Diving deep into Visa's Tokenization Asset Platform and BBVA's Tokenization journey. On Ep. 7 of Tokenized, Simon Taylor, Head of Content & Strategy @ Sardine, and Cuy Sheffield, Head of Crypto @ Visa, are joined by Catherine Gu, Head of CBDC and Tokenized Assets @ Visa and Francisco Maroto, Head of Blockchain and Digital Assets @ BBVA to discuss the Visa Tokenized Asset Platform (VTAP), BBVA's tokenization journey and the momentum of tokenization.
On Ep. 7 of Tokenized, Simon Taylor, Head of Content & Strategy @ Sardine, and Cuy Sheffield, Head of Crypto @ Visa, are joined by Catherine Gu, Head of CBDC and Tokenized Assets @ Visa and Francisco Maroto, Head of Blockchain and Digital Assets @ BBVA to discuss the Visa Tokenized Asset Platform (VTAP), BBVA's tokenization journey and the momentum of tokenization.
Timestamps:
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
Visa’s Tokenized Asset Platform (VTAP) uses smart contracts and cryptography to help banks bring fiat currencies onchain. VTAP allows financial institutions to issue fiat-backed tokens, improving financial efficiency and enabling programmable finance. Express interest in VTAP at globalclient.visa.com/vtap
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
Cuy Sheffield 00:00
I think it's this really interesting dynamic of, can the company with distribution be able to innovate before the innovators end up getting distribution?
Sy Taylor 00:20
Welcome to tokenized. My name is Simon Taylor. I'm your host for the tokenized podcast, author@fintechbrainfood.com and head of strategy at a little company called sardine. Joining me is my co host, my friend Kai Sheffield, head of crypto at visa. How you doing, Kai?
Cuy Sheffield 00:39
I'm fantastic. It's an amazing week here in Singapore. We've been waiting for this show. You know, we're excited to unveil a new visa product, and that we've been working on for really over 18 months. And so we've got my team here, the amazing Catherine Gu we've got an amazing partner that we'll introduce shortly. And let's get into
Sy Taylor 00:59
it. Hey, Catherine, good to have you on the show. Remind everybody what you do over at visa. Great
Catherine Gu 01:05
to see you. Simon, yes, part of the visa crypto team. I lead our global effort for cbdc and tokenize assets. Very excited to be here.
Sy Taylor 01:13
Excited to have you. And my goodness, am I excited to have Francisco? Francisco Moroto is head of blockchain at digital assets at BBVA, one of the largest banks in Europe and Latin America, one of the largest banks of the world. Uh, Fran How are you, sir?
Francisco Maroto 01:32
Everything? Well, thank you. It's it's a great pleasure to be here after so many times listening in your show. Finally, I'm in it. So very happy to be here and to announce great news about partnership with Visa. So thank you so much.
Sy Taylor 01:45
Well, let's not leave people waiting any longer. Let's jump to this story. This is an episode entirely focused on this announcement, the launch of the visa tokenized asset platform vtap. It's a new visa product that helps financial institutions issue and manage Fiat backed tokens on blockchain networks. And with this launch, looks like Visa's working with BBVA as the first bank partner to test this vtap sandbox and enable BBVA in launching a token backed by fiat currency into the market. So Kai, before we get into vtap itself in the visa announcement, could you help explain what visa means by Fiat backed tokens and what this means for tokenization? Yeah.
Cuy Sheffield 02:40
So first, we're we're not really trying to create a new term here, but we wanted to have a way to describe this to be as inclusive as possible. In we're seeing demand from banks across the world and some of the largest banks, you know, like BBVA, to represent fiat currency on a blockchain. And now, there are many different designs and constructs by which they can do that, and so we've seen banks that want to do deposit tokens, where it's effectively structured. It's the same as a deposit account, but it's a token on a blockchain. We've also seen designs around stablecoins, where it's a separate type of reserve composition that is different and outside of a core deposit. And so our approach at visa is we want to be a technology enabler, and we want to work with banks and help them be able to power these products. And it's really up to the bank how they want to structure and design both how the product is regulated what the reserve composition is, and so we're really focused on the technology on the smart contracts, making it as easy as possible for banks to mint and burn and transfer, and then working with bank partners as the regulated entity around how the Fiat is actually represented and backed and what the reserves are. So that's why we use Fiat back tokens to really convey that the platform that we build can support many different products, from stable coins all the way to tokenized deposits
Sy Taylor 04:10
and well, Visa nerds will remember the tokenization service for payment credentials, VTS, or the visa Token Service Launched in 2014 so that service replaces sensitive card account information with a unique identifier and digital token. This is doing something similar, but allowing financial institutions to really represent that fiat currency on our blockchain. So Catherine, I'd love to learn about like, what's the inspiration here? How did this come into being?
Catherine Gu 04:40
Yeah, absolutely. You know, as Kai has said, we've been working on this for the past 1824, months. Certainly, I think it's it just derived from all the evolution happening in the digital currency space. You know, we've been following on the trend for cbdc and stablecoin for a long time. It's really fascinating just to see different forms of money emerging. Of course, on the one extreme, and you have all these private sector players issuing money for the first time, backed by sea app reserves. And on the other hand, you have central banks trying to create these new versions of central bank liabilities directly, either to retail as well as to financial institutions, as we're seeing the space evolving. We're just trying to constantly think about, you know, what is the value add that visa can create for this entire ecosystem? Now, obviously, as we're looking at this entire spectrum of money supplier, money players, the big player, the big fish that's missing is really the commercial banks, who control 90 plus percent of the money supply in the world as of today, and I think some of the early experimentations in tokenized deposits really become quite obvious about two years ago. I would highlight things like Project Guardian, that JP Morgan and yes and team has done back in the days where we're like, Well, you know, this is finally the moment in which the commercial banks are thinking seriously about leveraging blockchain as a payment rail is no longer just about a crypto story. It is really thinking about how institutions can adopt blockchain for whether it's payments for capital markets, etc. So that's kind of the initialization of where the inspiration starts to come. Because as we're thinking about the role that visa can play in the ecosystem, these are our partners. As of today, we have a certain value to create for the retail banking of the world by driving a lot of the card related programs. It is no different as we're thinking about the future of tokenization, because as we're looking at the space, there's been lots of experimentation, but pretty fragmented and done in a silent way. So we think that there's a value that someone like Visa can add to this ecosystem coming from, you know, many things like interoperability and others that we can talk about later. And I think starting from that is where the journey of vtab really began.
Sy Taylor 06:52
How do we bring interoperability and also, hopefully, some credibility for the institutions involved that some some hard work on security has been done, as you say. Well, speaking of institutions, we have Fran with us. So take me back a little bit bbva's journey on tokenization. This is not the first thing you've done in the space. So give me sort of a little brief history, and then get into what inspired this collaboration with Visa. Yeah. So happy
Francisco Maroto 07:19
to do that. I mean, the journey has been quite a hell of a journey right now. No, you can imagine that moving new things in a financial institution I was established with more than 100 years it's not easy, but we are, luckily at one of the most innovative institutions in the world, and then the top management is very supportive in all these kind of initiatives. So we have been able to work a lot with Blockchain technology. We started, as I say, 810, years ago, with different pilots and proof of concepts around transactional banking, mainly payments, trade finance, global markets as well. On the tokenization space. A bit more work on that side as well. But soon we realized that that blockchain could be a transformative technology that could change the way that the digital economy works, and thus impacting how the financial system works. So having this vision that the future could be future based on tokens in a digital economy, we realized that we needed to make the bank move and adapt to the change and prepare for this change and be able to build the capabilities needed to operate in this new digital tokenized economy. So so we started working in building the basic capabilities that we need, which are being able to safeguard the assets or the private keys at least that control the assets, which is building custody service for our customers and building trading capabilities, capabilities that enable us the exchange of these tokens, not only the safeguards of the tokens, but we didn't stop there. So in parallel of that, we continued exploring tokenization and how we could issue tokens representing different financial assets, such as bonds, syndicated loans, credit lines. And many, many pilots run during the all these years. And this journey took us to the conclusion that in all these pilots, in all these exchanges of tokens, you always need a cash leg. You always need the settlement. You always need to settle, and as Catherine said, the asset tokenization ecosystem, or market marketplaces, is still fragmented. There's not enough liquidity, not enough issuers and investors in the token space. So a good place to start would be the cash tokens, or the cash leg of the settlement, where most of these different fragmented use cases, they all of them needed. So joining all these cases together, we could have a business case, and we could have something meaningful to do, as well as looking in the crypto ecosystem, how stablecoins are working as the settlement mechanism in defi and in C. Five. So it made, made a lot of sense to start working in this space, in the cash token, or backed token, as Kai and Katherine were introducing the term. So we started looking into it, looking into different, different options, as Kai was introducing, if it was better, deposit token, a money market fund tokenized e money token. So there are different options, and depending on the use case we want to deliver, if it's delivery versus payment, or if it's payments, or if it's a financing solution could be that each instrument would be more suitable or not for the use case. So this is what we want to do now with Visa, we want to collaborate and learn together and see what will be the best option, and use the sandbox to learn, to continue learning, continue this journey, hopefully, hopefully next year, have something up and running live in the market that could be issued by VBA VA and used by certain companies. No so this is a bit the journey and apart from that organization, something that we are already live and proud is customary and trading. We are live in Switzerland since four years ago, and we have just launched in Turkey this year, and we will launch in the rest of the countries as soon as regulation and market conditions enable us or allow us, so at least the base we have it so now, the basic needs are covered, custody and trading. We need to move one step further, working in each ones of tokens and transfer of tokens, and that's where we were looking for a partner that could help us on this last mile. And I think that visa is very, very well positioned, and we are very happy to explore this together. One
Cuy Sheffield 11:41
of my favorite things about visa is we get to talk to financial institutions all over the world, and we get to kind of see where they are on the spectrum of both their knowledge of tokenization and blockchains and digital currency, and they're just their vision and like level of conviction that it's going to be important for them. And so it's been amazing to see kind of BBVA from the beginning, when we got to know friend and team have both this deep understanding of the technology and not just looking to do POCs and innovate. They have a real vision in being able to create real products, and so I think that's what made them a really natural partner. And I think there's also this similarity of the way that we've looked at the space of, how do you take existing stablecoins and figure out how you can use them, existing products, partnering in the crypto ecosystem, and then take a lot of the learnings from that. And so, okay, how do we actually create and bring new products, new Fiat, back, tokens, you know, to market? And so it feels like we've, we've kind of both been doing that from from different angles. And now it's combining the experience and the expertise that, you know, we've built at visa, you know, with the vision that Fran and BBVA has had. And I can't think of a better partner to be able to go to market together with this platform and helping them create a Fiat back token.
Sy Taylor 13:07
Well as an external I get to say this. I've witnessed both organizations from a distance, and also in my career history, going back to sort of 2014 and 15. Always be thoughtful in this space. Many of your colleagues and former colleagues, Fran, have been sort of good friends of mine over the years. This is, this is something where change takes time in large institutions, but when you move you move markets, you move entire industries, because you've got to be so thoughtful and you've got to do your homework. So it can be frustrating. But congratulations on getting this far. I guess is kind of my core point. Fran, you outlined sort of a series of definitions. And at the outset, we sort of said, this is a Fiat backed token open to all comers, really Catherine client and Fran, just make this really simple for me. How is this different from a USDC, a tether, you know, things that are, quote, Fiat backed, or one to one backed by dollar or dollar equivalents. Fran, you mentioned money market funds. You mentioned a bunch of other things. Help me understand what's really simply, what's the main difference here? So,
Francisco Maroto 14:10
I mean, we just need to analyze every option, as I said before, and decide which would be the best option. The good thing is that we as banks are positioned in a, you know, as a bank, we could issue in different ways, and we could issue a deposit token, or we could issue a money market fund or a e money token, and depending on the use cases I mentioned, so so we have the optionality and to issue in different formats. And I think this is an advantage when compared with a stablecoin which only has a way of working and a way of packing the currency or keeping the value of the asset. In our case, we could opt that the best option would be money market fund, and we could provide yields on top of being a stable coin. Here, the problem that we have there is. That it will be a security we will have to go under a pilot regime in Europe. So we could have a kind of cap in the amount of tokens that we can issue now, because the cap in the pilot regime is 6 billion. That could be a small cap, if it's successful the product. So hopefully the pilot regime becomes a definite regime in the near future, and we are able to issue in that format. We could issue a deposit token, which enables us to move the money that is as the same way as a deposit. So we list some in reserve, but the rest, we can invest it. We'll get for credit and create commercial bank money that will be different again, from USCC, or well known stablecoins, or we could as well, choose to issue in the same format and have a fully backed or fully reserved with cash and public bonds or public treasury bills. And that the only difference there would be the counterparty risks. If you work with with stablecoin and you have a company which is issuing and managing the reserves that could have certain risk. I am not saying it's better or worse then, just that it has to be analyzed and on our case, we're a bank, so I mean the same way that you rely on us to leave your assets or your money, you could as well choose to use our stablecoin, and we will be the users and the ones, if cutting the assets, so at least the high level, that's the differences that I see with the existing ones. But I don't know if Katherine wants to add something there.
Catherine Gu 16:32
I think actually, from the visa perspective, that's actually the beauty of this sort of diversity in terms of the type of money, because, you know, from the vtab perspective, we're really the technology enabler, so in the sense that there's different types of money, but the important thing is, vtab is trying to enabling financial institutions to bring different forms of cash on chain. So whether that's in the tokenized deposit or deposit token form, or whether that's stable coins or even money market funds yielding interest, I think from a technology perspective, they're actually quite similar. But what's the challenge from bringing something to a live sort of production level is really kind of combining, you know, the technology which we're talking about, the blockchain, the infrastructure and the smart contract piece, but very tightly with that business process together and to make it compliant and secure and everything. And that's where the differentiation of whether what type of money does matter. And I think working with BBVA gives us a lot of great experience of learning that entire procedure. Obviously it varies, depends on which country, which jurisdiction, and the laws that applicable to it, which matters a lot. But I also think, you know, as we're working with partners, we very much focus on the specific use cases. I do think, you know, as we're kind of trying to navigate through whether this specific kind of coin launch will be initially used for a business or institutional use case, versus a retail it will help to shape the eventual characteristic of that coin to be created down the road. So that's really fascinating for us to
Sy Taylor 18:04
learn. That's a really helpful sort of metaphor. That jumped into my mind is that as a financial institution, you might want to do this, but what technology do you use to make your existing internal capabilities work with the world of blockchain? And just as organizations can build their own credit card label, like the bank americard Way back in the day, it might make sense to have one that's that's default, more compatible, and just as you could sort of build your own technology for tokenization, it might make more sense to have one that works at a network and to have a technology solution that you can kind of experiment with and go into a sandbox with, I think is a really powerful, interesting thing. So talk me through this sort of sandbox and the vision and what you're able to do once you're in that sandbox. Kai, I don't know if you want to jump in there.
Cuy Sheffield 18:53
Yeah. So I think one of the biggest problems that we've been trying to solve is just what is the easiest, lowest risk way for a bank to get started. And I think what we found is many banks, you know, they've been researching and, you know, writing papers and participating in working groups, you know, for years now. And you can really only go so far, kind of reading and talking like, at some point, you actually have to roll up your sleeves and say, Okay, let's, let's create a product, like, let's put something out there, and let's see how the market demands it, how the market wants to use it, like, Let's experiment. And so that's how we've designed the sandbox, as the easiest, lowest hurdle way for a bank to be able to create their own token. And so what does that mean? So today we have the visa developer platform. So we have many different APIs that most issuer bank partners that we work with today are already consuming. They're already plugged into they know how to interact with them. We've now added the visa tokenized asset platform to the visa developer portal, so you can easily be able to. Through the developer platform, connect into our vtap APIs and send requests to mint, burn, transfer, really, just consume and transform different use cases for these tokens. And so this is starting on a test net in the sandbox environment. You're still creating a token, you're still moving it around, but there's no value that it represents in the real world. You don't have to worry about, okay, how is that regulated from day one? And so that's the first step that we're bringing clients through. And then the goal is to say, All right, once we've gotten a client in the sandbox, kind of working with us, minting, burning, experimenting, how do we go from testnet to mainnet? And that's what's really exciting. Of these integrations that banks are doing between their backend systems and Visa's APIs. Once you do that integration, once, once you start to experiment on a testnet, we think that there's a real path to migrate to a mainnet Once you've got the regulatory licensing or the structure that's in place when you've decided how you want to manage the reserves. And so we think that that's going to be a path that banks can take, and with BBVA really leading the way, starting in the sandbox, but with plans to move to a live production product in 2025 and we expect that there are going to be more and more banks that want to have that opportunity, you know, to actually experiment by creating and using a product, rather than just, you know, reading and talking about it. I
Sy Taylor 21:32
think that's super helpful, Kai, because the experience I have in a financial institution is, where do I start? How do I start? There's the odd of the possible. I'm excited by the benefits, but how do I make this work with my stack? How's it going to be regulated and you can spend forever pushing PowerPoint and not get anything done? That's a real risk. Fran, you're laughing. I think. Talk to me about why this was compelling from BBB perspective. It totally
Francisco Maroto 22:00
resonates. I mean, we have spent a lot of effort and time doing PowerPoints and defending ideas in different meetings with different teams. But, I mean, that's life, so we have to do it. And totally I mean, there are several reasons, as I said, on digital learning journey around tokenization that I explained before, and we reached the point that we wanted to step forward and do something, as Kai was saying, live and productive, and we need to start from somewhere, and to find a partner or the best partner to go with us. So we analyzed several partners, and we finally decided to go with Pisa, mainly, I mean, for several reasons, several relevant reasons, but not to bore the audience, I will go through some of the key ones weekly. The first one would be the ongoing relationship that we have with Visa. So we have been working with Visa for many, many years, as you can imagine, being a traditional bank, and we have been collaborating in different fronts, especially in innovation. So we have done together several innovation initiatives. And we also have recognized in visa a great partner for innovate, for innovation and for doing new things. They are always willing to invest and to dedicate relevant and important resources and persons. And proof of this is the great blockchain team that visa has with Guy and Catherine here with us, but many others working with them, which are excellent experts in blockchain, that also made us thought that visa could be a great partner. The move and the activity that they have in the blockchain and crypto ecosystem is also relevant for us, the investments they have made in crypto companies. So I mean, they are a lot into crypto, a lot into blockchain, and they see, as Kai said, as like us, the importance of this technology and the need for financial institutions and the financial industry to adopt it and use it. So we were very aligned in the objectives, in the targets, in the in the teams expertise, as Katherine told us before, the experience they have with CBDCs, with the platform already being used by central banks, so we could leverage as well on that learning, not only on technology, but as well on the regulation and and, and, you know, the knowledge and the relationship that they have with the central banks, which is very important as well to being able to make this a reality, the size as well is very relevant. When you explore potential partners for this type of projects, there are a lot of tokenization platforms or software developer companies in the blockchain space, but that they are medium or small and quite young, knowing the time they have been in market. So this is a challenge for us. As you know, we have to go through very heavy outsourcing procedures and onboarding processes, which makes it, you know, a pain in the neck to onboard the small companies or startups. I mean, we love to work with them, and we have been doing them. We will continue to do so, but for building life or productive solutions. It's difficult to work with less mature companies and with with dollar regulation. This is even worse, because dollar regulation brings in even more requirements. So So I mean working with Visa and all these problems were wiped out all the equation as we have already a relationship. They are. They have gone through all the outsourcing procedures and everything also that was faster for us as well to move. And finally, I would, I would highlight the willingness to to partner, to explore, to collaborate together. And I think that it will be a win win situation. They will help us move forward in this journey and issue a different tokens that we want to issue. And for them, I Hopefully we could help them build the platform and improve it. So So, yeah, I think it will be a win, win situation, and we are very happy with the with the agreement.
Sy Taylor 25:51
As a big bank, it's very rare you get to be a design partner for a product, and when you do, you're often dealing with a smaller organization. So it's almost, I read it as a statement of intent, that you work with somebody larger, that you can be a design partner with, because you intend to go through with it at some point. It's when, not if, and figuring out all of the things on the way there. So that's that's really, really powerful but, but Catherine, before it takes to the ad break, you've sort of alluded to three use cases. Can we just double click on those around payments, financing and cross border money movement, because I want to make this really real is, if I'm a financial institution listening to this, what are the things that you're seeing in your conversations that people are excited about vtap for 100%
Catherine Gu 26:35
I think the best way to think about the different use cases we've been seeing is the lots of use cases right now that's really targeted to improve existing processes. So there's a lot of arguments to be made coming from an efficiency gain perspective. And then there's also new sort of use cases that couldn't possibly be enabled back in the days, but now with how can I say the power programmability, so to speak, you are seeing, sort of the new revenue stream, new opportunities down there. So those are sort of the two big ways as banks and institutions approaching the space. So I think firstly, it is important to acknowledge this. This entire space is still very young, right? We've talked about, you know, when the first signal really started, so we're still just seeing use cases emerging, because compare the scale that we're seeing down on blockchain versus what's happening in the existing financial system, that's peanut size. But I think it's very hopeful. Where we're seeing the trend is ticking. So in terms of three use cases, I think, firstly, just coming from our perspective looking at payments, I do think blockchain is very interesting, because, as we talked about a little bit already, that payment rails, as well as different other ledger system today are fairly fragmented. You know, if I want to buy stock, I have the master of the world, I have a I have a ledger specifically for that. If I want to buy bond, that's a different ledger. And then, you know, with all your day to day transactions, that's on real time payments or other sort of system rails, whereas, if you're thinking about blockchain, it is actually trying to connect different assets as well as different marketplaces together in the sort of more general purpose rail, as you will, for which, on top of many different assets can be traded. So as we're looking at this, every single transaction has a cash leg, and this is where I think visa can really help to enable a lot of banks to think about going back to this notion of bring cash on chain, because you need the liquidity. And the liquidity so far is really coming from stable coins alone, which is not sizable enough. So really thinking about a bigger, broader ecosystem of different type of payments, combining the traditional type of retail payments, but also, you know, capital markets, etc. So I think there's lots of trains to it as we're looking at the payments use cases. The second bucket, as we're kind of expanding that is sort of looking at cross border money movement, right? Once again, there's lots of efficiency gains to be made because, well, 24/7 always, our infrastructure is very rare to find in today's system for cross border. You know, if you're the apple of the world that you are like multi corporate and trying to move money, you're very often subject to, say, weekends, time zone differences, holidays, etc. The blockchain ecosystem does enable 24/7 availability, and we're starting to see it now. I think the caveat to that is that a lot of the system today is sort of fairly in a closed war garden. So then you know, if I'm banking with one specific global bank, and I can move money 24/7, that starts to be done on the blockchain, Blockchain rail, but you still have the problem persist as soon as you start thinking about interbank payments, and we talked about, I think Fran actually alluded to about trade finance and stuff like that. I think that's where a huge opportunity will be down the future, once we're once we figure out how to really move money seamlessly between different financial institutions, seamlessly on the blockchain. So that's one thing. I think I'm a quote. Cross border, money movement, lots of things to be to be expected. And then the third bucket, I would say, that's where the new opportunities really happens, because programmability is the thing. I think that is in a limited fashion as of today. Yes, I can have very simple automated payments on a monthly basis to pay my utility bills and such. But I think you kind of stop there. I think the inspiration as we're looking at what we call programmable finance is really coming from defi, right? Because you can build an entire business, entire protocol, on top of smart contracts. And these smart contracts, they follow the same standards. They can incorporate composable with one another. That's something net new, I think we've never seen before, and I think leveraging that for blockchain, whether it's for C fi or tradfi or defi, I think that's hugely powerful. And this is something that you know, we're exploring with many different clients as we're looking at how can you say, think about innovative future financial products, whether that's lending in credits to make the life easier for both the bank, but much more enticing for also your end customers. And there's lots of, I think, great ideas thinking about, say, Clash royalization. How could you do it differently? How could you think about having automation better directly in the smart contracts? How could you fractionalize different things? I think that's kind of really the future where the money can go. And yeah, we're really excited about that.
Sy Taylor 31:25
I think, perhaps unfairly, there is a perception in the defi world that financial institutions are anti defi, mainly because of headlines about certain bank CEOs. And actually the reality is, if you look at the Bank of International Settlements, if you look at the work being done in the institutions, there's more of a humility, there's more of a willingness to learn, but there's also bigger problems to solve when you're doing it at scale and you're global and you're highly regulated. So the question is not, is this interesting? Of course it is. The question is, how do we do it? And having partners to be able to do that is a supremely powerful thing. I do have to thank our sponsors, so I'm going to do that now, and we'll come back in just a moment. So this episode, if it's not obvious, is brought to you by our friends at visa, a global leader in payments. Visa's tokenized assets platform vtap, uses smart contracts and cryptography to help banks bring fiat currencies on chain. Vtap allows financial institutions to issue Fiat backed tokens, improving financial efficiency and enabling programmable finance. You can check out the links in this episode's description to express your interest in vtap. This podcast is also supported by our friends at Digital Asset the creators of the Canton network, which is the first privacy enabled interoperable blockchain network designed specifically for regulated real world assets, they recently joined a bunch of leading market participants to launch the global synchronizer, which is supported by the Linux Foundation under open governance, the network's native utility token, called Canton coin, is also live, delivering decentralized interoperability at the backbone of the Canton network, with over $3.6 trillion in tokenized institutional assets. Canton network is the largest and most diverse network for regulated real world assets. All right, so bringing us back, guys, there's other news going on besides vtap That I think is kind of interesting this week, which is swift, have announced their plans to use tokenized assets and deposits in their new capabilities. They aim to link the settlement of tokenized assets with payments on their network, and these payments will use existing fiat currencies, but in the future, they will support all forms of digital money, like CBDCs, tokenized commercial bank money or regulated stable coins. So I guess I'm interested in how this group reacts to stories like this, especially in the specter of what we've been talking about earlier Fran I kind of want to start with you. Is this sort of one of those headlines we should be paying attention to. And if so, why? Yes,
Francisco Maroto 34:22
I think so. I think this is one of the indications that blockchain is moving forward, and that tokenization on blockchain is being taken seriously by by the financial industry. It's as well an actual move for Swift. I mean, Swift is a utility of the financial industry, Swift serves the banks, and that's what the banks has swift to do. And as more and more banks like ourselves are stepping into blockchain and tokenization and working on that space, it's natural and normal that swift reacts and follows and positions itself as the utility that has been. Yeah, in the past, and that should be in the future. So they are adapting their systems and starting to work with Blockchain. They have been doing so for many years now. We have been working with them in several pilots, connecting blockchain networks through an API with Swift API payments. This is something similar. So it's leveraging on that API to do the settlement in Fiat with traditional payments. But the important or relevant thing is that they are now saying that they will enable as well cash tokens, no Fiat back tokens as a settlement mechanism. So I think this, this announcement is really interesting, and Swift is very well positioned like Visa, because it's a network, and has the network and the network effects everyone is connected to visa or to Swift, and they have as well as standards like Visa and rulebooks. And these kind of things are the things that is moving this into production and making this a reality, and that tokenize is more used. We have a network. We have standards and rulebooks, and we have the users in the same place. It's easier to make this work. As I said, many banks are working on top of tokenization networks like udpn, or regulated liability network or many others. So I understand that that Swift is trying to position on that space as well, and I think it's intelligent and good move and a relevant move that I have been advocating for some years. So I think it's great news that the financial industry is moving and that shift is moving. The only doubt that I have about the news is that they are saying that they will enable delivery versus payment, and payment versus payment, and if this is so, they are stepping into the FMI space, not the financial market infrastructure space, and maybe they should be regulated if they do that type of activity. And they have never wanted to be positioned there in the past. So I don't know if this is changing for the future, and these are the things that drive my attention and that I would like to learn more. So I will follow the evolution of these, these, these news in the future to see how and what are they going to do.
Cuy Sheffield 37:11
One of the interesting things to me is, when you talk to FinTech and crypto entrepreneurs, and particularly companies building with stable coins. A lot of them, they really say like they're going after Swift, and they're looking they could they talk about Swift, kind of representing the legacy state of cross border payments and how they're slow and expensive, and how do we use stable coins disrupt Swift? And I think when you see news like this, it's a good reminder that things aren't standing still. It's not like you've got a legacy system that isn't also constantly updating and improving and really looking at how they can incorporate new technologies. And the fact that it's a good reminder that Swift is a messaging layer. You could be a messaging layer that could then work with multiple different settlement layers. And if new settlement layers emerge, we've seen this within our own business. Of like, there are opportunities to be able to integrate and leverage new, advanced settlement layers that can be combined with the existing messaging that has significant distribution established standards. And so, you know, I think it's this really interesting dynamic of, can the company with distribution be able to innovate before the innovators end up getting distribution? And I think Swift has has a lot of opportunity, and particularly the integrations that they have with banks, it's a big statement that they're taking this space seriously, and they're not just waiting for companies using stablecoins to try and create new messaging layers. They're saying, Hey, we're the messaging layer. Like, how do we integrate these new tokens as a settlement layer beneath it? That's
Francisco Maroto 38:50
key, Kai. And then I heard that word there, which resonated in my mind, which is integration. On our back ends, speak Swift, but they don't speak tokens or blockchain. So maybe they could be a good as well interoperability on connection or mapping infrastructure to change from what our back office systems speak and what the blockchain speaks.
Sy Taylor 39:13
You imagine a design space or a future in which the payments world gets more complex, not less. It's often like sedimentary rock payments. Networks don't go away. They just figure out how to collaborate, and they figure out how to become networks, and they figure out how to interoperate. And it's probably true that that will happen with folks that have got distribution and I think the fear if you are a network is that you look at what happened with the telcos and the OEMs and say, well, will this thing that comes over the top of me compress my margins and create competition, or is it actually long term useful that I actually have a partner here that can help me maintain my position in the market and help me kind of be relevant to the future? And so there's always this, this trade off, that. Happens? Catherine, I want to come back to this, this point of what you're seeing, because you're hands on with a lot of the clients on a regular basis. A cynic, looking externally, might say, you know, banks have been talking a game on tokenization for quite some time. We've seen lots of headlines. People have gotten very excited about them. So, you know, is there an argument for being just patient, because this takes time, or is there a real ramp of momentum that you're actually seeing, and how does it feel compared to your sort of history?
Catherine Gu 40:30
I think this time it is for real. I do hope so, and that could be my personal prediction as well. To be fair, there's a real pressure for all the banks, I think, now to deliver, including us as well, because we have been experimenting in the space for the past five to 10 years. I would say, you know, because many banks have been experimenting on blockchain a long time ago, and I think it's just it is hard, right? Because we're not looking at a whole financial ecosystem that we need to really upgrade in order to fully appreciate the benefits of what blockchain can enable. Because if you only do it in a pocket size, you know that you're only limited to that aspect. So I think it does take time. And I think the good signs of what we're seeing is that you have this really nice public, private sort of incentive to all move in that direction. And I do want to call out the other news this week is coming from that project Aurora. That is this combination of having seven different central banks trying to innovate around, say, wholesale cbdc and the infrastructure, together with 40 plus the world, global, systematic, important financial institutions to really figure out something around tokenization. So I think the foundations is being set to really push towards that direction. Now, of course, you know, as we've been talking throughout this hour, I do think that there's many different steep learning curves still for all of us. It's really about combining what is the existing business practice and business process, and then trying to recreate that on the blockchain is not always easy, and especially if we start thinking about the details, right? I think you know now we're looking at, say, what kind of blockchains as are we looking at? Now, of course, from our perspective, we want to be multi chain, but as you're looking at the environment on a permission base versus public blockchain, it can differ very significantly. And hence that business practice. What does that mean? Say, to participate on a public blockchain, what kind of permissioning, what kind of on chain risks that you're now exposing yourself to? That's whole new brand areas for many regulated institutions really, truly think through. So I think there's still a lot to be done before we can reach like a critical scale to say, you know, now we're on a cruising mode to attract but I think we have seen enough pain points and enough demand, probably starting from the corporate and institutional clients and the sort of the customers to start really getting things, to identify real commercial opportunities that, you know, we can go to market with.
Sy Taylor 43:08
You know, it's interesting. If you look at Ethereum today versus Ethereum when it launched, it's a very different network. And if you look at Solana today versus Solana when it launched, it's a very different network. And if you look at the financial institutions, the people in senior positions are 5678, years ago may not have been in that position. So there's, there's a, there's a generational shift happening in that side as well. And sort of, as we do that the industry matures on both sides. And perhaps that will be a good thing, guys. Any final thoughts before we bring this one to a close on vtap, or what's next for that project?
Cuy Sheffield 43:46
I think one of the most interesting areas that we're spending a lot of time on that I think is just gonna be important for the industry, is what should the smart contracts look like that represent tokens for financial institutions, and when we talk to a lot of banks today, it is a brand new space, particularly when you're looking at wanting to issue a product on a public blockchain. What functions does the smart contract need to have? What are the controls in place? How do you manage identity? Do you need allow lists? How do you add someone to the allow list? There all these functions that you know, the token itself is code, what properties, what functions that code has, makes a really big difference. And so I think one of the roles that we're hoping to play is, traditionally, every bank has kind of done this their own way. They've started with ERC 20s, you know, in the EVM context, as you know, that's the general standard of a token. And then they've said, Okay, well, my compliance team needs this, and I need to have this in place. And then they've kind of started adding together. And you could look at different tokens and projects from from different banks and and they're very different code, very different smart contracts. And so then if you have a world where every bank is trying this on their own, it. Really hard for those products to interoperate with each other. And so one of our goals is, how do you start to create what a best in class standard and smart contract would look like? And how can we have this uniformity that banks can be able to get the features that they require, but still have this standard that they can interact with each other and know how those contracts are going to be created. And I think there's just this brand new world of smart contract development that we've been diving head first into, learning a ton around. How do we apply visas practices of how we write code to writing smart contracts, updating smart contracts, and then how do banks look at the different unique risks and properties of those? And so that's one of the really exciting areas that it's going to take a while to be able to do this the right way. But there's so many interesting innovations have happened in defi in the FinTech ecosystem that I think now there's this big body of work that you can start to apply and get to that next level that financial institutions can trust. Catherine thoughts,
Catherine Gu 46:07
I think, personally, I was just reflecting as kind of speaking, definitely, I think there's so much you know, to learn and innovate and stuff like that. I think, personally, you know, I actually left the finance world to go into crypto and all of that. And now I'm sort of coming back to finance again, but with this tokenization Alliance, I really do see things very fundamentally different and exciting, and especially seeing all these kind of fund managers and others are collectively thinking about this space and how to innovate to create these kind of net new financial products down the road, it is very exciting. And I do think, you know, from a payment company's perspective, there's a lot of things we can expand our businesses into. And I think, you know, we're just starting, so we're very excited about where we tap can take us.
Sy Taylor 46:52
Fran, how about you? What are your thoughts?
Francisco Maroto 46:55
My thoughts? I would say that we are seeing exciting news in the market as one of three of 10 many others that indicate that things are moving, and as you mentioned, change of regeneration and maybe things are getting aligned so that we can move towards an organization more actively in the future. But there still remains many challenges, and we have discussed some of them, learning curve, integration, interoperability, fragmentation, these kind of challenges that we need to solve. And I think that BBA with Visa can work together to work on these challenges, continue earning, continue helping or easing the integration, and hopefully build the standards for the interoperability with our networks to be able to reduce the fermentation, improve the liquidity and make these markets meaningful and with enough both sides populated and working and being able to migrate from the traditional rails to these new rails, which I truly think that are the future that work 24/7 and decentralized infrastructures or change and that could transform the way we exchange value and information in the financial industry. So very exciting and looking forward to the next years to see how the industry looks.
Sy Taylor 48:13
As you were speaking, I was thinking, every payments professional I speak to will tell me that liquidity, interoperability, last mile, cross border acceptance. These are, these are the issues they face. And then I asked them if they've got a stable coin project. And then, you know, the payments person that's looking after it is like, yes, we're really pushing for this. The person that's running the payments division might not be there yet, and I think that chasm is slowly being crossed, and that's exciting. It's kind of your head of payments should be really paying attention to this, as somebody who's worked implementing payments for many, many years before I got into the crypto world and then into FinTech more broadly. So I just want to thank all of you for being with us today, and thank all of the listeners for listening. Fran, where can people find out more about you and what you're up to at BBVA, if they, if they want to get in touch. So
Francisco Maroto 49:03
I would see that resolution would be LinkedIn. Fern Maroto, it's my tag in LinkedIn, and I try to post as much as I can what we are doing. I would like to be more active. But, you know, we have to execute projects and and do things. So I don't have that all the time. I would like, but yeah, there they can contact me, reach me, and ask anything that I will try to answer when it can thank you. Fran and Catherine,
Catherine Gu 49:27
same, pretty active on LinkedIn and also on x.
Sy Taylor 49:31
Beautiful and Callie. How about yourself
Cuy Sheffield 49:33
on Twitter at Kai Sheffield and visa.com/crypto
Sy Taylor 49:37
you can find me at sy Taylor or@fintechbrainfood.com and if you haven't already, please go ahead and hit that subscribe button. You never know what we're going to be bringing you next. If there is this momentum that these guys were talking about, I suspect we might see some more interesting conversations. And just remember, none of what we've discussed is financial or business advice. This content is. For informational purposes only. We do focus, obviously more on the tokenization of real world assets, but web three is underpinned by crypto, and that can be volatile and you can lose money, so be careful out there folks never spend what you can't afford to lose. Do your own research by subscribing to podcasts like this one. Thank you, and bye for now.