The Next Generation of DeFi and Connecting Web3 to Capital Markets - TOKEN2049 Dubai 2024

so hi everyone great to see you here um very thrilled to be in Dubai very cool place so I'm going to be talking about how our industry is actually generating the biggest shift in how all value is secured and managed in the past 50 years so the last time that all the world's value was reformatted was about 50 years ago when it was in the form of paper and that reformatting took value from the paper form to the digital web one Web Two format now we are basically all part of reformatting all the world's value all equities Commodities assets payments everything into this new form of blockchainbased assets blockchain based data blockchain based relationships that can be viewed as a more reliable form of digital interaction this reformatting of all the world's value basically and really peer-to-peer interactions really results in three big Dynamics the first big Dynamic is that historically the transfer of value and the data around that value have been in completely separate worlds so the ownership rights between people would have been been transferred in one system and then all the data proving things about the underlying asset that was transferred would be in a large collection of other systems and when I transfer an asset to you even though you have something it's your responsibility to go get the data to understand what's going on the big change that's happening is that value and data will now move together so that when you own something that thing that ownership receipt will also provide you the data about what is going on with the underlying asset and this is a very big fundamental shift in how the world works so if I transfer a carbon credit or tokenized real estate or a tokenized fund or any tokenized thing to you and it's constructed correctly it should also inform you about what's going on with the underlying asset without you having to go seek out that information and that's a very big shift because it means that people no longer need to be experts about an asset because if the asset is properly constructed it proves and continues to prove all the relevant pieces of information that everyone needs to know the second big thing that's happening is that historically the system of moving around assets and value has been different and separate from the system of payment so there are payment systems and then there are value transfer systems like equities transactions and then cash payments through banks for that same equity transaction both of those two worlds are now also merging into a single world so the value transfer system and the global payment system whether that's Central Bank based or whatever is all getting pushed into a single layer into a single system and then the third thing that's happening because everyone is generating their own chains every bank is generating their own chains every web2 startup is generating its own chain every D5 protocol is eventually making its own chain is that you have a kind of technical fragmentation that needs to be interconnected to create what we call the internet of contracts and the internet of contracts is where all of the different chains are interconnected with each other and able to transact such that you shouldn't really be thinking about what chain you're on or what chain something else is on just like you're not thinking about the database technology used by an application or another application you're just interacting with all the applications and the applications are interacting across each other even though they use a different set of Technologies under the hood and there are protocols that allow them to interact with each other it is basically these three things that we are very focused on making possible and that are very important for how our industry develops so let's take an example let's say you want to make a real world asset so let's say you want to tokenize gold or real estate or funds or private Equity or really whatever you want there's this now real world asset tokenization boom which is basically the tokenization of things from The Real World on chain so the first thing that you're going to need to do to construct a real world asset is generate a token on a chain it's probably going to be your own chain and it's probably going to be against some set of standard tokenization contracts after that point you're going to need to feed a lot of data into that real world asset to create what we call a unified golden record so unified golden record is what I was talking about before where there's a ownership receipt but that ownership receipt is now in a data container that contains both the ownership rights and the relevant data about the asset for example for funds that would be the nav the valuation for other assets it could be the status of the carbon credit the status of the real estate basically the status of the underlying asset and in this way anybody who wants to purchase the asset or any holder of the asset can learn all the relevant information about the risk the quality the current status of the asset without having to be an expert or without having to seek out the data this is really what making a good real world asset looks like the second problem is once you've generated the real world asset how does it move in exchange for Value so if there's thousands of Banks and each of them has chains and the clients that want to buy your asset have accounts on those chains that means their purchasing power is in those accounts on those Chains It's not on the chain where you generated the asset this is the fundamental problem of cross chain and how do you connect chains in order to allow transactions to happen this is the second problem that we're very focused on solving is how do you move value and data across chains so that transactions can happen against the liquidity and payment methods in other chains and the assets in other chains and unless you solve this problem you're just going to have a lot of fragmented assets and a lot of fragmented forms of payment that can't interact which is not really what our industry is trying to be then you get to the third problem you've made a great real world asset it's a unified golden record has a lot of great data inside of it it's a better asset than the traditional system it proves things to you it proves the quality of the asset on an ongoing real-time basis you've connected that asset to lots of forms of payment so it can interact with it and you've done a transaction the asset that you originated on the first chain now has moved to a second chain you now face a very simple problem of how to keep that asset in sync with data once it's on the second chain and then if it moves to the third chain and the fourth chain and the fifth chain how does it continue to receive the data that allows it to function how does it receive the proof of reserves data the price data the identity data the nav data whatever categories of data so in reality just like defi wasn't really possible without Oracle networks to provide the price data that Let it Grow from a when we started sub 100 million industry to an over 200 billion industry real world assets likewise can't really function without data and most smart contracts won't be able to function without data the more advanced ones likewise even generating high quality contracts doesn't guarantee success if all the purchasing power is in other chains and so connecting the contracts to the other chains is a critical component of doing transactions and then after the transaction is done the asset has moved so how does it continue to function in these other chains and how does it stay synchronized with data so these are some of the core fundamental problems that we need to solve in order for this industry to go to the next uh to go to the next place um so these are the problems that we solve uh chain link is a network and a framework of tools and services that generate the data inputs the computations surrounding transactions and the connections cross chain that allow transactions to flow across chains these are all very important things if our industry is going to graduate to the next level of its usefulness let's take an example so this is an example of a primary issuance delivery versus payment flow from a large uh Bank in Australia with a trillion assets under management so this is some of the work that we've been doing with banks that is public you have a stable coin that's generated in one chain that stable coin that needs to be instructed to move to another chain and be exchanged for a real world asset in this case a carbon credit that needs to move back to the chain from which payment occurred to do all of this in a compliant way for this multi for this trillion assets under management bank which is just by the way just one user of a system like this just one user can have a trillion assets under management which is a very different scale from what our industry is now you need to generate that stable coin attach identity data to it allow that identity data to be verified by a system like ccip to prove that it's compliant have the stable coin go to the other chain trigger a transaction in the other chain to exchange for the carbon credit and then return the carbon credit and the carbon credit needs to operate with a connection to data in the original chain where it was created and was initially connected to data and then it needs to be continuing to synchronize with data as it goes to the Des the the destination chain where the payment came from so this is what an actual transactional flow that people have worked on at a trillion asset under management Bank looks like and the reason this is very important for all of us is because the crypto industry based on retail demand hedge funds prop Traders like the people in the general world can grow in my opinion to maybe 10 trillion can go from Two and a Half to 10 that's probably in my estimation what it can do if it's going to go past 10 trillion it needs to be able to interface an access access the hundreds of trillions of dollars in the traditional system and there needs to be a pathway for all of that value to not only go on chain and not only function on chain in relation to data but also to transact across chains if everyone is going to have their own chain which is the dynamic that's now taking place every single Bank asset manager startup the cost of making a chain is dropping very rapidly and everyone is just going to have their own chain just like they have their own database or sets of database in fact the banks that we work with that are farther along have multiple chains three to four chains in production doing things so everyone's going to have multiple chains those chains are going to have assets and forms of payment worth hundreds of trillions of dollars and their ability to interact is really what takes our industry to the next level there's two other really big things that I think need to happen in order to to fulfill these requirements and make this happen the first thing is the ability to comply with legal requirements identity requirements regulatory requirements whatever requirements frankly the requirements don't super matter to me what matters is that there's a system that's flexible enough to include them in a transaction to verify them as being met and to allow transaction to continue based on whether they're met and this is one of the main things that ccip does is it not only connects chains in the most secure way across all of the Cross chain options out there but it allows the movement of value in a way that can comply with identity and various other legal requirements which is critical for having all of this value flow into the blockchain industry actually to make anything compliant the first thing you need to do is write data into it so even that stable coin that I was showing you for that stable coin to move from blockchain A to blockchain B if it's a stable coin coming from a bank or an entity that needs to be compliant you actually need to inject some kind of identity data into it so the first step is actually making an asset compliant by putting data into it and then the second step is verifying that that data is compliant which is what ccip and the risk management network does the reason it's called the risk management network is basically compliance is a type of risk rate limiting against various risks risky kind of blockchain behaviors is a type of risk avoiding reorgs and double spends is a type of risk avoiding various additional hacks as a type of risk and there's kind of two ways to build a cross-chain system one way is you make a protocol and every time you encounter a problem you change the protocol the other ways you make a very kind of stable transactional system and then you have another piece on top of that system where you can make various conditions about how it works against various risks security risks compliance risks risks reorg risks whatever risks so the ability to manage risk is actually one of the key things that any system that moves value needs to do because if it doesn't manage risk then no one's going to have it move value the second big thing that I think needs to happen for all of these hundreds of trillions of dollars to flow from the traditional world into the blockchain world is an ability to interface with the existing infrastructure so as the value from the bank World migrates on chain onto many private chains run by different banks initially it will be in those chains but it will be in the blockchain format so it has become closer to the public chain World in that sense and then the problem will be how does all the value in your bank accounts in everyone's bank accounts interact with all the value in public chains and the answer to that is all of the institutions and all of the entities that have all this value all of that hundreds of trillions of dollars have systems that they have invested in they will not divest from those systems their historical process for building things has been layering they just layer more systems on top of the old systems this is why you hear about Banks still running things like Cobalt because they don't stop running things they just keep running things and then they add more things to run on top of of the things they're running so the right model to get all of this value in an efficient way into our industry is to have it interface with the existing infrastructure so this is the approach we have uh very well-received approach by Financial Market infrastructure firms csds central banks and so on and once again the goal that we have here is to get all of the world's value on chain to get all of that value enriched with data so the value of it having it onchain is that it's not just onchain but it's onchain and all the data related to it is onchain proving things about it and it can move across chains so you get all the benefits of atomic settlement 247 365 markets better collateral management all the various big benefits that people that deal with actual transactions care about so the world we're hoping to arrive at is a world where all of the different um traditional institutions and all of the startups are interconnected in a single internet of contracts chain link already is the standard for data transmission on blockchains feeding the most data into smart contracts across various categories whether that's defi or real world assets or any other set of categories so in web 3 I think it has already emerged as a standard that's seen as secure reliable and able to provide access to data that is immune to manipul which is critical for building these Advanced applications now that obviously needs to continue in addition to that that same standard needs to emerge for trafi for banks and so this is really um the big challenge of the moment there's always a challenge in helping people build better and better defi protocols Advanced real world Assets in web 3 gamei decentralized Insurance all of these things are super valuable and useful and important and chain link is deeply involved in building the next generation of all of those assets with really great teams some of which have here are here that I've met and had great conversations with the next stage is creating that same set of Standards well not creating having that same we have the set of Standards having that same set of Standards become adopted in the traditional world as it begins to generate smart contracts feed data into them connect them across chains as all of that value from the traditional World migrates on chain how does it transact with a price with a shared price how does it move across chains how does it get identity data to comply these are very fundamental questions for that to even happen and then if you arrive at a world where both the web3 world and the capital markets tra five world are on the same set of data standards then you naturally get to a single ecosystem of applications that can interact such that the defi protocol and the bank protocol can interact on the basis of a shared price they can settle because they both trust a reliable price once they settle based on that reliable price they can transfer the asset over a reliable Rail and in order to transfer the asset they can inject additional data into it like identity and various other pieces of data to comply so the world we're really going to is much like the internet in that there isn't a bank internet and a St startup internet there's just one internet right everyone's on one internet the banks are on the internet and the startups are on the internet and everyone is just there on the internet and they're interacting with each other using various data and various connectivity and protocols to interact protocols like tcpip NH https and so on that abstract away the underlying technology choices such as the choice Bob database and other technology choices so those technology choices really shouldn't matter and when people transact today in the web World nobody contacts the other person and says what database are you on that doesn't happen people just have protocols that allow them to transact and allow them to feed critical data into transactions so that's what we need to do in our industry to reach this kind of bigger state of an Internet of contracts where all the world's value is moving across a large set of blockchains literally hundreds of thousands of blockchains it's enriched with the critical data that it needs to provide greater value Beyond just ownership and it's connected in a way that compliance is possible so the value can actually move rather than being stuck somewhere and not being able to interact with another application so this is the body of work that we're involved in um if you're building an application we're very eager to speak with you if you're in the web3 world we power very large amount of defi applications rwa applications and others we're here to help you build the next generation of applications if you're in the banking or Central Bank World we're also very eager to work with you and take the experience that we've had uh building all of this infrastructure and apply it to your problems and fundamentally I think we're all going to end up in the same place together just like we're all on one big internet and I'm very excited to to see that day come even if it takes a lot of work in a long time and I really appreciate um everybody's thoughtful collaboration here at the conference and and Beyond so thank you very much I hope you have a all right Sergey so we're going to give the audience I'm sure they're dying to ask questions at the moment we're going to give them the chance to ask two questions today if that's okay with you sure so anyone with questions please raise your hand and I'll pass you the mic please gu in the end hello I am s from fedix from fedix company uh at first I want to say that it was awesome speech and I like the track and uh what you are constructing just have a one question regarding the cross chain connections as I go you're going to have some rollup chain which will collect all these transactions there and through them you will manage all chain assets or how is going the technical part more interest I'm interested more in Tech part I've been looking for you cuz I can't tell where you are I just found you it's like a big mystery for me but um because I like to see who I'm speaking with um so I think you're talking about kind of native connectivity within a family of chains yes sure so there will be native connectivity within a family of chains but that will not solve the problem of connectivity across families of chains and the connectivity within a family of chains doesn't mean that each of those chains doesn't also need to individually connect to other chains so I I don't necessarily believe in the model of you enter a family of chains through someone else's chain and then they're responsible for processing your transaction for the other chains in that family of chains I don't think people are going to want to process transactions for others I think they're going to want a direct connection for their purposes with that chain so even if you have a family of chain with 15 chains inside of it and they have interoperability across each other that's uh that can be an achieved goal but then if all 15 of them want to interact with like Goldman Sachs chain or City Bank chain or uh HSBC chain they will all 15 need a connection to that chain individually understood thank you you're welcome thank you so much Sergey