WisdomTree’s Head of Digital Assets: Building the Future of Finance

All right, joining me is Will Peck, Head of Digital Assets at WisdomTree, who of course is a leading ETF issuer. So they currently have over 80 billion in ETF assets here in the US, they're over $110 billion in firm assets overall. They're also a publicly traded company, which some people may not be aware of. But they're now making a significant push into digital assets, which of course is what we'll be focusing on. Will, it is so great to reconnect. Thank you for joining me.

Yeah, thanks a lot for having me, Nate. So, you know, it is interesting because WisdomTree is a traditional asset manager in the sense that you do offer a full suite of ETFs, including a spot Bitcoin ETF, by the way. But I would say you're quickly becoming untraditional or let's say innovative, and that the firm is making a huge push into digital assets, which not a lot of traditional asset managers are doing to the extent that you are right now. And obviously, we're going to talk about WisdomTree Prime and WisdomTree Connect, which are your two big initiatives in the digital asset space right now. But can you talk a little bit about this concerted effort around digital assets overall? Like, why is this important to WisdomTree?

Yeah, definitely. So, I think it's helpful just to kind of go a little bit of the background on WisdomTree, which some of your listeners are probably aware of. But you know, WisdomTree, we consider ourselves, I think, still the world's largest independent ETF sponsor, one of the original, maybe the original indie ETF shop, right? So WisdomTree launched its first ETFs 20 years ago on the New York Stock Exchange, launched a number of ETFs on the same day. The idea behind the firm at the time was really trying to build both a better index, so fundamentally weighted index and we call it Modern Alpha, term something people might be familiar with, but also in the better structure being ETFs. So our founder, CEO still in position, Jonathan Steinberg, did a story on ETFs when he was running a media company, which is effectively, he did the story and he saw, 'Wow, this is a better structure than mutual funds, right? More tax efficient, more liquid, more transparent, better standardization than what you see with the mutual fund industry.' It's kind of crazy to think about at the time, but you kind of need to open up new paperwork with a new issuer every time you wanted to account, and this idea of having a brokerage account that could hold everything was like this foreign concept to a lot of people. So WisdomTree launched with this idea, better indexes and a better structure, and ETFs are better than mutual funds, and that's been completely borne out over time, right? I think today, you know, north of, I don't know where the numbers are today, 10, 12 trillion dollars globally, something like that in the ETF structure, taken in the vast majority of inflows over the past 20 years compared to mutual funds. So that vision of this structure being better and assets and customer demand will move to the structure over time was foundational to WisdomTree. So about five years ago, Jonathan, you know, asked me, my role at the time was Head of Strategy, doing corporate development, general strategy stuff, the question of what could do to ETFs what ETFs did to mutual funds? What could be this next evolution in the wrapper? And pretty quickly, we came to think of it as being something related to blockchain, right? Like this idea of tokenized real world assets, tokenized securities, they just traded differently than you'd see traditional assets trade. You know, peer-to-peer kind of exchange of value, it was just a new way of thinking about financial services in capital markets. And so we asked ourselves that question, we gained conviction in it, and decided to kind of create and develop a strategy around pursuing this opportunity.

It's so interesting with that backstory because I remember your CEO, who you mentioned, Jonathan Steinberg, this was probably a couple of years back, but he made some comments where he said that essentially ETFs are almost 30 years old right now, but the next 30 years you're going to be talking about regulated tokens, and he said that's going to prove to be the new wrapper. I remember he also said that something like over the next five years, WisdomTree would be recognized as a DeFi business that has an ETF business. You know, those are pretty strong comments coming from an issuer, an ETF issuer in WisdomTree that has had so much success in the space. So those always just stuck with me, and I think to what you just described, it really shows the vision of innovation, embracing the next generation wrapper or whatever that may be moving forward. I guess on that note, let's talk WisdomTree Prime, which, full disclosure, I have an account there, I put a little money to work last year around the launch. I just wanted to become familiar with it. But the way I would describe this is that it's a personal finance app where you do offer access to digital assets such as Bitcoin and Ethereum, you also have a token which is interesting, and then a full lineup of digital funds that are available there. So just explain what you're building with this.

Yes, so when we started this journey, we thought, 'All right, we want to be a leader in this next wrapper, and how do we actually bring utility around it? What's good for our business and what's good for the customer?' So for us, that was two platforms: one retail facing, WisdomTree Prime, another, WisdomTree Connect, that faces off with kind of people who have got their own wallet infrastructure, let's kind of describe it as that. So WisdomTree Prime, right, is exactly right. It's a safe, spend, invest app. Feels like any other kind of neobank, neobroker app on your phone, with all the assets tokenized as the underlying assets of this platform, right? So when you fund your account, you're sitting then in a tokenized dollar instrument, a stablecoin effectively. Then you can buy gold, Bitcoin, Ether, or a suite of digital funds that we have. And these are all 1940 Act registered mutual funds with a tokenized share record, right? So like everything that you hold in WisdomTree Prime is a blockchain-based asset held in a wallet that you have there. We think that over time this has lots of utility. At the start, especially for the crypto native community of people who would want to stay on chain but would prefer to diversify into other assets beyond what are available to them today. Also adding additional services on top of that like payments. So one of the things we recently announced was the ability to effectively spend from your money market fund on your debit card. So you don't need to go and do two separate transactions. You can keep all of your liquidity in a money market fund earning, you know, near 5% today, right? And then just swipe that card directly and spend directly from that. And that is kind of unlocked by this modern infrastructure that we've built this on. Some things blockchain, but other things just being a bit more nimble and using the latest infrastructure and being willing to do that to enable that product feature. So that's what WisdomTree Prime is today. Where we see it going over time is getting much more, and we don't have these features yet, to be clear, but adding more features around stablecoin on-ramps and off-ramps. I was listening to some of your past interviews talking about stablecoins being the killer app of crypto. I completely believe that. I think it remains the most undertalked about story in finance broadly. There's this giant growing stablecoin market that's kind of in some ways separate from the crypto asset prices, right? Like there's people trying to find real utility of having these dollar instruments on chain. And we want to integrate with these different stablecoins, allow people to fund their accounts with stablecoins, being able to send value out with stablecoins, and that kind of connectivity with a broader ecosystem is something we think will be really important for WisdomTree Prime going forward.

Okay, so there are a couple of comments you made there that I want to unpack a bit further. First, I'd love to have you, when we say 'digital fund,' and by the way, I'm looking at the lineup here right now. There's a WisdomTree 500 Digital Fund, there's a WisdomTree Technology and Innovation 100 Digital Fund, there's TIPS, short-term treasuries. It's a pretty robust lineup even at this point. But my question is, when we say digital fund, can you explain exactly what that means to somebody who's not familiar with this?

Yeah, and frankly, not a lot of people are. It's kind of a term that we invented, 'digital fund.' I mean, other people call these tokenized funds. There are a few that exist in the kind of US 1940 Act structure, you know, registered funds that are sold by prospectus in the US. There are some that are existing offshore, right? But effectively, the idea is you've got a mutual fund with a share record, right? That's being able to be held in a wallet on chain, right? So there's a token that represents that share record. And so you hold that token in your wallet that represents your underlying interest in the fund. So it can be any fund. I mean, one of the common examples, right? You think if we talk about stablecoins, maybe the next evolution of that being money market funds, right? Where you've got a dollar-denominated instrument that's actually paying a yield consistent with money market funds, and you're able to hold the token in a wallet on chain. The key difference versus what you think about it in crypto, right, as I think about it, is these are registered instruments. So they're not like bare assets like USDC or Bitcoin today, where there's no central register of who owns all the Bitcoin in the world, right? It's just kind of maintained on chain. You get somebody's Bitcoin out of that wallet, you are now the owner of that Bitcoin, right? That's different from how the securities industry works, which is where they're registered instruments, where there is some sort of central source for the underlying transaction and holders data of who has that. So that's what we've done. We've got a transfer agent that serves that function here, so they keep the record kind of consistent between what's on chain and what they're monitoring off chain of who owns what of the funds.

And so what do you view as the benefits of that? Because some people will say 'Who cares? What difference does it make if shares are recorded on the blockchain?' And so I'm curious how you would respond to that. Is that just a first step down the path towards a longer-term vision you were alluding to before, or are there some immediate benefits here today?

There are immediate benefits along the way to this broader set of benefits that I talked about. I like to focus on three things: liquidity, transparency, and standardization. And these sound very consistent with what you see with ETFs, so we were intentional about these three words. But liquidity, so to be fair, right now these are settling on like an end-of-day forward price basis like mutual funds. But as you see with crypto, there's lots of abilities for much more customizable liquidity profiles of assets where you can trade not just 9-to-5 stock market hours, you know, 9 to 4:30, but like 24/7, 365, instant, atomic basis, right? So that kind of potential with this technology we see as kind of evolving the potential with the technologies there. Transparency, you know, one of the things that we focus on with ETFs is the transparency of the underlying holdings, of knowing what you own, right? As opposed to mutual funds that might disclose it on a quarterly basis, what have you. So I see a similar trend here. The last point that I want to touch on is this idea of standardization, so that you can hold any asset anywhere in the world, not just in a broker account, but just if you have an ERC-20 compatible wallet on your phone and that sort of idea, is like very powerful over time. Where you're seeing this today, so the other platform I referenced was WisdomTree Connect. That has the ability for a customer to sign up, institutional customer, but point still stands, sign up. We give them a effectively managed on-chain identity for them in a way that allows them to transfer WisdomTree funds to other wallet holders, right? So that you can have true kind of peer-to-peer transfer of value in a way that's just not possible with existing systems. So that sort of peer-to-peer functionality is kind of the step function change in what exists today, which unlocks a lot of those benefits going forward that I described.

By the way, with the shares being recorded on the blockchain, the underlying blockchains you're using right now are Stellar and Ethereum. Is that correct?

That's correct.

Okay. And you know, I think bringing it to a tangible real-world use case, you mentioned this before, but WisdomTree recently announced that users can select this government money market digital fund as a spending source for their WisdomTree Prime Visa debit card. And what I think is interesting about this, and you hit on it, but I think it's important, is that if you had money sitting in a checking account so it would be available for your debit card, traditionally you're not going to get paid any yield on that cash, right? Whereas with the WisdomTree Prime and this digital money market fund, you can earn the current yield. Last I checked, that was something around four and a half, 4.6%. So you know, that money sitting there waiting to be used, but you actually have a benefit to it. I don't know if you want to comment any further, but I think that's a good example of a real-world tangible benefit.

Oh, absolutely. I mean, I see kind of a convergence between the payments technology stack, right, and the investments technology stack with this technology, right? And this is a perfect example of that convergence. Where you know, this type of feature was available to frankly wealthy people in the past, right? Like that's the original idea of the Merrill CMA, I believe it's what you call it, where people writing checks from their money market accounts, right? But not nearly something that was available just to day-to-day retail users. Because, frankly, a lot of financial firms like to collect the net interest margin on the cash balances, right? They don't want people moving their money to money market funds and holding their liquidity there. But I think with this modern technology, you're able to do use cases like that that really demonstrate, hopefully, real-world value for people.

And just echoing that point on peer-to-peer transfer of value, right? I think we're seeing that with crypto at large. Even if you look at things like Venmo moving towards crypto or PayPal, like that peer-to-peer transfer of value is extremely important and doesn't just need to be restricted to a US dollar instrument, right? It can be had with money market funds or other types of funds that can only be available in this way. You mentioned the WisdomTree Connect platform. I'd love to have you just expand on that a little bit further. So this is built to seamlessly connect tradfi with DeFi, right? You're integrating real-world assets with on-chain delivery methods. Just talk a little bit more about the future vision for that platform.

Yeah, I mean, right now we've got one fund available. It's the WisdomTree Government Money Market Fund, government money market digital fund, that's available through that platform today. You're seeing a lot of tokenized money market funds in the market. Clearly, there's a demand from firms that exist, you know, on chain, right? Whether they are foundations or crypto businesses or whoever, who want to remain on chain. They transact in stablecoins and they'd prefer to get into yielding or other diversifying instruments beyond just stablecoins or other crypto assets, right? And so the ability with WisdomTree Connect that we have to onboard a new business and then allow them to place orders with us for the money market fund, settle those orders effectively with a stablecoin. So we've got a stablecoin conversion service by which they can place the order, the value they send into us as USDC, and then they'll get back money market fund shares in token format, right? Kind of a very seamless way for them to exchange USDC into an instrument like this that is yield-bearing, that has all the protections that you'd get from the 1940 Act funds. And we think that's a great use case, and we're seeing a lot of demand for that from these crypto-native businesses out there. I think that's only going to expand beyond money market funds. As rates drop, which they're going to drop, you're going to see people wanting to get out into further duration, right? They might want to take equity risk. There's no reason this just needs to stop, right? If you're doing treasury or other portfolio management on chain, and that's a need that we feel like we're uniquely positioned to meet. And that's going to both drive further utility for these people and also hopefully bring more and more people and businesses on chain in this way.

Will, what inning are we in with all of this? You know, it's funny because we talked about this at the outset of the conversation, just the vision that WisdomTree has had of innovating within different wrappers. I'm on record saying, and you know I'm a big ETF guy, but I'm on record saying we're heading towards full tokenization. It's going to happen. It's not a matter of if, it's just when that happens. But where are we right now? Are we like top of the first inning with all of this, or do you think we're a little bit further along?

I think maybe the second inning. I think we've actually started to see these product-market fit use cases right for serving the on-chain community, which is a both retail and institutional. It's a big today and growing community of people, right? There's tons of surveys out there of Americans who hold crypto and want to do more in crypto, truly believe in it. So that's a growing community as it is. And this is real utility for that community. I think it's the second inning. It's funny, called the first inning was when I had this title for maybe three, four years now. When I first had this title, there was nobody. People were like, 'You're doing what? You're not just like trading dog coins? I don't understand what you're doing.' And frankly, every asset manager and big bank now has similar titled people at their firms, right? So it's definitely the second inning. You know, early in the ball game, but people are coming to this and it's not such a foreign concept to people.

And it is interesting. I have noted that you've been a big bull on this. A lot of ETF people, I think, are open-minded about the way that technology can change wrappers, can change the way it's always been done does not need to be the way it's always going to be in the future. So I've noted that some of the biggest bulls on this space have been people who were early believers in ETFs, right? And not to say that ETFs are going anywhere anytime soon, and maybe the way that tokenization evolves is with a different client segment or solving different use cases than what we see with ETFs today. And that's great. It doesn't need to be like a one-to-one shift necessarily. But you are starting to see that trend of growth towards that. And we'll see how businesses and platforms and people move on chain over time and then really want to use assets like these. I think that's all perfectly said. And you know, going back to mutual funds and being early into ETFs, seeing the disruption of mutual funds that was caused by ETFs, I think it's difficult if you go through something like that to assume that same thing can happen to the wrapper of today, which is ETFs. And I agree that ETFs aren't going anywhere. Of course, I mean, they're going to have a long runway, there's going to be a long life cycle. But to think we're never going to come up with a better wrapper than an ETF, I think, how could you say that after seeing what we saw ETFs do to mutual funds? It's really that simple. I don't think it's more complex than that. Will, just a few minutes left here. I'd love to have you talk about this proposal I saw for the Spark Tokenization Grand Prix. What is this?

Yeah, it's kind of exactly the use case I was talking about in terms of institutions. Capital that exists on chain, right? So you've got the Spark Tokenization Grand Prix was kind of essentially an RFP put forward for various tokenized treasury and money market fund issuers from a sub-DAO of the overall parent DAO, Sky, used to be called MakerDAO, right, so community of people, large pool of capital on chain that people have contributed to that they want to invest and diversify away from their current holdings and invest into tokenized treasuries meaning that they want the—they want the treasury exposure or money market funds but they want to hold it on chain with the conveniences and the automation and the other things that they like about that So um we submitted uh proposal along with a number of other firms, you know including some large US asset managers International firms, and it's been great to kind of put your foot out there and say like 'You want the...' and people can look it up, read the whole proposal that we've got or written up to describe our offering there So that's what an example of like a real customer demand for these sorts of tokenized instruments, and it's a lot of people maybe listen to like DAOs like it's just strange but it's just like pools of capital that want to hold these assets in a way that's convenient to them right like that's always been a good deliverable for financial services So yeah it's great to submit for that and hopefully knock on wood we'll get an allocation but we're kind of on the journey in that. What I love about this is something that has been a recurring theme on this podcast thus far, there's a lot of quiet building going on behind the scenes in crypto. That's one of the things I'm trying to highlight because I think the average person, they see all of the media hype around things like meme coins and NFTs and, of course, Bitcoin and Ethereum, and it's not that some of those things aren't important and aren't going to be critical to how this space evolves moving forward, but there's so much quiet building going on to really develop value-driven projects across crypto that I think are important. So I'm glad you touched on that. Will, really enjoyed the conversation. Congratulations to you and your team on everything you're building at WisdomTree. I'm personally very excited to see how this develops with WisdomTree Prime, which again I use already, a great platform. But certainly sounds like we're just getting started, we're in the second inning like you said. So best of luck on that and thank you for joining me.

Thanks a lot, Nate. Thanks for your coverage of the space and I'll talk to you soon.

Hope. Thank you. That was Will Peck, Head of Digital Assets at WisdomTree. Hope everyone enjoyed this episode of Crypto Prime. Please be sure to leave a review or give this episode a like wherever you're listening or watching. I greatly appreciate that and I'll be right back here again next week with another excellent guest. Thank you.

Crypto Prime is hosted by Nate Geraci, President of OTR Media LLC. Nate is also President of the investment advisory firm, The ETF Store. While OTR Media LLC and The ETF Store are related by common ownership, they are separate and distinct entities. And anything discussed on this program should not be construed as an official statement by The ETF Store. This program is for informational purposes only and does not constitute investment advice. Investing in crypto assets involves substantial risk, including the potential loss of principal. Any past performance figures discussed are not necessarily indicative of future results. Visit cryptoprimepodcast.com for more information.