What it takes for RWAs to Get Comfortable with Tokenisation

hello everyone uh we're super excited to be here today to talk about tokenization and real world assets my name is Vanessa gay I'm the managing partner at Arch Capital uh an early stage Venture fund and um we are going to talk about the opportunities around around um rwas uh and demystify um sort of the concept and and what we can do here so I'll start by uh letting our great panelists introduce themselves briefly and then we'll get into the the discussion so it's very nice to meet you my name is jongan I often go by Jerome um I I co-founder of J um which is a service we are doing in Indonesia for small or medium siiz of the merchants um we actually we are a company of web two .5 so we are leveraging to both side 2.0 and 3.0 for the 2.0 we are helping small or medium size of the merchants for um helping them to find right um the quality of workers and web 3 side we are providing the liquidity from the web 3 and we are utilizing the technology you know the adventurs um for tokenization and and and the transparency thank you hey everyone uh this is Steve from neoclassic Capital we are crypto invest investment firm based in US Miami Beach uh we started this year we invested into all stage startups in blockchain and digital asset space um I was in uh crypto since 2018 and before that I worked at the Goldman Sachs for 10 years in Tokyo and Singapore hey everyone my name is John Patrick Mullen CEO and co-founder of Mantra we are a purpose-built layer one blockchain focused on reward assets organization uh backed by sharuk Partners laser digital and brevan Howard great so I'm going to start with John um and ask John how would you describe the real world asset opportunity and what do we really mean by real world asset I like I know that the uh crypto industry likes to use acronyms that no one understands because it seems to me it's just assets so could you explain what's the opportunity here and how you guys see it and then we'll take it to to the other panelists absolutely so um I think a bit of a loaded question um you know rear assets rbas obviously that's a narrative that we that we focus on um but frankly as an acronym it's pretty poor uh and the traditional sense REO asset or R means something very different rised assets so a little bit confusing um but I think really what we're trying to do as an industry is bring you know different types of products different types of assets on chain so they can be um you have the potential to be more liquid you have the potential to be you know accessible by a new capital pool um as well as being more programmable and and and more composable within different f Financial Primitives um so these are some of the things that we're focusing on um by building a layer one blockchain that supports asset tokenization for easily managing Distributing and compliantly issuing uh reward assets on chain uh the idea about everything can be tokenized is true um that doesn't necessarily mean that everything should be tokenized um and I think it really boils down to one are you actually creating value for the the issuer of the asset um are you creating value for the purchaser of that asset and are you able to do it in a compliant uh manner um so I think these are some of the challenges that we're facing uh day in and day out um a lot of lot of supply side um not as much demand side so we're you know working on that and I'm sure we'll talk about distribution as one of the key challenges we're seeing today and uh what are the key use cases or the largest assets that you that we want to see tokenized and traded and maybe uh Stephen also um I will categorize uh the type of assets that goes on chain in two category one is traditional financial instruments like bonds private credit uh real estate Etc the other category is uh those nonf financial instrument which can be art it could be IP uh it could be collectible and such and such so at the moment the market is about excepted stable coin some people Define as a real world asset but ex excluding stablecoin which is about $200 billion Market uh at the moment about 10 billion is under private credit uh and 2 billion is a treasury so that's a kind of a main asset class that we see on rwa but as a venture capitalist we are looking forward to new type of assets that is not uh tradable uh on the web two world that can be has a financial value that goes on on chain that's something that we are looking forward to I might want to add something real quick on that though um you know Steve was talking about tokenizing assets on public permissionless blockchains and I think you know we have barely scratch the surface of actually bringing assets on chain you know Steve was mentioning it's only a few billion dollars obviously we're exploring this multi- trillion dollar opportunity um so on a retail public permissionless blockchain side of things we we haven't really achieved real product Market fit yet but institutionally um and on permission private blockchains I think it's arguable to say that there's significant product Market fit you know JP Morgan I think now they blockchains called kinetics or something but you called Onyx and I think they have done over a trillion dollars of tokenized uh assets on their on their chain in just a year so that's a significant scale difference to to what we're you know what we're playing at today Shong any other um assets that you guys are focusing on right I I I think you know the the the for past month and years we've been observing a lot of the progress related to rwa or terization in institutional level but we do think you know still a lot of the opportunities and and and a lot of the big things will coming throughout um the private um credit areas and for instance as an single country in Indonesia around um the 60% of the GDP was created by the small or medium size of the merchants actually looking at the supply and demands actually the the supply is less than 50% of what on the merchants needs from the Capital Market so what we are trying to bring is you know web 3 liquidity and their Technologies to provide the liquidities to web 2 Merchants to uh boost up the economy in a developing country awesome so let's dive into uh what John was saying about the type of blockchains that people use to do real world asset because I think that's really we're at a turning point um I'm on the board of the Enterprise ethereum Alliance and JP Morgan is on the board too and as John mentioned they are tokenizing on private blockchains a lot of assets but at the end of the day we end up with the same siloed it infrastructure that we previously had so JP Morgan is dealing with their JP Morgan um clients and products and then other banks are doing the same thing with the opportunity with public blockchains is that we can have an inoperable layer where everyone trades uh and exchange and and that hopefully increases liquidity so how do you what's your approach I know you have a public blockchain what is the uh reception of your clients and how are they thinking about the legal uh challenges or other challenges working on public blockchains sure I mean I think it's I mean frankly for me I wouldn't want to be building a private blockchain it would just be very boring um and again like you said just creating recreating you know the existing Financial silos that we're trying to you know break down um so we very purposefully built a permissionless blockchain that has a permission layer to it so you're not saying hey we don't care about AML we don't care about kyc but you do have to reduce the friction of allowing people who are currently the onchain active users you know Crypt native people to be able to actually you know interact with these new types of financial assets on chain or new types of tokenized assets on chain um so we've effectively created this you know permissionless blockchain that's interoperable with other uh blockchain networks we are built on top of the cosmos SDK but you know you could interact with ethereum or salono or or whatso have you um but it has a very you know special kind of area where you issue these assets from um effectively like a wall Garden permission layer um and I think it's really important to have an understanding of the Providence of the asset Frankly Speaking the technology itself is not that hard it's actually more about that linkage between the real world and and frankly the distribution um how do you actually bring these things on chain that people actually want to buy and and and not just creating a token for the sake of creating a token so technologically wise I do feel like it's already becoming highly commoditized and you know even when we talk to you know tokenization platforms or or asset issuers I will even know even though I'm building my own chain I will tell them you should be multi-chain IR respective go where the liquidity is go where the you know the defi ecosystem is um and and you know you shouldn't be beholden to you know a an addressable Market that's only the size of one particular blockchain Network you know obviously should be much bigger uh if I add on it so I think uh in current RW space some people ask the question okay you can buy the treasury why you should be on chain you can buy the real say why it should be on chain So to that question uh this is very important uh piece that we constantly think about what can be go beyond what we have at the moment in rwa so what I'm trying to say is on blockchain blockchain is great is a composability and the interoperability whether these two features can be embedded in this rwa space then we can enjoy some features that you don't uh that that rwa that not using blockchain for example uh if the uh tokenize uh tokenized re the asset let's say treasury token then if this treasury token can be uh embedded with the composability with some other D5 projects you can use your US Treasury token pocket it into D5 projects as a collateral and then you can use many defi kind of feature such as Landing Etc so I think it's very important going forward that many as as John mentioned there are going to be a lot of infrastructure helping issuance of rwa or the maybe trading secondary Market Etc but um if we want to make this r a space in blockchain meaningful uh I think a lot of developers and Builders should uh embedded this composability function of blockchain into the space right um if I add one you know St over the course of years um we've been you know they seeing a lot of technological Advance you know the speed or gas price or interpretability of cross Network you know even though you know some may say that's not enough but we have the tools but the thing is you know at the end of the days um the peoples wanted to see is how much financial gain I can get out of the the the you know platform or the services and and I I I do believe you know that of course the technological advance and progress need to be made but importantly in perals we need to see and feel the people's how the value of those rwa organizations now that's that's a great comment I mean uh tokenization in rwa is nothing new uh since since 2016 we've been at it uh trying to create these tokenization platforms uh now we call them real world assets um and at the beginning I think the uh the major business issue was what's the added value of tokenization tokenization and also is there enhanced liquidity once you tokenize and is there a marketplace where people can trade so has that changed since then uh do we see more these marketplaces do we see more opportunities are IL liquid assets that are being tokenized going to become all of a sudden more liquids what's the value prop here uh I think a secondary Market is definitely we need something on arway but I think still we at the stage where a primary Market should be established uh the more nicely before we talking about secondary markets uh so to do that I I always consider two things uh we like a people like us should keep educate this uh Trad folks so that they are happy to put their asset on onchain uh the second is uh I I think for the quality content quality IP or qual quality assets to be onchain otherwise I don't think there will be demand created uh uh to even before talking about secondary markets I agree with that I mean I think back in the day um people would create you know lowquality assets shitty assets and put them in token form and expect them to be you know amazing overnight um but it doesn't really work like that uh the idea of a secondary Market is something that's been obviously one of the holdy grills of crypto or or digital Assets in general and it's it's still not here honestly um we are actively looking at building that and I think one of the kind of differentiators for us is we heavily focus on compliance and regulation in the process of finalizing our licensing with Vara in Dubai um and are in conversation with adgm here um about how we can actively have an onchain uh liquid market for these type of assets and I think Frankly Speaking it's going to be from the UAE where this starts where this happens because of the progressive regulatory framework because of the support from the top down um so I'm very bullish on on the opportunity here um but you have to think about this it is a asset class by asset class jurisdiction by jurisdiction problem and you know many instances these things are securities so how does that work on a global scale and and you know we have to almost take this approach of like this is the asset here's the people who can you know interact with it that we feel comfortable with the risk because we either are licensed or there's a clear framework but there's a lot of places around the world which there's no clear framework and obviously the promise of a you know permissionless open blockchain is that anyone can interact with it right so again I think that's why it's quite important to have that kind of layer of provenance where you know people can come back to redeem from The Source um because in the end of the day it's not that hard to create a digital representation of something in tokenized form but to actually have the real value economic value pass through that's a different story so just to add on it I think since John mentioned regulation the way that I look at is the risk and rwa spaces this SP a lot of rwa projects or companies they don't even think about underwriting they don't think about uh issues they don't think about how they want to custody across the border uh to me is uh us got hit by FTX Singapore got by hit by FTX and South Korea hit by Tera uh and then maybe UAE they are doing more syn tank kind of approach and then Europe is a Mika guideline is pretty well established so understanding this different Dynamic on different culture uh different jurisdiction uh I think a lot of rwa companies are missing that I think John is doing great job around it but that is very important that uh as I mentioned to make this rway blockchain meaningful uh you have to really work with the inability and the composability to do that you have to really dig down to underwriting and kyc AML layer on top of this rwa uh assets uh to be to be more uh control and and well established well I I I Echo the both of gentlemen's and you know the just one more things um regulations or the legal aspects um need to be you know complied and prepares um in parallels probably you know the one of the art of the blockchain is anyone can make their own um things um we have a lot of variations still in the organizations or rwa areas we see a lot of the variations that's good things you know try out and then the the try and the fail and make the successful but at the same time I wanted to see some kind of the mainstreams movements to make kind of the Common Grounds or a common tools everybody understands how this work and how how we can make a little bit bigger or replicated use cases across the countries and talking about use cases um what do you guys think is the most successful use case for tokenization today but how do you see it in 5 years time and further down the line what's your Grand Vision for everything will be tokenized um so to Steve's Point earlier um the most successful use case of tokenization so far has clearly been tokenizing Fiat so stable coins um you know obviously I don't think that's as exciting personally for for myself it's obviously massive massive opportunity um but today there hasn't really been that much else at least on these public commissions blockchains other than you know treasuries and I think provenant uh which is another layer one blockchain has done a lot of work with helocs in the United States so home equity loans um personally uh we focus on three primary asset classes uh real estate and real estate primarily in in in the UAE um we look at Financial products so you know private credit money markets um private Equity venture capital all different types of fund structures um in IP and Frankly Speaking the reason that we're focusing on these three areas is just because people are already buying these types of things primarily in the real world um particularly at an Institutional level and it's not as hard of a sell you know selling the idea of buying uh watches or cars um you know luxury cars or wine or whiskey that's a little bit more of a niche market and Frankly Speaking that's not where the liquidity is going to come from um you know I use the example like you know I can do a deal with a real estate developer here and do a billion dollars like that how many tokenized Rolexes am I going to have to tokenize to get a billion dollars of watches on chain a lot um so when we're talking about this massive trillion dollar opportunity you got to start where the the dollars make sense and and and those are the assets that we look at and I think it will be driven again jurisdictionally so the UAE will be the the home of tokenized real estate in my opinion I think the us is going to drive uh a lot of the funds you heard it here first uh for me uh I in twet a little bit of question so how I view this uh what the type of stuff that uh we're going to see more popular in rwa space as John mentioned uh the first thing is something that I'm not too excited uh but I think uh undeniably I think uh traditional instrument going on chain will be still major dominant forces of rwa as I mentioned at the moment rwa pay majority is a private credit and little bit of a treasury I think it's going to be similar movement uh as John mentioned private private fun a private Equity Fund or V Capital fund like a KKR did uh it's so makes sense that people want to own the fractional share which they can at the moment so I think this traditional Financial assets going to rwa is going to be still dominant Market uh however the second point I want to make is uh public Securities and then which you know one of the key strength of this rwa is a third country for example someone in Africa can can trade Apple stock which they cannot at the moment if but Apple stock become a rwa anyone around the world who has a metamask which is crypto wallet can trade this public Securities so I think public security is kind of natural kind of next uh area and and also as I mentioned if you have a Apple stock let's say I have a tokenized Apple stock John has uh we had a dinner together maybe I can pay the dinner in Apple stock tokenize Apple stock or I can use Apple stock tokenize going Park on some D5 projects as a collateral and I borrow some money which doesn't exist in traditional Market which I think IW can be uh very interesting aspect adding onto it last part is as John mentioned the most exciting part for me is something IL liquid at the moment or something that is very hard to put the price tag on because a liquid such as IP and everything we see on IP is very you can't put the price tag because there's no market for it uh or we are State art and those kind of collectible business I think also if we can build some strong robust price discover Discovery mechanism with some regulation around it I think there is going to be exciting uh rway space Market people going to enjoy and have fun with well often time I say you know the mission of our company is to to creates real world impact um you know throughout real world assets on the top of the real world service business and and actually you know as I said briefly before um we do believe you know there are a lot of the huge potentials related to credit um private credits um you know receivable or loans and deps um to small size of merchants and and I I do think you know the tokenizing or making those um the the reable through rwa can be a big things um we can see in developing countries or to make a little bit U better for the rest of the world great and just uh final question putting back my investor hat on and um also working with entrepreneurs um Steve where do you see the investable uh opportunities from a VC perspective like what what's your approach uh towards um rwa platforms or marketplaces or specific asset classes and then how do you help sort of entrepreneurs think about it and would love John's perspective too and's perspective um Frankly Speaking even though rwa is one of uh eight sub sectors that we promis rlp that we're going to focusing on uh we haven't invest any of yet means that we don't honestly speaking uh there is not many investment opportunities for last one year in RW even though we are very bullish on rwa space I would beg to differ my friend yeah so but uh I think for last two months uh the specific sector in RW we got very excited about which is uh the the intersection between IP and defi uh some some people call it ipy but we are very excited because in crypto space um back in 2021 as you know uh there's some crypto gaming boom with the X Infinity Play to earn kind of thing and before the def5 summer uh I think of one fundamental thing that we as All Stage investors always trying to evaluate is whether this product and service they're building where other users at outside web 3 or they going to enjoy it uh there's a lot of a part that there use case is lacking because there are a lot of service and product we are building it's not attractive to normal users out there so with that uh there are many uh some projects and teams are working on tokenized IP and then it makes a tradeable so actually the we haven't announced yet but we're going to find a stage we might actually the invest on certain uh the company working on this ip/ defi so that you can trade your IP tokenize as a little bit of financial touch with it uh I I strongly believe that defi is going to be very strong uh driver for next uh couple of months which is a little bit neglected for last one year because of FTX issues so again my answer to you is we are very bullish on uh how this IP assets can be on on chain and we we are going to deploy Loy actively into this space uh making this IP tradable so I was obviously joking a little bit with Steve that there weren't investable uh artay opportunities this year um if you look at the performance of you know just any crypto token this year um outside of Bitcoin the two best performing uh token asset classes have been mem coins and real world assets primarily driven by Mantra um but I do think if you take that aside um we talked about this as well backstage there are going to be this is this base is going to have a few Consolidated winners more so than than than than than others and the reason for that is it is extremely extremely challenging the network effect becomes massive and honestly uh licensing and compliance becomes a big moat um and again I just don't really see a lot of uh projects looking at that space right now at least on anything other than the tokenization platform level um within tokenization platforms themselves I think you've seen some clear winners starting to emerge secure in the US you know they have almost a monopoly at this stage um you have libbre Capital here which I think is uh doing some really interesting stuff so that's a you know backed by brevan and Laser and we work very closely with them as well so very jurisdictionally focused um and then outside of that I actually agree IP is a very interesting one as well uh story protocol another one um that's tokenizing IP we're looking to do some stuff with them as well very interesting I'm not just shaling my own bags by the way these are actually all really interesting really interesting projects um but outside of that it is it is challenging because again you know a lot of the ear early stage opportunities aren't there yet um and you know when we actually start to see secondary markets start emerging I think that's where we'll see some interesting stuff but that is a little bit further down the line so you know secondary Market uh uh opportunities and also like you know defi uh aray defi Legos I think is another interesting area thank you so much for your insights uh you have three amazing Specialists here who have shared their views of of the future and I want to invite everyone to think boldly about this space um I I know that we always say we are early but we are and uh you will see that this is a 30-year process of transforming financial services and commerce um and putting everything on chain uh and in making it more efficient more liquid more available to uh the investor public but also the individuals uh and make it more democratic so um I think there's exciting things that we're going to see ahead of us and with that I want to thank our panelists and uh the audience and if you have any questions we'll take them after this uh this uh panel because I think we're running out of time thank you so much thank you very much