Crypto - Trust with Trillions

foreign [Music] good afternoon everyone so lovely to have you here for day three crypto now in this session we're going to explore how fund managers are not only looking at digital assets as an asset class but also looking to blockchain in order to certain their own internal processes now my name is gabrielan zerlo I'm a financial regulator here at adgm and I'm so pleased to welcome our panelists hello so closest to me I have Dan Dani CEO and co-founder of security a blockchain-based financial services infrastructure company emphasizing compliance we like that here then to his left we have Eric Francois partner at invest Corp specializing in blockchain and digital assets Global head of digital assets for the private banking and wealth business at HSBC no intra needed big name and finally last but not least I have Gautam Sharma CEO of BH digital the crypto and digital Asset Division of hedge fund Brevin Howard welcome gentlemen so happy to have you here today to discuss this exciting topic now I I ask one thing of you today in the 20 minutes that we have and it's it's actually a bit of a big one let's try to make this conversation a little bit spicy but only but only as spicy as you can do you know with billions of assets under management without you know without alerting me and my fellow Regulators but uh start to make it interesting okay first question let's stick to stratify for now let's not go crazy but where do you see blockchain actually fit into managing assets managing assets the way we know and the way we're used to them there's been a lot of talk about you know efficiency provided by blockchain and clearing and settlements Etc but are those true use cases and I'm going to start with you Dan because you're right next to me so you get first dibs thank you Gabrielle I appreciate it uh yes it's it's very real so a big breakthrough for security this past month we received SEC approval for our partner our our clients are major institutions for example State Street U.S bank and an asset manager Wisdom Tree they received SEC approval for a 1940 act fund so this is arguably the most conservative regulator for the most regulated asset being approved for tokenization of a fund backed by treasuries this is certainly one of the top five moments in blockchain this year in a year that's been full of positive and negative developments so we're very excited about that breakthrough so you made the point of how what does that mean in the end well these assets uh Wisdom Tree is launching a in beta a tool called Wisdom Tree Prime the first three assets are tokenized dollars tokenized Fiat tokenized gold which is custody to the HSBC and tokenized treasuries custody at State Street using our core platform these assets as you trade the assets retail investors have access to these assets and as they trade or transfer the the actual transactions settle in t plus three to five seconds so it's an instant settlement you can trade I can transfer gold directly to you I can trade gold for treasuries ETC this will be followed as we've got this approval by a whole range of other exposures now that we've finally broken the ice so it's an exciting moment for the blockchain world for regulated digital assets on these blockchain rails and it is real it's and customers get the real benefits from this technology I'm looking at you son me yeah yeah um so I think I mean just to follow on from you I think that's quite a tough act because I think you you've nailed all the key points but I think when I think about the rail utility or the use cases that we want to focus on and just to be clear we're very much primarily an experimentation mode at the moment although we have had one or two launches this year in the digital asset space more broadly there's three broad things particularly in my world around wealth management and private banking the first one is opening up investment access and as you said tokenization does that by potentially lowering minimums for asset classes that may historically or traditionally have had higher entry points so private Equity venture capital in the fund space real assets real estate are good examples of that the efficiency point is the other one right um albeit I would say you know I think that one I look at quite carefully because my personal view is that traditional Capital markets in many ways for example in in the equity space actually works pretty well it's complicated but it's actually quite efficient um so so you know that but that's one lens to look through the other one is of course liquidity which in my own view I think has yet to be truly tested yet is the idea that if you tokenize you can have a secondary market around some of these things in a kind of all my conversations and of course I'd love to hear my my fellow panelists views um I I believe that's yet to be seen I think you know liquidity on a secondary and in the digital asset space from what I can see compared to traditional exchangers actually isn't quite yet at the same kinds of levels but nonetheless hypothetically that's definitely a benefit so those are the those are the lenses in which we look to articulate use cases I'm going to just stay with me for one second do you feel because you know you're in the wealth management space do you feel your clients are excited about having tokenized products do they want to know about it or do they not want to know about it they don't care what's on the under the rails 100 and that was maybe the other point I would have mentioned I think that there was kind of um what I call you know I'm an old school investment guy what I call non-investment Alpha right it's kind of this the gimmicky stuff right it's it's a natural interest they they read about it they buy nfts they you know particularly our most valuable private banking clients right who are you know very involved in the art world you know they see nfts becoming a big thing and consequently that's a very good way to get interested in the topic so you're right there is a big natural interest and that is definitely something we do have to cater to because if our clients are interested then we do have to look at it I wanted to add something because not just not mentioned but beside the efficiency cost cutting and other we didn't mention the fact that the tokenization of assets enabled like a different like Channel distribution Channel which is interesting for both sides so on one side four people for the investor thanks to the fractional ownership the the entry ticket will be smaller for or a smaller like for those tokenizer sets but that's also very interesting from an asset manager point of view because we can have a wider reach of accredited investors that can come and and put the fund very nice you know on this point around application of blockchain technology I think while we are talking about traditional assets I think it's pretty much relevant even for crypto and digital assets funds so from my vantage point you know running a digital assets fund especially what happened in the last you know seven to ten days in this space I think it also demonstrates the need for transparency uh and and you know immutability of the data and settlement needed especially as it relates to the kind of counterparty risks that exist in this space I think the application of blockchain technology in itself is so important uh I think even more important than try to find my view right now given we already have trusted third parties in the track 5 space which is right now lacking in in in digital assets and you know this concept of prime brokerage is still very early so we can really put blockchain technology to use uh in in crypto itself uh much more than just trading assets but also from a settlement perspective I see I mean we talked about how there's maybe smaller ticket sizes to actually get a bigger broader range of people into certain types of assets but I have to say especially you know for a number of you you're still handling what an enormous amount of money from institutional investors so where did they expect this you know these digital products to come from these digital asset backed products to be what what do they want from them and I asked this because I remember a few years back there was all this hype because there was for instance the first sale of like a property fully done on chain Etc and people were like okay this is this is going to be easier to like sell assets and sell real estate Etc it never really democratized or carried on forward but what do you what are institutional investors asking for now whoever wants to go yeah I'll start um and what's exciting about developments in the blockchain space is the fact that there is ultimately no difference in the fundamental mechanism between retail investors and institutional investors so I'll say again as as we've tokenized treasuries treasuries are a foundational element in many many transactions so for example repo transactions there's trillions of dollars daily in repo transactions that involve treasuries and cash treasuries are the Baseline for most Securities lending Etc in tokenized form you can actually automate those processes through smart contracts so now that we've finally broken the ice and we've got tokenized treasuries retail publicly available tokenized treasuries we can then automate the rest of these processes through smart contracts and it's really a watershed moment for our client Wisdom Tree in this case and their institutional clients what's exciting really in this in this new development is those same treasuries a retail investor can take their ten dollars worth of savings get better than their savings account interest on the the treasuries that they're holding in tokenized form and convert them to cash we've bolted onto the Visa rails and so you can buy coffee so you can do a hundred million dollar transaction that clears in three to five seconds or you can buy coffee and it clears in three to five seconds you can't do this on traditional institutional rails by themselves so blockchain is a powerful enabler okay and that to one extent to occur in what you're saying that enable like a diversification of the portfolio because you have a wider access to uh to product so institutions are also in search for like Capital velocity or to maximize without being stuck by having a different different type of investment and especially also in that space to an extent you can comment maybe we can have a yield higher yield return where the market always in search of of a good yield very nice I do think so as you know evidently digital assets are a very broad asset class you know we have virtual assets we have tokenized Securities Etc there's evidently different ways of distinguishing these different type of instruments but where do you see the development of the space do you think we're going to be asking to tokenize everything as we go forward are your clients going to be asking that how do you see that developing yeah maybe I'll take that first I think um definitely not tokenize everything I think is is the answer I I think I go back to what I said earlier you know what problem are we trying to solve what obvious problems does blockchain does web 3 solve in this space so tokenization needs to solve a problem otherwise you're not improving the state of the art necessarily that's my fundamental belief but the good news is a lot of the infrastructure rails around custody tokenization actually they're quite common across the piece so you could tokenize different kinds of assets and use the same infrastructure it's very scalable that's why it's really interesting but you know the obvious ones again I would stress are the ones where potentially you can open up access right so real real assets real estate like we talked about what minimums are typically High where suddenly you can open it up to a wider audience and low end clients I think that's particularly interesting hey look I completely agree with Dan that there's no particular need to tokenize every asset there has to be a real reason in use case behind doing that and I think couple of properties of blockchain Technology such as you know your ability to program and code certain you know principles on certain pieces of the token what if the code is bad this is an important component in terms of doing regulated assets digital assets one is the reversibility of transactions so many crypto assets are irreversible so value is lost or stolen over the past few weeks we've shown we've seen how difficult it is to to recover that value but you can as godson said actually program the assets such that they are recoverable and then even if you do have a bad or flawed smart contract you can reverse the the impact of uh that transaction look this I'll this is maybe the first point of disagreement I actually do see that we will be tokenizing everything at least any ownership stake for example in in the applet that I've uh described we're tokenizing cash Commodities and securities we've tokenized private markets in public markets what's exciting is they all ride on the same rails and what that means is instead of having to go to a separate Marketplace to trade Commodities another one to trade Securities it's all on the same Baseline rails that means that it does settle instantly now the other component one of our we just received the patent on our compliance aware token framework what this allows you to do is actually bake into the token the mechanism by which it governs it knows what it's allowed to do what that means is you can have Universal rails for all assets and parties are only able to interact with the assets that they're qualified to interact with it's finally a global liquidity pool is possible that's you many of you know of Market fragmentation where you have again all of these separated markets that's the challenge with liquidity is that you have to go to so many different venues to conduct transactions in the future in the not too distant future you'll see a unified Marketplace for any kind of asset unify because there was only one we know any fight because you have interoperability what do you think because of interoperability it's it's essential there can't ever be one solution provider there shouldn't be one distributed Ledger one solution provider the reason is that means the end of innovation so in fact it's better to have open rails and constant competition but what you want from an ex the customer experience it's like I'm old enough to know the early days of Google and uh what it was like to have search engines where they had categorized the competitors to Google the information space a bunch of different ways you had to know what you were looking for to go and find it Google came along and made a simple experience where you just asked for a thing and you got it this is a simple investing experience with a with a wallet you can freely download you can now get access to any asset that you're qualified that's where the unification is needed at the end of the day it's supposed to be even transparent for the end user I think they don't really know or don't have to know and as you were mentioning we have the opposite of the let's say like the benefits that we the promises from blockchain which is a lot of liquidity homogeneous is totally the opposite for now because a lot of innovation you know you have also a lot of competitors I can imagine so yeah very much looking forward to see how we'll uh can I can I come back really quickly to Dan Dan I think we're in agreement actually I I think precisely because the rails and the infrastructure is common across the piece whatever you want to tokenize I do agree with you I think it's about time frame um my view is if you do want to have the wider adoption you've got to zero in on the use cases web blockchain and and then web3 can apply the most added utility to that and and those are hands to what I think we're broadly in agreement I think it's really about time frame that we're talking about you know the one thing I would add to this is that not only does tokenization potentially help with existing assets to be tokenized and then the value comes out of it but also opens up new potential asset classes right the whole concept of nfts for instance your ability to have digital ownership and your ability to trade that that itself is a big unlock that was not that is not possible in without without tokenization so I think it impacts both existing assets but I also think it opens up a massive market for new asset classes as well Gotham stay with me for this next question so now for the last handful of years people have liked to say over and over again that you know digital assets and cryptocurrencies are essentially decorated from the market so they make an excellent hedge you should add them as part of your portfolio for a good hedging strategy the last tier has shown that this is not the case um very very violently let's say that and we are however seeing quite a bit of very interesting work being done right in areas such as for instance synthetic crypto ETFs or nfts like you just mentioned or tokenized Investments there's actual products that are coming out that people are looking into to nonetheless hedge and build well-structured portfolios can you tell us about some of these products at either you're building or some of these areas that you're looking around yeah sure I think we fundamentally believe that um you know this is definitely an asset class that people need to dip their toes in and it's important to um you know if you are a tech investor or a Web 2.0 investor if you're not investing in any web 3.0 technology products you run the risk of missing the big trends that is emerging in the technology space which is also likely to you know disrupt existing business models in Web 2.0 world so it's important to have that the question is how do you access it because not all institutions are comfortable buying tokens directly and hence you know we try to offer a fund uh which is currently restricted to institutional investors but it shouldn't be too far away where we are able to tokenize our fund itself and allow you know wide widespread eruption of of our asset you know our funds but also you know you're seeing a lot of ETFs coming up as well to enable access so it's all about how do you you know ensure there's enough avenues for both institutional and Retail investors to access this in in a way that they are comfortable with and I think it's also a source of inspiration because a lot of innovation will be on decentralized finance and FTS but there's also where like I recognize like financial institution get inspired the other way around so we need the regulation at that level of course but we can see how efficient it could be or independent it could be so more like the platform play where financial institution doesn't always have to be in the middle they can facilitate that and you can adapt to nft with a towards like Financial product that will pay your fee to the issuer automatically for instance as a royalty kind of equivalence so there's a lot of potential I believe I think on the tokenized investment front um if you know I think in many ways it has the potential to actually help with portfolio diversification to answer your question directly so I'll give you an example real estate is a really good one now when the wealth management space particularly for smaller clients or even affluent or high net worth clients who maybe don't have the capital to go all in and to physical real estate to diversify a portfolio when you actually look to create an asset mix historically and traditionally in many places in the states in Europe in Asia the proxy has always been real estate investment trust but typically you're taking on Equity risk which is actually very correlated to the state of the markets now the benefits the tokenization gives you is you can actually have access to hard real estate and you're taking on real Asset Risk which historically before this new technology sorry not so new anymore before the state of the art today that would have been impossible you can't just buy a fraction of an office building or a residential building to diversify your portfolio but this is the power that this technology gives us yeah so the the opening part of your question Gabrielle regarding uh crypto assets being D uncoupled to traditional Market forces it's in fact proven to be exactly the opposite they are hyper coupled the reason they're the liquid assets that go first in times of trouble so it's actually amounted to be the opposite and and without expert asset managers like Irving and Gautam your portfolio may be suffering if you only know of crypto but if you think blockchain is only crypto you are missing the party because Banks like HSBC our work with our major institutional partners are really leaning in to the other benefits of blockchain which has a lot to do with institutional defy you may have seen JP Morgan's big trade recently using the first public use of a defy that's the tip of the iceberg there is a lot more that's happening behind the scenes which give us the ability to retool a financial institution so small D5 smart contract teams 10 to 12 developers can do what takes Banks hundreds even thousands of developers and and tens of million dollars to do what banks are realizing is this is the future of their infrastructure and we see them retooling now it's it's actually been blockchain's Heyday if you're looking at institutional uh adoption over the past year whereas crypto is has suffered to some degree you very much need to wrap this panel up but I will ask one final question that only one of you can answer so whoever answers it first gets it what is the funnest use of a smart contract you've seen we tokenize power so we we've got a subsidiary that works in the power exchange and we've taken kilowatt hours and tokenized it which allows devices to trade power usage peer-to-peer this opens up all kinds of opportunities for carbon credits that are actually verifiable among other things it's exciting this it's a crazy world the kinds of things that you're going to be tokenizing in the future that is exciting because then it leads on to you know machine to machine payments and machine to machine Finance love it but I need to get these people off the stage Now ladies and gentlemen thank you so much for being here for this session