Tokenization and Regulation Unlocking Institutional Confidence | EBC11

Hello everyone. Uh I am Joe Ratundi. This is a panel about uh how we get tokenization into the real uh into the real world with institutional adoption. What are the major roadblocks? We've got a great panel for you.

Uh uh unit network by the way I'm co-founder of it is a blockchain for tokenizing real world assets. essentially everything in the world the long tale of value that is uh not currently uh traded or fra being fractionalized as illquid. So just um yeah that's kind of my my framework but we have a really diverse and and solid panel for you today. I'll let everyone sort of introduce themselves. We'll start with Sylvia.

Hi everyone. It's a pleasure to be here. I'm Sylvia. I'm the board member at Origin. origin it's a protocol uh focalizing in the certification and in the tokenization of real world assets we focus on gold diamonds and luxury good and art uh but the application are far more so that's why uh I think we can uncover a bit more later today together and it's a pleasure to be here with you

hi everyone I'm Anastasia the head of uh digital assets at Samsub and an certified expert in financial crime, risk and cryptocurrencies. Sums up is the identity verification service provider. Uh so we have QC, QAB, transaction m travel rule, onchain interstation and other services to centralized decentralized uh exchanges, web three platforms and other projects.

Hi everyone, my name is Jeff Kendrick. I run digital asset research at Standard Charted Bank. I cover liquid coins and tokens. Um, so people know my research for Bitcoin views, which thankfully went quite well. In April 2023, we're at 25,000.

I said crypto in is over and we're going to go to 100K by the end of 2024, which was fantastic on the back of ETF and Trump stories last year. And then this year, I've written quite a lot about stable coins, which sort of leads into today's uh topic. Specifically, in April, I predicted that the total market cap for stable coins will go to $2 trillion by the end of 2028. and Scott Besset uses that number in Congress today. So, as far as I'm aware, I'm the only person in any bank globally doing this job full-time.

So, as it turns out, if you have a monopoly, it's great to try and hang on to it. So, long may it continue.

Hello. Uh, glad to be here. I'm Miko. I'm leading the DT and digital asset team for Bankasella. Bankasella is quite an established player in Italy because the bank is 140 years old, is the largest privatone bank in Italy.

And with the digital asset team, we are covering uh quite a large spectrum of activities spanning from custody, e-mani token and hopefully tokenization soon.

Wonderful. So we have banking, we have uh we have some upstart sort of a tokenization uh perspectives. It's quite quite a nice panel. I'll start with Jeff. You know, you just mentioned um that tokenization will get to $2 trillion by the end of 2028.

I think you privately mentioned to me also that it would get to 330 million trillion by the end of next year. uh 330 billion. Um what how do we get there? Like what's the what's the roadmap for that? How do you see it?

Absolutely. So I see stable coins as doing a couple of things. Um firstly, in this space, stable coins is sort of like the gateway drug actually. So everyone now has heard of stable coins this year. Um use cases are starting to come through in emerging market savings in particular.

Um but also starting to come through on the transaction side. So for me that gets people involved and interested in the in the discussion. It also has now started to create quite a lot of liquidity on chain which I think is critical as well. So with those two inputs and now the push for broader realwood assets to be tokenized equities probably coming next um at some stage next year I suspect we'll get large asset managers taking offchain funds and putting them on chain um let's say numbers like 30 or 40 billion from an institution. And when we get one of those, we'll probably go from 0 to 1 to 10 quite quickly um because you'll have that um FOMO from the other asset managers.

And I can say having spoken to quite a lot of them, they're essentially all looking at this space right now. So for me, that's how we could possibly go from tokenized real assets of just 30 billion today to let's call it 300 or 330 by this time next year. Um, obviously we need some regulations as well, which I'm sure we'll talk about too, but that's the the basic road map, which to me feels quite inevitable just now. So, if 2025 was all about stable coins, I think 2026 is going to be all about tokenized real world assets more broadly and then DeFi as per the previous panel.

Uh, great. And and Miko, from your vantage point inside a bank, are are institutions ready for that kind of scale?

I would love to tell you that one year will be enough. I don't think so. Obviously we are living the chat GPT moment for stable coins and we strongly believe it's time to invest. That's why as bankella we entered this uh European consortium of banks aim to issue a maker regul regulated stable coin. Um I agree with Jeff we also have to deal with the regulation that is still very fragmented across the continents.

Here in Europe we have P uh we have Miker is not an easy regulation to deal with. It takes a lot for a bank to seriously understand when uh where um uh the regulation stops and when it comes the interplay with other existing regul regulation for example. So there's kind of of a few topics to dig in about the interplay of maker and PSD2. We have the travel rule regulation that started. We maybe needed a longer grandfathering period for what's around messaging stuff because this is not exactly working 100%.

And plus there's a lot around tech resilience. So Dora related topic because to deal with onchain business model you have a lot of critical suppliers. So I think still a lot of institution need to step in. uh as more institution step in uh we will have a a phase of uh uh nudging the local regulator to make this regulation more effective than they are now. And I'm expecting this to last at least a couple of years.

Okay. Interesting. Um Anastasia, I had a question for you. If you uh do you see how do you see the the balance between regulation for for safety that people are depending on it for trust these days and maybe uh where regulation can kind of stifle innovation. Where's the where do we find the balance there?

Um actually I think that we should start with the um that we have different approaches. So we have the two completely different uh worlds that's traditional finance and we have three platforms and um traditional finance institutions have big compliance teams. they are strictly regulated. Um while V3 platforms and let's be honest that's where uh the actual tokenization is um happening right now they are more inclined to flexible approach to um to let's say onchain attestation reusable identity etc. and they that's comp it's uh difficult to them to comply with this uh strict regulation uh with uh ma I completely agree with uh ma uh that ma regulation is not uh an easy uh regulation in the European Union.

Yeah, I think that at the moment I would I wouldn't say that regulation prevents uh users from uh from um on boarding to these platforms and this that um this not a barrier that's more like um uh opportunity. So uh I think that um that's that's will um get more trust to users to participate in tokenization. Yeah.

Okay. Uh we'll get to you uh Sylvia, but uh just just for Jeff and and Mo, does the does institutional confidence always depend on this regulation or can sort of other things like reputation, transparency, maybe cryptographic proof um replace that traditional trust in the traditional systems?

I think it's fair to say, and I'll pick up on um a point Anastasia was making as well, institutions like banks are basically run by compliance and risk functions today, right? and have been for best part of 20 years since um global financial crisis. So for banks we need um certainty we're very conservative organization. So the useful parts in regulation would be to have the same regulation in different locations right as as mentioned a moment ago. So um I suspect where we go is we'll get clarity from the clarity act pardon the pun.

We'll get the SEC guidelines in the US. Obviously, we need the US government to reopen for any of that to happen. But let's just say in the next few months, right, we'll get clarity act, we'll get sec guidelines. Um, falling out of that could be some sort of industry standards or industry rules, which I think would be fabulous in the US. And then maybe in the in Europe and UK, we can get something similar, right?

So, when you go into sort of industry standard space, it's much easier for global organizations like ours to do the same thing in different locations. So I think we will go there in 2026. So that's one bucket and the other bucket would be where this is all going to happen which is almost entirely Ethereum from from my mind because banks like ours trust Ethereum. The point was made in the previous panel today. It's never gone down like no one in my bank is going to lose their job for building something on Ethereum and then if it goes down afterwards, right?

But if you do the same on other blockchains, you might. So the very large trustworthy chain Ethereum s um some regulatory clarity would be helpful as well cuz again banks are very conservative by nature.

Yeah completely on the same page on the Ethereum thinking and plus on the need to provide some standards to the market. Bad news for web three operator is that we just have one regulation. We don't have a regulation for banks and one for web three. So we need to gracefully deal with this new regulation together. I I expect this to be a bit harder for web three companies.

Uh but having more banks dealing with these kind of services and partnering with web three agencies and companies all around will probably uh let us step together up to the next phase. No, I feel we had a first wave of development of this whole onchain industry that was around uh demonstrating that the technology was there and it was enough uh um that there was enough uh security and scalability there. Uh for sure we are okay with with with with trust and security. Maybe scalability needs something to prove yet. Um we we're going to see.

I mean,

well, interesting. Uh, Sylvia, so uh you you're an at Origin, you are bridging um the physical and the digital worlds with art and fashion and gold. Uh do you see a path to ownership of tokens that doesn't rely on the state at all or are we sort of stuck within the regulatory systems?

Yes, that's um when we ask ourself what is happening right when we tokenize assets especially focusing on physical and everything. Um I can give you some example from my experience. Last week I was talking with different entrepreneurs. Um and they we see a switch. Uh I've been joining region since three years and a half.

A few years ago when I was talking with entrepreneurs, they were still wondering why they should have been use blockchain a decentralized ledger transparent access to information for their goods uh their um let's say the items and everything that was kind of right now instead when uh I was discussing just last week you can see that this concept is super clear. They are really exciting. They see the value behind and so everything is just on the next phase. is more on how we implement it, when we are going to implement it, which is the operational change that might be impacting the organization and I see the same trend that will also come within um other sector such as identity. So more towards communities right influencing and I see the same approach.

So if now we are saying okay why should we use technology or infrastructure such as the blockchain for more transparency it's becoming more I would say natural especially with uh I think um the development of AI we see a lot what we can call pass me the term fakery I would say online on different identities so the proof of identity will become really the next big phase so we not be driven by maybe I would say institution or uh but will be I think driven more by communities and user itself trying to really understand uh that we can truly understand the technology and so they can really be more owners of their own I would say identity that's how I see it

interesting and Anastasia you're also in the digital identity sort of space to some degree um do you have any a take on this question as well and sort of how does digital identity play into the future like can we truly build peer-to-peer networks that are um not dependent on on any other uh any other trusted body but you can have your own identity on the blockchain.

Yeah, sure. Um you know actually um all platforms need to verify users to prevent some kind of uh anti-money laundering, terrorist financing etc. But the way to verify identity may be different and it should be scalable. It should be flexible depending on the asset nature depending on the uh risks uh depending on the um different factors and digital identity is the hot topic now and it uh will evolve I guess. Um and especially maybe uh self-s sovereign identity will allow evolve especially on uh web3 platforms.

Um yeah and it brings um trust and clarity to users. They own the data. They control their data. Um yeah self-s sovereign identity and maybe reusable identity. uh maybe onchain at the station.

That's where the problem is that we um have uh some kind of problem from the regulatory perspective. Uh that's not uh always recognized by regulators as a compliant tool, but users um and platforms want to use this. Yeah. I might just um add something on that as well. So I think we're going to end up in a couple of buckets.

So um the the two most successful things really in blockchain today, Bitcoin is one, right? People buy Bitcoin because it's a way to store wealth without a central authority. So that's kind of going to exactly your point here, Joe. Like people want to have something which is um outside of standard regulation, outside of Tradfi. And the other super successful thing is unregulated tether globally.

Like Tether today has about $170 billion in it and it's used in all the footprint countries that standard charted is in in Asia, in Africa, in in Middle East, in Latam, right? So, and it's trusted now because like all technologies once it's used, user experience like gets over the hump and then starts to tell their friends and family to use this thing and it's trustworthy and it's 24/7 and it's liquid and it's, you know, all the things that it should be in payments rails. So you have this huge space which is um exactly that uh point you're trying to get at which is outside of regulation and other and then the other part will be where traditional financial things go onchain. So um equities for example like tokenized equities it's fair to say that you have good regulation in that offchain so why not have good regulation onchain and there we're just taking advantage of the superior technology. Yeah.

So I think you split into those two groups. Yeah. So tokenized real world assets have regulation that comes onchain from offchain. Um and some of the others can maintain that um ideology if you like to be still with outside the net.

I want to elaborate a bit more on digital identity uh because I I'm expecting this to have a huge impact especially for example the panel before was around defi. Imagine how recognizing the client might change with the uh digital identity credential. We are now at the dawn of the new technology. So European Union agreed on a standard tax stack that will bring to aid us to with a us to that would bring to uh AOD wallet. So I'm expecting also when dealing with custody services through banks uh and also you know upselling other products to already known clients uh especially thinking to what Sam is doing and other travel rule solution I'm expecting digital identity to disrupt the whole uh messaging layer very very soon.

interesting and and you know uh if you look around today tokenization has become quite a a buzzword over the past several years but it seems like it it breaks into two different buckets. One is um things that are already trading. So sort of like stocks, bonds, commodities, and so you have institutional players being the ones that would be issuing those. They're the they're the sort of players in the in the market. The other thing is fractional illquid assets.

So real estate, collectible cars, collectible whiskey bottles, whatever. Um do you what about the long tale of value though the things that are not uh traded currently brand creativity reputation community we talked about identity but um those are forms of value that don't those forms of value that don't rely on the state for enforcement um could tokenizing that open a much broader market for the for the space of RWAS

I think I can pick it up I really do believe uh about the token organization as you mentioned right is not only on is I would say first of all lowering the barrier of assets to certain assets right that were more exclusive this is really similar and we see a big use case in the fractionalization of art the art space that's is one uh simple example and uh of course also the access to 247 kind of trading that's uh more liquidity new revenue pools right when we tokenize gold for example what we do we try to create new revenue pools with partners that have been already in the space but maybe they have new client and so it's more I would say almost a step less within the within the chain so there are less intermediaries more direct assets this is what is tokenization also bringing on um at the same side uh when we mention everything that is um more on the information I would say that blockchain as an infrastructure is also bringing a lot of power within the information if you think about luxury good for example I don't I know many in the in on the on the on the conference of course you are already bought for example at least once a secondary watch secondary bag right but you don't know actually how many owners that bag had you know exactly maybe in the certificate have certain information about the item but you don't know the history right so it's not that I don't want I want to go too much in the traceability traceability is not a new topic let's say but tokenization is directly helping getting access to information that we don't have right now and that they can change e-commerce. You can get asset to use information as a brand and engage and build new experience with your customer. You know exactly what happened to your goods after you sell to restocks or wholesalers. So this information is what is powerful. maybe not everyone really sees uh is not yet uh I would say available sometimes but will come that is I think something that will come alo with more tokenization being on a on everybody I would say change management road map in the next few years

anybody else have any thoughts on the the broader tokenization of the the world

it feels like um things that are illquid offchain should be one of the logical ones, right? So, uh to so far in reward asset tokenized space, it's really only money market funds which are liquid offchain. Um and then private credit which is quite illquid offchain, right? So, there's this home equity loan withdrawal private credit product um that has about $10 billion in it today. So, I think you will see some of that as well.

So, it could be um a liquid commodities, could be a liquid art, could be a liquid whiskey bottles to your point Joe, a moment ago. Um I suspect it remains relatively niche in absolute scale compared to some of the financial market stuff but it certainly can unleash new buyers, new ways to hold these assets etc. So for sure the technology can help there.

So uh I think that if tokenization will meet the expectation the end game will be to bring the whole you know security market there. Okay. Uh obviously we are very far to get there. So I'm I'm personally less bullish on real world asset, illlquid asset. I'm more expecting a progressive approach of big asset managers, big banks getting to trade part of their securities in a tokenized way, prove they are capable to do so and scale accordingly.

And then if this will happen maybe also you know more exotic ass asset will follow.

Okay. You know but so is decentralization still the north star for Bitcoin pointed the way to that as Jeff we've all mentioned uh previously. It's sort of like this parallel system outside of government but we've kind of over time now drifted it seems like with institutional adoption like that's regulation is what we need. Is it still is it still the goal to have this decentralized society or are we kind of um resolving ourselves into the into the traditional structure? I I think we are stepping back in the middle.

I think you're right. So in in terms of the blockchains that are most trusted, they remain the most decentralized. Yeah. So let's say Ethereum again if I go back to them like most decentralized never gone down etc. But what's happened interestingly with the foundations like Ethereum Foundation or behind a number of the other layer 1 blockchains since the ETF launch last year, crypton natives have realized that trad um because of that I can say personally I've had reach out like um reverse inquiry type from Ethereum Foundation and all of their competitors in the last um 12 months or so and I have to say it's been quite impressive.

impressive. So actually it's the crypto natives that are circling back to the centralized version because they can see where the cash is going to come from in the next few years. So in a similar manner to if I was an equity analyst, I'd be talking to you know CFOs in in all the corporates that I'd be covering. I'm now getting exactly that reach out from the organizations that stand behind. Now they can't directly drive where the layer ones go, but clearly they can influence the dialogue.

And so actually for me that's been a massive positive. you're getting a a good mix of decentralized um benefits in the likes of Ethereum, but you're also starting to now see like there's someone sort of standing behind the curtain trying to push this thing in the right direction. So for me, it's actually a massive positive.

Maybe if a couple of points, I think regulation and decentralization are not mutually exclusive in the sense it's not that either you have the centralization or regulation. Let's also think about um the new upcoming digital product passport regulation they is of course not mainly on uh on blockchain but blockchain is actually the infrastructure of it. It's a it's an great user. is a great experience in the sense that thanks if you bring the regulation of the digital products pass and you use blockchain technology then you have both of the best of the both world right and this is something that is helping of course the digital product passport is helping users and getting more information about the first what we call supply chain what I what I think and we really do believe is that we be super powerful if we have the blockchain over all the asset life cycle This is what is really going to have an impact and where we will see regulation together with the centralization be more at the ser of the users in general.

Okay. Interesting. And if you if you just looked around and said you know what's the what's one thing that if it was tokenized and it worked would really change the world. I actually think funnily enough it's the thing which is the most illquid offchain today which is US equities. So um funnily enough so um I think the potential benefits and probability of getting to enough liquidity onchain is high.

So let's say at some stage next year you'll have enough liquidity in tokenized Apple stock onchain to be rivaling what's happening offchain. And that then opens up the whole previous panel story about DeFi, right? So um what this unlocks for me is in the same way today Elon Musk can take his hundred billion or $200 billion worth of Tesla stock depending on the day and borrow money against that using trady rails. Right? Tomorrow when this is all in DeFi space I'll be able to borrow against my Apple stock using a which is fantastic.

So this is as well as stable coins bringing the 1.7 billion people globally that are unbanked into the financial system. Tokenizing real world assets like stocks allows everyone to take charge of their financial future in the same way quite frankly only billionaires can do today.

So we've got US equities or equities in general. Anything else?

Maybe I take it from another angle. is not only one thing but is actually everything. So we do believe that um everything should be tokenized. uh we believe that it's something that will come more and more natural for everyone and um is I think has been also heard over the two last days over the conference on chain is the new online right uh so that's where we are hidden it's not only one thing that will change but it's actually all all the things tokenized more assets for everyone of course with regulation and institutional adoption this is what we drive I would say the new web free revolution

yeah I completely agree and uh I think that yeah we already have such a projects like tokenized real world assets or any diamonds or any high value assets and I think um they will evolve and they provide uh access to uh more broad audience to participate in such high value assets and that's really great very

yeah nothing left I mean

nothing else there's nothing else except for everything okay

no I I I agree to to get a step back to I was wondering like it was impossible to have this conversation with two banks on stage just a few years ago so I think everybody agree we are trying to keep the best of traditional world and you know the centralized and what is happening it's also regarding people and talent you know and this is part of the outcome of the conversation we're having right now. So yeah, we have way more crypto people entering banks and you know compliance and risk people with bank experience entering crypto companies and out of these we will make uh everything on chain I hope okay so u all right let's so let's say this uh whether it's through equities or stable coins and then and then it leads to other things maybe everything being tokenized so what what does that world look like in in 10 years? I mean 10 years is a long time in crypto years. Crypto it's like dog years maybe even a lot more. Um so what is what does the world look like at we we combine AI maybe and other things whe you know what's the convergence look like there.

I think um in 10 years I expect everything to be seamless right sometimes we know that the user experience are still some barriers of entry uh I believe in 10 years for what I said also before everything could be tokenized everything should be really also easy to get access to so that's I think will be one of and I expect be one of the things that will really change the next coming years and will drive uh the mass adoption that everybody is expecting uh that This is I think one of the big thing that will happen not so far I think in the next s of three or four years with max adoption in the seven to eight.

Yeah. Yeah. I agree and um FCA has recently published its consultation document related to tokenization and they said that tokenization is seen as a key is one of the key components of the future financial services. So I think we uh can expect um that tokenization will gradually uh move toward um broader adoption and the regulation will evolve of course. Yeah 10 years is a is like a lifetime actually in this space.

Um so I think in 10 years in developed markets we'll all be getting paid daily. So you'll have uh payments um done like via payroll that will all allow instantaneous payment for your work. It could even be hourly but certainly certainly daily. Um individuals will be able to then with that via a agents pay their mortgages daily. We'll be able to take the rest of the cash and put it into tokenized money market funds or tokenized Apple stock or whatever you like again daily where AI agents will drive all of that.

And then in developed markets, you'll have everyone will be in introduced to the financial system globally. You'll have a removal of a number of currencies globally because stable coins will mean deposit flight out of local banks. Um, and so you'll get dollarization from the ground up. Again, empowering locals. So all this goes to empowering people both in EM and DM for me.

And I think actually 10 years is a really long way away. This could be like three or four years away. Yeah, obviously I don't have the crystal ball and 10 years is a long time. I would say in Italy there's more or less 400 banks. Three of them are active in the digital asset space you know.

So first of all many more player to step in uh less barrier when dealing with regulators. So I hope in few years we will have uh more standardized regulation across Europe and less barrier as possible when dealing with u you know crossborders activities standardized trusted stable coins issued by banks and uh you know there's plenty of use case we can explore in the next few years okay before postquantum will raise us

right I mean 10 years is a long time but you know maybe um to the extent that you know remember remember remember Uber is like 10 years ago when we had that wave for for taxi drivers I used to work at uh I'm a lawyer by background I used to work at this institute for justice a libertarian law firm we we litigated on licensing for taxi drivers for barbers for various things and the only thing that really worked was peer-to-peerization and so you the taxi license in New York City was $1.3 million by the end of by time Uber came along so it's just you can do that with Airbnb for hotels uh will banks be disintermediated Well, will they still be I mean I know it's it's a sacrilege working in there, but um how does it uh maybe that's part of the 10-year plan or is it are they still fully functional? Everything's under regulatory structure.

I'll go for a quick one on banks. So um

I've only got a minute. Sorry.

Yeah, I think it's fair to say that um as an industry, banks are going to be the losers from this asset class coming on coming on coming into fruition, right? So, payments rails, uh, trade finance, FX, all of that stuff is going to go onto, um, DT. So, um, the key for banks is to try and be small losers. Yeah. So, institutions like ours are trying to get ahead of this technology, provide new solutions for clients.

And so, I think that's the best way to go. Those that don't get ahead of it, I suspect in 5 years are gone.

Any last 10-second thoughts? Anybody? Okay. It looks like we're standing between a world of the uh the regulated and maybe hopefully we can uh break through it. We'll see.

But uh thanks for it was a great panel, good conversation. Thanks for everyone. Thanks everyone for being here and thanks for listening.