WisdomTree CEO: I am all in on Defi
WisdomTree held its third quarter earnings call on October 29th where a key focus was around growth initiatives for today and for tomorrow. In the core business today, that means bringing new ETFs and sophisticated model portfolios to market. To prepare for a transformative future where financial services begin to migrate onto the blockchain, WisdomTree will be an early leader with tokenized assets and a blockchain-native wallet.
WisdomTree’s deep understanding and prioritization of first principles like transparency, disclosures, and consumer protection are all critically aligned with regulatory goals, so we are uniquely positioned to offer a still early-to-market and easy-to-use DeFi access point without the contentious regulatory relationship.
To underscore that point, we’d point to an exchange on our earnings call between a sell-side analyst and our Chief Executive Officer, Jono Steinberg, that we believe provides important context about the future of financial services and where WisdomTree fits.
The last two questions of the earnings call came from Goldman Sachs Analyst Ryan Bailey. We edited responses for clarity of discussion.
Bailey: I think WisdomTree has always been a business that's evolved. You've transitioned from being an index creator to a pioneer in the ETF space, in particular, smart beta. So my question is, are we at a cusp of the next evolution of the business? And if we were to roll forward, say, five years, is WisdomTree going to be a DeFi business that has ETFs? Or an ETF business that's pioneering DeFi? Or is that just completely the wrong characterization?
WisdomTree really has been a business that has evolved. We started as a financial media company, Individual Investor Group, transitioned to ETFs when I saw how transformative they were for the investing process.
I would say that I am now personally all in on DeFi.
I say that because I believe it's going to meaningfully change the user experience for the positive; and from a business standpoint, transform the economics of financial services.
I believe that over the next five years, we will be recognized as a DeFi business that has an ETF business.
Said a different way: WisdomTree is in the business of transparent exposures, whether we're doing it in regulated tokens or through ETFs.
I think they'll prove to be quite complementary. We are 30 years into ETFs and yet the mutual fund industry is still very, very strong. I remain very bullish on ETFs.
But when I think about where WisdomTree stacks in the competitive set: we were early in ETFs, but we were 13 years after State Street and 7 years after iShares.
Here, we have a chance to be first through the door with this new wrapper.
I really see a massive opportunity.
I think that's what we'll be defined as over time, a DeFi company.
Bailey: Got it. And to make sure I am thinking about this, right, by having a well-established and scaled ETF business, the moment you have the mechanism or platform, you will start pioneering DeFi?
For starters, they’re very complementary. What has us so excited about this new journey was how well our core business mapped to the future.
We’ve communicated that we’re spending $4 million on digital assets in 2021.
We’re trying to be as efficient as possible to help maintain our margins.
We’ve been asking a number of people to wear two hats. We’re transitioning to building a pure Digital Assets team and we have eight or nine people in that space now. It’s very, very helpful.
The expertise that we have as the third largest gold manager in the world makes what we’re going to do on gold tokens very important and that works the same for tokenized treasuries.
And one of the things that DeFi needs is responsible DeFi, which means regulated DeFi.
The market needs to get things through regulators and—that really is one of our strengths.
I think the regulators are viewing WisdomTree in this new world as a trusted solutions provider and so we’re really trying to work out the issues, because obviously the standards can’t be different in a digital asset world.
You need to be maintaining the foundational principles of regulation of “know your customer” and anti-money laundering and disclosures. And all of those things that make financial services trustworthy, have to come over to the new world order of distributed ledger tech and so we think we can be that bridge brand that could pull this off.
Important Risks Related to this Article
There are risks associated with investing, including the possible loss of principal. Crypto assets, such as bitcoin and ether, are complex, generally exhibit extreme price volatility and unpredictability, and should be viewed as highly speculative assets. Crypto assets are frequently referred to as crypto “currencies,” but they typically operate without central authority or banks, are not backed by any government or issuing entity (i.e., no right of recourse), have no government or insurance protections, are not legal tender and have limited or no usability as compared to fiat currencies. Federal, state or foreign governments may restrict the use, transfer, exchange and value of crypto assets, and regulation in the U.S. and worldwide is still developing.
Crypto asset exchanges and/or settlement facilities may stop operating, permanently shut down or experience issues due to security breaches, fraud, insolvency, market manipulation, market surveillance, KYC/AML (know your customer/anti-money laundering) procedures, noncompliance with applicable rules and regulations, technical glitches, hackers, malware or other reasons, which could negatively impact the price of any cryptocurrency traded on such exchanges or reliant on a settlement facility or otherwise may prevent access or use of the crypto asset. Crypto assets can experience unique events, such as forks or airdrops, which can impact the value and functionality of the crypto asset.
Crypto asset transactions are generally irreversible, which means that a crypto asset may be unrecoverable in instances where: (i) it is sent to an incorrect address, (ii) the incorrect amount is sent or (iii) transactions are made fraudulently from an account. A crypto asset may decline in popularity, acceptance or use, thereby impairing its price, and the price of a crypto asset may also be impacted by the transactions of a small number of holders of such crypto asset. Crypto assets may be difficult to value, and valuations, even for the same crypto asset, may differ significantly by pricing source or otherwise be suspect due to market fragmentation, illiquidity, volatility and the potential for manipulation. Crypto assets generally rely on blockchain technology, and blockchain technology is a relatively new and untested technology which operates as a distributed ledger. Blockchain systems could be subject to Internet connectivity disruptions, consensus failures or cybersecurity attacks, and the date or time that you initiate a transaction may be different than when it is recorded on the blockchain. Access to a given blockchain requires an individualized key, which, if compromised, could result in loss due to theft, destruction or inaccessibility.
In addition, different crypto assets exhibit different characteristics, use cases and risk profiles. Information provided by WisdomTree regarding digital assets, crypto assets or blockchain networks should not be considered or relied upon as investment or other advice or as a recommendation from WisdomTree, including regarding the use or suitability of any particular digital asset, crypto asset, blockchain network or any particular strategy. WisdomTree is not acting and has not agreed to act in an investment advisory, fiduciary or quasi-fiduciary capacity to any advisor, end client or investor, and has no responsibility in connection therewith, with respect to any digital assets, crypto assets or blockchain networks.