Rootstock Labs – Beyond Digital Gold: Making Bitcoin Productive Collateral

[Music] This is the Brave New Coin Crypto Conversation hosted by Andy Pickering. [Music] I guess today is Richard Green. Richard is the Director of Institutional and Ecosystem at Roots.Labs, which of course is a Bitcoin focused network for payments and decentralized finance. Welcome to the show, Richard. Thanks for having me, Andy. Great to be here. Great to have you here, Richard. Let's do what we do at the beginning of the show. Would be cool if you could please introduce yourself. Would love to hear just a little bit of your personal and professional backstory. Yeah, absolutely. So I, as you said, currently the VP of ReStuck Institutional and I started into a world of work 15 years ago when I entered as quite a lot of these people do into the world of Traffy and Fintech. So I first joined Bloomberg, the large Fintech data player, and spent about 10 years there doing everything from managing the customer service desks to managing the relationship management teams for the large banks and high-frequency trading firms. And after that, I started to get more and more interested into what the innovations were outside of Fintech and stablecoins were starting to become pretty prevalent. And obviously being from the Bloomberg and Traffy side, it's more of an FX play. And I started to hear more and more FX players asking about stablecoins and what they were doing with them. And so I started to go a little bit deeper into that and then moved over to Circle. And so I spent a couple of years at Circle where we were building out the European side of the business. Obviously, very US dominant. And however, we were starting to see asset managers and other businesses within Europe wanting to use USDC and then also EuroC in the future. And, you know, beyond that, it was something where a lot of the users of USDC were obviously in the emerging markets, whether that be Latin or Sub-Saharan Africa. And so I got to speak to a lot of those play it, and a lot of those players were wanting to use the dollar, the digital dollar for many reasons. And quite a few of them were looking for other things and other technology or other currencies to be able to use. And so that's when I started to go further and further down the Bitcoin rabbit hole. So I would love to have said that I was a Bitcoiner from 2000, the early days of Bitcoin. And I obviously was one of those people who you buy a little bit and then you forget about it or you sell it. But it really came to prominence for me when I was starting to see that there are people out there who need Bitcoin because they don't have access to either a digital dollar or an actual physical dollar. And so root stock labs and what we do at root stock labs was a really interesting idea. Obviously a Bitcoin sidechain, aviom compatible. And the ability for people to be using Bitcoin as the core pristine collateral to be able to actual pay for things or enter into the world of DeFi was really appealing. And so that's where I then jumped over and I've been investigating how institutions and how retail and how DeFi can use Bitcoin in a better way. Yeah that's right, thank you Richard. So part of your thesis I suppose is then that Bitcoin is more than simply a store of value. So the digital gold narrative obviously has a certain amount of appeal to both individuals and institutions. But your argument I suppose is that store of value isn't enough. So maybe expand on that. So what are you doing with root stock labs and why do you see Bitcoin as being the need for it to become a core collateral? Yeah absolutely. So my view is that Bitcoin is pristine collateral. And we talk about pristine collateral and what that is in many ways. But that's really when we're talking about that, that's what makes up Bitcoin, right? In terms of limited supply, no owner can't be controlled by government and things like that. And so what the value of Bitcoin is that it is a long-term store of value. And it has we can talk about the compounded annual growth rate of between 40 to 50% since inception. But we can also talk about the fact that whilst there are a lot of Fiat currencies out there with being debased, have a government's play around from monetary and fiscal policy to change the interest rates and to encourage short-term or long-term spending. Bitcoin sits as it's. So it's a perfect store of value. However, a lot of people now hold it, whether that be retail or institutions and what that means is they want to be able to do things with it. They want to turn it into productive capital. And that productive capital can look in many different ways. If you are a a digital asset treasury company like strategy and Michael Sayler or any of the others, it's sad and balance sheet and they're saying, well, I want to turn this into dollars. I don't want to sell it. So what can I do with it? Well, you can use it as collateral to get a loan against that. And all they're saying, well, I'm holding Bitcoin. I have it in custody. Is there a custody charge for it around 10 to 50 basis points? And I want to be able to generate yields to pay off that custody or just to accumulate more and more Bitcoin. And so there's now the opportunity to find more and more safer, native Bitcoin yield sources. And I'm sure touch on one native Bitcoin yield is in a little bit more. And so a root stock lamps, you know, what our view is is we want to be able to serve those clients who have those needs. And what we're doing is we've built out this institution offering over the past 12 months, which was really built out through necessity. We are a proof of work chain, which means we are 80% of the miners who mine the layer one, mine root stock. And so the miners were coming to us and saying, we've got all of Bitcoin, but we need to pay overheads. We need to pay salaries and X, Y and Z. And we want to be able to use our Bitcoin as collateral. So what we've started to do, root stock lamps and what our first product to market is going to be in the next month is a Bitcoin collateralized product and really focusing in on a specific niche area to begin with, which is the mining community and anyone else who's interested in that style of loan. And then also beyond that, we'll be looking at building out more and more yield opportunities within our own vault system. Root stock is a blockchain. And so we have a lot of partners integrating onto that blockchain as well. And if you look at the likes of Midas, Mellow, Tier Capital, Hyprism, these are all yield generating tokenization platforms who offer someone with Bitcoin that moves to our Raptivision, a Bitcoin, the opportunity to get yield. And that's great. We want those partners to continue doing that and building on our chain, but we also then want to move and see what areas do we think are underserved, what really works well within our wheelhouse and what can we start to offer those businesses, those institutions. And that's where we're doubling down and supporting those. Yeah. And as I understand it, you're also, I guess you're using Latin America as a proven ground. So you announce that Macata Bitcoin, is that how we say they're expanding their, I guess, real-world asset push with about 20 million in private credit on Root stock? So why are we focusing on Latin America? I suppose it's because it's a developing market. And what does that tell us about where we can first find product markets that fill for what you guys are up to and where it can go next? Yeah. Macata Bitcoin, an amazing part of ours. So it's actually 40 million now in terms of tokenized RWA's on Root stock. And what they have done incredibly well is they have spotted the need for Bitcoin holders to want to get access to tokenized RWA's, safe, secure yields, and be able to offer that. And so we see that as a validation point. And so for us, we want to work with partners like that very closely to dig deeper into, well, beyond, because there are mainly a retail focused business. What is there beyond that? What are the Dakos doing in that region? What are the investors doing in that region? How can we support them? So I think Root stock lamps and Root stock was founded out of Latin America. It's where our DNA is. It is something where it was initially built to help those avoid high-conflation, government censorship and those kinds of things. And so we always have a big arm in Latin America, whether that be with our other partners, like the founding partners in terms of the integrations, money on chain, tropicals, who offer loans, Bitcoin loans, they offer yield bearing, stable coins. So it's a good proving point. However, it's not just the area. I think we're looking at different bets across regions and verticals. So Latin America, absolutely. It is an area that has a need. Japan, for example, we've announced partnerships with Animoca, who are a live digital asset player out there. And what we're doing with players such as that is within Japan, they're not usually a first mover. And they are usually people who follow in terms of regulation. They're usually a group of following in terms of what the trends are. But stats are 80% of investors will allocate into crypto within the next year. They are actively looking at what the regulation is from a government perspective and how to be more crypto friendly. And so we're having partners coming to us from the likes of Japan saying we want to do something. We're really interested in offering value to our users or offering value to our shareholders, if they're a digital asset treasury company. What can we do? Is it something where we could offer them Bitcoin collateralized loans? Is it something where we could offer a safe native yield Bitcoin yield source? And the great benefit is that we're in a position in a situation where we can act as a little bit of as a consultant, with in guiding people into how what are the best practices in generating yield or generating Bitcoin collateralized loans? Yeah, that's well said Richard. I know you've also talked about, I guess the luxury, the real estate, the art thesis, Bitcoin potentially absorbing some of that capital or speculative value that is currently parked and things like fine art or luxury real estate. And of course the reason being because Bitcoin can have that efficient collateral and lending mechanic. So it's a provocative idea. Still, you know, I need people to come around to it. So make the case by which, you know, that capital could potentially rotate to Bitcoin over time. Yeah, absolutely. So I think the stat is something like 50% of all of world savings are in those kinds of investments. So it's a fine art real estate versus just in cash. And I think that there's an argument for both sides, both in cash and for those investments. I think on the cash side, you are going back to that argument of currencies debasing. Inflation slowly eroding at the US dollar, eight to 10% per ann, the value of your store. And so Bitcoin, I was actually, I think, Matt Hogan, who's a CIO, bitwise, I say really good analogy that I love. And he said, Bitcoin is basically an out of the money call option on it becoming a payment instrument as well. So you basically got Bitcoin as a store of value. It's got cargo 40 to 50%. But it could also become a form of payment. And it's out of the money call option in the sense that it could happen and is getting closer and closer, potentially happening through the likes of lightning and likes of reach stock as well. And but what that does is it protects and ring fences and the store of value. And so I think that people will sit and say, well, I might not park all of my savings into fiat currency. I will use fiat currency for payments, but I'll park my cash element in Bitcoin, Bitcoin is my cash store of value. And then on the real estate side, on the fine art side, again, the value versus Bitcoin is that the liquidity of Bitcoin and the appreciation of over time is much greater. You, with fine art or with real estate, you'll fix to an asset that is pretty illiquid or it has a much smaller market. And you can't do anything with it. Now there's a lot of talk about tokenizing these kinds of assets, right tokenizing real estate, tokenizing fine art. And this is where the world of DeFi comes in and the world of risk stock lambs really, really doubles down because if you have Bitcoin and you move it to a chain like root stock, that Bitcoin becomes composable in the sense that I can use it for multiple different things. I can take my Bitcoin token on root stock and I can use it as collateral. I could then take that collateral token and use it as a yield source. So you're doing multiple different things with one item in a very liquid, in a very safe and a very well-custeted space. With these other items, they're pretty illiquid. We don't know how to cast it, just the end. So they'll come, but they're very far behind the trend. Same thing with private credit. And I think you're seeing it more with better with stocks and US treasuries and government bonds, where people within the world of tokenization own them by them and then can use them as collateral for other things. But Bitcoin's already there. And so there's no aha moment because the aha moment has already been and it's with Bitcoin. And I think that's our view. It's all the ecosystem to support what people are looking to do is already whether you're looking at it as a cash replacement for your store of value or you're looking at as a replacement for those traditional illiquid investments. Yeah, makes sense. Another will look The concern you've raised in the past Richard is, you know, the idea that Bitcoins custody gets a little bit too concentrated by, you know, the ETFs and perhaps some of the banks. Do you see that as still quite a serious risk factor to Bitcoin? I think it can always be a risk factor if there is, you know, single person or single business risk within one specific area, right? I think the great thing about the ETFs is that you're now starting to see multiple ETFs coming out. So you recently had Morgan Stanley announced their ETF, obviously BlackRock and so on and so forth. So that's diversifying away. It all being locked into single BlackRock ETF. I think on the other custody player angle, your options that people now have across the different custodians, we work with around about five different custodians, four to five Utila, fire blocks and a number of others. So there are very strong institutional great custodians where if you were talking to me and saying, well, what would I do with my Bitcoin, you allocate it potentially between different custodians. It's red of the risk yourself. So I don't think that it being fixed in one area is a big issue because there's multiple providers and again, same thing if you're allocating an investment portfolio, you'd go, okay, well, I'll put 10% here, 20% here, 40% here. And that's the same thing with, for example, risk around protocol risk. So if I'm on root stock and I am thinking, well, where am I going to put my Bitcoin to generate yield? And likely you're going to put 100% here of it into a single protocol. And we've seen a lot of things, a lot of hacks recently and things like that. But even from that side, you just wouldn't put it all in what? You'd spread it. So I think the message is that whilst there is risk within specific areas, ETFs holding up, well, 200 billion in Bitcoin, sailor being the, you know, after Satoshi being the largest holder of Bitcoin, what do those risks look like? And that's something that I think we yet to see. And because absolutely is there a danger that the world's largest institutional holder is the world's largest institutional holder? What would happen if sailor and strategy strategy went wrong to the Bitcoin market? I think what they're doing is incredibly clever and I don't think that it will go wrong. But there is that risk, right? Yeah. Yeah. Well said. All right. Well, look, as we start to finish up, Richard, you know, if the thesis plays out, you know, five years time perhaps Bitcoin becomes the escape hatch. It becomes core collateral globally. Perhaps, you know, what are some of the things that have to go right for us to get there? I think the institutional infrastructure is already there. I don't think that there is a huge amount that needs to change in terms of custodial provisions and things like that. I think what has to change is a few things. I think there needs to be a lot of education and there needs to be a shift for the likes of family offices, high net worth individuals, corporations who understand that actually Bitcoin is not the most volatile asset out there. That it is something that can be used to hedge against debatement and so on and so forth. So education is a huge piece. It's about getting people on and the ETFs, etc., are doing a big thing about it. On the defy side of things of getting people into the defy space and the co-imposability aspects, we need to do a better job at fixing and responding to these kinds of hacks that are currently occurring. Right? are multiple hacks that are ongoing. And I think that a lot of the institutional market are stepping away from the DeFi world and going to more centralized side just to avoid what is currently going on. So, I'm from the world of Bloomberg and the world of Circle, where when there was an issue on platform, it was an incredible corporate messaging that came down to reassure people that your funds were safe. You know, when Circle D-Pegs, there was an amazing team that all rallied around to make sure that people felt secure and there was the transparency. DeFi needs to be better at showing that transparency. Obviously, DeFi is a little bit difficult because there's no CEO salad at the top of it, but the players in there need to be much better at calling those fears. I think that there are other items in there such as quantum computing and what the risk of that looks like in terms of actually breaking Bitcoin. What needs to be done there, we need to be proactive. We need to go out there into a lay the fears of institution and institutional investors because there has been a drawback from interest in it. So, I think that it's about the education piece and it's about bringing the DeFi world up to an institutional level, not infrastructure, but institutional level management of things and communication of things. Because that is the only way that these large players will come over. Once those large players will come over, the liquidity will be there. What our view at Ruestock Labs is and why we've set up the institutional side is that once that liquidity is there, once the institutional players here, it trickles to retail. Then retail players can start to get a mortgage for their house using Bitcoin. They can start to use Bitcoin as much more of a productive asset than just a store of value if they wish to. So, our goal is always to eventually create a very safe and secure network for the end users for the you and me of the world, or not even for the you and me, for people in regions and areas that needed a lot more to you and me. And so, those are the things that I think we need to get to. Wonderful. You said Richard, all right. Well, it's a nice way to finish just to close it out, Richard, for people that want to learn more about what you and the team are building. What is the best way to keep people to keep up with what you're up to? What should they do and where should they go? Yeah, absolutely. They can easily find us on the website, Ruestocklabs.com/institutional and there's a contact as page on there and they can drop a comment in. And also, I'm at number of events, so feel free to add me on LinkedIn or feel free to grab me in person as well. Fantastic. Thank you so much for spending some time with us today. Thanks, Andy. Great to be here. Thanks, Richard. Bye for now.