RWAs: From Experiment to Exponential | Drake Breeding - Circle & Bhaji Illuminati - Centrifuge

This is an announcement.

I know, but he wanted me to pump that up and then

Okay,

okay. Sorry, I had to do it.

Hello. Hello. I am back. So, I'm super excited about the next two sessions that we have on deck. We do have the SEC chairman Paul Atkins and the SEC Commissioner Hester Pur.

So very excited for that. But first, we're going to have a great conversation about RWA's with both uh Drake Breeding from Circle and uh Baji Illuminati from Centrafuge. So let's give them a round welcome and have them come on stage. Hey y'all.

Paul,

what's up? How's it going? Hester.

Yeah. Uh, this is the, uh, regulatory panel. No. Uh, we have a tough act coming behind us, but super excited to be here today. Um, my name is Drake Breeding.

I work at Circle. I am on the business development team working on ARC. Arc's our new layer 1 blockchain. We're really excited to talk about it today. Baji, you want to introduce yourself?

Welcome back.

Thank you so much. Yeah, for anybody who's been sitting here for an hour, good to see you again. I am Baji, CEO of Centrifuge. We are a tokenization platform that is building on ARC

and we're very excited to have you. Um, all right. We're in a really weird moment in crypto right now, it feels like, right? Uh this is my fourth youth Denver. Significantly less new L1 raves this year, right?

Um you know cryptonative people a lot have left. We're seeing people leaving for AI. Energy is just a little bit off. Um but on the other hand, it feels like every day we're seeing some new TRDFI organization come in, buy tokens for the first time. Uh a new Fortune 500 is hiring a head of digital assets.

It's like it's literally the the news cycle on that front is crazy. What do you think about what's going on right now and where does Centrifuge fit in with this like weird dichotomy happening?

Yeah, it is a really weird dichotomy because for from Centrifuge and the work that we're doing, there's been no better time. The institutions are here. The meme is realized. There's incredible activity and interest from all of the large institutional asset managers that we're talking to. They want to tokenize funds.

They want to manage their funds on chain. they want to distribute them to onchain capital allocators and then work with us collaboratively to actually start realizing some of the efficiencies that can be realized from using blockchain technology. So we've been at it since 2017 and we've never seen a moment in time where there's been more activity and more interest and more willingness to innovate and move really quickly at at the same time it is uh harder in a in a general crypto market. Um, so what we're seeing is really the shift to a more institutional narrative that's driving the industry forward. And that's like the time for infrastructure and the time for building and the time for institutional readiness to actually build these products that will truly transform finance in the long term.

So it might not be as fun and sexy, but it's real and we're seeing incredible progress and we're seeing this transition beyond proof of concepts to actually building for the long term. Yeah, that totally makes sense. And I mean with Centrifuge, y'all are not new to this. This is not a narrative chasing thing for you guys. It's not, you know, we were doing NFTTS in 2022 and we're now chasing what we think is the next hot thing.

I feel like Centrafuge has kind of been solely like we're doing tokenization from before it was cool, right?

We've been waiting for this moment.

Yeah. Right. So, so I guess what's that what's that like? I mean, I just how have y'all kind of kept that conviction um in this thing that's been so nent for so long? And we're going to talk about all the growth and and new stuff that's that's making it the most interesting time ever for tokenization, but you know, did you feel like everyone else is just not seeing what we're seeing, you know, a couple years ago?

Yeah. Well, um it's a real question and the answer is that a lot of the early folks, they didn't keep the conviction. So there's been quite a strong turnover from the early builders of Centrifuge. I only joined in 2023. So I was a fresh energy and face and excited, you know, like bullish believer in the what the future can hold cuz I didn't have to live through the 5 years of stops and starts and and false hopes.

Um technology-wise, we've had quite a few iterations. We started as uh on Ethereum and then we were a parach chain and we built on polka dot and then we just moved back to Ethereum. Uh now we're EVM and we're really we're really positioning ourselves for the multi-chain future. Productwise we've also had a lot of iterations. So we started with supply chain finance, music royalties, carbon credits, more esoteric products and most of them didn't really work out.

There was an adverse selection bias. There wasn't really demand for them. So the product strategy has evolved as well where now we're more focused on liquid financial assets. So we have T- bills, we have AAA, CLLOs, we have private credit, we have equities, we have an S&P 500 fund. Um and then the the folks that we're working with have evolved quite significantly too.

So working with Janice Henderson, working with Apollo, working with these large institutional asset managers who are comfortable with the regulatory risk and the brand risk and they really want to be leaders and innovators and be early in this space. So everything has changed really. The overall vision that this is the future of finance has remained steady but it's taken many different faces, many different focus areas and a lot of learning over the years. Yeah, that's that's super interesting. And you know, it's it's funny you talk about some of the esoteric assets because I'm like when I think about Centrifuge, I talk to these asset issuers and they're like, "Oh, Centrafuge does everything for me."

Or I mean, they're involved. They have a say, but like it it's it's just crazy how entrenched like how important you guys are to the stack of tokenization happening right now, right? Um so as you're thinking about that, you know, you talk about some of your your crosschain deployments now. Um you know,

I want you to pitch me on why build on ARC. Let's hear the ARC pitch now.

Yeah, absolutely. So, uh that's what we're here for. Uh ARC is our new layer 1 uh getting built out at Circle. We're we're live on testn net full EVM compatibility. We are a uh permission validator set.

So, we'll be proof of authority to start um with a handful of large institutional partners coming on to actually secure consensus, but fully permissionless to build on top of. Anyone can come on ARC and build anything they want. Now I think a lot of times when I tell people that we're you know why is circle doing a blockchain like what what is the sort of strategic rationale here and I think this is something that circle's been working on for a while and really it just comes down to a lot of the enterprise partners and the institutions we work with say okay you know I get the stable coin story right everybody's talking about this right now um I sort of get the blockchain thing a little bit you know I'm hearing about this tokenization thing I don't know I'm hearing about stuff like vaults uh it sounds really interesting but like, you know, I'm a publicly traded company. I can't hold any crypto assets on my balance sheet, right? If I do, it's teeny amounts.

It has to be in a qualified custodian. There's like really, really big limitations. And I think that just limits the design space so much for these people. Like some of these teams that would be really doing significant volumes and and amounts of assets on chain just haven't really felt comfortable doing it because of some of that, right? So that's like our our first focus here is just USDC gas, cheap gas fees, consistent gas fees.

It's fast sub-second finality. You don't have to worry about reorgs like on a lot you do on a lot of L2s. Um and everyone can kind of come build everything on top of it, right? like why I find, you know, we we've chatted a number of times now and and I think it's just so interesting because we think that uh I think if we do our job the right way that this is sort of just this like DeFi middleware and institutional grade DeFi middleware that anyone can come build anything on top of, right? Any asset, any vault, any curator, uh any DeFi protocol.

And I think that, you know, we're seeing the growth of some of these just like earn programs and it's the crypto natives doing it now, but it feels very inevitable to me that everyone is going to be doing this in the next couple of years. And I think if we can do our job the right way, a lot of that activity is going to live on Arc. So, you know, it's it's payments too for sure. I mean, we have Visa as a validator, which we're super excited about. Um, but it's really just about, you know, having a a safe chain home that people people can build on top of.

Yeah. And it's been really interesting for us. I feel fortunate to have been active and involved in the conversations with you all very early. Um, so part of the conversations we've had is how can ARC help you and how can ARC be a home for RWAs? What can we do that you're not seeing elsewhere right now?

So a couple things we're really excited about are USDC. So how can we create liquidity for RWAs? And a lot of what that looks like is when we think about two sides of it or I guess multiple sides of it, but looping strategies have become a really strong driver for growth for RWBAs. So we're working with Apollo. We have a private credit fund.

It's about 9%. And there's a lot of lending markets. There's uh Morpho and A and Oiler. And there's a lot of curators, Steakhouse, Gauntlet, and there's a lot of LPS. And everybody wants to participate in these loops.

And where you start to get that real activity is when there's US strong USDC for like pretty low cost to borrow. Um so when we think about ARC, we say okay, can we make a looping strategy really work and can we bring some of these great products with great yields into the ecosystem. Then we think about how do we solve so we solve utility. Then we think about how do we solve liquidity and one thing we're working with Christine on back to the Apollo product is that it's quarterly redemptions. However, onchain there's quite a number of liquidity facilities that will offer instant redemptions.

So then you start to create a home for these RWAs where the onchain product has better liquidity and has better utility than the off-chain product. And that's where we get new users into the ecosystem buying into these products. Another interesting thing we're working on and and talking about is another challenge we've seen for RWAs is composability and DeFi integration. And the challenge historically has been that they're really the permission products don't have any secondary trading. So they really stay in these these silos.

But an interesting way that we can tap into the circle ecosystem and start to look at the broader opportunity of working together is is there a way where we can compliantly legally share the KYC data and use the information that you already have within this ecosystem and use that to drive growth and activity for RWAs. So you're it's been incredible working together with you on this because these types of conversations are very productive, very collaborative. They're coming from the challenge that we're trying to solve and working backwards where the challenge we're trying to solve for RWAs is how do we make them interesting? We need liquidity. We need utility.

We need composability. We need to actually see real growth and real use cases for these products on chain. And we felt like you're really embracing that and trying to drive that activity and arc in a way that taps into your unique uh differentiators and what you can bring into the ecosystem.

Yeah, I appreciate that. Um I think that that that's a a great place that we're starting with with ARC is right we just have a lot of this sort of network of KYC institutions of folks that kind of say okay I feel like I can I can work with Circle in some of this and um you know we just want to make a differentiated experience on chain right I think uh tokenizing an asset is great but if it's kind of just sitting there and we don't get any of the benefits that a blockchain can bring um you know I think it's just it's a difficult to worry if you're selling it to like a CFO or something, right? It's like, well, why can't I just buy it off chain? Um, so yeah, huge huge huge focus for us is improving utility, improving liquidity, um, finding everyone out there that can, you know, kind of bring the best of their ecosystem, the best of their DeFi primitives, and really really grow this into something that's unique and and kind of was not possible um, even just a couple years ago. So, um, that's a lot of what I think our our vision is.

Um, as you think about like just that sort of composability and DeFi aspect, um, you know, how do you think about permission versus permissionless looping? Like what what are you really excited about that's happening in DeFi with RWAS right now?

I'm excited to hear the panel that's on right after us. Uh,

me too.

I'm worried about what I say right now. There's a lot of really smart people who are trying to figure out how to make these assets freely tradable. We have a solution where we we have it's a freely transferable token. So there's I think like one of the approaches is that there's KYC on subscription and redemption and they can be traded in secondary markets. Um there's quite a few folks I've heard that are spending a lot of time with the SEC trying to drive exemptions for transfer agents where there can be a um layer that owns the KYC data that sits on top of all of these protocols.

So the answer is that there absolutely has to be DeFi composability and we need to see better trading and better liquidity and better access to these RWAs and there's many different folks who are solving it in different ways and I don't think the answer is necessarily clear yet but recognizing that we need to drive that path forward is clear and I think it it enables like when we think about who are the buyer for RWAs or what is the use case for RWA is it's more than just retail trading. It's integration into DeFi protocols and driving growth in in fintex and apps. So what that enables once we can start getting some more of this atomic settlement and having RWAs act like traditional crypto assets is scenarios where a fintech app that has an earn program can use RWAS in the background or a DeFi yield protocol that is running a basis trade strategy can also have RWAs as part of their strategy so that when rates come down they swap swap into RWAs. So it's it's stable coins who want to manage their reserve on chain and provide yield back to their um end users that want to have tokenized T bills that they have as their reserve collateral strategy. So it opens up this actual real integration where it's not just institutional buyers which we see right now, not just retail which has been the primary longer term focus but this B2B TOC layer where it's every DeFi protocol and fintech and app that it has a yield component as part of it that wants RWAS to help make up the structure that they're creating.

Yeah, that's that's definitely what we find most exciting I think um at Circle and on the ARC team. Um you know, we're we're thinking about just I I don't know. I feel like with RWAs and the D5 primitive is built on top of them. It feels like the best version of the sort of DeFi money Legos uh analogy that everyone has used for years, right? This is not some protocol that's on top of a protocol that's like farming some weird thing.

It's like no, no, this is a base asset. We can trust this collateral. Uh if it has a longer duration, we can underwrite that. whatever, right? And then do all kinds of new exciting um stuff on top of it.

Um on the fintech side, what do you think like what what's missing right now from getting this into uh like more broadly into you know a neo bankank a fintech as sort of sort of part of their earn program as part of this um distribution. Right. I I know it's KYC and I know definitely there there are some open questions here that that you know industry is engaging with regulators and stuff on but what about like what would you like to see like if if I'm logging into you know one of these apps on my phone like what's missing today from making this just like a mass market B2B TOC distribution kind of thing.

Yeah. I think it's not necessarily the outcome everyone had expected in terms of where we're seeing growth in these products because really what it could be is that on the app side the user has no idea that behind the scenes any of these products are tokenized. So from the centrifuge perspective, a win for me would be that we're working with the core team on the treasury management side. So that as they're thinking about their overall diversification strategy, they're the ones that have onboarded into our products, they're the ones that can buy in and swap out and trade the RWBAs. And the end user, they don't really care what's happening behind the scenes.

So they don't care what's making up the yield. They want to have a confidence level that it's safe. Um, and they don't care that it's tokenized. They want to have a confidence level that it's fast and efficient. So, they're just ultimately getting the real benefits on the back end without have with it being fully abstracted of how they're delivering that.

And that's not like the coolest thing for all of us here, but it it is actual adoption. And that's where we see real growth. And that's cool.

Yeah. Yeah. I don't want anyone to know that they're even touching ARC, right? Like I think if we do our job the right way, it's going to feel so seamless. Everything's USD denominated.

like it's just fast, simple, you know, all that. Um, you know, I guess uh there's there's a a benefit to being boring, I guess, in sometimes.

When are you guys launching?

Soon.

Let's uh shill a little bit.

Yeah. Yeah. Uh we're we're looking at mainet this year. Like I said, we're on public test net right now. So, I think uh in a couple months, we we'll be getting um very close to a proof of authority launch and uh you know, even more exciting stuff after that.

Um I'll leave you with one more. I know by the way thank you. I know this is your second panel of the day already. Uh earlier you answered what do you think like what what what happens this year that no one's expecting instead of doing that let's do 10 years what does centrifuges business look like what does tokenization look like you know let's say we get answers in the regulatory questions what's your wildest dreams and that's our last one

yeah I mean it's cliche but there's no tradi there's no defi there's just finance it's all just running in the onchain

awesome

10 years and we're probably nobody's working. AI is just running the world and we're outside playing in the grass.

We escaped the permanent underass.

It's going to be awesome, guys.

Awesome. Baji, thanks so much for joining me today. This is a lot of fun.

Thanks y'all.