One Year In: Etherealize's Wall Street Report Card | Danny Ryan - Etherealize & Jeff John Roberts

Go ahead. Go ahead.

Oh, hello. Hello everybody. Wow, this lights are not not bright. Um, so our next session, we're going to go ahead and skip lunch just to get ahead of time and I am going to introduce Jeff John Roberts who is a crypto and finance editor with Fortune and he is going to moderate our next panel.

Thank you.

Hi everyone. Great to be here. This is my goodness. I think I've been coming to these things for seven years since the old days in the sports palace. Some of you may remember this is a good venue, the plumbing works.

Um, and I'm here to talk to uh Danny Ryan, uh, Ethereum OG and more recently co-founder and president of Etherealize.

Thanks for having me. These are the brightest lights I think I've ever experienced. [laughter]

No pressure. Um, yeah. No, I I think it's neat because, um, you know, Danny, of course, landed the merge, which I've covered crypto a long time. I think was the most impressive technical feat I've seen the crypto community pull off. Um, and now you're on to something new.

And the title, I think the title is officially Wall Street Report Card. So, you're now spending your days with Wall Street people. How's that going?

I mean, [laughter] it's funny to say, but I'm I'm having a blast. I very crypto native. I'm in a totally strange environment. Uh, but I learn a ton all the time. And they're actually eager to use the things that we've been building.

And I think we can actually begin to upgrade systems and change things for the better. So, it's it's pretty fun.

Yeah. I mean, maybe this is not a fair question, but can you give a like 30 secondond overview of what Wall Street's financial plumbing looks like right now?

So, it's it's it's a wide range. Some stuff is okay. Some stuff is moderately efficient. Some stuff is in the stone age. And even the stuff that's okay though is uh kind of hilarious when you do a historic anthropological study of it.

So for example, most public market trading is settled by the DTCC. The DTCC, I think, was uh created as a consortium in the 60s. Essentially, they just had too much paper. They were like the paper notes of who owned the stocks and the bonds and they had to move them around and they're like, "Well, let's just let's just put them in one place and then we'll like have pointers to that one place." And so the DTCC actually became like the centralized ledger for public markets and made the markets more efficient.

Um, so funny stuff like that. But then you look at some private markets and stuff takes like 20 days to settle. People are manually checking stuff. They're faxing stuff to each other. Like the email is the trail of evidence.

The someone's going and looking at like a complex agreement and like manually checking, okay, I'm when this happens, I'm supposed to do this. And it's just we we can definitely do better.

Yeah. And I think uh that's that's a piece of history is interesting too. There was called the great paper crisis in the 60s or 70s where the markets were actually closed on Monday and Friday because there's all these people running around with boxes of paper. You know, does Danny own that piece of stock? Do I own it?

How do you keep track of it? And that still matters too. I mean, you know, knowing who owns what asset is critical. Um,

I I was talking to Chairman Atkins of the SEC this morning and I didn't realize, but during Hurricane Sandy, all of that paper is in a vault and the vault flooded and I think they recovered most of it, but it was just like, what the [laughter] hell are we doing here? We need to we need to do better. So,

you see a role for blockchain in this.

Yeah. Yeah. I mean, like things that we I'm crypto native. Like I I hear how some of these systems work and I I get confused because I'm like I it for example, we uh you and I might decide to trade a bunch of stuff happens and then I get the asset that you're giving me and then I get a funding memo and I'm supposed to send you the money and these things are not premised upon each other. That's and people play games.

They're like, "Oh, well that I'll send you the money in a few days. I like my float." Um whereas in in crypto it's like the system like I would never give you an asset if you didn't give me the money. Like we would just this would be a smart contract and it would just happen. Um and so when you start realizing even just the small unlocks when you begin to program these markets on top of Ethereum um it's huge.

It's massively huge. Yeah. And there's a lot of strikes me middlemen that could be eliminated. You know I mean you don't want to take everyone's job away but transfer agents. I mean, there's all these niche things like, you know, clearing houses, settlement houses, transfer agents.

That is literally like six guys in a back office writing stuff down. And that was there for good reason once upon a time. But you know what's so how hard is it to dislodge this and replace it?

Yeah. Um, so the closer you get to consumer, the more the tighter the regulations are. Um, so when you're talking about public markets, equities, bonds, things that consumers touch, um, there's there's a lot of regul regulation and I think we're going to see some interesting stuff there. The SEC announced at the beginning of the year they're going to do a um regulatory exemption to allow people to experiment with bending the rules, making an exception for this in smaller environments. You know, maybe cap it at a billion dollars or something like that.

A billion's small in in in Wall Street terms. um and uh and see how things can be better, things can be potentially better for business and potentially safer for the consumer. And hopefully that would inform rulem in the future. But as you get further away from consumer use cases and and some of these like institutional type markets, private markets, a lot of the pointto-point interactions between banks and financial institutions, um there's just there are legal ways to do things and you can do legal things on top of blockchains. The Genius Act was actually a a big signal to banks that this was the case like oh this isn't illegal infrastructure and so if you just do the legal things on top of blockchains you get massive massive efficiencies like the these you know for a particular asset class you know I know a large bank has 90 people helping settle trades and and account for where things are and who's who's handling you know who has the assets at any given point.

Um, and when you throw that on a blockchain, I don't I don't know if any of them should, sorry, they they should all have jobs and but [laughter] that back office operation just it just falls out. You just don't need it. Um, and so across the spectrum again in these more institutional institution use cases, we can just like go in and begin programming things and we are. Um, on the consumer stuff, it's going to take a lot more in terms of rulemaking, working with the SEC, working with the CFTC, and working, you know, with lawmakers. Um, this big strides there.

Uh, but hopefully over the next couple years, we continue to see some movement.

I'm curious, so when you're sitting down with like Black Rocks and players like this, the quintessential Wall Street firms, how deep in Ethereum are there? Are they like is are any of these firms running validators or like do they speak Ethereum?

It's a wide range. So most of these firms have digital asset teams which many have existed for years but been kind of relegated into the corner. They have become um a source of expertise for the firm. So you know they're the ones that are queued into to validators into decentralization and security and they're the ones that are helping um bring other parts of the firm up to speed and be forward thinking. Um, you know, for example, I've hung out with the the Fidelity digital assets team and they're uh working on their their ETFs and they're staking ETFs and they're very concerned about like staking in house and being decentralized and making sure that they're protecting, you know, their consumers and doing right by the network, which is very cool, but if you go and talk to somebody else, you know, at the credit desk at Fidelity, they're going to be like, "Blockchain?

What what is that?" And if they're willing to listen after you have a conversation for about 30 30 minutes, the lights the light bulb usually goes off. You know, this is less of um taboo territory. So people are willing to understand and see the future. Um but it takes it does take a good conversation.

It does take understanding their pain points and seeing how you can improve things.

Yeah. And I think function it's partly a function of demographics because you know fortune's office in Wall Street I you know talked to these guys. The people calling the shots are people in their 60s and 70s. That's the cadra of senior executives and CEOs and stuff. There's nothing wrong with that, but you kind of, you know, go down to people up to age, you know, 40, you know, you've everyone is kind of crypto native, not everyone.

And I think it's just a matter of, you know, waiting and gener generational change. So, do you find that at all that there's kind of younger people who who get it and then, you know, working for people who don't know or don't care? I ever since Larry Frink said the world was going to be tokenized in 2024, um all of those CEOs, CFOs that are later in their career and a bit older, they're uh they either care now and are beginning to understand or they know that they should care and they're worried that, you know, their lunch is going to get eaten by somebody else. So there's a willingness even though there's not always the understanding there's certainly a willingness to look at this tech the Larry Frink stuff looking at fintech like Robin Hood launching you know slated to launch an L2 and things like that they're definitely um there's a mixture of fear and opportunity u depending on who you're talking to but but there's a sense of urgency. Now, let's talk about um chains, blockchains for a bit.

Um because the sort of news this week or last was this entity out of Vancouver called layer layer zero and Citadel Securities invested in them. They're of course a ginormous financial firm. Um and they want to it's a new blockchain just the world needs yet another blockchain. And the argument is like oh better privacy control and it's fast enough and stuff but haven't covered the space for more in decade. I've seen this before.

there's this silly entity no offense called R3 and a bunch of banks got together and it's like you know no we're going to do the blockchain you know it's it's so we'll do it our way and these big consortiums never seem to work but you know so we've got this new player and it's got some big names behind it and then there's you know Ethereum you know L1 you know what you're doing then the L2s I mean how's all this going to shake out

um for substantial use cases for fundamentally ally upgrading markets and internal operations. Um, I would argue and most believe me when I argue it that there's only one answer right now and that's the thing that's the most decentralized. They don't care about that. They care about the track record, the uptime, the security, the no one controls it, no counterparty risk, that kind of stuff. when you translate it into that lens, there's there's only one answer right now for these critical use cases.

When you're talking about distribution, when you're talking about where should I put that money market fund, let it go wherever it wants, wherever there's demand, right? And and so we're going to see assets go where there's demand for assets. When we're talking about fundamentally upgrading markets and core infrastructure, um people aren't betting on blockchains that come out tomorrow. uh they're betting on the thing that they understand, the thing that, you know, has been around, the thing that has a track record.

Yeah. And since we're sort of having a Wall Street talk, I've got to ask, if these institutions do sign up on mass, is that going to translate to, you know, more transactions and more, you know, you know, money spent on gas and uh to be crude, the price of Ethereum going up at some point?

Uh I I I don't know much about price. Your guess is good with mine. I know that it will make the network the network effects probably its core asset more fundamentally valuable um in terms of how these things will be valued in terms of their price. I your guess is as good as mine.

You've been doing this too long. Yeah, [laughter]

I work on the stuff. I own the stuff. You know, I believe in it.

Yeah. Um fair enough. I mean, and I want to actually, okay, let's talk some, I guess, philosophy. Um, there's sort of a a str of thought out there right now that's like, look, crypto's killer use case is clearly finance. You know, it's stable coins, it's DeFi, it's finance.

Um, and that's kind of the prevailing wisdom right now. And, uh, frankly, you know, from I know of Wall Street and covering finance, blockchain is perfect for Wall Street. It can really overhaul that. But here's the butt. you know, did everyone get into this stuff to go help like, you know, rich bond traders trade bonds faster?

And, you know, the other cool stuff like, you know, smart contracts for, you know, IP rights or movies or culture, you know, are we sort of like giving up on that? And if so, what do you do with like the great culture that sprung up around ETH Denver where I think most people here, you know, get up in the morning passionate about things other than bonds,

right? So, there's a few things there. one, I don't know if I'll say I don't care about Wall Street on stage. Um, but the uh I do care about democratized access to finance. I do care about [snorts] more global capital formation and participation.

I do care about economic prosperity. And I do believe that if you um upgrade, you know, $120 trillion dollars of the world's investable assets are managed by financial institutions of I think estimated 200 trillion. Many there's many different estimates but that's one of them. Um I think that if we're going to make that impact to access and and global participation um and lift all boats I think we have to we have to upgrade financial institutions. We have to upgrade these these legacy markets.

Um and so from that like there is a mission there and I think that mission is very powerful and I think very impactful. That said um these financial use cases drive other things. These financial use cases require identity. These financial use cases require privacy. these financial use cases require not only fungeible assets but rich non-f fungeible asset use cases and everything else that you mentioned you know require these things or can layer and build off these things and take and and use and so often when even if there's like a hyperconerted domain of interest for any given period of time or what people are building on top of Ethereum I think the the impact continues to ripple outward right like I I haven't been a huge like I I haven't been a sometimes you look at DeFi and you go that's just like a casino.

Um but we're proving out how to do things in secure ways. We're proving out how to build secure DAPs. We're proving out standards and extensible things and and and thus you can then do more. And so I I think even though there's a big financial obvious financial thing to do with these systems that doesn't preclude all the others and it probably becomes reinforcing um you know Ethereum and blockchains in general about network effects and the more of ownerships that's on chain probably the more that identity is on chain and the more interactions that are outside of the financial become onchain. Um, and so like the network effects of the many different things that can happen, I think are reinforced by building out finance, not pushed out.

Yeah, I think there's something to that. You know, trillion dollars worth of capital adopting this technology is going to see it improved and, you know, new stuff will come out and it'll probably have a trickle down effect. But surely you'd agree the vibe on, you know, Wall Street in New York City feels a little different than the vibe here in this arena. Yeah.

Yeah, definitely. Um, and you know, quite frankly, if I do my job right, we're going to make classic finance look much more like DeFi and much more like the chain native stuff that are happening over here. Um, it's just it's a path.

Yeah. And the other thing too, you know, in covering Wall Street, you know, governance matters too. How do you write the rules so people don't cheat and steal and stuff like that? And, you know, how do you just run stuff? and a lot of thought in Ethereum has gone into that.

So, if you don't mind, Dan, I'd like you to look back. You did seven years um at the Ethereum Foundation and you know, sort of did God's work there. That said, I mean, I don't think the foundation model is perfect. It's too slow. The DAO thing too, we all like it in theory, but trying to get anything done is really hard.

So, what looking back lessons do you have? Is there anything you would done different or advice do you have for the foundation going forward?

Oh, I don't know. I think they do a pretty damn good job. Um, [clears throat] it's a hard job. The I don't know. During the era that I was there, it was all about lifting up others, lifting up the community, making sure that the foundation was not singularly responsible, and if it literally disappeared tomorrow, that Ethereum would still exist and still grow and change.

Um, and I think during that era, they did a fantastic job. Um, obviously with Tomas and Shawe jumping in and Tomas jumping out, uh, there's been a lot of change over the past year and I think they're trying to meet the world as it is. Um, and I would just say continue to do that. I think the world is much bigger than it used to be, um, in terms of blockchain, in terms of all of the tendrils touching this thing. And so I think the world can handle a little bit more opinionated or or vocal foundation without taking away from decentralization because there's just so many players at the table now.

Um but I'm I'm a fan. I like I like the EF. I like the work that they do. Um I'm not uh I'm not going to complain too much. Well stated and sounded sincere.

Um to end to we were talking earlier about you got up to you're you know a hell of a coder by all reports but you had to learn finance and for those people out there who you know I learned about finance my like early 30s the people in this room what would you tell them if they wanted to kind of get their head around finance what's the best way to do that

I mean obviously you can hang out with an AI they're getting pretty damn good um but I you know Etherealiz is working because I came from deep inside of Ethereum and Vivic uh my co-founder founder came from Wall Street and so we're smashing together both of these worlds and we have this kind of birectional bridge. Um so I would say if you're trying to bring Ethereum into somewhere that you're not super familiar with, find that person to to join up to, you know, cross the language and speak in both directions.

That's very practical. Unfortunately, we're out of time, but please uh give it up for Danny Ryan, one of the uh OGs of Ethereum. Thanks for your time, Danny. Thank you.