Tokenized Finance Is About To Hit Critical Mass And It Will Change Everything

Transcript

It's not that they want tokenization itself. They want that once something is tokenized, I can do things with this tokenized version of a fund or an asset that things that I could not do with a traditional thing. My name is Robbie and you're watching the rollup. And today I'm asking you to please subscribe, comment, like, and support our channel. We interview some of the best and brightest minds in digital assets, digital finance, [music] and tokenization. We are doing this for you. So, please sit back, relax, enjoy the show, and thank you so much for all your support.

>> Sergey, welcome back to Cyos. >> Pleasure to sit down with you. Uh, last time we spoke, we were at Link NYC. It was our first time. It's also my first time here at Cyos. You've been coming here for a while. >> Maybe you can take us through the journey a little bit. what it's like, you know, seeing the growth of Cybo, seeing the growth of the digital assets industry and how you're seeing these worlds converge today. >> Yeah. Yeah. I've been coming here for a while. I don't even know exactly how many years, five or six or seven years, something like that. It's a great conference because it's basically an infrastructure conference where everyone gets together and thinks about the future of the capital markets infrastructure landscape. I think what I've consistently seen is the growth of digital assets as a topic this year.

It's not a controversial topic at all. It's more about how to implement it. Um the other interesting topic I see here this year is AI agents and their use of stable coins and onchain cash as a form of payment. So I'm actually now even seeing other trends interact with tokenization which is a good sign because it means that tokenization is already kind of accepted as normal. In terms of the growth it's been massive. Many many years digital asset what they call digital asset companies now blockchain companies or crypto companies couldn't get any kind of booth right. We were lucky many years that we could have a booth because we were, you know, kind of in our very involved with the Swift

community and uh the member banks and Swift itself and so on. >> And so this year's booth is actually the best booth we've ever had. >> And I think we have the most meetings set of of any time we've ever had. So I I would say that we're kind of at um at a very big high point here at Cyos in terms of the bank's interest and other service providers interests. There's also a lot of technology partnerships and global system integration partnerships some of which that have been announced already. These folks are also here and I'm seeing more and more that they all need a solution to abstract away the complexity of multiple chains and so chain link I think is already viewed by I would say the vast

majority of them is as that chosen solution like we have a lot of cases where people come and meet with us and they say I know about chain link um I already know a lot about it I'm interested in it which is obviously very different from where we were even a few years ago I would say now is like the time where we're harvesting the fruits of our labor and we're reaping the real benefits of so consistently and over so many years being the reliable provider, being the the group that provided the best advice of how to implement smart contracts, how to implement advanced workflows. And now the digital asset industry, I would say, has caught up to the point where they want to do those advanced workflows, they want to do collateral management, they want to do

tokenized deposits, and they want all that stuff to work together, which is something that I think people are realizing now only only Chainlink is really able to provide them. >> Yeah. And given we're at Cyos and given your roots in the Swift community and chain link roots in the Swift community, I'm starting to realize that the perception is that chain link is the proxy through which member banks and incoming banks will interact with the Swift ledger through the partnership between Chain Link and Swift. Maybe you can unpack that. We'll get into that to start and we'll get into some of the other announcements that you made this week, but maybe you can start to explain and unpack the relationship between

Chain Link and Swift and how you're working together on this ledger. >> Sure. So, we've been collaborating with Swift for many years. There's been a lot of clear announcements about our work together with them. There's been uh clear releases of information and designs where Swift and us and and large banks like UBS have collaborated on various flows. um our collaboration with them and and various banks here continues and we're very excited to be working with them in various ways. [snorts] Really uh what you have now is is kind of what we predicted and what we said to a lot of folks is that there's going to be more chains. So that's something that I've consistently said and we've consistently said. Now you see DTCC has the collateral app chain that they released more information about here and

they released also how they're deeply integrating CR CCIP data feeds and and various other chain components. The Swift ledger is also something that Swift has been working on for a while. They had some information released last year. There's some more information this year. And in in the case of the the Swift ledger, the things that I can share now are that CRA is basically being used as an interface for banks to be able to access the Swift ledger, sign things on the Swift ledger, do key transactions on the Swift ledger. But from my personal perspective, when I look at all the different other tools that are out there to interact with the Swift ledger, similarly to how there are various tools that you could use to

eventually interact with the app chain, I don't see a more robust tool than CRA. So I I think what what what's going to happen is that not only will there be more chains, but the initial simple use cases of just tokenize a deposit or launch a stable coin or tokenize an equity or tokenize a fund, those simple initial operations will not be enough. And that's when more and more FMIs, infrastructure providers, banks, and and other kind of folks in this in the ecosystem here will realize that what you really need is something that can do advanced workflows, interact with advanced contracts, and interact with those contracts across multiple chains.

For example, the DTCC collateral management workflow that we released together with them here at Cyos is, I would say, a moderately advanced workflow. I wouldn't say it's like extremely advanced even. That's what you're going to see more of and that's when I think people are going to are going to look at their options about how do I interact with these various chains whether it's the DDC app chain whether it's the Swift ledger whether it's any number of other chains and they're going to realize that oh the chain does these valuable things it's a reliable settlement layer it's a reliable place for me to define legally binding smart contracts but I have all these other operations that need to be done around

those contracts And without those operations of bridging data compliance, the contract is very hard to use. It doesn't really work. And so this is really what I think people will come to realize. Uh we we see it with with various groups like DTCC that are that are now having a mandate from their senior management from their executives to go into production with advanced flows. And that's when they really start digging into CR and they start digging into CCIP and they start looking at all the capabilities that chain link has and they basically come to the conclusion that A for me to build this would take much longer than I thought. B there's no other provider that has anywhere close to these

capabilities and C when I look into the other providers and their certifications or their security that certification and security level is also not close to chain link. When you win on those three dimensions, you you see more things like Appchain and the Swift ledger, I think, um, is something we're we're going to be working with more. We're very excited about it. We're excited to get member banks to be able to access it and use it efficiently. Um, that's, I would say, the current stage where we are there. uh we're looking at how can we provide various other capabilities to the swift ledger working through that question but you know that has to all progress at the speed at which the swift ledger is developed and and taken to the next stages

>> and the realization I've had through conversations at this conference has been that chain link is ubiquitous with coming on chain uh which is is just a massive kudos to the work that you've done and so this DTCC collateral app chain it it feels like one of the biggest uh announcements that's been made here at this conference, if not the biggest. Um, Chainlink is, you know, one of the very significant partners of this collateral app chain, and we've already seen how DTCC is making their entrance into the ecosystem. And so, I'm curious how you anticipate this fitting into the rest of the industry given that, and I'll tell you just a quick little snippet, which is that I was speaking with another bank that was here. They

mentioned that um 247 markets is almost driving a lot of the demand for stable coins and a lot of the buildout that is happening. 247 markets then begets a lot of collateral management, a lot of those advanced workflows that you mentioned that chain link is able to help fulfill. And so as you see the world transforming into a 247 market, how do we build out the rest of those workflows? Maybe you can describe what is real with the DTCC collateral app chain now and how do we get it to a state of fully advanced workflows that you're describing?

>> Well, the DTCC themselves, they've they've announced and clarified their timelines for production. And so I'm I'm going to rely on their statements about their timelines because that's that's their chain and you know their their plans, right? So I I can't really comment on what their plans are for production. We're, you know, thrilled to be supporting them and providing this technology and that they've chosen CRA as a as a technology that'll coordinate a lot of this collateral management workflow process, the data, you know, delivery, the crosschain from CCIP. Um, I think it's a very strong validation of the value of everything that Chainlink does for advanced smart contracts. That is obviously very gratifying and great and they have a very smart technical team. They have very very thoughtful

folks. Um, specifically Dan Dan Donnie that is the CTO of Digital Assets there. He's he's a great guy and there's a lot of really smart people working for him. So they've done a lot of deep diligence and I I think they've made their choices very clear and very public and we're we're thrilled to be working with them. >> The the way to look at the progression that you described of 24/7 365 and then you know there's there's more uh utility uh from that. I would really view this as needing to reach critical mass. So in order for something like securities lending to work, which is I think going to be probably the main use case of tokenized equity, you need the tokenized equity, you need the collateral venues, you need the prime brokers involved. In

many cases, you might need the agent lenders involved, you need custodians involved, you need all these different participants involved and enabling that. And so what that means is you need to reach a certain amount of partners and different kind of providers all working together [snorts] so that enough banks and enough asset managers and enough pension funds can get the benefit of securities lending for tokenized equity as an example. Now, we're not there right now, but we are getting very, very close to that level of critical mass in my opinion. And what'll happen, I think, when you reach that level of critical mass where securities lending actually

provides value. And tokenized equity isn't just about owning an equity. Tokenized equity is about better yield on the equity 247 365 movement of the equity, better balance sheet management and something called funding rates getting reduced, which means you actually have to put less up. You have to do less to meet your obligations. These are multi-billion dollar savings per bank for the larger institutions and hundreds of millions for the medium-sized.

These are very significant numbers, but you you need enough of these different market participants to all be on this system. And so what we're doing now is we're getting all those market participants on CCIP on CRA on the chain link data standard so that they can enable collateral management and movement efficiently. If that happens, I think what we'll have been a part of is creating real value and real utility for tokenized things, tokenized equity, tokenized funds. And then because having something tokenized provides you a unique value like 24/7 365 movement and access, better yield, better risk

management, then the amount of tokenized equity that comes into existence and the wide adoption of it will massively skyrocket >> because the the difference between traditional crypto markets is that while that market is in the trillions in terms of retail and and crypto hedge funds, that is very Well, this market is in the tens and and depending on how you view derivatives and notional value, hundreds of trillions and this market is also very incentivized to move quickly to better solutions where they save money or they make more money. So I think once you hit that critical mass, you pass that critical mass threshold and the amount of tokenized equity, the amount of yield

on it getting generated just skyrockets. That's that's what I see happening. That's the exciting thing I think about DTCC doing this also. It's because the DTCC is enabling I would say the gold standard of tokenized equity because that tokenized equity comes with all the relevant rights that you would have gotten with standard equity. >> Yeah, makes sense. And I think this is inevitable. You mentioned earlier the conversations that you're having here at this Cyos are more tactical. They're not theoretical. They're >> Yeah.

>> boots on the ground. We're making this happen. Yeah, production, >> right? >> It's like what's what's what's the remaining step for production? And we're having that conversation and we're doing that work with multiple different participants. >> And when all of those participants are live and working together, that's when you get the utility, the value of tokenization beyond just tokenization itself. Yep. >> So, I I just want to be really clear about this because it's a constant theme here and it's also a question that in in the cryptonative world is not super clearly answered. It's like why do people want tokenization? And the answer really is it's not that they want tokenization itself. They want that once something is tokenized, I can do things with this tokenized version of a fund or

an asset. That things that I could not do with a traditional thing. The parallel that people in crypto in the crypto native world would would would relate to well, I think is stable coins and remittance payments, right? So you want to do a remittance payment, you want to send money internationally to a family member, huge delays, huge fees, but you have onchain cash, that's it. You know, it happens quickly and cheaply. Yeah. >> Which is why in many countries onchain cash, the form of stable coins has been adopted, >> right?

>> Because it's it's it's not that like I don't have an ability to get the US dollar or some currency in paper form. I can get it. it's that I can't do things with it that I can do with a tokenized version. So that's the threshold we need to cross for the rest of the real world asset market. >> But once you crash that threshold because those industries are so large, I think it'll move quickly. >> I think so too. And those downstream implications are very significant. And as as you see that happen and that phenomenon take place, chain link again plays a ubiquitous role. It has become the interconnectedness of chain link is is quite significant with all of these

partners that you're working with both in the cryptonnative landscape and the traditional financial landscape. Anyone who's been in this industry for a decade plus has seen the industry evolve and and therefore seen chain link through its journey and through the years. And so my personal lens has been you know okay chain link is an oracle. It helps bridge offchain and onchain. And as I come to understand where finance is going, it feels like chain link is becoming the interoperability standard for finance. Meaning CCIP 2.0 came out, congratulations, big launch. And it feels like as we accept that the financial onchain environment is multi-chain,

whether it's offchain to onchain or if it's just coordinating connectedness across chains, this is where chain link plays a role. And so how how should we think about chain link in 2026? Is it still an oracle system? Is it interoperability? Is it something else? So data going on chain or interoperability between chains or interoperability with existing accounting systems. All of these are problems that need to be solved for advanced smart contracts. Simple smart contracts where you're on a single chain and you mint a token and you send the token to another person on that chain and that's it. There's no data, there's no movement across chain, there's no

identity, there's no compliance, there's there's none of these things needed. That is what a chain does on its own. So the way to think about chain link is that chain link adds everything else that chains need to do advanced transactions, advanced smart contracts, advanced transactional flows. And now what's happening and you can see this in the DTCC app chain um collateral management example in the diagrams there and you know we've shown there with fullcrumb and how that works is that these flows are now getting moderately advanced. So now what you're finding is that okay, I have chain A and chain B and chain C and then there's going to be a chain D and a chain E and F and

there's all these chains and the chains are getting simpler to use and cheaper to use and easier to implement. But as there's more chains and as the contracts on the chains become more advanced, I have a bigger and bigger need for more and more of what Chainlink does. So more chains, more bridges, more advanced contracts, more data, compliant and legally binding agreements that comply with identity identity data and identity proofs. >> So I would not even say that we're at a point where the contracts are very advanced. I would say we're in the early to early mid version of advanced.

>> Yeah. >> And so what we're going to see now and and that's because they're they're not even that widely used yet. Once the early versions of the contract start getting used in scale, everyone's going to start getting creative and they're going to say, "How do I make my contract better?" >> Yeah. >> How do I make my tokenized equity better? >> That's the exciting part. >> Exactly. And and that's what you also saw in DeFi. So, as things got more advanced in DeFi, chain link only became more important. Yeah, >> but this place is in in like the DeFi life cycle timeline.

>> This place is in like the first year of DeFi being on production. >> You see? >> Yeah. >> So while there's more chains, more contracts, more advanced contracts, more systems to connect to the contracts, >> chain link is the layer above and between the contracts that lets them do those valuable things. And personally I think that layer will be quite valuable and important because the the complexity and the cost of having a chain will go down. But the more chains there are and the more things you need to connect to the contract then to the chain the more important chain link is.

>> And you anticipate that happening offchain and settling onchain. >> Well actually it's it's interesting because in many cases you have something called digital twins. Okay. So you have the need to do accounting back to traditional systems and you you have to do that because the regulations only allow the final control what's called control location and the final settlement to be offchain in the place that the law says is acceptable. >> Okay, >> that'll eventually change >> as the laws change. >> Yeah, as the laws and the regulations change. And so eventually you will have all settlement on chain. There are use cases where you have settlement on chain and that's been made legally binding but then even that you need to synchronize back to the traditional system and so

that settlement often needs data that settlement often needs to do settlement across chains. So for example the DDTC collateral management is not really settled until the obligation is closed out on both Ethereum and the app chain. >> Huh. So that's an example of a digital twin. You have the DTCC collateral app chain and you have the Ethereum instance and these need to tie out in order for that ultimately to settle. >> Sort of sort of the digital twin will actually be what the app chain run by DTCC needs to synchronize back with the DTCC's own backend.

>> Okay, >> that'll be a form of digital twin. Okay, >> the stuff between the app chain and Ethereum is uh what we call it mirroring >> or we call it creating certain loan obligations and representing loan obligations. But in theory, it's similar. But the difference is between two chains and uh a chain and a existing accounting system. >> But the important point there really is that chain link solves both of those problems and it solves those problems in a single flow. you see >> the netting, the tying out between all of those mirrored instances, >> right? Between those mirrored instances.

In DDCC's case, it were primarily focused on the app chain to Ethereum, >> right? >> But in many other cases, it's also the chain of the institution. It's Ethereum and it's their accounting systems. >> All all of these things are >> just getting more complex is the point. So that's why chain link keeps changing what people understand it as because the initial core problem of advanced smart contracts was I need data >> right >> and so chain link solved that problem and then the big problem was I need reliable bridging and so chain link has solved that problem right because chain link doesn't lose $290 million chain link doesn't lose $320 million that's how you solve that problem and now you're moving on to identity this digital twin and accounting problem um

orchestration which is what CR does which is just a catch all for basically all the other compute that you need offchain to be reliable and so eventually chain link will be known for solving that as well but then let's say a new problem appears like how do I get AI agents to efficiently interact with tokenized cash whether that's a stable coin a tokenized deposit or a CBDC >> well actually CR is already optimized for AI usage and so then if AI agents become a a widely used resource for interacting with onchain cash and tokenized assets. Then I think chain link will be the interface layer for those agents. But chain link will continue to evolve and become whatever

is needed for advanced smart contracts. >> That's that's what I'm understanding. And so to to sum all this up, the north star here, right? If there's one metric that guides your principles as a founder as you run chain link, it sounds as if it's the continuous advancement of smart contracts. >> Yes, that's exactly it. I I think it's it's hard to explain because smart contracts are complex and people are only interested in smart contracts in relation to the one thing they're doing now like DeFi or tokenized funds or tokenized equities. So, people's understanding of smart contracts is very narrow. But you know, we had this site even before uh chainlink called smartcontract.com. And so we were

working on smart contracts even before Ethereum and even before a lot of other things that exist now. And so I have always been enamored with smart contracts, but my definition of smart contracts is not just code that runs on a chain, >> right? >> It's code that can automate in a cryptographically verified way key operations. >> Okay? Now granted, now it's all about key financial operations, >> but it's not just about I have a signature, the signature signs something and moved something on a chain. That for me is a very limited understanding of a smart contract. What what we have for example with the DTC app chain is an example of a moderately advanced smart contract, but it's going to get even

more advanced. And I think as it gets more and more advanced, chain link would provide more and more things. And the reason chain link is chosen, just to be clear, is that it's reliable because these inputs cannot be unreliable because if they're unreliable, then the whole contract is unreliable. >> Does that make sense? >> Yes. Because ultimately the weakest link is the one that you know this is what we're measured by. And so it's important that everything uh is resilient and secure and uh is held to a high standard. Sergey, thanks so much. I mean, I I really appreciate your insights, your forward thinking, and your your your visionary work here in this industry, helping move the entire industry forward. Really appreciate it.

>> My pleasure. Thank you for chatting with us. >> Yeah, absolutely. A pleasure. Likewise.