Quadrillions: You’re Already Late | Mike Belshe, Justin Peterson & Eric Saraniecki

Transcript

the traditional financial firms, they were caught a little bit offguard with how good the regulation got this year. Um, and so there's a real scramble and even though you know everybody's very excited about the changes that have already occurred, it takes time for this to percolate through these massive organizations. And so all of a sudden the things that were in the incubation lab that were kind of, you know, maybe they'd been set aside a few years back and then getting resurrected, um, there's there's a scramble to figure out how how they're going to participate. Quadrillions is a miniseries produced by Blockworks and is sponsored by Canton Network. Nothing on this show is a recommendation to buy or sell securities or tokens. It's forformational purposes only and the views expressed by anyone

on the show are solely their opinions, not financial advice or necessarily the views of Blockworks. Our hosts, guests, and the Blockworks team may hold positions in companies, funds, or projects discussed, including those related to Canton Network. All right, everyone. Welcome back to Quadrillions. We've got episode number two. This is quite possibly the best trio of people I have ever interviewed at one point in time. So, I'm very excited about this. Um, we've got we've got some some new friends and some some old friends. We've got Eric, uh, who's the co-founder of Digital Asset, um, also behind Canton.

Uh you you heard from his uh co-founder Yval last episode with Don Wilson. If you haven't listened to that, I'd highly recommend it. We've also got friend of Block Works, friend of the pod, Mike Belshi back on, and uh new new friend Justin Peterson who is the CTO of Trade Web. So Justin, uh welcome to the show, Mike. Eric. Yeah, welcome guys. >> Thank you very much. >> Thank you. >> Yeah, Justin, I um I thought we could start with you because the show is is named Quadrillions. you are, I think maybe the first website on the trade web website. It actually, it's the first time I've seen the word quadrillions on a website. Uh it says 3.2. I'm looking at it right now. 3.2 uh quadrillion of USD traded since launch. So, I would love to get a little bit of context

behind that number and what it means for you guys. >> Honestly, that sounds like, you know, marketing's gone gone pretty worked pretty hard to get a big number on there. But, you know, we've been trading treasuries uh since 98. the the the firm started in 96. It was uh uh the platform was built in a loft in Tribeca. So, we've got a we've got a good um origin story there. And you know, we've been trading treasuries ever, you know, since 98 and have added a considerable number of assets since then. So, anything from all you know, government bonds to to mortgages to uh derivatives, all sorts uh equity, credit, interest rate, the whole bit. and I joined the firm in 99.

So I've seen a lot of that progression. When I joined, it was really only trading outright treasuries and uh treasury switches, treasury roles really. So um so yeah, we've we've been pretty uh have a significant role to play in the electronic trading of treasury securities and and in this new um evolution expect to continue to do so and continue to drive innovation in the space. How how many by side clients do you have uh Justin like ballpark like like how many different participants does it take to get to a number like that?

>> Oh um these days I would say the the clients thousands I'm not going to say tous thousands but thousands for sure and by that I mean firms and those firms can have quite a bit of quite a few traders but also understand that we we trade treasuries in a variety of ways which is there's different sorts of markets. We have institutional, you know, where an asset manager may be trading with a with a with a dealer. We also have interdeler. So, we have quite a few treasuries transacted that way. And then we also have retail where uh, you know, a financial adviser on behalf of a client can can uh, you know, buy a treasury. So, we we we we cover all uh different aspects of the treasury market. So, that helps in as well in terms of getting that number up to be

significant. H yeah, I was going to say Justin's uh being probably way too humble with this introduction of Trade Webb. It's a$22 billion company. It does I'm looking at your se September report here. Total trading volume of 63.7 trillion. Uh record average daily volume of 2.9 trillion. So yeah, ma ma massive institutional player. Eric, I would love for you to so I want to spend the next like 45 minutes just talking about institutional crypto adoption, which is this super kind of broad fluffy uh thing. So I'd love for you to maybe contextualize it a little bit. You you've been in the industry for I you know you were telling me your story like Cumberland mining like I don't know 2010 2011 I forget the exact date but give us just like state of the union on how we

got here and like what what is the state of the institutional crypto space right now? >> It's a it's a hard thing to answer succinctly because I feel like we've come at it from multiple dimensions. So the one dimension that I think people have slept on a little bit is that just us crypto degens that started 15-ish years ago have become the institutions. You know, anyone that held their Bitcoin from the beginning or stacked a bunch of it or have built really successful businesses over the last decade like Belshit, they've become the institution in a certain sense. I've, you know, often said that Bitcoin has become the newest entrant into high quality liquid asset space. So, as much as Justin's talking about treasuries, you know, Bitcoin is starting to get used in similar contexts, uh, lending and collateral and all sorts of different

zones like that. So, on one end, it's just that the industry itself has matured and grown up and become a lot more valuable. But then on the other side, yeah, around 13 when we started uh working on building out Cumberland, it was a very lonely institutional space. You know, back then, you know, on a personal level, people would tell me I was going to jail for dealing with Bitcoin, you know, in 0910 sort of zone. So, it was very very risky. Sorry. >> How much time did you serve? >> Exactly. Luckily, I have not. I don't believe I've done anything to serve deserve that. But, um, yeah, it was a very it was a very fauxpaw topic for a long time. So, now the institutions are coming in, you know, a lot of it has happened to service this growing Bitcoin

space in the first place. But the secondary benefit is that they've long hypothesized that the rails could be useful for other ways. And I think stable coins have really helped illuminate what that means. Uh the velocity and composability of assets on these networks have proven to be quite quite compelling. And uh the next iteration is well what are the obvious fast following uh asset classes. Previously there was a lot of talk about access. I'm not sure that access has proven to be as compelling as people would like it to be. I don't know that fractionalization or access to asset classes that you otherwise wouldn't have access to has really been the same draw as access to the dollar. And so, you know, what we're seeing a lot more

interest in from the institutional space is again kind of the composability. So the interplay of treasuries or bonds with stable coins or if you're talking about um alternative investments, a lot of the benefit that I've seen people articulate well is the combination of all the cash flows with those alts and the LP flows. Um so I think institutional adoption is coming from many different dimensions. Uh but the one that I think is going to surprise and overwhelm the market is going to be the interplay of government bonds and stable coins.

>> Yeah, totally agree on on multiple. So Eric on first point totally agree that Bitcoin is a uh or that those sorts of instruments are definitely crypto instruments are applicable to giving people a means of expressing a macro view. And so that's why we we we strongly believe that those traditional instruments that were used to express a macro view are going to move into a 24 by7 context because um people would like to be able to express the view using multiple instruments on the weekends as they do today in in the digital space.

But and then on the reverse side, you know, the the you know, the amount of um uh treasuries the stable coin uh uh uh providers or issuers are trading is considerable. And once again, they're wanting to uh do that in a 24 by7 context. So that's why we're, you know, very bullish on trading moving into a 24 by7 for instruments like treasuries and potentially others that could be used to express a macro view and also be used by stables to to back their issuance. >> Mike, what do you where do you see the most growth at it go right now? Is it is it in stable coins?

>> Uh, no. I would say it's actually it's everywhere. um for the the traditional financial firms, they were caught a little bit offguard with how good the regulation got this year. Um and so there's a real scramble and even though you know everybody's very excited about the changes that have already occurred, it takes time for this to percolate through these massive organizations. And so all of a sudden the things that were in the incubation lab that were kind of, you know, maybe they'd been set aside a few years back and then getting resurrected, um there's a there's a scramble to figure out how how they're going to participate. So those haven't even really hit the market yet. The uh for us, you know, being more kind of at the ready on the digital front. You know, these digital asset treasury companies have been uh it's been a wild

ride in Q2 and Q3. I think Coinbase's numbers yesterday probably reflect some of that as well. Um basically the digital asset treasury companies are kind of like um I think the traditional finance guys, but just like on steroids. The reason I say on steroids is they're just in this mad dash. uh they all have this belief that like if they accumulate assets and you know basically leverage all that up as fast as they can um that they will be the winner. Um so they're just taking you know much more risk than a traditional firm would. Now back to the traditional guys on stable coins.

Yeah, everybody's trying to figure out stable coins. They're like hey why is it that like these other two big networks USDC USDT are going to be able to get all of the Treasury yield? um they're realizing, wait, this is kind of a better model than what we used to have. Um and uh why don't why don't we get to play? So, there's a ton of these that are coming to market and then everybody wants to figure out how do you convert between all these stable coins. I think we'll see a massive proliferation over probably the next 12 to 18 months and then there'll be some amount of consolidation. People figure out who can win and who can't. Um but definitely a lot moving here. We've had a few press releases in the last couple of weeks around this front as well.

>> Do you have a thesis about how how the consolidation happens? There's this tweet that lives like rentree in my head which is congratulations we've created hyperfragmented money and I can't like stop I can't unsee it. You know I I wish I could remember who did tweet that because it's incredible. But do you have a like sense of what the consolidation path will look like? >> I don't really uh I think it's a little far away still. Um, and uh, you know, who knows, maybe it turns out to be a decent way to um, to to track your own your own balances a little bit, even if you don't have that large of a market cap. But if you're if you're if we end up with stable coins that are, you know, in the tens of millions of dollars and less, then I mean, at some point, they

just become kind of noise. So, you're not going to be able to get liquidity off of exchanges at that size. And then you're going to be dependent upon the issuer probably for the liquidity. and you'll run into just like trust issues about, you know, can you actually get out if you need to get out and that'll create >> uh large spreads? Um because that's risk, right? And the risk has to be covered. Um so we'll see how it we'll see how it goes. But right now, >> can I flip that can I flip that question actually back to you? Like if you think about this hyper fragmentation of money or whatever, um I I would guess what that tweet was getting at, I haven't seen it, but it's, you know, maybe we have 100 chains and seemingly 100 stable coins coming. Like, how do you think

this actually plays out? >> Um and I definitely don't know the endgame and it certainly feels like we'll have more before we'll have less. But I do think that the destination is is few, a handful. Uh I think about the stable coins very similar to L1's like their their networks. I used to always ask what was the most successful public permissionless network and the two answers I like are the internet and the US dollar. They've both been super successful and I think if you think about the dollar like a network and you think about stables that way then neutrality and broad applicability and being everywhere it does feel like there are network effects at play. But I think that in the short term to address uh Belshi's you know comment about the risk of these assets for me the most

important thing to get right is the back end of these assets. So I always think of the front end as like okay there's the stable coin it's out in all these different zones. The backend is the creation redemption and storage mechanism. And where I find a really compelling opportunity to be and and what we're working with trade web and others on is being able to 24 by7 create and redeem stables with treasuries and then you have a very safe common vehicle across all of them. So as long as you can around the clock get in and out of these things into a common denominator around a treasury that opens up a lot of really interesting opportunities for multi-stable coin liquidity and fungeability. And also if you think if you extend that into local markets. So

if you are in uh you know a European market or an Asian market and you have that same sort of tokenized government bond and you have that fungeability between the bond and the local stable coin. You also have now like an alternative FX settlement market because you can go into the bonds settle the bonds globally trade those through bond markets and then as you need them locally convert them into local stables. And I think that that's going to be a really interesting emerging space. And the trick is to get that backend right. And that's that's what makes me so excited about working with uh companies like uh like trade web and also with Bitco that that enablement. It's not just about trying to sit on and hoard the yield of a stable. You need to think

about the utility of your money. And part of that utility is this liquidity on the back end. Putting words in your mouth, Belshi. No, actually Mike was one of the first uh people who told me that the um the yield yield from the stable coin that whole world would get flipped upside down. He's one got me thinking about that and yeah, so um >> you know there's a mad rush right now to get into OC chartered banks, right? And you know with the OC charter at the federal level, the next step is uh and by the way, Bitco is going to complete that very very soon and we've got a conversion. It's not a it's not a denovo so it'll it'll it'll be live. Um but uh the next step of course is getting straight to the to the Fed itself. And so we're going to have a number of

institutions that are going to be able to give straight access that way. Um in addition to of course you can do T bills. Definitely there's a lot of work to be done on the back end. You know we saw a mistake uh that happened what two weeks ago >> a bad finger. Yeah. >> A quadrillion dollar print or something I guess. >> Yeah. >> Um but you know that that's an interesting problem. Like this is what you know we spend a ton of time on. um you know, how do you make sure that you cannot mint in excess of the treasury? Um and of course, we did this with with wrap Bitcoin. Wrap Bitcoin turns out to be a little easier. You got two blockchains, you can check them. It's it's like super easy, right? Um with dollars, it's a little harder. Um but we

actually do do that, right? Where we've got programmatic access to the underlying storage. Can never happen. Like you just can't you can't can't do that stuff. Um obviously, we need to get get a little better as an industry though. >> Yeah. Justin, can we maybe shifting gears a little bit? Justin, can you take us into like almost leadership conversations at Trade Web and talk about like just this partnership with Canton? Um, you guys just helped complete the first real-time onchain financing of US treasuries against USDC on on Canton. Just take us into I mean we can talk Canton, but more broadly just crypto and your crypto strategy.

Like is this coming from customer demand? Is this coming from a painoint that you were having? Is this coming from like FOMO of everyone else is doing it, we have to do it. Like take me into those conversations. So um you know Trey Webb has always been a client-centric firm. So and you while I've been here you know every innovation started in a client's office and I've been a part of a lot of them. So I I could I could it's not secondhand knowledge it's firstand knowledge. I know that's exactly how we've built everything is we don't sit and use a whiteboard. We said we we go and speak to clients understand what problem we could assist them with specifically with regard to uh funding over the weekend for those trading in the crypto market. We spoke to some

folks that were interested in doing that. And when you say, "Well, what what if you could do a repo on a Saturday morning and get, you know, whatever stable coin they wish to on a Saturday for the treasuries rather than try to predict on a Friday what funding they were going to require for the weekend, what opportunities were going to be presented to them on the weekend." and they said, "No, if we could get it, you know, on demand effectively when we need it, and we would actually want the repo not only to be um instantaneous, but also have a very short term, you know, a matter of minutes, you know, the the you could see the light in people's eyes. We said we could do that." And so the and when you see that light, which I've seen

before in other instances, you know, that's the opportunity and that's what we need to deliver on to to to to clients. And so that was really how we got into it. Now, we had we had to talk a little bit about Canton. We had um done some PC's probably three four years ago with a with a small uh um DT platform and we actually did treasury trading and treasury repo um was what we used as as the examples and the first thing we we discovered at least I was sitting there thinking it's like there was no privacy it was you know data was being distributed throughout the network there was going to be no way we could

hide orders transactions whatever whatever it been. And look, I' I've been around long enough at Trey Webb to know when you speak with clients, especially when they feel like somebody's front running them, you know, they're they start asking a lot of questions and there would be no way that we could really defend the use of a DT that didn't have privacy built in. And so that's when we started working with DA because, and maybe there are others, but I'm not aware of them. DA is the only one who's built a a network where privacy is built in from the beginning. And so that's how we end up uh uh choosing Canton as really our our choice. I mean we we're we we can work with other networks but really our our our focus is on developing capabilities using the Canton network.

>> What's the from a customer point of view? What is the main problem that you think crypto solves out of the gate? Is it 247 365 access? >> Uh uh no no because we can we can build that we can build that in for traditional assets. I mean it does require a bit of work which we can talk about but the um but to me it's just a different way to express a view you know on the I think on the macro environment I mean you can you can do it with treasuries you can do it with with crypto and so I I I think it's just another asset to be traded and it will be you know at some point I think it'll become less uh a unique um you know less of a uh disperate asset and more you know part of the the

options that people have when they want to express a view on on the market. >> What you said about client centric growth, it reminds me actually a bit about how Silvergate became Silvergate exchange network back early on, right? What's just, you know, crypto starts getting bigger and bigger and of course the crypto moves pretty quickly. Of course, the dollars and wire transfers don't move that quickly, but then the problem becomes actually the weekends and nights and as the volumes got high, all of a sudden, you know, companies like Cumberland had exposure over the weekends where like they they just had, you know, they either had to decide to stop trading or um just, you know, hope things don't go go go south. Um those practical solutions are are the best ones. And now as we think to the next level as traditional [clears throat] financial firms come in, I mean, of

course, they need all this. And then in terms of like why should it be on a blockchain? Well, to some degree we've had interop uh issues that banks have tried to solve over the years, right? Um and they come in a number of different forms. Often you'll see like a consortium comes together and they're going to solve like how they're going to do some sort of interoperability between them. And yet when you look at the result they they usually don't pan out. I don't know. People lose interest. It's hard to get agreement. you get too many people in there and then like they can't figure out the blockchains have kind of leveled things right now you can say okay we're going to use this blockchain and then you got a little bit more you know agreement to be done but it's much simpler um and a lot of the underlying

plumbing has been figured out in a neutral way so you don't have like one bank favored over the other or this group has advantage trolling etc could not agree more I mean one of the things we really love about uh uh DT blockchain that sort of network is it does level the playing field. So, um it's really about competition and who can offer the best service. And so, and we we're very comfortable competing in that kind of environment. Now, you could say, look, we've been around a long time. We're established firm and doing electronic training for a whole host of instruments, but we still think within the context of competing of in terms of offering uh services to to our clients, we're in the best position to do so. So,

the uh so we I agree with you 100%. What I really like about um the network is the leveling and no one having some, shall we say, what I would construe as a um uh an inefficient competitive advantage that re results in them charging a tax to the industry. >> Yeah, there there's one there there is one genuine technological innovation here in blockchain space too that's an alternative to the consortium model that we've seen in the past is it comes down to the composability. So, it's that combination of like we're all on a neutral level playing field. We have our own ecosystem. We're all competing, but we still have this this composability, which we haven't had in the past. The closest we've been able to get to is messaging. But messaging is really just

that we've agreed on what we discussed, but not what we've actually done. And that's where we already I've always kind of said we we jokingly live in a distributed ledger world for decades already, but our consensus mechanism has been reconciliation. And this is just an upgrade on that consensus mechanism that allows us to guarantee that not only did I say, "Hey, move this asset," but the asset moved and those things were atomic and I guarantee that it took place. So it just allows us to take the latency that comes from that really poor reconciliation process out of the system and then with that velocity we can do all sorts of really interesting new collateral and velocity things we couldn't do before.

>> Part just that the consortiums always try to just get like the MVP out, right? So, you know, getting to the full, you know, smart smart contract programming language agreement and whatnot was just never even on on the table. They couldn't even get off the ground. So, we needed the blockchains to kind of just create something that's neutral. Okay. Now, you can have a discussion about how you're going to interop on top of that. >> Yeah. the but the what was you know Derek to on your point the the what was introduced with Canton 3 in terms of the compos composability across multiple applications or multiple firms I is great because you we're certainly uh you know we do a lot of things well but we don't we don't we wouldn't suggest that we're going to do all things well so we definitely like the ability to

interoperate with others and have the appropriate transactional semantics to be able to have an atomic transaction across you know multiple firms multiple applications Justin, can how much can this scale? Like maybe we can talk a little bit deeper in a little more like micro detail about the um the financing against the tokenized cash that you guys did. Um like how do you see this what's the what's the this gets 100x bigger scenario look like? Like what how do how do you see this growing? >> Well, honestly, it's really down to clients and client demand. Uh we we we're committed to continue to building out our repo platform. I would say we will also go into trading and trading of not only traditional instruments but

also crypto as well but the the so it'll be because to be honest repo and you know buying and selling a treasury it's it's all kind of you can be covered by the same sort of solution. So um so we'll definitely we we're committed to building that out and are doing so now. Um so to me I'm not worried about the the technical issues around trading that will we're we're we're comfortable with uh being able to uh deliver that. Um it really be about demand and I am but I do very optimistic about the amount of uh training that'll be done. Um if you look at the just to talk a little bit about

the trade that was done in July and also the trade was and you know the five trades that were done in in October the the way to look at it really is hey once you've tokenized the treasury and you have stable coins so you have basically the two assets involved in the transaction on chain they're free to move whenever they would like and that's how you achieve the 24 by7. So it's really about once the it really kind of comes down to to me and Eric I don't know where you got where you why you think about this to me it's getting things on chain is kind of critical but after that I think the challenges become less less daunting to be honest.

>> Yeah and I'll just I'll make I'll make one comment I think especially in relation to scale because this is I think it's a it's a bit of a nuance thing that gets lost a lot is a lot of entities are what they would say like tokenizing assets. So, hey, I stick this in an SPV, I wrap it, I create this wrapper. You're introducing a lot of really subtle risks, depository, liquidity, withdrawal. And it's not that that solution doesn't work or that they're not well hedged. I mean, people are quite thoughtful in how they bring them to market. So, I'm not criticizing it in the sense that like I think people are being uh flippant, but it does put a natural ceiling on the demand for it.

you know, there there's a there's a real limit on how much counterparty risk risk I'm willing to take or liquidity risk I'm willing to take on getting in and out of these rappers. What's unique about what we've done with Trade Web and the DTC and all the other participants in this project is to have the real digital treasury on chain that that's the the true legally binding registered asset. It's not some synthetic wrapped version or some indirection or some claim on it. It's the real thing. And so the scale of demand for that is at least whatever the scale for demand of treasuries is today. And then if you add on top of that the the utility profile being able to move it 24 by7 and hold it in new arrangements and incorporate it into your workflows on a on a very

costefficient sense. I think that the demand for that is significantly higher than we've ever seen for treasuries before. Um, you know, just imagine being in any in any third world country and being able to build a really simple experience in the banking app that says FX or inflation risk and it's just a tick of a box and under the hood they're rotating you into a local government bond or a foreign treasury. That's those are very real experiences that can get exposed to users that are not really economical to do today. And if you can provide that at the right price point in terms of execution and opex, I think the demand for that is is through the roof.

>> And also obviously the increased velocity that you get from the the the speed with which one can uh and the new sorts of uh agreements one can uh u you know intraday repo on a really shortterm basis becomes available. So those things the ability to trade in and out of uh uh assets increases significantly. So that velocity will also increase the uh the transaction rate as well. >> Yeah. May maybe let's just go down this path a little bit. Do you guys think that we're in this weird interim time frame where like Yeah, Eric, like you were saying, we've got we're basically wrapping all these assets, putting on chain, calling them RWAs, but it's not we're not directly issuing the assets on chain. One thing that Mike and I have

been thinking a lot about is just like will I mean it feels like we're in a middle ground and eventually all capital markets just move on chain but right but you have to have this kind of messy middle right now. It feels like we're in the messy middle but would love to hear agreement or disagreement on that. >> Uh I think I have kind of a hotter take than most on this. I think that these things that are wrapped but have all the frictions of a real security but don't have the same risk profile of holding the real thing are already dead man walking to an extent. It's like almost the worst of both worlds. Now I don't say that critically because every thing that everybody does to try to rotate

something on chain I applaud and I appreciate. We learn a little bit more from every one of these things. So I I I don't say this from a position of like looking down my nose. I think the stuff that will win are the two categories at the extremes which are the real perfected secured interest asset which has capital market scale capability but then I think there is a very interesting ecosystem of assets that can be created from the permissionless rappers on top of that and I think about that especially in the context of structuring um you know if I want to ask an AI agent what's the best way to bet on FOMC surprise cutting tomorrow I really only care about the price performance of a bunch of instruments and I might want to get you know very interesting sort of

portfolio structured or really small SMA things and and you can do those on the capital market side. Uh but in but the like low friction ability to do this on a permissionless version of that I think is going to be compelling as well. So I think the two extremes both have really large upside. the middle. The middle I would say I would be a little bit personally nervous if I was actively part of facilitating stuff in the middle. >> Mike, what do you think? >> Well, the the rappers do there's a lot of uncertainty about how the rappers and perfecting security and all that will actually pan out if you really had to test it in courts. Um, you know, so this has to get built up. One of the things

that Eric said which was kind of subtle is the the counterparty risk um in our current systems in the the the blockchain world um are already becoming material. I've heard this from large institutions that are concerned about you know how much they're exposed to a particular you know uh crypto firm. Some of them are quite large and yet you know they're running up against the limits. They're like hey you know do I want to be exposed to more $500 million against this firm or not? Um and those are big numbers. Um so we're we're growing and this these things kind of have to grow in tandem. So that what what's happening now lots more parties coming in get diversification you get less centralized risk. Um then the second thing on these rappers yeah I think we're going to need

um some amount of legal clarity uh around it. That'll probably become a hindrance at some point. I think right now we're we have an unlock in the regulatory that's allowing us to grow. Eventually we'll hit something there. Uh but if so long as we keep it decentralized enough that is no single single party is holding everything um it should just continue to grow. It's going to take time of course. >> Yeah. Mike, what do you think of it is the what what is the role of a qualified custodian if you think like five to 10 years into the future? Like how are you guys different than kind of an exchange or a brokerage or even like a BNY or a State Street? Like where where does uh Bitco fit in in the future? Well, um, look, we've been thinking about market structure probably longer than than most

folks in the crypto space. I don't like to call us a custodian at all. We're a financial services company, but what we do is we think that everybody deserves to have a fiduciarily protected account. You know, when you go to your bank, you got a fiduciary there. You go to your stock broker, you got a fiduciary there. You go to a retail exchange in America, no fiduciary. You might think you do, you don't. Um, and I I think that's just a core that you should have. whether you're an institution or whether you're a retail user, you should be able to, you know, count on whoever's holding your digital assets that they're going to protect it with fiduciary care. And you know, uh that's what we that's what we build upon. Now, how do you build market structure in crypto which started with none? And there's a separation of duties

that does need to ultimately shake out. You know, we've got clarity act and you know, it's got some things which are really good about it. um really kind of addressing how do you create robust markets? I think they they haven't fully considered yet. In part, crypto is still growing, but we're going to grow pretty fast and it's important to get these right. Let me let me let me tell you what I'm talking about. So, look, it just turns out that exchanges lead themselves to monopolies. It's always been true. Um the place that's got the best exchange is the one with the biggest set of buyers and the biggest set of sellers. And so you end up with monopolies whether you're talking about CME and you know the uh the derivatives world or whether you're talking about equities and New York Stock Exchange is a little better now.

You know New York Stock Exchange plus NASDAQ's about 75% of the market. But these guys are the heart of the capital markets and the US is going to have the best capital markets for the foreseeable future. There's no other market even close. Um, so as we think about the future markets being purely digital, we have to think about how do we protect that exchange from having any type of failure. And then when you have digital assets, you got a couple of things. You've got a a bearer instrument. All of these tokens now when they're wrapped, it's a little bit different. You've kind of got maybe a second layer there. Um, but digital tokens, you know, when they're stolen, they're gone. Um, and

these are bearer instruments. By the way, we used to have beer bonds uh in the US. We don't have them anymore. They're now uh relics in old James Bond movies. Um but uh you know, in general, they're a little bit unwieldy. And so if you have exchanges that are taking custody of bearer instruments and they ever have a mistake, and exchanges seem to have mistakes on this quite often, you know, it could take down an entire capital market. And would imagine if the New York Stock Exchange went down because of that. Um the second type of risk which we're we're getting at more and more now we're talking about counterparty credit risk. Um this what took down Lehman in 2008. You know 100 plus year old institution. You know humans have a a a pattern a habit of extending too much credit from time to

time or not understanding where the risks are and then eventually kind of blowing up. And I think we need to isolate exchanges from that. So anyway you asked me what is a qualified? A qualified custodian in my view is the guy that gives you the fiduciary protection over holding your assets. Making sure that he's taking all the due care that you would expect with storage of it. If you're going to stake it, that would be staking of it in terms of integrating with other part parties for trading or whatnot is going to make sure that you've got all of the care that you would expect a real finance person to do. >> Yeah. Yeah. Eric, as you guys as you and the team thought about doing go to market basically for Canton and getting institutional adoption and assets on the chain and all that kind of stuff, how

did you think about whether you should prioritize uh instit like the classic institutional people like Justin and trade web or whether to go more like cryptonative and get like the a and you know maybe unis swaps of the world on on the platform like how did you think about just that strategy? Oh yeah. I mean the thing is I think it's a mistake to think of it as or. I mean it's definitively and it's just I guess more of a point of uh of order and and and uh and how to sequence these things. So what what we've done is we said look uh the internet was a fairly transformational moment especially from a permissionless network perspective and there's a really strong case study in that. There was a uh you know the result of the internet is that

not every incumbent died and got redesigned. Some grew, some fell apart, some new entered into the ecosystem. Some markets were more challenged than others in differing ways. So, it left a it left a mark, but it didn't um I would say like completely reorient who who the winners and and the key players were. And we thought okay if that is going to happen on a financial level then we know that there is a a key role for at least the roles in the incumbency zone and we need to make sure that the tech is fit for purpose for providing the right outcomes for those institutions. So we started first with working with the most demanding institutions in the world and it was a very very hard one set of uh

requirements and capabilities that we that we built over the years to to satisfy those requirements. At the same time you can't rely on those entities to be your fast movers or your first movers. And so then you know you need to start to incorporate in more challenger motion and help them understand how they can lever the tech. I saw a really nice thread on Twitter. Again, I'm I'm sorry that I'm blanking who it was, but I think it was Stripe was talking about how when they started to serve the challenger market, that helped them a lot because they got a lot of fast feedback and also those challengers made it clearer how you should be using the product and design some of the business models that go with it that made it easier for the institutions to follow at

scale. So, these things are complimentary. They're not at odds with each other. Um and we thought requirements for the large institutions so they can adopt it was the right place to start. Uh challengers are growing in our ecosystem rapidly in parallel with some of the largest institutional vendors and we expect that the institutional vendors will come and scale and follow some of those motions or modified versions of those motions. Or maybe kind of a silly way I say this sometimes is um like the game of chess. You've got your three phases, your opening, middle, and endame. And you know, opening is you're following moves like, okay, I need I need custodians, I need wallets, I need stable coins, any of these base level sort of things on the on the board. And then the middle game is super creative and you play your

asymmetric edge. And then the endgame is, you know, you're hyper efficient and you win through being, you know, ruthless and correct. I think about the really large institutional adoption as being the big wave and the endgame and the middle game being where the challengers create stuff that's really unique and interesting to Canton that you can't do in other places. But it all started first in the opening game, making sure you actually can service all of these people, you have the right compliments, you have the right partners, and things are in place. >> Yeah. Um, we've been talking a lot about treasuries. Can we talk equities a little bit? Um, I don't know if this is a question for Justin or for Mike or Eric. Um, but yeah, anyone feel free to take it. Like, you know, treasuries clearly moving on chain. Stable, they're kind of the backing of a lot of these

stable coins. What What about equities? like we're starting to see people um tokenize their equity. Uh I think it was NASDAQ who said maybe one day we'll have, you know, trade tokens on the exchange. Like what do you guys think about what what does this world look like in a couple of years? >> I think Eric kind of mentioned it already that maybe like the securities on blockchains are sort of dead man walking or something. don't mean to misquote him, but [laughter] um I think I I think you know crypto folks you know often uh criticize the traditional system for being incredibly inefficient.

Um and that's incorrect. It it has a lot of overhead but it's incredibly efficient because it's got an even larger more incredibly large volume. Um and of course inefficient is like how much do you spend in overhead divided by the volume. So it's advertised over so much size that it's actually relatively efficient for just equities already. So it's got plenty of deficiencies. It could be 247. There's things you could be better about it, but it's super hard to build a new market. And the traditional guys have been on the sidelines for the last, you know, forever up until this year. They they they simply been locked out. They couldn't even try even if they even if they wanted to. So I think the experiments for the that that could

possibly succeed are going to start now. I think probably the incumbents went on tokenizing the equities because they've just got the distribution network. The problem is so many smart people have come along and said, "Oh, I'll build my ATS and I'll build my broker dealer and I'll put it all together and they can build it, but they can't they can't get the market to come." And when the market volume is too small, it's just not worth the overhead. So, they they they failed literally every single time. Yeah, I think that's I think that's a bit what I was trying to say before is that the way that people have tried to bring equities to market puts them in kind of no man's land. They can't trade at NASDAQ and NY today because they're not the real asset. But if they were and they were registered with the DTC and you had all

the right structure things that we're working on in Canton, then of course they could trade. It's not it's not a maybe we will. We will. It's going to happen. It's going to happen in the near term. Um, >> but it's got existing markets where there's tons of buyers and sellers because just super hard to just just replace that. >> That's right. That's right. And I think that on the equity side, it's just a different problem to solve than we found in stables and treasuries. I think stables and treasuries starts with access and then upgrades into utility. I think on equities it has more to do with unique structuring. Uh, so what's the next wave of super lowcost ETFs look like? Or can I do really efficient um SMAs per individual? Can I do uh event trading buckets and baskets? So I think

that it's going to be more in the structuring side of things. And then that's just a little bit deeper down the value curve. So, what's less obvious and has I also think hurt people bringing equities to market as opposed to stable coins that there's not a natural built-in business model that allowed people to kind of get off the ground. So, you know, in the stable coin space, you have the float that'll help outside of the asset onchain and that that's less obvious on the equity stuff. So, I think that's also been part of the hindrance is that there just isn't a natural a natural path. There's one good one, right, which is collateral. Um, so you know, there's Bitcoinbacked lending, um, which is nice business, 100% collateralized, all that kind of stuff.

It's just not that many people have Bitcoin, but tons of people have Tesla stock. >> That's right. >> So, um, some tokenized form. This could probably be done with some rappers. I do think we'll see this, uh, you know, Robin Hood will do this, the DeFi land will do this. Um, those tokenized rappers be used for collateral. Of course, the tokenized rappers have introduced another level of risk as as Eric was talking about before. >> I think they'll get used. Yeah. I don't I don't ever say these things as a binary. I think they will get used. It's just that they don't they won't be able to scale out of the single-digit billions because once you get up above that, you're talking about institutional lending markets and those are the people that really understand this counterparty risk in and out and they price it very

thoroughly and and they're just not willing to take some of these risks for a few more bips or you know slightly better you know lending profile from a from a return perspective. Risk is a big big part of their calculation. They're sitting on pension fund you know long-term length. they're not they're not there like get looking to take un unforeseen counterparty and uh you know infrastructure risks. So it's not that they don't work, they do and they can prove the model but to a very low cap and then from there you need to think about all these subtle and very tricky risks and account for them appropriately.

>> So away from exchanges I think you could do quite a bit with either ETF or equity trading. So, we've we've we've been offering electronic over-the-c counter trading of ETFs for quite a long time now. Been pretty successful and it does allow you to move risk and you know at block size at significant size. So, I do think you can make a lot of progress in that area in over the counter. Um I'm not exchanges is are not my business. So I I it's hard to comment on that. But definitely over the counter we expect um you know tokenized ETFs and all that to to definitely be to take off and it does allow once again it's really about allowing people to express a macro

view. >> Yeah. Justin, what do you think that crypto builders get wrong and maybe mi misunderstand about how traditional financial institutions work? Well, I'll go back to some of the comments made earlier. I I think, and Eric probably knows this better than I do, I still think they don't quite get the privacy thing and the need for privacy in transactions because they seem to be um they don't seem to be as concerned about it as we were, right? Which and I and I, you know, I usually, like you said, I try, you know, maybe not at home, but in the office, I try to be a little bit humble. And so I'm not sure I know everything, but I do know one thing, which is privacy is paramount.

>> Well, look, I mean, we actually have to back up a little bit. Like we've had privacy in crypto for a long time. The regulators said all privacy bad. Privacy means you're trying to launder money. Um, so this is this weird irony between like, you know, who is it that wants or sorry, doesn't want privacy. It's only the regulator. It's only the government. The government holds back everybody. I I guess I'd say I'm not sure I totally agree with that because you know >> DFS they will not support any privacy coin. >> Yeah, privacy doesn't mean completely private. It means only those who should know know, right? You have control over who knows that a transaction is occurring. You know, the two counterparties and then other people that that have a role to play within the transaction. So, I'm not I'm not sure I totally agree with that. But the uh um

but that's what I'm saying is that's that's necessary. And when you get into conversations, I I do find that that is not as um >> look, I felt that, you know, >> the Bitcoin people sometimes get upset when I say this, but I think it's actually the Achilles heel of Bitcoin for everybody. I mean, I've I've spoken to so many people over the years. I mean, obviously, Bitcoin's fantastic success. It's got a lot of a lot of great attributes to it. I don't don't mean to knock it down, but some people are like, "Okay, so wait, if we're all using Bitcoin, then people can see like my past transactions and the you know, people don't like that." So they would they they want privacy even at the retail level. Um I do believe without privacy even for our mainstream coins like that are just doing store value or

payments or whatever else. If we don't have privacy on it, ultimately it's a hindrance. There will be some other market that will provide the privacy. >> Totally agreed. Yeah, you guys uh you guys teamed me up there nicely. So like uh you know we >> I just saw Eric like snap his fingers trying trying we get into this semantic debate with people all the [laughter] time. I mean I I don't like to be pedantic but the the the um the reason that we say that we have not had privacy in in crypto before is because all the attempts that we've seen are really around anonymity. I'm I'm a huge Zcash guy. I'm a big Zcash supporter. I've been in the ecosystem for a long time. It's one of the only things I hold for size in my PA. So, I'm a really big fan of the application of

anonymity when we talk about things like global borderless censorship resistant, above government cryptocurrency. It becomes a bit more existential when you're talking about issuing a stable coin. You know, imagine if um JP Morgan called up their regulator and said, "Good news. Uh, I can't see the activity of 30% of my accounts anymore, but don't worry, there's an algorithmic black box that gives me a thumbs up that everything's cool." like I don't think that that's necessarily the right application of that technology and in the space we have a tendency to always frame things in these false dichotoies public versus private permission versus permissionless uh transparent versus private and it's always at the extreme so today the conversation is everybody sees

everything or nobody sees anything and there's even a very lively debate right now around no I'm not going to give you the viewing keys on ZK protected you know stable coins you know there's kind of a whole thread around this and and I just don't know that that's there's a space for that. I'm not sure that RWAs, equities, stable coins is the right space for that. Um, and when we talk about privacy and can we're really talking about there's a set of entities that must know everything at all times. I mean, if you're if you're the issuer of a stable coin regulatory, whether we like it or not, it's pretty clear that you need to know everything that's going on with your stable coin at all times.

So for an issuer of a stable on Canton, it looks to them no different than a stable on ETH. They see every holding, every transfer, everything that's going on. As a holder, you see everything that's in your wallet. You know, every interaction that you've had with someone else, and that's it. And if you're someone that's just connected to the network, you have no visibility. It feels exactly the way the internet feels to you today. I've got a browser. I don't know anything that's going on at chase.com. I have an account. I know what's going on in my account. If I'm Chase, I know everything going on at Chase. and like that that's tricky in a single asset but then doing it in composition. So I'm using that stable coin to pay for a treasury that has a very different visibility set and preserving those visibility sets even

when combined it can become very complicated. So I know why people have shied away from building tech that supports it. There there are these really complex overlaps on views and getting that right is is a tricky thing to get right. Um, but I think that that is the big enabler to these capital markets flows. I don't think that we are an alternative to Zcash. I don't that's I just I I think they're complimentary. They're different. Uh they're for different purposes. The only qual I ever have is when people try to apply Zcash tech to a treasury at the DTCC. That to me feels gross.

>> Yeah. Guys, as we um as we think about wrapping up, one maybe thought experiment we can end with is uh if you look at the progress of 2025, especially on the institutional front, it's pretty remarkable considering that a lot of the financial institutions set their budgets and do their planning in, you know, Q end of Q3, early Q4. So that means all the progress of 25 was done in let's call it September, October, November of 2024, which was actually pre the election for many of those, which is really when the tide started to turn. So I think a fun thought exercise I'd love to do with you guys is, you know, now is kind of the time period when everyone's setting their budget and doing their forecasting and planning for 2026. We're at probably the most excited period of

time exciting period of time for institutional adoption in crypto ever. What what are the big things that you guys think will happen in 2026? Either things that, you know, maybe people are thinking about already or things that you think people aren't focusing on enough. Anyone I'd love to hear all all three of you guys' answers, but yeah, any anyone can feel free to start. I I guess the first thing I say, luckily I have more flexibility than what you just articulated. So, we were able to after the election, we were able to pivot because we definitely saw that that was going to have an impact on the market. So, uh, we were able to invest and do the kind of work that we've that we've demonstrated throughout the year.

For sure, at least from the Trey web perspective, we're committed to building out a scalable, significant 247 market OTC, you know, whether it be RFQ or any of the other various uh uh over-the-counter protocols in whatever instruments our clients would like to trade. So that's that's our commitment for the coming year. So the the the it's really and it really will come down to like I said it's not like I have an asset in mind that we should support. I think it's pretty obvious that treasuries makes a lot of sense but anything else whether it be crypto or traditional um it really is going to be based upon

client demand for us. >> I think all these guys are coming online. Um I think they've barely gotten started in 2025 generally. I think the faster moving ones, the the ones that have better tech, uh are trying to move a little bit quicker. They'll come out ahead of the pack probably in early 2026 with some interesting products. Um and then there's still going to be a lot of laggers that aren't coming out until like late 2026, early 2027. Um the uh the one thing that could torpedo all of this is if we have some sort of collapse of crypto prices and we go back into crypto winter, all these guys will go back into hibernation for a while. Um and then actually to some degree that might be good news for the bit goes of the world. Um that that would mean that

of course um they would step aside and um [laughter] >> right new owners finance would come to life. >> Mike as someone who's seen more more cycles than most. Actually I could ask the same question to Eric. Uh both both you guys have. Do what do you think I mean there's a four-year cycle question in crypto right? December 2017, November 2021. What do you think is the what will 2026 look like? I know you guys are not traders, but I guess Eric, you've done some I I don't know, but I I think that I think that where I disagree with Belshi for maybe the first time in in the better part of the last 15 years is that uh the the FOMO isn't so much about crypto. Like I I think that people are underappreciating

how transformative to the psyche a lot of these institutions the stable coins have been and uh and just how convicted they are at this point that they need to do something in that space. I think it felt very subversive when JP Morgan started doing say JPcoin a while ago. And I just I I think that there are some budgets that are not so conditional on the price of of crypto and they they see they see the rails starting to make more sense for them than just the crypto participation. It's not that it's completely decoupled. there's a sensitivity. But, uh, I I think that you'll start to see the ecosystems that have true utility and that people are adopting for utility will start to become anti-correlated with the rest of the the macro space. Um, if we had if we

had a downturn, but I think I think people are going to get blown away this year at the pace at which people adopt these uh technologies because the ones that are behind and are feeling FOMO are doing the right thing and are partnering. And there are people that have been for the better part of a decade building out infrastructure to make it possible. And so they they're no slouches. You know, looking >> since you said you weren't sure you agreed with me on this one. Let me let me hit it one more time on the stable coins front. Um you know, banks have been traditionally bad at payments for decades and decades, right? I mean, it's the reason PayPal exists. It's the reason Venmo exists. The reason Cash App exists is because banks have just not been able to innovate. Um, and even with the tool of stable coins, they can now

see like, oh, that's the thing we need to go for, but in order to win in stable coins, you got to innovate. So, PayPal USD is a great example. I mean, PayPal is a great company. Uh, and don't mean to to criticize them. They launched their stable coin, I don't know what, 2020, 2021. Um, and yet USDC, you know, mopped the floor with them. How is it that PayPal with PayPal's brand, PayPal's distribution channel, couldn't get ahead? Well, they couldn't figure out how to cross the streams of their existing business and the PYUSD business. And so PYUSD languishes, they've they've had kind of a rejuvenated effort, you know, more recently where they figure out, oh, hey, there's more than just the brand that matters. But I think on the stable coin front, even though everybody's coming in, there is going to be a redefinition

of banks, by the way. Banks as depositories where like retail puts the deposits in and then lends it out. This is all going to completely change. um banks like SoFi I think are going to uh lead some of the the technology changes internally there but I think the stable coins as excited as traditional finance is about it I think it's going to not have much impact to them and it's going to more come from actually the crypto companies >> yeah but you know what to to be slightly empathetic to PayPal there when you're trying to do stable coins on a fully transparent system it really only has demand in crypto and there Tether and Circle have the market unlock But for the most part, >> payments need to be on your cell phone.

They need to be taps. They need to be super easy. Uh Venmo, you know, like all kinds of these features and it's really about figuring out how you're going to take it to market. I don't think the inhibitor uh for them getting to a size of well, in fact, you know, like Circle got to $50 billion. PYUSD didn't. So, if P if PYUSD were capped by the fact that it's a public blockchain, they would have gotten to 50 50 billion, right? But they didn't. So they they failed at the the starting gate, not at the hey, they needed more blockchain technology.

>> I think all I'm saying is that the the the new horizons for stables are still unexplored and it's a very competitive space in the crypto. >> There's a lot of innovation. This is a great thing like we've got the innovation out now. >> Yeah, 100%. Well, Justin, Mike, Eric, always good to see you guys. Thanks for joining. Um and yeah, we have a really good episode three of Quadrillions coming up. So stay tuned, folks. Make sure you guys follow along and uh yeah, see you next episode. >> Thank you. >> Thank you. >> Bye-bye. >> Bye.