Goldman Sachs’ Approach to Digital Assets - TOKEN2049 Dubai 2025

Fantastic. Thank you so much for that. Thank you so much for that warm introduction. And you know, I'm also curious to know what Goldman Sachs is doing at a Bitcoin conference. So, a crypto conference.

So, let's talk about it. Uh, please make him feel welcome. A big token 2049. Welcome to Matthew McDermott. He is the global head of digital assets at Goldman Sachs.

Matthew, welcome again. We appreciate you being here. Thank you. Thank you. So, we're going to spend some time digging deep into how Goldman is leveraging blockchain and tokenization, where the big firms are disrupting and what role this region also plays in Goldman's broader digital asset strategy.

We're here in the Middle East, so we'll talk about what GS is doing in this part of the world. So, first of all, uh, Matthew, let's first go to the digital assets business. Um, what is the firm actually focused on and what parts of the ecosystem do you touch? So just expand on exactly what Goldman is doing in this space today. Absolutely.

And uh you know thank you very much um obviously for having me. Um so we've been doing quite a lot. So the business has existed for 5 years and we've steadily built you know kind of our presence across the market and there's probably kind of three core areas that we continue to to build out on. One is our client-led kind of crypto uh kind of trading business. Um, as many of you may be aware, US banks still kind of are slightly um, restricted in terms of their ability to hold the underlier, but in terms of pretty much everything else that we can do, we're very active.

And that's kind of cash settled derivatives, options, futures, very been very involved in all of the UT ETF activity that you've seen over the last 12 kind of 18 months. Um, we're also looking at kind of other kind of innovations in terms of product offering as clients become more and more active. And I think that's kind of one of the key things we've seen just the breadth of clients now eager to kind of get more actively involved in in trading uh the the kind of the asset class. Um, we're also, you know, kind of focused on lending as well. That's something hopefully subject to v variety of different approvals we're looking to build out in the not too distant future as well.

So, we're kind of very active kind of in that space. secondaries with private equity etc. Um the second part of the business is really driven year round kind of tokenization and the use for kind of collateral mobility and I think from a kind of traditional financial perspective this is kind of one of the biggest opportunities we see. So if you think you've got kind of Donald Trump talking about the crypto capital of the world being the US kind of what does that fundamentally means? It means you probably going to need a 24/7 marketplace.

And so as people start to trade beyond the normal market kind of hours, this ability to tokenize treasuries, money market funds, you know, and other asset classes becomes very key as you want to optimize your kind of margin allocation. And then there's just a lot more kind of utility in and around that. So tokenization has been a big kind of focus for us. We're working on a number of different projects and even just this morning we saw Black Rockck obviously kind of filed tokenize their 40 act uh money market fund which has about 150 billion outstanding. So as we think about our projects one of which is in that space really thinking about utility for kind of institutional use as it just starts to really scale creates liquidity and and sizable marketplaces.

Um we also have developed our own digital asset platform something that we launched in 2022 recognizing that you know kind of there's a number of different players that have platforms. Um one of the things that philosophically we focused on day one was look we want to accelerate our understanding and how to develop a platform but we also recognized to really make it properly decentralized it needs to sit away from Goldman's balance sheet. And so we announced last November one of the key focuses for us was divesting the platform. Um and we'll probably talk a little bit more about that but big focus for us is really kind of just delivering that for next year. And then coming back to the kind of collateral mobility piece as well.

So big focus on kind of intraday which may or may not be that exciting for this audience but for banks that's huge. I mean the amount that institutions borrow on an intraday basis is massive. And so this ability to create intraday kind of FX intraday repo markets which we've already started to see on a micro level actually has a really profound commercial value proposition. Not only, you know, is it cost- effective, reduces risk, but it also allows you to redeploy your capital and liquidity um across the firm to, you know, other different parts of the business, be that crypto orever. Um, so that's kind of the the second part of the business.

And I'd say the third part is um what we call kind of classic banking. So we have invested in a number of different uh institutions within you know the kind of digital asset crypto kind of ecosystem predominantly around kind of blockchain infra um I would say um or you know public record and so that for us managing those and staying very close they were all very strategically driven and really help us in terms of accelerating our own kind of vision you know for this space um as we've all seen in the market you know there's been a lot more you know chatter around kind of the classic M&A advisory potential kind of IPOs and we've seen that recently with Kraken and Ninja Trader. Um we saw that obviously with Ripple and Hidden Road and so we've just seen a lot more activity in that space as well. Um so yeah so very active really interesting and so much to unpack there. Matthew, I I want you to give us a pulse check on where we stand when it comes to the development of this industry and this technology today because the promise of blockchain and the technology would be that it would disrupt financial services and financial markets.

I'm curious to get a sense from you about where we stand. Are we ahead of the curve? Are we behind the curve? Or are we exactly where you thought we would be in 2025? I mean, it's a really good question and it depends.

Yeah. kind of when you're asking the but when I look back to 2019 really when I was asked to take over the what was a very small business um you know I could see then the value proposition of distributed ledger technology transforming the way financial plumbing works um and if you think about that we know the technology works I don't think there's any dispute there there's obviously a lot of conjecture around who's got the best technology you know but but fundamentally you know that the technology does work and so for me you know probably been a a little surprised about the time it's taken. But then actually when you take that step back and you look at the speed with which things have actually moved um you know it's it's kind of I would say you know probably on track regulatory clarity is absolutely key. Um and particularly in this region we've obviously seen a lot of clarity over the last year or so and elsewhere particularly the US you know we're starting to see that increasingly more so. So I think yes technology works we we've proved and there's been lots of different you know kind of uses and now I think it's the scaling that's key and that needs that regulatory clarity indeed and uh Trump is back we've seen a big regulatory thaw state side as well.

I actually spoke with Eric Trump on CNBC last night and I asked him about where we stand today. He said uh look when it comes to the traditional system the the modern financial system and the traditional system is broken. He said I quote here it's slow and it's still too expensive. So on that on that point, where do you see the biggest short-term impact for uh blockchain in traditional finance and what is that next wave of disruption going to look like? Well, I think I mean for kind of the US I think the stable coin bills that have gone through you know the two different houses I think you know will have a pretty profound impact.

Um, you know, many have talked about stable coins being the kind of killer app, but I think if the regulations allow this to be something that can be easily and efficiently adopted by financial institutions, you know, that's something that you may see, you know, kind of more actively used. So, it accelerates the use of digital currency for the big players. And I think that to me, you know, is something that is super exciting and something we're obviously watching very closely. I think more broadly, you know, there's the market kind of um infrastructure bill that's kind of been focused on towards the end of the year. So, kind of institutions like us, permissibility is kind of key.

So, that ability to, you know, be able to potentially trade, you know, kind of or or at least use stable coins and then touch the underly balance sheet, have that permissibility to do that. So, so I think there's kind of two kind of key steps there just the way that the kind of the administration's sequencing it, but I think both are exciting. What do you think it's going to mean for financial markets and financial services? Um, I think this it's a really good question and I think when you think about what is the driver for us investing and spending time, you know, in that part of our business, I think kind of resilience is kind of key. You know, you just look at kind of a lot of the way the markets operate today.

There's very strict kind of cut off times. This ability to actually kind of execute transactions when you need them to happen to the minute, hugely powerful, particularly in the context of intraday. Um so I think that's kind of resiliency. I also think risk you know we kind of talk this is kind of key you know risk when you look at kind of collateral markets there's a lot of kind of embedded risk that sits in those. This technology allows you to reduce significantly a lot of that and you know that can be through just more seamless allocation of collateral be that money market fund tokens for example or tokenized treasuries and you can do that with a T plus0 pricing.

A lot of today's derivatives and other kind of financial instruments are collateralized um with products where the pricing is probably T+1 T+2. So you need to hold kind of bigger buffers to obviously kind of you know manage that risk. This ability to be more seamless with the allocation of collateral becomes very powerful. And then I think you know the other one is transparency. you know, as we look to kind of, you know, you know, looking at the speakers, you know, the next few days, you've got a lot of the buy side and there's a big focus kind of on, you know, private funds and a whole slew of other different types of funds.

And that is super interesting because if you can tokenize and really kind of scale, you know, that marketplace, that really opens up a new investor base and the ability to kind of airdrop data and things. People can all seamlessly get real-time data, which, you know, just isn't as efficient, you know, today in many different markets. And then you can probably see how that can start to be traded more actively. So, I think there are a number of different things there, but there's a lot of exciting development. Indeed.

I also wanted to pick up on something you mentioned before which is the spin-off of the digital assets platform the GS DAP. What can you tell us about progress on that front and what's the ultimate end goal there? Yeah, so I think you know philosophically you know as I talked about for us developing the digital asset platform was all about kind of accelerating our own kind of I guess knowledge of this space but we always wanted to develop marketplaces that could really kind of scale and have deep liquidity. And so for us as we've thought about that journey, you know, next year is when we'd like to spin that out, but there's obviously a lot of work that kind of goes into that as you can imagine. Um, and so we've kind of lined up with some strategic partners that are really helping us kind of develop the value kind of proposition on the platform and as we kind of progress, you know, we feel pretty confident that next year we'll be divesting that.

And is there large appetite for tokenization projects? I want your your read on that as well. what are you seeing in terms of deal flow now and you know the opportunity in that space I mean and then again that's a really good question because if you look at kind of a lot of the different pockets of digital assets tokenization when you think about the commercial kind of proposition is probably a little bit harder to see in the short term and that's kind of like that medium-term play and um I think with the regulatory clarity and we're just seeing like I say a much broader cross-section of the sell side buy side you know really now particularly in the US start to kind invest and focus on this. I think then that's when you start to really kind of get that broader enthusiasm. And so for us, you know, going back to the money market fund, you know, news this morning, that's a big focus for us and we've got a lot of people we're working with on that project.

So there's definitely the appetite there, but you need to have the ability to kind of have a marketplace that represents the market today. So the ability to systematically secondary trade and do all the other things and then extract the benefit. Let's pivot focus over to this region as well. And as I mentioned before, we've seen a lot of activity in this part of the world. Certainly ramping up, more investment into this space and also institutional and consumer adoption as well.

So what's your read on what's happening in the UAE and the wider Gulf region when it comes to uh investments and and adoption and the overall embrace of this industry? I mean, you talk about investments, I mean, MGS investment in Binance obviously is, you know, kind of relatively recent news, which is, you know, has been, you know, fascinating to see. I mean for me it's I haven't been here for two years and it's just been the the number of different meetings we've had in Dubai and Abu Dhabi have been fascinating in terms of people's enthusiasm for this space and AI um and um you know just the kind of I guess you've got the regulatory clarity you have VAR you have ADGM that's kind of hugely helpful in the context of what I mentioned earlier and it's just very attractive for talent the talent here is fantastic it's very entrepreneurial innovative has a lot of energy and that's kind of what you need to really kind of push forward these businesses. Um, and so the lifestyle is obviously pretty attractive. So, yeah, we've been, yeah, very very pleasantly surprised how much it's progressed since we were last here.

So, yeah. So, where does the Middle East fit into the GS road map? You going to be making further inroads here? I think as we think about kind of the projects that we're kind of developing, you know, be it on our own digital asset platform. I think for us it's about kind of getting that scale and if that scale you know opportunity presents itself here then absolutely we're looking to and you mentioned Binance before in the MGX deal obviously one of the largest transactions we've seen in history in this space are you encouraged to see sovereign capital also getting behind this sector well I just think it it kind of just reinforces it if you need that that this is all here to stay and it's developing and it's growing very quickly.

So what does the roadmap look like then? And and I'm sorry to press the point here, but um but um you know as we see this industry embracing this a bit further, what does that mean from a regulation perspective as well? You know, you spoke about how we're seeing more regulation um in this space in the United States and also that's following here um in this part of the world. Is that is that good or bad for the industry? I think it's good.

I mean, I guess one of the things that you need is scale and having the big institutions be able to deploy capital and be actively involved in a cross-section of the marketplace, you know, is I think takes it to that next level. Um, and or the right regulation, I should say, without regulation, the right regulation, regulation 100%. And I think, you know, that's key. And I think as you've seen in the US there's obviously been a concerted effort um with a variety of different you know groups kind of lobbying the administration to really kind of tailor that. So you know in your words the right regulation.

Um clearly where I sit you know we have a certain view you know kind of level playing fields and things like that are kind of key from our perspective but I think just the direction of travel and seeing um the way the US is going I just think is you know great I think globally for this marketplace because as a you know kind of reinforcing the point it just brings more people to the table and just globally really just helps I think accelerate the growth. Indeed. And so just to tie a bow around the regulation piece, if you could offer any advice to the Trump administration uh in the US, what would it be on the regulation piece? What do you need to see um in order to truly advance the the course of travel here? don't need my advice but um I think you know from a Goldman perspective I think for us I think you know kind of the level playing field and that permissibility that ability to kind of be actively able to engage in all facets of the market and I think kind of capital's kind of a key focus as well um you know one of the things that the market more broadly has been impacted in is kind of proposed capital rules for this space um which are quite punitive so I think you know probably a sensible adoption of those anything else we should be watching in the Gulf.

What's next here? I think let's see how this week pans out. All right, fantastic. Good point. Good point.

Okay, we'll leave it there. Matthew, really appreciate the conversation. Thank you all for listening in and enjoy the rest of the day, guys. Thank you. Thank you.