Growing the Pie: Why New Issuers and Allocators are the Future of DeFi

Transcript

So, for much of its history, uh DeFi has grown as a result of the same crypto-native capital being recycled around the ecosystem. Our panel discussion today is going to be about growing the pie, so to speak, and introducing new customers, new capital into on-chain financial markets. And I have four people here today with me who are very uniquely positioned to to talk about this. So, let me introduce them. To my left, we have Luke Truitt. He's the co-founder of Loop scale and now also the CEO of the newly combined Orca and Loop scale business called Formation. We'll talk about that merger in just a minute.

We have Cafe Lin is the general manager at SBI Holdings, where he leads SBI's on-chain initiatives, including SBI Solana Global and the JPY SCY stablecoin. He's an engineer by background. He's built financial systems across both traditional finance and DeFi. And we have Joseph Chee. He's chairman and CEO of the Nasdaq-listed Solana company, building validator staking and trust businesses across Asia. Before crypto, he spent 17 years at UBS, leading investment banking and global capital markets for Asia, running more than 180 IPOs.

And last but not least, we have Harry Rong Choi. She's the chief digital officer at Shinhan Asset Management, where she leads its institutional digital asset and tokenization work. She spent 18 years at Credit Suisse, leading equity capital markets in Korea, and most recently served as group CFO of Kakao. I have a great group here, so excited to get into it. And Luke, I'm going to start with you, cuz I want you to talk a little bit about the news that you guys broke today. It's a merger between your company Loop scale and the decentralized exchange Orca. You're merging to form a new company called Formation.

Why now? And what does bringing these two companies together accomplish that you guys couldn't do on your own before? >> Yeah, so Loop Scale and Orca sort of serve a lot of the same customers, just different sides of the coin. So, Loop Scale is very distribution, vaults, credit focused. Orca's been a trading platform, one of the first on Solana. And we generally speaking have seen a lot of the same types of customers coming into the space over the last year or so as the regulatory landscape has improved a bit. And ultimately what's important to kind of taking assets from issuance to distribution is both having a single counterparty that you could trust to kind of handle

each step in the stack. That understands the market and that ultimately is able to work with you on all the structuring problems that occur when doing this. But just as importantly, is able to kind of service customers globally and think about things in a more forward-looking way. So, we're excited about the opportunity to bring those two things together and work with folks kind of all over the world, folks on this panel to you know, bring new assets in the space, new capital in the space and kind of do that in one spot. >> And how has the reception been to the merger so far?

>> It's great. It's it's a lot of fun. I mean, we something we've been working on for a long time and yeah, excited to finally have it out there so we can you know, get selling, get working with all this stuff a little bit more. >> Awesome. And you mentioned that you have some of your partners here on stage with you. Your goal as the new company of Formation is to bring new kinds of assets and capital into DeFi and really grow grow the pie. What kind of assets or products do you expect to bring on chain first and and maybe you can kind of speak to some of the things that you're most excited about? >> Yeah, well I think bigger picture the world is undergoing a big transformation from very software heavy, capital light businesses to very capital intensive businesses, whether that's AI compute

spend, that might be robotics, manufacturing, defense. All of these things are driven by smaller companies with few employees that need a lot of capital in order to scale. And tokenization, DeFi in general, is a very low-cost way to kind of take assets from conception all the way through the life cycle to investment. And so we're really excited about some of these frontier products. And all three of these guys on stage, you know, have different kind of approaches to bring interesting assets, not just brand new small assets, but assets that might transfer from one jurisdiction to another that wouldn't have been accessible otherwise. And so that's you know, high yield corporate credit, interesting novel, you know, telecom data originations, and you know, interesting tokenized

securities with the new innovation exemption from the SEC. So lots of stuff that we can cover. >> Lots of exciting things. Um Korea Investment & Securities signed an MOU with Orca to help develop tokenized products. When you're choosing DeFi partners and you're looking at who to work with, what are you looking for specifically? And kind of what matters most in a DeFi partner? >> So let me start to figure out who we are. We are asset management. So we are managing the underlying asset in the financial market. And we try to find a partner who can introduce our product in a DeFi based on the regulatory way.

So this is our logo. And when we choose the Orca as our partner, we look at the three points. Number one, we try to find a team who can be sustainable for next 5 years in terms of technology, in terms of insight, in terms of governance. And second, who have the right control. Who can have a understand the financial institutions control need to be applied in DeFi. And lastly, who is the partner who think the regulation is not the obstacle. Regulation regulatory need to be our partner when we design our product. So this is a three key when we consider our partner in D5.

>> And you've talked about discussing launching products such as tokenized money market funds, I believe a semiconductor ETF as well. Why start with those products and who do you expect to be buying them? >> Uh, I think in in in in the a lot of investors find a lot of obstacle to inflow in Korea and also outflow of the Korea. Yeah. So, I think we need to declare the holding currency and also market is a friction 24 hours. You know, when the New York market is open, we are closed. I think that uh through the this product, we can open the hour. We can introduce our product in the global market. As you can see, Korea equities and Korea good quality asset is need to underestimate in the global market

because of that kind of friction. I think that can help us to introduce our product globally. At the same time, uh Korea liquidity, Korea capital can be open to the market in the global market. >> Joseph, you've spent more than two decades evaluating companies and transactions. Um, when you look at a D5 protocol today and considering where to allocate capital into D5, um what would make you immediately walk away from a protocol or a counterparty? Is there anything that would make you take a pause and step back?

>> I also want to talk about what she would look at from her perspective. I guess as someone's to allocate capital and trying to generate return. I think the most important thing is probably the counterparty risk. >> Yeah. >> And I guess I'm sort of answering a question from the flip side. It's like, what would I look at, right? I guess has to be someone uh has been around for a long time, established. And then you you met the team. I think not cuz I think you have two side of it. The underlying hopefully something you already recognize. And then something in the track five world, you know, coming from Shinhan, you know, you know what it is. It's something you want to get exposure to.

And then I guess the platform is bringing it to you. You got to make sure that it's a credible team, someone you can work with. They're smart in what they're doing. They've been around. And obviously I guess the smart contract audit everything that that sort of comes to it. You don't have to worry about that. I think that's already been done as part of the protocol. I think to me it's really the counterparty. If it's the wrong counterparty then obviously I would not even consider it. And underlying has to be you know something interesting, exciting that would bring good return to us versus the normal stuff we're doing.

>> And what are you bringing to the to the new formation company? Any products that you're excited about? >> To be honest I haven't spent time going through the products. I'm I'm sure with Luke's team with you know Chris this this guy will come up with you know a menu of exciting products. >> Yeah, early days. I'm looking for a scoop here. Come on. >> [laughter] >> Cafe when a Japanese owner or issuer pardon me wants to reach global on-chain investors it has to rely on infrastructure that it didn't build and it doesn't control. What does SBI need to see before it can trust a DeFi partner?

>> I think echo to Joseph's point right? I think there's a fundamental shift in how we evaluate counterparty risk on the chain right? Traditionally you audit their balance sheet and but like right now we audit their smart contract and their you know on-chain infrastructure. I think generally we're looking for number one track record. So the protocol protocols have to survive multiple market crashes and then still a billions of dollars of user assets without failure.

Yeah, so I mean OKX is a good partner. Um and then second, I think we're looking for a a segregation of funds, uh non-custodial structure in a way that our partners can um curate the risk parameters off chain, uh but they can never touch the funds. >> Mhm. >> And user or investor always have the right the cryptographic right to exit. That's number two. Number three, I think we're looking for a uh an obsession with operational security.

Um I think that's very important cuz recent uh instance that it's all about uh compromised private keys uh rather than actual smart contract bug. So we're looking for partner who operate their business with transparency and um you know, just uh uh have a obsession with uh operational security. At what point is trusting code, you know, enough? Do you Do you feel like there is more uh an openness, a willingness for customers, investors to to trust code as opposed to trusting a you know, centralized third party like a bank or something like that? You know, do you feel like it's more it's opening up to people understanding

that, you know, code might be sort of the the North Star when it comes to a you know, your finances, your money? >> Well, as a smart contract engineer, I I would love to have that ideal world. But I think today people's trust are with the brands. I think the platforms, banks, right? Uh and I think ins- instead of them trusting the underlying code directly, the better scenario is those uh battle tested code and trusted code uh slowly becoming a invisible uh back end for the FinTechs and banks.

Right, so the users is trusting that but indirectly. >> Mhm. Mhm. Um I don't Korea has one of the most active retail crypto, you know, landscapes in the world, arguably. But institutions, I think, are a little bit slower to come to market. In America, it's a little bit different. Usually, the institutions lead, um then the regulations come in later. It seems to be the opposite in Korea, but institutions are coming in. I spent last week at KBW, and that was a that was a key theme um at KBW. But what happens to global on-chain markets when Korean institutional capital can participate at scale? Um And kind of who benefits? Is it the Korean institutions? Or um is it the global DeFi platforms?

>> I think in terms of the capital direction in the Korea market, we need to do both direction, not the outflow of the Korea capital, but also inflow to the Korea market, too. So, Korean retails have been proven their ability not only in the crypto market, but in the stock market. Korean retails have have been the been the biggest shareholder in the US market, too. >> So, I think uh when the you know, regulation is released, Korean institutions will be gradually uh move to the on-chain uh market with a regulatory way in a very conservative way. But I think they will have proven their capability with a big liquidity.

At the same time, I think the global market has tended to underestimate the Korean inbound flow. Because we haven't seen a lot of demand from the DeFi protocols, and also capital in the outside of Korea, they want to put the Korea good equity like uh DRAM names or memory names or shipbuilder names, defense names, KBW names in the on-chain. >> So, I think both of the direction should be uh booming once the legaltation is uh ready, and the institution have a confirmed and the trust about the old chain.

>> What would be the biggest sign to you that institutional participation in Korea is taking off? Maybe in the same way that it has in the US. >> Yes, we are expecting to have a new regulation with adopted from the next of February. So we think that going to be the another, you know, trigger point that institution will participate in. >> Got it. Okay, we'll come back to you, Luke. I'm not leaving you out here. Um >> Japanese households earn hold enormous savings and deposits that earn very little. Um kind of comparative to us with banks, I think. Um is tokenization the thing that could finally move some of that money into being more productive um or would you think regulators will want to keep it kind of where it is?

>> Um Well, let's be honest. Like how many Japanese households care about tokenization or don't even know about this concept, right? >> Right. >> I think tokenization itself is probably not going to move the money. What's going to move the money is, like I mentioned, this new rails, um DeFi rails, becoming a yield engine, a back end for the FinTechs, uh for the for the banks so that you know, users generally they're looking for more yield and more risk uh you know, managed properly managed to yield. So yeah, tokenization itself probably won't change that, but

plugging the DeFi engine into FinTech platforms will will change that, yeah. >> Mhm. So it's really all about making money as an attractive way >> for tokenization to take off. >> Yeah, we all like money. Luke. We're here in Singapore, obviously. Uh you were at Victoria last week, I believe, too. Um so capital has historically flowed from Asia into US markets. Um where are Orca and Loop scales assets and your users today? I guess um Formations users and customers today. Um and what can you tell us about how capital is actually moving between Asia and the US in 2026?

>> Yeah, I mean uh yeah, so Formation users are very global. Uh we got folks in uh obviously APAC, uh a lot in North America, South America, and a bit in Europe as well. Um I think like the main thing that we see though is like there's a bit of a uh draw for folks who are able to invest in assets that are maybe not as available in the market that they're familiar with. So, for APAC that might be dollar denominated products, yield products, uh letting them get exposure to, you know, credit funds or reinsurance funds that they wouldn't have had access to otherwise. And uh vice versa, in the United States having access to SK Hynix 2X leverage ETF or whatever it may be, um is something that it has driven a lot

of the cross flows that are not crypto focused, that are more of this tokenization piece. I think getting access to a Treasury bill product as an American is fairly easy. >> Uh so, you don't see a lot of American users buying Treasury bill products on our platform. Uh but kind of, you know, thinking about it cross jurisdiction is uh both directional flows. Let me ask you about the regulatory landscape cuz that is top of mind for a lot of companies in the United States and, you know, abroad right now as well. The Clarity Act obviously did not pass the US Senate a couple weeks back, so it means the regulators are going to take the lead on writing rules.

>> Okay. how much of that vision can you execute? I guess the vision that you've had for Formation and maybe the hopes that Clarity would have passed and now it's not going to. Is there anything that you can't do under the new sort of regulator led format that Clarity would have given you clarity on, for lack of a better word? >> Yeah, well, at the end of the day we build non-custodial software. Uh we follow, you know, regulation in every jurisdiction, whatever it may look like. And thinking about the US and different administrations is just effectively two different countries is, you know, the same thing as dealing with the United States versus Europe. Um, and so we're able to adapt to that. I think the bigger issue is thinking about how the deals that we have to make with, you know, folks who have to take a little

bit longer to make decisions, um, is something that is very much hindered by not having a clear view on where the market will sit, whether or not some of these folks will have to unwind big things that they've spent a lot of time and money on. And um, ultimately for us, I think, you know, executionally we'll still be able to do everything that we want to do, but it may take a lot longer and it may end up being with different partners than, uh, we'd like it. So, uh, I think we're very hopeful that something will change and that, you know, all the stuff that we're spending time on is, uh, exciting enough to the folks in DC and around the world that, um, they're willing to kind of take the bet on us, you know, doing this responsibly and codifying that. But, um, for now, you know, we'll just deal with

whatever they throw at us. >> Mhm. Joseph, how is the APAC region looking to the US? Is it looking to the US as sort of a model for regulation or does it look to the US as kind of a laggard at this point? >> I'm a bit biased, uh, even though I I came from this region, but I sort of spend uh, the first 12 years after college in the US. >> And then you look at uh, to me, for every new technology or any new breakthroughs, uh, US is sort of like the right soil for all these things because I think the government, the regulators, uh, it's just the culture.

Uh, Asia, I've been, you know, I I could, you know, I'll speak freely, I guess. If you look at Hong Kong, Singapore, you know, Japan, Korea, uh, all the regulars are pretty much the same. In the Chinese way, you take two steps forward, one step back. It's always, uh, how they work. Until, you know, the big brother, like, you know, the US, all of a sudden, you know, like being this trailblazer and break through everything, then like, okay, we got to go and follow this. >> I think that's happening in the moment. I think, you know, oh, it's tricky. I don't have to say more. It's just >> Speaking of speaking of speaking of that, too.

>> So, I guess uh this is this is important. Uh someone's got to like just take it to the next level. And then it's like, okay, this is how we manage this risk, right? We need to regulate this. We have to figure out everything down to the nuts and bolts, but we got to move forward, and then we had to worry about the details uh afterwards, right? But like everything else, this is brand new. You don't have answers for everything. And then we deal with some regulators, and then for lack of a better word, some of the older, more senior people asking a lot of detail question, you don't have the answer for, they don't want to move forward, and you get stuck, right? Only by pressure from outside that you get to keep up, and some of the Asian countries would move forward. That's how I see it.

Hey, Ron, anything to add on that? >> Yes. Uh I think the same situation because in the in previously I found the fact that if the US go first, Asia should go to follow. But the thing is the US, when the policy change in 2 years, you always easy to back to 2 years back. But in Asia, Hong Kong, Singapore, Korea, and Japan have a need to have a same consensus to move on. And it is not really change a lot. Even though we are slow, once we are moving, it's not change. So, I think the US set the frontier rules, but the Asia put the behind it back up. The rule can be the fundamental.

>> Uh >> What I want to add as well on this. >> Yeah, yeah. >> The most important I guess the the biggest issue with Asian regulations is that they would approve some regulations in sort of halfway. They're not quite there. And then to us it's like, either you get that you don't, right? And I'm sort of hoping that you could, whether it's electrical or someone, you know, the right organization will revise that to a level where it's workable. Because the spirit of blockchain, DeFi, you have to be up hell, otherwise it doesn't work, right?

I think that's that's I say that all the time to all the different banks and all the governments like either you do it or you don't, right? Just don't do it halfway. There's no point. Actually make it even more complicated. Uh Kevin, do you feel comfortable working or investing in a company, you know, in the United States that is working on a regulatory framework that might not be, you know, super durable or sustainable be rolled back by an administration in 2 years? >> Well, I think um yeah, we're we're still lacking an absolute clarity right now. Unfortunately, it didn't pass. But I see it as um like a speed speed hump rather than a roadblock.

>> Roadblock, yeah. >> We're still in a very pro-innovation environment. There's a um innovation exemption and things like that. So, SBI ourself, we are sort of doubling down our investments in in US. Actually, this year um there were couple of headlines. Um so, yeah, still very um bullish in the in my >> That's good. Um Luke, you can probably speak to sort of this 2-year runway, right? That, you know, we may or may not have where you just kind of go ahead and build as many things and roll out as many things as, you know, that you can.

Um and you know, by that point maybe the everybody likes to say the toothpaste is out of the tube or the genie is out of the bottle. So, you know, these markets will be pretty integrated and many institutions will have come in and already partnered. So, hard to reverse that. Um is that something that you're thinking about? >> Well, I can't necessarily say that we're doing that. Um but uh you know, folks that we've talked to certainly have that opinion. Um a lot of the people who have, you know, spent a lot of time planning and they've, you know, 4 years ago when we talked to them, they were all like gung-ho about it. Uh FTX blows up and they all kind of reverse course. Now they're back again and this time they're kind of like, "Screw it. We're just going to go and like do this thing, and if the next

administration wants to blow everything up, you know, we're going to just go find them on it." And there's enough people doing that now that are big enough that I think it will probably last, but I guess you know, to be seen. I mean, we got a month until midterms. That will definitely change things, and then you know, 2 years until the new administration comes in probably. So, yeah, it'll be very interesting to see what happens, but it does feel like a lot of people are just kind of to the point where these guys like, "You know what, it doesn't matter if regulators aren't going to do anything. If it's, you know, not illegal, then it must be legal, and they're going to go do it."

So, hopefully those folks are able to, you know, kind of set the stage. We're not necessarily in a position to do that as a smaller company, but we will certainly go and follow where we can. >> Uh look, if there's a constellation, the good thing about this part of world is always the offshore market. >> That's right. >> That's right. Do a little bit of both. >> Um before we wrap, I want to ask each of you the same question. Um we've talked a lot this past year, at least I have in my podcast, about, you know, traditional finance and DeFi emerging, the convergence of both. Um we look ahead, I want to say, you know, sometimes people say five, I want to say 10, cuz it's a little bit more time to establish things, but Luke, do you think traditional finance will have moved on

chain, or will DeFi have evolved to look more like regulated finance? >> I think our our, you know, kind of perspective is that the rails will move on chain, uh while the regulatory components will still need to be in place on top of it. Um I mentioned kind of this like edge frontier capital formation type flow that I think is the hook that brings DeFi, you know, kind of into the middle of normal finance, and it sort of grows out from there. We talked to a number of folks on the more institutional side who kind of believe the opposite, that it'll start with the very boring stuff and move out. Who knows, we're all kind of trying to tackle the same problem, but I very much believe 5 to 10 years, easily. Um yeah, all of this stuff will run much better on chain.

>> Yeah. Cafe, same question. >> Yeah, I think we're now uh experiencing fundamental infrastructure upgrade. Everything is uh going to be rebuilt or migrated to a more im- uh more efficient and more composable infrastructure. So, a lot of things we do traditionally has to be redesigned uh in a good way that's more efficient. Um and for example, like we we as a asset manager, part of our business, we bring assets on chain. And we need to be ready for this super high velocity uh environment.

Like, are we ready to post our NAV every day? Probably yes, but are we ready to post our NAV every block? Probably not. So, on asset manager side, there's still a lot things we need to do to fully kind of utilize this new rails. >> Joseph. >> Um I guess I look at this uh more from a how Web 2 uh became uh part of everyday life of everyone, right? It's this massive adoption phase. I think Web 3 is sort of at the beginning of that. I think we're about you know, crypto uses about 10% of the global population, which is about the same for internet in 2003, right? Uh it will take a while. I think this is uh

like a long journey of you know, 10 to 20 years. Uh but the key here, and sometimes I think at this stage, we probably haven't quite figured out what are the all the stars that need to be aligned, right? I think, frankly, internet didn't quite figure it out until 2009 that uh GPRS and uh smartphones and a lot of things had to be sort of in place before e-payment e-commerce become uh feasible, right? And I think Web 3 is going to sort of I think approaching that moment. I think slowly we can see what's happening, but one of the key thing we need to solve for everyone else is uh, user-friendliness, [snorts]

access, you know, I mean, having a cus- self-custody wallet is still is is a noble concept. I think there's a big, you know, chunk of the uh, capable people will be using that, but we have to think about access from other access points. So, people can get to uh, DeFi products, DeFi, you know, world a lot quicker, easier, and within um, their comfort level. I think that's important. Like, if you look at it just BC at the moment, I think they've done a great job, right? Um, they launched uh, various, you know, they launched bonds, they launched deposits, tokenized deposit, uh, and they launched uh, tokenized gold, and then they they they put that as a part of their bank offering for

their bank clients. >> Right? And uh, when these users they become more sophisticated and they realize that there's a much bigger world on the other side if they go for their own wallet to do more things, uh, that's great. That's probably two, three, four years from now. I'm talking about my own experience. For example, we started investing in uh, blockchains since 2017, 2018. Took me three years uh, to have a wallet. Uh, and it took me another three years uh, for me to buy uh, trade more things than just uh, Bitcoin, Ethereum. >> And I only got the Solana with not too long ago, uh, two years ago. But, it's all it's it's it's it takes some time, right? I mean, obviously I'm you know, the oldest guy on the stage. I'm I'm a bit slower. I'm sure everyone else has

got there a lot quicker. >> I always use the example of my Apple Pay. Like, I never thought I would give up my my actual physical debit card or credit card until all of a sudden I don't take those out with me anymore. I just tap to pay everything. So, I guess it's a it's a process of adoption, but that adoption is not always super fast. Aaron, any any closing thoughts? >> Oh, I think the the last question is truly the answer to why we four of us are here. So, the two from the one from the, you know, DeFi and three from the traditional finance, that means that what what I have within the 5 years later.

>> Yeah. Yeah. Awesome. Thank you guys so much. Thank you.