Stephen: Welcome to another edition of Around The Coin podcast. We have Federico Brokate. He's the head of US business for 21 shares. He talks all about crypto underlying assets when it comes to ETPs and ETFs in the US we talk a lot about regulation. The new administration. What's it like dealing with regulators and the SEC and how do they get these products, both in the us, in Europe, and even in Latin America and Central and South America?

This is such an interesting conversation about the challenges, but also the amazing strides I've made, especially around Solana, ETPs, and ETFs. This was actually the world's first Solana ETP provider. Back in 2021 across the eu so they know a thing or two about Solana and how they made big bets back at that time and their process.

Such a great conversation. Check out Federico. Really great conversation and we'll see you soon.

Stephen: Welcome to the Around The Coin podcast. I'm your host, Stephen Sargeant. We have an exciting guest as we had Federico Brokate, I tried. I tried head of the US business when it comes to 21 shares. We're gonna go deep into what you've worked on in the past, but I just want to maybe just give us a brief explanation of you, what you're doing, how you're doing it, and then we're gonna talk a little bit about your origin story.

Working at BlackRock for almost eight years.

Federico: Thank you so much for having me. It's a pleasure to be here, uh, and, and to be with your, with your listeners. Um, origin story. Wow. I haven't told it, uh, from that framework in, or that lens in, in, I think ever. Um, but happy to, to hop into it. Um, as you mentioned, I'm the head of the US business here at 21 Shares, and we are a global asset manager that provides ETFs, uh, and we specialize in cryptocurrencies.

And so all of our products track, track some form of crypto, uh, whether it be in spot single asset products or multi Coin products. You name it, we, we cover the full gamut.

Stephen: And you started off, you worked at BlackRock for almost eight years. A a variety of different roles, responsibilities, and regions. It looks like you focus on Latin America, you focus on the Americas. Can you talk a little bit about your roles and responsibilities that you had and you know, maybe if you encountered crypto at some point just by way of investments, I'm assuming you must have come across a couple of, you know, a couple paperwork, maybe even the white paper that you're like, Hey, what's this and why are people even asking us to invest in this?

Federico: Absolutely. It's a great question. So I, I started ac actually at BlackRock right out of college. So I was an intern and then I joined full-time, uh, once I graduated. Um, and like you said, I had multiple roles initially focused on covering the Latin America region and expanding BlackRock's presence throughout Latin America.

Um, very shortly thereafter, I switched over to the US ETF business, uh, which is branded iShares, um, and held a variety of different roles and different functions. You know, I, I got involved in pricing for products, for strategies, for new launches, um, expanding distribution partnerships in the us. You name it.

Uh, you know, I, I really held a variety of different seats there. Um, but when it comes to in country and crypto, uh, I want to say like everybody else, you know, we. Socially, I encountered crypto very early on, especially in collegiate days. Uh, but then from a professional setting, uh, it was the Canadian ETF listings in 2021.

That kind of sparked interest, at least for me personally, and and the organization more broadly, uh, because it was the first time we had seen a fully regulated. Institutional quality product that we could imagine being in, you know, investors of all types portfolios, um, especially on this side of the Atlantic.

Uh, and so yeah, 2021 was really that turning point where it became a, a really interesting topic, something that had began following closely and eventually when, when assets perform and, and they're delivering two x to five x multiples of growth every year. Uh, it's too, too difficult to ignore.

Stephen: I am curious. Obviously I'm Canadian here, so I remember, you know, through IQ, going through that process, a very burdensome process by the way. What were your thoughts about that, do you think? Right now looking back, do you think like, Hey, Canada should have really been on the map there when you know they revolutionized that or it was like, hey, they had to go through a lot of work, a lot of legal implications, a lot of court hearings.

Maybe it's not worth it for us to try and build something around that until it gets mainstream. What are your thoughts on that?

Federico: Yeah, I mean, look, Canada, from an America's perspective was certainly a pioneer when it came to, you know, authorizing the trading of these products in a public vehicle like ETPs. Um, to, in, in my opinion, it was just a matter of time until the US caught on and, and followed suit and did something similar to what we had seen in Canada.

Um, the two markets. Typically very correlated as you can imagine, one being, one country being right next to the other. And you often see what happens in capital markets in one and compare it to, to your home, your home turf, if you will. Um, but yeah, no, it was a really exciting time in 2021 because you could see, you know, eventually over time in the US that this is, uh, allowed, uh, all sorts of clients are gonna be able to participate in this market in a, you know, very easy, convenient way.

Stephen: Yeah. And by the time that went live in 2021, were there already applications, was there already processes going on? Like I know the Kel bot twins, like they put something out like a decade ago. Like what was, when that happened in Canada, was there anything really brewing in the US or were you still at a kind of a stalemate?

Federico: There was multiple conversations. And in fact, uh, I think from the US perspective, the futures market was certainly something that was interesting for, for ETFs. Um, but that said it was still a bit too early, right? Especially from a regulatory perspective. Uh, the asset class as a whole, uh, I mean if you go back to 2021, had a slightly different stigma than it does today, right?

Uh, and so that evolution of that maturity, I think is what ultimately allowed the US to come into, into the fold and actually allow the trading of these products, uh, and hopefully a lot more, uh, soon to come as well.

Stephen: I'm curious, you know, last, you know, you just started with 21 shares last year. As great as the company is in the organization, is you're coming from BlackRock with crypto experience. I used to recruit back in my days, and to me that's like, that's like the ma that's like having a quads in poker. You're coming up with the best hand.

How do you choose of which co company you wanna work with. I'm sure you know, everyone's building up their digital assets, especially from a traditional standpoint. They're building up their tr. Digital asset teams and departments, how do you choose where you gonna go? You know what was interesting, I'm sure there was maybe a lot more sexier projects that probably wanted you on board too, to have that former BlackRock name that they can throw on the website.

How do you choose? Where do you go?

Federico: Yeah, it's a great question and, and something that I took a lot of time to think through and, and to really map out. Um, I moved to 21 Share in June of 2024. Um, and so by that point, the Bitcoin, ETF, the Spot Bitcoin ET ts had just launched in January of that year. Um, through my research process, uh, of understanding the landscape and who the other issuers were, not just in the US perspective, but globally.

Uh, I came across this firm, 21 shares, which had been managing crypto ETP since 2018. Right. And so these guys had all the experience in the world, especially when it came to European vehicles, um, and getting that into the hands of clients of all shapes and sizes. Um, I met with Han and Ophelia, who are the Stanford grad founders of, of the firm.

Um, they actually originally wanted to set up the company in New York City, but from a regulatory perspective, Zurich was much more amenable to managing and issuing crypto ETPs. Uh, and so they moved across the world, set up shop in Zurich, opened the firm, uh, and really developed this culture internally of.

High conviction and passion for crypto, uh, crypto markets more broadly. Uh, and so one thing I often tell individuals, either past colleagues or friends of mine is, um, the, the firm is full of in, uh, of people that just live, eat, breathe, and, and sleep with crypto. Um, it is all we do and all we talk about.

And so. Um, as someone that had been part of the ETF industry for quite a, uh, quite a number of years at that point, um, it was very clear to me that crypto was going to be the next forefront, if you will, of innovation within the, within the ETF space. Uh, and so I certainly wanted to continue being part of that growth and that expansion of the product set.

Um, and o and ultimately help a lot more investors get access to a market that I think is going to be quite revolutionary over the long term. Um, and so that's where the 21 shares. Culture, the team, the fit, really made a lot of sense for me. Um, and I, and I joined to help grow our US uh, footprint.

Stephen: That's amazing. I feel like ETP and ETF are used interchangeably, like, just like in crypto, when people say wallet and address, they're used interchangeably. Uh, can you maybe. Level set for us. What's the difference between the ETP and the ETF? And it seems like ETPs were approved way before ETFs. I could be wrong in that.

Uh, but maybe in the us like what's the differentiator from them from like a regulatory standpoint or an approval standpoint?

Federico: Yeah, it's a great question and really it comes down to some technicalities on the regulatory side of how each, each product is treated. Um, but in the most simple, plain vanilla terms, an ETF is actually a type of ETP. So ETP stands for exchange traded product. ETF stands for exchange traded fund. And so ETFs are a subset of the ETP universe.

Um, and the designations have been used differently because in different markets. They're, they're treated in, in their own unique ways. Um, and so oftentimes in the crypto world, we talk about ETFs for US specific products and ETPs for European specific products. Um, but the reality is, is just it's nomenclature that varies from a regulatory perspective.

Um, the best way that I describe ETFs, uh, to my friends and to individuals that are less part of capital markets is really like you're buying a Spotify playlist. Um, so instead of you picking your own, uh, songs to create your own playlist, uh, you might go on Spotify and look for something like Today's Top Hits or Rap Caviar, Orton, if you're from Latin America.

Uh, and these are pre curated cre uh, playlists that you're able to access and listen to. Uh, and that's exactly what an ETF is, right? It's a pre, uh, curated set of, of stocks or, or bonds or anything else, uh, that can go inside the single fund, and you can access it just like you can buy any other security in, in, in the us.

Uh, and so it really helps simplify the creation of a portfolio for individuals.

Stephen: And then why is there this regulatory pressure if it looks very similar to traditional, you know. Financial products and they're just kind of changing the underlying asset. Why is that maybe a little bit more difficult sometimes for regulators to allow, like why are they allowing maybe a money market fund versus like a digital asset?

What, like if the structure around it seems very similar, why is the underlying asset so difficult for maybe some regulators to wrap their head around?

Federico: It's a, yeah, it's a great question and really in my opinion, it comes down to one thing, uh, which is whether crypto secure or crypto assets are considered securities or they're considered commodities. Uh, and so ultimately if it's a security. It's much more straightforward because it can fall in line with the existing frameworks for equities and bonds and futures and other securities in the US if it's considered a commodity.

A lot of the things that we are trying to do from an ETF perspective is actually quite new for the industry. And so regulation needs to adapt, uh, and needs to fit kind of this new regulatory framework are create a new regulatory framework that's crypto specific, uh, that allows us to do something like.

What we would do in a typical ETF world. Um, so it really comes down to that. And, and when it comes to, you know, why should crypto be considered a commodity or security, then it, it's a whole other ordeal of how these different projects are actually coming to market and what regulatory status they're, they're claiming, uh, and what their filings look like.

Um, but for the most part, when it comes to the big crypto assets, whether it's Bitcoin, Ethereum, et cetera, um, the SEC has fallen firmly on the side that these are commodities and so. Uh, that's where we're in a little bit of a gray area that's quickly clearing up here, uh, over the next few months.

Stephen: And if it does fall under a commodity, then what's the issue with that? Right? Like gold's a commodity and now gold is just as, maybe not just as volatile, but there's no really underlying value under gold based other than based on what people demand for it and what people believe it's value at crypto's kind of in the same realm.

So is there any reason why it would be distinguished different than something like gold being included under an ETF or an ETP?

Federico: It's a great question. It's a great question and really comes down to the fact that it's a completely new asset class, right? Uh, and so the, the regulators are adapting to, to, let's call it the idiosyncrasies that are related to crypto. Uh, for example, you know, if it was just a single gold. Related product.

I think that would be a much more straightforward, uh, concept for regulators to get their head around. Uh, but the reality is that the majority of crypto does not operate on traditional financials, uh, infrastructure. And so the terminology is different. The way that things are managed is different. And so all of this has implications for the regulators when they're trying to assess, uh, retail investor safety at the end of the day.

And, and that's really what they're, they're trying to prioritize is making sure that individuals. Have the information that they need to be able to make the right decisions from an investment perspective. Um, but then also that they're actually receiving the value that they're expecting when they're investing in these products.

Stephen: I think you make a great point. Now, I think of it like, yeah, if there's a physical gold, you can go to the vault. You can compel the vault company to turn over that gold. But when it's on a digital blockchain, it's like, who are you gonna call? There's no one to call. You can't get access to it. That's a totally different conversation from an investment perspective, so I completely agree.

Um, was there anything else that people were trying to include in ETFs and ETPs that might've, you know, had law, not law enforcement, but regulators being like, like, did we have a meme Coin, ETP or NFT, and or a metaverse one that kind of clouded their judgment because it was so easy to point to those and say, well, those failed.

So you're definitely not getting something like Solana or something else past us.

Federico: Yeah, I think it's a, it's a, look, there's a lot of human psychology at play here, whenever any of these things are are happening, whether it's on the regulatory side, on the issuer side, on the client side, um, and obviously crypto broadly is a new technology, right? You know, not more than two decades old. Uh, and so for individuals that are trying to set up rules and create frameworks for what's going to be allowed and not allowed, it takes time for them to get familiar and and comfortable with the environment that they're operating in.

Um. New technologies are being tested and there's new use cases that are popping up every single day. And what we do know about crypto for certain is that it never looks the same between one year and the next. Uh, and so how do you create rules for a brand new emerging technology, uh, that's going to shapeshift over the next, you know, let's call it five, ten, twenty, thirty, fifty years.

Uh, and you create rules that are gonna continue protecting investors. Throughout all of that transformation. Uh, and so it's, it's certainly a daunting task when you're completely new to the topic, uh, and, and you're coming at this from a more traditional investing lens.

Stephen: And you know what's interesting? 'cause 21 shares launched, I think it's the world's first Solana, ETP in 2021 across the eu, and you've already filed for us Solana, ETF, uh, last year. Obviously to me that's growing demand. Uh, what made you know the company look at Solana? You know, from a, even from a more traditional sense, because there was a time period and there's still a time period where Solana was some associated with like pump fund and meme coins and rug pulls.

Like what made them look twice at Solana, be like, this is gonna be something that we can bet on long term.

Federico: Yeah, that's a great question. And actually one of the things that I love answering the most, because, uh, the answer comes back to the fact that 21 shares is very research driven. Uh, so we have one of the largest research research departments in the industry, uh, and we're focused on understanding the fundamentals of every one of these projects and how they compare and stack up against each other.

Uh, and so back in 2021. Uh, you know, this is before my time at the firm, but from what I gather, you know, the founders and the research team quickly analyzed at Solana, you know, has very differentiated value proposition versus existing technologies at that point, right? Namely Ethereum in some cases, you know, high throughput, low fees, scalable design.

They had a vibrant developer ecosystem at that time, even if it was focused more on the speculative and NFT side of things. Uh, but ultimately the technology. That Solana was testing, whether it's through NFTs or DeFi or anything else, has broad based applications to any sort of financial, uh, markets as well.

Uh, and so yes, the near term use cases might, might have seemed frivolous in some cases, especially back then. Um, but today, you know, now that we have clarity and genius acts pass in the us we're seeing the growing momentum and the tremendous explosion of stablecoin usage on Solana. And all of that is able, is we're only capable of doing that on Solana because of the testing and the learning that the, the network went through earlier in the days of their existence.

Stephen: That team needs a raise. 'cause that's a huge bet in a huge turmoil market. You know, and then that saw the, the, the, basically the chaos that ensued, whether it was the NFT Metaverse market, whether it was Celsius, FTX, uh, you have to give credit where credit's due. That was a big play in a time where the industry didn't know, you know, heads from tails.

I'm curious, you've already applied for the u, the etf, the salon ETF in the us. Do you think that there is gonna be, like wise, this is gonna be received widespread, and is there a lot of pent up demand or we just kind of, is it like the Bitcoin and the Ethereum ETF, or we just can't wait for the floodgates to open?

Federico: Absolutely. Look, we're, we're very, very excited about the us The potential for, for a US launch can't say too much about timing or, or the like, because we're in the current phase of conversations with, uh, regulators and stakeholders and partners and the like. Um, but we are super excited and we think there's gonna be a lot of demand for this asset.

Uh, one thing that I often tell people and, and I think it's lost on the crypto community, is. The first couple of years of an ETF outside of crypto are typically quite slow, right? Different investors are waiting to see how these products actually behave and perform before making an investment decision in the product.

Um, crypto is the exception where we've seen, you know, the Bitcoin ETFs. Completely surpass all sorts of expectations and break all sorts of records for the industry. Ethereum as well over the last, you know, 18 months, let's call it, has performed fantastic from a, from an ETF perspective, always in the top leader or top rankings of the leader board, uh, for flows.

Uh, and so Solana we expect will be a similar story, um, and for a couple of reasons. One is the user base for Solana has grown tremendously. Right. I think there's 57 million monthly users on Solana now or something in the sixties range. Um, there's over 13 billion.

Stephen: right? Like they're, these guys are these guys and girls. They're active, they're, they're not just passively using Solano. They're in there doing things that I can't even describe.

Federico: Absolutely. And that's what's gonna benefit the ecosystem the most is like that active engagement and developing, uh, of, of the blockchain. Um, but yeah, you know, outside of that, there's about 13 billion in Coin assets now in Solana. Genius and Clarity act as tailwinds, which are only going to encourage more and more participation through stable, stable coins.

Um, and, and I think one thing that the crypto community is very well aware of is the importance of marketing. Uh, and I think the Solana Foundation and, and everybody that builds on Solana has done a really strong job at promoting the chain, uh, and promoting its their value proposition. Uh, and hopefully that translates then into ETF flows from investors looking to get a, a piece of the, of the action.

Stephen: There's a community. So I was at, you know, the Accelerate Conference with one of our clients, marinade Labs earlier this year at their, at their event stake point. The community there, like the way the foundation comes out to support each one of their community members. Like there's a different community vibe than I feel like that's been on Ethereum or other blockchains where everyone's really working hard to bring more people into the ecosystem, not just profit of whatever project they're working on in the ecosystem.

And it's, I haven't seen that in any other blockchain, much less any other industry. What are your thoughts on that?

Federico: Yeah, I look, I totally agree. I think that the job the Solana, uh, foundation has done here from an ecosystem development side is, is fantastic. Um, and I think they really were the, the pioneers in fomenting that growth on chain. By supporting their, their developers and their community more, more holistically.

Um, and, and look to us, it's, it's a great sign of where things will be headed, right? At the end of the day when you're investing in crypto, uh, the way I like to compare it to, uh, to I, I would say more traditional investors is really like you're investing in a liquid VC fund. You have daily 24/7 market to market of a VC style investment with the same risk and return profile.

Um, and so what Solana is doing is fomenting as much growth, as much user, uh, activity on their chain, uh, to hopefully continue supporting the, the growth of the, of the network overall.

Stephen: You mentioned the Genius Act. You men mentioned regulations like you were at 21 shares last year and you know, before Trump and now after Trump. How has that changed, whether it's the momentum of the industry, the conversations that are being now had with regulators? Can you give us the day and night version of, you know, before and after Trump?

Federico: Yeah, absolutely. Um, so there was really two things that were achieved in my opinion, um, between the Genius Act and the, and the, uh, clarity Act essentially. For, for market participants, now we have a much better idea of how SCOs are going to be issued and how they're going to be managed in the us, um, which will give a lot more institutional investors comfort with participating in the market through SCOs.

Um, the other thing that we learned was how regulators are going to view that. Initial question that we talked about at the top, uh, around whether an asset is going to be considered a commodity or a security. Uh, and so for issuers of ETPs, like 21 shares, this also helps us a lot because we know which regulatory, uh, regime we're going to fall in depending on which products we want to launch.

Um. So all in all, what this is really doing is helping create frameworks for what's going to be allowed and what is not going to be allowed. And then the market now is in charge of actually going forward and developing the solutions, uh, that are fitting of, of whatever use case we are, we're looking to, to, to meet.

Um. The before and after, I think can be seen very clearly in Ethereum and Solana prices. Um, right between, uh, I would say February of this year, February, March, uh, to now we've seen a, a fantastic bull run for some of these assets. Um, and I think it's because these regulatory changes really create the framework for moving assets on chain, whether it's stable coins and their uses, uh, which we all know, uh.

Are, are really impressive and, and, and I would say the killer use case for crypto today. Uh, but then ultimately once you've normalized having dollar based transactions on chain, what are the next assets you can begin bringing on chain? And that's why we're beginning to see all this momentum or rent tokenization, uh, because you're able to imagine a world in which you're not just transacting with dollars, but you can also transact with Apple stock or an ETF or anything else that might have value in moving with within the guardrails of crypto.

Stephen: I am curious. You know, it's been very weird for Salon, obviously started out with a little bit of the outages. Then we got into the meme Coin market, but very rarely do you see like a thriving meme, Coin market and a thriving interest from traditional financial institutions that seemed like it was actually happening simultaneously, like pump fund, but also staking on Solana through validated or through KYC validators.

I've never seen this combination of like extreme speculation and culture. And the most traditional of the traditional looking to launch their own tokens or collaborate with other Solana foundations. What do you think is driving a lot of this interesting growth, even though that there's still a lot of speculation on one side of the table?

Federico: Yeah, look, I think first off the, the diversity in the use cases for a network is fantastic. Right. You wanna have a diverse ecosystem and you wanna be, the fact that you can cover more institutional, uh, type use cases and then also more crypto native type use cases. I think it just shows the, the breadth of, of the technology that we're talking about here.

Um, ultimately to me it comes down to the fact that there's low fees and high speed on Solana, right? Uh, and so if you're able to factor those two components in, um, you'll see how quickly, and if you're imagining a world in which stable coins become one of the primary ways that payments are, are processed, um.

That's the exact combination that you would, that you would look for. Um, and same goes for, for NFTs and for more, you know, speculative activity. Um, you don't wanna necessarily be dealing with lags or paying high fees to use the network. You wanna be able to move quickly and, and, and use benefit from those same, uh, let's call it traits of Solana.

Um, so no, absolutely, I think it's a great thing to have that diversity. Uh, and I think it comes down to how scalable Salona has really made itself.

Stephen: I think you raise a great point. The fact that it can balance both and doesn't have to pick one, is exactly why there's so many people coming to it. If you can go to a stadium and watch a concert and a baseball game at the same stadium versus two separate stadiums, it makes people really want to go to that stadium.

Right. Um, you offer a few staking products in Europe. Uh, Keith, walk me through the, maybe the fundamentals of those staking products. Is it yield from protocol activity? Is it yield from like loan and boring? I'm assuming it's maybe the protocol activity, uh, the native staking, uh, yield. I would love for you to explain how those products are doing and because that protocol activity might be there is, that's what's really driving that as a game changer.

Federico: Yeah, no, it's a great question and it's something that we're proud to have been offering in Europe for quite a number of years now, and we're excited to potentially bring to the US as well. Um, our staking operations in the u in in Europe, as you mentioned, are, are primarily around securing the networks that, that we're staking through.

Um, and so our salona a TF just to use, uh, as our run, our continued example. Uh, we have about 1.5 billion in assets, uh, in our European fund today. Um, and we stake it a pretty good percentage of that fund. Uh, the way it works is our portfolio management team, uh, has a formula that's, that analyzes all sorts of parameters around the product, around the staking network, around the underlying activity, and it spits out a percentage.

We should stake, uh, that allows us to meet liquidity needs for the product, but also allows us to maximize the yield that we're providing to our investors inside of that product. Uh, and so it's really a bit of a balancing act that we've been able to fine tune over years and years and years of managing this process, um, to make sure that we're maximizing the return for our investors while also making sure that we're, we're maintaining the right luc liquidity, uh, requirements for our fund.

Um, what in regards to, you know, all the different methods that we could generate yield. Uh, our products are very much focused on the description that we have in our prospectuses for each one. Uh, and so we, we are not, uh, ETF issuers that are necessarily shifting and moving around and doing things that are going to change month over month.

Our products are very reliable, very consistent, uh, and what you do this month is what you can expect to see, uh, for the following ones as well.

Stephen: Why Europe, though? I feel like Europe's always been, especially recently, has been by tech, by, you know, the tech efficient adults have said Europe too much regulation, this and that. But it seems like you're able to release products in Europe that you can in the us Why is Europe so forward thinking with some of these traditional slash now?

Bitcoin or other crypto underlying asset ETFs and ETPs, why are they beating the US to the market? Similar to how Canada did.

Federico: You know, I, it's hard for me to say and, and, and put myself in 2017, 18 when this was all happening for the first time. Um, what I, what I can, you know, ate is. This was largely due to the fact that especially the Swiss market was very familiar with, uh, different types of asset classes, right? So whether it's gold, silver, uh, and, and more commodity type products.

Um, but then also with anything that, that you can find around the world. Um, the Swiss market has always been kind of at the forefront of investing and, and at the forefront of allowing different types, uh, of investment schemes. And so I think that culture of being open-minded to different types of, of.

Asset classes really benefited, uh, 21 shares in particular because we were able to set up shop there and begin offering these products to different types of clients all over Europe. Um, now how much of that was intentionally des by design and how much of that was a bit of fortune? Uh, from a regulatory perspective, it's hard for me to, to exactly pin down.

Stephen: Now we know Solana's amazing growth. That's happened even just in the last year or so. Do you believe there's other blockchains that you're seeing or keeping eye on that are getting market share? Maybe not as much as Solana, but they're getting market share and maybe just interest from investors, right?

They're, whether it's a hype or something else, you're like, Hey, a lot of people are talking about this. All of a sudden might be worth a second look for us as a organization.

Federico: Absolutely. Yeah. I mean, look, uh, I go back to my thoughts on our research department and how forward thinking, uh, our organization is. Uh, we take big bets on projects that we have high conviction in, uh, and by bets we, we simply offer product and we're able to bring capital into those ecosystems through our ETPs.

Um, there's a few others, and I think there's a whole trend around emerging blockchains that have differentiated technology, uh, and different value propositions that, you know, they, they've learned from seeing the experience of the, of the more, let's call it. Um, long term or existing, uh, protocols like Ethereum, like Solana, and they've been able to, in their.

Perspective, improve upon their design. Um, a couple come to mind, like a sui, for example, as, as, uh, a project that has a differentiated technology and value proposition. Hype, of course, or, or the hyper native team has seen a lot of success, especially this year. Um, and our, and our team internally is very, uh.

Very bullish, if you will, on, on some of these assets. Uh, and, you know, the, the search continues. What I would say is that there's a lot of interesting projects that will continue to, to develop. Um, and it's not gonna be a just now thing. This is gonna be an ongoing issue or an ongoing trend in our market.

Uh, where, you know, disruption is, is where we come from and it's gonna continue happening within our space.

Stephen: I don't know if this is like competitive advantage or you know, pri proprietary information. How do you normally vet, like I'm assuming that you're not just on up, you know, unloading Solana without maybe speaking to sub the foundation. Like how do you normally vet these projects or speak to some of the organizers or larger initiatives are on these blockchains or the blockchain foundations themselves Is, are these deep conversations, are you just looking at like, Hey, this is what the consumers are demanding, so we ought to give what our consumers want.

How do you kind of balance that?

Federico: So I absolutely do think this is a competitive advantage for 21 years, um, because we've been in co in communication and in partnerships with a lot of these foundations directly, uh, for many years. Uh, and so our, our research team is very well connected to all these organizations and understanding what their roadmaps look like, what their, you know, preferred use cases are, where they think their growth is going to come from.

Uh, and so we're able to engage with these, with these organizations and have really smart conversations about, uh, which ones we think, uh, have, let's say, what it takes to disrupt whatever part of the market they're going after. Uh, and so yes, we we're able to have these conversations and leverage our partnerships, uh, to hopefully bring more product that, you know, our investors are are, and our clients are gonna benefit from.

Stephen: From a business lens, like I used to work at a top crypto exchange and if there's a, a pair that's not doing so well, like eventually the exchange would drop it 'cause it doesn't have much, you know, volume, transaction volume and the, you know, it's really ripe for, really ripe for market manipulations with some of these low value trading token.

Does that work in the same world as ETP or et? Like if you're not getting a lot of capital contributed to it or invested in it, then you might decide to like remove it all together. I'm not sure. Maybe not even speaking directly about 21 shares. But in general, if like a low performing ETP or etf, do you drop it?

Do you reconstruct it? Do you combine it or merge with other ETFs? Like how does that work?

Federico: Yeah. And the answer to that question is all of the above. Uh, and it happens to ETF issuers around the world, right? Uh, oftentimes we're making concentrated bets on products that we think will have market fit, uh, and for one reason or another, sometimes even reasons outside of. The issuer's control, uh, the products might not perform as expected, right?

Um, and in the case of, of a crypto ETF issuer, um. I think this is even more the case because a lot of the times, uh, back to my VC style risk, return profile comment, uh, whenever you have, you know, an asset class that has such volatile results and such, uh, let's call it a big divergence in outcomes for, for different projects, um, you're going to see some projects that make it and some that don't.

And that's actually part of the, part of the landscape and part of investing in crypto. Um, and so for us, absolutely, we, we have a, a. Biannual process where we review our product suite, make sure that we're, we're, um, seeing the performance from the product that we want to see, uh, and that our clients are benefiting from it.

And if not, um, there's always optionality to either sunset the product or to merge it with another one, uh, or to, or to change the investment perspectives, uh, if need be. So yeah, we, we, we like to make sure that our product suite is, uh, fresh and up to date.

Stephen: I love that. Uh, I'm curious, you mentioned the Genius Act. We talk about regulations, we talk about the Solana et TF approvals. Is there anything that the regulations aren't? I know we had to make some concessions for Solana ETFs when they came to like staking yield and the, the rewards. Is there anything that these regulations aren't covering or aren't including, do you think that will be needed to push it forward that you would love to, for them to take maybe a second look at,

Federico: You know, it's, it's a really good question. Um, and the, the honest answer to that is I think we need to first digest the current wave of, of regulation that has come into the market, right? Genius and Clarity Act, huge transformational bills, um, which I think is gonna have a, a deep impact in crypto markets broadly for the years to come.

Um, sim goes for, for the quantitative listing standards for ETFs, right, that we received from, from the SEC and from the exchanges. Uh, they put out, put out a, a set of rules, um, that. Basically determine eligibility for ETF standards. And that's also going to evolve over time. Um, and so my perspective here is I think we need the market to digest for a bit of time what the current rules that were in place are, are actually going to do and allow us to do.

Um, and then actually just process this before we figure out. Okay. As an industry continues to evolve in A or B or C direction, what else do we need to compliment the current existing rule book? Um, because like I said earlier, crypto's not gonna look the same in three or five years from now, and regulation will have to keep up, um, in a more proactive way.

Stephen: For something like A ETP that might be easier to approve than an ETF. How long does it take you to spin one up? And the reason why I'm asking is in the context of like, Hey, Dogecoin, Elon Tweets about Dogecoin. All of a sudden now there's an interest in Dogecoin. You know, Trump talks about the digital asset stockpile and you're like, Hey, we don't, we might not have XRP, we gotta include it.

People are gonna want it. They're stockpiling it. Like, how fast can you spin something up? Or is there just a standard process where we have to vet for so long, or for, you know, so many iterations of our vetting process before we're gonna release anything no matter what the demand is from the consumers.

Federico: Yeah, no, it's a great question. I think it varies by market, so. You know, assuming that we've done our research, due diligence and that's all been completed on our end, uh, our time to market in Europe is alarmingly fast. Um, we can get, we're by far, I think, and I think I can say this, we're by far the quickest to launch issuer in, in the market today.

Um, whether it's three or four weeks, if we have our due diligence done from a research perspective, we are able to whip up a product. Uh, in the US it's a little bit different because each. Application or the S one needs to be reviewed embedded by the SEC. And so it's not so much on the issuers to do their homework quickly, it's more so waiting for the regulator to approve the product.

Um, and so that is going to continue happening. Uh, and I think it's great actually for investor protection to have that process continue. Um, and so, you know, I think it went down from a couple of years to probably a few months.

Stephen: And, and not speaking on, on behalf of 21 shares, especially 'cause you weren't there. Did you feel that the SEC under the Biden administration was like. Just saying they weren't approving it, they were taking long to approve. Like was it just an a cumbersome process where they wouldn't be rushing to approve it, then they would, you know, they would deny it without enough, you know, context or information.

And then they would take it through the court pro. Like, were they just buying time? Was it just like, Hey, if you wanna spend the money to really get this to market, it's up to you. You're gonna have to blow that money. And then they added on top of that, the lawsuits to go with it. Like, is that what you felt the, the landscape was like during Biden?

Federico: Yeah, look, I think what I can definitely say is the environment with the SEC right now is the most constructive I, I have ever seen it when it comes to crypto regulation. Um, it is a very proactive and very business friendly SEC that we are working with and that certainly wants to help, uh, continue to monitor protections for, for investors.

Um, but they're much more forthcoming when it comes to how they can learn and understand the crypto industry and how they can keep investors protected within the scope of, of what digital assets are more broadly. Um, I think before, you know, with the prior administration. It was the first time that we were biting into the, the pie, if you will, or into, into crypto markets.

Um, and there was a lot of learning, institutional learning that needed to happen on what is crypto, what is blockchain, what is Bitcoin? What are all these assets? Why is it going up? 300%, uh, in short periods of time and then going back down 300%. How are investors gonna be protected from this type of volatility?

Are they ready to manage this type of volatility? There's a certain level of questioning and, and understanding. I think that needed to happen before, uh, regulators would get comfortable with this. Now, uh, I think having done all that hard work and that homework at the SEC and at the, at the regulatory level.

We're now seeing an SEC that is much more friendly and and open to seeing diversity of product in the US hopefully, uh, and different types of structures as well.

Stephen: The Salona ET TF seems almost inevitable. Doesn't, I don't know which application will go through, but I think just like the Ethereum, ETF, it's kind of like, you know, it's coming at some point. Uh. Where's this new, where's the money gonna come? Where's the capital gonna come from? Are they pulling it from existing ETFs, Bitcoin, Ethereum?

Is this gonna be brand new money? Like where does the new money come from? Even when the Bitcoin ETF was launched, or the spot ETF was approved, where does all that new billions of dollars come from? Is it existing investments? Like where's that flow of transfer, that transfer flow come from?

Federico: Yeah, it's a great question. And, and if you'd, so I'll start by just breaking down quickly, like Bitcoin ETF Holdings and, and who owns those? Um, in the US about 60% of a UM that's invested in crypto in Bitcoin ETFs comes from retail investors. So that's people like UM Me that are trading on Robinhood or trading on Fidelity or Schwab.

And they go on the platform and they see 21 shares, Bitcoin et TF. They purchase the a TF on that chain, on that platform. Um, the second group, which manages another, I would say another 20%. So 60 20, you have about 80. Um, are what we call very crypto native financial advisors, and these are intermediaries or individuals that manage assets on behalf of their end investors.

And so you give a financial advisor an amount of your wealth and they manage it for you, and they invest it for you. The more crypto native financial advisors in the country are already beginning to allocate to Bitcoin ETFs. And so that makes up about 20%, uh, of Bitcoin holdings today. And then the final group I would really classify as global hedge funds.

Uh, and these are organizations that are engaging in basis trading, which for, you know, people that aren't as familiar. Simply means you're selling the futures product and you're buying the underlying spot. And so there's a delta that you can make or an arbitrage that opportunity that a lot of hedge funds around the world are taking advantage of.

Um, and because of the size of Bitcoin ETFs in the us, uh, they're preferring the liquidity profile of these products here versus products in, in other markets or jurisdictions. And so when it comes to Ethereum and when it comes to Solana, we're expecting a pretty similar breakdown. Uh, I would say initially retail would make up a larger share, uh, of those assets.

And, and these are individuals that are probably more crypto native. Um, and they're individuals that probably have tax referred accounts. So if you have, uh, a Roth IRA or if you have, you know, a, a any sort of investment account where you don't have to pay in near term taxes, um, you can invest in Bitcoin, you can invest in Ethereum, you can invest in Solana through the ETFs, and you have all of that runway and that upside potential.

Uh, without the tax, uh, burden of a typical brokerage account. And so there's lots of reasons why individuals, whether they're crypto native or not, might pick a salon a, a salon, a TF, um, but we certainly expect those to be some of the early adopters along with, you know, your occasional, very crypto native financial advisor as well.

Stephen: Uh, which there's still, I don't think there's many of those. I know there wasn't when I was asking my financial advisor, should I invest my retirement savings in Bitcoin? Is, is it now that the executive order has been passed by Trump in order for crypto to be included in 401k, does that mean your products or were your products already able to be included just by the nature of them in 4 0 1 Ks?

Or is it different products that are now able to be included in 4 0 1 Ks and for people around the world, that's like the retirement, uh, the retirement policies.

Federico: It's a great question and, and unfortunately the answer to that. Is most 401k plans do not support ETPs, um, or ETFs of any sort. And so typically

Stephen: So it doesn't wether it's crypto or non crypto, they just don't support those type of financial products.

Federico: Exactly, they're typically built on what's called either, uh, basically index mutual funds is the best way to, to summarize it. And so they look like an ETF, but they're not exchange traded. Uh, they operate often like an ETF, but you can't find it on, on, you know, you open Robinhood, you probably can't find the, the index.

Product ver or index fund version of the product. Um, but oftentimes they perform similar. Uh, uh, you know, they perform similar investment objectives as the ET TF counterparts. Um, so that said, it'd be awesome to get more support for Crypto ETFs, uh, within 401k plans, but the gar, the railing right now is just not in place to do so.

Stephen: So whether it's crypto or non crypto, they're not gonna accept those type of products anyway. So the fact that crypto's allowed into it, it doesn't change much. But wouldn't they want to include those type of financial products that look a lot more like the traditional financial products versus like holding Bitcoin directly?

Federico: Well, actually it's, it's a really interesting point because the history, uh, is a little bit different where mutual funds came before ETFs. And so the, the most popular way of investing used to be investing through mutual funds. And so 401k plans were all designed from an operational perspective with the mutual fund in mind.

Um, and so when ETFs come. That was a disruptive technology to a lot of these plans. And the 401k market just hasn't caught up, uh, from an operational perspective to allowing ETFs. And believe me, ETF issuers around the country have been pushing for 401k plans to allow ETFs for a number of years. Um, so yes, absolutely.

I do expect that some point that that will shift and change, um, whether it's for crypto or for non crypto assets. Um, but for the time being, it's just, uh, there, there's not too much that you can do.

Stephen: Makes a lot of sense. I seen, you know, when you're working at BlackRock, it seems like you had, you know, some insights. And some roles and responsibilities around latam. I believe you're from Latin America. Uh, what's the difference between the markets? Are those ma, I know those markets with stable coins are picking up obviously a hedge for hyperinflation and inflation.

What are like the E-T-P-E-T-F markets like there from a digital asset perspective?

Federico: Yeah, that's a great question and actually a really exciting one for us to answer because, uh, as of. Yesterday we cross-listed six of our ETFs in the Brazilian market. Uh, and so now you can find 6 21 shares, uh, ETFs, uh, in, in Brazil, and you can access them. Uh, through what's called BDRs or, or Brazilian depository receipts.

Um, these six, uh, funds make us the largest issuer in Brazil by number of products and diversity of product offering, uh, which we're, we're really proud and, and excited about. Um, but what I would say is LA Am has a, you know, overall has a very, very strong crypto community. Um, and, and I am from South America.

I'm from Columbia, uh, personally. Um, and one thing we've seen is that there's a lot of investing in crypto, but through banks that offer spot access. Uh, and so local banks will often, uh, facilitate those transactions for, for local clients. And because we haven't seen a lot of processing, uh, opportunities outside of Brazil up until now, um, the US and the European ETPs haven't necessarily been able to participate in the flow gathering, uh, from those markets.

Now we expect that to change absolutely, whether it's in Mexico, whether it's in the Indian countries like Columbia, um, and Chile. Um, at some point we do expect them to become buyers of, of US listed et TFS as well. Um, but for the time being, it's been much more just spot exposure that the local community buys through banks.

Stephen: And just so people know, you were talking about Thursday, September 25th as we're recording on Friday, September, so people don't get confused. When you say yesterday, you meant yesterday, Thursday, September 25th. I'm curious, is Brazil like the main, is Brazil like the first stopping point and then you expand from there?

Is that, 'cause that seems like for a lot of the FinTech and crypto projects, it always seems like Brazil and maybe even Argentina are usually their for first stop before they start expanding into other countries. Is, do you feel like that as well from a traditional financial product with underlying crypto assets?

Federico: You know, it's a great question and I would typically, you know, when it comes to non crypto assets, I would typically say that Brazil's actually kind of a, a market of one when it comes to analyzing the South American region. It's typically Brazil and then what everybody else is doing. Um. It's Brazil from a capital market size perspective is by far the largest capital markets, uh, in Latin America.

Um, so there's certainly a ton of opportunity there. Um, but that said, it usually does not follow suit with what Mexico or Columbia, or Chile is doing, and it typically has its own rules of the road, if you will. Um. When it comes to crypto more broadly and like thinking ahead, I, I definitely expect, uh, Mexico to be one of the biggest markets because of the cross-listing regime that, uh, Mexico has in place.

And so when it comes to traditional ETFs, we're actually able to list us 40 x funds in Mexico. That local retail investors or institutional investors are then able to buy, um, that has not been approved yet for crypto. And so that is the evolution in Mexico that we're waiting to see happen. Um, similarly, like for South America, for the rest of South America, uh, we're waiting for that cross-listing approval for crypto products, uh, and to see hopefully some institutional demand for, for those products as well from the pension regime there.

Stephen: Is there a reason, especially now that you, you know, you're based in the us is there a reason why more US corporations aren't putting Bitcoin on their balance sheets in any way? And do you think there's a major pitfall from at least dabbling in it, from not dabbling in it by these these companies?

Federico: It's a good question. You know, I mean, it was certainly a, I mean, this year I think it's the trend in capital markets of seeing, you know, these, um, DATs or digital asset treasury companies come online. And, and especially in the US they've, uh, oftentimes been rewarded with, uh, a lot of investor optimism whenever the switch to, uh, you know, being a debt happens.

Um. What, what we're seeing though more recently is that the adding or the addition of Bitcoin to a balance sheet is becoming a board level issue and not necessarily a C-suite level issue. Um, and be the reason for this is, uh. It really materially changes the risk and return profile for a company once they begin adding Bitcoin to their balance sheet in a real way.

Um, and so we actually saw some, some rules come out from NASDAQ and NYSE a couple of weeks ago, requiring proof of this board level approval before companies add Bitcoin to their balance sheet and begin trading on their exchanges. And so really it comes down to the, the, a difference in, in risk and return.

Uh, and kind of overall objective and mission for the company and in making sure that it's aligned with what the board and what investors in the firm, uh, want as well.

Stephen: That's super interesting. I'm curious, where do you picture this industry in the next, I know a lot has changed in the last eight months. Uh, where do you picture the industry in the next 18 months? Is that, you know, are dots the new, you know, SPACs? Is that the new, uh, hype train with stable coins involved?

Does it like, do stablecoin, ETPs, or ETFs? Do those make sense just by the nature of what stable coins are like? I'm, I'm curious of your thoughts on that.

Federico: Look, uh, uh, yes. I think, um, all of the above, uh, is going to be around in the next 18 months. I think we're going to see a, a new level of product availability in the US as well. Um, whether it's in the single asset trackers or the index product category, uh, or staking products, I think we're going to see all of those come online, especially in the ETP and ETF world.

Um, I do think that will continue to have a place in the market as well. Um, I do think there was some, um, I would say hype around them this year in terms of. Their, their ability to raise capital for projects. But look, at the end of the day, as, as a steward or a, a, a fan of the crypto markets more broadly, um, what we all want to see is more capital coming into the ecosystem.

And so if it's through debts, if it's through ETFs, if it's through direct purchasing, uh, on Dexus, I think that that's all fair game and, and, and fantastic for everybody involved. Um. You know, now, 18 months from now, do I think we're gonna see a, a stable Coin? ETF, uh, you know, there's always a search for yield in the ETF market and, and a search for, uh, some of those returns or differentiated returns.

And so why, why not? Um, but I, I, I do not think that they're gonna be the most, let's call it the most mainstream products.

Stephen: That's super interesting. Any other exciting announcements outside of, you know, the Brazilian launch of some of your products or the cross-border launch? I'm actually curious, you had the New York Stock Exchange, you know, on FinTech TV with Remy Blair having a conversation talking about similar subjects.

What was the atmosphere like? Is it very digital asset focused? When you go there? Are people talking more about digital assets or are we still talking about like what Tesla's doing and you know, maybe some of these traditional fang uh, companies or maybe the conversations around ai, like what were the whispers you were hearing everyone's talking there.

So what were some of the things that were sinking in for you?

Federico: Yeah, it's a great, it's a great point. Um, look, the, the FinTech TV team and, and the New York Stock Exchange floor is one of the coolest places I think to, to visit in New York City. Um, it's a really infectious energy level and, and, you know, all the buzzwords are, are kind of being yelled at at once and, and with all the colors and all the numbers and all the, and all the streaming lights.

Um, I think, look, AI continues to be front and center on, on all investor minds. Um, crypto and, and I think more traditional asset classes are actually converging a bit and they're, they're becoming more synonymous with each other and, and no longer is crypto kind of this isolated thing over here that people sometimes talk about in, in kind of like a vacuum.

Um, so I would absolutely echo kind of that, that sentiment, which is, uh, crypto's becoming more mainstream. It's becoming more of a, of an intention grabber. Um, and it's hard to ignore when you continuously perform at, at the rate that the market has.

Stephen: I am curious, what are your thoughts? You know, you said you, you saw crypto personally early. What are your thoughts about like, you know, ETFs, this is not the Bitcoin ethos. It's supposed to be decentralized, they're not holding the underlying asset. What are your thoughts around those conversations? Or is it more important like, hey, this is getting crypto into more people's technically hands and more people interested in it?

And naturally they'll go down the rabbit hole of checking out DeFi or NFTs or, you know, staking on Bitcoin or whatever the new hype thing might be in Ordinals. What are your thoughts about like, hey, this is not really part of the original ethos, versus like, Hey, I thought you guys wanted adoption and the institutions were the, the gateway to do so and this is what we're bringing you.

Federico: I think it's a, that, that's, that's a pretty good summarization of my POV. Uh, look, I think ultimately all these products, whether they're ETFs or, or a bank offering, you know, access, it's all bringing capital that's allowing builders to continue building in the ecosystem. Uh, and so to the extent that crypto native solutions are able to go out there and the use cases compete with legacy, you know, offerings from traditional markets, that's when crypto's going to win.

But for now, what we need to focus on is bringing more and more resources into our crypto community so that individuals can continue innovating and building companies that are going to challenge the existing, uh, incumbents from outside of the crypto world. Um, so that's my personal perspective now on, you know, is it too centralized or not?

Um. I think it's a, it, it's a necessary step here in the, in the maturity and the evolution of the industry, if you will, um, to get us towards where we all think that this market can go and, and head in the next five years.

Stephen: And it depends on what you want. Do you want a big business or do you wanna be a libertarian? Which is fine either way, but you can't, it seems like you can't get both bites of the apple. You can't be, Hey, we're not doing KYC and still build a big business these days.

Any other exciting announcements coming outta the 21 shares team?

Federico: Uh, we have a lot of new products potentially coming to market here in, in Q4. Um, so I would ask everybody to stay on the lookout. Uh, depending on what your investment preferences are, there might be something coming for you, um, here over the next couple of months. So we're, we're really excited. Okay.

Stephen: I love the suspense. A little something for everyone. Where's the best place for people to find you? Federico. Are you LinkedIn, crypto, Twitter? Do, do they gotta meet you down? Do they find you on the trading room floor? Like where's the best place to connect with you?

Federico: They can find me in, in, in New York City anytime, but no on Twitter. You can find me @Fede_Brokate. Um, and then you can find @21shares_us for, for our company account, and then 21shares.com. If you wanna read a little bit more about our firm and our, and read our research.

Stephen: is there a huge difference between like your US team versus your global teams? Is it like, uh, is there jurisdictionally? You have to have separation? Like, I'm curious, when you say 21 shares like us, is there a huge, um, discrepancy? There has to be like legally or regulation wise.

Federico: Yeah, it's a compliance difference that we have to have an account for the US business and one for the European business, just so we can cater towards what regulators in each market, uh, want to see. Um, but otherwise, uh, it's one single team, uh, and, and we're all working together on both sides of the, of the Atlantic.

Stephen: I'm curious, you feel like you have an entrepreneurial edge to you, like you just feel entrepreneurial just by the way you talk. Uh, is there any, you know, books that you were reading or any podcasts that you're read or anything that has like really shaped your mind into these traditional markets? But still has you like DJing every now and then?

Like for me it's probably, I listen to a lot more all in podcasts than any Canadian should, uh, which has me like very pro-Trump all of a sudden. Um, but is there, is there anything that you're reading or listening to that's of interest that you think to other people?

Federico: So I, I'm one of those people that I listen and read things that have nothing to do with my day-to-day life. Um, so I, I will, I will listen to podcasts that are related to crypto. All, all of the popular ones that you can imagine are certainly on my, on my, uh, frequented list. Um, but I, you know, I think the last book I read was on vacation in August.

Uh, I read the will of the many, it's called by James Sington. It's completely like, you know, star Wars type book. Nothing to do with crypto or with traditional finance. Um, and then on the podcast side, I've been really into. Uh, it's actually a UK podcast called, uh, the Rest is History, uh, which is, it talks about all sorts of like historical moments and like kind of reanalyzes them and talks about motivations and the characters involved and all that stuff.

So I get far away from the day to day when I am in my personal time.

Stephen: I really appreciate you taking the time. Federico out of your busy schedule in New York on the Friday to join us today. Congratulations on the launch and hopefully we get to meet in person soon.

Federico: would love to. Sounds good.

Stephen: Awesome. Thanks so much.

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