Disrupting Financial Markets - Simon Barnby (Archax) - TOKEN2049 London

thank you shane can you hear me is it working all right good uh yeah thanks shane and good afternoon token 2049 uh i am summon bambi i am from archex and today i'm going to tell you a bit about how we see financial markets getting disrupted based on the digitalization of financial markets and the benefits of some of the things that have been pioneered in the crypto space with blockchain cryptocurrencies like bitcoin but in particular tokenization and the uh the concept of creating tokens to represent things uh i'm going to cover sort of five main areas today um a little bit about tokenization just to give some context which probably most of you may know already how we think that uh uh tokenization is going to really disrupt the post-trade space um the democratization of markets now i know that's the kind of a term that gets banded about a lot and maybe it's something that is overused but we do believe in sort of opening up more investment opportunities to more people can be achieved through tokenization and then having looked at challenges i'll talk a bit about d5 but i want to kick off first with the case for tokenization now if you look at all market segments there have been a lot of changes brought about by technology you only have to look at some of the things here music and video netflix and spotify i mean in the old days we used to buy vinyl then we bought cds then we downloaded music and now we stream it without even thinking about it and you know the music hasn't really changed um but the way we consume it has been completely transformed the same thing has happened with companies like uber and airbnb for travel and accommodation uh amazon has totally changed the way the retail marketplace works and and things like zoom and and docusign have come to the fore during the the pandemic as a new way of sort of running business but financial markets they haven't really had that had that same transformation yet they've been electronic for a long time i mean front office trading has been electronic for a long long time but what happens post trade is pretty manual there's a lot of parties involved it's very very inefficient so there is a huge opportunity to for for that uh to be transformed a little bit more context i mean i i'm talking at a token conference so you're all familiar uh with tokens but you know traditional security is the way stocks and shares are currently traded they're very local they tend to be very regional so you get a london stock exchange trading you know mostly london stocks they they tend to operate just sort of during normal business hours in the jurisdiction of where the exchange is based um and although they're you know they're very effective in that way and along came crypto bitcoin in particular and sort of brought about some new ways of doing things 24 7 trading uh global marketplace with a global audience investing really fast and efficient but they're kind of unregulated generally and and and so i guess the real exciting thing from our perspective is these uh digital securities which are a marriage of the two so taking the sort of the regulated benefits of traditional securities and factoring in some of the huge benefits that are being pioneered by bitcoin with cryptocurrencies and creating this sort of regulated digital securities and one this concept of tokenization it's a much more efficient way of of of representing ownership of a of an asset so this sort of fractional ownership with tokens recorded on a blockchain easier way to raise capital you know reach a global audience if you're trying to raise capital in a digital way access new asset classes you know we're talking to people tokenizing everything from funds equity debt and real estate all the way through to portfolios of race horses classic cars diamonds art i mean there's obviously the nft space too but in terms of fractional ownership of large investment portfolios of things like cars you know it's an interesting way to open up access to a brand new audience the democratization piece is sort of covered by that too and then efficiency gains are a real benefit too which i'm going to talk about in a little bit more detail where we're seeing the action at the minute kind of this this slide kind of shows a liquidity spectrum but also it's a time axis as well and at the minute it's mostly at that sort of illiquid private securities things like you know interesting investment opportunities that's kind of where the uh the action is in the tokenization space right now and that's because they have the most again liquidity you know getting liquidity for these asset classes is important raising capital for them is important and and the efficiency is obviously important for all if you look at the semi-liquid area things like hedge funds maybe sort of listed small medium enterprise companies there the benefits are more around efficiency and capital raising rather than liquidity and at the far end you know you're trading vodafone or apple or whatever then liquidity is is not an issue because they're super liquid they don't need access to capital but a more efficient way of handling them is really beneficial so what about post trade well if you kind of uh you know blockchain has a huge potential to transform block uh post-trade operations i mean in 2020 uh over three quadrillion dollars worth of transactions were processed post-trade by euro clear in in uh in europe and the dtc in the us alone so it's a huge marketplace there's a huge a huge amount going on there but it's very very inefficient and and the benefits of blockchain can really strip out intermediaries it can remove friction it can uh reduce costs and so it's a very exciting way for transforming uh traditional financial markets and and there are also you know regulatory things underway as well for example the markets in the the marketing crypto assets uh regime in europe is is paving the way for how tokenization and digital representation of stocks and shares can be used in a regulated way and there's other uh other actions too like uh sock gen have recently published a paper all about how to use crypto assets to represent securities and form security tokens and the dtcc the big clearer in the u.s is has a project eye on which is looking at blockchain too but if you kind of look at the traditional markets of today and how they actually trade you know you get someone who buys shares through a broker typically and those shares are then transacted on on the exchange typically a stock exchange but then once that trade takes place there's a whole host of other parties who get involved from clearers and settlement firms administrators csds you know so it's quite a complex landscape although it looks fairly orderly there actually what happens is everyone's got their own books and records they've all got their own record of what they think the trade that took place was and in effect there's often discrepancies uh reconciliations have to take place so it's you know it's it's it's a bit of a mess and it's a bit of a nightmare it takes time and it's inefficient you know along came crypto where everything happens on the exchange it it clears and settles straight away a much simpler model but that simpler model you can get away with that simple model because regulation hasn't kicked in if you kind of look at a digital securities exchange trade and an archaic is a is an exchange like that then this is kind of you know those parties have to come back in because regulation dictates that that they need to be there these parties need to be there however the advert the blockchain means if all those parties run a node then when a trade takes place then everyone gets that access to that same information straightaway they don't need their own books and records you don't have discrepancies to sort out and so actually you can uh you know you can trade and settle instantaneously as you can in the crypto world and this will be a huge transformation for capital markets things like corporate actions for example too if you have uh shares and you've got voting in a company at the minute people vote via an intermediary their prime broker or custodian before before that vote gets back to the company in question so the company doesn't necessarily know who's voted whether they voted or not because there's an intermediary in the middle whereas with a digital security with a token then the that that voting can be direct so you know you know who holds the token they're in their wallets you can vote directly and you cut out that intermediary and it's the same thing with paying dividends as well the minute you have to pay it out through those intermediaries you're going into the fiat banking system which is a bit of a pain whereas in a blockchain world and particularly with a you know a stable coin or some description the issuer can send payments out instantaneously to all their token holders their shareholders so it's a much more efficient way in that space similarly if you look at funds at the minute if someone invests in a fund say it's a real estate fund if that investor wants to realize maybe you know five million dollars worth of of their that investment if the fund doesn't have ready cash it needs to sell some of the assets to generate the cash to pay the investor that means they've got to rebalance the portfolio it means the portfolio manager is distracted and and you know it's it's it's not an ideal sort of world bring along a tokenized fund where tokens represent ownership in the fund and there's a market where those tokens can be traded then that investor can simply trade in and out of the investment fund on the marketplace there's no effect on the fund manager there's no effect to the portfolio of assets either so again a much more efficient way of operating in the financial markets world in terms of democratization uh i mean the financial markets uh traditional financial markets are huge i mean that all adds up to around one uh 1.4 quadrillion dollars in traditional financial markets currently and it's interesting that you know um crypto is in there which is around the sort of two trillion dollar mark at the moment you know the coal crypto market cap is less than apple uh you know so you know there's a huge potential there and if you kind of add in all the other things i talked about you know racehorses classic cars diamonds art then you know the market is even bigger and actually tokenization is already taking place all those things in yellow there are examples of people tokenizing those asset class creating representations on a blockchain and leveraging some of these efficiencies that i've been talking about in terms of making those markets easier to access though if you kind of look at the way markets currently operate um typically if you want to invest in a private company you've got to go to that company directly and invest in their shares like a vc firm might do um if you want to uh invest in a semi-liquid a thing like a hedge fund maybe then again you're going through the whole subscription cycle you know it's it's not particularly open it's not very easily accessible to most people but the liquid end is not so bad you know you have a broker and you can trade the the the naise or the nasdaq or the london stock exchange but typically if you're trading internationally you've got multiple tiers of brokers there to actually reach the market so multiple sets of fees so again not particularly efficient not particularly democratic and i think the beauty of kind of uh a tokenized world leveraging some of the benefits that have been pioneered by bitcoin a 24 7 market with global accessibility you can go directly to the market yourself or maybe vira broker i mean the broker can still has a place to pay and some people prefer to trade through a broker but only you can do it through one broker or you can do it directly so it's a much more democratic marketplace and i'm not saying that brokers will get completely disintermediated they quite like the advent of tokenization too because they get access to new things they can uh they can help firms raise money they can invest in firms at an earlier stage more easily through a digital race they can offer new asset classes out to their clients they're always looking for ways to remain competitive and offer services that uh differentiate them from others so there's a lot of sort of benefits to the whole community so it's not necessarily just about democratizing markets to the individual it's about opening it up generally and sometimes brokers will be involved in terms of challenges though i mean this will take some time to occur i mean at the minute the you know it's a nascent marketplace uh liquidity is a challenge it takes time to build liquidity you can't just turn it on market makers need to get involved to help provide liquidity so that's one challenge the marketplace faces regulations are continually evolving and one has to sort of keep abreast of all the different regulations from the different regulators around the world uh interoperability is interesting because at the moment there are multiple blockchains and people are using different protocols different technologies to create tokens um so there's an interoperability question and standards will need to be agreed and chains will need to work together and finally you know that the whole ecosystem needs to develop and evolve to support all this trading and the traditional financial markets need to evolve as well to embrace the these new technologies too um it's interesting if you look at the regulation side i mean here in the uk the fca it's actually been fairly forward thinking and they have you know broken up crypto assets into these three main categories security tokens regulated instruments regulated tokens e-money tokens for things like stable coins and then unregulated tokens which are things like utility tokens icos and uh and you know cryptocurrencies so they've got a fairly clear definition which is really good and makes it relatively simple to operate however there are more when i sort of googled regulators around the world i found more than 320 of them so you know if you're going to create a global marketplace you have to navigate a complex regulatory landscape and everyone has a slightly every regulator has a slightly different view of things slightly different rules so you know there's complexity to be uh to be uh to be navigated for sure finally d5 and i'm not going to spend too long on this because there's lots of companies here focused on d5 and it's a sort of topic in its own right and and it's i mean it's interesting it's huge and i think what's happening in d5 is really really exciting you know it is clearly the new frontier it's clearly the way markets are going um and but the but the trouble is i mean and there are great returns to be made too you know just staged turning your us dollars into usdt or usdc and staking them somewhere you know you can earn a pretty decent return compared to sticking them in a traditional bank but i think the big question here is regulation because arguably staking lending and things like that should be regulated in in the eyes of many regulators and at the minute the market is operating in an unregulated way so it's going to be interesting to see what happens the sec in the u.s has already announced that it's looking at regulating d5 and it's kind of you know looking at that whole marketplace in more detail so some questions to be answered there um i couldn't finish without a bit of a plug for our checks we're the uh with the first uh fca regulated crypto exchange and digital asset exchange here uh operating out of london but global we can help firms raise money in our primary market we provide a secondary market for the trading of tokens whether they're crypto unregulated tokens or regulated digital securities we offer an fca regulated custody service for digital as well as fiat cash uh and and we're we're looking at the stable coin area and staking and lending through a regulatory lens because we think that's a really exciting place to be that was it for me i tried to do it in 15 minutes i think i've just about done it thank you very much for your time awesome awesome awesome presentation by my good friend and mayman simon don't go anywhere we're not letting you go just yet my friend so how have things been in building the archaic story um how have you found being in london and more importantly maybe you'll give us some insight about uh dealing with the regulator and how you got regulated what was that process like yeah i mean we we found the fca as a regulator very open uh so which was great they were they um they were interested in embracing these new technologies they're very cautious and they're very tough they're one of the toughest regulators in the world but they were open to i think they want london to remain at fintech center they want london to remain a key capital market center too so they want to look at these things however it was a long process you know it took us two years from start to finish to get regulated um i didn't have any gray hair when we started uh and and it's cost quite a bit of money too so you know it's but but it is a key differentiator i mean the regulation we have is actually unique at the minute so we have a unique regulatory stack and i think it's a great position of strength to then go and target the rest of the world you know with an fca regulated sort of umbrella yeah i think you're you're pioneering that structure for hopefully many that will come behind you but maybe not compete with you maybe i'll open the floor up to any questions if anybody has any questions for our tracks they're very much plugged in on the institutional side um what about your your capital raising and where are you guys currently at with that and um you know where are you looking at the future yeah i mean we've kind of raised our own money to date uh is but mostly seed funding which we raised before we were regulated so we've raised enough money to get us to launch and and move into sort of production and a live environment uh we're looking at doing a sort of a equivalent of like a series a right now so we're doing we're uh working with some investment banks to look at our next phase of fundraising which is kicking in sort of now excellent well um please keep us all up to date on that and where can we find all the information about simon and at our jacks thank you very much simon awesome in uh man simon thank you very much