The Journey From Crypto Market Maker to Financial Powerhouse with Joshua Riezman of GSR

This is DeFi Decoded, the conversation show with the leaders, builders and investors pushing the internet's next economic frontier, hosted by Alex Tapscott. This podcast is for informational and educational purposes only and does not constitute investment advice. Nothing discussed on this show should be considered a recommendation to buy, sell or hold any securities or digital assets. The hosts and guests may own positions in some of the assets mentioned.

Listeners should conduct their own research and consult with qualified financial, legal and tax professionals before making any investment decisions. Hello and welcome back to another episode of DeFi Decoded. My name is Alex Tapscott. We've talked a lot recently about Wall Street's belated adoption of crypto.

And just today, there was an announcement of a new stablecoin project, OpenUSD, backed by Visa, MasterCard, Stripe and a handful of legacy financial institutions. And while it's all very well and good that traditional firms are adopting and maybe even co-opting this technology and asset class, there's actually another story that's happening, maybe a little behind the scenes, that is pulling industry in a different kind of direction, which is that a new generation of crypto native firms, which have been around for several years, are starting to evolve in really interesting ways beyond what I would describe as an original sort of niche to become a full-service financial institution.

So, for example, companies that started as market makers or exchanges are now advising clients, raising capital, investing in companies, structuring deals, facilitating M&A, and really building global financial networks outside of the home market where they've normally operated. And really, I think, positioning themselves in a way to compete with and perhaps even to disrupt incumbent firms. After all, if we believe that we're headed to a world where blockchains are this foundational infrastructure for financial services, where assets are tokenized, trading 24-7 on these permissionless networks, then it should make sense that crypto-native firms actually have that first critical mover advantage and the institutional know-how to potentially, well, to compete and maybe even to lead.

So one firm that's at the center of this evolution is GSR. And we're really lucky today to have an excellent guest to tell us all about this broad-based trend that's happening in the market and how GSR is positioned. And that is Josh Reisman, who's the chief legal and strategy officer at GSR. Over the past decade, GSR has established itself as one of the leading names in crypto market making and institutional trading.

These days, the firm is expanding well beyond market making into strategic advisory, capital raising, venture investing, and helping founders and institutional investors gain exposure to and ultimately navigate what I would describe as a rapidly evolving digital asset landscape. Before joining GSR, Josh was assistant general counsel at Circle, which is one of the true pioneering firms in crypto, where he focused on product and regulatory matters. I suspect that was a very busy job as Circle was really pushing the frontiers of finance forward, but always within the regulated market.

And before crypto, he advised global financial institutions on trading, clearing, and custody in securities, commodities, and derivatives. He held to JD from Fort Emolana, BA in International Affairs from GWU. Josh, welcome to DeFi Decoded. Thank you so much for having me, Alex.

Great to be with you. Yeah, absolutely. So GSR kind of built its reputation as a market maker, but today it's becoming much more than that. What is driving the firm's evolution into advisory, capital raising, and all these other sort of adjacent areas?

If you look at it, like our evolution as a firm now well over 10 years looks a lot like our traditional finance peers. And I don't think that's where we thought it would have gone. But you kind of follow what your clients are asking of you. And you kind of see where the business takes you.

And so starting in our kind of earlier days, it was really before market making, it was kind of OTC transactions really around Bitcoin is starting to bring liquidity to very early digital assets. But very quickly, what the firm found out was for these nascent networks, once you move beyond Bitcoin and specifically probably after Ethereum, you know, if you were starting up a nascent network, one of the things you needed most clearly was liquidity, meaning users needed access to your tokens.

Seems very obvious now, but that kind of, you know, filling the gap in a very bifurcated liquidity environment and with, you know, where the tech was still evolving and very nascent, was super new. And that's how GSR really made its bones, was providing that liquidity mainly on kind of these emergent centralized platforms, then eventually on to decentralized platforms for these nascent networks. And what we always say is, you know, what's so different about crypto and seems so obvious, but I think it gets simplified when the world sees them just as assets like any other assets.

So these tokens are generally meant to be used in networks, and therefore you need access to it in a way that's very different from something like an Apple stock, right? You don't need access to your Apple stock for your iPhone to work, but you need access to your ETH for Ethereum and network work. And that was the case for many such projects and networks going forward. And so liquidity, and I think market makers who provided that liquidity, kind of ended up taking an outsized role in the ecosystem because they were central to connecting kind of these startup projects with their users.

And so it was a really privileged position for GSR to grow. And then in that kind of ecosystem, right, of dealing with entrepreneurs, we started to be asked more questions and how we can help more as kind of a financial partner. And so you look at these services that we added over time, and it's like, oh, it seems like it was inevitable, but it was really from client demand. So first, like, hey, you know, we heard about UGSR, you work with entrepreneurs, can you help us invest, right?

So we started a kind of a VC arm, and we became one of the most active investors in the digital asset ecosystem. Clients said, hey, look, we're looking to trade, we're looking for risk management strategies. So from, you know, proprietary trading and VC, then all of a sudden, you have kind of an OTC business, right, where you're providing liquidity over the counter to customers, both in spot, but also increasingly in derivatives over time. And then what we found, I think over the past few years, was our clients were looking for more sophisticated help across a wider range of elements.

And we really, we always looked at ourselves as, even just as a market maker, as kind of a partner to our clients. And increasingly, it's like that capital markets partner, and that we think we should be able to help clients and really entrepreneurs in the digital asset industry from incubation of an idea through execution, listing, liquidity, asset management, and then beyond into capital markets transactions, which I know you have a lot of experience in and we'll talk a little bit about today.

So we started to build out all the pieces we need to be able to provide that full lifecycle support. And so we went on over the summer and purchased one of the leading advisory firms in the space So both autonomous and architect were kind of added under the GSR umbrella. And that allows us to provide both kind of initial advisory, both tokenomics, token design, listing, go to market. But then actually on the ground and came in kind of foundation services as well.

So as you typically in the case, when you develop a token based project, generally you're going to have a foundation run that activity. Although, you know, there's a lot of different ways to make these things work. But now we have folks who with specific expertise in kind of token services and specifically navigating places like the Cayman and BVI as well. So we think we have kind of the full offering to really the way we look at is help entrepreneurs realize their vision of digital assets.

Yeah, that's terrific. So one of the things you said in describing that was that in a lot of ways you were responding to what clients were asking for. Curious, what are clients asking for today? Like, what is the latest version of this?

And where do you think that's going to take you as a firm? So some super interesting things. One is, you actually touched on the open, is for a long time we, and I worked a circle, but for a long time we had one, two stable ones. And that was a large part due to regulatory uncertainty.

With the passage of the Genius Act in the United States, we've seen a proliferation in kind of stablecoin and stablecoin design and RWA-backed type stablecoins. And they're looking to GSR for both kind of, let's call it advisory and liquidity support. And what does that really mean, right? And that is plugging into what is really our built-out infrastructure now to be able to provide the movement of tokens across centralized platforms, decentralized platforms, individuals wallets.

And so we have that built out world that if you develop a new stablecoin, you can kind of just plug into and we can provide that liquidity around the world. So that's been a fun, interesting development and something that's been increasing over time. The other thing we've been seeing is increased desire for more sophisticated kind of asset management. So we have been building out GSR asset management, which provides dedicated kind of crypto native asset management to foundations, to crypto foundations who are maybe token rich and cash poor, where we can provide both kind of lifecycle assistance, cash planning, and risk management strategies to help them kind of manage their cash flow over time and exist past any single market cycle.

And we've been building out our asset management offering, including the things like an ETF that we rolled out recently on NASDAQ Superfund. And then you know I think lastly what I say is we increasingly find developed digital asset projects that as they make it to kind of the boss level right they grown up they probably have some sort of market fit independent of what the token price may do but they generated you know some revenue and probably have some sort of market fit independent of what the token price may do but they generated some revenue and probably have some assets in the foundation They're looking for kind of capital markets types of transactions.

And where can GSR help them with our expertise, both in our U.S. broker-dealer, our offshore securities capabilities, and help them bring to market. And so, last year, we helped some firms.

I think we spoke about at the time, Alex, try to engage in digital asset treasuries, right, where they had a token. They wanted to see that token have access into a NASDAQ-wrapped vehicle. GSR was able to partner with some banks on the street and help bring some of those to market. And we have projects looking to talk to us about SPACs and other types of ways to merge this, to play this convergence between digital assets and capital markets.

And then lastly, sorry, I'm sorry, I'm a lot of things, but I think your question was a good one. And this is what we see is, it wouldn't be right if we didn't talk about RWAs, which is in the past, let's call it four months, five months, we've had more discussions with RWA type projects than in my whole time at GSR. And so what's abundantly clear is the tokenization moment is not only upon us, it's in full swing. And we think, you know, pretty much all assets that can be tokenized over time will likely be tokenized.

And again, we have a role to play for those clients, both in an advisory and kind of liquidity and trading perspective as well. Yeah. Well, I mean, I want to touch on that in a second because you said originally one of the big opening opportunities was making markets and productive assets during the cycle when that's when most projects, that's how most projects were designed. And now it feels like that's taking a backseat to RWAs and this explosion of stable coins, which even though they're not productive in the sense that you don't need to own them to access an application or use it, liquidity remains extremely important.

If you're a stable issuer and you want people to use your stable coin, you want it to be fungible and useful, which means having liquidity. So it's actually quite similar. And I imagine that that proliferation of these new kinds of assets almost creates an even bigger opportunity because, you know, I think that the token design where you're a user owner of a network is really interesting, but it may never grow to as big as, let's say, all assets, like the dollar or stocks or tokenized real world assets, as you point out.

So you mentioned also another thing that I'll frame as a dilemma, which is people are coming at you saying, help me with the treasury strategy or help us with the SPAC or help us with this or help us with that. And there's so many opportunities, but at a certain point, you do need to specialize or you need to focus, right, and put these things into sequence. And I'm wondering, like, how do you think about that? And also in a related way, like, how do you think about where in the life cycle of a project you add the most value?

Because in the traditional world, historically, there are sort of venture capital firms that fund early stage startups. Then there are investment banks that help them go public and trade public securities. And they're sort of operating in different stages of the cycle, the business cycle and the life stage of a company. But when crypto, it's early enough that you're sort of touching every part of it from beginning to end.

So is there, A, how do you sequence all the opportunities that you see? and B, how does that relate to what stage of the project or stage of that part of the industry you look at? Yeah, I know. I think that's just a great question.

And like you're touching on one of the most difficult things it is, like, you know, being in management at GSR running. So we're about 250 people now globally. And we have offices in London, New York, Singapore, Canaan, Spain, in Switzerland, right? So we're quite spread out because crypto is quite spread out.

You guys need a Toronto office. I know. Canada is one of the few places we're missing. But I'm trying to put a pause on new offices as it only adds more complexity.

And so as a business, we have this challenge of dealing with the complexity of 24-7 global crypto markets. And to your point, how do we stay focused with all the incoming? And we like to be kind of a part of everything. We want to try new things.

We want to be innovative, but at the same time, we have to kind of narrow down our focuses. And so the way we've tried to deal with that is, is by establishing kind of very clear business lines. And within those business lines, giving them the flexibility to pursue their best opportunities. But it can't be the case that all 250 people at the firm are working on kind of everything all at once.

And so increasingly, we look like, I would say, you know, you know, traditional investment banks, even though many of those who joined crypto hate that fact, right? You didn't join a crypto trading firm to end up looking like Goldman Sachs. Yeah, what you find is, you know, you can only reinvent the wheel so much time when it comes to reorganizing a company. And so it helps us to think about the kind of business lines of that we help, you know, like I said, we help bring projects to market, we help provide liquidity, we do our own proprietary trading, we do asset management, and we help on the advisory side.

And so we can then now focus in within those areas with the management of each one of those business lines and say, what do our clients in this area need the most and provide that to them? That has to ultimately be your guiding line. Although you can't, you have to, in crypto especially, you have to make bets. And we recently are making bets on the future of where we think we're going.

So this is things like RWA, which is, okay, I would tell you today in RWA, there aren't that many folks making a lot of money. Let's just be clear, right? Yeah. The value capture is going to tokenization and tokenization, you know, will increasingly be commoditized.

I think even the big platforms will, will do with that. And so we want to find in that space where we can provide the most value and what we, you know, that might change over time. But I think that's a combination of using our strengths and our infrastructure that might be different to others. So, for example, if you are a traditional, you know, equity player, you might say, I can come in and make markets on Nasdaq, even if they tokenize it.

And GFS is absolutely. But I think where we see our strength is with our built out infrastructure and connectivity to all of kind of global crypto. We can not only make markets there, but we can help that liquidity go where it needs to go. So it's building on top of our infrastructure to some extent as a moat, as a big part of our business offering to connect the various business lines.

So for RWA issued in the United States, can we help it get the DeFi platforms on other crypto native exchanges in addition to kind of foreign platforms? And so in order to do that, it's both an infrastructure challenge, but it's also kind of a regulatory challenge. How do we make sure we have the right set of kind of global licenses to provide this activity everywhere that it needs to be provided? So I think that's kind of a mix of A and B, but it's how we think about kind of narrowing the scope, organizing ourselves internally, and then using our built-in advantages to provide the best kind of service that we think we can provide.

Yeah, I mean, it's a great answer, Josh, and helped me to understand it a lot better. One thing that I'm really curious about, let's use RWA as an example, which is that there's the origination of the asset, right? Like, let's say you're underwriting a sale of tokenized assets, and you're trying to find buyers and you earn fees for that. Then there's like making the market and facilitating trades on like an agency basis on behalf of buyers and sellers who want to own this stuff.

And then there's follow-on financings, which would say like, you know, if you're growing the AUM of this vehicle or company, then continuing to like grow within the lifecycle of the asset. But then you mentioned this other thing, which I think is kind of crucial, which is that how do you take these RWAs and use them as collateral and DeFi protocols? Or how do you integrate the traditional world, which effectively is what this is, is tokenized traditional assets into the on-chain financial ecosystem?

And I almost feel like that more than anything else is part of the secret sauce because firms like Goldman and JP Morgan can hire 250 people to do this. some of them already have right like and maybe that's maybe they'll buy gsr to to do it easily um you know they already have you already have gs in the name you're you're thirds of the way there but um but uh but probably they'll start by by hiring but and they may be able to like you know woo clients with a big name and like help do origination and so forth but actually bringing it on chain and integrating it into that ecosystem is not a trivial matter it's the kind of thing that you actually have to know what you're doing in order to do.

And it takes like, you know, there's like, there's a quality that's hard to define that's like almost like taste is like, you have to kind of have a sense of relationships in this space as well. So one of the things GSR spends a lot of time doing sometime to our detriment, but mostly I think it's a core strength of ours is business development, which is you should know most of the people working on these projects around the world and be able to build trust over a long period of time.

And you could come in as a big player and potentially provide certain services, but you're not going to really do what we do, which is on the ground crypto native investment banking type business that we've been doing for over 10 years. So one of the common questions we always get, I know other market makers get, is, wow, you guys are cooked when Citadel comes in and starts. I'm like, Citadel's not, you know, the businesses are not the same. Most of the revenue for a firm like GSR is not in the bid-offer spread like you'd see in traditional business.

It's providing these services to clients and really developing and maturing relationships over a long period of time from really nascent projects until they can grow. And in that sense, it is far more like an investment bank than it is like a trading shop. Yeah it like we take a lot of pride in our trading capabilities right Yeah And that we hard earned over time But there no doubt the overall kind of stance of the firm ends up looking for us And I think it is different. I think different trading firms take different approach to how they do it.

But we've kind of come at it as a capital markets partner perspective because there are clients behind all these token projects. and these platforms and these exchanges. And so it's really about how do we serve our clients mostly, not entirely, but that's most of the business. Yeah, for sure.

It's like what's, it's the difference between a client and a counterparty. You know, like are you in the business of extracting value from the people you're trading with or are you trying to create value on behalf of clients who you have long relationships with? And in the trading business, like there's lots of trading for your own account and making money and so forth. But in the long run, it seems more of that relationship business.

So I'm wondering then, and I don't want to lean too hard on this Goldman Sachs of crypto type analogy, but, you know, there are firms that dominate the traditional world of investment banking today, are modern institutions that use a lot of technology, but they are in most cases at least 100 years old and have all sorts of legacy culture and infrastructure and in some cases technology as well. And so the question is, like, how much of that world do you adopt as your own? Because there's like clearly a lot of smart people have built great businesses doing that stuff.

And how much do you invent? Because you have an opportunity to think about this from first principles. Yeah, I think what's great about it is we're able to basically come in from the other side. Right.

So I'll give you an example of why it's difficult inside at a bank. Obviously, I worked in traditional finance for 15 years on the legal side. Yeah. I was at a firm that was going to try to clear one of the first kind of Bitcoin futures.

This is a cash settled Bitcoin future. What company was that, Josh? So this is at Sissi State General, right? Sok Chet.

Okay. And really innovative. And they were very thoughtful about engaging in this space from early on. And you see it with their activity now.

But even then, when they wanted to kind of clear that first Bitcoin future, which is really a cash on the product, you're not touching it in crypto. there's no digital asset involved. That had to go all the way up to Paris, right? And be litigated with rooms of dozens of people in order to agree to touch this new thing called crypto.

And when you're as highly regulated under the microscope as these big banks are, you understand why they take the prudence. In fact, I think users of those institutions should take a lot of comfort in how closely they're scrutinized by their regulators, but that makes it very hard for them to try new things. So what's been happening, especially coming out of the financial crisis, regulation has increased dramatically on traditional finance players. But at the same time, crypto has been building a kind of totally separate financial layer.

And it's been able to really grow. And we've been growing in size and speed, in volume, in assets on the platforms together. and all of a sudden we're showing up and we're like, we're here for the party, right? And so GSR is able to come in kind of from the other side, which is we've been able to move pretty nimbly, especially in comparison, maybe not in comparison to now some smaller crypto firms, but in comparison to the large banks for sure, to say, hey, we'll adopt the new chains.

We'll immediately, you know, part of our business is being able to trade on a brand new chain on day one that it exists. That's a challenge in and of itself from both an attack, organizational trading perspective. And that's just not something that a big organization is gonna be able to do. And so we know that build up those bones, but now we're coming in and educating regulators.

So we were able to get a broker-deer license in the United States. We have an MLR license in the UK. We're pursuing licenses in the Cayman and uplifted licenses in the UK. We have an MPI in Singapore, because we're able to come in saying, this is who we are, this is what we built, This is our business.

This is our infrastructure. And work with the regulators to understand this new area. But we've already kind of built and done all that hard work. And so they come in knowing who we are and what we're trying to do.

And it's a little less difficult for us to get up to speed as it were, right? So we're coming in just kind of edging in from the other side. And not only that, a lot of those regulators slowly are becoming more knowledgeable themselves. So you're not starting from like very first idea about what this is.

like they have some idea as well, which I think is probably making those conversations more productive. One of the things you mentioned in your earlier answer was that as you expand globally, you're getting licensed in various jurisdictions to do various kinds of work. And I'm so curious, like, what does that actually look like? Because most jurisdictions are still in a pre-regulated environment.

I mean, we have clarity here. So we have genius in the United States. There's MICA rules in Europe. But a lot of times the regulator is still trying to fit this new asset class into some old paradigm.

And so how do you think about expansion in a compliant way? Are you fitting yourself to the way the old world works? Are you helping to, you can't alone create new regulatory regimes? Like, how do you think about that tension?

Look, I think we, over the past couple of years, we've been at a transitional moment for crypto regulations, without a doubt. The way I kind of think about it in my mind, it kind of looks like a lunar eclipse, you know, where you have the moon coming to cover up the sun, right? And that there used to be a lot of places, a lot of sun space where you could organize, you could be, you could exist without being regulated, to your point. There are jurisdictions where crypto is pre-regulation.

But that surface area has now gotten dramatically smaller, almost to the point of, I would say, non-existence. meaning the jurisdictions left with no regulatory framework, let's put the U.S. aside for a second, it's almost, they're almost all jurisdictions you would not want to organize a reputable company.

Right. And so that's now across the world you have comprehensive regulation. You have it in the UAE, you have it in Singapore, you have it in the Cayman Islands, right? You have it in the U.

K., you have it in Europe, you have it in Australia, right? So there's really not many places where you can organize a business and avoid regulating even if you wanted to. And so what we take a lot of pride in is that we were forward thinking about this and said, hey, where do we want to be as a company?

Meaning where do we want our employees to be? Where do our customers be? Where do we want to be? And so we have been in the United States.

We've been in the UK. We purchased, obviously, Autonomous in the Cayman Islands. We've been in Singapore. And we've been in these jurisdictions now for many years with the full understanding that we are going to work with regulators and then comply as these regulations come.

And more than comply, actively engage in the process. So both in the UK and in the US, for sure, and in Singapore as well, we've been actively engaged with regulators for years about the evolving regulations. And then proactively kind of being first to market in licenses that we think were available. So we were the first trading firm that had both kind of a UK MLR and a Singapore MPI.

We thought that was a nice kind of place to start. Yeah. Because we built that, it's now a much easier build to address the more comprehensive regulations coming into place. So the UK crypto asset authorization that actually today they just kind of finalized all the pieces ahead of the September window to apply.

You know, we'll be first in line to apply in the UK for the crypto asset authorization. But because we've done the hard work over the past two, three years, not only from a legal compliance standpoint, but from a full firm perspective, right? This is a mindset to some extent that we're going to grow up in a there's no way that this is going to be an unregulated business forever if it grows to the size we want it to grow. And so that was part of reasons of me joining GSR was to help the firm kind of with that long term planning where we want to go in that space.

Yeah, great. It's a great answer. And I mean, I think people don't really appreciate just how far regulations actually have come in a lot of these different places, which makes the timing really good for a business like yourself to grow really aggressively. So just thinking about the future a little bit, what are some of the areas where you see not just growth in the industry, but like growth for GSR?

I'll give you one thing which I think is really interesting because I've been around long enough to remember the ICO boom that happened in 2017. And that was a period where there was an incredible amount of capital formation happening around a bunch of really interesting startups and also a whole bunch of other things that turned out to be scams. And basically, it was like a good idea, bad implementation, because what it did was it connected the market directly with founders who wanted to raise venture growth capital to scale some new thing, right, at its most elemental level.

The problem was that there was zero control over who could do it. There was no disclosure requirements, you know, and so forth. So to me, now seems like a really great opportunity to take another kick at the can for basically on-chain financing. You know, to grow a new company, maybe it's, you know, raising money for some tokenized oil and gas project, RWA thing.

but I'm actually thinking more growth and venture stage projects in the same way that some of the most exciting things in the industry, like Ethereum and Solana, came about in a similar fashion. Could you do something like that now? And to me, what's really interesting about that is in empowering regular investors to participate at the early stages of something versus having it be fully baked by VCs before being able to offer a token, you know, when it's sufficiently decentralized.

That's something that I always thought was really interesting because, you know, I grew up raising my early career, raising capital for early stage companies. And if you find the right idea in the right market, the right time, it can be an amazingly lucrative business. So that's what I'm wondering what else you're thinking about. No, I think you're totally right, Alex.

And I think you and I think a lot alike in this area I think the thing we seen with digital assets is like the most amazing way to raise capital quickly there no doubt about it right and that could be for good and for bad and that we seen you know meme coins and scams raise money very quickly and we seen very legitimate long-standing projects like ethereum right raise money extremely quickly and and since then in in very large amounts in ways that are probably changing the world and so when we think about the future of digital assets, we think absolutely.

And you know who agrees with you, I think is even the equity capital markets, right? And that if you see what platforms like Securitize and Superstate are working, I actually do think it's quite interesting in that on one hand, what's the reason to tokenize equity, right? Everything works really well right now. If you're in America or you're in Canada, you can log into your brokerage account, You get all the liquidity you want in these listed assets.

But, you know, I think what these ultimately when these companies come to market, they're still choosing a market. The U.S. typically is the largest market.

So they choose that market for the liquidity available in that market. But that market is still constrained. Right. And so I think the big hope with tokenization and I think equities is the cleanest way to think about it.

but it applies to a lot more assets is you can take that, let's use Anthropic or something like that. You can take Anthropic, Anthropic needs to raise $100 billion in their IPO. It's not gonna be that big, but let's just say they need to raise, you know, there might be a limit even in the US market where they could raise, but the promise of tokenization is really that can go anywhere. I can sell that digital asset, assuming the regulations work and everything's in place.

Technically, I could sell it on DeFi platforms. like I can sell it to investors in Asia and Europe, right? And that's the type of capital formation technology, right? On-chain finance that has never existed before.

And in order to do that before, you would have had to go through so many intermediaries all taking their percentage of it. It never would have been worth it. But now when you tokenize that asset, you can go straight to buyers all around the world and raise money much quicker. So when we think about the future, We are absolutely building first the regulatory pieces, then the operational pieces to say, OK, you're issuing an asset, right, whether that be an equity or utility token in the United States, in the UK, in Singapore, and you want to raise that work.

How can we both help with that process and then provide liquidity, especially in the more disconnected pockets of liquidity that exist in digital assets? Because the other thing about what you tokenize is it can go anywhere, right? It can trade on DeFi platforms, it can trade on lending platforms, trade on crypto exchanges. It is not constrained to the normal limited world of assets.

This is all somewhat feasible, assuming the regulations get there. So I'm kind of speaking in what's possible. But once it gets there, there's a role for firms like GSR to plug all those gaps from a liquidity perspective. And so we think about that as the access side of our businesses, leveraging our infrastructure, to provide access to both from a fundraising, but also in our core liquidity business as well.

So I love that. And one thing I'll add to that is the idea of changing the distribution mechanism so that it's more fair. So the way it works today is you've got a group of underwriters who are taking a company public and they are getting different fills based on where they rank on the prospectus. And then their clients are getting preferential treatment based on if they're a good client or a bad client.

I'm sure they deny all this stuff, but some Korean firm was on the SpaceX deal and their clients got 0% fills. Zero shares. So it happens. It happened recently.

And I just love the idea of like a programmatic distribution where, you know, bids come in, you could do Dutch auction, you can do reverse Dutch auction, you can, you know, bids can come in, people can get filled percentage-wise or whatever it may be. And you can just say, like, these are the rules, and then that's how it gets executed, right? And I like that idea of making it, like, making the math do most of the work for how it gets distributed. And then the access point, too.

One, just to play devil's advocate, though, we've had one of the biggest capital formation periods ever here in the private market and the public market, but especially the private market around AI, right? And every one of these AI companies is doing it the old school way, pretty much. They're going to brand name VC firms, getting, you know, money on VC terms with the hoax of selling or going public at some future date. So it seems like, you know, maybe it's just an idea whose time has not yet come or it hasn't been structured in the right way or what have you.

But to me, this seemed like this would have been a really interesting test case for a bunch of early stage ventures who are looking for access and distribution where they can't get it. Maybe it's that the market is so frothy, everyone's getting access. So that's not the issue, right? But it's one of those things where, you know, one of the biggest deals of the year, they're all IPOs that everyone's talking about, right?

It's Anthropic, OpenAI, and SpaceX. So that very much feels like, you know, when I was nine years old in the dot-com era and everyone was talking about, you know, IPOs of dot-com companies, which I vaguely remember. So why do you think that that's still happening here this time and will it change? What are your thoughts on that?

Yeah, a few pieces on that. One is those are so large. On one hand, you think they'd be good. On the other hand, the numbers that they're dealing with are so high.

The natural place for them to seek those dollars are in huge pools of money, right? You see that in kind of big venture rounds, funding from the Mideast and, you know, kind of mineral and oil rich sovereign wealth funds. But there's just not enough on-chain wealth yet to really play at that level. But what the expectation is as the proliferation of stablecoins continues is we're just going to see more money on chain.

And as more of the assets migrate from literally more of the wealth of the world migrates from traditional finance to the on-chain world, you know, these companies like this are going to go to where the money is. And we expect them to then increasingly come to the on-chain finance ecosystem to seek funding. That's kind of point one. The second point is I thought what happened with SpaceX actually was a watershed moment for crypto in a way that I think maybe kind of went under their radar.

Yeah. On one hand, what we saw was tremendous demand that was not filled, to your point, for SpaceX on IPO, that the links were just not there yet. So the demand was there on all these crypto native platforms. We're able to generate demand for SpaceX IPO.

but then I think almost none of them got fills or they got very small amount of fills where most of that demand was not met. So we think that's a big space of unmet demand where it's kind of a piping regulatory issue before we're going to be able to really fill that and also somewhat of a political issue with the underwriters to get those allocations to the right place. That's probably one. The second is if you look at what some of the most traded perps were coming out of the SpaceX IPO, So SpaceX PERP became like, I think the second most traded contract on Hyperlink, for example.

And that's amazing, right? We're saying equity-linked PERP swung to the top of the crypto markets as a place to obviously hedge what is equity exposure that wasn't readily available in the crypto market. So it's using the native crypto derivatives markets in this case to probably hedge out or take a position in traditional finance. Yeah.

And so I think this crossover moment shows the power of, hey, maybe I can't get SpaceX, but I have this on chain wealth. I can I can get the derivative equivalent on various platforms. And one point on that, which is that the pricing on Hyperliquid in the days leading up to the IPO were more accurate than what the underwriters had priced the deal at. Having said that, or I guess it was Elon who priced the deal, technically.

And maybe he was thinking, leave a little on the table so everyone makes money. It'll make it easier to justify future deals, which is something that you could do. But it was interesting that the actual market price for where the stock traded on the first minute up until the end of the trading day on the first day was more was closer to the hyper liquid price than it was to the initial IPO price. So in other words, like the on-chain market did a better job of like efficiently pricing the asset in the traditional world, which I thought was also really interesting.

Absolutely. And I think we're going to see more of that, again, of like people looking for traditional finance like exposure on chain because it's easier and in some cases potentially represents a better price source. Yeah, absolutely. Josh, this has been such a fascinating discussion.

We've covered a lot of ground and I knew it was going to be really rich in detail and good example. So thank you so much for joining the show. for people who want to learn more about you and the firm where do you recommend they check you i think they start at gsr.io come check us out um you know learn about what we're up to i think we're we we've had a busy first half of the year we expect a busy second half of the year and we're we're generally excited about where where crypto is going and i think for people who spend a lot of time looking at price they're probably looking at the wrong narratives um around crypto and we're excited for them to learn more about what's happening and kind of the growth of the digital asset ecosystem overall.

And that this is probably the noisiest bear market we've ever seen. And we don't see anything stopping anytime soon. So fun time for people to learn more. Absolutely.

I couldn't agree with you more. And also it's the bear market where there's the most building going on and the most option as well. So it seems like the most paradoxical bear market that we've seen. So either the building isn't real or the pricing is mispriced.

So I think it's Probably the latter, but we'll have to wait and see. That's it for this week's episode of DeFi Decoded. I'm Alex Tapscott. Thanks for joining us.

Please check out the podcast and like, review, and subscribe wherever you get it. It helps others find it. It helps keep us going. Until next time, take care.

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