Welcome back to The Pop, a podcast about America's capital markets and IPO machine. Today's guest is Omid Malekan, a professor at Columbia Business School, and the author of Rearchitecting Trust and The Story of the Blockchain. You are a crypto professor.
Well equipped to talk about the intersection of America's capital markets and where technology is going to take it. So thank you for joining us today.
Thank you for having me. It's actually one of my favorite topics to talk about.
Well, that's why you're here. So I'd like to talk about in general today, you know, how capital markets work and how blockchain technology is gonna intersect with them, how it's already intersecting with them, and how you think it's going to change them going forward. I know it's a big topic. This is gonna be likely the last conversation of the season, and something to end on thinking about the future. And so, you know, first off, you know, what do you think the most transformative opportunity is to take what we currently do and put it on a blockchain? I know that's a big question.
Yeah. So I think as you've probably w- I know you know, and you've probably covered in the other episodes, people tend to underrate how much the existing design or architecture of the capital markets is a consequence of technological or operational limitations of the past, right? Like the basic idea that, uh, the stock market doesn't close at 4:00 PM so traders could make happy hour. Uh, that is specifically an infrastructure issue, uh, as are many other things, including the actual products that we have, equities, derivatives, debt, et cetera. So to me, uh, blockchain is a technology that eliminates almost all the frictions and creates a almost like a blank whiteboard of what is now possible for capital markets, and that's why it's so exciting.
Yep. So some of the limitations, you talked about closing at 4:00 PM. You know, what are the other limitations and flaws that, you know, you think are the low-hanging fruit, you know, over time for us to address?
The fact that most markets are single asset. So we have an equity market, we had a debt market, we have an options market, we have foreign exchange markets. But now that it's all virtual digital assets, they're all just database entries, and I think one of the best aspects of tokenizing and moving on to blockchain is a term I made up, it's omni-asset, right? All assets could exist on the same exact infrastructure, which is great from a safety and soundness perspective. So actually, like two things that have been the goal of capital and currency markets forever, which is true, what we call atomic swaps, what TradFi folks call delivery versus payment or payment versus payment. Uh, so that's very exciting. Uh, the fact that you can have the derivative exist on the same exact infrastructure as the spot, again, great for safety and soundness. Programmability, uh, via smart contracts. And then lastly, just really expanding the potential set of direct market participants. So who can invest in what without having to go through an intermediary.
Yep. I love this concept of the omni-asset platform. So in order to get there, right, we have to figure out a way as a society to do this for each asset, right? Where, you know, for equities, we have an equity market structure. Right. We have the, you know, depositories, we have the broker dealers, we have the exchanges. They all have to somehow play by new rules. For fixed income, it's a different set of participants, right? For a currency, you know, trading, it's a different set of participants. Do you think it all happens all at once, or do you think, you know, this is gonna, you know, happen in bits and pieces where certain assets will move first, and then eventually we'll just get to some standardization of new rails?
I think for the foreseeable future, we're in the hybrid stage where everything we do with tokenization has to be a hybrid, a combination of the old ways and what's now possible and desirable, and it's definitely going to come in bits and pieces, fits and starts. It's actually been fascinating watching what has been successfully tokenized and what hasn't. I think myself and a lot of other people, if you asked us, like, seven, eight years ago, it's like, all right, 2026. What are the things that are the most tokenized on chain? What do you think the success stories are so far? Obviously, stable coins is number one. Then proxies for US Treasuries are number two.
Proxies, not actual US Treasuries.
Not actual. I look forward to the day that the US... I, I've pitched this to the US Treasury Department, that they should think about the day where they just literally issue a token on some chain.
I agree. I would love to see the US government doing primary issuance on chain.
Cause it, it, uh, not just because it's, it's good for the treasury, it expands the reach and investment market, but given that treasuries are so foundational in so many different markets, the fact that you could have them exist on the same exact infrastructure where you have a stablecoin. So now you have a smart contract controlled tokenized repo market, which would be great. And then, like, people who wanna do treasury basis trades could do it on the same exact network, and that would be great. So treasuries, and then next it, it seems like different kinds of equities of some mix of public and private companies, which I have to say is quite ironic because many years ago, myself and other people argued that, oh, tokenization, that's going to be primarily used to bring liquidity to illiquid assets, right? So remember we were talking about... And people did tokenize real estate. Yeah. We start with these exotic little niche things, hoping that by turning it into a token, it would suddenly become liquid. Exactly. And now we have years of data, and what we see is actually the things that there was demand for to be tokenized are the most liquid things on Earth, like the US dollar and Treasury, but the demand was to expand access and to be able to do different things with them. So for now, my mental model is we're sorta gonna continue down this path. And I think things like public equities and maybe high-value private equities clearly demand all over the world. Clearly lots of people who can't just open a US domestic brokerage account and get access to them. Uh, and then we'll see with what else comes next.
But I, I agree with you. I mean, you know, we have seen some experiments from private companies, you know, through one or two different models that I don't know if they're gonna be the long-term approach to it. We've seen a couple different approaches with public equities, a lot of experimentation here. You know, it's still early.
In fact, it's... We hardly have anything. And I think it's important for people like me and everyone else in the crypto industry to remind ourselves that we shouldn't over-interpret what the state of the tokenized world is today. I-- it- it's also possible that, like, tokenized real estate does one day come back and become a huge thing. It's just that the order of operations had to be different.
Yeah. I, I think maybe we'll also see the, you know, some intermediary steps, right? So like we don't have primary issuance of Treasuries on chain yet, but we have these fungible liquid proxies, right? It's possible that we wind up with REITs that are popular before we have individual houses or mortgages as well.
Yeah, and, and the thing that really excites me as someone who's more on the academic side of things is, there's so much that we don't know what's going to work, and we can't know without trying. So that fundamental question of if people wanna invest in real estate more broadly and in... So they do it in tokenized form, is there actually going to be a lot of demand for individual properties? Or would rather, would people rather invest in tokenized forms of REITs because there's diversification, right? Like, how do you have real time price discovery on an individual building on any given day? Uh, I don't know. But a lot of this we can only speculate, pun intended. People have to try, which is why even those experiments years ago, I remember I talked to these, uh, European founders who created a company that was tokenizing individual houses in the Detroit area, and I was like, "Why in the Detroit area?"
I think I might have bought one... small share of one of those houses in Detroit... like years ago.
A- and the guy's like, "Well, houses in Detroit are really cheap. So, so because we need to buy them first before we tokenize them." And in retrospect we can laugh about this, but it was important that they tried that for all of us to learn like, okay, right now that's not the thing that there's demand for, and then move on to other things like stable coins.
Yeah. I mean, my hypothesis would be, you know, stable coins are the biggest and first because there is no pricing difficulty, right? We know that generally it's a dollar. Right. There is no-
Yeah, there's no complexity. Right. And it's also extraordinarily fungible, right? Like, you can have 100 billion of it that all behaves the exact same. The exact opposite end of the spectrum is that, like, individual house in Detroit Which is worth, like, $15,000, and it doesn't price very often, and it's like a small ticket that, like, you can't aggregate demand into.
That I, I love that, uh, point about that there, there is no price discovery if the stable coin works. And the fungibility. In retrospect, the other thing that makes sense is it makes sense if we're going to build this completely new and different tokenized financial infrastructure, it may sen- make sense that the unit of account or the numerator that things trade against will be the first thing that becomes sort of ubiquitous. Uh, because it's, once you have a tokenized dollar, it's that much easier to then have a tokenized market for equities and debt and derivatives and other th- even US Treasuries. Like, they need to pay interest.
Uh, and you need a stable coin to do that.
Well, let's focus on the asset that's sort of in the middle of this evolution, which, you know, has been a topic of the season. It's a topic that Superstate is focused on, which is equities, right? Did, you know, the public market for companies and when they go public and how they raise capital, et cetera. So far, all of the tokenization that we've really seen within equities is on a secondary basis. It's after a company has already gone public, there's already liquid and robust secondary markets on, you know, primary exchanges. Those tokens becoming available, you know, outside the US primarily, also potentially in the US. But we're seeing it for secondary markets. We're not seeing it for the act of raising capital yet. What do you think it takes for the capital market infrastructure that exists today to intersect with tokenization? What do you think the obstacles are?
There's a couple. One of them is actually maybe not even infrastructure related, which is that for various reasons, some of which are sort of beyond my domain of expertise, going public is now much more of a exit liquidity event than it is a capital raising event, right? It used to be like you would go public to raise the big money to do the growth. But we now live in a world where there's soon going to be multiple trillion dollar companies. Right. It's series like G to K when- Right... You go public as opposed to like Series B. Right. And, and part of that is because we happen to be living during a time of abundant private market capital. I don't know if that'll always be the case. I mean, I don't think like venture investing and, and, and angel investing is gonna go away, but there just happens to be a lot of money in that now. But history tells us you go through periods of abundant capital and, and scarce capital. Then there's the regulatory question of just post-Dodd-Frank and other major regulations. It just became a lot more expensive and cumbersome, to be a public company. Going back to being the professor, there's now academic literature research that shows that these had a direct impact with the fact that less companies started going public later. So there's a regulatory issue. It's not, not a technology problem, but where the crypto tokenization maturation dovetails nicely with it, is the fact that because we have new infrastructure and rails now, we're getting new legislation and new regulation. A lot of which is a good opportunity to revisit the old rules. So I think the two things that need to happen, going back to your original question, is one, the, the actual tokenization infrastructure needs to continue to improve, which we have no reason to doubt that it will. The other thing is the rules and regulations need to become more favorable to younger companies going public without facing a huge cost and a lot of friction and a burden that, that a lot of e-executives increasingly don't wanna deal with.
And it seems like that's also happening.
Yeah, I mean, I would, you know, love to see changes on the legislative side or the regulatory side to enable more of this. I mean, as of the time of this recording, you know, there's, you know, vibrant debate over the CLARITY Act in the Senate. You know, the SEC has some, like, tentative ideas around crypto fundraising exemptions, sort of tokenized fundraising, not for, you know, tokenized securities, but for non-security tokens of some variety. Mm-hmm. Yet to see the details in, you know, at length. But there's definitely opportunities to open things up from a policy perspective.
Yeah, and, and the good news is that given most of the regulators are principles driven anyway, right? Like the SEC doesn't just have one mandate. It doesn't just have a mandate to regulate. Right. It has a mandate to also aid capital formation. So that being the case, and given how new technology leads to people asking basic questions like, "Hey, why does the market close at 4:00 PM?" Right? Or, "Should it be this hard to go public, uh, as a company?" Particularly because if the technology continues to reduce the infrastructure limitations, right, like there's some cost, I actually don't know what it is, but there's some cost of actually issuing shares into the existing capital market stack, having them listed at a major exchange, and then also having liquidity providers and market makers. You know, like the-- if you're gonna go public, I'm sure you have to think about all of that. But now it's, well, like you could just issue a token on a blockchain and potentially have it be integrated into DeFi and potentially even like s- you can seed your own AMM pools to be the liquidity provider. So technology is eliminating the physical frictions to companies going public with their equity sooner. And if the regulations keep coming along, which I-- it seems like they are, then I think we will see much more companies tapping the public markets to raise capital and individuals having to, uh, having opportunities to participate sooner in the growth.
Yeah. I would love if we could just fast-forward to the moment when, like, a company could just, you know, create their shares as tokens, and they go straight into an AMM.
And it circumvents all of the other intermediaries that make this complicated, expensive, slow, error-prone, and expensive for companies to be public.
Me too, and you could argue from a regulatory perspective, for them to succeed at their job, which is to live up to first principles like protect investors, preserve market integrity, aid capital formation, the version of the capital markets that you just described is a lot more easily regulatable than what we have today. The token's transparent, right? The smart contract code could be transparent. You can go and literally look at every trade as it happens in real time, look at what the liquidity situation is so I also-- I look forward to the moment where regulators and the lawmakers who create the rules that regulators follow start to have these light bulb moments and say, "You know, actually, if we embrace the new thing, uh, it means that it'll be easier for us to succeed at the goals we care about."
Yeah, absolutely. I mean, I think they're just worried about, you know, moving too fast and too far before everybody else is ready, before the existing incumbents are ready, before, you know, uh, you know, before everybody's sort of like, you know, on the starting line.
That is true. Uh, I would say that is also a more generous interpretation-
You're, yes. That's my role.
Yeah. That's your role. I'm being crit- I'll be critical for a second.
I think that different kinds of regulatory capture is definitely a headwind, particularly the kind, it, that's not, they don't like corporate executives, Wall Street executives getting together in a back room and being like, you know, "Mwahahaha, we're going to influence the, the regulators in these ways that protect our moats." It's just systems have a tendency to evolve to a point where they protect themselves and protect the status quo. So if you've been in financial regulation for a long time, you have a network of people, uh, in the financial sector who you trust and respect, and you talk to them because you wanna know what they're worried about and what they're thinking. And those people, perhaps even subconsciously, are worried about what disintermediation means for their company, for their shareholders, for their careers, for their bonus at the end of the year. So the system is biased towards preserving itself, which means fighting against the more radical kinds of change, which I would like to see, 'cause I just think it's better. But that's why I think it's the responsibility of people like me to make the important first principles arguments as to why the radical change, which I'm not saying we should do tomorrow, but we should be headed in that direction 'cause it just leads to better capital markets.
Yeah. I, I completely agree with you. You know, I'll also take... I guess I'll take the devil's advocate side just for the fun of a podcast. You know, I think the radical change is the most beneficial, right? Or the radical experimentation is the most beneficial, because we don't even know what's gonna work.
Right? Crypto as a proving ground and as a sandbox has been incredible for experimentation so far. A lot of these experiments are conducted historically in unsafe ways, right? Like, I'll just say this as, like, a DeFi founder who has watched a lot of DeFi projects get built over the years, right? There's been a lot of, like, anon 24-year-olds who have, like, blown things up into smithereens while proving out incredible concepts and incredible points. And, you know, I think one of the hesitations from, you know, the incumbent machine, so to speak, is that, you know, experimentation is good, but it just has to wait for it to be done in this sort of, like, fully vetted, fully approved way. And, like, nobody wants, at least within TradFi of the people I talk to, nobody wants anon 24-year-olds to be the ones doing the experimenting. They want, you know, an investment bank to be the one experimenting.
I will devil's advocate your devil's advocate.
It's not like the, uh, the more regulated, respected, established Wall Street firms don't blow up-
Themselves. I agree. They're, they're equally unsafe in their own way. Right? They're, they're... It's just the, the history is not very favorable there. And I'm not just talking about the major things like the 2008 financial crisis. Like, eve- just once a year something that happens that you shake your head and you're like, "Wait, I thought all these people are responsible and mature and regulated."
Oh, yeah. I mean, if you read Matt Levine's Money stuff- It's like every week there's, like, an embarrassment on Wall Street.
Right. So this is where I think when they argue for the more measured, reasonable approach, they are literally more talking their book. But that doesn't mean that we should not be critical of the crypto industry. Uh, I think we should be very critical of the crypto industry because for every honest experiment by an anon 24-year-old that ended badly, there's probably nine dishonest attempts to just make a quick buck.
Right? Where the disclosure is not there. There are way too many conflicts of interest, insider information, uh, too much inner dealing with related entities. A- and that is something that I think the outside world, including the TradFi world, is right to be suspicious of this industry of.
Oh, agreed. Just to be clear, I think the actual legitimate new experiments conducted by anon 24-year-olds are a societal be- societal benefit, right? They create knowledge for everybody, fail or succeed, right? Sometimes, you know, things have happened where it's like it's not well-intended. I think there's a lot of really well-intended things that have worked and some that have not worked, but the ones who are actually, like, experimenting with new ideas and new models and new frameworks and new technologies and new approaches, like, that's adding, you know, a net benefit for everybody even if it gets hacked and it blows up.
I agree. Uh, in fact, just literally earlier today I was having a conversation with a friend, an academic who's been following things for a very long time. We were talking about algorithmic stable coins and Terra- I get why people wanted those to work. I wanted them to work. They don't work- Historically. But w- w- we all wanted them to work. I, like, I get why, uh, even today if somebody comes up with some new model of something like that, that doesn't have the centralization vectors of a fiat-backed stablecoin or the capital cost issues of, like, a over-collateralized crypto-backed stablecoin, I get why people wanted that. I also get why a lot of people who are more tech folks than finance folks would think that some mechanism like that could work. And now there were things about Terra that were also just fraudulent and dishonest. But-
There were some very bad behaviors there- Besides the novel experiments.
Exactly. But in a way, I think maybe you would agree with me that it's good that the experiment happened. I think it's unfortunate that it got so big and so many innocent people got hurt due to the collapse, but it's good that we sort of got that out of the system. We said, "Okay, well, that doesn't work as much as we would like it to, so now let's figure out how to make the other approaches to making, building a stablecoin, as useful as possible," which is the stage I think we're in now.
Yeah, I mean, we got legislation. We got stablecoin legislation that specifically said Terra bad.
Right? Dollar in a T-bill or a bank, good. Like, that's how you create a stablecoin.
Right? The Genius Act learned directly from those experiments.
Yes. Great point. Yeah. I forgot that that's actually... I've, I've so, like-
It's the one thing you're not allowed to do.
Yeah. Yeah. Genius is built on the back of Terra.
Yeah. Good. Yeah. So in terms of, like, going from idea and experiment to, like, adoption and implementation, like, what do you think it takes from an institutional perspective, from a regulatory perspective, from a trust perspective to go from like, "Hey, this thing worked in crypto," to financial markets just saying, like, "Let's start to move in this direction"? 'Cause I don't think we've, like, fully moved in the direction of tokenization yet.
I think there's a lot of incredible proof points, but we haven't really moved there yet. Like, what do you think are the hurdles? What do you think we have to overcome? You know, is it, like, demand? Is it product market fit? Is it, like, a revenue case for everybody? Like, what is the thing that gets everybody to the better technology?
Demand is a big one. So go back to when we were talking about tokenizing real estate and other illiquid assets. The other wrong assumption back then was that tokenization was a supply side issue, that it was almost like, well, if, as long as you tokenize it, someone will want it. But turned out no. Like, if people don't wanna own a, buy a house in Detroit, they wouldn't wanna buy a token of a house in Detroit. I think the market's actually smaller. There's probably, like, 15 bidders for that house in Detroit if you held the auction in Detroit. And if you said, you know, "To buy this house you have to also have a crypto wallet- And want the tokenized version of it," there might be five bidders. Right. So I think that this, this demand side thing is really important. And again, like, there's demand for dollars all over the world for doing different kind of things, including to use them in DeFi. There's now demand for proxies for US Treasuries. Uh, I think there is demand for tokenized versions of the equity of, uh, blue chip tech companies and other kind of companies. But I think, like, identifying what that demand is is important. Uh, and the demand has to come from someone who sees the value of not accessing that asset through the existing infrastructure. Uh, which again, stable coins like that, it's not, uh... People, my mother, like my mother doesn't need a stable coin living in America. But there are lots of people abroad, and I think it's interesting to go down the list and ask the question of, okay, like if we're talking about things like equities, where might there be demand that is unmet today? Part of it could be for, well, it's people who can't... They wanna invest in the Mag Seven but can't. Check. People who wanna invest in the Mag Seven can through like US brokerage accounts, but that has limitations that are problematic for them, like the ability to trade a 24/7. But there are also increasingly brokerages that are offering 24/7 trading, right? So it's like, okay, well, trade 24/7 and to be able to transfer it without having to sell it. So I think thinking about it from that perspective, and, and we have to continue to steel man the question like, okay, but is there a demand? Would someone want it? That is big, and then demand leads right behind it has to be enough regulatory flexibility for institutions to get involved. That doesn't necessarily-- Like in an ideal world, we get genius, we get clarity, we get tax legislation. Like there's a, there's a bunch of stuff that these two don't address. I think that's, uh, unrealistic. However So even something as simple as a no action letter from a regulator or a sandbox from a regulator, that's that regulatory flexibility that allows issuers, as a market, to step up and say, "I see the demand, I see the version of my assets that there's demand for, and I see that enough regulatory flexibility that is almost gonna come knocking on my door if I do it."
Yep. Totally agree. What's one thing that people don't understand about, you know, blockchain as it relates to financial markets? This is a broad question, but, you know, what do you think people, you know, if they could attend one of your classes and learn, you know, what's the number one thing people are missing?
Not all blockchains are created equal.
What do you mean by that?
So a token is just a wrapper. It's a container. I think the definition I use in my class is a arbitrary container of value, information, or rights whose provenance is tracked on a decentralized permissionless system. So if a, uh, group of, uh, just hypothetically make up like five broker-dealers get together and they say, "Well, we've, we've created a network, and, uh, we're running some kind of a consensus mechanism, and, uh, to- come tokenize on our platform," I think, first of all, I wouldn't even call that a token.
It's a database entry in a database that is owned by five broker-dealers, but literally there's one person who has access to a button that can turn it off, turn it on, kick one of the broker-dealers out.
It's a shared database. Uh, that has all the benefits of a shared da- It's fast, it's simple, doesn't need any of this complex cryptography, but also a lot of business and enterprise risk of a shared database. As opposed to if someone comes and says, "Well, I've issued a token on Ethereum or Solana," that asset has actually very specific property rights that you do not get on a shared database.
It's more tamper-proof. Than the asset that's issued on the shared database.
It's more tamper-proof, it's a lot more censorship resistant, it's possibly a lot more transparent, and it's-- they could both be easily programmable. You could have code that executes on a shared database, but the logic of the code is a lot like, more likely to b- execute exactly as the holder of the token anticipates it to on a public permissionless blockchain than on a database.
Right. It has better guarantees of how it works.
Yes. Yeah. Better guarantees. Ultimately, like, simpler way to frame all of this is that the best assets get the maximum property rights, and the nice thing about crypto and tokenization, it really, like, able to expand the surface area of the kind of property rights you can embed into the asset. But, those property rights do not exist equally even among blockchains, right? There's L1s, there's different kinds of L1s, there's L2s, and then when you get into, like, the permission shared database world, I actually think in some ways that's the worst of both worlds 'cause you don't have the crypto economic security principles and property right guarantees that you do in a novel permissionless system. But you also don't have the full legal regulatory protections that you do in the legacy TradFi stack. So it's almost like a dangerous kind of regulatory arbitrage that, uh, I am not a fan of, obviously.
Right. Well, in the legacy system right now, I mean, you know, there's zero censorship resistance, right? In terms of your property rights, they're entirely enforced based on the regulatory structure and the legal structure, right? If I have my stocks in, you know, a broker-dealer, like, that's enforced by law and regulators. That's not enforced by any code at all, right? Even if the code is broken, it doesn't really matter- Because, like, the rights are the rights, right? And so where does that change as we start to move to a blockchain-based system? 'Cause, like, clearly it becomes better property rights as you move to an on-chain system, but we're already starting off from a point where it's like even if it's buggy, even if your assets get completely deleted, like, they're still yours.
