Excellent. Like I said, this is going to be a great fireside chat. I'd like to introduce Michael Casey, Brian Steel, and Joe Lubin to the stage for a wonderful discussion around reflections and the road ahead. So, take it away, Michael.
Thanks, Daniel.
Good. Fantastic. Okay. Hi. So, I'm Michael Casey. I'm currently wearing a hat that's the chairman of the Advanced AI Society, which is an association of builders, some of whom are in the room here, building what we call proof of control technologies for the age of AI. But many of you may know me from my journalism past, wrote a few books around this. And I was at the Wall Street Journal early on, spent some time at MIT, and then I ended up at CoinDesk for a few years until this new thing where I was the chief content officer and ran Consensys. All of which is relevant. And I don't usually do the big bio beforehand, but I actually myself came to the very first Hyperledger meeting as it was then called in these very offices 10 years ago when IBM stood up and announced Fabric and it was a big sort of big announcement right at the very beginning there. And have watched the journey that Hyperledger and then now LFD Decentralized Trust has been on ever since and it's been a really interesting one and I think it's going to be quite interesting indeed to have these two gentlemen reflect on that journey and then on what the road ahead looks like because they both come from quite different perspectives on what this is all about and in some respects it is the kind of meeting of minds between, you know, the TradFi world that Brian represents and the, you know, upstart crypto blockchain world that Joe represents. And it's how these
Yes, you still upstart. I think, not to me because I'm 10 years in, 12 years in crypto as I've been, it's like 30 years.
May we always be upstarts.
Yes. May we always be. But I think that gives you like a way to frame how, you know, the resolution of those challenges, the tensions that end up finding the solution is what's going on here. And we'll kind of go with that, I think. But why don't we start like with maybe both of you can just sort of talk about those early days and what led you to get involved with this organization? I mean, I know Brian, you were there at the time, but you can maybe speak for what DTCC was doing, but yeah, Joe, why don't you start?
Yeah, sure. Maybe I experienced more of the tension than Brian did back then. So it all comes down to trust, and from our perspective, decentralized trust. The world is in a very complicated situation right now. Economically there's a lot of debt in the system. Geopolitically there's a lot of tension and it feels new, this level of tension, but it's been building up for a long time. There was loss of trust in centralized institutions going back a couple few decades. And with that loss of trust, there were people who reflected on it and tried to come up with different better forms of trust and DTCC itself has been all about evolving better forms of trust. And so in 2008, 2009, Satoshi Nakamoto invented the most profound form of trust, decentralized trust, and showed us how to operationalize it in the form of Bitcoin. Vitalik came along and showed us, well there were a bunch of protocols that were already bringing decentralized trust to a wider range of applications. And Vitalik in his white paper articulated a very powerful instantiation of that idea and so it gained some traction. And so I think we've been on the same team all along. We've been on the same team as regulators all along and law enforcement all along. We're all just trying to build better systems. And our friends in the Bitcoin ecosystem, they were more about financial things, more about crypto anarchy. The people in the Ethereum ecosystem were more software developers building platforms so that other people can build solutions to problems that they saw in the world. And so there was a lot of trust early on. We joined the Hyperledger Foundation. In parallel we helped found the Enterprise Ethereum Alliance and this was all about taking this profound new form of trust that we were so excited about and trying to share it with the world because at least in the Ethereum ecosystem we felt like, hey, this should be applied to everything. We should do whatever we can to get the message out and to enable all the systems of the world to experience healthy forms of disintermediation and build better systems on better foundations.
That's a great way to start here because I think Brian, you know, I watched the DTCC's early foray into this. You know, Rob Palatnik was the champion at the time. And it did seem as if there was enthusiasm to move forward and to recognize that this was a radical different thing, but you have at the same time these deep-seated long-lasting obligations under a different trust architecture with the TradFi guys. And so it did seem like you were pushing up against challenges at that point and it wasn't quite as easy as just taking everything that Joe was talking about and saying, 'Hey, we'll just move over to this new public blockchain structure.'
It sounded good when Joe said it though, right? So if you live in a world that is founded on centralized trust infrastructure, it's really hard to wrap your head around the idea that there's this bottom-up form of trust on this network of volunteer processors. So no, I think it's very, you know, Michael, I think it raises a really good point just to build on what Joe said before. This firm is founded on trust. Financial services in the United States, at least if not beyond, relies on us and trusts in us to provide services and products that enable the financial services market in the United States. You know, the US equities markets don't open if DTCC is not open, you know, it's that type of trust. We have the large majority if not the entirety of the US equities market that we custody today which is over 100 trillion of assets that is, you know, we're trusted upon for that level of responsibility. Now, you know, as you said, we've been involved for over a decade, or I think just past the decade now, right? Because I think we talked about earlier it was sort of January of 2016 and it was Rob Palatnik and now it's J. John Powell and I think our goal is in so many ways, you know, we have an obligation. What is DTCC? Well, it's really the ledger for the industry in so many ways, right? And so we have as technology evolves, as there's an opportunity for us to think differently about the products and services that we offer to the market and to be able to provide a level of democratization to our clients and to find better ways to operate what we do today, it's incumbent upon us to do that. And in many ways, the work that we're doing now, which hopefully we'll talk about in a little bit, in some ways, it's on a path to disrupting ourselves. The role that we play in the future is going to evolve innately.
Well, Della in that meeting was reminding us that Rob used to say that we need to disrupt ourselves, right? That's, and there's almost an obligation to do that because if you don't, you'll be beaten by technology. But at the same time, you've got to balance that with the fact that you have these pre-existing obligations to the old world, right? So,
Yes. And laws. Absolutely. Laws and regulations.
We'll get into that because that's obviously one of the things that has changed or at least we think is changing and is really having a big impact. I mean, how does dealing with your member institutions and the companies, the banks and all the other institutions you deal with as you go through this process?
Yeah, it's a good question. I think the work that we're doing now to help, we think about it as enabling our clients' digital assets journey, not disrupting the existing actors in the ecosystem. What does that mean? Well, we're on a path to enable the tokenization of the 100 trillion of assets that we hold at DTCC and we will integrate with various L1 networks. We won't be aligned to any one single L1 network. We will enable those tokens to live in wallets of our clients' choices or wallets of their clients' wallets and enable activity to occur on any one of those L1s that we integrate with. And so in many ways you take the sheer breadth of what DTCC covers today and you allow that to operate in token form and to enable the existing networks that exist in bringing together DeFi and TradFi. Now, that I think in many ways as we have many conversations with our clients as to how they should think about this in the future, how they should think about what role they play and how should they be enabling this for their clients, there's a lot of questions and I think what role they want to play in the future and what are others doing and what are the motivations of the DeFi community versus the TradFi community. But I think overall it's been an incredibly positive sentiment that we've received from both DeFi and TradFi. And as we talked about before just in sort of our breakout just a few minutes ago, we're seeing interest from the DeFi community to be enabled with the tokenization service that I just talked about either being a direct member and considering to be a direct member, some of which already are a direct member of DTCC, but equally to be enabled by the services of the existing 300 or so direct participants of DTCC that can leverage the service today. So, you know, we look at ourselves as kind of bridging the two worlds and not limiting to the existing actors in the TradFi ecosystem.
Well, we did, yeah, we talked a little bit about TradFi versus DeFi and these separate communities being something that supposedly in the future disappears that it just becomes Fi. But all in that this is the way that goes. But Joe, I mean, you were talking there as well, so we keep referring back to our previous conversation. Sometimes one of those things like make sure we get that conversation in the green room here because it was great about the parallels between, you know, me and in the front-running challenges that you had trying to deal with within the Ethereum blockchain and how that has its parallels to problems that the DTCC and others have had to deal with over the years, regulators as well. And that struck me as just an example of the ways in which these worlds seem so different but in reality there are very strong parallels and you can start to have and break down the conversations and start talking about exactly the same thing but in a very different framework.
Yeah. So there's a lot of complementarity, there's a lot of opportunity. I think it's going to go very well and very smoothly. I think it's going to be great for people on the decentralized protocol side because we've been laboring under quite a lot of a cloud of uncertainty in the United States of America for a little while and things are much better now. So we can build in rational ways and having securities available in a convenient form on chain so that they can participate in appropriate ways in decentralized finance. We were talking about collateral before. It's an easy powerful way for assets to establish a presence and be really valuable in a decentralized context. I think it's going to be very smooth for traditional finance also because in meetings that we've had, first of all the DTCC technical team focusing on tokenization is outstanding and a lot of trust in the approach that is being taken. I think for traditional firms I think it's going to feel very comfortable where my interpretation is that DTCC has an organization, a CSD company. There's a database of all the equities held in street name here. There's a database and their sharing of information between this database and Robinhood's database and Schwab's database etc. So a bunch of private databases and then private user interfaces to those databases. And so we're going to see that structure mirrored in the decentralized protocol ecosystem where there'll be a handful of public databases, Ethereum, Canton, others, and there will be dematerialization of equities into token form placed on different databases based on different requests. And then wallets like our MetaMask and other wallets will be the user interfaces or maybe there'll be specific other user interfaces to these public databases. And so I think it's going to feel very comfortable for traditional finance organizations to get up to speed on the technology and really it's the same system. It's just a slightly upgraded technological implementation and the opportunities that it opens up will be staggering.
Yeah, and I think, you know, just to build on what Joe was saying and Michael, I don't know if this is the healthy tension you were looking for, but I'm agreeing with a lot of what Joe says. So, there was a lot of tension in the past. Actually, we can go back to the past. No, I think the regulatory clarity that we've received over the last year and presumably will receive in the next 12 months or 18 months I think has brought a lot of those from the sidelines to the table and in particular institutional finance, right? I think we received the no action letter from the SEC just before the holiday break which was a nice little present and that has given us a tremendous amount of inbounds from clients to engage in a way that's meaningful.
Like I thought that was really interesting that way that the announcement was framed around the no action letter. It was like everything was ready to go. We're launching this thing. We just needed the no action letter.
Yes. Exactly. So we've been working sort of on the sidelines with the anticipation this was coming because it does give regulatory certainty to the work that we're doing which is to create this tokenization service. Now, I think the other benefit as well is we're doing so in a regulatory and compliant way, meaning we're creating compliant aware tokens that allow our clients and our clients' clients to tokenize activity, particularly equities, and to be put into wallets, but how do we keep the same KYC and AML perimeter? Like, are we creating bearer instruments? No, we're not. We're creating the same KYC and AML perimeter that regulators are comfortable with that will exist today as it does in the future. Meaning you can transfer between wallets as long as those wallets are registered through the service that we are creating.
I think Joe, that was actually one of the things, let me jump on that. So TradFi and DeFi are merging and it's going to happen very rapidly. There were a series of dominoes that knocked each other over that opened up a great era for our ecosystem and for the convergence. So there was a shift in power in the United States. The SEC transformed from the Gensler administration to the Atkins administration. During that period, stablecoins were starting to get very interesting to a lot of organizations. Growing in the size of total asset. Genius Act came along and suddenly the banks were starting to panic. So, the big banks were not really starting to panic, but the medium-sized regional banks were wondering if they're going to lose all of their deposits to these stablecoins. Swift recognized that concern and Swift decided to try to formulate a response. So we were there at the right place at the right time and we helped Swift brainstorm and we were asked to put together a prototype of a Swift ledger which we've done and that project is going to proceed in various different stages. And Javier Taso Perez announced this breakthrough project at Sibos in Frankfurt a few months ago. And suddenly it was okay, it was acceptable. Everybody had permission to talk about trades should not cross or there be dragons. But now everybody was given permission. The big banks were told, everybody said thank you. We really needed this to happen. And so it's been moving really fast from there. But I'll say this like some of my best friends are bitcoiners but some of the bitcoin community would not have been the one to be able to move this forward right because it was an Ethereum structure or different as you said like the builders and so forth. You know, you created the Enterprise Ethereum Alliance which in itself had a private blockchain framing for it and then as much as it was always built with the knowledge that the public blockchain was the underlying root of trust in all this to me that seemed to create opportunities for now KYC to be dealt with for all the various compliance needs and so forth. And so it's just interesting to think about how these things come together and requiring give and take on both sides, right?
Yeah. So Consensys did a lot of work on enterprise blockchain, private permission blockchain systems, consortium systems. The Hyperledger Foundation and the Enterprise Ethereum Alliance were all about that. A few years into that there are a lot of projects tried and essentially failed because there are good reasons and there will be lots of reasons to have sufficient trust but it wasn't working out in those early contexts. And so some of us who were a little cheeky basically declared enterprise blockchain dead but also suggested long live enterprise blockchain because we had this rollup-centric roadmap in the Ethereum ecosystem and that was an appropriate architecture to have a sufficiently decentralized layer 2 blockchain system that could have lots of different forms and subserve lots of different use cases. But if it was structured properly, it would inherit the full trust guarantees of the rigorously decentralized Ethereum network and be able to interoperate with anything on the metropolitan Ethereum ecosystem.
Right. So, we've come to the latter part of this conversation now and as I said like 10 years and despite some of the challenges maybe over the first eight or so and there some of these differences and everything we worked things out, regulatory environment improved and there's been this explosion of activity and now we're set right because nothing's going to change in the next 10 years. There's no technological challenges coming over the horizon. It's all ready to go and smooth sailing going on. Your crystal ball, maybe Brian can you just give us a sense of what you're seeing in it, you know, and the basis of what you built given the fact that we do know it's a highly uncertain looking future.
