A16z talks to Abigail Johnson, CEO of Fidelity: A Decade of Exploration, Innovation Strategy, and the First Year of Institutional Entry

When the Wall Street giants with trillions of dollars in assets under management actually act, their path is far more counterintuitive and practical than you might think.

Author and source of the article: ODIG Invest

In an in-depth interview with a16z, Fidelity CEO Abigail Johnson talked about the mental journey of laying out crypto assets since 2013, clearly outlining the strategic decision-making process of Fidelity CEO.

Based on the podcast content, we’ve compiled and compiled 9 impressive insights to provide a valuable institutional perspective to share and discuss.

Giant icebreaker: It starts with charitable donations

Abigail· Johnson said Fidelity’s first real business in crypto was the “easiest one” they chose from 52 potential use cases: the Bitcoin Charitable Endowment Fund (Donor Advised Fund).

Although she was initially disappointed by the fact that the essence of the business was simply to sell clients’ cryptocurrencies for fiat currency immediately after they were included in the fund, the service gained trust: it addressed the rigid needs of emerging Bitcoin holders (tax credits and charitable donations), paving the way for subsequent ventures.

Exploration of the “non-main business” of traditional finance: mining was once the highest return business

During Fidelity’s early exploration of crypto assets, Abigail insisted on a “scratch” approach to deep involvement, which included launching its Bitcoin mining business. She revealed that surprisingly, the mining business was once the “single highest ROI business” among all Fidelity’s businesses. Initially, she needed to overcome internal resistance to convince the team to invest $200,000 in an early Antminer.

This means that Fidelity once viewed Bitcoin mining as a key step in learning and verification. This spirit of technological exploration is the basis for traditional giants to build a solid system and eventually assume the role of a “bridge”.

Bitcoin: From a “safe-haven asset” to a “savings tool”, the transition is faster than expected

In the past few years, Bitcoin has often been packaged as an “inflation hedge” and “safe-haven asset”. Johnson directly defines it as a “savings instrument”, that is, along with a savings account, bonds, and cash, it is a store of value.

Saving usually means long-term holding, stable returns, and hedging against inflation, which are two completely different positions from “high-volatility speculative speculation”. If this perception is widely accepted, Bitcoin will become part of many family pensions, pensions, and wealth inheritance allocations.

Traditional financial companies are involved in Bitcoin earlier than most people think

Johnson mentioned that Fidelity began to study Bitcoin very early, from discussing 52 potential uses internally in 2013, to later participating in mining, custody, and ETFs, step by step building up the “infrastructure”. Instead of waiting for the public to accept it before entering. This is almost more than ten years ahead of others.

This means that traditional finance is quietly completing the structural adjustment of the new era of crypto, which is not a transformation, but a strategic layout.

Bitcoin’s most scarce resource is not miners or hardware, but a “compliant engagement channel”

Many people believe that Bitcoin is rising because of limited mining or scarce supply. But Johnson emphasized that what actually puts more people on board is the “inlet/export infrastructure” such as compliance, custody, and ETFs.

This means that with the expansion of compliance and institutionalization, what is truly scarce about Bitcoin is not the coin itself, but how it is “held compliantly”. For ordinary people, this means that “buying Bitcoin through legal, stable, and formal channels” has become more realistic; For institutions, it means that it can be used as part of standard asset allocation.

In the era of decentralization, asset custody is the first commercial landing of giants

Abigail initially thought that the custody business seemed to be contrary to the decentralized idea of crypto, however, custody became the first truly customer-facing crypto business launched by Fidelity. As “one of the oldest businesses in the world”, custody is a key need for crypto assets from the “geek movement” to “mainstream assets”.

As early crypto asset holders amassed significant wealth and faced issues with estate planning and asset security, the strong cybersecurity capabilities and reputation endorsements of traditional financial institutions became scarce resources. Fidelity realizes that their value lies in acting as a “bridge” between traditional and decentralized finance, and “custody” is the cornerstone of this bridge.

This means that institutional access is not about disrupting everything, but about integrating and winning the market by providing security, planning, and trustworthiness within the traditional financial system.

Traditional finance does not need to be reshaped, but uses the underlying logic to reconstruct the old system

When it comes to whether crypto will completely rebuild the financial system, Abigail· Johnson’s perspective has undergone a shift. She tended to “replace” existing systems in her early years, but now she believes that “there is no chance, but eventually there will be a middle ground, which is an evolutionary process”.

She said she is more interested in “creating new opportunities that have never existed before” than just doing the same thing at the bottom with blockchain technology. This means that Fidelity’s innovation focuses on “new capabilities.” For example: a tokenized money market fund, which combines the flexibility of the decentralized world with the yields of the traditional world.

Abigail acknowledged that the pace of change in traditional financial businesses is “extremely slow”, and that primitive technology has caused huge inertia in the financial services industry, which means that it is difficult for traditional institutions to quickly modernize infrastructure through internal upgrades, and the only way to change is to be driven by external competitive pressures and regulatory standards.

The moat of giants: The real competitive advantage comes from self-built control of the underlying technology

Abigail noted that Fidelity is unique in the financial services industry where they truly value the ‘screws and nuts’ of the technology that underpins their business. They believe that sustainable competitive advantage does not come from purchasing existing technology, but from “participating in building or customizing technology.”

In the face of underlying technology changes like blockchain, Fidelity chooses to build its own or deeply master the core technology, so as to build a more lasting competitive advantage and moat than just buying third-party solutions.

The law of risk and innovation: If there is no failure, it proves that you have not taken enough risks

When it comes to balancing risk and innovation, Abigail suggests that Fidelity’s in-house incubator and R&D lab are a “safe space” that allows employees to do things that might fail. “If everything we do succeeds, it means we haven’t taken enough risks,” she said bluntly. ”

This sentence sets the standard for internal innovation: the failure rate is the benchmark for success. Fidelity was able to allow internal teams to explore new technologies and build firewalls without disruption to traditional businesses.