Niklas Kunkel, Chronicle Labs: Verified Asset- Powering Secure RWA Integration in DeFi

all right up next we have Nick from Chronicle let's give him a round of [Applause] applause awesome okay see I GNA stand sit yeah cool uh hi uh I'm Nick I'm founder of Chronicle uh we're the the second largest Oracle by by SS under management and I want to talk to you about uh tokenized assets and in particular why um I think oracles are going to play like a really pivotal uh part in in their success seem to be having some clicker issues oh there we go less clicker issues Okay cool so uh we kind of have a problem in Defi and the problem we have have is that we're limited to crypto collateral right and so if there is no kind of number go up uh the demand for leverage is quite low and if the demand for leverage is quite low then defi doesn't really doesn't really have any growth right it doesn't really scale we're kind of just all just uh moving like the same P like around and in different kind of uh quadrants and and squares so the the promise of tokenized assets is is that they're going to be the Catalyst for scaling D5 from billions to trillions there we go so um now I think maker was one of the the pioneers of of this right and uh really it came out of necessity right so maker had this problem of um I call it like the boom bust cycle right so uh during the bull times right there's a lot of demand for leverage a lot of demand uh for uh die right a lot of Revenue being generated um and then maker goes and hires a bunch of people and starts developing a bunch of new products and then the bar Market comes and uh all of that kind of Revenue goes away right and you have to fire a bunch of people and you have to like stop doing a bunch of these like Innovative like projects and so you really want to like Smooth out that Revenue oh okay oh nice okay uh so you really want to like Smooth out uh that revenue and so tokenized assets allow you to do that right by getting access to this like non-correlated uh fixed income yield from traditional Financial assets and so the first generation um of these tokenized assets uh were quite crude um even calling them tokenized assets is uh a bit of a mockery because the token was not really representative of anything it was kind of just like a dummy token that was used in the accounting Ledger right to be able to to issue credit through through the protocol um but it did its job in terms of maker was able to get access to um to this type of fixed income yield um and you know because monetary policy rates were quite high right this um represented like a significant ific amount of of income um but the overhead was but the uh the overhead was quite uh significant right so setting up these opportunities um and and doing all of the the the backend stuff right was uh was was quite costly and so the the ultimate yield on as a percentage basis was quite low even though in absolute terms it was quite attractive and you know lastly these things were completely opaque right and so so that was that that was quite a big issue right because you you essentially have like a trustless protocol um but really using like trustful uh collateral so um here's kind of a um little history graph of like Maker's Revenue right so the blue is uh crypto kind of sourced revenue and uh the yellow and red is kind of a tokenized asset kind of uh Revenue so you see that um uh right around kind of January 2023 late 2022 uh this kind of starts and uh you know by the time we get to 2024 it represents almost like 50% of maker Revenue so um you know here's just the same thing but like by the Numbers itemized out right so uh I think I updated these last night so these numbers should be be fairly accurate so make it right now is making like 192 million uh a year based off crypto loans um and 115 million a year uh from tokenized asset loans so well now maker Dow kind of realized that okay well doing these types of like tokenized asset opportunities on your own right is is not very effective so it's actually much better to just Outsource this and so that's kind of the rationale behind the spark tokenization Grand Prix um and so essentially what it is is maker is vouching to spend you know uh as much as 1 billion um on tokenized asset uh credit and so it's a great opportunity right for tokenized asset issuers right to uh have a mega whale like you know maker um buy up you know a ton of their of their asset right um and it's great for maker right because they don't have to uh internalize all those those overhead costs and so really now this is kind of like the second generation of tokenized assets right so you still get access to traditional Financial yield um but the token now is not a dummy token anymore uh typically the token is like a share and an underlying asset fund um you there are is an actual like legal claim on the underlying assets um and you do have some transparency here right it's still not completely transparent but you do have you know sometimes monthly or quarterly reports uh that are issued uh the problem is though that a lot of times it's the issuer that is providing this data and so the issuer can you know has kind of moral hazard and can just kind of give you the manipulated data tamper with the data right you have very few guarantees there and so um here's like a quick kind of array of like all the companies that are kind of like involved or projects that are involved in the space um I think uh the largest ones here right are probably securitize Ando um and and Franklin Templeton I think they each have like somewhere between 400 to 500 million uh a piece um but there's still a big problem here uh what we have today is not the endgame uh because these tokenized assets are not crypto native right and uh what I mean by that is that you know if you're a defi protocol right and you want to integrate one one of these uh tokenized assets um there's a lot of context that is missing that allows the protocol to handle this tokenized asset in a risk you know managed you know responsible uh type of way right and so this is this is a real problem right and so really these these tokenized assets like don't have the transparency that you know we've come to expect in crypto right it's like a pretty big value proposition I would say right that in in crypto right it's you can look at The Ledger you have everything in front of you it's transparent right uh you can argue a little bit right is it too cryptic if you have to use like a blockchain Explorer and do some bike code manipulation sure but ultimately everything is completely transparent and tokenized assets are not there to that level right um and even when you do get right um it's very infrequent and it's often times right not correct and so what you really need to emulate um to emulate this kind of native token experience for tokenized assets is this metadata right and you need this metadata in real time and you need it to be tamper proof and this will contextualize um the tokenized asset and give it those like crypto native properties that protocols need to be able to handle them in the right way and so this is why um at Chronicle we built verified asset so verified asset is the tokenized asset Oracle and essentially what we do is we connect directly to the custodian uh we have direct access to the uh kind of Securities and cash accounts and we can give a realtime um independent uh tamper proof way of um bringing this data right attesting to this data and also bringing it on chain um so protocols can handle uh these these Assets in a in a risk appropriate way um and I keep saying risk appropriate way but like what do I specifically mean by that right um you could imagine right um a protocol wanting to verify that the underlying assets are are actually there right um and if they're not there or if there are less reserves than outstanding issued tokenized assets the protocol may want to trigger like a circuit breaker and not extend any additional credit or it may in an automated way want to start liquidating some of their position or maybe um your protocol that has exposure to many different tokenized assets and uh you want to keep track of what is the real-time yield of each one and start um optimizing for yield right and so if yield is down and this you tokenize asset bucket but it's up in this one the protocol right can automatically recall some credit here right and issue some new credit there um so it it's really kind of dependent on the particular asset right I think up until now what we've seen uh primarily is tokenized treasury bills um and I I I think it's quite clear why why that is right it's fixed income it's fairly low risk it's one of the most liquid markets in the world um and yields are quite High um but I think actually the um the opportunity here is that when monetary policy rates start coming down um this is actually just kind of the beginning for tokenized assets because now um in order to obtain those kind of higher fixed income yields uh we're going to start having to step out on the risk curve and explore kind of new uh fixed income products uh new from a a crypto sense not necessarily new from a traditional Financial sense um so you know I can easily imagine within the next 12 months right uh that you start seeing municipal bonds coming online that you start seeing uh corporate bonds coming online that you start seeing more Structured Products in that fixed income space and that as monetary policy rates come down uh it serves as a catalyst for um onboarding that next generation of of asset classes in the tokenized assets base and I think that's when um this thing is really going to going to pop and so I'm really excited that Chronicle gets to kind of be a part of this and and help usher in uh this scale that we as as an industry need right like defi can't go without tokenized assets like it actually needs them um but if we don't do it the right way we'll be reintroducing kind of the same systemic risk uh that we have in the traditional Financial system and so it's really imperative that that we get this right and I think with verified asset right we can help protocols uh do this in a in a safe and uh and sustainable and secure manner so um you can uh follow us on Twitter um and uh come check out our dashboard um it's not quite um updated with all the cool like tokenized asset stuff yet but we are going to be coming up with a big update uh I think in like six to eight weeks um to make like all of this data that um we are we're getting through the tokenized asset Oracle uh to be like more uh more legible uh CU right now it's kind of just like on chain but uh if you know transparency without legibility is isn't real transparency um so coming soon uh but definitely check it out and uh if you have any questions come come find me after thank you