This episode unpacks the rapid convergence of traditional finance and crypto, exploring how tokenized stocks, perpetual futures, and new ETF structures are fundamentally reshaping market infrastructure and investment strategies.
Guest Introduction: Thomas from the Jito Foundation
- The episode welcomes Thomas, Chief Commercial Officer at the Jito Foundation, who provides context from his extensive background in traditional finance and crypto.
- Thomas shares his experience from a 22-year tenure at Jane Street, where he was part of the team that began exploring crypto in 2017. He offers a unique insider's perspective on how major trading firms navigate the complex US regulatory landscape.
- He explains Jane Street's decision to "resize" its crypto business in 2023, post-FTX. This was driven by the realization that US regulators considered the firm a "US person," severely limiting its crypto activities to fully compliant products like CME futures and spot Bitcoin, thereby risking the firm's broader franchise.
- "It doesn't make sense for a firm as big as Jane to kind of take headline risks or regulatory risks in something like crypto and risk the rest of the franchise." - Thomas
Jito's Market Structure and Yield Generation
- Thomas explains how Jito generates its high yield (currently over 7%). The primary source is Jito tips, which are fees paid by market participants—such as market makers, HFTs, and meme coin traders—to prioritize their transactions on the Solana network.
- These tips are collected by Jito and distributed to validators, who then pass them on to stakers, creating an enhanced yield on top of Solana's native inflation rewards. This mechanism is a form of MEV (Maximal Extractable Value), where value is captured from transaction ordering.
- The conversation pivots to a deeper market structure discussion, contrasting traditional CLOBs (Central Limit Order Books) with blockchain transaction processing.
- In TradFi, exchanges use price-time priority, with firms competing on speed (time) to get to a centralized matching engine.
- On blockchains, with their distributed and batch-processing nature, time is not a reliable priority metric. Instead, competition occurs on the price dimension through tips, priority fees, or paying through the spread.
- Strategic Implication: The mechanics of Jito highlight a core innovation in decentralized networks—using economic incentives (tips) to solve for transaction priority in the absence of a centralized time-stamping authority. This is a critical area of research for understanding on-chain market efficiency.
The Rise of Tokenized Stocks
- The discussion shifts to the recent wave of tokenized stock announcements from Kraken, Robinhood, and Gemini, all initially focused on providing non-US investors with access to US equities.
- Thomas questions the first-order benefits, arguing that US equity markets are already among the most liquid in the world, so tokenization adds little in terms of price discovery or liquidity. The value, he suggests, lies in secondary benefits like global access or new product creation for digitally native users.
- Noel provides a detailed breakdown of Robinhood's major announcements, which she views as a significant step forward in the space. Key launches include:
- Perpetual futures for the EU: Making a popular but complex derivative more accessible through Robinhood's user-friendly interface.
- Tokenized stocks for the EU: Lowering the barrier to entry for retail users to engage with tokenized assets.
- A proprietary Robinhood blockchain: A strategic move to create a vertically integrated, "super app" ecosystem where the underlying blockchain technology is abstracted away from the user.
- Actionable Insight: The "super app" strategy pursued by Robinhood and Coinbase represents a rebundling of financial services on new, crypto-native rails. Investors should monitor how these platforms leverage their control over the entire stack—from custody to trading to settlement—to create network effects and competitive moats.
The True Potential of Tokenized Assets: Composability
- The panel agrees that the real game-changer for tokenized assets is not just access, but composability—the ability to use these assets across different applications.
- Vlad Tenev, Robinhood's CEO, hinted that users might be able to move their tokenized Apple stock off the Robinhood platform. This would unlock powerful use cases, such as using tokenized stock as collateral in DeFi lending protocols.
- "That's where it gets interesting because what can a token do that a traditional share can't? It can be compatible. It can be programmable. It can be a lot more flexible than the equities that we know today have been." - Noel
- Rahm provides a concrete example with Apollo's Acred fund, which is accessible on-chain. An investor could buy into the fund, pledge the tokenized asset as collateral on a platform like Morpho to borrow against it, and then reinvest, creating a leveraged return strategy.
- Strategic Consideration: While powerful, this composability introduces new risks. Thomas points out the complexities of handling corporate actions (dividends, stock splits) for tokens that live off-platform, a significant hurdle that needs to be solved for seamless integration.
Perpetual Futures: The Next TradFi Product?
- The conversation dives into perpetual futures (perps), which are derivatives that track an asset's price without an expiration date, maintained by a funding rate mechanism. The panel debates whether this crypto-native product will be adopted by traditional finance.
- Thomas, drawing on his trading background, is bullish, stating, "I think perps are going to eat the world." He argues they offer a simpler, cash-settled way to get leveraged exposure without the hassle of rolling futures contracts.
- However, he also outlines the significant risks that need to be addressed for institutional adoption:
- Liquidation Risk: The built-in liquidation mechanism can cause cascading price effects and poses a risk of total loss of margin for traders.
- Clearing and Margin: Traditional institutions are not equipped to manage margin calls at all hours, a necessity for 24/7 perp markets. This clearing piece is the biggest puzzle to solve.
- Historical Context: The panel compares perps to CFDs (Contracts for Difference), a similar product in the UK that was eventually banned for retail use due to the significant losses incurred by traders. This serves as a cautionary tale for regulators and platform designers.
Portfolio Allocation: The Edelman 40% Controversy
- The discussion turns to a recent, provocative recommendation from famed financial advisor Rick Edelman, who suggested a 40% crypto allocation for aggressive investors.
- The panel notes that while Edelman has long been a crypto proponent, his previous recommendations were in the conservative 1-2% range. This massive jump is the real news.
- Rahm expresses skepticism, questioning the timing and the blanket nature of the advice, while James notes the hypocrisy of many advisors who publicly recommend small allocations while personally holding much larger positions.
- Actionable Insight: Edelman's recommendation signals a major shift in the perception of fiduciary duty. He argues that failing to allocate to crypto is now the riskier position. While a 40% allocation is extreme, it forces investors and advisors to re-evaluate their baseline crypto exposure in a globally diversified portfolio.
The Impending Wave of Crypto ETFs
- The hosts discuss the imminent launch of new crypto ETFs, starting with a product from Rex/Osprey that will offer exposure to Solana staking yield. This product uses a complex structure involving a Cayman Islands subsidiary to navigate current SEC rules.
- This is seen as a "foot in the door" moment, similar to the first Bitcoin futures ETFs, paving the way for purer spot products. The panel believes a spot Solana ETF will be approved in 2025, with a high likelihood for any token that has a CFTC-listed futures contract.
- Thomas provides a masterclass on the technical hurdles for staked ETFs, particularly the role of Liquid Staking Tokens (LSTs) like JitoSOL.
- He argues that a 100% staked ETF is the optimal product for users, and LSTs are the only practical way to achieve this, as they abstract away the complexities of staking and provide crucial liquidity.
- The primary blockers are regulatory uncertainty from the IRS on how staking rewards are taxed and from the SEC on whether LSTs are permissible within a grantor trust structure, which prohibits active management.
- Strategic Implication: The resolution of IRS and SEC guidance on staking and LSTs is the single most important catalyst to watch in the ETF space. The outcome will determine the structure, efficiency, and yield potential of all future staked crypto ETFs.
Macro Outlook: Fiscal Dominance and the Fed
- The episode concludes with a macro discussion, sparked by a letter from Donald Trump to Fed Chair Jerome Powell, criticizing him for keeping rates high.
- The panel debates the need for rate cuts. While some data points to economic softening, the overall economy remains robust, and loose financial conditions persist. Rahm argues that keeping rates in the "old normal" is sustainable, while James sees a path to 50 basis points of cuts this year.
- Noel and Rahm emphasize the theme of fiscal dominance, where government spending and debt issuance have a greater impact on the economy than monetary policy. The political pressure on the Fed to lower rates to reduce the government's interest burden is a major factor.
- "There's worlds where like a weaker dollar is good for exporters... and so if you actually do want to bring manufacturing back on shore then this is one way to do it." - Thomas
- Investor Takeaway: The political landscape, particularly the upcoming US election, is creating significant uncertainty for monetary policy. Investors should monitor the rhetoric around Fed independence and fiscal spending, as it will directly impact inflation, asset prices, and the value of the dollar.
Conclusion
TradFi is rapidly integrating crypto-native concepts like LSTs and perpetuals, reshaping market infrastructure. Investors must analyze the second-order effects of this convergence, from new yield sources to systemic risks in clearing and custody, to identify emerging opportunities and threats.
