Building a Digital Assets Infrastructure Fit For The Next Decade

[Music] good morning everyone to day three of the Abu Dhabi Finance week it's a great pleasure to see you all here and the previous session actually really paves the way for our discussion on building a digital assets infrastructure built for the next decade and that is actually fit as we are all here on stage as well I hope you had your morning exercise the gentlemen let me first of all ask uh in the room a little show of hands who here thinks that the digital assets infrastructure in the world is fit for the next decade hands up oh my God we got some work to do can I actually see one hand up no that means business for you gentlemen so each of you in 60 Seconds what is the reason why the digital assets infrastructure is not fit yet what is the room for improvement if I can start with you Mike all right well look I think uh everything is an evolution um we have made great strides and we shouldn't uh forget that what we've done over the last 10 years uh it got started in this in 2013 at the time we're worried about how do you secure Keys you know people hold the keys on their own get hacked there's still a bit of a problem with that but then they put them on servers and they get hacked again so how do you storage key store Keys properly and I I think this is a very solved problem at this point is it used with common practice around the globe not yet have traditional Financial firms learned how to do it and embed that within their own practices you know not as much look the the traditional Finance system has been plagued by not having enough technology and building the technology that we're putting together here to build a new market structure for How We Do trading of everything with transparency reduce risk Etc uh is hard stuff banks have failed to do it for decades so to expect it it would be done in a short period of 10 years probably unrealistic but look we're getting there and I think we're all here as proof of that in spite of the fact that there's not very many hands raised yet so be patient uh ladies and gentlemen Constantine uh that wasn't a show of confidence um what is the main reason why what kind of work is there to be done well I mean first of my perspective is really on the technical infrastructure right so I I don't look at it as a financial systems problem I look at it as a problem of Institutions connecting to open- Source decentralized systems and how do you do that in a way that institutions can benefit uh without actually jeopardizing the Integrity of the systems and so I think so so it ties into to that from from my perspective um is how do you build secure rails and gateways to ultimately open source systems for institutions that uh need to function in a way that an institution uh would like it to which means uh you know the networks need to be up 99.999% of the time uh they need to be active and participate in discussions around software updates in order to ensure that the systems and functions adhere to their respective regulation and standards and so that's that's sort of you know the view we have for the company on it and that we focus on right Charles you are one of the co-founders of ethereum you have a lot of fans that taking selfies here with you in the room so you really have seen this baby grow up but apparently it's not an adult yet so it still needs to mature what is that the remaining last steps that it has to do yeah I'm in Hawaii formal too um so we're we're kind of in the gangly teenage years and you know I think the question isn't is crypto ready for the markets I mean no one's happy with the traditional markets at the moment 380 billion doll in compliance findes from 2000 to 2023 in the Legacy Financial world so if US government is finding a third of a trillion dollars for not following the rules of the best people then it's telling you that the industry as a whole is not ready I mean the the financial world was never designed for the internet or globalization and it's designed to everything be in neat little boxes uh whether you're commodity or a security or a currency and then they kind of say okay this is the way we go so what we're trying to do is do two things at the same time we're trying to explore and experiment in the cryptocurrency space with a lot of new beautiful Technologies like digital assets are really like a financial stem cell they can be anything and then we're also talking about self- soverign to we're talking about settlement is compliance there's a lot of really cool Concepts on non creds and zero knowledge cryptography that are working their way in the same time the banking industry is trying to upgrade itself to become Global and they following standard like open Banking and all these new isos that are coming out and what's going to happen is they're going to come colliding into each other which is what we're seeing right now with binance getting hit and all these other things and at some point there has to be kind of a merger where you take kind of the best of both and you end up with a hybrid system that all of a sudden you have instant settlement you have uh settlement is compliance you have much better ways of regulating things that are automated and you can have a transaction be under 60 just different jurisdictions at the same time and use libraries and these things for it but at the same time you also gain all the efficiencies and creativity of the cryptocurrency space where we we at any moment can build completely new ways of creating liquidity or representing IP so I'm actually quite bullish and I understand the skepticism but I'm skeptical of all the systems at the and we need to kind of overhaul and rebuild the things and it's going to take 5 10 years to get it done we're almost there though give it some time all right now to finish at this opening remarks uh panel here uh Dan uh what are the main challenges facing the industry right now well we've got a very smart audience here because they're exactly correct as it stands now the the digital infrastructure cannot handle Global Financial workloads so the the main problems are scale Global Financial markets work at hundreds of thousands to millions of transactions per second none of the of the main Solutions are there yet though they will be over the next year inherent privacy at scale so being able to to maintain transaction privacy is a a key issue that needs to be resolved inherent compliance so some of the core ethos of blockchain the the original blockchain movement was really uh run counter to the kinds of compliance that are required for safe transactions globally where where there is a responsibility for governments to oversee these things and perhaps how intuitive the system the blockchain rails are to use for the Casual mum and popop end user we're not quite there yet in terms of ease of use but that's coming as well I think what you're seeing though and the the exciting and positive news is that that the key elements are falling in place uh I regret to say that this is my this is my fifth ADF W the last of as a member of securency as we've been acquired by dtcc and if you know dtcc they are the the world's largest Mar Financial Market infrastructure provider settling more than1 trillion dollars of transactions daily this is the centerpiece of the global economy and they've just gone all in on the concept of blockchain and the impact that this will have on financial markets so we're excited about that I'm excited to join their team here in the coming days um as this is a big breakthrough and in fact they're interested in making sure over the next 10 years blockchain is the centerpiece that would have been my next question but you just answered it what is your next role so you're still lasting with the company congratulations Constantine let's talk about uh the Outlook already we're nearing 2024 what trends are you seeing when it comes to investments into digital assets and currencies um so again you know I I look at it as a software Builder so my perspective might be a little different I think one thing we've seen as a company is that we've always had a lot of institutional interest all the time and so major shareholders in our company are Goldman Sach JP Morgan City Bank pcast and so companies that uh over the last years have uh worked with us also as customers to build institutional infrastructure um I think what you uh will see is the accumulation of progress um within the system design that has occurred there I think you'll see um probably I mean in the US at least some progress around ETFs of course um but you know and and around the world a faster adoption around uh transaction settlement on chain as well as reward earning um and you know much more Innovative Key Management Solutions and things so ultimately you can um um assume that there is going to be more volume in the systems over time um but again you know there's a lot of work to be done but I think the uh large scale sort of top 10 institutions in the world have never ceased to build decentralized infrastructure and so there's always been um a good progress there yeah let's ask Charles the man himself who has a lot of experience in developing currencies will we see more ethereums or like uh ethereum currencies or other assets that will shape our future you know you can mention cardono um but uh you know of course there's over 30,000 plus cryptocurrencies you're going to always see more and uh they have their place and purpose and they're starting to move into different forms so in the beginning it was hey we just need an asset now they're starting to represent replacing centralized services so a decentralized llm or a decentralized social network like a replacement for Twitter You Know Jack dorsy is very interested in that with his whole app protocol thing that he's doing so of course we'll see a very rich and vibrant ecosystem of these things but also we're having deep conversations about how to replicate things that you're doing in the Legacy world like um stable coins there's algorith with MC stable coins and there's been a lot of progress and missteps there U World Mobile's building a decentralized uh ISP and they're trying to figure out how to you be a cell phone company and and be Global and decentralized at the same time so uh that's exciting and there's huge technical challenges that need to be resolved but what gets me most excited is that pre preservation of the core philosophy of it is that people are their own bank people are their own identity they own their own data you know there's a there's a Libertarian streak that I have and I think the world works a lot better when you have freedom at the end of the day and it's nice that there's still some adherence floating around the space that love that there's some people that love black rock and we just have to figure out how to put both of them together yeah now two key words interoperability and glocalization are really buzzing right now and very important for the survival of the industry of course as well Dan what in your business case have you learned about those two words well that's interoperability is key so uh two kinds of interoperability interoperability between blockchain rails so we see the emergence of many highly viable blockchain Solutions like Charles cardano and and many others that are solving these problems well the last thing you would ever want is there to be only one solution because that would be the end of innovation so what that means is there will be many blockchain solutions and what's required is interoperability also I think the blockchain market cap crypto market cap is about $1.5 trillion dollar but most of the world's value is still far more value in traditional assets so in fact interoperability between traditional Financial rails and blockchain rails is the key to actually bringing the value into blockchain networks but just as much as you can bring it in you also need to bring it out of blockchain rails for us to really reach the vision that we want to get to uh you mentioned before uh during uh coffee break that uh you are based in DC Dan and obviously ly headquarters of regulators there as well and on regulation Mike you told me before that Regulators are confused and there are many peacee regulations out there so let's for a moment talk about regulation Mike we have of course uh the Basel committee on banking supervision which has established a lot of Frameworks um based in Switzerland where I'm from what should Regulators do in your opinion sure well look I think the reg the word regulation is broken down into the actual details behind it so prior to what's going on today with blockchains changing the way we finance a lot of this kind of fell into place and it's been somewhat static legisl do not do not necessarily know how it works and yet they are one moment do we have a hand mik or skip thank you so much thank you all right sorry about that so uh regulators have have a challenging job of really breaking down kind of what regulations matter more which matter less so we hear confusion like after last year after FTX failed you know Senator Elizabeth Warren comes out and says the problem we have is we don't have enough am kyc for crypto well that wasn't the issue she's quite confused as to what the issue was and when you break down regulation I think it comes into three broad categories number one is law enforcement AML kyc transaction monitoring sanctions controls Etc number two would be like consumer protections this is where the SEC comes into play did you disclose what the asset is how it works are you working you know to get the best price for your clients preventing pump and dumps things like that the third one is Market structure um and Market structure really hasn't been addressed very well yet frankly we're still operating in these very verticalized Stacks where single players are providing all of the functions from the broker dealer to The Exchange to the custodian in a single oh I broke two microphones in one session um okay they will send you the invoice later I'm sure right trying to trying to finish that I guess I really loud um it's coming back let's try again one more time okay so there we are oh now it's super loud um all right so uh uh of course regulars are a little bit confused because there's so many different aspects to it and I think where we could start which would really help everybody would be to prioritize a little bit you know sometimes of Regulation really matter like you don't want to have allout catastrophic losses what we had with Sam bman frea and fraud we can stop that you stop that with Market structure right rug poles we can stop that those are both elements that happen when you don't have Market structure I think we should prioritize to the top of the stack look investor disclosures are really important as well but they pale in comparison in comparison to the catastrophic losses you know blocking the library token which I know nothing about and I'm not endorsing it in any way I don't know anybody that was hurt by that and yet you know Regulators are prioritizing fixing that as opposed to fixing the real problem so yes I think there's a lot of work to do I think we're getting closer we're seeing it globally some jurisdictions are ahead of others so for everyone that's behind like the US there's one that's ahead like here in the UAE both in Dubai and what we okay you kept this microphone going thank you so much Mike anyone else on the panel would like to comment on regulation then I think one of the keys is regulating based on first principles so Mike exactly the right issues blockchain is just a technology the regulatory principles are correct the regulatory Frameworks that are in place are the right general principles blockchain is just a means to achieve this and when when Regulators get confused by blockchain the technology what they really ought to be thinking about is in fact what implications this have on the three basic principles that that Mike just laid out that takes a bright regulator and and we do see this here that the The Regulators of fsra here in adgm are among the world's brightest and they've really set up a regulatory framework that's based on first principles it makes it a fantastic place where you can operate freely and build real solutions that are meant to last there's no shortcuts so it's not an easy regulatory framework but it is one that doesn't block blockchain just because it's a different technology yes Charles yeah I think it's very important you have to take a step back and understand that regulation is very difficult as especially with the us-centric approach because there's a conflation of two things normally when we think about regulation we think about law enforcement we think about consumer protection and all that's fine and most reasonable people are easy to do but the other side of Regulation is the geopolitical side there's a weaponization especially of the Treasury Department and it's big part of US foreign policies the sanctions regime and using regulation as a cudgle to basically enforce how they want to run things and that's fundamentally incompatible with European regulation Chinese regulation the regulation here and I think blockchain is kind of a it's it's in the middle of the No Man's Land of that reality as the world is having a broader discussion as it globalizes of is this regime still the one we want to be with and what's really comfortable about adgm and Vara and all these other places here the UAE is they they don't have that goal they think only about consumer protection they think only about the the standard stuff that you would think is common sense and so you have these amazing conversations and it's really easy to work with them it's to talk with them and it's very refreshing whereas the US side it's it's like a sphinx because it changes based upon what the geopolitics looked like you know we were friends with Russia now we're not we were friends with China now we're not so all the financial regulation reflects that and who you're allowed to talk to and do business with and what's good business looks very different every four years which is really frustrating it's great to be here in Abu Dhabi the capital of capital right so you should maybe expand a bit more internationally as well Charles um Constantine you with Black Demon are located and headquartered in Los Angeles and you focus on wallet and node management and stacking Solutions and so on as you're from a software development um um uh industry and and background as well what are some of the new innovations that you at your company are putting all your efforts in well I think um yeah we probably run 25% of the global institutional node infrastructure so we run around 170,000 notes across 70 data centers I think really you know to maybe tie it together with regulation ultimately I think there's a trillion dollars in annual transaction fees made around the world and ultimately Regulators are protecting that Revenue stream to you know for existing Financial Legacy systems you know a little bit like music Publishers were 20 years ago when music became pixelized and so we see the same thing here and so fast the main role main focus is working with institutions and educating them on how they can participate in generating this revenue on cryptocurrency rails right and so that's about you know how do you participate in oracles how do you think about you know nodes how do you think about um ultimately validating transactions and uh how do you think about safely procuring keys and uh and ensuring that um ownership of assets rests with uh individuals and so I think for us that's like the biggest part we currently play is really education around the very complex technical stack and Revenue opportunities for institutions when it comes to participating in this phase um I think there's still a lot of confusion there um I think um terminology is really really difficult and so one thing we've observed is when you talk to different banks and and you know you can use uh most companies in crypto we all sound fairly similar but we do very substantially different things and so um I think there's still a lot of educational services to be done there for sure absolutely M at your company at bit go your slogan is deploy your Capital so not sit on it but really put it to work so what do you do differently maybe and how do you do this in the most profitable way for your clients well that's not quite our slogan but uh uh we do try to help people do that look the the markets for any other asset class are pretty well defined in terms of what roles are there with broker dealers and exchanges and custodians so for those that are just trying to to build their business and have access to financial markets you know how all these things plug together today in the crypto world you know things are much more isolated and we are trying to drisk the systems that we have by separating some of these functions by the way it's kind of funny when you think about business models I think was Jim barkdale said there's only two business models bundling and unbundling right and so what do we have with crypto markets we have the perfectly bundled all services in one at coinbase right and uh we know where that leads in terms of risk Regulators work to isolate risk and to contain risk um we need to make sure that we separate things apart so anyway for for B we want to make it you can have it in custody and you can still access to liquidity 24 hours a day seven days a week that's tough so building that market structure be able to settle without having to compromise by prefunding out at exchanges where you may not know you know how how good the the risk management is there um those are the types of things we're doing collateral management these types of things we move up the stack in terms of services to our clients yeah then uh with security you focused a lot on tokenization and decentralized finance of course what's next for your business what kind of developments are you working on we think institutional defi uh decentralized finances is the key so among the most traded digital assets the most liquid digital assets are us treasuries riding on institutional rails currently with billions uh being traded daily um in some of the markets it's sort of a little known secret so there's been an emergence of real world assets and and uh the tokenization of real world assets working with uh a partner Wisdom Tree we've got uh now over a dozen regulated uh 1940 act funds the most regulated asset in argu arguably the most regulated uh environment in the US that are now available to retail customers throughout the US and you can get access in the same site to Commodities cash crypto um and regulated uh funds or or Securities in in one convenient experience that settles in seconds so that's an exciting Marketplace but the tokens are only the start most Financial transactions most liquidity comes from swaps repos uh Securities lending trans uh transactions Etc this is really where the market will go it's it is the killer app for crypto or excuse me for blockchain and so we're excited about those kinds of lending scenarios Securities collateral uh and borrowing you're going to be see men going forward Charles uh your new baby cardano is already today one of the biggest cryptocurrencies by market cap and also blockchain platform but we have seen so many wild Market swings do you expect more price stability going forward oh absolutely I mean especially when the institutional money comes in the marketpl I mean there's there's kind of an exit of some of the older companies like the like Finance got hit recently you know maybe mamass is going to get hit a lot of people are getting hit these days and then new people come in shakes things up and everything changes so I suspect that we'll probably see a bull run in 2025 and it's going to bring a whole bunch of new capital and people and institutional side is going to look very promising then so we're probably going to see the the security token Revolution somewhere between 2025 and 2030 a lot of ESG stuff is going to move into our space as well and that's going to be a big uh a growing area and a lot of federation plays where corporations realize they can't go it alone and they start consolidating by forming federations like AI they'll start doing probably a lot of stuff through blockchain technology so that'll be fun and exciting and of course there's still always going to be a demand for Bitcoin and all the you know the Blue Chips inside the space and we're having a lot of fun along the way but the biggest area of growth is likely going to be the bridge between the regulated the unregulated world how how that's going to work we call that regulated value transfer protocol and it's super complex because it's not one problem but it's a collection of problems and also it requires favorable jurisdictions to automate their regulations and bring them into code and only when you've bridged those two things can you actually get defi that is decentralized but regulated at the same time so I suspect we'll see a lot of experiments next year and then we'll see a full realization of that by about 2025 2026 but that's going to bring the a few trillion dollars of value in the space exciting times before we finish with a closing question to you all I have to ask this as well because we have cop 28 coming up in Dubai in a few days there's been a lot of criticism about cryptocurrencies when it comes to climate change and really being harmful uh to the invest uh to um to to the planet anyone of you wants to address this question what kind of efforts are being done right now to address this topic the entire cardano network runs on less power than this building consumes so uh yeah we solved that already anyone else there's a ton of innovation in layer ones yeah but also what you see is assets like carbon trading that that are occurring on blockchain Rails so there's an opportunity to make that uh to to engage and transform sustainable Finance yeah it's not an inherent problem of cryptocurrency it's also what energy you use and how and and ultimately those are systematic problems that you can optimize over time I think there's more political debate about cryptocurrencies and use of energy as a way to make that debate happen then practicality to it um you know you look at new ways to utilize unused energy um and you know Bitcoin andov for work systems can absolutely utilize that does it take time sure um you don't build those things until you actually have the need for it this happened um this is not a real issue a lot of pressure on cop 28 in Dubai for sure and policy makers there hopefully we can see a lot of agreements and outcomes we are almost done I have to watch my Swiss watch a little bit but final question what is the number one Trend over the next five years in this industry Dan row out assets on blockchains M Charles uh the merger of regulated unregulated which Ena the real world yeah I think regulated onchain transactions you know and Mike creating a Global Financial system that actually all ties together instead of the foms that we have today yeah fantastic that was the look into the crystal ball for the future thank you so much gentlemen thank you all