Up next, we have a conversation with Robert Leshner. Robert is the CEO of Superstate and has an amazing background as the former founder of the DeFi exchange Compound Labs. He's also a venture investor with Robot Ventures and is now leading Superstate, one of the leading platforms for trading tokenized real-world assets. He and I are going to discuss the outlook for Superstate in a fireside chat format. A very warm welcome, Robert. Thank you for being here.
It's great to have you because we're so lucky to have somebody that's really at the forefront of technological innovation in markets. So maybe just the first question for you: How do you explain what you do to someone outside crypto? Say somebody at a dinner party. What's the one-sentence version?
The one-sentence version is that we take securities that exist on Wall Street and we make them faster and easier to move around and more programmable with new use cases.
That's a great summary of what Superstate is trying to accomplish. What was the moment when you personally decided that this is a really interesting corner of finance to get into? It was probably a lot less well understood and well known back then. What was that aha moment?
The aha moment for me actually started in 2017. That's when I began building Compound, one of the first DeFi protocols. At that time, the future looked extremely bright and I was convinced that shortly we would have every security and asset operating on blockchains as tokens. I was too early, probably by about 10 years. But when I began building in DeFi, I thought that very soon enough we'd have stocks and bonds and currencies and commodities and real estate and everything else existing as tokens on a blockchain. Over the next couple of years, that never really materialized. There were a lot of experiments and one-off pilots of real estate projects or debt issuances, but oftentimes in extremely small sandbox environments. They were very much prototypes. Over the course of about seven or eight years, there was very little significant traction in tokenization. To me, this was always a source of consternation. I always thought that by building in the crypto industry and on blockchains, the types of assets that would be interoperable with these systems would just scale up. It hadn't really occurred. Around 2023, I was still obsessed with this idea and I decided to leave what I was doing building a DeFi lending protocol to take a stab at bringing securities from off-chain on-chain so that they could operate in this new environment.
Clearly there were a lot of things to learn and to not learn from Wall Street in general. Are there any one or two things that were big insights for you, or maybe even surprises, when you started to compare and contrast Wall Street with how crypto exchanges and tokenization work?
Yeah, fundamentally there are some incredible properties of crypto. The first one is that anybody can deploy a financial instrument. When I say anybody, I mean anyone listening to this conversation could go on the blockchain and make a token, make an asset. Whether it's worth anything or has properties that people have come to expect is a different conversation. But the environment itself to create assets is extraordinarily permissionless, and the environment to interact with those assets is extraordinarily permissionless. This leads to really profound innovations and improvements for those types of assets. DeFi has been able to prove out that you can have financial markets and financial products that operate 24/7, 365, autonomously, in ways that massively increase transparency and your ability to audit the financial market and understand all the different components of it. So we're starting off from an extremely open side on the crypto side. On the security side, the traditional market side, it's the exact opposite. It's 180 degrees away, which is something that everyone who operates and works in finance innately feels and understands: things move slowly, things are extremely regulated, things are not permissionless, they're negotiated. If you want to innovate, most fintech companies, it takes a long time to make honestly incremental improvements to the way financial products and financial markets operate. It's a very slow velocity of innovation. And fintech companies that innovate actually can capture a lot of value by making small improvements slowly. These two worlds are somewhat at odds. The fascinating thing to be in the middle of this and try to bridge it is that in some ways we're bounded by the existing system. When we're trying to take securities and bring them into a new environment, we're bound by all the same regulations, all the same compliance, all the same partnership necessity to work collaboratively with other institutions in the space in order to get things to be able to move faster and more autonomously and over real-time, always-on infrastructure. So it's kind of in some ways the best of both worlds and the worst of both worlds to be sitting in the center.
I think you're referring to the fact that everything is not exactly interoperable. You can't necessarily always jump from chain to chain, and if you go through all those steps, even on one chain, you may end up in some hybrid situations. For our audience, how do you think about that? Because it's really a technology strategy question for you, and maybe that would also explain a little bit about your future design and what you're trying to accomplish.
Absolutely. To talk about what we're doing at Superstate at a very fundamental level, we record who owns securities and assets. The definition of who owns something historically is very contractual. It's not based on technology. It's literally just based on PDF contracts and spreadsheets and a judicial system to enforce agreements. That really bounds close to $700 trillion of wealth today. It has nothing to do with what's the technology behind it. It has everything to do with who entered into what agreement and how does it work and how many different intermediate steps of entitlement and contract are above that to create a system in which people own assets, they can move assets, and they just exist. What we do at Superstate fundamentally is say, well, the recording of those assets actually uses technology more than the existing historical approach. Coming from that perspective, multi-chain, moving things around systems, it's less about there's different blockchains with different parameters and more about let's just try to get the ownership information in the first place into a modern blockchain-enabled format so that it doesn't matter what ledger we're talking about. It doesn't matter where we want to move something. It doesn't matter the nuances of the chain that hasn't been created yet. The fundamental ownership of an asset is ready to move between those systems.
I think it would be really interesting for our audience to hear about the assets you're most focused on tokenizing today and what your future plans are.
Absolutely. We launched Superstate in 2023 and in the two and a half years or so that we've been operating, we started off by trying to tokenize what I would call the simplest asset and asset class to create a token that's a security. We started with T-bills in a T-bill fund. The reason for that is there's widespread understanding of how stablecoins work. Everyone loves them because they're global and portable 24/7 and it's just a better version of a dollar. The simplicity of them is honestly, I think, the greatest selling point. T-bills are like one degree farther out the complexity curve in that there's very little, negligible price risk. But there's yield and you add a lot of legal and regulatory and compliance nuance because they're securities instead of just being a cash product. So it's a great innovation space to build a tokenized product because it forces you to build out the end-to-end process of how do you take a security and turn it into a token and enforce everything that you need to enforce without burdening people with having to think about the actual financial product itself because everyone right now listening understands basically what they're getting with the T-bill. You don't really have to read the fine print on the actual economic side of the product. You just have to read the fine print on the sort of operational set. So that was our first product. It's a phenomenal starting point. It's actually one of the reasons why a lot of the companies that enter tokenization start with a T-bill product because the only thing you have to think about is the operational side, not the economic side. That was our first product. From there we expanded into a high-yield fund. But funds are really what we don't consider our core focus to be. Funds are an incredible way for us to prove out tokenization as an SEC-registered transfer agent that partners with security issuers and has built a technology to sort of take a security and put it into token form. But the sort of holy grail that I think everyone is sort of fighting for right now, because I think it's a massive opportunity that's going to be decided in the next couple of years, are public equities. The reason why I think public equities are exciting and going to be inside the next couple of years is because there's widespread demand to upgrade the way equity capital markets operate and equity financial markets operate. It's kind of the marquee and flagship market of the US. It's what creates the most pride for our country and it creates the biggest tailwind for the success of everything that's ever been built here. So Superstate and a lot of other firms are right now focused on just how do we improve equity markets through tokenization. At a really high level, it seems simple. Right now, stocks are T+1. The process for them to move around is really cumbersome. Moving a stock from one broker-dealer or one individual to someone else just takes days. It's clunky. It's not fun. Stocks don't seem like they're very digital. Even though at the end of the day, everything that trades and everything that gets blotted on NASDAQ is digitized at this point, you're not trading paper, you're trading zeros and ones. But it's still an inefficient version of the zeros and ones. So I think everybody sees this opportunity to move from a T+1 system to a real-time system with potentially much more favorable capital efficiency, let alone speed efficiency, settlement efficiency, operational efficiency, increasing automation, like all of these things. So there's a lot of competition to solve the tokenization of equities. We're focused on it right now. Our approach is to do it a little bit differently than a lot of the other approaches to tokenization. What we do is we partner with issuers as their transfer agent and become the canonical record of their shares in token form. There's a lot of other approaches. There's an approach above the transfer agent layer where most shares are held by DTC. So DTC is saying, 'Well, how do we tokenize shares?' There's broker-dealers that sit above the DTC that are saying, 'Well, how do we tokenize our street name security entitlement shares?' There's platforms above those that are saying, 'Hey, why don't we create an SPV to buy shares from a broker, hold them in custody, and tokenize those.' There's a lot of different layers and a lot of different approaches to tokenization, but our approach is what we really think of as just native issuer-led tokenization where we're equipping a public company with the means for their shares to be recorded, the official shares, their canonical ones, the same CUSIP that you would trade on an exchange as a token on Ethereum and Solana.
