Niklas Kunkel I From RWA to Crypto Native I Chronicle I Pragma San Francisco 2025

[Music] for our last Talk of the day want to bring on Nick to tell you about how we go from rwas to being Crypt native please give him a big round of [Applause] applause okay hi everyone uh my name is Nicholas kungl I'm founder of chronic um actually really happy to uh be able to be here today and and talk to all of you cuz uh SF native I I lived here for for I don't know somewhere around like 18 years and uh now now I don't so it's always great to to come home and and see that uh like the crypto Community here is so like live and and going strong um but anyway so what I want to talk to you about today is uh real world assets but from a uh perspective of where they've been where they're now and where they're going and and what are the incremental steps uh that we've seen between each of those different versions uh what are the reasons driving those changes and what are the kind of issues with RW today uh that will drive what I call a crypto native rwa um so anyways um I I think a good place to start is kind of talking about defi for a second and uh while defi is still you know uh being very actively used um I think a very sobering reality is that growth has been stagnant for the last I would say two years um and right it's it's it's a really kind of a simple thing right if you're using crypto as collateral and the value of crypto doesn't go up uh then it's extremely difficult right to grow the size of a crypto protocol by two or 3x right you're you're essentially just like pegging your growth to the price appreciation of of eth and and Bitcoin and and kind of the the majors so um and there's kind of another problem associated with this and that is essentially that the um uh that essentially even Revenue right is very uh kind of Boom bust right in in this vertical right so if you're a crypto protocol and you make all your you know Revenue off of uh the demand for uh leverage if number doesn't go up there's very little demand for leverage right and so you have like these boom bust Cycles in defi Revenue as well um so this is kind of what led to the um what I would call like the Catalyst for for rwas and so I think the the real like promise of rwas is that you can unshackle defi from only being able to use this very limited Capital pool and give it access to the entire kind of traditional asset Capital pool where you know which has you know tens of trillions of dollars in it now uh I want to talk about maker for a second because I think they were one of the early uh pioneers of rwa and I think they make for a great case study uh full disclosure I was at maker for six years so I'm a little bit biased uh but I do really think they're like the best example to to kind of like showcase this and so right I mentioned earlier right this like D boom bust right uh when you have bull market demand for leverage goes up and maker makes $100 million in revenue and then you have bare Market there's nobody looking for leverage when prices are going down and Baker's Revenue tanks to like 2030 million um this is you know not just a problem for your token price or whatever this is also like a real like operational and organizational challenge uh because uh you know in the bull market when you have lots of money you hire a bunch of people you start building new products right you innovate and then when all that money gets cut off right you have to like kill all those unfinished products right you have to fire all of those people right it's like a very un um satisfactory right position to be in as an organization right and so the adoption of rwas right were um was was kind of minded on how do you smooth out that curve right how do you get Revenue uh from different sources uh that are preferably like uh uncorrelated right and so this is why maker started looking at okay uh let's let's start onboarding rwa specifically right maker wanted really lowrisk high yielding t- bills right and so this is what I consider like the first generation of real world assets right uh there was no tokenized T t- product um on at the time uh at least not at any significant scale or any significant liquidity and so maker just like well if we wait for this product to happen it will be too late so we're just going to go do this and so right the goal here was okay we just need something that's going to give us access to treasury bill yield right we can stuff a couple billion in it and we'll uh you know we can make uh I don't know let's say you put two billion in it and you're making you know 5% that's a100 million annually right that you're making in Revenue that's not correlated with what is happening in the crypto markets right so sounds pretty good um but there were some very deep flaws with this first generation of of rail World assets right um the first is that the token is just a dummy token uh it has no like holding this token gives you no actual legal claim on the funds um the funds are just held in some kind of SPV and someone has legal ownership over that SPV and the token is merely an abstraction that you can plug into a protocol so it can fill up its accounting Ledger and say hey I have two billion of something right um you know backing the the credit that was issued right against these assets right so um ju just to clarify that right the way that this works is in a traditional maker loan right you would lock up an asset right like say eth right and you would borrow against that asset um and now those stable coins right that were generated are backed by the the eth collateral in the rwa case you kind of do the inverse uh let's say you mint a billion die first and then you use that billion to go byy the T bills and then those T bills are then used to back the 1 billion that was issued right so the end effect is the same but you use like a little bit of a different path to to get there um but going back to like the flaws with this first generation right um because uh because this was kind of like a oneoff and administered by maker and several parties uh the yield was actually not that great like we were not getting 5% yield right we were getting closer like 3 and a half% yield so all of this like administrative overhead was really eating into the yield um also they're completely opaque right uh you kind of hoped that the assets were there and occasionally like some reports would be generated uh sometimes yes sometimes no sometimes the reports were late um and one of the also one of the other major drawbacks was right that they were really slow and cumbersome to uh to redeem right so if you wanted to liquidate some treasury bills right um it could take like multiple weeks right to to act for the protocol to actually get like the uh the the stable coins back so um here's a nice little graph of like Maker's like Revenue distribution so in the blue it's it's like uh revenue generated from crypto loans um and in the yellow um what's in the graph is La like Public Credit uh that's like make us revenue from T Bill exposure uh so you can see that right um you know it started off at you know zero and then somewhere around like uh late 2022 right uh we started implementing them and then it scaled up like really really really rapidly and now right uh you end up having like a much healthier almost like 50/50 distribution of of crypto loans to revenue to uh T Bill loans so um here's kind of the same data um I think a little bit more recent um but in kind of itemized form so here you see at the bottom right 172 million is like all of the revenue from uh Crypt back loans and here you see all of the revenue from rwa backed loans uh primarily in t bills but there's a few other things kind of mixed in there as well so from the rwa sites around $126 million annually and so then uh this summer uh maker and Spark announced the tokenization grand prix and uh essentially maker was saying hey you know we're going to invest another billion into rwas but you know we've learned that there is some problems right with doing this and so here are the problems that we see and so like make us proposals right show us what is better make something better right and I think this quote um uh that was in the press release for announcing the tokenization Grand Prix I think really highlights the problems that maker saw with the first generation of rwas right is that um add in these two like Primitives of liquidity focused products and Yi focused products right so the two major problems that maker saw was one that they had too much overhead they weren't generating enough yield um and the second that the liquidity uh and speed for Redemption right was way too slow and so this is what I consider like the second generation of rail world assets because they really solve those two key problems right so defi still gets access to traditional Finance yield um but now the token is not a dummy token anymore is the token the actual underlying asset no absolutely not uh the token is tends to be a share in some underlying asset um and uh so you can redeem the share for for some equivalent amount in the underlying fund um so but the important thing is now because it's a share you do have some legal claim on the underlying asset right so that's a major distinction from the first generation is you now do have a legal claim uh but the asset like the asset token is not the asset the token is a share in a vehicle that holds the assets um information still pretty sparse um sometimes you'll get monthly reports sometimes quarterly um it really varies uh who is the information coming from often times uh the asset issuer um which should immediately make you a little bit suspicious because the person you know who is holding the assets is telling you hey I hold the assets um that's not the most trustworthy source of information so that's still a pretty big problem to deal with um but redeemability right is almost instant now um not like in you know crypto instant right you do your transaction and it's you know you get finality 15 seconds later right but uh you can now redeem usually sometimes daily sometimes within like up to five business days but this is much better than the weeks uh we were experiencing before right so second gen great actual legal claim you know um it is a productized right so the overhead is actually much lower so the yield is much higher right and they're much more liquid and and you know redeemability um is now uh not that much of a concern anymore so um who is doing who are kind of the leaders in this right now uh securitize right has their is the transfer agent for the Black Rock Biddle fund all right so Black Rock issued um a tokenized treasury bill product called Biddle I think the size of that is around between 500 and 600 million um Ando as well issued a very similar product also between 500 and 600 million at the moment um superstate um who uh you may or may not be familiar with is uh Robert lner's uh latest Venture uh Robert Lesner is the the founder of or co-founder of compound um they also have one I think it's called USB has a couple hundred million uh worth of of t- bills outstanding um and and then right uh Franklin Templeton I believe has another half billion as well right so we're we're talking about almost you know just over2 billion dollar in uh tokenized treasury Bild products that have really just spawned in the past year right and that that are you know so there's like significant demand for for this type of product um you know we talked about this right but second gen you know real world assets are not crypto native right the transparency is lacking right information is siloed it's still coming from the fund admin in most cases right um and it takes too long to get the information now uh I want to talk about third gen um crypto native rwas now these don't exist yet but I think we can uh kind of determine what are the properties that they're going to have and what are the you know Market forces that are driving them to have these uh properties um you know kind of defining what does crypto native mean right uh if ethereum is a Crypton native asset right it is issued on a blockchain right and applications can use ethereum and don't need external information to come in right to properly handle and touch the ethereum token right um with rwas there's too many umbilical cords right that kind of have to come in to support uh the asset and uh that enable a crypto protocol right to handle it in a responsible kind of risk-managed way and you know the goal is that you want to kind of minimize those number that number of connections right and really make rwas as crypto native as possible and if we do that right then they can become a really healthy uh part of the crypto ecosystem and not you know one giant like systemic risk bubble so um here are kind of kind of the main ideas between the third gen Crypton native rwa um first of all assets are not custody at some traditional Finance custodian anymore the token uh is the asset right so I think this is actually something that was pioneered in Switzerland uh quite a few years ago uh they're very very Progressive if you create a company in Switzerland uh you can you know you when you create a company you create shares in that company you can have uh your shares be issued on a blockchain and use a public blockchain as your Ledger for your shares in your company uh the token is the share uh that's really really cool and and that's that's what we kind of need to get to with with our wa right is that the actual token is the asset right that's going to be really key for having protocols be able to smoothly handle um an rwa right instead of having to do these like meat space uh interactions right for for things like redeemability if the token is the asset there's no need for redeemability also it means that liquidity for the token will be on chain right versus liquidity has to be sourced offchain uh two uh data right a big part of what was wrong with second generation or what is wrong with second generation rwas is that data is still data availability and data Integrity is still quite poor um I think oracles are going to uh kind of solve like a major um leg of of this right where you can directly uh plug the Oracle into the sources of information right and be streaming those pieces of information in real time uh and for those of you who don't know Chronicles and Oracle protocol and and this is kind of what we what we specialize in um and the third pillar right is this really native integration into defi um you know going back to right uh let's maybe use maker as an example again right um what kind of things can you do when you have all the pieces of information right um let's say if you're a protocol and you have exposure to multiple rwas let's say you have exposure to 10 of them right um but you have real time information coming in that's telling you oh like I can go uh this the yield of this one is up the yield of this one is down let me go reallocate you know 50 million from this bucket to this other bucket or you know uh we have too much exposure to the jurisdiction of Singapore let's rebalance and move more exposure to London right um you know we think the you know uh credit rating of some issuer right has gone down right we want to all you know diversify out of that right so there's there's a lot of kind of smart things that a crypto protocol can do to properly risk manage an asset when it has those real-time streams of information and they can do so in an automated way right without requiring like an agent or or human intervention right to make these decisions so really this is like the goal that we're working towards right traditional assets uh and protocols kind of working in lock step and this is kind of the mission that uh is like driving Chronicle and what's like driving our like product decisions is we really think that we are a critical element of helping rwa level up and and take that next B big step um you know we're working with basically all of the like uh top five rwa asset issuers at this point um so we're definitely the market leader in this respect and so you know if uh I actually see some people in the audience who are uh who I know are working on some rwa tokenized products so if we're not working with you yet uh come come talk to us uh so anyways um if you want to get connected uh follow us on Twitter at Chronicle laabs uh we also have a really cool dashboard you can check out at Chronicle labs. org dashboard uh you can see all of the different Oracles we have um I don't think the RW oracles are up there yet because we haven't uh launched the the rwa dashboard yet but uh wait for our announcements like it's uh it's it's going to be really cool um so thank you very much appreciate it and uh uh you can you can go have your your happy hour now um I'm not going to keep you anymore [Applause] [Music]