Erwan Mismaque - Bridging Access to Sound Financial Products from the Real World

baby [Music] thanks for being here [Music] um so my name is Irwin I've been dabbling in the space since about 2017. um we've got a traditional Finance background I was doing sales and trading at uh Banks and brokerage firms before moving on to uh to crypto full time um I've been at Bax for two years um and what the company does is basically uh issue tokens which track uh traditional assets um like the S P 500 USD bills we really we focus on uh publicly traded assets um you can think of you know the major assets uh in the traditional World thesis is that if they matter in in that world they should also matter in the in the on-chain world um so I think a few people already mentioned this but uh we probably need a better name for those uh real world assets um some people have been Shilling um blockchain assets I think Mark Zello was was pushing that one yesterday um Robert leschner at a compound was was pushing for traditional assets so whatever it is but yeah um I don't want to offend anyone um obviously crypto native assets are real um but please don't be upset if I accidentally still use the term real world assets it's uh still quite sticky so in this presentation I'll um I'll cover a few topics um the landscape current landscape um technical challenges and Regulatory issues that we faced when tokenizing those uh those traditional assets and decentralization in in the context of uh of those assets so I'd first like to get back to um the demand side um and make it out being a clear case study here um at one point it held close to half of its Reserve in usdc when you're holding usdc synthetically you're holding UST balls because that's what Circle does with your dollars they invest in those short-term t-bills um but with usdc you're not getting the yield and you're adding counterparty risk so maker rightly so um you know wanted the yield um and they built you know off-chain infrastructure to get direct exposure to USD bills um maker was was able to put it off because of its uh if it's a size um you know it's it's one of the most permanent player in our space um and they're you know always leading the way but it's not really feasible accessible for for small projects um and it doesn't make sense as well for everyone to build their own infrastructure so I mean economy is a scale um are achievable if you delegate that task to a smaller subset of uh of players and we're we're already seeing starting to see uh to see this um happen with uh with I'll take the case of angle so angle is the creator of AG Euro which is a decentralized euro stablecoin and they recently started accepting back tokens as collateral focusing on on the fixed income ones um but so they they basically transferred the burden of connecting to traditional Finance to a third party in that in that case us backed um also you know they that way they reduce their legal exposure and they're able to to better focus on what they do best which is build great D5 products so here is a a chart by our friends at uh steakhouse showing the growth of those tokenized assets um maybe we could even like those numbers could even include Franklin Templeton and make it I think close to three quarters of a trillion dollars um but it's it's exciting to see this growth but the numbers are still quite small in comparison to traditional Finance and the potential for growth obviously is is very large it's potentially even larger than what crypto is today um fundamentally you know I think we all believe that crypto rails are better suited for financial transactions and eventually all Financial assets uh could migrate on chain so there's there's about probably at this stage dozen a dozen issues um issues of of tokenized um uh traditional assets uh with more to come and they all took different approach which is they all look the same in the sense like I mean when you're considering USD bills that they're offering a product which yields about five percent but yeah their their approach um is quite different um most are choosing the permissions way uh we've gone with permissionless assets um there's you know white list Blacklist different legal framework um U.S laws German Baffin Lichtenstein Swiss DLT Act um and there's no right or wrong approach uh it's more a question of uh trade-offs which customers are you trying to serve um is it you know are you trying to cater for U.S customers or the rest of the world um do you want those assets to live in a gated environment or fuel defy um and that that dictates you know what kind of um approach each issue takes so technical challenges um I'll speak about ourselves but yeah the hard part in tokenizing traditional assets is interfacing with traditional Finance which runs on archaic systems I mean crypto settles instantly try to find Securities usually subtle t plus two you know that means that cash and security Securities are exchanged two days after a trade is agreed but even when you think about like a simple wire we send wires you know every day for our operations and you never know if it's going to land the same day the next day three days after you know so there's There's issues there and it for us it it causes troubles you know with our user experience uh there's crypto people that obviously want to get their tokens instantly and that implies that we need to provide our own working capital and and and Bridge the two systems um that that difference in settlements you know is also an issue when we're trying to integrate proof of Reserve uh products so we'll soon have um chain links uh por products um where they they basically connect to our custodian bank and they're able to read the values there and and make it available for one on chain but you know the the client comes in sends usdc um those Securities land our accounts two days after so we have to find a way to uh to to to to bridge that again um again for us other technical challenges was um building or integrating with a myriad of of traditional Finance providers on ramp off from Services Securities Brokers Securities custodian security agent which looks at our operations and make sure that everything is in line um and you know connecting with each and every one of these is quite hard um when we back last year we were about to like release our first product and um our original custodians uh basically rugged us and um they were going for a full banking license and they decided to stop supporting our business so again like that we we had to like find another custodian and now we're you know obviously um trying to make sure that we have redundancy at all these layers and that's that's quite hard um but probably the the most um the most challenging is obviously regulation um it took us about two years um to refine the setup so we're based in Switzerland uh we Leverage a favorable uh uh regulatory framework but even today we still have to strengthen that position by incorporating new issue entities in different jurisdiction to make sure that again we have redundancy and we're able to Arbitrage the different jurisdiction together so in terms of how our products are are built um we chose you know some some of our competitors showed the chose the fund model but we went for a Structured Products approach uh whereby you know tokens are ownership of those Structured Products which effectively track an underlying assets with those underlying assets being held um at a custodian in our case it's a Swiss bank so even today like you know we've solved it on the issuance side but we're hitting a wall when it comes to um secondary markets so the token we've we've Chosen and we our inspiration of at pact was very much a circle in the way they operate namely they have a primary Market where you know you have to onboard to actually be able to create and redeem those those tokens um but then you know we issue in the case of ethereum we issue erc20 tokens they're freely transferable um but today we're you know even though we've we've had a bunch of these tokens issued um we're kind of hitting a wall in in the secondary market and bootstrapping those those markets um because with Securities there are added rules and regulations and licenses that one needs to hold to be able to offer those products to retail um so even though we built we built the products so that uh they're better assets and they can be uh transferred freely uh we're considering uh to restrict that transferability to create a safe bubble a safe place for that liquidity to emerge so I'm going to disappoint you and say that um there's no way and I don't think it will be possible even in the future for um these assets to be issued in a decentralized manner so when you're when you're bringing when you're interfacing with traditional Finance there it requires centralization um but there's there's things that can be done in the spirits of decentralization um so I'll speak about two projects that um I've already integrated back to back tokens first one is uh was actually ribbon so ribbon relaunched their earned products which is a vault offering its users a yield and exposure to ethereum um an angle is that Euro decentralized Sable coin which I was speaking about before and both have accepted started accepting backed tokens as a as collateral and we're seeing um a Play whereby Ribbon which you know has this Vault and is offering is is backing um and generating the yield with UST with Bax USD Bill product um actually looking to go and deposit those tokens at angle to borrow AG Euro basically effectively leveraging themselves and buying more of these USD Bill products um and that's you know a clear case of inter interoperability and and efficiency and which is where D5 shines um and outperforms traditional Finance even it even works in the case of uh traditional assets thanks very much [Applause] and we have time for questions just raise your hand if you'd like to ask yes thanks a lot for the talk um we'll go as it's great and super important um I when I looked at your products I saw that back tokens are freely transferable correct and at the same time I saw that on-chain liquidity is basically zero correct why why is that the case so as was mentioning is that um for institutions to provide liquidity on these assets on on Securities you need licenses you need to have broker-dealer licenses to be able to offer those those Securities to retail um and with D5 The Way It Is Well that's not really possible like you you can't even know with whom you're Trading um and so that's where and the reason why we're considering restricting transferability so that we can create a safer place for these institutions and for liquidity to emerge so that other protocols you know just like Ribbon or angle can tap into that liquidity okay I see thank you thank you in terms of real world assets that are the easiest to tokenize uh like what's the low hanging fruit in the space because obviously it's very difficult with any real world asset there's obviously assets that you'd probably want to tokenize first like bonds but in terms of what is the you know easiest way to start this process where would you go outside of bonds so I was going to say UST bills obviously that's that's it's showing clear um clear demand clear Market fit um I mean we're we're gonna we're gonna tokenize different asset classes well you know we've got products in the equity space fixed income as well but we'll go into commodity real estates and for each of those asset classes let's say fixed income you know we'll we'll tokenize as well products in the euro currency dollar JPY jbp um from different issues you know governments corporates different duration short end long end just bringing uh a really wide area of of products to um for users to be able to manage their their their wealth effectively um I think yeah as I said like fixed income is definitely the best place to start with what comes next I mean crypto is still a very retail um market so you could think that equities uh which has which appeals quite a lot to retail would be another good place uh to emerge next yeah sorry I just meant in terms of what is easy when it comes to dealing with like traffic institutions in order to make this actually possible so for example if you're looking at the fixed income space dealing with the US government regulation in order to be able to take custody and then tokenize uh t-bills is one thing you know is it easier for example to do this in Japan with Japanese government bonds or is it easier to try and do this in real estate rather than focusing on what retail wants in terms of just what would be the easiest way to get something to Market is there an asset class that stands out not really in the in the terms of like technical technicalities like for us it's the same same level of burden to actually tokenize the S P 500 and it's not is an ETF by Aisha's issued in Ireland that we tokenize [Music] it would be the same same burden to actually go and offer the um Euro stocks 50 for example index so no we we built something that's quite scalable and it's just you know a different assets different asset that we back our product with but the regulatory burden is more on the at least not for now is more on the offering side and it doesn't really matter if it's you know if that security is composed of U.S assets or or Europeans or you know all right thanks give Erwin a hand [Applause]