On Ep. 47 of Tokenized, Simon Taylor, GTM @ Tempo is joined by Chris Harmse, Co-Founder @ BVNK and Eric Piscini, CEO @ Hashgraph to discuss payments blockchain Tempo, Hedera's launch of Frontier stable token, tokenizing US stocks and more!
On Ep. 47 of Tokenized, Simon Taylor, GTM @ Tempo is joined by Chris Harmse, Co-Founder @ BVNK and Eric Piscini, CEO @ Hashgraph to discuss payments blockchain Tempo, Hedera's launch of Frontier stable token, tokenizing US stocks and more!
Timestamps:
Tokenized is sponsored 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.
Tokenized is presented by Bridge, a Stripe company.
Just like the internet made information global, stablecoins are making money global. And Bridge, a Stripe company, is the infrastructure powering that shift. Built for speed, scale, and simplicity, Bridge helps businesses send, store, convert, and spend stablecoins instantly, all without borders or having to navigate the complexities of crypto. Learn more at bridge.xyz
Tokenized is also presented by Fireblocks
With over $100 billion in monthly stablecoin volume, Fireblocks powers stablecoin strategies at scale with infrastructure that enables PSPs, fintechs, remitters and banks to issue, move, hold, and manage stablecoins. And it’s all done securely, at scale, and with built-in compliance. Learn more at fireblocks.com
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We’d also like to remind you that the views or opinions of our contributors today are their own and do not necessarily reflect those of the companies they are representing. Nothing we say should be taken as tax, financial, investment or legal advice, do your own research!
Music by Henry McLean
Unknown Speaker 00:00
Simon
Sy Taylor 00:10
Tai, welcome to tokenized. The show focused on stable coins and the institutional adoption of tokenized real world essence. My name is Simon Taylor, and I'm joined by somebody a little different today, somebody quite special. This is pet barisha. Pet is the GM of tokenized he also is the author and founder of sporting crypto. So if you care anything about where sports hits crypto, you should be checking him out. But as the man behind the scenes, the man who makes tokenized possible, I want to throw it to you. Pat. Do you want to just introduce yourself, say hello to everybody and explain why we're talking today?
Petrit Berisha 00:48
Yeah, hi everyone. Thanks for having me. I guess isn't that the right thing to say? Because, like, it's also a show that I work on. I came together with Simon over a year ago to launch tokenized, and it's been an awesome experience ever since, for those that might know, we also used to run a podcast back in the day together in the blockchain world, which is how we met. And yeah, today we thought, well, Simon's in the news a lot, which is kind of the first time it's happened. Kai's in the news a lot more. And why not put him in the hot seat, because you have a new job. Why don't you tell people what that is?
Sy Taylor 01:24
Yeah, so I'm in go to market over at tempo. And you may have heard of tempo as the new stable coin focused l1, incubated by paradigm, paradigm and stripe. I couldn't say paradigm. Look at, look at what you do when you put me in the hot seat. I got really, really hot. So aside from running FinTech brain food, being the host of tokenized and getting to FinTech NerdCon, I wanted to jump into stable coins with both feet. Yeah, it
Petrit Berisha 01:53
sounds like you need more than 24 hours in a day. That is quite a lot to handle. But great hire by tempo and the folks incubating that, I think it's a match made in heaven. And, yeah, it means that your worlds are colliding. Because obviously you've been in banking, payments, consulting, you've been very much down the blockchain and crypto rabbit hole since 2015 and, if not earlier, so this feels like, you know, one fell swoop in turning all your talents and direct them into a market that's exploding. Yeah.
Sy Taylor 02:26
I think the backstory on Simon the law, if you will, the unknown law was, yeah, I was the guy in 2010 who worked for a payments company when stripe was two Irish guys with an API saying, Hey, we should look at this thing. And was being told, No, no, that's never going to be serious. That's never going to be a big thing. And in 2013 14, I was helping organize some of the London Ethereum meetups, and the person inside a bank saying, Hey, we should look at this thing. And then sort of became head of crypto r, d at a bank, whilst also still helping organize some of the some of the meetups themselves, I've always had one foot in both worlds. And through 2017 and 2021 I think I kind of became crypto disappointed dad, always seeing just unbelievable potential in the thing. And to be fair to it, it's gone on and done all right. Some people involved have gone on to do really quite well. And in many corners now it is an incredibly mature industry, but in other corners it's not. And I think what I saw in stablecoins was the first time that that veteran of payments in me saw, Oh, now we've got a shot. Now we've got a real opportunity to take this kind of mainstream. But there was this, like, interesting tension in that, like stable coins work if you can accept all of the risks and drawbacks of being in certain on chain ecosystems, some involving a lack of privacy for financial institutions or occasional throughput issues. And on the other side, closed networks that are tokenized, like JP Morgan's Connexus or HSBC or cities, great if you want instant 24/7, but only in those closed loop and what I saw in tempo was something that was trying to find that line in the middle. And it's the old saying you can please some of the people some of the time, but not all of the people all the time.
Petrit Berisha 04:20
I mean, just going back to your crypto 2021, point, there's always gonna be the party in the basement. Someone smart once said to me, most people have the sophisticated dinners out in the open, at restaurants, at your friend's house, there is always gonna be the party in the basement. And no amount of like regulation or enforcement is gonna stop that there is always going to be that person that you know, that person, friend's cousin's dog, who goes to these underground raves that probably aren't legal, and they're always going to be around. But I do think that maturity is is really, really important, and we're seeing it year on year, and probably month on month now is really accelerating in terms of. Of just how accepted it is in within the walls of much more mature financial institutions, especially. So, why don't we get on to ask you a few questions, pull up a few bits of Twitter discourse and so on so forth, about tempo. I want to get your thoughts about it before we do. I just need to remind you that the views and opinions of the contributors, Simon and I today are their own and do not necessarily reflect those of the companies that bear representing nothing we say should be taken as tax, financial investment, all league advice to your own research.
Sy Taylor 05:34
You see why we have that disclaimer now that's the reason.
Petrit Berisha 05:37
Yeah, yeah, yeah, exactly so. Tempo is not the first stable coin or payment based blockchain that has been announced this year or in the last couple of years, Codex arc plasma and several others that have forgotten to kind of bring up lots of really smart people are thinking that this needs
Sy Taylor 05:58
to exist. Why? I think fundamentally, payments need their own chain, because there's a lot of things that tradfi did well that existing Multi Purpose chains don't do well. One of them is really fast, settlement finality. Another one is settlement reliability. So I need it to happen fast, and I need it to be reliably fast. Now there are amazing platforms out there that are incredibly fast. Solana's peak throughput is unbelievable. The challenge is, what's that like when a meme coin drops? And what's that like when you have certain issues? You also find if you want to bring the mainstream, and it does strike me that a lot of the industry community wants to bring the mainstream payments volume into crypto, not just for their bags, but to genuinely make the world a better place. Weird Silicon Valley huli vibes there, but you know, like, I think it's from a good place. If you want to do that, you've also got to build in a bunch of other things. Like you probably don't want to be acquiring a token like Sol or eth in order to pay for the usage of the network. You want to be paying that in stable coins. And so there are a bunch of these things that you can start to solve for those major high volume, high throughput, regulated institutions, if you build this. And so, yeah, I'm not surprised that, you know, circles building arc, and that we're seeing Codex, which is a phenomenal project. Shout out to those guys and many others. And who knows what the right answer is? I think it's a great thing that we've got many people trying to get to the right answer, and then maybe we can build something that is ready for the world's payments volume, because stable coins have all the potential in the world, but they're gonna be the party in the basement, the party of the offshore transaction, the party for just a few cross border transactions, unless we do Some of the things that tradfi needs, like not everything that tradfi does is a bug. Some of them are features that are useful. And how do you find those tensions, those trade offs about taking what's good about tradfi And what's good about on chain ecosystems, and finding some middle ground for that? And I found that a fascinating conundrum, and I don't know that anybody has the answer, but it's interesting to try.
Petrit Berisha 08:24
I think the Puritans will say that you have to use all of the attributes of the blockchain to be within the ethos of this community and movement in a proper way. But actually, if you look at the three biggest things in crypto right over the last two, three years, say probably base, poly, market, hyper, liquid, only one of those actually has a token. And so there's been a lot of like, Hey, this is the ethos and values that crypto has. But like, when you look at what are the things that have been really, really successful, and in the mainstream, like base currently, doesn't have a token. Poly market doesn't. Might do even pumped up fun didn't have one until recently, and hyper liquid obviously does. But it kind of just goes to show that using every single attribute that makes a blockchain, a blockchain, isn't a necessity to go mainstream and get, like, real usage. And I think that's a really important point to make, right?
Sy Taylor 09:25
I think that's a really important point because a lot of people have framed what's happened here and the narrative they want it to be. They want this to be. You know, giant payments company has declared war on every other payments company and every other chain, and I can see why that suits them, but at the same time, really, that's not what's going on here. It's it really is genuinely about trying to make those trade offs. How do you find that sort of distribution versus neutrality tension point? Because. I Coinbase has a lot of distribution. Circle has a lot of distribution, but if they start just purely centralized, then they don't have a lot of neutrality. So where do you find that tension point? Do you try and get the best of both? Do you try and get some distribution and some neutrality? Because I think the benefit of neutrality, the benefit of decentralization, is a couple of forms. There's two ways you can look at it. One way to look at it is to say purely technologically and from a business minded capitalist standpoint, I don't want to be locked into any platform. I want there to be multiple operators of this thing, so that a, it's more resilient, and B, there's no one central actor that can control the thing, and therefore the governance is always moving. There's some fairness to that, and I think some ethos to that that serves a business purpose and an overall purpose. The other way you could look at it is to say the reason you want decentralization is because decentralization is going to be the thing that remakes the world, the anarcho capitalist position. I don't know if I've ever been of that persuasion, and I don't know how much of crypto really is. And so if you get religious, if you get dogmatic about that, I can see why, because being religious and being dogmatic about that has achieved some amazing things. I don't know that we'd have Bitcoin if we didn't have people that thought that way, but at the same time, the way you do it might not be the best answer. I might argue that, you know, one of the best things that happened to Ethereum has been base, right? Like some of the innovations you see in that chain are helping drive the roadmap of Ethereum itself. So, you know, these things are constantly
Petrit Berisha 11:52
in tension. It's a spectrum. And you know, the religion analogy is, even within the same religion, you have people that follow those religions more strictly than others, right? So, like, there's a spectrum, and then there's a spectrum within each religion, and so it's very difficult to kind of ascertain what's the actual temperature check on people within this ecosystem, or that one, or that one on this new piece of news, because, I mean, look at it from the outside in. It's been received in a way that, like, none of the other announcements on new stable coin issuers or new stable coin chains has been, and that's been pretty interesting to watch before we get into some of that. Like, do you want to tell people a little bit more about your role specifically? Like, if they're listening right now and they're thinking, Oh, that's cool, I should talk to Simon about it.
Sy Taylor 12:41
What are you actually doing? So I don't know if I've ever fit a job title fully, so go to market, is probably it right? So I do a mixture of everything from I can help connect you to potential leads and customers. I can do marketing and brand and awareness. I can act as a stand in occasionally to talk to media. So there's that side of go to market. There's also working directly with clients and prospects and problem solving and design partners, especially when it comes from the tradfi world. And I'd say if there's one thing you could probably say in a sentence, it's, I'm the tradfi translator. I can tell you what it's like inside of a financial institution and what they're hearing when you said that thing, and how to reframe it so that they hear your intent. So I'm the that translator in between, and then also the other way around as well. I'm sort of able to talk FinTech as well as banks. So when a FinTech company has an issue, they're going to be thinking about it very differently than a crypto native might versus a financial institution might, and I span those ecosystems, so hopefully I can be a useful north star and then feeding all of that into product and engineering and what gets built. So I don't know what that job is. It's just broadly go to market, but I enjoy it, and it's sort of what I did at sardine and it's sort of what I always end up doing, and it's a lot of fun, for sure.
Petrit Berisha 14:06
Yeah. I mean, your emails, DMS, messages must be a mess, because I'm getting people messaging me that they have projects that they want to connect Simon with. And I'm like, What can I do? Yeah, I'll put you on his list, and there we go. But, but they are like real companies. I'm talking like a huge sports federation and also a huge loyalty company like these are like small crypto projects that want the leg up. It's, it's serious stuff.
Sy Taylor 14:36
Well, I think, look, let's be honest here. Everybody's going to want to take a look at the new thing, but the proof is in the pudding. As we say in the UK, the proof is in the volume. Can we actually deliver something that? What actually excites me is the people who are building apps today in B to B, P to P, that are using other chains, that have concerns about those chains, or that feel the drawbacks, feel the issues. Two that would decide that tempo is such a better product for them, they want to run their volume on there, and they will hedge with other chains. And you absolutely should. You should never get all the way locked in, but that, if it is the best product for you, then we've done our job well, and you will see that in the volume. And let's be honest, we've not launched test net one yet. So it's gonna be January of next year, which is the current plan for mainnet, before anybody knows if we've succeeded, or even we know if we've succeeded, but I think there's some pretty cool, compelling ideas in there, and I'm really, really thoroughly enjoying working with people who see the potential for something that could have enough momentum that we could really meaningfully shift the market structure of payments to be something, yes, better, faster, cheaper, but also fairer and more inclusive. And my god, the engineering challenge is enormous to be able to do that
Petrit Berisha 15:54
right. Well, why don't we get into look, there was a lot of criticism and praise, and I was actually going to ask you, Hey, what? What is fair that's being taken into consideration, and what are people missing? Is there anything that jumps out to you when you're reading all the tweets or all the blog posts and all the articles that you're like, I don't think they quite get that or like, fair? Yeah, we should. We should talk about that more internally,
Sy Taylor 16:16
yeah. So I think the fair stuff was just people didn't understand the nuances and everything that's there. So there's probably, like 10 different examples where it was just there was what Matt's tweet and a blog post to really go off. There wasn't a lot of detail. And I think some of that is just because it's kind of early, frankly, that is fair. Another fair one, I would say, is, you know, why haven't you given more detail? Well, it's early. That's, that's why we haven't given more detail. Why didn't you nail the comps? Well, because it's early. There's, there's a lot of things to do that, I think, fall into that it's early category. There's other ones that are sort of somewhere in the middle, which are design choices. There are intentional choices that have been made where maybe it's not what somebody else would have done, but it's what the tempo team has chosen to do, because they've made a different trade off. And there seems to be a lot of emotion when people have decided to do one thing instead of another thing, and that's the one that I struggle with the most, which is to say, okay, I can understand that you really, really care about this, but I can honestly say that, A, again, it's still really, really early, so things could change. But B, why?
Petrit Berisha 17:36
That's a question that will never be answered. I mean, like, if you have, like, if you look at all the co founders of Ethereum, they all went and built different infrastructure layers that all do things in a very different way, and they still, to this day argue about it now. So I think people are always going to be angry at anything that is slightly different that doesn't kind of match their worldview, of like, how this thing, which is still a really nascent industry should be done?
Sy Taylor 18:02
Yeah, I think the idea that it's declaring war is the thing I disagree with the most. Like, no, it's not declaring war on anybody, with the possible exception of payments that don't work. And I think possibly the biggest misunderstanding is there's a lot of crypto natives that have never worked in payments, and that, to me, is the nub of the issue in payments. It is perfectly normal to build market structure to compete out cost in payments, it's perfectly normal to have multiple payments providers so that you don't get lockings. For example, canonically, Shopify used one specific payments provider historically, and they're the case study client for stripe, but now they use multiple payments providers, and that is something you should do for resilience as you start to scale your business like you should get to the point where you never have just one answer to every question, and I think that's a part of like ecosystem maturity, like, I'm from tradfi, where everybody is your frenemy, and everybody can be a great business partner, but there are areas of your business where you compete. So the crypto world of This Is War just seems really immature to me, and it's something that perhaps, when there's a lot of money on the line, I can certainly see why people feel that way, but it's not the way I feel.
Petrit Berisha 19:30
I do think, though, that frenemy thing is happening more and more in the crypto world, right? If you look at how Coinbase and Kraken and every other big exchange have always just been exchanges, and they've competed on volume and liquidity and getting to market first with a specific trading pair, and they've done regulatory arbitrage. But like now, they are now competing with the banks and Robin Hood and Revolut and also those companies are now competing. With hyper liquid and other dexes, and so you are seeing that like the fragmentation is happening because of competition. And that is not going to be any different in payments stable coins, whether it's issuance or actually, like throughput of payments themselves on the stable coin chains, it's going to be the same thing now, where that kind of lands up and how these worlds look in the next five to 10 years is anyone's guess. But directionally, we're seeing more competition, because this space is getting more real, and so like, it just makes sense that, yeah, like, there's gonna be a world where a circle and a stable coin chain work together, but circle also have their own stable coin chain, and they also have CPN, and so it's it's gonna be weird, but also interesting to watch over the next 510, years, and the winners will win.
Sy Taylor 20:55
I think there's that tension of finding credible neutrality, and what does credible neutrality mean to the market when most of the market is not here yet? And there's the classic observer bias. I view the world this way, therefore that's the way the world will view it too. And actually, if you're on crypto Twitter, most of the world doesn't look at the world like you do. Most of the world just wants things to work. That doesn't mean you should give up your ideals, Nor should the idea of credible neutrality be given up, but it means that the first step towards it, as you were saying earlier in the show, might not be mass scale decentralization. It might be stepping stones towards it, which, again, as you said, many projects have succeeded in so there is this idea that I think, well, the incentives are too great on you. You're never gonna decentralize. And I think there is a lot of understandable cynicism about that because of like this, this assumption that everybody saw something and it looked like a duck, it walked a bit like a duck. And they went, Well, it's obviously that like this is. And they had this thesis that fit. And so they pattern matched the new news onto the thesis that fit, not what the team was saying, not what the team is trying to build. And so then I think when Matt's tweet comes out, people go, Oh no, and there's this cognitive dissonance, and I think that'll dissipate as the team starts to build. So you do need that sort of credible neutrality that is decentralized enough so that it's resilient and no one policy controls it, but also fast enough that you're not made waiting minutes or long, you know, even 1020 seconds for settlement finality, you need to find that tension, and this is an attempt to do that.
Petrit Berisha 22:43
And there's, you know, there's been a lot of discourse around this, and I've got like, five or six tweets lined up that I just wanted to go through with you, because I thought it would be a funny exercise. I'm just going to share my screen. I mean, the first one is from a friend of the show who you interviewed, avalanche Summit, Haseeb from dragonfly. This was a quote tweet to a pretty long tweet from Matt Huang paradigm, which I won't go into right now, but Haseeb basically said, in case you missed it, here are the comments on tempo. In a nutshell, Bitcoin, this is another VC chain. Ethereum, why not an l2 Solana, why not on Solana? Cosmos, this makes sense, an avalanche. This makes sense, and should use avalanche. It says crypto is the best, and that's kind of some of the what we're getting at here. I found the really interesting thing here about kind of everyone pointing to a Robin Hood, for example, and saying, Well, those guys have done an l2 and that's what they're building. But like, if you read reports, they weren't necessarily set on that. They were considering Solana and they were considering other chains, and so like any corporation that launches a blockchain from this point on is going to consider all the potential infrastructures, like that is just case in fact, and because they considered one marginally over the other doesn't mean they fit into any of these categories that people want to box them in via crypto Twitter,
Sy Taylor 24:05
and that's a crucial thing. What Robinhood has done is Robinhood is building an l2 what's happened here is a new company has been formed with help from stripe and paradigm, but it is a new company. It is a separate operating company. And so it's a different thing. I think that's possibly the biggest myth, which is, you know, company A is building a thing in the Robin Hood example, versus new company has been formed with the benefit of some of its parents, distribution like, those are two fundamentally different things. And sort of looping back to your point here. I mean, this is the core of it. For me, Haseeb absolutely nailed it, which is, this is, yeah, whatever you thought before this, this becomes the reason why it's true, rather than being judged on merit, or at least in the first instance, there's something on social that pretty much everybody does, called attention surfing, which is everybody's talking. About that thing, so I'm going to talk about that thing and direct it towards what I believe, in order to get more attention on what I believe. A lot of that going on without question and credit too. You know, engagement farming works, and it's very effective. It's also
Petrit Berisha 25:15
very hard to find the signal from the noise. And actually, what you find the longer you wait the better the kind of analysis gets on specific things. And actually, that always happens, right? Like news breaks, everyone is trying to piece together a fault, an opinion about it. And then you get, like, two weeks down the line, and you start reading essays and analysis and so on and so forth about X subject, and you you start to form a much more informed opinion, because people have had time to take a beat and think about it more right 100% this was another really good one from a friend of the show, Morgan krapetsky, I hope I pronounced that correctly, Morgan. This was a response to Ryan from bankless, saying, why an l1 rather than an l2 and Morgan, who is over avax, running kind of institutional capital markets, said, sub second transaction finality is important in general, but especially important for payments and other high frequency or high value transaction like those in Fs, the ability to use a custom gas and staking token and therefore create actual value and utility in the latter and not have To sell down your token to pay high or volatile rent back to Ethereum, the ability to totally customize your gas and transactions cost parameters, the ability to isolate the performance of your network from load generated by unrelated chains and applications. So that's kind of what you were the example with a super highway chain like a Solana, if it's clogged up because of a meme coin launch that could mess up a, you know, high throughput payment event, like a huge conference or
Sy Taylor 26:45
event. So just on that, I shall keep the names anonymous, but I'm aware of a very large company whose payroll was delayed by a meme coin launch and, you know, people missed rent. And so that is something that, with my tradfi hat on is, like, Red Alert, game over. Like, get the CEO in the room immediately. The media are gonna be calling you like that is mainstream news times 100 that's real world impact times 100 you cannot have that if you are gonna go mainstream. And I think this is what Patrick collison's tweet and piece on Hacker News was about, which is the rationale that they have is like they really care about high throughput in their core business. In stripe, they really care about throughput because they're a payments business, and so if you've operated in this industry, you've kind of got some of those scars on your back, and you know that resiliency is everything and consistency is everything. So that's that's a point that I think gets lost quite a bit. And look, shout out to Morgan here, makes a lot of great points. And I think you know the answer is not the same for everybody, as
Petrit Berisha 27:57
you said, yeah. She then goes, say, enabling a multi party validator set beyond the centralized sequencer and expanding that. Expanding that as you see fit. Again, that's kind of like
Sy Taylor 28:05
that's an interesting point. People forget that l twos have a single sequencer that is a single point of failure. Maybe that's not an issue for you. Maybe that's not credibly neutral. Again, design choices. There are different choices to be made.
Petrit Berisha 28:21
And, you know, we were talking offline, you know, we were talking exactly about this. And I said, actually, the l2 ecosystem is pretty young, right? Like, base has been around for what, 18 months, Polygon, four years. Like, as you said, the base success has had an impact on the roadmap of, like, how l twos mature within the Ethereum ecosystem, and like what we see now with, as you said, the single sequencer issue might not be something in five years, but like based on what there is now for a whoever is launching a chain, whether it be a consortia or a specific Corporation, they need to take it at face value now, and they need To say this will have the throughput that I need, and this will have the the customization and modularity that I need, rather than, like, it will have it in the future. And so I think that's also a key thing, right? And Morgan finished it with, like, why not an l1 and I think it's a pretty persuasive argument. Like, again, like, you know, you've got your avalanche cosmos and polkadot, and you've got your L twos within Ethereum, and then you've got kind of like a lot of super highway chains, like your Solanas and Swedes and so on and so forth. Like they all have benefits, and for some things, they work better than others. And in this instance, I guess tempo have chosen to go with their own l1
Sy Taylor 29:36
I often make the joke that crypto is one big, weird family that most of the time acts like they don't get on, but they still get together every Thanksgiving and agree to do the same again next year, probably at some conference.
Petrit Berisha 29:50
This was from Vasily Sha pavalov, I'm again, I'm hoping that I've pronounced that actually don't know Vasily he. In his bio, it says the ticker is eth. So I'm presuming he's in and around the Ethereum ecosystem. And he said, regarding tempo, Matt speaks true. If you want your chains, finality, fast, your sequencing, decentralized, you have talent and money to support the tech stack. You have user funnel that's not dependent on crypto Twitter approval. You technically can be in Ethereum l2 but it's not compelling. There's a lot of dependency to manage, both on practical, technical sides and on the social side. Just the constant crypto Twitter purity tests will be very exhausting. What I think is left unsaid is that paradigm has an incredibly strong and I imagine, very expensive blockchain engineering team with Georges at the helm, so they were in a bit of a solution, looking for a problem mode, parity in 2017 situation, but with awesome business partners. And he then went on to say, seems like the way to change situation is pretty straightforward, if not easy, it's making a fast, interoperable, decentralized sequencing l2 stack that is easy to deploy. And this is really interesting from clearly, someone that's within the Ethereum ecosystem with what I think is an excellent
Sy Taylor 31:04
tweet, yeah, no, look, it's just making the case for it, which I've you know, this is technology stuff that's well above my pay grade. I wouldn't dare to say I've engineered enough to be able to do it. But you know, if you speak to Georgios, I think there's a real love of the Ethereum ecosystem from that whole paradigm team, and there's a real desire to support that ecosystem. Certainly, that's that's what I've seen. But there's also, like, a lot of engineering that helps you get this throughput and this speed that payments need. So, you know, like Vaseline is talking about one perspective. I see it from the perspective of payments. Have this requirement, like, if you're gonna get to mainstream payments, you need performance throughput that is reliable, and you need to be backwardly compatible with some of the features of tradfi, maybe not all the bugs.
Petrit Berisha 32:00
I like the backwards compatibility point. I think that's probably under under discussed, apart from on token as obviously, this was from Stone, who I think is booked for the show at some point later the year. And again, I don't think got picked up, but I really liked it. And he just went Libra was brilliant. And early timing matters. And like a lot of the discourse I saw was, this is Libra 2.0 and there's a really well documented thread, an article that's been posted about which I think is actually really good to read. But I think if you go back and read some of the things about Libra at the time, and also what they were trying to do, like some of it has happened at this point, right? Like their idea to use a basket of stable coin goods, plus gold, plus something else as a stable currency, and use it on meta. Well, like, you know what tether and circle have done is just in Tai the basket, it's $1 and then we're using euros, and then we're using Aussie dollars and British Sterling, and then we're creating on chain effects on top of it. It's slightly
Sy Taylor 33:06
different, and increasingly that might become gold and Bitcoin, right? Like, the idea is not that wild today, now that we're seeing currency deflation, now that we're seeing, you know, just a different macro environment. But the other thing that's different macro wise, is we're not in the midst of a Cambridge Analytica scandal. So, you know, like, timing wise, there's that. And then also, when you have 2 billion users, and you get together like the Thanos ring of other companies, then you are going to create a sovereignty risk for countries that have, you know, populations of less than 100 million. And really, something that's already very, very high level of concern in many parts of the world is the the level of impact that the US, administrations and tech companies can have on the rest of the world. And so we've called that, you know, like you've seen, this frame of de risking start to take over Europe is actively trying to build its own digital currency and actively trying to build its own alternative to Visa and MasterCard. And I've blogged about, like, trying to do that central top down, and it not always working. But you can understand the fear, the threat, if you are from sitting in their shoes. It's not like somebody else's perspective is benevolent to your own. It's not like their interests are benevolent to your own or in your own best interests. So you should potentially look at doing something about that. This is obviously very difficult to pull off. Like no matter what they did, right? It was always going to be incredibly difficult to pull off in that timing, whereas now the world has Beijing updated, we have a law in the United States that is on the books for stable coins that is just unbelievable, and we're probably not far from a market structure bill. If both of those two things happen before the midterms. So then that changes everything for the foreseeable and then the question becomes, how do we bring all of the benefits of this whilst keeping the features that we like of crypto and the features that we like of on Chain Finance and the features of tradfi and the things they got well, whilst setting aside the bugs of both. I've always been a believer in that there's got to be like this in the middle of the Venn diagram is going to be our sweet spot. But there's not a linear path to it. We're going to have to innovate or wither.
Petrit Berisha 35:32
This one was from Austin Fodera, co founder of double zero. I think the former strategy at Solana as well. So interesting, perspective from someone in one of those super highway infrastructure businesses, or formerly of them, he simply says, agreed or disagree. The problem of, we can't convince our partners, our single sequencer will act neutrally if we do an l2 is a legitimate business concern. I haven't seen a real solution to from l2 advocates. As far as I know, mega eth is the only one talking about rotating the sequencer. What other frameworks have been built out so, again, really interesting. This was a quote tweet to Matt's long thread on permissionlessness and l1 versus l2 and basically discussing why tempo has gone one way rather than another. And, yeah, I just thought this was really interesting perspective on again, talking about that sequencer issue, which has kind of added some weight to the decision that the Tembo team has made.
Sy Taylor 36:31
Yeah. Look, there will be many other technical arguments, pro and con, but it is interesting to me that the first 24 hours were sort of dominated on the timeline by one response, 24 hours later, another response. And it's getting thoughtful and long may that continue.
Petrit Berisha 36:49
The last one is from FUBAR, really popular crypto Twitter account does a lot of good tweeting, and this was more of a kind of like macro. Let's have a look at like, what stripe have done here, privy acquisition, bridge acquisition, partnered with paradigm to build out tempo. So you're talking wallets, Rails, settlement. And he says they even made an image, which was pretty good, and then this was an integrated tweet by Nick from agora about stripes need to move fast as they can before their partners become adversarial. Unsure if I totally agree with that. But again, really interesting discourse and discussion around kind of like the more macro part of this, and you know, talking about kind of banks getting de bank, the whole jpm plaid open banking, API, stuff. We're in a really interesting world right now where we're talking like everything that you write about and analyze Simon like coming together in one fell swoop, and the puzzle pieces are moving around to create a new picture. The chess pieces are moving on the board. It's just really fascinating to see this come to fore, and it's happened really quickly, like this that stripe has done. It's all happened over the last nine to 12 months, or just a bit longer, and it's exciting times. For the most part, I think
Sy Taylor 38:12
I'm unbelievably excited. Look, I mean, FUBAR, great piece here talks about Georgios and the team and some of the clients a little bit further down in this thread, I believe, and the building of wrath, I think it is, if you scroll past this just a little bit, the real core issue that nobody's focused on in Ethereum is the speed of development. A single paradigm team has lapped nearly all of Ethereum. Existing infrastructure portal crushes four, 337, Wrath destroys geth, and many recent EIPs have been handled by him. Now, this is football's opinion. I'm sure people could make technical arguments the other way, and credit to you. The point is, simply, though, as I zoom out from that, which is what a payments need. They need performance. They need that speed. And if we do have somebody that's actively creating EIPs, that is somebody I believe, but personal opinion on any I don't want to speak for the guy, but that and a team that is trying to contribute to the broader Ethereum and EVM ecosystem. So this is where I talk about that crazy family that gets together at Thanksgiving. This is definitely not declaring war on anybody this is trying to make the ecosystem a little better and trying something new. And let's try that new thing. Because what I'm incredibly excited by is that I can see the desire of some massive, massive volume players to get this right, but they all agree on one thing, nobody got it right yet, so let's have a go. Yeah, and
Petrit Berisha 39:44
I think it's really interesting to read this, but there's also because of the neutrality and decentralization that Ethereum as an l1 has, that obviously makes the upgrades, the feature additions, much more difficult, right? You if you imagine. Imagine, like, the difference between a small, highly skilled group of devs building stuff and just deploying at a smaller scale, versus, like, having multiple clients, devs around the world, having to reach consensus around, like, upgrading a specific thing and then doing on testnet and then doing on mainnet, that is, like, a huge undertaking, and it's amazing, by the way. Like, the fact that, like, Ethereum has gone from like experiment to one of the biggest like distributed networks that we've ever seen is amazing. But like, if you're looking at this from the perspective that the foo bars just put down, like, if you're stripe, you've just acquired these two companies for nodding sibling for amount of money, you want to be a real player within the space. You see the opportunity, but like, the kind of existing infrastructure doesn't really work perfectly for you, and so you're incubating something new. Like, only time will tell if that's correct, right. Like, we'll not know for a long time. As you said, even mainnet going live in the new year, we will not know for a while whether the decisions they've made are, like, correct or incorrect, or like, somewhere along that spectrum, and that'll be dependent on volumes that flow through that infrastructure, right?
Sy Taylor 41:08
Absolutely, dude, I think I gotta wrap this one here. This has been a great conversation with you, my friend. Thank you for jumping on with me.
Petrit Berisha 41:16
My pleasure. First of many, I hope you can find me on peppery show, on Twitter, at P, E, T, B, E, R, I, S, H, A, and on LinkedIn and on sporting crypto.com All right now,
Sy Taylor 41:27
dear listener, you're gonna hear like this cool Musical interlude thing, and I'm gonna take you back to the main show. So from me to me, welcome to tokenized. The show focused on stable coins and the institutional adoption of tokenize real world assets. My name is Simon Taylor. I am your host for today, author at FinTech, brain food and GCM over at tempo, right? Let's introduce our guests. First up making however many times has been on the show now his umpteenth return is Chris arms, the co founder of bvnk. How are you doing,
Chris Harmse 42:03
sir, I'm very good so I'm starting to feel like part of the furniture at this point. But thanks for having me back on
Sy Taylor 42:10
well, you should stop being a good guest. The other way, you'll become furniture not far from it. But we're also excited to be joined by Eric Pasini, who's CEO of hashgraph. Thank you so much for being with us. How you keeping sir?
Eric Piscini 42:23
Very well. Thank you. Thank you for having me happy to be here.
Sy Taylor 42:27
Likewise, sir, likewise. Right Just before we get into the news, I've got two quick bits for you. We are incredibly close to our first ever live tokenized event on the 11th of September in London. Tickets are completely free. Thank you to our sponsors. So to register, click on the link in the description wherever you're watching and listening, and also, especially this week, I need to remind you that views and opinions of contributors and hosts are their own and might not reflect those of their employees or companies they represent. Please don't take anything we say is tax, financial, legal, investment, sports, any other kind of advice? Please do your own research and stay safe. Folks. All right, there was a lot of big news this week, but we're going to start off with this story from fireblocks Launching a stable coin payments network. The firm announced it was launching a network to let crypto financial firms more easily move stable coins between one another and build stable coin products. The network's got apparently, 40 participants, including bridge and many, many others. Members include zero hash and yellow card. Chris, my resident stable coin expert, so what problem do you think this is designed to solve, and do we need these type of networks? Do you have a good feel for that?
Chris Harmse 43:53
It feels like every other day some new stable coin payments network pops up, whether that's a blockchain or a network itself. But I mean, when I look at these things, that I'm kind of sitting back and watching and seeing which one of these Well, firstly, how they come to market, and secondly, which one of them can actually get to scale our business over the last six years, you know, we've been building a rail agnostic, stablecoin agnostic payments platform by design. And you know, I think really, you know, it allows our customers to access any one of these networks, whether it's a layer one, a layer two, some network built on top of that. Layer one, we kind of see them as additional nodes. So yeah, it's going to be interesting to see. I don't know, kind of what's the difference between this one and circle payments network that just recently launched. So it'll be interesting to see where we get to. But yeah, I think one of the things that we're watching is the story, as more of these things come to market, these networks and layer ones, layer twos, all focused on payments and stable coins, I think the real story, that maybe the story behind the story is kind of fragmentation, is you're ending up with more liquidity, fragmented on more chains, within more networks, instead of kind of coalescing around. Around one or two or three major networks, which obviously has benefits and disadvantages, but yeah, it's gonna be interesting to see. It's not too much detail out on this fire blitz one, but yeah, it's a kind of wait and see mode for me at the moment.
Sy Taylor 45:14
Yeah, it's so hard to tell with these things, isn't it? That's very, very difficult. Eric, do you have any views on this one and the role that some of these folks might be taking here,
Eric Piscini 45:24
so I don't know the specifics either, but I would agree with Chris, I think that the challenge here is going to be network effect, and how big those networks can become on their own. I would not be surprised if the large incumbents, Visa, MasterCard, American Express, would at some point jump into that stable common wagon and create their own and they do have the distribution channels for sure compared to the other incumbents. So I think we're going to see even more fragmentation, Chris, I don't know if you agree, but I think we're going to see even more fragmentation coming from traditional players before it gets to a consolidation state. What we do here at Dara harsh graph, we build stable coin, what we call stable coin studio. So we build the tools for people to use stable coin on our network. And we see, even at our level, we see fragmentation of players. So I think it's going to be a wild ride before we get to a stable situation for stablecoin, in a stable situation for stablecoins, too much fragmentation. Well, Eric, speaking of fragmentation, you had some news this week. There's lots of people been doing things in Wyoming, including your good souls. Do you
Sy Taylor 46:34
want to tell us about
Eric Piscini 46:35
it? Yeah, thank you. We just announced, actually this morning, US time the launch of the frontier stable token on hedera. So that token was launched on other blockchain earlier, and we got said, select to be part of that as well. So exciting for us, because it's the validation that we have the right technology and go to market activities to be recognized as a valid platform for stable coins.
Sy Taylor 47:03
It is. I think that power laws may play out a little bit here, and kind of being in the place with governments is fairly unique. Chris, how do we start to solve some of this fragmentation? I know it's something that you sort of wrestle with inside your own business. And do you think that the Oprah meme, and everyone gets their own stable coin, and everyone gets their own network can last forever, or is there something we can be doing? I know the folks at Les zero, for instance, would have a take on this and many others like, are you seeing that in your own business being helpful? Are we solving the fragmentation, or does it get worse before it gets better?
Chris Harmse 47:34
Yeah. I mean, I think that meme is probably true at the moment. The Oprah meme for networks as well as stable coins for us, we've always, we always bring it back to the customer. So whether that's a merchant, an end consumer, or a merchant serving an end consumer. Danny's like, what needs to be true in the stable coin payments world for stable coin payments to get to the scale of traditional payment methods, either like cards or APMs, and it can't be more choice, more complexity, more rails, more stable coins. It's got to be less of that, or at least some system or platform similar to what we've built that obfuscates all of that complexity away, where you can come and pay in any stable coin on any chain, and our system will pick up what chain it's on, convert that into any other stable coin in any other chain, or even fiat currencies. And I think that being able to abstract multiple networks and multiple different stable coins, and moving them between different blockchains is quite important, and that's really what our platform does for large enterprise customers. On our Hey, you want to accept stable coins, we provide access to all of these blockchains, all of these stable coins your consumer can pick and pay with anyone you will end up with the one that you want. So I think as this fragmentation increases, platforms like ours become more valuable in terms of being able to obfuscate that complexity. So I think you probably do find a saturation point where the market settles, and then you probably start going the other way and start consolidating a little bit again. But Joe, that's kind of how I see this playing out for like, everyone gets a network, everyone gets a stable coin. At the moment, you get to some sort of peak complexity, you know, we have to kind of reduce that complexity. And through that you get consolidation again. And that's kind of my mental model as I think through, you know, all of these networks and new stable coins coming to market.
Sy Taylor 49:12
You know, it's fascinating, isn't it? I think there's good use cases for treasury management internally, as I think about this, as somebody who was a transaction banker, it was quite common for somebody in their ERP to set up something called an in house bank and to be managing Treasury functions across their various divisions, but waiting for their nostros and their correspondent banks to be able to settle that was always particularly slow, and we never really solved that. And there are good closed loops like Connexus and city token services that can help you with your treasury. But stable coins are open loop, but they're almost at the opposite end of the spectrum on the risk curve. Not everybody's going to be ready for that yet. And I think there's a gap in the market for things that help close that somewhat. It's fascinating as well. And I wonder if a bit like the AI startup so we. In the MySpace era, still, where there's a million different AI startups, and they've all got insane revenue. But what's the moat? Who's durable? And sometimes, when it looks really big, you think, well, there's nobody gonna challenge that incumbent. And then somebody comes along two years later and is Google. Somebody comes along two years later and is meta. Apple always launches a little bit less than everybody else, and then, in the end, wins. So yes, there's a lot of networks. Yes, there's a lot of fragmentation, but markets have a way of forcing these things around. And as I think about it, from first principles, there's only so much fun you can have on your own blockchain, definitely, but blockchains themselves did need to be upgraded for payments. That's one of the reasons I joined tempo. I mean, Chris, you've probably experienced this. General Purpose blockchains have a noisy neighbor problem. When a Trump meme drops, then payroll might get delayed, or settlement could be pushed back 24 hours. Now it's great to have these general purpose chains, because what you get is the ability to have programmability across different types of asset classes. We want that. That's a great thing. But as I think about it again, from the first principles of finance, we always separated the infrastructure of the cash leg from the other side of the transaction, and that broke DVP. Don't get me wrong. It wasn't perfect, but I think we can do better, and I think if we work together on that we can so that's why it's important that we're not too pointy elbowed, when this market is so small that we do invite quasi competitors to start to collaborate and really work together on some of this stuff. So it's going to be fascinating to watch. I'm going to pause us here for an ad break, bring us back in, and we're going to talk about banks in Asia. So let's do that. 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 V tap, uses smart contracts and cryptography to help banks bring fiat currencies on chain. Vtap allows financial institutions to issue Fiat back 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 episode is also brought to you by bridge a stripe company businesses need easier global money movement. Bridge is the stablecoin orchestration platform that makes it simple to receive store issue and spend using stablecoins. Companies like X, Shopify and airtm already use bridge to lower their costs, simplify their global Treasury operations and expand their global reach. Learn how you can grow your business with instant global money movement using stablecoins at bridge dot XYZ, tokenized is also sponsored by fireblocks. Fireblocks is the stablecoin infrastructure of choice for global businesses, from visa to wallpay to bridge to Revolut with over $100 billion in monthly stablecoin volume, fireblocks powers stablecoin strategies at scale with infrastructure that enables PSPs, fintechs, remitters and banks to issue move, hold and manage stablecoins. It's all done securely at scale with secure built in compliance with fireblocks, you get complete control to build your own stablecoin orchestration layer, create payment accounts, manage liquidity and access on and off ramps in over 60 currencies. Makes it easier for you to build and scale and expand your business globally. Learn more@fireblocks.com All right, thank you so much to our sponsors. I don't know if you guys saw this week, but there were a few headlines that really caught my eyes. Firstly, Japan Post Bank considered launching tokenized deposits. Korea's K bank launched its own stable coins and 77 different firms applied to issue stable coins in Hong Kong. Chris APAC is a region that keeps coming up. But do you think this region's poised for an explosion of growth, or it's where the growth has already happened? Help me understand your perspective on these stories? Yeah.
Chris Harmse 54:18
I mean, I think, you know, APAC always actually seeing great momentum. You know, I actually spent, I lived in Singapore for six months in early part of 2023 just kind of networking in the region, hiring our early team out there. So today we have four or five people on the ground in Singapore. We had the final stages of getting an MPI license from the MAS. And I think, you know, Hong Kong is leaning into getting a pragmatic you know, There's long been one in Singapore. It's taken a bit of time to kind of get through that application process, but Hong Kong's kind of brought in their own regulations. But besides that regulatory clarity that's happening in APAC, there's always been very strong demand for crypto. And when we started our business, you know, six, seven years ago, we saw a lot of demand in APAC. We were actually doing the stable coin sandwich. We would collect in Asia and settle in Europe using usdt, and it was really the only place you could do those sorts of payments at scale with liquidity. So it's actually been an epicenter of stable coin payments, in my view. And maybe kind of as the rest of the world started leaning into stable coins across Africa and LATAM and the US and Europe maybe lost a bit of a shine, but I think it's squarely back now, and we've seen a lot of demand across large enterprise customers in Asia, but also digital wallets, which obviously proliferated quite well in Asia, starting to lean into adding stable coins into their wallet. So I think it's a really exciting time in Asia, and a lot of really interesting stuff happening across the space.
Sy Taylor 55:39
Yeah, South Korea has always been a really interesting, big player in the crypto markets generally. And what's fascinating about their new administration is they are quite pro crypto in a lot of ways, but we're seeing the beginnings of financial institutions doing currencies pegged to the one the local Korean currency, but backed by US Treasuries. That's fascinating. I don't know that. I've seen that model really play out before, and this is kind of like a I guess if that did happen, it would prove Scott Besant right that there is potentially more demand for treasuries and different types of backing. We also saw the deputy from, I forget the exact title, Sarah, somebody from the Bank of England. Apologies, folks at the Bank of England announced today that they're open to looking at how your sort of UK government debt could be solid backing for a portion of stable coins in circulation. So the regulatory clarity that's coming outside the US as a result of the new US, regulatory clarity is an unlock that I didn't predict, but is truly fascinating. And Eric, obviously you've been quite close to how one state in the US is thinking about this. How should we think about this as kind of nation states level? What are the benefits to stable coins and other risks there that they should be worried about?
Eric Piscini 56:58
Yeah, I think besides the fragmentation we talked about earlier. I think the other challenge is it's part of a monetary policy as a country level, right? So do you push your own currency to be more innovative? And stablecoin is one way to be innovative, because you want to protect the sovereignty of that currency in your region, in your country. I think that's a real discussion that's happening in different places. So you can apply that at the state level, and Wyoming is a little bit of a unique situation, as we all know, but you can apply that at the country level, and that's where I think you're going to see more activity, in China, in Japan, in Europe, probably as well overall, because of the fact that many, many of those stable coins are sitting today on the US dollar.
Sy Taylor 57:47
Yeah, it really is interesting to think about the geopolitics and the currency controls. Chris, I guess there's been a lot of African states that have worried about that historically, but have you seen that sort of start to shift and change. Is there an accepting of reality going on? Is there? Is there just a lot of entrepreneurialism happening in the global south generally that? And it's pretty hard to fight that trend, and maybe you've got to wrap your arms around it a bit.
Chris Harmse 58:13
No. I mean, I think historically, we've seen governments look at the dollarization, if you want to call it that, of their economies, obviously, with heavy skepticism and unstable coins have been a technology that's accelerated that trend, and they need to respond somehow. And any African government or other government does not want to lose control of their currency and get their economy dollar highs. So I think they are leaning into, hey, what does it look like to issue my own stable coin? Be innovative, as Eric said, and maybe get that stable coin trading against the dollar stable coin. And then, you know, we've spoken before, then you start getting into the on chain FX scenario, where you can start to settle and execute at the same time, which gets quite interesting for settlement finality. And, you know, releasing some craft capital stuck in these nostro vostro accounts. So I think there's a lot of things where I do see slow movement, and maybe it will pick up some steam of nation states looking at issuing their own stable coin, getting their own stable coin on chain. You had a great blog post about bringing tokenized deposits more recently on and other things on chain, and why that made sense. So I think bringing deposits, bringing local domestic currencies on chain, and being innovative around that makes a lot of sense. And I do think secretly, or not secretly, quite openly, there's a trying to protect against dollarization of the economies as the dollar gets exported to more places around the world through stable coins, where it couldn't do that before,
Sy Taylor 59:34
yeah, the fear is the dollarization of the consumer and the domestic economy. Like the dollar was always the rail for international but that's increasingly changed. But in stable coins, the dollar dominates, so surely the way to push back against that is to ensure that your sovereign currency, and indeed your commercial paper, becomes available on chain. And that was my argument in why every bank should tokenize deposits is there's a land grab going on here. The genie doesn't go quietly back into the bottle. Now is your time to really make a difference and really get on the front foot. And indeed, it looks like tokenization is a genie that's not going back in the bottle. More broadly, I don't know if you guys saw this other story that Ondo has debuted over 100 tokenized US stocks and ETFs on Ethereum, and they also plan to expand this to 1000 tokenized securities by the year end, it's on Ethereum for now, they intend to move to BNB chain and Solana, so fascinating, fascinating story here. There is a linked one as well that in the same week, Galaxy digital announced that it would be tokenizing its listed stock using super state on Solana, so there's the direct issuance of stop certificates on chain, and then there's sort of wrapping the stops and them existing as a wrapper, but using a token on chain. So it's like a token of an ETF, which holds underlying stocks. It's it's wrappers all the way down. Your thoughts on this, Chris,
Chris Harmse 1:01:08
this one's really close to my heart. Actually, I am. I'm originally South African, as you would know, and South Africa's got, amongst other things, as far away from everything else, but also has exchange controls. It's actually quite difficult as a South African to access US domestic stocks. There's 510, years ago, it was like really difficult. It's getting a bit easier with a few newer brokers in the market and this sort of thing. But even now, you know, living abroad, getting my Interactive Brokers account opened up in the US, being able to try wire money there takes forever. Most of the time I get RFID just from the money coming in just to buy stocks even now is still a challenge for me, and I live a lot of my life on chain, whether that's payments, whether that's investing in crypto. So to just have access to us tech stocks and domestic stocks in my crypto wallet in a decentralized way, hopefully and not through a centralized platform, is super exciting for me, and I'm sure for many other people who've long looked at a US stock from a domestic perspective and just not had access. So I think it's a really cool product. And I think you're starting to see the blurring and the lines between crypto platforms becoming Neo brokers, Neo brokers becoming crypto platforms. And it's going to be interesting to see. And then companies like Ondo coming out with products like this. So I really think it's a good innovation, putting more stocks on
Speaker 1 1:02:23
chain. Yeah, we also saw the Robin Hood announced the sort of l2 version of arbitrum that's initially private, but was tokenizing stocks for Europe. But Eric, it makes me wonder again, fragmentation. Is that an issue here and or does that not matter if the audience is somebody that could never have a stock before, and now they can get access to US stock. So interested in your view, sir, I think maybe three different things, right? The first one is what you said, which is the ability to access assets that you didn't have access to before, whether it's cross border or whether it's a different type of asset that you typically don't have access to. So I think that's really interesting. So one thing we have to pay attention to
Eric Piscini 1:03:03
is, are there real stocks that you are actually owning? Right? Because what Robin Wood did, if I'm not mistaken, is they did an SPV, right? So it's actually not the stock that you own when you own that stock. So you people have to be careful when they invest in those things, because, for example, if you had a dividend associated with that stock in the context of Robin Hood, you have no guarantee that that dividend is coming to you. All right, so there is a some research to do, but I am really excited, because that's, to me, the next killer app of blockchain, right? The first one was stablecoin. The second one, to me, is the tokenization of existing assets that people understand and can suddenly access to. I think that's a really exciting development.
Sy Taylor 1:03:51
Yeah, there's the mirroring stable coins. You get access to a thing you didn't have access to before. First, you get dollars that you can hold or send or receive. Second, then maybe you get some yield on that through tokenized treasuries. And third, you get access to the US stock market. It is kind of exporting things that people didn't have. But not all tokenized stocks are created equal from a risk management perspective. Eric, your point is sage, and it mirrors a little bit of what we've seen in private markets more generally, which is the amount of SPVs going around for some of the big AI companies, for example. And there's examples I've heard of where you have an SPV of an SPV, and if you were ever to try and redeem that stock for cash and make him go liquid, or there's some liquid, what's the chain of events that needs to happen? And what are your rights and what obligations does the issuer of that SPV certificate have to you? This could get ugly right, like it could start to go wrong. So what are your thoughts here? Are we going to see this just sort of play out, or like the ETF? Will it just become like this whole other asset class that people kind of accept because. Of is accessibility,
Eric Piscini 1:05:01
yeah, I think it's a little bit ironic when you think about, I've been in this industry for 10 years, and we keep talking about decentralization, right? Decentralized, decentralized, decentralized, and that's what we are doing now, is we are actually creating centralized platform, Robinhood Ondo, and they're going to be the one controlling the keys of your assets, right? Yes, it's going to be on chain. But if they disappear, if those organizations disappear tomorrow, what happened to those SPDs? Right? That's going to be a very interesting aspect. Today. The system works because people trust the regulators in different countries. People trust the NASDAQ and the NIS and the US, they trust those entities, right? So before we get to a level of trust to those new entrants, whether it's Ondo or those, it's gonna take time before we get there. So we have to be realistic about the volume we can expect on those platforms and the level of trust they're gonna have to achieve. What's exciting to me, which is something we didn't talk much about is the liquidity piece, right? So suddenly, the liquidity of those assets is increasing dramatically, because it's 24 by seven, it's accessible anywhere in the world, and that should create a much more liquid market, which in turn is creating more value, because you can borrow and land much faster you can pay and exchange very much faster. So that liquidity aspect is sometimes something we forget to talk about when we tokenize assets. But that's a really, very important one. Yeah, the
Sy Taylor 1:06:31
24/7 and instant thing is something that, unless you've worked in markets, sounds like, yeah, of course it is. Everything's 24/7 these days, isn't it? No, definitely not. It's definitely not. Any other thoughts on this one, Chris, because I think it is interesting to watch developments there and who the earlier adopters are. You have you seen anything in your business around where this could be flowing?
Chris Harmse 1:06:54
Look, I mean, we're very payments focused in our business, but I think you guys hit the nail on the head earlier on. It's an exciting tokenizing stocks, but what form that structure takes underneath is actually, is actually quite important on what investor protections exist in the structure that's been created. And, yeah, are we just layering structures on structures? So it would be great to see some sort of regulation or guidance come out from a securities regulator to say, this is how you tokenize stocks. This is the way to do it. It's on an SPV, on an SPV, and then that product kind of getting to market. Maybe we're a few years away from that, but, yeah, I do think this trend of tokenizing everything, but this specifically, like tokenizing stocks, is a problem that's I think it's been around forever stock settlements has been a pain. T plus two finally moved to T plus one more recently, if you now have your cash, a stable coin, and your stock both on chain. You can do that execution on that settlement instantly, but same as early days of stable coins, where was the backing? Were they actually in a bank account? Were they invested in treasuries? The fight around that maybe that same dynamic is going to play out with these stocks as actually, as an SPV, on an SPV. And do you actually own the stock? And then eventually it finds its way into a decent regulatory framework which actually allows you to actually own the underlying stock, get access to those dividends, and it's just on chain. So that's kind of things that I'm watching to see how it plays out, which
Sy Taylor 1:08:12
is why I think what Rob leshner is doing with the Super state and Galaxy digital, and what they do, they're actually taking the stock on chain. It's the stock itself. It's which is exactly what we did when we dematerialized the stock certificate itself. We parked the stock certificate and we gave it a twin which was an entry into a balance on the DTCC. Well, this is that, but again, now that entry on a balance is parked, and then we're turning it into a token. And the stocks, we go all the way from the stock certificate to recording it as a token. Surely, that is the lesson from history here, is that we can change the technology, but the issuance itself, you kind of want to see that certificate somewhere else. And you've probably had this Chris and Eric as well, where, when you actually sell the US stocks, you still eventually see a photograph of the stock certificate itself, and like all of that history is still there. I don't think we're gonna get away from some of those things inside a Carter and whatever else, but it does make secondary markets very interesting
Eric Piscini 1:09:17
indeed. Yeah, hey, Simon. I think what's interesting is, what you're saying is, in that context, we have to trust the parking lot, right? The parking lot where you park your certificate is going to be the trusted entity. And today, you know, when you have a certificate of a stock, you can still do that if you want to, and you give that to someone else, right? You are supposed to go back to the issuer of that certificate, and tell that issuer that you are transferring that certificate. So you have to trust somehow, an infrastructure player, whether it's an exchange, whether it's a DTCC, you have to trust that. We don't have that yet in the tokenized world, we don't have a trusted entity who can do that for. US, which is why I think some of the incumbents are going to come out with their own solution. Because to them, it's they already has a trust aspect, and for them to adopt the technology. Yes, it's going to take more time, but they will eventually get to provide that service.
Sy Taylor 1:10:16
I think from first principles, it's really fascinating to think about the Crossing the Chasm book and your 2% early adopters and your innovators, sorry, will adopt anything. I kind of put the degens in that category that will YOLO into the latest meme coin and actively do not want anybody to trust and their crypto OpSec is unbelievable. You won't find them online, and everything's signed with a PGP key, and sort of that's how they live. That person does not necessarily represent the entire universe, and maybe we could all do better by moving that way. I do think there's something interesting about not having one single central, trusted operator of the technology, because there's this fear of platform lock in that has held back a lot of financial institutions, I think, from going fully on cloud. And they create lots of bits of market structure to centralize middle bits of back office, but we never got that core set of books and records set of accounts becoming something that was more interoperable, because you don't want to put all of that on one big central actor, because what if they have a problem? At least in my own data center, I know where it is, and so I agree with you, in one sense, that somebody like the governance role, the DTCC, plays the governance role of a swift those things are absolutely needed. You need the arbiter between us, and you need the rule book, and you need somebody playing that role. But that doesn't need to be the only operator of the technology. And I think this decentralization of validators is fascinating to sort of think about, and the fee models you start to get out of blockchain networks potentially create a more interesting, competitive dynamic that changed that sort of platform lock in story. I don't know if Eric, if that resonates for you at
Eric Piscini 1:12:07
all. Yeah, it does. And that's the pressure between decentralization and benefiting from that decentralization technology that we all have now, and the fact that historically, we've been trusting centralized authorities, right? So we have to find the right balance between those two things. We will at some point get to the right balance. But I think my point earlier was, I think it's unrealistic to expect a bunch of brand new operator to become that trusted set of parties without thinking of the incumbents. The incumbents will play a role in this, because they own the trust today, right?
Sy Taylor 1:12:45
100% I wonder, as you think about those trade offs, I was thinking about them in sort of performance and throughput versus decentralization, but I think it's also trust versus decentralization, but also the maturity of that, like, you could potentially have something that's trusted and decentralized, but it was more mature. These things just haven't been around for very long. There's also distribution versus neutrality. So, you know, like a DTCC has a lot of distribution, but sometimes it's quite nice to have a bit of neutrality in there, and a bit of competition, and you get some potential innovation there. So there are these trade offs that I don't think we're through the woods on figuring out just yet. But Chris, I'm interested in your views from the stable coin market, because you mentioned earlier that backing conversation has largely gone away for some of the top stable coins. Is that going to be a question of trust now in tokenized deposits and new assets coming to market, with everybody issuing their own stable coin. Do you think that sort of skill of being able to prove your reserves is going to be something that gets a little bit more focused, and does that look like traditional governance? Does that look on chain? What are you seeing in that sort of space? No, I
Chris Harmse 1:13:59
mean, I think it's definitely something everyone's thinking through. Everyone's thinking through is like, I think the one thing that has changed now is we do have these clear guidelines out of with the genius act and that sort of thing on if you did want to do a stable coin, whether you're a federal issue or a state level issuer, this is what you've got to do. These are the steps you've got to follow. These are the reserve attestations you have to make. I think we're seeing Hong Kong with their own stable coin legislation. You've got Mika in Europe, where you can hold, actually, bank deposits plus treasuries, or you can't hold too many treasuries, at least. So it's effective, like, you know, forcing it into bank deposits. So I think everyone's going to come out of their own way, but I don't think you're going to have a credible chance of getting any sort of scale with a newly issued stable coin if you're not following one of these frameworks, even if it's not needed by a legislator, just because these frameworks are out in one specific country. If you go launch with very opaque reserve management and that sort of thing, your stablecoin is just not going to be adopted, you know. So I think tether had that first mover advantage and were able to push the boundaries, I guess maybe arguably, in the early years of. Of of what was backed, I think that's largely gone away, and any new stable coin just won't have that credibility stamp to it if it's not able to follow one of
Sy Taylor 1:15:08
these. Well, we've already seen Christine Lagarde coming out and sort of pushing for the functional equivalence, I think, in a lot of the regulation, and really hoping that stable coins that do come out are at least closely aligned to Mika's requirement for high quality backing, whether they agree to the specific mix, as you say, of forcing people into bank deposits as a percentage of that, that might be where it varies. You know, can we get some agreement on it has to be high quality liquid assets? And under Basel, we agree, it's these things I think that's possibly doable on the multilateral level, that we could start to agree about functional equivalence. I was in Zurich earlier this year, and I know that conversation is already happening between various global regulators at the sort of the policy level. The bigger thing I would say to those policy folks, though, is if you want that outcome, then you have to start to think about the risk weighted asset allocation of financial institutions taking digital assets onto their balance sheet. It's one thing to tell banks inside a jurisdiction that it's fine for you to custody assets. It's another thing to tell you that you don't have to accept this as such a massive liability on that balance sheet in your RWA calculation, and I mean the other type of RWA, which you know, Eric, I'm sure you're familiar with it, but it might be worth kind of unpacking why that's important for institutions, for some listeners that have not had to do that before. So why it's important to not have the Basel three rules negatively impacting your risk weighted assets as a bank. So if I'm an institution and I want to start moving stable coins around or accepting stable coins, I'm potentially at a negative benefit. If I'm also a lender and I'm also trying to buy securities and I'm also trying to do a lot of things because, you know, I have a specific set of boundary conditions that are set by the Basel Committee on how many of these risky assets I can hold on my balance sheet, and stable coin or tokens, and stable coins are considered extremely high off the risk spectrum compared to what the underlying backing assets of those might be.
Eric Piscini 1:17:20
Yeah, yeah, I think you just unpacked it. Yes. Well, never mind. No, but I think, I think you have the right expertise on this topic, for sure, I would have said the exact same thing. I think it's, at some point is going to change, but today, I think it's a regulatory challenge is needed to make sure that those banks can engage into transaction with stable coin and take some risk with those different points.
Sy Taylor 1:17:43
Many years ago, I set up an organization called global digital finance for exactly this purpose, to try and harmonize some of these things. Because I think about what's happening in Korea, what's happening in Hong Kong, what's happening in Japan, and just to operate a business like Chris's, it could get extremely Whack a Mole with different regulators in the near future. Sorry, Chris, I jumped in before you did.
Chris Harmse 1:18:03
No, I was gonna say exactly what you said, that you kind of have to for these RWA weightings and that sort of thing. You have to look through the wrapper, which is the token, and to the underlying assets, and give that the same weight. Otherwise you don't get the benefit of having these things on balance sheet and the liquidity that banks could bring to the market, you know what?
Eric Piscini 1:18:20
And I think that's why innovation is happening outside of banks, because, you know, if you're not a bank and you're not under basal three, then you can actually create stable coins, and you can actually make some some risky activities on those stable coins. You're still not a bank, but you can actually do much more innovation because of that. So that's that's why banks, historically, are sometimes struggling to innovate because they have to comply with a set of regulation that an innovator doesn't have to.
Sy Taylor 1:18:49
Yeah, it's interesting. That's, I think, why you've seen banks also experimenting with tokenized deposits. First, the amount of banks that will actually, they'll redeem Fiat, and it'll help you hold a Fiat balance, but it's so called mint and other services like that in the market that really do the conversion into tokens, and that's where a lot of that happens. I think you guys do it as well, Chris, if I'm not mistaken, and help people create tokens against deposits. It's these other licensed entities. Is not the financial institutions that do that, and until that moves, they probably won't. But tokenizing deposits is a different thing, because there's a deposit, they've already got that thing. And tokenizing a deposit, as we've said before, is relatively simple. The deposit just stays there. It just gets a digital twin that gets to move around. How you make that private secure is a whole other thing. Well, jet, is there anything else I haven't asked you today that we think we should cover off, because I'm conscious we're coming close on time. And there's always, there's always a lot happening in the digital asset and the tokenization space. What's on your mind? Chris, what's on your mind?
Chris Harmse 1:19:52
Eric, no, I think it's been a great conversation. You know, I am keeping this key eye on this tokenized stocks. I think it's a really interesting story. And I. I can say close to the heart. So let's see.
Sy Taylor 1:20:02
Yeah, I'm pulling for you, man. Hopefully those apps are going to be doing it. I'm going down the rabbit hole researching some of the stable coin linked cards that are out there and some of the defi cards. There's some very interesting credit cards out there, yes, from Coinbase and Robin Hood, but also from ether fi and some on Solana as well. There's some really interesting product innovation that looks like FinTech, but that feels a little bit different. So I'm excited for it all. Eric, if people want to learn more about what you're doing, how do they get hold of you and how do they find out more about the work you're doing?
Eric Piscini 1:20:33
So I'm the CEO of Ashcraft, which is the lab team behind adera, and you can find a lot of information about adera@adera.com you can find us on LinkedIn and Twitter and many other platforms. If you want to talk to me, I'm at eric@ashgraph.com and you can find me on Twitter as well and LinkedIn and other platforms. Sorry, that's it,
Sy Taylor 1:20:56
Eric, genuine pleasure having you on Chris. How about you? You can find us@bvnk.com
Chris Harmse 1:21:01
and if you want to, I'm most active on LinkedIn, so at Chris harms on LinkedIn,
Sy Taylor 1:21:05
you'll find me at sy Taylor on Twitter and Simon Taylor on LinkedIn, you'll also find me on the show same time next week. So we hope you'll go ahead and hit that subscribe button. You'll leave us a review, you'll tell all your friends to listen to this show, and maybe one day when Chris is back, we'll find out how his tokenized stocks journey is getting on for him. Please, please, please, do leave a review. It helps others find the show. Thank you so much, and bye for now.