bloomberg, but I mean, in terms of how many billions of dollars it trades a day, it's got to be in the top 50 stocks in the United States. And so I think that's one reason they're choosing to get their Bitcoin exposure through that. And then the second is, I think the power in these vehicles is... The scaling effect, I mean, I think if you simplify it down to, you know, owning $100,000 worth of treasuries and how much cash flow that throws off, you know, $4,000 versus owning $100 billion worth of treasuries, then that cash flow starts to really matter. And I think that's what investors are looking at in microstrategy and the zillas of the world. They're looking at that compounding cash flow and saying, this is a real business that is extremely high margin, and I can put a really high multiple in the business, and I get exposure to the upside of the underlying Ethereum. So that's why I think you're seeing such a proliferation, but I think there's a wide disparity in quality in the market already and in what you have access to.

Avichal:
[12:22] Yeah, I think underneath that, I agree with all that. There's a funny thing that's happening, which I don't know if people fully understand or realize, which is the beauty or the brilliance of what Saylor figured out is he has tapped into an entirely new base of capital, which is these credit markets. So you have our guys that will lend you, these large institutional firms that will lend you money at anywhere from zero to 10%, depending on the duration and the terms and yet, yet, but let's say 10% just to make it easy, right?

Avichal:
[12:50] And they'll lend you money at 10%, but you can go turn around and buy an asset that goes up 30% a year, right? And so, Saylor looks at this correctly and says, wait a second, I should just do this all day. Like, you're going to lend me money at 10% to go buy assets that go up 30% to 40% a year? This is a no-brainer. I should just, like, turn this money printer as much as I can. And there are all sorts of, like, structural reasons for that. Like, the debt guys have certain mandates. This allows them to do, like, converts. And, you know, they're typically getting 10%, but now they have exposure to a thing that might go 100% up in a convert structure, which is extremely atypical. Like the converts are usually done in these credit facilities as downside protection. It's like, in case you can't pay me back, I will convert. In this case,

Avichal:
[13:25] they're converting into a thing that's going up 50%. And you're like, this is unbelievable. You're going to juice my returns from my credit fund all about this. And they're happy to lend you money at 10% and you turn around and buy assets that go up 40% a year. And then as the assets go up, you can either like sell some to pay off the debt and go rinse and repeat. Or now you have that much more collateral value. So you go borrow more.

Avichal:
[13:43] So it's actually like, I think people may not fully understand that there's like a capital markets reason that this stuff is happening. And there's a bunch of people that are trying to pursue yield in different places. And they sort of like sailor plugged all this plumbing together to make the money flow. And now everybody else sort of realized this is actually like a capital markets function. And so what the net of that is for, I think, like a sovereign wealth fund is that they're looking at it and saying, well, if I just hold one of these shares, the amount of Bitcoin I own per share goes up. And because he got really good at some of this leverage, I've seen these graphs, which are pretty remarkable, which shows like micro strategy stock performance relative to Bitcoin. And because he got it all really dialed in, it's actually outperforming Bitcoin now, right? It's like by holding MicroStrategy, you got directional, it's like levered Bitcoin exposure.

Ryan:
[14:25] It was like something like 30X versus 8X of holding Bitcoin.

McAndrew:
[14:28] Yeah, I was going to say it was a 30X return versus that. I mean, I think he's accreting 16 cents a share in Bitcoin a day. And if you equate that to like what Anith Zilla is doing, just like on a pure percentage differential basis, I mean,

Avichal:
[14:43] Ours is substantially higher.

McAndrew:
[14:45] And I think you're seeing the same thing with all the other Ethereum treasury companies to the point that Avichol made. Implied volatility of Ethereum is so much higher than Bitcoin today. And it's really at the same place that Bitcoin was five years ago. And it's part of the mechanic that's going on with the debt capital market investors and the Ethereum treasury companies and why we're able to raise convertible notes in debt. At such low interest rates because they want, number one, they want the exposure to the volatility, but two, they want exposure to the upside and the ETH. And so when you get them both in a combined setup, it allows you a lot of access to capital.

Ryan:
[15:19] So this is a question I've been thinking about because it does seem like Michael Saylor's tapped into this infinite money printer of convertible notes and debt, right? My question though is, did he tap that out fully? Has he already consumed all of that convertible debt appetite in the market for crypto. And the reason I ask is because just this week, right, he sort of announced, I believe, some forward guidance that they will now be doing ATM purchases, basically diluting shareholders above a MNAV. I think like it used to be, he said he wouldn't do ATM, you know, below an MNAV of 2.5X or something like that. Well, now it turns out, yeah, he's offered some guidance that they may be doing it lower than 2.5x. And right now, I think MicroStrategy, the MNAV premium is like 1.6x. And so some of the investors are not happy about this. MicroStrategy was down 8%, at least like on a temporary basis. But you kind of wonder about that. And you're like, okay, well, did Michael Saylor run out of this sweet infinite money printer convertible debt that he was using? And is there any left for the ETH treasury companies?

McAndrew:
[16:28] He's doing something even better than convertible debt. I mean, two weeks ago, he issued a senior secured redeemable preferred It was fully collateralized with Bitcoin and cash into effectively like a money market structure with Morgan Stanley. So if you're a client at Morgan Stanley, you can buy this and you get a 9% yield instead of putting it at a 4.5% money market treasury fund. So he's not giving any of the upside away and he's paying out 9% on a fully cash collateralized balance that he's carrying at mid fours, fives maybe, percent, and then paying out the delta while he's sitting on all that Bitcoin And then he just bought with the $500 million that he raised. So he's taken the convertibility out of it just in the last two weeks.

Ryan:
[17:12] Okay. So this implies that there's more capital like that, more appetite for that type of capital where Michael Saylor can get that type of a deal again. And so can ETH Treasury companies?

McAndrew:
[17:23] No ETH Treasury company has accessed that kind of product yet. It is something that we've talked a lot about, but it's a lot more equivalent to the preferred market or a high-yield money market that is a convert market.

Avichal:
[17:36] Mac, would you say it's equivalent to sort of like what BlockFi was doing, but at like massive institutional scale? Like essentially what he's got is this like pile of Bitcoin and he's borrowing against it and he's paying interest against it in order to borrow those US dollars in order to go buy more Bitcoin. And the effective rate that he's paying is 9%. But if you think about that, like a collateralized Bitcoin loan at 9% in order to turn around to buy Bitcoin if the duration is long enough on the dead is a pretty great trade, right? So he's kind of like tapped into, yet again, like I think what the brilliance of Saylor is like finding these pockets in the capital markets where I don't know what the number is offhand, but isn't it something like there's $7 trillion, some obscene amount of money sitting in money markets? I wish we had a Jamie. I wish this was like the Rogan podcast. Like, Jamie, look it up, right? Like, you know, there's some obscene trillions of dollars sitting in money market accounts generating 4%. And so what happens as rates come down? as you get Fed rate cuts.

Avichal:
[18:31] Historically, those assets flow out to higher risk stuff. And so what he's essentially gone is to those markets now and said, I'll give you 9%. Instead of holding it in a money market, go to your Morgan Stanley guy and have it move over to this micro strategy strike thing. And I'll give you 9% collateralized by Bitcoin. And that starts to look really, really compelling to some percentage of that assets. And so he's raised on the order of 50 billion. If there's like seven to 10 trillion sitting in money markets, a very, very, very small percentage has to move over, like 1% has to move over for him to double the amount of available capital. He can double the amount of Bitcoin he buys just with like 1% of that money moving. It's just like these capital markets are so enormous. So this last instrument that he created is like, is a very, very, very clever instrument. I think you have to get to enough scale that, you know, like a Morgan Stanley says, oh yeah, we'll plug you into our wealth management product suite or a money market suite or whatever. And we'll go talk to the institutions about this. And so I wouldn't be surprised if six, 12 months from now, like the ETH treasury companies start tapping into the same pools of capital. And especially as rates come down, stuff like this collateralized lending to make nine or 10% starts to look really compelling.

Ryan:
[19:33] These capital markets, these debt capital markets are available for micro strategy is probably going to be available for ETH treasury companies. Right now you're saying ETH treasury companies, the way they've been buying, has it primarily been the ATM types of market operation, which is Is that at the market where they basically dilute shares above MNAV and use that to purchase additional Ether for their balance sheet? That in addition to, of course, the initial pipe funding. Is that how the ETH treasury companies are purchasing the ETH today? Yes.

McAndrew:
[20:03] Yeah, in summary, they are. I mean, we issued a smaller convertible note as a percentage of the total $600 million that we initially raised at a 4% rate. But you know that other vehicles have gone down a similar road where you know a ratio of atm to convert but the primary mechanism has been atm

Ryan:
[20:20] All right so that implies there's like a lot of growth opportunity maybe for these e-the treasury companies that can tap into the some of the debt capital markets richel you mentioned the name blockfi actually which is like sort of is cool in a way and also sound you know sends shivers down my spine in another way because of course quite famously, BlockFi eventually had a really bad time on some of their trades and some of the lending and borrowing they were doing with the crypto assets they had in reserve. Is that type of risk present in these? So when you're saying like Michael Saylor has 50 billion or so in these debt type instruments, that's leverage, right? And leverage is, wow, isn't leverage scary? Can't leverage go, you know, like turn on us in a hurry when market cycles go down? Or is there some, are there some safety valves in this type of leverage?

Avichal:
[21:12] Yeah, it's a great question. I don't know the terms of the strike notes that he's doing exactly. So it's hard to say specifically in his case, but I think maybe abstractly speaking, we could look at two risks. I think on the BlockFi side, the risk really came as a side effect of rehypothecation. And so when you're taking the same assets out that have been used for collateral and then lending them back out, you've created this looping. For DeFi people, this is effectively forms of looping.

Avichal:
[21:36] And once you start doing looping, as Erudian DeFi knows, that can unravel pretty quick. And I think that's part of what happened with the Celsius and DeFi and BlockFi kinds of situations, where you're taking bad collateral in exchange for good collateral, you're levering up, you're rehypothecating the same assets, that can unwind pretty fast. In this case, Saylor's not doing that, right? He's just taking the dollars and you have one counterparty and it's pretty clean from that perspective. So I don't think you have that kind of a risk. What you do have is some sort of like protracted bear market, you know, debt comes due at the wrong time kind of situation.

Avichal:
[22:06] And that's what happened like in the BlockFi situation or the FTX situation, that was like the second order effect, right? Like as asset prices start coming down, everybody else who has any kind of collateralized loan, even if they're not rehypothecated, all of a sudden the collateral is worth less and you're getting margin called. And so you might be forced to sell collateral at the worst possible time if you can't top up your margin, right as assets are going down, which creates like this death spiral situation, right? Everybody's exiting high quality collateral at the exact same time in order to make sure that their loans are not underwater. And that can be really, really bad. And so I think in my opinion, one possible failure mode for a strategy would be that the debt is coming due at exactly those moments in time where Bitcoin price is depreciated. And so now you're in a situation where like he has so much, if he tries to move billions and billions and billions of dollars of Bitcoin at those moments where the market does not want Bitcoin, what happens to Bitcoin price? And what does that do for subsequent tranches of debt that he may own? I think it's certainly a risk. Now, what he might say, or what others might say is that, well, the capital markets are so large that rather than selling your Bitcoin at that time, you refinance your debt.

Avichal:
[23:07] Right. And so you just say you pay off the debt with new debt, longer term, you know, higher rates, whatever you got to do to not liquidate all your assets and enter a debt spiral. So there may be a way to fix it on

Avichal:
[23:16] the capital market side. But I do think that there is some risk there, which is why I also think on the ETH treasury side, buyers of these assets potentially should be mindful of how much of the total supply do these things own? Because I think if you start getting into that high single digit percentages, that creates systemic risk for the underlying protocol as well. And I think you want to be really, really careful about owning too much here in one vehicle. I see.

Ryan:
[23:39] You almost become similar to kind of a grayscale trust where you You have so much of the market that, you know, there's some contagion in other pieces of the market, I guess.

Avichal:
[23:47] Or like BitMEX back in the day, right? If you remember like the 2017, 2018 era and they had to hit the circuit breaker. Was it, I think in COVID they hit the circuit breakers, right? In like 2018, it was, I think the way they said it was like, oh, our servers went down or like the servers melted down. But like, I don't know, the conspiracy theorist in me is like, there was definitely somebody at BitMEX that was like, this whole thing is going to zero unless we unwind this. because they had so much of the market and they were so levered up that everyone was just getting destroyed in that COVID March situation. And so they hit the circuit breaker when Bitcoin got to like 3,500 and they're like, this thing can't go to zero. Otherwise the whole thing unwinds. So you could enter situations like that, right? And you really want to be mindful. If you have too much concentration, if you have too much leverage, if you have too much ownership in one place, everybody having to dump at one time would be really bad.

Ryan:
[24:30] Okay. And could you guys go over once again? So why does this leverage opportunity exist? Who are the buyers of this sort of, you know, micro strategy, like bonds? Again, Rachel, you said like basically like money markets, you know, people kind of, I guess, in TradFi sort of seeking yield. I just, coming from the crypto space, and Max should speak to this,

Avichal:
[24:51] He's a, he's a.

McAndrew:
[24:51] I think you have to separate micro strategy, who the buyers are and who the buyers are on debt for the Ethereum treasury companies. So to date on Ethereum treasury companies, the buyers have been convert, traditional convertible note investors. And those are really large hedge funds and mutual funds that buy converts. For Michael Saylor is accessing every aspect of the global capital market at this point. He's accessed converts, accessed high yield capital markets, debt, just regular way of debt. And he's accessed what is effectively now the preferred market and the money markets. So he's kind of tapping all the different places that you can go. We're nowhere near that right now. The converts that we just issued, they're fully cash collateralized. So we're literally, we have the option to take the cash. Convert Holder has the option to convert in the future when the share price rises. So we're not taking any risk with our shareholders' money. We just have an option to basically take more cash onto the balance sheet. And that's how most of the Ethereum trust converts are structured today. Pretty low risk debt situation just to add more capital to the balance sheet. And that's why you see Ethereum treasury companies holding more cash as extra collateral to make sure that their balance sheets are protected as they continue to scale up with more ETH. So we're just much earlier in the life cycle of these Ethereum businesses relative to what we're talking about with Michael Saylor.

Ryan:
[26:12] I see. But as you level up, as you get to Michael Saylor level of being able to kind of tap into all of these capital markets, who is the buyer of debt in those types of situations.

McAndrew:
[26:24] So you're talking, these are multi-trillion dollar markets. I mean, the high yield market globally is just in the trillions, hundreds of billions of dollars a day of transactional volume.

Avichal:
[26:35] They're actually looking.

McAndrew:
[26:36] For opportunities like this that have recurring cash flow at pretty high margins, like you get on the Ethereum network, to put leverage to work because they have so much interest income coming into their fund on a monthly basis that they just have to redeploy. I mean, they're actually in a point right now, even with where yields are, that they're searching for yield.

Ryan:
[26:54] These would be buyers who want to maintain some sort of cash or bond type position or something, right? And it's like, I think of something like treasuries, which is maybe the risk-free rate, like short duration treasuries, right? And what's the yield on that? 4.5% or 4.3%, something like that? Okay. So if they bought some sort of debt instrument for a future ETH treasury company that was able to marshal these assets, what kind of return are they getting there and what type of risk above the risk-free rate are they taking on there? It depends on the

McAndrew:
[27:23] Ratio of how much ETH that company has relative to how much debt they're taking on because they're using the ETH yield to pay the interest expense on whatever debt they're raising. So I think an easy ratio to think about is raise $200 million of debt for every billion dollars of ETH you held and your coverage ratios on your regular way debt would be really high.

Ryan:
[27:46] I see. And this goes back to what you were saying is basically like, especially as rates go down, but even now everyone's looking for yield all of the time. They're looking for like relatively safe yield and to be compensated for,

Ryan:
[27:57] you know, I guess their, their cash position accordingly.

Avichal:
[28:01] Yeah. What another maybe observation here, which is part of the reason that this is a big unlock that I think like, why wasn't this possible 10 years ago, even pre ETFs? Like why didn't people figure this out? And I think what has like fundamentally changed is that the credit guys, the debt markets are now willing to consider Bitcoin and ETH as collateral. And that was a thing that you didn't have five years ago. Like you just didn't consider this worthy collateral. But now that like the ETH markets have gotten deep enough, all these convert guys are like, look, my mandate, the reason my LP is as a debt guy, give me money is to go generate yield and find these kinds of opportunities. Here's a new form of collateral to the tune of, you know, in the Bitcoin case, $2 trillion. In the case of ETH, $500 billion. These are now sufficiently large types of collateral. And legally, I'm okay. The SEC is cool with these now, they're ETFs. So I'm now willing to consider this as a new form of collateral against which I can lend.

Ryan:
[28:52] That's the unlock. That's the unlock.

Avichal:
[28:53] It's a big unlock, right? All of a sudden, you have a $2.5 trillion collateral that previously you couldn't really touch, right? It wasn't considered high-quality collateral. And over the last five years, you've had this transformation where the SEC has said, hey, these things are securities. We got ETFs. It's all good. And so the capital markets have opened up and said, oh, this is a new form of collateral. And of course, if there's $2.5 trillion of collateral, as a credit guy, I can make 10% a year lending against high-quality collateral. If I need to seize and liquidate, I can seize and liquidate. And it's easy to do that. And Coinbase is set up and they're qualified custodian. And all the infrastructure is now in place. And so these credit guys, these debt guys are like, this is great. I have a new form of collateral I can lend against. Of course, I'm going to do that. And the yields are so much better than I could get in other places. So of course, as a fund manager, my fiduciary responsibility is to pursue that as a new type of yield. And so that's kind of what's happening behind the scenes with the debts and

Avichal:
[29:44] the credit markets getting glued together.

Ryan:
[29:46] Okay, this makes so much sense to me. I don't think I've had anyone explain it to me in that way, but basically both Bitcoin and now Ether have crossed a threshold of being labeled as and thought of in these, like the world global capital markets is high quality liquid collateral. Yes. Which the other high quality liquid collateral, I do imagine, of course, you have like, you know, treasuries and, you know, sovereign, you know, bonds and that sort of thing. I imagine you have something like gold as being a high quality liquid collateral. What other assets are kind of high quality liquid collateral that they tap into? Is it like real estate? Is that another one?

McAndrew:
[30:20] Real estate's one thing. Oil, most commodities are considered, most liquid commodities are considered high quality collateral. And then portfolios of other securities are, I mean, that's the number one thing that a lot of the banks lend against all the time. And so that's effectively what you're just doing here. They've decided that Ethereum and Bitcoin are part of that pool.

Ryan:
[30:39] That's huge. Why ETH all of the sudden? I mean, I guess this sort of makes sense. We saw an explosion of ETH treasury companies, but it started back in, was it late May when When we first caught wind that Joseph Lubrin was going to take Sharplink Gaming and call that SBET, convert that into an ETH treasury company, and then we're off to the races. And I thought at the time, okay, this is kind of interesting. It'll probably be, it'll take many years to play out, right? MicroStrategy, Michael Saylor's been at it for like four or five years or so, and it'll probably take some time. And then bam, another one popped up, and then another, and then another, and then another, and then another. And now ETHzilla is one of the newer ones pursuing this strategy, but it just happened, And, you know, like, I guess suddenly end all at once at the exact same time. And that would sort of fit the narrative that that's about the point in time that all of the regulatory, I guess, FUD around Ether, the asset in Ethereum, was fully cleared up. We had a new SEC chair, Paul Atkins, who basically said, reiterated that Ether is security. All of the kind of the lawsuits against some of the Ethereum developers disappeared. I guess we got that regulatory clarity and the same level of regulatory clarity that we've had for Bitcoin, and then it was off to the races? That's one interpretation of what happened. What do you guys think? Why did we get all of these ETH treasury companies all of the sudden back in May?

Avichal:
[32:04] I think the regulatory clarity is a huge enabler and catalyst. I think the other is the realization, the way we've been talking about it, like we published a report, we sort of reiterated our ETH thesis.

Avichal:
[32:14] We've invested in ETH and the DeFi ecosystem for a long time.

Avichal:
[32:18] But I think there are two others. One, I think stablecoins and stablecoin legislation happening. And the vast majority of stablecoin activities happening on Ethereum. And so I think people sort of sat up and said, wait a second, stablecoins are a thing. What is a platform they're running on? They're running on Ethereum. Like, what is all this other stuff that's adjacent? Wait a second, Ethereum is a thing. And so I think people kind of woke up to this flywheel around stablecoins, you know, uses of stablecoins, people needing to buy ETH for security, that driving up ETH price. There's sort of this like flywheel that you could construct there that I think stablecoins are a big unlock. And then the other one is people starting to get their heads around what the hell Ethereum even is and ETH the asset. And so you've seen a pretty big shift. I mean, Max, we've talked a lot about this over the last few months. And you've seen like people start to get their heads around this. And, you know, I think the way we've always talked about it is Ethereum is where Bitcoin was in 2019. It just turned 10, right? In July, 2025, ETH turned 10 and Bitcoin turned 10 in January 2019. And if you look at the like institutional understanding of what Bitcoin is and all the stuff that Saylor did. It all happened between 2019 and 2024, right? Like that five-year window is where Wall Street got its head around like, what the hell is this thing? And I think we're just at the beginnings of that. And so a lot of the smart money that just saw this happen over the last five years with Bitcoin said, wait a second, history rhymes.

Avichal:
[33:31] Like Wall Street is about to figure out what the hell this thing is. And it's actually a unique and special thing. It's got its own origin story that's hard to replicate. It was community funded. It wasn't VCs. It did this proof of work to proof of stake transition, which means it's got broad distribution. All the stable coins are running out like this is its own thing and we shouldn't think of you know i think there's this one world view that some people embodied which was.

Avichal:
[33:52] That bitcoin was somehow unique and special and because it was the one it was the only one and there's another take you could have on it which is that the probability of there being a second or a third or a fourth of such a category of things it's like a new type of digital asset that that the internet birthed goes up after you get the first one like the probability of there being zero is very, very, very, very high. But as soon as you get one, it doesn't stop at one. Like you probably get two or three, right? And so I think if you're in that camp, all of a sudden you say, wait a second, maybe Bitcoin is not just, Bitcoin is unique and interesting, but it's not the only, it's an existence proof of this type of category of thing existing. So what's the next one? And I think the market sort of tipped around that. So like these three things all kind of came together, like all the SEC changes and the regulatory changes and, you know, like a new president, the stable coin stuff really hitting from the legislative side in the US and people saying, wait a second, all the stable coins are on ETH. And then people sort of saying, wait a second, this thing actually has a bunch of unique properties. And I should maybe have some exposure to this in the same way that all the institutions

Avichal:
[34:50] did in 2019 with Bitcoin. So I think all of that kind of came together in the last six months.

Ryan:
[34:54] It sounds like what you're saying is ETH is the next Bitcoin. I mean, from a certain vantage point, right? From a capital pool perspective, from a treasury perspective, it's following that same trajectory?

Avichal:
[35:03] In many ways, yeah. I mean, history doesn't repeat, but it certainly rhymes. And I think, I do think like there are going to be a lot of people that wake up over the next three, four or five years and say, wait a second, this is a hundred percent digital. It's a purely like endogenous thing, right? To this whole ecosystem. It's a bearer instrument. It has very, very low inflation rate. Like once you start doing the math, it doesn't have the 21 million mean, but it does have this sort of, you know, burn mechanic, right? That sort of makes the inflation rate even lower than Bitcoin. It has all the stable coins on it. It has a robust DeFi ecosystem so I can be productive with it. The US government is cool with it. Like you start looking through like, why did Bitcoin work? And like you look at this thing and it's like, well, it kind of checks all the same boxes. And so why wouldn't the market just run with that? Like setting aside any notion of maximalism for a second, like it's not a religious argument here that I'm making. I'm making a purely like pragmatic capital markets argument, which is like the capital markets will look at these characteristics in the same way that they looked at the characteristics of gold versus Bitcoin. And they said, wait a second, Bitcoin just checks all the same boxes. Of course, I would rather have Bitcoin. I think the capital markets wake up and they just say, wait a second, ETH checks all the same boxes. Like, why wouldn't I have this too?

Ryan:
[36:10] Do you know what I was, it's also, I'll add to that case, which is like 10 years of history, which is really interesting. So if you go back to Bitcoin in 2019, it was, you know, 10 years old, roughly. At that time, Bitcoin was worth about $66 billion, something in that range. Okay. ETH, 10 years, just had its birthday in July, $350 billion, right? So, I mean, you look at kind of the scale. It's followed the Bitcoin trajectory and then some in the first decade of its performance, which is incredibly impressive.

Avichal:
[36:39] Maybe let's dwell on this for a little bit more.

Ryan:
[36:42] Avicel, which is kind of the full case for ETH. Because the entire premise of any ETH treasury company, ETH still included, is of course the value and the price of ETH goes up over time. Maybe not immediately, you're not trading the day-to-day or even the month-to-month, but it's got to increase in value for this whole strategy to be worthwhile and work. Avicel, you were mentioning kind of a report that you guys put out at Electric Capital, the case for Ethereum. Where one of the things that you tied this to was the case for stablecoins. Of course, we've seen the Genius Act. We've seen, you know, what is it, 50% plus of all stablecoins on Ethereum. And then in this paper, you linked stablecoin growth to the value of Ether, the asset. Why don't you just kind of lay out the case for your report and what the arguments you were making in kind of linking stablecoin growth and Ether value? Because that's somewhat disputed, I think, in some circles in crypto, but you laid it out quite cleanly.

Avichal:
[37:41] Our basic mental model with the report, actually, if anybody goes to X, they can just search for my partner Maria's name, Maria Shen. And it's called Beyond Stablecoins, the case for Ethereum. And we looked at it from the perspective of, look, it's very obvious if you're paying attention that stablecoins are a thing. And most of the world lives in these very high inflation rate regimes. You know, a fifth of the world, almost a quarter of the world lives in something like, you know, six or 8% base inflation, which is pretty wild. And some places are even more. And so all those people want dollars. And as soon as you get dollars, you immediately, you know, if you're one of these people, we would say, well, don't I want to be able to like generate yield on these dollars? Don't I want to be able to lend them? Don't I want to be able to invest them somewhere? Like, what do I do with these dollars? And so, you know, it opens up this question of what the world really wants. If you think about it, also geopolitically, what the world really wants is a U.S. dollar denominated system.

Avichal:
[38:35] That is globally accessible, that's safe for institutions, and is resistant to your local government's interference. So like, you know, your local government can't shut you off from it, but also that the US government has a difficult time shutting you off from. And that's effectively what's happened in this sort of Ethereum DeFi ecosystem that like the market has produced what the world really wants. What the world wants is this like US dollar denominated financial system. And it's now available, it's 24 seven, you know, it's got 10 years of uptime, all these things that we were talking about. And so if you sort of buy this basic idea that like the stablecoin ecosystem is happening on ETH and there are a bunch of really interesting properties around ETH and Ethereum, the asset that we talked about, then what you enter is this flywheel that says you have demand for stablecoins. There's a desire once everybody has stablecoins to say, well, what do I do with my stablecoins? How do I put them to work? Which creates, you know, demand for DeFi. And a lot of the DeFi, when you go look at it, like that base collateral that's being used is ETH, right? That's like the reserve asset in this whole ecosystem. That's what people lend against. social bargains because it's purely endogenous, right? You don't have to rely on some third-party custodian for it. And that drives demand for ETH, which makes ETH price go up and security go up because people need this endogenous, fully digital, not relying on some external ledger collateral.

Avichal:
[39:48] And as the ETH price goes up, more institutions say, wait a second, this is large enough that we should be paying attention. And all of that is, of course, then drives stablecoin demand because now all these institutions are coming in and offering either real-world assets on-chain or they're trying to tap the stablecoin capital markets to move them off-chain into their own other products. And so you're now back at the growing demand for stable coins part of the fly wheel. And so our belief is you sort of enter this flywheel enabled by stable coins, which then enables all these other things. And that positive flywheel is going to make this whole thing kind of work. And so to us, again, it's a very different path than Bitcoin. Bitcoin doesn't have stable coins. Bitcoin doesn't have this. It has other flywheels that make it work. But the fact that there is a flywheel here and people are getting their heads around what that flywheel is and then saying, wait a second, this underlying collateral that backs this whole system.

Avichal:
[40:34] Is itself really valuable as a store of value is kind of the unlock. And once people get their heads around that, that sort of takes off on its own.

Ryan:
[40:40] So some of the counter argument here, and I think this is primarily in crypto native circles, less than TradFi. Maybe TradFi just sort of sees, yeah, Circle's doing really well, Genius Act. Yeah, most stable coins are on Ethereum, buy, buy, buy. Ether is a world reserve asset, therefore, right? Maybe that makes sense. Okay. Maybe that's on kind of the left side of the mid curve and the right side of the mid curve is actually quite right. But there is another position that says, well, Vichel, these real world assets, something like stable coins, a lot of that's on Tron right now. Is Tron decentralized? Is anyone using the Tron token as a store of value asset? I guess there's the Justin Sun, Tron treasury, but I mean, that's not a high quality liquid collateral in the same way the Bitcoin or Ether are, let's say. Or they see something like Circle or Stripe and these companies are launching L1s themselves. And they look at that and they say, well, it could be the case that Ethereum is kind of over-provisioned in terms of security for something like real world assets or something like stable coins, right? It could be the case that stable coins are actually a better fit for a more centralized network because after all, a circular tether can kind of turn it off or freeze or do what they want from an issuance perspective in any case. What do you say to that argument that maybe the future of stablecoins is not actually Ethereum after all, once these more centralized, faster networks kind of take off, they're good enough from a security perspective to host these stablecoins and other real world assets?

Avichal:
[42:07] Yeah. So I think it depends on the use case. And I think it depends on the market participants. So like if you look at the Tron case or other like fast L1 settlement blockchains, I actually think stable coins will exist there as well. And they will have very specific purposes because, you know, if you're if you're like a day worker in the Gulf and you're trying to send money back to back to South Asia, you know, Bangladesh or Pakistan or something, you kind of don't care about the decentralization. You want it to be cheap and fast and all the exchanges, you know, have set up Tron rails. And so the money shows up instantly and it's all Tether and that's fine. I think when you're talking about institutions, though, they do care about that. And they care about it from a censorship resistance perspective. They care about it from a credible neutrality perspective, right? Like who are the market participants here really matters. If you're dealing with retail versus dealing with institutions, I think that's like one top level fork.

Avichal:
[42:55] And then when you look at the institutions, I think there are some use cases, especially if you're already within like full U.S. Jurisdiction, that you might use a Circle L1 or a Stripe L1. That starts to look a little bit like the, if anybody remembers the Silvergate-SEN network, like back in the day, it's sort of reminiscent of that, right? It's a faster settlement for existing infrastructure, existing parties that are fully regulated. But I think a lot of the world has to be really careful about this. And they're a little bit reluctant to be 100% in the U.S. jurisdiction. They want dollars, but they want to be a little bit arm's length. And this is why, for example, you have like a euro dollar system, right? Like you can't stop two counterparties from creating debt. Like if you're doing business between Brazil and Turkey, like one party doesn't want Brazilian real and the other party doesn't want Turkish lira. And so they're going to settle that transaction in dollars, right? And this is why like the unit of account of the world is dollars.

Avichal:
[43:42] And so most of the world will actually create debt and denominate debt and credit and do business in dollars. And they want to be really careful about where they're doing this, right? And so like the decentralization and kind of over-provisioning of uptime and all these things is a huge feature. So I think you'll actually get kind of like three systems that exist in parallel. I think there will be a retail system, which is like remittances, fast, exchange to exchange, like Western Union use cases. And that can exist in like really fast blockchain ecosystems. Maybe that also exists on ETH and some sort of L2. I think you get an institutional and that very well may be a Stripe L1 via consortium or Circle L1 via consortium. That's like a replacement for really, you know, crufty 1970s technology inside the U.S. That can exist and that can be a thing because those people are already subject to U.S. laws and yada, yada.

Avichal:
[44:27] And then I think you need something that's like a parallel global 24-7 outside the U.S. System, which is kind of like Eurodollar 2.0, but now fully digitized. And that I think of as like the internet of money. Like what the internet really did was it took these regional geographic information networks and built a network of networks, right? It took and made that a global information network work. That anybody could participate in. And that's what this stuff is doing. And that's where I think Ethereum really shines. And so I think these three things can coexist, but Ethereum really sort of wins in that third camp, as it is as evidenced by $250 billion of stables today.

Ryan:
[44:59] So if Ethereum wins in that first camp, then reinforce the other thing you said, which is Ether, the asset itself, and ETH as a store of value, because most of the world probably doesn't believe that at this point. I think some of the crypto world believes that now, but a large portion of them still don't believe that. I think similar to Bitcoin in 2019, the world did not believe Bitcoin was a store of value asset. The world does not largely believe that Ether is a store of value asset. You've got this chart in your report where you have all these store of value assets. You have Bitcoin, art, gold, US treasuries, stocks, real estate. You got these dimensions as well, which ones are portable, divisible, durable, scarce. And then you've got Ether sitting beside these other store of value assets recognized. Ether has checkboxes in all of it, all of the same checkboxes that Bitcoin has, except two additional. One, Ether is yield generating, whereas Bitcoin is not. And the other is Ether is programmable, whereas Bitcoin's programmability is limited. Can you reinforce the case that Ether is a store of value and it's superior or at least different. It stands shoulder to shoulder with some of these other store of value assets because I think the market doesn't quite believe that. We've very much, even in crypto circles, we've emphasized Ethereum, the network. We haven't talked as much about Ether, the asset, but you guys are collecting Ether, the asset itself.

Ryan:
[46:23] So it's very important for you to understand what you're buying here.

Avichal:
[46:27] The notion of what is a store of value is kind of an interesting concept, like, you know, economically or conceptually. And I think it has these characteristics that you need to be portable, easily divisible. You need to be durable, scarce, and they provably scarce, all these things, right? And that's where you can look at something like a gold. And actually, like, you know, humans are pretty rational. So if you look at the periodic table, there are actually very few elements that could have met all of those characteristics. And it turns out gold was the one that was the easiest to mine. You know, like we weren't good enough to mine platinum or rhodium or something yet. And so gold sort of has this cultural significance because it was the one that we could, ascribe all those values to and actually met those utility functions. And I think Bitcoin and ETH both meet those utility functions and actually in many ways better than gold. Now, I think that's maybe conceptually hard for people to get their heads around. It's like, oh, okay, well, like if Bitcoin is digital gold, can ETH really compete for that? So I might posit maybe a lower bar, which I don't think is the terminal way to think about this, but maybe it is an easier hurdle for some people to get their heads around, which is, well, would you rather have a bunch of ETH or would you rather have a bunch of silver? And I think a lot of people when presented with that, and silver is like a $2 to $3 trillion asset. Sure. And like, do you want to lug around 100 kilograms of silver? Or do you just want to have some ETH on your phone? Right? And like ETH is clearly superior.

Avichal:
[47:38] And so I think once you start sort of comparing it, you know, gold is just sort of has this really significant cultural position and Bitcoin has this really interesting cultural position in society. So it's hard for people to make that comparison. But I think when you when you compare it to the alternatives, I think you might even argue that there's some world here where you're like, well, would you rather have like fine art? Would you rather have like an additional piece of farmland? Would you rather have more silver, more platinum? Or would you just rather buy some ETH? And I think a lot of people when presented with that, they'd be like, okay, I see why ETH might make sense. And then of course, if you get there, it's very easy to say, well, then like, why wouldn't you actually compare it to somebody's other a larger source of value that seems special, but actually when you start looking at them from a utility perspective, they're not that special. Like there's nothing intrinsic about gold other than like, we've liked gold, you know, humans like shiny things, but from like a utility perspective, this thing checks the boxes in the same way. I mean, by the way, this is the exact same argument we were making for Bitcoin 10 years ago. Right. And so like anybody who kind of understands that argument, I think should understand this argument. And, and, and I think it really comes down to like, you know, gold isn't the only store of value, right? Fine art is not the only store of value. Like when you have a portfolio, you start thinking about allocating across multiple stores of value and being thoughtful about what the risk factors are. Like some things can be more easily seized in certain places. Some things have more carrying costs. Some things are more liquid than others. Right. And so as a part of a portfolio, I think it also makes a lot of sense to start thinking about like, where does this slot in?

Ryan:
[48:54] Yeah, I completely agree with that. I also think there's a whole, you know, history of monetary economics. Like we feel like we live in this world where gold won and it was always quite obvious. Well, there were like hundreds of years, even thousands of years as early as the 1800s where we had bimetallism. In fact, that was basically the US policy. It was not just gold, it was silver and gold. I mean, China was on the silver standard up until the 1930s, 1940s. It was somewhat kind of the British Empire, almost an accident of history in some ways that gold eventually won. It didn't have to be the case. And these two store of value assets fought it out for many centuries.

Avichal:
[49:27] Or throw aluminum in there, like the class of Napoleon had aluminum silverware because aluminum was harder to mine than gold. And of course, you know, that changed because of chemical procedures and so on, but, Yeah, I mean, I think we humans have short memories, right? And so we just assume this was predestined when there's no such reason to believe that's actually true.

Ryan:
[49:42] There is a question, though, when it comes to this cycle of each also, you are quite clearly an ETH advocate, have ETH Holdings as part of Electric Capital and then in ETH Zilla.

Ryan:
[49:53] Why has Ether underperformed Bitcoin this cycle so far? Do you have an explanation for that?

Avichal:
[49:59] Can I have Mac answer that one? I'm going to throw all the hard questions to Mac. Like, I don't know. I have thoughts. It's, it's, I think it's just my, my base take is, I think it's basically taken a while for the, like the next tranche, it's gotten so big on the retail side that you need the next pool of capital to come in. Right. And I think that the Bitcoin folks did a phenomenal job. The Bitcoin community did a phenomenal job of bringing the institutions in over the last several years. And, and that's kind of what, you know, I think the function of the DATS in some sense, I think like Tom and Joe Lubin and Mac here are carrying a lot of water for the community.

McAndrew:
[50:38] I want to hop in here for one minute just because if you have accounts at a variety of different banks and you want to buy Bitcoins, and I'm talking 18 months ago, 24 months ago, you had to sign a lot of paperwork to even buy IBIT or MicroStrategy. And if you wanted to buy the Ethereum ETF, the compliance departments, some of them wouldn't let you do it. So iBit became the first ETF security. And then a lot of people were buying Bitcoin exposure through MicroStrategy in their brokerage accounts at large banks. But only until recently, and this is just even in the last couple of months, has Ethereum been something that you're able to trade at some of the major banks in terms of buying even the ETF. So it's actually happened a lot faster than it did with Bitcoin. And the adoption has just kind of just started. And that's just the reality of the situation.

Ryan:
[51:30] Yeah, I think people in crypto don't realize how long, because retail, Eric Peters made this point, he's the CIO of Coinbase Asset Management to me recently, but basically, he made the point that

Avichal:
[51:45] Crypto has been a retail phenomenon.

Ryan:
[51:47] It sort of hasn't evolved. It's the first kind of, I guess, asset in a very long time that hasn't come out of Wall Street in that whole world. And so Wall Street just really had all those capital pools haven't had a way to purchase the asset, right? That pipe hasn't been there previously. And so it's just taken time. We've only now this cycle gotten there with Bitcoin. And only now, maybe as early as this summer, we're starting to see this pipe open up for all of that capital into crypto assets for Ether. And it's still not fully open. We don't have pensions aboard. We don't have very much in the way of sovereign wealth funds that have invested in this asset class.

Ryan:
[52:22] So the pipe continues to open and treasuries are just kind of the next step in that story. Let's talk about maybe the comparison of a Bitcoin treasury versus an Ethereum treasury. So one of the columns that you checked in, is it a store of value Bitcoin versus Ethereum is yield generating for Ether, the asset. So that's not native for Bitcoin. That is native in staking for Ether the asset. But there are other yield generation opportunities. What is the difference between an Ether treasury and a Bitcoin treasury when it comes to generation of yield?

McAndrew:
[52:57] We have a lot of opportunities to generate yield on chain just because of the way the Ethereum network is set up. So, you know, I look at the two almost completely differently. You think about Bitcoin as digital gold and you're invested in a Bitcoin treasury company because you believe in Bitcoin and the price of Bitcoin is going meaningfully higher. And I think both Abhijal and I believe that. But Ethereum, you're not only betting on Ethereum, you're betting on network expansion. So you're betting on the Ethereum network growing, the various layers growing, the ecosystem expanding. But then I think the most interesting thing to me is when you start bringing Wall Street onto Ethereum and you start tapping into all these different asset classes, because it's the perfect mechanism to codify debt. It's the perfect mechanism to codify assets that are regulated. And when you start talking about those numbers, they're much, much bigger than anything that Bitcoin could ever access. And that's when I get pretty excited about, you know, all these Ethereum treasury companies and what happens as transactional velocity increases on the network.

Ryan:
[54:01] What kind of yields are you guys looking at? What kind of yields can you expect? I guess just ETH staking vanilla is, you know, north of 2% or so, but can you get more than that without going too far down the risk curve?

Avichal:
[54:12] It's a question of how much risk you want to take. So I think that's the right question. And you want to be really, I think, thoughtful and diligent and deliberate about that. So we have a pretty robust risk framework around this. And there's a whole spectrum of options that we're considering, you know, some things that are a little bit more than base staking, right? You can get into sort of like LRTs kind of situation.

Avichal:
[54:32] There are categories of things, I think, on the RWA side that'll be really interesting. I think the risk reward on some of those things as they come online will be very compelling. And in large part, in addition to sort of it being, say, ETH back or ETH collateralized or happening on chain, because you might have some escape hatches, should there actually be issues, because the RWAs exist off chain as well. All the way out to, you know, I think entirely new protocols that need to get bootstrapped, which would be really, really good for the ecosystem to have them bootstrapped in a relatively small position, you know, like a couple million dollars might be really meaningful to some of these protocols to get the flywheel going. And in exchange, those protocols might be willing to do token incentives upwards of, you know, 15% or something, right? And so there's a pretty big range there. And without getting into too much of the specifics of how we're doing it, you know, I think because that gets into sort of MMPI because it's public company kind of territory. I think the full range of options is available there, depending on kind of where we are on the cycle and what the specific opportunities are. Or, you know, for example, just to get really concrete, you know, if you have a new protocol, but it's, you know, based off of like an extremely well tested code base. And let's say it's Aave, the newest version of Aave or Aave V2 or something going on to a new L2. And there's a lot of incentives for some reason from either the L2 or from Aave to put ETH into that thing to get the flywheel going in this new L2 ecosystem. Well, that thing is like formally verified, it's tested for the last five years, there.

Avichal:
[55:58] That starts to look like a pretty good risk reward, perhaps. I'm not saying we would specifically do that one, but I think there are many such cases. And the ETH ecosystem across all the L2s has gotten so varied that I think there are many, many such opportunities between stables and lending indexes and so on that you can take advantage of and really help the community. So what's great about this is it's a win-win. It's like not only can the shareholders from ETH Zilla benefit because there's outsized yield being generated, but you're actually making it so that the Ethereum

Avichal:
[56:26] ecosystem is more vibrant and has protocols that are successful and liquid and so on. And that is what makes Ethereum successful. So as an ETH Zilla holder, you don't want to just hold ETH and then sit on it, right? If you can actually actively make your investment more likely to be successful, that's even better, right? So you're actually improving the likelihood that Ethereum itself ends up being more successful by participating in our opinion.

Ryan:
[56:46] It sounds like we're starting to get into some of the secret sauce of ETH Zilla itself, which is like, you guys have been doing this type of thing, yield generation of electric capital for a while. And my understanding is you guys are not only anchor investors for this vehicle, but you're also doing some of the asset management to deploy that. And that might be in contrast to some of the more TradFi type of ETH Treasury vehicles that don't have as much experience here. I sort of see Mac as kind of the TradFi native and Vichel is the crypto native. And this is kind of a team up here to bring ETH Zilla together. But it is the case that Electric is going to be doing some of the asset management here. Yes.

Avichal:
[57:23] Correct. Yeah, that's right. And we've had a lot of, a lot of it comes down to tooling. Yeah. And sort of like operations and procedures to do this securely at scale. You know, the assets are still sitting inside Coinbase and how do you have like MPC setups in the right way and so on and so on. So there's actually just like a lot of knowledge around how to do this. Yeah. I think, you know, at some point over the next two to three years, you know, a lot of TreadFi people

Avichal:
[57:45] will figure this out and they'll try to replicate some of these things. But, you know, the state of the art moves over two or three years. Like if you'd asked me back in, 2021, let's say, you know, four years ago with sort of the last cycle, would a bunch of Wall Street people and a bunch of generalist VCs have figured out that there's all of this amazing opportunity on chain? I would have said, yeah, there's no way five years from now that these people haven't figured out that there's just, you know, 16% yield and you can go buy, you know, these things when they're down 60 or 80% and like hold them in Coinbase and they go up 5X. And like, there's like some pretty obvious stuff if you paid attention to crypto for the last 10 years that would that would you know outperform pretty much every venture fund and none of them did you know so it's sort of like it's also surprised me how long it's taken for people to kind of get their heads around what's going.

Ryan:
[58:31] On here it's kind of the same reason though we were getting too early it's like this is not invented in wall street it's not invented here basically and so they haven't had the the piping to actually connect them to the defy

McAndrew:
[58:41] Ecosystem they're not they're not they're still not fully connected and and there's a lot of people that I just, I don't want to take the time to learn about it. I think once, I think they will over time. And that's part of the education process that we're going through.

Ryan:
[58:54] Mac, when you guys think about buying ETH, right? Do you buy as much as you can, like as soon as you can? Is this thing like time-bounded? Like you're just like buying as much as you can when

Avichal:
[59:04] You have an.

Ryan:
[59:05] MNAV premium surplus and you're doing the ATM thing when you could get your hands on more credit, you just buy ETH? Or is it somewhat price-bounded? Are you like, oh, you know, under 5K, ETH is looking good. and we'll just like wait for entry points. How do you think about purchases?

McAndrew:
[59:17] I mean, we were obviously aggressive like right out of the chute and got a big position together. And then we've just been in the market every day, dollar cost averaging on it. I mean, I think we're, ETH can go a lot higher. So we're not thinking about it like any one day is the right day to do it, but it's really more we want to get a large position together

Ryan:
[59:36] Over the moderate term,

McAndrew:
[59:39] Because we think it's going to go up multifold over the next couple of years. And that's kind of how we're thinking about it.

Ryan:
[59:45] What's the steady state? What's the right MNAV premium? Because recently we've seen MNAV premiums, you know, they were up and then they've kind of collapsed a little bit. So much so that crypto Twitter, of course, the Flavor of the Week right now, they're saying, oh, treasury companies are dead. You know, they'll never... Yeah. The MNAV premium will

Avichal:
[1:00:01] All collapse to one.

McAndrew:
[1:00:02] Welcome to the stock market, right? I mean... Yeah. Look, there's a couple of things that go on here. The treasury companies are on the NASDAQ. They're going to correlate to NASDAQ liquidity flows, number one. So when the NASDAQ comes off, they're going to come off at a higher pay debt. And that's what you've seen happen over the last couple of days with this little sort of bump in AI. Longer term, what's the right range on MNAV? I think you could see MNAP go from a discount to MNAP all the way up into 3X MNAP and what's the right normalized MNAP? Probably like 1.7 to 2 times, somewhere in there. I mean, it seems like where they've been trading and possibly higher if you start to get into a pretty strong bull cycle with ETH. And then to the downside, it probably compresses if you get into a bear cycle with ETH and then you just have the opportunity to buy back stock if that happens.

Ryan:
[1:00:57] There was a recent BitMEX paper, I believe, that talked about some of the cost structures of these treasury entities and comparing them to something like the ETS, right? They talked about, look, it's expensive to get SEC filings and legal paperwork and go through that whole process. There are asset management fees, there are Wall Street advisor type fees, all of these things. Some of these treasury vehicles will be less liquid than others, right? And some of them, all of them, of course, will be less liquid than spot ETH. How do you think about some of those risks for an investor thinking about these types of vehicles?

McAndrew:
[1:01:32] I just look at it as a business and I look at our business and you look at what the net margins on the business are, even at the scale we're at, billion and change. They're very high, like double-digit net margin business in terms of just like absolute cash flow on the core of the ETH. You don't need a whole lot of cost structure to operate. So there are a lot of high costs to get started and raise all the capital because of what you mentioned, lawyer fees, banking fees. I mean, that's a pretty high entry bar. But like once you're up and running, there's a ton of fixed operating leverage in these businesses. It's a lot more like circle than anything else. I mean, you can manage a lot of assets with a pretty small amount of people.

Avichal:
[1:02:15] Or Tether or Berkshire. In my head, I think the opportunity for these things and the limit is like a Berkshire, which is if you look at what Warren Buffett got right, he had this sort of core one or two assets that produced phenomenal yield. And really when you sort of unlayer that, okay, you're like, well, it's an insurance business. So what is an insurance business? It's like a yield. It's like levered yield on US dollars, which is in some sense what's happening here right under the covers. And if you do that right, you end up with a thing that spins a bunch of free cash flow. So let's play this out for, let's say, and this is not financial advice, but a bull case just thought process, right? Let's say ETH is in fact worth a couple trillion dollars, right? It's worth five or 10X what it's worth today. Could you have treasuries that are sitting on $30 billion worth of notional ETH, right, if it were 10Xs, like if you can get a couple that get to a 3 billion, right? So, you know, BM&R and SBED and ETHC, let's say get into that kind of a zone today, and then they end up sitting on 30 billion plus. At a three percent yield you're talking about a billion dollars a year in free cash flow and i mean that that's like in a single year you would have more dollars than the entire budget like the total available budget for the east foundation you're talking like crazy crazy amounts of money in cash flow and could you take those and start to reinvest them back into things that generate 30 40 50 cash flows just the same way warren buffett has i don't think that's crazy and they're aligned with what the ecosystem needs right.

Avichal:
[1:03:35] And so the operating leverage, when you have a core asset that can scale to those kinds of numbers and generate yield off of that asset, it's like a pretty phenomenal business.

Avichal:
[1:03:45] And to me, the closest analog is like a Berkshire sort of situation. That's the bold case that I would be betting on buying these things.

McAndrew:
[1:03:52] And that's exactly why we both got involved. I mean, the actual business is an excellent business to be

Avichal:
[1:03:58] Operating because of.

McAndrew:
[1:03:58] The pre-gashment yield.

Ryan:
[1:03:59] So Berkshire, of course, has its Warren Buffett and MicroStrategy has its Michael Saylor and Bitmine has its Tom Lee and we got Joe Lubin. Some of these treasury entities seem to thrive based on a spokesperson who's willing to go to all corners of the universe and preach the gospel of Bitcoin or ETH or whatever particular asset they're hoarding in their treasury. So who is the spokesperson for this vehicle? How important is the attention economy for growing a ETH treasury strategy?

McAndrew:
[1:04:29] I mean, I've had an interview two or three times a day, every day, since we launched this vehicle.

Ryan:
[1:04:35] And for people who aren't watching the video, Mac is literally taking this episode from his car, okay? So that's how dedicated he is to making these things happen.

McAndrew:
[1:04:43] Yeah, no, it's been really, really busy. And the amount of interest has actually just been crazy in terms of who's wanted to talk, all the different media sources that want to talk to us. And there's a ton of education that has to go on. I mean, Tom Lee's done an unbelievable job getting out there in the marketplace. I listened to his podcast that you had him on here the other day. And look, I think we're all doing the same thing in terms of educating Wall Street and using our connectivity on Wall Street to talk to people about what's going on. So that's what I've been out doing for the last couple of weeks is explaining this to people.

Avichal:
[1:05:14] I would add, I think there's an opportunity. You know, part of what we did in the fundraising process for this was pulled into much of the DeFi founders. So, you know, Constantine, the founder of Lido, Robert and Tarun, Tarun from Gauntlet, Robert from Compound, Shriram from Eigenlair, Mike from Etherify. And if you start looking at the TV, all of these protocols...

Ryan:
[1:05:32] Also, Etherealized, right? They're private.

Avichal:
[1:05:33] They're Etherealized, guys. Danny Ryan, Zach, and Grant. So if you look at the TVL of these protocols, it's something like $60 billion in TVL. And many people who have been in and around this space for a long time, like Danny was at the ETH Foundation and managed the proof-of-work to proof-of-stake transition. So people have been really long-term committed to ETH. And I think part of the hope here is that as we start being able to plug this ETH back in on-chain, and through some of these partners that we have and we can make noise around that, obviously. But what we really can have is the ETH community pulling here as well. So it's not just, you know, it's sort of, I think.

Ryan:
[1:06:08] What would the ETH community,

Avichal:
[1:06:09] Like it's a very, I think, Ethereum ethos way to do it, which is like, yes, you can have some sort of a front and then they can go do some of this work, but really it should be a community effort. And I think if we say, hey, look, there's an option here for the Ethereum community, you can either have Wall Street people come in and co-opt ETH. And now like all the money is sitting in these like, you wrapped equities and going on and so on, or we can go co-opt Wall Street. And I think for a lot of people who have been in this ecosystem for a long time, that's the preferable option. And so if we're going to do that, let's make sure that the ETH is getting put back on chain and being used productively. Let's make sure that the transactions that are happening are not just Wall Street legacy transactions and TradFi and credit markets. Let's make sure those are all happening on chain. Can we actually get tokenization to happen? And can we pull that into the chain? Can we get the credit markets to move on chain, right? That to me is a much more interesting thing if we can pull it off and we need the community's help to do that. And so hopefully this turns into the like, oh, the ETH Zilla guys are trying to do the right thing from our perspective. And so, you know, like the story I always tell is everybody, you know, in the United States and Canada, we're going to come up on the fall here and people go home for Thanksgiving. And like every family has one cousin that's like the crypto guy, you know, and every like two years that crypto guy is a genius or an idiot. And this year the crypto guy is probably a genius. And so if the family is sitting around dinner and saying like, hey, what's going on? and like, oh, I heard about this like digital asset treasury thing, which one should we buy?

Avichal:
[1:07:38] Hopefully a bunch of crypto people, you know, Ethereum people say, oh, buy the one that's actually putting this stuff to work back on chain. Buy the one from the, you know, that has the people who are thinking about how to make this thing work over the next 10 years. It's not a like one cycle thing for them because they've been, they've already been around for 10 years. And so I have confidence that they'll still be here in 10 years. It's not some sort of rug pull at the end of the cycle. So if you're going to do it, go to those guys is hopefully part of the message here that people get. And so in some sense, it's like, yes, Mac should go do a bunch of this work too, and is doing a great job of it. And then hopefully we have this like multiplier effect from everybody in the

Avichal:
[1:08:09] community saying, oh yeah, those are aligned people. Like we want those guys to do well.

Ryan:
[1:08:14] So that multiplier effect from the communities, is that the win condition for ETH Silla? Like what does winning mean for ETH Silla? Are you at a certain place in the ETH treasury charts? Are you, you know, is there, like what's the wider mission.

McAndrew:
[1:08:27] I think that I think being getting up to the top three on the treasury charts is one thing, but I think differentiating ourselves in terms of our yield generation and then how you see the business operating is what's really going to create the separation here. Because I think once the market sees that over a couple of months and a couple of quarters, it's going to be very different from the other treasury companies.

Ryan:
[1:08:49] You think this market consolidates mergers and acquisitions in the months to come or maybe in the years to come? When do you think that sort of activity picks up?

Avichal:
[1:08:59] I think there will be some consolidation. I think it'll be hard for there to be 20 of these. I think there's some min scale that you have to hit. And I think if you can't get over, you know, at least a billion in market cap, you're probably going to struggle for a while. And so I think a lot of that probably shakes out in the next bear cycle. And then I think there's probably some sort of consolidation that starts to happen. And I think it'll be an interesting question for some of the smaller ones, you know, the sub $1 billion ones of where do you go and how do you think about that? Because the thing that I think they'll have to fend off is actually the activist investors. Because once you're on the Wall Street train, right, like what's going to happen is, is somebody who can buy, let's say, let's say you have any treasury and you're one of the smaller ones, therefore your fixed costs are higher. Therefore you're burning all of your yield to just like keep the company running. Do you start to trade at a discount to NAV? And if you do, then there's an incentive for somebody to come in and say, well, you're trading, you know, 20, 20% below NAV. I can come in and buy enough shares and pressure the board to liquidate the assets. And I make 20% as an activist investor. Or, you know, imagine, imagine like a really crazy scenario, which I don't, I actually don't think is that crazy. If you're somebody like Saylor and you have, you know, a thing where you buy a dollar's worth of BTC and you're worth $1.50, let's say even in a bear market, you know, he might be able to retain some premium. Does Michael Saylor go out and start to buy a bunch of these guys up and force liquidate?

Ryan:
[1:10:18] Not ETH Treasury. He would never do that.

Avichal:
[1:10:21] Oh yeah, totally. What? I'm making an even stronger argument, which is I think there's an incentive structure for Saylor to go after ETH or other L1. Oh my God, that'd be the day. And then sell them, right? Because if you can effectively, like, let's say you're willing to go, let's say they're trading at 80 cents on the dollar, right? Yeah. Can you go to the capital markets and borrow a dollar and go buy things at a 10% discount? Like, do you go to these companies and say, look, I'm the best bidder in market. Like, I'm going to liquidate this thing and I'm willing to pay you 90 cents on the dollar. You're only worth 80 cents on the dollar today. I'm going to pay you 90 cents on the dollar. How do you as a fiduciary, as a board or a CEO say no to that, right? If they were controlling, if they own enough of the common. It's a tricky situation, right? And then what he's doing is essentially buying dollars for 90 cents, putting them on his balance sheet where those dollars are now worth $1.40. This is like a straight killer arbitrage for him. And he's getting the double whammy of like, not only is he dumping the things that he doesn't like, but he's picking up a bunch of stuff that he loves, right? So I wouldn't put it past, you know, some of these.

Ryan:
[1:11:20] Are you saying if he's like, he might go, you know, hunt down these ETH treasury companies that are trading under MNAV, go buy them, basically, some activist takeover. And then do you think he'd sell the ETH? Because he's got that Bitcoin maximalist thing.

Avichal:
[1:11:35] That's right. That's why it's a double whammy, right?

Ryan:
[1:11:39] Yeah, or just, I think you could,

Avichal:
[1:11:42] You know, like, I don't, what's, I think the magic of Michael Saylor, and I say this with respect, this is not like a value judgment, like a negative value judgment, is he's so committed that I think for him and many of his followers, because it is cultish behavior, but I think he's brilliant, is like, that is the point, right? Like the only thing that matters is Bitcoin. And so like, is it out of the realm possibility that you take these other things, which are sucking up capital and sucking up capital from the debt markets. And you say, look, these are bad actors. These are nefarious actors. We're actually doing a public good by taking them out. And so we're going to go buy these alt L1s. We're going to take their tokens and we're going to dump them in the depths of the bear market and crush those tokens in order to turn around and buy more Bitcoin. That doesn't seem crazy to me, actually.

Ryan:
[1:12:31] No, it doesn't at all. I mean, certainly fits the character that he's created. Well, on the subject of cycles, of each level, maybe give me your take on this. So where are we in the crypto cycle? Do you still believe in cycles? Is this playing out the way previous bull cycles have?

Ryan:
[1:12:49] And how much further do we have to go? That's a great question.

Avichal:
[1:12:52] Short answer is I don't know. Longer answer is I tend to think that the cycles are more tied to rate cuts than anything else and capital flows. That's sort of the conclusion I've come to.

Ryan:
[1:13:03] Are you saying liquidity? Just less the four-year halvening, it's just like more like

Avichal:
[1:13:07] A mimetic element to it. These things have historically been relatively illiquid. So it didn't take a ton of money with the mimetic aspects of the four-year cycle to make this thing work. And it's really hard. We tend to, for what it's worth, because we're venture investors, we're in these 10-year locked up funds. We don't trade. We don't manage the liquid assets that way. We are primarily thinking about what does the world look like in 10 years. So we've been able to sort of think about these things cross-cycle and be patient and sort of align RLPs around this idea that this ecosystem is a fraction of what it will be in 10 years. And that's really what you're betting on ultimately, more so than like the short term price of these assets. But it is something I think about. I think I don't know the answer. I mean, the four year cycle is certainly possible. I think there's an argument that you have, you know, some extended four year cycle, which is like it's almost like a covid, you know, like the Trump tariffs where this weird detour that we had to take for three to six months. And that just set everything back. And so you effectively have a four-year cycle, but it's like a 4.25 or, you know, 4.5-year cycle instead of a four-year cycle because we did this weird detour that took the capital markets out of whack for a while. And then I think there's some people, like, you know, if you talk to some of the folks on the ETF side, they say, hey, look, if you look at the gold ETFs, there was new gold inflows every single year, you know, for like 10 years.

Ryan:
[1:14:26] Like inflows have never been down basically, right?

Avichal:
[1:14:29] Yeah, it finally went down like 10 years after the gold ETF was launched or something. But for many, many, many years, like each year of gold inflows was actually higher than the previous year. And so these capital markets just move really slowly. And so, you know, the sort of thinking here would be, you know, it will take many years for this to play out. And the four-year cycle is over because you just have this sort of constant bid coming in from Wall Street now that those rails are all set up. I don't know. I don't know where I land on that. I just think it's, for me, it's much easier to think in like 10-year windows and just like what happens over the next 10 years is much easier to figure out than what happens over the next 12 months.

Ryan:
[1:15:05] Because you're on this episode as the ETH guy, like, you know, as a investor in ETHzilla, you got to put you on the spot and ask for some ETH price point predictions. So Tom Lee is making predictions for end of the year and he's got some pretty wild predictions in the future. Do you have a, you know, any sense for what you think ETH will be at the end of this year or maybe the next 18 months to three years?

Avichal:
[1:15:28] Short answer is no. Short-term price prediction is really, really tough. I think the way I think about it, and it's a little bit of a cheat code, actually, if you think about it as an investor, right? This is the cheat code for seed investors, for example, which is what we are primarily, right? We mostly do these like early stage, two people and an idea sorts of investments.

Avichal:
[1:15:45] You know, if you're investing in things when they're worth very little and you look at it and you say, I can underwrite something that is more than a 10x from here, you have a lot of margin for error. And so you can say, like, it's just worth a lot, lot, lot more than it's worth today. I don't know when it gets there. And I'm willing to be wrong for a while as long as the core thesis doesn't change. And so that's kind of how we think about it is it's, you know, if this thing works in the same way that we talk about Bitcoin, you know, it's just like if it works, it's just worth a lot more than it's worth today. I don't know.

Ryan:
[1:16:12] Is that like a 10x? Is that a 25x? Are you Tom Lee 100X?

Avichal:
[1:16:15] Yeah, I don't think that's crazy at all. And I'll walk you through some math, right? I think when we think about Bitcoin, historically, we've always said, hey, look, if this is digital gold, gold's worth 20 trillion. You do the back of the envelope math and you factor in the Bitcoin that's been lost over the years in Satoshi's Bitcoin, that gets you to a million dollars of Bitcoin pretty fast. And if you do similar numbers for Ethereum, you're like, look, the comp here is some sort of store value like gold and that's at 20 trillion. And ETH is at 400 billion today, then that's a 50x right there, right? It is. And then I think there's this element that people forget, which is I think one of the lessons of software over the last 20 years and 30 years is that you get TAM expansion. So every time you make something easier to acquire, the market size goes up. So take Uber, for example. Like the criticism of Uber back in the Series A was, well, the entire taxi industry is worth 10 or 12 billion.

Ryan:
[1:17:07] And that's how they sized it, right?

Avichal:
[1:17:08] How could you possibly be worth more than the entire taxi industry? But in retrospect, you're like, Oh, well, when you put things on a phone, you actually get 10x market expansion, right? Because it was so hard.

Ryan:
[1:17:18] Delivery to now, right?

Avichal:
[1:17:19] And you get the second order effects that you couldn't have predicted, right? And so I think one of the lessons, you know, a lot of like, if there's a recent podcast from Mark Andreessen who talked about this, who said, like, you can never call the market sizes on the things that you're investing in early. And you're almost always wrong. And you're wrong in two ways. One is that for the things that didn't work, you're usually wrong that the market sizes were just too small. You're like, oh, it turns out people don't really want this. The product wasn't good, but the market size was too small. And in the cases where you're right, it turns out the market sizes are like so ridiculously large that you sound like a crazy person if you wouldn't predict it. So like, could you have predicted Coinbase would be a $100 billion company, right? It just sounds like when you're doing the Series A, when the thing is worth like 30 million, you just sound like a crazy person saying.

Ryan:
[1:18:04] Yeah, you'd size it against banks or something like that.

Avichal:
[1:18:07] You'd be like, there's no way this is going to be as large as one of the five biggest banks in the world. You sound like a crazy person if you said that, right? So it's funny, the market size thing always gets in the way, but it gets in the way in two totally different situations. When you're wrong, it's usually you overestimated the market size. Right. And when you're right, you're actually more prone to dramatically undersize the upside market. And so if you think ETH works, actually, like the thing that you should do is say, like, actually, I think it's bigger than gold. Or, you know, same thing with Bitcoin. Like, I don't think anybody who's like a Bitcoin bull should not be saying, oh, it gets to gold and then it stops. Probably the intuition and the learning from the internet is it's probably 5x bigger than gold. And so similarly, I think for ETH, I think that if it works, the market sizes are just, we're going to look back and be like, we were stupid for thinking it was so small.

Ryan:
[1:18:51] I mean, the fact of the matter is like, we've never seen, humanity's never seen, history's never seen a digital store value that's accessible to anyone with an internet connection. I mean, gold is not accessible in that way.

Avichal:
[1:19:03] Gold's actually really hard to, for anybody who's actually tried to buy gold, it's really painful. It's like quite challenging.

Ryan:
[1:19:08] It's pretty painful. And what do you end up like, you're talking about like actual physical bare asset gold. I mean, that's like, yeah, I don't even know how you do that. Yeah. For most of the world, it's basically impossible to acquire.

Avichal:
[1:19:18] And, you know, it's like painful to store and you don't want to tell people you have it. And if I remember the numbers, it's, you know, if you take out things like wedding rings, it's literally only like 400 million. It's like a couple hundred million people, mostly in India and China and the Gulf that actually have any kind of physical gold.

Ryan:
[1:19:33] Which is relatively, on the internet,

Avichal:
[1:19:34] 400 million people is kind of tiny. Telegram has twice that many. It's just like, you can open up your phone and you probably have all of the apps on your home screen probably have more than 400 million monthly users, right? So 400 million on the internet is not that large, actually.

Ryan:
[1:19:48] This has been great. I got to ask this ending question because it was in my head as you were thinking about it. So ETHzilla, of course, has almost $500 million worth of Ether. You guys plan to deploy that? Go get some yield? I imagine some of these other ETH treasury companies plan to do the same. I mean, I don't know how much we have here, you know, 10 to $15 billion worth of Ether. So I think about that in kind of the yield pursuit. And of course, some of that goes to staking. And some of that's got to go in the rest of the Ethereum economy. It's got to go into DeFi protocols. So I'm just like looking at this and I'm saying, okay, are we in store for a DeFi after boom on the back of this whole treasury expansion? Is that just like the obvious play? I mean, maybe I'm asking you to put on your electric capital hat for this last question.

Avichal:
[1:20:32] Yeah, we tend to think so. We think that it's just, this is the case around stable coins. This is the case around DATS. It's just like, once you own the thing, you sort of look around and you say, what can I do with it? And if there's some opportunity to generate yield, it's not that you go, you know, 100% of your assets go into that necessarily, but you sort of look at your portfolio and you're like, is it so crazy for, you know, X percent of my assets to be generating yield on top of this? And I'm willing to take that risk. and there's some percentage probability that you get a total loss scenario and yada, yada. But I think a lot of people will do that and relatively small percentages with like a very large base value for ETH, all of a sudden you're talking about numbers that are bigger than like the dollar sitting in US banks, right? So these numbers get pretty large pretty fast. So yeah, we do think that. We're actually having a conversation internally with one of our partners, Ken, had this insight because he does a lot of our DeFi stuff that maybe DeFi summer was like the 99 moment, which is like everybody just got over their skis And we sort of like invented all the right primitives very quickly. Like if you look around, you're like, oh, actually, a lot of the ideas were basically the right ideas in 2020 and 2021. We were just over our skis in terms of how quickly we thought it would happen. And if you look at a lot of those ideas from like 97, 98, 99, they really started to be able to be manifest in like 05 to 08. Like it took five to eight years. And then like you finally had enough scale of users on the Internet and like advertising finally worked and broadband finally got there and all that kind of stuff. Right.

Ryan:
[1:21:50] All of the things the Internet promised came true.

Avichal:
[1:21:52] Actually, they did. Right. And even like the craziest, stupidest ones, right? Like, oh, you're going to do grocery delivery. And then here we are at Instacart is like a public trade company, right? And so Webvan was like the infamous one that Sequoia lost a bunch of money on. But it turns out they were just 10 years too early. The idea was a good idea. And so we kind of have been having that thought is like, actually, if you look around, like a lot of the primitives kind of work, like Aave works, you know, Lido works, Venuswap works, you know, they've kind of like stood the test of time here and have gotten more sophisticated and so on. But the basic ideas were basically the right ideas. And so at some point, we think that maybe you hit that sort of 05 to 08 kind

Avichal:
[1:22:26] of window where, you know, the rails are set and everybody understands it and it's ready to go. And, you know, we're like five-ish years now after DeFi summer. And so maybe like kind of the setup is the right setup now, finally.

Ryan:
[1:22:37] I like that setup. I think one way to think about it or one way to play it is just if this is the institutional cycle for crypto, and I really do think it is, it's unlocking all that TradFi cycle. You want to be in institutional assets. And Bitcoin has become an institutional asset. Ether looks like it's becoming an institutional asset. just look at the ETF flows, just look at these treasury entries. And then you want to be in institutional DeFi protocols because where's the yield going to go? It's not going to go in kind of the new smart contract platform that was just set up six months ago. It's probably going to go into some of these DeFi blue chips that are time tested. Anyway, not financial advice, but as one way to think about this cycle, Avicel Mac, it's been so great to have you. Thank you so much for entering public markets. Very excited to see what EatZilla does in the future. This has been great.

Avichal:
[1:23:20] Good to see you.

Ryan:
[1:23:21] Bankless Nation, got to let you know, of course, none of this has been financial advice. Crypto is risky. You could lose what you put in. This is the frontier. It's not for everyone, but we're going to...