RWA Adoption: Hype or the Next Trillion Investment Opportunity? | EBC11

Transcript

Hello everybody. Um so this is the um the panel uh where the unit of measurement is trillions. We don't do billions anymore. We go to trillions. So that's a big challenge. So it's very aspirational. We're trying to be ambitious. And before we um we start, I'd like to have a show of hands. Between hype and trillion, who what do you vote for? Is it a hype or are we going to trillions first? Um the hype very few the trillions there's a few trillions in the room. All right. Uh so um we have an esteemed panel here. I I will let them introduce themselves and then we'll we'll kick off

the the panel. >> Fantastic. Thank you. So I am Andreelli. I am the COO for the asset management arm of Laser Digital which is a fully owned subsidiary of Numura Group. We are roughly 130 people span across various jurisdiction Switzerland, UAE, London and Japan. We operate in trading asset management and VC and we have also significant interest in Caillou tokenization platform which already tokenize brea fund uh black croc and a few other funds.

>> Good morning everyone. I'm FK Mia from Go Mining. So, Go Mining is the world's largest platform for tokenized Bitcoin mining. So, we've been operating for eight years. We have just over 4 million users. We manage our own data centers and have distributed uh over $500 million worth of Bitcoin to date. And by tokenizing our real world mining output, we're effectively turning Bitcoin hash rate into an investable RWA, giving anyone transparent, fractional access to the Bitcoin mining industry, which is currently dominated by large scale miners.

>> Morning everyone. Uh Patrick Baron. I'm founder and CEO of Members Capital Management. We are a Bermuda regulated uh reinsurance asset manager. What that means is we deliver uncorrelated yield uh to our investors through investing in in uh highquality sort of blue chip portfolios of global uh private reinsurance contracts. So that's your your Swiss re and handovers and so on. Um where does web 3 come into this? For us it's really about the distribution and the product structuring. So >> right so I just uh got a few numbers here to try to uh size the market um before we delve into the the discussion and uh so the actual uh real asset uh

world uh uh uh uh market. So we have 150 trillion of securities out there in Trati. We have 300 trillion of uh real estate estimates. Um we have um 20 trillion of US treasury markets, 8 trillions of money market funds and 15 trillion of ETFs. So it's pretty sizable. Uh and um the number of one trillion compared to those mega uh markets seems to some extent seems almost uh small but that's not as easy as that, right? So I I I throw a

question here. What why are we not at 1 trillion and what needs to happen to get uh to that size? What are the blockers? >> Yeah. So from my perspective there are I would say three main blockers but also this can bring few enablers right. So blocker number one the regulatory clarity has been one of the main issues that we have seen in the past. So this is one of the first problem which we have seen but is now getting resolved thanks to significant regulatory developments across most of the jurisdiction we see. The second bit is the secondary market. So do we have enough and we have sufficient secondary liquidity which will push to have more

primary issuances. And then the third one is the composability element. So why someone would ever go to buy a tokenized assets, right? And you can look at the return element, but the main one which in my view will trigger most of the inflows will be broader and bigger composibility for multiple projects and investment opportunities in DeFi. >> Okay. >> So my view is it's it's probably taken a little bit longer than we expected, but it's happening. you know what what is it in 2022 the RWA space was five billion now we're at 30 billion um I think it's estimated to grow to anything between 3

and 10 trillion by 2030 um for me it's a case of you need the infrastructure to be in place you need the regulatory support but you need someone to move first a big you know traditional player to move on chain and I think you know during the last few years we've seen that you know take Black Rockck as an example, they put their biddain. You're now seeing pretty much, you know, tons of companies offering treasury. So, it's it's happening. It's starting with the most liquid, easy to understand, transparent assets, treasuries, money markets. [snorts] I think when we see things like real estate, that's when it will really kick off. And so far real estate's been a bit tricky because no one the way it's been done is it's been

packaged under SPVS on chain not you know very efficient but we're now starting to see bigger players um uh you know try it out you know in Dubai we we've seen two instances where there's been um apartment complexes pull on chain in partnership with a local regulator so it's happening it's just taking a little bit longer it's just about building trust Yeah. Well, I agree with with with all of that. I mean, I suppose I would only add um you know, it becomes very very large when you're bringing in new money and new investors and not sort of only in in the existing ecosystem. So, it's

all of those things, but I think it's also um really one creating products that are compelling as a tokenized or or digital asset form. um but really also building the relationships with the distributors who are going to take these products to their investors and essentially tell their clients to buy them, right? People buy these products kind of when they are told to buy them in many cases. And I think once you've leveraged and and as you say it's it's certainly happening and it's coming. But I think you hit the trillions beyond the billions when you are bringing in new investors who say yeah I will I will hold my real estate exposure or reinsurance or or whatever

it may be in tokenized form because because that's how I've accessed it and that's how my private bank or you know broker dealer whoever has has approached me to to gain exposure. >> Yeah. If I'm a devil's advocate and I'm a large TRFI asset manager or um and I I'll put it to you. Um what is my client my Trafy client getting from a tokeniz tokenized assets right? I'm not talking a cryptonative um someone who in the in the ecosystem but someone who's on the other side what would make them embrace a tokenized asset.

So my perspective is twofold, right? First question you should ask yourself is does this product really need to be tokenized? Yes or no? If you're afi player because the moment you can already access the product, the moment you can already distribute the product and the moment there are no significant cheaper, better faster type of dynamics, well actually you don't need to tokenize a product. It's not like a mandatory thing that you must do to be in the space or to somehow be innovative, right? So the real advantages that need to come from tokenization are better distribution for example thanks to fractionalization cheaper and this is one actually of the blockers that we have seen in the past because due to corporate law issues and

regulatory issues it was really difficult to avoid the application of wrappers enabling you to access the product. So that's where native tokenization can also bring like significant economies of scale and that can enable you to save when you do tokenize a product and the product is actually fully running on chain. So this is one of the additional pushes that can bring a traditional allocator to look at tokenization both from an issu perspective but also from an investment opportunity perspective.

Right? So why would we need or why would we want to invest in a tokenized product in the first place and this is also linked to the other element that I was mentioning before which is the secondary element. Is tokenization bringing more liquidity? Can I do more with the product thanks to its tokenized features? And this is where the element of composability comes into play because if you have a traditional money market fund, well, you can definitely use it as a collateral in TRDFI, but say that you want to access DeFi because you have better funding rates because it's cheaper to borrow on DeFi because you have more yield opportunities. Well, you do actually need to have something which runs on chain. And that's where

tokenization and compliant tokenization comes into play. So basically we need to digitize the entire value chain. Uh we can't just digitize the issuance. We need to we need to have the entire ecosystem that is um straight through really. >> Absolutely. If you have just an entry point and there is no exit or no utility is useless. >> Okay. Any thoughts? >> Yeah, if I completely agree and if I was to add two two points to build on that I think you know what value do you get that you don't already get? So for me one thing is the blockchain is 24/7. It operates 7 days a week financial markets don't. So when products become more sophisticated

you'll have the ability to trade them at any point in time uh wherever you are around the world which you cannot necessarily do with um certain you know traditional markets. The other thing is and I guess it goes back to the original ethos of the blockchain is accessibility and democratization. I think you know right now we're seeing institutional grade products going on chain. So it's you know the existing participants um that are using it. But when you have the ability at scale and the technology to put something like real estate on chain and you could have an individual that can put $100 into it anywhere around the world and generate yield as an investment. That's where there will

be a real breakthrough. And I think it's just a case of it's going to take time because how do you give that individual the accessibility but you know look at the new generation the the millennials the gen z's the vast vast majority of them are already on chain so it's coming whether we like it or not. >> Yeah the new generation is coming with a massive amount of uh wealth transfer right I mean the generation Z is going to be a lucky inheriting with a lot of trillions. So um I guess I guess there's going to be a a sea change in the acceptability acceptance of of those technologies from our people following us.

I'll I'll say something slightly controversial which is echoing something that was said on a panel yesterday which is [clears throat] businesses sort of need to constantly evaluate whether it even makes sense to be in web 3 and and maybe sort of deriving from that point at least from our perspective if you're building a business I think it pays to be agnostic and meet meet investors where they are if you take a long view and think in five or 10 years, you know, the blockchain will simply be an abstraction and the technology that, you know, this this all runs on.

I think it's useful to also target investors who don't necessarily want their product tokenized, but you know, with a view that in some period of time, you'll be uh, you know, the vehicle that brings them to that. So with the wealth transfer, you're seeing a different generation who's probably more open to tokenized products, but they're not necessarily there or perhaps they have a a budget for digital asset products, but really they just want to wrap traditional product. So I think it's helpful to be very open-minded about who you're targeting and and kind of what the long game is to bring bring those investors in because again, I think that's that's when you you know get to the trillion beyond the billion.

So someone mentioned earlier fragmentation. Uh it seems to me that's quite a quite a a pain point in the tokenization right because if I look at um equities uh real estate u uh various private credit every um every tokenized uh workflow is different right uh sometimes it's it's it's intrinsically needed but sometimes you wonder whether it's not too fragmented in terms of for instance an SPV or or no or natively issued and I mean it seems that we haven't yet formed a a real consensus on the best uh access to to market on on those tokenized assets. Is am I right?

>> Yeah. Well, look, if you look at the what happened in the last 15 years, right? I see three main eras of tokenized product and tokenization. The very first one was well you know what you start launching a fund so a traditional rapper which invests in digital assets that's step number one then the second era has been well you know what now you actually apply the technology and you tokenize like traditional products so you tokenize money market funds tokenize bonds whatever so where are we heading to address your question in my view we are heading toward what I call the wrapless era where you do not need anymore to pick an existing type of product or

solution to tokenize and to create a product around that. You build natively on chain. So there are no wrappers which means no application of cost which means real innovation which means that everything runs on chain and those wrapless product come in the form of vaults which in my view bring massive benefits very easy accessibility and they will become mainstream. they are already growing sign significantly and this is where I believe the real innovation of tokenization comes from and uh I think if I want to also think a bit more into an institutional perspective like most of the largest firm at the moment looked at tokenization just as I'll build my own it's a silo maybe cooperation with some

other players but this is not what tokenization should actually address because this is just another form of private cooperation tokenization instead should lead to broader public access and this is where the real innovation comes from. So everyone should be able to access in a free easy and absolutely borderless way. So I I agree. I I I think you know if you think of the the three aspects one is trust and I think you know the longer blockchains go on the more products that exist and you know that work the trust is built up. I think the technology is

definitely improving. I think what's probably lagged is the regulatory space. It's taken a very very long time even now. Well, you know, I've been speaking to a few attendees who have said they have challenges in investing in, you know, blockchain based u investments because, you know, their local bank doesn't support it. And so, you know, getting the the traditional space to catch up has been hard. But I think now we're somewhat in arms race. You know, you're seeing the UAE push on ahead, you know, with with regulation.

The US is now super [snorts] pro- digital assets. uh you know Europe has has started to catch up with Mika you know we're now hearing about ESMA oversight the UK could do better you know my my my homeland but um we're getting there so I think when they catch up and they and they push forward and now they're literally being dragged by the industry it it will just make it easier to do things on chain you know the technology is there the use cases are there it's just a case of like there are you know certain parties holding us back >> but does that mean we need an obstru an abstraction layer that that kind of abstracts away all these um um concepts or or workflows and or are we going to more like vertical silos of um of access

to tokenized asset it's it's a big difference in architecturing go to market I suspect >> yeah I think you know there is a lot of interoperability across chains now um you know you see things like you know account abstraction exists on Ethereum So you don't need to you can now use you know social login uh you know you can use gas gasless transactions etc. Um it is still somewhat siloed. I agree you know you have different chains. Ethereum is definitely dominating the RWA landscape but I I think interoperability is becoming better but it could certainly be

improved. Um [laughter] yeah, I mean I I suppose from our perspective we're looking at it very differently in that we're primarily targeting people who are let's say not in the space and trying to bring them in or or perhaps they're in the space but they're very focused on a different type of asset than we have. Um and and generally in our conversations people aren't you know we we meet them where they want to be you know that's we on whatever chain and whatever custody they prefer. Um you yeah you know so that's actually the

approach we took. So you know we we tokenize Bitcoin mining so anyone can access an industry you know you cannot mine Bitcoin at home anymore. So we originally built it on Ethereum because it had the best contract standards. But as other chains became more popular, it made more sense for us to go to them. So you know, we went to BSC, we went to Ton, we went to Salano, but for the end user, it's a seamless experience when they're using our application. They don't really need to know what chain they're on unless they want to. So I think right now, yeah, you're still in a world where you have to go to the user, but it's starting to converge. Um but you know that's where we kind of need our technologist friends to to do their part.

>> Yeah. If you look at the success of the ETF, the ETF is a rapper, right? >> Yeah. >> In tokenization can be seen some aspect of it as a rapper also. And um it's simple, it's liquid and it can it moves fast. So um I'm just curious wondering what will be the ETF for tokenization? Do we need a and also if I'm a Gen Z in 10 years, will I have like a um an access to a a marketplace of tokenized asset in an integrated UXUI so I can pick and choose where where I can buy fractionalized assets? I mean that that would be a I suspect a great leap to get

to the trillions if it's um abstracted away. So uh also retail can come in in in an easy way. >> Yeah, absolutely. I mean one may wonder why they have already tokenized ETFs. They were already quite easy to buy. So the only to me valid explanation is what else can you do now with a tokenized ETF? And I think adopting the same approach you should think about well first goal I need to use as a few click as possible to have access to an investment product and the moment you manage to solve this first challenge that's where you start gaining attention I don't want to call it gamification but

what I mean is the faster and the easiest is to get access to an investment product well the higher is the likelihood of distribution. of course leaving aside the performance of the underlying asset. Then the second challenge is okay now that it was that easy to buy this product what can I do with it because this is where I believe unless you are a sophisticated investor a retailer who is buying a fund or is buying like a share in a traditional format what is this person doing it is just keeping in a in the account well that's where I believe tokenization brings the advantage because the moment you can use it for other things as a collateral you can actually exchange it easily send it I don't want to say as

means of exchange but you can easily transfer it or you can pledge it or you can get leverage on that that's where I do believe the advantages that the technology bring can bring the scalability so what's the position of the large incumbents on this journey do you see them as um cautiously uh uh positive uh defensive or all in u all in um um for the technology I I think they've they're being forced to to participate and now they're not exploiting they're um you know taking up the opportunity you know black

blackbox's a great example you know they're the behalf of the industry they started with the ETF um like the Bitcoin ETF not tokenized but they tokenized the money market funds with the bidd I think an application maybe they already received the license to tokenize ETFs So and generally you know where Blackpark leads others follow. So it's yeah just a matter of time in my opinion. >> Yeah I agree with that. I mean there's certainly incredible tailwind as institutions come in and it you know I I I'm personally of the view that in not too far into the future we're going to be looking at a world that's not entirely dissimilar even if the you

know technological rails are different. uh but I would expect to see the large institutions leading on this and you know some of the principles of traditional finance are still the same things that drive people to make large allocation decisions. Um but I think it opens a door for you know a lot of innovative things and um in interesting structured sort of composable products that couldn't exist otherwise um you know but but ultimately yeah I think it's it's an incredible tailwind to have have the institutions in >> maybe can I just add like a personal tale about how this big institution uh have changed your mind and then changed

their approach to tokenization. So few years ago, let's say roughly three years and a half ago, I was in um European country and speaking with a very large bank and I was speaking with one of the members of senior management and tried to explain the advantages of tokenization and this person looked at me and you know in a quite posh arrogant English told me I'm still wrapping my head around on why should I do it? I really don't see a future for tokenized funds. And then you see Beedle. Look at the performance of Bele in terms of how easier has been and how fast has been to raise assets and how popular the product became. And now you see everyone rushing into it and saying, "Oh, you know, we

are large believers in this technology. We want to do pilots, pilots, pilots over pilots." Well, the reality is you shouldn't just stop at pilots because pilots are great for marketing. You should go toward adoption. And this is for example what like you know Numura like a very traditional Japanese investment bank was pioneering the space by saying you know I don't just want to launch a pilot I actually want to be all in into the space and this is to me the shift which we have seen in the last 18 months. So a huge follower effect. So you had someone getting into the space demonstrating that there was a real juice behind tokenization and there was a real purpose behind it and now

everyone is rushing into it. How long it will take for having everyone even the most skeptic getting into the space? I don't think it will take decades. Um I think it will take maybe I'm going to call it few months but let's say definitely less than three years as soon as these other hardos that we were mentioning before will be solved. Now just to conclude on this one like the amount of cryptokeepic post that I see on LinkedIn from uh professors, academia, regulators and wherever are getting uh less and less every months passing by and every like you know successful launch being announced. So my take is just question of uh let's say

few few years. >> Cool. Um maybe maybe to to wrap up I'd like to ask each of you what is what do you see your um the future of your approach to tokenization your use case each each of you and uh and then where do you see this market in five years time uh with a focus on um uh adoption. >> So so far we looked at tokenization from two perspectives. One we have invested in uh multiple tokenization projects in including incubating one. The second one we have tokenized our own funds. So what's next in my view? What's next is what can we do more? How can we go beyond the rappers? And this is what I

was mentioning when I was referring to the wrapless era. So this is where I believe most of uh our focus will be on including continuing building onchain, managing onchain and provide services on chain. So our views always been about accessibility for individuals to participate. You know our industry Bitcoin mining is um you know it's populated by large large players. You can no longer mine at home. So we started by providing fractional access as low as $30. Um but we want to go further. So, we're about to launch our mine now, pay later model where you can

purchase a minor up front and pay for it in installments, making it even easier to access our platform. And then separately to that on our institutional side, we're we're building institutional grade structured products that give direct access to mining economics without worrying to without needing to worry about the operational uh costs or the headaches. It's just pure long-term Bitcoin yield. So for us it's access uh you know to the industry and we think that's very important. >> Yeah. I I think there's two things. One is um you I think in the short short term uh maybe two or three years I look forward to a to a to a world in which I don't have to whisper the tokenization

part necessarily to figure out who I'm you know who I'm talking to and whether they're receptive to the message. So I think there's a period where really both are accepted and and being agnostic is is a big benefit. Um you know for us again similarly it's it's really about access and I think that's that's you know the the attraction of of what we're able to bring. We're in an industry that is dominated by investors who are pension funds and endowments and you know to plug for reinsurance for two seconds. It's another one of these highquality private assets like a private equity or private credit where investors have gotten comfortable and now they're looking for, you know, new uncorrelated attractive assets. And so

for us, this is a this is a pathway to that to act to access new investors across a broad spectrum. Some are some are in web 3, some are not. In five or 10 years, maybe it's sooner. I think everybody will be tokenized and we just won't talk about it too much. So a trillion well in a trillion uh for the global market. Five years 10 years never >> my view well below five years. >> I think we'll hit a trillion by the next bull market 2030. >> Yeah I I agree with that. I think it comes sooner than we think.

>> All right. Thank thanks a lot. We found a trillion. We're going to get there. So uh we have a lot of work to do but I guess we looks good. Thank you very much.