Reserve workshop

all right um all right so who is here to talk about this topic of tokenizing Securities in the US okay all right great um I don't have a different presentation to give this is just a time for us to discuss so we got a couple mics I'll hand them around I put up these slides so we can refer to them if that's useful but uh let's just basically do people have thoughts or questions uh to start us off yeah so like one of the question that I had uh based upon your presentation was like when we move from paper trading to the DTC right like we saw an efficiency gain in regards to operational work my my question is like what are the additional benefits that tokenization brings because like I know a lot of people their argument is in regards to tokenization will bring liquidity but like especially if you're dealing in wall Gardens with AML kyc Whit listed addresses and everything else I feel like that problem that people are trying to solve with tokenization isn't entirely being addressed so I'm kind of curious where you see the additional benefits that tokenized Securities bring it's a it's a wonderful question and a great way to started off question is basically like you know well why do this at all you know the current system isn't facing a crisis so why not just let it keep doing its thing crypto can you know do its thing over here and the Securities can just stay in the normal system um my answer is basically uh you know the the thing you get from the tokens being on chain and being pered list is you get a degree of uh freedom and um and the ability to you know put things in smart contracts basically right it's like if if we were just talking about uh people being able to hold the things in self- custody it's like okay that's kind of cool but like I don't know I'm not going to I'm not going to like spend my life trying to make that happen but you know we can just see the preview of what's playing out in defi like everything that people are able to do with smart contracts and the things that they'll continue to invent um uh you know you just get like a whole lot of interesting and different Financial interactions um you know they're obviously remixes of things we've seen before you know Unis swap is still kind of an exchange but it's very different you know and it has a bunch of uh power to it I think so there's the programmability and then uh the other thing is just the the freedom and Global accessibility right like if these really are tokens that are permissionless that you can hold anywhere then like right now around the world we have all these different financial markets with like liquidity in different countries and they're all like permission to like you have to have a passport from this place to trade on this market and then so on and so forth we have all these weird instruments to try to get access to across these markets but it's like imagine if everything if all currencies and all financial instruments you know all equities Etc all bonds just existed as tokens on you know a series of a handful of blockchains the the interoperability of all of that um you know the efficiency of all that the access possbility of that would be meaningfully much higher so it just would truly be easier to transact with people you know across the world and get access to different asset classes and so on now our project personally Reserve we're excited about it because we want to make tokens that are like an index product that's backed by an index of the whole world economy and one way to do that is on blockchains you could try to do it in the addition in the traditional system but I like the the freedom approach uh of of doing it that way so for us we want to make an index of the world economy and this is a way to do it uh you mentioned like having these tokens tokenized things be permissionless yeah it it certainly opens up a lot of possibilities uh yeah a lot of benefits there do you believe that that will ever really happen and I won't say ever but like near term in the next couple years or do you think it will be I mean I feel like what's happening in the market today is still if you look at like tokenized treasuries T bills for instance those things are still like pretty permissioned not they're actually starting to not be permissioned which is an interesting fact so uh usdm from Mountain um and uh the assets I think the ones I think the uh equities issued by backed uh there's also swarm markets is issuing out of Germany so they you have tokenized Apple stock and like a bunch of individual equities they're all permissionless they have in their terms of service that us people are not supposed to touch them and if you go there uh from a us uh IP the uh website won't load but you can still buy them on curve and stuff um and so we're we're going to get to see that play out with those things being integrated into D5 protocols now all all the defi front end providers are going to have to decide like okay are we going to start having two front ends one for us and non- us it's kind of like the whole you know bance us binance International type thing it's going to happen all over again in defi maybe um but we are going to get to play around with uh permission versions of them because some companies are bold enough to just be like yep no limits on chain just terms of service and we'll see what happens yeah that's that's kind of I feel like the jury's still out on that one like we'll see what happens some people being more bold with their approach than others um and so I was going to ask kind of I I really appreciated your slide that was like the four different approaches and I think maybe like the Middle Road which maybe has its own risk too is like you have more of these kind of derivative products that are a bit removed from the you know the tokenizer like security itself and maybe there's an AR on that how would that work yeah well I feel like uh maybe like flux uh like Ono flux would be an example of that like to get like a tokenized t- bill like you still have to be a permissioned actor pass kyc hit some like minimum threshold to even invest in the product but then like someone permission permissionless might get exposure to that and I think there are questions around that they're still maybe a bit gray but like where you talked about coinbase verifications like maybe if you could attest that a user's non us and they could get like someone investing $10 into that product could get that yield that like even if the accredited investor who you know has to put 100,000 into the fund to get TBO access yeah that's an interesting idea I also love flux um I have money in flux I think that uh the the key thing that I feel like makes flux work just from like a smell test perspective is um well I don't know if that's true actually okay it's good we should think about that yeah right it's like could you somehow do the same thing where you have some permissioned class that can hold a tokenized S&P 50000 index or something and then deposit it into some protocol and someone else can you know withdraw some token the thing is if it's just a wrapped version of the same thing then it's like that's clear just running around the rules you know so with flux at least it's a different asset it's just like oh this is this defi asset um so I feel like there's a tension there where if you want to create something that just does perfectly represent the value of a bond or an equity I'm not quite sure if you can do it that way but I think that's a cool Direction yeah I agree like there's a lot of risk there to argue maker is maybe the stronger case of that like there's certainly Securities but CDP model or something like that you're not getting you're maybe getting some of the the yield indirectly paid but you're not getting direct exposure to the asset itself you know correct which is what I I hope we can get okay yeah I I guess yeah still an open question it seems like you said at least a hundred million doll question how you solve that yeah so one of the questions that I have from the tokenized security perspective is like are the tokens actually a perfected interest in the underlying security cuz I'm assuming that it's probably still going to be sitting with a broker dealer somewhere and still registered in dtc's name so at this point um all of these tokens that are being issued you know they're they're going through this system they're being held by a broker like the one with swarm markets it's being held by a German Bank uh so there's maybe an American broker and then a further sort of relationship there it's like a German Bank um that's holding it uh so it's not at this level definitely not at this level and by the way I think this is the way to start because it's so simple it's just a single company that has to deal with that Tech stack and get regulatory approval but if this works it could move up the stack the transfer agents could start issuing tokens directly um the the companies maybe one day the company you know incorporates and just creates its own smart contract and you don't even need a transfer agent like this is all sort of like outdated and not necessary if you truly are comfortable depending on the token you know the the smart contract token as your database for who owns the thing but I just don't don't think that that's feasible to start off with I think you have to start off on this level yeah cuz I don't know if you're familiar with the uh project with the ASX that uh D was working on in regards to working directly with the transfer agents over there but everything was running in a more permissioned manner I feel like they've messed a lot of stuff up but I think for me like the biggest issue with the transfer agents is just getting them to issue because for them like since they're fully regulated they're not going to want to issue to anyone that's not uh fully permissioned and getting into that chain to make that work CU like we were having conversations with comp share way back in the day to try to see if we could get them to move over and it was just like explaining to them the entire process and and this is you know I yeah I've been focused like I said in then talk to try to figure out like will the existing system end up doing something like this and the answer is no even though there's tons of energy looking into tokenization it always goes the direction of you know some sort of permission chain to make clearing and settlement more efficient uh or safer whatever amongst those parties which can be maybe cool I actually don't really know how well that will work out um but uh but yeah there's just no incentive really to do anything like this it seems then one other point that you brought up in regards to like double WRA tokens I feel like that is kind of like the go-to move in crypto at this point in time like whenever we see regulation is let's just continue to throw rappers on it because we can uh we can technologically um innovate faster than the legal uh elements can keep up but I know that this ended up uh hurting um binance and paxos where they ended up double wrapping uh be USD there was that billion dollar mislow and I think that's what led the SEC to I think defi rappings with rules are better than you know centralized wrappings with multisig where you can just sort of print the airor we had a question in the back did you still have a comment Taylor you want to hand that mic it it was just basically a common cause uh similar to what you're presented like the framework for tokenization of L Stein uh is already quite Advanced of this right so they're even doing tokenization of Ip rights and I think that they have one of the most advanced systems that I have seen when it comes to regulation because the transfer of the token already transfer the IP right really so it really like like shows that there's uh at least like some jurisdictions that want to move in the in this direction and if you see uh Qatar for example they copy paste what like liin is doing when it comes to tokenization so it's different approach to the one that you have and so do those tokens have no permissions they can be transferred to anybody it can be transferred to anybody but like you have like certain validators so in the moment that you generate the token you have like some entities that are trust trustees entities and they're the ones that do like the kyc process and like do the all the verification the certificate and then then later on it's tokenized and whatever you transfer it like once the token is transferred the ownership is transferred as well so question I have with lonstein and and there's this case in Germany why is it that European Financial regulators are okay with tokens existing in this way Securities existing as tokens without um kyc is it just like an accidental Quirk of their laws that happens to be allowed or is it is it an overall cultural attitude like why is that being permitted like I've I was honestly surprised that in the US we permitted you know Fiat back stable coins without kyc five years ago I thought I'm not sure that that's going to be allowed um and somehow it's made it through but yeah why is it in Europe okay on the level of security actually was that yesterday at the main event like how does like the regulatory approach on uh on Europe cuz I work basically on that like we're based in Germany um but I think that the different is that you have a unified market and then you just like need to find different ways in which at the national level is going to work also with the European uh regulations and what has been happening the last couple of years is that I didn't quite catch that what was it what's the difference you have you have the national jurisdictions and then you have also like the commission the Parliament and the council like bringing like overall legislation right so when it comes to AML uh this is like it comes from L the commission and then the national levels like need to adopt and like adjust and because of this system at the European level we have a lot of advocacy groups that are quite big like in adpa blockchain for Europe the European crypto initiative and they're really active like I call them the Watch Dogs basically they're like they have like people in Brussels like checking every single piece of legislation that is coming from the commission like proposed by the commission and the Parliament and then they are just like all the time they're talking to the regul so they are educating quite a lot the regulator on how it works and there is initiative to use use cases so EPC is one of the biggest one the European blockchain infrastructure I think is the name and this is coming funding by the commission to test how blockchain can be implemented not only in the financial sector but other ways that can impact and make uh Europe more attractive to to startups right so it's different mindset yeah that mindset is really interesting because we have the same thing in the US in terms of Industry groups in D see checking every little line and always trying to educate and move things in the right direction but still a different result so yeah well the difference might be that the use cases that are being financed by the commi like the commission uh with Horizon 2020 are not only focusing on the financial market right and here you have like less resistance because you're also like not Ling Banks so when you are actually talking about like uh Financial inclusion climate how to push forward the green deal uh cryp like uh um what is the name carbon credits and all of these they're more open to to hear about like this digital identities in Europe is huge like we have the idas so how we integrate certificate so it's not only like the credential of the ID but also like educational credentials and all of this so it's it's different approaches that have been taken cool thank you other questions comments ideas I got a question so um so with a lot of these um tokens backed by uh assets uh that are offchain um sort of what what are your thoughts on like um sort of like the trust aspect aspect of it like uh like if I were to buy a um a token that's backed by something that's onchain or crypto native I can verify all of that end to end with uh certainty right but if there's something that's offchain especially if you want to take this like Global right for somebody in for example in a different country that buys something that's backed by something in the US who may not be familiar with how us Securities all that stuff is handled um what do you think the process there well I guess um the way I think about it with this idea is that today in the normal system we already trust that our Brokers are not going to screw us over and we trust that the DTC is not going to like mess up its records and screw over the Brokers and we trust that the transfer agents are not going to like screw over the DTC and like you know transfer the things right it's this like multi-layer database that we are implicitly trusting and so with this approach it's like well you're still trusting you know this would be probably a trust company so regulated like a bank which which was actually a key part of the foundation of the DTC that committee that came together decided it needs to be regulated as a bank so that all of the parties in the system can trust that it's not going to abscond with those assets and actually if I understand the story correctly the New York Stock Exchange had already tried to do an electronic tracking mechanism uh before the DTC um and it wasn't regulated like a bank and I think that's part of why people weren't willing to switch to it they're like we don't want to put our certificates you know with this random company that's held by the New York Stock Exchange that's just a private company um and so having this be like you know so in a word the answer to your question is regulation like we don't like regulation but we also do like regulation right you know regulations on banks do generally prevent them from taking your assets and running away so if this is regulated as a trust uh like a bank um then I think that's pretty solid but also that's just a starting point you can like I said I think over time eliminate layers right these things instead could be issued direct directly by the transfer agents and so then you cut out one layer or eventually they could be issued directly by the companies uh or or you know whether this is equity issued by a company or um you know like a mutual fund asset issued directly by the company uh if there are like standard contracts have been use in use for 5 or 10 years you know maybe these companies could administer them directly maybe when you create a company you you create a token that represents his equity and the token just is the equity it's not a representation of anything else Whoever has the token it's like a you know a bear instrument um by the way people think that bearer bonds are illegal in the US but they're actually not uh they were never illegalized so you can have a bond in the US where whoever holds the bond has the rights to the payout it's just that they were made effectively illegal by uh adding a 1% interest uh tax so if you issue a bearer Bond as the issuer you have to pay 1% in tax on that to the government uh but but yeah so you could eventually get to like a bearer instrument issued directly by the company and you still have to trust that the company's going to issue its dividends to whoever holds that Equity so there's still an element of trust because we're talking about stuff in meat space but I think that that's the absolute best we could get to and that would be the endgame you know 15 20 years from now so you think crypto native people will eventually Trust that model and I think everyone will be crypto native if something like this gets big enough and we all you know uh experience it and watch it play out for 25 years awesome thank you all right I think I think we're I think a bunch of people here are here for the next topic so let's hand the room over to them thank you all for coming if you haven't joined the telegram group already to talk about this do that before I unplug my computer um and uh we can continue the conversation [Applause] thanks