Live From DAS: Tokenizing the World - Institutions Enter the Arena | Carlos & Marc

Transcript

I was listening to a talk on the first day about outperforming in liquid token markets but one of the panelists were arguing that the opportunity is actually coming in could come in more from public equities who utilize blockchain technology on the background so I I do think there is some risk that and let's just I'm going to use the wood web too um even though you hate it um there is a risk that web 2 comes and you know eats our proverbial lunch in the sense that they you know so they just use all of the Decades work of opsource free technology that we built the GU twe yes nothing said on zerox Research is a

recommendation to buy or sell Securities or tokens this podcast is for informational purposes only and any views expressed by anyone on the show are solely our opinions not Financial advice pachio Ryan and our guests May hold positions in the company's funds or projects discussed what's up guys welcome back back to another episode of zerx research today we're live at Das right after the Trump talk to chat with Carlos and Mark thanks for coming on guys well you kind of forced me to be here so yeah we didn't know we were doing this but like pleasure to be here um you guys are both very tokenization and real world asset Focus I would say it's much more relevant that you guys are here as opposed to me what do you think is the takeaway for you both in terms of

institutional adoption in terms of tokenization in terms of real world assets Mark you can start off maybe with ETF stuff asset issuance Asset Management what do you think um I think well I mean it it's a good time to be talking about ETFs we had like five weeks of straight outflows but then this week I think I saw over $500 million and inflows just into the Bitcoin ETFs alone so very happy to see that turn around um largely I think tokenization you know I'm walking around talking to some people here and it's becoming a more a topic that people are more interested in these days and they're actually asking a lot more technical questions than they were a couple of years ago so I mean then there's other talks today that are going to get dive into that deeper but

overall I think you know one of the talks yesterday mentioned that we're educating again as a space there was a couple of years after FDX where we weren't educating but it's starting to happen again and I think that's partly what D is about too and so it really resonates me to see that people are asking these questions again and we're moving back to where we were previously anything to add Carlos yeah I think like outside of stable coins just moving into the data uh tokenization is really small today like less than 20 billion dollars in assets tokenized most of it is concentrated just in private credit and like us treasuries like I would say like 90% of it so when you

look forward I think the biggest issue we have right now is regulatory not Tech technological I think the foundations are there for tokenization but the biggest issue is like what are the right regulations to like enable onchain asset issuance because what you have right now is basically Legacy rails and then you tokenize that and just add like a digital twin and the problem is you're you're just adding cost you're not like making anything more efficient that makes sense I have two questions about this one why is it mostly private credit because I've heard this from both of you before or what what why aren't we getting other forms of real world assets on chain I I think the short the short let's just do

the short answer the short answers is mostly private credit because it's most of the private credit is coming from is being issued on Providence which is a cosmos blockchain um with a you know a validator set semi- permissioned but it's HL loans from figure which and that's you know that's basically manyi home mortgage loans but all of most as being issued by figure because they've basically had to dog food them own selves them own selves because they had to prove to the market that this technology works and then in doing so that that market of these loans got successful and so they've proved to themselves that they were successful and and I hopefully that kind of resonates

with the market and so that's why I think that private you know credit is probably the most popular but then also to you know you you want to do these less liquid types of capital on chain because that's where the more the greater benefit is like it's so much easier to tokenize like stocks like we have maybe not in a maybe not in the most legal sense or the most regulatory Clarity but you can get Tesla on Apple onchain I don't know what your rights are it it's also very tough like you can't put size in no no you can't yeah you can't put size and you know that's a liquidity issue and this is that's kind of what what I'm talking about too so like they they want to put private credit private credit and maybe private equity on chain to kind of bring that

liquidity that doesn't really exist on traditional rails um and that's basically a wrong answer but Carlos if you have any thoughts no I largely agree with that I think the be the biggest benefit of tokenization is for sectors where you have a liquid markets and so private credit is an instance when it is not publicly traded like the borrowers have varying like very drastically different terms amongst themselves so it's not standardized at all so with oranization you have like a secondary Market where you can add liquidity but you also have like more transparent terms that you can track on change so it makes a lot of sense for that specific asset class if you look at other things like I don't know Commodities like

tokenized gold hasn't grown at all like in the past year and I think a big reason for that is that you already have very liquid markets on like the traditional Vehicles like ETFs like you look at GLD it has like 86 billion dollar in AUM whereas like the whole tokenized Market is just like a billion dollars and the reason for that there's just no need for like a tokenized version where you can already get that like via an ETF what would you guys say is the best way to get exposure to real world assets or to tokenization well even on Carlos's point with commodities something I think is interesting is boxus and salana um basically using nfts to represent

whiskey yeah um um and I think what's great about that is that as maybe a whiskey collector or Trader you go to this website and you don't know that it's running on is salana blockchain or any blockchain at all so it kind of abstracts away all of that but that is an example of something that's directly issued on chain through these nfts something that we think is just meme coins and art and it's actually has a tangible use case as as as back tech to represent something that's non funable and and I and I think it it provides liquidity to Market that may or may not need it I'm not a whiskey expert um I'm sure other people would really appreciate this instead of having to drive miles and sending a mail order check or whatever it is they do in

America they still use checks here and sign and sign things right um so and and then on that same point I I I see I see Uranium on on the blockchain now I remember that yeah um I I wanted to to try and sign up but I had to kyc and I wasn't really a fan but I guess anybody buying uranium probably needs to be checked yes you should be checked if you're buying uranium so I do think like okay these are maybe novel and Niche use cases but the the greater point is that they didn't exist before like you're they you're expanding the total adjustable market for different assets and in this case Commodities to be traded yes on chain but just should be traded in

general yeah I agree with that I think that one of the greatest opport unities is just tokenizing private Equity there are firms that have done that like action arat like in Switzerland but the problem is that it's very like limited like geographically it's only for Swiss ones as well because of exactly it's just like small to midcap S equities I think you wrote about like two years ago maybe yes yeah yeah but like it's just very limited today and I think like players like Robin Hood have demonstrated like interest like I I think mentioned like the co-founder of Robin Hood that he's very excited about tokenizing private Equity that there is

no fundamental reason why someone should be able to invest in like a five minute old meme coin but you shouldn't be able to like invest in SpaceX or open AI so I think that's one of the areas where I'm very excited about it but you need like clear regulation especially in the US which whether we like it or not is the most important Capital Market Market in the world so you need like regulation here to be able to on board like billions of assets into conation completely agreed I have one followup to this question I've been hearing and seeing more and more blockchains that are

permissioned that are coming out now and saying we are specifically Built For This and comparatively we've had existing blockchains that are more popular that already have the Tex stack like I'm thinking Solon ethereum l2s and then now I'm thinking like there are specific ones that are being built that are permissioned private validator set um and we also kind of saw this with the earlier real world asset exposure so I would say like maker Dow um especially like late bull was very clear like a real world asset play because they held a lot of t-s um versus now I feel like we're going to be getting more and more different things um Maple was also an older example now we have Ando Mantra Etc how much do you guys think it matters if

I guess like old versus new in this case and do you think we're going to be getting drastically like different forms of exposure do you think we should focus more on like private Equity opportunities or do you think it's like a pick and shovels kind of scenario where I should actually be focusing on let's say like a permissioned blockchain I mean just to like set the context like we've seen tokenization players that already have like existing products expressed plans to launch their own blockchain so you have like Ono with on the Chain that's a permission kind of blockchain Athena like two days ago announced converge alongside securitize what I found interesting about this is that Athena already has

like a very popular and big tokenized product which is usde and what they want to do is like bring like bridge the gap between like institutions and defi so it's not exactly like purely focused on organization and rwa but it's more like how do we make sure we can give like compliant access to institutions to products like USD and I think that's like a great like use case for like a permission kind of like blockchain where it's like very focused on like specific use case and and you have a very clear idea of what you want to

achieve yeah and I agree with that and I also think it's even broader cuz like if you follow the incentives yes you know Athena wants to do this but has their own chain so does uno but hyper liquid similar thank you for that hyper liquid wants to have their own L1 we we we've seen this with many other like dydx we've seen this with many other other protocols or companies just wanting to capture more of the value stock wanting more control and I think that's a keyw there the control because that's something especially um the these in these financial institutions will want when they're issuing assets control so do do does a private does their own permission um blockchain provide them

that yes but then you know you have to look at what the trade-offs of that are um you know there it's not easy to run a permissioned uh validator set or even run a own blockchain you open yourself up to a lot of legal risk as well potentially yeah legal risk smart contract hacks I mean depend depending on how I mean you can maybe you can roll it back but then what's the point like why not have it in own private database and then when we start to have all of these varying institutions launch their own private chains then we're going back to the same problem that we had in the beginning because all of the private Equity right now probably exists in a mongod DB and and or somebody's using Cobalt in a bank to to just store this so God forbid an Excel file right so we

and and there's no share liquidity God forbid it would be QuickBooks no probably um yeah and there there there's no shared liquidity there's no nobody can t tap into this so where so when when you have all of these l1s we're we're kind of going back the wrong way and I thought we did this private this blockchain not crypto movement years ago and learned from that but you know I don't want to name drop anybody but we've we've seen some failures in this space on that note and I know you all might not agree but there there is a hybrid approach to this which let's just in let's just say in two years ethereum solves interoperability between l2s right right now we're

comfortable or maybe not comfortable with l2s having their own centralized sequencers I mean bass is the most popular L2 and it's controlled by a centralized company has a centralized sequencer so I don't in terms of l2s I don't think that's an issue for the market um relatively speaking so there there is a scenario where these institutions can launch their own l2s um you know under the same guys you know back powered by ethereum and whatnot and remain get some kind of control whether that be kyc or you can roll back have the centralized sequencer while also tapping into the liquidity of other l2s through if you know through whatever means that ethereum eventually solves this with um and you know we see

you know companies like deutche Bank announcing that they're going to have an L2 with ZK sync so you know and the ey ER and young has their own L2 on polygon um nights Bridge so you know these are pilot projects obviously I mean that's how it's always going to start but I I do see that as another way forward um there's there are other ways but I'm going to just stop there and you know if Carlos has any thoughts um yeah I guess you you have that in various ecosystems you have that for instance which Avalanche subnets like the ever green I I don't remember the name but like it hasn't seen great traction the problem is if you're like a bank do you really want to launch an L2 like like do you

have like the expertise to do that like do you want to run the infrastructure do like they're not like prepared to do that like I think it's more much likely that you see models like with black rock where they just do the thing they're used to and they use tokenization providers like security ties to wrap their Tok like their whatever products they're offering and put them on the blockchain I think that perfectly encapsulates the two approaches as well like the Avalanche and ethereum L2 approach where it's like they want to own the full stack so we should allow them to own the full stack give some form of decentralization and then the other side is like to me it would make for more sense for them to like you said

to launch some wrapped fund on a chain where they can also get the other liquidity benefits as well um one thing that I've been asking and I've been hearing some complaints about is the fact that we've become less and less cyer buunk and um a bit more institutional and I think this was kind of of always going to be the case like I expected this and it's been going kind of towards that direction like more centralized validators closer um collocation smaller sets and now like we're getting with Fogo Carlos I know you just wrote a report on them Fogo is just doing 21 permission validators across like three major cities and increasingly the only use case for crypto is that it's better for

settlement like it's t0 um instant or 20 minutes whatever it is um do you are you guys happy with that are you guys sad with that Mark I know you're very passionate about this um I think like you I think I I thought this was inevitable I've you've seen this coming um you know I the I when I read Bitcoin white paper that whole Cypher Punk idea is kind of what initially caught me but I I think you know when you as you start to opening up to more mainstream you're going to lose some of those core values but I also think that's almost kind of the point like this is a decentralized system it's permissions you have permission to be permissioned if you'd like you can build whatever you want just like people will

criticizing maybe salana for building meme coins like that that's what people wanted to do people wanted to trade meme coins people wanted to use a St this technology to do that and now as we're gaining greater adoption people would like to use this technology to create less decentralized applications and I don't I don't think there's anything inherently wrong with that you know because it's supposed to be permissionless and I I've I have been of the view that you know def it's not going to be defi even though I never truly thought it was given that it's kind of like it's onchain governance and it's really you know who can who was early in the team who which rooms were

you in how much money do you have to buy these tokens what your tokenomics that's not you know that's a different version of of of control um but I I've been of the opinion that it's not necessarily hasn't been defi isn't going to be defi it's more onchain finance and you have you can have permission to go on you know use the on you know use the less regulated things if you'd like yeah right um but I think a lot of people would feel more comfortable if there was some some backing behind it some kind of reputational backing maybe some kind of more centralized control yeah I agree with that I think that the majority of the world like in 5 10 years will be using like permissioned kind of networks

in some way or another that being said it's sort of like the right to bear arms or the right the right to free speech like in the physical world like you don't think about it often but like there are times where it is needed and you always need to have that optionality to be like on a permissionless blockchain so even if most of the world doesn't use it you you still like it's a fundamental right and it's something that we should strive and fight to keep same with private money is something that we haven't paid much attention to like most of like all public networks today like are by definition very transparent and firms like chinel Arham whatever can track everything you're doing I think private money is also one

of the things that we have like neglected for so long and we should like try to pay attention to that can I just say that even now and I definitely agree with that we maybe they amend the Constitution for public blockchains give us some give them have some more rights um can I just say even now I'm trusting the manufacturer who made my laptop the manufacturer who made the hardware Ledger I'm trusting the audit firms I'm trusting my wallet provider I'm trusting the rpz network all of these are centralized entities along the way like even like for for Bitcoin I I'm I'm sure none of us here have actually audited the actual script that Bitcoin code is written in you don't know that well I'm sure the two of us haven't haven't done that but the majority of

people so there there I think trustless is a meme like at some point or another you have to there is some level of trust and it's always going to be in another human being whether they built the tech audited it or or you're currently providing a service there's always going to be some level of trust along the way and the benefit of this technology is that it just opens up the Spectrum for this I completely agree I imagine it'll be like the internet where there are places where you can do whatever you want um and then there's the very Normy safe traditional part of the internet and I think that's likely what it should be like like you really don't want people to be doing whatever they can do on

public um probably just because they don't want to one thing I will say is that what what I don't I hate saying web to but let's say traditional applications know how to do is building out good ux and that's something that I'm actually excited about I feel like one we just can't do it because we we have to deal with the backend stuff but if these guys can just like like they're better at ux they're better at front end if you've used Robin Hood and if you've used like any other app moonshot you can tell there's a very clear difference in how good it is um slingshot is pretty good but apart from that like I can't think of any good yor so that's one thing I'm excited about um do you guys have any Big D takeaways well there's one on the same

topic you just brought up there um Web Two is ux I was I was listening to a talk on the first day about outperforming in liquid token markets but one of the panelists were arguing that the opportunity is actually coming in could come in more from public equities who utilize blockchain technology on the background so I I do think there is some risk that and let's just I'm going to use the wood web too um even though you hate it um there's a risk that web2 comes and you know eats our proverbial lunch in the sense that they you know they just use all of the Decades work of opsource free technology that we built the GU TW yes and and just

put a better rapper over it like a and rappers aren't bad things like you know chpt rappers just because just using underlying technology with a better interface right so I I don't want to dismiss something just because it's a CO and code rapper but and you know that that really opens up the possibility like I'm looking at Neo banks in Brazil who are using blockchain rails as part of their payment rails is one part to like move money around remittances like the these companies are are tapping into this Tech and the the users don't care they don't know and maybe the shareholders can actually shareholders of public Equity companies might be able to benefit more than you buying the third highest tvl defi token on some

whatever chain yeah big takeaway from me I think we already mentioned that we're exiting like the cipher Punk era entering like the mainstream era of crypto institutions already here I think over the coming months and years it will be crucial to have like very clear regulation especially when we talk about oranization you need to make sure like there's a way for having like this uh priority between like the digital twin and the physical twin like making sure that when you transfer a token you're also trans like transferring the right to have that token in the real world and aside from that you need to think about how to

um bring like the benefits of crypto to like a wider audience in emerging economies like you need to think the on and off ramps things that we don't think about often I think uh are very important problems to solve in the coming uh months before your next question I realize we're kind of leaning very heavily on this centralized stuff and is I just wanted to say I'm very still supportive of decentralization and just because I'm wearing a suit yeah okay please defend us I will say I had to do this last time we were talking about it and I was you were like oh meme coins are great for radium and they are and they were great for salana and like I had to give a caveat that like you don't have a moral like you don't care it's

about what like you're an analyst you care about what makes companies money and that's generally like I'm not very happy about centralized I think people who know me will know that I'm not like a huge like centralized person um but you have to go where the puck is going I think that's the way you say it I'm not sure I I don't play hockey um what I wanted to my big takeaway was I had two one was I need to figure out a way to get exposure to stable coins um as in not like buy stable coins but yeah and I think the only way to do that is plasma epina is a good shout actually I just don't know how much leverage epina has in like the important conversations

compared to tther and usdt and plasma or like circles IPO I guess I don't know yeah one of the things that I like that Athena is doing is they identify that for instance with usdt one of the big use cases for usdt is just being margin on centralized exchanges yeah and on boarding that as collateral and I think Athena is doing a great job I think they already have like um they're already supported by the major centralized exchanges and they're just keep adding utility to USD I mean if you have like a US Treasury rate that I don't know what it is at right now like four 5% whatever it is why did you ask me because I I don't know and then

you have like SSD offering rates at 10 15% as rates come down like in the traditional World Athena becomes a lot more attractive and if you build the infrastructure that allows institutions to easily get exposure to that yield you can have a lot of inflows there are you worried about the rest stuck up with Aina I think they've solved the main vulnerability of usde which was what happens when you have periods of uh negative rates like prolonged periods and they launch like uh USD TV which is allocated mainly to black rocks bidle okay and then in periods of negative funding rates what they can do is then

they can close the pur positions and relocate two USD TV so that they can act as like a stabilizer for the stable coin usde is a fascinating case of financial engineering where you're basically buying into a fund it's a fund it's essentially one of the best use cases of tokenization they're tokenizing like a very complex Financial strategy that was accessible to just a few people and they're like letting everyone just have access to that through a token I'm increasing ly seeing competitors that want to say our like Edge is that we don't really want to do the sex stuff we just want to do permissionless decks and this is something uxd did before I don't know how familiar you guys are with uxd and it just couldn't scale um but like

you said epina has been doing fantastic they actually bought a Ticker on hyper liquid um so I assume they're going to be also launching a hyper liquid for centralized not centralized decentralized exchanges the big ones um but yeah they've been doing a fantastic job have you guys looked into plasma or no I have not I know I'm familiar like with the relationship with tedar and like it's supposed to be a Bitcoin side chain or something but I I'm not very like clear on that no I I I just remember uxt I I I remember thinking Athena is what uxt wanted to be I I I I was very I was somewhat optimistic on them solving the um stable coin trilemma for decentralized table coins and it never really kicked off and

then it it so ended up being that a more centralized version of this was actually better on high rewards so you know show me the incentives and yeah there was a talk right before the Trump talk that talked about sufficient decentralization and I feel like we've gotten that a few times this year um if in a uxd hyper liquid I think is a fantastic example of like sufficient decentralization I think likely going forward a lot of people are going to have to make some moral and ethical and um ideal concessions and say you know what like the Trojan Horse metaphor this is what we have to do at least I have a potential like fire exit if I need to do it and it's a little bit

better than centralized but we're going to have to change a lot of our lot of our mindsets I mean we we're even seeing web 2 go the other way too with um meta's threads B basically uh Twitter clone X clone um that runs on a distributed decentralized server and it allows specific regions or jur jurisdictions to there not going to be a populatic but it allows them to censor for that specific area so that and and remove the liability from from met spread so might not be morally the right approach to what they're doing but they're using the technology for

approach that benefits them um yeah like going back to the question of how to get exposed sure like to stable coins I think yeah I agree with you like Athena is a big one I think money markets could be another one like if you think where are stable coins deployed today I think money markets are one of the primary beneficiaries in terms of inflows whenever you have big spikes in like stable coin Supply think a Camino like make your choice but like I think money markets can benefit greatly especially if they can offer defi rates higher than the ones offering traditional Finance perfect okay guys thank you so much for being forced into doing the podcast with

me I really appreciate it by blessure yeah my pleasure [Music]