Don’t Build Trading Venues. Build Onchain Capital Markets

Transcript

Awesome. Hello everyone. Very happy to be here. My name is Val guy. I am the general manager of X stocks. Tokenized equities available globally. So I want to ask a question. Why does the market close? Literally, why does the market close? Every Friday at 4:00 p.m. The New York Stock Exchange, NASDAQ, they shut down their doors.

This happens globally for the other exchanges as well. And hundred trillion dollars of global equity value just stops moving. If you spent any time in the crypto space and you've built in the crypto space, this feels completely irrational. We've built systems that run 24/7. We've built markets that never sleep. And we've built infrastructure that settles in seconds, not days.

And yet, the most important financial asset in the world, equities, still operate on a schedule designed for paper people physical constraints. It's an architectural limitation that until recently you couldn't do anything about. Not because you didn't have any ideas, but because you didn't have access to the asset itself. In 2015, Ethereum gave us programmable money.

DeFi gave us a way to start and program liquidity. And now tokenized equities expand that same logic to the largest asset class in the world. It changes the game. Because for the first time equities are not just something you trade, but something that you can build with. I worry that a lot of people are going to make a mistake when they think about tokenized equities. They'll see tokenized equities as a better interface, as [snorts] a superior trading venue.

It's definitely going to be that. No doubt about that. But that framing is is just too small. If all we do is rebuild trading apps on chain, I think that we'll have missed the point entirely. The real unlock isn't just better venues. It's about unlocking programmable markets for the largest asset class in the world. Markets where the asset itself behaves like software. Markets that are permissionless and where equities are ERC-20 tokens and behave the same way.

I think instead of asking how do we trade equities on chain, we have to make sure that we are asking now that equities are on chain, what do we build? Let's be precise about what's broken. And I'm not sure that broken is necessarily the right word, but let's be precise about what the world looks like today. Traditional equity markets are not a single system. It's a stack of players that build an ecosystem. Custodians, clearing houses, brokers, settlement layers.

All of these are stitched together through batch processes, legal agreements, APIs. [snorts] But they all still lead to delays, T+1 settlement, delayed finality, counterparty risk. No composability, right? You can't program an Apple stock. You can't plug it into a protocol. You can't call a function to it. Innovation today happens at the edge of the system, at the asset layer. Think about in the traditional finance world, one of the most recent innovations that got rolled out, fractional shares.

All of that happens at the broker level. The brokers themselves are buying these shares and fractionalizing them for their clients. It can't happen at the asset layer. That's because of the lack of programmability, composability of traditional assets. I want to dive in a little bit more on this piece specifically cuz it's it's very very important. And this ecosystem is very important. This ecosystem was built with a T+1 settlement in mind.

As we talk to more and more institutions about starting to tokenize assets, using tokenized equities as part of their flow, one of the things they continue to bring up is the importance of capital efficiency. These institutions are moving hundreds of millions of dollars uh in single transactions. Massive. And so capital efficiency is one of the most important aspects of how they think about their operations. They don't want capital just hanging out there.

You would think that with tokenization, they'd be all about it. They would adopt this wholesale. A token, atomic settlement, the atomicity of tokens means it's the most capital efficient. But in fact, it's actually the opposite thing. All these institutions were built with this in mind. They spent decades trying to build their systems to account for T+1 settlement. And so what happens is as we move into a new world of tokenization, there's actually pushback from these exact same institutions that would benefit the most.

Look at something like uh money market funds. They're used by many institutions as one of the uh settlement pieces in between trades where a trade might take one or two days to settle. They put these funds into a money market fund so that they can gain yield. These products pretty much exist just to support T+1 or T+2 settlement. Or look at organizations like the DTCC. Very critical, important organization that helps uh uh settlement and clearing for every player that is um trading equities.

Built really just as an insurance mechanism for counterparty risk on settlement. These are all important aspects of the organization that are embedded into how equities are traded today. And so when you go to large institutions and you say, "Hey, we can fix this for you." Yes, they get excited, but they look at the sunk cost that they've spent decades and billions of dollars building into today, and they get a little bit concerned. It takes months if not years for a lot of these institutions to change their process, to rethink about what their flows will look like, capital flows will look like, to think about new risks, and learn about the new risks that are

introduced by things like tokenization, to think about um how they should settle and what they should uh and who should who they should be working with. These are all important aspects that we need to think about as we move into tokenization. And so what we've done is built X stocks to help change this whole paradigm. X stocks, fully backed one-to-one, issued on chain, designed to be interoperable between wallets blockchains protocols platforms everywhere.

It's not just synthetic exposure. It's not just derivatives. It's my asset represented on chain. And importantly, it behaves like a token, the same way that you'd expect. It's permissionless. It's composable. It's a new type of primitive and a building block that will allow us to continue building. So we're at ECC. It's worth being explicit about this because X stocks didn't actually start on Ethereum. We initially launched X stocks on Solana and we've seen great growth there.

It's an ecosystem that has proven that there is real demand for tokenized equities. But from day one, X stocks was designed to be neutral and multi-chain. We think that is important and critical to uh to this succeeding. If you believe that equities are going on chain, you have to go to where liquidity is today. That's why we're here. When you think about settlement for global capital markets, when you think about composability, credible neutrality, and the most uh uh evolved DeFi stack in the world, you have to look and think about Ethereum.

And what to build and how to build on Ethereum. It has deep liquidity. It has battle-tested infrastructure. It's one of the most sophisticated lending and derivatives ecosystem in DeFi. And importantly, it has standards. ERC-20 is means that X stocks can plug in anywhere natively without needing to do custom work. It's this that gives institutions the confidence to bring real capital to work on chain.

So the answer is not theoretical anymore. X stocks is an area where trading happens, where things are being built. Over 30 billion dollars in volume has been processed so far. 5 billion of that has been on chain. There's over 100,000 wallets that are holding this before. And this is even before we have the most important new products built around these equities. There's massive global demand for these equities, even though the ecosystem is still being built. That's incredible.

And then you have traditional players. Payward, who's a parent company of of Kraken and XStocks, which is partnered with Nasdaq. Nasdaq is coming on chain. They saw what we were doing and they said, "We want to be a part of this." Nasdaq is building their tokenization framework. That is different than what XStocks is. They want to build a permission chain that they can that they can control within a walled garden.

Great. That's exciting. What we're going to do with XStocks is allow that token to come into the XStocks ecosystem and be interoperable as a DeFi token through XStocks. And so all of a sudden institutional players are starting to think about how they want to engage with DeFi ecosystems. It's no longer just crypto verse TradFi. There's a convergence. For a lot of people that have been in crypto for a very long time, that's a little bit scary.

But this is the moment where we can start to influence how global financial systems end up working. Not in parallel with crypto, but together with TradFi. So what does this unlock? Well, we kind of think about different types of builders within the space in the ecosystem. There's financial engineers. They're using equities to build lending markets, use it as collateral, structured products on real-world assets. There are the product builders.

They They're creating the intuitive experiences. They're taking and abstracting the complexity of the markets away from users to make it very easy for a user to do what it is that they're trying to do. And then there's the strategy engineers. They're the ones building automated portfolios. They're the ones that are thinking about, "How do we build systems for investment?" So that these trades can happen and execute. And these three builders will have to come together to help build the infrastructure to support this. It's different approaches, but the outcomes will be spectacular.

Equities are not just things that you trade. Now they're primitives. Now they're things that you can build on top of. As you combine it with DeFi, ERC-20 means that DeFi is a massive part of this. You can borrow against these tokens on chain. You can build automated strategies with them. You can integrate them into existing protocols. They're permissionless. You can self-custody or take it anywhere that you want. You don't have to ask permission anymore. Think about this. Equities historically have been one of the most permissioned asset classes in existence.

Even when you look at what traditional players, Nasdaq and New York Stock Exchange, are building in the equity space, they're moving forward, but it's still in a very permissioned environment. We're working to bring all of this on chain. And so coming back to the core conversation that I want to have this week and as part of this talk, we shouldn't just be building trading venues. We will be building those, for sure, but that's not the whole picture. We're trying to build on chain capital markets.

We not just want to allow people to trade, but we want price discovery to happen on chain. That's when things get really exciting. A market is a system, and so we have to think about the full stack today and how we can collapse that using the technology that we have available to us in crypto, on chain, and with tokenization. And I think that the builders that find the most success won't just create another place to buy and sell, but they'll be the ones who rethink what ownership should look like. What investment look like. What is the market structure and how does that change in this new paradigm?

Now that the assets underlying are programmable, it opens up a world of ways to engage with them. And so I'll sort of end where I started. Uh why do markets shut down? Used to have to. The infrastructure required it. That's what the infrastructure was built for. Um humans needed to reconcile systems that couldn't reconcile themselves. That's way in the past now. We're actually way past the point where we can use technology to reconcile these systems.

TradFi has a tendency to move slowly. Uh crypto does not. And so we're at a point now where that world is gone and it's not coming back. The infrastructure doesn't need to sleep anymore. Settlement doesn't need to sleep. Liquidity doesn't need to sleep. It already doesn't sleep in most of crypto. And so for the full first time, equities don't have to sleep either. So XStocks is live. It's growing on the Ethereum chain.

Assets are already on chain. The market's already open. The question is not whether this shift is happening. It's definitely happening. The question is, what are we building in a world where markets never close and how does that change things? Thank you. Happy to do some Q&A uh for a couple minutes. 2 minutes. Hi. Thank you for the presentation.

Really great. This is exactly what I've been waiting for to happen on chain. Yes. But >> [laughter] >> my question is, if I want to buy, let's say uh half a million of uh Nvidia stock uh using uh Dex on chain, uh what I mean, is this possible? What does it take for this to happen? And when I'll be able to do that? It's a great question. Half a billion you said? million. Yeah, at least at least half a billion as the as the order. Half a million, I think even in traditional markets today would probably have some price implication and movement. Um but but the general principles are the same no matter what.

So it's all tied to liquidity. Right now at XStocks, we have maybe 300 million dollars worth of liquidity on chain. They are tend to be compressed in the top 10 names. People all want Nvidia, Tesla, Apple, Google, a couple others, Meta. Um and so there you can there's deep liquidity and you can make large orders. Not half a billion, but you can make million-dollar orders and have very little slippage. On the assets where are more long tail, for example, we have Home Depot on chain.

Turns out the crypto world doesn't want to buy Home Depot. And so there's not a lot of liquidity that's available on chain today there. So that's when you'll start to get uh large slippage. One of the things that we recently launched is an RFQ model for um purchases that allows one to do much larger orders and it's actually relying on the available liquidity of the underlying asset, so Home Depot traditional, as opposed to Home Depot XStock, to make the purchase, which now means that you're actually pulling from a larger liquidity pool. You're actually pulling from the TradFi liquidity pools, which right now are much larger, and pulling that into this ecosystem. So

those orders you can do up to, I think as of today it's [clears throat] 1 or 2 million dollars, soon to be up to 5 million dollars without without any real slippage. So as these things evolve and as more liquidity comes on chain, you'll be able to do more of these very, very large orders. Um it takes time. It takes time to bootstrap liquidity. Great question, though. Oh, sorry. We don't have time for more questions. No, no more time? Okay. I'll I'll come up I'll come to you after. Thank you. Thanks, everyone.