Tokenized Markets: How Institutional Finance Moves Onchain

Transcript

Hey, hello everyone. Um, I'm delighted to be here. My name's Roland Chai from Nasdaq. I had digital liquidity networks, uh, digital assets at Nasdaq. And um, it's great to be here with Andrew, um, Josh and Michael. Um, we're here to talk about how institutional um, finance moves on chain. So, getting right into it, um, I'm going to just throw it out there. How um, how do we view uh, the evolving digital landscape at the moment? And maybe talk a bit about are there separate ecosystems, institutional, retail, and um, different asset classes? How how would you guys view the the interconnectivity of those ecosystems? Is it one big ecosystem? Is

it all converging together? Throw it open. >> Yeah, I'd say we are seeing the convergence happen in real time, which is really exciting. I'm sure a lot of people in this room, you started as a crypto degen, crypto native, and now Wall Street and banks are involved in this space, and I think it's a wonderful thing to see. And we're seeing rapid growth. Um, just looking at some of the data in the last year, we've seen tokenized assets, right now we're about 40 billion excluding stablecoins, increase of almost 300% in a year. If you look back 2 years, it's over 2,000%. And there's been rapid growth, but if you look forward just 3 4 more years, some of the largest banks in the world are predicting the market caps of tokenized assets of 2 trillion. So, Morgan Stanley said as low as City, 6

trillion, Standard Chartered, 4 trillion. So, we're seeing this convergence of real world assets coming on chain, and it's happening quickly, and a whole lot faster than I think any of us could have imagined. >> I think just [clears throat] to jump on the back of that, I agree for what it's worth, but I think there's um, there's three kind of pieces to this. There's crypto native assets, RWA, and the financial infrastructure. And I think we need to be careful to put those all in a single bucket cuz I think they're they're three different layers and they're at different phases in the adoption curve, right? So, if unpacking those a little bit, if you look at crypto-native products, kind of meets the criteria already.

There's liquid, deep order books. There's, you know, good custody around it. There's the ability to, you know, post those and and lend assets with, you know, healthy haircuts. Um and so, I think those are ripe to be adopted into, you know, bigger and broader in investment portfolios. RWA, probably the area for the biggest growth. Um but I think the one thing we need to be careful there is, you know, that tokenize everything and start with tokenizing assets that add operational efficiencies. Um and so, things like government bonds, US Treasuries, JGBs, money market funds, and deposits. Uh BIS, the report came out like they're increasingly referring to that as the building blocks for for the tokenized,

you know, economy going forward. And then I'd say finally on the financial infrastructure side, you're starting to see stablecoins be adopted by these, you know, the larger firms. BIS came out with Project Agora. It's about 40 different banks looking at tokenized deposits. Um and so, again, they they all need to come together but very different phases but but moving generally in the right direction. >> Yeah. Just to take stock of where we are today, like if we think back a year ago when we were on the stage, uh there wasn't really that much discussion around RWA and crypto. Um the approximate volume of all the activity on RWA a year ago on crypto-native venues was zero, right?

So, like now you're seeing maybe 3 trillion of or 3 billion of tokenized stocks, you're seeing maybe 20 to 30 billion dollars a day of perp volume on commodities, broad-based equity indices, single-name stocks. Um and yet those numbers are still very small compared to the actual volume that's trading in traditional markets. >> Yep. >> So, um, yeah, there's clearly like a an awakening happening in the crypto community where uh, there's real value being created by crypto products, um, and by crypto builders who uh, are kind of reinventing the way that these assets trade, and it's really creating, I think, a lot more um, utility and value creation within crypto that uh,

previously was kind of centered around speculation and all coins. So, yeah, that's I think the most exciting part. So, as Andrew said and and and you said we're we're talking about billions now, but institutional is trillions. So, that for example, the US market equity market trades between 1 to 2 trillion a day um, on exchange. So, um, when we talk about those kind of that kind of um, cash, institutional cash moving on chain, um, we're talking about uh, uh, a whole value chain of different players in that market from uh, custody to clearing to prime, um, and and also trading services. How do you think the market is

evolving? And Josh, you mentioned that there there is there's some great innovation in in the digital native space, but how do you see all those institutional players and the role of balance sheet helping to facilitate that trading and and and that volume on chain? How do you How do you see the opportunities for new players and existing players to to to move that money on chain? >> I think that there's a role for crypto native firms uh, that have been in the industry for quite some time and have some familiarity with the set of market participants who are currently like the most active users of tokenized securities and other assets. And um, basically the credit channels that existed last

cycle, which was largely composed of like unsecured under, you know, credit and things like that, that has evolved to sort of prime brokers intermediating distribution of credit to hedge funds and other sophisticated asset managers. Um and yes, that capital has to come from somewhere in some cases. Uh so for instance, at our firm FalconX, we are sourcing it from um on-chain sources. We partnered with Aethena to create a you know, an on-chain CeFi type partnership where we can um issue loans to prime to our prime brokers' customers. And that's coming from the reserves of the Aethena um product. And that is step one. Obviously, step two

would be to get banks and other more traditional financial sponsors to underwrite these types of uh credit extension products into crypto. >> Just to carry on from Josh, I think you end up early stages with fragmentation between if you just looked at equities, which you were referring to, Roland, right? You have the cash equity market. You're seeing tokenized equities and and at the moment they're fragmented. And so the connectivity tissue is really two participants to it. First, it's the um the market makers and the liquidity providers that stand between those. And then on top of that, it is the credit providers or the leverage providers, which in traditional finance have been PBs and clearing firms. Um and so that's exactly the the area that Ripple Prime is is uh is focused on when and backed

by, you know, Ripple with a $50 billion balance sheet. We've, you know, got our entity rated, taking a real buy-side capital into a sell-side product. Um I think that's the key to unlock uh unlock the market and the efficiencies around them. >> All right, so two thoughts. One, hearing Josh's number of a few billion in tokenized equities and your number, Roland, at Nasdaq and just US markets at a trillion or so a day. And I think total equities market is like 150 trillion. Massive. That number is only going to go in this direction, and so huge opportunities.

Um I think tokenization in general, this big unlock, is giving utility to tokenized assets. The technology has shown, "Okay, you can put a stock, a money market fund, a treasury, a US dollar on a blockchain. So what? Now let's make it useful." At Chainlink, one of our big priorities now is collateral, and allowing institutions to take those tokenized funds, lend it, borrow against it, use it for margin trading. We see the DTCC, they're launching their collateral app chain. So I think there's going to be a big move in that direction. I think it speaks volumes that Nasdaq and other exchanges are going and getting regulatory approvals from the SEC. And when firms like Nasdaq and the DTCC are moving in this direction, all the thousands of

broker-dealers and banks and asset managers that are connected to Nasdaq, they're along for the ride, too. >> Yeah. And and I think I think you you mentioned um collateral, and and I think that's going to be my next question is, do you see what what what do you think are the biggest um encouraging signs that you see in in terms of the adoption scaling? And and my second question to that would be, okay, is it going to be one or two big things? Is it obviously we've seen a good very friendly regulatory environment in the US, probably less so in other in other jurisdictions. Is it going to be that? Is it going to be three or four different things that sort of uh drive

widespread adoption? What what what are those things? And and how how do you see that play out over the next year or two? >> Yeah, I think the most powerful motivator of tokenization is using financial assets as collateral. Collateral against lending uh protocols, collateral against uh derivatives protocols, uh and these are all very active use cases today in crypto. If you think about stable coins as being that tokenized asset, um I do think that uh that does require uh the existence of permissionless markets uh to unlock that that ability to use those tokenized assets as securities if as as collateral. If you are just purely

relying on kind of centralized um systems and rails, then you could argue the existing, you know, infrastructure that we have today is sufficient to support uh the use cases that we have in traditional markets. I think the unlock coming from crypto is really that you're accessing um lenders that would otherwise not be able to provide liquidity and capital into uh a market against these types of collateral assets that they normally wouldn't be able to have access to. Um I think that's one powerful use case. The other one is obviously just like using uh crypto formats to access uh different geographies. So, like US investors

touching offshore stocks and vice versa. Um but again, that speaks to the theme of having this sort of like uh universal access and permissionless innovation uh around these tokenized assets. >> Collateral mobility is certainly it and doing it through the lens of uh of a prime broker. There's really two things that um the unlock here, right? So, one is traditional markets on a settlement side of, you know, we've grown up in a world where it was T2 moving down to T1 and everybody's very excited for it. Um with with the ability and the velocity of moving collateral around, you do you get to a world where you basically reduce or remove the harass that settlement risk, right? And I think we need to be careful to move to fully atomic because there's should be shorter

settlement windows to get efficiencies from netting. Um so I think just be careful on that. The second side of it is using it for uh for margin calls, right? And so today prime brokers as an example, calibrate the margin requirement for a portfolio based on a number of factors. And one is how quick can a client react to a margin call? And if those are based on fiat top-ups, they're typically 1 day. And so, you have this MPOR, what's called a margin period of risk. And so, if you are able to reduce that down, there's efficiencies back to the end user because they can post less collateral up front and trade and and reuse that. So, the unlock there, besides 24/7, etc., etc., I think from a risk perspective,

it's it's a huge step forward. >> Yeah. And just as a real-life example, Michael, that like I was a president of a broker-dealer and would have worked with operations teams. And when you needed money from a customer, you had to like call them, find them. And if you can't reach them via the telephone, you'd have to liquidate positions that you're choosing. It's a horrible customer experience. And the idea of automating this with smart contracts and blockchain technology is a a win for everybody. I think bigger picture, what encourages me the most and also surprises me the most is banks wanting to go into DeFi. So, when I first got into this space 9 years ago, never could have imagined it. A few years ago, it became more like, "Hey, that's interesting. Explain this to me." And

now every week we're meeting with some of the largest banks in the world asking how they can build tokenized products. And not just for their typical customer log into our website, buy and sell trade, but how do we get those into DeFi so people can use them for loans and collateral. And I never thought that would be happening quite in 2026. And I think in a year or so, that's going to be business as usual for some of these large institutional players. >> Yeah, the pace of change has been quite fa- fast. Um going back to comment that you said, Joshua, it's about collateral moving on permissionless chains and being able to freely move. And um and Michael was talking about how how we

uh freeing up the collateral to to cross collateralize and and go finance different things. One question I challenge I would throw out to you, does that mean that does it mean that we everyone keeps their assets on one chain or is it 10 chains? How do we see that world evolve if it's if it's permissionless and everyone has their pockets of collateral liquidity all over the place or do we see a need for collateral being on a single set of chains or orchestrated under a single sort of layer but but to efficiently make use of the most of it.

How does that influence how you how you guys view chains? And >> Yeah, that's that's a good question and I think um crypto has has had a hard time dealing with this sort of you know, the trade-offs between instant mobility for instance being able to like instantly swap one asset for another or to borrow something against another form of asset collateral and balancing that against the security interests of protecting against exploits, right? And like North Korea is obviously the ever-present adversary in crypto. So, I think to answer your question like it's sort of a trade-off, right? There has to be

these sort of permissionless ways to move assets from one chain to another via a bridge and that each bridge has its own set of trust assumptions, but there's also a set of centralized issuers like Circle that have a way of sort of minting and redeeming across chains in a way that ensures some degree of protection and resistance to these sort of hacks. And I think that you need I think crypto is still trying to figure out to be honest but I think at the end of the day like there's there's so much it's better to have forward progress and innovation there and experimentation than sort of like a

static infrastructure that's always always existed yeah. >> Yeah. Any any views on that? >> So I am never want to be certain of anything in life cuz it can be unpredictable but I am just as certain as you could ever be that we will be living in a world with more blockchains. I think with AI making it easier for people to develop and implement ideas we're going to have new blockchains that don't exist today that will become big players. At Chainlink this is our view of the world we're going to be living in and we have a lot of different business lines data orchestration privacy compliance but cross chain is a key part of what we do and we built the leading most secure most compliant cross chain tool for this very reason so people who have assets on

chain A and they want to sell it someone on chain B they can do so and you know the wake of some of these hacks right hundreds of millions of dollars of real people's money being lost we've stepped up and a lot of those customers are coming our way and I think that's only going to increase cuz I think this is we're going to be living in this multi chain world. >> But but do you think that as institutions or G 6 want to put their assets on chain they want to put it on hundreds of chains or they just want a couple that all of them have decided right that's safe secure and we can trust that chain.

>> From real life experiences even as recent as last week they'll start small maybe one or two but a bank doesn't want to choose their chain forever and so you don't want to put all your eggs in one chain one basket. >> There's distribution diversification risk. >> So having that optionality so whether it's today two years five years to have that ability to go across [clears throat] chain is really important. >> I think we live in a multi chain world. I think customers will push the banks to evolve over time. Um Um there's certainly risks associated with it, but yeah, the world's a global place and clients will want different things and ultimately the sell side will conform.

Okay, changing gears. So, um one thing is we've talked about how it scales and we've talked about the speed of the adoption and everything that's happened in the 12 months. So, what do you see as the biggest risks or challenges in actually continuing that adoption for the whole ecosystem for institutional finance? >> I I think it's I mean there's a series of them, right? Whether it's, you know, the regulatory side of things, uh technology side, operations, lack of, you know, uh the clarity, right? The Clarity Act unfortunately didn't pass in the US, but then two days later the SEC gave a 5-year exemption, right? So, there's still, you know, a lot of forward progress there. But if I had to pick one and so they all equally weigh

in, but if I pick one, I think the the biggest challenge is operations. And so, if we look at the GSIB banks, right? Moving from, you know, kind of 9:00 to 5:00 to 24/7 and staffing that with legal, risk, compliance around weekends, I think that's underestimated. The technology side you can you can sort, right? Like you can you can conform your technology to move from things like business days to, you know, calendar days. You can move from, you know, having settlement dates to perpetual swaps, but I think that operational layer is is um is something that um all firms need to to build out.

>> Okay. >> Yeah, and that's a challenge. >> Yeah, I'd say the issuance model for on-chain uh asset securities and other types of real world assets has been uh bifurcated. There's like two paths that people can take. Um you can go down the path where you use a wrapper and you have a firm sitting in between that is custodying securities and also issuing a token. um, and that happens in a more permissionless way. And without the consent of the issuer necessarily. And then there's a path where where the issuer works with their transfer agent and wraps their token or creates a official version of, uh, a cap table investment basically. And I

think we're still struggling like in the industry about where to go with, uh, issuing these types of tokenized stocks. Um, I think ultimately there's going to exist two different worlds like there has been in other, uh, crypto categories like in stablecoins there there's more regulated stablecoins, there's less regulated stablecoins. In exchanges there's, you know, the, um, the US regulated centralized exchanges and there's the offshore ones. And I think the same thing will exist here where there's some forms of tokenized assets that are highly permissioned and regulated and controlled, uh, by the issuers and then there's going to be another set that are

freely usable on, um, platforms like Ave and Uniswap. >> So I'll admit my answer is biased as a former lawyer, but I lock in as regulation as probably the biggest risk. And, you know, it's unfortunate of course the Clarity Act didn't pass in the United States, but it was great the CFTC and SECs coming out with this rulemaking shortly thereafter, which will be a long process and comments. But the biggest risk is every two or four years we have a flip flop and it's really hard to invest real dollars, hire people, build when you're not sure what that landscape will look like in the future. And especially for large banks where you have teams of lawyers, compliance officials, risk officers who

this is their whole job to make sure there's a framework, a road ahead. And having true clarity for the long term that will stand the test of time is the dream. We'll take the regulation and hope that we'll never see this violent backlash in the same way as in the past. So, but I still risk and it's not as simple as is this security or a commodity? That gets the headlines, right? But behind every single stock trade, there's rules about the order ticket, the disclosures, the trade confirm, your account statement, your order reporting to different regulators, and that's a lot of open questions still today with digital assets. And so, we need we need that clarity in one form and it needs to be an answer that stands a test of time.

>> Yeah. That's a That's a great perspective and and I guess as as you were saying as a as a as a lawyer by trade, um and and for you guys working in prime regulated businesses, how do you see uh how do you see the last 12 months of regulation and how regulation facilitating in innovation? How would you want to see that go forward to to remove those I mean, everyone wants certainty, but but how do you see that happening in a in in a rational rational fashion to allow institutions to deploy more balance sheet, put more assets on, and know, "Okay, I'm I'm safe innovating

and also also putting my clients' money, not just your own money, but my clients' money on chain?" >> I would say we have a a real use case from summer of 2025, the Genius Act passed, signed into law, and within weeks you have almost every big city we're doing stuff in the space, but even Western Union, probably as about as old school of a financial institution as you can imagine, is like, "Hey, we're doing stable coins." To the other extreme, like there was a small credit union in Minnesota that's, "Hey, we're doing stable coin." None of that happens, I believe, without the Genius Act. I think when we have clear regulation, I I again, I >> Clarity.

>> [laughter] >> I It's tough to say the word, but ideally if we had legislation, but we're not getting that as soon as we had clear regulation. I think you're going to see the same thing. A lot of capital that's been on the sidelines, a lot of hiring that's been on the sidelines cuz we're taking very small gradual steps, will accelerate. And having worked in broker-dealers and fintechs for years, you always look at your competitors. So, if you're in a space that's new, a little gray, you're like, "What is this firm doing? What's that firm doing?" And as each firm starts to take more and more steps, it just accelerates from there.

>> I'd just add to it, right? Like fragmentation in regulation. Right? Because we're talking about the US and they look at things, you know, differently than Europe and in different parts of Asia as well. And so, if you're a global business, navigating that fragmentation across all of those, but it's not just market regulations, right? It's how do you, you know, how do you book these things? How do you pay taxes on these things, right? Like FASB codifying the way you pay taxes in this in the US was a major step forward. You're not quite there in each jurisdiction. It's complicated, but I think over time, once we get the clarity and the certainty, that will be a a massive unlock.

>> Yeah. Yeah. >> Even just to add, like the United States, there's 50 different states with different rules. And if you even drill down further, there's 50 state crypto money transmitter regulators, there's 50 state securities regulators, and it's it's a mess. >> Exactly. >> Well, I it's interesting. I like from a European perspective, that they would look at well, there's 27 different actual national regulators. >> challenge and >> Yeah. And and and I think here in Asia, there's there's different opinions and regulators as well.

>> So, maybe I'll move on to our final question. So, and I'll ask each of you. So, if you're sitting here for 5 years from now, talk a bit about what you think can be accomplished within the next 5 years for institutional finance, and what needs what what are the critical signposts or milestones that will will show us we're on the way to that. >> I'll give a crazy one to start, right? So, I think the world is inexorably moving in this direction, right? Things are moving on chain. We're going to get the regulations over time. The technology is going to conform. You'll sort out the operational side of it, but you're still kind of living in these two worlds, right? The traditional world and digital world. And the more you, you know, you have to on-ramp and off-ramp

between them. And so, the more you kind of stay in that digital world, like that's the key. And so, that starts with how you're paid. Every month you're paid in fiat and then you need to figure out how you on-ramp. And so, with things like agentic payments and, you know, millions if not billions of, you know, agentic micro payments happening, like why are we paying people once a month or twice a month? Why aren't we paying them more frequently and then paying them in in that digital format where they can immediately access this new world. So, I don't think we're really far from solving finance moving on chain, but it's that do you switch back and forth?

And I think that's a benchmark to look at. And the last thing I'd say is there's still counterparty credit risk in the market. If you see a healthy CDS market start to develop, I think that's still undervalued. Um those are kind of the two things that I I look at. >> Yeah, that's great. >> Uh for me, if you think about the journey of uh an asset issuance and and how a company gets to public markets, like I think that the moment of the IPO is such a critical event. And I think like that I think that a milestone for tokenized securities and and other real-world assets would be to sort of transform that moment to allow um much greater access. So, it's both like think of crypto and its uh history of

being used as a as a a capital formation tool, like when ETH did its ICO, right? That was a big landmark event. I think that will happen to equities at some point, contingent on regulation for it, but um it also opens the door to a lot of very cool things like for instance, uh, an active borrow lend market, right? In a tokenized security even when, today these assets are locked up or, um, hard to borrow in the first couple of days post IPO. The lack of options trading on a on a newly listed stock, you know, all these things can be remedied quickly if you have, uh, tokenized assets and people allowed to build applications around those, uh,

permissionlessly. >> As long as it's on Nasdaq. >> No, but I I think you raised an important point and that's what we see is sort of the blurring of, uh, cash and derivatives, uh, private and public. And so so maybe the point in time for IPO becomes more a continuum of investment in private and then it slowly unlocks to public, but in a much more direct way, right? >> How about you, Andrew? >> You can have a healthy >> financial system. Now, your opening and closing bells in Nasdaq will be less important, I think, in 5 years and just purely symbolic, but blockchain will enable both institutions and retail investors to have greater access and

control of their own assets. I believe it'll be able to enable them to lower risk when it comes to collateral and making the best use of your money and not having to over collateralize cuz you're not sure of the risk. Um, you might have T+2 cuz of weekend or holidays. So, I think we're we're on the track for a better financial system and hopefully more accessible for everybody. >> Excellent. I I buy the diversification of risk argument, but I don't buy the no risk argument. >> Lower risk. >> There's always always risk in life, but [snorts] it's we can >> All right. Okay. Thank you very much, everyone. Um, I'd like to thank Joshua, Michael, and Andrew. Um, but there you go. That's that's that's the panel on institutional finance moving on chain.

Thank you. >> Cool. >> Thank you.