# Crypto Cycles, Institutional DeFi, and RWA Efficiency

**Podcast:** The Milk Road Show
**Published:** 2026-07-20

## Transcript

If you go back to the ICO boom of 2018, people just assumed all these things would happen by 2020 or 2021.
And so we just got over our skis.
But actually, all that stuff will happen by 2028.
We're right on track, actually.
I think people will wake up in 27.
and say holy moly all that stuff that we were talking about in 2017 actually happened and then people will chase it and this is exactly what happens with every technology cycle bitcoin has been chopping sideways at the 64 000 level altcoins are showing strength but stalling out is all of this bullish or bearish for crypto and what's the difference between a missionary and a mercenary in the world of investing hello and welcome to the milk road show the podcast that's here to ask the important questions like if the clarity act passes do we hold it in a hot wallet or in cold storage today is day, July 20th.
And today we are joined by Avishal Gard.
Avishal is the co-founder of Electric Capital and the chairman of the Crypto Council.
Avishal was a leader at Facebook and an early investor in Notion, Figma, Bitwise.
I think he was actually the first investor in Bitwise and a lot of other great tech and crypto businesses.
He's going to share a ton of crypto wisdom and alpha with us today.
So if that sounds good to you, make sure you like and subscribe.
Share this episode with somebody who's down bad and needs to be up only.
And as a reminder, our Milkroad Pro analysts have been busy in this.
market we have made 12 trades in the last week yes really if you want to see what all of our analysts are trading join milk road pro today link in the description it's just one dollar to sign up and you can see what's on my watch list for alt season and a lot of other things today's episode is brought to you by securitize the regulated rails for tokenization and bit get stocks 2.0 with real liquidity and real dividends without further ado welcome back to the milk road show abishal how are you sir good good good to see you that was a great intro thank you Thank you.
I'm getting better at these.
I've been getting a lot of practice in.
Abishal, on a recent podcast you did, I saw that you said that there's a huge difference between missionaries and mercenaries in any industry.
And I thought this would be a good place to start the conversation today.
What's the difference between a missionary and a mercenary in crypto?
And how do you tell them apart as an investor?
Well, I think they're no different in crypto versus any other industry.
I mean, ultimately, what that framework is trying to get at is that there are people...
that are doing the thing that they're doing almost irrationally, you know, like even though it's hard, even though the expected value may be low, even though there are other things they could go do in some other industry and that might lead to more short-term profits or even appear to be more net gains.
They're doing the thing because they believe in it for some fundamental reason outside of money.
And that could be personal experience.
You know, they grew up in a high interest rate, high inflation regime in some country.
It could be...
their family was scammed at some point and cryptography solves this.
It could be that they come from some oppressive regime and they think privacy and cryptography are fundamentally important and useful things in the world.
But you need some personal motivation.
And I think the reason that's important is because a lot of things look small in the short term and actually can end up being very, very big.
But the path to getting there is really painful.
It's never straight lines.
It's very rare that you have a thing where it just works on day zero and then you keep going and it works day after day, year after year.
I think people even forget Facebook did a down route.
And so you really have to believe in the thing that you're doing because usually the down route is not going to come when you're worth 15 billion.
Usually that pain comes when you're in the early days.
And so why are you going to keep going when it doesn't make sense to keep going rationally?
Why are you going to keep going when it looks like the thing's going to tie you?
Somebody has to put it on their back and carry it.
And that often happens in Starplan.
Founders know this intuitively.
And we see it all the time.
It's like, you're one of a startup.
It's the intellectual novelty of the thing will carry you.
It's going to be awesome when you build it, you ship it, and the whole world's going to use it.
And that's kind of the mindset that you're in.
And then year two hits and you're like, oh my gosh, this was a terrible idea.
Why did I do this?
This is a career mistake.
Am I going to be employable after this?
I raised this money and now these people are counting on me.
And all that stuff hits in year two and year three.
And so really great startups and really great companies are built in years two and three when it looks like maybe this is a terrible idea or it's not going the way you thought or you raised too much money and you're under this capital overhang and all this kind of stuff.
And somebody's got to carry the thing on their back.
push it through.
And so then the question is, well, why are you going to do that?
Why are you going to deal with all of this pain and incur all this pain for years to make the thing work?
And almost always, it's 100x easier to do that if you believe in the thing for itself's sake and you believe in the thing for more than money.
How do you know that as an investor?
I think you have to sort of talk to people and understand what the motivations are.
That's not to say you need to be like an armchair therapist or anything like that.
It's just like, You know, people who are doing the thing, you can ask why they're doing it.
And a lot of times people have very good answers.
They'll just tell you.
And it's always surprising to me how often people don't even ask a founder, like, why are you even doing this?
They just assume it's to make a ton of money when really actually doing a startup is a terrible expected value.
Like, you shouldn't do it to make money.
It's really startups in some sense are just an act of desperation.
You know, it's just like a desperate person looking at this and being like, why isn't anybody solving this problem?
Like, this is clearly...
an important problem in the world.
And if nobody else is going to do it, I have to go do it.
You can usually suss that out if you just have a conversation with somebody.
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Obviously, this bear market has been brutal for a lot of people in the crypto industry, and many people have either rage quit or pivoted to AI or some other industry.
I'm curious to hear your why as to why you're still here, why are you still a missionary for digital assets?
And instead of following the crowd somewhere else or pivoting to another industry, what's that reason for you?
There are a lot.
I mean, I think for me, the way I sort of came to this space originally was...
was more through the privacy side of things like cryptography, number theory, and privacy.
And, you know, there's sort of, there's like an elegance to that.
It's just like how, you know, I always joke like a long time ago, I used to be good at math.
I'm not good at math anymore.
But, you know, you can talk to like a mathematician and they'll describe a proof as elegant.
And I think there is an elegance to things like number theory and cryptography.
It's really kind of crazy if anybody goes down like, you know, elliptic curve math or anything, you're just like, this is like crazy that this works this way.
And I think there's something elegant and sort of interesting about that.
And I think the idea of privacy and cryptography, I think is also really, really important.
And I think it's, and having worked at some of these big tech companies, we sort of, I think over the last 10 years in particular, but maybe more like 15 years now, I've started to see the erosion of what we would have considered sort of basic rights in a lot of ways, right?
Like I think you sort of have surveillance technology that's watching everything you do and we live in a sort of situation where these corporations have access to everything about us.
And yes, there are certain guardrails, but you know, I think instead of requiring that these companies sort of follow the law and maybe they break the law and the punishments aren't that great, I tend to think that at the infrastructure level, if we can build systems that are much more secure and much more private and then you don't have to rely on human systems.
You don't have to rely on the law to protect you.
It's a much better place to be.
And so what's really amazing to me about the cryptography stuff is that especially in an era of GPUs and AI, like, you know, AI and foundational models are in some sense, like I always describe them as offensive technology.
They're asymmetric offensive technology.
Like now one human or one small group of people, you give them something like mythos level or, you know, GPT 5.6, Sol, or even, you know, QME 3 just came out.
I mean, these are remarkable technologies where one person can do the work of 100 engineers now, right?
It's pretty crazy how asymmetric they are.
And in some sense, the more money you have, the more GPUs you have, the more token access you have, the more power you have now.
And you can see that play out for the next 10 years, right?
You're going to get superhuman intelligence, you know, at some point in the next 10 years, let's say.
And the people who have the most direct access to that and have the most GPUs to run inference on that and control that have asymmetric power.
What's remarkable about cryptography is that it doesn't matter if you have more compute, right?
The math is what protects you.
So you and I get the same digital body armor, basically, that the NSA has or that the US government has or that the Chinese government has or that any oligarch or any dictator has.
Like, you can't buy better math.
And that's like a remarkable thing, actually, and there's something elegant about that.
And so being able to push the frontier of that kind of a technology, I think, is a really useful thing in the world.
It's a counterbalance to all the other stuff that's happening, which is asymmetric offensive software.
So we sort of came at it from that perspective and then got up to speed on all the money aspects of this stuff.
Curtis and I didn't have any sense for economics or monetary policy or how...
you know, stores of value work or any of this kind of stuff or how, you know, the financial systems of the world work.
And over the last several years, we've come up to speed on that.
But I think the idea of being able to reimagine those systems in a permissionless way, in a more private way, a more secure way, especially as a counterbalance to what's happening in the rest of the world, I think is really important.
I want to ask you about this idea as it applies to altcoins.
Anthony Pompliano recently said that crypto outside of Bitcoin is dead and that these projects should be shut down and the talent and resources should be reallocated.
As a leader in this industry, why do you think there's still value in the altcoin space?
And I want to start with the biggest one, which is Ethereum and ETH.
Why is this project still valuable and important, in your opinion?
Yeah, well, I love Pompliano.
I've known him for a long time.
He's also a former Facebook guy, actually.
I think what he's really saying, if I give him the most generous interpretation is most of the other altcoins probably don't deserve to be around.
And I think there's he's probably right about that.
That doesn't mean though that all of them shouldn't be around.
I think there are actually pockets that are really, really interesting.
Whether it's Ethereum or Nier or Venice or Hype, I think there are clear examples of things that are working and are interesting.
On Ethereum specifically, I think actually Ethereum, our perspective on it is it is another store of value coin similar to Bitcoin.
If you look at the properties of the thing as a distributed system that has a base collateral in the form of ETH, it's a resilient network.
It would be very hard for a state to take it down.
It has seizure resistance properties.
If you look at a store of value like gold or Bitcoin.
and you look at the properties of it, it basically checks all the boxes, right?
It's seizure resistant, it's easy to transfer, it's easy to subdivide, it's easy to assess the value of, it's a global liquid market.
And I tend to think that, I think there's this worldview that says that there can only be one store value.
And I tend to take the other side of that, which is I think Bitcoin in some sense is an existence proof that the internet can birth a store value.
You know, the existence proof of Bitcoin means that because there's one doesn't mean there can't be others.
It actually means that there will likely be more than one.
And I think there are many, many cases and examples of this on the internet where actually the first instance of the thing just proves that the market is large.
And actually, you know, I think there are two rules on the internet to think about.
One is generally if 100 million people do a thing, like 2 billion people are going to do the thing.
It doesn't just stop at 100 million people.
It's pretty rare.
So it takes on social networking.
You know, it's like once once there were about 100 million people, you could sort of say, you know what, it's just everything that's going to do this.
The second thing that happens is that as you get to that kind of scale, you tend to get market fragmentation and you get alternative versions of that thing sort of emerging.
And that doesn't mean that they take away from the first one.
They actually tend to be added.
Right.
So Facebook can be successful, but so can Twitter and so can Snap and so can LinkedIn and so can Pinterest and so can TikTok and so can YouTube.
Right.
And so you can actually get multiple flavors of the thing on the Internet.
And it's not exclusive because really the internet is not cannibalizing other things on the internet.
The internet tends to cannibalize things off the internet.
And so I think that the right frame here is Bitcoin is an existence proof.
Ethereum is perhaps the second example of an internet native store value.
And it just has different properties and it's useful in its own way.
And the fact that you can actually build on top of Ethereum, that it's a programmable store value, I think is what's really fascinating.
In theory, Bitcoin is programmable, but...
It wasn't really designed for that.
And in many ways, it's sort of antithetical to the base layer one, being static, like you don't want it to change.
That's sort of actually the superpower of Bitcoin, as you know what you're getting.
And that stability is really important.
But with Ethereum, you have stable coins on it.
And that's where all the stable coin volume is.
And ultimately, if you look at where the global financial system will be built, I think it's going to be built in a sort of non-sovereign space.
It's likely built on top of Ethereum, I think.
parts of it likely built on Solana.
But the Ethereum ecosystem, I think is just a different ecosystem than Bitcoin, but effectively underneath it, ETH.
I want to hear your thoughts on Solana.
I'm glad you mentioned that there because Solana has been, I think, having one of the toughest bear markets of any asset in the crypto majors right now.
There's been a lot of competition from Hyperliquid and other things.
But what's the thesis on Solana for you?
Are you still bullish?
Do you still think that's an interesting project?
And do you still think that has a long-term thesis there?
What was your outlook on Solana?
Yeah.
Well, you know, to be clear, as I always say on all podcasts, it's not financial advice that you shouldn't make.
you know, any sort of investing decisions based on anything I say.
This is, you know, we tend to look at these things more from like a venture lens.
Like, is there value being created here?
And, you know, value capture is a sort of a different dimension than value creation.
And people should do their own research on that.
But, you know, I think Solana is really interesting.
I think people underestimate what they built.
You know, building a high throughput chain with fast settlement that has, you know, an ecosystem around it they're plugged into.
They have stable coins.
They're plugged into every exchange.
They have a robust wallet ecosystem with a good wallet with Phantom.
They have native exchange support.
They have really good people building.
And if you look at the Ellipsis Labs teams that have built, Eugene and Jerry that have built Phoenix Dex and are working on the new Perp Stacks.
They have really good talent.
And I think the space that they can occupy as an ecosystem.
in my opinion, is the sort of retail end user and consumer ecosystem because low cost transactions at the all one and the ability to have all of this sort of ecosystem wired up, I think is really underappreciated.
And that can be valuable even if Solana doesn't become a store of value, that can be quite valuable.
I think if you look at something like Hyperliquid even, just that one application.
for end users to trade generates so much profit that can then be passed back.
And I think there are likely dozens, if not hundreds, of such applications that you could build.
And Solana actually has that.
They have a robust ecosystem that can build these kinds of things.
And a lot of sort of free infrastructure that any of the builders in that ecosystem can get by building on top of this.
which I think is underappreciated in a bear market.
And this always tends to happen, right?
It's like when things are beaten up, they tend to get beaten up unfairly.
And then when they come back, people get sort of unfairly bullish and excited and over their skis a little bit.
And so we're just in that part of the cycle, you know, but like our sort of leading indicators always are there great builders here, like real builders, not, you know, one or two or three people, but both, you know, quality people on scale.
And I think if you go poke around in the salon ecosystem, they have really excellent talent.
And that's always the leading indicator, right?
It's like, is there enough?
excellent talent here to kind of keep things moving i think that's absolutely the case in the ecosystem yeah i think there's a lot of bullish diversions between the fundamentals the talent the value and the sentiment right now so i appreciate that insight um we talked about a couple projects that have had you know a tough time in the bear market there are some digital asset projects that are doing great in this bear market one of them is near um and i believe you were invested in near back in 2018 so you've been on this train for a long time Yeah.
So this has been through a lot of changes as a product, but Near Intense seem to be getting a huge amount of adoption here.
And I wonder if you could share a little bit with our audience about what that product is, why it's in such demand, and why Near is seeing such demand in the bear market right now.
Yeah.
I think Near is actually a great example we're talking about with Solana too.
So for folks that don't know, Ilya...
one of the founders, was one of the authors on the Transformer paper at Google.
The attention is all you need paper that created and ultimately LLMs in modern AI, sort of as we know it.
And his co-founder, Alex, was a very senior at Men's SQL, a high throughput database company.
So like very, very good technical talent on this team.
And the network's been live.
It's a distributed system.
It hasn't had any downtime in five years.
It's a remarkable piece of technical accomplishment and it works.
And, you know, I think they were just way ahead of their time, actually.
They built a lot of really, really good tech.
And I think it took some time for people to kind of get their heads around what the hell this thing is.
And yeah, you're right, they're starting to get some traction now.
I think Near Intense is basically a way to route transactions across chains and do it in a distributed way using solvers instead of like an AMM model.
So you have these sort of pieces of infrastructure, these nodes that are competing for these transactions and sort of the bounties that will come with those.
It could be spreads on a transaction or it could be additional bounties that people pay for solving these things.
And you can make money doing that.
So they built a distributed system that allows computers to go essentially make these trades across chains.
And so maybe you want to swap like...
you know, ZEC for Bitcoin or something, right?
I mean, there's a lot of technology.
I'm glossing over a lot of the tech that they built to make this possible, which is obviously a big, you know, set of accomplishments to be able to do that in a decentralized way and make all that cryptography work.
But that seems to have real traction now, like the sort of numbers actually are looking great for near-intensive.
I think it's partly because you're seeing real things like people actually, you know, there are fundamental reasons they want Bitcoin, there are fundamental reasons they want ETH, there are fundamental reasons they want ZEC.
Hyperliquid is a thing, Solana is a thing.
You have Ecosy, Venice is a thing.
So you have these ecosystems that are real that people actually want to be able to have access to, and this is often the fastest, cheapest, easiest way to get those as a piece of infrastructure.
Zooming out, I think even more broadly, Venice is built on top of the New York ecosystem as well.
In addition to the Intense, there's sort of a confidential compute layer that they built.
which allows code to run and be attested.
And you can say, hey, look, I want this code to run in such a way that I know the type of compute that I'm getting, and you can cryptographically attest to that.
And I have confidence that my data is sitting inside a trusted execution environment and nobody else can access that data while it's in that enclave.
And these kinds of things, for compute reasons, I think are really valuable too.
And so that's why Venice is built on top of NIR.
that infrastructure is quite valuable.
And I think if you start looking at some of these components that they've built, their perspective really is that you want to build these things in an agentic first way.
Like you don't even want to assume that there's a human on the other side.
And there's a lot of little assumptions that they make that make the APIs really easy to use if you just sort of assume a programmatic end user.
And that's, of course, could be a developer or a piece of code, but it could be an agent, right?
And so I think they're just really, really ahead of their time.
And I think as people get their heads around.
what a proper agentic economy looks like.
Something like NEAR starts to be very, very interesting.
They have all the pieces there for that.
And I think they're a couple of years ahead of the curve actually on that.
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I think a lot of the digital asset ecosystem has been a couple of years ahead of the industry, of the curve, of so many things for a long time.
But yeah, I appreciate the perspective because there's just a lot of interesting things being done.
Abishal, I want to spend some time here on institutional DeFi and one of these projects I think you've been working on that I want to get some more information on.
It's called the RE token and RE as a project.
You've described this as a Lloyds of London.
but on chain.
And I thought this was a great description, but I think nobody is going to know what Lloyds of London is, how it works, or what it means to bring it on chain.
And I thought that might be a good place to start here.
What is reinsurance?
What is the retoken?
Just explain this to us and what's going on here.
Yeah.
So, okay.
So I'll walk you through it.
There are actually a lot of pieces to this to understand.
And so hopefully useful for people.
So maybe we can talk about like, what is reinsurance?
You know, what does re do as a company?
How do fintechs work in general and kind of why is there an opportunity on chain with fintechs?
And then we can talk about the Woods of London example.
Starting with what is reinsurance and how do fintechs work?
So reinsurance is just the business of insuring insurance companies, right?
So you're an insurance company, you have some basket of workers' compensation or auto or life insurance, whatever.
And you want to get insurance on your portfolio just in case.
right and and that lets you sort of offload some of the risk in case you have something catastrophic happen some table scenario so actually these things generally if you have certain non-catastrophic kinds of insurance are um generally pretty predictable like the actuarial tables and sort of the law of large numbers you know there's enough data to kind of know how these these books will perform um and so you want to get insurance on this now it's a it's a pretty esoteric thing it's like a it's a it's a huge ecosystem in terms of you know net dollars flowing through reinsurance and insurance companies um but not that many people in the world really understand it um and so the the re-team had previously done an insurance business um they went through y combinator and scaled that up and it was actually quite a good business but they realized that there's this this other business underneath it that was even better which was the reinsurance business right because they had to reinsure their book um and they became experts on that and started this reinsurance company um which uh at its course is um is doing phenomenally.
I think the public numbers they've talked about are about half a billion, about $500 million of written premium.
And it's a very profitable business with a very small team.
And I think we'll continue to do great just as a business.
Now, why is this potentially interesting intersecting with crypto?
Well, if you look at a FinTech, any FinTech, an insurance company, a reinsurance company, a credit card company, a lending company, you can think of it essentially as a They're borrowers and lenders.
You need, as a business, to sit in between these.
You've got to have some pile of money on the capital market side, and there's somebody that needs it.
You, in the middle, as a FinTech, are doing things like underwriting risk.
If you look at the net rate that an end user that's borrowing money or insuring something has to pay, it's basically can be expressed as an interest rate.
You can decompose that interest rate into three components.
The first is the risk-free rate.
right like what is just the base cost of borrowing let's say dollars right and that's really set set the fed set by the market slash the fat right um you don't really have influence over that that's just you just gotta accept that that there's some base right there the second component is the risk part of it right which is who is borrowing money and like in a consumer context people might be familiar with fico people have a fico score in the united states um and it turns out these things are actually pretty good FICO is a pretty good assessment of somebody's risk.
There are other things you can do to layer in there, like income verification on top of that.
But FICO is actually pretty good.
And I think a lot of the mistakes that fintechs have made over the last 10 or 15 years is they went in and said, we are going to innovate on this second component.
We have some data, or we have a better way to underwrite and assess risk, and the market is mispricing this risk.
And by and large, that turned out to not be true.
I guess there are absolutely some cases that you can point to where somebody, appears to be a bad credit risk but turns out they're a good credit risk and you can do the underwriting in a different way um but a lot of those the vast majority of those were actually just a bull market phenomenon like it's just while you're in good times that turns out to be true and as soon as there's a little bump in the road the whole model kind of falls apart because it turns out things like fico are actually pretty good at assessing risk um and so there's not a lot of inefficiency in the second market the third component of your rates the first was the risk-free rate the second is like the risk of the borrower the person that's borrowing money and the third is um your operational efficiency as a business right because you have to have you know you have to pay your bills right and so if you're a really inefficient business that gets passed through to the end customer and net net and a higher rate and so you can be more efficient as a business as a fintech you can just pass that cost to your customers have a lower rate and anybody who knows like you try to get a mortgage like five bips or ten bips you win like if you're if you're like five bips lower on your mortgage like you'll just get all customers because on the internet people just shop around and they'll They'll go to some random bank in South Carolina that they've never heard of because they're getting 5.5% instead of 5.6%.
You can win in a market with 10 BIPS.
And if you look at that third component of operational efficiency, what are the places where there's a ton of overhead in a fintech?
One is, of course, your compliance function.
There's just a lot of overhead in maintaining licenses or make sure the regulators have what they need.
often a very human component to it right there's there's sales people there's like human relationships there's underwriters it's a very manual process sometimes there's even regulatory things that create um operational inefficiencies right like in um in certain kinds of real estate for example you have to have a wet ink signature so like somebody has to show up in an office and like use a pen to sign a thing and then all of a sudden you're like okay well this just creates like two weeks and i have to go somewhere and get it notarized right so there's operational efficiencies cause inefficiencies caused by regulatory um And the third is the capital markets function, right?
There are these businesses like Blackstone, which are phenomenal businesses.
And they pool a bunch of capital from, say, pension funds or sovereigns on one side.
And they aggregate that and have to have a team of people.
And they're doing underwriting and warehousing and securitization and important functions in the capital market.
But then you've got to pay all those people on that team, right?
You've got all these people that are dealing with billions and billions of dollars.
And so they're looking at these large numbers and they're looking at the amount of money that Blackstone is going to make on 1% fees.
And they're like, well, you got to pay me millions of dollars.
If you're going to make billions, I should at least get millions, right?
And then the people on the capital markets function inside the fintech are looking at those people saying like, well, if those guys are making, why would I be on this side of the transaction?
If those guys are making millions of dollars, shouldn't I get millions of dollars?
Because otherwise, I'll just go work at Blackstone.
Like, why would I even work this fintech, right?
So you start playing that out through these intermediaries and you realize the capital markets actually have a lot of inefficiency.
Like there are a lot of middlemen taking a lot of fees.
Okay, so you look at that third bucket inside the fintech of...
of the operational part of running fintech and you realize it's extremely inefficient um these are very very human businesses at scale you look at a bank and you're just like how does a bank have hundreds of thousands of employees at scale this is crazy town right um and and so i think that third bucket is actually where fintechs really can be innovating and the best ones are um and so the whole question is how do you make these things efficient well it turns out if you can build things on smart contracts you know exactly where your money is at all times and so all of a sudden compliance gets way faster and way easier right the regulators can just assess your books pretty quickly and you can run a cryptographic proof that just says here's where the money is um if you have ai workflows using you know pretty simple from from like a technologist perspective pretty simple tooling um off the shelf and have a couple of engineers on staff that understand this stuff you can automate a lot of stuff in these businesses which is really manual and now you need one-fifth as many people if you look at that capital markets function instead of hiring you know people and paying the millions of dollars on both sides of the transaction what if it was just a smart contract And on-chain, stablecoin depositors can just put money into a contract and they're getting their 14% contractually and that money gets off-boarded.
And now you don't have to have somebody taking people to dinner in Manhattan and paying them, paying for all this expensive wine and making a million dollars.
It's just like a billion dollars can show up in a smart contract.
So if you look inside the fintech at the things that a fintech needs to do, it turns out this infrastructure is remarkable.
You can actually have tremendous operational efficiencies.
And then that gets passed as lower rates ultimately out to the end customer.
And so you look at a business like Reed, which is doing all of these things, or a company like Avon, which is a credit card company, which is also in a portfolio, and they're just phenomenal businesses.
Like they're just operating often with, you know, five or 10x fewer people than the incumbents, like literally in order of magnitude efficiency, which gets passed through the customer and profitability of the business.
And so that's how at a high level to think about fintechs, I think, in general.
It's like actually this third bucket is really where a company should be focused.
And I think for anybody who's thinking about doing fintech out there or early stage founders, I think they're going to figure out that people talk a lot about stablecoins right now as a way to do more efficient payments or remittances and all that kind of stuff.
And I think that's true.
But to me, the more interesting piece is stablecoins as a capital market.
Like once you have $5 trillion on chain, all of these dollars are going to be looking for yield.
um and where where do people put those assets right where do where do people want to generate yield on those assets and what kind of financial products we give them which then speaks to the lloyds of london so lloyds is this um insurance company and and what they have is essentially this model underneath it where you have a giant pool of capital you have all these people that that want to come in and um and make yield on their dollars on one side of the market and you have these um risk-seeking entities on the other side and they'll go find pockets of risk and they'll say you know what here's this like weird esoteric thing and i can underwrite and i can create a model around that and they'll come back with a proposal to the capital pool and basically i'm obviously glossing over a lot of important details here right this is high level conceptually what's happening they'll come back to the capital pool and they'll say hey you know we have this really interesting opportunity we're going to underwrite i'm going to pick something like we're going to underwrite the ability for certain countries ships to make it through the straight of formulas right now And I think if we do that, we can make like 24% a year.
I'm just, I'm making, I don't know if they do this.
I'm just making it, but like a random example, right.
But you can imagine, you know, Lloyd's sort of underwrites crazy stuff.
And, and somebody will go figure out that that's an opportunity and then bring it back to the capital pool.
And there is, there might be enough capital in there that they'll actually underwrite that and take that risk and generate a much yield on that.
And that's a really powerful thing, right?
They sort of took the idea of these risk seeking people.
finding these pockets of inefficiencies and pursuing that risk and creating proposals around it with the other side of the market, the capital market sort of bundled it into one entity and then it can make that market happen.
And for anybody who understands DeFi, you're looking at that and you're like, wait, that looks a lot like just on-chain.
Isn't that just capital markets on-chain?
Isn't that just stablecoins and all these DeFi protocols sort of like pitching all the stablecoin people to come in and deposit their stablecoins into their thing because they've created some esoteric thing that might scale and might generate yield.
And that's exactly what it is.
And so what RE is really saying is that's going to happen entirely on-chain, but there are going to be all of these opportunities off-chain.
There are going to be all these places where you want to take those dollars and off-board them and go pursue risk opportunities off-chain.
And that's really the platform that they're building.
RE is the first reinsurance protocol.
It's the first application.
It's a very well understood...
set of numbers and you can underwrite it and see the numbers on it and take those dollars off chain and go do productive things.
But there might be 100 other such applications where somebody who's very credible can create proposals and bring them into this community and offboard these stables.
And you need the infrastructure to do that.
You want to do that in a compliant way.
You want to do that in a way that has the proper disclosures.
You want to do that in a way that people understand what they're getting.
You can enforce that.
And so they built a lot of that infrastructure for themselves.
And I think that that's the promise of what they're building here is you could do this for any number of other things.
And that all of a sudden makes the dollars on chain useful.
And if you're sitting in Nigeria or Vietnam or Indonesia or Brazil, first of all, you would love to have dollars.
Of course, the United States government would love for you to have dollars.
And you're now already doing great relative to your high inflation local currency, which is getting inflated away relative to dollars.
And now you can go to those people and say, hey, would you like to make 12% a year or 14% a year?
And it's not speculative, like, you know, three, three feedback loop kind of stuff.
It's no, no, we're going to take it and do really productive things in the real world with it.
And things like reinsurance are very important parts of the economy that just make the whole, that makes insurance work and insurance makes like people pursue risk.
And so these are really important things.
And we can get you that yield.
And now if you're in Vietnam or Nigeria or Brazil.
You look at that, you're like, man, not only am I making 10% a year in my local currency just by being in dollars.
Holy moly, I can make 12% a year in dollar terms.
I'm crushing.
That may be the best investment that's available to a bunch of these people all over the world.
So we tend to think such a platform that allows these capital markets to coalesce on chain and bring assets off chain is going to be really powerful and really useful in the long term.
Big open questions around how quickly that happens and how many applications can be built securely and how quickly.
there's a lot of complexity there but but at a high level i think that's that's what they're building is and the closest analog i think off chain other than broadly speaking the capital markets is lloyds has already done this and shown that you can do this as a platform obviously that was a long answer but it was full of wisdom and alpha and i would really encourage our audience to kind of deeply understand this like what he's saying is this technology digital assets is able to take businesses that are already proven in the legacy system but that are working at horrible levels of inefficiency make them much more scalable, secure, efficient, then pass those benefits on to the market, to users, to consumers.
This is one of the big reasons why Pomp is wrong when he says that digital assets are dead outside of Bitcoin.
trillions of dollars of valuable and addressable market here.
So I just want our audience to understand that and kind of like put those pieces together there.
Avishal, one thing I saw you say on Twitter about this, and I wanted you to unpack this because you said in your answer that there's a lot of these different applications for this kind of a digital asset solution, but you called this the ETH ICO moment, but for RWAs.
And I wonder if you could expand on what that means and what you're seeing there.
Yeah.
I'm glad you follow me on Twitter.
I pay attention.
That's great.
Good research.
My intention with saying that was I think people look back at that ETH moment and say, oh, wow.
It was possible to do something.
At least I look at it this way.
It was possible to do something natively on the internet.
We crowdsourced the thing and the capital markets kind of worked and we built this thing that was entirely built on the internet.
And people actually used it.
Like people all over the world jumped into this thing and said, yeah, I'll use that thing.
And it basically worked.
And it sort of kicked off ultimately, I think what we now think of as DeFi, it kicked off and enabled Solana and Near.
Like people started to believe that they could actually build these kinds of technologies at the layer one.
And I think we're just starting to see these moments where people are saying, wait a second.
There's a whole set of utility here in the stablecoin markets where you can take the stablecoins and move them back into the real world to do really productive things with them.
It's not that the on-chain stuff just needs to be self-contained and self-referential and you're just going to get these feedback loops where things go parabolic and then they crash.
Actually, this is not different than the rest of the world.
The dollars will need to go where they're most productive and there's actually a bridge that you can build back to the real world.
And I think this is one of the first examples where it's truly, truly, truly useful beyond treasuries.
Like treasuries are sort of this like no brainer.
Okay.
Yeah.
Like I'll go put some money in a treasury and I'll afford the dollars.
I think the additional plumbing that's required to do anything beyond treasuries and deal with the illiquidity, deal with the underwriting, deal with the regulatory complexity, deal with the licensure.
There's like a lot of complexity there to make that work.
And then just abstract all of that away and just say, you know what?
All you have to do is put the money in the smart contract and like, we'll just take care of the rest.
It's almost like this magical black box.
You put the money in, you're locked up.
You have a receipt token.
You can't, you know, we have to have some controls around this, but you're getting your yield and you can be relatively confident that the people that have built this have done this in a compliant way.
It's just sort of the first instance where you're like, wow, this thing actually works.
We talked about it for a long time, but it actually works.
In the same way that people may not remember, but there were a lot of things, Namecoin and Mastercoin, and people tried to do this stuff before ETH on top of Bitcoin as an L1, and it never quite worked.
And then ETH was the first one where it basically worked.
And people were like, oh, you can actually build a layer one separately.
And that sort of created this new Cambrian explosion of innovation and experimentation, which gave us all these other ideas, right?
I kind of look at REE that way, which is like, I think...
people will say wait a second this actually works like you can package all that complexity up and people will actually use it they have you know i think north of 100 million dollars in smart contracts now um and and so i think people look back and say oh that was actually the first case where it worked and now a lot of other founders look at that and like wait a second this kind of works um i should pay attention here um i can actually i can actually off board dollars and do it in a compliant way and use that to to create real yield in the real world um and so to me that's that's it's really the first example like all that complexity actually works now This is a great segue because I wanted to kind of broaden the scope here to institutional DeFi, on-chain finance.
You said recently that you think that we have tipped on this and that you're more excited and bullish on DeFi, on-chain finance than you've been in over a decade.
Was there a specific thing that caused that turning point for you or is it just like we finally got into a version of this that, as you said, works?
What's driving that thesis and this tipping point for you?
It's basically the conversations that I'm having and that our portfolio companies are having with Wall Street.
I've never seen this degree of delta between what the retail markets or what the media thinks is happening.
And when you go talk to people that are actually building and the long term potential users on the institutional side, how big a golf there is right now.
And, you know, I think for.
for anybody who's building in this space and having these conversations.
You know, the scale of institutional capital, wealth management, you know, capital markets, these like really, really, really massive pools of money and institutions and how they're thinking about this infrastructure and how it's actually fundamentally useful to them.
it's just remarkable and and it all works that's the thing right it's not theoretical now it's like you can actually do the thing you can actually move dollars around the world at large scale you can actually tokenize stuff um you can actually act on those tokens and um it's just a massive delta right now between what what sort of the sentiment is as reflected in price or you know retail sentiment or on youtube or whatever versus if you go have these conversations with very large asset managers or very large capital markets, you know, people who sort of play in these markets in Wall Street or London or wherever.
It's just, it's such a big Delta right now.
And those are, you know, it's hard to, it's hard to beyond the, hey, look, Robinhood is, you know, securitizing things, Coinbase is, you know, tokenizing things and has launched an L2 and Coinbase has an L2 and is going to do this and Kraken is playing with, you know, tokenized equities and, you know, hype ecosystem has this.
And you can kind of look at these signals and there's some semblance of like something is happening.
And I understand it's not intended as a criticism of people on the retail side or the media or anything like that.
It's just I think that they are not privy to some of these conversations that are happening.
And for the people who are in the know that see these conversations happening.
It's just, it's like, wow, this is the stuff that people have been talking about for a decade.
People have been talking about, hey, one day the institutions are going to come, and they're actually here now.
It's just people don't realize it yet.
And so when those conversations can happen publicly and people can talk about specific names or specific applications, which I think happens over the next year or two years, it'll happen.
But when it happens, it'll happen really fast.
And when it happens really fast, people will sort of sit up and say, wait a second, how did this happen?
This is always what happens with technology, right?
get over hyped about it and then they're like oh it's going to change the world i mean you've seen this happen with ai people like oh yeah we're gonna have you know superhuman intelligence by 2027 and you're like yeah okay in retrospect maybe that was that was too early right people were making these claims in 2022 it's the same there's this adage i forget who who said it but you know it's basically people overestimate what's possible in two years and dramatically underestimate what's possible in 10 years um and so if you go back to kind of like the ico boom of 2018 People just assumed all these things would happen by 2020 or 2021.
And so we just got over our skis.
But actually all that stuff will happen by 2028.
We're like right on track, actually.
Like I think people will wake up in like 27 and say, holy moly, all of that stuff that we were talking about in 2017 actually happened.
And then people will chase it.
And this is exactly what happens with every technology cycle.
And so we're right on the cusp of that.
So in some sense...
this this ecosystem is no different i think ai is going to go through the same thing i think we're just we're starting to see it happen i think with like the open weight models people are like and how long it's taking to get to agi slash asi and people are like well did we overestimate did we overshoot here and it's because we're kind of like three-ish years after gpt right three or four years and so that's when people start to sort of say like wait a second maybe it's going to take longer than we thought and then maybe there's a little bit of a correction for a while and and and if you're patient then at year 10 when we get to like 2030 1, 32, 33, about 10 years after GPT3 launched, chat GPT launched, people will sit up and say, holy moly, all those things we were talking about 10 years ago actually happened.
And that's, we're just kind of in like year eight now for crypto, right?
So.
I think people will wake up in the next year or so and sort of say, oh, wait a second, all of those things people were talking about 10 years ago actually happened.
Obviously, I have thoroughly enjoyed this conversation.
This has been full of alpha and enthusiasm and just real wisdom and insight.
So thank you so much for being on the Milk Road Show and sharing this with our audience.
Where can we send people to find more of you and your work online?
Oh, just on Twitter.
It's probably the easiest, just out of mutual.
We're also at electriccapital.com if anybody wants to go see there.
We publish stuff on our sub stack every now and then.
Well, there's a lot of topics we didn't get to, so we'll have to have you back on again.
But until next time, Avishal Garg, legendary investor, founder, and digital asset missionary.
Thank you for being on the Milk Road Show.
Good to see you.
And thank you all for joining us.
I hope you all learned something today.
There's a lot of alpha in this one.
I'm going to rewatch this one again and unpack this myself.
But until next time, stay safe, stay educated, stay bullish, and we will see you all on the next episode of the Milk Road Show.
Thanks for being here, everyone.
Bye.
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