Ethereum and The Trillion Dollar Internet Bond | Chris Perkins

I think the Tradfy mind really understands Ethereum

because, like, Bitcoin, it's like, okay, what makes Bitcoin special? All right, there's there's 21 million coins that there can't be any more than that. So, like, it's limited supply, totally okay. I get it, store value. Then they go to like Ethereum and they're like, wait a second, you're telling me that there's yield on this thing and I can have smart contracts? That's pretty cool. And so I do think that that ETH as an asset class is going to be super appealing as people take the time to really understand it a little bit. It's it's a matter of uh of when, not if.

Welcome to Bankless, where we explore the frontier of internet money and internet finance. This is Ryan Sean Adams, and I'm here to help you become more bankless. Yep, just me today. Solo episode, David's at a conference. The guest today is Chris Perkins, and my my, this is definitely Frontier of Finance material. So Chris has a fascinating background, as I've come to learn. He was a Marine. He was shot at in Iraq. He was at Lehman Brothers when all of that came crashing down in 2008.

Then he was at Citigroup trying to pick up the pieces of the financial crisis. That's when he first ran across Gary Gensler. Now he's in crypto. All of this, as you might imagine, gives Chris Perkins a very unique perspective on crypto, on national defense, on traditional finance. So we talk about all of that in the episode, but that's not even the main event. The main event is Ether, the asset, and a new reference rate, an interest benchmark, if you will. He's building on top of it. So this probably sounds in the weeds to a lot of people, but it's actually key to unlocking trillions in new financial products and capital. You might call this the LIBOR for ETH. Truth be told, I didn't fully understand what LIBOR was or why it was so useful in traditional finance, but we get that education today. And I want to give you some context on why this is important in the scope of bankless and crypto and crypto investing. So on bankless, we've described Ether the asset as the internet bond. That's a narrative that we've used, a way of understanding it, an analogy, uh, since probably 2020, before proof of stake on Ethereum even existed, before Ether even had yield, we called it the internet bond, because it's simply the best way of describing Ether the asset and its future.

Um, ether is money, staked ether is the internet bond. So, what do we mean by this? Ether is like the bond of a sovereign country. It's kind of like a T bill. That's a comparison we've made in the past. When you stake dollars into a government bond, like a treasury, like a T bill, you get yield that's denominated in the dollar. And when you stake Ether into a validator, you start staking your ETH, you get yield denominated, not in dollars, but in ether. And where does this yield come from?

Well, you know, you've listened to previous bankless episodes. It comes from revenue produced by the Ethereum protocol itself. In the world of nation states with sovereign bonds, you might call these revenues taxes because the revenue is proportional to the overall size of the economy. And that's true for Ethereum as well. The revenue produced by the Ethereum protocol and given out as a yield to stakers, to validators, is proportional to the overall size of the Ethereum economy. You have more goods, you have more services, more block-based demand on Ethereum, you get more transaction fees, you get more revenue, you get higher yield for those staking. So what is the next step to establishing Ethereum as an internet bond, to making this narrative, to making this meme even more true than it is today? Well, according to our guests today, what we have to do is standardize on a global reference rate for ETH daily yield. So traditional finance has done this in the past using things like LIBOR, which we'll discuss in the episode. So we need to create a LIBOR for Ethereum, a reference rate on the yield on a daily basis that can be used both on-chain and off-chain, has to be open, has to be public accessible, it can't be corrupted in the way that traditional finance reference rates were, like LIBOR. And why is this all important? What's the summary here? Well, in TradFi, interest benchmarks like this, like formerly LIBOR and other reference rates, underpin hundreds of trillions of capital. Chris mentioned in the episode, $500 trillion in derivatives markets, all underpinned by these types of reference rates. They also set the risk-free rate. They determine the cost of capital. So this is a metric for investors everywhere. And they are also part of the reason the dollar is the global reserve currency. They're the reason Jerome Powell is the high priest of global finance and the world stops, all of TradFi stops to listen to what he has to say. So here's how this connects. For Ethereum to become an internet bond worth trillions of dollars, it will need a reference rate, something similar to the reference rate Caesar that Chris talks about today. This is how Ether, the asset, scales and becomes central to the functioning of the global economy, which, of course, you know, we believe is its destiny.

So hang on. Fascinating episode ahead. Essential learning for the bankless journey. Let's get right to our episode with Chris Perkins. But before we do, we want to thank the sponsors that made this possible. Bankless Nation, I'm extremely excited to uh bring on our guest, Chris Perkins. He is the president of CoinFund, which was one of the world's first crypto funds. We've actually had uh Jake from CoinFund on the podcast previously. It's a VC fund. They do liquid crypto assets as well. And Chris himself has led quite the interesting life, I would say. Three professional careers. First, he was a Marine Corps officer, uh, served in Iraq in 2004 in a unit that actually experienced some of the heaviest casualties of the war. And then he made a switch over to TradFi, spent some time there, and now he is in crypto and has been for the past three years or so, I believe. Chris, welcome to Bankless.

Hey, thanks, Ryan. And I guess to sum it up, I guess I'm used to getting shot at.

Oh my god. Wow. So uh has that is that a continuation in crypto? Are we uh are we metaphorically giving getting shot at? I mean, not to diminish it. I'm sure uh in Iraq it's it's quite a bit different than what we're dealing with in crypto, but um yeah, yeah. Well, you know, maybe let's start there, Chris. Um take us through the um web of your life. How are these three things related? So uh in them in the Marines in Iraq, actually getting shot at, and then you switched to TradFi doing that for a while, and now you're in crypto. What's kind of the unifying theme of of your career so far and your and your life experience?

Yeah, I guess always wanted to be on the cutting edge. Went to the Naval Academy, studied uh national security of all things at Georgetown after that. And then I went into this um adventure called the Marine Corps. I volunteered um in Iraq. You know, my family was impacted by 9 11. I'm from the New York City area, couldn't get out, and um volunteered to go really to the front lines. Um ended up in part of the Battle of Fallujah, and then also really the Battle of Ramadi for nine months in 2004 to 2005. Um saw a ton of combat there.

Um, and then long story short, I was gonna go in a bunch of different directions. I came back home,

uh, knew a Marine who was at Lehman Brothers and um

went down there. They actually hired me on the spot.

When you say Lehman Brothers, what day are we talking? Because that's uh like ver very important. I guess I guess um it was before the collapse, right? There's only d the before and after. But when when did you join?

So I joined in 2006 um

and literally started building out a derivatives business.

Um, and then you know, TLDR was got blown up in Iraq, and then I went to Lehman Brothers and I learned what it was like to get blown up there. Uh, I was on the ground floor of Lehman when we when we went bankrupt, right? I had a derivatives book. Um

Awful, awful experience. Um, but man, when when you hit those types of experiences, it's also where you learn the most.

And I'd been in finance for two years, but coming out of that,

um, incredible learning that happened. And you learn that like when when you hit the biggest crises, like that's when you build the biggest relationships. I could tell you all different types of stories. But

phone rang.

And uh it was Citigroup, and they said, Hey, do you want a job? And I said, Well, what kind of package do you have? arrogantly. And they said, It's called the great package, it's called the job.

So I I literally had to get on the train on the next day, and I had to go to Citigroup where I started cleaning up my own mess.

Um, and then, okay, so I'm at Citigroup, and then I got involved in the derivatives industry, and we had to take the $700 trillion derivatives industry from unregulated to regulated.

I was, uh I led that initiative,

and guess who my regulator was?

It was Chairman Gary Gensler.

Chairman Gary Gibbs. Oh.

You know him.

Right. So, you know,

under, you know, it was it was different back then. He was totally empowered by Dodd Frank

and built the largest regulated derivatives business in the world. Took over a few other businesses. By the time I left Citigroup,

I ran our foreign exchange prime brokerage business, and then I took over our futures business. So had about 725 direct and indirect reports. I found myself running, Ryan, the largest derivatives intermediary in the world.

But by nights and weekends, and I'd gotten into you met, you know, you had Sandy on, like we had gotten into crypto years prior.

And I'm like, what am I doing, man? I'm running the largest intermediary in the world, but I can go home. I'm I'm scared to death because my yen's not settling for days. I go home and I'm messing around with Ave and Compound,

and I'm seeing technology. In fact, like I'm like, why am I even needed at this point? So rather than um

I I decided to go all in. And yeah, this is my third year at CoinFund, um, having a great time.

And um it's it's been quite an experience.

I I uh such an interesting background. I don't I I want to camp on that for a while. I know we're gonna talk about something um a little bit more financially geeky, uh something that uh I'm calling at least, and you gotta educate me on this, the Librar for ETH. Uh so we'll we'll we'll talk about that in the context of a reference rate and why it's important, what you're building over at CoinFund. But um I, you know, I've got to ask a bit more about your background because it is just um I don't know, you've you you've led a very interesting life, my friend. Uh I guess maybe, maybe starting from the last part. So uh give me give us some more detail on how you went from derivatives and traditional finance in one of the biggest banks uh in the world to crypto. Like how did that happen? Because not many people um cross that chasm, right? There's a lot of people in TradFi who, even still today, and and certainly at the time when you joined, think crypto is smoke and mirrors uh a scam, overrated, or something technical doesn't really impact them. But you somehow found a reason to move over. Why?

I mean, it it was pretty obvious to me years prior. Um, you know, we all learned about Bitcoin. I don't I couldn't tell you what year it was, 2014 or something like that.

And um read a book, and I'm like, wow, um, these smart contracts are really interesting. And and the utility of settlement was so obvious to me, right? When you're sitting and running a big derivatives um clearing business, it's all about settlements and the latency, you just accumulate so much risk when things don't settle appropriately. And so in the beginning, you know, started to think, wow, this blockchain thing can really solve a lot of our problems.

But and I kept trying and trying to implement it and and get it off the ground.

And there was incredible resistance to to really embrace superior technology that could have actually lowered risk.

Um and then

Um, you know, as I started getting into understanding, um, really I dove deep into the Ethereum ecosystem and and really understand the financial applications of Ethereum and how how it could change the world and lead to a much more accessible so I I bought into the uh to the ideals, right?

And the last thing I did at Citigroup was I was actually able to get Bitcoin and Ethereum futures approved on the CME. Um

this was a brutal, brutal feat. Um you know, you could imagine, I think there were like 65 people that tried to say no.

Um and like I'm a Marine, right? So I just had to battle, battle, battle, um, and explain to them how you know we could risk manage the product, why it was it was useful.

And look, I've spent a lot of time, even in my current job. I'm on the CFTC's Global Markets Advisory Committee.

I testified in front of Congress on derivatives market structure.

We have a lot of work to do. And, you know, here's the TLDR. It's that our entire

regulatory apparatus is predicated on intermediaries.

Now we have tech, and the reason for that is because we didn't have technology prior that would that could allow people to monitor and regulate it effectively, but now we do.

And so it's it's very scary for you know for certain regulators. And I feel for them, right? They should. When when I went through um what I went through with derivatives, like they were fully backed by Dodd Frank. Their mission was clearly articulated.

Now they're really not empowered by legislation. And so it's a very challenging um position that they're in. But like what I'm trying to do is not.

Shitpost on crypto Twitter, but rather engage, right? Like try to explain to them look, I understand how it works. I I I built businesses in TradFi. We can use the technology to make the market safer, more efficient, and more accessible. And so um I'll keep trying. And uh, you know, we're engaging wherever we can.

Look, thanks for doing that. Thanks, thanks for trying, and thanks for bridging the gap. We we need a lot of that uh with respect to to um TradFi and certainly uh Sandy from Franklin Templeton, who actually uh connected us, uh Chris, we had her on uh the podcast um a a few weeks ago. Uh she's kind of fighting that that same fight. Um I gotta ask you though, because you've had experience with, you know, like uh Gary Gensler in the past and and Dodd Frank, and now you're kind of like um talking to regulators right now. Um you said you feel for them and uh that there's kind of like they're they're maybe scared uh of the future, that they're a little bit uncertain, that sort of thing. I think that's a great framing of it. And also, Chris, it assumes good faith. And sometimes when we're in crypto, uh I know crypto Twitter can like tur dial it up a lot and turn extra talk toxic, but some of the actions coming out of uh some of our regulators, some of the time, and maybe particularly the the SEC a lot of the time, and Gary Gensler himself don't actually seem in good faith. It it doesn't actually seem like it's coming from a position of um we're uncertain about the future, we're scared, there's no good uh like uh regulation legislation. It it seems to, at least that the tone and tenor of it, has seemed like there is this kind of grasping for power, maybe, or control, and it's not like good faith engagement. D disabuse me of that, if it if you will, or maybe you think that's the case in some corners, not in others. How should uh crypto natives think about?

or regulators and some of the um I guess actions that that are coming out of like the US has really turned hostile, Chris, and we're not we're not really sure why they're so hostile to crypto.

Yeah, a couple of thoughts. I think the what what I try to do is stay maniacally focused on the truth,

right? And the truth is that this is a technology that's very good for national security.