When Money Moves Onchain

Transcript

Um, so CEO and founder of of A Labs. Maybe let's jump straight in. Um, so Jean Mark, you are the CEO of a subsidiary of uh a tier one investment bank who has launched its own mAR approved Euro stable coin. Um, which is pretty impressive. That's a big break against the mold some would say. Um, I think one question and we've touched on this over the course of the day is around capital allocation, capital efficiency. So what fundamentally changes in terms of capital allocation when you use blockchain versus traditional financial systems?

>> Yeah, sure. Good afternoon everyone and thank you for having me here on the panel. Thank you Stani a I think I I believe to the a friends indeed and maybe before answering your your question um I think what is indeed key in what you said and that's something we truly believe at sust for a while that actually blockchain technology and all the new developments we are seeing especially in the defy space are actually fundamentally and truly transforming the way capital markets and payments and part of what we are doing as a bank um is doing I mean it's really happening and and that's precisely where we have why we have decided already five

years ago to create this subsidiary sust forge which is hosting the developments we are doing uh in crypto within sust and that's also why we are investing so much and being even more and more uh active in the space uh because we do think uh it's going to change probably short term shorter time that many people may think the way we operate our activities. So uh in this journey um as some of you may remember we we started by issuing tokenized securities already five years ago on the Ethereum blockchain that was digital bond at the time. Um and very quickly indeed we move to issuing our

own stable coin the euro convertible and USD convertible. And what it is changing for our clients is precisely uh the improvement in the services we can deliver as a bank in terms of um velocity of the money uh cost of uh making these transactions happening. the fact that it's happening 24/7 uh which is uh not as easy as as everyone's know when using the traditional banking rail. So basically making the client service much better and more most efficient and cheaper for everyone.

>> A question and this I'm already going off of so forgive me. Is it hard to to do what you're doing within the institution? Well, yes. Yes. I think it's it's still hard. I think it was um it was especially hard at the very beginning. Uh I think it's fair to say that sust has been pretty early in that space again when we started this operations and this developments with sust forge. Um no it seems like um a long time ago but we should remember it was a time where banks and financial markets and financial institutions were sitting on on one side of the room and the crypto ecosystem on the other one. And uh when

you were talking about crypto in the banks, it was all about uh money laundering and uh you know uh stuff like that um and Punzi scheme with Bitcoin and stuff like that. Uh it took us a bit to um have the bank and all uh the stakeholders we have including the regulators and the central bank understand that beyond the early use cases the technology itself was precisely changing. potentially changing the way we would operate our businesses going forward and just for that uh we needed to uh well to develop our own capabilities.

>> Okay, thank you Stanny. Over to you. In terms of you spoken about the Abby will win framework recently um which I hope everybody has seen if not check it out. Um you talk a lot about the I guess core finance global infrastructure which a can become. um are you looking to replace the way capital allocation is done or what are your thoughts? >> Yeah, I think that the the nature of capital allocation uh at its core is always the same. I I think it's a uh uh social and financial uh behavior. I I think that the technology around um and the structure around it will will evolve

and um and and I I think that we're in an interesting place because like we capital allocation has existed like like forever and it's always part of uh u technological um uh disruption or or or some sort of a progress and I think it's it's part of something where uh that takes us to a a kind of like a more advanced or a better or efficient world and and it's part of uh financing a lot of goals and and I think that um the transformation to more like paper to digital um uh was quite uh successful and and even before a I

uh I I used to build uh fintech products and I had a fintech startup and um my always sort of a dream was that uh building a building financial products that anyone can access and anyone can get benefit of and and that exists in somewhat sense but I think in in fintech you kind of have different barriers like you have to use different vendors you have um you have a lot of permissioning it's very regional and uh it never felt that you could actually program uh capital allocation or you can you can be truly programmable able um and and I feel that uh with uh with Ethereum and

uh with uh with AVA and DeFi that opportunity exist and that's why DeFi summer was um incredible uh time because um anyone just could come and and and build things and experiment and uh it was such a new thing that you have this like a basically an internet computer where you feed code and you can do things with money essentially or value and and that is that was really incredible and now that the ecosystem in DeFi uh matured over the years I kind of find that um there's actually a uh ways to and I don't like to use the word replace

because uh it feels very sudden and finance is very fragile and uh very slow for for a reason because it is the backbone of of uh economy, but I think that um it's going to slowly replace a lot of the functions in the way we do business and the technology in in traditional finance. And I and I don't know like uh what what's your opinion and and what um Forge and thinks about what is the biggest value uh of of of the system but but but I came to the conclusion that actually DeFi and and blockchains can be a way of uh restructuring the the the the cost structure of finance making it

more reducing paper reducing bureaucracy reducing manual work automating making transparent and this just ends up being more efficient. Uh and because of that it ends up being more cheaper and and that is what then slowly starting to eat the traditional financial infrastructure. >> Would you like to >> I would like to know why like how do you see it? >> Yeah, exactly. because I think it's a it's a very critical point you you just raised and I think um actually we see that happening in many industries why right everything is going uh to be more digital industries are being operated as platforms and I think there there is no

reason why finance and banks should um move in a different direction of travel so um I think in this s process um it's very important to be conscious ious of what is your position in the value chain and what are the core propositions you you are bringing to your client base uh when it comes to banks and financial institutions uh more broadly uh I think what the core of what we are doing is basically to transform risk to uh channel um operations to connect origination uh channels on one hand and distribution

network on the other ends um and to provide value added financial services to client and for that uh we are as we are a regulated industry we have a well structured balance sheet uh and we have teams who are operating that nowhere in this equation it's written somewhere you operate a system or you operate a platform actually that's just tools we are using to um basically to deliver these services um and in making these services uh more efficient, better obviously if there are solutions uh which are appropriate, safe and which the value added has been demonstrated

and I think for D5 protocols at least the the largest one like a I think this has been uh I mean largely proven in the market considering the operations which are already carried on on some assets starting with the cryptocurrency years ago but we know the flowing to more real world assets. Uh this value creation has been uh has been proven. Um already two years ago I was on a panel and I said that in my view banks will be the the largest clients of D5 protocol in a few years and I still believe it and I think it's actually more and more true. uh we will

be facing clients. We will be doing tomorrow what we do today. Uh making sure the suitability there for the clients, making sure the products are well designed and are efficient and so on. But we will be using uh different way of operating our own systems and defy is a is is a very valid candidate for that I think. >> What did people say when you said that? like do people think you're crazy? >> Well, again to your first question, it was a it was hard a few years ago, but I think we were um you know, so is a is a very entrepreneurial bank and a bank of engineers. So, we are

very lucky uh to to found a lot of people uh within the bank uh to whom all this resonated and were ready to to listen to us and to follow us in in the first experiment. And as we moved from year to year, as we delivered transactions for our clients, again, digital bond issuances, structure product issuances on on the Etherum blockchain, then we did that on other networks as well. Uh then we did organized delivery versus payment transactions using stable coins in a different ways. I mean I mean same with us transactions after transactions. we had more clients following us and also

the internal management of the bank and and some partners as well uh which um I mean give us the opportunity to to start this journey and and know to accelerate in this environment. Um and I think the acceleration is uh is indeed very steep. Uh we see that across multiple use cases with different clients from retail investors who are turning more and more to our stable coins at least in the Mika environment in Europe. Mika is dramatically changing the crypto landscape in Europe and I think there is a very strong need for well reggulated stable coin as the one we are issuing at sustional forge the euro convertible and

USD convertible but also for other services in the crypto space that I think banks are very u keen and very natural to bring to the market. >> Okay, that's great to hear. Stanny, back to you. So on one side we have DeFi and then on the other side we have regulated institutions like Societ General forge. Are the two compatible when it comes to permissionless finance? I think um um I think there's a uh definitely the the way I think about the the permissionless aspect is that um like if you want to create better markets and you have to

look at at the existing systems and what could be done better and in some ways public blockchains were able to uh do that and and progress. So um the fact that DeFi is uh permissionless also means that it's transparent uh you see more you have more visibility than than financial institutions may have uh traditionally speaking. Uh if if you think about um sending payments from one bank to another uh that might be the the the the sort of like a like a widest v visibility whereas in um onchain transactions are traceable um up to the uh latest point and and typically most

of these transactions come from an exchange or go back to an exchange and and sort of like a entry and exit points. Um so overall like that's sort of aspect is healthy with uh comparing to the traditional finance of like un like trying to understand more risk understanding what kind of transactions are happening. Um and then when it comes to uh smart contracts and execution, smart contracts always guarantee the execution and it's very hard to break that execution and I think that is really uh compatible with ideas like uh having best execution for users and and obviously there's some nuances that can uh been be done better but especially

when it comes l to lending um that is the case um on the on the execution side. So there's a lot of actually uh parts about DeFi and and that defines DeFi that is actually really compatible on the idea of building better financial infrastructure but also getting better outcomes for market participants by increasing transparency, certainty and execution. So from that perspective yes but there's another side of the coin is that a lot of this technology is new right and a lot of the approaches uh have to be different. uh for example and and I do think that the responsibility of uh those endpoints they will move to

uh maybe to regulated entities um uh like for example banks in the future. So I like this whole idea of um DeFi being sort of a neutral technological layer um the same way as for example AI is or a payment network. Um and then um the actual uh services are provided on a like a next protocol like application uh layer. A great example of this is that um uh last week we uh we integrated a into which is a e-commerce uh platform that has over 21 million users um and they can now access to a with

treasury uh product and that's a great example of having a uh fintech in the front and uh a in the back and in the future it will be you know the the banks in the front and a in the back and a could be used and define in general as sort of a more of a infrastructure and then you can also uh structure or compose the market structures that you need for particular different use cases. So if there is a uh appetite to actually have a um pools between uh certain amount of bands in banks in in regional uh way that can be structured. So, so I think there's a lot of way to compose

that, but I truly believe that uh the winner of everything is going to be um a system that is as as open as possible but as auditable and transparent as possible because they have to go hand in hand to ensure that uh the usage is uh uh what we want these systems to be used for in the most resilient um uh way possible. And for me the resiliency it comes from systems and networks like Ethereum where you have this uh massive security securing all this liquidity. Um and if you think about all these years like Ethereum has never been down and this is like uh what you want from a financial uh

infrastructure and everything that is built on top. >> Got it. Okay. Jean Mark, you've issued your own uh Mikar approved Euro stable coin. you're not relying on another uh stable coin issuer. Um is that about regulation? Is it trust? Is it economics? All of the above. >> Yes. Uh yeah, maybe just first to to say that I fully agree on what with what you just study and it's exactly I think the same vision we are sharing here and the place of uh banks and uh and and defy decentral finance I think is is well articulated this way. Um to to your question on the on the stable coin. Um I

mean the very first reason why we have decided I mean almost two years ago to issue our own stable coin was actually because we had client demands for for that. Um as I said we started our journey at so forge uh with tokenized assets and issuing tokenized securities. Um after um a few transactions very quickly we had clients institutional clients try clients not people in the crypto space who actually came to us saying that all this was great and there they were seeing the the value added of having digital securities for again everything it brings in terms of distribution capabilities speed uh 247

operations and so on and so forth. That's that was great. But when it comes to settle these assets, you know, paying for these assets and delivering these assets, we're are falling back in the old legacy system and had to articulate uh traditional payment rails in fiat euro or dollar with these digital securities and would would it be great to also have a digital cash on chain to to settle for that? So believe it or not, but the initial demand came from from that angle and and try clients and actually it happened um pretty much at the same time as we had the teran Luna collapse in the crypto space and a few months later we also had clients large

player in the crypto ecosystem especially hedge funds who also came to us and saying uh you have this platform which allows you to issue banking grade digital securities. Why don't you do it as well on cash? We are issuing structure product on chain at the time with you know crazy payoff issuing an asset which is worth one euro or dollar all the time was actually simpler for us. That was one year before mika. Uh and so I mean when you have clients asking you to do something you feel very quickly that there is a market demand for that. We had Mika as well on the agenda for a year later and and so

we decided to launch our our first tacon the Euro one uh under French we restructure it under Mika a bit later and now we see the demand coming from either the crypto space crypto ecosystem uh with a very strong need for well reggulated and robust stable coins which are one of the backbones one of the foundational thing you need uh when operating in the crypto space. But we also have corporate andmemes who are now turning to us to accelerate uh the crossber payments they are making through stable coins and a bit more long-term I think but we also

see a strong demand from financial institutions for uh settlement solutions for digital securities as you you may know uh the dynamic has also reacelerated here uh we had some financial market infrastructures in Europe such as clearstream for instance or the chersa were integrating stable coins into their settlement operations. We had announcements in the US from DTCC and others were considering the same for the short term. So I think all these developments are ahead of us which creates a venue for adoption which is large and and very solid.

>> Okay. Thank you, Stanny. Back to you. So, we have a app, a kit, a horizon. Why is the product layer so important? I think it's um it's really important because um I think we're reaching a point in in DeFi where um a lot of existing users are uh achieved and and the audiences are sort of uh engaged and this is um a more of like a technical audience or sophisticated DeFi audience um that use um like the existing a interface and and now with a v before the a uh pro interface for uh tools like uh DeFi saver for example.

Um and and something is is is really missing is while we are seeing a lot of uh integrations into exchanges you can use a through uh through Kraken for example and you have now W with Fintex and so forth. Um, we believe there is a like a really big gap also on reaching more new audiences that are completely outside of the uh crypto space and I think we have now everything we need to get there. So we have uh we have embedded wallets uh preview is a great example of like how you can embed uh wallet technology and make it really easy. Uh we have now better on ramping.

Uh at the moment banks are actually banking now again uh crypto companies on drrams address bridge which is a really amazing infrastructure. Um DeFi is is mature uh enough and we have world technology as well and I think that overall to actually get defi to scale you have to tap into this distribution layer. So that is basically going into uh integrations through for example for us it means like a kit uh into fintex and traditional finance and institutions uh horizon for on boarding um assets on the demand side to create uh more uh

yield and scale DeFi and then distribute that through a product layer. Um, so it's all about how do we get uh the next uh tens of millions of users uh into DFI and we have all the tooling and ingredients. uh it's just about putting it all together and and a app is doing exactly that like it's abstracting away wallets uh networks uh stable coins like it feels very familiar and and also I I think that uh local stable coins like euro pays a uh huge huge role u I for example from my network and you know I grew up in Europe I grew up in Finland and um uh it's very hard to sell uh USD um earning like savings account but euro

feels obviously more natural because that is the currency that uh people spend across uh the the year uh Euro countries. So we have to go where the users are and make it as as easy as possible. So um a app does it where uh existing infrastructure can't and then you will see also more fintex following the same path and you will see banks following the same path and eventually it all benefits everyone because when you have a shared infrastructure as a public good it means that the more liquidity you have the more cheaper uh the borrowing is uh and the more collateral and use cases you can add you can utilize that and it creates stronger network effects because it creates

larger pools and smaller for example withdrawal risk on on the pools and and it all compounds into a just a better uh financial opportunities that anyone can tap into. So I think it's extremely uh important. >> Thank you John Mark. One question that comes up frequently, uh, and I've thought about this, asked this question if you're speaking to European corporate treasures, um, what do you say or how do you get them to move from what they're doing today to using your stable coin?

>> Well, I I first maybe say that, um, it's precisely not that way we are approaching the question. If you start by talking about stable coin and digital assets, usually it's the best way to end the meeting. Um no but again it's um it's all about the user experience and what you bring to your client and your value added. If you explain that you have a sustional branded solution which allows your clients corporate treasure for instance to move money 247 to earn interest during the weekend um to do instant on and off in crazy countries uh where it's tough to to do so today. Um then you have a a different discussion

you know u and at the end of the day and at the end of the meeting uh if by curiosity uh the the person ask oh or it's working and or we do that then you can explain you know that on the backstage what you are doing is actually to integrate a stable coin payment method into your traditional cash management solution. Make sure the user interface does not change. to make sure that your clients had the same smooth and seamless uh experience with you but improving the service, making it quicker, cheaper and probably safer as well. Uh which is often a point which is underestimated when it comes to uh to

crypto and and blockchain technology compared to traditional payment rails. Uh then here you have a case you can make and that's when clients start to to dig into that. >> Okay. Thank you. Two more quick questions. Stanny, what is what's one thing institutions get wrong about DeFi? >> Well, institutions like these, they don't get any. I mean, they they're sort of like doing the hard work in my opinion, but it is uh uh it isn't really like I think the information isn't equally distributed. And I do think that uh institutions that are real true believers on the technology and really understand uh the value of Ethereum and

the value of of DeFi um and know how to approach. I I think there's very few of of these kinds of institutions um they are the the sort of uh ones that live on the bleeding edge and and really trying to move forward uh the space. I I think that the challenging part probably is um kind of like how to educate like a whole organization u and understand the benefit um and and how to prepare for like uh defy in the future or understand how to integrate that down the line and and the possibilities. I think that is um one thing and and the second thing maybe is that obviously DeFi is really

wide uh wide wide um uh definition and you can have uh DeFi innovation or things built on DeFi that are more like experimentations. Um then you obviously have protocols that are building for like resiliency and building for like a real adoption and being able to sort of like uh uh identify what's what is like uh what is safe and what's not and what is what still needs to mature. Um I think that's always a a a a big challenge. But um I think assessing risk in general is is such a new concept and it's easy to get wrong. Um and I actually think that the technical risk

is not the sort of biggest risk at the moment. It's more of like a counterparty risk that we are assessing quite a lot is what is the counterparty of these different assets that are integrated. Um is there any sort of like uh key arrangements that we have to uh take into consideration that could be compromised and what happens and the risk there. um or especially with RWAs uh we have to look into you know how we transparently can verify uh some of the off-chain u behavior and risk as well.

So it is extreme like D5 D5 risk itself is uh really difficult topic because there's not that many people that are experienced and also D5 uh kind of risk managers are less experienced with with uh RWA so it's still nent and growing and I think that's uh going to be an interesting space to figure out. Okay, John Mark, last word to you. What do you think the the DeFi world gets gets wrong or muddled about institutions? Imagine Stanny isn't here.

>> Well, interesting question. Well, I would say um it's probably the fact that and sorry if to state the obvious that we are here to do business as well, you know. So uh if there are solutions which are well regulated with great business potential, I mean for sure financial institutions will step into that and deliver those solutions to to their clients to grow their market share and and promote new services uh to these clients. >> So is it now friends moving to frenmies?

Is that the territory we're moving into? >> To strong collaboration and partnership I think. >> Okay. Okay. I like it. I like it. On that positive note, uh, a big round of applause, please, for Jean, Mark, and Stanley. Thank you. >> All right, we got one more panel. Um, so if you want to hang out with me and some others, A few