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How Blockchain Adoption is Moving Beyond the ‘Crypto Casino’ | Markets Outlook
00:19:22
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- [00:00]
Morgan Krepetsky
You'll be surprised how some institutions are fully up to speed, borderline degen participants on a personal level, but really kind of grasping the concept of various defi primitives out there, especially as the world of tokenization or RWAS has increasingly converged with defi. I think it's something that has therefore compelled especially asset managers to really understand what's happening and what's possible. Foreign.
- [00:31]
Jen Senassi
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- [01:35]
Morgan Krepetsky
Hello. Thank you for having me.
- [01:37]
Jen Senassi
Of course. Thanks for joining us today. Let's just start here. What have you been watching this week?
- [01:42]
Morgan Krepetsky
Yeah, I mean, I think the, the highlight of this week so far has really been the Feds Payment Innovation Conference. I know we'll be talking about it in a bit, but it's really been great to kind of see this convergence of regulatory engagement and really moving from enforcement to engagement with not just institutions, but a lot of more crypto or blockchain native firms coming together and really kind of driving things forward from, you know, a regulatory and macro innovation perspective.
- [02:08]
Andy Baer
That's fantastic. I think, you know, we're kind of in like a tender period from a markets point of view and it's great to see these summits happen where people get together. How distracting can it be when you see market events happen while you're kind of continuing to do the good work of actually building things?
- [02:27]
Morgan Krepetsky
Yeah, I mean, I think, listen, we're still in a very nascent market in the grand scheme of things. Crypto is still very early, even though this year I do think we're starting to see kind of real world adoption beyond just kind of like the crypto casino. But, but all that's to say is I think, you know, the, the asset class is still pretty volatile and obviously the price action that we saw a couple weeks ago I think was a testament to the fact that there's still a lot of market microstructure and market structure kind of points to work out. But I think that in general, it hasn't necessarily swayed institutions from kind of exploring the technology, exploring the asset class. And it's something that I think, you know, hopefully by the end of this administration will be too far gone to, to ignore in terms of, you know, driving forward adoption.
- [03:12]
Jen Senassi
You mentioned the Fed Payment Innovation Conference just a few minutes ago and something that came out of there that I saw a lot of people talking about on crypto Twitter is the Skinny Master account. Can you just like break down what that is for us, why people should be paying attention to it? And I know that you kind of relate it back to what's going on at AVA Lab, so I'd love to hear that too.
- [03:32]
Morgan Krepetsky
Yeah. So, I mean, look like the, the concept is still, is still very nascent and I think it was kind of referenced as such during the conference, but it's a step forward and it's definitely kind of a discussion point that I think is being taken seriously by the industry or at large. Ultimately, the concept of the Skinny Master account would give legally eligible institutions limited but direct access to the Fed's payment rails without necessarily having to become fully licensed banks. And so it's really becoming discussed as a way to modernize and really upgrade access to core payments infrastructure while still, from a regulatory standpoint, controlling for certain systematic and compliance risks, which I think is just like another kind of green light for the industry to kind of move forward. From an innovation perspective, if it is something that kind of comes to fruition, it's something that again, creates a more of a concrete guardrail around which to innovate, which, you know, I think the industry writ large is, is very excited about. And I think it opens the, the door for some things around again, direct Fed connectivity and real settlement finality. It would bring, I think, more kind of credibility from a stablecoin issuer perspective in that potentially these issuers might be able to kind of hold reserves directly at the Fed and therefore down the line potentially unlock greater institutional adoption and then from a tokenization perspective, ultimately allow real world assets or RWAs as the industry calls them, Treasuries or private credit to ultimately potentially settle against central bank money in real time. And so I think there's a lot of, you know, various products and services that can kind of be built on top of that. But as a foundational infrastructure I think it's definitely kind of a, a step in the right direction.
- [05:16]
Andy Baer
You guys are, and you in particular, you've been at this a while and have been just a great explainer of stuff. But a lot of the trust layer or even awareness or intuition layer is still at that kind of bitcoin Solana e retail level. And having just been across the pond of Europe and talking to hundreds of investors, they're just getting a hold of stablecoins. So when you go in and talk to potential partners, you need to actually do the work of, of getting mandates and actually starting to build. How do you establish bona fides? How do you establish quickly that this is a good way for them to spend their time and that they're going to be actually delighted with how much depth there is in the product?
- [06:02]
Morgan Krepetsky
Yeah, that's a good question. And luckily I think we're past the days where we have to kind of explain the merits of blockchain as an underlying technology which is good and signal some kind of progress. It does feel like frankly since the election there's been really a 180 from, from especially banks and FMIs about wanting to engage with and explore leveraging public blockchain network networks which is also obviously to our benefit from an avalanche standpoint. But I think in general the, the impetus and is really on us to, to explain the business benefits. And so to the extent that we're not necessarily Talking with firms, CTOs or engineering teams, we really need to explain to your point the business benefits and the so what of stablecoins. And oftentimes when we're talking about stablecoins it's in the context of it could be cross border wholesale B2B payments, treasury management, remittance services, even in the administration of private credit. And showing how a combination of stablecoins and smart contract capabilities can really upgrade how legacy asset backed finance operates or can operate through the concept of programmable or better money. These are some of the things that really resonate with you know, the business people, the partners that we work with, whether it's banks or asset managers or FMIs. And so I think it's really incumbent upon us to explain the so what and then you know, say it's powered by Blockchain or this it's made possible by blockchain and tokenization as an enabler, but really kind of explaining the so what and how it, how it addresses a particular partner's pain points is something that we've really, really been focused on for the past few years. And I think a lot of us coming from at Ava Labs, from the traditional financial services space, from the buy side and the sell side, I think it's really allowed us to kind of cultivate trusted advisor relationships with a lot of our institutional partners which over time have issued a variety of different tokenized assets on Avalanche and in turn are really focused on the demand and distribution side of things.
- [07:58]
Andy Baer
At this point it really, it just comes down to the people who are doing the explaining in the end, doesn't it?
- [08:03]
Morgan Krepetsky
No, at the end of the day, a lot of it, despite the fact that it' Web3 and its tech, a lot of it still comes down to personal relationships and relationship building, which obviously doesn't happen overnight, but it's still a very, I think, big driver of this space.
- [08:17]
Andy Baer
Just a follow up on that, I guess. I guess it's, it's relieving to see that some institutions have given up or at least backed off of ideas that they're going to build all this in house and, and own it. And they've, I guess they've gotten more and more comfortable with the idea that at least shared blockchains, public or otherwise, are going to be a more practiceable way forward. But then the issue still comes about, I guess, radical transparency and publicness versus semi privateness. I guess I'm hearing that narrative kind of shift, especially in the last 12 to 18 months with respect to sort of keeping collateral flows private and enabling regulatory lens into transactions while not letting every DGENC every transaction. Am I right in that? That's a narrative that's becoming important. And how are you, how are you thinking about that?
- [09:08]
Morgan Krepetsky
Totally. I think as institutions increasingly consider putting money on chain and liquidity on chain, inherently they're thinking about privacy. Right. And so you have transaction level, portfolio level privacy that exists in capital markets today in the traditional sense. And so I would be hard pressed to see a world where, you know, blackrock would be okay with Vaneck seeing their flows and vice versa, and Citi seeing JP Morgan's flows and vice versa. And so I think that solving the privacy question, at least as it relates to transaction sender, receiver and while in portfolio balance privacy, I think all of that is extremely important. And there are a variety of different Service providers, including AVA Labs, Ava Cloud, which has various solutions to be able to kind of solve for that on public permissionless networks. And so I think that that will be or is solved for and it's just a matter of kind of combining those things into more concrete applications or use cases as it relates to leveraging public blockchains. I mean, obviously unbiased Avalanche is a network of networks that has a public permissionless liquidity hub of which there's many assets that are and will continue to be issued. I do believe that, you know, in the future, as we scale and as we see institutional levels of capital come on, chain, general purpose chains will not be fit for purpose for wholesale finance. And so in that case, whether you're talking about on chain FX markets or on an institutional level or repo or whatever that might be, we will start seeing more and more kind of purpose built chains be built out and customized for those particular use cases. And it doesn't necessarily mean, Andy, to your point, that it's a blockchain that is owned by only one bank, right? And therefore that bank is convincing everyone to use it and its infrastructure. I think you could still have a permissioned network that is sufficient, efficiently distributed among the, the members of a particular consortium or industry network, like a Swift or a NASDAQ or whatever that might be, where you can kind of get the best of both. But importantly, the need to kind of be able to tap into the native stablecoin and other integrations that exist on public permissionless networks. And so I think in that way institutions will kind of need to tap into the best of both.
- [11:19]
Andy Baer
That's amazing. 12 months ago it would have been hard to even articulate that in such a hopeful way, right?
- [11:28]
Morgan Krepetsky
Yeah, totally. My mom tells me I'm doing God's work. Yeah, I mean, I, it's funny, I started at avalabs a little over three years ago and it was literally four days before Tara. And then in succession, we all know what happened after that. And, and even despite that, and even despite the past administration, there's been a cohort of institutions that have still kind of forged ahead with their initiatives because again, like, we're past the point, at least for, for a select group where we are not convincing them of the merits of blockchain. But the past 12 months have just been a sea change in terms of the level of engagement and willingness to explore, you know, the public ecosystem and the various innovation and defi primitives and all the things that are, that are happening there that historically have not happened on what we would call enterprise chains and part of the large reason why those never really panned out it foreign.
- [12:49]
Jen Senassi
This episode is sponsored by Bridge, a stripe company. Just as the Internet made information global, stablecoins are making money global and Bridge is the infrastructure powering that shift. Built for speed, scale and simplicity, Bridge helps businesses send, store, accept and launch stablecoins instantly serve global customers without navigating the complexities of setting up crypto rails. It's how companies like X, Shopify and AirTM unlock new markets, reduce FX costs and move money at Internet speed. Explore the future of global financial infrastructure at Bridge xyz looking for a faster, cheaper way to move money worldwide. Owling, now listed on the NASDAQ under the ticker symbol owls, is building the Rails for stablecoin payments. With OWL pay, you can seamlessly convert fiat currency to stablecoins, send money as easily as a text message and on or off ramp globally. Learn more about owlting@owleting.com Morgan I was having a conversation earlier about the education gap that still exists for policymakers makers in dc. I'm just curious to hear from your perspective if that education gap is there when it comes to D5 for the institutions that you're having conversations with and how they're working to close it.
- [13:57]
Morgan Krepetsky
Yeah, that's a good question. So I think, listen, there's like a definitely a spectrum within banks, within asset managers, within fintechs, neo banks, all all different types of institutions. There's a spectrum of how long each of these kind of entities has been added. Some are just starting to kind of go down that exploratory educational journey and others have built kind of full fledged on chain applications and then there's institutions in between. So when we meet with different partners it's really kind of understanding where they're at on their blockchain and digital asset journey and then like slotting in accordingly. But what you guys were saying, people want to engage and people want to learn. And from a DEFI standpoint, you'll be surprised how some institutions are fully up to speed, borderline degen participants on a personal level, but really kind of grasping the concept of various DEFI primitives out there, especially as the world of tokenization or RWAS has increasingly converged with DeFi. I think it's something that has therefore compelled especially asset managers to really understand what's happening and what's possible. And again, I think that convergence will only continue.
- [15:03]
Jen Senassi
What institution has the most degens. I don't know if you could tell.
- [15:06]
Morgan Krepetsky
Us not name names, but it's the.
- [15:09]
Andy Baer
Start of every meeting, right? When you're doing intro, people will say when they, you know, bought their first, did their first uniswap trade. Right? But, but that's, I mean it's an interesting point because you're, because the nature of what you're trying to build I think requires sophistication in segment and domain expertise. But also the markets that you're trying to impact almost require more. Like institutional payments is not something that people are going to wander across on their crypto or even tech stock journey. Like people can understand AI because of ChatGPT, but you know, do you find once you've identified the degens in the room that you have to at least come up with an example of something that you're working on that might be able to touch a retail experience or kind of pave that intuition way all the way down to a retail level? Or are you just so top 10 floors of the office building that you just have to tell them to read up on it and come back when they're ready?
- [16:10]
Morgan Krepetsky
No, I mean I think a lot of the value add that we bring as a business development team is bringing to bear not just avalabs, but our entire ecosystem of partners, whether it's infrastructure, defi protocols or stablecoin issuers. And I don't, I by no means know everything, but I know what I don't know and then I know who knows it. So you know, it's not just us kind of talking to our partners, but we'll bring in the respective kind of experts and founders and builders in the space to ultimately help an institution outline and operationalize, end to end a particular use case or workflow. And, and I do find that still we are at a point where institutions are open to suggestions and they're open to, hey, this is what you should consider. This is how it would potentially impact this part of your business. Here's why you should care. Here's the. So what. And to what we were saying earlier, like we're, we're past the point where I think institutions, even incumbents, are trying to build everything themselves. A lot of them are willing and excited to partner, to white label, to use an, as a service provider for various things. And so it does feel very kind of collaborative in that way, especially when you're talking to different incumbents or even like various fintechs. A lot of them are looking to really engage with the ecosystem and see and explore ways to be able to kind of collaborate.
- [17:31]
Jen Senassi
Before we let you go, I Gotta ask. If you look three to five years into the future, you think about everything you're working on at Ava Labs, what is that one thing that is going to completely transform the financial system and maybe make it number two? Because I feel like you're going to say tokenization and everyone says that, so maybe make it number two. What's that one thing that you're really focused on and maybe we're not talking about it enough.
- [17:55]
Morgan Krepetsky
Well, three to five years is like infinity years in crypto. And you know, of course it's tokenization. And frankly, we've been focused on tokenization from the very beginning, before the concept even was called RWAs. I think it was back in 2017 when it was called STOs and security tokens. And so it's exciting to definitely see the fact that this time is different.
- [18:18]
Andy Baer
And we definitely stop calling them security tokens. Right.
- [18:23]
Morgan Krepetsky
For many reasons. We definitely. But listen, I'm excited to see as an extension of tokenization and stablecoins bringing more kind of non degens, non crypto native users into the ecosystem, whether it's individuals and retail or institutions. Because there's various kind of tech enablement companies that are plugging into traditional distribution channels and reaching people who are off chain today and bringing them on chain because they're being offered net new or better products and services that happen to be enabled by the tech. And what that means is it's net new users, net new capital and liquidity into the crypto ecosystem, generally stickier capital and something that will ultimately mark real world adoption and product market fit.
- [19:09]
Jen Senassi
Morgan, thanks so much for joining Andy and I today. It was a pleasure having you on the show.
- [19:13]
Andy Baer
Your mom's right. You are doing God's work.
- [19:16]
Morgan Krepetsky
Thanks guys.