Tokenizing Real World Assets: Next Generation of Markets - TOKEN2049 Singapore 2023

so welcome everyone today we're going to be talking about real world assets the next big Market and today we have guests Cynthia Richard Nathan and Eugene so perhaps to start with would you guys like to introduce yourselves briefly maybe Cynthia would you like to take it away sure thanks uh I'm Cynthia Wu co-founder and the CEO of Matrix Port so Mitch report is all in one crypto financial services provider and very specifically this year we have launched a rwa sub brand called Mutual stock and our first product is ancient treasury token called sdbt so we have enjoyed the journey so far and I would like to share with what we have thought about this industry and this particular sector and the potential to with the fellow speakers terrific and Richard you want to tell us about human Finance yep I'm producer Leo co-founder and co-ceo of human finance and we are a general we are a generic real world asset protocol we're building such a way that we can support all kinds of use cases but we focus on private credit particularly about receivables for different fintech companies users battle against their receiver walls terrific and Nathan do you want to tell us about ondo Finance definitely um yeah my name is Nathan Allman I'm the founder and CEO of Hondo Finance we're focused very broadly on Securities tokenization with um you know a special emphasis right now on cash equivalents so short-term tragedies money market funds um you know assets that are low risk high quality yield bearing substitutes to stable coins we also have an arm of our business where we focus on protocol incubation um we think that compatibility with on-chain Finance effectively Defy is you know one of the main purposes for asset tokenization in the first place so we built flux Finance which is basically a treasury's repo Marketplace on chain to demonstrate some of that utility yeah so there's of course flux finance and Eugene tell us about open Eden hey hey guys um co-founder open Eden we built the first tokenized spot to bring off-chain treasury bills on chain that centers 24 7. um you know we combined that streaming ability of a vote with established fund structure in a bankruptcy remote SPV that you know caters to crypto native you know customers our customers include doll treasuries stablecoin issuers startup companies anyone who potentially want to you know diversify into a cash equivalent product and thank you okay awesome and um now that we've got the quick introductions out of the way there are of course you know the field of railroad assets is immensely large and there are different sub sectors within that and it seems like each of you focuses on perhaps a different sector there's of course some overlap but to begin with why don't we just start with which Real World asset are you each focusing on and what are the benefits of doing this on chain so I know there's going to be sort of basic for a lot of people here but I think it's worth outlining for the audience so maybe Eugene do you want to start yeah I guess you know with us you know it's you know tokenization is not a A New Concept tokenization has been around for quite a while now but I guess it's the you know environment that we're in and the analogy I give to people is you know you're pets.com which is a great idea but it's not the right place right time for a product like that I think the real benefit is really cutting through and I think you know my peers here would agree is cutting through the number of intermediaries and streamlining the process of tokenization and that's going to cut down transaction costs it's gonna if it create efficiencies and that's really the ability of blockchain you know you can use Smart contracts blockchain for kyc AML can use it for tokenizing the second really is democratizing access you know with tokenization you know for private credit imagine this a Vietnamese fishing pond tokenized and selling that to somebody in London UK I mean that's possible with tokenization and the third thing transparency I mean we have a tokenized product you do not have to trust your Goldman Sachs or HSBC banking statement just because they tell you that you have X amount of dollars and you know there's obviously a lot of Shadow banking today's market but tokenization is a softest truth in on The Ledger that you can actually verify so those are the you know clear and benefits of you know tokenization of real world assets very good so I'm hearing cost reduction efficiencies cutting out middlemen Richard you do of course a slightly different asset class among real world assets is do you do you notice anything different like is there a reason you chose that asset class and and maybe some different benefits that you've noticed or would you say it's broadly consistent yeah I would say will you focus on private liquidity particular receiver boss think about almost all the fintech companies or separating companies they have new Super Bowls meanwhile they also need working capital operational Capital where do they get it and in real world a lot of them they do separation financing receivable financing and but especially if you are working for a emerging technology especially today you look at our company uh RF our partner the enables and limited cross-border remittance companies to achieve instant settlement that's what blockchain does is best but even they have difficulty to get a lot of liquidities but this is a very very high quantity and receiver boss if you can tokenize the receiver boss with all the benefits that Eugene already mentioned that you will enable them to access a lot of global capital from different parts and you were able to enable this new emerging fintech companies to grow a lot faster and enable new Innovations so we feel very very excited about receiver boss of private credit the market is huge 1.5 training and the value creation is very very high every you know I are an engineered into the business is enabled that business to go faster Drive the world forward feel excited for it okay very good I think great points there Nathan you guys with ondo and building flux protocol have really taken advantage of interoperability it's something we haven't quite touched on yet but would you say that's one of the other I guess important aspects of doing this on chain you know you can permeate the real world assets or at least use them to collateralize other D5 protocols definitely that's a huge Focus for us um you know as Eugene mentioned Securities tokenization has been around for a long time I mean there was a big push in 2018 for stos and I think until pretty recently it's been kind of a lot of innovation theater I mean necessarily as a stepping stone but you know it's been a practice of investors taking delivery of some assets some security on a blockchain holding it to maturity not doing anything with it like yeah great we tokenized it um so you know there's really two main practical benefits that we've identified for tokenization you know one is 24 7 Global peer-to-peer transferability on a you know real-time basis I think that's mostly only valuable for money-like assets for cash equivalents I mean there's demonstrated demand from stable coins for that benefit but I don't think for Apple stock or private credit or something like that you know we need that 24 7 Global transferability um so the other main benefit that I see is you know use in defy which mostly means using tokenized assets as collateral for Lending protocols derivatives protocols Etc and you know I think the Best Collateral for those sorts of activities is collateral that's highly liquid and so because of that we're pretty focused on public Securities um as you know the next big items in our roadmap yeah yeah no I think very good points Cynthia it hasn't been it hasn't been smoothly digested throughout the traditional Finance world the idea of tokenizing and putting assets on the blockchain and so there are counter arguments what are the counter arguments that you typically might hear from people in traditional Finance circles around you know there's often rolled eyes why why do we need a blockchain for this what would how would you characterize or describe those counter arguments against putting these assets on chain yeah I think it and token Edition is the main it's a means to the ends right the ends is like Eugene said there's a enhancement of efficiency right at the lower the cost of the issue in that asset and lower the cost of circulating Distributing that asset and also enhance the underlying transparency of that asset right because now you can bring in real time or or daily proof of Reserve by certain party to verify the underlying um the tokenization's assets match the underlying so I think there's a lot of benefit of bringing the asset launching and also I think what we've been building in the past few years uh in D5 is actually uh more seamless interoperable uh Financial infrastructure and that's I guess my personal belief is that this financial structure in the coming years is going to very much disrupt and replace the incumbent Financial infrastructure because a lower cost is more open and more inclusive so I think what's needed on this blockchain on this network is more diverse asset and the high quality asset currently we already have a lot of native assets being traded and being transferred on this in this financial infrastructure but if we can bring in a lot of high quality and diverse assets from The Real World by tokenization I think this the power to unleash the potential of the our current Financial infrastructure is going to be much more powerful okay so enhanced liquidity uh permeating kind of on a Global Network okay that makes a lot of sense the um there are of course challenges in the way we currently do things though so it's not necessarily easy to tokenize assets despite the large proliferation of t-bills on chain I'm sure there was a lot of sweat and blood that went into that so what are some of the what are some of the challenges that came up as you were putting these assets on chain were there any that were expected unexpected and you know what other barriers I guess beyond that are you currently facing maybe Nathan do you want to do you want to take that to start sure yeah I mean I think the biggest challenge that the whole security standardization space faces is liquidity um I think a lot of that stems from the asset choice that a lot have focused on which are generally pretty illiquid assets um I think there's also a big cost in recreating liquidity in tokens that wrap assets that are already very highly liquid um and you know that's a little bit awkward um so we're working on some solutions that you know will bring traditional Market liquidity from traditional exchanges on chain in a more native way you know there's also challenges around how market intermediaries like broker dealers for instance can deal with tokenized Securities and so that's really left a lot of the you know utility in the more D5 native land where you know legally we're talking about peer-to-peer transfers and where those sorts of intermediaries aren't required but for a lot of financial Market activities we do need those intermediaries and of course differentiation is one of the keys in startup land so perhaps what it what is one of the ways that you've tried to differentiate your products and I'll throw that out to uh to any of you maybe Richard or Cynthia yeah I would say especially in the private credit uh sector that some players get in first build are the Trailblazers build more like a protocol purely focusing platform and but underline your support in fintechs there are always the risk associated with it then the questions if you purely build in protocol and you feel your technology provider but at the end if anybody who does underwriting on top of your service does not nearly you know with some kind of default then the entire platform will get hammered and actually Hammer the entire ecosystem so we actually put another emphasis on both some platform and also put the underwriting disciplines make sure we knew you'd understand then receivable the quantities the duration only bring the very best assets on chain and ourselves like we have about 59 data points to try to do the underwriting setup clear these discipline and the processes to do it we actually really want to not only open source or our protocol we actually plan to open source our underwriting process and the documentation templates so that we can help the entire ecosystem so that we all reduce a chance of your default or fingers because we're all in this space honestly your success is My Success my finger is also your finger anybody fail actually Hammer the entire ecosystem every success actually enables each one of us to become more successful so that's why we're looking for us to share any tips and experience how to work it together okay yeah very very interesting difference yeah I think we try to differentiate uh in two ways I'd rather say we're trying to address two pain points right the first one of course is the underlying transparency because people want to know that the token SCBT is fully backed by uh the reserve which is repo and short-term pressure bill so we try to provide the the very timely third-party verified transparency through the work with chain link proof of Reserve so the third party come to verify us and being able to publish the the data on chain on daily basis therefore we solve the transparency issue the second one is probably harder to solve which is I would rather say more costly to solve is to build a deep unchain liquidity which provides instantaneous liquidity when people want to getting and out of the position when treasury bill is traded in tri-fi Market it settles t plus one and is the only trading U.S business days for this many hours people is fine with that but once you tokenize it and you want to integrate in on chain with various different protocols people would expect instantaneous liquidity 24 7.

so you suddenly have a higher requirement to match and then but that's that's a challenge and also the the beauty of brain tokenized the asset on chain so that's exactly the the challenge we all need to solve together as an industry yeah very good points well I was going to say in terms of other challenges you've faced you know there's challenges like legal it might be Business Development finding Partners infrastructure so accessing on and off ramps maybe Eugene what are some of the challenges that you noticed um you know in building open Eden and getting the fresh product out they want to address the liquidity partner I think need anything to a certain points you mentioned I think for us we've been spending many months building a natively made Vault that allows users to mean and redeem TV tokens 24 7 on chain assessing you know Market liquidity off chain um that may come across as simple a lot of people say hey tokenizing is easy but no it's bloody challenging yeah I'm sure everyone here sympathize and empathize it's integrating with your off-chain so it's providers it's education education and education educating you know what are smart contracts smart contracts are not smart record it so we we spend a lot of time calibrating the independence the price Integrity the oversight and that really creates um multiple four challenges that's just to stream a product right if you think about it if if streaming in assets is so simple like peer-to-peer why hasn't NASDAQ you know offer 24.5 or even 24 7 trading of Teslas and you know stocks you know it's it's very challenging so so that's really one right one aspect to building a product like us the second is really you know we're trying to bring these new technologies like smart contracts like the blockchain The Ledger sober nfts into establish regulatory Frameworks and I think that's a lot of Education respect to educating you know whether is it The Regulators or whether is it the service providers the banking partners and that's a challenge because you know in today's environment as you guys may know we're not necessarily in a very positive environment let's be honest it's a bear market and there's a lot of negativity around the space and we are on this up here challenge to educate them on the merits of tokenization and so my personal belief is education is such important thing that that we all are facing every single day we are educating educating and educating we're not in a positive environment I'm kidding so t-bills have been a really popular asset to tokenize this year probably the most successful Trend we've seen in the rwa space but what do you think is going to be next you know there's different characteristics that might make other assets suitable but as you look ahead what do you think is kind of on the frontier do you wanna you wanna take it Nathan or sure I mean I I think I touched on it a little bit in one of my previous answers I mean we're very focused on public Securities that have deep liquidity already and that make ideal collateral for on-chain financial applications and derivatives you could potentially be borrowing against Apple stock or Tesla stock in the in the near yeah I mean I think D5 is some of the coolest technology that we have in crypto it's been applied in very reflexive you know crypto speculative centered um ways yeah um but you know take compound V2 for instance I mean it's a a true peer-to-pool lending model where you know if you pledge collaterals that can actually be relent out and you get past you know the vast majority of that yield you know very analogous to Securities lending traditionally where um you know if you're holding Securities at a brokerage in a margin account you know know you're not typically getting past much or any of that yield onto you because there are a ton of intermediaries in the land borrow chain between cash lenders so like money market funds and uh you know borrowers at brokerages so um yeah we're very focused on taking that sort of technology and you know helping it grow up a little bit in sort of more compliant ways and making it compatible with Securities yep that makes sense what about Supply chains that's that's something that comes up quite a bit is that is that on your mind Richard no uh for us we focus more on private credit for uh for crypto forward fintechs so let me go a little bit deeper what do I mean by that so you think about some of the fintechs The Leverage blockchain provide better product that traditional web tool a tradify unable to provide that is such as I mentioned earlier ARF does the cross-border remittance instant settlement or some other things you have Webster companies need to access 25 products such as business card credit card and they don't have access then some companies enable them using their stablecoin as backing for them to borrow uh get a credit card so that they can engage in real life we are mostly excited about those companies who never reach blockchain at its best and those companies we believe we can structure the fan in such a way make the high collateralized and with the quantity to be very high I think that's the best way for us to focus on this moment okay very good point in terms of the Catalyst they're actually going to grow this space from here what's what's really needed what's kind of missing and is there anything that you see that would you know grow this 10x Cynthia as you look at is there anything that you think is kind of required or necessary to really supercharge the growth here um goes back to the infrastructure support this is a new asset class on chain so um compared to the native tokens there need to be different considerations that put in place to support the real world asset considering its unction liquidity situation and also it's very deep of chain liquidity so for example just to give an example price oracles right for us to create more use cases for stbt in the Divine ecosystem we want it to be used as a landing collateral as a collateral for trading on the exchanges on Central exchanges and different exchanges and in many of that Integrations would require a reliable price Oracle to support so I think those infrastructures of course I think each of us has been pushing the boundary and try to work with the service providers to make uh the tokenized automobile asset more usable right in the device ecosystem that makes a lot of sense what about you Eugene well I really think it's um you know I'll take this to my you know previous answer settings as the education I think there's still a lot of misnormal like you know for for some D5 is permissionless no kyc to some is you know it's peer-to-peer you know I think it's a lot of Education I think um to sing just point I think the infrastructure is still very nascent I you know like for example imagine this right you know recently we opened a bank account it took us like many many months you know I'm sure as a crypto native company um and and on-ramp something then that kind of stands out for you yeah and imagine this if you have a setting of this right if we don't I think Cynthia need we do fight listing for some of our products imagine this if we can you know build a snowball on nft with ZK saying a layout that and allow you know our users our wallets to Simply you know interact with any other issuers so it's akin to opening with One Bank in a real world and and having access to the dozens of Banks and that really allows you know anyone to equalize that you know that whole permissionless D5 landscape that you know I think all of us are super excited I think that's also the point about the maturity of the infrastructure that that's missing the oracles the ZK sings the the different level of kyc and AML that is required to support this ecosystem until that's ready I think we're going to be you know slowly moving towards that critical mass I think it's still so early but still like maybe a year away from critical mass and I think that like stable coins when it started you know it's sort of small but you know over the over years they get the maturity and the understanding and the user starts you know understanding what they are and I think we're at that stage very good point uh in terms of stable coins at the moment we've got about 140 billion in circulation most of that is US dollar denominated stable coins do you think that the future of rwas on chains reward assets on chain and tokenization is this going to be dollarized or is there room for other currencies and is there any disagreement here is anyone who thinks it will be and anyone who thinks it you know wants to take the against bet tokenized on chain and I think that that actually opened the room for a local currency stablecoin to grow the reason I say that is because once the asset goes very localized for example the Vietnamese motor loan let's say right how many US dollar U.S investors us-based dollar based investor going to understand that market that asset probably not many but a lot of local investors might be very familiar with the risks right with the credit risk with the counterparty race I understand yield and they're willing to invest with their local currency so they actually create an opportunity venue for the local to give a use case for local currency stablecoin so there is room yes I think the more local the asset class can go to the more room for the local currency stablecoin to grow and this can grow hand in hand that makes sense local assets local subject matter expertise yeah Nathan do you think do you see it differently or do you see it the same way they have a strong opinion honestly I mean we're responsive to investor demand and we haven't seen demand for anything other than you know US dollar yeah uh you know say local and like instruments I mean there's a lot of like theoretical work around you know using D5 for you know FX or kits but I think we're pretty far away from seeing any of that get to commercially interesting scale yeah yeah I mean it just the low-hanging fruit I think overwhelmingly for us and the security stabilization space is in you know offering Superior alternatives to the existing as you mentioned you know very large Market of stable coins with you know pretty material hidden you know structural legal risks and you know no yield passed to their users so um yeah we're pretty centrally focused on that for a while makes a lot of sense with the last couple of minutes we've got less left maybe another question a lot of defy hinges on permissionlessness and of course as we start to touch the real world there are legal consequences and also other considerations you might have to deal with institutions who need kyc or AML um but at the same time you want to balance this with composability do you see uh that the future of rwas on chain needs to be permissionless or permissioned or is it going to be a hybrid of both maybe Nathan do you want to start with that one yeah I mean permissionlessness has certainly been a big part of the history of crypto and defy I mean I I see a future of on-chain finance that is not very permissionless I think there are you know narrow exemptions here and there I mean with our latest product for instance usdy USD yield it's a tokenized bear note that's secured by treasuries and um you know we follow very specific but you know narrow regulatory uh exemptions that allow us to you know issue this asset in a form where it can trade you know on-chain to investors who are not necessarily onboarded with ondo but that's certainly not how I see most Securities tokenization going I do think there's a lot of interesting work being done in kind of privacy preserving qualification checking um you know like proof via shared credentials via kyc of non-us personhood of you know accredited investor status Etc um so we're excited by some of that stuff as well but yeah I think we're more focused on you know interoperability composability you know money legoness you know one-click movement from one application to another um you know Financial value shared on a base layer instead of at the application layer and you know adapting that to you know meet a regulatory requirements of securities makes a lot of sense yeah I agree with nothing I think uh D5 imagine is the infrastructure so infrastructure structure should cater to different use cases so the permission it should be offer a varied levels of a permissionless permission based on the user and those kind of needs yeah what do we see you know from because we deal with business across the world and virtually everybody tell us my local for me to get to know I need to know where the money from because of my local government requires me to provide such information so I pers we see rwa will be accept some special categories will be permissioned from both lender and the boundary side I think that would be a key differentiating from whatever established today's D5 which is a sub-sector of the future Diva and with rwa that will be have that kyc qib will be a key indicator okay interesting so it sounds like we see a hybrid future but um rwas perhaps have their own sort of specific needs relative to other Assets in D5 well I think that's a good note to end on so thank you all for participating thank you to the audience and um yeah I think we can we can wrap it up there so thanks Cynthia Richard Nathan Eugene thank you thank you thank you guys