Why Bitwise Launched Non-Custodial Vaults | Hunter Horsley

Massive fintech. I just chatted with you yesterday. We've integrated stable coins are on all of their road maps. I think by the end of this year, every fintech and neo bank will have stable coins integrated. As your users have stable coin balances to help them do more with that, I think is going to wind up a part of the solution for every fintech and neo bank. As you can imagine, what they really care about is reliability. So, I think that that will be an important dimension of what we're focused on as well.

I'm incredibly excited about treasury companies this year because some of the honeymoon phase has worn off in tech and startups. Usually the interesting things happen after the honeymoon phase. This year they're all going to experiment with additional ways of creating value and I think by the end of the year they're going to look very different companies which I think is quite exciting.

Great to see you.

Sure. Yeah. There I think there's two lenses on vaults. So first I should say, the announcement that we made this week is that Bitwise provides a whole host of asset management services to help people participate in opportunities. We have ETFs, ETPs in Europe. We stake several billion of assets for clients. We have hedge fund solutions and now we will help investors participate in vaults as a curator to give them confidence in the strategy that they're pursuing to generate yield. So, that's the announcement that we're really excited about. Why does anyone care about vaults? People care about vaults because they're using stable coins. And they're increasingly parking their stable coins different places. And they could very naturally have the thought, which is if my stable coin is just going to sit there, maybe it's earning 0%, maybe it's earning 1.5%. Is there something higher yield I could do with this money I have sitting around. And I think from there you have vaults enter the conversation, which are a way of in some cases earning four, five, 6% yield. And I think will be increasingly popular. I think you'll see them follow the journey of adoption of stable coins. I think stable coins you'll see land somewhere first and I think you'll see vaults pop up second. So I think there'll be a major trend and already last year I think have about doubled in terms of the assets.

I think that the biggest benefactor of vaults will be individuals in the same way that individuals may think about a high yield savings account versus a savings account versus a checking account or they may think about a money market fund versus all those things or a CD. There's a few different instruments available to individuals to earn yield on their dollars and I think it fits into that picture and individuals are a very important audience here. On the institutional side, there's access to a lot of different solutions. I think that the way in which vaults will be powerful for the institutional side is you can really calibrate them to exactly what they want and they really care if you're 100 basis points better on something. So maybe then to zoom out for a second, capital markets are moving onchain and the set of activities happening onchain is growing. In our Q4 crypto market report we have charts and tables with a lot of those developments. Real world assets shooting up to 20 billion in what's tokenized on a blockchain. Stable coins up to 300 billion. Every institution coming on board now. And the rates people are willing to pay to borrow your stable coins onchain may be and currently are different than the rates they pay to borrow dollars from a community bank or borrow elsewhere. So I think for that reason it's also going to become important to institutions because sometimes it may be the best rate and unique risk.

Two things I'd say. One is I think that rightly most people know us for the ETFs and we're very excited to continue to build that suite. Bitwise manages several billion dollars outside of the ETFs and the firm is called Bitwise Asset Management not Bitwise ETFs and that's because the vision and the mission that has been in every internal slide deck for eight years is help investors understand and participate in the opportunities emerging in crypto. So ETFs are an incredibly powerful vector for doing that. And we couldn't be more excited about where that's at. In fact, a major bank approved one of our ETFs again this week. They don't like us to say. So, yeah. I ask every time, but so far the only bank that's ever allowed me to say it was PNC last year. But there are several trillion dollar banks that have approved Bitwise products in the last six months. Anyway, so we're very very excited about that. But the opportunity set in crypto is large and our role is to help an investor who's generally busy, wants to understand and participate in the different opportunities that make sense for them, but needs the confidence that they can do this in a way that's not going to wind up being a nightmare. And so that's Bitwise's role. So that definitely makes sense with gaining exposure through ETFs, putting in portfolios, putting in an IRA. We now have the index fund BITW publicly traded. We launched a gold, silver and Bitcoin product last week that's at almost $100 million this week. Then another element or dimension of the opportunity set for investors is I bought some Ethereum. I bought some Solana. I want to stake that, earn yield. I'm going to hold it. And we stake several billion dollars for clients. We run option strategies to generate yield on Bitcoin for very large Bitcoin holders. We have hedge fund solutions and I can't describe them specifically because they're hedge fund solutions and can't be described to the public so of course they're less well known. And as we've watched vaults emerge since it's a construct invented about two years ago, emerge and then have had conversations with neo banks and fintechs and seen alongside it stable coins continue to ramp you can just hear this very intuitive desire to leverage this new construct to tap into yields or other strategies but keep custody and do it all with a stable coin. But a key component of that is somebody needs to be managing the strategy, managing the risk, have eyes on it. And that's there's 140 people at Bitwise who've been doing that for eight years. So the infrastructure is different. It's not something that you could just do without thinking. We spent the last few months building a team that's managed over two billion dollars of DeFi strategies. Looking at how we could do it out of our regulated entities so that that peace of mind can live with people as well. But from my vantage point is very sort of native to the role that we generally play for clients. And sorry for that very long-winded answer.

Huge credit to Stakehouse and Gauntlet and Centur who are all already in the space and doing amazing things and doing really well and platforms like Morpho and Veta who are building the infrastructure to enable this and early adopters like Coinbase and Kraken. So I think our job at the moment is to bring the Bitwise reliability to the set of options and do the basics. And the basics are, I've got some USDC sitting around. I want to earn a yield on it and I don't want to worry about a black box. I don't want to worry about waking up one day and reading a headline about a crypto firm. I think that will also extend to people wanting to earn yield on other assets. We do have some very large institutional clients who want more complex things to be done. I don't even want to describe what they want us to do because I think the important thing, the most important part of the vault space from my vantage point is simple something that you can take advantage of but is not buying esoteric assets accepting esoteric collateral looping and so on and so forth. Just helping you tap into the yield that's available. I think that one of the most exciting things to me is this week, I had a conversation with a fintech. I don't know exactly what I can say that won't reveal them, but massive fintech. I just chatted with you yesterday and we've had conversations with several stable coin integrating stable coins are on all of their road maps. I think by the end of this year, every fintech and neo bank will have stable coins integrated and then the ability as your users have stable coin balances to help them do more with that I think is going to wind up a part of the solution for every fintech and neo bank and as you can imagine what they really care about is reliability. So I think that will be an important dimension of what we're focused on as well.