Walt Schagen - Unlocking Crypto’s Potential: From Disruptive Technology to Invisible Infrastructure

Well, gentlemen, a warm applause to Walt Shayen, founder of Nex Labs, a crypto asset management platform offering an index building smart contract infrastructure. WS bring n neutral periodic prospectivity to the crypto space with a focus on economic fundamentals and long-term uh system designs. his talk unlocking crypto potential from disruptive technology to invisible infrastructure. He will explore how crypto evolution into fundament fundamental infrastructure droning lessons from the internet growth and the nature of resilience. So he will discuss the next frontier in AI integration, decentralized innovation and the quiet revolution of tokenization of real world asset.

This is quite incredible, quite quite interesting. That's right. So let's let's give applause to world guys. The stage is yours.

Thank you for your kind introduction. Uh yeah so I was already very nicely uh introduced. I also represent Mood Global Services as a CTO and uh we have a booth over there if you want to visit me and have a brainstorm. I like to uh think about the future of crypto and you know working with a lot of crypto companies we try to build the latest and uh we deploy the latest technology so that's my responsibility in part um yeah so first I wanted to discuss the reason for my presentation which is uh recent glo recent events uh such as Robin Hood uh launching their own arbitrum layer 2 uh chain where they're going to tokenize stocks and they have a uh regulation uh uh permission granted with MIT and MAR in Europe. Uh so there's a big market pool coming big demand from retail.

uh then I also observed that there's uh asset standardization uh incoming and uh yeah finally uh we have had a bunch of asset tokenization adventures that I would like to discuss with you guys such as maybe you remember mirror protocol uh or synthetics uh where cowboys essentially tokenized assets or they made a contract for difference and eventually users got scammed because the underlying asset wasn't actually purchased. Um but now we're moving towards a more regulated space and I think the opportunity is massive because uh current real world asset tokenization is looking at about 20 billion in assets under management and the total market is about 130 trillion. So that's less than uh 0% 0.01%. uh but I think it's finally uh happening.

So we're almost at the last stage where uh sufficient regular requirements are met and uh we can take that step. So instead of linear adoption which if you read for example a consultancy report they say the compounded annual growth rate is expected to be 30%. It can also be going from zero nothing like 20 billion is essentially nothing to everything. Um and in order uh for me to prepare you guys uh I'm holding this presentation because you guys are all innovators, creators and I think uh this gap is rapidly closing like we see from threadfi industry uh for example uh brokers that are listing crypto assets and from defy industry we see for example Kraken listing uh stocks. So from both sides uh the asset universe is being expanded and at some point there is uh uh all the asset types are available within uh uh a provider.

So you can buy any asset on any platform. uh right so for this presentation I wanted to look a bit more outwards instead of like what blockchain technology can do or where tech where the technology uh what is the latest technology let's say uh AI I wanted to look more at the uh existing market and what blockchain should be what should blockchain be in order to become effectively the layer for the threat industry. Um yeah and then finally I have some advice and a little brainstorm uh for you guys. Right. So one of the uh experiments that has recently been undertaken was led by mostly chain link uh but also part of uh uh swift was part.

So this is a international uh uh payment uh network and the idea was that uh companies submit uh uh messages such as their reports uh like dividend filings and the problem is that there's no global standard in uploading uh these messages and what happens is that regulators need to approve uh these filings. So they convert it to a PDF and when they convert it to a PDF it's no longer editable uh which is exactly the point because then you cannot change it and so uh it's secure in a sense uh but then uh this this uh group uh suggested to read that PDF with AI in order to get again the original data essentially to to unwrap the wrapper. and um yeah essentially submit that uh in an approved way uh to get a sort of sort of global messaging standard. The problem with that in my opinion is that uh why would you need to wrap a PDF and then unwrap it with AI? It adds like a potential layer of false.

AIS are not perfect. Uh so although you could say for example with Gemini the AI by uh Google that they have a native PDF reader so they collaborated with Adobe and um yeah you could say it's faultless in that sense but still you're converting different data and it's not efficient if you have a large amount of data. So what I would suggest is for example uh you take a a corporate action and together with it you create a hash and uh if you approve this corporate action uh then because you can see the hash you know that the data is not altered when you open the uh original file. So you have a a data layer and you have a verification layer and all of these you set you send together and uh that is in my opinion better than alter altering the original and then uh unwrapping it. Okay, this is just one one experiment and then uh what I already mentioned a little bit of um the the cowboys that we started with for equity tokenization which is like okay uh synthetic stocks we had with mirror tracker and uh other protocols like synthetics and often they didn't actually have the assets uh in custody.

So this was like early days. Then later days uh came actual uh partial regulation but not for uh retail more for institutional players. They would be able to buy tokenized stocks with proper underlying assets. Only thing is it wasn't really properly integrated with DeFi. So it's just a silo where they could buy and they have it tokenized and not really sure what the purpose of it was except for being fancy but uh okay it's progress right u and then came like proper like defi integration which which is kind of the phase that we're looking at now where we have for example protocols likefi dinari and you can see partnerships with kraken where they actually through these protocols are allowed to offer stocks to retail and uh yeah I this is almost like full compliance like it's still often listed on centralized exchanges um and not always fully integrated with DeFi but it's coming.

Yeah. Right. And then the final one was Robin Hood. I already mentioned a little bit they started their own layer two um uh well they they first launched on avalanche and maybe they want to start their own layer too but uh details don't don't really matter it's it they they can now officially in Europe with uh the regulatory approvals of the Lithuanian bank they can uh tokenize stocks and offer it to European customers. So it's a it's a big step and a big market they are untapping uh because a bunch of these others RWA providers only had U US compliance.

Uh so yeah this I think will also create a big market pool and now regulators and uh yeah other other uh trfy entities need to start responding because this is going to take share away from the trfy banks institutes brokers. Uh and the final problem with um with Robin Hood is they still want to you know they want to control all the transactions because they they batch uh transactions and they kind of front run every user that trades on their platform because they have their own uh exchange where the the trades are routed. Um so you don't have a lot of annual cost as a small user. you you don't pay u uh an account fee so to speak but every transaction that you do make is has too high slippage compared to the global market I would say. So uh yeah that's their business model.

So yeah I thought if we need to look at where blockchain could be going uh comparison we can draw is with the past and the past is in this example uh internet. I thought there was quite a resemblance uh with the evolution of internet because uh first there was uh the invention then there was a huge hype we got the.com bubble um and yeah there was various reasons why this com bubble burst like interest rates were rising uh whole bunch of crappy companies uh started an internet company. Nowadays, we can't even speak of an internet company anymore. Like that's not a thing.

You just start a company and it happens to use internet, right? So that's what infrastructure becoming invisible means is that we just assume it's normal. Um and so I see similar things happening with blockchain technology or distributed ledger technology uh which is the overarching term that uh refers to not just blockchain but also other cryptographic methods uh because later on I'll uh show that in the tre industry we don't necessarily need blockchain uh per se because that can be uh a bit slow. Uh you can also use other methods. Um but yeah, we had like a bunch of uh good protocols in the beginning uh of the crypto boom and of course we had a crash uh and uh yeah interesting protocols for example Ethereum uh unis swap and chain link they were early.

So um yeah um I would like to ask you guys to think uh what conclusions you could draw from this if you see these similarities. Uh I'll give you a few seconds to think about it. These are some of the if you recognize some of these pictures uh I cond uh these are all scams uh sort of I was the proud investor of the bottom right one uh which is a container that uh uh mines crypto and it was very modularized uh uh they raised 150 million and then never saw anything back. So that's like the hype. Uh there was never any real product although I believe they did make a single container just to make a video and uh that's it.

So um yeah what can we learn uh that yeah you basically you shouldn't be investing in Ponzi schemes but also uh it was actually the speculation was based on real technology. It was it was actually founded by something good but that made media take over and then there was specket la of hype all the new projects were cool and then at some point when the bubble was bursting everything was a scam u so that's how it goes uh but one lesson you can take it as an investor is is like okay maybe you should really look well in the fundamentals and be early because that's what the only way you can guarantee that you're dealing with businesses that are genuine because they were already there before the hype. They didn't know there was going to be hype. They just had a good idea. Uh so that's that's one tip.

And the other one is that that you shouldn't be dealing in a industry with like low regulation because um let's say with the internet bubble there was a bunch of companies that could just basically list their uh company for IPO. So on the actual stock market with basically just uh a prop site and no real revenue. Well then I thought okay we can look at the past to see where blockchain technology is going but we can also look into nature and uh one uh example that struck me as uh interesting was mycelium. So essentially fungus and fungus uh the way it grows it explores every possible direction and it keeps the strongest routes. So it's it finds the shortest way to food or whatever it needs.

Like it's like a network of nodes um where it's the most efficient way without actually having a brain. Uh and it to me that that reminds me of blockchain technology where everybody can set up a node globally and it sort of self optimizes into this structure. Um yeah, so we started with blockchain technology with a bunch of what you could say uh weak routes and that is uh opportunities people were taking but that are actually remembered by the public now that gives uh crypto a bad name. Uh let's say we have for example these these NFTTS that are just uh borderline ugly. Uh or you have a different opinion that's fine but it's like uh it was a huge uh boom and then the bubble burst.

Um but you could say that is just exploring all the venues that are possible within the crypto space and eventually only the the strongest connections are going to stay. So we started for example with proof of work in in Bitcoin of course and then Ethereum went to proof of stake which you could arguably say is an improvement uh because uh well proof of work is very uh res resource intensive in terms of u energy consumption then proof of stake uh is in a different way intensive because it's capital inefficient. Uh so you could say it's improvement but also not per se the end game. Let's if we need to stake assets and then give rewards in the form of tokens that you own yourself. It's kind of like giving from the one hand to the other.

The re the yield is not real uh or effectively lower uh in that sense compared to other people who are holding for example Ethereum but are not staking. Um so yeah you could say what can we make that um can we make that that that uh authorization system uh can we further improve that? That is the the brainstorm I will have for you at the end. I have one suggestion for that. Um and yeah the the things that blockchain technology uh can do for the world I think is generally they have a positive impact where uh you can start to take over small parts of institutions such as banks or governments where we are slowly seeing okay uh we're replacing a currency we're replacing borrowing and lending We're replacing functions that a bank used to have slowly by surely.

And we we're starting with the easiest ones and we go slowly to the ones that require the most regulation and are most deeply embedded in our society. Let's say mortgages or the things that actually are bound to a person uh and more that are more depth based rather than uh just asset based. Um so yeah now when you introduce let's say uh blockchain technology you can introduce it to a new government or a weak uh uh a weak country and it brings jobs and opportunities but it also can slowly take over some of those roles. So it brings competition and I think that's positive because that also makes governments um yeah they need to do a better job essentially. They cannot just have for example a currency that's highly inflationary because if you're highly inflationary uh you're going to be taken over by a cryptocurrency.

People are going to go on their phone and they're just going to convert and your your own coin is not going to be used, right? So with the stock market, we can actually uh achieve also a couple of advantages. allegedly if you would replace the stock uh market, the threat price stack uh with distributed ledger technology. Um and you would probably think maybe it's like 247 trading possibilities should be really easy, right? Uh global accessibility due to the nodes.

Uh but that's actually not entirely true. uh because the stock market right now it's operating at about at peak rates 200,000 uh transactions per second. So uh a distributed network network across the world would not be able to handle that just because of the sheer distance between countries that you need to communicate with. Uh so you get latency then so what you want then is maybe a more centralized network like Europe, USA. what we have now in the transfer industry.

We have for example ICE that is the mother company of the New York Stock Exchange they they are dominant in the USA and in Europe we're moving towards Aeron next taking over various local uh exchanges. So we we first we had like a bunch of local exchanges in each country each country had their own stock market and we're moving towards a uh European uh exchange so to speak. Um but if you would replace that with uh distributed less ledger technology, it's not necessarily that you instantly get 24/7 trading because still you have regulatory requirements and uh yeah I mean why wouldn't they already be able to do that right now without blockchain technology? It's that's just a an advantage of blockchain technology, but they would probably implement this technology and then still have 245 trading. Yeah.

And then one final advantage I would say of uh bringing blockchain technology to the trfy uh stack is that you have smart contracts which means uh composibility and it's accessible to uh anyone in theory uh which means you can build complex products on top and that will bring more trust I believe into the entire uh uh global equity the ecosystem uh because you can better align stakeholders with uh smart contracts. Those are essentially automations. Uh so you don't have to trust anybody anymore. You don't have to trust settlement of for example uh cash or margin. It's all uh atomic.

So this is an example of the traditional stock market. next and I took Amsterdam because I'm from Amsterdam. U and I thought it was interesting because uh in the Netherlands the stock market was uh first uh sort of invented and um and this is a process that happens when right now you would make a uh order to buy a stock. So you first get an order, you send it to your broker. Um they send it to the uh the optic engine onex.

They will match your order with uh counterparty. So you have your your purchase essentially and then it will be sent for clearing and at that point a sort of strange thing but maybe you guys don't expect happens is that um there is a a thing that's called noation where uh the counterparty risk is taken over uh by institutions and um yeah that that costs them money and it's also not atomic in the sense that now instead of uh knowing what's going to happen in a in a D5 transaction on chain, you have a settlement period and eventually you write the records uh away in an encrypted manner. Um but this can all all be squashed into a single uh process using DT. um this post trade process that happens from step three uh towards the right uh there's an industry in which globally about about three pe three million people uh work uh so it's huge and it can be replaced uh so there's a lot of business opportunity in replacing it I don't think it that business opportunity is for us necessarily but I think it's good if we realize that this is going to be uh replaced in the future let's say 2030 uh or so because there's projects going on that will be in the next slide but um if this tech is replaced then I think it's sensible to try to understand what's going to happen next and where the opportunities lie for us couple problems with replacing this stack is that um the where the the the processing happens is in kind of like database fortresses like the one you see on the right and if you have a set of centralized nodes even if it's blockchain technology but because you need to have it yeah relatively centralized um you kind of need like these kind of entities uh to work with this is a level three data center you cannot just simply enter they have uh two diesel engines, they have uh various backup plans and it's extremely secure. Um so I wouldn't say that crypto should um we should be complying with this kind of structure rather than that we say oh blockchain is going to take over.

Uh yeah then there's another problem that with the this way the settlement methods work is that you first have the transfer of the assets or the equity and then you have the transfer of the cash and sometimes with institutions it can be that they have a net uh negative balance. This is why you have this settlement per period where they need to calculate okay what is your uh liquidity in the coming 30 days uh and can you actually do this transaction still uh remaining to be liquid. So it's more complex than just a asset based system or like a net positive system that we have in uh smart contracts where it's always a positive sum that you're sharing. Um but I think it's solvable but it's a hurl. But let's keep it like that.

Yeah. And then finally, it's already very hard for these institutions to go from T plus2 to T+1 and the coordination that comes uh with that. Uh but yeah, that's uh not the biggest problem in the world in my opinion because when we make atomic settlements, we kind of get rid of that in one go. It's it's it's just settlements after a few few seconds essentially. So yeah, this there was an experiment uh by the ESMA and they used three different banks, one German, one Italian and one French bank to try to replace part of this threat stack and for example get rid of this uh settlement period.

It was successful. they're still running it and they exchanged like a couple billion worth of transaction value and it was all fine. Um, but they got like level two so they didn't have to do complete uh uh file regulatory compliance. They didn't uh were not allowed to file for example new listings like IPO. Uh they weren't allowed to do emissions.

Uh but they could do transactions and and it was working. Um yeah and so the they would be essentially if you if you would compare them they would become then a sort of unis swap for the trfy industry. Um that's what the dot will be doing. uh organized then by banks, banks being nodes. But the only problem is then if you have a bank as a node, you have a bunch of banks like how do you going to assign weight to each bank?

There's small banks, there's big banks. Um that's that can be difficult, right? So yeah, my advice to all of you builders, creators is okay, how can you ride this wave, this uh this technology that we expect to start changing? Um well if you build composible uh smart contract infrastructure uh so you have smart contracts that can actually be deployed on one chain then on another then you can just go from EVM to let's say a Robin Hood it's also EVM right uh you can go to base finally maybe you go to an ICE uh which is the the USA u uh uh USA stack for draty uh and next is a European one of course. So then you you would be able to move on top of those uh uh distributed ledger uh technology stacks.

Um yeah, another thing is for example um AI and LLM uh instead of that you build u a a tool on chat GPT it it could be makes sense to instead try to build uh an AI agent that is compliant uh with any model. So you need to understand the messaging system that is being used for AI agents to communicate with each other and that you can always uh integrate with the latest AI agent or the one that is most relevant to your stack. Well, then I had a final idea what I already uh mentioned a little bit about proof of work and then proof of stake is that the the stake is not really efficient capital being deployed. So let's say you have banks that are being nodes in a threadfy stack to uh verify transactions. Um then maybe proof of bond would be a proper solution where uh banks collateral needs to be stashed in such a a place they get effective yield uh which is nice because now they don't need to deploy for example their capital with the ECB uh in order um basically that capital is not really efficient efficiently being deployed and here it would be uh efficient getting actual yield and the size of the node would depend on the size of the bank.

So it's actually relevant a relevant metric to judge who gets to do what. Um well that was actually it. All right. All right. Thank you very much.

Really interesting