← The Wolf Of All Streets
The Wolf Of All Streets
Tokenizing Trillions: Here's Why Massive Institutions Are Secretly Betting On Crypto | Nathan Allman
00:49:35
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- [00:00]
Nathan Almond
The biggest benefits from tokenization don't come from creating liquidity per se.
- [00:05]
Scott
To some degree. You know what's coming.
- [00:07]
Nathan Almond
Yeah, it's a really sticky point.
- [00:09]
Scott
I'm going to go out on a limb and say I'm not sure that's going to go well.
- [00:13]
Nathan Almond
Yeah. Have all of your financial assets just on your wallet and in a single click you can move from platform to platform. There's no lock in.
- [00:22]
Scott
Are these competitors or are they future partners?
- [00:25]
Nathan Almond
Fernando? Both. There's always a, an element of both.
- [00:29]
Scott
I think the tokenization of real world assets is arguably the best use case for crypto moving forward. It's certainly one of the ones that's getting the most attention. And one of the companies that's at the forefront of tokenizing real world assets is Ondo Finance. With partnerships like BlackRock, Goldman Sachs and Franklin Templeton, they are driving institutional adoption of this technology. So nobody understands what's coming for the industry better than Nathan Almond, their CEO and founder. There's an incredible conversation on the future of crypto with an incredible, incredible mind. Tokenization of real world assets has been one of the biggest narratives in the crypto world over the past few months and even years. You're at the forefront of it. Let's just start from the very beginning. What does that actually mean? How does that actually work?
- [01:35]
Nathan Almond
Yeah, thanks, Scott. It's great to be here. So tokenization is the representation of off chain assets on a blockchain. Bitcoin was really the first digitally scarce asset that could be held by anyone, anywhere, at any time and transacted on a peer to peer basis without any intermediaries and allowed for very low friction storage and transfer of wealth. You know, that concept has been replicated many times in crypto. You know, there's, I don't know, hundreds of thousands or millions of different tokens that are out there. And what we're trying to do is take a lot of the benefits of that technology, the low friction transferability, the global access, and apply it to so called real world assets. So stocks, bonds, ETFs, traditional financial assets. Tokenization broadly could refer to art collectibles, really anything that is not natively generated on a blockchain.
- [02:47]
Scott
I think we saw the first iteration of this with the NFT craze, although that went in a wildly different direction than maybe the tokenization maximalists would have expected with bored apes and cartoons and 10,000 PfP collections. But at the core, an NFT was effectively what we're talking about, correct?
- [03:06]
Nathan Almond
Well, I guess there's Fungible and non fungible asset tokenization. NFTs, of course by their name we're non fungible asset assets and everything that we do at ONDO is tokenizing fungible assets. So certainly a core distinction there. I guess NFTs were in most cases also generated specifically for distribution on a blockchain. Like they weren't assets like financial assets that are also sold in markets off of a blockchain. So I guess they're a little bit of a hybrid there. Like I, I would agree that that's a, probably a type of tokenization, but you know, wouldn't fall under the category of so called real world asset tokenization, which is the space that, that Ono plays in.
- [04:00]
Scott
Right. The initial days of NFTs though, the things that people got excited about were not the cartoons. It was about my car title could be an NFT and I could transfer it from myself to another person or my mortgage. Given we never really saw that play out or tokenizing a house. We saw that happen with an NFT and I transfer the NFT and therefore the ownership of the house. Novel. But it didn't really get there.
- [04:23]
Nathan Almond
Yeah, and really this is an example of a much broader thesis that many folks in the industry had for quite many years, which is that because tokens can be transferred so cheaply, quickly, securely, that by tokenizing assets that traditionally settle or transfer on slow cadence with high cost, that we can make those assets more liquid and more easily transferable. And it's a fairly naive thesis because it fails to look at all of the reasons why these assets like real estate are illiquid. Technology might be one of the factors, but there's also challenges around how do you price these bespoke assets. There's regulatory challenges. Often issuers or asset owners don't want these assets to become liquid. So there's a lot of barriers other than tack, which it turns out is not really the limiting factor. The like tokenizing individual homes and making them super liquid, you know, was sort of always particularly destined to fail. And you know, securitization, you know, bundling these, you know, these assets of similar types, you know, slicing them out into tranches with different risk levels, like that's the tradfi way of creating fungibility amongst non fungible assets so that more liquid markets can form. I think that works really well and we're going to see more of that on chain. We think the biggest benefits from tokenization don't come from creating liquidity per se, which tokenization really doesn't do, but rather to Expanding access to already very liquid tokens and to enabling on chain programmability. So all the benefits of DeFi again for already liquid tokens.
- [06:32]
Scott
Okay, so explain then Ondo's unique approach to all of this because obviously we've seen a competition for the tokenization of real world assets. We see major institutions doing it with you and with others. We see it happening on popular L1 blockchains, but we also have built for purpose layer 1 blockchains like Ondo. So what are you doing that's different?
- [06:56]
Nathan Almond
Yeah, so we started out by tokenizing one of the most liquid assets, you know, US Treasuries to make yield bearing alternatives to conventional stablecoins. We call them yield coins. We have two products there. We have OH usg, which is our permissioned US accessible Treasuries fund, accessible to qualified purchasers and accredited investors that can be transferred between whitelisted holders. And then we also have USD Y which is our effectively permissionless yield coin. Like stablecoins, you have to be KYC to minted redeem, but you can transfer more freely in secondary markets. Both of these products of course pay their holders a yield, you know, unlike conventional stablecoins. So we started doing that in January 2023. So a little over two years ago was when we launched the first of those products. Oh usg, there's been an explosion of tokenized Treasuries and other yield coins since, you know, easily 50 plus to date. And as that's been happening, we've been working on the next big step that we think the industry is going to see, which is tokenized public equities and ETFs. So we announced a few months ago at the ONDO Summit in New York on the global markets, which is our platform for tokenizing public securities. So anything that you can buy today at an interactive Brokers or a Robinhood, you'll be able to buy on chain from us. And you'll be able to do so very importantly with access to the same liquidity that you would have at a conventional broker dealer. We think that's really key for making sure that the tokenized representations of these securities are not any worse than the traditional representation. Then I think that's table stakes to making it possible to tap into the accessibility and programmability benefits that come from tokenization. And then as part of enabling onto global markets, you know, we've found a number of infrastructure challenges with conventional public chains, particularly when it comes to getting institutions, broker dealers especially to participate in issuance and validation on the network and so we are developing onto chain to support on the global markets and similar tokenization activities. It's a hybrid public permission chain, so validators are permissioned but just about everything else about the chain is permissionless. So anyone can view transactions on the chain, deploy code, have a wallet, et cetera. It's really purpose built as a hub for tokenization to then distribute these tokens to the broader public blockchain ecosystem. You know, our assets, USDI and oh us here already on eight, you know, different public blockchains are growing and you know, are very much going to continue to focus on distribution in this multichain manner. And you know, we think the world is going to be increasingly multi chain but ondochain will play a key role in coordinating a lot of that activity when it comes to tokenized assets.
- [10:21]
Scott
What makes Ondo chain or any other chain that's somewhat purpose built for a specific, you know, for a specific use case? What makes it different than using an Ethereum or Solana or an Avalanche, something that's already been built and why make that jump?
- [10:37]
Nathan Almond
One important consideration particularly for regulated securities markets is not having front running and other forms of malicious mev. You know, these are particularly problematic from a regulatory perspective. I mean broker dealers have a responsibility to not front run their clients transactions and provide so called best execution. So by permissioning the validator set, that's something that we can pretty easily effectively guarantee while we think not really giving up that much commercially given that everything else is still permissionless. And then also just from a regulatory perspective, you know, not paying transaction fees to unknown validators, you know, which can cause you know, AML and other issues there. But you know, we're building a cosmos chain which is very flexible in what it lets you do. So just as an example of something that we're pretty excited about is coordination of cross chain governance. So like we will have contracts on Etherium and you know, a whole bunch of other public blockchains that support instant minting and redemption of our global markets tokens. But there's risk parameters, you know, mint limits, etc. That have to be governed on all these different blockchains. And the way that we're going to coordinate that governance is through on chain. So the institutions who are participating as validators in the ondochain network will actually be responsible for upgrading via a governance mechanism that we're working on with them the parameters of the global markets infrastructure on all of these other public blockchains. So part of bringing on a chain into existence is a response to some of these challenges that public blockchains have for our use case. And then part of it is just, you know, wanting a new hub for coordinating the activities for the infrastructure that we are building on all these chains.
- [12:42]
Scott
I mean, when you look at your site, you have blackrock and Goldman Sachs obviously scrolling across the bottom. Franklin Templeton, these are the biggest financial institutions on the planet that you're working with in some capacity already. Are you saying that those kind of institutions will actually be the validators on the chain?
- [13:00]
Nathan Almond
Yeah, that's right. I mean there. I can't say specifically who yet, but many of the world's largest asset managers, some of which have already issued tokenized Treasuries funds. I mean, you can look at Franklin Templeton as an example, like they're already a validator on quite a lot of public blockchains. I think they've really been at the forefront of that particular activity and a lot of the other of the world's largest asset managers are going to be pretty quick to follow suit there. So yeah, it's been really exciting to see the very sudden interest, particularly from asset managers and now increasingly from broker dealers and banks. Post some of the changes in the new admin in tokenization.
- [13:50]
Scott
To some degree, you know what's coming. You get a glimpse into the future because you're talking to these institutions, you're building things that are obviously for the future and not for just the needs now. We have tokenized Treasuries across the board, as you've said. Right. And a lot of protocols are doing that. I would say that that's a proof of concept as our stablecoins as a use case. What are the sort of next things you think that could break this open to a much wider audience? What assets? Because we have, it feels like infinite assets that could theoretically be tokenized. Doesn't mean it's all a good idea. Right. So what is coming next would you say that you're excited about?
- [14:29]
Nathan Almond
Honestly, the conversation with asset managers in particular is still pretty dominated around treasury funds where they might yield just barely scratch the surface. And the prevalence of stablecoins in traditional financial discussions and the stablecoin legislation that's coming and debates around whether there can and can't be yield there. I mean, I think that's really created a lot of focus around how do institutions make cash funds more usable in an institutional context because they're still really only used by crypto natives, particularly high network individuals, startups, foundations for treasury management purposes, you know, by crypto traders as collateral but the use case is still very, very narrow. So there's a lot of discussions around how do we use these sorts of products for international settlement for collateral in, you know, more institutional trading contexts. You know, like the CFTC is recommending approving it for, you know, use in certain derivatives transactions. That's the overwhelming focus right now. We are guiding a lot of the conversations towards public equities, particularly in the context of participating as service providers in global markets and on chain. And I will say it has been infinitely easier truly to get broker dealers and banks to work with us as service providers for global markets than it was when we were trying to launch OUSG in the first place.
- [16:16]
Scott
That's interesting. Is that just a matter of the evolution of the regulatory outlook and just it not being viewed as only for criminals and criminal activity now? The maturing of the asset class to some degree?
- [16:29]
Nathan Almond
Yeah, I mean two years or I guess it was two and a half years ago, just so many of these broker dealers and banks blanket policies to not work with folks in digital assets and it's just a total 180, not only are they able to work with folks in digital assets, but it's like a strategic priority and they're throwing tons of resources at us and competing to want to be a part of it. It's very exciting to see. I mean even that's a big shift from a year ago. There was interest from a lot of asset managers then particularly fomoing and after the blackrock Treasuries fund and tons of them put in and still have their own treasury funds in the works. But the interest in the banks and broker dealers is much more recent. I think the repeal of Sabbath is certainly part of that.
- [17:20]
Scott
But obviously I was going to float the not so tinfoil hat at this point theory that maybe they were still interested a year or two ago. The Fed and the FDIC and OCC were just telling them they couldn't. Right. I mean operation choke point 2.0 is not a myth. We've now seen it pretty handily proven across the board. And you even have the Fed Chairman Jerome Powell speaking on it. Right. And saying that banks should participate in crypto activities. I'm looking into all the ways that we were blocking that in the past. No mystery that they just couldn't. So I would say that in my opinion that's largely administrative change or just policy shift with a new administration that's opening the floodgates to a lot of people who probably wanted to do it and literally just couldn't yeah, absolutely.
- [18:08]
Nathan Almond
And I think the attitude the new SEC has been taking has been very constructive as well towards encouraging these institutions to support things like tokenization.
- [18:23]
Scott
So for an institution who can easily access United States Treasuries from the United States Treasury. Right. And can take short duration bonds or you know, and easily get in and out of them, what's the advantage for them of tokenizing that exact same asset for a comparable yield?
- [18:45]
Nathan Almond
Distribution really. Right. I mean for now institutions are after distribution to a global, somewhat more retail leaning certainly for now crypto native audience. I mean capital markets are still extremely fragmented. Just about every country has its own securities depository system. Cross border security settlement is extremely slow. Access to US financial markets is very cumbersome. Accessing margin outside the US for retail at remotely reasonable rates is very challenging. Through things like onto global markets we can provide global retail investors with a much better way to access US Financial markets. And ultimately that's more distribution, that's more fees at the end of the day for broker dealers, custody banks, asset managers, I mean they're still playing all their conventional roles.
- [19:58]
Scott
Yeah. It's not because they want to hold the treasury, it's because this is a way for them to expand their customer base and utilize those in more novel manners. Right. And so even participating in defi or as you said, opening to customers all around the world, I don't think people realize that if you're not in the United States it's really difficult to even buy stock.
- [20:19]
Nathan Almond
Right.
- [20:19]
Scott
I mean it's not that easy to buy Tesla stock if you live in most places in the world.
- [20:23]
Nathan Almond
Yeah, that's right. I mean I think there's like a couple of phases here. Right. I mean phase one is the institutions. I mean banks, broker dealers, custodians, at least they do just want to hold the assets and earn fees from doing so and you know, broker the, the buying and selling from an audience that itself is using defi. And you know, they're not using defi yet but then you know, they're also looking at defi and we're still in the like pilot phase of you know, what some call institutional defi, you know, using smart contracts for by more traditional regulated financial activities. And I'd say we're still in relatively early days of that and that's going to take a good bit more time.
- [21:12]
Scott
They can make money on customers outside the United States they probably couldn't make money on before. For now that is an exceptional use case for them. It's interesting that you have USDY which is obviously A yield bearing stablecoin that can be used in defi. Right. As you described it, like any other stablecoin of course not available in the US still. And we now have this push and pull with stablecoin regulation on yield bearing stablecoins. Actually it seems like there's consensus that stablecoins need to be regulated, that we need sensible regulation, that people should be allowed to use them. But the one sticking point that the industry actually really wants, Brian Armstrong, notably maybe the loudest voice is that these should be yield bearing instruments. And largely the legislators are pushing back and saying they should not.
- [22:01]
Nathan Almond
Yeah, it's a really sticky point. We created USDY in part given the regulatory uncertainty around stablecoins. USDY is very clearly able to pay yield because at least from a US securities law perspective, it is structured as a security. It's a tokenized note that is secured backed by US Treasuries with an interest rate that is set by the issuer on a monthly basis. So we think from the perspective of usdy, whatever happens within reason on the stablecoin legislation, we think doesn't really impact our ability to pay a yield. But it certainly will be interesting to see where things shake out there. I think there's reasonable arguments to make to say that stablecoins potentially ought not to be paying yield or at least that ought not to be where we start from. While we can have equivalent products that are under the remit of securities laws that can pay yield just like money market funds and all sorts of equivalent securities compete with low yielding deposit at a bank account but pay yielded or fully backed by Treasuries.
- [23:36]
Scott
I guess it does make sense that a stable coin right now nobody wants it to be deemed a security and the minute that you add deal it likely is.
- [23:43]
Nathan Almond
So I think it certainly looks a lot more like a money market fund. And part of that is because you know, banking regulators have not approved narrow banks historically. Right. So this idea of an institution that's like only holding Treasuries or only parking cash and like a Fed Master account and issuing liabilities like if it's regulated as a bank, you know, it's a so called narrow bank and there's been all of these historical applications, you know, pre blockchain to get them approved, one literally called the narrow bank, which you know, the Fed denied its application I think for a Fed Master account in part on the grounds that it was viewed as being too risky or too potentially disruptive to conventional commercial banks, which the economy relies on increasingly less. But still to some degree for commercial lending activities. And I think part of the argument is that well, if you really want this exposure, you can just go get it in a Treasury's money market fund. And it's maybe not quite the convenience of narrow bank which has sort of unlimited intraday wires in and out, et cetera, but it's very, very close. It's interesting though, in the context of tokenization there isn't really any convenience difference between a yield bearing stablecoin that is presumably regulated as a banking like instrument and something like USD Y which is, I'll call it a yield coin that is more regulated under the securities law umbrella. Right. I mean when you're transferring a token it doesn't really matter how it's regulated because settlement is all happening on the same rails.
- [25:43]
Scott
Right. I guess what's interesting and this is the question with everything in crypto where there's yield and that there's fear that the yield is somewhat being you know, orchestrated in the background in a way that people don't understand, like we saw in all the CFI collapses of the past, you would think that a yield bearing stablecoin that's simply taking the model that the company issuing that stablecoin is already using to make money and just passing on some of that yield to the customers and taking less profit themselves would be a no brainer, right? I mean if you, if we all know that, you know, to tether is making billions of dollars for example by simply buying short dated treasuries and collecting that 4 to 5% yield and that amounts to billions of dollars because of how much they have under AUM, if they were to say hey, we'll give 2% to our customers and we keep 2%, that shouldn't be controversial to me. But I guess the yield would have to come within some very specific guard rails to not be clearly a security. If all of a sudden they become a fractionally reserve bank and start lending that money to earn a larger yield to pass on to their customers, I see where that becomes problematic.
- [26:51]
Nathan Almond
Well, sort of ironically in some ways that makes it easier for that sort of instrument to fall within because it's.
- [26:59]
Scott
Fractional reserve banking regulation.
- [27:02]
Nathan Almond
You know, if they're fulfilling this banking function of lending. Look, I mean I certainly think the product of you know, a stablecoin like instrument that pays yield should exist. I mean of course I do. You know, we've, we've built but, but I do think there is a lot of nuance in like what is the right regulatory regime, you know, securities law banking law, you know, etc. To allow that type of product to exist in. And I do think there are complicated arguments around like the sequencing, I mean, the disruption to banking I do think is a real concern. I mean, I'm very like anti commercial banking in the long term. But there is, you know, I will give some credit to that argument for now. There's also complicated tax issues when you deal with distribution of these products in the U.S. right. I mean, how do you, you need sort of reasonable systems in place to, you know, to deal with tax compliance in the context of a yield bearing permission instrument that's distributed in the United States.
- [28:10]
Scott
The notion that narrow banks or fully backed banks should not exist is one of the biggest head scratchers I've ever seen in this country. Obviously I'm friendly with Caitlin Long from Custodia Bank.
- [28:20]
Nathan Almond
It's very frustrating, for sure.
- [28:22]
Scott
Yeah. From Custodia bank. And we've had countless conversations about this. But being rejected because you're not willing to take risk and basically support the financial system by loaning out money and wanting to be fully backed simply by Treasuries, I don't get it. I just don't understand. Yeah, so, I mean, maybe one day we'll see those. With this new regulatory regime, maybe it's going to change now. But I have my doubts. I just don't think that they want those. But stablecoins do still seem to be the killer use case right now for crypto. And as far as regulation, by far the lowest hanging fruit. Fruit, right. I mean, we're going to get some sort of stablecoin regulation. I would bet in the next four to six months. Hopefully it'll be sensible. Will that affect your business meaningfully?
- [29:12]
Nathan Almond
I think that having more legitimacy in the stablecoin market will be helpful for trying to get institutions to actually use tokenized Treasuries. Because a big part of the benefit of tokenized treasuries, at least as they exist today, is 24,7 liquidity in and out of stablecoins, which themselves are already very liquid for folks who are able to touch them, but institutions generally aren't able to touch stablecoins, so they don't care about that benefit. So yeah, I think if and when institutions are able to touch stablecoins, then all of a sudden they're going to start caring about that quite a lot.
- [29:59]
Scott
It seems like these institutions that have trouble settling on weekends or doing business would love stablecoins even for that simple purpose. I mean, I think stripe has to some degree integrated USDC to do those basically transactions on the weekends when the banks are closed. And it's very obvious 24 7, 365 for settlement should appeal to every institution.
- [30:23]
Nathan Almond
Yeah, absolutely.
- [30:26]
Scott
So as you continue to build out these new products and look at new markets, I kind of asked you what comes next that you think will be popular. Do you think that we actually see these tokenized products start to replace the traditional Rails that we have? A lot of people, for example, point at T plus 1, T plus 2, T plus 0, you know, settlement in the stock market and the clearinghouses and say, hey, if I tokenize that same Tesla stock, you buy it from me, I send it to you, you send me a stablecoin, we're done here. What's going on? Do we ever get to the point where that is the standard or is there not that much demand for tokenized individual securities? Is that not how people are going to trade? It seems like a no brainer that the world would at least move in that direction.
- [31:15]
Nathan Almond
Yeah, I think so. I mean look, we're racing to get global markets out. We're in deep partnership conversations with a bunch of crypto exchanges and wallets and it seems like they're all extremely eager to offer equities to their users. So We've been very B2B2C focused working with these sorts of partners to get the product out there. We'll learn a lot over the next six months once that goes live and we get some data about what the demand is. And I'm certainly excited to get that data. I think that the early users are not ones that have great access today. So I don't think that we're competing with traditional settlement infrastructure right now. You actually can think of a lot of what we're doing as like building a, almost a layer two settlement network for these sorts of public securities that is on top of and compatible with the existing security settlement infrastructure. Right. I mean public securities in the US are all ultimately held, well, public equities at the dtc, the depository trust company, which is a subsidiary of the dtcc. And that's still the case for all the securities that are going to be backing the tokens that we'll be issuing. It's just that holders of our tokens can settle between each other 24 7, 365 on, as you said it, on a real time gross settlement basis. They don't have to wait. T +0, T +1, T +2. All of crypto for the most part has been done on a real time gross Settlement basis. And I do think there is a little bit too much disdain that a lot of the crypto industry has towards this idea of delayed settlement. I think that we're heading in a direction in all of finance towards shorter and shorter settlement windows. But there is a certain amount of, you know, sort of grease to the system that having short settlement delays allows. And we feel these pains even in crypto. I mean, particularly when you start thinking about distributing assets in a multi chain environment when it takes, you know, seconds to minutes to move assets between different chains. If you're having to like pre fund everything now you need like liquidity pools, like giant liquidity pools and stable coins sitting on all these chains, you know, that you're not earning interest on just so that you can enable certain transactions where, you know, if you had, you know, effectively like a cross chain clearinghouse that, you know, extended, you know, even five, 10 minutes, you know, an hour of credit to participants, a lot of these things would be much more capital efficient. You know, I'm using this example because it's sort of something we were addressing recently in the context of, you know, cross chain instant minting and redemption for our tokens. But you know, delayed settlement also allows for netting, right? Like the, there's something like, you know, 99.9%, you know, reduction in the amount of trades that actually take place to what settled. Because, you know, if you trade with me and then I trade with someone else, you know, and they sort of net out and you just settle to that someone else. I think finance will be done on very close to a real time gross settlement basis, but with a little bit of an asterisk.
- [35:01]
Scott
I mean we're already seeing now, I believe it was Nasdaq that said that they were considering 24 7. I don't know if it was 24 7, but 7 day or 6 day trading. Clearly crypto has put a bit of pressure on legacy markets to at least increase the time that they're open to allow more people to participate more hours of the day and more days of the week. So that's already an interesting nuance there. I don't think they'll get to 24 7, 365, but we're certainly pushing them closer.
- [35:31]
Nathan Almond
Totally. Yeah. I mean, 24, five to start, which we're seeing in more and more platforms that, that goes, you know, hand in glove with offering global accessibility for markets that might be sleeping during US market hours.
- [35:46]
Scott
Interestingly, something just hit the tape as we're talking, which is that circle to debut new global Payments platform and NYC launch event. I guess this is announced today, but Circle's unveiling a new cross border payments platform aimed at challenging legacy giants like Visa and MasterCard. So this obviously very much speaks to what we're talking about and this is really interesting. I don't know if you saw this, but Circle also introduced a refund protocol for stablecoin transactions offering built in on chain dispute resolution. Okay, that's interesting.
- [36:18]
Nathan Almond
Yeah, they're going right after the card networks.
- [36:21]
Scott
So this is a direct attack on Visa and MasterCard in America.
- [36:24]
Nathan Almond
Yeah, sounds like it. And Visa and MasterCard are responding, right? I mean they've been leaning very heavily into tokenization.
- [36:32]
Scott
On chain dispute resolution is really interesting because I think a lot of crypto natives would say once it's done, it's done right and see a lot of problems with rolling things back and. But if you want to participate in the big pool, then you know, scams or even just wrong transactions, incorrect charges, chargebacks, which happen all the time with MasterCard and Visa. They have to be a part of it.
- [36:55]
Nathan Almond
Yeah, absolutely. And you know, that's another thing that delayed settlement in general allows for some window of time before things are totally final.
- [37:05]
Scott
What's the 10 year vision? So maybe I asked 20 or 30, I don't know. But I'm pretty optimistic that between AI and robots that 10 years are going to look very different. So I think we do have a pretty accelerated timeline in the world. What does 10 years look like for Ondo for tokenization in general?
- [37:25]
Nathan Almond
I think that DEFI gives us a great glimpse into the future for those of us who were big power users of DeFi and DeFi. Summer 2020, were you farming tacos and yams? Oh yeah. 4% an hour for yam is a great one. But I always felt it was a very magical experience to have all of your financial assets just on your wallet and in a single click, you know, you can move from platform to platform. There's no lock in whatsoever. You know, everything's interoperable and composable. I think that's the future that we're going to see, obviously with some guardrails and grown up a bit for all investable assets. Right. I mean, today we have a total Frankenstein of different settlement systems by asset class and by region. And you know, I mean, when I was at Goldman, I worked at Goldman for a couple of years on the digital assets team before founding ondo. And I would spend time just like interviewing ops, you know, and other back office folks about, you know, why Things are the way they are for settlement of different assets. And it's always just like, because that was the sort of simple fix for whatever the, the problem at the time was, you know, there hasn't been a lot of like very forward looking, particularly global design in a lot of these systems. And I think that, you know, blockchains and tokenization represent like a pretty disruptive and you know, fundamental upgrade to that system. One where all financial assets, whether it's money or a derivative or a security, are interoperable and really accessible on a relatively level playing field to institutions and to retail. There's so many services right now that retail would love to have access to prime brokerage where you can cross collateralize, buy securities and crypto and have best execution on a whole bunch of different venues that are just relatively expensive to provision, in part because of that Frankenstein nature of our existing clearing settlement systems. And I think that in a world that looks more like what we have in Defi, you know, but for traditional assets, the marginal cost of provisioning these sorts of services is just, you know, next to nothing. And so retail can have, you know, access to the same types of financial products and services as, you know, the largest US hedge funds.
- [40:18]
Scott
That's one of the most exciting parts really is that there's no longer the have and have nots, at least with access. When you really democratize this and open it up and decentralize it.
- [40:28]
Nathan Almond
Absolutely.
- [40:29]
Scott
That's where tokenization really, really becomes exciting. Especially for the average person. Especially for the average person that's not in the United States. It's funny, as we're talking, I always have kind of just a news feed spitting stuff. We obviously just had the story that I shared. Another one. Circle bitgo about to apply for bank charters. Others may follow. This is the Wall Street Journal today saying also that Coinbase and Paxos are exploring bank charters amid evolving U.S. stablecoin regulations. It's just amazing how fast this is moving. But that would allow them at least in some restricted manner to do lending and borrowing that we just described. Maybe it would look like what Anchorage somewhat has because I think they have some sort of banking charter. But this is interesting. I wonder if this is because they want to provide those services or because they have some inside baseball on the stablecoin laws that are coming that may state that stablecoin issuers are required to have a banking charter or a relationship with a bank.
- [41:25]
Nathan Almond
Yeah, totally possible. It also just reduces their reliance on third party banks which they of course need for minting and Redemption purposes. But, yeah, I think there's a huge uptick in the sort of convergence in competition between these kind of crypto native and more traditional players. I mean, earlier you were talking about circle and decent, MasterCard, Kraken offering equity and all the crypto exchanges offering equities now competing against Robinhood, which is getting more and more into crypto and into tokenization. So I think that's just a sign of our industry growing up.
- [42:08]
Scott
Are these competitors or are they future partners for Anando?
- [42:12]
Nathan Almond
Both. There's always an element to both, I think. Frenemies.
- [42:17]
Scott
That's interesting. Yeah. I mean, you're building similar products, but there's a lot of things that you'll probably be able to do for. For them that they can't necessarily do for themselves with the infrastructure that you're building.
- [42:27]
Nathan Almond
Yeah, I think we're less competitive with a lot of those players because we are pretty B2, B2C focused. Like, just about all those players you mentioned have, like, their own and retail user bases. But to what degree are, like, Kraken and Robinhood competitors? Like? I don't know. I would think relatively high, but I'm not sure exactly.
- [42:47]
Scott
Yeah, for sure. Is there anything that's happening at that legislative or regulatory level that concerns you right now? Obviously, we're all very excited that the massive sea change in how the industry is being approached, but I. I mean, listen, we're like, inherently distrustful of government as people who have been in Bitcoin and crypto for a long time. And I have to imagine that even though we're getting legislation and regulation, that there could be some pitfalls or even unintended future consequences that they don't anticipate. Because it's so complicated.
- [43:20]
Nathan Almond
Yeah, look, I mean, what we pay most attention to is what's happening with the sec, and I think everything's been great there so far, and we're engaging on what we would like to see in terms of sandboxes or other guidance in the tokenized security space on the stablecoin. And I think in general, for what we are trying to do at Ondo, we just don't think that we need a whole lot of new legislation, really, just new regulatory guidance or further guidance. I'm not as concerned as I think a lot of folks in the industry are around stablecoins maybe not being able to pay a yield, because as we talked about earlier, I think that can be addressed in a securities law umbrella. I don't know the status of the market structure stuff. I think that's coming a little bit later this year, but obviously that'll be important and probably even bigger unlock for us to get some clarity on what is and isn't a security.
- [44:24]
Scott
How big do you think this market will become for the blackrocks of the world and the Franklin Templetons and the Goldmans? Do you think that this becomes a really meaningful part of their earnings on any given year? Because it seems like they're definitely dipping their toes. I'm just wondering when they jump in.
- [44:44]
Nathan Almond
Pure crypto or tokenized assets?
- [44:47]
Scott
Tokenized assets. Pure crypto. Either one.
- [44:50]
Nathan Almond
Yeah. I mean the line between tokenized assets and traditional finance is just going to become so blurry. It's just going to become gradually over time. It's hard to answer that one on crypto. I mean, I think the Bitcoin ETF has already become fairly material. So yeah, it'll be interesting to see what the demand is like for all these other ETFs as we see them come to market. There seems to be a lot of interest in all these microstrategy clones for all sorts of other tokens as well.
- [45:27]
Scott
I'm going to go out on a limb and say I'm not sure that's going to go well.
- [45:31]
Nathan Almond
Yeah, it's quite interesting.
- [45:35]
Scott
Were you a bitcoiner first? How did you actually find crypto on a personal level? Was it because you came into Yield Farm Yams or were you here before that? Obviously no. Digital asset team.
- [45:49]
Nathan Almond
Yeah, I got into bitcoin like most folks first kind of late 2016. Nice. And then yeah, obviously followed by Ethereum and the ICO mania followed subsequently. And I think that was sort of the white paper stage of our industry. So spent a lot of time reading and dreaming about all these early decentralized applications, most of which have never really been built yet. Defi is really the one sector where we've seen a lot of things built and working. So, you know, renewed my excitement in 2020 when I saw all of that and you know, just doubled down since then.
- [46:32]
Scott
What the hell is going on with Ethereum, man?
- [46:35]
Nathan Almond
Yeah, it's kind of sad to see.
- [46:39]
Scott
You know, you still got. You still got BlackRock and other institutions are tokenizing funds on Ethereum. It's being used, it still has a ton of tvl I can't make sense of the price. I mean, I get that there's an existential crisis.
- [46:56]
Nathan Almond
Yeah, I think the relevance of it in real world assets is pretty limited. I mean, we started there by default because I grew up in Ethereum. Defi and then I think BlackRock did the same seeing we were there and it was pretty easy default. But the real world assets are so concentrated like it'd be. So it wouldn't take much for those assets to move elsewhere pretty quickly.
- [47:25]
Scott
So yeah, yikes, yikes. So the pain might not be over. Fun. Yeah. I mean really, like I've been a pretty relentless Ethereum supporter over the years. I just thought that there was much ado about nothing. But it seems to be gaining traction that maybe there's something happening here.
- [47:44]
Nathan Almond
I think it is challenging to compete. I mean, sadly, it is challenging to compete as a chain without having slightly more coordinated partnership go to market governance efforts.
- [48:00]
Scott
They had it all.
- [48:00]
Nathan Almond
I know that's very anti the decentralized maxi ethos of crypto, but a lot of the use cases that we see are just not around. Tokenization as an example are not ones where decentralization is the core concern.
- [48:20]
Scott
I mean decentralization is important, but most bitcoin maxis are also really excited about BlackRock having an ETF.
- [48:28]
Nathan Almond
Yeah, whatever pumps the bags.
- [48:30]
Scott
There's always a little bit of cognitive dissonance. People cheer for the things that make their bags go up, even if they're maybe anti the original ethos of why they bought that asset.
- [48:38]
Nathan Almond
Yeah.
- [48:39]
Scott
Well, Nathan, I really appreciate the chat. I know that we're up to time. Where can people follow you? Follow everything Ondo's doing and participate.
- [48:47]
Nathan Almond
Yeah, our website's Ondo Finance. We're probably most active otherwise on Twitter at Ondo Finance. And I'm on Twitter as well. Athanlalman.
- [49:01]
Scott
Thank you so much, man. Always a pleasure to chat. Can't wait to have these conversations down the road as all of these things we're guessing at start to come to fruition so that we can make more wild guesses at what will come after that.
- [49:15]
Nathan Almond
Yeah, absolutely. Thanks for having me. Be great to be back on. Thanks, Scott. That's dope.