Fireside Chat: Ethereum as the Settlement Layer for 24/7 Markets with Shiliang Tang and Ayesha Kiani

Transcript

[applause] >> So, if anyone guessed it in the room, uh yes, Shiliang is my boss. And I have had the pleasure of working with him for 7 years. And this is my first time I'm getting the option and the chance to interview him. All things markets and obviously all things uh Ethereum. Um so, let's get started, right? Traditional finance is kind of like, you know, your 8:30 to 4:00 system, uh but blockchains are not. And Ethereum has quietly become the settlement layer.

Uh we've seen the stablecoin growth, we've seen tokenized treasuries, obviously decentralized exchanges and DeFi. So, when we say Ethereum enables the 27 24/7 global markets, what does that actually look like in practice today? And how is it different from like, let's say, forex markets? >> Yeah, um so so I think a big distinction is talking about trading markets and settlement. Um and I think that's where it differs, right? Like, forex markets are already 24/7 trading, but it is not, you know, instant 24/7 settlement, right? Like, when you settle after a

trade, a lot of it still depends on traditional banking, right? Like, correspondent bonds banking or Swift messages or settlement windows that could still take 1 or 2 days. Whereas, you know, settlement on Ethereum, by definition, uh is you know, final and uh instant, right? So, I think that's a major difference. And so, what does that look like uh in practice, right? Probably it looks like you have trillions of dollars of stablecoins being transferred on annual basis uh pertaining to this.

Um it means, you know, anyone from anywhere in the world uh can now access these uh markets uh on a 24/7 basis. Um it means capital or collateral uh that's tokenized can now be uh used and and fungible and and transferred on a Saturday. Uh uh as opposed to, you know, traditional rails, uh which unlocks a lot of, you know, capital efficiency and and new forms of risk management that I think doesn't exist, right? Um so, I think those are the the main differences, but but the main thing to keep in mind is is trading and

settlement are fundamentally, you know, different. >> So, given that, you know, Ethereum is the settlement layer at this point, right? We've seen a lot of institutions moving towards tokenizing, you know, real-world assets, uh money market funds, treasuries, and even private credit at this point. Um what do you think is driving the institutional interest? And could it be the 24/7 aspect, the programmability, the liquidity? Where do you think the primarily interest is coming from?

>> Yeah, I think I think it's a combination of all of those points that you uh brought up, right? I think one is, you know, hopefully, fingers crossed, like regulatory aspect gets through, but obviously, that would unlock regulatory clarity itself will unlock a lot of institutional participation, right? I I think you you've seen a lot of the headlines. Um institutions are ready. They're just kind of waiting a bit for more clarity. Uh but um outside of that, right? I I I think probably in the order of importance my opinion would be, you know, it's probably uh settlement and then programmability and composability and then 24/7 trading, right? I think settlement ultimately is

what unlocks um the the huge amount of like capital base, right? I think that one of the biggest opportunities actually is the repo markets. Uh it's not really talked about, right? It's not the same or as sexy as tokenized stocks or tokenized funds, etc. But the repo market is what really sits at the underlying capital markets, right? It's currently only talked about by investment bank desks, right? But but outside of that it's not really, but the repo market is what kind of uh was the foundation of of what was an issue in many of the financial crisis previously in in '08 or the repo rate spike uh in the 20 I think it was like 2018, 2019. Um

but generally a lot of that was you had good collateral that wasn't able to make its way through the system fast enough to meet margin calls, right? And so I think uh solving that issue with composability and programmability and instant, you know, movement of these types of good collateral, I think it solves a lot and unlocks a lot of the bottleneck that exists in the global financial you know, markets. Um and then obviously composability and programmability that allows for, you know, instant settlement and uh again, just the the movement of collateral. Um and then 24/7 trading obviously, you know, in itself uh just just enables um

the ability for price discovery uh at any instant as opposed to you get these kind of like weird jumps on a on a weekend or uh uh holidays or or whatnot. So. >> Do you want to add to the point that how CME is looking to or have already moved to the 24/7 market? So, do you think that the TradFi is eventually going to adopt this 24/7 >> [snorts] >> you know, market? Or do you think >> Yeah. >> Except CME, others are far behind.

>> Yeah, you know, NYSE, CME, they're all going towards a 24/7 model, right? They they've seen kind of the demand from traders and investors on like hyperliquid. Uh they're all developing their own native, you know, blockchains as well. So, well, we'll have a mix of well, 24/7 definitely, and then a mix of private and then public blockchains. Um but I think the institutions clearly recognize that the value of it. Um And then who who are they kind of the winners and losers from this, right? I think you know, in some ways, uh obviously, retail participation uh is a winner in the sense that they can now participate

in these markets globally on a 24/7 basis. There might be losers in the sense that well, it's probably the institutions sophisticated institutions that have automation and bots and the ability to monitor risk on a 24/7 basis also. Um Other losers are probably, you know, the uh there's a whole huge industry around, you know, settlement and margin calculations, uh indexing that are that that revolve around the idea of {quote} {unquote} market open, market close. But if you have 24/7, that kind of disappears, right? So, I think there's going to be some changes there.

Um but I think the look at let's say retail. Uh what is going to cause retail to maybe be at a disadvantage is probably also what will enable them to uh perhaps um gain back that disadvantage, right? And what I mean by that is I think in the future there's going to be a lot more AI and agentic types of trading that exists, which by default in some ways levels the playing field. Um, and so yes, this automation uh, etc. does enable like enhance the ability of institutions to trade in a 24/7 world, but I think at the same time

the solution to that uh, for retail is is also the same um, cause of it. >> Um, so do you want to touch a bit more on, you know, this 24/7 markets, right? So, current the traditional markets have circuit breakers and, you know, closing auctions and, you know, time for clearing and everything, right? So, once they move towards 24/7 model, which, you know, the current um, Ethereum protocol provides, uh, what does that mean for liquidation at 3:00 a.m. on a Sunday?

And you know, where there's no time out for crisis like you've already touched this a bit that ordinary participants, it could be better for ordinary participants with not as much for the ones that are tied in between. Um, where do you think, like, how do you envision more on that? >> Yeah, I think, uh, like crypto natives have uh, historically pointed to the inefficiencies of traditional markets um, as what? Inefficiencies and have said like, you know, instant settlement and instant finality are things that will, you know, fix the the these issues

of of traditional markets, but I I think a lot of what exists in traditional markets uh, are not necessarily problems, right? They're they're features actually, right? Like things like circuit breakers, uh having FCMs, uh these exist because of the numerous lessons that have been learned in traditional markets that I think crypto is learning on a much faster pace, right? Like the things that happened on 1010 or the issues with like leverage looping and hacks and and all these things, uh I think could have actually benefited from some of the guardrails that exist in traditional markets.

Uh and we're learning about them now, right? And so I think what will the world will probably look like in the future is probably a mix of two. And going back to the point of, you know, separating settlement versus trading, I think a lot of the guardrails can exist in trading markets where it doesn't have to be um purely call it like either on-chain or, you know, uh kind of like crypto first, right? I think a lot of the guardrails can be more human involved or it can be automated, but doesn't have to be instant, right? And then once those guardrails are been battle-tested and are in place, then the settlement layer

I think can exist like more on-chain or or in the crypto native world. So I think it's it's probably going to blend of two, but I think we shouldn't dismiss everything that currently exists as, you know, in the traditional markets as a disadvantage cuz I do think a lot of them exist for a reason and a purpose. Um and we're learning a lot about that now in in the crypto, you know, trading markets. >> Speaking of timing and if you you've touched clarity uh early on, I was part of uh blockchain associations a capital fly-in uh yesterday and we met um a handful of senators and their staffers and without exaggeration, in the same tone, it was Bitcoin and Ethereum. And

my job was to basically educate everyone on DeFi. So, given the interest around clarity, given the push around clarity, what does it mean on the regulation side on how these permissionless networks, permissionless protocols, uh you know, would fit in the current regulatory uh over, you know, overarch, I would say. >> Yeah, I think uh my interpretation at least of how the regulators are approaching um regulating 24/7 markets is probably they're regulating on the edges. Uh what I mean by that is uh

they So, so for example, it's like, you know, stablecoins, right? The the regulation for that is they're regulating the issuers as um like a narrow bank, right? It's kind of like, you know, audits, fully collateralized, um and then they're regulating the custodians and the prime brokers and the on-ramps and off-ramps, right? So, that's what I mean by the edges is how individuals and institutions interact with the blockchain uh and the financial markets of the um of digital assets.

Uh that's probably where they're going to focus on. Um the big question is like, okay, well, how do you regulate uh a protocol that doesn't have a centralized entity? Uh I I think that still needs to be solved, right? Um uh you know, do you go after the like developers? That's clearly not like the best like approach, right? That's probably not where they settle. Uh instead, I think it focuses more on how the the kind of on- on- off-ramps and how users interact with said protocol.

It's almost like the global internet, right? Like, you can't actually regulate that into a certain extent, step, regulate how users interact with it. Uh so, it's called like a perimeter um enforcement, right? And then uh another example is you can regulate uh let's say tokenized assets in terms of you know, you you you're regulate you you're basically monitoring and regulating white-listed wallets or addresses of uh the tokenized assets and you know, tokenized assets can only let's say engage with said white-listed um platforms and and addresses, right?

So, those are kind of the ways that I that I see regulators uh approaching the the regulation of the 24/7 market. >> Um So, I have a two-part question. One is that do you think that Ethereum will stay uh you know, dominating in this market or do you see a bit of future fragmentation? That's one, and while you're thinking on this, my second question is um you've been a founder in crypto for over a decade at this point, and you come from a traditional background. You were a trader at UBS, Merrill Lynch, Bank of America.

If there's one liquid markets product that you would like to see on Ethereum, what would it be? >> Um Okay so uh in terms of the second question, right? Like what liquid markets? I I think there's two, right? One is uh I talked a little bit about a little bit already. It's it's like the repo markets um and what that unlocks. Uh I do think like having uh approaching that market using blockchain rails, I think it's addresses a lot of the issues that existing that

they exist in that market. Um and it's a massive market, right? It's trillions and trillions of dollars. Um and then the second piece I think we'll see develop that hasn't yet as much is non-US dollar denominated stablecoins. Uh just given how the FX markets have developed in terms of uh how large the FX market is and how large non-dollar FX markets are uh and how the notion of currencies is important for non-dollar denominated um emerging markets.

Uh I I think that is the next development that we'll see um you know as well. Uh and then to your first question, if you can repeat it, I I lost it. >> Um so right now Ethereum dominates in DeFi. >> Right, right, right. So uh Ethereum by definition definitely dominates. Uh it's the reason why BlackRock WisdomTree and others have chosen to build on Ethereum first. Uh I think you know, will it continue to dominate or will it fragment? I think it depends on which part of the market. Um You're already kind of seeing like it fragment to some extent with like payments for example, right? I think there's a lot of payment activity that

are going to quote unquote faster chains. Uh but it depends on which part of the stack Ethereum wants to focus on. I do think Ethereum given it is the most secure uh and battle-tested chain, uh it should focus on settlement, right? I I think what we'll kind of see in the future is a world where you have fragmented payment chains, fragmented trading platforms. Uh but settlement, I think we can imagine a world where it's more concentrated. Uh and I think Ethereum should focus on that and should be able to dominate that.

>> Um great. We're right at time. Um do you just want to have like a 30-second quick closing thought or um anything you would like to see within the next cycle as Ethereum like we've seen Ethereum in securities, ETFs, you know, digital asset treasuries. The token itself, anything you would like to see within next couple of months and you know, a closing thought from you. >> Um I I think what one thing I've been thinking a lot about recently is okay, so I'm a trader first and you know, I my whole career I've been fixated on price.

Um and I'm I'm a little like disheartened with like how much the industry still focuses on price of Ethereum. Uh cuz like if you look at some you know, like other assets out there like crude oil for example, right? Like yes, on a dollar denominated basis over time it's you know, gone up uh with like usage or geopolitics, etc. etc. But there's a large period of time where crude oil or other commodities kind of just fluctuate up and down.

Doesn't necessarily have to always go up into the right, but they still has a lot of usage and it's you know, used for productive goods. And so I think if Ethereum to certain extent given the price action everything, right? Like can can kind of get out of this trap narrative of of being like a you know, wanting to be like a store of value or whatever and and having everyone fixated on the price. If you can kind of focus more on like the use cases, I I I think that is probably um more reflective of a more mature commodity similar to many commodities that exist where you just have cycles where it goes up and down. Doesn't always have to go up into to right forever, right? So that that's kind of I mean something I've been really on as

just like a narrative for the um for the community. >> Thank you, Shiliang. Thank you so much, Kardia, for giving me this opportunity to interview Shiliang. Um we're around if any other questions. Thank you again. >> [applause]