45 - Taking Ethereum Public | Ether Capital

welcome to bangla where we explore the frontier of internet money and internet finance this is how to get started how to get better and how to front run the opportunity this is ryan sean adams i'm here with david hoffman and we're here to help you become more bankless david it's been a long time since we had a really bullish episode on ethereum we just had that today can you talk about it yeah the first of many bullish content specifically about ethereum is coming to the bankless podcast starting

with this episode with ether capital a publicly traded company based out of canada that has already done some of the things that we are seeing a micro strategy do today but did them back in 2018. the whole intent of ether capital is to put ether on the balance sheet and watch that ether grow so they are inherently bullish ether they understand ethereum and they are pitching ether and ethereum to investors and so they are on the front lines doing the dirty work

getting people's minds wrapped around ether and ethereum and what that means for the future of money and finance they understand it all and it was a fantastic time getting both brian and stefan on to the podcast to talk all about our favorite asset on top of our favorite ecosystem do you know what i love about these guys david is they are not just johnny come lately they're not tourists in this space they just endured a two and a half year long bear market with ether on their balance sheet and

they didn't sell it they didn't sell any they have a long term long time horizon thesis about ethereum about ether about the economy that is growing on top of ethereum and they've stuck to their thesis all along including they are now they are now staking ether the first publicly traded company to actually stake their ether and run a validator that's how committed to the original thesis they are i love talking to investors who

are long-term oriented in this space because there's too many people that just chase the hot new thing and jump on it and don't have conviction about what they're doing in this space the relationship that ether capital has to ethereum is really interesting to me because companies inherently are self-interested right each organization that you see on like a public stock market or any private company is inherently self-interested in its own growth and flourishment but ether capital is an entity that is focused on

you know putting ether on their own balance sheets and then also actively participating in the ethereum economy which makes ether capital inextric oh boy inextricably related inextricably connected to ethereum and the health of the ethereum economy so like ether capital as an entity is increasing the security of ethereum by staking their eth they're increasing the monetization of ether the asset by holding it on their balance sheets so what's good for ethereum is good for ether capital and what's good for ether

capital is good for ethereum and so it's very interesting to see a publicly traded company operating as a steward of the protocol a steward of ethereum they're also providing a narrative bridge to traditional investors they're talking about ether on three value points which which sounds a lot like the the triple point asset that we talk about on bank list so often but specifically talking to investors about ether as a store of value a digital bond and also as a commodity

for block space fascinating that they are bringing that dead simple message to the massive pool of investors and they've been doing that all the way back in 2018 up until now so let it be known that like it is possible to be right really early even in an environment where people tell you that you are wrong like the the if the ether capital boys have been beating the same drum for years and years and years now and now it's finally coming into fruition some some more topics that we talked about on the podcast are how they get

yield on their ether obviously an answer to that is staking but we ask about getting yield and defy we also talked about how ether capital evaluates making investments especially in a world where you denominate an ether not in the us dollar and they also talk about the complexities of being you know a publicly traded company and having to like work with code and having to to deal with things that just are simply undeveloped in this ecosystem that they are on the frontiers of so you know really wide-ranging conversation it's all about if ether and ethereum so we

know you guys are going to love it so we're gonna without further ado get right into the episode but before we do that we're gonna take a moment to talk about some of these fantastic sponsors that make this show possible when you own crypto what really matters is the security and ownership over your assets being a part of the bankless nation means having complete sovereignty over your crypto the easiest way to do that is with a ledger hardware wallet a hardware wall is a little device that manages your private keys for you so you don't have to worry about proper private key management your ledger hardware

wallet keeps your private keys private but still lets you have easy access to your crypto the combination of my ledger hardware wallet and metamask lets me store my crypto assets in the most safe way possible but still lets me easily access uniswap or all the other defy apps that i use on a daily basis if you already have a ledger wallet you can use the ledger live app to participate in some of the money verbs that we discuss in the bank list program the ledger live app is your headquarters for managing your personal crypto

finance it's a great tool to manage the assets you hold on your ledger as well as receive a portfolio summary of all the assets that you have stored using the ledgerlive app you can buy bitcoin ether and stablecoins and have it sent directly to your ledger hardware wallet skipping over the trusted exchanges and getting your assets into your control you can even use the ledger live app to swap crypto assets natively inside of the app so you never need to send your crypto assets away from your ledger to make a trade buying a ledger is like buying a fire extinguisher the best time

to get one was yesterday especially if you're doing something silly like holding your crypto in a hot wallet that's always connected to the internet if you haven't gained full control over your crypto yet go to the link in the show notes and get your ledger today if you're going bankless you need a good ethereum wallet argent is one of the best wallets for the bankless journey two words to describe it simple and secure what do i mean by that first simple there's a mobile app you download you can get set up in 60 seconds this makes going d5 easy easy easy that means

one tap access you can trade any token at the best price you can earn interest and invest with ave set compound uniswap many of the other money legos that we talk about on the bankless program second it's secure its security is battle tested it's been in the field for more than two years securing millions of dollars that's why some people now have over a million dollars in their argent wallet in some ways it's even more secure than a cold storage wallet because you can set transfer limits on the daily basis there's no seed phrases to lose it's always backed up through

social recovery you can even use arjun as a multi-sig for large transfers lastly they just launched a dex router that means if you're trading in argent you get access to the best rates across the top 10 exchanges in one tab you can go to argent dot link bank list to download the argent wallet on ios and android and get started that's argent dot link bankless alright guys let's get to this incredible interview with the gentleman from ether capital brian and stefan

bankless nation i am super excited to bring out two guests from ether capital we'll tell you about ether capital in just a minute we've got brian mossoff who is the ceo of ether capital and stefan cooligan who's the cfo of ether capital what is ethercapital they are a publicly traded company based in canada super bullish eth in fact they've got 90 eth on the balance sheet that's 32 000 eth on the balance sheets as we are recording this gentlemen it's fantastic

to have you in front of the bankless nation how are you doing thanks for having us here we're doing great yeah we're excited to be here i'm going to start off with this question are you the microstrategy of ethereum guys i don't think so i think we're focused solely on ethereum and being an ecosystem investor stefan do you do you want to add anything to that we are an ethereum ecosystem investor that gives public market investors access to the ecosystem um we don't have an operating business as it

currently stands but we are sort of an access point and to the extent that microstrategy is an access point for uh for investors in the public markets that are looking for bitcoin exposure uh you know i think that you could you could certainly make the the comparison there but um you know we're we're focused on the ethereum ecosystem and we're excited about it and uh and we think we have a lot a lot to offer and uh and so that's basically it that is awesome just curious on that microstrategy point

because it's making news as we're recording this you know microstrategy of course is a u.s publicly traded company they're jet they've been historically a business analytics shop with some software tools and recently they've just started using their balance sheet to buy up a whole bunch of bitcoin as we're recording this they're talking about buying up i don't know david is it like 400 million more i thought i saw that they upped that they are issuing 400 million in debt but it was over subscribed so it turned into 550 million of convertible notes

yeah so just quick takes on that guys you guys are in the in the um publicly traded uh company kind of game is this sort of odd from your perspective that they're they're they're doing this in this way it's like a business analytics shop becoming a bitcoin holding company i can't comment specifically on microstrat microstrategy's history and and what their vision of the future is but i think what we can all agree on is that the public markets are looking for access points into the space and figure

out how can they get access to these assets in a way that's familiar to them depending on where you are in the world and how long you've been in the space there have been a host of crypto native exchanges that have been hacked and i say crypto native because i mean access points that are not wrapping these assets into a traditional security where people can buy through their brokerage account and say abstract away the custody abstract away who the people are we don't we don't care and we can trust

that the assets are going to be secure and so people are looking for ways in the public markets to have exposure to bitcoin first we hope that they will also seek out ether i think that the narrative is a little bit more complex around why people want to own ethereum different than bitcoin but what the microstrategy news is proving is that people want exposure whether it's direct or it's through a company putting it on their balance sheet there is certainly appetite out there now more than ever before and

that's what's really exciting to us one thing that really excites me about ether capital is uh the intent behind the entity and that's something that always perplexes me about microstrategy is like it's got its core business model it's it's core way of making revenue and that's entire entirely irrelevant to putting as much bitcoin as possible on the balance sheet and like being a bitcoin etf a backdoor etf as i've heard it described but i want to i want to talk about ether capital so like when you buy a share of ether capital like

what are you getting like what is ether capital and what does it track is is ether capital meant to track ether the asset is it meant to track ethereum the economy like what what is unique about ether capital and its relationship with its uh balance sheet and and asset price and also the ethereum economy like what are you getting when you buy into ether capital i'll go first and then let stefan chime in i think what's really unique about ethercapital and our structure specifically is that we're not set up as

a fund and we don't intend to be a fund i think that those are important products to come out to the market like the grayscale trusts whether it's the ether or the bitcoin trust but what we see is that people should have exposure to not just the assets but other things that you can do with the assets like staking like generating yield through defy lending protocols and when you're boxed into these fund structures you don't have the flexibility as if you were set up as a corporation and so ether capital was put together a few years ago it

basically in kind of mid-2018 is really when it started trading but the idea was never just to passively hold eth we think that that's great and important but what else is there out there what about the makers of the world that we think are extremely valuable what about companies like wire that are really valuable to us providing really important services people should have more exposure in their portfolios to things beyond just passively holding the token and because of our structure we're able to offer that to investors and to

give the public markets an access point to again wrap these kind of weird assets to them into a traditional security and say you can have a piece of your portfolio exposed to crypto that's beyond just bitcoin yeah and i'll just kind of highlight or add on to that um i think with microstrategy you see crypto as an asset class as being a little bit of a square peg in a round hole as it relates to the public markets so if you think about

bitcoin sort of from 2013 to today it's kind of become a more accepted commodity more of an accepted asset but there's really no way for public market investors in the us um and and in canada um to get access to that bitcoin in in a public structure and certainly in the u.s that's a result of not having let's say an etf or an exchange traded fund um you know there's

been a history around um around the sec on on people applying and and getting rejected um actually in canada that's that's sort of changed uh because there is a what's called a closed-end bitcoin fund that's now listed um in canada but you know one of the the sort of um knock-on effects of not having bitcoin exposure in the public markets is that you have entities like microstrategy kind of pop up and they say something

like well um we have a thesis around the the you the us dollar and you know all of this um inflation or not inflation this money printing that may give rise to inflation in the future and we want to hedge that risk on our on our balance sheet so we're going to invest in bitcoin and you know we want to increase our exposure to that and as a result microstrat microstrategy takes on this this status as a sort of a quasi etf or

sort of bitcoin exposure in the context of of the public markets and so it'll be very interesting to see how that sort of unfolds and develops um in the us as it relates to bitcoin um you know etf or public market exposure um obviously there's there's the grayscale fund as well which is um which is uh passive exposure um but it's not traded on on a major exchange and they've obviously done very very well and and greyscale is an unbelievable kind of entity and good for the space i think that where ether

capital differs is you know we never uh we never thought of this as passive exposure to ether um we were trying to create um an ecosystem investor so getting public market investors exposure to what's going on in the ecosystem and in 2018 that meant putting ether on your balance sheet because we have a thesis around ethereum being this kind of next generation of the internet and owning ether is like owning a piece of of this internet

and and so that was kind of an early thesis of ours um which developed in into an investment into wire in 2018 and an investment into into maker um in in 2019 and has kind of uh become uh ether as kind of a yield generating instrument through staking and through d5 is is really exciting so i think it's kind of like two two ways of getting to kind of the same um the same sort of uh destination which is exposure to the

underlying crypto asset in a public market context this is so interesting so like would you guys say you're almost like a public version of a crypto hedge fund that's a bit more ethereum focused is that a good characterization i i would call us a public market ecosystem fund and sorry not it sorry let me start that again i would say we're closer to a public market ecosystem investor um and uh less less of a hedge fund because we basically we bought our ether in 2018

and we hold it um to this day we're not making active trades uh like we're not you know yolo yield farming um as a proper company as much as as much as we would we would kind of like to but that's really not not the strategy it's it's kind of access and and exposure to the ecosystem so in lieu of of a hedge fund i would call us more of a venture fund where we can we can make portfolio investments um along with our with our ether into things that have the

potential to outperform ether and and things that are really important to the ethereum community so things like maker um you know obviously maker is is the backbone and the cornerstone of of d5 right um and and it's just it's an incredibly unbelievable project that really for me was um was the reason that i'm in the space full-time and why you know i joined ether capital um i ended up going down the bitcoin rabbit hole um when i was an investment banker in in 2015 and i'd spent 10 years in in

traditional finance and i bitcoin was was kind of an incredible innovation and and i i almost immediately understood this concept of digital gold and then when ethereum came around and brian and i had been talking about about ethereum he kind of pulled me down the rabbit hole um it made sense and then something like maker was the thing that really crystallized you know why this platform is so incredibly innovative and the interesting things that that you can do it's it's funny you say that because

maker for me was one of the the first magic moments i ever had with with defy first time in that very clunky interface you'll recall it of course from you know 2017 where you go and you create this thing called the cdp uh and i just remember doing that and there was no one in the middle there was no bank and comparing that to taking out say a mortgage where you have like floors of of people and entire banking infrastructures and this whole process happened in a matter of seconds for like sense uh that that to me was was a very

magic moment but i guess maybe to sort of summarize the way you guys are articulating ether capital it sounds like that the problem you're solving is that investors don't have a way to gain access to crypto in public markets while they're locked inside of their their their brokerage accounts let's say so this provides that and you know i guess there are a few different ways that investors can do that whether they're in the u.s or or canada today one is of course now like

these like they could buy a micro strategy gain some exposure maybe to bitcoin the the other is um you know trust like grayscale we had michael sonnenshine from grayscale talking about ethy and um and bitcoin and the third which hasn't really come out yet is uh some sort of an etf um i just want to ask you guys a question about the the third path here the etf path are you surprised that the us doesn't have a crypto etf of any kind whether it's

bitcoin or ether today like does that lead to a lot of inefficiency why is that not happening it sounds like it's happening maybe in canada why is it not happening in the u.s so we don't have an ethereum etf a true etf yet in canada i hope that we'll see one soon and i think that the us will have one soon as well but i think if you rewind three or four years ago when etfs were starting to be proposed or submitted to the regulators for review problems in the space had not yet really matured like custody and insurance and before

the regulators are going to approve a product like that they want to know that it can get to scale with appropriate controls in place where nothing will blow up on their watch and i think that they're fair and right to have those concerns i think we're at a place now in 2020 where we are seeing real robust forms of custody emerge we are seeing types of insurance be possible in this space where it's getting more appropriate for a true etf to be approved by a regulator whether that happens in the u.s or canada first i

don't know but i think that it it's it's a question of just if is it going to happen in the next few months or in the next year i don't know but i think it's coming and it's really exciting and i think now is the time where looking back it's more appropriate than ever before stefan you mentioned i think a um is it the equivalent of a grayscale in canada that uh was set up that that's gotten 300 million or so in bitcoin um can you talk maybe about that i'm not really familiar with it and i understand

there's there's a company called three iq maybe it's the same one that it's actually the same thing okay it is the same one that's actually doing the same thing for eth so they're raising right now and they're creating sort of a trust type structure maybe for eth what what is that help us understand that so you can think about it in in three sort of buckets you can think about an etf which we've spoken about where there is access to the underlying commodity uh whether it's bitcoin or ether and the

liquidity is done on on a you know an hourly uh basis so you're effectively you're making an order to the to the etf and there are market makers on the exchange that are you know buying from and selling to um that that etf structure and we don't have those in in either canada or the us yet so the other way to get sort of passive exposure to one commodity whether it's bitcoin or ether is to create what's known in canada as a closed end fund and that's what 3iq has has put together on

the bitcoin side and that has attracted i think around 300 million of of capital um and what they're the three iq is currently putting together on on their either fund now the way closed end funds are structured i believe it's very similar um in the u.s around the grayscale products like gbtc and e although i'm not an expert in in sort of the regulatory environment and sort of structures in in the us but think about a closed end fund as you know issuing uh shares or units

that reflect a proportionate ownership in the underlying crypto assets so they you know they go out and they'll buy 50 million dollars worth of bitcoin um and then you own that share of the bitcoin you can potentially redeem that but on fixed periods so either quarterly or annually but generally if you want to sell your position and you don't want to wait until the the redemption periods you can sell those shares on an exchange to another counterparty and what that introduces is this concept of a discount

or a premium to net asset value and so that's what we've seen for example in the grayscale products they trade at a premium to their net asset value we've seen that in canada with with the closed end funds so you know that's a sort of a passive bucket and then we have the active operating business which is what we are as as ether capital and what that allows us to do is you know hold a commodity like like ether as a big part of our portfolio but make other

venture-type investments but we're also able to do things like staking where that's an active um that's an act that's an activity that you do running a validator node is is something that a passive vehicle um is not able to able to do and it really differentiates us um you know think about putting funds into d5 putting ether into d5 or doing all sorts of kind of ecosystem type investments um that that is what structurally we're able to do because of our our corporate corporate structure

it's funny too because i see this three iq is raising up to 107 million us dollars and this could all go into eth and the interesting thing is from what you're saying right this is different structure you guys are differentiated you're more active this is a passive mechanism but if if they raise that amount you win too because it increases the size of the ethereum ecosystem the ethereum economy ether becomes sort of this asset that's just gobbling up capital we've called it

on bankless before this like gravity well that just sucks in all of this capital and because ether capital has ether on its balance sheet you know and each price go up that's that's good for ether capital too so it seems like uh we're all kind of succeeding as an ecosystem as some of these assets start to attract institutional money is that the case i think so and it definitely is good for everyone in the ecosystem as a whole but when stefan and i and i think most people who are in the ethereum and

crypto ecosystem as a you know everyone they think about this isn't just about buying exposure to these assets and then wait for the number to go up the question is how can you use these things in really interesting ways and so sometimes i get frustrated by the idea of these you know bitcoin closed funds or a bitcoin etf the idea isn't just to say go and get exposure to the to the price i mean that's good and important but you want people to say wait a minute this is a bearer asset it has the potential to be custodied on your own different than

almost any other asset that's come before and that's really exciting and then in terms of ether being able to interact with various applications whether it's in d5 or gaming or nfts and art that's the point of having ether so we think that we serve an important function but we also really want to see people go out and find ways to get exposure to the asset where they take control of it or they play with it where they test things they get a metamask wallet and they go and interact with various applications that run on this network that's the point why we're all here right well said sir that sounds

very bankless of you and and listen we benefit if people are are boxed into having to just get their exposure through these wrapped up traditional equities but that's not the ethos of the space that's not why we're all here that's right now why we're here and it does serve a specific purpose but we do want to see other people long term going out and finding ways to touch the assets themselves that's really important to the narrative otherwise i'm not sure how

successful these networks are going to be if no one actually holds and custodies them on their own and one thing i'd add is it's it's a totally a net positive that you have uh public market investor money or just investor money in general uh trying to get exposure to to these assets but as as brian noted the interesting part is is using them and when you think about something like bitcoin or even ether as almost a gateway drug uh to the extent that once people understand sort of the

decentralized network thesis with say bitcoin and then they start to understand ethereum as an operating system versus bitcoin as a calculator which is which is brian's phrase that we use with investors um you know you start to get you go down the rabbit hole and then oh interesting so what's next okay well there's stable coins there's uh there's bitcoin on ethereum there's there's decentralized finance and what we started to do is you know we've sat down with some investors and you know we

start from the beginning around getting ether into a wallet and then trading some of the ether for dye on uniswap and then using that die and putting it into compound and earning a yield and so these are sorts of things where you you actually have to use the protocol or the platform to really understand what it's all about and we we often struggle with traditional uh traditional finance investors because they say what can you use ethereum for and you really kind of

you want to show them um you know what what these things can be used for and how they are you know very game changing um in in the way that they're built stefan and i always like to draw parallel to an early clip of david letterman and bill gates sitting and talking about what is what is the internet all about and it's the mid 90s and david letterman says so what can you do with this thing and bill gates says well you know you could listen to a baseball game and letterman says ever heard of the radio

yeah that's you know like that's that's true but you know maybe you could listen to it at a later point in time and letterman says never heard of a tape recorder and so i think it's hard in the early days to imagine just how powerful these open networks can actually be and you saw this with the internet and we're not even talking 30 years ago and now it's so obvious how the internet has changed everyone's lives the way we interact the way we do business the way we set up companies and people still have a hard time

imagining okay great so you have this global financial system that everyone can plug into and and a standard protocol that anyone can use and interact with and have something secured but so what and i think we're still in that infrastructure wireframe phase where the developers are tinkering and getting really excited but what we need is over the next five or ten years to abstract away all the technical complexity and we will get there and that's when this is going to be such an uh of course it was so obvious that you would have all these transactions and