DAPPCON 2025: The xStocks standard: DeFi-ready neutral tokenized stocks - David Henderson

Transcript

Hi folks. Uh yeah, I'm David from Backed, head of growth among many other things. Wear many hats. Uh oh, I don't have a clicker on here. Thank you. Um yeah, so we've been in the space for a very long time now issuing real world assets. Um we were one of the first to do it. We started issuing I think two years ago, but we've been in the game for maybe four doing a lot of R&D and making sure we are issuing products which actually make sense for people. And we recently launched a new brand to make sure this mission continues on and we accelerate this. And we're issuing 50 of the highest volume US equities on day one as new tokenized

stocks in collaboration with Kraken as our day one distribution partner. Um, for a very long time, distribution of these assets has always been probably the biggest hurdle. And we think we have a real solution to that now. And we're excited to work with many new exchanges, fiat on and off ramps, and everything to make sure uh these assets get into the hands of people that need them. So, our bet is that tokenized stocks are the next big thing for crypto. And why do we think this? Because a lot of people called us crazy. Maybe you're thinking we're crazy right now. Um, but probably the easiest way to think about this is the analogy between tokenized

equities and stable coins. So, stable coins, many people argue were the first real product market fit for crypto, right? Some would argue it was Bitcoin, but many say it was stable coins. And I can see why. They're moving trillions of dollars all the time, and they're just I mean, I get paid on chain, right? It took a while, but I eventually decided to get paid on chain. And I think anything that changes user behavior is when you start to see product market fit, especially on a mass scale.

Um, stable coins, basically the way they rolled out was cryptonatives and then to people with maybe restricted dollar access in places like Turkey or whatever where they have unstable currencies. But now we're starting to get to the point where companies across the world were starting to see it as just a straight up Rails improvement. It took a while, but they did get there. Um, just the other day I saw we had Amazon and Walmart and I'm saying they want to develop their own stable coins because it's just an easier way to move money around. Um, and it started off as just yeah something for cryptonatives to trade easier.

So let's take this analogy and take it to tokenized stocks instead. And it's the same way we imagine the adoption, right? So to begin with, crypton natives, we've started to see crypton natives use our assets on dexes, LP, and even starting to borrow against them. And that's excellent, and we want that. It also uh avoids offramping and all this other annoying stuff. And I'm looking forward to the day my behavior changes and I'm getting all of my equities onchain instead of offchain. Right? Once again, this behavior change.

The same with geography. There's a lot of the world's um underbanked or underserved economically um that don't have access to the US stock market or other wealth building opportunities. And we think having these onchain helps to solve that. And it's one of the reasons we're working so hard with centralized exchanges to make sure we can tap into their user base and make sure they're distributed to the people that will actually benefit from this. And then we're not there yet and we don't see it on the horizon yet, but the idea is eventually we will get to this point where we have this Rails improvement as well. And it becomes obvious just as it is with stable coins

now that this is just a better way to move financial products around. Why did stable coins continuing as to as to why they worked? They were easy to bootstrap. They have incredibly liquid underlying assets and they have super straightforward price discovery, right? You can make all of these exact same promises, well analogies except for maybe the first, but that's another story. Um, about tokenizing equities. Um, you have extremely liquid underlyings. You have massive capital markets moving things like Tesla, Nvidia around in trillions and trillions of dollars a day. And you have excellent price discovery, excellent offchain

price discovery, which starts to make us think, okay, if these are actually very similar products at the end of the day, or at least there's there's a lot of an analogies between stable coins and tokenized stocks, why can't we just do it the same way? And that's basically what we've envisioned and what we're building. So the mission and the vision was always to make sure that we can trade these tokens permissionlessly like any other tokens or at least as permission permissionlessly as a stable coin. As much as there's a lot of promise for onchain ID and permission pools and all of this stuff, in our opinion, it's still quite far away and we want to

build this now and start experimenting and figuring out the best way that this can change people's behavior and change the way people invest on chain. So that's exactly what we did. took two years of R&D, 15 lawyers, um, a lot of cigarettes and coffee to keep them awake, obviously, and we ended up being fully regulated in Europe and being able to issue a permissionless financial products on blockchains that right now are on DEXes, on EVM chains. You can go and you can get them from a DEX right now. You could take some tokenized Coinbase stock if you want and plug it into Morpho and we have a market for that right now. Um and yeah, it was always very important for us to work

within regulation and not skirt around it. Um and it's led us to this situation where we can work with centralized exchanges. We do have a real pathway to reselling to retail which is excellent. This is exactly what we wanted to do. And another part of the vision was we saw the mistakes in the past of having synthetic tokenized stocks on chain and we did not want a repeat of that whatsoever. So it was important for us to always have onetoone backing um so that each token is always one to one redeemable for a collateral we have in a custody account.

So, as I touched on before, the overall vision is that I want to be able to say to a crypto native, hey, you can buy your stocks on chain. You can get stock exposure on chain, you can do that. But at the same time, I want to tell my dad that he can do it and he doesn't need a wallet or to figure all of that out. And fundamentally, I've always thought that, you know, CEX's we maybe take it for granted as crypton natives. Maybe we use decentralized exchanges a lot or you know whatever. CEXs for a lot of retail users are the way they access stuff and we cannot discount that. So from the very start the product had to be able to be integrable into both has to be 24/7 available. Um these tokens are built on top of the

underlying and as such can be traded over weekends outside of market hours and that leads for very interesting financial activities in pools for example over the weekend when the prices aren't tracking. Um yeah and the ability to react to news when you know the markets are closed and also we wanted to have worldwide distribution of this. We're not quite there yet. We still definitely do not market or sell to US persons. Um, but thankfully with this partnership with many of these exchanges we're we're talking to and specifically with Kraken, we're getting these into the hands of people all over the world. Even just the simplicity of being able to self-custody an XSTO and say you're in a country and

the exchange you bought it from shuts down. Okay, you have this in your own wallet. You can go to another exchange and sell it there or you can go through a decentralized group. Even the ability to do that is a major selling point for many people. And I think further to that, having all of this allows and especially the permissionless aspect, the integration into decentralized um exchanges allows for new products to be built onto that. And I think the most obvious case study for this is Oh, my ball got taken away again. Oh well.

I think the most obvious um use case for this is decentralized lending markets and the power that they will have when tokenized stocks are integrated into these. So, as I mentioned earlier, we already do this um and we're advancing this in a big way in a couple weeks uh when we when we go live with with all of this. Um you know, if big daddy Bezos, he wants some cash, he doesn't, you know, liquidate his stocks. he takes out a loan because why would he do anything else? He can avoid the capital gains tax. It's um just easier for him. It makes more sense. If I want to do that, that's not really a possibility, right?

I don't have a fat enough brokerage account to do that definitely. And to actually have the connections um to get that or you know, I'm probably going to get an awful rate even if I did manage to find a way. Whereas if I've got some ETH on chain, even $100, whatever, I can take a loan out against that. I've done that with tokenized Coinbase stock. I can take it. I can go to Morpho. It's completely disintermediated and I can take it a loan against that. The world right now is hooked on um paying three unsecured lending all of this stuff. The bubble is eventually going to burst, but people still want to like build extensions on onto their houses or find deposits for homes. What if instead you could do secured lending against this

stuff? you know, you're still investing in your S&P 500 ETF every month. Hey, I'm short on a deposit for my dream house. Instead of liquidating this and paying tax or whatever, I can take out a loan against it in a decentralized manner. And then great, I have some liquidity and I'm still I've still got exposure to that asset. I've not decided to sell. I'm still investing in my future. And that's just the beginning. That's probably the most obvious use case that we can think of. But we're already speaking to many builders who are already building on top of this in new ways and figuring out ways to use these XOX building blocks to build things like PERS and onchain options, onchain indices and leverage vaults. And it's very straightforward to build all this.

It's essentially the same way you would build like a leveraged ETH token or onchain indices for I know reserve protocol are doing a lot around that um and onchain perks and options. they'll come down the line. We need to figure out more liquidity first. But it's the exact same way you would build any financial product just in a decentralized and open way with transparency right on chain. And fundamentally we are just issuers like we are very focused. We get asked to tokenize many cool interesting things like real estate or boats or watches or whatever and that's really interesting.

Great. But for us, we want to tokenize the most liquid stocks in the world and do it as well as possible. We're not going to build exchanges, dexes, lending markets. We want other people to do that. And you know, you don't go to Circle or Tether to say, "Hey, I want to integrate USDC or USDT." You just do it. So, you can just do it. and integrate Xbox into your app. And please, we want to see that. And equally, get in touch with us. We'll help you and give you any insights you need on how to make that happen.

We're building what we're calling the Xbox Alliance right now. We've got Kraken, Salana, Alchemy Pay, Nosis, and many others along the way that will be joining this to help us make sure that when we're doing this uh build, bringing stocks onchain uh that they are truly neutral, that they are not favoritized by any sort of exchange, any sort of chain. No, these these need to be for the for the sake of the user and stopping liquidity fragmentation. These need to be accepted everywhere possible or else we don't have that critical mass of liquidity and usability that will

make changes in users behavior. So we're working with many centralized exchanges, market makers, and a key thing for us is that this has to use existing DeFi infrastructure and existing chains. rejecting the idea of RWAFI permission pools, all of this stuff. It's it's going to be very useful, I'm sure, at some point. But right now, we have apps that work. We have builders who are building excellent products. Let's use those. Let's not build new chains. Let's use the chains we already have.

We think this makes much more sense and has been fundamental to our vision from the the very beginning. And at the end of the day, we have this shared goal of bringing trading volume from Tradfi to crypto. We're not trying to, you know, take volume away from anyone else or, you know, we want this to be completely consolidated between centralized exchanges, decentralized exchanges, and making sure we're taking away from Tradfy, bringing it to crypto, and not encroaching on anyone else. So, yeah, that's about it. covered the XTO's vision, what we're trying to do, how we're going to get there. Um, we will be launching in a few weeks with global distribution by Kraken. Um, also

extremely large amounts of distribution via uh onchain venues on Salana, which I cannot name yet, but we're almost there. Coming to EVM as soon as possible. Uh we have a very long-standing relationship with Nosis and they've they've backed us for a very long time and we're excited to finally be on the next steps of making all of this a reality. Um yeah, and we think this is what investing looks like when it's designed for everyone. [Applause] Any questions for David?

Wow. in-house question asker. There's a law of practice. Hi, thank you. So, I have a very simple question, I guess. So, let's say that I've been buying uh you know S&P 500 ETFs on just through my regular web to bank for the last 10 years and I you convinced me I want to move all of those onchain. Can I just do that or do I have to sell them first and then kind of move them uh onchain and sort of pay taxes along the way? Okay, first I'm not a tax adviser so I could not possibly comment on that part of it. However, we are right now the way we issue and redeem is we take

stable coins. However, we are starting to work with very large institutions that want to move these shares onchain by just transferring to a custody account. Um, so we can do that. It's not open to the public yet. We need to kind of figure out how to scale that because it takes a very long time. Um, for these, you know, interbank shares transfers, cross country shares transfers. They're complicated, but it is something you could do. As for the the tax thing, I'm not a tax adviser, but I think in my jurisdiction, at least in the UK, if I did that, I would maybe still have to pay tax. Um, in some jurisdictions, you may not because it's

asset to asset. As I say, I'm not a tax adviser. Your mileage may vary. I have a quick question. Yeah. Uh the the one thing that's really kept me from taking out a loan against my assets is uh smart contract risk. So with X stocks is it you said it's securitized, right? So uh does that mitigate the smart contract risk? Like are you uh is there insurance? Sorry, did you say something about securitization or Yeah, I I probably I I don't know really a lot about, you know, loans and and stuff like that. I I probably am not understanding the the

the the use of the word securitized probably correctly, but is there smart contract risk uh when taking out a loan with XTOX? Um I guess any interaction onchain will always inherently have some smart contract risk. I'm trying to cast my mind back to a time when there's been a problem in say Morpho A that's led to like a a major exploit that would that would constitute what you describe as a smart contract risk. Um I guess if you're trying to bring in the angle about securitization and how the legal structure impacts your rights over say if there was a problem um we have had situations where users

have lost access to their tokens through buggy smart contracts or whatever as you say and we've actually been compelled through legal re uh legal roots uh through Swiss courts to basically burn these tokens and mint new ones because they've proven that they were the beneficial owner of these assets. They lost access because of a buggy smart contract and as such they are still the owner. They've just lost access. Please burn these tokens and mint new ones. Now, we can't just do that. We need a court to compel us to do that. But fundamentally, these tokens, they aren't just, you know, thin air. They are real legal guarantees, uh, real financial

products. Essentially, it's just the blockchain is the way we define ownership. Um, and yeah, if you lose access to your tokens and you can convince a court, hey, I actually just lost access because of a hack or something like that. Yeah, there are powers in these tokens to freeze them, mint new ones if there is a disaster or something like that. Um, so yeah, there might be some mitigation there, but there is always going to be some smart contract risk, I guess, would be. And and what does constitute a securitized loan? What what does that mean?

Um, so maybe I'm misunderstanding the question slightly on like a securitized loan. Um, but you know, when I say like borrowing or if I'm borrowing against an XTO, it's as simple as do you know what a is? Yeah. Yeah. Yeah. It would be as simple as putting your ETH into A and getting USDC back. So that's that's that's what you meant by securitized in in the context of your presentation. I I don't think I said that word. I can't remember saying it to be honest, but um using your using your tokenized securities to take out loans. Okay. On chain. Yeah. Yeah. Yeah. Does that make sense? Yeah. Okay. Cheers.

Great. Any any other questions? Well, I think everyone's very tired. I think so, too. Thank you so much, David. Cheers. Thank you.