How to Fix Crypto Lending | Bill Barhydt, Abra

This episode explores the innovative solutions for safer crypto lending practices, featuring Bill Barhydt, the CEO of Abra.

1. Abra has transitioned to a 100% DeFi-based platform for safer and regulatory-compliant operations.
2. Separately managed accounts (SMAs) offer more security by ensuring individual control over assets, unlike pooled funds.
3. Abra's model represents a shift towards using blockchain and DeFi in traditional financial structures.
4. Regulatory challenges persist, with some regulators resistant to the advancement of crypto spaces.
5. Future banking may heavily integrate real-world assets with DeFi, leveraging blockchain for greater efficiency and reduced risk.

1: Introduction and Announcements

Jason Yanowitz makes preliminary announcements about upcoming events. Bill Barhydt: "We're setting the stage for an insightful discussion on crypto lending's evolution."

2: Abra's Approach to Crypto Lending

Discussion on how Abra’s unique business model helped them survive the crypto lending crisis. Bill Barhydt: "Our risk management and legal structure set us apart from failed crypto banks."

3: The Role of Separately Managed Accounts in Crypto

Explanation of how SMAs provide security and transparency, avoiding the pitfalls of pooled funds. Bill Barhydt: "SMAs ensure clients retain title to their assets, reducing risk significantly."

4: Regulatory Challenges and Opportunities

Bill shares his perspective on the regulatory landscape and how it affects crypto businesses. Bill Barhydt: "Navigating regulatory challenges is tough, but it's essential for innovation."

5: Future of Banking with Blockchain and Crypto

Vision for the integration of real-world assets and DeFi in the banking sector. Bill Barhydt: "The future of banking includes a seamless blend of traditional financial mechanisms with blockchain innovations."

1. Research on SMAs: Individuals interested in crypto investments should consider separately managed accounts for better security and control.
2. Stay Informed on Regulations: Keeping up-to-date with regulatory changes can help navigate the complex landscape of crypto investments.
3. Evaluate Risk Management: Assess your investment platform’s risk management strategies, especially in volatile markets like crypto.
4. Explore DeFi Opportunities: Look into decentralized finance as an alternative to traditional banking, focusing on platforms that offer regulated and secure services.
5. Consider Diversification: Diversify your investment portfolio to include both crypto and traditional assets, utilizing platforms like Abra that integrate these elements.

In this episode, we sit down with Bill Barhydt, CEO and founder of Abra, to discuss the company's journey through the crypto lending crash and their groundbreaking SEC approval as a registered investment advisor. Bill shares insights on the benefits of separately managed accounts (SMAs) in the crypto space and how they differ from the pooled funds model that led to the downfall of many crypto lenders. He also dives into the future of banking, which he believes will be shaped by the tokenization of real-world assets, access to DeFi, and the use of SMAs to minimize risk. The conversation also touches on the current regulatory landscape in the U.S., the potential impact of the upcoming election on the crypto industry, and Abra's vision of empowering people to be their own bank. Enjoy!

People

Bill Barhydt, Jason Yanowitz

Companies

Abra, Blockworks

Books

None

Guest Name(s):

Bill Barhydt

Content Warnings:

None

Jason Yanowitz

Hey, everyone, two quick announcements before we jump in. One empire meetup, Thursday, May 9. Six to 08:00 p.m. At the blockworks office. Santiago is in town.

We're doing a meetup. We got over 100 folks registered already. Empire listeners only you know the deal. Secret code word is bald somewhere in my Twitter feed. If you go to my past tweets, scroll back to maybe Monday or Tuesday, you'll see a link to a universe page.

Register for that totally free. Six to 08:00 p.m. At the blockworks office. Second thing, permissionless. If you guys forgot about it, shame on you.

It's October 9 through 11th. Just landed some big new speakers. We got Balaji, Chris Dixon, Sriram from Eigen Lair. We just landed Mike Novogratz. We got Nick White from Celestia.

Evan, co founder of Sui Luka from Pudgy Penguins, Kristen Smith, blockchain Association Legion from variant Vance. And Santiago joining Brian from layer zero, Tom Emhers coming out, crazy event code is Empire ten. Haven't talked to marketing about this recently, but we'll probably jack tickets up soon. Would recommend you get your ticket today. Not tomorrow, today.

So that's permissionless. Go on our website. You'll find the tickets. Code is Empire ten. Enjoy the episode with Bill Barheit.

All right, everyone, welcome back to Empire. We are recording this on Zoom, so hopefully the audio is all right for all of you. I think it should be, but we have a special episode. We have Bill Barheit, CEO and founder of Abra. So the backstory of this episode is Abra announced this launch about two weeks ago.

I tweeted out, I said, I don't think everyone appreciates how big of a deal this is. The SEC approved Abra as an RIA that can put their clients capital into defi. They're now the only SEC approved way to stake land, yield, farm, et cetera, in every state. I'd assume they got the approval because of their SMA model, which means assets are never on average, balance sheet feels like low key. Big news.

I tweeted that out, got a bunch of DM's saying, you got to have Bill on the podcast and explain this. So we have Bill. So, Bill, welcome to Empire. Thanks, man. Good to see you.

Bill Barhydt

Thanks for having me. Yeah, of course, of course. So people don't know Bill. Research engineer, both NASA and CIA. VP at Goldman back in the day.

Jason Yanowitz

Ran a P and L at Netscape in the nineties, claim to fame. Gave the first TED talk on bitcoin in 2012, launched Abra in 2016, and now it's 2024. So, Bill, I think the best place to start is talking about the story of the last 18 months. So when I think about all the. There's a group of companies, lenders, and that had both a consumer arm and an institutional arm.

Blockfi, Celsius, Genesis. The list kind of goes on, and Abro is in that bucket. They all blew up. And you guys didn't tell me the story of what just happened in the last 18 to 24 months. Sure.

Bill Barhydt

So all of these companies would use the term crypto bank lender in some way. And so bank implies that you're actually lending money to a bank, and those lent funds become a liability on that entity's balance sheet. When you make a deposit at Wells Fargo, Deutsche bank, if you live in Europe, your deposits become a liability on that bank's balance sheet. And our space was no different, except these companies were not banks. We were a little different legally in that we actually took deposits through an actual trust bank.

But that's not the reason why we're still here. The difference ultimately, in how these companies operated is risk management. Now, everyone in the space had losses in 2021. Everyone. If you lent and you were in the yield space, you had losses.

And we were public about it. We went on Twitter and we tweeted about exposure to FTX and Genesis, and ultimately, we didn't have in risk management what's called the concentration risk that the other lenders had. Meaning blockfi had all their eggs basically in one big basket. I think with Celsius, there was probably fraud. Genesis had.

Well, it was really Gemini who was using Genesis as one borrower. And Gemini had no idea what was happening, really, with Genesis books. Otherwise they probably wouldn't have done it. And then when Genesis blew up, obviously because of their exposure to FTX, three arrows and others, it created a mess for all of their clients. And so we were able to restructure and work through those lending losses, and we've actually completely stopped all activities related to new under collateralized lending.

We just don't do that at all. We're 100% defi based for our new product, which is infinitely safer and also doesn't make you a liability on Abras balance sheet. So we can get into that. But that's really the big difference, is that these lenders, to generate yield, we're doing massive loans to individual counterparties. And when you do that and you have the concentration risk, you have a single point of failure.

By definition, it's common sense, right? Meaning if that one lender can't pay you back, you're done, right? And they were, in most cases, done when the one lender, whether, you know, couldn't pay it back. That's the bottom line. What happened behind the scenes that maybe people aren't as aware of in the last 18 months.

Jason Yanowitz

Like, I'm sure there were some crazy stories coming out of this and in the trenches, like, I don't know how much you can share, but would love to hear some of those stories. Yeah, I mean, someday I'll write a book. I don't know who read it. Maybe for my grandkids, I don't know. Like, don't.

Bill Barhydt

This is. The book will be called don't do this. And the first thing is, I would say, look, how would I say this? I think that. Look, I'm just going to be frank.

I think that I always grew up believing that financial regulators, police, whoever was there in power to protect us, was always doing right by us. And their primary goal was to protect us and to serve us. Turns out that's not necessarily the case. And sometimes these regulators actually have their own agendas, and I'm not pointing fingers at anyone. Regulators, I meet most of them, and I'm like, yeah, these people get it.

They're. They're honest. They're. They may not even agree with the rules that they're implementing, but they're there to implement the rules that the legislature set right. Regulators don't make laws.

Most of them, I meet are honest, hardworking, just there to do their job. And then you get a few people who just have an agenda. Whether that agenda aligns with me or not, or our space or not is another issue. And so it turns out that there were certain regulators that just don't want this space to exist. In my opinion, they don't.

And by this space, I mean anything happening in the crypto world, they just, you know, for whatever reason, they don't want us here. And there were certainly regulators that believed that about us. And in Coinbase, we were basically having a brujaha with several states, just the same states that basically are having the same issues with Coinbase. Coinbase chose to fight those states. Meaning with Coinbase, you can't actually stake in, like, 15 or 20 states.

If you log into Coinbase, try to stake your ethereum, and you're in California, you're going to get an error message that says you're not allowed to stake in California. And I don't remember the list of states, but it's not one. It's many. We said, okay, we don't have coinbases, cash hoard to spend two years fighting this. We settled that out and we said, all right, what's a viable way to do this?

And we came up with a viable way, which I'm sure we'll get into in a minute. But this cost millions of dollars, 18 months of heartache, and probably got to a place we could have gotten to in days or weeks versus months and years. And ultimately it hurt our clients because many of them were just exacerbated. I don't want to basically deal with this. Crypto was the common refrain from our clients.

We trusted Abra for this. Please let me keep using Abra. That was the most common feedback that I was getting from clients over. Over here while I'm having please die discussions with regulators over here. And we were still here, obviously, so it all worked out.

But it was not fun. It was not fun at all. And it didn't help anyone, ultimately, even the regulators, because we're still here. So the bottom line is we could have gotten here, I think, in a more productive way. That's not a knock on anyone.

It just is. It's a lesson for me. I think it's a lesson for the lawyers who work with. I think it's a lesson for the regulators who work with. And like I said, the vast majority of regulators, even the ones that I've spoken to, they seem like very reasonable people when you talk to them one on one.

So. So how are you guys able to get this approval? We had Dave Ripley on the podcast, the CEO of Kraken, and, you know, they're. They're fighting the SEC and Coinbase is fighting the SEC. And I've heard some rumblings of some other big companies who are about to have to fight the SEC.

Jason Yanowitz

And you guys got this approval by the SEC. So how, like, how did that work out? Why did they give you the sample? Sure. There's different buckets of things going on.

Bill Barhydt

So let's be clear on these different buckets. Right. So the first is we're not an exchange. So the SEC's claim that exchanges are operating as illegal broker dealers, I don't agree with that. I think they're going to lose on that battle, and I don't even understand.

Well, I do understand why they're choosing to fight that battle, but I think it's just basically going to be a game of attrition and the exchanges will win that particular fight. But we're not an exchange that doesn't affect us directly. Second battle is around staking. And if you remember, there was a settlement with Kraken and the SEC where the SEC said, the way you're doing staking on behalf of your clients, you're doing individual security offerings for each client, more or less, is what I think the settlement was. States basically came after Coinbase, like I just said, for the same issue, and Kraken settled that issue, and Coinbase is fighting the states on that issue, just while they're fighting the SEC on whether or not they're a broker dealer for their core exchange business.

And Abra settled the issue with staking with the states and basically went to the SEC and said, we think the right way to offer staking, yield lending to crypto clients are as investments and to do it as a wealth advisor or registered investment advisor, which is the terminology they would use, and that's what we managed to get done. So that's a very different structure versus the other companies in the space. So a lot of terminology in there. I don't know if it all makes sense to people, but there are very important nuances in terms of what we're doing versus what the others in the space are doing and the approach we've taken. Nice.

Jason Yanowitz

Tell me, let's dig into smas. And the way I understand it is, in traditional capital markets, SMA separately managed accounts are very common, is the way funds are stored. Oftentimes and in crypto, the funds have been stored historically in this, like, pooled funds matter. And talking to you and a couple other folks, it seems like pooled. One of the things that was at the heart of the problem in the last blow up was these, like, this pooled funds model, I guess you could call it.

First off, is that right? That, like, pooled funds was at the heart of the problem? Second, why are smas so important? What's wrong with this pooled funds model? Sure, sure.

Bill Barhydt

So let's start with the problem, and then we'll go to the solution. So pooled funds are definitely at the heart of the problem that we had the last go around with the yield, lending, et cetera, et cetera. You have duration mismatch. You have concentration, risk duration mismatch means if you want your funds back today out of your account, I have to pay you back today. But I may have invested your assets in yield generating opportunities that are locked up for six months.

So that means I'm actually using somebody else's money to pay you back. And banks do that all the time, but they're legally allowed to do that when you dig in, you're like, why are banks allowed to do this? Because it's a managed house of cards is why they're allowed to do this. And in 2007, 2008, the house of cards buckled a little bit, and they spent a trillion dollars reinforcing the foundation. So.

So, yes, there are significant issues when you become a liability on someone else's balance sheet. The risk profile of that institution to the counterparty, which is you and I, changes significantly. Okay, now, on the other hand, let's say you have a bunch of cash when you walk into the bank. There's actually two things historically you can do with that cash. You can lend it to the bank either as a savings account, in a savings account, checking account, CD, but effectively you're a liability to the bank.

Or you can walk in the other line and say, I want to open a safety deposit box and I want to stick my cash in there. Now, when you do that, you're not getting any yields. It's just sitting there, might collect some dust, but you're not a liability on the bank's balance sheet. Meaning, regardless of what happens to the bank, if you walk into that bank and say, I need access to the safety deposit box, whatever's in there is yours. So that's the difference between the safety deposit box and the deposit model.

Think of a separately managed account as closer in structure to the safety deposit box. With one exception, which we'll come back to. The most important aspect here is that with the separately managed account, it's like a vault where you retain title, that's the legal phrase. You retain title to those assets that you put in the vault. Your bitcoin, your ethereum, your stable coins, your solana, whatever it is, the difference is.

Now, from that vault or separately managed account, you can actually deploy the crypto into investments, and we can direct those deployments for you. Right? But you're retaining title to the asset. So if you say, I want to earn yield, I want to stake my Solana, I want to stake my ethereum, I want to earn yield on my bitcoin, I want to borrow cash against my bitcoin holdings. All of that can be done for you from your individual vault.

But when you make a withdrawal, remember what I said? What happens in the bank model? You're actually getting somebody else's cash back, because there's always a duration mismatch in bank deposits. Not only that, they've lent out your deposits multiple times in a bank. That's why banks operate outside of traditional laws, because they're allowed to lever themselves where you and I are not allowed to lever ourselves with other people's money.

With a bank, with Abra, with the SMA model, when you do a withdrawal, it's always your assets you're getting back because there's no pooling of funds. You see the difference. So with the bank, you don't know whose assets you're getting back, and you don't care as long as you get them back until there's a run in the bank. Right. And that's what happened last March when Silicon Valley bank failed, because people were withdrawing.

There was a duration mismatch because they had all these long duration bonds that were being marked to maturity on their balance sheet using interest rates going out forever, but they were actually worthless or worth significantly less because interest rates were going up all of a sudden when they had to sell these bonds, it didnt work. My point is that the SMA model is infinitely safer because you retain title. When you do a withdrawal, you're only withdrawing your own assets. You're not in a pooled model, and you're deploying the assets directly to earn, yield, to borrow, et cetera, et cetera. And you have an advisor as a fiduciary in Abra that is responsible for maintaining the integrity of that SMA account on your behalf and making investments on your behalf, per your wishes and risk tolerance and profile.

Jason Yanowitz

If smas are such a better model, why doesn't everyone do them? Well, in the crypto world, it's hard. Hard because you're not pulling funds and you have one vault per client. And if you're deploying into deFi, it's infinitely easier to pull everybody's funds into one big pot and sign one smart contract than it is to sign a million smart contracts for a million clients, which is why no one else has done it. In the equities world, it's extremely common, right.

Bill Barhydt

Trillions of dollars are managed via separately managed accounts, mostly for higher net worth investors. But I think that this is going to become the standard for crypto for two reasons. One, it's closer to using crypto the way it was meant to be used. It's your vault. So it's, it's, it's as close as you can get to not your keys, not your coins, and still be able to earn yield, stake, access, lending, et cetera, et cetera.

Because if Aber goes away, you still have your stuff, right? And two, you can earn yield, you can borrow, and you can do all the things that you want to do without having to go full on Degen and understand metamask and smart contracts and all this stuff, you can understand that there's risk disclosures. We explain how it works. All those things are there. But you don't have to go as deep as somebody who would have to go if they were managing all their assets directly in metamask, for example.

Jason Yanowitz

So how do you actually do this? I'm trying to picture if this. I mean, if this works and people use Abra. I mean, I know you already have a lot of customers, but let's say you have 100,000 customers. It's not feasible to sign 100,000 individual transactions to deposit.

Bill Barhydt

It is feasible. It is. Okay. All right, tell me. So, it's just a lot of work.

So, we've built a platform, an SMA platform, on top of our custody partners that meets the qualified custodian rules of the SEC. Those rules are pending, by the way. They're not official rules yet, but I believe, as my understanding, I'm not a lawyer, that we would meet the spirit of the rules today. So we kind of took it upon ourselves to do that. And each client gets their own individual SMA, and their individual account is deployed, and we've built the solution.

And it's an automated model. So when you come in, the creation of your vault is automated. The custody of your bitcoin or your ethereum or your stable coins, your USDC or tether, it's all automated, and you can either deploy yourself or tell us what to do, and we'll push a button and. And deploy for you. But effectively, it works across 100,000 clients, the same way it should work across ten clients.

Jason Yanowitz

Can you tell me more about the Defi activations? Where are you putting? Are you using? I don't know. How do you determine that?

There's no spark. Contract risk. Is it just what I'd call the tier ones on Ethereum, like Aave and compound and lido? Yeah, I think that is the single most important question as it relates to how we operate, because everything we're doing now, whether it's yield or staking or lending, it's all based around DeFi and smart contracts. Now, I actually think this is a breakthrough.

Bill Barhydt

Let me give you a story. First, go back to remember the Celsius bankruptcy, when people, at the beginning, everybody was clamoring around, oh, you know, who are the counterparties? We have to go after them. They didn't pay back the loans, and then Celsius actually made a payment into a Defi loan that they had and as I recall, the judge was a little upset and they had to explain to the judge that, hey, we have no choice. If we didn't pay back this loan, we were going to get liquidated.

Right. And the bankruptcy court exactly what they had to do when they paid back the loan, whereas everybody else had to wait. The point is that DeFi is a better approach because it doesn't care about your bankruptcy proceedings, it doesn't care about a lawyer's opinion. It's just code and it works.

What we've done is we've built a team that analyzes all the DeFi protocols out there. We deploy our own assets. We test for weeks at a time. We're generally only using larger tried and true large Tvl total value locked protocols that we believe have proven themselves to be safe over time. But there are risks.

There's always smart contract risk and we disclose all that. But relative to everything else that transpired, we think and we believe that the risks here are minimal. And that's why we're not using the newest with any large amount, ounce of assets. And we'll test for weeks. Sometimes we'll miss opportunities.

But that's okay. Our clients would rather have us be prudent. You're already taking principal risk if you're holding Ethereum and Solana and bitcoin. Yeah, staking makes sense. A lot of our clients stake Solana using Abra or Ethereum using Abra.

That's fine. But they don't want to take crazy incremental risk versus the principal risk they're already taking. Doesn't make sense. That's what our team does is we analyze those smart contracts in order to make smart recommendations to our clients. Uh, what protocols do you guys use?

Jason Yanowitz

Like if I looked on the Abra platform, like what are the top five D five places where you've put capital? Yeah. So we stake using the standard places like a marinade. For, for. For.

Bill Barhydt

Um. For Solana, lido. For Lido. I don't know how you say it. For.

For ethereum. Um, and there are other couple of other staking protocols places we use, services we use. We use Aave for lending and yield compound as well. We've used GMX on the trading side when the yields there were good, almost like a carry trade model. So there are different places where either earned yield or even when you're borrowing, to be clear, this is really cool.

So traditionally in the last go around, if you were borrowing from Blockfi, Blockfi was the counter priority to the loan. If you're borrowing against your bitcoin. Right. As an Abra capital management client, you are. You are not borrowing from Abra.

You are borrowing directly from the DeFi protocol. And what we're doing is we are putting, signing the contract, whether it's aave compound or another protocol that puts your bitcoin on that contract and pulls out the requisite amount of stable coins per your instructions. And so your counterparty, even there, is the DeFi protocol. How do you think about the evolution of Abras business? As, like, when I hear so, okay, so that's really cool.

Jason Yanowitz

But the maybe downside is that you're kind of operating as an access point to protocols, and maybe that's a short term thing where maybe in five to ten years, the risk of using Aave and, like, in the mind of an institution goes away and they just go straight to Aave. How do you, like, think about that dynamic? Yeah, I like it. You know, if you look at it that way, Netflix is an access point for HTTP and RTP streaming protocols, right? And how you add is they're using the Internet the way it was intended to be used.

I don't even know what those protocols are, honestly. It doesn't matter. It's just their standards. Right. So I think that says it all.

Yeah. Yes, exactly. Thank you. That's exactly my point. Everyone is going to.

Bill Barhydt

Every bank in the world is going to be using these protocols, and the consumers are not going to know it. Now, we're doing it as a wealth advisor today because the banking system hasn't caught up to this yet. And we're very early. I mean, I was with a group of Ria CEO's yesterday. They probably half a trillion across the 15 of them.

They were learning about this for the first time. Right? And we're out there doing it for their clients. Right? Because they don't offer crypto to their clients.

And so we're educating them on how to do that through us. But most importantly, to your point, they don't understand how this works, but they're hearing rumblings that their clients want it. I don't want to be holding my bitcoin on Coinbase. I don't want to be holding my Ethereum on Coinbase. I can't stake it.

I can't borrow against my $5 million worth of bitcoin. How can I do that? And so, no one at scale, as an end user is going to understand the complexities of any of these protocols. Just like the average money market user doesn't know what a reverse repo is, and they probably don't feel that they should have to. I would claim it probably helps a little bit to understand the basics of the banking system, although most people don't.

And it probably will help at scale to understand a little bit of the basics of this. But you don't have to go full on Degen to understand how to take advantage of this. You have the right advisor who's acting as a fiduciary, and that's what we've chosen to do. Yeah, yeah. You don't need to.

Jason Yanowitz

You're locking in a 5% interest rate on your mortgage. You don't need to know how the interest rate swaps market works. Right. It would be useful in some cases. Nice to.

Bill Barhydt

But yeah, yeah, that's exactly right. What do you think is the future of. Of lending in crypto markets? Okay, the context for that question is the last market I would categorize as very much a lending fueled or like a leverage fueled bull market, especially maybe not in 2020, but at the latter half of 2021. Right now, it feels like there's demand in the market for leverage and lend and borrow, but the supply has not entered the market as much.

Jason Yanowitz

What are your thoughts on what the future of that will look like this cycle? It's a great question. We're approaching this from an investing perspective today, meaning we're a registered investment advisor and hence a fiduciary to our clients. But I actually believe that the RA model that we're pursuing with these separately managed accounts merges back into traditional banking and becomes the banking model. And I think there are three aspects to the future of banking that crypto kind of takes over.

Bill Barhydt

The first is this buzzword of real world assets that everyone's talking about. And this gets to the heart of your question, because I believe that once you basically tokenize real world assets, you basically have an infinite amount of pristine collateral. And I would actually bucket bitcoin in the real world asset category. Now, it's a trillion dollar asset. Right?

So bitcoin, real estate equities, tokenized treasuries, all tokenized, all available to part two, which is DeFi as smart contracts to enable lending. So, to your point, we're going to have an infinite amount of collateral, bitcoin being the best collateral we've ever had, because it trades 24/7 it's instantly liquid, it's infinitely easier to transport than any other collateral in the world, even paper bonds. And it's available to everyone. And in places where there are are no credit scores holding that type of collateral is brilliant because anyone can borrow against even $50 of bitcoin. You just take it out of $20 loan at the point of sale, and at the end of the month, you pay it back like a credit card, and you keep using your bitcoin over and over to effectively borrow against at the point of sale.

So I think that real world asset model enables an infinite supply over time of collateral, which leads to the application of DeFi at global scale. And that's the future of banking. We're doing it now as a wealth advisor because that's the best legal way to do it for our clients to enable investing, lending, yield, borrowing, without Aber being the counterparty, which is brilliant, in my opinion. And so that's part two, which is access to defi via wealth advisors, banks, whoever. Right.

And then the third is, how do I do this and avoid the pitfalls of traditional banking, which is being the liability on the balance sheet thats this vault, or SMA model. And in investing, because of the way it works, its not really as automated. It really is set up for the wealthy. With crypto, I think we can make it accessible to everyone as the default.

My friend Caitlin Long talks about this all the time. This mismatch in the way crypto works versus the way banking works, its a huge risk for the system to take a 40 volts asset that trades twenty four seven and use it for leverage within a banking system thats closed 100 hours a week. It doesnt make sense. But the DeFi model doesnt allow for that, meaning its a marketplace where both sides, the borrowers and the lenders, are matched and are over collateralized in the system, so you dont have this excessive leverage in the system. And so when you combine that with this vault, where youre not a liability on the balance sheets, you now have a formula, real world asset tokenization, Defi vaults, where you become your own bank in this SMA model, thats the future of banking.

Long answer to your question. But when you bring all that together, ive never seen a bank that operates with less risk than the model I just described. Never. Hmm. Would you say that the wealth becoming a crypto wealth manager is a backdoor trojan horse into becoming a large, into competing with the banks in five to ten years?

I mean, we're sitting here talking about it. So, yeah, look, I mean, most people have never heard of Abra. Yeah. That's my biggest challenge today. I don't think about it as a trojan horse to the banks.

I'm very overt about what I'm doing. I want to help people. Yeah. Get exposure to crypto, hold bitcoin, eventually be able to borrow against the bitcoin, which I think is our biggest long term business. Our biggest long term business is probably enabling people to borrow against bitcoin and use it as the ultimate form of collateral.

And we're simply doing that using an SEC registered investment advisor model, which is the path of least resistance today. Yeah. And that may change. To your question now, that may change in the future. I have no idea.

But that's also a very us centric answer that I gave you. We operate all over the world. And so you'll see Abra now putting different licensing models in place in different countries. Some may look more like a bank model, some may look more like the RIA model. It just depends upon the country and the nuances of their law versus ours here in the US.

Jason Yanowitz

Yeah. Maybe getting away from Abra for a second, like zooming back out. Um, would love to talk almost like macro banking system, the election coming up, uh, the stuff that we tend to nerd out on when we're just talking and not, not, you know, not on a recording. Um, what are your thoughts on, like, how a lot of the next, like, twelve to 18 months plays out? I think that the, the pendulum has, has swung in the political discourse towards losing the plot is, to put a fine point on it, especially as it relates to regulation, not just in crypto, but in a bunch of industries.

Bill Barhydt

I mean, I'm here in silicon valley, and every tech discussion you have has a strong regulatory component to it. When I was here at Netscape in the nineties, that didn't happen. With the exception of exporting SSL HTTPs, where we had different versions of the browser, there was no discussion on regulation except with that one. It was a big exception, but still, now everything in every industry seems to center around regulation, and whether it's TikTok and social media and crypto and AI and robotics and what does the government say? And we never cared before what the government would say.

We were just ethical, responsible people doing ethical, responsible things, and basically exploring all aspects of capitalism, which is what makes the world go around. And that's how I think it should be. And that's why I think the nineties was probably the kind of zenith of american power. And it's eroding now because of this kind of deep regulatory state. The pendulum has swung all the way over here, and I do think it's going to swing back.

I think the kind of euro socialist agenda is failing. And I think Americans are fed up with it and we'll see. I do think that there's going to be a regime change in the US and we'll see the pendulum swing back over the next few years. And I also think that the pressures of competing on the global stage against the likes of Dubai and Singapore and even Bahrain, where I've seen a bunch of interesting developments the last few months, are all going to put pressure on the US to do a better job of competing on the global stage, not just in the crypto sphere, but now in AI and robotics and life sciences. And people want certain types of procedures because they're sick or have cancer or whatever.

In many cases they're going outside the US, get the procedures done, which, you know, that never happened before. You know, we've had discussions offline about some of the volunteer work I've done in the psychedelic space where I raise money. And a lot of those procedures, which are saving lives with near 100% efficacy, aren't done in the US because they're legal, which is crazy. We're talking about veterans, right, that are getting the procedures. So anyway, I'm hopeful that, you know, a pendulum, it can only swing so far before it has to come back.

And I think we've reached that apex where it has to. Has to come back now. Yeah, yeah, yeah. It's really interesting. I don't know.

Jason Yanowitz

I grew up a liberal from Marin, you know, and I'm watching all of this stuff play out with the universities and, like, it feels like a lot of the, like, woke, cancel culture stuff kind of pushed a lot of people on the left a little more towards the center. Just very interesting seeing how this plays out. But it doesn't need to be that, right? I mean, I'm in the Bay Area too, and you go in San Francisco and a lot of the ultra liberal friends I have of, like, are fed up 100% no. And so, you know, sometimes it's just I can't walk down the street or I can't.

Bill Barhydt

I can't go into CV's to buy my toothpaste. Well, CB's doesn't exist anymore because they had to leave the city because I. Can'T walk in there because they closed them all because they were basically walking with shopping bags and walking out with no recourse full with a, you know, shopping bags full of crap. So everyone has a breaking point. Everyone.

I don't care if it's mother Teresa or Donald Trump. Everyone. And I think San Franciscans, as a case in point, have mostly reached that breaking point. They have not. Mostly they have.

And you're seeing now in the election discussions, in the type of candidates we're getting, where it was like, okay, everybody, I don't know which is left and right on the camera, but if I'm on the left, all of the candidates were over here. It's just a spectrum over here. Well, now the spectrum has widened because people say, okay, if we keep doing the same thing, we should expect the same outcome. So maybe we need a spectrum of candidates to have the right discussion. And that is now entering the San Francisco discourse for the first time in 1520 years.

That I can tell. Yeah. How will, you know, I follow, like, salkis tweets about the. About the election and the impact that the election will have on crypto. Like, what are the two scenarios, as you see it, like a Biden election versus Trump election, like, how much of an impact does that actually make on crypto?

I think it's huge. I wish we had two different candidates. We don't. I will certainly be voting Trump. And I know he's not my favorite person, but, you know, the bottom line is that we cannot afford in our industry, in our financial system, in our regulatory capture model, four more years of regression as a society.

And I think that's what's happening. Not only that, we're just printing money at an insane rate. Now, I'm hoping that Trump will do better at this, but he lost the plot himself during COVID And I hope that there's a little bit more responsibility, but this is a major issue that I have with both candidates is the money printing. We can't afford to spend $70 billion in Ukraine and to be financing genocide in Gaza. And so these things are untenable.

And so we have to stop. And so I don't know if a Trump administration would stop this, but it certainly, as it relates to our space, Ryan is 100% right. The attacks will not stop until there's regime change, because they want us dead. I mean, it's like, you know, the current kind of warren led fight against crypto is very clear. They don't want our space to exist, and they will do whatever they can to affect that to happen.

Jason Yanowitz

As someone who has spent a lot of time deeply ingrained with a lot of the states and the federal government, trying to get approvals for Abra, what is your best reason for, what is your best answer to this question of, like, why do they hate crypto so much? I think that there's a faction within the democratic party that believes that the banking system needs to be socialized to the benefit of certain people can't be the people, because not everyone would benefit from that, and most people ultimately wouldn't, whether they understand that or not. And socializing the banks is, it's kind of a predictable outcome of a late stage empire. If you read Dalio's books or the fourth turning or the bunch of well written books that talk about this stuff now, and obviously, the crypto space represents the opposite, which is decentralization, ultimate freedom, the ability to be your own bank. Well, the ability to be your own bank is exactly the opposite of the idea of socializing the banks, which is something that Elizabeth Warren has written about when she was, I guess, a professor or something.

Bill Barhydt

So I don't know. This is the end game. It's not going to happen in our lifetimes for sure. And like I said, as long as we represent a direct threat to that idea, there's always going to be this fight. And the only way for us to win the fight, insofar that we want to enable people to have this choice to operate as their own bank, is to have regime change in the United States so that this power base of theirs is eroded significantly.

Jason Yanowitz

Bill, I think that's a good place to end. I appreciate you coming on, man. My pleasure. Always good to see you.

Bill Barhydt

Always good to see you.