Krista Lynch: Wall Street Is Going All In On Digital Assets (Insider Take)

Krista Lynch (0:00)

It's been funny to watch the evolution go from us being like, will you please have a conversation with us, and them not picking up the phone, to now them, they inundate us in our emails, so please educate me, please tell me more. My clients want this, how can I give it to them?

Robbie Klages (0:13)

My name's Robby, and you're watching The Rollup, and today I'm asking you to please subscribe, comment, like and support our channel. We interview some of the best and brightest minds in digital assets, digital finance and tokenization. We are doing this for you.

So please sit back, relax, enjoy the show, and thank you so much for all your support. All right, guys, we got Krista Lynch from Grayscale here, and we're excited. It feels like an institutional bull market, and you guys are leading the charge. So welcome to the show.

Krista Lynch (0:45)

Thank you for having me.

Robbie Klages (0:46)

It's a pleasure to have you. Like I said, we've had your partner, Zach Pandal on several times. He's always a pleasure. We've chatted Zcash, we've chatted several things that you guys are, like I said, leading the charge on. You're the in-kind transaction queen, so we're gonna be chatting about that.

Maybe we can just start, what are you most excited about? Because Grayscale's got a very broad product suite, you guys have been around a long time. Give us a sense of what you're most excited about, where you're spending most of your attention.

Krista Lynch (1:12)

Well, you hit on two of them. So I would start off with in-kind, very flattering introduction.

By way of introduction, I've actually been in ETFs for many years, not just crypto, but actually fixed income ETFs before this. So I have a lot of experience with the primary market for ETFs. That's how they're created and redeemed. Now typically that's not available to end investors. That's really only an institutional market that's facilitated by something called an authorized participant. But what we're finding for the crypto products is we've actually been able to partner with authorized participants and other facilitators to open the doors to individual customers who want to put their tokens into the ETF. It allows them to get margin, collateral, institutional custody with all the news about hacks recently. A lot of people feel more comfortable with that. So we've been very proud to be able to facilitate that for our clients. Now, Zcash, it all ties in nicely because we've just launched an ETF on Zcash. So we can now also offer this in-kind capability for Maxis potentially who have Zcash laying around and want to put it into an institutional grade solution, they can now in-kind it into the ETF.

Robbie Klages (2:16)

So in-kind transactions, let's just start holistically. We're talking about we have a bear instrument, a spot asset that represents the token, the asset itself, and then we've got an ETF, which is this vehicle that is going to live on a brokerage and the in-kind aspect to this allows people to redeem and swap in and out between the ETF and the asset itself. What are the implications of this? What is the value proposition of an in-kind transaction here?

Krista Lynch (2:43)

So it's really caught on because of things like tax planning. For example, if you have a big position and you want to ensure that your family gets it if something happens to you, this is a way that you can put it into a brokerage account and have those rules and regulations surrounding it. Then there's also those who like the convenience of having everything in one place. Now, we originally thought that the Bitcoin and so on ETFs were really going to be more for the user who was afraid or hesitant to do some of these crypto native actions like opening a wallet, but we are increasingly finding that in-kind is something that is very appealing to crypto native investors wanting some of the benefits of being on the traditional rails. Now, to take it a step further, we've recently had some conversations, especially here at Token 2049, about then re-tokenizing that to bring it back to the digital rails. Now, if that catches on, it remains to be seen, but you can really take things full circle. And I think that's some of the conversation that we're having here.

Robbie Klages (3:40)

And what, okay, so I think from a regulatory perspective, this is now possible with some of the tokenization exemptions that we've seen out of the SEC.

And so, I mean, for one, it's really, really encouraging that we're now seeing very thoughtful regulations, they're listening to this industry, and they're allowing us to experiment a little bit and see what investors demand. And so, we've seen a couple of products like this go live. What is the demand for these products that you've seen, what is the value proposition for? Hey, you know, I could go get Zcash onchain, but I choose to get it in an ETF, but then I'm going to re-tokenize and get it back onchain. What is the value proposition of this?