From Retail to Institutional: Layer 2 Solutions for RWA Settlement

Transcript

Okay. Okay. Hi everybody. Um my name is Pauline and I hope you've been enjoying ETHCC so far. Um shout out to all the OG five people who have been here in this room for the past 10 minutes and I just showed up. You're the real ones. You know who you are. And just a little bit of an intro about myself. I drive growth and strategy for a non-custodial crypto exchange service and business suite called ChangeNOW.

And I am angry. Anytime I go out to speak in public, it's for some reason because I am angry. And I've been angry at meme coins in the past. I've been angry at um rampant DeFi development and recklessness that has caused a lot of people losing their money. I have been angry at those. I've been angry at Donald Trump and his meme coins.

What else have I been angry at? I think I've also been angry at Amazon Web Services at some point last year. I've also been angry at Bitcoin. But that's a whole 'nother story and I'm going to be telling that at Consensus probably, so stay tuned for that. Today, I am angry at the RWA sector. And at people who are in the field of tokenization. And let me tell you why I'm angry. How many of you actually tried to settle a tokenized asset that was existing across at least three different chains one day.

Um not in theory, in real life with real money without having to talk to your lawyers at 3:00 a.m. Has anybody actually done like done that? Can you raise your hand? Oh. Oh, okay. That kind of crumbles my entire argument, but still hear me out. Um I'm not here to just straight up just talk about tokenization. I think it's great. We do have a few very great tokenizing partners like X stocks, Ondo Finance that we work with whose RWAs we list and we have great kind of faith in them.

Um however I'm mad at those people who are tokenizing things in the same way that people were making NFTs back in 2021. Right? So just that was a little bit of a disclaimer so you kind of don't fight me after I'm done. So we're dealing with a little bit of a structural lie. We told the world that tokenization was the future and institutions actually listened and now we have tokenized everything. Uh a couple of years ago we had tokenized Lambo steering wheels and uh a tokenized chair somewhere on a

villa in Bali. But a little bit later since the RWA space actually started maturing a little bit now we have tokenized treasuries, tokenized equities tokenized commodities, tokenized private credit funds. But I I'm not sure if you notice, but pretty much every single tokenization business is trying to tokenize the exact same thing. So, we see people like 15 different issuers are tokenizing oil. Come trade our oil cuz it's better than those guys oil. Come trade our

unique uh Apple stock this time in the form of an NFT. No, don't do NFTs. You can purchase a fraction of that on a blockchain that basically is only supported by their own proprietary wallet technology. And um the result of that is that all of these issuers and all of these institutions, they tokenize and tokenize and tokenize and then they just sit on those assets because moving capital is actually where the risk lives.

Um a few months ago um a large asset manager came on to us. Uh they're under NDA, so I'm not allowed to name any names. Hi guys. Hi. Welcome to my TED Talk. I'm just getting started, so so you're you're not so early. So, they wanted to tokenize a fund and they wanted to move it across two L2s and one L1. It would be atomic, compliant, everything was clear-cut. Everybody was happy. And they had big plans. They were ready to pay quite substantial money for us to do it, but we looked at the setup and then we looked at them and our verdict was even

though we actually wanted to make money, like I mean, who doesn't? This is uh pretty much what we are all here for, right? But it would be possible if only we had ignored all of the real world applications. And unfortunately, this is not a market. This is a dead end. Uh, so why layer two? Because we Do we need more chains? I don't think so. Uh, we need execution environments that are fast, cheap, and secure, but connected.

Um, layer two provide Layer two as well as rollups and validiums, um, give us the raw material such as sub-second execution, predictable low transaction costs, and full on-chain transparency, and L1 provided security. Even, um, just I think it was about a week ago, uh, the fine folks from the Ethereum Foundation said that L2s are more about unique features now. But, what unique matters is I mean, unique doesn't matter if they exist, um, within a vacuum, not being too connected to each other.

If we don't connect our L2s, we're not fixing fragmentation. Uh, we're just deepening our isolation. And over here, I would like to give a shout-out to the folks who are already doing that, um, from uh, QuickSwap. They're building something that's called the aggregated layer or the agg layer, where they're at the very least trying to kind of tackle that problem. But, at the same time, we can't really say that there's going to be the RWA chain, just like there wasn't the meme coin chain, although I guess you could say Solana was, uh, but Base was,

too. Um, we can't really have the NFT chain because back when NFTs were being super hyped, everybody tried to do NFTs just like everybody is trying to do RWAs now. And that is also because um uh competition is something that we need to have on the market. We like everybody knows that monopolies are bad because those tend to go bad after a while. So, also institutions don't really care about which roll-up is cooler. And what they actually care about is how do you move value without going crazy, just

completely cuckoo bananas. And here's what it looks like. Oh, I'm sorry. I got a little bit too eager there. Um Here's what it looks like in practice. So, we need liquidity aggregation which would route across sexes, dexes, L1s, L2s, maybe L3s L4s L5s L15s whatever. Um I we see that as a routing layer that finds the deepest pool between them and executes without the user ever knowing where it went. RFQ models and deep L2

pools and cross-venue routing, fragmentation becomes invisible which is kind of the end goal, I think, for a lot of you guys if you're building blockchain services per se and not just building chains, right? Um the second one is atomic cross-chain settlement which would not involve any bridges, any waiting. Um you've got very smooth interoperability. If you settle across chains, even though that's not super realistic, um from at least uh from what I know.

I mean, you can tell me I'm wrong and we have atomic swaps all over the place, but trust me, our partner was called Atomic Wallet for a while, and their entire stick was atomic swaps, and guess where that went. Right? Um the third part of the real architecture that I think is kind of important to say right now is non-custodial execution, because nobody wants to hand over their keys. And as somebody again uh who works for an instant exchange service, holy hell, people do not want to hand over their keys. Um if we're talking about retail specifically, but neither do the institutions.

They don't want to do it, either. Funny how that aligns. Uh so, the execution layer must be non-custodial by default. So, um and there wouldn't be any middleman. There wouldn't be any custody which have been compromised all over the place like nobody's business. And the fourth part, which is, I think, more relevant for Europe, but correct me if I'm wrong, I think it's also kind of relevant for um the US with the Genius Act and with the Clarity Act, is compliance embedded infrastructure.

Um everybody keeps saying that the regulator is our enemy. MiCA is BS. Nobody wants to uh submit to MiCA. Nobody wants to submit to the SEC. Um nobody wants to follow the travel rule. But if anything of that is not built into the execution, the regulators will will leave you alone and won't touch it. Compliance isn't a headache. Um it is the price of entry for the real capital. And let's talk about what this changes.

And here, this is my favorite topic because I'm really big in retail. Um I'm just like screaming, shaking, crying, throwing up when I think about my ideal precious retail and I'm not joking right now. I really do that sometimes. Uh for retail, we could have the perfect combination of TradFi and DeFi, something we could call CD Fi, but I don't think that's where it is in fashion right now. Um that would mean 24-hour trading. That would mean lower limitations for um geographies where the certain assets are available. It would mean zero custody. It would mean all of the settle settlement friction would be gone

starting from fractionalized uh tokenized assets and ending with I don't know, me trying to give my wife um a half a stock of Coca-Cola at 3:00 a.m. because I've had a little bit more like a little bit too much wine. For uh but institutions, that would mean T+0 settlement, reconcili- reconciliation costs would drop to zero. And for ecosystems, it would mean the L2 as an entity and not just like a lot of not even that interoperable uh chains.

Um a settlement layer where TradFi and DeFi would meet without a fight. But even though I've just painted like a very nice uh picture for you, there is a certain amount of risks um that would involve a lot of technical stuff about L2 to L2 fragmentation, smart contract risk, and bridge assumptions. We've had um a similar case I think like next last month I think. Legal enforceability uh which would mean uh that the asset exists on chain and law doesn't know it does and when that whole construction inevitably rugs, no one would be able to

help um the victim in any case. And scalability without risk transparency would mean building faster on a broken foundation and this is something that we already see at this point a little bit because we see a lot of tokenizers like um Let me do a little bit of an example. I don't know if you've been You've probably been following the market last year when everybody was like jerking off insanely to Bitcoin digital asset treasuries.

And then they started to do more treasuries of more assets. And then um when things went south, um a lot of digital asset treasuries like Metaplanet um and a few others just started selling off in bulk. Uh Peter Thiel's favorite um Ethereum thing ETHzilla uh ceased existing not so long ago. So basically by New Year's the entire uh digital asset treasury stick was done. And um one of the reasons for this talk that I'm doing right now is not to let the RWA space kind of follow suit because the technology is

revolutionary. Uh right now we're standing on a brink of adoption. So that's very good. And just as I was talking about digital asset treasuries, we've also seen that with NFTs um uh monkey pictures. They were disgusting. I I know how people bought it and why people like bought, wasted millions of dollars in like an ugly monkey picture. Uh so that you could like show it around to your friends. God, I hate NFTs. I'm sorry. Uh we've also had meme coins. Um I don't know what that was. Like I guess since we don't have meme coins now, we have perpetual options, but that's a

whole other conversation. We're not touching that. Uh and now are RWAs, which are kind of succumbing to the hype part of things um at the moment before actually either dying down or maturing and we're going to need to see what happens first. And uh why I personally have to I have quite a lot of um trust towards RWAs because they are not monkey pictures. They are retirement and mortgages and real stable capital. And the last thing is something that um the all of the other crypto market right now, like let's not

fool ourselves. We are still in the bear market and investments into that part of the market are not really viable right now unless you're like a cracked day trader who just spends all of their time in front of a computer. Uh why do that when you can just buy Apple shares or Coca-Cola shares or treasury bonds and stocks and so on and so forth. I'm sorry, started rambling, right? And um something that we are already kind of doing um not on of a very decentralized way, but hear me out.

What we see um as a way for our RWAs kind of being um a very sustainable and having longevity is standardizing messaging between L2s and better compliance at execution layer, not wrapper. And we're spotlighting builders. So, you're here and you're most likely building something too. Shout out to you. But um when it comes to um CDfy, uh what I would kind of like to talk about is basically ChangeNOW as um a liquidity aggregator is basically doing all of the heavy lifting right now. But,

then again, this technology isn't going to um I don't want to say the word like we're not going to have scale because we will. But, at the same time, we've been on the market for 7 years, so we know how to do it. And there are a few things that um people don't really need ChangeNOW for. So, for example, like trading, right? We're more of an investment platform or like a um swap a big amount of money into USDT or vice versa.

And uh without collapsing the order book. But, at the same time, we do believe that on the market, especially in the Ethereum space, there would be somebody who is going to do basically the very same thing, but more into the DeFi direction. Because we tokenize the world and now we need to move it somehow. Layer two, um at least we hope and we believe is going to be a global atomic and compliance settlement. I do have hope that atomic is going to be a relevant world word at this point.

So, let's together build the roads that move the future, which is a very like it might sound like an empty platitudinous phrase but at the same time I am angry, and I have started this chat while being angry at a lot of things and in a lot of places, actually. But I hope that anger is going to make you do something, is going to inspire you to do something, because if you're not angry, you will not succeed, basically.

You don't have to be evil. But a healthy dose of anger is something that you are going to need in the future because boring and it's easy to become angry at um being bored is going to be what scales and is going to be what institutions are going to trust, and I hope that next time we meet, you're going to talk to me and be like, "Pauline, you're very boring." But you were right. So, I hope that that happens.

So, feel free to ask me questions or punch me in the face or dispute me or give me a hug or I don't know, do whatever. We still have a little bit of time. Oh, right. I'm sorry, Yapatron. So, yeah, thank you so much for listening to me. Um I hope you've had a grand old time. And yeah, see you around. Um I'm going to be on a panel at Builders Night tonight. Um about authentic payments, and this was just a preview for me being angry. I am pissed at AI agents, so feel free to come on in and listen in a little bit. Thank you so

much. Thank you. Great presentation. I don't think we have time for questions.