Digital Assets Graduation to the Institutional Mainstream

Well, uh, thank you very much for that, uh, lovely introduction.

Really close.

And I don't think you need me to tell you how popular digital assets are from cryptographic assets like Bitcoin right through to real world assets. and the tokenization of many markets, capital markets, private markets, credit markets, commodities. Now, now in the US last year, I think we saw such a positive move to policy, new SEC chairman, we've got this sort of global contagion of digital assets development. And I'm I'm absolutely delighted because I don't think I could present you with three more qualified people that I work with in the world that can give us an indication of the signals that we're seeing as we move into mass adoption of digital assets. So, welcome panel.

And Dave, I'm going to start with you. Um, what what what hurdles have historically been in place uh that you've seen? you've been in this blockchain game for for a decade now. So, you you've seen quite a bit of it and and which of the ones have been solved and which are the ones we're still trying to, you know, fix and get over.

Um, first off, I want to do a sound check. I sound very loud. Can you hear me? Okay. Okay.

So, I'm David Rudder, the founder of R3, and uh I have been at it for a decade now and seen a lot. So, there's been a lot of hurdles to adoption. anytime you're going to go through a radical change in how you know capital markets uh perform you're going to have a certain amount of resistance. So in the early days it was about hey what does this tokenized thing actually mean? What are the big advantages of digital assets?

And when you talk to those trad companies you know a lot of the the plumbing the piping um of Wall Street has been around for multiple decades. So you don't only have to prove the value, but you need to prove enough value that they're willing to rip up the streets and replace the plumbing. So we spend probably more time than any other organization. Uh but the street itself spent hundreds of millions of proving that out. That's been proven.

Check one. Then I think it was proven that it's actually valuable enough to begin to rip up the streets. But then there was this big regulatory cloud that we all had to uh to face and since the change in the US administration there's more clarity of uh regulatory direction there although it's not a done deal yet as you know and for some centers like here in the UAE they've done actually quite a good job of getting out ahead uh to lay out a clear regulatory environment so that you know young companies in the digital asset space can succeed. Importantly, since one of the goals of DeFi is democratization of assets globally, we do need standards globally. We can't have a 100 different regulatory regimes.

So, we're not out of the woods yet. I think the US accelerating is a very good sign and we're heading in the right direction. And then finally, there's still a mismatch between real world tradi asset issuers and onchain investors, which is kind of the the fast uh superleveraged money that exists in crypto that are looking for really enhanced yields. So those last two things we still need to make progress on. Well, well, I think that that's a a great summary because, you know, it ticks.

It makes economic sense, it works, it's got the regulatory uh, you know, the regulatory framework around it, but now we need the interoperability uh, not just of products, but of of of capital. Thanks, uh, David and and Lucy, you you you've based yourself here now in Abu Dhabi. So, uh, we look forward to hearing about your your view and your experience on institutional adoption here and and where you see that going, particularly relative to other jurisdictions.

You know, this is not an advert for uh ADGM, but you know, I will absolutely sing praises for ADGM and the regulatory framework for digital assets is today one of the most comprehensive and forwardthinking of anywhere in the world. You know, right now the US is playing catchup. So, as a crypto VC, I started my business in Hong Kong and Hong Kong also was a first mover in terms of having a virtual asset regulatory framework. But what we've seen in the last few years is that the UAE has just excelled way past Asia. So, I think we had a good strong start from Singapore and Hong Kong.

But it's the, you know, coordinated approach of government, private sector, the ability to attract companies from all over the world to create this incredible ecosystem here that's all come together to really set ADGM and the FSRA apart from any other regulatory jurisdiction. So, you know, it's an absolute honor for me to base myself here and and work with the regulators to to have a venture capital fund that invests in both tokens and equity. So that's the forward thinking piece here and and really push forward what venture capital means as we move into an era where assets start trading on chain and where most things are going to be tokenized. My discussion with the regulator is you can't leave VC behind. It can't just be limited to subscription agreements and safe agreements and equity investments because deals are moving on chain and we're moving into these network states where VCs need to play a more active role in investments through tokens.

So the UAE supports this very forwardthinking uh venture capital strategy and I'm really proud to say that I'm one of the first few that has been awarded the uh license and it's a fantastic place to do business. Yeah, and great and and you know congratulations uh on that. Um I I think this is one of the most exciting places in the world and so yesterday's announcement that uh the ADGM FSR will regulate Binance globally uh is the probably the biggest news out of the community in a number of years. Critically important for the regulatory operability that you folks are talking about. Um, now Marco, I I have to say, uh, Marco and I haven't seen each other for a few years, but in 2018, we were on a panel in the spring meetings in the IMF, and he's the first person I heard say everything will be tokenized.

Uh, long before Larry Frink started cheering on digital assets. So it's it's lovely to see you again, but tell us about Soulmate because uh you've been at the heart of uh you know really the blockchain infrastructure space uh for a number of years and now you're really on the institutional sort of the digital financial market infrastructure space. What are you doing and what what's the play all about?

Yeah, so um Soulmate is a publicly traded company on the NASDAQ SLMT is the ticker. uh we are involved in the infrastructure layer. So we're not tokenizing the assets, we're not offering the assets. What we're uh building uh and we want to do more of is the layer that allows those things to happen. It's the layer that allows high performance blockchains to work.

Uh so you might have heard of Bitcoin. Uh you might have heard of Ethereum. These things are uh highly innovative uh ledger systems, highly innovative protocols, but they're slow and they're fit for only very specific purposes. Soulmate focuses on a blockchain called Salana and the native currency of that blockchain is Soul, hence Soulmate. Uh we raised uh a whole bunch of money just a few months ago to buy soul and start using that soul to participate in network governance which is just a fancy way of saying validating transactions on the Salana network.

And just last week we announced a merger uh with a company called Rockaway X which is also here based in the UAE also has a focus in the UAE and when we combine both the big treasury and Rockaway X's infrastructure expertise what we want to do is build an integrated system not only for validating transactions and approving those transactions but for providing liquidity on blockchain networks for engaging both in market making and lending and of course asset management a fully integrated stack uh for those who want to do things like tokenizing everything. Uh when people talk about tokenization there are different visions of this. I've always subscribed to an open and permissionless vision of this. Uh I don't think blockchain is the innovation. I think the coins themselves are the innovation.

And that's what we've seen play out over the last gosh decade or so of blockchain development is these coins moving around on chain. Those are the tokens and we're seeing that happen now as these assets graduate into the inst into the institutional uh market. We're seeing that thesis play out. We're starting to see tokens trading in an open permissionless way through decentralized uh exchanges, through centralized exchanges, self-custodied, moved peer-to-peer. And those tokens are representing everything under the sun from uh you know your traditional equities, right?

uh stock in publicly traded corporations uh to bonds to commodity derivatives to things as exotic uh as uh rights to uranium deposits. We are building the infrastructure for that and it's happening today. Well, well, and again, the the requirements on on liquidity and settlement finality are all of the things I think we probably get into as we talk about uh you know, those sort of signals for for adoption. Uh thank you, Marco. Um if if you look at the regulatory uh regime now uh that you've uh come to Abu Dhabi Lucy um what what is it about it that you think uh really sets things apart for institutions looking to get into this digital asset space and are there you know there the there specific barriers or things you think right now we still need to overcome to to move forward.

So I think the the biggest asset with um ADGM is that they created a framework that actually meets international regulatory standards for traditional financial institutions. And as we move into the institutional crypto cycle where effectively the mainstream financial institutions are now you know broadening their suite of products to include product uh crypto offerings, crypto services. They need a regulatory framework that supports them on the traditional finance side but is also flexible to incorporate these new activities and these new assets and tokens. And that is the powerful combination that ADGM has because the mainstream finance players that now want to be able to custody crypto or provide staking services or issue stable coins and interact with various um digital currencies. they can do that within a framework that meets international standards for traditional finance and that is what is required for all the institutions to make Abu Dhabi their home and it's working incredibly successfully and that that was you know a hard thing to achieve right because the standards for traditional finance have been created over many decades and so how do you make that um flexible enough for this entirely new asset class and new era of onchain financial activity and they're moving very fast and the institutions are responding and I believe that Abu Dhabi actually had the foresight before Trump.

Trump's not even been in power one year and he's obviously declared the US a crypto country now but Abu Dhabi was already ready waiting for the institutions to start that convergence of crypto and traditional finance and now that US has turned into a crypto nation Abu Dhabi is extremely well positioned to partner with the American financial institutions because now they're moving into the space in a really big way and Now when I go to conferences in the crypto world really people say that the two places you need to be for crypto that are of significance today is New York and Abu Dhabi and that's testament to all the hard work that this jurisdiction has put into creating the right environment for the right types of companies that they wanted to attract. I I'm in New York so I think I better get an office here is your your your message and you know get that working. Marco, I just want to move to to you to build on that because um you you focused here now and particularly in the merger on on the Emirates. What's the long-term vision uh then for Soulmate and you know is it singularly based here? I know you've got a a bit of aworked governance model, but give us your view of the sort of strategy and the thinking behind that.

Well, there's two reasons why we're based here. Um, and I I think they're the most important reasons in the world. One might be obvious, right? We want to build a big treasury and having a big treasury is important in these proof ofstake networks because the way the networks work is the more of the asset that you have of the native asset of the underlying network the more often you can validate transactions and the more often you can sell your validation services and high frequency trading services and all the rest of the world. So it's good to be somewhere that has a proximity to capital, right?

They call this the capital of capital. We've found that to be true. So it makes sense to be here for that reason. But there's an even more important reason that most people don't realize that on these high performance networks, milliseconds matter, which is to say this the distance between your transaction and your validator actually matters. So zoom out, look at a globe.

You've got plenty of transactions being validated in New York, lots of validators there, lots of transactions being validated in Frankfurt, right in Western Europe. Then on the other side of the globe, you've got transactions and validators in Tokyo and Singapore. If you're making a mental map in your mind, one thing you might have noticed is that they're all on the periphery. There's this gaping hole right in terms of validation right in the middle. And that hole is right here in the UAE and Abu Dhabi.

So to the extent there are transactions happening here, to the extent that there are transactions happening anywhere except for that periphery, those transactions are taking a long time to get validated. Those um transactions are essentially waiting to get stale before they execute. That means lower profits for those who are trading. It means a less information to trade upon. It's just a bad strategy.

We think the UAE is not only well positioned from a financial perspective, but from a geographic perspective. And that's not something that anybody can replicate ever because God's not making any more of this earth, right? The actual location of the UAE on on the on the globe is critical to our strategy. So people ask, look, you're focused in the UAE. That's just one country.

Why why would you care about that? Because these networks are open and permissionless. And if we can validate transactions here at the center, we can compete with everybody validating transactions and offering validationbased services that cater to high frequency traders and all the rest. We can c we can uh compete with them and we can win because we're closer.

Uh I I love that answer. I call Abu Dhabi Middle Earth when it comes to digital assets. So that was a very eloquent uh you know overview of validators. Um Dave just moving on to um R3 uh you know in our community the R3 Sena announcement earlier this year I think was probably one of the the biggest announcements and the most important indicators of institutional adoption in in you know broadly in the public pro protocol space. So, so te tell us about that and and you know again while we're on the last mile of everything from liquidity to you know settlement finality and all of the things that are important for institutions what is it about that ecosystem and the partners of that ecosystem that drove the thinking of the transaction

yeah I'd love to cover that I mean about a year ago it became very clear that the private permission ledger space that we were focusing on was going to be a very narrow market. And while we're not into the permissionless world of the future yet, and big financial institutions aren't going to be anytime soon, it became clear that we had to move towards public permission ledgers. And I sent my team out and most of the money's been spent in the Ethereum ecosystem. So I the assignment was go find an Ethereum chain that made sense for us. And one of the problems with Ethereum is there's dozens of chains.

And just because you have interoperability protocols, that's not nearly as efficient as a monolithic single marketplace like you have with Salana. Plus, Salana is cheaper. It's faster. It's got millions of wallets. It's a robust ecosystem.

So, there's a lot of reasons that that we choose uh chose uh Salana. And we've had a great dialogue uh with them. and the Salana foundation and leadership, they understand it's going to take a little while to get real world assets on chain. So what R3 is focusing on now and there'll be some announcements this week. One is about exactly what we'll be doing on the Salana ecosystem.

We're going to make that announcement on Thursday at Salana ecosystem. And another announcement about the other side of our business which has been dealing with central banks which really leaves R3 focusing on how do we get real world assets into the Salana ecosystem in a composable and fungeable way that makes sense for DeFi investors. So step one R3 labs has built a toolkit that helps curate and lead uh real world asset issuers tradi folks into the space. So we want to make issuance simple and easy to understand. Okay.

Then we are um you know focusing on what the investor what the other side needs and the capital of onchain investors is kind of mean reverting towards uh more kind of responsible yield products because of some of the fluctuate fluctuations recently. So our view is these two worlds and I think we could all agree on this are converging. So we think we're in a really good uh position to work with our big traditional financial customers to provide tooling to get them on chain to provide the advice they need uh to get them through their compliance networks and everything else. But more importantly we used to try to push them on. What we're focusing on is the pull.

Wall Street follows capital. There's $3 trillion, which isn't huge by Wall Street standards, but growing quickly. That capital will pull pull real world assets on chain, and that's what we're going to be focused on.

Uh I I love that. Follow the money. Exactly. And that's exactly what's going on. Now, uh for my esteemed panelists here, we've got less than three minutes, so I'm going to make up a lightning round.

Um so, you need to be very, very pathy with your responses. And I'm going to start with Marco. Can we here in the Middle East? Can we beat Wall Street?

Nope. But we can rebuild it. We can overthrow them. And we can do it from scratch here, a regulatory white space, an infrastructural white space. We can not only build new validation, new transactions, but a brand new Wall Street here that's faster, cheaper, fairer, more transparent.

Uh, this is a very special opportunity. It's a moment in time, and I think we can take advantage of it here. I I I love that. Okay, David. The biggest opportunity for an institution in the DeFi community right now, what is it?

I kind of wanted to answer that same thing, but [laughter] the biggest opportunity is to the the onchain stable coin uh investment funds and the like, which is a significant amount of cash looking for real world asset yield and stability, but better than treasuries. So, we think the sweet spot is above the Treasury yield, but not some wild crypto looping uh, you know, mid- teen yield. And that's that's a sweet spot we're focusing on.

I love it. With a decade of inflation in a lot of the ecosystems that we're seeing anyway. So, it it works for me. Lucy, the number one re Well, you've located here now. You're our poster child for, you know, locating AD ADGM and ADFW.

But what what what what's what's the number one reason that other institutions, asset managers, buyside folks should think of coming here now?

I think because it's a new global financial center and it was it was there was a period of time where it was going to be or headed towards that way and it it now is today that new financial center and it's blockchain and crypto and tokens that are enabling new centers of gravity for global financial markets. and they're now the nexus of of new capital flows that's based on chain. So Abu Dhabi is absolutely the place to be.

Dave, you have five seconds. Literally,

I just want to say one thing really quickly to your point. I often say that many Africans had cell phones before Europeans and Americans because there was no landlines. The capital markets are very underdeveloped here. Yeah,

but because of that, to your point, they have an opportunity to skip a generation and to really uh embrace digital capital markets fully.

I I love it. You you've heard it here. Uh the Emirates are going to be the home of the new world of capital markets. I think this is actually one of the most exciting panels I've ever done. Uh more often my wife is saying to you, you really do uh work in some boring areas.

But I think even she would be, you know, convinced by the energy and the opportunity of this one. So I'd really like to thank my esteemed panelists and thank you all so much for listening to us. I hope you have a great time at Finance Week. Thank you.

Thank you.