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- [00:03]
A
Bankless Nation Securitized just completed its SPAC with Cantor Equity Partners on July 1, raising $400 million at a 1.25 billion pre money valuation, and began trading on the New York Stock Exchange under ticker secz on July 2nd. Carlos, got you back on the podcast. Welcome back. We've had you on a podcast a number of times now. It feels like you have crossed a particular line, both a finish line and yet again at another beginning line. Congratulations and welcome back on.
- [00:33]
B
Thank you. Thank you. Thanks for having me again.
- [00:36]
A
Is the world tokenized yet?
- [00:38]
B
It's not the world tokenized yet. We're really far away from tokenizing the world. We are at the very earliest stages of tokenizing, as, you know, the assets on chain that are really like, on chain, it's like around 30, $35 billion. So, I mean, if you think about the amount of assets that could be tokenized and in the hundreds of trillions of dollars, we're still very far away from tokenizing the world. But, you know, things take time, right?
- [01:02]
A
So, Carlos, last time we had you on the show, we drilled down into what a transfer agent is and a lot of the technicals around Securitize. I want to just like, kind of hash that over one more time because I want to know securitize the business a little bit more in this episode. Now that Securitize is publicly traded, the New York Stock Exchange. Talk about, like, what Securitize is, what's the nature of the business, and how do you guys make money?
- [01:25]
B
So, first and foremost, we're a transfer agent. Now, it's very popular to be a transfer agent or to have a transfer agent, but it was not in 2019 when we registered our transfer agent. But a transfer agent is basically an SEC registered entity that can actually take securities from an issuer. An issuer could be an asset manager like BlackRock, or could be a public literary company like us that has securities for a particular instrument. And then the transfer agent is the entity that basically keeps the record of who holds what right and conducts corporate actions when there's splits, dividends, etc. And then the main difference of our transfer agent versus a traditional transfer agent is that as the underlying ledger technology where you record the ownership and all the changes of, you know, whatever happens with the securities, we use, you know, a public blockchain, and that's the. The. And that's the process of tokenization where you issue a token, which is basically an entry on. On a. On a ledger, which is a blockchain that represents this underlying security. Besides that, we are also a broker dealer and that makes a big difference because we can not only tokenize things and put things on chain, but we can actually trade them. And when we launch our own equity on chain, we actually launch, you know, trading of it. So this is another important thing because tokenization for the sake of putting things on chain doesn't change anything. You need to be able to do things with it. So one of the things you want to do, you want to trade them, you want to be able to, you know, pose them as collateral on DeFi, etc. So our whole, you know, tech stack and licenses allows you to do more things beyond the pure tokenization. Now, in terms of how we make money, where we make money as a transfer agent, as a service provider, every company that you know, uses a transfer agent, pays them fees. And those fees are usually based on, you know, how many securities you manage, etc. And as a broker dealer, we make money with transactions or so when something moves around, you know, we take a very small fee out of it. And that's the other source of monetization that we have. Also, I think I might have mentioned this on the podcast before, but we also acquired a fund admin business which is now a part of our revenue. Because many of the tokenized funds that we put on chain, we also do the fund administration business for them, which is another source of revenue. And the reason we wanted to do that is because on chain, as you know, is 247 and you know, instant issuance of securities, instant liquidity, et cetera. And somebody needs to reconcile that with the underlying, which might actually not move 24 7. And that's the role of an admin. So we realized when we started working with BlackRock that not having that piece of the puzzle, you know, create a lot of friction for us. So we ended up owning that thing. So we're basically three different business within one. The transfer agent tokenization platform, the broker dealer, and then the fund administration using
- [03:56]
A
that lens of the three different businesses. The transfer agent, that is a volume based business. And so you just want a ton of volume being traded and then the broker dealer. Is that an AUM based business? Talk about the ways that revenue scales which each of these three lines of businesses.
- [04:15]
B
The transfer agent is more like either a SaaS business where you have a subscription and we have charged fees based on tiers of how much volume we manage or is an AU business as well in some cases. So, so we take fees based on the size of of the asset that we manage, the broker dealer is the opposite. Smaller transaction based business. So it's depending on how many transactions we, you know, how much money we raise for a fund or how many trades we do of an on chain equity, then we take transaction fees. It's not one is recurrent, the other one is reoccurring.
- [04:46]
A
And so there's actually kind of a healthy distribution of different styles of revenue from different sources. When we talk about scaling, securitize more clients, more assets, what becomes the bottleneck or is that kind of the luxury of deploying assets on chain is that the technology actually scales really, really well and adding more clients, more overhead doesn't really actually encumber the business. What is the bottleneck? Is it just new demand?
- [05:15]
B
It's, it's actually demand, yes. The supply side. I think today everybody wants to tokenize everything. And, and I think that there is no, there's no bottleneck on supply and of you know, asset managers, banks, issuers, etc that want to tokenize things. The, the, the bottleneck is in, in the consumption side like who is actually buying those funds, who is actually trading them on chain, etc. This is still for the most part crypto audience. And as you know, crypto, you know, was $4 trillion. Now it's down to like 2.5 trillion. And that's a subset of, of that volume. I think the, the big step change changes when, when the tokenized assets can be consumed by the traditional investors that they don't have to actually know that something is on chain or something is tokenized to consume it the same way. I always explain this when you know, you were connecting to the Internet, you're much younger than me, but so you probably don't remember, but when I started, you know, connecting to Internet, I had to download TCPIP software in my computer and I have to buy a hardware modem and dial up and connect to the phone, etc. So there was a fiction to consume, you know, Internet content. But a lot of people went through it. Like today a lot of people go through the hoops of connecting wallets and signing transactions etc. With crypto. But then at some point that became completely transparent. So I think the day that you know, blockchains are like to the Internet, when you open your phone or you open your laptop and you're connected to a blockchain and you can transact with it without fiction, that's when, when everything, you know, changes completely.
- [06:35]
A
So say you're having a conversation with a potential client and they ask you the question, what benefit does tokenizing my security if I'm a publicly traded company or my fund if I'm a fund manager or something. What, what's your answer to why tokenization benefits them? How would you answer that question?
- [06:55]
B
It depends on the asset class. So there's no a single answer because in some like let's say funds, let's just go through one particular example. So we as you know, because we announced it on your, on your podcast, we, we tokenize the, the, the tokenize treasury funds with, with BlackRock. And then if you look at the advantages of the tokenized version versus the non tokenized versions, there's a ton of things that we can do that are hard to do with the non tokenized version. We have peer to peer transfers. We have, you know, we do daily dividends payout by issuing more tokens that represent more shares of the fund. We're the only one of the entire BlackRock portfolio that does the daily dividend reinvest. And that obviously means that the fund performs better. We have on chain liquidity so you can liquidate your position 247 etc. So that's the pitch for a fund manager is basically I can take your fund and provide more functionality around the fund that makes your investors should be actually better served by you. There's also a component of efficiency, the less reconciliation issues, you know, better management, et cetera. That's in my opinion less interesting than new functionality. I think innovations that give you something new versus something that improves what already exists are less interesting, but it's still there. Now for other things like equities is a different story. Right. So it's about, you know, how can you reach the wallets or the people that are on crypto that want to consume things from their wallet. How can you do 247 trading? How do you have instant settlement? How you can, you know, borrow more efficiently by posting, you know, equities. That applies to funds as well on chain and leverage the asset by, you know, borrowing on a different protocol, etc. So there's no one single answer which makes it complicated to, to explain to people because you need to look at exactly what is that they're doing to to be able to provide them with their advantages.
- [08:34]
A
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- [11:07]
B
Correct.
- [11:07]
A
That's what you are doing though. You are going directly to the companies issuing the equity, issuing the security and saying like hey, we will do this natively. Hooked right into the DTCC and we will do this natively. And a, a stock issued by York Equity on chain is a stock, not some sort of like third party representation of it. How do you think about these two worlds and what benefits does your world of the actual true high fidelity tokenization of the asset? What benefits do you have versus some of these like third party models like Ondo or Robinhood?
- [11:40]
B
So Ihood are not the same. So, so don't want to mix them in the same bank but just generically, you know, when you're buying one of these derivatives or price trackers there's like you know, 10 different ways of doing it, people, Etc. First you're not buying the real thing. You're buying a synthetic or a derivative. So you're taking counterparty risk with a company. You know, tokenization was meant to reduce intermediaries, not to increase the number of intermediaries, which is exactly what, what's happening here. You're also fragmenting liquidity because none of them are fungible. Like there's like five different versions of tokenized coin or tokenized circle and all of them are different and they're not, you know, terrible against each other. Sometimes you don't get the same rights. You don't get, you know, access to dividends. There was one, I believe it was on the token that had a split but they didn't manage the split on chain so it was split on the, on the markets. And the other token was trading at five different, five times different price because it didn't get the split. So you're not part of the, of the cap table. Etc. So what we do is we give you a token that is the same share that exists in markets is issued through the transfer agent. So you're in the books and records of the transfer agent. You show up as a, as such a holder, you get access to all the dividends, the you know, corporate actions, both governance, whatever. You're not taking any, any counterparty risk and you're also not fragmenting liquidity because these tokens, you know, when they trade on chain they actually follow the same, you know, pricing rules that things that trade, let's say on The New York Stock Exchange and Nasdaq. And this is very important because in the US from a regulatory perspective you can't just like trade and stock at a different price that it tracing somewhere else. Right. There's something called Regen Ms. Securities that forces, you know, pricing to be consistent. So people always know that when they're selling or buying, they're getting the best price available. And what you're doing in these platforms, you don't know what you're getting. There's also all sort of regulatory issues with those derivatives because in some cases they're permissionless tokens. They're not issued in the US So US investors are blocked, but then they flow back here. They can allow for things like, you know, sanctioned wallets to hold the, the, the derivatives of US securities. They will bypass, you know, restrictions for buyers. I think Tom Farley from Bullies the other day published that, you know, he's the CEO of Woolies and the day before the earning announcements, when he knows whether the stock is going to go up or down, he can go and buy one of these synthetics which is completely illegal for him to do it. But there's no controls over these things. So I do not believe that those things have a lot of obviously now, you know, crypto. Right. So people will play regulatory arbitrage as long as they can. But, but it's not a sustainable business model. I think the durable thing is to just, you know, follow regulations and then, you know, work with the SEC to improve them. So, so we can do more things on chain and work with the issuers to, for them to consent for their securities to be, you know, traded somewhere else or listed somewhere else and get their permission to use their name, their QC number and everything.
- [14:26]
A
Some of those things that you listed, I actually consider perks mainly the permissionless transferability. And not that I think this is good, but if an offshore sanctioned entity can hold on to some of these tokenized stocks, again I don't think that's good. But I appreciate that that is possible with some of these like offshore stocks. Because for all securitize tokenized assets, it's all kyc. Correct.
- [14:53]
B
So you have to be KYC to be able to hold the asset. We work with permissionless blockchains, but the asset itself is permission. All securities that are issued in a compliant manner are like that, like companies like Superstate R Us or figure we follow regulations. But you're right, those things are permissionless. And I think the issues is even is bigger than that because some of the platforms are actually distributing these assets. They're not regulated platforms, they are offshore, you know, Chinese crypto platforms, probably selling to Chinese people, connecting with a VPN, etc. So if people want to take regulatory risks, that's their problem. That's not how I run the company and that's not how I go here.
- [15:32]
A
Right, right. Yeah, I think we're just, we'll just see a growth of two different worlds. There is the on chain, you know, by the books, compliant, you know, no intermediaries or intermediary minimized world that you're operating in, you know, directly piped into the dtcc, you know, tokenizing the one to one actual ownership. And then there's the offshore world which has like third parties and there's some like lossiness there, there's some risks there. But hey, there's like permissionlessness and no KYC and it's like the wild west out there. Do you agree with that bifurcation?
- [16:07]
B
I agree. And that's how crypto has work. If you. I remember when I started in crypto you had to have KYC on Coinbase from day one. But then you could go to Binance and I'm not trying to blame anybody here, but that was the situation. You could go to Binance and just get a username and a password and buy crypto there. And that eventually didn't last. And you know, now every single centralized exchange has, you know, KYC and AML procedures, etc. So and those worlds are converging. Right. Like today, every centralized exchange in crypto trades probably more or less the same, you know, regulatory regimes in different parts. You've seen now recently in Europe that MICA was imposed and some people had to close because they couldn't follow the regulations, et cetera. So I do see these two worlds, you know, happening temporarily, but I don't think that long term you'll see two worlds because the people not following regulations ultimately are going to be stopped by the regulators and people don't understand that we're two years away. That potential regime change in the US and then suddenly you don't have a friendly sec and, and then we go back to lawsuits and things like that with the people that are not following regulations.
- [17:13]
A
So you think the model that you're bringing to the table, the compliant buy the books, cross your T's, dot your I's version of tokenizing stocks, that will eventually push out the third party tokenization, the offshore tokenization, the less compliant or gray compliant, you think your world pushes
- [17:31]
B
out the other I think so. Because keep in mind that what is the advantage of the permissionless version? So the advantage is first they can distribute through unlicenses changes, but the moment the changes are forced to distribute securities with regulations, the exchanges do KYC already. So there's no reason why they couldn't just have a broker dealer where I distribute it. And then there's now every single defi protocol has adopted technology, some of that developed by us to be able to post those assets as collateral. And there is also on chain trading, just connecting your wallet with usdc, et cetera. Once your wallet has been whitelisted after kyc, that is the same experience there. And then once you have the real things on chain where you're not taking any counterparty risk, I just don't see how liquidity doesn't get sucked into that asset instead of the fake versions, if you want, that have regulatory risk, counterparty risk, et cetera.
- [18:21]
A
Yeah, I do see the liquidity issue being pretty big. Once upon a time I thought stocks would become tokenized and issued on chain way faster. And then they actually did. And it turns out like sure you can tokenize stocks, but like bringing in liquidity and market makers and having that be like the epicenter of liquidity is actually way harder. And I would imagine that there would be more demand. Like you said, the biggest bottleneck right now is just the demand side for tokenizing securities or funds or whatever on chain. And I would imagine there's just like a bunch of existing infrastructure like the market makers and the liquidity around the New York Stock Exchange and the nasdaq that there just doesn't exist that same level of liquidity. Like you can go and look at all the tokenized stocks from Ondo Robinhood like anywhere and all of them are kind of just fragmented liquidity. None of them really have any sort of epicenter or loki of trading activity. Granted that's how it starts. But I would imagine that bringing native liquidity on chain for a lot of these tokenized assets is actually one of the biggest hurdles for the tokenized real world asset ecosystem. Is my intuition. Correct?
- [19:32]
B
Well, so if you think about market makers, you know, market makers, in many cases they're also regulated entities and we work with JAM to do market making for for our own tokenized equity. You will not see them doing that for they say on or somebody else. Why? Because they're taking a regulatory risk that they don't want to take because they've already through this problems in the US and the second, because it's also difficult to hedge because you're basically training a derivative. People call them tokenized stocks, but they're not stocks. They are something else. So then for a market maker, first they're taking a massive regulatory risk and then second, they're also having problems with hedging because they are derivative instruments that they don't have other markets. So I don't see those things becoming very liquid at any time soon while model, as soon as it scales. And obviously it's harder to go issuer by issuer. Right? So that's, there's no question about it. And the reason why those companies are doing that is because they can just do 100 companies at a time instead of having to go one by one. But as the issuers come on chain, and you will see now that with the partnerships we have with computers and Continental, which are two of the largest asset transfer agents and bullies acquiring equinity, I think that you will see more issuers, you know, wanting to issue their own shares on chain also precisely to prevent those, you know, derivatives appearing there without their permission.
- [20:53]
A
So one thing I, I mean, I'm a permissionless Wild west apologist at the very, at the very best, actually. Like, that's just like the world that I like. And so when I see Robinhood doing their tokenized stocks, their third party, like offshore tokenized stocks, and they've got, you know, Alphabet, how much do they have? They have $1.3 million of Alphabet, they have a million dollars of Vanguard, you know, $700,000 of micron. Now, not in large amounts, but I can't imagine like Securitize is going to be tokenizing like Google's stock this year. I hope you guys do land that deal. But like, I don't think that's going to be happening immediately. And there's like so many companies in the S&P 500 that I want to get tokenized on chain. So like, how far away do you think we are from securitized tokenizing like Apple or Nvidia can we get there?
- [21:46]
B
So first I just want to say I believe that what Robinhood does is regulatory compliant in the jurisdictions where they are. So I don't think that Robinhood between permissionless tokens and things like that. So it's a bit of a deep nuance there. So it's still a derivative, but it's a legally issued. And I don't know if Google will tokenize this year, but I do believe everybody will tokenize eventually. And these things start small and go bigger and Robinhood actually is a good example of how five years ago, I remember six years ago they started doing retail IPOs. I don't know if you remember that Robinhood pioneered that of being able to give retail people access to an IPO. And at the beginning the IPOs they had were not like the most sexy ones in the industry, right? But guess what? Six years after they did the SpaceX and I could buy SpaceX of shares at the IPO price from Robin Hood. And by the way, the people that were promoting the tokenized SpaceX IPO they failed miserably and none of them could actually deliver anything because obviously they were, you know, I don't know even know what they were doing, but certainly not what Robin was doing. So. But then now they, it became a norm, right? Like every single company that you know does an ipo, it offers a retail trends. So I think eventually there will be the tokenized version. The token is trench of an IPO and that we will not start with the most sexy companies but it will kind of grow over time and ultimately every single company will do it. Because what would not do it? Like there is no other. If you do it in a compliant way, there is no risk for you as a company. You extend your user base, you extend your distribution, you extend your liquidity, et cetera. So it will hum, it will happen.
- [23:18]
A
What are the lowest hanging fruits for securitized to tokenize? So if the gold standard is like some of the company's most desirable companies like the Nvidias, the apples, but we have to get you know, from A to B, what's the lowest hanging fruit for securitize to tokenize? Like what's the sector that is most proximate, most easy for you guys to work with today?
- [23:38]
B
I think there's two areas. One is crypto companies that already get the advantage of tokenization. So so now that many of them are using the transfer agents we partner with, we're in discussions with some of them, can't mention names but I think crypto companies will want to have their equity natively tokenized and controlled by them and provide the real thing to their, to their users. The second thing is there's a ton of other companies that are kind of like retail centric that they have a lot of like retail following that you know, have maybe 50% of their cap table is retail. And for those companies it's more interesting to increase the amount retail participation on, on the stock. And those are also kind of like the, the low hanging fruit to, to go After I don't think that trying to go to Apple today is, is is the right answer. These are very large conservative companies that are not going to be first movers in something new. If you think about Apple they still don't even have like wallets or they don't touch anything in crypto, right? So but why would they tokenize their stock? I don't think. I think you need to go to the companies that are take forward that are already doing things in the crypto space or you know, crypto JSON etc. And those are the first ones that will adopt this.
- [24:45]
A
What about, what about funds like not equities or not not publicly traded companies but like other vehicles. What are, what are non equity vehicles that are like pretty solid candidates for tokenization?
- [24:56]
B
I think funds are already in a different stage of adoption because you know you got two years ago BlackRock tokenize a fundamental and BlackRock is the largest asset manager. So we already got the Apple of the funds right. BlackRock and then we got Apollo and then we got you know, BNY and then another competitors have Frankie Templeton, Tokenize and Wisdom Tree et cetera. So I think that on the fund space is, is much better because you already got the, the, the quality ones doing it. So, so it's, it's easier now that discussion with, with the funds than with the issuers. Tokenize stocks, you said only is doing it for years. I don't think so. I think they just started like a year ago or something like that on Kraken. I can't remember which one was. It was the first ones and now there's like five different companies doing it. But it's very, very early days funds I think we are like already in the you know, two to three year cycle where some of the large asset managers have already tokenized. It's a much easier conversation.
- [25:51]
A
Well one of the big things that you guys did when you guys spake public was you guys tokenized your own stock, tokenize your own equity. Which makes sense. Obviously you would do that like you, that's what you do. You would and you're going public. It makes perfect sense. Talk about what that just. I don't know what the question is there but I, I just want to talk about it like talk about what that was like behind the scenes and, and the strategy and then where the, where is that ticker Secz trading. Did you have to talk to Coinbase and Kraken to get these listed? Talk about that experience.
- [26:20]
B
So we did two things. First we allow shareholders to tokenize their their equity. So through our through the trans region of our SPAG is Continental and then Securitize partner with Continental to be their tokenization arm. So through Continental when you were receiving your shares of Securitize the last few days before we were listed you got a notice saying if you want to tokenize you can just you know, let us know. And we offer two different chains, Avalanche and Toronto to start but we're planning on on expanding and then you could, you know, opt to receive your shares in tokenized form. And I believe there was like can't remember how many shares, like 200,000 shares or something like that that opted to tokenize. So now it became the largest, you know, native native tokenized, largest tokenized asset including the non native ones. I think the only other native one is figure which is around 200 million or something like that. I don't remember. I think we are like 250 million. But not only we allow them to tokenize but we also turn on trading. We're doing it in Solana for the time being because we're working with with Jump and JUMP has a prop IMM technology in Solana. And that part of the trading was actually a lot more complicated than most people think because we are doing trading following all US regulations which unfortunately for for public equities are very cumbersome in terms of pricing. Right. Because as I mentioned there's something that most people don't know but there's some rules in public markets in the US that if you can buy shares in multiple places, there's tons of venues where traders can actually buy shares. But if one place they're offering you $101 and the other one is offering you $102, the broker dealer has the obligation to route the trade to the one that offers the best price is something called the national best bid and offer mbbo. So when you trade on chain you're not part of the national market system. You're outside of dtcc, you're not using dtc, you're not using exchanges. So we are basically trading on chain where you basically swap USDC by tokenized sexes SDCC and then we swap it but we have to guarantee that we're offering the best price. So that means we need to get price fits of what's the actual price trading on this mvbo. JUMP also gets that. Then we match the trade, we confirm that it's within the range that is regulatory acceptable and then we offer you the trade. But at least you know that you're swapping USDC by tokenized, securitized and you always get the best price. And that has a degree of complexity that we had to go through that most people don't realize. But this is why we could do it in a legal way from day one.
- [28:48]
A
That seems very complex. Are you bridging both worlds via this apparatus or are you servicing the best price based off of what's available on chain? How do you determine best price in the on chain or crypto context if, if it's completely segregated from like the,
- [29:07]
B
the trading you have to fetch the, the price from. So, so this, this, this mbbo, this national best bid and offer price. Yeah, it's actually offered by, by a group of companies that are called SIPs, securities information processors.
- [29:20]
A
So we actually, they, they're kind of like an oracle.
- [29:23]
B
They spit out like we right the price off chain and feed it on chain to jump and then jump gets their price from different provider and then we make sure that you know, when the trade, when the swap of the USDC by the equity happens on chain and, and we settle, it happens at
- [29:39]
A
at least that price, at that price.
- [29:41]
B
Because we also have to report every single trade to, to finra. So, so. Right, we'll verify that we're actually following the, the regulation now.
- [29:48]
A
What, so like Trump being a market maker on chain, they have to offer a price that price or higher, correct?
- [29:55]
B
A hundred percent, yeah.
- [29:56]
A
Okay.
- [29:56]
B
Now the interesting thing is that this whole thing of this REG, NMS, securities and MBBO, this is something that happened in 2005 with the idea that this will kind of consolidate markets and everybody will trade at the same price. And it actually the opposite happened. So now in the US markets there's like tons of different venues that they can actually try to offer a better price because they know they are forced to route the trade to them. So it actually has fragmented markets. And Paul Atkins, which is kind of the current chair of the sec, he's never been a fan of this, I think, I believe when he was in 2005 a commissioner, he dissent with this approach. And then very recently the SEC has published a note saying that they're trying to eliminate those rules. There are two rules called 6, 11, 610. This is very technical, regulatory. So hello with me. But basically this rule basically tells you that you have to follow this price, right? That you have to always offer this price. And if you think about crypto, doesn't have that. Right. So Coinbase and Binance trade completely separately, but they always trade at the same price. And if this price discrepancy, market makers fixes that. So that kind of best price concept doesn't necessarily.
- [31:07]
A
It happens emergently. The market just does that.
- [31:09]
B
Exactly. So they are trying to eliminate this. I believe most crypto people miss this because it's something, it's a change in the national markets that is going to trickle down as an advantage for crypto because you'll be able to then don't have to follow those price feeds that it gets very tricky on chain because obviously as you know, these blocks and then somebody can front run it. So there's a lot of all the typical complexity of how things are fed on chain and how many seconds it takes to do a blog, et cetera. So they are going to eliminate this. That's what the SEC has proposed. It's not going to be immediate, it's going to take them some time, probably a year or longer, till it gets eliminated. So for the time being we are working with these rules, but with the hope that this will get eliminated over time and it will become simpler to trade on chain.
- [31:57]
A
Yeah, it seems like it would be a boon to your job and securitize and really compliant tokenized assets on chain if they just didn't have to deal with that. Because it sounds complex and hard.
- [32:08]
B
Correct. It will be much better and it will make it cheaper because by the way, to get these prices you have to pay for it. So these are not cheap things. Yeah, yeah, of course. They're like, you know.
- [32:19]
A
Well, we just created an intermediary, the
- [32:21]
B
off chain equivalent of the crypto oracles.
- [32:24]
A
Right, right, right, right. Yeah. Wow. It's off chain, chain link.
- [32:27]
B
Exactly. So, so that you have to pay for them and, and then, you know, it makes it costly. You also have to display the price for the user so the user knows what's the price that it's going to get. And you have to guarantee that you can do this price. So maybe you can, maybe a trade can fail because at some point in time you've told the user you're going to buy a, you know, 10.5 and then the price move and there's a 10.6 and then you, you can't execute it and, and things like that. So it adds complexity and this is what people didn't realize of what we built, which is very complex, but it complies with the rules. But you know, hopefully these things will simplify over time.
- [33:01]
A
Why did secz, the tokenized version of Securitize, launch on Avalanche and Solana?
- [33:07]
B
So we wanted to be in, in two chains. One an EVM chain and the other one a non EVM chain. We've had partnerships with both Avalanche and Solana. Avalanche was the first company we worked with to tokenize the KKR fund back in the days. We also have the approval in Europe for our broker dealer on Avalanche because Avalanche has something that again, people don't realize, but it has deterministic settlement. And deterministic settlement when you talk about securities is important because if you settle a trade and you report it to the sec, you don't want to have to come back later and say, well, by the way, that trade ended up failing and then I have to unwind it. And it adds a necessary complexity. Solana, this is where the, the prop AMM technology that JAM uses to, to match the the trades and to provide this continuous price update so they can always price at the, at the price that they have to do. This is a JAM technology that, that we're leveraging. We had to build some things around it to fit this, this price from, from national markets. But it was available there and Solana is already doing that for crypto and, and their Pro provides a better slippage for crypto assets already with their prop imm. So that technology was available there and then we, since we partnered with them as a market maker, that's why it makes sense. And we've obviously done a lot of things over the years with Sona. Sona has also very fast, you know, block size, block time, which is advantageous for this because as I mentioned, you have to be feeding this price constantly, et cetera. So it just made sense to do it with those, those blockchains for the time being and we hope to expand in the future.
- [34:34]
A
So when you think about tokenizing stocks on Ethereum, does the tokenizing stock on the Ethereum layer 1 provide any specific or unique challenges because of the way that Ethereum is built?
- [34:47]
B
I think on Ethereum you have to deal with, you know, the block time. Yeah.
- [34:51]
A
12 seconds. Yeah.
- [34:52]
B
And then you have to deal with MEV issues. Right. That people can front run it. So, so those are two things that there's some people.
- [34:58]
A
Why is MEV relevant if only people that are trading the stock are, are KYC'd. And so like you can't have the average like Jared from Subway, if he wanted to trade, you know, securitized stocks, he would need to KYC with you guys, right?
- [35:12]
B
Correct. But the, the execution is on chain. It's all on chain. So once you're kyc, the only thing that does The KYC is it white list wallets. So those wallets can trade on chain in a permissionless manner. So once the wallets are permissioned, are whitelisted, then that's it. It's the rest functions exactly the same as any other, you know, on chain trading. So so based all the companies working on on kind of similar prop AMM technology that JAM has in Solana that works.
- [35:36]
A
So prop AMM technology is really important for you guys because that allows you to be compliant because it, it keeps the execution compliant.
- [35:45]
B
It keeps the execution in a tight range of price. There are some real amms. I just listen to a podcast this morning. We're talking about same prop AMMs are not AMM. So they're not like automated market makers. There's an actual market maker behind but they're kind of working a RFQ style pricing that you know, they can just have a very tight spread and tight spreads are mandatory for equities because you have to follow this, you know, pricing rules for the national markets. So.
- [36:11]
A
Sorry, sorry I interrupted you. Faster block times out of Ethereum would be good for Securitize. What else?
- [36:18]
B
Faster block times and then having the right proper. We don't build the proper event technology. We act as a broker dealer that was built by, by jamf. So so we will have to have the similar kind of like tech stack built on top of Ethereum for us to be able to do that. We're now looking at. That's why I was listening to this podcast this morning. Who else is doing pro MMs in which chains etc? Because obviously the plan is to, to expand and to bring this to avalanche first and then to to other chains but we will need that kind of tech.
- [36:46]
A
Yeah, so this is like a request for startup or request for product from Securitize which is like you need a prop AMM on Ethereum.
- [36:53]
B
You have a good RFQ or pro MM that works well, that works in Ethereum and other technologies. Reach out to us. We'd love to talk to you. We want to expand trading as many space as possible. As I mentioned, this doesn't fragment liquidity, it actually increases liquidity. This like going back to what you were asking people. One of the questions that issuers ask is like oh, is this going to fragment liquidity? Or when we announced this project with, with the New York Stock Exchange, you remember we were with Michael on, on your podcast and they were one of the questions was is this going to fragment liquidity or is it going to increase liquidity? And both Michael and I answered the same thing. I believe this will increase liquidity, right, because it will increase the amount of market participants that are there from. From around the world. So. But then you need to have it in as many places as possible. As you know, crypto unfortunately is a fragmented world with many blockchains. So the hope is that we can bring this into multiple chains as well.
- [37:44]
A
If the SEC does away with the rule about the best price rule that we were talking about earlier, if it does away with this, do you still need the prop AMM on Ethereum or are there constraints relaxed?
- [37:55]
B
I mean, you still want to try to offer customers the best price possible and then also keep in mind that market makers are also hatching within with the national markets. So. But it obviously will become less restrictive, but we're still unfortunately far away from this being a reality. I do believe that it will take a year or longer to do it, so.
- [38:14]
A
Hey Bankless Nation, it's David. If you're hearing this, that's because you are listening to the free Bankless podcast feed. Did you know that there is a premium Bankless RSS feed? The premium feed has extra interviews that I do for my own personal research and just deeper questions that I want answered about the crypto industry. Questions that I want to answer so I can be more informed as an investor both at Bankruptcy Ventures and also just in my own personal portfolio too. Also, there are no ads, which means if you listen to the premium feed instead of the free feed, you'll get about 20 hours of your life back every year because you choose to support Bankless directly. So if you're interested in getting extra content all while skipping the ads or you just appreciate what we do here and want us to keep doing it, we'd appreciate it if you signed up for Bankless Premium and there is a link in the show notes to get started. Cheers to a good 2026. One subjects. One subject that people are pretty excited about are equity perps. Are you talking to any perp platforms or what do you think about getting securitized assets into a perp platform?
- [39:08]
B
We are talking to per companies. I think that perps and spot markets are very complementary. They're two different things. That's most people. Many people say oh, why do you want tokenized equities if you can trade perps? Well, perps are different thing. You're trading perpetual futures, you're trading futures, essentially you have to post collateral, you can be liquidated, etc. So it's not the same as I buy the stock and I hold it and when I want to sell it, I sell it. So you're, you're taking a different risk, they're leveraged, et cetera. But perps need spot market, right? Because perps need to feed the market from somewhere else. So all these perps that are trading today, you know, equities, they are not, they don't have a 247 spot market while the perps sometimes trades 24 7. Now we just talked to a perp platform that he was saying. He was telling us that I'm not sure, I can't disclose the name, but that they actually are not allowing to update the funding rate during the weekends because they don't have spot prices. And then we just don't know what the funding rate should be because there's no spot price. Right. So perps today are a great innovation that works very well for markets that have a continuous spot market that they can actually fit the market price all the time. When you don't have that, then perps are less efficient. So I do believe that these two things are very complementary and that as we get more native tokenized equities, you'll also be able to post them as collateral for perps. You'll also be able to get a better pricing for, for the perps 247 etc. So I think this very, the innovations that are happening are kind of converging from originally crypto innovations like perps or bitcoin etc, into the traditional equities markets are super interesting. And there's another thing that is interesting. You know, in crypto people do this, this basis trade where they can just like, you know, buy the spot and short the future the other way around. I'm not traders, so I'm not like super familiar with how it is like what I think they used to do at the beginning that can actually happen as well on equities markets. And I was talking to a trader the other day, he was telling me that if you had efficient per markets and spot markets on chain for things like SpaceX, there's 100 basis points difference today that you could actually make. So that will increase trading in both platforms on the per platform and on the spot platform. So I think these perps converging with spot markets are a very interesting innovation.
- [41:16]
A
Yeah, that's the clearest path that I see for tokenized stocks. Tokenized equities or tokenization broadly growing, growing in liquidity is having the full internal basis trade like complete on chain because like, as we've seen like tokenized stocks have gotten Some amount of liquidity, you know, sporadically around wherever whoever the issuer is or wherever the venue is. But it hasn't been amazing and we definitely want more liquidity. And I think like tokenized equities or tokenized stocks inside of PER platforms where the spot and the PER is in the same venue is actually a massive unlock for the industry. It's a massive unlock for perps and for the actual tokenized asset itself.
- [41:53]
B
I agree. What we need to do is get more real token organized assets because the old issues that if the perp is trading the asset but the spot market is a derivative, you're not like getting necessarily the same instrument on the same price.
- [42:04]
A
So securitize. When you guys spacked into the market last week, you guys also raised $400 million. What are you going to spend that money on? You going shopping? What are you going shopping for?
- [42:14]
B
We're going shopping. Yeah. Well, so I've mentioned this many times, like we don't need $400 million to run the company. By the way, having $400 million is actually an insurance policy from company perspective because now we don't need to think about running out of money for foreseeable many, many, many years to come, hopefully. So, so this is, this is really good. But obviously we need to put the money to work. Like we can't just like keep it on the bank earnings. So there's a number of things we're looking, we're not looking at necessarily buying a competitor. I think that it's too much overlap in terms of tech etc. We're still the largest platform. So, so buying, you know, the second or the third or fourth or whatever. Like that's probably not where I want to spend the money. I think that it's more interesting to add more capabilities, you know, things like, you know, training related stuff that what do we need to complement, you know, tokenized equities or, or what do we need to complement, you know, tokenized funds that adds value to or to our customers or the fan admin business. We have 650 digital asset funds. Like what else are they buying? Like what, what can we do to continue expanding the, the product portfolio? This is where we're looking. And then we're also looking at international opportunities. We've been very US centric, which I believe was the right thing to do. But now that we are bigger, I think it's looking at what is out can we do in other jurisdictions from a licensing perspective and what other interesting things are. There is something else we're Looking at
- [43:33]
A
Carlos, let's zoom forward about 12 months. So it's July 2027. What does the world of securitized tokenized assets look like? How many more are there? How much or AUM or tvl, whatever you want to use. What does that world look like? What are your goals for the next 12 months?
- [43:51]
B
I don't know. 12 months is a very specific number. I don't know if exactly 12 months where we will be. But if you look at let's say three years, we give you like a bit of sight. I think first, I think that on the fund side the strategy is not to bring as many funds as possible because we are also the distributor. So we don't want to have like 10 funds that are very similar doing the same thing with the different asset managers. This is why we're very selective of who we work with. And we're trying to kind of build a portfolio of different assets that complement each other. So, so we have Treasuries Today, we have AAA bonds, CLOs that you know, have a slightly higher yield than Treasuries. We have credit, so there's a bunch of, you know, assets in between that are higher yield, still liquid, etc that we're looking at From a, from an asset perspective on the equity side it's a different story because every equity is different, right? So it's not the same tokenized security and you know, tokenize Apple or tokenization there. We want to get as many as possible. So we are activating now the partnerships with the, with the transfer agents to getting up. We're getting a pipeline of customers that we can bring on chain and then make sure, as you said, that there's liquidity on chain. This is the most important thing. There's liquidity and then there's the complementary with the perps, et cetera. If you look at where the projections are from the industry, the projections are all over the place. Like every single, you know, you have from like 2 to 2 trillion dollars and the people saying, you know, 30 trillion dollars, I don't think we get to 30 trillion dollars tomorrow. I think within, we are like 30 or 35 billion or whatever. So if we get to a trillion dollars within the next three years, let's say, I think that's a massive milestone. I think the trillion dollar number is kind of like what kind of moves the needle from, from a size perspective and from a, and if we get to a trillion dollars, I think, you know, we don't need to get a huge market share, let's say we see it lower than we are now at 10 market share of $1 trillion. That will be $100 billion in AUM plus transactions, which is, you know, 20 times what we have today on the platform. So that's kind of like the. The north star of how we get to the trillion dollars. And by the way, this is not just me. It has to be collectively the industry, you know, pushing forward. And the fact that now there's so many people doing tokenization, even if might not agree with certain models, but this is a good thing, right? Because we were by ourselves for a very long time in the industry, and that doesn't help anybody.
- [46:02]
A
Well, Carlos, you have a whole entire world to tokenize, so I'll let you get back at it. Thanks for coming on the show today.
- [46:07]
B
All right, thanks for having me again.
- [46:09]
A
Bankless Asian, you guys know the deal. Crypto is risky. You can lose what you put in. But nonetheless, this frontier is not for everyone. But we are glad you're with us on the bankless journey. Thanks a lot, Sam.