EN | From São Paulo to Wall Street How Tokenized Equities Are Unlocking US Capital Markets | MERGE

Uh there is from São Paulo to Austerlitz. How tokenized equities are unlocking US capital markets. Please welcome to the stage Mark Greenberg, VP and global head of consumer at Kraken, and Mariana Marisa, journalist at Exame. We're talking about how tokenized equities are unlocking US capital markets. And Kraken has X stocks.

So, can you start telling us how does it work? Yeah, absolutely. Well, first this is my first time in Brazil and I am just so excited by all the energy in this room and everyone that I've spoken to about uh crypto, about tokenized equities. And I'm just so excited about everything happening here locally in the market. And I am excited to come back many, many times this year.

Uh tokenized equity is are just a really exciting way to bring all the things that are amazing about crypto assets into equities. Right now, if you want to use Kraken or many of the other companies in this room to buy crypto, it's relatively easy to do. You can trade it 24/7. You can hold it in a self-custodial wallet. You can use it however you please.

Equities historically hasn't been like that anywhere in the world, but especially in a market here like Brazil or even in my home market of Canada. Uh you can't trade them 24/7. The KYC is a huge pain. You typically have minimums. It's expensive.

You can't use them how you see fit. You can't put them in a wallet. You can't move them between brokers. And that's what we've been trying to change with X stocks. So, X stocks are tokenized forms of equity.

They're acting as debt securities basically, but they act much the same way a stable coin represents a dollar. Uh tokenized equity represents the value of an underlying stock. But they're just regular ERC-20 and SPL tokens. Those are the same kind of tokens that support that almost all types of tokens out there are. And so, they work just the same way you'd expect crypto assets to work.

Uh they work in wallets like Phantom. They work at all sorts of different exchanges. They trade 24/7. You can use them as collateral. You can earn yield on them on chain.

All of those things are suddenly unlocked because they're just regular tokens much like the same as uh as any other. And so, if you want to put a dollar or five dollars or ten dollars into an X stock like Tesla X, you can do that. You can do that in the Telegram wallet. You can do that through a whole bunch of different neo banks like the team that was just talking here, you know, we're working with someone a team called Neo Bankless and they're building a neo bank here for Brazil that allows anyone to buy equities through X stocks very, very quickly. And so, those use cases are just growing and growing, but basically at the end of the day it just allows you to buy equities the same way it's so easy to buy something like Bitcoin or Ethereum or Solana.

Yeah, and why should people be excited with this kind of investment? Because the early days of crypto, it was all like, oh, buy Bitcoin, not stocks. But why should people be excited to buy both? Yeah, so maybe I'm I don't know. There's a lot of people in this room who will tell you never buy anything except [laughter] Bitcoin.

I'm probably not one of those people. And I think most people want to hold a number of different things. They're going to want to hold some as a Canadian I want to hold some US dollars sometimes. I want to hold some Brazilian real potentially. I want to hold I want to hold stable coins.

I want to hold Bitcoin. I want to hold some fun stuff like doge or fart coin or something silly like that. And also I want to hold much of my portfolio in equities. Equities have been a fantastic asset class for growing your wealth over history. And just for too many people it's been too hard.

You have to put too much in at a time. There's just a little bit too much friction. But you know, even if you're saying, "Hey, I want to put some of my portfolio in Bitcoin." We do expect most people will also want to put some of it in the S&P 500 or in stock like Tesla or stock like Nvidia or something like that. So, just another asset class, the same kind of choice that we uh that all of us who believe in crypto believe in giving users choice.

We want to make sure you have just as much access and just as much choice to choose equities as you do crypto. Yeah, and in Brazil we have more people investing in Bitcoin and crypto than in stocks, in Brazilian stocks. Yeah. So, when it comes to US stocks, the access is much, much more difficult. So, how X stocks plan to solve this problem, especially for Brazilian people?

Yeah, it's it's actually really simple. You can go on Kraken right now. You can buy X stocks. Very simple. Alternatively, actually you can go to a a a non-custodial wallet like Phantom, like uh my competitors like Coinbase in their non-custodial wallet.

Uh any non-custodial wallet basically out there today, you can just buy an X stock. So, if you're used to being able to buy Bitcoin, you can very easily buy an X stock. And that's what makes it different. You don't have to go through all of the the complexity of access, of going through all the KYC stops, and putting a certain minimum, and and having to uh you know, follow all the hoops and steps of that process. You can do all of that as simply as you can buy a crypto asset.

So, go on Kraken. I'll I'll show my own service, but go on Kraken. Go on Phantom. Go on Solana. Go on Jupiter.

And just buy X stocks there. Uh you can buy it from a stable coin. You can buy it from Bitcoin. You can buy it from Solana. You choose your asset to buy into an X stock and then you can just do it.

And I think that's the reason today more people are buying crypto than buying equities in a market like Brazil. And by the way, we're talking about US stocks today. I don't think we're that far away from also talking about Brazilian stocks. We were I was in Hong Kong a few weeks ago. We're definitely talking about Hong Kong stocks and European stocks and Chinese stocks and bringing a whole wealth of different stocks to everyone in the world.

So, the same way that this makes it easier for Brazilians to buy US stocks, I look forward to a day very soon this year where we're also tokenizing Brazilian stocks and bringing those Brazilian stocks to markets like Canada and the US and Europe as well. So, you're talking about the stock market all in blockchain and 24/7 and all access to people all around the world. That's it. Absolutely. It's really it's really as simple as that, which uh if you think about Kraken.

So, Kraken, one of the largest exchanges in the world on the crypto side. Also on the stable coin side. Also for FX and on the fiat side. Uh I never really understood why it was easier for someone to buy Bitcoin or buy Solana than it was to buy a stock. And that's what we spent the last year trying to change.

And so, X stocks now, 25 billion dollars of volume. We have almost 100 X stocks. We'll be at 1,000 sometime very soon. Uh we have 100,000 wallets on chain with X stocks. We're on the Solana blockchain, on Ethereum, on the INX chain, which is Kraken's L2, uh on Tron soon, and a few others coming very shortly.

And so, really excited about the adoption so far. And um and again, they're just tokens. Anyone in this room wants to spin up a new app or build something new, they don't need our permission. They don't need your permission. They don't need anyone's permission to just make buying and selling X stocks as easy as as easy as they want.

Yeah, and what happens at the back end? How can you guarantee that the people are buying stocks and it's the actual stock or a token referring to that stock? That's absolutely great question. So, uh these are European regulated assets out of Liechtenstein actually. And basically, the way they work is every time we make a token, an X stock token for Circle, let's just say X Circle.

Uh we buy a Circle stock. Simple as that. We put that in a special purpose vehicle that lives in Jersey, which is a tax friendly jurisdiction in next to the UK. And we just hold them there on behalf of users. If Kraken was ever to go bankrupt or X stocks was to go bankrupt, they would still be there and then they would be uh sold in order to give back the money to individual users.

But that's actually the big difference of how we wanted to build this. The same way that you can trust that you can always have your dollar back on a stable coin because there are reserves, we have full one-to-one backed reserves for X stocks. And so, every X stock there's a stock underneath it uh and it represents that stock. And so, nothing uh and that's how we maintain the price as well. The fact that we have to buy it or sell it every time you mint or burn a token means there's always a very clear price on what that X stock will be.

And how companies in Liechtenstein that want to add X stocks to their product, how can they do it? Uh see, there's actually a few different ways. I'll talk about the the the easiest way first, which is just go use them. They're out there in the world. You can use them however you want.

The most interesting story that I like to tell is the very first billboard ever produced for X stocks was by a company in South Africa in Johannesburg. They uh they launched X stocks into their crypto app in order to allow South Africans to trade tokenized equities. And they didn't even tell us. We actually saw it in a picture on the street. That was the first time we actually saw it.

So, that's the easiest way. You can just use them. There's actually there's nothing else to do. That being said, we love helping development teams and teams supporting teams building on X stocks. So, as I said, we're working with a company here in Brazil called Neo Bankless, helping them build X stocks into their Neo bank, their crypto bank that they're building.

If you want to do that, go to xstocks.fi. You can talk to our team, our developer relations team. You can get direct mint and burn access through through a Kraken account, which you can sign up for. And so, lots and lots of different support mechanisms out there.

We're also just launch X points, which is a points based system that we have now that earns points for holding X stocks and trading X stocks and using X stocks in liquidity pools. And so, lots of opportunity there to also to earn rewards in addition to just to offering X stocks to your clients. And then, a whole bunch of other products that we're really excited about on this stock. On one hand, you've got um yields. So, yield coming to X stocks.

You can use Camino or other on-chain lending protocols, and we're building right into the Kraken platform right now the ability to earn 1, 2, 3% yield on your on your X stocks. So, not just holding them, not just getting the dividends that they pay out, which you'll get as well, but also earning yield on top of them. And then also, if you want to buy X stocks, but you want to borrow against them, you want to you want to uh you want to buy on a leveraged way, you can also do that on our platform on Kraken through X stocks. So, uh gives you the opportunity to make leverage purchases of Tesla X or otherwise. Also, perps.

Perp is something we've talked about in the crypto world for a really long time. There are now uh X stock perps on NATO, which is an Inc uh uh decks focused on perps. So, you can now do X stock perps as well on the top 10 X stocks that we have. So, lots and lots of innovation coming. My hope more than anything out there is that we do very little of it, and that the developer community and institutions and others uh build on top of this infrastructure that we've built.

Um the reason that it's free and open and out there is all of the best ideas, I'm pretty certain, will come from other people, not from us. And so, a huge opportunity for us to uh for for anyone to uh build on top of X stocks, and we'll help you every step of the way. Yeah, and why is that important that we can use X stocks across different apps, wallets, and platforms? Um I don't know. Tell you in Canada, here's an example of me trying to move today, when you try and move a stock from one uh broker dealer to another broker dealer, it takes upwards of 4 weeks.

You have to follow this actually faxes involved. So, all sorts of manual processes involved. There's no reason for that. All of us are used to this is all electronic stuff anyways. Actually, equities themselves are electronic.

They're sitting, you know, there is a physical share somewhere still, but it's not being moved in any way when you move between brokers. I We did not want to produce that same kind of system. We believe very much in open permissionless systems. And so, when we were looking at how we would build tokenized equities and what we would build, it was absolutely essential for us that anyone could buy them, that you could move them around as you see fit, that you could use them in all sorts of different platforms. Kraken one of those platforms, but I hope will be a very little portion of the ecosystem in the long run.

And for us, that's that's what's going to make tokenized equities successful and ubiquitous and available everywhere and available to everybody in this country and in every country. Um it's not going to be because you can only buy it in the Kraken app, or you can only buy it in the Coinbase app, or you can only buy it on the Robinhood app. You have to be able to buy it anywhere, in any market, in local apps, and in apps around the world. So, so that's what we're doing with X stocks and what we're really excited about. Yeah, we'll talk about tokenized equities like spreading the world, but what makes Kraken X stocks different from these other companies with tokenized equities?

Yeah, I've said some of it already. That's a great question. So, permissionless matters a lot. You want to be able to take these and do what you want with them and be able to use the whole realm of the crypto ecosystem against that. A lot of other tokenized equities products are only available in one app, only available in one chain, only available in one place.

Not great. Um the second is they're all one-to-one backed. I A lot of us take for granted the fact that stablecoins work really well today. They work well because a lot of bad decisions happened in the past, and those things are in the past now. People didn't keep proper reserves, or they tried to do it in funny different ways, or some of those stablecoins were scams.

Um when you're thinking about tokenized equities, I encourage you to use a platform that is truly one-to-one backed, that has proof of reserves, so that you know that there's a truly an equity behind every X stock out there, and that's what we know. And then finally, uh that infrastructure is what makes us, I think, really special. These are just regular tokens, as I said as I've said many times now. You can use it across many different types of things, and the fact that we we're not forcing you into any one system or place, I think, is what makes X stocks really cool. Okay, so just two final questions.

Yeah. As we were talking about tokenized equities taking over the world, and we have B3, that's Brazilian stock exchange, do you foresee uh Brazilian stock exchange equities uh being tokenized? Oh, absolutely. I look forward to us being able to offer tokenized equities from every company and every country in the world. And that's the plan with X stocks.

We're building slowly. It's hard. This has been a complicated thing for us to build. And so, we started with US equities, which are the most liquid and have the highest demand in the world. But, that's the test ground.

We will be offering uh equities from all sorts of different exchanges, including here in Brazil. Yeah, and out of curiosity, do you foresee like stock exchanges ending and tokenized equities

[laughter]

taking over, or something more like a mix of both? Uh I won't I don't know if I I try not to predict the future. But, what I will say is I think there'll be a whole set of companies that IPO via X stocks in the next year rather than just going through a traditional exchange. So, for me, that's the first step towards it. Um do we ever fully replace uh traditional stock exchanges?

Just not sure. You may have heard we just partnered with Nasdaq, actually, on bringing X stocks and their tokens together a little bit more. So, yeah.

[laughter]

Right on time. Right on time, and that's it. Thank you. Hope you all enjoyed. Thanks, everybody.

Come find me after if you want to chat more.