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The Wolf Of All Streets
Big Breaking News For Chainlink - First Ever Live With Sergey Nazarov
00:29:00
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- [00:02]
Host
We have big breaking news from Chain Link and none other than the legend Sergei Nazarov here to discuss what's happening. We're also going to talk about all the positive momentum for chainlink in the crypto industry in general, in Washington and beyond. Huge show today. Today, guys. Can't wait to get into it. Let's go.
- [00:21]
Sergei Nazarov
Let's do.
- [00:36]
Host
Good morning everybody. To our normal viewers and of course to the Link Marines who are obviously here in the chat, very excited about this conversation. Going to go on and bring Sergey on right now. Good morning, sir. How are you today?
- [00:51]
Sergei Nazarov
Morning. Doing well. Good to be here.
- [00:53]
Host
I told you I need to. Now that we're getting all Washington and serious, I need to start putting on a suit and tie when I show up. I think for these interviews.
- [01:01]
Sergei Nazarov
I mean, I think our whole industry is going towards kind of a new level of legitimacy. And so, yeah, I think that the systems and the projects that start getting mainstream adoption will have to deal with governments, institutions, the capital markets. That's just inevitable, in my opinion.
- [01:20]
Host
Yeah, I could not agree more. We talked about it before the show. That's definitely the direction that we're headed. So first of all, thank you so much for coming back on the show. Obviously this is the first time we've done this live. I think our last one was recorded right after you spent some time in Washington, which we will talk about. But today, just to get right into it, there's a big news from chainlink. We're breaking it here obviously first, so go ahead and do it. You just launched the chainlink reserve. What is the chainlink reserve? Break that down for us.
- [01:48]
Sergei Nazarov
The chainlink reserve is basically the answer to the question of how does off chain revenue relate back to the chainlink system. So there has been a lot of adoption of chainlink in the on chain world, meaning defi. So chainlink powers well over 65%, sometimes over 70% of DeFi. And on large and popular chains like Ethereum, over 80 or 85% of all of defi. And a lot of that is operated on chain, paid for on chain. And so that's the on chain adoption of chainlink that everyone knows very well. Increasingly over the past few years there's been a lot of adoption of chainlink by enterprises of various sizes. And those enterprises need to implement the chainlink standard. They need to integrate, they need maintenance, they need support, they need all kinds of services around chainlink to make sure that it's properly enabled as a data system, cross chain system, identity system, privacy preserving computation system and so those deals, those off chain deals are things that people have asked us about and asked how does this off chain deal with this enterprise or with that enterprise, how does it relate back to the chainlink system and to the chainlink protocol? And that's been an open question about how that works. So together with payment abstraction, which is the system that needed to be completed in order for the chainlink reserve to go and be, be able to go live, we are now able to convert both the on chain revenue for paying for chainlink services into link and put it in the reserve. And we're able to convert the off chain revenue. So the off chain deal revenue for the enterprise implementation, integration, maintenance, support services and other capabilities also can now be converted through payment abstraction and is now starting to be put into the, into the reserve. And this is actually just a general question for our industry in general is how do these enterprise adoption scenarios relate back to a system? And so what chainlink is now doing is trying to make clear how those enterprise adoption implementations can relate back to the system and to the protocol. Specifically, specifically the conversion of that off chain revenue into link and then the usage of it for different purposes and being put in the, and parts of it being put in the reserve. So you end up in a place where you have on chain revenue being converted and you end up in a place where you have portions of off chain revenue being converted, which actually is in my opinion pretty innovative because there's not many systems right now that have the type of off chain revenue and adoption that the chainlink standard has right now. The chainlink standard has created hundreds of millions of dollars in revenue, a substantial portion of which is off chain revenue.
- [04:55]
Host
So this is actually the first time I've heard this news, just so people know. It really is breaking news to me as well. And that's huge because as you said, there's always questions about how the real world revenue actually links to the underlying protocols for a number of projects. And I think you doing this is probably going to force a lot of others hand to do it as well. But why did you decide to do this now and to launch this in general? It seems like it's probably been on your mind for a while. So there's a timing element here.
- [05:25]
Sergei Nazarov
Yeah, yeah. So we've been building towards this for some time. We've been very clear about chainlink's role in the enterprise, adoption of smart contracts in the enterprise capital markets, adoption of the chainlink standard as the standard for data connectivity, identity, privacy and really all the key operations that need to happen alongside a blockchain to make those enterprise smart contracts possible. So we've been going down that path for many years. We've in parallel been building and releasing incrementally the payment abstraction layer. So the payment abstraction layer is not something that's fully understood by as many people, but it's basically the payments processing system and the fee processing system that Chainlink has and is able to have uniquely because you actually need all this data in order for it to work. And Chainlink has all the on chain data for it to work. And what it does is it allows you to convert payment in various forms into link. So the payment abstraction layer is actually the automated on chain system that converts various forms of on chain payment for the on chain services and also now various forms of off chain payment from the off chain deal and enterprise adoption side of the equation. It can convert both of those now into a link and then the link is used for relevant purposes like paying the nodes, going to the reserve, helping grow and improve the system and the protocol in various ways. But we reached a threshold of having the payment abstraction layer able to handle and properly process both on chain and off chain revenue. And then we also reached a kind of threshold in the total amount of revenue. So once we reached the hundreds of millions mark on revenue is when we decided or thought through or consulted with everybody and went in the direction of turning on the reserve, turning on these features and payment abstraction. And as a larger and larger portion of that revenue was off chain deal revenue, it also became very clear to us that the payment abstraction layer had to handle off chain deal revenue. And so we started building that in. But those two things coming together are really the main factors. And also I just think it's, it's a good time to do this with all the enterprise adoption that we see coming up.
- [07:59]
Host
Well, listen to Pivot. Let's talk about all the adoption that's coming. Obviously, we've seen this major change in the regulatory and legislative environment, specifically in the United States. Obviously there's a lot of tailwinds for the industry in general. Last we spoke was the week after you sat down at the White House. Very publicly you met President Trump. But I know that also in the background you've been very involved in the initiatives with the United States government. Can you talk about Chainlink's involvement on that side and yours personally?
- [08:30]
Sergei Nazarov
Sure, sure, absolutely. So we've been meeting with many senators, we've been meeting with the U.S. treasury representatives, we've been meeting with folks from the White House. Congressman, basically I would say that the majority of the key folks in D.C. there are multiple records of us having meetings with SEC together and jointly with other projects to explain certain key concepts and certain key problems that need to be solved for our industry to go to the next stage. My view, after working with multiple governments outside the US Right, so Singapore and the Monetary Authority of Singapore, we've worked with a lot, we launched a lot of stuff there last year. The Hong Kong Monetary Authority, we worked with them. You know, we worked with other central banks, other governments. I think that's given me and our community a certain perspective on how important government endorsement of our industry is. And once we saw, and I saw the shift in the US way of thinking, we started to make a massive investment and a massive effort in order to make sure that the US Government's way of thinking about this at the regulatory level, at the legislative level, at the executive level, we're all in line with what's best for our industry. And that is actually happening for two reasons. One reason is, you know, I've been in this industry for 15 years now. I've basically devoted the vast majority of my professional career to this industry, and I want to see it reach its full potential. The other thing is that chainlink powers so many applications now and is the market leader in so many categories such as DeFi, parts of TradFi and other categories that if the industry grows by 10x, then naturally the amount of usage and the amount of adoption of chainlink will naturally grow 10x. And so what's important there is that the legal environment is enabling both for DEFI and TRADFI to go on chain to generate high quality tokenized assets, to allow those tokenized assets to be exchanged very efficiently, cross chain to allow those tokenized assets to have proof of reserves and various other pieces of data that end up making those tokenized assets better than traditional financial assets. So maybe just to define what our goal is, and my goal is, my goal is that in a few years, the blockchain version of an equity, a tokenized equity, a tokenized commodity, a tokenized fund, tokenized cash as stable coins or, or other forms of tokenized cash will be viewed as superior to their traditional alternatives. So if, if somebody in the, in the financial system were to ask themselves, do I want a traditional equity, a traditional commodity, or a traditional fund, or do I want a tokenized equity, tokenized commodity or tokenized fund, their answer, their broker's answer, their investment advisor's answer, their, the asset manager's answer will be I want a tokenized version of it if I can get it. And that that's really the world that I think we are pushing towards in the chainling community on a very technical level now, on a very legal, regulatory and government level, because they're open to pushing into that world. And we're trying to make it very clear that, that the US having a financial system that enables this is beneficial not only to our industry, but it's massively beneficial to the US just like it would be beneficial to Hong Kong or Singapore or Dubai or these other places that are now at the moment a little bit ahead. So that message is starting to now reach the right people and we're starting to see real movement towards, towards the type of government endorsement that is necessary for this mass adoption that we all say we want. That'll change the nature of our industry. But I think if we want mass adoption, our industry will have to become more about tokenization and kind of eating up the global financial system. Then it will be about just cryptocurrencies or NFTs or any number of other tokenized things that aren't part of the traditional financial system.
- [13:16]
Host
What you just described was once viewed as crazy talk inside our echo chamber that any of these things were possible. That we could actually see a world where everything is tokenized and trades and transacts on chain. In the last few months, the velocity of news that makes that a real possibility has been astounding. We, we obviously just have Project Crypto from the SEC where literally Paul Atkins said we're going to take everything on check. You have the chairman of the SEC saying that our goal is to do exactly what you just said. We have the cftc, which is the other regulator that would handle obviously some of crypto on a crypto sprint right now and talking about all the huge announcements that they're going to make. We already have the stablecoin bill. So with all of that in mind, are we in a sort of Goldilocks moment right now to make this happen? Because we all know that like regulators change and legislation changes and presidents change. It feels like right now is the time to strike while the iron's hot and push this narrative and have the tech ready to actually deliver. Is. Are we there?
- [14:23]
Sergei Nazarov
Yeah, I think we're there. I think when, when the chair, the chairman of the SEC says, says things like that publicly in a very authoritative, committed way. I mean, these people measure their statements very carefully. You know, we've been talking to them in multiple meetings explaining the benefits of on chain finance Explaining the benefits of getting all these things tokenized in the right way and how it actually creates a superior level of risk management for the market in general, for society, for everyone. So I was very, very happy to see that. I think now is definitely the time. The next 6, 12, 18, 24 months are the critical time when I think the government adoption and endorsement will allow this type of acceleration by institutions that'll bring in huge amounts of capital, huge amounts of users that previously couldn't access tokenized things. I think you'll see an influx of stablecoin issuance from the new stablecoin bill. So I expect stable coins to go from 200 or 300 billion to 2 or 3 trillion. I expect to see a tokenization of equities commodities funds. I'm not sure exactly in what order that'll happen. Right now funds are the leader. Equities are coming very quickly. But realistically, commodities could show up very quickly. So it's hard to even predict, you know, which of those is going to, is going to be the booming category. Right now it is funds. And then when you have the payments, right? So when you have the on chain cash for payment in the form of stablecoins and you have the tokenized asset from the sell side. So the thing that's going to be bought in a transaction now you have a place to create markets. Right now you have a place to create multi trillion dollar markets. And I think what people will see when you have markets of sufficient size working on chain for these tokenized funds, equities, commodities, is they will see a massively superior financial system. They will see massively superior clearing and settlement. They will see massively superior collateral management. They will see massive levels of previously unfor unseen transparency and risk management. They will see, you know, things that were not possible before become possible overnight. Because they've been trying to build and fix the traditional financial system infrastructure for 40 years. And there's only so much you can optimize a system so you, you can only squeeze out another 1 or 2 or 3 or 4 or 5% of optimization from a system that was built or designed 30 years ago. And you've been trying to polish for 30 years, but this system is a completely new system. And so at launch you get a 40, 50, 100% increase. And then as you polish the system and you get it more aligned with what everybody wants, you probably get to multiple improvements over the current system. So the thing that hasn't happened yet is you don't have enough cash on chain. You don't have enough tokenized assets on chain to create those markets. And so the traditional financial system and the world hasn't seen why on chain markets and on chain finance is better. But once, once they like the D5 people have seen it. You've seen it. I've seen, of course, but, but once the rest of the world sees it, that's when we'll reach that point of do I want a traditional equity, traditional commodity, traditional fund or do I want a tokenized equity, tokenized commodity, tokenized fund. You know, I get 24, 7, 365 markets. I get collateral management 247 instead of 21 5. I get better risk management with more data about the underlying asset through proof of reserve oracles. I get global liquidity through cross chain connectivity. I get automated compliance through identity oracles. I think I'm going to go with a tokenized thing. I think the tokenized thing is faster, cheaper, has more liquidity and it's better in five other ways that I care about. That's what I think this will lead to and that's what we're working.
- [18:32]
Host
It's an incredible point because as you said, it makes the market. But you touched on some of the other reasons it's so important. I mean what then comes is having all of your assets in a single place and being able to use them as collateral as wealthy people do with their securities portfolios now. And we're almost traveling down two parallel paths and I think the one you described is going to win. We've had announcements recently, Charles Schwab saying they're going to add, you know, Bitcoin and Ethereum spot trading, but then they're going to treat those assets as part of your portfolio when it comes to collateral and lending. And then JP Morgan very quickly following up and saying that they're looking at doing the same. So it's almost a race in my mind. I don't know if you view it that way, but we have the sort of traditional finance trying to bring crypto into the package and into the platforms they're used to. And we have you and others building things where you're going to be able to opt out of that entirely and do it in a better way. Do you see it that way?
- [19:28]
Sergei Nazarov
Yeah, it's, it's, it's absolutely a race. It's, it's absolutely a race. And this is what we've been saying for years, that, that there is going to be an inherent level of, of competition among financial firms to provide the best financial products on chain and, and that, that is going to be the way that this industry goes mainstream and that is indeed what's happening now. And, and you're going to see the traditional financial systems try to keep up with some of the properties and guarantees of the on chain financial products, but they, they fundamentally won't be able to because of how much needs to be changed. And, and the ability to change how something works on the back end does create completely new user experiences. So, so the final beneficiary of all this really as, as we've said before is society. Right? So society through, through competition and capitalism gets better and better things gets better and better versions of, of, of, you know, whatever, whatever it's willing to pay for. And I do think society is still willing to pay for financial products. I think now they're going to want to pay for financial products that are transparent, that have high yield from defi, that can be controlled through private keys, that have automated compliance, through identity oracles and compliance oracles, that have access to global liquidity instead of local liquidity through cross chain connectivity to various jurisdictions. These are going to be the new minimums and the new standards that the financial system and financial products need to meet. And it'll really just be a much better outcome for the consumer, whether that's the retail consumer or the institutional consumer. So it's really something where everyone benefits, which is why I've been big believer in it for so long.
- [21:24]
Host
All of that is 100% true. And I think that many forget, and I'm speaking as an American, where we have access to all these things that it also just opens access to these markets and these assets that doesn't exist in most parts of the world. I mean, we're seeing tokenized stock trading launched on a number of platforms. It's not even available to Americans, but it's allowing people all over the world that otherwise couldn't to buy Tesla stock and buy Amazon and to even get access to these things in the first place. Right?
- [21:52]
Sergei Nazarov
Yeah, that's, that's a whole other level of this that, that I'm personally very excited about. It's one of the things that personally excites me the most. Just like you had a period where information was very scarce and now everyone has a $50 Android phone at least where they can access the same Wikipedia page I can access. And they never had a library in their village or in their town, but they have an Android phone where they can read a Wikipedia page or they never had a landline, but they have mobile connectivity for phone calls. You have this kind of leapfrogging effect where the technologies that get polished and built up in the developed economies can hit the emerging markets with massive force, massive life changing force. Right? Where before, you know, it was difficult to get a book, now you have access to the Internet and all its knowledge. Before it was difficult to communicate, now you have a mobile phone where you could call people at any time, anywhere. And now that's going to happen to people's financial lives. So I already see a lot of stablecoin adoption all over the world, in Asia, in Latin America, because the local banking infrastructure there can't give them a reliable way to save money. I think that this will actually be the most humanitarian and utilitarian aspect of our industry in that it will do for the rest of the world what the developed world has already had for years, which is the ability to save money, the ability to spend money to grow a business, the ability to loan and borrow money to grow an enterprise, the ability to manage risk in regards to your enterprise and your capital, which are actually critical determining factors for how a society develops. The levels of crime, the levels of all these problems that exist because you don't have sufficient economic systems to allow people to build businesses and engage in capitalism the right way. So this is what I'm actually very personally excited about. I've been excited about it since the beginning of the Bitcoin kind of thing. Back then, actually, when I was getting into Bitcoin initially, one of the key ideas was microtransactions for the emerging markets, which even then attracted me to the industry. So I think this will have massive implications for the developed markets in the global financial system. It'll have even larger implications for the emerging markets. Just like the Internet and just like mobile communications completely have changed people's lives there.
- [24:35]
Host
So all of that in mind, agreeing that we're in this Goldilocks zones zone where we have incredible tailwinds, how do you then plan for 25, 26, 20, 27? What do you build and focus on what's coming from Chainlink, knowing that this is the time to make it happen.
- [24:57]
Sergei Nazarov
Chainlink as a platform and as a set of standards is in a really unique position actually that it's been being put in, been getting put in for a number of years by the community, by our users, by all the people building Chainlink. Basically in our industry you have platforms that manage private keys, you have blockchain platforms, which are the clearing and settlement platforms, and the platforms where you write the conditions of the contract and then you have Oracles and Oracle networks, which is the thing that Chainlink basically pioneered and invented. Oracle Networks, these Oracle networks have now expanded through Chainlink beyond data into cross chain connectivity, identity, compliance, privacy, a lot of very important, actually really critical pieces of transactions. So, so what, what Chain Link I think has done and will continue to do Even more in 25, 26, 27 and beyond is build critical standards and critical infrastructure that allow these transactions to happen. For example, yesterday I was speaking virtually at a conference in Rio about our work with Banco Inter and the Central bank of Brazil where we did with them a tokenization of soy and then the cross chain transaction of that tokenized soy over to Hong Kong. And that required cross chain connectivity data, various forms of workflow management, some, some amount of identity and compliance. All of those various complicated building blocks at this point can't exist and work without Chainlink. You have ways to do them that will take months. In Chainlink, it has now been boiled down to a highly repeatable system and set of processes that take days. And the chainlink runtime environment is actually the thing that I think should take it down from days to hours. And so I hope that with the chainlink runtime environment you won't just have all the data, all the connectivity, all the identity, all the compliance, all the privacy capabilities that you need for your transaction to happen on chain, but you'll also have a way to compose all that in an hour or two, just like it takes you an hour or two to write code for traditional Finance or Web2Finance or FinTech applications. And if we can provide all those critical building blocks and we can provide an environment where you compose those critical building blocks into a single efficient piece of code that will be defined as this new type of enterprise, next generation smart contract, then I think we will be in a whole different world of both DEFI growth and enterprise and institutional adoption.
- [28:00]
Host
Well, I know that we are at time here. I just want to thank you for obviously choosing to break this news here. But man, I hope that they're listening to you and I'm glad that we have people like you sharing visions like that with the people that can actually make decisions for once, because you're incredibly articulate and a great spokesperson for this industry and what can be built. Man, thank you so much for that.
- [28:22]
Sergei Nazarov
It's my pleasure. Thank you. Thank you.
- [28:24]
Host
Thanks guys. Amazing, amazing, amazing announcement and we're gonna get out of here. I'll be back tomorrow, obviously with the Friday 5. Once again, thank you to Sergey. Thanks to all of you who decided to join and listen. And I know who will listen back. We will see you guys tomorrow. Sergey, hope to have you again soon. Thanks, man.
- [28:40]
Sergei Nazarov
Thank you. Let's do.