BBW24 – Day 2 – KEYNOTE: Let's Talk Blockchain Not Crypto — Bridging the Gap Between TradFi & DeFi

good afternoon everyone I'm just going to move these because uh I like to pace around a little bit my name is Andrew Almeida I am the managing partner for Rise and Shine Partners we are a blockchain infrastructure manager my background is in the traditional Finance space I'm a CFA Charter holder and a certified financial planner I have spent a career managing multi- asset class portfolios today we are going to talk about blockchain not crypto right uh and I have a question for everyone and that is what in the world has happened to rational economic man everyone remember that old guy where we're supposed to make decisions rationally and where do we sit today we sit in a world where we have this crypto side representing by Crypt bro over here that will grab onto almost any acronym that they can find to raise money and chill it down your throat right it's created a terrible reputation for the industry and then on the other side I think we only have rational economic woman left she is a traditional Finance person right we have on the trafi side been what but you know more or less afraid to adopt the crypto industry right crypto now the question is how do we bring these worlds together how do we get trust enough from the crypto side or the blockchain side right so that we get adoption in traditional Finance because my opinion is that this gets its growth right we get real adoption when we have real utility and financial institutions are adopting blockchain right as a technology right so we need to start over we need to start from the beginning to build that trust and we got to go back to what Satoshi did what did what was the Breakthrough technologically okay yes he created bitcoin this uh permissionless trusted payment Network right that's Global anyone can participate and you can trust that when I send you a Bitcoin if I send you one Bitcoin everyone in the network knows I've sent you that one Bitcoin we all agree on that in the network and he did that by changing the way that we think the way we come to agreement okay classical consensus requires that every node on a system communicates with every other node okay so in classical Computing and classical consensus models it works something like the US Senate right if we want to remove centralization the vote counter who tells us what the result of of a vote is how would we come to agreement as uh a body of a 100 people right so let's say I send Anthony uh $100 okay we know that $100 has been sent between us but how does the community know right that's where we're going to get to in the US Senate example if we wanted to know like what the vote of the of a vote count was every individual voter would have to vote and then they would have to count every other vote all 99 votes so I vote I count all 99 votes you vote you count all 99 votes so that we all get to consensus at the end that we all know what the vote count is uh Anthony's president okay that doesn't scale up because every person has to count every vote so at 200 people I don't have to count 99 votes I have to count 199 votes so that we can all agree right so that if you come in and say um no I won the vote I'm president no every single one of us has counted the vote we all know that you're lying we can't trust you in that system okay that so that wouldn't result wouldn't count Satoshi through you know cryptography and encryption not only secured the messages like your messages are encrypted in WhatsApp but by changing the protocol the way we come to that agreement change the way we you know we come to agreement so it works like this very simply think of like uh your encrypted WhatsApp message now again I send the encrypted message to me and Anthony it's $100 everyone now the other 999 nodes on the system let's say they start all this computing power to crack what's inside that message okay someone cracks the code first they find out I gave Anthony $100 they broadcast it to the network everyone tests that answer proof of work they test the math and they start agreeing that that is the answer and by competing to do that an incentive reward is necessary that's called a Bitcoin to keep us Mining and reaching consensus and confirming transactions right he changed the way we come to to agreement so that in that example let me go back actually yeah so this is what we're talking about right the Nakamoto consensus protocol change the way we come to agreement we can agree on the status of the network because all the nodes agree on what's in the network it can be trusted by the participants because of the protocol the way the protocol works as every mind competes to to win the reward to process the next transaction if I broadcast an answer that I try to say um you know what's your name sir Harry tries to say that I sent him the $100 as everyone else is proving the work they would say no you didn't okay that's that's a a breakthrough and that's the fundamental thing that everyone's missing uh or has forgotten the Breakthrough in the technology is the way we agree on information on data okay and Bitcoin can only confirm that Bitcoins are sent between people but we can use this technology this confirmation of information in a decentralized way for all data okay so let's talk about the fundamental components of of of a blockchain system you have the consensus protocol where Satoshi made his Innovation right how we come to agreement the virtual machine processes the data and the and executes the contracts and then the blockchain which is the single Source truth now that we've confirmed and agree on the data we can store the data and all agree that what's on The Ledger is agreed by all of us okay Satoshi made an innovation in the first part okay the consensus protocol that's where the technological innovation happened where did vitalic make an innovation on the second part on the virtual machine okay and that we'll get into ethereum in in a later slide but where are we today we're in a world that worlds are colliding right worlds are colliding assets are moving on chain real world assets and digital assets are listing on exchanges so why why do we have this coming together right from the one side we have um companies coming to the block chain to start tokenizing assets and put them on chain right it's better compute more efficiency it cutting costs in terms of automation of smart contracts and more trust right if you're building on a a trusted Network and and we're seeing real world assets treasuries um the City of Quincy right here put a municipal Bond on chain was issued on the JP Morgan onics blockchain diamonds right uh our partners Oasis Pro have a diamond fund that has been tokenized and the tokenization of assets are moving onto better systems more trusted systems but at the same time we need liquidity right there's no liquidity to to bring into these marketplaces so the crypto assets are beginning to move on chain to get liquidity through traditional structures so where where is the world going we need to support the right protocols get enough liquidity to the right protocols that are trusted so we can move real world assets on chain okay um and if you don't think real world assets are coming on chain and that's where the innovation in blockchain is coming just take it from the CEO of Franklin Templeton Right Said She Believes all mutual funds and ETFs will be moving on chain and we'll get to some uh some of the work that's been done behind that but that leaves the kind of the question to where we started off can blockchains support the financial system right like we have the scalability issue right the blockchain trilemma one of them is scalability do block can blockchains actually support the traditional Financial system and I just pulled out a couple of pieces of data where you know as a sample and looking at people who are involved JP Morgan has been a leader with the Onyx blockchain uh issuing assets like the City of Quincy Municipal Bond and that blockchain settles $2 billion a day JPM also has the JPM coin their own uh effective you know stable coin uh settles about a billion dollars a day but JP Morgan as a company moves about a Trill uh 10 trillion a day so we're nowhere near ready from a scalable point in terms of like the infrastructure is there the infrastructure is still being built you know we could look at nfts we could look at all these other kind of things but we need infrastructure to get real world assets on chain um you know there's another quote uh something that's you know commonly looked at TPS is this is this metric everyone wants to consider and this is why people in the tradire world are like why are we what are we what are you talking about why are we going to move on chain we get more TPS out of the NASDAQ than anything right why are we doing this um so we we may need multiple blockchains to to support the financial system but I pose another question are we asking the right question about why we're using blockchains so we need to start asking the right questions you know up to now it's you know why are we building on a particular chain when we think about it you know people go for its speed its liquidity are we going for its consensus are we going for the programming language um are we going because of its low gas fees right why are we selecting a particular chain and you know in my experience having worked in the industry only on the on the blockchain side for three three and a half years now you know everyone goes to ethereum either for the liquidity they think that's where liquidity is you're going to get way more liquidity going to the traditional Financial system right than you are going to get from from ethereum um and then for the programming languages um I'll ask another question you know what are we actually scaling what what are we trying to scale are we scaling a public database are we you know ethereum are we are we scaling the public store of of value Bitcoin are we are we scaling crossb payment systems are we scaling our stable coin share on Market maybe maybe we want to get more USD on Market we want to scale that um but what needs to kind of move forward for blockchains to scale and I would say that you know if we go back to what Satoshi right going back to the beginning what satosi broke through for us is we need to scale trust and how do we scale trust right because with trusted agreement of the state of the network if we could agree on uh the n on the data or information that's in our network not a big coin but maybe the quality of a good the authentication of a good right the use cases get very far and wide to start using shared ledgers we can use them on the supply chain we can use them for an exchange uh payment networks has been an obvious one to remove cheating out of gaming one of the most interesting projects I I think in one of the simplest ones if you look at what um the um International Chess Federation has done to remove cheating from online gaming in chess it's because they're authenticating each chess movement in a decentralized manner and if someone wants to cheat and inject code into that system they're going to find that out that that person was the cheater right so there's the applications of using trust as opposed to just um you know what we're doing on ethereum all these transactions offline on some on on some layer 2 or some other centralized service and then we're just using the blockchain for decentralized storage those are two different things you know satoshi's breakthrough was agreement it's the consensus it's the protocol that we need to scale it's trust right um and and and I think that mostly happens on permissioned blockchains um there's a lot of advantages to using permission blockchains I don't think public blockchains will go away but when we think about how the financial system counterparties different banks different um regulatory environments are going to use blockchain for its trust you need to be able to permission who uses that environment who validates the the the transactions where those validators sit that they're in the jurisdictions abiding by data privacy laws and then you know some people have said is the permission uh still true to the decentralized nature of of blockchain and what and what Bitcoin found uh because I think the average person has thought that decentralization just means that you know it's it's totally permissionless and everyone could use it across the globe yeah that's Bitcoin but if we're going to scale the concept of trust we need a system and a protocol that has done this at the protocol level and you can trust to scale blockchains okay um and before we get to you know where I believe that that that goes you know we we're at this point of adop of we're just getting to the cusp of adoption we're just starting to see real world assets move on chain we're just getting this token this is just the beginning of the financial system right the JP Morgans the wisdom trees the wellingtons the fidelities stepping into this world they're just getting started um so if they're just getting started now you know what the last 10 years there hasn't been adoption that's because we spent the last 10 years trying to scale A system that doesn't really work that well for Mass adoption and the traditional Financial system right what are we doing on ethereum where you know we have these layer twos we have layer 3es they had to move from proof of work to proof of stake but ethereum uses the uh the Casper protocol which has to communicate like the US Senate example right so we had to create these layer twos to scale on top of it but you know what's what's happening in in when a layer two comes in and prints that like this data packet of information to the block to to to the ethereum chain in many instances if I if we did the we go back to the example before with the $100 payment and and us all confirming it by you know the proof of work sharing you know in on the ethereum side and and and someone tried to come in and say like oh I had $100 and we realized it wasn't you we confirm his transaction we put it on the blockchain what aay 2 is essentially doing is saying many of them is someone's walking in that door and they're saying I have 100 transactions put them on the blockchain that they've done centrally in an you know on their Network or in some centralized server and then the the the the confirmation or the consensus that's happening on a theum is that we then agree that that packet came in and that that transaction happened and then we're agreeing on that but the 100 transactions inside weren't confirmed you know they weren't in a decentralized manner necessarily they may have been right there may have been another blockchain that you know moved it to the ethereum blockchain that did this Pro that was confirmed decentralized originally but that may not be the case right you have Central points of failure on scaling the ethereum system okay let's move a little bit more forward how do you scale trust we got to build more trusted networks we have to build on trusted protocols and if you think permissioned isn't true to the nature of this I would argue that permissioned and the democratization the decentralization of Finance is when you have a choice when you have a choice to be public or permissioned I mean what is public but permissioning to everybody um so you want to be able to permission your validators you want to be able to protect the data you want to be able to own your data or at least have the choice of doing that right so how is that different from other other networks um bitcoin's permissionless you have mining pools ethereum's permission list they use some sharding architecture to get transactions confirmed um salana is permissionless also but it's uh it's leader based they put the the transactions into clusters so when I say permission that means just anyone can validate transactions and any and everyone will have that finalized stored data but many applications and users may not want that right um and then I used an example like her herera which is permissioned but the validators are like you know is a council of validators so you don't get to choose the validators they're just using institutional validators like Google and Amazon but you might as well you know it's effectively the data sitting with them like it is on web to we did a little bit of this and we'll get to where I believe is one of the the the best Solutions in the industry right now which is what our fund supports um is the avalanche blockchain on Avalanche you have a choice you have a choice to be permissioned or public and the Avalanche consensus protocol has made it Innovation at the consensus level to reach finality and come to agreement that's being done at the consensus level not by building more centralized processing on top of the decentralized network so the Avalanche consensus protocol an avalanche itself it's it effectively works as a blockchain as a Ser uh blockchain as a service you go to Avalanche to launch your own blockchains right so that if uh me Anthony and Harry want to share data and information amongst ourselves and I run a validator and they each run validators well we can agree on all the data that's shared there uh or the settlement of our trades transactions whatever we want to do on that Network because we have permission toes come in and we trust the protocol to come to agreement for uh to agree on the state of the network on the state of the data that's been transmission on Avalanche you can use any virtual machine right meaning you can use the ethereum virtual machine you can use the salana virtual machine to process your transactions so if you like the speed of salana and how they they process transactions you can use that virtual machine on on the Avalanche consensus protocol but if you want to build a decentralized app where all the users trust what's on that app because the the information has been verified in a decentralized way that gets done by the protocol and ultimately on Avalanche you have a system of multi- blockchains right uh a multi-chain system where you can choose again have the choice to connect to other blockchains so what does the future look like we've gone from you know Bitcoin ethereum Avalanche I'm I'm telling you is one of the uh protocols I believe will succeed in scaling the permissioned world for permission chains well let's take a live look at some of the things that have been done right this is a this is an image from JP Morgan's private uh project guardian where JP Morgan connected their internal Onyx blockchain to Wisdom Tree for the automation of personalized portfolios and the settlements of Trades with JP Morgan of the Assets in those portfolios now how did they connect the JP Morgan chain to Wisdom Tree so that they can both trust the data that gets confirmed on that Network so that they can use blockchain Automation and Trust the trading the settlement and have and both sides have that in real time think about what this changes for everyone who's worked in finance and sent an Excel file back and forth to you know an auditor or or uh their admin and they're spending hours and hours of you know reconciling information entire Departments of reconciliation will be wiped out because we can trust the data has been verified by protocol and we trust who's on the network with us we've permissioned who comes in so um you know our partners Oasis Pro here they they participated in this as well for the tokenization aspect all right tokenizing the asset which lives on the [Music] Chain but the chain the chains that were of choice that were trusted for the project uh was the Providence blockchain on one end and and the avalanche blockchain on on another but we envision a world where this this connection happens in Thousand thousands of instances between Banks right the adoption is just going to start um so what where does that leave us it leaves us with a new a new type of investing a new type of infrastructure investing where we invest in trusted protocols we operate that infrastructure and then you know similar to um alternative asset funds that you may have seen that do real estate or lease rail cars or any other type of infrastructure here the infrastructure that you want is the trusted protocol to build your application on and I think the proper way to do that we looked at these worlds colliding earlier is in a fund structure go to where the tra you know help the traditional Finance World allocate the way they know how in a traditional fund structure in trusted protocols that are paying you your rewards and not keeping them from you right whereas if you're going to buy the ETF if you buy the the ETF for ethereum anyone could just go on coinbase buy the ETF buy ethereum they could go by the ethereum ETF get no yield right or in some in you know in some instances if you want to use a protocol that doesn't have the approval of a 40 act product you would need to use the appropriate structure and that's how you get liquidity to the appropriate protocols um as opposed to just building the next reaking token onchain uh or the next um you know defi lending platform to lock more tvl we need to build out the validator infrastructure for the for the networks that are going to be used to scale the financial system and uh it is of our opinion that the Avalanche consensus protocol is is is one of the few trusted protocols that has the ability to do that have a few seconds minutes for questions um so I've also done a lot of research I mentioned this to you before about Avalanche and um there's a incredible amount of science incredible amount of grants a lot of innovation happening I'm wondering to your opinion is there do you think there's a reason it's not catching on more specifically with institutions like you said like Providence was built for institutions so the fact that JP Morgan picked them and Avalanche has a lot so I don't know do you have any insight well so so the Avalanche consensus protocol launched in in 2021 it's been three years of people getting educated uh on the differences in the protocols um and on the team uh the Avalanche what won the Avalanche team getting out and educating people on what the protocol does um it it if you're looking at adoption uh I would argue that yeah we're getting it California state just put uh DMV records on the Avalanche blockchain um you see JP Morgan using it in their testing um deoe built a application for FEMA for the federal government on the avalan blockchain um what are some more Julie but uh when you see institutions uh adoption because they're using the de for decentralized agreement for why we're here for what Satoshi broke through right you're you're using the Avalanche blockchain for that for that agreement um any others I have a follow-up question really quick I'm so sorry to everyone else but but um I love the term you just used earlier uh blockchain as a service I've never heard that before do you think that's going to be a trend we're going to continue to see in the industry absolutely yeah absolutely um you know and one of the one of the holdups in in scaling for for for Avalanche and for all blockchains is the capital required right Avalanche is a proof of stake mechanism that's the mechanism it's not the protocol okay the mechanism is that you have to put up that collateral to run a node to operate the protocol so if I want to build an application on Avalanche and we want to share the nodes so we can confirm decent uh information in a decentralized way well we need to start putting up more more nodes right or or get people to service those nodes and the the reality of the industry adoption is that you have a shortage of it people so that when startups are building they don't actually have the it KN how and infrastructure to run them so as a fund we're stepping into to do debt for them and also put up the capital so that they don't have to put up the as an as their Network expands you know it's it's 2,000 Avalanche per validator if it's $25 an avalanche that's $50,000 every validator you put up so they um we're we're coming in to kind of fill those gaps to help with scalability as a fun as an infrastructure fund