Bullish on Real World Asset Infrastructure in a Bear Market - Joshua Pulman

foreign [Music] thank you [Music] foreign foreign [Music] right away foreign [Music] thank you foreign hi everyone how's it going um so my name is Joshua I'm an investor at truest Ventures which is the corporate Venture fund for truest Bank really excited to be talking about real world assets and the enabling infrastructure with you guys today and I'm joined by an awesome panel so I'll let these three introduce themselves quickly hi everyone my name is sashir from spectral Finance we focus on credit risk infrastructure on chain meaning on chain credit scores risk insights analyzing wallet transactions and trying to create this kind of on-chain credit bureau bridging back into the real world supplementing FICO scores Etc hi everyone I'm Nick I'm a partner in general Catalyst we're a multi-stage venture firm our current fund is four and a half billion dollars and I help lead their crypto team I'm caledora building osteum Labs we are the first perp decks engineered specifically for off-chain assets starting with commodities and Forex awesome thanks um and I think you know why we're all excited about this topic is because it's a trillion dollar opportunity of assets that are off chain and public and private markets which is really exciting especially since in today's Financial ecosystem many of those assets aren't even fully digital which is a huge opportunity you know for blockchain and I think the best way to kick off our discussion today is you know how should we start thinking about evaluating those different asset classes and tokenizing them administering them on chain and I think Nicki would be awesome if you want to answer that first yeah so I think the clear killer app so far of real world assets has been stable coins so we're the largest investor in circle and as we think about the next opportunities in payments it's really cross-border and B2B and so there's a huge opportunity to improve the capital efficiency of businesses by having you know much reduced transaction costs faster you know much better settlement times um and as you think about sort of cross border corridors like making those much more efficient today right so payments is one opportunity that we're thinking about um you know in the near term alternative assets is another that's happening right now with securitize you know within the last you know year you've seen KKR and a number of other big funds start to dip their toes in I think that's sort of a piecemeal process that will take place over the next 10 to 20 years but they're dipping their toes in because it can create a lot of value for them right and so they've sort of reached the limits of what they can tap into their LPS for and so through tokenizing their funds they can sort of expand the pool of capital that they have access to improve their back office operations and liquidity for their LPS so those are some like two things that we're thinking about right now um but happy to dive deeper into either I think that is you know really interesting to think about and um calidori I know that you know you have a specific interest in another asset class but would be great to hear you know if you have anything to add you know in terms of characteristics that you would uh recommend people think about as they're looking at asset classes and bringing them on chain um I I guess I would think about like what problem you're solving for um off-chain assets that are put on chain don't necessarily have the composability or scalability of digitally data assets so uh thinking about what trade-offs and what you're actually selling for the real markets our view is that assets that are particularly underserved for retail are the best assets the first put on chain and enable synthetic exposure to um so I would say thinking about the trade-offs and and what the unique benefits are of putting something on Chain versus just doing it because there's a long-term view on things that things will move on chain and I guess when we think about you know how assets will be able to really grow either in distribution or providing a lot more efficiency for the way that there's transactions around them what are some of the limiting agents that you think are out there today in infrastructure yeah so I would look at three phases in terms of the move towards having off chain assets be on chain I would say in the first phase the off chain Market is still the reference Market that's where we are right now so we're building a synthetics Market feels like a purpose decks but under the hood it's actually structured like a prediction Market on contiguous price movement there the limiting region in the tech stack is just a great Oracle that provides has like less than sub second latency provides reliable price feeds uh for bringing from off-chain assets and allowing you to get price exposure to those on chain uh so that's the kind of first phase of the offshade market still being the reference Market in the second phase I would say uh kind of having a liquid Market that is both the like the off-chain asset is transacted both on the on-chain market but also off chain uh there I would say having a liquid Bridge the key thing there is redeemability if you want matching between the on and the off chain version of that asset so a liquid and kind of secure Bridge uh Fiat on and off ramping between on and off chain world is the limiting reagent on the tech stack and then in the last phase would be much further down the line but that's when assets will be issued natively on chain and those will be the reference point uh that's much further than online I think will require much more institutional trust in uh basically issuing us that's a natively on chain and having that be the reference Market I like that um last part about institutional trust um and you know risk management today you know typical financial institutions require so much kyc um understanding if you're gonna you know administer credit what is their existing you know Financial identity look like and it makes me think about you know how new investors or new institutions will get onboarded as these assets uh become tokenized or are administered on chain um and this year I'm curious you know how you think about how that identity and risk management will exist when more and more of these asset classes move on chain yeah I think our identity is has become kind of a fluid topic on chain uh pseudonymity has really kind of taken over so far in the industry uh people are kind of a little weary of connecting back their kyc back to their wallet address but I think you know over the long run as most of these retail based apps that institutions start onboarding uh most people will actually have be funneled into the space through some sort of reputational uh portal and so we'll be able to kind of bridge back and forth and blur that line and that's part of our larger mission is that you know right now all of these web3 Financial transactions are actually just completely disregarded and so you can actually include it as part of your real world financial reputation or your identity or actually leverage any of those transactions for loans applications or anything like that and so really it's important that we start treating this web 3 Financial history as the same thing as your regular Financial history so that becomes part of your identity and that in terms of risk um I guess it depends on what kind of risk we're talking about here like obviously there's like security risk um then there's you know um I guess like recourse and right now a lot of this like over collateralized lending uh makes sense because of the sudanimity and the pseudonymous nature of defy if we start delving into this kind of identifiable kyc institutional lending uh and bridging back into the real world we start to be able to go under two unsecured under collateralized lending but it becomes a new lending mechanism itself and then you know we need to start leveraging the efficiencies of on-chain benefits for those same types of uh kind of traditional slow lending like precarious methods um and then finally there's also ways you know we're working with some Partners where you can create kind of attestations and proofs uh instead of kind of you know providing all of your assets into a third-party protocol for let's say staking you could actually prove you hold those assets in your wallet as part of your identity without actually manually staking it there and still receive the benefits of it so if that protocol or platform ends up getting hacked or there's something like attack Vector that you don't know about you don't end up losing your assets and so that's a big kind of boost for like security where you don't have to give up the custodial rights of them to receive the benefits and so all of these things kind of fall under identity and risk but you know part of our mission is trying to blur that line so it isn't just D5 versus C5 but you know it's just Finance yeah the D5 versus C5 part I think is something that definitely comes up here a lot um but I think an interesting uh point of view would be about you know looking five even ten years ahead um is it really going to be you know D5 versus C5 or do you guys have an opinion if they're actually you know symbiotic in terms of you know Banks working to integrate this technology or you know it's all going to have to be decentralized yeah I think there's an opportunity for convergence here so the reality is banks are regulated financial institutions will not interact with defy unless there's kyc or AML processes in place or permission pools because if one dollar is dirty in a pot the whole pot's dirty and so I think the future looks like right you have defy uh applications that you know can sort of be blended with fintech so a really cool example of that is lemon cash in Argentina uh sort of web3 Bank looks and feels very similar to you know the experience you would have on chime or name your banking app and they've integrated directly with Ave so that their retail users can sort of you know deposit assets directly not available anything to add um I yeah I'd agree directionally I would say um I also would imagine that a lot of D5 protocols to kind of comply with different regulatory regimens across different countries would have different front ends or slightly modified versions of their back ends corresponding to different jurisdictions kind of the way you see in C5 so I think you'll see a lot of Trends from CFI uh kind of this adaptability different geographies occur within defy as well in the longer term yeah I I agree directionally but I think you know one of the biggest problems generally is like when we're bridging real world assets into Defy is that we start to lose kind of the benefits of like distributed ledgers and Global consensus and basically the validity of that data right so like if somebody is saying this is true in an off-chain world if we just create an attestation we all the only thing you're pushing on there is that attestation but that validity is coming living off chain and so the point of like Global consensus is that you don't have to ask you don't have to have that trust assumption so I do I would hope that like the trend that happens is that that we're not just kind of migrating back and forth without this kind of Truth like you know consensus there because we've seen what happens over the last year you know when somebody just sends an email saying yeah I have this much money okay now we create that email and put an attestation of it doesn't actually bring rare like verification for it so I think like while we think about bridging back and forth we also need to kind of not forego the benefits of global consensus I also think there are different assets have uh different bucketed users right so fracks people who are interested in using fracts are very different than people who are interested in using uscc right and that'll continue to exist for you know perpetuity I guess expanding on that too Nick in terms of asset sequencing you know what is your thesis about you know where the next um and maybe the next year also beyond that what asset class do you think will be tackled next yeah so Yes stable coins have been the killer app so far I think what's next there is interest bearing stable coins and the reason you know why that hasn't happened yet is because it would look and feel a lot like a security right and so um what do interest bearing stable coins look like in the future maybe something like tokenized Bank deposits uh so I think that'll be coming within the next year or so depending on the jurisdiction and like that I think will completely take off um I think what is having sort of limited appeal um now and part of this is because of infrastructure reasons is like paxos gold right it's sort of you know flat on flat in terms of the asset Center custody on chain but there's there will be a lot of demand for it once you know Prime Brokers will let you know people use it for collateral right and so there's like things around the edges that I think will enable um greater adoption of some of these real world assets other ones that we see in the pipeline fixed income uh there's a ton of value and having a lot lot of this be done on the underwriting process through smart contracts right and I know Josh you know a lot about this but right getting rid of the issuing and payment agents and making the process for issuing fixed income instruments much faster so those are some of the things that we see you know coming down the pipe alternative assets you know I mentioned earlier but this is like a 20-year story um and so people are working on it now and it's not to say that people haven't been but you have to build the infrastructure around some of these assets to enable them to really take off anything to add you guys about just the sequence of assets and what could be next yeah I would say ones that are currently underserved in the traditional markets I mentioned this earlier but Commodities are a great example of this uh retail exposure to Commodities is pretty severely restricted uh most jurisdictions very high Capital requirements to even be able to trade them in the first place uh amounts of Leverage or net position sizes entirely fixed so very kind of little granular control over your exposure while your position is open very unlike in crypto so I think bringing some of the properties of digitally native assets to offshade assets particularly the ones that don't have or furthest from having those properties in the traditional markets will be an area of particular interest for investors interesting I think you know another one that isn't similar to that along those lines is around mortgage-backed Securities and it was um interesting to learn you know how many of the transactions that happened today in the MBS Market um are done on Excel you know via email and these are like huge um volumes of data related to you know individual mortgages and going all the way up to like Master portfolios so um to me anything like that you know that huge efficiency play is really exciting uh yeah I mean with all these assets too what blockchain is enabled with these censorship permissionless rails is like having much faster settlement times and reduce transaction costs like still t plus two to t plus seven with moving money around the world like if you look at equities t plus two like so as these things sort of come on chain you have much more Capital efficient markets and also reduce like Risk so it'll come and it also makes me think about you know when I'm going down the stack of assets that are out there and how inefficient are you know some that aren't digital um and then the term that we've all used I guess rwa real world assets um I'm just you know thinking about it and when I've mentioned it at work as well people you know look so confused and they're they're saying risk rated um at you know completely different term with the acronym so I'm just wondering you know is there a better name that we could give that also does Justice to assets that you know are on chain already yeah I mean you didn't even mention that rwa and traditional Finance is like a totally different meaning it's risk weighted not real world um I still am waiting for some to explain what web3 means to me I think digital assets is a much better name because that's what it is right I don't know I actually I I got into a Twitter back and forth with Luca Luca pressberry from dirt roads uh he had had a tweet threat saying he wanted to get rid of the term reload assets this was a kind of plague upon crypto I the argument was basically that digitally native assets are no less real that there's an implicit evaluation of of digital native assets by referring to off-chain assets as real uh I would agree with that directionally I just haven't found a snappier term than rwas uh I thought of off-chain on-chain assets okoka but doesn't really have the same ring so I don't know still waiting for someone to find one um yeah I can't think of anything like better yet but I do agree that the real world asset name kind of makes us as if we're not operating in the real world uh you know digital assets versus non-digital assets also seems to be more confusing but I think you know um trying to actually the mission of everything like we're all doing up here and I think part of like the conference is actually trying to make it relatable and usable to the rest of the billions of people that are out there and make these Services accessible so I think that's the goal and if it becomes a real world and you know crypto becomes real world I'd be happy with that yeah I I guess I'll just add to that that uh options or derivatives aren't exactly like physical either so the distinction isn't really whether even something is like digitally native or non-digitually native whether it's like natively issued on chain or tokenized and put on chain with the off chain version of it as the reference point yeah I think this is a pretty big and deep rabbit hole we can get into I mean it still drives me nuts like that cryptocurrencies are used on CNBC and they refer to things that are not trying to be currencies as currencies so like we need to fix some of the basic things for the normies and you know rwa can come later is normies that that would totally include me but I will um I won't be offended by it um another interesting you know aspect that I'd love to dive into is you know where you can actually integrate you know defy in brand new ways in different asset classes so trade Finance is an awesome example you know I've heard of awesome companies like uh crowds is a great example and they're not only making it possible for more small businesses to you know get their invoices financed but then also participate in the you know secondary Market of that and I'm just wondering if there's other examples you know that are that excite you guys or that you've heard of that you'd like to share looks like crowds is it only exciting one that we can make up I mean I'm excited about what we're doing because I think it kind of goes the other way like when we talk about real world assets we're trying to talk about like traditional Assets in web 2 and bridging them over to web3 but I think there's also a problem going the other way and so what we're looking at is like credit scores and credit risk infrastructure but it's actually taking on-chain Financial history and bridging it back into the real world and so then it becomes like you know we talk about like like I'm like you know we're here in North America everybody is used to having like a FICO score and so you know the real world is here in the FICO score but there's like a whole other infrastructure and rails in web 3 that's just sitting there by itself and kind of being excluded and so you know those become non-real right and this kind of problem when we call things like real world and not real and so we need to actually make those usable in the real world and also if you think about like Emerging Markets where uh there's a high disproportionate number of people interacting in web3 and using digital assets they don't even have the benefits of like all these financial services and so if web3 can do that then we could start building some credit risk infrastructure for them because a lot of these people have never even had a credit score so again that's about like bridging on-chain digital assets and services and financial data back into the real world to make it usable and make have them more accessible to I guess primary Financial Services yeah and you were talking about you know trade finance and factoring hitting it factoring a bit but as I think about like how we drive adoption here it's like how do we also get traditional institutions on board and you know there's been a little bit of noise about Visa and MasterCard uh and these payment networks you know getting involved with stable coins and there's real value there both to the payment networks and to Merchants because they're working directly you know with usdc name your stable coin maybe they issue a stable coin then get rid of payment gateways and acquiring Banks right remove you know call it 60 to 90 basis points of fees drive there take rate higher but also reduce the cost to the merchant and so it's a win-win for everyone and so that's like something that I'm interested and sort of waiting to see traditional institutions happen you know or get involved with not much that we can do on the investment front there but I think that's a really exciting way to sort of Drive adoption and you know bring this to sort of traditional settings or financial service businesses yeah it's a great point and you know it makes me think about the fact that there's huge expenses that can be reduced with things like smart contracts and having data available on oracles and when that happens that means that you know institutions can actually really focus on providing the best financial services that they can as opposed to you know huge head counts about some of these really inefficient non-digital processes that blockchain can solve for um and I think that that that's definitely an area where as a tip I guess um people are never going to be interested in things they don't understand and you know I think about all the places that banks are moving like on the cloud for example um making it really easy and digestible and leading with you know where where can the bank benefit as opposed to really having to educate them about the entire Tech stack of what it is that you've built um I know that you know ocm and inspectral have been really great at how they communicate with those types of Institutions which is awesome so lightning round because we're we're down I'm going to just say a term and then if each of you could say the first word or thought that comes to your mind um after I say it are you guys ready so the first one is um Rebirth of assets on chain I guess potential M2 rebirth was Liquid Rebirth of assets on chain native on-chain issuance so the second one blockchain eats asset Administration blockchain needs what asset Administration long overdue back officer fund admin decks awesome well that is the lightning round um really awesome to have you know had this conversation with you guys any last thoughts or tips for Builders or investors out there before we wrap up uh yeah I guess we're like Builders um you know I think like we talk about real world assets and it's important to like as you're building like you know part of like startups and startup cultures like you find like a passionate Niche and you like build for them but I think in this industry it's like such a like disparity between like normies and like you know native web 3 users so as you're building start thinking about like the next wave of people coming in and using these products um you know a lot of what we talked about is like bringing assets either on chain or bridging them back into the real world for a use case it makes them accessible but you have to understand like the diversity of users around the world and their accessibility to Current financial services and then how will they use them and I think that's going to be important and over the long run yeah I would say just take the Long View my view sort of where we are is where Cloud software was 25 years ago and this will be a 20 30-year journey and sometimes it'll feel like there isn't much progress being made but like keep at it um because like this is you know financial institutions are really slow anyone that has ever sold anything to a bank that's a good take like two to two to three years and like that'll that's what's going to happen here especially in real world asset infrastructure but I think you know incrementally it'll the adoption will be there and then suddenly it'll take off right once you sort of have all these ancillary infrastructure and services ready um and like it may seem like Banks or asset managers are pushing back now but it looked very similar to that like in the 90s with traditional incumbents and so like they are sneakily working behind the scenes to either build or adopt some of these things yeah I would Echo what Nick said uh while adding that I think when you're building something to roll it outside space right now there obviously is an intermediate stage before all of this stuff is widespread and adopted by institutions where you need to solve an immediate problem and so thinking through what the longer term vision is while also making sure that you're addressing an immediate need of consumers um so for us the way we thought about that is ultimately we think that all of this stuff will be traded on chain but in the immediate term we the problem we're solving is allowing unchain diversification uh for investors that want to diversifying to other asset classes without having to offboard their Capital put it in a centralized institution um and deal with all that complexity so I think tying in early on in your product design the immediate problem that you're solving will also uh thinking through how that will tie into Evolutions in the product in the long term so that you don't have so that you can actually uh evolve this product progressively rather than having to scrap entirely what you built early on and rebuild for the future so yeah awesome well thanks you guys so much and thanks everyone for for listening [Applause] [Music]