Stablecoins and Central Bank Digital Currencies - what is the state of play? On Ep. 4 of Tokenized, Simon Taylor, Head of Content & Strategy @ Sardine, and Cuy Sheffield, Head of Crypto @ Visa, are joined by Elise Soucie, Executive Director @ Global Digital Finance to discuss the competitive landscape of stablecoins, Hamilton Lane launching fund on Solana, Project Pyxtrial and much more!
On Ep. 4 of Tokenized, Simon Taylor, Head of Content & Strategy @ Sardine, and Cuy Sheffield, Head of Crypto @ Visa, are joined by Elise Soucie, Executive Director @ Global Digital Finance to discuss the competitive landscape of stablecoins, Hamilton Lane launching fund on Solana, Project Pyxtrial and much more!
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This episode is brought to you by Visa
A world leader in digital payments, Visa is bridging the gap between traditional financial institutions and innovative blockchain networks, helping players in the payments ecosystem navigate the ever-evolving world of tokenized fiat currencies with confidence and ease. Learn more at visa.com/crypto.
This podcast is also supported by Digital Asset.
Digital Asset is excited to launch the Canton Network, a proven, trusted, and scaleable service that provides interoperability between institutional-grade tokenization platforms. The Global Synchronizer is now live, managed by Linux and institutions are actively using Canton Coin to manage the governance. No, the banks haven’t launched a token in the classic sense, this is much more interesting. They’ve done it to make all token networks interoperable. Find out more at canton.network
Unknown Speaker 00:00
Simon,
Sy Taylor 00:10
welcome to tokenized My name is Simon Taylor, and I'm your host for the tokenized podcast. I am, of course, the author of FinTech brain food and head of strategy and content at a little company called Soddy. Joining me is my co host, my friend, my colleague, Kai Sheffield, head of crypto at visa Kai, how are you? What's exciting you at the moment,
Cuy Sheffield 00:32
I'm fantastic, and shout out to you. I'm impressed you're coming right off the stage at FinTech DevCon. You just gave the keynote. Now we're right into the podcast, and so it's double duty here for you. This is gonna be a fun show.
Sy Taylor 00:45
Oh, it's always double duty. And the business of FinTech and the business of crypto never, never sleeps. So I am very thankful joining us for Episode Four. Today. We've got Elise Susie, who's the executive director of global digital finance to help us make sense of it all. Elise, how are you today?
Elise Soucie 01:03
I'm very well. Thanks. Thanks so much for having me.
Sy Taylor 01:06
Thank you very much for being with us. We've also like to remind our listeners, of course, that the views and opinions of contributors on their own and don't necessarily reflect those of the companies they representing. And please, please, please, don't take any of this as tax, financial or legal advice. Do your own research. Folks. All right, first story we had to cover this week is on fortune crypto, and it's about Hamilton lane. Hamilton Lane has become the first asset manager to launch a fund on the Solana blockchain. So this is one of the world's largest investment firms, with $920 billion of assets under management, and they've announced a private credit fund as well, that the scope fund 556 million of AUM can be accessed with the Solana blockchain, that's a pretty decent sized font access through Solana. So they partnered with web three protocol libre for the issuance and distribution of funds on chain. And the main goal is to deepen Hamilton Lane's distribution and access the mass affluent crypto natives. So that's a really, really interesting sentence. Elisa, you seeing this in the buy side? Are you seeing this demand outside of Hamilton lane? What's your perspective on this story?
Elise Soucie 02:29
So I think that this is a really interesting development in particular, because if you consider the sort of history of the asset management industry and sort of where they're at. They're not traditionally thought of as being the most like tech forward. So I actually think that this is a really great indication of what's typically thought of as one of the more old school kind of components of the financial services industry as moving into this space. And actually what we hear from a lot of discussions in industry, is actually the difficult part, is making sure there is that sort of buy side understanding and education about where the value lies. So I think, from my perspective, this is a great development, because it sort of shows that start into the sort of modernization, which I think, in my opinion, the asset management industry has went a little bit slower than maybe some other areas. Yeah.
Sy Taylor 03:23
Kai, interested in your thoughts on this. Another thing I missed in the read as well is it's a private credit fund, and they're offering up to 10% APY yield. So private credit, as we know, has been around for a very long time, but it's an asset class that a lot of people couldn't interact with and now offering this to a new class of mass affluent, crypto wealthy. Is that a space you're seeing as becoming a thing? And what are your thoughts on the Solana side of this? I
Cuy Sheffield 03:52
think there are a few interesting implications here. One, it seems like this is a pretty big deal for Solana in having a very large, reputable institution that's issuing or making available a fund on the Solana blockchain. This is one of the first that we've seen, and could create some momentum to see other institutions that typically might start on Ethereum. And we talked a lot in previous episodes about BlackRock and the Biddle fund on Ethereum, and now you might see more institutions look to create funds on other blockchains, with Solana being one that this is a big element for their credibility. I think this also speaks to some of the discussions that we've had both last episode with Robert Lechner, of this interest from traditional asset managers, asset issuers, in reaching a affluent crypto native customer base, you know, they're trying to bring their traditional financial products and meet these customers where they are. And so it's clear that they're looking at the existing crypto market and saying they're more and more crypto native, particularly institutions. Those hedge funds that are, you know, have a lot of assets on chain, and those institutions, you know, might want to diversify, and not just, you know, purchase crypto assets, but purchase traditional assets using the same infrastructure. And so I think being able to meet customers where they are now this, it looks like this is accredited investors only. There's still, you know, limits on this. So it's not necessarily everyone on retail, but blockchains are becoming not just a technology, but also like a distribution channel that some of these asset issuers are looking to tap into. Yeah, I
Elise Soucie 05:33
would add to that that I do think that actually starting with the professional investors is a smart strategy, when you consider like, where the regulatory concern is as well, is that a lot of regulators globally, what they're worried about is consumer protection. They're worried about sort of, you know, mom and dad and grandpa and grandpa who are losing a lot of money through crypto scams. The CFTC, for example, just did a big conference around pig butchering. Like they're really worried about that type of thing, where I think we've seen maybe slightly less regulatory concern is on the professional side. You know, a lot of countries that maybe haven't kind of gone for the full ETP access have said, you know, we will consider, sort of see etns and etps for professional investors. And so I think that starting with that kind of that side of the market is smart if you want to make sure that you're also complying with regulatory requirements and not going to be kind of raising any red flags.
Cuy Sheffield 06:26
Simon, I'm curious how you think about blockchain selection for some of these large institutions, are we going to see this end up like stable coins, where, if you look at Circle and USDC, they're not very opinionated around blockchains. They're saying, Hey, we're going to make USDC available across a dozen chains. Any chain that you want to access USDC on, we're going to make it available. It feels like in the early stages of these tokenized money market funds, tokenized credit funds, usually the fund starts on one chain. It's just on Ethereum or just on Solana, do you think that some of these large asset issuers will say, You know what same mindset is circle any major chain that you want to be able to access us on, we're going to have the tokenization technology to put it across those different chains and not be opinionated on which chain their customers want to know.
Sy Taylor 07:16
I think that's a really smart point. The reason you probably don't want to be opinionated, is if there's demand, then why wouldn't you supply it? The mass affluent crypto buyer is sort of halfway between an institution and a consumer. So mass affluent crypto buyer has demand for something with consistently high yield. Hamilton lane is offering them 10% APY. And if they're mass affluent crypto, it's probably not going to be hard for them to access something like Solana, so they can go serve them. But where this could potentially go is You've almost got those two stories, like, do we end up in a world where you can only use this on Ethereum, only use that on Solana? This is awful, bridging issues, and then you end up with recentralization, or is it actually just these crypto users are here? There are some technology challenges, but it's still a lot better than using the paper you had to use to access private credit, you know, 10 years ago, or even for most of the market now. So this is a significant technology upgrade, even if there are some interoperability challenges, and it's still kind of early days, at least. Thoughts,
Elise Soucie 08:23
I would agree with that. And I mean, we, we've been talking about interoperability a lot, and I know that's not one of the main topics for today, so I won't go too far down that rabbit hole, but I would just add one interesting point, since you did mention bridges, is I think that there's a lot of kind of questions and focus around that now, in the kind of like, who is responsible? And I think that there's a sort of broader question here, when making the kind of blockchain selection choice, which is, yes, you need to choose which blockchain to use, but then when you think about the broader interoperability, who's responsible for making that work, and who's responsible for the kind of everything going smoothly at the end of the day or when something goes wrong, and I think both regulators and businesses are going to need to grapple with that. And I'm not saying that this should be, you know, an impediment to kind of acting now. I think there's still a lot that you can do within this market, but it should certainly be a sort of future looking thing, especially for the kind of bigger institutions getting involved in this space, and they should be having those conversations, you know, with their different tech providers now, yeah,
Sy Taylor 09:26
and in the short term, if I'm a mass affluent crypto user, I can certainly figure out how to use Solana to access 10% APY, and that might be valuable if I want to do it, if I'm a private credit fund, And there are buyers, and I have to use this. This technology is one option to be able to distribute to them, and maybe even with some of the ecosystem funds out there, it doesn't even cost me anything to build it like the ecosystem fund is helping me build out towards it. Then this feels like a no brainer deal. How that plays out as. Rightly point out, over the next few years is going to be be really interesting to watch. Kai. I'm curious about the competitive landscape as well, though, and how you think about that, because stable coins, as you were pointing out, were almost like a little bit ahead of this model. Have you seen any challenges emerging in the stable coin space?
Cuy Sheffield 10:17
I think that there's this other theme that's at play here, where the first stage of this market in tokenizing money market funds, you know, treasuries, you know these other assets. It started on on Ethereum, and most of it has been large value purchases, high minimums, I think Blackrock biddles, $5 million minimum. And there actually aren't a lot of on chain transactions like my understanding is, I think we looked at, there were maybe 20 different addresses that help Biddle. And so the blockchain is being used, but it's not being used multiple times a day. You know, every day, the yield that they distribute in Biddle tokens, they distribute periodically, and that's an on chain transaction. And so it's interesting to kind of look at, with these products, how many on chain transactions are happening, and I think in the early state of the market, it's relatively low. And so that's not a kind of huge barrier. You could do this on Ethereum. You could pay three to $50 depending upon the conditions, to be able to operate these products. Down the road, if you want to do more with them, if they're going to be more on chain transactions, if we ever get to the point where these assets are used in protocols, you know, as collateral, some of the things we've talked about in other episodes, then you're going to need to have lower transaction costs, you know, higher speed, to make these assets more usable, instead of just buying them and holding them. And so I think one of the questions is, one way you could look at it is to say, if you start on Ethereum, you've built everything EVM compatible. Which layer two are you going to use? It's pretty clear that there's going to be an ecosystem of layer twos. We're seeing a bunch of growth and development there, but there's a ton of competition, and it's not clear which of those layer twos is going to be the one, and so might you have. You've seen stablecoins issue across a bunch of different layer twos. I think Solana represents this alternative of a layer one that you're seeing institutions look at and say, if the future use cases we need might require more speed and scale, then we would want our product available there. But I think to your point like, we could absolutely end up in a world where the same way stable coins are issued across every chain that there's demand for, a tokenized money market fund, a tokenized treasury, could be issued across every chain that there's demand for, instead of just picking one or the other.
Sy Taylor 12:36
Yeah, it doesn't have to end up in the Android versus Google world at the moment. Actually, there's hundreds of these things, and perhaps they will start to work together on some level that it's important to say that Kai, I think your research found that Hamilton Lane Currently has four other products through securities, and they're on Ethereum. So this feels to me like they're in that category of companies that is experimenting, that is trying to figure out, is the demand really there? How do we operate this product? It's live, it's in production, but also Hamilton lanes, one of many you see Franklin Templeton playing in the space. You see BlackRock, as you pointed out, most of the major buy side firms are here and are playing in some big ways. So really interesting one. I'm sure we'll keep coming back to this theme, but I'm going to talk about the next story very briefly, if you'll go with me. This story came from decrypt, but you could find it just about every way, which is the UK's Bank of England, the Central Bank and the Bank for International Settlements, showcased a project for monitoring stable coins. So this was a joint effort, and it's shown that they can deliver near real time data on stable coins, liabilities and the assets backing them, dubbed bricks trio, the initiative could end up extending to monitoring other tokenized products backed by real world assets, And the project also provides insights into building back end solutions that will enable authorities to interact with both on chain and off chain data. It comes in the same week that the Bank of England said they plan to carry out a series of experiments on wholesale central bank digital currencies. I know for some listeners in some parts of the audience, the idea of a cbdc is terrifying for some parts of the world. It's sort of inevitable. But I always wondered about your perspective on this Elise, because the world of crypto and tokenized assets hasn't had the best perception in the regulatory community historically. Are things like this starting to change that, or is this like almost out the other way, where we end up in this dystopia of lack of privacy?
Elise Soucie 14:48
Well, okay, so there's a couple of interesting things about this announcement, and so I'll try to unpack a few of them, one of which being that I think that on the wholesale CBD. Point, which I'll address first, is that the BIS also actually did another really interesting piece of research that showed that a lot of central banks are trending more towards development of wholesale CBDCs than retail CBDCs. My personal opinion is that in countries like the UK and the US, I think that makes a lot more sense just given I think that it, you know, could be useful for settlement purposes, where I don't personally really see the demand for a retail cbdc. I'll set that aside. There are those that would disagree with me, but that's my personal view on the project itself, pixtrail. I just want to remind everyone about the discussion papers that happened in the UK. I think it was last in November on stable coins, which is this is important. So bear with me. They had a discussion paper from both the FCA and the Bank of England on the regulation of retail stable coins only now the Bank of England one was on systemic stable coins that would be en masse. So basically Libra, what we kind of mentioned at the beginning, that sort of dark specter that hung over central banks that they were really worried about. This is the type of stable coin that they were thinking about regulating. Now, in that proposal, they noted that backing assets for systemic stable coins would be restricted to central bank deposits only. Now that is fascinating if you consider what they are now trialing with the BIS, because why would you need to track backing assets if all of the backing assets were at the central bank? So there's a couple ways you could maybe read that. Perhaps they're changing their view on that, because there was a lot of industry feedback on that point, which said, look, there aren't any stable coins in the market right now that are structured that way, so you're kind of proposing to regulate a stablecoin structure that doesn't exist, and it might kind of prevent people from wanting to issue within the UK or because in the FCA discussion paper they didn't necessarily have that requirement, there could be a massive cliff edge risk if you all of a sudden had to transition your whole business bottle. But I think it begs this kind of broader question here, and I'd be interested to hear your thoughts on it, because this is a topic that I feel like I'm thinking about a lot, which is that stable coins, to my view, are inherently less risky than tokenized deposits, because there's no counter party risk. They're bearer instruments, and so really this should be kind of a safer instrument from a regulatory perspective, but instead, we kind of saw this overly stringent treatment proposed. So back to the kind of trial. Maybe they're changing their view on this, and that's why they're interested in kind of tracking back the assets, because they're going to allow for a broader spectrum. But I'd be really interested to get your guys's views
Cuy Sheffield 17:40
a bunch of really interesting themes here. The first thing I thought of in this story was going all the way back to 2019 there was a paper by the IMF that introduced this term, this concept of synthetic cbdc, which is a bit of a odd name, like, what is synthetic cbdc. But I think it was at a time when a lot of central banks were thinking kind of more about retail cbdc, and as a response and reaction to Libra and the IMF said, Okay, well, you could have a type of product that you could back with central bank reserves, but be issued by the private sector, and so it would be a stable coin, but backed by central bank reserves. So it's not a cbdc, but it's not the traditional structure of a stable coin. So they kind of put out that concept. It didn't really get that much traction. I think it kind of went away. People didn't really talk about it. Maybe it was the name, it was like. Now, when you hear about this and some of the recent work that they've done, I think it's a really interesting question around what should the future backing of stable coins be? And one is there a distinction between these systemic stable coins, or kind of very large stable coins that should be backed one way, and a stable coin that's launched that is at a smaller amount. And are there different rules depending upon what the size there is? And then, yeah, what role should the central bank play? Should central banks be providing supervision over stable coins, or should they also actually have the central bank reserves that they can see and monitor in real time that are are backing the stablecoin. It seems like, Simon, you're much closer to this than I am, that one of the unique things about the Bank of England has been they have been more open to fintechs and other non banks having accounts at the Bank of England and enabling access to some central bank services there, where other central banks and other markets you know have restricted access and accounts to banks only, and so maybe that's another component of their interest here. But yeah, Simon, what's what's your take on this?
Sy Taylor 19:49
If you want to see the future of Financial Services Policy, take a good look at the UK, because there's always something interesting happening in some part of it. And to. Your point Kai, in the US, it's almost impossible to get an account with the Federal Reserve. You can get one as a FinTech company at the Bank of England, you cannot get access to the central bank payment systems, a Fed payment system, unless you're a bank in the UK, you can. So yes, they were much more accessible. The other thing you'll see is that globally, the central banks have said, we mostly don't want our central bank digital currency that would be issued by us the bank, and we will give it to you, whether it's wholesale or retail, to be programmable. At all. Bank of England said, well, actually, it might be quite, quite a good idea if it was programmable. So there's some really thoughtful ideas in here, but as you guys were both unpacking a lot of what was going on there, certainly in Alicia's points as well, the words going through my head was product market fit. Stable coins fundamentally have product market fit. There are crypto natives, there are consumers, to some extent, there are cross border payments companies, there are lots of traders who have found that this really solves a need for them for this stable store of value, to a Lisa's point, that doesn't necessarily have counterparty risk because it's backed by some other asset that has product market fit. What does not have product market fit is this thing called cbdc, unless it's for, like wholesale cbdc, so large, giant institutions settling across borders in stuff that most people will never care about. For some reason, the term cbdc has become this really political hot button with certain parts of the crypto community in certain parts of the world. So it has a terrible brand. So now to kind of accept all of that and say, right from first principles, what problems can we solve if we have this new technology? Well, turns out that there are a lot of vulnerable people that don't necessarily want to use banks or credit cards and debit cards and can't use them, that need to be able to make payments offline. Maybe there's a use case there. Maybe there's something where we could settle, like these financial markets, payments cross borders a little bit more efficiently. Don't call these two of those things cbdc, call them something else, because it's a terrible brand name. And if you want to make that programmable, do it, but you will just take all of the heat out of it if you stopped calling it that stable coins fundamentally need some kind of oversight and visibility we've seen with mica now we have regulation. Regulation will follow inevitably, but we need to also potentially rebrand them as well, because, for whatever reason, regulators have got it stuck in their head that this is a terrible, thing because of Libra, and we just need to reframe that. Let's accept reality. Pretty much everybody who's close to this wants to make it better and wants to build the technology to do interesting things, but it's it's got to be better than the legacy payment system, hasn't it? Well?
Elise Soucie 22:56
And I think there's two things there. One, just to go back to your cbdc point quickly is that, you know, central bank money is actually a pretty boring concept that, to your point, has been around for a really long time. And actually the kind of principles for financial market infrastructure, psmi principles, those are international standards for financial markets, actually mandate that a lot of these really large institutions have to settle in central bank money if we're available and where practical. So that's kind of one side of things. So actually, that having kind of digital central bank money wouldn't be all that crazy when it's already used for those kind of really large wholesale purposes. And I think that's where a lot of the kind of large capital markets banks are thinking this could actually be a good development and innovation. However, on the stable coin side for their rebrand, I think that when you consider this from a regulatory perspective, where a lot of the nervousness came from, was around algorithmic stable coins, so much so to the point that the EU authorities and you mentioned Mika, they do not consider algorithmic stable coins to be stable coins as they define them, so they have completely, kind of tried to carve them out because of that nervousness. But I think that those sort of legacy issues, kind of from the past couple of years are what sort of spurred some of that regulatory, maybe distrust in the term stable coin, but I do have hope that that's sort of changing. There's been a lot of kind of conversations about the benefits to stable coins, especially where they can be used for beneficial AML and KYC purposes. But I agree the regulatory oversight is needed, as long as it is appropriate and proportionate to where the risk actually lies for the type of instrument that they are
Cuy Sheffield 24:40
at least, I think you picked up on something really important of the Bank of England, really, I think a lot of the paper was highlighting the importance of central bank money to be used to settle wholesale transactions. That's how a lot of the economy works today, and they want to ensure that that stays for the future. What's notable is. Their really forward thinking approach of being willing to innovate in enabling new functionality for central bank money so that it can continue and maintain that role. And so I think the question is, what exactly does that look like? And so they're kind of proposing a few different options. And as I understand it, there's one path of, how do you take existing RTGS systems and upgrade them and enable them to connect into distributed ledgers and blockchains and become more programmable and so like, what's the next generation of RTGS to just continue to innovate there? Versus do you create a wholesale cbdc? Whether you call it a cbdc or not, do you have to actually create a new system that's able to be used? And so I'm really interested to see that play out over time. Can existing wholesale central bank settlement systems continue to upgrade and connect to some of these new use cases and new rails, or do they have to actually create new systems from the ground up to be able to do that? And it seems like Bank of England is on the forefront and really exploring and experimenting with
Elise Soucie 26:05
that. Yeah, the last thing I'd say on that, though, is one part of the project that I am so so supportive of is that they noted that they do really want authorities to think about how they're going to interact with both on and off chain data. And I feel like this is a kind of maybe more boring point, but one that I think is so important is that for this whole kind of evolution of the financial services systems to work, the authorities have got to upgrade their tech too, so that they can use it and so that they can interact with market participants and so kind of, wherever I see that happening, I think on balance, it's a really Good thing, because, you know, you don't want your regulators sort of using Skype for Business when everyone else is choosing, like teams in zoom. And I think that is, you know, similar to how their their methods of supervision as well. Yeah,
Sy Taylor 26:54
you gotta move with the times, guys. It's essential. You know, in the crypto world, we would talk about community governance as a way to maintain some sort of order in the community and stability within a Dao and within a project like regulation is just community governance for the 19th century and for nation states like it's trying to do the right thing. Objectively, it's trying to achieve like social cohesion and things that are good for the system. But the way it's doing it is so stuck sometimes in a legacy that it becomes difficult for everybody to do their jobs internally, and they don't necessarily know about or even have the space to experiment with what's available. So kudos to the Bank of England for getting this done. All right, before I move us to the next story, I do just have to thank our sponsors, this podcast is brought to you by Visa, a world leader in digital payments. They are bridging the gap between traditional financial institutions and innovative blockchain networks, helping payments players in the ecosystem navigate that world of tokenized fiat currencies with confidence and ease. And let's face it, it is ever, ever evolving. That's why we cover it on a new show. You can learn more@visa.com forward slash crypto. This podcast is also supported by digital asset who are excited to release the Canton network to the world, which is now managed by Linux. This is an institutional grade tokenization platform, and their global synchronizer enables institutions to have interoperability between their institutional grade blockchain networks. They've also launched the Canton coin to manage governance. No, the banks haven't launched a token in the classic sense, this is much more interesting. They've done it to make interoperability just work. Find out more at Canton dot network already on with some more news. And this one is a really, really unique story. This is um, California. You may have heard of the place Tai especially, the department for motor vehicles has tokenized 42 million vehicle titles using avalanche, because avalanche is a fast, low cost level, one blockchain platform for decentralized applications and web three products, they are putting those cars Titles and representing them on a blockchain through an application, users will soon be able to manage and transfer ownership digitally, dropping down processing time from two weeks to A few minutes. For the DMV. They say it will massively improve their efficiency, reduce fraud and make tampering much more difficult. This feels like a very big, very real world use case. I always wonder when I see these things, is this just an ecosystem fund paying somebody to get something? Done, or is this actually there was real demand and and poll here, but at least this is kind of more in that classic use case that's outside of financial services. What are your thoughts? So
Elise Soucie 30:09
I mean, as a now expat American who hasn't lived in the US for a really long time, but very much still remembers the DMV process, I think this is so cool. I think this is a great sort of real world use case. And anyone who has vented the TMV of the US knows it's not exactly a fun process. It's very long, it's very administrative, it's not very tech forward. And so I think that this is, you know, a sort of great development that we're seeing outside of financial services. And I think it does get to the kind of root of something that we say a lot, which is really the importance of tech neutral regulation, because this technology can be used so much more widely than just financial services, and so it's important to kind of future proof any sort of evolutions or potential use cases, and not have regulation that Really boxes things in. So I think to your point you made just before the break. You know, regulation is great. I'm personally a big fan, and I think it's a necessary part of the ecosystem, but it does need to be careful that doesn't prevent things like this from occurring, because it's so worried about risks in one particular sector. But I think this is a super positive development. Shout
Cuy Sheffield 31:20
out to the California DMV. I don't know. I haven't heard of that many other DMVs that are innovating using new technology, so I think that alone is really cool to see and and this isn't even the first thing that they've done. I think last October, they partnered with a company called spruce ID to do a kind of mobile, digital driver's license doesn't technically use blockchain, but spruce uses some decentralized identity infrastructure that's open source, and so I think that was the first thing when a real solution that improves the ability you don't have to go to the DMV to get another driver's license, and now being able to experiment with using a blockchain infrastructure for car titles. I don't know enough about the specifics of how car titles have worked historically, like how they work now, but I think just the willingness to experiment and try new tech for a government agency is really, really encouraging to see. And the other thing that this story just brings to mind, to me, is really with so many things that we look at and talk about in this space, we're actually just talking about ledgers. We're talking about digital ledgers. Fundamentally, digital ledgers are used for everything. And the question is, how can you upgrade and modernize digital ledgers across the economy. Some of them, there's potentially benefits for them to be open, public, decentralized and network shared between many entities. Others, there's not necessarily a benefit for it to be open, public and decentralized, but are there ways that technology that's come out of this ecosystem that lowers the barrier to building and operating and maintaining ledgers, even if you're using it in a centralized form, can still drive modernization of ledger technologies across a bunch of different use cases. And so I think that was my immediate takeaway. Is like, I love to see innovation in ledgers just in general. And like, I think that there's a lot from this tech that can be applied,
Sy Taylor 33:20
which wins nerdy comment of the day. But ledgers are important because they record ownership, and ownership matters like if there are parts of the world where your house can be taken away from you and you have no recourse, and actually having our traditional solution to that was to stick somebody in charge, with a walled garden who decided who owned what, and they would record a title and ownership, and they would do that on a paper ledger or some sort of database. Every technology nerd I've ever met, aside from those who've gone deep into crypto, would say, Oh, well, that just sounds like a database. And I'm like, Well, yeah, that's technically true, because I can make both sides of this argument. The the argument against doing this is, well, hang on a minute. California may have done this, but I think Colorado and Arizona and a couple of others have already made the apple wallet compatible with their driver's licenses. You know? Why couldn't you use that and adjust a database to be recording all of this, you'd have effectively the same functionality. And I think that's not wrong, like, yes, that potentially is even a more efficient solution if this was all you were trying to do. And Kai, what you were just alluding to is exactly where these things start to go, which is all right, fine. I've got my device at the edge. I've got my mobile device, which is becoming much more relied on as we get into pass keys. It's got some strong authentication. It can store some data. It can store some identities. It's becoming a wallet that's exciting and potentially somewhere else. I've got this database that's really nice, but if it was. Not a database in the classic sense, and it was a ledger or a blockchain. Now it's a database with superpowers, because now potentially other applications that also use that database technology that are not built by the California DMV could potentially interact with it in a lower friction way. And that sort of programmability, that composability, some element of permissionlessness or the ability to automate the change of ownership, like imagine if Carmax or car dealerships could have an API into the titles. That sounds cool, and maybe the California DMV could build an API. But what about recording ownership versus a loan? Oh, now I need an API to all of the banks. But what about making that work with Apple? Oh, now I need an API for that, and eventually this thing becomes really hard to stitch together. So the user experience of tomorrow, once you start getting into these user journeys, these complex things like buying a car or buying a house, you need multiple parties to automate this process all the way across all three of them. And that has always been the vision that has been poorly articulated by everybody in this space.
Elise Soucie 36:13
And one thing I would add to that is to kind of make this sort of vision come to life, is that the kind of missing piece in some jurisdictions, not all, is that for these digital ledgers to work legally, for that ownership transfer, there needs to be some sort of ruling from the high court of law that a digital ledger or digital certificate of ownership will stand up, because there are some jurisdictions where you still need a paper certificate for it to be deemed legal ownership, and that is a huge blocker to this. And so if there's any legal block commissions listening to the podcast, I would say providing that clarity that digital ledgers or digital ownership certificates, and some jurisdictions have already done this, which is fantastic. The UK Law Commission actually has done some excellent work around this, but saying that, you know, digital certificates can be respected in a court of law, that's going to be hugely important for the future as well.
Sy Taylor 37:13
And smart contracts. Shout out to the UK Law Commission here.
Cuy Sheffield 37:18
I think, as much as we love to nerd out on the underlying tech. I think the other important part of the story is end consumers don't have to know or care like they're using a DMV mobile app, which will effectively have an embedded wallet or a private key that can be embedded on the back end. But they don't have to know what a blockchain is. They don't necessarily have to know what avalanche is. They're just interacting with a mobile title transfer system rather than go a trip to the DMV. And so I think that's really what a success in this space, in this industry and this technology might end up looking like is the consumer doesn't have to know or care about any of this. They just get an end product experience that is better or more convenient for them. How
Sy Taylor 38:01
many people worry about how AWS works when watching Netflix? It's just not a thing that enters most people's minds. And the industry, in its insular way, gets obsessed about the technology, but not about the consumer experience. And I think there's a real gap for building great consumer experiences that just happen to use a blockchain and for something that's other than trading like shout out to the coin bases of the world and their competitors and all of them, they're doing a good job on that, and the Robin Hoods and everybody else that's kind of getting there. But for everything else, the general level of user experience in web three is still horrific, and I think there needs to be some sort of benchmarking capability so we can just show people videos. Kai, I'm sure you've done it. When something new comes out, you kind of want to experiment with it, and you want to play with it, and you've been through that hell so many times of like, now we're gonna go at the discord thing, and I gotta get this thing, and now I gotta sign this transaction, and it's like, oh, now I need a new wallet for that. And it's just like, there's a bunch of people that have tried to aggregate that. That's not the thing here. It's like, just build great products from the start and think about them that way. I know there's some infrastructure issues anywho I will get down from my high horse, off of my soapbox, and stop mixing my metaphors to talk about Morgan Stanley offering a Bitcoin ETF to its wealthy clients, wealthy clients of just getting it all at the moment, they became the first major Wall Street bank to make the move. Their 15,000 financial advisors can now solicit eligible clients to purchase shares of two exchange traded Bitcoin funds, eligible clients being, of course, those with a net worth of 1.5 million or more, so called sophisticated investors, because they got a lot of money. I don't know how that worked, but anyway, the two funds are BlackRock. Works, iShares, Bitcoin trust and Fidelity's wise origin, Bitcoin fun. The move was in response to pressure from clients. How about that? However, Morgan Stanley said it will monitor clients holdings to ensure they don't end up with excessive exposure to the asset class, dipping the toe in the water. But daily demand, its pull, its consistent theme here, Elise, are you seeing that elsewhere? Do you think others will follow?
Elise Soucie 40:26
Yeah, absolutely. And actually, we kind of did an interesting piece of research just a little while ago, which surveyed 100 senior executives across Europe, the UK, the US, Middle East, and APAC from financial institutions who were managing over kind of two 20 billion in assets. So these are kind of the largest institutions, and we were trying to get a sort of sense check of where the industry was and kind of where pressure was. And essentially, almost 100% of firms were kind of handling or planning to handle digital assets in some form, and would be that kind of tokenized funds or otherwise. I mean, the largest asset classes that they were looking at were corporate debt, alternative funds, sovereign debt and private market securities. But I think the kind of big takeaway, and I won't go through kind of all the data, was that absolutely there is client demand, and we are seeing institutions moving into this space again. I don't think it's wholly surprising that they're starting with the kind of professional investors just given regulatory scrutiny on the kind of retail investor side. But I also think that it's kind of maybe a little bit amusing the point about excessive exposure, because I think that these type of investors, if they're asking for it anyways, they're probably going to be quite diversified and offering it in sort of a package that they're they're used to seeing in the kind of ETFs. This will probably be one of many investments for them, because, to your point, they've got a lot of money, and they'll probably have a lot of investments. So I think it's an interesting note that on the excessive exposure Tai,
Sy Taylor 41:57
how are you reading the financial institutions, posture and mood music on this. Are you still spending most of your time convincing people that this is a good idea? Or do you think that sort of tide is turning as the demands coming?
Cuy Sheffield 42:10
I think that the success of the Bitcoin ETF launches have been really notable, and that they've shown that there is demand for this asset class and that there's a role to play for traditional financial institutions to be able to offer products to consumers that enable them to get exposure to it. And then now with the ETF as well, I think it legitimizes the asset class and provides a regulated way for many more institutions to participate in it. As I understand it like since the Bitcoin ETF launched, the initial demand has really come from people who have really sought it out. They've actively gone. They said, Okay, I want to buy whether it's a retail investor or an institutional investor, I want to buy this Bitcoin ETF. But what a lot of people are expecting or looking for over time is, when does it get to the point where it's actually being incorporated into portfolios, you know, by financial advisors, or they're able to go and recommend it, you know, to clients. And I think, understandably, it takes a lot of time for that to happen, that that doesn't happen, that the day that the Bitcoin, you know, ETF launches, I think that the more familiar that institutions you know get with the asset class, and the more that they understand it, and the more that they see it continue to persist and have demand, you know, the more of a motivation there is to have a more proactive approach, versus just the kind of reactive. If someone you know, one set, then we'll, we'll make it available. So I don't follow this space, you know, super closely, but I know that there are a number of people in the industry that are excited as this continues to go into the traditional sales cycle, and, you know, financial advisory space. But Simon, I'm, I'm curious how you think about just what is the future of financial advisory businesses, particularly if you look at millennials, because I imagine a lot of the end customers that you're talking about here are likely to be higher net worth, potentially boomers that are less familiar with Bitcoin. You have another generation of people that didn't necessarily wait for the ETF to buy. They downloaded Coinbase. They bought on Coinbase. And so is this also part of like, how financial advisors think about catering to a new generation over time, and what role does crypto play within that?
Sy Taylor 44:30
It's a great point you raise. There's a generation of people who just have like, 100 apps on their phone. Assets aren't one with one bank. I think the average American has three credit cards, but five or six FinTech apps on their phone. They might have a brokerage app for regular assets, and then they've got a crypto app, and then they might even have a web three wallet, and then they might even have something else, especially if you work in tech, chances are you've got some options, some equity, something. Else, and so you end up paper rich and cash poor, which is just like this really annoying phase of life that I find myself directly in, although not rich. You know, the assets look good on paper, but I can't do anything with them, other than, like, not have a house. This kind of position is one where it's a great time in the life, classically, of the financial advisors to come into somebody's life and get them thinking more about the pension and start to manage some of that wealth, because they have assets to manage, and now it's worth banking them in a way that the 20 year old is not necessarily worth banking because they just don't have the income or the assets. So why wouldn't you go to where the customer already is. The interesting question is, why wouldn't Robin Hood move in that direction? And actually, Robin Hood is is kind of in a really interesting spot where it already is. They offer IRA accounts, they offer credit cards. They they're wrapping themselves around the generation that grew up with meme stocks and is growing into how transferring their IRA to Robin Hood. And of course, I can trade crypto there, and I can hold my crypto there. Of course I can have 3% cash back. Of course I can have and revolute has gone the same way. New bank has gone the same way. In Brazil. People forget that there are regulated banks that are offering these assets, because there is a demand for a generation of people that had them for a while. And there's a whole bunch of questions about, How do you manage somebody's finances in this landscape where they've got too many apps, they've got too much admin, they're time poor, and they really need somebody to make it easier. Roll in the financial advisor, because most people just don't do the basics right, and a financial advisor is another human being that typically just rolls out the basics to you. It's immensely frustrating if you are a financial nerd, if you ever sit with a financial advisor, goes, Are you maximizing your tax advantaged accounts? And I'm like, I would if I had the cash. Like, yeah. But the issue there is, for everybody else, that's still a huge problem, like there's a big part of the market that they can serve and they can win in. But at the other part of the market, there's a real aggregation opportunity, whether that comes from the coin basis of the world moving in, whether it comes from the Robin Hoods, the new banks of the world, I think that being able to manage a crypto portfolio as a platform for somebody's finances as a wealth manager in the future will become table stakes as a generation ages in to exactly that point. Elise. Any final thoughts on this one?
Elise Soucie 47:32
I completely agree with that. And I think that one other thing that I would add, which I think is something that you've talked about quite a bit before, Simon, is that, I think another way that the institutions will probably think about reaching that generation is honestly through sort of partnerships and acquisitions with fintechs that are already serving that customer base. Because, you know, if there's already a kind of FinTech that has that kind of look and feel that appeals to that generation, you don't need to necessarily convert the younger generation into having a really sort of stodgy account manager who's to your point is going to maybe not meet them at their level. You might say, wait a minute. Why don't we just partner with this new FinTech or acquire it and then move forward like that and let them continue to service their existing customers, but also add in some of our products, like these, ETFs, nice,
Sy Taylor 48:24
nice, nice, just to wrap us up before we finish, at least we did see the news that the courts have levied $125 million fine on ripple. This was the lawsuit from some time ago, but this is filed by the SEC and doing a four year long dispute, the XRP dispute appears to be over. Everybody's going to appeal. What are your thoughts on what this means for the market?
Elise Soucie 48:47
I think that this is just kind of one in a very long line of sort of SEC lawsuits. I think we saw in 2023 alone, there was like close to 40 charges that were crypto related, that the SEC kind of actioned. And so this is in the absence of any broader federal level regulatory framework in the US. This is, unfortunately that regulation by enforcement that we see so much. And so as you said, this is kind of at the end, hopefully, of this long, kind of drawn out court case. And fine, but it is kind of part of a pattern of what we've seen from the SEC in the US indeed,
Sy Taylor 49:24
well, hopefully come regulatory clarity one of these days we will get there. We challenge you already. I want to thank everybody for listening to my mind unraveling like kittens at a tapestry and some amazing, amazing guests, Elise, where can people find out more about you and what you do at global digital finance. You can find
Elise Soucie 49:47
global digital finance@gbs.io I am on LinkedIn at Elise Susie, or you can find me on X or Twitter at Elise, underscore, x underscore. Digital
Sy Taylor 50:00
Kai, where can people find out more about you and more about visa on
Cuy Sheffield 50:04
Twitter and LinkedIn, at Kai Sheffield and visa.com/crypto love it. You
Sy Taylor 50:09
find me at sy Taylor on Twitter or Simon Taylor on LinkedIn. And if you haven't already, please just hit that subscribe button on Apple. Spotify, wherever you get your podcast, and do tell other people about this show. If you enjoyed it and leave us a review. It legitimately helps other people find it. Just remember, of course, none of this is financial advice. It's for informational purposes only, and crypto is volatile. Please do your own research and be careful out there, folks. Bye for now.