Upgrading Wall Street: Tokenization, AI & Ethereum's Next Era

Transcript

Opening & AI Taking Over Everything

How you doing, Danny? >> Honestly, great. I've been having a blast. Um, life's good, works good. probably like most of you, the AI stuff has like totally taken over my brain over the past few weeks, which just is very exciting in terms of velocity building stuff, but also like I'm trying I'm making sure I'm trying to like rethink or like question everything all of my assumptions because I think they all might all change. But I've I've definitely been infected.

>> Yeah. Um I think that we could I'd like to understand how Etherealize uses AI. Um, I'd like to, you know, talk about bringing Wall Street on chain. I feel like that's been covered in a lot of different places, uh, already. Um, and then, yeah, maybe we'll start with the AI because you you brought it up. So, how are you using AI? >> Yeah, I mean, I think we have nine developers. We're shipping 10 times as much code as we did two months ago and it's really good and high quality and like I feel like we're just kind of getting started. Um and it seems like very soon we're going to be

10x Developer Output with AI

bottlenecked by deciding what to do not doing it. Um which is pretty insane. But it's like so from an engineering standpoint like we're trying to have unbridled optimism from everything else. I'm trying to assume that like everything is going to change and like everything that we thought was true might us and like get in in the way of our goals. And I guess to be clear, my goal to theorize is to rearchitect finance or protocolize finance from the inside out. rather than like building DeFi over here and trying to pull them in, like go in the inside and rewire the internals and make it better from a

Re-Architecting Finance from the Inside

hopefully Ethereum aligned, you know, protocolized open finance way. But I'm like sitting here questioning everything. I'm like, well, if the bot if the bots are in in charge of the economy, then I mean, maybe I don't know if I should say this on video, but I'm like, oh, will financial institutions exist in five years? like maybe maybe the islands of of of protocolized finance we've created in the past over the past decade the bots are going to use that the bots are better at accumulating capital and coordinating capital and like all of the capital is just going to move into that world but that's that's not exactly what I believe because there's a lot of reasons that won't happen or won't happen at the speed um but I'm spending

a lot of time just making sure that I can accomplish what I'm trying to accomplish I'm not going to be totally blindsided, but I think we're all we all need to also assume we're going to be blindsided. >> I'm wondering if you can take us down to the object level. Um, Etherealized from what I understand it is upgrading Wall Street to use Ethereum. Um, and you know, what kind of projects are you working on? I mean, what are you able to disclose about like actual things that you're building? Um, you know, I'm just curious about about this in infrastructure being up upgraded and like tangible examples of how onchain infrastructure is being used in in New York and and in Wall Street.

What Does “Upgrading Wall Street” Actually Mean?

>> Yeah, there's a lot there. Um, I think that there's a hard difference in reality between January 1st, 2025 before and after in terms of this word tokenization. Um, and we're in a new era and and the way that we we're thinking about it is fundamentally different. >> Sorry to interject. This is not an AIdriven thing. This is a regulatory change. >> This is a what is possible in the design landscape because of the amalgamation of the regulatory shift and the the tech being ready and the financial institutions having FOMO. Um, and that

The 2025 Regulatory Shift & Tokenization Era

all kind of really came to a head in in 2025. I think at the beginning of 2024, Larry Frink said the world was going to be tokenized as the CEO of of BlackRock. The ETFs were approved. The SEC stopped investigating Ethereum 2.0. Um that that kind of sucked when they served me at my house. But uh and for better or worse, the soon to be president of the United States launched a memecoin. Uh during that wave of 2024, like the the world just turned on its head and financial institutions went from we can't touch that stuff to to help us like we're going to we're going to get screwed if we don't do this. And so if you look at tokenization and I

this is the word and we have to use the word because it's the word everyone knows but it almost feels like the wrong word now that we're shifting but tokenization previously was okay there's this massive massive asset class let's like take some of it wrap it up put it on chain and then like you know maybe you get better distribution maybe you can integrate it into compliant DeFi maybe whatever but like chucking $50 million on chain at a time or even a billion dollars on chain at a time is not going to be how we upgrade the world. And so instead, I think what opened up at the beginning of 2025 and and the way that we're thinking about tokenization and we're thinking about is much more about like upgrading markets

Why “Wrapping Assets” Isn’t the Future

from first principles. You know, I don't want to bring a little bit of the asset on chain. I want to look at a market, the way that that market works, the rules governing the assets in the market, the actors in the market, how the assets can move, uh how interest payments are paid through the asset, all sorts of everything. And encode the rules into the token itself. And when you do that, it's just better. Like everything, especially in some of these like esoteric private markets, like trillion dollar, multi-trillion dollar markets that are just haven't been upgraded in decades. Like if you just write the code that says this is how the market works and put it on chain, it's just fundamentally better. And so and in that way, I think we're going to see trillion dollar markets upgrade in

Encoding Market Rules into Tokens

lockep rather than like trying to like put some of this fund on chain and whatever. And so that's that's how we're thinking about tokenization or protocolization or or fundamentally upgrading markets and upgrading Wall Street systems is like how does the market work? Encode the rules of the market on the asset themselves. Um, >> yeah. It feels like you're just pitching upgrading finance. >> Yeah. Which it's not like, uh, I guess it's I don't think it's rocket science. Um, it's a hard coordination problem.

You have to like speak the crazy language. I couldn't do it on my own. Um, Vivic is deep, you know, traded on Wall Street for 10 years, deeply connected in that world, speaks the language, knows how to construct deals, all sorts of stuff. But like, yeah, we're just trying to upgrade finance. what is um what's driving these decision makers? Is it fear? Is it greed? Is it is it something else? So 80 billion dollar financial institutions are very large and there's a lot of different people and a lot of different decision-m I'll tell you like um the CEO might might see the future and want tokenization for a reason. The COO might be convinced they could they could

What Drives Institutions: Fear, Greed, Efficiency

turn their 90 person back office team into a fivep person back office team. The traders realize they could trade more stuff if their assets didn't take 10 days to settle. And so it's it's really it kind of depends. It's a multiaceted it really depends on who you're talking to in the institution. And some of them are just like they're blinded by tokens which is I mean look at look at the the graphs often they go down only. So I don't know why they're seems very naive, but there's um many many different reasons. I think there's a mix between people that see the opportunity and people that are worried that if they don't do it, they're going to get screwed over when they're looking at people like Robin Hood making an L2 or they're looking at

um I don't know, all all sorts of stuff. The fintech is a very real concern for them. I got two more questions then I want to hand it over to the audience to start thinking about what you want to ask Danny. Um the first question is um Danny you've been in web 3 I think as long as I've known you uh a couple cycles now and I think you understand the cipher poke ethos and now you're going to Wall Street which are sort of like the trad institutions that you know the lore has always been about disrupting and so I kind of look at you as being bilingual like speaking both languages and so >> my sister would say I'm a Gemini. Okay, great. Um, I'm I'm wondering if you if there's any stories that come to mind of like the culture clash between the two

Translating Ethereum to Wall Street

things or like having to navigate differing expectations or cultures or like you know, maybe another way to ask it is just like what's it like to walk into a room full of like Wall Street executives with a like a cool man bun in tell them about Ethereum. >> What's the culture clash like? There's funny stuff and I talked about this at at Dev Connect, but like the first six months was me realize me like figuring how to translate the things that we care about in the Ethereum community and the value proposition of Ethereum to to them, right? Like not decentralization counterparty risk, not uh you know all or reduction of counterparty risk, but all these like translation layer. Um, but once you do that, like

it's honestly once you have the translation layer, Ethereum kind of sells itself. Like I go into calls where people have uh bring a lot of ego and like want to con be convinced that uh this this was wrong and this doesn't make sense. And I would say like literally 99% of those conversations by the end of the hour they're like, "Oh yeah, I get it." Like this makes sense. Like how do we do it? When do we do it? How do we start? In a way, it feels almost relieving to sell to a sophisticated actor. Despite what I think about the banking system, the bankers, like they're not retail and they're not just saying Ethereum doesn't do a,000 TPS. like it's a new audience

Selling Ethereum to Sophisticated Actors

that's more sophisticated and the fact that it has 100% uptime and is such a solid infrastructure that being a selling point instead of something that is being used against us like it that feels refreshing to me. >> Yeah. And I I didn't expect it when I went into this job. Honestly, I had no idea what to expect, but it seemed like it'd be fun. Um, and yeah, I'm like when you're talking to someone that it takes 10 days in the happy case to settle a trade in some weird private market, 12 second block times still don't matter.

>> Yeah, >> we love that. >> Um, it's fun. That's fun. My last question and then we'll hand it over to the audience uh is so it seems like there's been a shift in the Ethereum ecosystem over the last week or two maybe month um and that's that we're going to scale the L1 and it seems like ZKVMs are going to be the way that we do that. Um, and I'm, you know, I'm interested. David Hoffman released an article, uh, a few days after the Vitalic tweet about this and he said, "This is the new merge. Upgrading the Ethereum L1 to use the ZKVM so that it can do more TPS is is the new merge." And I'm just

Is zkEVM the “Next Merge”?

wondering if you have any comment on that since you were the quarterback of of the merge merge. >> Uh, maybe that's the right lens. You know, it's it's fun to have a a really it's fun to have a north star. It's fun to have a guiding light. It's fun to have a really big mission. And I think and I I don't fully agree with this assessment, but one of the assessments is is postmerge. We we've been in this phase of there's a lot of a lot to do, but there's not this like driving force. And maybe maybe that becomes the driving force. Um I still we can have our cake and eat it too. I like I like the L2s. I like the the scaling the scaling the L1. Um, you know, if you read if you read Vitalik's posts, it's one, you all need to be

better. You need to do better. I don't I don't know what the hell we're doing here, but you need to be better. And then two is like differentiate like what like have have a value proposition. Um, and I regardless of how much scales at at L1, like subsidiary, scalable, secure environments I think are going to be really valuable and a huge value proposition to the extended Ethereum landscape. Yeah, what resonated for me there was that the merge was the last time the Ethereum ecosystem felt like really united and really positive and you know I think in a lot of you des obviously deserve a lot of credit as does everyone who worked on proof of stake uh for doing that and I think maybe people are grasping for that unification and feeling like we're

L1 Scaling vs L2s

pushing the frontier together uh and so ZKevm being the next merge is uh you know not not you know a pivot away from L2s which are still useful for social and political scalability, but um it feels like it's another opportunity to to unify Ethereum. So, uh you know, as the as the last unifier, any any advice for the people who are working on ZKVMs? They're complicated. They're a little scary, but uh I this is slightly peripheral, but I was having a conversation this morning and it dawned on me that if the AI stuff continues to play out as it seems to be, we might be in a

AI, Social Consensus & Protocol Upgrades

position where the biggest bottleneck to upgrading the L1 is consensus. It's like social consensus. >> Like I mean, if you can single shot, which you can't today, uh the upgrade after you kind of specify what you want. Um so we're we're going to be in wild territory. Um, I guess fortunately the ZKVMs are probably will take some arteasonal code writing uh for at least a little bit longer. Um, >> but yeah, good luck. It'll be fun. >> Okay. So, don't vibe code the protocol layer is what I'm hearing.

>> I I think I think we might be vi coding the protocol layer very soon. >> Okay. All right. >> A lot of QA bots. >> Okay. Um, I want to turn it over to the audience now. We have about 10 minutes left and so if anyone has a question, please raise your hand and I'll get you a mic somehow. Um, Adam, do you want to be our mic runner if you're still around? >> Okay. Well, it's it's in your job description now. Um, yeah, if you just want to choose someone and uh just I'll remind people that questions are one sentence or less and they end in a question mark. Uh, go ahead, Nexo.

LST Capture & Institutional Risk

>> Question mark. Okay. Uh Danny, one of the things that you uh warned about early on was LST capture um about one um entity capturing a lot of the LST market. Um and >> I call I called it LSD, but they didn't like that. That was a good name. >> That was before you were in the Wall Street arena. >> You also I I think I remember you gave a talk last year about capture. Um how do you I just gave a talk on governance. Um how do you feel like we're doing? Are we any more resilient to capture than we were 5 years ago when you started warning about it? Oh no, that face.

>> No, I I don't I don't know the answer. I mean, I think that we should be just we should be 10 10 times as worried, right? I think that I think that if we're going to make the impact uh that we want to, the $120 trillion in investable capital that institutions manage need to begin to become protocolized and move into Ethereum rails and like the implications of that on capture and social layer and governance are uh profound and terrifying. So I think like we have to succeed in these dimensions and I think that they make your job only harder.

So, uh, don't don't don't be complacent, please. >> Next question. Griff Green. >> Yeah. You make it into a lot of rooms that with people that don't really get to talk very much out there, you know, and get their ideas out there. Do they have any major security concerns that you hear echoed a few times that we should work on as a community? >> H. Yeah, I mean one of the one of the failure modes here certainly is super like these types of institutions are going to be used using custodians and they have this decision- making process which is nobody gets fired for using Microsoft or whatever insert big name

Custody, Security & Resilience

there and so they end up like piling onto the same decision even if it's even if there's a better one or a more resilient one. Um, so I think custody in this complex space in a way that gives them resilient solutions and gives them solutions they're not going to get fired for is really important. Um, there is a battle against Ethereum on Wall Street right now saying that Ethereum, you cannot do private things on Ethereum. Um, one of the things they're working on a lot is uh some some uh privacy protocol stuff that will help power certain types of of market activity. Um, but I think that this isn't quite in the security

Privacy Concerns from Wall Street

standpoint, but we need secure, resilient, and expressive constructions for privacy and compliant, honestly, for privacy on Ethereum because, you know, blockchains uh I don't even I don't need to name them out loud, but uh that say they have privacy baked in um are like actually making extremely they're making the rounds, you know, they're convincing. Ethereum, Ethereum is public and open and all these amazing things. Um, and you can build privacy on top of it, but like that little asterisk at the end like Wall Street doesn't actually understand. Are they afraid of quantum?

Quantum Risk?

>> Um, not that much. Obviously, like the asset managers that are trying to actually custody crypto, some of them are probably getting cold feet on like Bitcoin and that kind of stuff. But, um, I'm talking to people that care much more about like streamlining systems and upgrading systems. And I think that if you're in that space, you just kind of assume that like the systems are going to evolve. Um, and for a system like Ethereum that does continue to evolve, it's just it doesn't seem like an issue to them.

>> Cool. Dylan, go ahead. >> All right. So, you're out there evangelizing. From Etherealiz's perspective, what is winning? Is JP Morgan using Ethereum winning or is JP Morgan using EVM and creating JP Morgan chain winning? >> Oh, uh, I mean, from my perspective, that's not winning. Um, and the the value proposition of being on an a private island um is becoming less and less. JP Morgan is an exception. They have that uh it used to be called Quorum something else. Um they do have a a private chain that handles a lot of like internal operations and stuff. Not in ways that I think are systemic to JP Morgan at this point, but even like

Public Ethereum vs Private Chains

their blockchain team, they're thinking deeply about like how to evolve such a their system so that they can still have some of the privacy that has been assumed in that system is they have to kind of keep they can't just change that social contract. But them not being connected to the internet to Ethereum uh you know doesn't really make sense for the future of that. Uh one of the big shifts at the beginning of 2025 like through 2024 was um public blockchains and and them having the light bulb going off of you have to speak their language. But they went through the phase of internet verse internet and everyone thought that internets were going to be the thing

that banks use and like no they're all connected to the internet. Um, and they're seemingly pretty willing to accept that reality, especially when you start talking about network effects around stable coins. When you start talking about capital efficiency where you can have your capital sit in a money market fund until the moment that you have to deliver payment and and you when you're when you're thinking about it on top of Ethereum and the networks on top of Ethereum, these things make sense. when you're thinking about like them having their own private little islands that have to figure out how to interrupt. You don't really get some of these magic things that like depends on who you're talking to the banks, but like they can see the magic when you start explaining things like that to them. We got time for one more question.

Coordination Problem of Market Upgrades

>> What What do you think is the most valid objection that you get from Wall Street and institutions? So one of the big problems when you're thinking about upgrade upgrading markets is uh coordination problem. And so like an extremely valid uh objection would be if I upgrade I'm going to be on an island all my peers trade and settle over here. And so it is difficult to find the path to get a to get multi- trillion dollar markets to to upgrade in lock step. And I think that's probably one of the most valid objections. Um some of the other stuff is

some of these just institutions would rather be followers instead of leaders. And so the objection is like, sure, if stable coin volumes 10x, yeah, if I can have my money market fund on chain, yeah, if all of that stuff's built out, yeah, but like I'm I'm not I'm like rung three in the totem pole, I'm just not going to do it first. And we don't have that type of like risk appetite. Um, which I think is a reasonable objection. Like a lot of a lot of institutions are just literally not primed to like take the first steps. All right, I think we're uh gonna run up on time uh real quick, but uh I wanted to ask one or two final questions, Danny. The first is if Etherealiz is massively successful, what does the

What Finance Looks Like in 2036

world look like in 10 years? So, take us to 2036, you've upgraded Wall Street, what does it look like? >> Oh, dude. >> 10 years is the aperture I'd prefer, but if you feel more comfortable at five or >> uh finance is protocolized, right? like we're upgrading these markets from the inside out. Um, business is better and consumers are more protected. You know, both sides of the aisle are happy. You're doing ZK ZK onchain disclosures. You're doing loans with capital formation onchain with uh pledged asset capital like you know pledged cash flows and other assets to back the loans. You're you're doing

global capital formation. you're having previously highly gated institutional markets being open to way more of the world both both in terms of uh non-institution and maybe and and non US um capital like capital efficiency has gone through the roof um agents are humans are I don't know living in utopia and kicking their feet up and agents are running the whole thing I don't know >> okay last question completely open-ended is Is there anything I didn't ask that you want to say?

Closing

>> No. >> Danny Rain. Everyone.