← The Wolf Of All Streets
The Wolf Of All Streets
Unlocking Trillions: Sergey Nazarov On Tokenizing Real World Assets & The White House Crypto Summit
00:57:22
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- [00:00]
Sergey Nazarov
One mode of thought is let's make a very attractive environment for teams in the United States because PayPal doesn't know how it works legally. They can't take. They can't let you. They want to let you. They want to give you that user experience. Or same thing with Robinhood, or same thing with JP Morgan. Same thing with whoever.
- [00:18]
Interviewer
If you want to work with the government in any way, shape or form or interact, then you need to be using Microsoft Word or Excel, spreadsheet or whatever it is.
- [00:26]
Sergey Nazarov
Obviously you have to deal with them. They're the government being part of the United States. That's what success looks like.
- [00:33]
Interviewer
The White House Digital Asset Summit was a pivotal moment in the crypto industry when Donald Trump and the heads of multiple agencies sat down with the most brilliant minds in the crypto industry. One of those brilliant minds is my guest today, Sergei Nazarov, the co founder of Chainlink, which is the oracle and infrastructure underlying almost everything that's happening in blockchain. Today we had an incredible, powerful conversation about why blockchain is so important, how it will power the future, and how it will be used by governments, institutions and retail alike. You do not want to miss this incredible conversation with Sergey Nazarov.
- [01:09]
Sergey Nazarov
That's dope.
- [01:23]
Interviewer
So you were one of the fortunate few who was invited to the White House Digital Asset Summit in Washington, D.C. last week. You actually had the opportunity to speak to the President, which was incredible. It's almost surreal seeing all of you sit at that table, to be quite honest, especially considering the environment for crypto in this industry in the United States. So first, I mean, what was it like to be in that room?
- [01:48]
Sergey Nazarov
Yeah, yeah, it was. It was pretty amazing. I think surreal might in some ways be an accurate term if you think about where everything was even three to four months ago, before President Trump won the election. So I think it's a massive, massive shift. It's a very good example of how quickly the United States can adapt when it wants to adapt, even though it's a very big machine, very big governmental machine with many groups and departments. I think the most striking thing for me was the seniority of the people there. So the Secretary of the treasury, the Secretary of Commerce we had there, also Hester Purse was there, Commissioner from cftc, was there lots of very, very senior folks there, as well as Congressional Whip Tom Emmer, Chair of the Digital Assets Subcommittee, Brian Stiles. So very, very senior people. So as well as their representatives. I expected it actually not to have that many senior people. I thought it would be Their representatives kind of talking with us and learning things and beginning some. Some. Some process of collaboration. But the fact that they were there and they were there throughout the event was. Was a very big deal in my eyes because it signaled a very strong level of support from the most senior level. And governments are generally pretty hierarchical. Right. So, you know, they're relatively hierarchical in how they work. And so when you have people at that senior level spending their time in events like this, having positions on it, talking about it publicly, I think the shift in the US we haven't gone from highly negative to neutral. It's gone completely from highly negative to highly positive. So sometimes with governments, it's a gradual process. I feel what we're really witnessing here is how quickly the US can change a position and actually start acting on that position. They were also often talking about moving at tech speed in the government. So I think this is actually just a goal that's been given to them internally of like, can you quickly move on solving problems even though you're in a government system? Which I think is a good mindset.
- [03:51]
Interviewer
And it's the antithesis of what we're used to from government, obviously, which is that nothing ever gets done. It's bureaucracy and red tape, and it feels like they're cutting through that. And on behalf of our industry, which, once again, surreal is the only word I think that I could use for that. You pointed out that all these senior people were there. First of all, I didn't even expect Trump to be there. I thought that Sachs would be there as the representative of the White House, being the AI and crypto czar. Trump obviously came in, spent time with you, and then not only were all those senior members you mentioned there, but every single one of them has been crypto friendly or a bitcoiner before even entering government. Right. I mean, you got Lutnick, who's an investor in Tether, and Cantor Fitzgerald. Custody's Tether Sachs. Obviously, Besant had to divest crypto holdings to become the Treasury Secretary. It's unbelievable how much these people get it. So not only was it incredible that they were there and it wasn't a bunch of staffers that they sent, but you had the President and all of these people there who are all outwardly pro Bitcoin as well, right?
- [04:54]
Sergey Nazarov
Yeah, yeah. I think that there was definitely a representation from the bitcoin community in the group that attended, most represented by Michael Saylor and David Bailey, did a good job representing that. And I did see a positive reaction from folks in the government. About Bitcoin and that the US needs to, you know, have Bitcoin in the reserve and have a, a role in Bitcoin and a leadership position in the world relative to, to whatever Bitcoin is in the process of, of becoming now. I think they do get it. I think the, the people that have been brought in to solve this problem, like David Sachs and Bo Hines are very competent people from, from my interactions with them and beyond that, I think you, you basically have a number of very senior people in the government now who also, you know, have held crypto before they had to divest or at least understand it enough that they previously put a lot of their personal net worth into it. And, and it's really, really significant actually, because when you look at how the global financial system has evolved so far, the choices of the US Financial system are actually the biggest set of driving forces and factors for determining how the global financial system evolves. Because the US financial system is the biggest one in the, in the global system. So I think it's, it's very significant for our industry, but it's also very significant for how our industry's technology will start to get adopted even, even separately from the question of, of cryptocurrencies.
- [06:19]
Interviewer
Agree. Do you have any personal insight on how the guest list was crafted? You know, there's a lot of people who obviously were maybe not invited or the, you know, but obviously everyone who was there seemed hand picked for a very specific reason. So do you know how those invites were decided on?
- [06:39]
Sergey Nazarov
I don't know the exact process. I think it was basically David Sachs and Bo Hines who were putting together the summit. So they're the ones.
- [06:45]
Interviewer
Perfect.
- [06:46]
Sergey Nazarov
I think you crafted the list of attendees. I saw people that I knew were already active in D.C. so I think being active in D.C. up until, up until the summit, before the summit, you know, we've been active there. We've been meeting with congressmen, we've been meeting with, with people in the executive branch, we've been meeting with all kinds of people in D.C. on various key infrastructure related topics. You know, how do you implement proof of reserves? How do you implement different levels of automating compliance? There were other people that I know were meeting with them on questions of custody, on questions of taxation, on tech, questions of how to account do accounting, on crypto tokens. So when I looked around the room, I saw people that were already very active. I knew they were active because I'd seen them and I knew that they had retained lobbyists and they were active in dc, I think that was one of the key factors. I think another factor were the people who had influence on the creation of a bitcoin reserve. So I think there is a subset of the people who are active in D.C. who are not interested in much other than bitcoin adoption.
- [07:53]
Interviewer
Right.
- [07:53]
Sergey Nazarov
And so I saw the representatives from that group there. You know, once again, they were active in D.C. and they did that. I think those people, some of them had also supported the Trump campaign at some point earlier on before they had once. So I think that was, you know, a partial factor, but I don't think that was the main factor. And then I also think it was a good mix of people from different. From different groups.
- [08:20]
Interviewer
Yeah, that's how I viewed it. I actually thought it was an exceptional cross section of the industry. I know bitcoiners get mad when certain person is invited. A certain person gets mad when the bitcoiners are invited. But I thought actually it was very, very well constructed. So I'm curious. We all obviously saw the portion of the summit when Trump arrived, but everything else seemingly was behind closed doors. Is there any insight you can give us as to what was discussed in those few hours, specifically at this summit? Summit? I mean, you have so many power players, a limited amount of time. Were there key topics? Was it a general meet and greet? What was the general vibe?
- [08:56]
Sergey Nazarov
I mean, the participants in the summit all got a few minutes to go around and put forward their views and position on how everything should evolve. The Secretaries and the Congressman and the other senior government officials were paying attention and taking notes in many cases. In some cases there was some back and forth. So basically everyone got time to put forward their position. I think that the positions basically boil down to three key categories. Category number one was about the Reserve and Bitcoin and the US's position relative to Bitcoin and how the reserve should evolve in those topics. Number two was about what's called market structure. So getting more regulatory clarity on what is a security, what is a commodity, how is that regulated, what regulatory agency? SEC versus cftc. This clarity is required for both DEFI and Fintechs and also institutional adoption. So it's just like a very foundational, basic thing that is now in the process of getting done. There was also talk about other regulations like stablecoin regulation and these things. Then the third topic was basically infrastructure, which started to touch more on the US's role in the US financial systems, role in the new Web3, Web3 powered world. This is the topic that, you know, I spent the majority of my time on discussing with folks presenting ideas about proof of reserves, actually proof of many other things, proof of composition, proof of solvency, proof of various things so that the assets in the US Financial system can be the most reliable assets in the, in the global system. Right. Because the assets prove more and more things about themselves. And then the other topic that I was also interested in was the automation of compliance to allow value to flow easily into the US financial system. So compliance, which still needs to exist because the legal system isn't going away, but that the compliance can be made less of a burden, less of a cost, less complex. So I think, yeah, there was those three categories, Bitcoin, more regulatory clarity, and how should infrastructure evolve to solve some of these existing problems, but really also generate a better version of the US Financial system.
- [11:02]
Interviewer
I find that third topic to be by far the most compelling and would love to talk to you more about it because I think we've had Bitcoin as a strategic reserve asset. The identity of Bitcoin has pretty much been litigated. Right. I think most people know what it is and have an idea on its importance to the government, but it's not going to be the underlying tech that does all those things that you just discussed. Right. And obviously as the co founder of Chainlink, you talk about proof of reserves, proof of all these things. I mean, that's literally what you do, right? You verify proof and make sure that information is accurate. And that's severely lacking in the United States government. Right. I mean, even when you look at audits of government agencies like the Defense Department that can only prove where 35% of their money is going, I think it's very clear that what you've built and what this industry has built could go a very, very long way to help with that transparency and accounting. So they come around the room to you, what's your pitch? What is Chainlink's role in what the United States is doing moving forward?
- [12:05]
Sergey Nazarov
Sure, sure. I'm not going to give you the exact pitch, I said, because I have a little more time here. But so I'll give you a general sense of what the answer to your question is. So I think fundamentally the US as any financial system would want, needs to fundamentally do two things. It needs to be the origination point of what's known as the base asset. So the asset that fundamentally underpins the value of everything else. This already happens for stablecoins where the vast majority of them are backed by US Dollars and US Treasuries. But what you want is you want the base asset that backs the rest of the financial system, whether that's tokenized funds, tokenized real estate, whatever category. You want that asset generated in your financial system because you want that asset to then be bought externally. The first step in getting your financial system to gain the benefit of external consumption of your assets, of your origination process, of your issuance process, of your financial services sector, is that your financial system is the one where the asset is generated. Here Chainlink powers the most RWA implementations. There's independent research on that from groups like Sentiment that do independent analysis that people can look up. We're the largest provider of various technologies like data feeds to defi and we power the know the majority of defi. We power I think the most proof of reserves, implementations across stable coins, gold coins, other things. So that is one category of what Chain Link does where we are able to prove a lot of information about assets. And our view is that the asset will become what we call a unified golden record, where the asset is now a form of ownership. So I will transfer ownership to you, but in addition to transferring ownership, there will be kind of a data container attached to the asset, to the token itself. And that data container will be dynamically updated near real time. About critical information about the asset, for example, is the gold there is the real estate. You know, is there a lien on it? Is it under underwater with debt? What is it? Right? So basically, how do you solve this problem of making the most reliable asset possible so that your financial system experiences the most demand? Historically, the US financial system has actually been quite popular because it's reliable, it has a legal system, it has relatively low levels of financial fraud for a financial system, and it has lots of volume and a big domestic economy. So basically the first nuance is how do you build a great asset out of the US financial system? And that asset can and will be originated by DeFi protocols, FinTechs, Neo Banks, Digital Banks, and, you know, smaller institutions and the largest institutions. And you want all of those groups doing it. The second nuanced problem is how do you get the value from the outside world to flow into the US financial system efficiently so that it can create demand and buy this asset? The answer to that, I think boils down to the automation of compliance, which is something the chainlink oracles also do. So chainlink oracles can verify different compliance conditions, but in an automated way. Right now, a lot of this stuff is not very automated, which creates very high cost for transactions. If you were to automate Compliance and you were to have the best asset. You kind of have the best of both worlds. You have the asset that attracts the global market to buy it and then you have the frictionless process to buy it that allows the hundreds of trillions of dollars in institutional capital to do so. Right. So those are the two basic answers to the question. Chainlink is able to provide the backbone infrastructure for both helping create that asset. I mean we don't create that token itself. We kind of power the ability for the token to prove things. And then you also have the ability for the value to flow and purchase the token both through the cross chain system, the compliance related systems, identity systems, all those systems that's in the financial sector there. There's stuff I didn't have a chance to discuss at this summit, which was about like creating a voting registry and using identity oracles to prove identity for the voting registry. That's an example of a non financial use case where you can basically track the ability of elections to comply with identity requirements and to do that in a, in a way that proves publicly that, that compliance happened in a way that anyone can evaluate. So there's a lot of other government use cases that aren't financial in nature. They stretch from voting to supply chain to many other things. But for the US financial system use case, I think it boils down to these two key aspects of how does the US financial system make the best asset? And one of the ways that it did that in the past actually was it regulated or legislated into existence. Risk agencies like S and P and Moody's, which at the time was pretty innovative and allowed the US financial system assets to be better than the non financial US financial system assets, at least initially. So you really want both of those things. You want to be the, the origination point of the base asset that's better than everyone's base asset. And then if a bunch of DEFI protocols and FinTechs and other countries wrap and rewrap and package and repackage that, that's just distribution, that's fine. And then you want that distribution to have as little friction as possible, which basically boils down to low transaction costs, which basically boils down to automation of compliance. And so this is the infrastructure that Chainlink is, is now in the process of providing.
- [17:43]
Interviewer
So you mentioned S and P and Moody's. Obviously they're credit rating agencies to assess risk by giving a rating to the asset, which could be someone's national debt or anything else. You're basically saying that you can provide via Chainlink with any asset that's tokenized, a provenance of that asset. Right. Proof of everybody who's owned it before, all the things that you mentioned and basically verifying that it's true. And then as you said, that can be sold from me to you or from one government to another or any entities without the third parties in between. Doesn't this fundamentally change or disrupt the largest businesses on the planet? I mean we've always talked about this with blockchain, but third parties verifying information is one of the biggest businesses in the world. Right. I mean that's what banks do. When you send a wire, they take a fee, they, they, they use the Swift System, Visa, MasterCard, all of these, I mean these, these entities are not going to go quietly into the night.
- [18:41]
Sergey Nazarov
Sure, sure. So let me, let me just, let me describe one or two thing, key things there. Yes. We have a whole category of what we call proof of proof of is different proofs about the status of an asset. Everything from proof of reserves, proof of composition, proof of solvency, various proof ups. Right. That, that's one of the examples I just described. You're, you're basically right that, that markets are composed of two key aspects. They're composed of ownership and information. And the closer you get to what's known as perfect information, the more of an efficient market that you have. Now if we are able to share information in a near real time basis like every few seconds, rather than having an annual audit by people that commonly aren't able to audit things because you have things like Bernie Madoff, you have things like Silicon Valley bank, you have all kinds of things where there's surprises basically. And if you eliminate those surprises, you get closer to perfect information. Tokenization and blockchains as a ledger for tokens is very good for the ownership dimension and chainlink and Oracle networks are very good for the verification of everything else, including cross chain connectivity, data identity, all these different things. So one of the things that might just be useful is to understand what chainlink does. Right. So blockchain networks, they verify three things. They verify private key signatures, they verify token ledgers, and they verify a state machine with conditions. But that state machine cannot actually know anything about anything outside of the chain. And they can't know anything about another chain. They can't know anything about identity, they can't know anything. They don't even know time. There's no concept of time for most smart contracts. So in order to build these advanced applications, even like Defi, you need Oracle networks, which they verify Everything else, they verify a command from another system, they verify identity, they verify market data, they verify connectivity between chains. And what's happening now is that transactions are becoming more complex. So transactions in the first 2014, 2015 era of what were then called Appcoins, back when they were called Appcoins, this was before Ethereum even, basically the transactions were very simple. I sign a transaction to send my token to you, and you sign your transaction, your token to me. And maybe there's a deck somewhere in there. And so there's a third step of some order matching on chain. Now transactions are very complex, even defi, you need basically an Oracle network. You need multiple steps in the transaction if you want to gain usage of that defi protocol from other chains. Now you need a data Oracle and a cross chain Oracle. If you want to do institutional trading, you need a data Oracle, a cross chain Oracle and an identity Oracle. So all of these, so that's the three oracles. And like now you're at 15, 16 steps. So it's just becoming more complex. So the reality of this situation is that the people that already provide the data, already provide the payment networks like Swift, MasterCard and others already provide the identity service are actually the people that Chainlink works with to allow their systems to be usable. So basically, if you want to make a payment over Swift to buy a tokenized fund, you should be able to do that. If you want to be able to buy a meme coin with MasterCard through, you know, some kind of Dex mechanism, you should easily be able to do that. If you want to consume data from the top data providers to power your on chain decks, perp Dex or your lending protocol, you should be able to do that. If you want to comply with various identity and other conditions in order to accept money from, you know, the largest global banks, you should be able to easily do that. All of these problems are basically infrastructure problems that Chainlink solves. And we do it in a very collaborative way. So we don't do this in a way where we seek to replace the payment mechanism or we seek to replace the data provider. We do it in a way where we basically allow that payment system or that data provider to offer their service to the smart contract community, which benefits that data or payment provider. It benefits the smart contract community and it actually benefits consumers as well because it lets them engage in their existing user flows and use their existing data assumptions while being able to use blockchains and defi and institutional grade digital assets. So it's actually all very compatible.
- [23:31]
Interviewer
I Don't remember who first shared the anecdote. It was on some show in the earlier days of crypto, I think kind of in the early days of Chainlink. And they basically explained it as well. If you go on some crypto betting site and you bet on the Knicks and your friend bets on the Lakers and it goes into a smart contract, well, Chainlink needs to tell you who actually won the game. Right. You can make the bet. The smart contract can handle the payout. But how do you verify who actually one and get that verification? To me, that's when it really clicked. What Oracles did in the very, very, very early days. I don't know if that's an accurate anecdote, but just for, you know, listeners who don't quite understand it seems like that makes it very obvious. I mean, is that a fair example?
- [24:11]
Sergey Nazarov
Yeah, yeah, that's, that's a good, that's a good example. That, that's a completely fair example. But, but I guess what I'm saying is that that would have been how that market would have worked three, four years ago. Yeah, of course, because that market would have been on one chain. Now the way, the way it would actually work is you would still need that data Oracle. But then one of the people buying into the market would be coming from some other chain. So you would need a cross chain Oracle.
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Interviewer
So interoperability. Yeah.
- [24:35]
Sergey Nazarov
And, and then if you wanted that person to buy in under some kind of set of laws or you wanted them to pay you from a bank, there would need to be a compliance Oracle. And then there, and then let's say you wanted to manage the risk of the market, then there would be a risk Oracle. That's right. You would initially need.
- [24:52]
Interviewer
I was just at the most simple, simple level.
- [24:55]
Sergey Nazarov
Maybe I'm not making this simple, maybe I should do more.
- [24:57]
Interviewer
No, no, no, I meant for me that's how somebody simplified it once and it all clicked as to how important this is at the most basic level. Yeah, obviously you sort of imply that Chainlink steps in after the asset is tokenized. So I think it's an important conversation to understand a. Who would tokenize the assets? And in the case of the government, what are the assets that would most likely be tokenized to actually be transferred? I mean, there's a lot of conversation obviously about real world assets in the private sector, tokenizing real estate, mortgages, car titles, whatever it is, and being able to transfer them peer to peer without the third party. But what assets is the government going to tokenize and who's the trusted party that can do that.
- [25:37]
Sergey Nazarov
I mean, I think the main thing that most governments are in the process of tokenizing is their central bank digital currency initiatives, which the U.S. i don't think will have over the next few years because of the position that's been taken on that by the current administration, which I'm actually, you know, I'm fine with that as long as there is clear stablecoin regulation and, and legislation which is now in the process of getting finalized and then done and then out there. So I think stable coins and CBDCs can basically play the same role. It doesn't really matter which one you have, I think in your digital asset economy, as long as you have one of them and they work well. So I would say that if there's no CBDCs in the US in general, CBDCs would be my answer. But in the US financial system, it won't be CBDCs. In the US financial system. I'm really not sure what it is because the government sector doesn't usually make assets or tokenize assets. They provide guidance to the private sector which will generate all the assets. One of the ways I think about tokenization is that it's kind of like securitization 2.0. And in securitization 2.0 you're just going to have all the banks, all the fintechs, all the defi protocols, tokenizing, tokenizing everything they can tokenize. Some of them will tokenize yield from DeFi, some of them will tokenize treasuries, some of them will tokenize real estate. And then you're creating this kind of highly interconnected inter, what I call Internet of contracts where a piece of real estate can now get yield for you because you've tokenized it, or a gold bar can now be put into a lending protocol and give you yield in ways that you just couldn't get before. So I think that the role of the government is to create the legal and regulatory clarity for the people that do tokenize to be able to do that well. And the governments that do the best job at that will accelerate their digital asset economy to do that more than others. And that'll give them a head start in the digital asset global marketplace, which, which is a, which is like a critical head start to have that the US financial system and needs and wants and other financial systems also want and need. I, I think fund fundamentally there are other use cases in the government for blockchains as a security mechanism, a data security, information security mechanism. And in terms of solving trust problems. So fundamentally what blockchains do, whether it's about ownership or whether it's about information transfer and ownership really is sort of also information transfer, it's just information about ownership is they solve trust problems. Right. So if there's another collection of trust problems like something around, how do I verify that the voting system worked correctly? How do I verify that the supply chain system is complying with, you know, fair trade certifications about, you know, misuse of labor or whatever? Like there are actually plenty of other use cases that the government has for blockchains that are not financial in nature. They just are not as urgent or not as driven by our industry because they're not as, you know, there's not same financial incentive. But I think eventually almost all government systems everywhere will be backed by blockchain security for information security. For example, storing and verifying logs or hashes of logs about system data that'll be very widely used to create information security guarantees. You'll have voting systems, supply chain systems that will have very large amounts of value from both being able to make the data more public and being able to make the data more secure and reliable and have managed more efficiently. So I think governments will not be a net issuer of assets. I think governments will be a critical guiding force and unlock for the issuance of assets by others. And I think governments will be a very large net consumer of Oracle network and smart contract infrastructure that allows them to solve basically trust problems. Right. That's how I think about the value of our industry is what are the trust problems that we're able to solve?
- [29:39]
Interviewer
I think if you look at the general state of affairs in most governments and certainly among their citizens, we have a pretty big trust problem. Right. Nobody on either side seems to trust election results, as you've pointed at, or trust basically anything coming from the side of the government that is not the one that they support. So it seems like although the financial incentives don't exist, these are actually potentially the more compelling use cases for a government to restore that trust in the entire system. I mean, if you had verifiable third party, not from a human being voting, that you knew that the vote was true and you could confirm the results, that would solve massive problems. I mean, I've heard, I know DHS has mentioned, Department of Health Services has mentioned using blockchain. Doge recently mentioned using blockchain. The sec, irs, I mean fda, literally every agency has at least tip their hat that they're interested.
- [30:39]
Sergey Nazarov
Yeah, yeah. So I, I, I think you're you're right that there is a lot of value there. There's a lot of trust issues with the government and various processes in the government. The government also often values transparency and blockchains naturally create a level of transparency without additional technical investment. They just do it kind of naturally. We've all had experience in the industry of using block explorers. Something like a block explorer is, is, is a system someone really has to take a lot of time to build in the government to prove things about something. But you, you kind of get the ability to prove things without any additional investment once you're doing something on a blockchain. And if you have a block explorer, which there's a million tools for that, generally speaking, I think that there are usually one or two killer use cases of every new infrastructure technology and blockchains and Oracle and the blockchain networks and Oracle networks are infrastructure technologies. Just to be clear, right? It's, it's not like the mobile or personal computing revolution where because you have a new device, you have a new user experience. That's where people historically, I think have gotten confused is they're like, I look at new technology through the lens of new devices that give me new user experiences. That's not what blockchains are, Right? Blockchains and Oracle networks are basically backend pipes and backend systems that'll change the nature of the user experience you already have through your personal computer or your mobile computer. Right? So I think people don't fully understand that yet. I think they're starting to understand, but usually in all big infrastructure booms like the Internet and now, you know, the, the blockchain, Oracle network, Internet of contracts kind of revolution. Here you have one or two killer use cases for the Internet that was email and then that was, I think the early versions of, of E Commerce and maybe, maybe money transmission for, for the blockchain industry, I think it's squarely tokenization of ownership and changing of ownership, control and assumptions. And I think it's financial products. Right. So I think what's going to happen is that the very strong incentives that our industry has to resolve all these government issues and guidance issues and regulatory and legal clarity issues around the use of blockchain networks and Oracle networks and smart contracts for financial use cases, that will be the first place where there's a lot of government understanding and there's a lot of, there's, there's a new level of comfort with relying on this technology. Once that level of comfort happens, you know, once people in the US Government for Example are using email it start. It's much more natural for them to order things for the US Government through the Internet from E commerce websites or, you know, send purchase orders over email. Right. So I think the financial use case kind of opens it up and governments understand and understand the power and value of blockchains. But I think fundamentally governments all over the world, including the US Government, will be large, large net consumers. There was a certain point where you have something called a whole of government purchase, and a whole of government purchase is when there's a decision across the federal government to buy a certain technology. This is what Microsoft got. Right. So Microsoft was able to get adopted by the US Federal government at a very specific, very valuable point in time. That basically is the point at which your technology becomes ubiquitous. Because once the government adopts it, it starts being required for so many things. So many things are now running on Microsoft that it kind of just naturally becomes the way such a large percentage of the world or your country does things. Does that make sense?
- [34:18]
Interviewer
Yeah, it makes perfect sense. Of course. I mean, if you want to work with the government in any way, shape or form or interact, then you need to be using Microsoft Word or Excel spreadsheet or whatever it is. Obviously we've all been there where someone says an Excel spreadsheet and you're on a device that doesn't have Microsoft installed and you can't open it.
- [34:36]
Sergey Nazarov
Right. And they're from the government. So you have to use Excel spreadsheet. You might want to use Expel spreadsheet, you might not want to use Excel spreadsheet. You have to deal with them. They're the government. So this is one of the things that we're trying to work through is how can chainlink be the open standard that these governments get on so that their economies and their society runs on these kind of data and ownership rails.
- [35:00]
Interviewer
Right. I mean, we know everybody's discussed to death the game theory of, for example, a strategic bitcoin reserve. Right. The United States is the biggest financial system in the world. If they put Bitcoin on the balance sheet, every central bank in the world is basically forced to because the United States did. Right. I think if we get market structure and regulatory clarity, it'll push a lot of places that haven't achieved that yet to also pursue it rather quickly. But you've sort of said that the United States wants to be the leader in blockchain. Since we're not doing a central bank, digital currency, a cbdc. What can the United States do on the adoption Level all these things that we're talking about to signal to the rest of the world that blockchain technology is the choice and you all have to, you know, accept my Microsoft Excel spreadsheet as another government in the world.
- [35:46]
Sergey Nazarov
Yeah, yeah. So you're right about the US's role in the system. They're often known in the circles that, that, that create these regulations on an international level as what's known as a super regulator because there's so many other regimes that, regulatory regimes that align with their regulatory view basically because it allows their economy to, to efficiently do business with the US economy and set of initial systems and products and services. There's kind of two, two modes of thought right now in dc, and just generally one mode of thought is let's make a very attractive environment for teams in the United States to emerge and start building more stuff. And also let's get all the teams that were polarized away from the United States four years and get them to come back from, from other jurisdictions. And that is based off of the kind of historical Silicon Valley model of human capital coming to the US to generate the leading technologies of their type. And you know, that's, that's trying to follow that pattern. And that's a real pattern. That pattern makes sense. You know, how, how do you get all the best teams either domiciled, building, living, working, launching, being, coming to, being part of the United States kind of community of people geographically even now, I think that still generally makes sense, but I think it a little bit underestimates the degree to which our industry is so highly, highly globalized already. Our industry is built on open source software that's made by globally interconnected teams. There's already been quite a massive amount done to get a bunch of teams to leave the us, which will take years to correct. And a lot of these teams fundamentally are all remote work all the time. For example, our team is completely remote work all the time. Lots of other crypto teams are all remote work all the time with global teams. So I think that's one theory. Let's get the teams back, let's get everyone doing that. But if we were back in 1990 and everyone sat in a room together, that would be more powerful. It's still powerful, but it's not as powerful as it might seem. I think the more valuable, critical thing is basically tvl, total value locked, or in the TRADFI sense, AUM assets under management, whatever we want to call it, it's all the same thing. It's how much value does your system hold? Basically and that's what, what I mentioned before about the base asset where you basically want everyone to wrap and rewrap the asset that comes out of your financial system. And the answer to that question is how do you get J.P. morgan? How do you get State street, how do you get Goldman Sachs? How do you get these top global banks to start issuing high quality tokenized assets with all the relevant compliance data, accounting requirements, all of those being met? How do you do that? I'm guessing. You know what I think the answer is. But yeah, we obviously work a lot on. They're starting, yeah we're starting more and more to work a lot with them. That and we have a lot of public live implementations that we're showing to people and kind of publicly disclosing now more and more. That's one group. Then you have the fintechs, you have people like Robinhood and PayPal and these kind of. Well, PayPal really isn't a fintech anymore but I mean I guess kind of it's basically fintechs non, non institutional but, but technology companies that are trying to play do pieces of what institutions do basically big fintechs, little fintechs, how do you get them comfortable? And then you have the defi community. I think the defi community will issue a lot of great assets but the defi community historically doesn't have access to the best assets. The banking system has asked has access to the best assets because all of their global clients own the assets. And then the fintechs might have access to some of the assets and then the defi folks. The defi folks I think will actually play much more a role of creating markets and distribution and partnering with institutions to provide technology and systems and contracts and smart contracts that allow the proper issuance of these assets. So the answer in my opinion is how, how does the US get to the same percentage of tokenized assets, real world assets, digital assets coming out of the US that it has for stablecoins. Stable coins are 90% plus US dollar based. That's what success looks like that, that's what success looks like for a tokenized asset. And my personal view is that real world assets will eclipse and become much, much larger than the cryptocurrency industry. Just like the percentage of Internet traffic that's about email is much, much less than the percentage of Internet traffic about everything else. And that doesn't mean that email is invaluable and that email wasn't critical to getting the Internet to be valuable for people. But fundamentally there's maybe another, I don't know, double or triple the global demand for cryptocurrencies out there. But there's hundreds of trillions of dollars in assets that can be tokenized. Both currencies and commodities and real estate and gold and everything. So the way success looks is what the US kind of naturally acquired through the stablecoin industry, where the 90% plus of stablecoin is. Stablecoins are US dollar based. If you had a similar picture for real world assets where 70 or 80% or 60% even were originated, the real world assets were originated in the US system. That's what success looks like. We're very far from that right now. Most real world asset teams and others have purposefully incorporated themselves outside the US system and are having Middle East, Singapore, Hong Kong, these all places where, if you look back to where we were last year, we were there many months talking also with their regulators, with their central banks, announcing various transactions. For example, in Singapore we did the most transactions of anyone in our industry in something called the Guardian framework, which is the central bank of Singapore's framework for regulated transactions. So yeah, if the US wants to have the same percentage of the market of the AUM, of the underlying base asset layer that backs RWAs, it needs to move very fast. But I am seeing that movement at a speed where it could achieve that.
- [42:49]
Interviewer
It's very clear that this technology unlocks an incredible amount of value. As you talk just becomes clearer and clearer and clearer, more obvious. So where, what stage would you say we're at in that level of adoption specifically for these big banks, asset managers, governments and institutions? Retail, I hate to say, is somewhat irrelevant right when it comes to just sheer numbers. So are we in the first inning, the third inning, the sixth inning? Where are we at in this process and how do we eventually get them to be fully participating in defi these institutions?
- [43:20]
Sergey Nazarov
I think now we've gone from the early middle to the middle of the process. I think on like the adoption curve, we're starting to go up the curve towards total mainstream adoption. We're not up there yet, we're not at the bottom. We're starting to go, we're like at. We're not in the middle of the curve. We're in the early stages of the middle portion of that curve. And that is primarily driven by non U.S. governments and non U.S. teams, which is what concerns the U.S. and it's, it's basically people in Singapore, Hong Kong, Dubai, these geographies. There are already frameworks there that make it Clear how this works, where you have clear stablecoin regulation about how you buy a digital asset. What is a digital asset, how you issue a digital asset. So one of the first thing that things that needs to happen and is in the process of happening is clarity on how you can legally generate these assets and then clarity on how you can legally buy the assets. Because there is a market for anonymous pseudonymous, defi and other transactions where you don't need to do it under any set of legal conditions or guidance. But that market is only so big. It's a big market and it's interesting, but fundamentally you don't get the majority of the world's wealth through that market. Where you get the majority of the world's wealth, by the way, retail, whether it's retail or whether institutional. For me, something like Fidelity, which has millions of user accounts, it looks like institutional, but it's driven by retail consumption. And the way that that would work is you would go into your Fidelity user interface and you would be able to buy a digital asset. Basically once you can go into your existing financial services provider. Robinhood, PayPal, Fidelity, something from Goldman Sachs, something from someone else, basically those groups are not suddenly going to lose their user base. What's going to happen and what's already in the process of happening is that user base can now buy a digital asset because those providers of the financial service, of the UI of the app can legally let them do that.
- [45:41]
Interviewer
Right?
- [45:42]
Sergey Nazarov
So you, you have to unlock all of this demand that exists that is currently just kind of stopped by. You know, I don't know what the right analogy is. I forget what this thing is called, but sometimes when, when they, when they let the water out of a part of the reservoir that's damned, they open up this, this big thing that lets the water out. I don't remember what that's called, but that's what I'm talking about. I'm basically talking about opening the floodgates. There you go.
- [46:11]
Interviewer
So we just need that. We need legislation and regulation that makes it clear what you can and cannot do. And it has to be favorable to allow people to do what we need.
- [46:18]
Sergey Nazarov
Exactly. Well, well, actually not even people. It has to be for companies, right? It has to be so that institutions. Right now PayPal has like three cryptocurrencies or five or ten cryptocurrencies that you can buy on it. You can't, you can't quote unquote, ape into ave on there. You should be able to ape into AAVE on PayPal, the app why not? Like you're already on PayPal. Ave wants. Wants you to take your money and put it into AAVE. But why? Because PayPal doesn't know how it works legally. They can't take, they can't let you. They want to let you, they want to give you that user experience or same thing with Robinhood or same thing with JP Morgan. Same thing with whoever. They want to provide access to all of these user experiences that are driven by defi. Driven by like think about it, think about it this way. This is a perfect example. There's now ways to earn yield in the defi community on gold. Gold. Gold is the, the, the kind of historically the clearest example of like a non yield bearing asset. Right? That's, that's very popular. People, people have large percentages of their portfolio in gold but they can't get any yield on it. Which is kind of painful when you can get 5% on the US dollar. Right? Right. Now imagine if you could get yield on gold. How valuable is that to people in tradfi where you know they're fighting over over 10 basis points, 20 basis points is like a fortune for them. And now you take a non yield bearing asset that's a substantial portion of all their clients portfolios and you let them earn even 2% on that. That's 200 base. That's mind blowing to them, right? The problem is that no matter how mind blowing it is, unless they can do it legally, they just can't do it.
- [47:57]
Interviewer
Right?
- [47:58]
Sergey Nazarov
So, so once those floodgates are open, I think there is, you know, a massive influx of new capital and new usage into all kinds of, you know, things. This is by the way why ETFs are so attractive and popular. ETFs are the one structure that people currently have that they, where they can legally allow folks in, in the retail general world to, to interact with the, the blockchain asset base. But, but think about how limited that structure is. That structure doesn't mean you're using defi, doesn't mean you're getting yield. It just means you hold some crypto token in a different legal form in a legal wrapper.
- [48:39]
Interviewer
It's a wrapper for a portfolio simply. Yeah, yeah.
- [48:43]
Sergey Nazarov
And look how bonkers everyone is going. It's like the biggest deal ever. Why is that? It's because it's the very, very early version of what I'm talking about.
- [48:52]
Interviewer
Right. Even just unlocking the access, much less the yield and all the things that come with it, like in a way that fiduciaries and risk managers are allowed to even gain exposure. You think that buying Bitcoin would not be some great unlock, but it gives them a way to buy Bitcoin or buy Ethereum or whatever other ETFs are approved. It really is tr.
- [49:11]
Sergey Nazarov
Yeah. People are confused by this. They think, like, because I can go on Binance and buy Bitcoin, that. That I've. We've been able to expose all of global demand to Bitcoin. There's people with investment committees and policies about how they can invest. They can't. They can't invest in ETFs, they can't invest in cryptocurrencies, but they can buy.
- [49:32]
Interviewer
ETFs, and some of them can't even buy the ETFs yet.
- [49:36]
Sergey Nazarov
Right. And some of them can't have. Exactly. And this sounds insane to people because, you know, they're not used to managing an institutional. Institutional pension fund, but this is the type of stuff that I'm talking about that once you open these floodgates of legal clarity and regulatory clarity, our industry actually goes from being about cryptocurrencies to being about digital assets and real world assets, because that's the thing that money flows into in a very large proportion. Tokenized real estate, tokenized funds. This is actually what we've been building towards and what we've built the infrastructure for.
- [50:11]
Interviewer
Yeah. It's not just the tokens themselves, but you're unlocking the value of literally everything that can be tokenized. It's thousands of multiples larger. The question is, though, we need legislation, obviously, for them to be able to do all the things you just said, to be able to participate in defi. How do they then, even if we get the green light to be able to invest or participate, how do we allow them to assess counterparty and smart contract risk and all the other issues that come with cryptocurrency, that even if you get a green light and you go do something and you get hacked by Lazarus, your money's gone. Right. So I think that's the other element of it that's yet to be solved for.
- [50:52]
Sergey Nazarov
Well, that's where more information becomes quite valuable. And that's something we have a lot of experience with in terms of BYBIT and all that stuff. I think they ended up hacking the interface and some other aspects. Not necessarily.
- [51:08]
Interviewer
It was a third party. Yeah, it was the wallet. I mean, it was basically a phishing attack on the UX UI of the wallet. Right. Or the multisig provider.
- [51:17]
Sergey Nazarov
Yeah, yeah. So it wasn't necessarily the contracts. To your point there, I think you get to a level of reliability on certain key pieces of infrastructure. And this is really what chainlink as a community and as a set of protocols and as a standard for basically being able to build and manage a transaction. That's really the way to think about chainlink is that you can build and manage complex blockchain transactions in ways that you can't with anything else. The key thing there is that as you build and manage that complex transactions, the key fundamental primitives and pieces of infrastructure that you're relying on are reliable. Like the contract won't break and get hacked. The Oracle network giving you the data won't break and get hacked. The cross chain bridge that's moving the value over to the buyer and the buyer's stablecoin to you doesn't break and get hacked. Now, if you don't have a reliable set of four pieces of infrastructure core primitives, you fundamentally can't build anything without that. Right? It's kind of like the foundation of a building. If you don't make the foundation of a big building correctly, then you'll have, you know, there's like this building in San Francisco where it's like leaning in one direction. That's kind of how I think a lot of other Oracle things are built, is that they, they simply do not stand up to basic security reviews and security verifications, which is why chainlink powers the majority of DeFi from inception of the industry to today. So I think the fundamental requirement for that is that the building blocks are reliable and then developers will be very good at composing them and the building blocks will have what's called separation of concerns. So this building block can only do this and only this, and this building block can do this and only this. And the risk that you run with the code or the system that connects them is very low. So now your risk is very low. Right, because the risk of the two building blocks not doing what they're supposed to do or getting hacked is low. And the, the system or the code that connects the building blocks is highly reliable. So now your reliability is very high. And we actually have this system as well. It's called the chainlink runtime environment where you write the code to connect all the different chains and all the different Oracle networks into one application. So my answer as someone who's part of a community that builds infrastructure, is not, not too surprisingly, really reliable infrastructure. And, and then the model is that all the other developers, the JP Morgan developers, the State street developers, The Goldman Sachs developers, the aave developers, the PayPal developers, they take these building blocks the same way that they use AWS or Azure, CC or gcp and they compose them into increasingly useful and valuable applications and then they pay something back to the building blocks from the value that they get from the user experience they created. At the end of the day, we're never building the user experience itself. We're always trying to build the most reliable set of building blocks. And now we're in the process of releasing a system that actually lets you connect those building blocks into this advanced complex contract that requires data identity, cross chain compliance, risk oracles. Yeah, so that, that, that's basically, basically the answer.
- [54:48]
Interviewer
Somehow we got to an hour here, there's about a thousand more questions I wanted to ask you, so I hope we can do another one down the road. I guess one final question is how far down this path do you think we will be in, let's say, five years? In five years, what level of adoption do you think that we will have of everything that you're building?
- [55:07]
Sergey Nazarov
I think very far because now the biggest limiting factor, which was the headwind of government regulation and government support has gone from a headwind to a tailwind. So I think the last five years were very slow compared to the next five years because the last five years were about people resisting. There's like this quote, like first they, you know, argue with you, then, then they, first they laugh at you, then they do something, then they accept you. I think we're in the middle.
- [55:37]
Interviewer
Ignore you, laugh you, fight you, then you win. I think.
- [55:40]
Sergey Nazarov
Yeah, right, I, I think, I think we're in the, like, I think we're even past the they fight you thing at this point. Right, Fight you thing is gone. That's it. Like whoever was fighting the industry, that's gone. Right. I, I've been to these other geographies and countries. Singapore, Hong Kong, Dubai, I've worked with, you know, various central banks in these places. They already embrace this. Now the biggest financial system in the world, the US financial system, has embraced this. As we talked at the beginning about the most senior people there showing up, I think now it's really just about creating the final pieces of clarity that everyone wants and everyone wants to create. That hopefully happens this year, next year, that then accelerates the market into a new stage of adoption. And then that adoption hopefully results in better experiences, better use cases, better dynamics around the user experience. Does that make sense? Makes perfect sense.
- [56:37]
Interviewer
Basically the floodgates open, they've taken the governor off. They've eliminated all the restrictions and now we prove what we can do.
- [56:46]
Sergey Nazarov
That's right.
- [56:47]
Interviewer
Absolutely. Love it. Sergey, man, it's a pleasure to have this opportunity to talk to you. Congratulations once again on being a part of that summit. Really, it's such a epic moment in time. Such. Such an honor, man. And I hope we can do this again in the future.
- [57:01]
Sergey Nazarov
It was my pleasure at the summit. It's my pleasure speaking with you. Thank you for having me.
- [57:05]
Interviewer
Thanks so much.
- [57:08]
Sergey Nazarov
Let's do.