Ship or Die at Accelerate 2025: Fiduciary Tokens (Michael Green - Simplify)

Michael Green, a renowned financial expert and critic of traditional finance, unveils a groundbreaking vision for the future of digital assets at Accelerate 2025. In his talk, Green introduces the concept of fiduciary tokens, a revolutionary approach to tokenization that could reshape the landscape of financial markets and restore trust in digital investments.

Summary

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Michael Green, known for his critical stance on Bitcoin and speculative cryptocurrencies, argues that while traditional finance (trad-fi) is dying, tokenization represents the future of finance. He introduces the concept of fiduciary tokens as a solution to the current limitations of both traditional financial products and existing crypto tokens.

Green contends that mutual funds are in decline, and ETFs, despite their current popularity, are simply a stopgap measure lacking true innovation. He predicts that tokenization, still in its infancy, will eventually replace these traditional investment vehicles.

The speaker highlights the problems with passive investing and algorithmic trading, which he believes are creating unsustainable market conditions. He argues that the current approach to regulation and security design in the crypto space is flawed, focusing on avoiding classification as securities rather than creating genuinely useful investment products.

Green proposes fiduciary tokens as a way to embed legal obligations, governance rights, and enforceable rules directly into digital assets. This approach, he argues, could enhance trust, improve regulatory compliance, and create more meaningful investment opportunities in the digital asset space.

Key Points:

The Death of Traditional Finance

Michael Green asserts that traditional finance (trad-fi) is effectively dead, although it hasn't realized it yet. He points to the decline of mutual funds, despite asset appreciation, as evidence of this trend. ETFs have taken their place for now, but Green argues that they too lack true innovation and are merely "recasting" existing products with added leverage.

As an ETF provider himself, Green speaks from experience when he says that the asset class is stagnating. He predicts that ETFs will follow mutual funds into obsolescence, describing them as "grandma in the attic - dead, not yet buried."

The Problems with Passive Investing

Green spends considerable time discussing the issues with passive investing strategies, which he believes are creating unsustainable market conditions. He argues that what many consider "passive" investing - such as buying into S&P 500 index funds or target-date funds in 401(k) plans - is not truly passive.

Every time money is invested in these vehicles, it pushes stock prices higher, regardless of the underlying value of the companies. This removes discretion in valuing assets and forces companies into unproductive investments and unexpected competition. Green warns that when passive strategies become too large, they create their own endogenous volatility, potentially leading to market crashes.

The Limitations of Current Crypto Tokens

Green criticizes the current approach to crypto tokens, which he says are designed to avoid being classified as securities. This leads to tokens that lack profit-sharing mechanisms, managerial promises, governance rights, and enforceable obligations - in other words, everything that makes an investment interesting.

He argues that these tokens are essentially collectibles, traded on "glorified e-Bays," rather than true investments. This approach, he contends, is holding back the potential of tokenization to create meaningful financial products.

Introducing Fiduciary Tokens

As a solution to these problems, Green introduces the concept of fiduciary tokens. These are programmable digital assets designed to embed fiduciary obligations and legal accountability directly into the token architecture. Instead of relying on external institutions for enforcement, these tokens would have built-in mechanisms to ensure compliance with stated objectives and investor protections.

Green envisions fiduciary tokens that can enforce rules, provide AI-readable legal standards, mirror existing regulatory frameworks, and offer built-in recourse mechanisms. For example, a token could automatically alert investors if a fund manager deviates from the stated investment strategy, or municipal bonds could be programmed to ensure funds are only used for their intended purpose.

The Future of Regulation

Green argues for a shift in the regulatory approach, moving from a focus on conforming to the letter of the law in filing applications to a "truth in labeling" model more akin to the FDA. Regulators would simply need to verify that a token does what it claims to do, rather than navigating complex securities laws.

He emphasizes that this approach would make regulators' jobs easier, not harder, by embedding compliance into the tokens themselves. This could potentially allow for more innovative financial products while still protecting investors.

Facts + Figures

• Simplify, Green's firm, has grown from about $200 million to $7.5 billion in assets.
• Green predicted the collapse of the XIV ETF on February 5, 2018, which occurred on a 3.9% decline in the S&P 500.
• Simplify will be introducing its first tokenized ETF this year, working with partners like Alpha Ledger and Plume.
• These partners are working with the Solana Foundation to offer U.S. citizens diverse ways of investing in trad-fi assets without going on-chain or off-chain.
• Green argues that U.S. stocks currently make up 55-60% of global market cap.
• AI can function as an individual fiduciary litigator, analyzing token offerings for sensibility and fairness.

Top quotes

1. "Trad fi is actually dead. It just doesn't know it yet."
2. "Tokenization is in its infinite infancy and it is the future."
3. "Trust is an integral part of being a social species. If I want to invest in your product, I have to trust you."
4. "We should be using tokens to enhance trust, not simply saying you should have done your work on that man."
5. "Don't spend our time trying to run away from [regulators], embrace what they're actually trying to accomplish and show how we can do it better."
6. "The objective of investments is to position yourself for an ownership share and a stream of profits and cash flows from those. Pretending anything else just doesn't make any sense whatsoever."
7. "Imagine municipal debt that is issued that says this is going to be used for school construction. In a tokenized framework, it can only be used for school construction."

Questions Answered

What are fiduciary tokens?

Fiduciary tokens are programmable digital assets designed to embed fiduciary obligations and legal accountability directly into the token architecture. Unlike traditional crypto tokens, fiduciary tokens aim to enhance trust and stewardship by incorporating governance logic, regulatory compliance, and enforceable rules directly into the token itself. This approach could potentially revolutionize how digital assets are created, regulated, and traded.

How do fiduciary tokens differ from current crypto tokens?

Fiduciary tokens differ from current crypto tokens by incorporating built-in governance, compliance, and accountability features. While many existing crypto tokens are designed to avoid classification as securities (often lacking profit-sharing mechanisms, managerial promises, governance rights, and enforceable obligations), fiduciary tokens embrace these elements. They aim to create more meaningful investment opportunities by embedding legal and fiduciary responsibilities directly into the token's code.

How could fiduciary tokens improve regulatory compliance?

Fiduciary tokens could improve regulatory compliance by encoding legal and regulatory requirements directly into the token's architecture. This approach would make it easier for regulators to verify that a token does what it claims to do, similar to a "truth in labeling" model. By automating compliance and providing real-time auditing capabilities, fiduciary tokens could potentially allow for more innovative financial products while still protecting investors and easing the burden on regulatory bodies.

What are some potential use cases for fiduciary tokens?

Fiduciary tokens could have numerous applications in the financial world. Some potential use cases include:

1. Tokenized ETFs that automatically enforce investment strategies and alert investors to any deviations.
2. Municipal bonds that ensure funds are only used for their stated purpose, such as school construction.
3. Corporate shares with programmable "use of proceeds" that restrict how raised capital can be spent.
4. Investment products with built-in voting mechanisms for strategy changes or fund manager decisions.
5. Real-time auditable financial instruments that provide greater transparency to investors and regulators.

How might fiduciary tokens address the problems with passive investing?

Fiduciary tokens could potentially address some of the issues associated with passive investing by providing more transparency and control to investors. By embedding rules and governance mechanisms directly into the token, investors could have a clearer understanding of how their money is being used and have more say in investment decisions. This could help mitigate some of the market distortions caused by large-scale passive investing strategies and provide a more active approach to index-based investing.