The Distribution Problem: Tokenization's Next Bottleneck

Transcript

Tokenization is stuck in 1985. I know we're at Token 2049. We have billions of dollars of stablecoins. We have instant settlement, 24/7 networks. Tokenization is up and to the right, and it's not stopping anytime soon, but it is stuck multi-decades before we are where we are today. So, let's take you back to 1985. You wanted to invest in a fund. What did you do? You pick up the phone. You call your broker.

Hopefully, they would pick up. When they did, you'd say, "Hey, I want to buy 100 shares of this fund." You would only have a limited menu of options that you were aware of that you would be able to invest in based off of the relationships that you had. Now, part of that transaction was a pretty big, hefty fee for the broker that was picking up the phone. Settlement took just about T plus 5, and you would actually get a receipt, a certificate in the mail representing what you held in the fund.

That's what tokenization looks like today. Extremely fragmented, disparate access points, and investors have to come to you. Superstate is a platform that brings the largest asset managers on the planet on chain, and yet distribution is still highly fragmented to Superstate's portal, to various other channels, and the discovery process for investors looks a lot like 1985. Now, in 40 years from 1985 to 2025, TradFi built way better pipes than what we knew 40 plus years ago.

The products have evolved alongside these pipes, but really distribution is what brought the financial markets to where we stand today. So, back in '86, there was like 15 transactions happening on a daily basis in a platform called FundServ, which basically automated what I described earlier. To now, we're sitting at about 300,000 transactions a day. Schwab built OneSource, basically a shelf of many different funds in a single aggregate portal, and that started out at 1.6 billion dollars of transactions or volume every year, and rose very rapidly over the 30 years

thereafter to supporting 200 billion dollars of annual volume. Back in the early '90s, only about a third of American households held funds. That has increased to over half of the population today, and throughout all of that made the asset management giants that we all know and love in today's modern era, the giants that they became because of the better pipes that brought investors to all of those issuers, which is a lot of hard work that was developed, and tokenization is still stuck in this electronic or in this paper-based system today.

not an overnight success. In the crypto market, it's very much the same as I mentioned. Hand-to-hand combat. Investors have to go and find us. Superstate has a beautiful, elegant portal. You should all go and check it out. And the asset managers that we work with have fantastic products. They're highly sophisticated and use blockchain rails to be able to reach investors, but it is still very much a manual hand-to-hand combat process. Investors have to discover. They have to say, "I'm looking for this particular type of investment." They have to onboard. That onboarding is not entirely streamlined in a very broad, highly accessible manner.

They have to whitelist their wallets. They've got to bridge assets from one chain to another. They've got to hold those assets on, you know, various blockchains. And you know, it takes five hops to get there. And throughout each one of those different hops is a point in the chain where demand drops off. The attrition is extremely high, and the friction is extremely extremely high. That's 1985. That's where tokenization is today. Now, supply is a done deal. I think if you look back a few years ago, the question was, "Will the largest asset managers on the planet, the largest banks, the largest institutions, will they care about tokenization?"

Well, that's largely been solved. Superstate partners with Invesco, with Bitwise, with Coinbase Asset Management, and a many other asset managers. But if you look across the space, BlackRock, Fidelity, Apollo, WisdomTree, Goldman Sachs, the largest financial institutions are realizing that there's a major platform shift in financial services going on chain. And so, the supply side has largely been sorted. Those issuers realize that there is opportunity to reach investors all around the globe, to optimize the products that they build, and to change the way that they manufacture and distribute products.

So, now that they're all here, what happens next? The distribution, you know, in tokenization is still stuck 40 years ago. Products have been built. Tokenized treasuries, funds, stocks, you name it. Basically, every asset asset class is coming on chain to meet the demand for international investors and the utility that tokenization provides. But, it's entirely scattered. You have disparate access all over the place with the platforms and the products basically making investors come to them.

That will not be the phase that the way that the future operates. And we've already seen this play out for 40 years in traditional finance, the pipes got built, and the products found themselves on their way to investors versus the other way around. So, there's really no shelf. There is a lot of products that exist, but the storefront is still lacking. And the gatekeepers in traditional markets, there's a lot of gatekeepers, whether it's the financial advisors, the model portfolios, the institutional allocators. They're all still really under trying to understand what is tokenization. They don't have access to these in a very streamlined embedded way that they would expect for all of their assets. And so, we need to

change that. There's two parallel paths that are happening here. And you look at tokenized products that are built, you know, very viable ways of bringing asset managers on chain. So, the path one that I view that I see is that crypto just gets bigger and bigger. You have very large established uh products in the crypto markets, call it the Metamasks of the world, the Phantoms of the world. Robinhood is building on chain. Anchorage, BitGo, Coinbase, OKX, Kraken, all these large financial applications are building connectivity to tokenized products. That is an extremely exciting opportunity for

all of us in the crypto crypto industry to be able to reach investors and bring traditional products into those channels that by and large did not exist until very recently. The other path is the traditional world. That's where trillions and trillions of dollars sit in traditional brokerage accounts and endowments and pensions and big banks and broker dealers and they're all starting to embed crypto products into them into their platforms as well, too. Schwab allows people to trade crypto.

Robinhood allows people to trade crypto. There's a number of uh interesting opportunities that folks like the NASDAQ and the DTCC and the New York Stock Exchange are all building connectivity to blockchain rails for traditional assets. And so my view is that there are two parallel paths, but there's convergence amongst the rails and the products in the tokenized space with traditional capital markets. Now, the good news for everybody that's here who are most likely extremely crypto native, either way we win.

And that means it doesn't matter if the crypto distribution platforms continue to get bigger, that means that traditional products can go into those channels. If the traditional products and channels get, you know, connectivity to tokenized assets, distribution is what matters in financial services and in basically every market. And most likely I think both of these are happening at once. But regardless, either way tokenization will win. The only losing move is acting like it's not 1985 and waiting for investors to come to you and instead go bring your products to customers.

talked about this time scale, 40 years. There was a lot of work that was done one pipe at a time. TradFi built better rails. From the broker on the phone to the super app that's now in your pocket, I mean, 40 years is a very long time. We don't get to have 40 years in crypto. We're going to do this in four. And it's because we're not inventing the playbook. We're just going to run it. We've seen it. We know how it works. And there is an opportunity to compress the timeline that traditional financial markets took in crypto to a lot shorter time scale. Crypto loves to be, uh, you know, extremely fast and high

velocity. And I think we will also build a connectivity in a much more compressed timeline than the traditional uh, markets did historically. here's my ask. For everybody that's here, stop waiting for investors to find you. You're not going to find them walking around this room. You need to go out and build for them. You need to go build for the pipes. You need to plug into where the capital already lives. And don't wait for it to come on chain. Build experiences that are embedded inside of the largest distribution channels on the planet and bring products into those markets.

Bring traditional financial assets into the existing applications in crypto today as well, too. That convergence. These are two parallel paths that will ultimately re- result in one financial system on chain. And, you know, the last time that distribution was unlocked from 1985 to 2025, trillions of dollars got unlocked. It's about to happen again. And everybody here in this room gets to decide who builds it. Let's get out of 1985. Thank you for your time.