Evolving Into the Next Era of Digital Assets

[Music] thank you for that introduction and the dramatic music for this discussion it's going to be a power 20 minutes with this esteem panel we're going to Dive Right In so I I would love to hear all of your thoughts on what exactly is going to Define this new era is it regulatory is it technological is it societal where where where is kind of the watermark here I don't know if the it's really [Music] all I don't know can I don't know if I don't know if anyone can hear Nadine sorry uh a technical glitch do we have another microphone yeah okay thank you check that that's on that works okay all right so I'm going to take the easy way out and it's all of the above uh it is all about the regulation technology uh we've got a massive transfer of wealth into a newer generation so there's a lot going on and this the ship is sailed so this is now no longer an if but a when um and uh and we're we're all very fortunate to live in very exciting times um Charles your your point of view in terms of what makes this a new era is it even a new era well it's definitely a new era and I think um it's probably all three but really it's the economy um that drives this uh because the financial system exists in order to power the real economy uh not for any other reason and so the economy is going faster it's more Global it's more digital it's more real time and The Current financial system is anything but those things it's still operating at the speed of the post office so how are you going to get it to operate at the speed of the internet and in order to do that it has to stop being an intranet it has to be able to operate on the internet and I think that's what blockchain enables that's why it's really the economy that requires this upgrade to the financial system um of course it wouldn't be possible without technology and you need regulation to make it safe and secure and usable on a societal wide scale Demetri I think it would be applications actually because there is zero value in tokenization on its own basically and historically we've been tokenizing assets for the sake of tokenizing assets but in reality it's the applications that's going to be built using tokenized assets to deliver faster better cheaper Services um so I think that will be and of course it does require all of the above that you mentioned engagement with the regulator engagement with the industry and so on but I think for me it would be applications deployed Jay just pick up on that um faster better cheaper um different more you know more purposes more effects assets doing more but I don't think regulation maybe the words will change but I don't think the effects of Regulation or the purpose of Regulation will change very much we have too many scars from you know failure to have Financial stability failure to have investor protection my bottom line on this is do regulation at least as well as we're doing it today with the new technology we we seem to be trending towards greater adoption of digital assets and the pace particularly in the United States is not perhaps as fast as it could be but as we're here in the in Abu Dhabi the adgm um and we think about what's happening in other parts of of emerging markets in Asia it seems that it's these regions that are kind of going to lead the way when it comes to adoption of digital assets is would that be a fair assessment of of of where we are at the moment well I think that is where we are and uh Jay and I were talking about this earlier there's been a very nice partnership uh between the regulatory uh status of these countries um and the private sector um in Pretty in Abu Dhabi is's a great example of that we are a massive beneficiary of uh we're a graduate of hub71 uh we've worked with aggm that's has a phenomenal regulatory actually I see our founder sitting uh in the second row there the reason he chose Abu Dhabi at the time is because there was a an amazing regulatory framework that gave us Clarity uh to move forward so I think the US um I you know never never bet against the us so I am pretty sure that uh we will catch up um and there's a lot of great Innovation that's happening there you've got uh you know paxos among some of the uh companies that are doing um great work great work there but we need a better um and and Jay maybe not new regulations but we need a little bit of clarity and harmonization um around those regulations because we do live in a global World um and it's hard to do to do an issuance in one country that's not compatible um in another so we just need to bring make the world a little bit smaller yeah look what do we know we know that there are a lot of functions that currently take place that can be done a lot better W with no regulatory risk okay like how do we clear how do we settle how much time does it take and why do we know that because we've seen examples of it stable coin and the ability to make payments around the Globe much faster than we've ever thought possible in a way that nobody complains about demonstrates that the plumbing can be upgraded and I believe the plumbing can be upgraded without sacrificing the regulatory protections to individuals and the systems that we have I just wanted to to to to add on that point um we today um clear about 85 um billion contracts a month uh we flush the risk out of the system 24/7 365 every 4 hours with no fails with eight people in Middle office right so this is the sandbox example of how blockchain can be utilized in order to run those functions in a in a most transparent fashion but to to to answer your question um this region is unique for us for example we are only institutional focused company right so we don't have any retail customers equally at the same time there isn't a huge retail population to look after here when it comes to regs Etc and it provides for us um fantastic opportunity to co-build and co-innovate together with local authorities to basically show how clients could be serviced um in a in a in a better fashion I agree with Jay 100% no no new rules should be written right there is there is a massive opportunity here but the rules can remain absolutely the same you can just demonstrate that adhering to those uh you can do in a in a in a better way and I just wanted to also add one thing which is and I think generally uh we don't talk enough about this is that traditional financial markets the fuel to those are humans like there are lots and lots of people that wake up every day go to work to chase settlements um in in blockchain based financial markets the fuel are assets so and again the unique positioning of the region whereas you can't really relocate 4 and a half million people into into into into uh a country right but you can place the assets into the contracts to basically Drive the liquidity so so I think in that sense adgm is uniquely positioned um that's why uh there is a more Innovation I think especially for us and for our sector is happening uh in here the the way I would um approach it is that if you look at what percentage of the world is unbanked or underbanked um why does that exist it's because there isn't an effective way to be able to get assets uh and hold assets and move assets and this technology does change that because almost everyone has a smartphone now and being able to put um a wallet on a phone is relatively trivial and so then it's about how can you do it in a way that's safe and sound that's what the blockchain is enabling and it's allowing you to basically overlay on a public system uh something that is very secure and certainly this region is an example but you even see it in a country like theed states where 25% of people are um unbanked or underbanked and it's much larger in other regions um so that's what drives the adoption curve um in a region like Mina because you can now be able to pull people into the financial system that weren't there before and be able to they can participate and the cost is relatively trivial historically Capital has been one of those things where the more you have the lower the cost is but almost anyone can participate on a blockchain um at the exact same cost either to borrow to lend to trade as if you had uh 10 times or 100 times the size that's a real powerful shift in people's ability to be part of a system I I mean we I hear all of this and and I'm going to be somewhat provocative and say this is all great but why can we not reach scale quickly enough why can't we see the liquidity that is actually going to uh prove what you're saying to be the case we have we have seen it in some Pockets I I gave an example around around stablecoin you've seen it in your business why haven't you seen it on a mass scale because what we've done is we've built we have built regulation on top of technology that is 30 40 years old 20 30 4 40 years old to rip that out and replace it has cost it has cost in two ways it has cost for the actual Tech spend and the and the upgrade it also costs incumbents their advantage that they've built around that technology so breaking through those things is why you need Regulators to be smart about it Regulators need to be technologically agnostic coming back to the opportunity here you can you can build your regulation on the new rails as opposed to trying to change the regulation that's built on the old rails or trying to adopt that regulation for for for the new rails I couldn't agree with Jay more I think it's regulation is what's been holding this back um and it's it's un fortunate because uh there is a new way to do things doesn't mean you don't need regulation that's how you build societal wide trust as you have regulation but if you use regulation as almost an end in of itself uh then you get caught in these catch 22s or unclear standards or inability to have enough certainty to make the right Investments but um I think also you also have to think about Network effects um the entire Financial system is an intrnet it's one big private closed Network to migrate that to an open public network will happen slowly and then you'll get to critical mass and it will happen very fast I mean Bill Gates famously wrote a book about how it was going to be the intranets that were going to run the world not internet and he had to change it when he was writing his book the information super highway I think we'll look back at a certain moment in time and say well it was just obvious this was going to happen it just took a little bit longer and then suddenly it was all one Fell Swoop I think we need to remember that uh this area is not saddled with a lot of Legacy um infrastructure so the ability of introducing new technologies and writing the regulation around that is a little bit easier uh not by much but easier I think in the US J's point is really relevant as well I mean if you look at the financial systems people have made their money by exploiting the inefficiencies of the system and now we're introducing newer technology that makes it better faster and cheaper but at the same time you know the risk of of conversion is high and we've got to be super careful when we do that but you're starting to see Market infrastructure moving into this Direction so clearly the acquisition of securency by dtcc for example is one example where we're starting to see Market infrastructure moving we've seen your clear DOA so now infrastructure the plumbing as Jay calls it um is waking up is moving in this direction I think they're going to be a big Catalyst uh to ensure that we can it's not it's not going to be done tomorrow um it is going to come uh we need to be patient but um and we need to continue to remind people it's not the cure to the common cold that just takes time uh to take what is it 75 years of infrastructure um and flip it over its head and five is not that easy let me make two points one is the last 10 years money was free so delay was not that costly now delay is much more costly or said another way eliminating delay adds a lot more benefit and then I just want to share um perspectives with you which I think have slowed this down there's the entrepreneur side which comes to a regulator and says you know what this is so much faster this is so much cheaper we should just not worry about the regulations we should just let it flourish well a regulator is never going to accept that regulator is never going to accept lower protection for growth or speed on the other hand Regulators sit there and they think only about protection and not about growth and it's a regulator's job to say how can I achieve the same or better level of protection and get growth th those perspectives have been missing there's been a regulatory perspective that any efficiency must be undermining regulatory Effectiveness that's not necessarily true and that that mindset needs to change I mean generally speaking um I think we weren't asking the right questions because we see a lot and a lot of projects with no customer so we do something for the sake of doing something do a press release and nothing happens after that um in in reality it's it's much easier to innovate and build with customers because they'll tell you exactly what they want and what their investors want our customer base are mainly hedge funds and um trading firms um and then subsequently what happens if if you can offer something which is literally making their lives better then that that that's what really changes it uh and we haven't reached the points yet and we haven't been speaking um about what are those things partially actually from from um what Jay's talking about is that uh we as a company we cannot not ask those questions because we can't sit and wait for 10 years until things are going to happen that's why 18 months ago um we have changed the strategy for copper and and said we're going to control our own destiny and the best way to predict the future is to create it so let's find a place where we can create that future demonstrate to the industry how we think it can work demonstrate to The Regulators how we think it it it adheres to the rules which are written already and then hopefully um the rest of the ecosystem in traditional space joins and keep in mind it's it's extremely hard to innovate at scale right like when we're talking about 45,000 people institutions it's it's very difficult right so so I think it would be on companies like paxos coopa Etc to demonstrate what what are the possibilities and then bring the the the traditional space together and last thing I would mention is that um um and I I'll swear I I'll mention this word only once but uh um my board member asked me what do you think is going to happen to the crypto space in 3 years I said uh I don't think there will be a crypto space in 3 years I it's just going to be called the markets and they're going to be same rules appli across all asset classes uh and good hopefully from both of those worlds are going to come together so it's about bridging those two worlds together and and in in and innovating together as well I mean so asset managers will just be managing assets that's right and there won't be a difference between digital or otherwise that's well all assets would be digital right there will be no difference in terms of how you treat for example your positions uh um in in equities or or or crypto it will be the same standards applied for professional investors the same standards applied for compliance reporting risk and controls and uh hopefully we can demonstrate that some of those functions could be done with less people and last thing actually the real-time information is going to be key for the next 5 10 years of evolution because blockchain does provide real time information and uh part of the adm's business plan for 2024 is rolling out a CSM system client asset Service uh monitoring system essentially tracking and reconciling client assets live so that everybody's aware now that system in the beginning is going to be uh API based right so there's there has been no blockchain but blockchain is a phenomenal tool for that if you can track 24/7 365 and you can bring independent Auditors to basically verify that what you what this report is correct and adds up it's going to be completely new Evolution of financial markets I mean that's quite a vision how close are we to it uh I mean all tools are there to be honest with you like there is no technical like this is another thing people talking about blockchain is not I mean it's think about how fast we went to electronic trading it was talked about for a long time you know yeah now human beings do not trade Securities anymore all all trading is done through algorithms they called it a big bank is that what they called it when when we went to electronic trading well in well decimalization then than electronic trading but trading today looks totally different from from 20 years ago and and that's a result of technology and we don't think about it but trading today takes place in milliseconds settlement still takes days you know we're going to catch up yeah I mean it's important to Note Everything we're talking about exists today um I think the point dimitry made about working with clients to find these Solutions but we can track data of real time today there's trades on the blockchain there's settlement there the problem is it's not at scale um and it's not univers adopted yet but the technology exists it's not it's not build it and they were come it's here it's a matter of implementation and adoption right now to Jay's Point actually 100 years ago maybe slightly more the largest industry in the world was whing and over two years since hydrocarbons got introduced the entire Bally completely eliminated abandoned towns abandoned everything I think from 1935 1936 th those years similar thing happened with cars and horses right so once it's there it it will be very fast when is that point I don't know hopefully 3 years maybe five maybe 15 and I actually think it could happen very fast around money movement I think that's what stable coins have shown is an ability to be able to move money at scale in real time 247 instantaneously to anybody and um we're not there yet where it's at Social wide scale but that if you ask me what would tip it it'll be the movement of money and um I think that might happen even in the next 12 or 18 months uh we're getting really close uh PayPal for instance has come in and accept has their own stable coin and you can start seeing um networks and Retail payments start to shift over there's a huge savings that is possible and um that I think in some ways might be the gateway to this uh whole world of tokenization J Jay the last word to you I think you're I think you're exactly right and I think putting my my hat as an American on if you're the US government you want this to happen and we want it to happen with dollar denominated stable coins because it becomes part of the dollar being the international currency of trade so if you if you're a US motivated person you want this technological adoption to go very fast uh please join me in thanking our panel for a wonderful discussion thank you so much