BBW24 – Day 2 – Elevating Asset Management Through Blockchain

thank you for joining us again this afternoon we're going to do a talk on Asset Management now um why don't we uh just start off with some introductions guys why don't you tell us your your background in asset management and and what you do at your firm and what your firm does sure so uh hello everybody uh Bob yiel from Oasis Pro uh it's nice to see a lot of familiar faces out there um I joined Oasis Pro about three and a half years ago as employee number three uh we Rose to about 20 uh we're going to continue to grow prior to this I was a trafi guy I spent 20 years at credit Swiss I left there in 2011 having spent time in Investment Banking and capital markets underneath the CFO and then I helped manage fixed income trading technology for Bank of America and the Royal Bank of Canada so I'm a traditional Finance guy that's crossed over to the digital space uh fully recognizing the benefits of digital security tokens uh leveraging smart contract and blockchain Technologies the the um efficiencies they bring the reduction in Risk um and I think you know where we are right now I think there's a lot of momentum in this space um I don't think the adoption is coming next year or the year after um you know it's probably five years away but but it's certainly coming um and Andrew did a great job earlier explaining project guardian uh where you had two of the biggest financial institutions in the world between JP Morgan and Apollo uh working on a tokenized fund product uh proving it out I think you know where we are now I think you see uh the Far East and the Middle East well ahead of the US with respect to uh institutional adoption uh and Regulatory uh approvals um but given where we are now and all the things that I've seen inbounds into oas's Pro I'm confident that uh the US will catch up uh in the near future and Lee great yeah thanks Bob um Lee Saba um I'm I oversee technology for realtive markets we're a broker dealer in the US uh we focus on private markets uh more than anything around the jobs act Securities regga cfd um happy to kind of dig into that a little bit and how we're seeing you know some of the tokenization efforts around that and just Capital raising in general um despite the bulk of my career uh at Wellington Management uh I oversaw electronic trading infrastructure for almost 20 years uh actually from the start to the beginning uh from the start to the end um when I left five years ago for for realtive markets I over I also oversee the uh fixed trading Community um since we're the kind of Boomer panel here fix is the uh financial information exchange protocol it's the de facto language of of financial services it's actually what connects you know if you've ever done a trade in a traditional security it's hit a fix message a lot so uh we uh you know the fixed trading organization is nonprofit uh 300 plus member Global firm and we actually do have a a focus group on uh digital assets as well so uh you know it there is some interoperability uh functionality within fix to I think maybe um and we maybe we can talk about that but just you know talk to get in between chains um and communicate you know trade intent um but that's me and nuto great thank you um for sharing the background um you know you said something there about being a broker dealer and and and both of you having a tremendous amount of experience at at larger firms with trading backgrounds and asset management um to choose to move over to to firms that are going to act as a a broker dealer and start bringing that world into the into the into the crypto space and the blockchain space you know takes a a courage or a leap of Fai um what are you seeing in that space in terms of the demand that said you know this is where I can continue a career um what kind of demand are you seeing coming to uh to your companies yeah well you know Oasis Pro is was was the first uh broker dealer to operate uh an altern alternative trading system that had the fin and SEC approvals to trate a digital security token against digital currency in our case that digital currency would be a stable coin something like usdc um our firm was founded by our CEO Pat Leia who came out of uh maker Dow where he was a senior adviser to run Christensen he and several others inside that organization uh had the for forsight about three or four years ago uh to recognize the benefits of blockchain and how it could transform the capital markets so they went down the road of getting regulatory approvals from finer and the SEC to operate this full service digital TS um I think you know certainly that Vision uh has really paid off um our strategy I think is really focused on large institutions and institutional adoptions uh we mentioned earlier we partnered with uh JP Morgan and Apollo on the project guardian uh transaction there's a few other large-scale projects that we're involved with right now um so I think the demand largely is um on the institutional side um but the um actual distribution of digital security assets whether it's a fund like the r and shine fund um some real estate funds that you may have on your platform um I think people are starting to recognize the benefits of a digital security token and how uh instantaneous settlement can reduce counterparty risk uh and make the trading process much more efficient for Securities that in the past have been IL liquid okay so for the trust in the trade process and and he um sorry Le to cut in but he mentioned the bread of the offerings on your on your platform um so you are seeing people from across industry come to tokenize why like why why why are they tokenizing why do they come to so I so you know we we have fits and starts with tokenization uh to be frank um a lot of times people are coming to Realto to raise capital for their for their company um you know but they want the token to to Shadow it as well and I I think most of the people in this room know but the token in a security form and again reality only deals with regulated markets so um the token is only a token and I I term it evidence of ownership it's not true ownership uh as it stands today uh so there has to be a digital twin in between all of these assets and they have to sit offchain so anybody who tells you that your onchain asset if it's a real security is is okay sitting on a blockchain you might want to double check what's going on there because they're probably getting you into some trouble or themselves so um you know once that's kind of discovered folks start leaning into like okay it depends on the business line like we have some um we have a lot of different clients that deal with um car collections you know they want to um you know do a fractionalized uh and register their this collectible car as a security then now you can invest in that security but they also want a a token associated with that so we would tie that with our transfer agent and the transfer agent would would actually do this digital twinning or ghosting as I call it to follow it around so anything that happens either on the primary side or there's a secondary trade that happens on the ATS the transfer agent is that Pivot Point that's always updating the chain at any given time however if the SEC comes in and wants to do an onit doesn't matter what the chain says whatsoever it's going to be what the uh what the offchain database reflects um and and that that's true for everybody except one except one and and go ahead shout him out uh it's Franklin Templeton actually and um I I know a lot of people think it was probably Black Rock it's not um you know there is actually a digital twin behind the Biddle project uh except Benji is not so that's the Franklin Templeton product that's uh doing a money market fund and this is a great point and for the audience you may have heard this term asset back tokenization versus native tokenization right and what Lee's talking about is asset back tokenization where we're tokenizing something on chain we're keeping uh the record still and with your transfer agent for in terms of the movement of that asset you know has to go through your transfer agent so the books and records are kept offchain with this ghost or maintenance receipt uh ghost copy what have you call it that will move with the offchain and the onchain in tandom um native tokenization means that the the books and Records would live entirely on chain it would live entirely on chain it was derived on chain it's a it's a native of the internet I guess you know to think about it that way um however you can still register those too right and we actually have a concept and I'm not going to pitch it too much but it it it's called reg nft where you could actually you know wrap that NF you know that security that's you know derived in a blockchain or real world asset and you know well actually more the nft is a is a native asset to the chain um and wrap it in a reg CF a reg a a reg A+ uh even a reg D and now you know that that's a regulated instrument even though it lives natively on the blockchain and it's still going to have an offchain database cycle what we're hoping is that at some point The Regulators will be comfortable with the blockchain and we just abandon the offchain requirement and then we start riding you know native blockchain infrastructure but we're not there yet we're working on it and I I would love to ask um you know if if they were here we could catch up with later because the qu I was actually leaning potentially I was thinking that the the response I wanted to see what you said was the City of Quincy Municipal Bond love it um in terms of being natively tokenized but I you know as of I used to do munis for three years and I spent tons of time RI ripping through OS statements and when you read the OS of the of the issuance of the Quincy Municipal Bond it's almost as if it's a hybrid like everyone has to accept the books and records that are on JP Morgan's Onyx blockchain you could take the option going to take it off right right um but you're effectively saying that the books and records as kept by JP Morgan are or using blockchain as an operational efficiency to what what I what I would term micro munis right uh you know where you know say you know residents of quiny get first crack at it to you know build the new park buy the new fire engine whatever and then you know they get the benefits and the tax benefits of that not everybody in quinsey is going to be blockchain and you know crypto you know talented I guess so you have to create a mechanism for them to also just I want to just give my money you know and I want to take the benefits of this asset so we've dealt with a few projects on that too in the in other municipalities around the country uh which has been fascinating and I think that's a huge growth area for for blockchain and and could I ask the both of you Bob maybe you first have either of you thought about or is it in the discussions you know where where are you hearing the industry um or you know or you guys specifically considering or would you consider uh you know building your ats's on a blockchain and keeping the books and Records um in that manner well you know we our business model is to be blockchain agnostic we're integrated with something like 14 chains you know we do have preferred Partners you know for example Avalanche um is is a preferred chain for us um we built a digital transfer agent we got approval from F and the SEC for that uh again because they just don't Rec recogniz the blockchain as the authoritative ledger so we went ahead and built that digital transfer agent um as far as building a blockchain you know we we actually have built one uh um a Basu uh chain but uh generally we have integrated with the well-known protocols out there and the protocols within the big institutions such as JP Mor and JP Morgan Onyx how about yourself L um what was the question again went I was going down a different path for a second yeah have have um either of you you know thought in terms of like how JP Morgan's keeping book and Rec or books and records with Onyx you know internally in the in the broker dealer yeah I mean so so it all really really comes down to a few things I mean risk right um we're regulated entity so you know the fact that they don't let you store your security on a blockchain registering your ATS on the blockchain's probably going to open you up for to some more you know questions I guess let's say um you know so so right now we're we're not doing that however to Bob's point you know we're also blockchain agnostic because we're not sure who's going to win or who the winners will be and you know there's a thousand blockchains out there right and it feels like there's a new one that comes on all the time there are some that are fit for purpose like Avalanche you know provenance you know there's a bunch of them that that we really like um but you know if they doesn't get adoption there's a problem and you know it's funny it reminds me of they said I I'm old school electronic trading M and I don't I mentioned fix a little bit and this might have some insight into the future of where blockchains are going so back in the early 90s way way back um you know the they you would everything was done on the phone if you worked on an Institutional trading desk you'd say buy me 5,000 shares buy me 500,000 shares sell me this sell me that right um and there was a lot of room forever somebody could be eating a sandwich and you know they they mess up and they're like what did you say buy 5,000 I sold you 5,000 you didn't know till the end of the day what it what had just occurred I'm sure you've seen some of these trading errors too cancel and correct yeah cancel and correct and all stuff right it was Nightmare so somebody get smart said hey why don't we do this with an electronic protocol um so guess what Goldman Sachs shows up and I'm just using them as you know Rando um but they would say hey here's a specific you know protocol to communicate your trade to Apple to us awesome and then you can also do you know whatever five other Securities well then you know credit Swiss gets went into that and they go well we have our own here and then then you get Deutsche Bank and Bear Sterns and I'm going way back Solomon Smith Bary and whatever so now you've got 20 different protocols to trade Apple doesn't scale you can't do it like now I have to maintain 20 different unique apis so somebody finally gets smart and said hey why don't we why don't we create fix the financial information exchange protocol and not for profit and like just take the best of the best and and make it so that everybody you know we're not competing on standards um so you know here we are Flash Forward 30 years later and um you know it is a de facto standard and we only have like you know that that main communication input so I I think I think we got to give it a little bit more time for for the dust to settle with with which blockchains are actually going to be um the winners and they might be um specific to the different sectors too right like Financial Services might have three to five right and then you know maybe entertainment has something else and then you know but I we haven't got there yet and and I I think that's why we remain agnostic at least that that's why we do and we'll plug into anything we're we're we're cool with that uh but I think I think this is part of the the adoption concern is who wins who you're going to take that risk as an asset manager to build out and you know um and then where do you get the talent you know to to do some of this I think you mentioned that on your in your earlier speech um so no for right now but we're looking at it back to more of of an Asset Management Focus um you talked about the demand and of of Institutions and the demand of like real estate funds and and other entities are coming to tokenize for you to raise money how about on on the other side on the buy side um what type of firms Andor you know are coming to you saying look you know we like investment products from your platform are you working with the broker dealers the RAS the wire houses or is it still just kind of retail who's landing on on the website how are those conversations going going and how's the industry developing well I think from our standpoint a lot of it is institutional um you know I think where the institutions recognize the benefits of a smart contract really is with uh instantaneous settlement uh which all but eliminates counterparty risk and you know as a child of the 1900s like yourself back in the day we used to call it straight through processing you know that was the Nana you know very few hands touching a trade um with smart contract and blockchain technology uh PWC put out a report talking about an 80% back office productivity gain as less product control operations compliance people Etc needed to touch a trade um and that's I think where the big institutions are focused they do recognize there is going to be a cost savings but in their mind right now they're really focused on the risk mitigation this instantaneous swap um that all but eliminates counterparty risk I think is huge um some of you may remember the financial crisis in 2008 um and how uh nobody really understood what their counterparty risk was yeah it wasn't until three weeks into the crisis that we realized that AIG had um guaranteed the Leman brother lease in Canary WARF in London um and I worked on the repo desk and and had seen people uh rifling through file cabinets for a repo contract that was written 10 years earlier just to understand uh who was on the hook and what the trigger was for a default um I think JP Morgan has recognized that with Onyx uh especially in the repo side because they do put through I what if you say $2 billion doll a day or something in repo transactions that they're doing I believe primarily with doer Bank um but they recognize um how this really uh uh you know identifies the counterparty risk uh and mitigates uh overall risk yeah I for us you know we're we're kind of morphing you know we're going where where the ball is I guess you know where our clients are asking so you know we're turning into a reg Tech fintech offering you know so you know leveraging our broker dealer status right with helping companies um you know manage their Capital campaign and providing that infrastructure under the hood um and allowing uh their ecosystem to thrive so again I was using like you know if it's an art uh entity that collects art and they want to you know do some fractionalization there and then provide a token on the back end that token can then be you know used as a ticket of some sort an authenticity layer to say like oh all right you can come into you know this um you know this uh show for you know demonstrating the art or you know you can talk to the you know the people that own the car and you know sit in the car you know it you know get a t-shirt whatever but they're they're using it as kind of a a two-layered system like obviously the the the security is is is is the security and you know you get your dividends or whatever's going on there but then you get your um your your ticket that gives you access to a few different things so um you know we do have a lot of institutional conversations like Bob um you know W with funds and you know trying to um you know tokenize those but at the end of the day a lot of times what we find is once they learn the like what the effort is to tokenize and who's going to buy the tokens they want to have it both ways they want to be able to collect their money first and then they're like okay you know token's great but you know if I don't want the token what do I do so then you have you have to build a kind of a method of like you know keep some tokens and not sub tokens so you know part of the methodology for us is like burn a token for everything and then you know if they don't want it that's fine you know but it's always out there okay and and how many offerings uh on the platform if someone were to to go to you guys I mean you have wine real estate I mean it's quite wide right so so our ATS isn't like a central order book for everybody like we have like mini ats's that we can install on somebody else's website so if you're running like uh again an art dealer and you're an art curator or you're a fine wine collector and you have your own uh you've curated your own audience you have you know folks and eyeballs now you know you can do your primary offering and you know we have apis into real Alto with our you know licensed folks that are you know validating ML kyc and accreditation and all that um and then you know doing all the payment processing but it it's just it's like powered by Rialto it's not Rialto understood right very interesting so we're trying to you know and I don't know I'm not sure exactly how wasis Pro does it maybe similar it's kind of the co-branding concept the white label concept right that's right that's right good to understand um let's see where else where else can we go you brought up regulation um and and actually some Buzz words that like I think people in the at least that come from the traditional Finance space like us want to know that oh before I'm transacting in some asset there is some kyc there is some AML that you know that we are following the regulatory hurdles um and that the offerings on your site have gone through some level of diligence um so can you speak about just a little bit like what happens there operationally um and and why that's good for the world of blockchain and crypto and these assets and then maybe um if you don't mind kind of what regulations are still kind of on the edge that that we need to break through that might help even further you know I often I often say um you know there's three three steps to getting uh full adoption um of digital assets the first step is education and I think we've achieved that second step is regulation the third step is implementation I think we're still kind of stuck especially here in the US on um regulatory uh acceptance of a digital asset smart contract blockchain um I think you know with respect to what we put on the platform there is kyc AML that goes on there's Biometrics there we use a third party service or uh jumio um which is I think is the best-in-class uh technology provider out there so we stay within the regulatory rails when it comes to kyc AML of of not only issuers but uh the investors on the platform and and all kyc AML providers aren't created the same either right um you know every one of those whether it's jumio ideology or some of the other ones um you build your own recipe in there you know so so I'm sure your registered folks have like this is what I want to see my compliance offic is like it needs to do this this this and this then we can you know we're always trying to automate that as best we can so that we you know because we want to make sure that you know issuers that work with us get the most amount out of their investors but we also have to draw the line of like this is a bad actor sorry you can't take their money um so you know that that that is a big deal um and I think you know the uh the the security specialist from Robin Hood you know frightening you know just some of the stuff that you can get yourself into with you know with some of this real world asset you know real Securities you know registered in the United States um you get a lot less of that right I mean I think she mentioned um you know if Robin Hood or coinbase become insolvent so doesn't your assets on their platform and that's a problem you know um but it doesn't happen in regulated Securities your security are still stored and safe and sound outside of whether or not that that industry or that entity failed so um that's a big big Point yeah it's a very good point um all right few minutes left wealth and knowledge on stage guys please uh please ask some questions um we'll open up to questions for the last five so you mentioned the the three bad letters the SEC right I'm just wondering actually um it's been they they've been dealing with more enforcement I know that but I wonder you know it seems like both parties are kind of coming out softening a little bit on crypto um are the approvals and the modifications are they moving along a little bit faster after all this education or is it pretty much the same thing as the last three or four years well I think there was some momentum but um you know I spoke to our local Congressman in Connecticut Jim heims last month um nothing is getting done between now and inauguration day yeah um um so any momentum we have I think has come through a grinding H what what what Gensler chooses to do or what somebody chooses to do with him uh I think we'll and who replaces him I think will um will you know calcul calate the the the speed at which we move forward with crypto adoption here in the US um there is certainly a move towards or a review of cbdc Central Bank digital currency here in the US um I think one of the things I like to highlight about a digital security token especially as it comes to Alternative assets and private Equity Funds is that it democratizes access to these Investments so if you were going to invest in a AK our Healthcare fund today the minimum ticket size might be a half a million dollars in a tokenized form you could buy a fraction of that five or 10% uh of that and which is much more accessible to your Main Street uh investors um and I think that opens up a new pool of capital to the private Equity Funds as well um because they keep going back to the same well over and over again and then you know they're having trouble now raising uh new funds but this democratization of of access to Alternative assets which typically gener higher returns than than somebody's typical Ira or 401K I think is is something that um even the more liberal members of our government are tuned into yeah I I I I don't think the SEC are bad guys honestly you know they've got a very difficult job um and you know and I it's frustrating because I've lived on both sides of this you know Bridge here of trafi in in you know the sort of crypto world and and I I feel the frustration I get it too and I would live it because we talk to The Regulators all the time um but they're they're really trying to learn and they're trying to figure out like what's going on and it doesn't move as fast as industry moves they're just not going to um I do think there's a they're they're starting to recognize things I still think there's a lot more enforcement actions coming down I mean we see them just go to sec.gov every day and you're going to see somebody else getting a fine in the in the crypto space um but some of those are Bad actors and again you know it they're they're trying to do their best I think in general it has become a little politicized unfortunately but um you know they're they're supposedly the good guys and I it's tough it's tough um you know I I think we will get there Bob and I were talking before the panel that um we do think it's it the levy is going to break and I think those are your terms actually at some point and it's just going to become very tokenized all over the place we're not even going to think twice about it but until we get there until that Comfort level is is realized and I do have a little bit of an issue because you know the SEC is is not even just the just Regulators in general like choosing your technology like you know if you use a a blockchain as your database and it it's a database you know it's a sophisticated one why why are they not yelling at me for using Oracle or you know S3 or something right I mean I don't know and I think that goes to the education ramp you know the whole industry needed to be educated and that's Regulators too yeah uh time for a few more hi my name is Calvin thank you guys for the discussion uh lee I believe you mentioned offering uh tokenized marketplaces for a private company's assets such as an art studio and my question in that instance is which party is responsible for the offchain confirmation of assets and who is responsible for evaluating those assets uh so so the the offchain asset isn't the real security it's not a bearer instrument but that would pivot off of the the registered transfer agent right they would be updating the the onchain records so um your representation like if you had a piece of art and you you would register as a reg CF or rega reg CF goes up to 5 million um you don't have to raise all five million but that's that's the limit for reg CF that's regulation crowdfunding and they have rega that's up to $20 million in a oneyear period Then you have reg a plus which is up to 75 which I think they're going to increase at some point in not the future but that can take institutional and Retail invest cross the deck then you can instantly trade it however sorry I'm talking a lot but that that has to be a security first right and then once it gets the approval from from The Regulators then we can start trading it and then we can start burning and minting tokens um to to start you know doing this digital twinning uh let's take one more uh you you mentioned Robin Hood what can crypto native firms learn from trafi when it comes to custody best practices as we move toward you know more tokenization well you know at OAS Pro we are uh we use third party custodians um Anchorage and bitco are two of the firms that were integrated with uh we also allow people to have self custodial wallets uh I'm not sure I'm interested in um uh custody customer assets after FTX I'm not sure a customer would be comfortable with having their assets custody by the same place that's doing their trading so I think you know our model of having a third- party independent uh custodian is the one that makes the most sense yeah no it's a great question um you know I would say first that comes to top of mind is you know regulations aren't the worst thing it's okay you know they're there to protect everybody um even though it doesn't look like it sometimes and standards we need interoperability standards it's it's very difficult to uh plug into somebody when you again when you have 25 different blockchain uh protocols it you know we we got to some we got to figure this out I'm sure there's some smart people in this room that can help us figure this out um maybe fix fix could be that in Rob really ler and then just one more comment on custody you know using you know the right channels going through the right broker dealers going through the right reg a reg CF or regd whatever it might be like as a reg D you know you could self custody but you have to go through the right M you know Audits and have the right systems in place and use you know offer it the right way so you know both of these companies obviously are they're able to do that through the traditional rails and um I think that you know more more more voices like the two of you are needed so thank you for coming good thank you thank you appreciate it thanks for having me