Full transcript: Andrew Keys on London Real
3:25 Brian Rose: This is London Real. I am Brian Rose. My guest today is Andrew Keys, the entrepreneur, Ethereum pioneer, and CEO of the Ether Machine.
3:48 You began your career in traditional finance before joining Consensys in 2014 where you helped scale Ethereum to global adoption. Later, you co-founded Dharma Capital, bringing institutional discipline to digital assets. Today, as CEO of the Ether Machine, you’re leading a $2.5 billion Ethereum treasury that accumulates, stakes, and actively manages ETH as the reserve asset of the internet. With a planned NASDAQ listing, you aim to create the world’s first pure play dedicated Ethereum treasury company designed from the ground up for ETH accumulation and institutional grade yield generation.
4:25 Andrew, welcome to London Real.
4:27 Andrew Keys: Thanks for having me, Brian.
4:28 Brian Rose: Look, it’s great to have you here and I just want to jump right into it. You know, for people that don’t fully understand what you’re doing, can you just break it down and explain what is an Ethereum Treasury company? Why do we need them?
4:42 And why are we seeing so many launching in the last I don’t know 60 days? It’s like you got Tom Lee’s Bitmine, you got your old buddy Joe Lubin and what he’s doing obviously over at Sharplink. Why now and why do we need these things?
4:59 Andrew Keys: So we’ll start with why now? I think there have been a confluence of factors that have created this Cambrian explosion.
5:08 First and foremost, in December of 2024, so approximately eight months ago, there was an update through the Financial Accounting Standards Board, the FASB, defining that digital assets like Ether, could be marked to market within a public company. So basically what that did was basically greenlight the ability to hold these assets on balance sheet and to be properly accounted for. It was kind of another step, albeit a boring one and an accounting nuance.
5:44 And we think that was kind of the light of the match of why this started to make sense. Another reason is that I learned personally that ETFs were an inferior way to express one’s interest specifically in Ether. And the reason of that is a bit of a technical nuance and that’s something to do with what’s called the withdrawal queue within Ethereum. Right now, the ETFs in America do not enable staking. We believe that that’s going to happen soon, but in Europe or in Canada as a proxy, staking is enabled.
6:31 And what we’ve seen is they’re staking at what I would call 50% capacity. Meaning if you had a billion euros in a staking, excuse me, in an Ethereum ETP in Europe, they’re only staking 500 million euros and they’re only earning the vanilla floor, meaning that they’re only earning the table stakes staking yield, which right now is about 3%. So on the billion dollars, 500 million’s being staked and that’s earning 3% to really generate a 1.5% yield on the total amount of capital.
7:08 And the reason this occurs is because in Ethereum, if you were to unstake your assets today, you should get it back in a couple days. But if, god forbid, there was a bad hack or some type of black swan event where lots of stakers wanted to unstake at the same time, the withdrawal queue to unstake could grow from a couple days to months or even a year. And that doesn’t jive well with the ETF requirements to have 24-hour redemptions. So, if you were to redeem your stock, the ETFs have to be able to sell that out and give you your fiat currency within 24 hours.
7:53 And there’s no way because this is denominated in ether. It’s not even denominated in dollars. There’s not a way to basically underwrite that risk. So the best thing that the ETPs, the ETFs can do is just stake less. And so with that said, I had previously been building a commodity pool operator and commodity trading advisor registered with the CFTC because ether is a commodity that staked institutional-size billions of dollars of Ether already since the inception of proof of stake.
8:33 And when I understood that I could basically have a public vehicle that unlike the ETFs could stake at full capacity, something that we were already doing and then furthermore we could add additional yield generation through concepts like restaking and participation in DeFi. I thought of this like a perpetual bond and Ethereum should be considered, let’s call from the yield generation dynamics as a perpetual bond where it is able to generate this yield And I compared it to what one would be able to achieve through the ETF if you double the yield you essentially double the price of that bond. And basically what we saw is the ETFs really are only able to do 50% capacity of the first third of yield generation activities which is vanilla staking and they’re not able to do restaking and participation of DeFi.
9:36 So we’re able to do all three of those buckets, plus we’re able to add what I would just call the capital markets financial instruments such as creating convertible bonds and/or preferred shares to further add to our northstar, which is our ether concentration per share.
9:57 Brian Rose: Okay. And you can also add on top of that some of the exotic yield generating instruments like the restaking and things like that.
10:07 Andrew Keys: Exactly. Okay.
10:08 Brian Rose: And so what looked like a problem for the ETF, you’re taking advantage of that and creating a brand new product that can solve that issue.
10:17 Andrew Keys: Exactly. And that issue isn’t going to get solved anytime soon.
10:22 Brian Rose: I mean when you talk about that whole issue of unstaking and that unknown time delay does that mean it will be difficult to get a staking based ETF for ETH?
10:32 Andrew Keys: So I think that a staking based ETF will occur but I don’t think that they’re going to be able to stake at full capacity.
10:40 They and if they basically I think that they have kind of two road maps to do or paths if you will. One is they could stake and they’re going to stake at, you know, maybe it’s 50% 60% capacity. Or they could stake potentially using what’s called a liquid staking token, but that introduces other vectors, you know, other attack vectors. You’re talking about introducing smart contract risk and you’re now introducing vectors of the bid ask spread between a liquid staking token and just pure vanilla ether which is basically adding another transaction.
11:25 What I think is a much better mousetrap is having an operating company that has a business to secure Ethereum and to generate yield and to avail ourselves to the full suite of Ethereum’s productivity which is staking, restaking and participation in DeFi. Plus, on the traditional financial side of the equation, the ability to add to sell convertible bonds and/or preferred shares to volatility seeking or credit seeking investors and using the proceeds of that to add Ether to our balance sheet for shareholders that want Ether concentration to increase per share.
12:17 Brian Rose: Okay.
12:17 Brian Rose: Okay. And I definitely want to get into that. You could argue that Michael Saylor kind of wrote the book on that for Bitcoin for sure. And I want to get to that. But if we zoomed out really, really, really high up, and we took a look at 30,000 ft.
12:29 If an institution or a person, I guess, wants exposure to Ethereum, they kind of have maybe three-ish choices. They can buy the Ethereum somehow and find a wallet to hold it in and keep it safe, which could be challenging. They can buy the ETF now and not get any yield component, but they can have the exposure. Or they could go and buy some Ether Machine or an Ethereum treasury company. Are those kind of the three options for any type of size?
12:53 And could you walk people through the problems with those? I think you kind of talked about the ETF there and maybe how a lot of institutions, I mean, Saylor was just on CNBC two days ago and he said 98% of the institutions in the world cannot hold crypto and so that’s not even an option, but they all have accounts on the New York Stock Exchange.
13:19 Andrew Keys: Exactly. So first and foremost, one can go acquire ether spot and let’s say use a retail exchange, they now are responsible for the public private key pair hacking etc. and/or you know hiding the ledger under their bed and keeping the 12-word seed phrase.
13:38 And then if they were to use any one of these retail exchanges, you know, back of the napkin, they charge 25% of the staking yield that they generate. So that’s, you know, the first example. Secondarily, the ETFs, as we just discussed, is like owning a stock that has a dividend, but availing yourself to half the dividend that you’re entitled to or in case of the US right now zero% of the dividend because right now in the ETFs, they are not enabling staking yield.
14:18 And then furthermore, it’s really availing yourselves because ETFs are somewhat rigid in their exposure to kind of what you can do with the underlying asset. They’re not, they haven’t been created, you know, specifically for a productive asset, you know, what I would call kind of like this triple point asset of Ether that can drive value multiple ways. Where you can have it from staking, from restaking, and participation in DeFi. You’re really only able to do that first.
14:52 And then these operating vehicles done properly, we believe is the best way to do it. And then there are nuances within the operating vehicles that we can touch on and kind of why we chose to go in our route which was creating a de novo entity with a SPA versus doing a reverse takeover of a shell. But I’ll digress. But basically I think our operating vehicle model enables in public market investors to have access to the full yield excuse me, the full productivity of ether yield, staking, restaking and DeFi, and the full product suite that an equity operating business can enable, such as ATM equity issuance, preferred shares, and convertible bonds.
15:49 Brian Rose: Excellent. Okay. And I want to get into that before we do. Why does anyone want exposure to ETH? We clearly have seen the use case and Saylor kind of built that up.
15:59 He’s been on our show I think back in 21 and back in 22 and 23 and obviously at the time I think that was the only crypto that was kind of blessed or at least being ignored by the SEC. And so he went full bore and we saw that. Now, Ethereum, the ETF came a little bit later. It was slow to get started, but now we’re seeing more and more interest. The regulations going our way.
16:22 Stable Coin Act has passed. When I got to Wall Street at the ripe age of 22 years old, it was 1993 and I got sat on the fixed income derivatives desk. And all my friends when I used to go home in the East Village said, “Brian, what stock do I buy?” And I said, “Stocks? Stocks are for punks.
16:40 We work in fixed income. And in fixed income, it’s all about yield, right? Everything is what’s my overnight rate, what’s my three-month rate, what’s my 30-year rate. And I grew up this environment of yield. And so when I used to look at crypto, I would always tell people, you know what, when Wall Street comes, they don’t even understand something that doesn’t have a yield.
16:57 And so, are we finally seeing them embrace an instrument with an inherent yield, an inherent, even a yield curve? Is that why ETH is going to be the next big thing, do you think?
17:09 Andrew Keys: So, that’s one of, I would call, three reasons. Okay. And we can start there.
17:14 So first and foremost, Ether is a yield generating asset. You know, versus Bitcoin. Bitcoin I consider unproductive, kind of like gold, and Ether is like a digital version of oil. For every transaction that occurs on the Ethereum blockchain, it requires a micropayment of this fuel. And due to its proof of stake consensus mechanism, we’re able to intrinsically generate yield from ether.
17:45 Unlike Bitcoin, that requires real estate, hardware, and electricity consumption, you don’t need any of that with this upgraded way to form consensus through proof of stake. So one, you do have this yield generation aspect. Secondarily, to understand this public markets play, one needs to understand kind of who is who are the stakeholders. And one of the major stakeholders are the shareholders that are buying the underlying stock because they want ether exposure and the generation of yield and to have the increase of their ether concentration per share.
18:38 So simply put, if you had basically an ETF, you’re just getting kind of the ether exposure and you can kind of think of that as, you know, one time. But with this, you have a vehicle that is constantly generating additional ether. So your ether concentration should be continuously appreciating. So you have kind of ether exposure loss, and then the other stakeholders in this are the convertible bond and/or preferred shared consumers, and we’ll simply put, we’ll do the convertible bonds to kind of keep it simple.
19:20 So basically there are hedge funds and other investors that are actually in the business of acquiring volatility. They don’t necessarily care if it’s via Bitcoin, whether it’s via Ether, or whether it’s via data centers, but basically they can acquire volatility in a stock. And what they do is they’ll acquire a convertible bond and they could potentially short the stock or an ETF linked instrument and you know, like for example the BlackRock Ether ETF and basically live delta neutral, but basically earning off of the volatility and for this Ether is double the volatility of Bitcoin.
21:05 You in the Investment Club. Plus it is now, as we previously said, generating yield. So basically this is just a better asset for this convertible bond flywheel. And if you are kind of a historian of MicroStrategy, what really grew it from single-digit billions of valuation to centabillion was not the ATM equity issuance, but it was the introduction of convertible bonds and preferred shares where basically we view that as a positive-sum game where we’re selling volatility to investors who are looking for volatility and then we’re using those proceeds to buy the underlying asset, in this case ether, for the shareholders that want exposure to ether and the yield that ether generates.
22:01 So I would say those are very kind of like technical factors: the yield generation and the and the volatility. But last, but probably not and certainly not least, is you know what is Ethereum, you know, and why is that important? So basically, I believe Ethereum to be the substrate of the next generation of the internet. And there was a really good artifact that was recently produced by Consensys, my alma mater, called the Ethereum Trust Report. And I would recommend that everyone Google Consensys Ethereum Trust and there’s a graph that we can put in the show notes that depicts high-quality liquid assets, HQLA, which is this term by the financial accounting standards body, and basically right now there’s only about $250 billion of high-quality liquid assets on blockchains, which is a drop in the bucket.
23:07 Meaning, we’re in the, you know, the earliest, earliest days of this transition from a natively analog world to a natively digital world where our assets are natively digitized. That said, the $250 billion of assets, 90% of those $250 billion of assets are being settled to Ethereum. And Ethereum is experiencing power law dynamics similar to Google with search, where 90% plus of the stable coins and the stocks and the bonds and the derivatives are being settled to Ethereum and then the other 10% are split between, you know, a 100 other blockchains and it just reminds me of 90% of search happens on Google, and 1% happens on Bing, and 1% happens on Ask Jeeves, and 1% happens on Yahoo.
24:06 And so we’re already seeing the fact that liquidity begets liquidity, and Ethereum has this kind of critical lead in being this place where we’re seeing most of this commerce settle. And furthermore, the tailwinds that you touched on, Brian, are that we’ve just seen the GENIUS Act pass, which gave us clarity around stable coins. Everyone saw the positive tailwinds to CRCL Circle. And what we can say about that is the largest beneficiary of GENIUS was Ethereum because the majority of the stable coins settle on Ethereum.
24:55 In about 2 months, we’re going to have the Clarity Act, which is market structure bill, which is kind of the tokenization of stocks, bonds, and derivatives. The largest beneficiary of G of Clarity is going to be Ethereum again because the majority of these high-quality liquid assets are settling on Ethereum. So it’s the best substrate, and maybe why that’s happening. I would say there are a few reasons why Ethereum has this lead. One, it has what’s called client diversity.
25:34 There are nine implementations of Ethereum that form consensus every six seconds. Every time there’s a block created to give you an idea of other blockchains, Solana has one implementation. Bitcoin has one implementation. So there’s nine implementations of Ethereum which is important that if you want to have this global settlement layer for all of Earth’s assets that nation states or corporations or people can trustlessly interact through. Ethereum really is the only one that has the ability to have this never-ceasing uptime due to that client diversity.
26:16 And I think that that’s extremely important. Another reason is the notion of standards, and kind of, if we’re a technological historian, Java became J2EE, Java 2 Enterprise Edition, back in the ’90s and that became the most used software language because there were clean web APIs that there was a standard, whether you were in Mumbai, Paris, London, San Francisco, there was a standard to use, and there were clean database API. And what we’re seeing now is we are able.
26:56 Ethereum has done a great job of creating certain standards, token standards. So something like the ERC-20 token standard for fungible tokens, or, you know, ERC-721 was an example of one for NFTs. But basically anyone was able to have this standard token and a standard wallet and was able to put the token in the wallet, you know, simply put, and so millions of developers could basically coalesce around these standards and build applications that used the same basic ingredients and that’s permeated really well.
27:33 Brian Rose: Okay. Now the critics would say that a lot of this activity of the stable coins and the Ethereum chain is happening on these layer 2s like Base and Arbitrum, and they only get settled infrequently onto Ethereum, and the total net fees to Ethereum is like six figures. It’s very small. What would you say to that? Some called it a ghost chain six months ago and said there’s just nothing going on there but the rent.
27:55 Maybe that was a little bit harsh. What do you say to that?
28:00 Andrew Keys: Yeah. So I think that this is an architecture that is created purposefully simply put, to kind of zoom out for your listeners, if I were to take Brian to the pub and open the bar tab with a server and hand him or her my credit card and buy us a round of appetizers, a round of drinks, a round of entrée, a round of desserts, pay a tip, and close the tab. All of these microtransactions that started from zero and ended at $500 or 500 pounds.
28:37 Those can be batched. and then basically the opening and the closing and the batching of all these transactions can get settled to layer 1. And basically this architecture creates the ability for any application in the world, any company in the world to customize how they want their layer 2, their environment to work. Some may be optimizing for speed. Some may be optimizing for privacy.
29:13 Some may be optimizing for 10 people to work together in it. And that’s how websites work on the internet, right? I mean, everyone uses HTTP, but Amazon.com, Google.com, and so basically it’s reminiscent of how the internet works where everyone uses HTTP, everyone settles to Ethereum, but there are thousands, millions of different websites. And what we’ve seen is that Ethereum has optimized for keeping transactions very cost-efficient at that layer 1 settlement.
29:55 And basically it has become the standard choice for companies to create these layer 2 architectures. So we’ve seen kind of the fast movers, and I think that we’re early in this transition period, but Coinbase has created Base as you referenced. That’s their layer 2. Robinhood just created their tokenized version of stocks that settle to Ethereum layer 1. Kraken has created Ink, which is a layer 2 scaling solution, and on and on and on.
30:30 And now that we have some of these regulatory tailwinds, we’re going to see, I think, all of the major financial institutions are going to be kind of following suit. And if we were to kind of use the analogy of ride shares, you know, companies like Uber and Lyft, 5 years ago, it would cost $50 to go from lower Manhattan to upper Manhattan, for the same ride share now it costs $150. The technology hasn’t necessarily changed but Uber has become ubiquitous, and what we can do is basically have Ethereum as the standard for settlement solutions and settlement layers, and there are ways to basically increase the pricing as it becomes more congested.
31:22 So there are two burning mechanisms within Ethereum. One’s called EIP, Ethereum Improvement Proposal 1559, which burns every layer 1 transaction. So it basically is kind of like a stock buyback, if you will, where basically shares are retired if you were talking to kind of like the traditional financial equities investors. And then there’s EIP-4844, which burns ether for every layer 2 settlement solution. So basically there are two ways already that this transaction or this transaction occurrence can basically reduce the supply of ether that can have a positive price occurrence towards the Ethereum network.
32:13 And there are ways to basically increase the burn per transaction that I believe the foundation will prioritize as Ethereum continues to cement itself as this global settlement layer of humanity.
32:27 Brian Rose: And I’ve heard a few people in the space saying that Ethereum is the chosen network because it never had the downtime. It’s got the history, and even though Solana might be faster, and maybe it’s got maybe, some other things say, some say it’s not as decentralized.
32:45 It’s obviously been downtime that Ethereum now has been chosen. First of all, is that true in your mind from everyone that you’re talking to in the institutions? and then I actually want to talk a little bit about you know your main competitors.
33:03 Andrew Keys: Sir, so I think that there is no debate and there is empirical data that shows those high-quality liquid assets, which is what I think is important if you’re talking about a global settlement layer. Like, I don’t care much about meme coins or or swords of a video game or, you know, what I think that I’m interested in and I think what Ethereum serves for is a global settlement layer to the economy of the world.
33:32 And, right now, it’s still very early days, but Ethereum has basically 90% market share as that settlement layer.
33:41 Brian Rose: Okay. And I think so, so there’s no debate there. Okay. Let’s talk about the competition because it’s very unique, and I’m curious how you feel about competition and if you think more is coming.
33:57 We’ve got Bitmine Immersion, which is getting more famous every day. Tom Lee, who has been an analyst for a long time, was bullish on Ethereum for a long time. Saw him on CNBC, bullish on stocks, bullish on crypto, and then all of a sudden he’s the chairman of Bitmine Immersion. They have, I think, about $5 billion of ETH, about one and a half%. I think he’s going for 5%.
34:19 That’s been the one that’s been talked about, and I guess that’s liquid. There’s Sharplink, which is Joe Lubin of Consensys in the past, who I think has about 3.3 billion of ETH. And then there’s you. One of the big things about you, Andrew, is I think you put in about 650 million of your own supply of ETH, which gives you a ton of cred of the Ether Machine. Then there’s ETHZilla, and I think it kind of drops off from there.
34:43 Have I got that about right? And how do you look at those competitors? Are they different? Do they help you ultimately?
34:50 Andrew Keys: Yeah.
34:50 So, great question. You know, first and foremost, I have a ton of respect for Tom and Joe in what they’re doing. And, I think you did point out something right in the sense that I’ve put more skin in the game materially more than anybody, in all treasury space. And that brings me to kind of a bit of a differentiation. Broadly speaking, Bitmine and SBET are reverse takeovers of shell companies.
35:29 Okay. And what we’ve done is we’ve done a de novo entity and I’ll just speak kind of broadly speaking about this. So, I wanted to contribute some of my own capital because I didn’t want to recommend something to anybody else that I wouldn’t do myself. And I thought that was important to me to basically lead by example and say this is something that I am patient zero. I am a shareholder as well, and everyone was investing pari passu with me and when I looked broadly speaking at the two paths one or let’s call it three paths.
36:10 One is to do an IPO, and I didn’t think that that made sense. You know, it would take a year plus to create an S1 and go through like the full capital markets process. So then there were kind of two paths. One was to do a reverse takeover or the other was to do a back and I had a few conversations with some reverse takeover targets. And so basically, broadly speaking, anybody who wants to sell me their publicly traded business on the NASDAQ is doing that because their business is failing.
36:51 And within a failing business, there are lots of contingent liabilities. I’ll give you a few examples. One was a biotech company where the drug didn’t make it through clinical trials and basically was going out of business, and due to how the SEC works, you can’t have just a rapid removal of a CEO because there are what are called change of control provisions. So basically, I would have, if I went down the path of this particular reverse takeover, I would have had to pay a CEO who wanted $5 million a year to stay on the board.
37:35 You know, that his company is bankrupt basically. And the guy didn’t know how to spell Ethereum and I didn’t want that ongoing liability. Okay, another, you know, there are Bitcoin mining firms that are, you know, another example was one that was in a 10-year data center lease, and they were paying $10 million a year, you know, where they were hosting all their data, their mining hardware, and now I don’t need any of that because I’m an Ethereum staking facility that doesn’t need the hardware, the electricity, or the real estate.
38:13 But they’re in year four. They’ve got six more years of $10 million payments. I didn’t want to incur those costs. You know, furthermore, there are companies that are now reserving part of the assets of the treasuries for lawsuits, that, you know, if one of these companies, you know, they have a four-year statute of limitations, sure, maybe now they’re going in the direction of having a digital asset treasury, but they can get sued for previous, you, the the previous four years of whatever that operating business was.
38:46 So, I essentially didn’t want pre-existing operating businesses, pre-existing cap tables, pre-existing liabilities, pre-existing potential lawsuits, because something, you know, a company may not be sued if their market cap is less than $10 million, but if they have a billion dollars, $3 billion of an asset, that becomes a honeypot. Now, and you have to kind of think through what those, what are you inheriting? So basically, you know, first and foremost, I would say I wanted something clean, and I wanted, so basically what we’ve done is we have a pure play de novo brand new entity that is anchored with ether that is merging with a special purpose acquisition company and creating this new operating business that doesn’t have any of that pre-existing skeletons in our closet, if you will.
39:43 And for me with my assets, that was the only way I could get comfortable with this model. And to devil’s advocate that what I’m going through right now is what’s called the S4 registration process. So an S1 is if you do an IPO and S4 is if you’re doing a merger.
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40:29 The public markets are for suckers. It’s a rigged game. By the way, this happens in crypto as well. It’s called pre-sale tokens. This is Solana.
40:36 Does anybody know this chain? They sold pre-sale tokens for 4 cents. And you can see the date on there, April 5th, 2018. Look at Solana today, folks. That thing’s up over a,000x.
40:48 The media and Wall Street and all these hype people get you to buy the top. Meanwhile, they put their clients in at the bottom and they use you for liquidity to make their clients rich. You can play this same game. You just have to have the financial education and the deal flow. That’s it.
41:05 Andrew Keys: And we’re doing a merger between our LLC, the Genovo LLC where the anchor ether is and the special purpose acquisition company that doesn’t have a pre-existing operating business. And you know, I would say our one differentiation there is that we’re not, let’s call it, a while we have stock that there is publicly tradable ETHM stock that people are able to acquire we’re not fully merged just yet, and basically there’s about a 60-90 day window, and then at that point we are able to start to use let’s call it all of the traditional capital markets tools and to trade similar to these shell companies, and I think that to devil’s advocate that, you know, for example, in those 60 days Tom Lee has been able to go out and acquire a gigantic amount of ether and I was not comfortable with the risks of the pre-existing liabilities that I just said for potentially the reward of being able to acquire that amount of ether.
42:17 We’ve been able to raise a considerable amount of capital, you know, over two and a half billion dollars privately because of the fact that when I talk to institutional investors and they go to their investment committee, they say, “Well, if we want, you know, pure play exposure to Ethereum, but we’ve got to deal with this pre-existing CEO and they’re, they may get sued.” You know, these guys are saying, you know, we get laughed out of our investment committee rooms if we kind of try to propose some of these ways. So I think that time will tell, but with that said, we’ve tried to create an institutional vehicle.
43:00 A lot of these shells, you know, broadly speaking, have investment banks I’ve never heard of before, law firms I’ve never heard of before, and auditors that I’ve never heard of before. And we’ve come to market with Citi, you know, is the only one that has kind of a bulge bracket investment bank. This went to the top of the house. Jane Fraser signed off on this. They’re not doing any other treasuries because they do understand kind of the nuance of having a pristine structure.
43:34 APMG is our auditor. Aside from MicroStrategy, we’ll be the first Treasury to go through a big four audit. Scatteren, you know, Amlaw 10 is our law firm, which is one of the largest, most accredited law firms in the world. And what I think is important here is that I believe that because we have this pristine entity, cleanest credit rating from a perspective of having a big four auditor and none of those pre-existing liabilities, I believe that we’ll benefit from the best priced and probably first to market convertible bond issuances, and/or preferred share issuances.
44:23 So, to understand that, basically, these preferred shares or convertible bonds are credit or debt instruments and basically the counterparty to that is buying paper, right? And when you’re buying paper, you have to price in these types of risks, these opaque risks. Like, you know, is there some skeleton in the closet that could cause the stock to go down 20%. That’s, you know, separate from the net asset value of the underlying digital asset. I think that’s important.
44:59 And so what I hope is that, and I expect is that we’re going to be rewarded in the medium to long term at the expense of kind of the shorter term strategy of getting out the door, because we came to market thinking about what is the institutional chassis that’s necessary for what we think drove MicroStrategy from single billion. They didn’t do it from ATM equity issuances. They did it from the issuances of convertible bonds and preferred shares and basically I believe will be the best situated for those more sophisticated financial instruments to be able to do a balanced approach with lots of different financial instruments with an asset that is double the volatility and yield generating than Bitcoin.
45:56 Brian Rose: That makes a lot of sense. And if you ever watch Michael talk about, you know, when he’s issuing convertible bonds and he’s got that big smile on his face, he’s like, you know, we should just issue debt, we pay a 0% coupon, we raise a billion and a half dollars, and I can go and buy, spend all of that on Bitcoin, and I basically just, you know, he’s like, I get free money is because he does such an efficient way of selling that vault. Obviously, the market is really comfortable issuing that and paying a low coupon because I guess they’re very comfortable with those risks, and I guess you want to become kind of that gold standard for Ethereum.
46:33 Andrew Keys: Agreed. Yeah. And again, if anybody wants to go deeper on that, you can kind of go figure out what Michael’s doing there. As I talked to Michael over the years, he ended up calling himself a Bitcoin refinery. And that’s a really interesting way of looking at it.
46:46 Brian Rose: And I don’t know, maybe you’re going to be an Ethereum refinery, but we’re a machine, right? I mean, like our talk about that. You could have called this. You could have called it ETHZilla, but you called it the machine. Why?
46:57 Andrew Keys: Yeah. Well Well, I mean, I think you know, Godzilla kind of consumes things where we’re our goal is to generate ether, right? We, our goal is to have, if you know, if one has a thousand of our shares and that equals round number is one ether. Our goal through staking, restaking, DeFi, and the issuance of financial instruments like convertible bonds or preferred shares is to make that one ether per thousand shares eventually grow to two ether per thousand shares, and to do that systematically with the least amount of risk, and so we have a full risk management team.
47:39 Our head of staking built the initial Consensys staking machine. Then recreated that at Dharma. All that know-how comes now here to the Ether Machine and basically the whole concept is to employ the full productivity of this asset.
47:59 Brian Rose: Andrew, do you ever get nervous that you’re putting $650 million of ETH into some vehicle that you’ll have less control over than you used to have?
48:11 Andrew Keys: I understand that risk.
48:13 I do think that through this vehicle I will be able to grow my ether concentration more efficiently than I would previously.
48:23 Brian Rose: Okay. Okay. And that, so, and now my other question is it’s not live yet on the NASDAQ, and of course people can’t buy it, but is that necessarily slowing you down because you can still raise capital, and what are the dates expected on that?
48:44 Andrew Keys: Yeah.
48:44 So our merger hasn’t been affected yet. Okay. Stock is selling on the NASDAQ. The special purpose acquisition company Dynamix has stock that’s available for buying and selling day in day out under ETHM right now. And we are going through the S4 registration process and we assume that this will occur in Q4.
49:19 And I can’t give extremely clear guidance on that because to a certain extent it’s a back and forth with the SEC, and basically we are at the mercy of that process with them.
49:32 Brian Rose: Okay. And I heard you quote when you were speaking with someone else. You said, “Give us four quarters for Wall Street.” And it was, I think, a way of saying that this is obviously a long-term process for you.
49:47 But you believe that when you start showing these quarterly results and show Wall Street exactly what you’re doing and how this is going to work that and they start covering this asset and covering what you’re doing, that they’re going to get very, very comfortable with the way you’ve done it and what you’re doing, to where this is just going to become a normal asset that they buy.
50:10 Andrew Keys: Agreed. Agreed. So I think that one has to get comfortable with, let’s just call it the digital asset universe.
50:17 And I think that the regulatory tailwinds have enabled a lot of that comfort. And now institutional investors are able to deploy capital in, let’s call it, stocks. No one’s opening a, you know, a retail digital asset exchange account. People are expressing their views in, you know, maybe ETFs, maybe things like MSTR for Bitcoin via ETHM for, you know, Ether as an example. And part of our role in this ecosystem is to explain, and part of what I enjoy doing, and you know we’re doing it right now, you know, bottoms up to Main Street, top down to Wall Street, you know, what is Ethereum, you know, explaining, you know, the volatility to the volatility-seeking stakeholders, explaining yield to the yield-seeking stakeholders.
51:13 Explaining what the TAM is of the next generation of the internet. You know, what differentiates this substrate versus other smart contract platforms. You know, differentiating why Bitcoin can’t do this. And Bitcoin has one use case and one asset. You know, I can send you a Bitcoin.
51:38 But we can’t programmatically, you know, create a digital token that represents a stock bond or a derivative like we can on Ethereum. And then, you know, furthermore, that’s kind of let’s call it the 1.0. The 2.0 is, you know, what are the financial modeling considerations? Do we aspire a discounted cash flow to this? Do we aspire a TAM based upon the assets we can tokenize?
52:03 Do we accrue value to the notion of enabling trust? Understanding that, then understanding kind of the yield consideration, you came from a fixed income world like this is a first of its kind, you know, $40 billion traded yesterday of ether and it’s also generating yield. So if you like Bitcoin, you’ll probably like double the volatility of Bitcoin, plus the fact that it can generate yield, and we can kind of create the models off of that. And then kind of just explaining the use cases, you know, what is this you know, what does this enable, you know, like breaking down stable coins and, you know, and as an example, you know, we give a price discovery, like, worldly speaking, Ethereum gives the price discovery mechanism for the value of intermediation in any transaction, and to use kind of the first product market fit of stable coins, we’re starting to see the early days where if you were to buy something on the internet, you could, you know, purchase with Google Pay, purchase with Apple Pay, and now you’re starting to see that button, you know, purchase with stable coins, and basically I’ve seen multiple websites that say, you know, if your good costs $103 because you’re purchasing it with American Express or Apple Pay, it costs $100 if you buy it with a stable coin.
53:29 And right then and there you just gave of the price discovery mechanism for payment providers and as the intermediary. And so, with that said, we’re starting to see, you know, the propensity of what this technology can do and that’s like one singular use case.
53:48 Brian Rose: Yeah. You know, it’s interesting because you hear the analogies, digital gold versus digital oil. You got famous by saying, “I’d rather have an iPhone instead of a landline.”
54:00 And that was you comparing, I think, Ethereum to Bitcoin. I’ve had lots of Maxis on my show here over the years. I think I first had Max Keiser here in 2013, who won’t talk to me anymore because I talk about other things than Bitcoin.
54:13 Andrew Keys: And there in this pure play, there’s only one asset and that’s our asset. Obviously, you saw a bunch of interest go into yield on Bitcoin a couple years ago, and honestly, it really hasn’t gone anywhere, and I don’t know if it ever will, to be honest.
54:26 Brian Rose: Andrew, do you think it’s only a matter of time between before people see these as two completely different things, or will there still be a bunch of people that will always swear by Bitcoin?
54:40 Andrew Keys: There’s going to be religious wars. They’ve been happening since the beginning of time. And this is just, you know, this technological flavor of religious war, right? And I think people will have their idealisms.
54:55 That all said, Bitcoin will always have one use case and one asset. You technologically can’t have other assets and other use cases on it due to the virtual machine. So the UTXO virtual machine is specifically created for simplicity, and that’s fine But Ethereum is specifically created to generate any type of asset with any type of arbitrarily complex logic in it and I think that time will tell, but I think the TAM of the internet and the TAM of basically digitally representing any asset versus the TAM of this specific asset that’s given kind of the moniker of digital gold as a way to explain it.
55:55 But, you know, it’s not digitizing gold and it’s got a, you know, a specific, you know, let’s call it supply chain or supply release process. And we’re starting to see rational actors in the space that are securing the Bitcoin network migrating their hardware to language learning model inferences. You know, for example, Galaxy and Mike Novogratz has been kind of one of the largest Bitcoin bulls there are, you know, over the last decade. has moved his hardware from a GPU mining to a core data center for LLM inferences.
56:37 And I think that there’s going to be enough I would say brain power to continually secure Bitcoin, but those types of occurrences, you know, these are rational actors that don’t necessarily care as much about Bitcoin. I mean, I think there are some miners that do care, but I think mostly, generally speaking, these are self-interested, rational actors that if they can earn a dollar a day or $2 a day, they’d rather do $2 a day. So I think that, you know, it’s time will tell.
57:12 Brian Rose: Andrew, if you’re successful, what does Ether Machine look like a year from now, two years from now, and also in comparison to the other two competitors? Do you have more ETH than Tom? Is that a win, or what is a win for you?
57:32 Andrew Keys: So what I think is a win is actually we are the most efficient in two things. One is Ethereum generation per share, meaning that we have the ability to generate as much Ether as possible incrementally, per share, and that’s being done through staking, restaking and DeFi and the ability to issue financial instruments like preferred shares and converts and we also do that with a lean mean team and we’re not doing things like outsourcing the asset management for additional fees, which others may be doing.
58:16 So that’s kind of the first consideration: is being the best at generating ether per share. Secondarily, I think a function of that will be accruing more ether, and I don’t necessarily think there is like a value to number one in terms of there’s a lot of headlines around person number one and we aspire to be number one. I also think there’s Pepsi and Coke. There’s Amazon, Google, and Microsoft Azure for clouds. And I think that there are going to be a handful of winners.
58:58 And I think that we’re maniacally focused on generating ether concentration per share at the most minimal risk for our shareholders.
59:10 Brian Rose: Is there a point where one company can own too much ETH like 10%, 20%? Does that get a little bit?
59:19 Andrew Keys: Yeah, I think that like mathematically that’ll be very difficult. Okay.
59:26 Because of just there are already enough players in the space that are acquiring. I do think that you’re gonna have kind of, there’s three of us that are multi-billion dollar managers that will benefit from the economies of scale, and I think we’ll have slightly differentiating and co-optition, if you will, approaches, and will optimize for slightly different things, but I think that you know there are a few of these that kind of went out with these kind of lower effort shells and I think that they’re going to have a very difficult time of raising additional incremental capital and those may be rollups. But I do think we have to juxtapose.
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1:01:04 Andrew Keys: The centralization vector, which I don’t think we anyone’s going to get to. I don’t think you know crossing you know even 10% becomes a centralization vector. And I don’t think anyone’s going to get there. You know, MicroStrategy, for example, is at 3%.
1:01:24 And just the, you know, increase in price, you know, from 3 months ago where Ether was at 2500, now is at 4,500, that makes it all the more difficult to increase that percentage. But I’d say that with that said, we are also benefiting by explaining this to the world. And I think that there is a trade-off worth having that as long as we don’t get too concentrated, but we do have the ability to use the microphone to explain this to Main Street, you know, whether it’s on CNBC and Wall Street, whether it’s sell-side research that Citi creates on, you know, about our stock, those are wins, right?
1:02:12 And the sooner people are educated and the sooner people, you know, go through that process and cross the chasm on what are the use cases, start to use things like stable coins, start to use things like decentralized applications as they continue to mature, the better we’re all off.
1:02:29 Brian Rose: Now Andrew, we can already see the chirping on Twitter and people are saying that when the bear market comes and you’ve been in this business for over 10 years, you know, and so you know it’s going to come that people are saying the treasury companies are going to exacerbate that bear market and they’re going to be the FTXs or the Three Arrows Capital or the Terra that are going to make the crash harder as all these companies are forced to liquidate. How do you counter it?
1:02:57 Andrew Keys: So I think that there’s two points there. So, one, perpetuals or preferreds do not have, let’s call it, a margin call ability. So, one needs to understand that, but you know, they do have, let’s call it, a coupon ability. So in, let’s call it, the MSTR example, he can never be margin called on his preferreds or they can never be margin called on their preferreds, but he does have to, let’s call it, pay his coupon, you know, and you, he has four different types of preferred shares.
1:03:33 You know, one has a 10% interest rate. It’s hard to, let’s call it, generate 10% yield on an asset that generates no yield, right? So, that’s a consideration. The converts, I think, you have to prudently risk manage, and you have to understand kind of the troughs and the peaks, and you know, we as a society have gotten very comfortable you know, going out and borrowing 80% of a house and putting 20% down but with this, I think that there are the ability to maybe take 10% or 20% of debt to acquire an asset and then generate yield on it is a slightly nuanced, I would say, consideration, and I think that it all goes down to details and like proper risk management and having adults in the room, and I don’t think that you want to overly leverage in this situation but you know, we have our principles and our risk management, and these are the types of considerations that we have looking at the troughs, looking at the floor, making these models on what’s comfortable in terms of a risk matrix, and I think you know, understanding that capital stack: ATM issuance, staking yield generation, convertible bonds that have, let’s call it, a timeline duration versus a preferred share that doesn’t have a timeline duration.
1:05:08 They’re kind of perpetual, but they have coupons, and kind of maxing for those, the matrices of outcomes.
1:05:14 Brian Rose: Okay. So, maybe you guys were going to be doing that, but not everyone’s going to manage their risk maybe as well as you. I think the NASDAQ just also came out with maybe some guidelines or some questions they’re going to start asking about treasury companies, whereas in the past that they see.
1:05:31 Andrew Keys: And I think they’re great.
1:05:33 And like this is kind of like another differentiation, and what I would say kind of more of the tail risk for me like I’m trying to do everything by the book and I’m trying to do it right by myself, you know, let’s call it as a self-interested rational actor, someone who put my mom into this product and doing this as a fiduciary for shareholders, where I purposely went down the path of getting a clean entity where I felt comfortable putting my own assets into. I purposely went down the path of paying for the more expensive legal team, getting the right underwriter in a bulge bracket bank versus someone I’ve never heard of, paying for a big four auditor to create the institutional vehicle properly. At the expense of speed and you know, not going to lie, it’s harder.
1:06:28 You know, we’ve done a great job and we’re proud of the $2.5 billion of committed capital, but it’s not the $7 billion that, you know, BMR has raised today. But we think that we’re building this tank for the medium and long term, which is important to us. And similarly I think that this is already getting kind of a bucketed industry where someone who’s put a lot of effort into creating the proper structure is getting kind of bucketed with, you know, a lower level, lower effort endeavor.
1:07:06 And we’re starting to see, and I kind of broadly call it, you know, if you play silly games, you win silly prizes. And you know, there are some examples where I’m talking about the second largest market cap asset that we have a singular focus in. if you go down to CoinMarketCap number 200 asset, we’re hearing an that’s a locked token that doesn’t unlock for a year or two from now that’s getting put into a treasury and being sold at one to one to retail, and I think you know, any other time if you were to buy that token thinking that it would appreciate and you had the time horizon and I wanted the liquidity any self-interested rational actor would say, okay, I’ll assume that risk, but for that risk I pay a discount, and you know that discount’s for debate.
1:08:06 Is it a 10% discount, is it a 50% discount? But I’m sure you, it’s not one to one. And we’re starting to see, and I think that the market’s actually maturing and getting smarter on this, and a bunch of these things like tried to get out to market, and people started to kind of raise the alarms on it. And I think that’s kind of more of the risk that I’m seeing rather than kind of the leverage, because I think that anyone who’s put the time and the effort into creating these structures, and this is a labor-intensive process running a SEC-registered public equity.
1:08:51 It makes no bones about it. This is is a hard endeavor. What I worry about more than the leverage, because I think that can be very prudently risk-managed. I am more concerned about lower level efforts going out there and kind of selling these less credible tokens on less credible terms and retail not necessarily understanding what they’re acquiring, right? We’ve seen the explosion of that.
1:09:24 Brian Rose: I think it was yesterday, the day before, Worldcoin, I think, raised two and a half billion for a buyback treasury. Obviously, the Trump family, World Liberty Financial, did their all ALT5 Sigma entity, I think last week. A deal we’re involved in called Story Protocol announced one recently as well. I mean, that’s, it’s smaller. I think it’s number 40 as far as the rank of total market cap.
1:09:45 So, yeah, we’re seeing a lot of treasury companies. Obviously, you made a comment that retail should be careful to know exactly what they’re getting, but it looks like this is the trend to jour. Does it just make you nervous? The smaller the market cap of the coin and then the less clear the terms, the less clean the entity. Is that just something everyone should just be super aware of?
1:10:10 Andrew Keys: Yeah, I mean, I think I’ve kind of beat the dead horse on, let’s call it, the entities. I think a lot of people discuss, like, let’s call it, the tokenomic side of the house and don’t have understanding of the the notion of these shell companies versus having a clean entity that we’ve discussed. And then furthermore, I think that the illiquid coin, CoinMarketCap number 50 doesn’t benefit from the liquid capital markets of the US stock exchange because it can’t handle it, you know, like what’s the bid-ask spread there?
1:10:57 And so I think that’s, you know, a consideration.
1:11:00 Brian Rose: Is it somewhat strange to see that, you know, after going all into these tokens and in crypto that we’re coming all the way back to the New York Stock Exchange to get liquidity? I mean, you’ve been doing this for 10, 11 years since the inception of Ethereum. You’ve watched this whole thing progress. Is it kind of strange to see it in a weird way, coming full circle, where the liquidity we always hoped for would be on the blockchain is actually down in these, what look like old school exchanges?
1:11:28 Andrew Keys: Yeah. I mean, I think there’s a nuanced response to that. I think that they are a necessary evil and we’re not see getting the because basically a lot of the institutional investors just can’t play on public permissionless blockchains yet. And I think that we’re in a, you know, 10-year, 20-year transformation and we’ve got to meet people and companies and corporates where they are. And I think that this makes sense for an asset like Ethereum.
1:12:02 I don’t think it makes sense for some application layer token that’s, you know, number 200 on CoinMarketCap, you know, by design. So, I think that there’s kind of nuance in that conversation.
1:12:14 Brian Rose: Andrew, what it’s like for you, because I was reading a press release from 2015 that I think you were included in that was like a deal you cut, I think, with Microsoft back in the day for Consensys. And I had John Lillick on here a couple weeks ago and he says you were a madman with bizdev back in the day.
1:12:33 I mean, that’s 10 years ago where you were working on this Ethereum blockchain. And then fast forward to a year or two ago where, you know, you could be cancelled and debanked for being in crypto, to where now the president of the United States has a memecoin, a DeFi protocol. His son just became a billionaire with a Bitcoin miner. I mean, what can you tell us about that whole journey you’ve been on, and yet you still seem very excited about this, and I don’t see any gray hair.
1:13:01 So, how do you do that?
1:13:03 Andrew Keys: Well, there’s definitely been some gray hair. I don’t think I have physical gray hair, but know that I have spiritual gray hair. And it has been a journey. I think that what I’d say broadly speaking is I am still excited today as I was, you know, a decade ago.
1:13:21 I think that I was maybe naive in the sense that I thought I could decentralize all the things a decade ago, and innovation takes time and furthermore there is an incumbency that is hard to unseat and it’s hard to usurp, and centralized powers don’t want to give them up. And I think that broadly speaking, we are trending in the right direction, and we now have kind of I would say over the last four years there was been a tremendous amount of work that was stymied by political issues. And without getting political, I think that lots of actors in this space are trying to do the right, trying to self-regulate, trying to be in a div.
1:14:24 And I think that every year the wheat gets separated from the shaft, and if you look at 86% of them went to zero, and I’d argue the other 14% changed the way the world worked. And I think we’ve got to have that, you know, continuous optimism but realism that, you know, 85% of probably what we do will go to zero. And that’s how hard it is to build a business or to build a unicorn or build, you know, the next generation of how society agrees or disagrees with each other.
1:14:59 And I think that in the end what I’m doing is going to be one pillar, you know, one of multiple pillars that can give public market investors exposure to the asset class unlike how they would on their own, safely, but also be a microphone to explain how Ethereum works to society.
1:15:20 Brian Rose: You know, I think we’re all familiar with this concept of the innovator’s dilemma, and you know that resistance to innovation from the incumbent, you know, but when I look at the banking industry, Andrew, like, I can’t really, it’s such, there’s so many pieces and so many different interests. It’s like, on one hand, like you said, I’m seeing a payment where I can pay three bucks less with a stable coin than using a credit or a debit card.
1:15:54 You’d think no bank would want that. A bank that has the SWIFT system, you’d think no bank would want instant settlement on a stable coin. And yet at the same time, they also seem to be embracing certain aspects. BlackRock pushes the ETF. BlackRock’s building the tokenized B system.
1:16:10 And so it’s really comp hard to understand what’s resisting.
1:16:14 Andrew Keys: Well, the investment bankers, I mean, made a killing on the Circle IPO, and they’ll make a killing, and they made a killing on the Coinbase IPO. And I mean it’s just companies, and the treasury companies and all the lawyers did great on that, and you know I mean, like, you know, it’s, you know, there’s a great quote, I think it was Edison, it’s something like, in terms of principles, stand like a rock in terms of style, you know, be fluid, and I think that you know we have to be able to embrace change, but have the right principles on how we conduct ourselves.
1:16:56 Brian Rose: It’s such an exciting time. I, look, we went heavy into this four years ago. And I just the change in the last 12 months. It’s hard just to explain to people. I mean, I took a snapshot of the Wall Street Journal digital edition a month ago, and there were four articles on crypto on that front page.
1:17:15 And a year before that, you’d probably get none. On, you know, for a month maybe. And then the headlines coming out of the White House and like all these things. It’s just kind of mind-boggling, you know, that we’re here right now. And it’s an exciting time.
1:17:29 And then I think back to that press release I read of you 10 years ago, and then you realize innovation just definitely takes time. Andrew, how can people learn more about what you’re doing with the machine and then, you know, potentially participate in the future and and all that?
1:17:49 Andrew Keys: Sure. Sure. So www.ethermachine.com.
1:17:51 Our stock is ETHM on the NASDAQ, and you can find me on Twitter akmachine.com.
1:17:57 Brian Rose: And for us Brits over here and maybe people in the Middle East and other places, is it a potential that we might be able to buy some of this on our own exchanges in the future?
1:18:12 Andrew Keys: Yeah, absolutely. Like through an ADR. It’s NASDAQ, so it’s globally accessible for sure.
1:18:19 Brian Rose: Okay, fantastic. Thank you so much for the time, Andrew. Like you said, I think the clear delineator here is you putting all of this skin in the game and putting your huge chunk of assets in there. And now it kind of goes to show that because you have so much skin in the game, you’re being extra careful on that legal entity. And I think time will tell that when you start issuing all these exciting capital structure pieces, I think that’s really that hard work is going to pay off.
1:18:47 So really exciting to watch. Thank you for everything you’ve done with Ethereum and Consensys over the years and now. And looks like we’re in exciting times. So appreciate you.
1:18:56 Andrew Keys: Thank you, Brian.
1:18:57 Brian Rose: All right. Fantastic. Thank you everybody. We’ll see you next time on London Real. Bye.
