Blockchain finally accessible for businesses (Moderator Olga)

Can we start please with your short introduction maybe like a few words about you more about your background? Let's start with Peter and

Hi everybody. Thanks for coming. My name is Peter Dstra. I'm based in Amsterdam. We have a liquid token fund uh in digital assets with a directional and um delta neutral strategy catering to family offices, high net worth individuals and institutions.

Hello everyone. Can you hear me?

Oh, thank you. I'm GA. I'm the CEO and co-founder of Byzantine Finance. Um, Byzantine started around a year ago. Uh, we focus on structure products crosschain and cross multiple protocols and we have a specific focus for traditional finance institutions.

uh essentially allowing them to uh deploy capital into different kind of uh different kind of products focusing now on a money market fund. Um yeah, we're currently 10 in the team and raised almost four millions uh in December and yeah.

Hi everyone, my name is Stephano. Sorry, I hear my voice super loud. Okay, I'll try to focus. Uh I'm CEO safety on chain and also uh co-founder of 33 builders which is a community based uh let's say entity uh we in sock let's say that we tokenize paper uh for the middleman like for actually the uh zopino let's say thank you

thank you so much I want to start with a short question just like to define better the topic can you like in few sentences say what does really accessibility of blockchain to businesses means nowadays. Let's start also with Peter.

Um yeah blockchain opens a whole new spectrum and market for businesses. Of course, you have the web two traditional means the the rails and the market. But yeah, blockchain also with DeFi or other decentralized applications. This opens a whole new market. For example, uh it's it's permissionless.

It's immutable. You can trill that there's audit trail. So that unlocks a lot of interesting characteristics businesses can use for compliance or audit purposes. So, it's really what you make of it.

Yeah, I agree with it. I think I have a more um let's say a a spice view of this industry. And what I mean with this is that in my opinion, blockchain technology is this layer of different use cases that can be built and crypto is just one of the multiple use cases that can be built on it. uh might be here to stay, might not, but I believe that blockchain's technology is. And what we at Byzantine believe is that blockchain can be used to make finance and traditional finance more efficient.

For example, where you have products that require a lot of perfect liquidity. So essentially being able to remove the capital right away um or essentially yes or frumping it in a very fast way such as in money market funds is one of the example or where there's a lot of uh back office. We believe that blockchain technology can really help out removing all of those um inefficiencies. That's very interesting because we were born in 2022 with the community. We help over 40 uh web three founders and back then I think that it was mainly technology le say tool but then the reality like we actually face uh to non-financial businesses and we found out that it's just an infrastructure like the real thing here is the user experience the regulation the actually the benefit for our customer.

So I would say that we use blockchain technology but we don't even declare it. We use it like an infrastructure like internet. It's just uh the customer.

Thank you Stephano. What's the main difficulty introducing blockchain solutions to traditional structures and flows in your experience? in our experience um we we need to step back a little and uh we need to really think about uh normal uh businesses. So actually the farmers, the the industry, the manufacturing, uh the the commercials like they it's it's not really real thinking that everyone will have a wallet, you know. So we are doing that we are bringing people onchain without let them know okay just with the bottom with the bottom they sign they they engage they interact and with this we actually are bringing value to our customers which is mainly for uh the automation the transparency and the efficiency

continuing this how do you see GA it's the question for you the trust in onchain world. So what are the differences? What are the main characteristics of it?

Yeah, absolutely. I I think that I very much agree with uh with Stephano sometimes uh and I think that has been um a topic for a very long while but UXY crypto really needs to be improved um especially for traditional fund institutions or web two companies that want to deploy capital in into DeFi or um yeah essentially any kind of financial product uh on chain. Um and I think that the the blockers that are the the largest ones are the trust. So essentially uh the kind of institution that is issuing uh the the product itself because if you think about it one of the most important things that those uh like for example banks, funds uh or companies have is the trustworthiness and what they want is that all the partners that they work with respect that because it's the single most important thing uh that when they go out and sell they have to sell and therefore um keep up with all the partners that they uh that they work with. Uh so for example, how we how we handle it on our end is that we work with uh institution that are known by them.

So that there's essentially Byzantine that is a protocol uh is a centralized and is might be perceived by them not as trustworthy as a regulated uh institution but we work with the kind of institution that they're used to work that they know so that um the level of trust is right away uh increased um and the second thing that I think is very important for for them is really risk uh they do want to get uh very high levels of risk and that can definitely be solved with for example delta neutral strategies uh or um staking for example lending but in this needs to be brought to the market in a way that is accepted by those institutions and I feel like sometimes crypto forgets uh that it's not about imposing the product and the technology onto the clients but actually meeting the clients where they are and building for them.

Okay, that's very interesting as well. So Stephano, can you please share some experience in applying like tokenization protocols to traditional finance infrastructure? Our first case was tokenizing uh safety certifications uh which uh are documents that are demanded by the state if you have uh let's say employees uh the employees need to have some kind of training in safety. So everyone needs that and the UX in the real life is quite messy. So can you imagine training uh printing all the stations let them sign digitalizing send through email waiting for the response and and then to to save it in a in a database.

Uh so with our technology we are automating all these processes just with a button and the actually the trainee uh just need to click a button. In this case, we are uh ticking the sign meeting in a in an NFTs and led the others to verify actually the um the training and the the most important thing is that our customers save 80% of the time. So we actually go to our client to say we do this and you can say uh let's say two people a year not doing that. So you can reallocate these people in other uh processes. So we don't even mention that we're using blockchain.

So that is the uh the approach for me for not financial businesses. They just care about the benefit and the UX for larger corporations. um let's say they use different uh software so the the API integration it's it's really a plus Peter I would like to hear your perspective on how we can apply defy to improve the capital efficiency of businesses so how can we like improve all the processes using the defy instruments

um yeah so defi as we've I spoken about before is just a whole new market. Obviously, you have the the web two financial services, but in DeFi in a peer-to-peer way, you can or people or protocols can create new ones. For example, um in the Netherlands, you have a very big real estate market. Amsterdam is full of it. Uh and I know that um in this market are a lot of real estate developers who have their liquidity locked in basically illquid assets.

They're in high demand, but they're very illquid. often they require well sometimes short-term loans 100 200 1 million maybe but via the traditional ways yeah they have a credit line they get 14% or there's a quite big market of peer-to-peer peer lps uh who charge between 8 and 14% um but it's not always readily available so um in in the property market you could also collateralize your balance sheet you could collateralize the uh uh real estate and take a loan against it. DeFi really enables you to know uh know where the money is flowing so that the money you borrow um is used for the intended purposes and also in the case of a default for example you should trust that after the the default process the money comes back with a big discount but uh in in for example with a if if your collateral falls under the amount you have to repay you will get liquidated and automatically the the collateral is reimbursed to the lender. So also a lot of risks are mitigated uh versus the versus the traditional means. Thank you.

So we see a lot of opportunities for using defi but can guya please you expand on the issue. So how to really move from this pretty experiment is I can say perspective to real implementation of those solutions.

Yeah, absolutely. Um first off I fully agree with what you said. Uh and yeah, again it's all about finding ways of making things and financial products more fluid and essentially solving for those um defects that are in traditional finance. Um how we how do we make it bigger though? How do we make it trustworthy?

Uh because I think that is one of the one of the largest problems is uh to to bring essentially those uh defi blockchain uh to common use is to and I again think that sometimes we forget about doing it is meeting the kind of clients that we're targeting where they are. Um and I think that Stephano, you're doing it by just making it extremely easy to uh implement uh a blockchain technology without them knowing that they're using it. And it's something very similar to what we do as well. Um what we noticed is that for example for many money market funds there's when you put your treasury in it you have two three days to remove the capital from it. Uh so that means that the capital is locked for that amount of time and there are some other products that it for which is even longer.

If you're a company and you want to invest your operating capital, that might be a problem uh because you might need to pay the salaries and yes, sure you can organize yourself to do that before, but that also means that you're essentially losing some days of uh returns that you can that you could otherwise keep. Um so what we noticed is that there was this illquidity of this kind of product and that could have been solved with blockchain but that most of our clients uh don't really yeah don't really trust that technology and are might fear of losing the keys might fear of uh losing part of the capital or taking too many risks. Uh and the way we handle it is again by essentially on ramping of ramping in a really easy way. They don't even need to know that they're necessarily on ramping of ramping. The wallet is created automatically.

Uh we work with bitgo to afford the custody uh so that essentially they don't lose the capital any point. Uh we work with insurance that are generally well known uh by by traditional finance companies and companies generally in web two. Uh so that they at any point um what whatever happens the principle is insured and they have access to their capital at any point and then we solve with ford control problem. So for example, we take down uh the two to three days to 30 minutes. So you can remove the capital from the product essentially uh almost right away.

So I would say that to conclude is still be able to be flexible in the solution that you're proposing and meet the clients where they are solving the needs that they have. Coming to this issue between intersection of technology and user experience, Stephano, can you please like explain what are the main forces that like drive the development of solutions in web pre and blockchain industry? So do we focus primarily what we can offer from technological point of view or is it mainly like the consumer demand? Um the main thing when we started was like to implement blockchain in your businesses you had to do or have three things. First of all you you need to understand a little about the technology.

Second of all you need to understand a little where to put the technology inside of your processes. And third thing is was like um dig in your wallet and spend quite a lot in order to implement the custom infrastructure. Uh so all of these components are are quite complicated for real life um businesses. So we we started from that and with a question could we apply the uh tokenization protocols to uh real regulated processes uh and having a business model that doesn't require to the clients to uh invest up front a lot of money. Uh so the answer was yes.

So we started from the regulation. So we started from the regulation, we started from the vistor. We didn't start from the technology. The client doesn't know uh which kind of blockchain we use for example. Uh they don't care.

They they essentially don't care. they just want their processes to go on. So uh from our perspective non-financial companies uh the technology behind is just sorry guys it's a web three conference but that's that's what happening like for from our experience is just an infrastructure. So it's up to us then to pick the best one like we choose uh a nonum blockchain uh public blockchain uh for specific reason like for technical reasons. Okay.

But it was not the point for us.

Thank you. Since the blockchain is still the technology which was introduced like I would say to the main market just a few years ago and we're seeing this rapid development. Can we also touch the topic of intersection and synergies between blockchain and AI with Peter? Can you like explain us what can be like the main use cases probably and perspectives?

Uh yes and this is has a lot of facets. Uh obviously these I think these are the two most typed words. Uh at the moment all the conferences are about it but after diving a bit deeper in it uh there are a lot of synergies and where these two technologies really complement each other. Um let me start with the training of uh for example large language models. So um to train u LLM you need two two two things you need compute and data.

Bitcoin has shown us that in a decentralized fashion, it it is possible to attract the largest compute cluster in the world. So to put it in perspective, Bitcoin's uh hash power is about 500 times larger than the biggest supercomputer in the world and its magnitudes larger than the data centers of Amazon, Google, and Microsoft combined. And they took 20 years to build this. So if it's possible to get the compute in order and uh source that in a decentralized fashion um data and I'm simplifying here and then data is the other component with with GDPR and privacy uh rules it's quite hard to get a lot of data you can buy it you can make synthetic data and scale that basically infinitely but um I think the most interesting use case is real life data for example medical data And these these are very privacy sensitive um subjects because yeah you don't want your insurance company to raise your uh cost because you you smoke or you don't sport or whatever reasons if if compute is uh possible and via other technologies like a encryption technologies ocean protocol or that's maybe now already bit in the past but for example if you can source public data of individuals of hospitals of governments then then basically you can get the biggest comput cluster in decentralized fashion and the biggest data cluster in a decentralized fashion and I would say that it's the architecture for the best models of course there are also some other there are a lot of facets about this but um in the on the application side yeah now obviously the decentralized financial AI agents are very interesting Um I'm not sure if it are really agents or scripts/botss that perform these actions. Um but what I think is most interesting uh element from more philosophical uh viewpoint is the governance of these AI models.

So AI has been around for quite a long time uh but only really reached critical mass and product market fit after the chat moment in 2020 or 2019. these these um these AI providers like Entropic or uh Open AI, they set the weights and biases. They they choose basically with their company based on their culture how these LLMs react how they go about priv privacy or racial concerns and they make the choices for you which is good if it's well but we also saw with Gemini in the first iterations that uh they've also made some mistakes preferably everybody has yeah their own their own norms and their own values and they should have AI also wonders the same path. So these these newer projects who then source compute, source data uh in a decentralized fashion, they they could via a token model for example, let the users and the community decide what the weights and biases will be regarding how to answer, how to go about with uh different very hard subjects like um yeah, for example, uh how how how they go about racial concerns or Yeah, these are very tight tight and uh difficult subjects for companies to make the decisions on. So to round it all up, um I think there are a lot of synergies.

the the the way the decentralized architecture is it enables us to make the best models and also uh to govern these models via a community based basically bottomup approach.

We have just talked to about the trust in onchain world. Can I come back Peter to you about AI? Does AI transform this concept?

Sorry, can you repeat the question again?

Yes. how AI transforms this concept of trust in blockchain world. So when we apply and we combine blockchain and AI, how does like the trust issues probably evolve?

The trust issues for for the users

for the users. Yes.

Um there's a very nice saying or obviously uh don't trust verify. Uh I think that uh is mainly a web two uh phrase because in web three you don't have to trust. you know the underlying logic, you know if certain actions happen, what the outcome will be. So trust in a in a web tree model, yeah, you if you know what the weights and biases are, if you know what the input would be, then via the logic, you know what the out out uh what the output would be. So um or maybe I'm not understanding question correctly.

Uh

no, no, you're answering it very right. So I was like curious to know how the users probably trust more AIdriven technology because there are like a lots of people in the industry who says I would trust AI to construct my portfolio and an example. So how do we see like in general business field?

Um that's a good question. So basically AI is uh I often see it as a black box where yeah based on the weights and biases and how it's trained how the logic is uh in the black box how the outcome will be. So there's a lot of debate or actually there's a very fine line between is it an AI agent or is it basically a bot performing actions. Um also because of the non-deterministic nature of for example these LLMs uh you can ask him 10 times the same question and you'll get 10 times a different outcome in portfolio management uh especially if it's going about large sums of money you don't want non-determinism actually uh there are some ways to combat this for example use a script or a bot or uh instead of asking one agent let a cluster or swarm of a thousand agents handle this and then then take the if 80% or 90% follows the same path and the requirements like um safety and uh APY and and other factors are met then then it can be pushed through but um yeah you their AI agents they are also not biased or they also don't have personal preferences for a certain outcome they just get rewarded or they they they just work on a reward function. If you set the rewards uh and you um uh align incentives with your AI with the desired outcome, then if you create a compelling system, then it will always uh follow the desired outcome.

Thank you. We have explored the topic as we said all of you defy provides many opportunities for businesses. Stephano a question for you right now. So what are the main drivers for traditional business to say I want to use defy I want to implement those solutions in my structure. So once you like discover the solution you probably will know so it's very beneficial for your business structure.

But what is this first step? What like pushes I don't know the CEO the company to pursue this path.

Can you say again the question? Sorry. What is the main driver like to adopt blockchain to traditional business? So why would I as I don't know CEO or manager of the company would like to apply blockchain to it?

Um well mainly like companies demands automation, transparency some of them and security. So they demand that they don't demand blockchain like in noninancial companies they demand the benefit they demand and clear AOI okay they don't like uncertainty so the area of marketing purpose uh is it's finished mainly so I'm completely agree uh with uh what Gaia said before uh crypto is a use case and unfortunately uh users associate too much crypto and blockchain. So I think that our duty is to uh understand that and formalize a way to uh communicate properly the benefit and not the technology itself.

I see Ga has some things to add. Probably will hear you.

Yeah, I agree. I'd love to Yeah. add a couple of words about it. Um yeah, I fully agree and with this what I mean is that sometimes um we see a lot of companies that have product market fit by just um selling a very cryptonative product. But I feel like those businesses have product market fit as of now.

But in the long run the businesses that will be there are the one that are solving for an actual problem. Then of course the ones that are able to constantly evolve because at the end every business is uh can find product market fit now but then you have to keep it and it's complicated and you have to evolve and be being flexible. uh but I think that the ones that are here to stay in the long term are the ones that are actually using the technology to solve a problem. uh and the problem may be for example access to something or solving some kind of inefficiencies uh and again for example the case of the back office in banks where there's specific rules but it's just a lot of people that have to take care of uh a lot of papers every day uh and that could be automatized and can be verified on chain for example um and again agree also on the fact of people don't necessarily need to know the kind of technology that you're using. Uh think about when you use Chad GBT.

Do you know which kind of model are you running on? Do you know the specificities of it? Not necessarily. Do you still use it? Is it still solving for some kind of problems, some kind some for some kind of utilities that uh that you're looking for?

Yes. So what I think is that more often we should see businesses that focus on a specific pro problem that they want to solve rather than technology itself.

Thank you so much. I think we are running out of time. So probably we can move to the question part. I think some of you probably would have some questions to ask to our panelists.

Yes, please. I can take this one. Um, well, it depends. I would say it depends on the company that we you're targeting. So, if you're targeting, for example, a web two company, uh, the kind of product that we issue, uh, one of the multiple products that we have is a money market fund.

very similar to traditional finance. So essentially generally traditional finance the money market fund is composed of short-term T bills. Uh so essentially very low risk. Um what we do is that we construct it on a morpho uh maker and compound uh making sure that the risk profile stays really low uh but with uh a liquidity of the assets that is much much higher. And what I mean with this is that one of the problems that we figured out during our discovery phase is that a lot of companies yes have a lot of oper operating capital that is sitting on a bank account because they're uh well on one hand they're scared of losing it.

So they absolutely don't want to take any risk on the principle. Uh and the second thing is that they want access to it right away right because uh tomorrow you might have to I don't know buy something that you really need or the company uh needs. So you want your capital to be fully liquid. And so we we found those two problems and we figured out that uh with for example insurance and with blockchain technology we could solve the liquidity and the trustworthiness and the security of the product. Um but on top also cutting down a lot of the fees that otherwise you pay.

So, one of the things that I believe helps product market fit in crypto is cutting down uh the fees that are created by all the middlemans that are within financial products. And for example, in money market funds, there are the issuer, there's the whoever rebalances the product constantly, then there's generally the distributor. But what if we are the one that create the product and the distributor and plus is on chain. So we have much less fees than other uh product issues for example. Um so the the bottom line is that we allow for much more liquidity a much more liquid product uh high returns because we cut down fees and also because uh lending offer more interesting hill than uh T bills uh as of now um and essentially transparency of the portfolio of the rebalancing which is not necessarily the case for all the financial products.

Uh yeah and if I might add to that uh this is exactly what I was also going to say the the financial market loves capital efficiency and it loves leverage. Uh also in 2008 we saw these co markets first getting bundled then you can take a loan against them again and then you bundle them again and then you take a loan against them again and now in crypto we're seeing the same phenomenon. For example Ethereum you can stake it. Oh, great. Then liquidity was locked.

So, we got liquid staking protocols to uh get the liquidity back so you can loan against it again. Well, now now with layer you have restaking and then was locked again and then you have liquid restaking uh and then you can borrow against it again and even loop it a couple of times. Um so people just love maximizing their returns given given certain risk. Um, also treasuries, uh, like in the ICO mania in 2017, we've saw all these companies, yeah, Ethereum was 2K. They raised 20 million.

They they have 10,000 Ethereum. Staking wasn't live. So, what do you do with it? Now, basically, you put it in Bitcoin, Eve, and some stable coins, but yeah, it's also just sitting there. Now, again, we have um stable coins that may pay a yield.

Uh, we're backed by treasuries. So also these corporate treasuries, I mean Tesla and Micro Strategy, they are using their cash and cash equivalents to put in crypto because they fear the US dollar is just not not such a stable asset anymore. In the Netherlands also after uh the pandemic inflation was in 2021 it was 8% year-over-year. In 2022 it was 14%. Yeah, that that also means that the um the the dollar or the euro in this case uh loses its buying power by in one year 14% and it compounds and next year it was then 6% it was 23.

So again 6% it decreases while interest rates were uh in that period at their zero or lower bound. So basically you're losing money if you're in treasuries. Now that's not maybe not the most ideal scenario for these uh corporates. So yeah, they can also just loan against it or use their stable coins or cash equivalents to perform DeFi activities. Just loan it out on a like you're saying, you have these moral faults that pay six to 8% with very moderate risk and if the only risk is smart contract risk uh because counterparty risk is not there.

If you have 100k worth of Ethereum and it and you loan 60K, if it decreases decreases till your Ethereum is 61K, it gets it gets liquidated, it gets converted back and then you get your then you get your notional back. So there are a lot of new opportunities opening because of this opt in opt out automated money uh architecture really.

Thank you. We probably have time for one more question if there is any. If not, I would say let's give a big round of applause for our panelists [Applause] and feel free to sign them later here in the I don't know in event somewhere and thank you very much. So now we are having lunch break. See you later on the stage at two.

Thank you. Thanks a lot guys. Enjoy Naples.