Markets on Chain: Episode 3 with Digital Asset | Tokenization, Privacy & the Future of Finance

It's great to be here. Thank you.

Sure. So first of all, I think it's important to understand why is everybody excited about this? And you know, we've seen in crypto markets that everything is moving 24/7. The reality though is that in crypto markets, everything is fully pledged, meaning there's no leverage, there's no collateral. You just trade with what you have. And we know the traditional markets are not like that. And if we want traditional markets to move to 24/7 or be more efficient, we need to be able to move collateral more efficiently. So one of the most exciting opportunities around tokenization is just the ability to move collateral real time. So stablecoins was a great step forward. You could move variation margin this way. But now we've seen yesterday DTCC announced that they're going to put US treasuries on Canton, probably the most important collateral globally. And so that's just one aspect of tokenization. But it's also this idea that today we really can't use our assets for anything other than trading them. Like you cannot take your equity holdings and use it to guarantee a loan for example pretty seamlessly. So a lot of the excitement around tokenization is the ability to have more utility out of your assets beyond just being able to move them 24/7.

Yeah, you can. Technically speaking, you can tokenize everything. I sometimes say to people just because you tokenize something doesn't make it liquid. There is an element of tokenization that makes the servicing or managing of an asset significantly cheaper. And because you make it cheaper, then it democratizes the access because you could actually trade smaller and smaller increments of whatever asset it is.

At the end of the day, I think that people will still have these kind of assets that will have much more gravitational force around them.

Yeah. So the reason to use blockchain or distributed ledger technology is that it really forces everyone that interacts with the ledger to agree on what is the data model of an asset and what are the functionality that exists. And as a result of that, once you do a transaction on a distributed ledger, everybody agrees on the source of truth in real time, where in traditional markets today that takes in best case scenario hours and in certain broadly syndicated loans it could take over a month to actually settle a transaction. So the real interesting feature of blockchain and distributed ledger technology is that now you could actually mobilize assets 24/7 in real time and you can now add programmability to actually introduce those assets into different types of services as I mentioned, pledge your Apple stock into a secured loan. So you could go now and get a loan from someone by pledging your Apple security into it.

Yeah. So, I don't know if we'll have time to go into all the technical details, but maybe if we just take a step back, I think that what the crypto industry has shown very well over the last 10 years is that there's a lot of excitement and also a lot of opportunity by mobilizing assets in real time. Stablecoins is just a great example of what success can look like. The reality is that if we want large institutional adoption to come, large-scale institutions would not be comfortable with everybody seeing what are their positions. You know, my former employer Citadel would not be okay if everybody would see all of the trades they do on a daily basis, right? All of their collateral movements. A treasurer of a publicly traded company would not be okay if the whole world would see what are the payments that are taking place by this company. So for us when we started building Canton, privacy was a must-have. And now the crypto industry has woken up over the last 6 months and now suddenly privacy is one of the biggest things that everybody's working on, and we've been very fortunate to think about it 10 years ago.