The Largest Securities Exchange in the World is Coming Onchain

Transcript

the the tokenized treasury space that where Bidel plays which is still the largest asset. I think it's worth 2.3 billion or something now. It was like 300 million two years ago and now it's 11 billion. I don't think there's any any part of crypto that has grown that fast. So it kind of feels that way for tokenization that we're at the end of the beginning. Now the beginning has happened. Now we need to get into the real growth because the the space is so massive as we discussed before just taking you know 1% of uh 2% of of stocks on chain doubles the size of crypto. So so that that the fact that we have tens of billions of dollars still feels like very very early days.

>> Bank nation I'm here with Carlos Domingo from Securitize and Michael Blogrren from the New York Stock Exchange. Carlos, welcome back to Bankless and Michael, welcome to Banklist for the first time. >> Great to be here. Thanks for having me. >> There was a announcement out of both of your guys' neck of the woods from the Securitiz New York Stock Exchange uh neck of the woods last week about a partnership between your guys' two companies uh about getting tokens, securities tokenized on public blockchains. Now, I want to drill down into the details of that announcement because I just want to learn a little bit more about what this partnership means, how it works, and like some of the net products are at the end of it.

And so, we're going to go line by line. I just want to start reading off some of the the first lines in this announcement just because I want to to get down to the the actual nuances of it all. The first line is Securitize is named as the first digital transfer agent for the New York Stock Exchange. What is a digital transfer agent? What what role does that do in the whole world of securities and and trading them and and all that kind of stuff? I >> I guess I can take that one since it's about securityized. So um a trans every publicly traded company or every ETF anything that trades on a national exchange um has a transfer agent which is responsible for keeping the books and

records of who holds the securities. Uh which in publicly traded companies most of the the only thing you see is DTCC because all the shares are are under DTCC. Most people don't realize that when you are when you hold shares on Robin Hood you actually don't own the shares. The shares are under the central securities depository. Um but in any case you need a transfer agent. So if you wanted to issue tokens outside of you know current market structure on a blockchain that represents the same instrument the same equity the same QIP the same rights rights splits dividends etc. the the natural let's say entity to do that is the transfer agent. Uh security is a transfer agent since 2019.

Um we refer to us as digital in the sense that we use for our ledger technology our public blockchains as opposed to let's say more traditional uh you know database technology that other transfer agents use and all our procedures are all digital right we don't do anything with share certificates or paper certificates or or other type of like non-digital activity. So, so we have been uh accepted by by the New York Services for their new venue, which I guess is the next thing that we need to explain what it is to be able to then work with publicly trade companies, issue tokens that represents uh you know, native representation of equity and then, you know, those tokens will trade on the New York Stock Exchange digital venue.

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>> Okay. And and Carlos, just so we understand because we don't have this concept with our crypto native assets, of course, right? There's no transfer agent. So, what data does the transfer agent have? Is that sort of like a ownership uh cap table of who owns what? >> Well, basically the the regulator we are the transfer agent for for bid at black rock and for other products. So it's basically the regulated it's an SEC registered uh entity and that um basically manages the securities on behalf of an issuer. So you you basically issue securities. You you know control transfers to update the cap table. You pay dividends. You do you know conduct votes if you need to. You do sort of asset servicing if there's a uh any type of I don't know somebody

needs to move their shares or somebody lost access to their shares in the case of a blockchain. Somebody lose access to the private keys and you need to burn and reissue like all that that work is what a transfer agent does. >> Okay. And every security has to have a transfer agent. It's in the regulations and I guess it moving this to kind of >> every um >> not every security okay >> some securities is is mandatory >> okay >> like registered securities publicly trade securities are mandatory regga plus secities is mandatory most funds is not private funds is not mandatory but asset managers tend to use it because it's safer to use an entity to do that but for instance the the a private company like let's say you know the shares of bangles you can just keep them in carta and and you

don't have a transfer agent you just have like a technopy of technology to do it but not an entity that controls the the cap table of who wants shares in in Banglades I'm assuming you have a company called Bangla somewhere >> does that mean that all publicly traded companies or at least the vast vast majority of publicly traded companies >> have a transfer agent >> you can't go public without transfer >> okay can't go okay and so if we want the the so there are tokenized securities on chain there are a bunch of different ways to do this uh one one of the ways out there is like model which it's not a true native security.

>> It's not equity. >> Yeah, it's it's Yeah, exactly. And so what we're what we're talking about with a digital transfer agent is bringing the word native. So the token itself is is the equity. It is not a representation of the equity. It is not a an IOU of the equity. It is the equity and making it the equity is because of the transfer agent. >> Correct. the ono and other companies model the problem that does have besides that they block the US because the way they do it probably not regulatory compliance here etc but is also that every tokenized equity which because it doesn't represent the actual equity you end up having five different versions of the uh of the same thing which none of

them is the real equity like co you can go to rw.xyz XYZ. You can see there's six different versions of tokenized coin which none of them is actually equity on Coinbase. They all different derivatives issued from different jurisdictions with different counterparty risks towards the company that is issuing different rights. Some of them give you voting rights, some of them don't. Some of them acrew dividends in one way, some others in another. They don't track splits like I think had a problem recently where one of the shares in the public markets didn't split and they didn't do a split and it was trading at five times different price etc. So I think that introduces a lot of fragmentation and obviously creates issues for market making for you know investor disclosures and and investor risks uh of of taking counterparty risk. This is not this is

just basically like buying a share uh through Robin Hood but then you get it on your wallet in tokenized form. >> Securitize is named as the first digital transfer agent eligible to mint blockchain native securities. Uh I think we we kind of just did a little bit of that. This is truly a native to the blockchain security on IOU. It is that security. But the question I have for you is Carlos is on which blockchains is this chain agnostic? Are there specific chains under consideration? How are they selected? Blockchains can mean a lot of different things. Uh and so like talk to me about that that nuance >> from our tokenization point of view. And I'll let Michael answer the question about where the ATS the the trading platform sits. But we we support most of

the major public blockchains obviously Ethereum but we also support most of the L2s we support Avalanche we support Salana of course we support etc. So we will we will be able to tokenize once we work with Asure in any of the public chains and then being able to move tokens uh across chains it require to be able to then deposit them on the trading platform for trading. So >> so you're chain agnostic but then who determines on which chain does the asset go? Typically we work with the issuer chooses that agree on that because this we are a service provider right like we we're not going to impose things we obviously have a view of which chains to use as you guys know black dog launch on Ethereum first and it was only on Ethereum for a period of time and then after that they started like going to

other chains we do a lot of also kind of due diligence on the chains to make sure they're sufficiently decentralized they are uh they have uh you know they haven't had downtimes and and things like that so but uh but ultimately they issued is is there securities, right? Like we we don't do things without the issuer permission as opposed to other tokenization modes out there. >> Okay. So, there's a preference on the issuer and the issuer can just choose based off of whatever their their particular preferences are. >> And quickly, the issuer here, who who is the issuer? Is that is that the company with the stock? That's the company with the stock. So, every issuer could have a different preference around this, right?

Like Exxon might have a different press preference versus like Bank of America in terms of where their stocks might be issued. That's correct. >> Could you do multiple places? You could just issue them in Yeah. There's no restraint here. >> There's no restriction for us. We can either do like we do on the on the case of Black Rockck. Every every ledger, let's say every public blockchain is treated as a separate share class of the same fund or we can just aggregate tokens across multiple chains and the cap table is span across different ledgers and and we provide transparency for the issuer with respect to that.

>> Okay, let's get into the the third part of this line that we're breaking down bit by bit. Okay, start starting from the beginning. Securitize named as the first digital transfer agent eligible to mint blockchain native securities on the upcoming New York Stock Exchange affiliated tokenized security platform. Michael, this is where I'm tapping you in. What is this? What is the digital trading platform? Uh what tell us about what that what that's coming down the pipe. >> Yeah, happy to glad glad to finally get in the game. >> Uh so we're launching a new trading platform. It'll be an ATS. It stands for an alternative trading system that will be adjacent to the existing traditional exchanges

>> that will trade tokenized equities versus stable coins. We'll support um what I you know often describe as kind of cryptonative user experiences. So things like 247 operations, things like instant atomic settlement which are vastly different than the traditional exchange operations in Rails, but we're going to conform with most of the significant market structure conventions of the SEC, FINRA, and the broker dealer subscribers that'll be participating on this platform. So, it's going to use onchain settlement but off-chain

matching. So, it'll it'll be using the NYSC's existing matching technology, market data technology, order entry technology, allowing for the community of broker dealers who already trade on our exchanges to have a very, you know, low friction glide path into supporting the onchain settlement that we believe a lot of retail investors will be excited to take advantage of. So with with this platform and the tokenized securities that go onto the ATS, the alternative trading system, is it its own blockchain or is it aggregating the security tokens issued by secure ties that are issued on Salana, Ethereum, all the public

blockchains is is aggregating those or is it its own thing? Uh talk to me a little bit about the back end and infrastructure. >> Great question. So the the way to think about our system is we will run a you know private permissioned onchain core ledger that's going to allow for inventory to be brought in or brought away from the platform from either digital transfer agents like securitize or from DTC. C, which is the traditional uh book entry depository that will allow for tokenization

um upon request for previously issued securities. In both cases, securities are um tokenized either natively minted like Carlos was describing or converted. They're moved into the custody of the broker dealer operating our ATS and then they're available for preunded trading. an instant settlement versus stable coins when they're sold. >> Okay, I'm still looking for a little bit of clarity on where those assets actually live.

That question makes sense. So, in the example of a of a digital native, you know, issued token, um let's say, you know, Carlos works with an issuer and they decide that they're going to issue natively on Ethereum. Carlos through his broker dealer can move those um from that you know Ethereum wallet into a broker dealer wallet in our infrastructure. >> I see. We will then you know make that available on our risk systems and our trading platform and it can instantly be sold on behalf of that client.

>> Okay. And so with the trading platform, the the digital trading platform that you guys uh I don't know if this was the first time that this was announced, but in this in this announcement with you guys in Securize, you named this digital nysse affiliated tokenized securities platform, the ATS we talked about. It is what I'm hearing is it is an aggregator of security tokenized securities on Ethereum, tokenized securities on on any blockchain, any layer 2 that you guys choose to integrate. Those tokenized securities will be sent to the wallet of a broker dealer and then that is the person uh which is matching the trady stack of equities that then that all of that gets pointed to the ATS. And so the

tokens are on chain. They're on the public blockchains which is what I'm kind of excited about. And then for this NYSE affiliated securities uh trading platform it is done through you send the assets to a broker dealer and then those get deposited into your account and you can go and make trades like that. Is that right? >> Yeah, I think you I think you put it well. We haven't used the word aggregator before. I think that's a fair word to use. The way we've described it is that we're going to have, you know, fairly broad interoperability with a number of different blockchains for settlement purposes. Having EVM compatibility to have broad access to um wallet infrastructure and, you know, developer, you know, kind of community

applications is important for us. Um, but we know we're going to need to support a range of different solutions as well as a range of different Genius compliant stable coins for funding uh purposes as well. So, yeah, interoperability will will be um, you know, a critical component of the solution. >> Michael, the New York Stock Exchange, you guys have over uh 2400 assets. Will all of these assets be available at some point or is this going to have to be sort of an issuer byisssuer conversation? I think it's going to be a dual track process. They're going to, you know, be crypto forward, you know, tech forward companies that are very interested in being early amongst the native issuers. And and, you know,

Carlos mentioned Black Rockck. That's a great example of a company that, you know, actually wanted to take a fund and make it digital native to try to position it for access and utility amongst, you know, sort of the cryptonative investor community. Um, and there there a bunch of both corporate and ETF issuers who want to be among that cohort. At the same time, there are, you know, a bunch of traditional companies that may or may not decide that they want to actively engage in tokenization, whether they choose to or not. The reality is that the DTC, which is the central securities depository for US equities, has announced that they plan to make all of their securities

available for tokenization conversion over time. They're starting with the Russell 1000. So the thousand securities that are in that index plus a number of other ETFs. So eventually I'd anticipate that all NYSE listed stocks you know all stocks listed on other exchanges as well will be available for you know tokenized trading. But I think in the, you know, at the vanguard, you're going to have companies like those that are working with Carlos, um, and, you know, prospects that haven't yet come to market that are interested in in going public as tokens, um, really leading the charge.

>> How long do you think that'll take to play out until the point at which we have basically all publicly traded companies or close to all 80% say all of them uh, available on chain as well? So I think there there more than you know there are more problems to solve than just making the tokens available right there's a lot of complexity in managing the um the sort of recreation of all the trady infrastructure the investor protections the market structure conventions that you know issuers have come to expect and that the SEC requires under the law. So I think it will probably be the case that all US equities could be converted into tokens,

you know, within a couple of years. But I think your question is probably when will tokenized trading become ubiquitous. And I think that's going to take longer because it's going to require not just minting tokens, but then creating the right infrastructure that those tokens have, you know, outstanding utility and can operate with an efficiency that's as, you know, excellent as the one that exists in the current market structure. So it's it's companies like securityize like NYC that are trying to build these platforms today to enable to you know sort of facilitate that migration over the next you know let's call it 3 to 5 years >> okay 3 to five years but I just want to

give you like some metrics so you understand even if not everything moves >> how big this could become very quickly so first I think a good parallelism is what happens with uh retail participation on IPOs >> because that was not available to retail people and it started with Robin Hood 5 years, six years ago and then every single IPO now has a retail trends, right? And at the beginning it was some companies only the most tech forward ones like Michael mentioned that had that allocation and it was only Robin Hood but then you got SoFi and then you got uh Erade etc. And then now you have SpaceX which is apparently doing a 40 billion IPO that is saying that 30% will be retail right which is massive. Um, so I think that the token trench for IPOs and for trading for public equities will

start small and then it will grow over time. But given that New York Stock Exchange only has 40 I think 44 trillion in market cap and the whole market if you add the competitors is like 100 trillion even if it is like a let's say a 1% or or a 2% you're looking at two trillion which is probably bigger is like the same size of the entire crypto market today right because this is like the largest you know asset class out there and the most liquid and therefore the most suitable to put it on blockchain rails and make it even more efficient is an asset class that It's very difficult to to do things with it because it's all in this very you know kind of rigid infrastructure and market structure etc that you know you can go and invest in media five years ago and

today you've made a few million dollars and you want to borrow against it and it becomes very difficult or you know somebody's doing short selling and is borrowing your shares and paying 35% to prime brokers and you're getting 3% and like there's so many inefficiencies that people don't realize that once this gets free of the existing market structures and put on on blockchain these things will will open up and and I do believe we'll start small with one issuer then five then 10 and then 100 and and it will grow from there. So >> that is a good reminder of how large this market is. So 100 trillion in in US uh securities it sounds like something and the New York Stock Exchange is like 44 trillion. I mean these numbers are pretty >> pretty astronomical relative to US market caps around like 60 trillion. I

think global equities is about 100 trillion you and NYC is the the single largest market. >> Okay. Okay. Amazing. And obviously so goes the US. I think so goes the rest of the world. I I want to ask another um point about sort of how this works from a user perspective. So retail investor buying a tokenized security. Let's say my co-host here, David, he uses Robin Hood, right? I'm a little older. I use Fidelity. Let's say, okay, so Fidelity is my broker. And so if I want the in five years time, we'll have all of these tokenized securities uh onchain. uh if I want to buy an asset like Exxon which is listed New York Stock Exchange and I want a uh I guess tokenized version of that so that I can have it in my

non-custodial wallet and I can by the way I can bring that wallet to another broker if I want because I'm sort of the custodian of that wallet rather than the broker. So I'm not locked into Fidelity. I can switch at any point in time but I should have the ability to do that essentially through my existing broker. So, I log into Fidelity. I go and I buy the tokenized version of Exxon, assuming they're an issuer that that lists their their tokenized security, and then I can bring that into my crypto wallet, and I can go take that wherever I want. That's the future state we're talking about, right? >> That's exactly the future state. >> I think you're describing a future state that's that's probable, right? It's it's not the immediate reality, right? In the immediate reality, these aren't likely to be permissionless bearer instruments. I

think that we know that that is the direction of travel. Some of the, you know, sort of rapper products that, you know, you were describing before, David, that are in in the marketplace offshore, those are permissionless, um, because they they they sort of defer some of the complexities of complying with the US, you know, regulation. So I think in order to find the solution that's going to blend permissionless um you know kind of self-custody and all the applications that we know are high potential with the um sort of regulatory blessing in order to be within the the sort of US

perimeter like that work is still to be done but it's you know kind of the the rails that are being laid right now by firms like securityize and help us get there. >> But by the way, today with with tokenized securities, you can have it on your sub custo wallet. The only difference is that that wallet has to be whit listed because you got KYC at some point, right? But you also KYC when you go to your broker dealer, right? You also KYC when you go to Binance, you go also KYC when you go to Coinbase. Like there is this negative connotation about, you know, having to KYC and and in reality, we're being KYC every other day in any other venue. And then the infrastructure is still permissionless, right? You can still interact then with like we we integrate with a horizon or

we integrate with uh you know with oiler and like lending markets where the market itself is a permissionless infrastructure for lending but the asset itself that you post as collateral is permission and your wallet has been whit listed at some point but what you're saying Ryan about connecting to a broker dealer and being able to take your securities with you yes the broker dealer knows your KYC they can wireless the wallet they will allow you to then move the tokens to your wallet and then if you connect that wallet to another broker dealer then your securities have instantly moved as opposed to today where if you're trying to move securities, good luck with that. It's going to take you >> Oh my god, I've tried. It's exhausting.

It's actually like literally phone calls and at some points I've used fax machines in order to get um you know, securities from from one broker to another machine. >> It's it's very different. It's very different than just like um moving stable coins, let's say. And I and I wish for a world where it's as easy as that. >> It will be as easy as that. as far as you've done while listed your wallet and you move this across white listed wallets because as Michael said these are securities and they're us and therefore permissionless tokens today um you know do not necessarily comply with with securities regulations that force you know AML checks that force you know if you need the transfer agent needs to know who the holders are and there's certain obligations for the transfer agent about knowing you know the name of

the investor and and things like that. So, Carlos, you bring up the DeFi and composability uh conversation here. So, if if uh I'm whitelisted on a particular asset. If I'm if I'm whitelisted, do I get access to the whole set of assets produced by this partnership or do is it like issuer by issuer? How does that work? >> You white list once with the transfer agent and we white list your your wallet. any security will be able to go there >> and then I tell you what my wallet is and legally speaking I am just claiming that this wallet is mine rather than like my friends who just wants to be able to my offshore friend who wants to be able to own a security

>> but the way we do it is is we we actually ask you to connect your wallet to our platform so we we know that you and a transaction so we know that you have the private keys of the wallet >> right okay legally speaking >> send like a small amount of ETH and or or do wallet connect like we use the same the same wallet connectivity protocols that any D5 protocol uses to connect to our platform and then we we know the wallet is controlled by you and then we wireless you >> right and then you have as the transfer agent you have my identity you have the security uh added to my name and then you also have my wallet where it's all kind of held and so if I lose my wallet I can go get the security on a new

wallet. Correct. >> Correct. >> Right. Because the I am the owner. It's not my wallet that's the owner. It's me that's the owner. >> Correct. So, so the this is not a better asset. As Michael said, it means not like Bitcoin or ETH. That is a better asset that if you lose it, you lose it. >> Uh this is a a sec. This is a an uncertificated security that is represented on a blockchain and therefore if you lose it, >> you can come to us. will verify that who you are who you say you are and then we'll then burn the security the tokens on the on the wallet that you've access to and reminted on a new wallet that you've connected with us. So the the costed risk of this is much lower than the costed risk of digital assets.

Right? Because this would apply, Carlos, the same thing if my Exxon shares were hacked or stolen or something like this or >> correct. Or if you have share certificates like paper share certificates, which believe it or not, they still exist and I don't know and there's a fire in your house and they burn down, you can they're steal your shares, you can go back to the transfer agent and and get them back. So, >> what about if I want to take my shares and I want to put them in a uh that gets a little bit more complicated. A not a legal entity. you just you technically just need to whitelist the smart contracts and then it can work. Legally speaking, I guess I'm guessing it's a little bit more complicated than that.

What are the what are the nuances here that we need to understand? >> Okay, that's a very good question. So So there's kind of two paths to integrate with with DeFi and let's break DeFi in lending versus trading because these are two different uh things on the on the lending uh side of things. Um you know there's kind of two paths. is companies like a are basically uh building um you know versions of a in the case of a collab horizon that are already designed to take you know tokenized securities as collateral. So they've already built all the necessary hooks there for me as an investor that I hold let's say exon shares as Ryan was saying to be able to post them on a horizon and then borrow

against it and then there's a liquidator that will take them like same structure as a normal defile lending protocol but a has a separate marketplace called a horizon that works for permission assets. Then there is other um we've released uh something called the the the vault register which is basically uh a vault where any D5 protocol can integrate this vault technology to be able to take um uh security as collateral on their D5 protocol and we have some people like Oiler Loopscale Zarta that they are now integrating that so it's the same protocol they don't need to do anything that and and they just need to keep the collateral on a separate vault that that you know we provide to them because that vault basically does not change the ownership of the security because you're still as

collateral but you're still the owner until it gets liquidated and then we have to white list the liquidators because the liquidators might take possession of the security. So it's not actually a lot of friction to be honest with you. >> Whit listing the liquidators is kind of similar to just like whitelisting a market maker. A market maker comes in so they're already known entities to any protocol right so >> yeah they are they're already professional >> institutionals etc. So no, I I do believe that that and by the way, this is a massive opportunity, right? Because if you think about um uh stock lending, this is not something that is simple to do for people like as I mentioned today, just go go and try your your shares in in Fidelity of Exon uh Ryan and try to get a loan against them. Try and then

next program tell tell the audience the experience of doing that. It's going to be impossible for you to do. >> Yeah. I'm never going to try. >> You can take a margin loan against your entire portfolio to trade more. All brokers will give you that. But if you want to buy a house against your, you know, exon shares that have appreciated over time, good luck with that. >> Yeah. >> So, uh so these are things that are um that are going to open up um big markets. Also, you know, equities are a good source of collateral. Like a lot of trading firms deposit equities as collateral. And again, a collateral moves very inefficiently because the securities move very inefficiently because moving securities from place to place is is a cumbersome process. So tokenized securities uh will be able to to trade there. Uh then they will be

liquid because of the the the New York Stock Exchange venue etc. So this is going to open a lot of interesting applications. >> So Carlos basically what I'm hearing in summary is that while it's not a trivial thing to whitelist a DeFi app, it is also not that complicated either. And that the idea is we will actually be able to have tokenized securities under the condition that we are whitelisted whitelisted uh KYCed with the uh transfer agent. We will be able to have securities in DeFi apps. We sounds like we also need some participation on the DeFi app side of things. It has to be a two-way conversation. Uh but ultimately doesn't sound like there's any in fundamental roadblocks between here and there.

>> I don't think so. I think it's more about educating the market towards that. I do believe that um DeFi because it's it's a very it's a very efficient lending technology and markets has a very bad source of collateral for lending. uh so introducing higher sources higher quality collaterals like tokenized equities or tokenized treasuries or tokenized uh you know CLOS and bonds etc into D5 markets is going to make D5 markets grow because there will be more you know institutional participation because from a borrowing from a lending perspective they are very efficient markets right but that's not what people are leveraging against in the traditional finance so if we give them those tools I think people will come and and defy will will grow again because keep in mind we're defy we're

still below 2021 levels People don't realize that we pick at 180 billion and now we're 100. So, so we need to we need to do something about bringing institutions there and that's not going to happen if you're, you know, lending against lodgecoin. >> Bank list isn't just a name. It's a genuine belief that you shouldn't need permission from an institution to use your money. MetaMask has been around since the beginning of Ethereum and they carry the same DNA we do. MetaMask was my first wallet and well, if you haven't opened up the app recently, let me tell you, they've been shipping, creating the one app to finally replace your bank and exchange. You can trade just about everything right from within MetaMask.

Leverage per via Hyperlquid prediction markets through Poly Market tokenize stocks like Nvidia. And you can swap tokens gaslessly and across networks and even spend your crypto with your MetaMask card at real merchants all around the world. It's better than institution services but from a self-custodial wallet. And this is what we've been talking about for years. Money that's open and is happening. So give MetaMask trading features a look at the link below. Some exciting news. We are launching a new podcast to help people figure out the crypto cycle, how to navigate it. The best cryptocycle investor I know, his name is Michael Nato. He runs the DeFi Report. This is the guy that sent me a sell alert before the 1010 price drop happened. His cycle analysis has been absolutely on point.

I've been following him for years and this year we started recording weekly podcast episodes. Each one we get into his portfolio, what he's holding, the market structure, entry targets, fair market value of Bitcoin and Ether, and where we are in the cycle. There's new episodes that are released every Wednesday. They're 30 minutes. They're short. They're punchy. I think this crypto cycle is harder to navigate than most. So, let's do it together. Go subscribe to this podcast. Search the DeFi Report wherever you get your podcast YouTube Apple Spotify or find a link in the show notes. There's a new episode waiting for you. Now, what one of the arguments that uh has been made recently on Banklist, and this is actually a debate we had with two professors, but may maybe I'll give you um Austin Campbell, who was on one side of the argument, he's a professor at NYU

Stern. He's also kind of cryptonated, very familiar with this. He actually argues that open public permissionless ledgers, the chains that we all love, the Ethereums of the world for instance, the layer 2 are not necessarily the right place to tokenize securities. And the reason he says is because like what happens in the event of a hack, there's no kind of roll back. These um the these environments are optimized for maybe for more forbearer instruments. They don't have identity. They don't have AML KYC. And so there has been a push for some real world asset activity to happen on more permissioned ledgers. This has been a debate that's ongoing. I'm wondering what your thoughts are on this >> versus Ethereum fire.

>> Yeah. Weigh in weigh in on this debate. What do you think? >> I don't think that's true. So public permission. So first this debate to me feels like the the and you guys are lot younger than me but maybe Michael remembers this is the debate about American online versus the internet. Oh no. American online is safer because we control who puts their content there and who is accessing it blah blah blah and guess what happened it die and then the the the public permissionless infrastructure that is the internet is what flourish right because open open innovation happens on open networks right because anybody's allowed to create new stuff and that's why innovation happened there and didn't happen in America or not so that's my personal view of the world irrespective of the blockchain this debate and now in

terms of whether public permissionless uh networks are suitable For securities, I will tell you that if you do it through a regulator intermediary that has the ability, obviously you can't roll back what happens, right? But actually, in my opinion, that's a positive thing because it keeps track of what history has been if there's a something that goes wrong. But you can always burn and remint to >> you reverse a transaction because the the keys of the smart contract that you know means those uh securities is in the hands of a regular intermediary which is a transfer agent. And and yeah, I know that people don't like the word intermediary, but this is a better intermediary than the intermediaries we had before in the sense that it's more less friction, you know, less in the things it needs to intermediate, etc.

But this is still sitting there to provide that piece of mind to people. So I don't understand why this cannot happen on Ethereum to be honest with you. >> Well, I mean on the on this episode, we have a representative from the New York Stock Exchange. Michael, I had to ask you. I mean, is there anything scary about permissionless open ledgers? Any reasons for you to preserve uh prefer more more permission structures rather than something open like Ethereum? >> Well, I think our regulatory obligations are going to be the same regardless of the technology choices we make. I mean, today we're working under securities laws that were written in the 1930s that didn't even, you know, begin to contemplate, you know, electronic trading. we still have to you know kind of meet those standards even though

we're employing much more advanced technology and I think uh whether we choose to use you know a sort of private chain or a public permissionless chain we're going to have the same you know responsibilities how we meet them how we manage um you know kind of all of those will be different implementation choices and frankly between NYSC and our parent company Intercontinental Exchange we expect to use a number of different L1 and L2 selections across our six global clearing houses as we begin to support tokenized collateral, the NYC tokenized trading venue, um some other projects that we're developing. So, I think, you know, you're going to see us probably

use um a number of different architectures, a number of different um technology selections, but I I don't think that it's going to be um you I don't think it's particularly fruitful for, you know, the community to sort of beat each other. One variety or another, you know, is going to be permissible. I think all of these could be used. It's all about how you use them. But by the way, the SEC published few months ago an FAQ where they explicitly said that transfer agents are allowed to use public permissionless networks to keep what is called the master security holder file is a technical term that means the cap table if you want which is where the record of

owners of the security. So they explicitly said it's okay to use that that uh a public permissionless network. So I don't know what to put this professor is and why he's saying that it's not possible because the regulator doesn't agree with that. So, I mean, as far as the regulator tells me it's fine, I'm gonna do it. >> We'll make sure to uh clip that and tag him on Twitter. Um, >> here. No, maybe I follow him on Twitter and I don't know a reason to say that, but my point being the regulator doesn't agree with that. So, and by the way, this was the argument on the Gensler time of uh, you know, saying whether you know because we were using a public uh, chain whether we could represent security there and we they asked us to have a separate license for doing custody. You

remember these Prometheium guys that got this special purpose broker dealer license etc. Uh and that has all disappeared with the new uh regime, right? >> Michael, I want to learn a little bit more about this um NYC affiliated tokenized securities platform. Let me uh allow me to read between the lines and then you can correct me uh how far off course I get. Uh so you have New York Stock Exchange, great business, been around for for decades, decades. Uh maybe maybe longer. Uh I don't know actually now that >> 230 plus years.

>> Thank you. That's the centuries centuries. Uh and then on along comes blockchain like a new way to do a lot of very similar things that the New York Stock Exchange is doing, but you don't want to like disrupt what you got going on. Tradfi is still basically all of finance. Don't really want to like shift that up. But we have this parallel financial system. It's got tokens. It's got blockchains. And you al also need to kind of keep up with the times. And so you're building not a you're not replacing or disrupting yourself. You are building a new parallel trading venue to go along with the new parallel financial system that runs on blockchains. And it's kind of like a

well we'll we'll get growth over here and if the tokenized thing and the blockchain thing really works out we've got our flag planted with this New York Stock Exchange affiliated tokenized securities uh platform and the old New York Stock Exchange kind of just stays doing exactly what it's doing. it it'll remain like trading with with trading hours while the new one has 247 365 trading markets and the new New York Stock Exchange uh tokenized trading platform will just grow will grow alongside that market independently of the New York Stock Exchange and if it gets to as big as the New York Stock Exchange one day that's great if it doesn't also great. Uh but we have now two independently moving uh parts of the

New York Stock Exchange. Uh this is kind of like my my read on the whole thing. How how close am I? >> Yeah, I think that's a pretty fair read. the, you know, reality is the the New York Stock Exchange is, you know, the home of 2400 listed companies who, you know, absolutely depend upon the liquidity and the, you know, kind of market infrastructure that ensures that they are priced at the right values that they're, you know, able to support the capital formation and and, you know, fund the entrepreneurial visions of those companies leaders.

um to the benefit of public investors. So it has a very important mission. It does that at great scale. You know a single closing auction can be hundreds of billions of dollars of value transferred. So these are these are really you know significant markets that we expect to evolve but you know will evolve you know very deliberately. Meanwhile with an ATS that's running alongside we can be more experimental. we can support the issuers that want to, you know, kind of dive in versus dip a toe in into the space. And frankly, you know, I think we've grown up um over those 230 plus years and certainly um you know, since since the 1930s when when the the

you know, federal securities laws were enacted. We've grown up in a world that was very deliberately, you know, broken into swim lanes where there were segregations of duties where you had clients represented by broker dealers and broker dealers traded on exchanges and exchanges had market makers and those you know transactions were held um by clearing houses and custodians and and like everyone had a distinct job on purpose. And from time to time we've had, you know, reminders of why having those segregation of duties matters a lot in traditional finance. But we're now in a world where, you know, onchain infrastructure can create so much utility for end investors that the

riskreward of potentially like blurring those swim lanes um begins to be pretty compelling. And so I think it's not just you know NYC can kind of run the traditional business and see if it works out with with blockchain. I think our expectation is like this is going to transform like we are going to need to move this business onchain. There's some other market participants who are sort of waiting to see if the existing utilities can evolve and once they evolve then that will be kind of the the cue to begin to do things in tokens. Um our view is that you know we need to be building we need to get very familiar with the technology. need to work with

leaders um both in the issuer community and in the infrastructure community um to to become really you know conversant in that in that u space and so you know I don't know you know I don't know how quickly it'll be 1% 2% 5% 10% of US equity trading volume in tokenized form but by 2036 you know 10 years from now like I'll be stunned if it's dimminimous and so I think it's crucial that you know given the pace of technology adoption and change and regulatory change um you need people to sort of stake out a leadership position

and and begin and so we're we're really excited to do that admitted you know admittedly um you know beginning in sort of a modest way with you know a a reasonably um narrow you field of of what's permissible, but trying to build in a way that'll be extensible and allow for that composability, self- custody, and you know, greater utility that we know is the real promise of onchain infrastructure. >> Yeah. Yeah. I one thing I'm curious about is to what degree does successful innovation on this alternative trading system things like uh 24/7 markets you

know the tokenization in the back end all all the innovation that is being allowed to be unleashed in this alternative trading platform how much might we see actually flow backwards into the traditional stock exchange uh like there is a big conversation there has been ever since blockchains really became notable in in Tradfi of like oh you know the the direction of travel is to 24/7 365 markets. Is that something that the New York Stock Exchange wants? Is it like open to doing that level of transformation for this 235 year old business or is it just saying hey if the market truly values 24/7 365 markets it'll be expressed on this alternative trading system and we'll all just allow

that to grow and you know tradition on the New York Stock Exchange side of things uh tradition is tradition and we just have two options here like will there be a blurring of the lines or more of a separation of responsibility? Yeah, I I think it's a it's a really good question. Our view is this is going to be a a a long-term migration from traditional, you know, the same way that we moved from floor-based trading to electronic trading. I think we imagine like we will see 25 years from now, we went from electronic trading to digital onchain.

I don't think it's going to move, you know, in in kind of a a consistent pace across all investors. I think retail will move faster than institutional, but you're already seeing the traditional exchanges expand their market hours to 23 hours 5 days a week. So, you know, some of the um you know, sort of, you know, agitation that began as as kind of pesky retail, you know, desires has now already impacted things like the consolidated tape and FINRA's, you know, trade reporting facility.

These like very very um you know, kind of tradi infrastructure uh capabilities. So I think it's you know question of when not if. I think you know Ryan gave his example of you know trying to move things you know in a Fidelity account and like he's choosing to buy the tokenized version of Exxon you know in order to be able to have you know his his sort of self custody. I actually think a more realistic example is like in the future he won't need to make a determination to buy a token or not buy a token. people like NYC, people like Securitize, like we're going to abstract away all that complexity. You're going to own Exxon. You're going to have the

ability to move to a different broker. You may have the ability to lend it yourself. You're going to have, you know, kind of a much broader menu of capabilities as an individual investor. That um will depend upon tokenized infrastructure, but you're not going to have to be an expert in, you know, blockchain in order to make use of those types of capabilities. I think bringing those to a broad audience like that's that's the work that's ahead of us. Let me ask you a regulatory question because a lot of this has been brought about by a um much clearer regulatory stance from from Paul Atkins with the SEC and obviously the the new CFTC chair U Mike Zelig and um including you know two or three weeks ago they provided

some fantastic guidance with respect to a taxonomy for which crypto assets might be securities and which are commodities and surprise surprise by the way if it was a security before it's it's still a security. So tokenized securities will be securities. I I think I have a question about um the legislative process and maybe like do we still need the clarity act for the New York Stock Exchange and for secure ties to proceed with tokenization? I know it would be nice like acts of congress can be nice and they're almost hardcoded into the United States operating system so we don't have to worry about what regulators regime shifts might might bring in terms of changes. That said, we do have some pretty clear taxonomies and

rulemaking and guidance coming from the CFTC and the SEC. It's hard to imagine even in a future administration that's maybe a little more dim with respect with resp dim in many uh respects maybe, but dim their view of crypto is more dim and they try to reverse some of this. It's unclear whether much can be reversed. I guess what I'm saying is do we still need the clarity act? Is that still important or can you guys proceed if we don't get that with the full tokenization plan as is? >> We can proceed with, you know, virtually no significant regulatory exemptions and no legislative change for the NYSC's tokenization platform. That being said, getting a bill done, I think, is very

valuable to the marketplace. you know, our our parent company, Intercontinental Exchange, operates global futures markets, global clearing houses. Um, having a bill that enshrines the intention of Congress into law to ensure that we, you know, don't have, you know, kind of a, you know, let's say, like kind of a arbitrariness in regulatory shifts, I think will be very, very valuable. I I don't think that we need the clarity act for tok organization. Um I think if you look at the clarity act um it's more about providing clarity about which digital assets are securities and which

ones are commodities which has been the main problem in in in crypto primarily because most most of the tokens in crypto are people are are you know saying they're not securities and the previous administration took the view that everything was securities right including like ETH and Solana and things like that and so that's where the that's why it's called the clarity act because it's attempted to provide clarity there but you started the the discussion Ryan saying tokenized securities security. So this clarity already there like nobody's arguing that if we tokenize Exon shares it magically does not become a security by the way some cryp people in crypto are trying to do that to create regulatory arbitrage and go and do shenanigans offshore etc to with securities to try to bypass securityities regulations but at least

here in the US and talking security is a security you need to follow the same security regulations now are there other things beyond the clarity act that we could benefit from that will allow more things to happen on on tokenized securities. That's a different discussion. We certainly as a transfer agent, you know, the clarity act actually talks about modernizing transfer agents as one of the mandates, but it doesn't actually say what they're going to do specifically. That's a an an interesting area. Like, you know, I don't want to have as a transfer agent, believe it or not, we need to have the physical address of a person, which is completely unnecessary. If I operate on the blockchain, I just want to have a wallet address and a name. I don't need a physical address. So there's um you know other kind of uh um things that

will require that could you could modernize there like you know some of the regs rules that apply to uh market structure like everybody should follow the same price best price best execution or maybe if you trade on a digital ATS maybe you don't need to do that and market makers will figure out how to make markets uh efficient like it happens in crypto where you don't have those regulations and markets are efficient across Binance and and Coinbase etc. So there's other topics of improvement, but the Clarity Act, if it doesn't pass, I think it's really bad for the crypto industry, but it's okay for the tokenization industry. We talked about how in order for all these uh these equities to become tokenized securities, this is a issuer choice. So the kind like if Microsoft wants security tokens on Ethereum, it has to

make that choice. It's not going to be because the NYIC said so. It's not going to be because Securitize said so. is going to become it's an issue or choice. Uh how do we convince them to do that? And whose job is it to do that? Is that your job, Carlos? >> We're going to work together. >> It's not it's not going to be my my obviously that's my job for sure, but uh Michael, you can speak about that. But obviously the one that has the relationship with the issuers uh is Michael. But to be honest with you, I think that once like we've been talking to many issuers about this. The moment we announced that there's going to be a venue, a legit venue because obviously it's nicer, right? So it's as legit as

it gets where this security is trade, the conversation has completely changed, right? Because the question before was like, yeah, sure, I'm going to tokenize, but what are my what I'm going to do with the tokenized equity? What is it going to trade? Like what is what am I going to be able to do with it? And you walk them through like a scenario, future scenario of things you could be able to do that you it was not a reality yet. Now this becomes a reality. I think you will get more issues because there's no necessarily downsides, right? uh you know they'll get more investors, they'll get more liquidity, uh they'll get uh you know more happier investors, they will come up with new ideas like I'll just give you an example. The beauty of tokenized equities is that you can just prove the ownership because you hold it

in your wallet, right? >> It's it's a it's a irrevocable proof of ownership of a security. Well, today it's impossible for you to prove that you bought Apple shares because you know, yeah, you might show an screenshot of Robin Hood, but that's there's none. They're under your name. there's like a hundred different broker dealers with different apps, etc. Wallet is a wallet and a token is a token. You can always, you know, validate on chain that you own a particular security. This could open up different ways to interact with shareholders, right? Because it could say, okay, you hold my securities, then I'm going to give you a discount or I'm going to give you a preferential ticket for this event or for this other one which today is impossible to implement because it's impossible to verify ownership of securities because there's no ledger that you can read and and

validate it, right? So I think that this will allow issuers to you know become more creative especially issuers that have a lot of like retail following of what they could do with their securities to to attract more uh investors. So >> Michael know if you want to add anything. >> Michael Carlo Car Carlos is on our side of the aisle here. He's a crypto person. I I consider you to be on the other side of the aisle and the trapey person. So, like, do you agree with Carlos and and our sentiment that like this is inevitable or is it going to be maybe a little bit more nuanced than that? >> No offense taken, by the way. No offense taken.

>> It's fair for thinking. Um, look, I so our our CEO Jeffreer, you know, he has a great track record of seeing where the puck is moving. And I think he has a tremendous amount of conviction that, you know, we are going to be in a world where onchain infrastructure is the core of capital raising, of trading, of clearing, of settlement. um you know it's so so I I think we would we would agree that it's it's you know when not if but um you know I think you have to you have to demonstrate utility because there is so much inertia right there's so much you

know inertia in the existing system and so Carlos just gave a couple great examples where you know if an issuer can get new benefit from instantly knowing who's on their cap instantly knowing if someone's buying or selling. You know, that's something a CFO or an IRO would get really excited about. Now, institutional investors are going to, you know, do everything they can to obfiscate their activity in the market. And so, it's even if technology could solve this, there may be reasons that it won't immediately come to bear. Um, but I think, you know, we're going to have to, you know, find ways to tokenize the existing inventory, not just new

issuance if we want to really move tens of trillions of assets quickly. Um, so I think it's going to be, you know, not just the sort of issuer byisssuer progress that that, you know, Carlos and and his brethren are are pursuing. Um, but it's going to take industry-wide shifts. And that's where regulatory clarity, uh, no pun intended, you know, can be helpful because you have these collective action problems that really need a catalyst that that operates at the scale of, you know, a nation state.

>> Because of that inertia that that Michael's been talking about, there is another way this could play out. And I'm interested your your take on this, Carlos. So, uh, love the idea of actual issuer back tokens on chain that are securities, right? Cuz this represents actual ownership on bank list. We talk so often about the importance of property rights and that gets you the the closest thing to a property right as possible. There are these synthetic type token products and even maybe per as an example of this on on platforms like hyperlquid and that doesn't give you actual ownership of the security or asset but it does give you price exposure. Seems like price exposure is what a lot of traders at least are looking for and a lot of the capital

quite frankly is looking for. How does a digital transfer agent and kind of the slow path of getting all of these issuers and assets on chain one by one, how does that compete against the synthetic versions of these things that can just like be quicker? Uh even if it's not giving you full ownership, it is at least giving you the price exposure and maybe that's the product market fit. Maybe that's what people actually want. What do you think about this? I >> I would not put pers and derivatives in the same category. I think pers are valuable because I mean equity markets have future markets as well, right? And they coexist and and future markets and per is a kind of a variation of a future market where the futures do not expire, right? But they also need the spot

markets because they need to take their price from somewhere. And I I was actually the other day with a company building per infrastructure and and after we announced the uh the project with uh with the New York Stock Exchange and she was saying this is great because PERBs operate 24/7 but equity markets do not operate 24/7. So during non-market hours, you don't have pricing reference for spot price for for pers right. So I think that you know spot markets moving 24/7 helps perks and I see them as completely different instruments as you said one thing is you want to own uh you know the stock you want to hold it if it goes up you know over time you know 10 times you're benefit 10x per is a different story you have a funding rate risk you know if you go up but you go up

like this you can get liquidated and lose all your money and you need to produce it's kind of a completely different audience right so it's not about uh the same type of investors and I think permanent spot markets are compliment traders in the way that future markets complement the spot markets. Now the derivatives I do think that once the native tokenization exists why would anybody actually touch five different derivatives all of them different all of them with different counterparty risk etc when you have an an actual asset that is what you actually want to do so that because derivatives is spot market those guys are trading spot markets so that's why I want to separate them from from pre they're just trying to compete for creating a an spot market for derivatives of uh equities so I think those disappear once you have the the

real uh asset and and instead of having six different versions of coins, if Coinbase tokenized coin and there's a token that is the native representation of coin, why would you actually buy the derivative? Why would you actually take counterparty risk to a random company having to buy an offshore you won't be able to access in the US etc. So that those my my view go down to zero at some point now obviously you know because there's nothing else that's what people are are purchasing. >> Carlos as we bring this to a close and thank you Michael and Carlos for for joining us today. Um there there has been some rumor about um secure ties maybe it's more than a rumor is actually somewhat of an announcement at some point I may have seen which is uh that secure ties was going to go public by

route of of spa at some point in time do you have an update on that Carlos what what are the plans right now >> yes it's not a rumor we actually announced that last year that we are merging uh with a counter fitzer sponsor spark it's called caner equity partners too uh it's uh it's already a spark that is trading we announced that we're merging with them in the at the beginning of this year. We filed the S4, which is kind of the filing you need to do with the SEC to approve the the public filing and the public listing. And then we're now waiting for uh you know an updated S4 and hopefully get the regulatory process towards the end and and get listed uh in the next few weeks.

So I guess that brings the question, are you gonna tokenize yourself and put your >> course 100% release? We're gonna be the first. >> It was part of when we announced that was a condition for any spark we talked to that you know we want to tokenize our own equity because we we want to showcase all the cool stuff that you can do with with native tokenized equities uh and what best to do it with our own equity. So 100%. Carlos, last time we had you on before this time was I think two years ago when we were talking about Bidd and this was the beginning of real world touring it. >> Yeah. What's if we if we broaden this and maxim you know maximum view? What's been the progress in bringing real world assets on chain from two years ago until now? What uh what significant milestones

have we accomplished? Well, I think the the growth of the entire space and and again it's it's very controversial the metrics because what do you count as tokenized assets? Do you count this closed networks or there or not? But by any metric, this has been growing faster than anything else. It's grown faster than stable coins that have been growing. It's certainly grown faster than crypto that has been declining. So, so this has been the fastest part growing part of the market. I do believe that Black Rock entering the space was a catalyst for adoption because obviously they're not they're a very influential company. The the tokenized treasury space that where Bid plays which is still the largest asset. I think it's worth 2.3 billion or something now. It was like 300 million two years ago and

now it's 11 billion. I don't think there's any any part of crypto that has grown that fast. Uh but that said, I think we're still scratching the surface and I like last week Adas uh Cher Atkins uh in his speech he said we're at the end of the beginning. So it kind of feels that way for tokenization that we're at the end of the beginning. Now the beginning has happened now we need to get into the real growth because the the space is so massive as we discussed before just taking you know 1% of uh or 2% of of stocks on chain doubles the size of crypto. So, so that that the fact that we have tens of billions of dollars, it still feels like very very early days.

>> Before we let you guys go, I want to ask about the timeline for this whole thing. So, this was an announcement of a partnership. Uh, when does the actual product happen? Is this like a 2026 thing or a 2028 thing? Michael, I think maybe this is a question for you. >> Sure. So, subject to regulatory approval, we'd expect to launch in Q4 of this year >> for issuers that are interested. That's right. for for issuers that are interested in in native issuance. They don't need to wait for our ATS to be live, they can begin to, you know, work with Securitize and and and their peers to, you know, begin onchain issuance.

Uh, and then those products would be eligible for trading on their platform once it's approved. >> Wow. Okay. So, firmly in the 2026 time frame. That's great. That's great. Well, congratulations, guys. Pretty cool to see some of the very early visions of tokenization manifest into into partnerships that we can >> Yeah. I mean, welcome on chain. >> Yeah, >> welcome on chain to New York Stock Exchange. It's a big deal. >> Great to be here. >> And these bangers, there would never be bangs there. Broker changes. >> That's right. >> Doing this to bank this way would be fantastic. Guys, we got to leave you with this. Of course, none of this has been financial advice. You know, crypto is risky. Even the tokenized security form, you could lose what you put in. We are headed west. This is the frontier.

It's not for everyone, but we're glad you're with us on the bankless journey. Thanks a lot.