Dennis O'Connell, ERC-3643 Association | Rebuilding Capital Markets Infrastructure Onchain

Hi everyone. How's it going? Wow, what a great way to start our fabulous morning con in cons than talking about market structure. Wow. Well, what a topic.

Well, um I think this is one of those things where I'm very passionate about, but I can understand it's not the most sexy or exciting topic. So, just by a show of hands, who's heard of ERC 3643 before? One, two, three. Okay. Okay.

So, ERC 3643. What What the hell is that? What is that even? Well, it's the 3,643rd EIP. We are a permission token standard.

And there's a few others which you may have heard. ERC1400, right? Right. It's a big one. Uh ERC 7943 with our friends at Bicken.

Right. That's a new one coming up. We are what's called permission token standards and 3643 is an official cannon uh in the EIP just like ERC20 721 1155 all that sort of stuff and what we found is it's pretty hard to understand what the hell do we do with these things what is a permission token right where do we exist so has anyone actually used an ERC 3643 before yeah one now why is that why has Most people in this audience 99% not use ERC3643. Well, actually it's because and in Sebastian's slide he had tradfi world. We are way way in the trady world.

That's where we exist in the landscape. We are the most trady of tradi you can get. Who uses our stuff? Fun admins, FMIs, large banks. Who knows actually how big ERC3643 is?

Does anyone know how big how many assets on chain that we have? We have over 35 billion in assets on chain, but no one's ever used them. Why is that? Well, for good reason. Because we deal within the big circle of RWA, we deal in digital securities, right?

This is a new term, digital securities. we are securities which means that we can't easily go into DeFi and go into vaults and all these other cool things that we're looking at. It also means that we are the ones trying to get a lot of the institutions into blockchain into Ethereum. And I want to give three key shoutouts to some of our humongous supporters uh and sponsors today. First of all, thank you to the Ethereum uh Enterprise Ethereum Alliance for having us, which is awesome.

They've done tremendous work with a lot of names. Uh second is the stellar foundation. Uh for those of you who don't know, we actually have multiple implementations of ERC3643. Believe it or not, we have implementations uh in in Solidity and in coming in Sorabon for Stellar. Uh and third of all, our friends at Midas who have been absolutely fabulous and one of the best guys u out there.

We love what they're doing with their liquid yield platform. So we are the leading RWA standard globally. But why should we care? What does that even mean? Well, what it means is this is the maturity of adoption.

These are the suits coming onchain. Oh no, not the suits. Yeah, I I I hear you guys. That's why I'm not wearing a suit today. So the idea is we want to mature the ecosystem but critically preserve the values and the ethos of Ethereum.

Right? We all have heard of crops come out. We are absolutely aligned with crops. So this isn't about getting bankers on chain and making bank chains. This is about where the water meets the sand kind of deal.

Um we've uh grown quite a bit as you could see. So we have over 140 institutional members around the world. Think about that. We are in 12 different working groups around the world. Everyone from the SEC to FCA and HM Treasury to ADGM to HKMA in Hong Kong, Mass in Singapore, working with ISO in Spain, Germany.

It's a lot. We're a small team of volunteers, about eight of us. Uh so you can imagine uh my emails. What do we do at ERC3643? Well, it's a great question.

We do some really cool stuff if you're in a Trafi world. What we do is try and understand digital securities and get them on chain. And so far we've had a pretty crazy year as you can imagine. First of all, we had the opportunity to present with the Enterprise Ethereum Alliance to the SEC crypto task force, which was pretty cool. And we were surprised about how welcoming and receiving they were of Ethereum, the ecosystem, and of course the need for standards.

Now, why are standards important? Well, standards are a way to gain adoption without inherently creating winners or losers. What do I mean? So let's say you're platform A and you say hey regulator the way I do it the way I do your different rules I meet requirements and the regulator will go say you're right you do but only you do how do I get adoption ERC 3643 is a lighthouse it's a way of doing something that meets regulations that other people could look at and go yeah I don't like that I rather do it this way or I do like that we'll adopt it anywhere in between that's the beauty of the members ersship standards are a compass for the industry to gain and not have to keep reinventing the same problems over and over again. And we've also had some really great adoption this year.

Uh we are doing a permission stable coin for world liberty with through our friends at Apex. How cool is that? We even talked to BNP Parabus and they decided to adopt 3643 for their pilot which is really exciting. Why is that exciting? Because if we don't have to be in the room and people can see all the work we put out there and judge for themselves, that's who you get zeitgeist or adoption.

People are looking at it beyond. Now, does that mean 3643 is a dead standard? Absolutely not. In fact, we have many working groups on privacy, identity, uh data integration. It's a living and breathing thing.

So, if you haven't touched or played with the standard yet, go out and do it. We're here to support you. Our biggest news about two weeks ago uh is one of our members, flagship members, Apex Group, the largest fund admin in the world, in 2027, so by next year, has pledged over $100 billion on their T-Rex network, which is based on polygon agund billion dollars. I feel like Dr. Evil saying it right on hundred billion dollars.

But actually the number is even more scary because we all talk about hockey p hockey stick. Everyone's familiar in entrepreneurs hockey stick right it's grow grow and then boom well all that work for being an association for three four years is starting to pay off and now we're starting to super scale. We estimate internally at the foundation across all of our members that by next year we will have over 250 billion in assets on chain. Think about that. Numbers are starting to get really big.

Well, Dennis, this creates a problem, which is if I have all these assets on chain and no one can touch them on the blockchain, what good is that? And I agree, it's useless. We don't want segregated assets. Which is why today I'm talking to you guys about market structure, right? Who's heard of market structure?

One, two, one in the back, three, four. Okay. Does anyone care about market structure? That's the real question. Why should you care about market structure?

Well, if you saw Sebastian's presentation just before, which was great. He hits the nail on the head. We are looking at an evolution of the space where RWAS which are not all securities are coming more and more into DeFi and we see that the association as well. Our challenge is because we deal in securities. We have the most strictive laws that we deal with.

We do the actual share registry. So not all RWAs are securities. I think most people know that, right? What does that mean? That RWA is not a security.

Well, what that means is if you put it on chain, you may or may not necessarily have to KYC for it. Hence, permission or permissionless. So market structure is the idea that we understand how the old world works and how we translate into the new world. It's the way we organize all the different players and their responsibilities. Now, I understand we're having a good time at Cons today.

It's a fond time, but I I I talked to the team and this is a bit of a heady presentation, so we're not going to go through the heaviness of it, but I want you to use as a reference as you work on your different projects. Why? Because we are on the move. So, first of all, there's actually four different market types. I notice everyone always says, "Oh, primary, secondary, primary, secondary."

There's actually four market types, third and fourth markets. Something to know about if you're looking to innovate further on your third or fourth markets. No one ever talks about it, but actually in finance it's uh it's pretty cool. OTC direct institution institution. There's a lot of different ways that trades happen that I have seen some kind of starts and es and flows but there's a bigger world beyond primary which is issuer to investor and investor to investor.

The next thing I want to talk about is the rubric that the SEC gave out. Now why should we care about this? Well, the SEC, US Securities Exchange, is on the move. And in January, they put together a statement on token on digital securities, right? And we also saw uh a little bit of clarity on what a security is.

Has anyone read or been familiar with this? Has anyone know about this? One, two, three, four. Okay, great. So, this is valuable to you.

Again, this is a reference for you guys to look at this and say, "Okay, as I start touching RWAs, is this security? Is it not?" I see all these different amazing projects tokenizing things, where do they fall? What are they doing? What can I do?

What can I not do? This is your rubric. This is what this is from the SEC directly. Now, what I've done for you is break it down because it's heady stuff on saying, "Okay, if this is the model, what can I do with it? What are the challenges?"

So, the idea is as I talked to all of our members and we talked to regulators worldwide, over 23 different jurisdictions around the world we talked to, I want you to use this as a reference as if you were sitting next to me at the SEC or somewhere at FCA and saying, "How are we thinking about this?" Right? because it's not always cool to think about and securities lawyers are expensive. Okay, what I want you to keep in mind is the middle column. In fact, this one right here, crypto asset does not convey security rights.

Does anyone know what that means? By show of hands, if I say crypto asset doesn't convey security rights, does anyone know what that means? Yeah, it's kind of opaque, right? No one no one raised their hand. Well, what it means is if I tokenize something I call an RWA by transacting it, I don't have to KYC.

Why do we like that? Low complexity, high liquidity. If I do have to transfer and I do convey security rights and actual security, then I do have to KYC. Has anyone heard of some really exciting projects coming on? You ever heard of, I don't know, Securitize and NY?

How about Ando tokenized stocks? Right. How about Coinbase tokenized stocks? How about Kraken and X stocks? Huge movements in our industry.

How do you look at that? How do we interpret that? This is the rubric. This is how it's done. And the other model is the third party sponsored model.

So these are your DTCC models, your big institutional models. Right? Again, heavy stuff, but I'm not here to present it. I'm here to give you a guide to get through this next year as we see more and more different attempts to look at how we take the RWA market and bring forth tokenized stocks, digital securities. This is your guide.

This is what I'm giving you guys today. I also talked about 3643. What does 3643 need to be used in every use case? Absolutely not. The ERC3643 is what we call a permission token, which simply means I need to KYC to hold the token or transfer it, right?

Which not always great, certainly not great for DeFi. But here you could see in most cases you will need a permission token. I use 3643 because well that's my association, but you can use any permission token. And in some cases you don't need to and that's interesting. So that's good to know.

Permission versus permissionless is a good you guys know what the difference is, but I actually broke it down across all the different categories that you could look at that I want you guys thinking about if your project or your team are touching these sort of things. What can you look at in terms of security, liquidity, trading because like anything else there are pros and cons, right? We want things onchain more than offchain. We actually did a report with a through our friends at Tokeny and Apex on institutional DeFi where everything's KYC and that's something we're seeing more and more of because you could check it out on the uh Apex and A websites. So I have about a minute left.

I want to open up for questions. Like I said, this is meant to be a reference for you in a time where we're seeing the most movement and change in digital securities that we've ever seen in our history uh as an industry. So, does anyone have any questions? You, sir, go ahead. You have a mic.

Oh,

abs. Yes, it does. Clawback. Clawback is a tough thing in DeFi. Clawback is untenable.

Why? Because some third party can can take out the tokens underneath you. In a regulated world, clawback is a necessary foundation to ensure that the share registry is only a golden source. It's maintaining good integrity. At 3643, one of the biggest things that we're working on is conveying permissioned to permissionless assets or digital twins where clawback is non-issue.

Is do you have a follow-up to that? Okay, hopefully I answered your question. Thank you. Go ahead. So the question is do I think Xbox or any other uh like Kraken Xox will remain on decentralized ledgers

decentralized

on dexes the I I think it's very important that we have different approaches to this and give the industry and end users choice ultimately But I will also say that it's complicated for that. It's not uh something that is in law right away. It's in policy or it's solved jurisdictionally as you know they're launching in Europe, but obviously their ambitions are are much greater and we want them to succeed. So that's something that is part of this is that's going to come up. Market structure is the event horizon.

It's the edge. In other words, how long do I have to keep KYCing? Because if I have to KYC into a DEX, it's a disaster. In fact, 3643 did a 3643 3643 swap on unis swap two years ago. Was a disaster.

It was terrible. So, we understand the limits of this sort of stuff. But the limits are informed by what is law, what is policy, and that's always a big thing to look at. In your case, right now, they can do it outside of jurisdiction, but they're certainly working hard to get it to become law. So stay tuned on that.

Great question. Come on, keep keep them coming. I'm here for you guys. Any other questions? Oh, in the back.

Great. The token is sorry. Yes. So have you considered Swiss law to tokenize securities? Because like I think backed does it you mentioned XTOPS and there you have an interesting rule.

So uh if you uh have a tokenized security by tokenized by the issuer the token is the security you don't need a transfer agent or anything and it is freely transferable and the idea to do KYC actually KYC is the wrong term because it's not a shareholder is not a client so it's know your shareholder and here the duties are much sim much different than uh uh with KYC so all you need to do is to give the shareholder the possibility to register their shares and if they don't it's their problem they don't get the shareholder rights and that allows you to trade on DeFi to to have the tokens freely uh flow through the networks to the blockchain and at some point someone says I want to register my shares and then you get your shareholder rights and I think this is the perfect solution for all of what uh you you outlined before.

Are you from Switzerland?

Yes.

Okay. Well, the gentleman's absolutely right. Um, as mentioned, we work with 23 jurisdictions around the world. Switzerland absolutely is on the forefront of it, but Switzerland isn't the biggest or deepest market or the only market, but it the model as he was talking about is really great. In fact, a lot of permission tokens, what we call ERC20 permissioned are out of Switzerland because of the very accommodative regulatory model.

And that's actually a bigger point that he's making, which is what we build on chain is ultimately informed by policy. What I just gave you, it's the blueprint that informs how much complexity do you have to have on chain. Like the question about clawback, like the question about what a transaction actually means, right? And so that's the important thing is that not every jurisdiction is going to be as great as Switzerland. You know, other leading jurisdictions like uh Dubai, right?

We have VARA and DIFC and ADGM are certainly leading the way. Other jurisdictions like US or Hong Kong, you know, if they have a view, the amount even though they may be archaic, their market size is so much bigger that we have to deal with it. So there's a lot of complexity in sort of this and this is sort of one of the challenges we have at ERC 3643 when we work with all these different jurisdictions is the different levels of approaches to this. So the SEC um is one of the tone setters for the rest of the world. In fact, when ERC 3643 won its innovation exemption in August uh from Chairman Atkins, which we're very grateful to be mentioned in that project crypto speech, we had six Latin American countries adopt the standard the next day.

So there is uh golden standards like Switzerland, like ADGM and others that really are lighting the way and we should look towards that and learn those sort of things especially with your project. People choose jurisdictions by on purpose. Who saw the announcement yesterday? The announcement of Franklin Templeton. They had a second tweet.

I actually retweeted the second tweet. So Ando is doing great stuff with Franklin Templeton around tokenized ETFs. Wow, that's really exciting. But if you look at the second tweet that they had actually shows you some of the challenges that they have that they're working through across the different jurisdictions, in their case BVI. So it's not necessarily, oh, let's all run to Switzerland, although I'm sure the gentleman would love that and of course we love Switzerland, but there's other thing other jurisdictions that we have to kind of get that sorted out and certainly Switzerland does.

Um, I'm one more question or am I getting the cane?

Sorry. Last question. I'll be around if anyone has but if anyone has one last question I want to ask a friend from the audience

that there's no more time but

thank you guys so much.

You can you can reach him out uh here.