Anthony Bassili on Bitcoin yield and onchain asset management

How do investors make money with Bitcoin through Coinbase Asset Management? There are hundreds of millions of people around the world who hold Bitcoin and have been accumulating it in different sizes for many years. For those people who have a lot of Bitcoin, they are looking for ways to make that Bitcoin productive. They don't wanna sell it. The thing you're most excited about for twenty twenty-seven. [beep] is by far the thing I'm most excited about. I think it's gonna be a big topic. The most underrated narrative in crypto right now. I think [beep] still vastly underappreciated and under-focused on.

When you look at on-chain asset management, where are we at with on-chain asset management? The next cycle is gonna be defined by on-chain asset management. I think what you're gonna see over the next few months is a continuation of large asset managers who are gonna be entering the space of on-chain asset management. There's a lot of money to make in that space. There's a lot of alpha to generate in that space. Is this a good time to enter crypto? This is not financial advice, but... Welcome to another episode of fifty-one Insights. Today with Anthony Pompliano.

Anthony, welcome to the show. Thanks, Marc. It's good to be here. Yeah, likewise. Great to have you here, Anthony. There is lots to talk about, even though we're in a bear market. Uh, very, very interesting times. Anthony, you spent a decade at BlackRock running the iShares pension business, selling institution the most traditional products on finance. Now you run Coinbase Asset Management, selling those same institutions Bitcoin and digital asset products. Today, we're gonna talk about the state of on-chain asset management, where on-chain yield really comes from, and everything in between. So excited for this conversation. Anthony, welcome to the show.

It's awesome to be here, Marc, and it was great to spend time with you in Paris, uh, just a few weeks ago. So I'm glad we could do this podcast. Yeah, likewise. Likewise. And we already had interesting conversations there, and I wanna kick it off with the, the first question that is burning, uh, on my lips, which is everyone is looking at crypto right now. The market is down. We're in a bear market. Meanwhile, investors are piling into AI. People are speaking of an AI bubble. How are you talking to investors right now, and how do you get them excited about crypto?

It's a really important question because you're right. The AI has sucked a lot of the wind out of the ecosystem for digital assets. Um, I think, uh, the way that if you look back and you go say, where are we in the market cycle, we absolutely peaked in November of last year, twenty twenty-five, hundred and twenty-six thousand. If you recall, at the time, you were kind of peak hype on the digital asset treasuries theme, which was a, a massive narrative, uh, in terms of fundraising. So over, you know, sixty, seventy billion dollars was raised to fund the digital asset treasuries.

All of it, nearly all of it went to Bitcoin. Uh, there were a few on Solana, ETH, and others that, uh, today are still around, but the vast majority of the activity is around Bitcoin, creating an insatiable amount of buying demand and, and capturing a supply. You were, you were kind of post-peak meme coin mania at the time, and one of the underlying big themes was stable coin growth and stable coin adoption back in twenty twenty-five. And, uh, this was driving a lot of attention, you know, in terms of watching network effects and watching the growth across these public blockchains.

You were, uh, at the beginning of the Clarity Act conversation around, you know, the, the Trump administration's support for crypto, their, uh, intention to bring Bitcoin onto the, the balance sheet of the US government or the Federal Reserve. So there was a lot of narrative rhetoric around that. If you remember, uh, I remember seeing Trump in Nashville at, um, I think it was one of the Bitcoin conferences. And, and so there was just a tremendous amount of activity going on last year leading up to the bull market, and a lot of investors got in. I wrote a paper called Get Off Zero that we released.

You know, maybe Bitcoin was around a hundred or so thousand at that time. And, you know, the intention of the paper was to continue to encourage investors that they should have an allocation to Bitcoin in their portfolio. Inevitably, what happens in the investor mindset and the mentality is they wait until there's a clear momentum trade going. But the vast majority of investors don't catch onto the momentum trade until it's too late. And one of the things we know about Bitcoin is it's very consistent from a pattern perspective, right? The patternicity is incredibly consistent now, three cycles, and we're onto the fourth.

One of the things also that was unique about that time was there were a lot of calls for a five-year cycle. So the four-year cycle's dead, the five-year cycle's the new norm was the big call. I, I think we can stand here today and look back and say, absolutely, that's the wrong call, right? The five-year cycle's not dead. We're now today, this is July, late July twenty twenty-six, and, uh, we are down roughly fifty percent from the peak of the last cycle. The pattern has been that, um, over the next few months, we, we will continue to see a bottoming of Bitcoin.

Uh, the market expects the price range to be anywhere from on the extreme low ends, thirty-five thousand to a more soft bottoming, you know, maybe in the low fifties, uh, or high, high forties. So no one has a crystal ball, right? And the thing about Get Off Zero that we were trying to encourage investors at the time, and we continue to do so today is, is really just get off zero. Whether it's buying with a very small allocation in your portfolio or buying with conviction, that's up to you as an investor in terms of your risk tolerance, right?

But the key thing that a lot of investors do is they kind of wait for the hype cycle to come in. They find reasons not to do it. They don't buy at some point, and they f- maybe feel good about it because they missed the drawdown, but then they don't buy again in the bear market. So where we're talking to investors today is had you purchased at any three or three-year period or longer over the past three or four cycles, you would have made money in Bitcoin, right? And that remains true today. So, uh, the last top cycle was around sixty thousand.

Right now, we're around sixty-six, sixty-seven thousand, um, maybe sixty-four thousand today. And, and so, and so you would have round-tripped it, right? Had you held and bought the bit last peak, but you still made money. And there's a whole bunch of noise along the way, right? The, the great thing about Bitcoin is there is a really strong track record of consistent, uh, up and down cycles that we have to look at. There is, uh, tremendous institutional integration across ETFs, futures, perpetuals, options markets. Swaps, bank integration. The largest asset managers in the world are integrating Bitcoin, whether it's an ETF, a trust structure, or direct spot trading now into your brokerage accounts.

You know, all that stuff is live today. It wasn't live before. So if there's any doubt in an investor's mind that they need an allocation to Bitcoin or want an allocation to Bitcoin, we can provide some evidence as to why we think that it's justified. If there's any doubt that maybe this isn't the time to buy, you know, uh, because of volatility, we can provide an answer to that, that we think this is a great time to make an allocation versus what you would have done last year. Um, and if there's any doubt on, you know, the trajectory of where Bitcoin's going as a, as a part of the portfolio, I think the answer is already written on the walls.

We're, we're having those conversations with investors. They're still engaged, right? Uh, they're more engaged than ever. They continue to see the, the history continue to compound and grow. A lot of investors right now are actually very interested in making an allocation. Most people are still kind of sitting on the sidelines because they kinda hear the narrative across the industry that there's a little bit more bottoming to happen, and so they're trying to time it. We try and coach people, like, you're not gonna time it perfectly. Inevitably, that if it is a forty-five or forty-eight or thirty-five ultimate bottom, those are typically very sharp candles or wicks that will go down on a Saturday and then recover five or six thousand points the next day.

You're not gonna be able to catch it. So everyone looks back and they wanna go, "I wanna catch that low." You're not gonna catch the low. Uh, you just need to start allocating and do it, uh, consistently over time. Yeah, and we're gonna talk about Bitcoin in a minute because that was also one of your first products. Uh, but before we do that, I wanna talk about, uh, or wanna stay at the market structure. And something we published about two weeks ago was a piece that was called There Won't Be Another Cycle, and the Fat Protocol Thesis is dead.

And for those of you who remember, the Fat Protocol Thesis came around in two thousand and sixteen. It was the thesis that most of the value created in crypto accrues to the protocol layer. So we have Bitcoin, Ethereum, Solana, and all those other layer ones. And when we look back now, about ten years, we realize that most of that value actually didn't accrue to those layers and still doesn't accrue to those layers. So just to give you a number, Ethereum, one of the biggest layer ones, made around a thousand five hundred dollars on the recent Robinhood launch, which has around six hundred, seven hundred million in daily volume, which is practically nothing, and it's across the board, those layer ones, the same picture.

These layer ones are, are making no revenue. The value doesn't flow back to the token. So that's the thesis we put out. And now, based on what you said, how do you think about market structure? Where does value accrue, and how do your investors need to think about where that value lands? I recently saw a tweet, and it was kinda highlighting there's been a string of bankruptcies or just companies closing down. Movement Labs, right, shut down after raising, like, three billion dollars. There's been about a number of exchanges have shut their doors. And there were certainly, certainly some people made money from those projects, right?

I think the exchanges, there were a few people who made a tremendous amount of wealth. So there was value creation there for some people, but not for everyone. And ultimately, though, they couldn't keep it going. We're at the bottom of a bear market cycle. We're deep into the institutional integration or what I call the enterprise phase of this. This is the question everyone's asking is, okay, well, we've seen billions and billions of dollars be invested into early-stage venture and crypto technology, wallet infrastructure, and public networks and private networks and on and on and on. Who's making the money?

Where does the money accrue? Where does the value accrue? And today, you know, the question becomes, uh, really, is it a really function of distribution, right? Um, is it a function of, like, do the firms who have the right licenses, who have the client and customer engagement, the client, uh, profile, do they accrue the value because they can now sell products within that infrastructure? Which presupposes that most of what we're talking about within crypto is, is just technology and market structure rather than maybe software as a service, right, or anything else. Um, the idea behind crypto was that it was a public good, right?

Which means it's supposed to be nearly free, fast, and efficient. Um, it doesn't mean fully free, but nearly free. So from a protocol perspective, when you-- I guess if you can create this fat protocol thesis, it's hard to say, like, the, the protocol itself is a public good if it's capturing an inordinate amount of value. One of the things that happens in the legacy protocol architecture too, that uses tokens, is that a lot of them use the token as their incentive mechanism. So their-- the customer acquisition cost is actually paid for with tokens, right, that were created out of thin air based off of the initial value, uh, of the company raised, right, and offered to the market that way.

So that doesn't necessarily accrue. So I'd say it's, it's very cheap equity. Uh, it's probably the lowest cost of capital, you know, financing you could utilize, uh, which is to give a distribution platform a token grant, uh, that's worth hundreds of millions of dollars so that you're first on their list and you get, uh, priority access to those customers. And what we haven't seen is that there's a consistent, uh, revenue stream that then comes back to the protocol, right? The protocol does grow TVL. The protocol does grow usage. They do grow customer base. They do grow in number of assets.

They may even get to the tens of billions of dollars. But the, the question that we all still have to scratch our heads on is, like, where does the revenue switch turn on, right? How do you prevent yourself from getting displaced by the next competitor who has a better, uh, who has a new token that they've raised, and they can then utilize that in more ways? So I don't think there's an answer yet in terms of, like, really, is the fat protocol thesis right or wrong? Feels like it's going away, right? That says that the protocol is gonna accrue all the value, where actually it's the distribution platforms who have the customer relationship is, is the platform that accrues value.

That seems to be the direction of travel today. That doesn't mean that's where it ends, right? I think, uh, we have a lot to learn in the growth of this market structure, uh, because while we are in a bear market, while we are seeing a lot of protocols go under, we are seeing other protocols actually really be integrated into the enterprise systems today. They are actually being integrated into the fintechs of the world. They're being integrated into the large brokerage houses of the world. You're seeing a number of these protocols who historically looked like, uh, looked like it was only serving crypto natives, now actually serving, uh, very, very large, you know, hundreds of millions of customers type platforms.

So, um, so I think the answer is still a little jury's out, but, uh, it could come back and maybe prove your paper right. And Anthony, you mentioned before Bitcoin. Bitcoin obviously still the king of all cryptocurrencies and one of your first products. Can you just explain us what was that product about, and, uh, how do investors make money with Bitcoin through Coinbase Asset Management? So this is a, a focus on Bitcoin yield. And what Bitcoin yield is, is the product that is an actively managed strategy that allows for investors who are currently holding Bitcoin to invest in a strategy with their Bitcoin, and then they can accumulate additional Bitcoin on top.

So if you think about the- Long tail of Bitcoin holders. There are hundreds of millions of people around the world who hold Bitcoin and have been accumulating it in different sizes for many years. For some people, Bitcoin has become the preponderance of their entire net worth. For others, it's just a small line item, and it just helps them, you know, continue to diversify their broader asset classes across their portfolio. For those people who have a lot of Bitcoin, where this has become the majority of their net worth, they are looking for ways to make that Bitcoin productive.

They have a very low cost basis. They don't wanna sell it. The mantra in Bitcoin is never sell, right? You sort of ride those different cycles. And so far, that's proven right. It's become a great store of value for those investors who have been able to hold it over multiple cycles. Uh, it has appreciated far more than virtually every other asset class over longer periods of times. And, and so they don't wanna sell. Then they go, "Okay, what can I do with my Bitcoin? Can I, can I have it produce income for me? Because I need to go and, you know, buy a house, I need to buy a company, I need to pay off my, my debt.

I need to go and-- I wanna diversify and reinvest in other ways." And so if you think about that, you go, "Okay, well, my options are I can sell my Bitcoin, which I don't wanna do, and take the tax hit and not be able to have the beta. I can borrow a-against it, and I can take on debt. And then now I'm facing, you know, some, somewhat of a liability mismatch in doing that." Or... And that's typically common in the private markets, is borrowing against your assets. Or I can, uh, utilize this collateral instrument, this digital collateral instrument, as an investment tool.

I can invest it like money in the same way we do dollars and have it produce additional income for me. Okay? So sell, we don't wanna do. Take on debt, maybe, but I'm not that interested. Have it produce income. Feels like the better alternative. So this is exactly what our fund does. So our fund allows investors to income the Bitcoin. We use the Bitcoin as collateral to run a number of different strategies. So one of those strategies is harvesting options volatility premia. So very simply, uh, you can sell puts and calls with the appropriate delta and, uh, and risk management strategy around that to harvest the premiums, and that generates income or additional yield, and then you can convert that yield back into Bitcoin for them.

Uh, we do that w- on top of Coinbase's now fully integrated Deribit, uh, options exchange. Largest options exchange in the world is integrated into Coinbase, who purchased them. Another one is the basis trade, funding rates. Um, the funding rate trade, which is, uh, very simply again, where you're long spot and you short a future or a perpetual, and so you're capturing a spread. Again, that can-- it's, it's fairly easy to harvest, but you have to have a good risk management strategy to understand the dynamics of perpetuals and spot positions. Now, th-that was the most interesting trade for market neutral funds from twenty twenty-one through twenty twenty-four.

And, you know, the, the range of returns from a funding rate arbitrage trade was roughly net, like four to eight percent, and there were periods of times where it was deeply in the double, uh, you know, the high teens, maybe even low twenties, you know, for multiple weeks and months at a time. So you could capture really phenomenal returns from that funding rate trade. All that funding rate trade is leverage-driven. In a bear market, the leverage leaves the system, and funding rates are no longer that attractive. In a bull market, they're extremely attractive, and so you wanna be effectively a lender of capital in that space of dollars.

And, uh, so we utilize that strategy on Bitcoin as well, and so we can capture a spread on funding rates. We are seeing that come back right now, which is an important bottoming signal, because after ten/ten of last year, you know, twenty-five-plus billion dollars were wiped out across multiple exchanges outside the United States, and there was this, this large swath of, of market makers and small prop shops and others, you know, and retail traders who all got liquidated on their funding rate arbitrage trades because they weren't hedged appropriately and, uh, and because of other dynamics around, you know, things that happened on Binance and, and, uh, other exchanges.

But nonetheless, that wiped out a ton of the leverage. That sent us into the bear market. Uh, it was one of the big catalysts. If you look at the corollary, you can go like, well, you know, FTX, Three Arrows, BlockFi, Celsius were the big catalysts that sent us into the bear market of '22. The funding rate, the leverage wipe-out in October of ten-- October of twenty twenty-five was the big catalyst that sent us into this bear market. And it's exactly what happened, right? As soon as that ten/ten event happened, you know, we went from peak one twenty-six Bitcoin basically straight down from there, and you were clearly in a bear market, and the market of retail investors who were largely burned on meme coins said, "Hey, we're burned on meme coins.

We're also not able to do funding rates. What can we do?" The past six months, the funding rate trade hasn't been great. It's actually been quite negative for a period of time. But we're starting to see that turn positive again, which means the market's recovering. Investors have, um, who have capitulated have largely done so. You've seen the long money, the stronger hands now have been buying Bitcoin at these bottoms. And now you're seeing them add leverage, right? And so that means the funding rates are turning positive. So what happens in the recovery period, which is about two-plus years, is the leverage starts to build, becomes more consistent, it becomes more persistent, and this becomes a great source of persistent alpha in a Bitcoin yield strategy.

So we're very excited to see this return. We wanna give it a few more months to make sure that, uh, the, the final leg of this capitulation trade, maybe if it happens, it happens, and we see where the-- what happens on funding rates, but we think we're on the other side of that. So that's the second piece, options, funding rates. The third piece is around cash and carry, where you can post your Bitcoin as collateral, borrow dollars against it, and reinvest at a higher net interest margin in, you know, credit instruments. And so short duration credit and high yield.

And so we've curated a portfolio allow us to do that as well. And so the combination of all of this gives you a broadly diversified pro-cyclical and counter-cyclical options for kinda capturing yield depending on where the market is, uh, in multiple cycles. And so we're building this to be able to weather multiple storms, uh, whether it's bull market or bear market in the strategy. Thank you for explaining this. And then another yield strategy or credit strategy that you launched, uh, was in April twenty twenty-six. It was-- It's called C-U-S-H-Y, your Coinbase stablecoin credit strategy. Can you unpack that for us?

What is that about? How does it work? And what yields can investors expect from that? I'm glad you asked about the Coinbase stablecoin yield, yield fund. And the acronym, acronym we use is CUSHY on it, um, which the H is for high yield. Now, wh-What, um, what's important to know about this particular strategy is that i-investors across the crypto ecosystem generally want two-- one of two things. One is they want directional risk, and they want the beta, right, of the market. And so the Bitcoin investors we just talked about want Bitcoin's exposure, and they want to generate income on top of their Bitcoin.

That's really hard to do, but we've manufactured a strategy that can do it appropriately. Other investors want dollar-based risk with just credit yield on top of it. There's actually very few investors that we found who want something in the middle. They want, they want either fully market neutral, so no variability in underlying beta, no beta risk, um, but they want the spread returns or they want the beta return. There's very little interest in the multi-strat, kind of like lower vol, trend momentum type of strategies in crypto today. That's a big topic in TradFi, and we think it'll come eventually over in the space, but it's not here yet.

So there's two spectrums. So the credit strategy does the other end, which is, uh, we can take in, uh, stablecoins. So you-- So it's a tokenized fund. We, we worked with Superstate to tokenize the fund shares. It's tokenized on Base, it's tokenized on Solana, it's tokenized on Mainnet. So investors who want the credit strategy on-chain in their wallet can participate in that strategy with the tokenized share class. They can invest with stablecoins, which is really unique because that's not generally the norm for most funds, right? They usually require a bank wire or something. We can do that too, but for crypto-native investors, they can use stablecoins.

The next thing is, what do they get in the strategy? We've designed a portfolio that we call stablecoin yield. So it starts with stablecoins, and then we look for ways to put those stablecoins to work to generate yield. Some of those, some of the yield will come from traditional credit, some of the yield will come from on-chain credit, and so it's a hybrid approach. And, uh, the way we think about this is we're investing at the intersection of stablecoins, tokenization, and credit on-chain. Okay? So we're looking for opportunities that connect or allow us to bridge both of those parallel worlds right now, which they haven't fully intersected.

They're two different parallel worlds. And so by that I mean it's very hard to find high-quality credit on-chain. All of the credit or credit-like exposure on-chain you can call like staking Ethereum, um, you know, or other primitives around staking or liquid staking assets. You can call lending into liquidity pools, uh, can be viewed as a credit instrument. There's a number of products who present a yield component, right, that is derived from basis trading across decentralized permissionless perp markets, right? Um, and then what the result is, is, is a, it looks a little bit like a fixed income product, but they're all floating rate.

Everything in crypto is floating rate. To go off-chain in the TradFi world, uh, the vast majority of credit is fixed rate, and it's a longer-term duration generally. And a lot of it is you can either buy it direct or it's wrapped in funds. And none of those funds really work on-chain. So there's two different, completely different worlds. So you have, you have floating rate, crypto-tied credit on-chain, and then, uh, which is typically very transparent, permissionless, and backed by crypto. Um, and then you have traditional credit, which is secured obligations, asset-backed obligations, and things like that.

So in the fund, we've bridged the gap. So we said, "We're gonna go build a portfolio of separate account exposure, traditional credit instruments, structured credit, CLOs, trade finance, asset-backed securities, accounts receivable," things that give us a high enough yield so that we can beat the DeFi rates and make it interesting for the on-chain investor, but also give us the am- the ability to scale into a fund that could be billions of dollars, right? And so all the assets that we hold are broadly diversified, pooled securities with hundreds of underlying names within each line item in the portfolio.

And so we're eliminating as much idiosyncratic risk as we possibly can. We're investing across multiple sectors and multiple geographies into large portfolios that they themselves allow us to have liquidity on a ninety-day to a hundred and eighty-day basis as well. And then one of the core tenets of this strategy is that we are working with originators who are also pursuing a tokenization pathway. Because the vision that we have is that credit's gonna connect, those two parallel worlds are gonna connect, and we're gonna be able to, in the same way that I might arb a futures versus Bitcoin or a futures or options product versus the equity, I'll be able to arb the tokenized version versus the traditional version.

I'll be able to hold one or the other or both and capture excess return from the on-chain piece of it. And then if I want to, I can go into the traditional version and hold my base, my base position. And so the portfolio today is about eighty percent traditional structured credit off-chain, twenty percent tokenized credit. We are working with partners like Apollo and others who have already tokenized some of their assets or are on the journey of tokenizing their assets. We have other partners in the portfolio who have tokenized their credit assets as well. And so we're making direct investments in their assets, and then if we want to, we can go trade the on-chain element of that.

For the on-chain part, how do you manage and think about the on-chain risk? So there's different elements of it. So you have, you have, um, smart contract risk is one piece. You have leverage or liquidity risk is another piece. You obviously have like look-through or counterparty risk that would look through to the underlying, which, uh, we address as well. And, uh, I would say it's really those three categories of what the on-chain piece of it looks like. The good news is, is that the smart contract risk, most if not all the tokenized credit instruments are done through regulated licensed broker-dealers and transfer agents, and they're issued by asset management firms.

And so they have an obligation in the United States, for example, to keep an off-chain ledger. So, um, we view the on-chain tokenized credit instruments who are issued in the right way under the right jurisdiction to have actually very little on-chain risk, because if something happens to the protocol or the asset, the asset can be reminted. Okay? So that's very easy to do. The second piece is around leverage. Some of the tokenized credit instruments that are on-chain today are being utilized in similar cash-and-carry, like looping leverage type scenarios. But some of them may get a little bit too exposed or have the risk of getting too exposed to multiple different, uh, DeFi venues with other connected exposures to leverage.

And if there's an unwind in one area, there could be an impact to the positions in a particular vault, which then causes forced selling in those instruments. So that's something that we monitor. Well-- And that's what gives us the benefit of choosing to be on-chain or off-chain. If I've underwritten the Structured credit instrument off-chain, and I know what's in the portfolio, and we've underwritten that. We're comfortable with that position. The fact that it's wrapped and on-chain doesn't change the underlying components, right? It changes the market structure around the wrapper. So I'm comfortable with the underlying.

I know what the dynamics of that portfolio look like and underwrite that risk. Now that it's on-chain, I need to look at the, you know, maybe the, the leverage factor that's connected to it. Where does it trade? How many wallets are trading it? How exposed are we to multiple liquidity venues, multiple vaults, and definitely vault infrastructure? Um, and what is the unwind or contagion risk if something happened? And then what kind of forced selling would that cause? And I can make a choice. Do I want to be in the tokenized instrument and participate in that?

Am I getting paid at the right risk-adjusted return for that? Or do I want to just go sit in the traditional off-chain asset and wait, right? And I may choose to just wait for the unwind to happen in the on-chain market and then go in and buy everything at a discount. This is the beauty of, like, the alpha component, which something I think we uniquely can do as a hybrid, traditional, and crypto manager, right, is that we can play both sides of this market structure. And this isn't anything new. It happened in junk bonds. It happened in high-yield bonds.

It happened in traditional credit, right, over, you know, from the '80s onwards, right? This is the same theme played out on new technology primitives with a new market structure. So we view it not too different. Uh, ETFs, very similar conversation, right? The early participants were able to arb massive, massive, uh, uh, gaps between the underlying NAV and the, and the portfolio. Citadel, I think it was Citadel, just posted, like, three billion dollars. Or as it was Millennium. It was Mil- one of the Millennium pods posted, like, a three billion dollar payout just on arbing the index rebalancing of public market equities, right?

One of the most basic things, right, and the deepest liquid markets in the world, and they're making billions of dollars from arbing this thing. So we expect that to be true in tokenized credit and are more positioning ourselves to be able to participate there. So let's take a step back, and we already talked about the market structure, and now I wanna zoom in now on on-chain asset management in general. You talked about where we're at in the market. You talked about the, the different, different areas we're looking at. When you look at on-chain asset management, where are we at with on-chain asset management, and where are we going to be in the next two to three years?

I think you hear calls of embedded finance today where people are-- we're trying to, like, you know, let's redesign. Is a curator an asset manager? Is a protocol fully decentralized and non-custodial? Is embedded finance just this thin technology? And the market doesn't have a decision yet, right? Um, you can wrap it all in on-chain asset management, and I think that's the, probably the appropriate wrapper at the end of this, this journey. We're not gonna get there on day one. I think we're at the, we're at the beginning of holistically defining what bringing things that we do well in TradFi and have clear guardrails on, on tech, right?

So am I a fiduciary? Am I taking discretion or not taking discretion, right? Do I have the duty of prudence and care to make sure that, you know, our customers are being taken care of and we're investing in the right way for their assets? Um, or do I not? And there's a lot of redesign around the edges in crypto that, you know, maybe rightly is doing it in the appropriate way in terms of the law, right? But I think what happens with this blo- with tokenization of blockchain technology, it's changing the fabric of the legal architecture and the technology in real time and forcing us to reconsider legal architecture in the same way that we, we already went through this, and now we have CLARITY Act, which is gonna help us codify it, uh, which is, is a crypto token a security or not?

That was the big debate over the last four years. And we've come to a point where we have our regulators who've said, like, "We agree. We're gonna figure this out. We have-- I think we have a good pathway for whether something's a security or not." The next cycle is gonna be defined by on-chain asset management and what does it mean to be a fiduciary for your customers on-chain. How do you utilize this technology to deliver discretionary solutions to them in a risk-managed way with the right amount of disclosures and care? And I think that's the first question you have to ask is, can you do this work as a regulated investment advisor?

I think what you're gonna see over the next few months is a continuation of large asset managers who are gonna be entering the space of on-chain asset management. Okay? What does that mean? That means these are regulated institutions with the right compliance infrastructure, the right licenses, uh, and the right teams to be able to manage a risk, right, and are gonna enter the space, and they're gonna try to bring with them the process and procedures of regulated asset management into an on-chain asset management ecosystem. And there's gonna be a ton of noise, and there's gonna be a ton of thrash, and you're gonna see a crypto versus TradFi conversation probably reemerge in, in this, in that space.

And we're gonna get back into the, "Hey, you know, don't touch my keys, don't touch my coins," conversation versus, "Hey, if you want me to serve you and help you with risk management, I need to be able to handle some of these assets on your behalf. I need to have some kind of discretion." So I think that's, like, the qualitative version of the world that, that we're coming into, uh, which is super exciting. We're very well positioned to have the conversation. We're very well, well-versed but also technically, um, ready for it. On the second side, the market structure I don't think is a hundred percent there.

So, you know, why do I say that? If you think about the way vaults work today is one side you have a lending community who are lending dollars looking for yield, and that's a very retail-focused, permissionless, uh, you can-- you're holding a stablecoin. You can park your dollars in the vault. Uh, there's no guarantees that you're gonna get, you know, anything back, right? So you're taking on, you know, technical risk and other things. It seems like the market's very okay with that right now. How those dollars are allocated into a lending against what, you know, type of scenario, and they're lending against another vault, which is then collateralized.

So one, everything's over-collateralized, which is phenomenal, right? That's a very healthy market structure to be over-collateralized. But they're lending against collateral that's predefined and selected by a series of smart contract decisions and a portfolio allocation, which is written by a team of engineers. And so therein lies the question, right? Can we justifiably say that that is not a discretionary activity, or is it more of, like, giving advice and is kind of more user beware, you know, type of activity? We don't have the answer to it yet. And I think, uh, with Hester Peirce's recent comments on vaults, they didn't say anything, uh, definitive.

They just said, "We're looking at this space. We wanna have dialogue with you," which is a wonderful thing because we did not get that kind of treatment back in the Gensler era. So we're applauding Hester's comments on opening the door for conversation because it's one that has to be had. The vault architecture, the vault technology is massive, massive improvements, orders of magnitude improvements over traditional fund architecture. Traditional fund admins are extremely slow and challenging to work with in a world where peop- where the markets move twenty-four seven, three sixty-five now. Traditional markets are moving twenty-four seven, three sixty-five.

Everyone recognizes in the asset management community, from BlackRock down, that we need vault infrastructure. It has to be a part of the core investment management landscape. How do we get there? That's the key question. And today it's kind of fraught with, you know, you know, very crypto native players and others who are in the space. A lot of TradFi institutions are gonna wanna come in the space, have already announced integrations. JPMorgan announced their own vault on Conexus. I think they rebranded back to Connexus. Bitwise is in the game, right? Recently, Grayscale made an announcement of on-chain asset management, and you're gonna see Fidelity and everyone else try to enter the space in their own way.

There's a lot of exploration too, of is the right model an on-chain DeFi vault integration, or is the right model integrate vaults into your existing technology architecture as a regulated institution and managing distribution through that. Which, you know, if you think about like Coinbase, for example, they handle crypto, they handle custody, they handle wallets, they can handle vaults, right? It d- they don't have to go on-chain into DeFi to use the token standards. And ultimately, when you drill down into what is a vault, it's a series of token standards that are put together, right? New token standards that are, that are built.

Centrifuge, I think, has been one of the pioneers in launching a number of token standards. four six two six, I think it's seventy-seven forty-four, right? And, um, they have a new one. And each one kinda compounds on the other, allowing you to build more of that fund architecture. You know, real-time pricing, NAV attribution, things that we've kind of ma-manually replicated in TradFi are now done via smart contracts. So there's a lot to unpack there. I think it's a super interesting space. It's gonna be a really important space for us to have a public square conversation about, because ultimately, we do wanna get to the right place of trying to maintain the spirit of decentralized market structure, but also bring in the right, you know, the right way to serve customers, uh, with the most protection there.

I know that Hester Peirce is definitely very, uh, receptive and is looking for a conversation. We had her on the show a couple of months ago, and she's trying to do the best for the space. She's unfortunately not i-in, uh, office anymore for a long time. I think her term is gonna end by the end of the year. But if you could voice a, a wish or a recommendation or an opinion of how legislators and regulators need to think about, what would that be? How would you like that this will be laid out? I don't think I'm gonna be able to give any definitive answer on what it is, because the technology continues to change and adapt.

I think there's a version of the world where, as a regulator, you're gonna go like, "We already have a disclosure regime. We already have a, a regime that allows for investment advisory services to be delivered." And those, those principles-based regimes don't require any technology, right? You know, but they do require you to follow your fiduciary duty. So, so crafting the principles-based and maybe updating it in a way that allows for, like, what kind of technology can we use, can't we use, is important. It also takes some of the Clarity Act language in as well, because defining what's a security, not a security, if you need a QC, do you not need a QC, is a big piece of this, right?

'Cause today, as an advisor, technically speaking, you need to-- your customer's assets need to be kept in a QC if they are securities, right? So what happens in the world of tokenized securities, right, when they move on-chain, are held in permissionless vaults or in people's wallets, right? So there's a whole lot of dialogue that has to take place in terms of thinking and think through this. And then I wouldn't give any definitive kind of response other than to say, like, you know, this is a conversation that needs to be had industry-wide, right? This is one of those, those big topics that take a very long time to play out.

You know, we're still dealing with Dodd-Frank from two thousand and nine integrations, right? Not everyone is there yet, right? So just because they pass legislation doesn't mean that it's like day one, everything clicks. Clarity Act goes live, it's gonna take a very long time for firms to decide if they're gonna issue a tokenized equity versus a traditional equity. Do they wanna do equity and tokens as a, as a commodity or not? How do they wanna raise money? Do they wanna do it on-chain capital markets or traditional capital markets? There's so much to be unpacked there.

So I guess message would just be, I'm glad that there's dialogue, and I'm glad we're having the dialogue. Uh, we wanna keep it going. Anthony, we're almost at the end of the show. Last question. You've been in crypto for a while, and you've been at BlackRock for a decade before you joined crypto. When did you realize that Bitcoin and crypto is a real asset class? When I was at BlackRock, we would-- we're investing across asset classes: equities, fixed income, alternatives, private markets, hedge, right? And you can break everything down into active and passive, and you have sector-based attribution.

You've got risk factor, you know, portfolio strategies. And ultimately, one of the things that, uh, became clear to me over time was none of the institutional investors really held cash. Your-- The name of the game is don't hold cash, minimize cash. If you ever have cash, it's a bad thing, 'cause you need to be investing in risk assets, and that's why asset managers are paid. They're not paid to sit in cash. Keep your investors invested, and the, uh, pension, for example, it also optimizes to keep as little cash as possible so that they're always invested.

Why? Why is that? The reason is because they have to beat inflation, they have to beat monetary supply growth, and they have to beat their liabilities, right? So over time, if you can beat inflation and you can beat money supply growth, and you can offset your liabilities and make a little bit of extra, then you're gonna have more money over time, and you compound that strategy for decades and decades and decades, sometimes hundreds of years for, you know, multi-generational institutions. Now, what happens in a world where money supply growth continues to outpace the actual return on markets, right?

And for firms and for institutions who were very long fixed income, who underperformed dramatically, and then they saw massive pension liabilities grow in the same way the federal government sees massive liabilities grow for spending too much money. What happens? Eventually, they go bankrupt, or they need a bailout from the PBGC or something, right? Why can't they beat the return of the market, right? Why can't they beat their liabilities? And so the name of the game is always like rotate asset classes, try to invest in the best ones, but do it within a risk-managed asset allocation policy that a consultant set, and everyone works together to try to come up with an idea.

But then the vast majority don't beat the market, and they don't offset their liabilities, and they typically are underfunded v- in different periods. So I think ten years at BlackRock really proved to me that even at the highest level of global institutional finance down to retail investors yourself, or if you're managing your own money, the number one thing is can you beat monetary debasement, and can you pay off your liabilities, right? And so then the question becomes, how do I do that? What assets will do that for me? And equities have done probably the best job, right?

Passive, cap-weighted index equities have done the best job over time. There was a period where private equity and venture was seen as the best alternative, where you're taking on all that lockup risk and, and duration. I think what we've seen recently is that particular space of venture and private equity is probably oversaturated and probably gonna have, like, a, maybe a decade or two of, like, less than good performance, but that's TBC. Now Bitcoin comes in, and it is the only asset other than gold that purports to have Fixed supply, global access, and offset monetary debasement, and has proven now to have a better return than the equity markets and, and other asset classes.

So Bitcoin back in twenty fifteen, sixteen, for me, that was kind of the idea, was, "Okay, I get it. I understand what people are trying to do. I understand what Bitcoin is espousing or what the market thinks Bitcoin can do. Let's see if it can do it," right? And so it's really been now a ten, twelve-year journey of, of participating in that exploration, right? Is Bitcoin actually going to do the job better than traditional assets and traditional portfolio theory says other asset classes can do? That's why I came to Coinbase in twenty twenty-one, and I'm like, "I think pensions should hold Bitcoin on their balance sheet.

I think it would be a really helpful diversifier. I also think it will probably help them accomplish what they're trying to do with other asset classes that are unable to do over time, and, and we wanna have that conversation." And so since then, we've done this with pensions, endowments, family offices, institutional investors all around the world. Last year, I moved out of the, the institutional business to run the asset manager. We're having the same conversation. Can we get institutions invested into the theme of Bitcoin directly and allow them to participate in that outcome? And/or can we help them invest in this, um, immensely disruptive market structure development that's happening across DeFi and on-chain markets and stablecoins and vaults and tokenization?

Because that's exactly what it is. It's market structure disruption. There's a lot of money to make in that space. There's a lot of alpha to generate in that space. That's always been true when technology comes in and transforms things, like you can either participate and make a lot of money in that space, or you can sit on the sidelines and wait for it and then participate later on. So we're, we're early in that space. That's a great ending. I think we'll be much closer to that reality in the next cycle. Some of this already happened this cycle.

Super interesting, Anthony. Before we stop, a, a short lightning round. Those are short questions and short answers. The first one is, is this a good time to enter crypto? Uh, it's a great time to buy Bitcoin. This is not financial advice, but it's a great time to buy Bitcoin. And I think you need to be selective about altcoins because, uh, the major's probably a good time to, to make a smaller allocation. But there's still a lot to be seen in terms of, like, which networks are gonna win, which networks are gonna accrue value, how the tokens really are gonna respond post-CLARITY Act, I think is an important thing to watch.

The thing you're most excited about for twenty twenty-seven. On-chain asset management is by far the thing I'm most excited about. I think it's gonna be a big topic. Uh, the bigger story in twenty twenty-seven, tokenized treasuries or stablecoin credit? Stablecoin credit. The most underrated narrative in crypto right now. I don't know if it's underrated narrative, but privacy is a really important topic, and, you know, most institutions are still like, "I don't want the market to see my movements. I don't want the market to ping my wallets," et cetera. I think privacy is still vastly underappreciated and under-focused on, so I'm gonna go with privacy.

Yeah, and I think, uh, Jamal Poleapotia, uh, published a study a few weeks ago, uh, which was very interesting on privacy coins, which basically outperformed the whole market in, in the last one or two years. I don't know if the right way to approach it is privacy coins per se or if it's just architecture that needs to be built in. So that's, that's a debate we should have too is like, is it, is it investing in the theme of privacy is one thing and taking on market risk versus just having privacy is another thing. Then one thing CBAM, Coinbase Asset Management, does really well.

I think if you look at our team, it's really bringing the institutional mindset to clients and helping them be thoughtful about what they're investing in, why they're investing, what the risks are. So we're-we take a lot of great care in making sure that our investors have, you know, full transparency into the strategies and how we deploy capital. And last one, a book or idea from outside of finance that shaped you. So outside of finance, okay, Will Durant, The Age of Faith. He's a wonderful historian. I have, I have some of his original copies from nineteen fifty-six, and he writes-- I mean, these are, these are two thousand book, two-thousand-page books, and they go down through the Babylonian Empire, early, early BC.

It goes through civilizations, and it compares, you know, the rise of each civilization and also looks at how faith interplays with those civilizations. Um, but it's a wonderful account of history. Amazing. Thank you, Anthony, for coming to the show. This was great. Uh, where can people learn more about you, about Coinbase Asset Management? Sure. Find me on Twitter, @smartestbeta, and you can also email me at anthony.vasili@coinbase.com. Thank you, and all the best. Thanks, Marc. Good to see you. You obviously like this video enough that you got to the end. Listen, do me a favor. Hit that like and subscribe button because I think you'll like it.

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