Hello, and, uh, thanks for inviting us. Hmm, I'll start with a quick introduction of myself and then I'll hand over to Tom to introduce himself as well before we begin. My name is Arian. I work at CMT Digital. We are a Chicago-based venture capital firm that invests in blockchain invests in blockchain companies.
We are working on our fourth fund and have been investing in this area since 2017. Yes, if you want to raise money and are looking for investors, please let me know. Hi, I'm Tom Shack. I, uh, just finished six, a little over six years, as Chief Innovation Officer at Swift and, uh, I guess I don't know what to do next. I love events like this because I get a lot of feedback and a lot of people share their ideas, and, uh, I'm really, really looking forward to today's conversation.
Yes, thank you for joining us, Tom. Hmm, in short, cryptocurrency has always been a presentation to institutions for many years that we are faster and cheaper. Um, and you've been playing a pretty important role at the settlement level all this time. Um, do you think speed was ever something that held institutions back? So that's a really good place to start.
Um, because of course speed matters, and of course cost matters, right? No one in the payments industry or cross- industry or cross- transactions would argue with that. But one thing that's really different in the institutional space than retail is that you need confidence need confidence . And so, you know, I would like to say that $50 is not $50 million, $500 million, or $5 billion, when you send that amount across the border, or settle a securities or currency transaction currency transaction , all of these transactions went through the SWIFT network. You know what a corporate treasurer wants is security.
And, and, and, and they want to be sure, which ones are related to this , right? So if you told the treasurer, "Hey, it's going to take 5 seconds longer, but we know exactly what's going to happen know exactly what's going to happen ." You know, if you have a problem, we know exactly what will happen if you need help. You know, this confidence is what they really need. And if you say it will take you a little longer to do it, each of them will take advantage of it.
So speed, velocity, and cost matter. But there is something else in the institutional space. So, this is a pretty important time for cryptocurrencies because a lot of people say this is our coming of age phase. Institutions are getting involved. Tradfin and decentralized finance are converging in a way we have n't seen before.
So maybe it's time to ask what the cryptocurrency community is misunderstanding about Swift? I think I should write a book about this write a book about this . Because in many ways, I've always assumed that people understand what Swift is understand what Swift is , what it does, and how important it is for financial trading, international commerce, and so on. But, in simple terms, it's a network. This is a messaging network .
And I'm not saying it doesn't need to be modernized, or that messaging is the messaging is the future. Not at all. There are many improvements that could be made both today and now as digital assets enter banks and regulated financial institutions, but perhaps it will be easier to explain what Swift is once you explain and understand what it is not. So you don't matter in the Swift network. Swift does not perform calculations.
Swift is not a custodian, is it? None of these services are available there. All people are online, they perform these and other services. The appropriate banking business banking business model is one that operates on the Swift network. So, going back to its basics, networks become more valuable under Metap's law in two ways.
You add more endpoints or nodes, and you add more density or traffic. And the work that we did and announced late last year with the Swift registry, which will go live this year, was to add density and endpoints to the network. And that is precisely the value of the network. I think another thing that's really important to mention is that Swift is a coordination network coordination network . She coordinates trust, right?
It is based on standards. She has a set of rules. There are bilateral agreements between network participants. And again, I'm not saying there's no place for open networks. I'm not saying it shouldn't be expanded.
You just need to understand what the starting point is before you can understand where to take it and where the opportunities are. Yes. And I mean, blockchains are inherently coordination mechanisms. I think that's what blockchains do uniquely well, is coordination. And when you think about blockchains moving into the Swift offering, there are some things that blockchains do really well, like really well, like coordination.
But there are things that Swift does that blockchains cannot do today. So what do you think blockchains need to do to fully replicate Swift’s offering or expand upon it? So, blockchains cannot replicate what Swift does. Hmm, Swift doesn't do what blockchains do, which is calculations. Hmm, neither blockchain nor blockchains can do what Swift does, which is to interact with different networks, different blockchains, and coordinate trust.
So these are actually two different things. Sometimes when I talk to more native developers in Web 3 and I get a good reaction, or some people, you know, look me up on LinkedIn or X or somewhere to leave a comment. But I said, if you think about it said, if you think about it , Swift is over 50 years old, and Swift is like the original DAO, but it was run by people, right? Because he actually standardized the messaging between many different payment systems payment systems , and he was actually able to integrate them together. So, if you didn't have a relationship in another country, you could still instruct, including foreign currency, to make a payment, which is a relevant banking business banking business model.
So, um, I just think they just do different things. As for the Swift registry, nothing on the Swift network changes, and again , it's a network and we added a blockchain to it . So there are no obligations, no one is forced to use it. And the first use case that this will be used on the network is for banks to make interbank payments between themselves and in the interbank market, probably on behalf of their customers, right? But do it with deposit tokens, not as they do today, as an alternative with Nostrovost accounts, and how settlements occur through instant payment systems or RTGS systems that connect to central banks.
So this effectively offers banks and regulated financial institutions another way to make interbank payments using digital assets. Yes, I think these, uh , alternative approaches or alternative ways of doing things are extremely important when it comes to expanding the supply of cryptocurrencies. But trust in the cryptocurrency environment and in the traditional financial environment has almost completely different definitions. Er, counterparty risk identity. What do you think trust means in this context?
This is such a broad, uh, such a broad question, is n't it? It's such an emotional word. That means you ask about 10 people what it means 10 people what it means , and they give you 11 different answers, right? So what is the hardest thing to replicate on blockchain? What is the hardest thing for blockchain to handle?
So what really works well in blockchains is what actually works just on that network or on that blockchain, right? For example, digital exchanges, unis swap, there is no connection outside the network. You simply exchange tokens exchange tokens . Staking happens the same way . This all happens on Ethereum or in the ecosystem, right?
So, what gets increasingly complicated is when you have to rely on something external to the blockchain. This could be the source of the data you are entering. Can you trust him? Is it clean? Is it valid?
Is it signed, for example? Either your reference to blockchain is to something external and you could end up in court with that, or if you think about what a stablecoin is, right? It's actually a digital representation that indicates reserves, you know, depending on where it is. Let's say, as in the Genius Act, it indicates reserves, cash, or treasury obligations in a verified account verified account . So where things get really complicated, or even more complicated, is when it represents something outside the blockchain, or you have to rely on something coming into the blockchain, right?
So when you talk about what it is, it's really a question of boundaries. Yes. I mean, can we use this to define... to define... Tokenization is a huge topic right now.
Many people are involved in tokenization, and overall there is a lot of demand in this space. If you think about the incremental steps of implementation, do you think there are certain things that will be tokenized first, maybe certain things that will be tokenized further and later? And is this a function of trust or something else? I think it's a function of trust, and I think we're already seeing that, right? If you just look at stablecoins and the volume, I heard a number today that says there are $3 trillion worth of transactions happening every month, right?
So there is definitely a demand for digital money there is definitely a demand for digital money . There is no doubt about that . And it's only growing, isn't it? So I think we're already seeing that this demand is there. We are already seeing demand is there.
We are already seeing this happening. I think things will be launched and what you will see is things that may take longer to get into blockchain or liquid products. So I really expect that, uh, the announcements that you see from DTCC, Euro Clear or Clearstream, the reports that they've been publishing, you know, tokenized bonds–it's a very liquid market. I think there are $15 trillion in Eurobonds alone. DTCC has announced that they are going to tokenize up one hundred trillion dollars worth of Treasury bonds.
Um, and they will have a way to do it. We're kind of going to miss, you know, whether it's a rapper or a rights issue or actually, you know, a release on the chain, but it's all moving, right? So, the most liquid products, which are the best-studied markets, will be moved first. What will happen next? What comes later are things that require intervention, um, that have a lot of controversy, right?
When you sell Treasury bonds to someone, it's pretty simple, right? There are trillions flying around all the time. Uh, this is a very well-known liquid market. This is a very efficient market. Uh, and they're easy to tokenize, and, and, and, move further down the chain.
Things that require a lot of other, uh, additional processing or potential arguments, or have different kinds of misunderstandings. I mean, you might run into some things with some other RWAs. I, I, I have n't really studied it, but the whole idea of, you know, owning a token that points to you, to the sky, to a skyscraper somewhere in Dubai skyscraper somewhere in Dubai , sounds interesting; but I, I, I just don't know how we can make it work, you know, safely and effectively when you, when you take into account things like consumer protection. Yes. And so on.
So, I think that's a little further. Yes. Very useful. Thank you. You said earlier that, um, Swift was kind of like the first Dow, and I think that's very accurate.
Uh, and in... I can't wait for this. Can't wait for the messages and inbox regarding this. So, that's usually how it works , and in a way, I mean, you were really advocating for neutral governance, uh, even before blockchains came along. Um, if we recreate this in a blockchain environment, some might argue, or critics of cryptocurrency might argue, that it's just a matter of responsibilities, but on the blockchain rails.
Um, what do you think about this argument, and in general, when do you think public blockchains might become a better alternative to what we've had so far? There's been a lot of discussion about this, hasn't there? Come to think of it, because people are in a hurry, and I'm going to post something about it tonight, because I was thinking about it this morning, uh, more deeply. But when we talk about responsibilities, neutrality, and things like membership to get into a closed network, or when you have to be kind of on board the network, I think we have to be very careful not to recreate that in the web 3 space. You know, if we literally want one blockchain, and someone makes decisions about strategy, you know, who can participate who can participate , what the rules are, then it doesn't seem like we're, you know, a mile or 10 miles away from what we have today, right ?
So, um, I really think everything will be tokenized. I think tokenized. I think that in the near future we will be in a world with multiple blockchains multiple blockchains . I mean, Ethereum obviously has a huge advantage. Hmm, Chris talked about this earlier in terms of the momentum that is there.
I mean, Ethereum is clearly in pole Ethereum is clearly in pole position, but having one thing is generally not good for business. This is not good for consumers. You know, you need real competition real competition to keep something going. And this whole idea of neutrality, if you only have one if you only have one , well, who's really making the decision, right? And how do these rules change and how are these standards set?
And with just one, it gets pretty complicated, I think. Do you think there is room for more open membership and more open proposals when it comes to governance change? Yes, absolutely. And I think some of the comments about the closed network and the biggest players setting the rules setting the rules ... Yeah, we can definitely improve that.
We have to improve this. I mean, there's a great opportunity, and I think one of the things that always attracted me to DeFi was that there's an opportunity to level the playing field here and hear more voices and expand the pie, right? So I think the overall pie is getting bigger, but the distribution may shift between the participants and me. I think that's an outcome that I know many people in this room would agree with, and it's been one of my attractions to DeFi from the beginning. Yes.
So, I want to talk a little more about the tokenization stage. There are several primitives that come with tokenization, or capabilities for primitives that come with tokenization, that we have n't seen before. Here is one thing, such as transferable KYC. What role do you think this plays in the future movement of money or movement of assets? And what does it take, uh, from a counterparty perspective to really get used to or set standards when it comes to implementing some of these features that could enable more automation more automation , uh, just generally more efficient systems?
So, while we're talking about tokenization, let's take a step back and just talk about finance today. And I do n't call it traditional finance. I just call it finance because that's what we do. So, how did this get picked up, you know, in a Reddit room or in cyber-Twitter years ago. I do n't know where this came from, but I'm not talking about traditional finance.
So, finance is how things work these days, right? The largest pool of commissions in all of world finance, ahem world finance, ahem , is capital formation. Tokenization actually changes every aspect of it. Issuance, secondary trading, um, er, custody business, asset servicing – all of this is changing, not simultaneously, but literally every aspect of capital formation is changing with tokenization as the driving force. And so, um, this will create, um, huge opportunities for people.
Um, it's probably going to take longer than people think, because these kinds of transformations, um, take time. Um, but I think it will have a significant impact on everything. So, you've spent many years and a significant portion of your career at a very well- regarded, um, company. What did you see from the inside that convinced you that you couldn't fix it from the inside? I think I worked at Swift for a little over six years, but I started working with blockchain technology before that blockchain technology before that when I worked at CLS.
And for those who don't know, CLS is a banking utility for making global currency settlements. There are 18 currencies. So today, on average, there are 10 trillion transactions per day in CLS in 18 different currencies to actually move money between the accounts of central banks that do global currency settlements, right? This is an average day. Last year, towards the end of the year, they invested almost $23 trillion in one day in a single overnight run.
So in reality, there is not enough cash in the world in all the banks to run the foreign exchange market that we have today without CLS. In fact, this is simply impossible. And how they take the situation into account is the operational liquidity advantages they bring. When people first started talking about blockchain, and this is, you know blockchain, and this is, you know , in institutional finance, it was around 2016, at that time one of the most popular use cases that always came up was currency settlements: "What if we just sent currency back and forth?" You know, tokenized money, different variations of that, this was before that, this was before stablecoins became big, right?
Hmm, but that was a use case use case . And I thought, "Well, since we're running a utility that does all the currency calculations, if this is what's going to kill us, we should probably learn something about it, right?" So that's when I started really exploring this, and we redirected a lot of that traffic to the Swift network, which led me to work at Swift because of the connections and the work I did with them . The work we did on the Swift network was truly exemplary. So, as I describe it, the first step for me was to actually connect banks and regulated financial institutions to digital assets in a tangible way, and have a trajectory where they can understand how to use them, what form of value they want to use, but actually get the process going.
What I saw there, and it's starting things up. But what I saw there was that, uh, there are some more things that need to be considered so that we can scale this. And again, this is from an institutional perspective, not necessarily from a retail perspective. Uh, and I think we're missing some things, and I think some of them are in effect today. Uh, one of them, you know, is about regulation.
The US is a leader in this direction. You know, they're waiting for the clarity law to come into effect and there's some clarity about this. Uh clarity about this. Uh , I think blockchains are definitely ready, right? You look at the track record of just Ethereum, you know, over 10 years, its resilience and everything else resilience and everything else .
All of this is happening, and you see, you see customer demand, uh, it's happening. But, but what doesn't work well, uh, is how to achieve scaling? So, stablecoins in a retail environment or, for DeFi trading, which has a scale of, I think, about three trillion per month, that's scale. In other areas, I, I, there are still some missing pieces there, especially when you go to another platform, cross another platform, cross -jurisdiction, cross-chain -jurisdiction, cross-chain . Because when you do that, no matter how you do it, whether it's through an oracle, a bridge, or something else, the only thing that really moves is value.
So when you're on the institutional front, and I know you know this, but on the institutional front, when you move this around, you know you have the authority that has to go with it. Do you know what KYC is? Um, what are the credentials? Does this wallet have the right to store these securities, all these things that need to be transferred along with the token and the asset, in my opinion? Um, especially when you cross different blockchains, and I think in the near future we'll be in a world with multiple blockchains multiple blockchains , and I'm really excited about the potential of blockchains to solve a lot of the fraud or problems that we see in verifying or, you know verifying or, you know , attesting to certain transactions.
I think ZK technology is very powerful, and the ability to embed these rules directly into the system itself has huge potential to improve the system overall. I know we are approaching our time. I want to, uh our time. I want to, uh , close with one last question: Let's move away, say, 5 years from now, uh, the significance of crossbars and the movement of value in general, is it moving on public blockchains that have become interoperable and have provided the tools necessary for, uh, these transfers of value, or is it existing on something that doesn't exist yet? I think this is moving to public blockchains.
You know, City Bank just released a report last week, and they put the figure at 5.5 trillion. But what's different from the report they did a few years ago is that they were very specific about where it would happen, right? So, all this is happening. My own opinion is that everything is being tokenized.
Everything of value will be digital. Um, and we'll just continue to expand. And I'm very optimistic about that. I'm really looking for, you know, the same mission from a different place to figure out how we can scale this to meet people's expectations for innovation. Well, it's an exciting time to be in this space.
Thank you this space. Thank you , Tom. I'm grateful you joined.
Automatic transcript — names and jargon may be misspelled.