It's great to be here with all of you. Hmm, this is, um, the third day, this is after noon, bear market noon, bear market . I think if you're here to listen to this on the side stage, you're really committed to learning something about tokenization and investing in Ethereum. So thank you all for being here. I'm glad to have the opportunity to share our, um to share our, um , our views.
As Karthik said, I'm, um, Zak Pandle. I'm doing, um, research at Grayscale. You may know Grayscale, um, but we are, um, the largest, um, digital asset-focused fund manager, um, in the world. And our job is to help, um, investors effectively allocate capital across the crypto asset class, across Ethereum, across Bitcoin, um, across everything else. And that means developing great products, and all the education that goes along with our help, helping investors understand the technology, um, how use cases accumulate token value, and all that other good stuff.
And, uh, Grayscale has a long history of, uh, early achievements, uh, in relation to Ethereum. We were one of the first Ethereum investment products, our ETHE product. We were one of the first Ethereum ETFs. Er, we were the first to list tokens in our Ethereum ETF. We were the first to pay out staking rewards from our ETF.
So, uh, we are deeply integrated into the Ethereum ecosystem. We hope to be good stewards of, uh, ETH to the extent that we can contribute as a node to the network over time. Uh, we're going through a moment of some uncertainty and some desperation about the price of Ethereum, and, uh, we find it, uh, a little bit strange and sometimes funny, uh, because I think Ethereum is in an incredible position, uh, to reflect what I think is one of the most transformative things happening in the financial system, which is tokenization. So, I'm going to talk about how I and the Grayscale research team think about tokenization and how Ethereum fits into that story. And I think this will be obvious information for many of you.
Uh, maybe for some of you, if you're new to this topic, this will be new. But, I think if you've been following the history of Ethereum for a long time, uh, some of these points might be obvious. Uh, but maybe I'm just here to remind you of these important obvious points and tell you why Ethereum tell you why Ethereum , in my opinion, is in such a great place, uh, in such a great position to accommodate this megatrend of tokenization. Okay, let's get to the point. A quick reminder, what is tokenization?
Well, uh, we all know that the premise of public blockchain technology is to transform digital finance and move from a world of intermediaries, credits, and debits to a world of peer-to-peer transactions. So, in the Ethereum blockchain, we can send Ethereum ether to each other without an intermediary directly between each other's addresses. We can send stablecoins to each other without an intermediary. This is, of course, the use of public blockchain technology. And tokenization simply means taking the same concept, peer-to-peer digital finance , and applying it to the world of capital markets.
So instead of exchanging ether or a stablecoin, we can exchange assets with each other on an equal basis in the same way. This is different from how capital markets work today. If we want to trade securities in traditional markets, it works like this: I call my broker. The broker calls the exchange. The exchange calls the clearing house.
The clearing house calls the custodian. The custodian calls him a transfer agent. And after all these intermediaries have updated their books and records, we trade the securities. In blockchain, it works like this: you have cash, I have securities, and that's one smart contract – a one smart contract – a transaction. We exchange these two things on an equal basis without all these intermediaries playing the same role.
So, tokenization is a simple concept of using public blockchain public blockchain infrastructure to bring digital finance to capital markets in a different way, eliminating the centralized role of intermediaries and gaining user benefits and new efficiencies. You probably already know all this . Where are we today? Of course, the vision of tokenization is starting to come to fruition, and we are off to a great start. This is the growth of tokenized asset stocks over time.
It all started with a small amount, just a few years ago, and now it's worth between $20 billion and $30 billion. And it is becoming more and more diverse. Tokenized Treasury bonds, a kind of extension of stablecoins, are the largest category today, but there are other types of public fixed income. We have public shares tokenized on- chain. We have private alternatives.
These are things like private credit, private equity funds . We have tokenized goods. Tokenized gold was a huge category this year. And other things, real estate, active funds, a whole, uh, diverse set of assets that are now tokenized on the blockchain. So, that's a good, uh, start.
But perhaps more importantly, uh, while that's a good start, and 20-30 billion sounds like a big number when you say a billion, uh you say a billion, uh , but 20-30 billion , but 20-30 billion is just a tiny little thing when you compare it to the size of the capital markets, when you compare tokenized assets to the size of tokenized assets, it's really a tiny number. In fact, all tokenized assets today represent about 0.01%, or one basis point, of the global stock and bond market capitalization. So, a tiny number compared to tokenized assets. And that's why this concept is likely to become a megatrend.
We have new technology. She is starting to develop. We see this encouraging, sustainable trend gaining momentum, but we are only at the very beginning. The tokenization of capital markets is something that will manifest itself throughout our careers. This is a 10, 20, 30- careers.
This is a 10, 20, 30- year transformation of the functioning of capital markets. Okay, so what does this have to do with the underlying blockchain infrastructure and how to invest in such things? We at Greyscale Research believe that you need to start this conversation by discussing different network architectures network architectures . Let me say that I'm not a computer scientist, and, uh, there are a lot of different points of view on this topic. And we have many different partners in the industry, and they don't hesitate to share their feedback with me about these types of frameworks.
So there 's certainly room for disagreement with this type of framework, but this is, uh, my best, uh, attempt at a very simple way to make a comparison between these, uh, different types of technologies. In my opinion, there is a whole spectrum of things. On the one hand, you have, uh one hand, you have, uh , networks like the Canton network, which I would consider an institution-centric blockchain network architecture. So, essentially, Canton is very similar to the modern financial system. You have institutions, each with their own instance of the blockchain, and these things communicate with each other through a kind of messaging platform.
This is very similar to how the financial system looks today, and it has certain advantages it has certain advantages . This could reduce the difficulty of adaptation for this tokenization concept, as these institutions care about things like identity things like identity . They care about things like privacy. They are already working with users of these assets. So they may have some short-term benefits from these institutional- institutional- oriented architectures, as they are more apt to reflect what the financial system looks like today.
So system looks like today. So , in our opinion (and not everyone likes this story) you're going to see a lot of success from things like Canton Network for these reasons. On the other hand, you have what we consider open architecture blockchain networks. This is similar to the Ethereum design structure we all know and love, and it is closer to the ideal of peer-to-peer decentralized finance based on smart contracts. We believe that these types of networks will have greater difficulty adapting.
I personally believe that more needs to be done to fully articulate the privacy solutions, the identity solutions that will eventually be needed at every level of Ethereum at every level of Ethereum . However, these networks have a more universal purpose, and they are also global. Ethereum also global. Ethereum is not an American project, not a Chinese project, not a Chinese , not a Russian, or a European one. This is a global decentralized project for everyone.
And to me, that ultimately means it has more growth potential in the long term. So, more short-term challenges with tokenization adoption, but more long-term growth prospects growth prospects . Of course, there are things in between. Hybrid architectures that combine these ideas, such as Avalanche, such as the Ethereum L2 ecosystem. In any case, that's how we think about this spectrum.
And I'm here to tell you that Ethereum, the number one reason why it's in a good position is because of the right type of network architecture. It is designed in such a way that it is positioned to encompass a more complete vision of what public blockchain technology can do, and is not simply an incremental step from what the financial system looks like today. Okay, let's put these concepts into numbers. What does the data tell us? Who occupies the leading positions?
If we look at the rise of tokenized assets in these blockchain finance use cases, who is in a good position today? This chart allows you to compare some key data, three different dimensions, tokenized assets, the stablecoin economy, and several features of decentralized finance. And the first thing that stands out in this chart is that Ethereum is in the leading position. It is a fundamental leader in most of these categories. It is the largest blockchain in terms of tokenized assets fully distributed across the blockchain.
It has the largest stablecoin supply, the largest number of stablecoin transactions, and the largest DeFi TVL. So the largest DeFi TVL. So , Ethereum is strong. Ethereum is in a leading position today. There are other networks with different design options, and they have strengths in certain other aspects.
As we have already said, the Canton network has a completely different network architecture. It's hard to make a definitive comparison between Ethereum and Canton because they are so different, but Canton leads the way in some blockchain funding metrics. And I think that's important to acknowledge important to acknowledge . And some other networks with open architecture, such as Solana, such as BNB chain, make different design decisions design decisions . They lead in some other aspects.
As everyone knows, Solana is optimized for performance and leads in some categories, such as DEX trading volume. So, Ethereum is in a leading position and has strengths. Of course, there are other networks. Okay, that's kind of an outline of the basics. What does this have to do with price?
Okay this have to do with price? Okay ? So, Grayscale is not in the business of creating a blockchain creating a blockchain . We're in the asset investing business, you know, we're trying to educate investors, if you think the tokenization megatrend is coming, and it's going to happen on a public blockchain public blockchain , what does that mean for the price of the asset? Okay, that's a difficult question.
And what I'm going to do here is I'm not going to answer every possible element of the ether pricing story. This is a rather complex and, I think, somewhat complicated question. But there are some things that are simpler. And I'll try to show you in a few simple graphs, some, I think, very simple data, that demonstrates that larger blockchains mean higher token value. The bigger, the better.
A larger network, a larger blockchain network means a higher token value. And this data that seems very obvious to me in the data, and I think that's how I would encourage you to think about why the price of ETH should increase over time. Okay, there are two ways to measure finances to measure finances , okay? Whether it's blockchain or traditional finance, you can measure finance in terms of the number of transactions or the number of assets. And that's exactly how we do it in blockchains.
This chart is a measure of transaction activity across all smart contracts on the market for which we have sufficient data. In total, there are about 50 such things about 50 such things . Only a few of them have enough data. But we look at transactions and compare them to market capitalization. In our opinion, commissions, transaction fees, are the best indicator of transactions, as other types of indicators are more manipulative.
If you look at blockchains, you know, users and transaction counts transaction counts , these are very manipulative metrics. With commissions, this indicator is more difficult to manipulate . Therefore, we believe it is better to compare blockchains with each other. As you can see, there is an upward correlation, that is, a positive relationship between network size and token price. A larger network size means a higher network value.
Today, there are four leaders dressed this way: Ethereum, BNB Chain, Solana, and Tron. These networks stand out from all the others. This is where many users make many transactions across these four networks. They differ from the rest of the industry in this way. So, these are the leaders.
That's why they have value. Another thing that stands out in this graph is the hint of a nonlinear relationship. All four of these points, uh All four of these points, uh , they're kind of leaders, are above the regression line. This means that there may be nonlinearity. Maybe the tokens of the biggest projects actually get an additional, uh, value premium, a non-linear impact on value, uh impact on value, uh , at some scale, a kind of network effect happening in value.
Okay, that's for transactions. What about assets? This is the same graph, but only for assets that are on- chain, measured by TVL. Uh, again, you see an upward trend. Larger networks are more valuable.
Bigger is valuable. Bigger is better. A larger blockchain means a more valuable token. In this case, you see a more dominant category leader, which is Ethereum. So, BNB, Solana, Solana, and Tron also have a decent amount of on-chain assets, but they are kind of second tier after Ethereum when measured by asset volume by asset volume .
Again, you see evidence of nonlinearity. All three nonlinearity. All three ...All four of these points are above the linear regression line, which suggests that perhaps there is something nonlinear going on here, and also that as blockchains grow, perhaps the value of their tokens is growing faster and faster for the most valuable tokens. So, Ethereum is in a pretty strong position today.
This is the leading blockchain in terms of finance and blockchain fundamentals. He is right in the center of everything that is happening. And there's a very clear there's a very clear , and in my opinion, very obvious message in the data that bigger is better when it comes to blockchains. More blockchains, more transactions, more assets means more value for tokens, and there's probably some nonlinearity to that, that as these things get a lot bigger, there's potentially a nonlinear relationship to the price of that asset. So there's no need to talk about it .
Ethereum is in a very good position today. So, what will happen? I'll tell you what I think will happen. I think we will pass the Clarity Act. We'll see.
This is my guess. This is not a settled matter yet, but I think we will pass the Clarity Act. And this will be another important regulatory step towards realizing this vision of tokenization. This vision of tokenization will be realized over the next 30 years, regardless of what happens with the Clarity Act, but it could start to develop faster if we pass this legislation. You should think of tokenization, uh, from a blockchain investment perspective, as a rising tide that lifts all boats.
You know, tokenized assets, stablecoins, these are use cases for the technology that we're all working on, and it's going to be a rising tide that lifts all boats. The investment thesis for Ethereum is that it is the biggest boat. OK? Uh, this tide will lift a lot of things. But when an institutional allocator considers this issue of, uh, tokenization and uh, tokenization and how it will guide its capital allocation decisions, I can assure you that it will not miss the biggest boat.
This is a core asset for this vision of tokenization in tokenization in any smart portfolio. And that's exactly the message Grayscale is sending. Tokenization is a megatrend. It will increase the size, and therefore the value, of many different types of blockchains, but your portfolio should start with the most obvious asset, and the most obvious asset for this thesis is Ethereum, the number one leader in this category. The best approach may be to own a diversified portfolio of boats that includes some smaller ones.
So we also make such recommendations to our client, but of course it would be a mistake to build a portfolio around a vision of tokenization that did not include a big boat right in the middle. Okay, that's all I have. Thank you for your attention, and I look forward to discussing all of this . Thank you.
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