Navigating the Institutional Growth Wave in Crypto & Blockchain - TOKEN2049 Singapore 2024

in the next like 14 minutes or so I'm going to try to tell you three important things number one what is this institutional growth wave that we are about to experience like how big is it how long is it going to last number two what are the ways in which companies are going to be able to succeed in this environment and number three what is it that erang ey is kind of doing in this business in this ecosystem so let's go ahead and get started number one let's talk about why what is driving adoption and this incredibly long growth cycle and the answer is we are entering into the regulated era and the truth is you know big Transformations like when institutions get into ecosystems they take a long time right so if you look for example at Network equipment or smartphones or Ecommerce all of these had growth waves that lasted somewhere between 15 and 25 years and the growth was 20 to 25% a year every year for 20 years that is the duration size and scope of this sort of institutional crypto and blockchain growth wave that we are embarking on right uh cryptocurrencies are universally available everywhere there is somewhere between 5 and 25% of the population that owns them uh it depends on the country and then secondly very importantly we are currently experiencing Global regulatory convergence right the world is converging towards a regulated stable environment for cryptocurrencies for digital assets uh and for real world assets and eventually although not yet uh decentralized Financial Services defi now you'll notice the US is a bit of a lagered here but even in the US we are seeing significant progress and I'm actually quite optimistic that after the November elections there's going to be really meaningful progress in the US market as well uh so I talked about how long this is going to take let me take a moment to talk about how big this is going to be because kind of spoiler alert is going to be really really big right we talk about the sort of the great liquidity Reservoir the amount of money that we have in cryptocurrency today is minuscule right Bitcoin is like $1.3 trillion doar in a global asset pool of roughly $800 trillion right so where yard today is a very very tiny fraction of what's going to come in the future and in particular the growth is going to come I think in two areas right but most importantly much of these assets are in institutional infrastructure today they belong to Banks they're mortgaged they are part of Pension funds like the average institutional pension fund has um restrictions that say they can't just go and buy like a bunch of of crypto however most of these institutions have allocation rules and strategies of somewhere between say 10 to 15% of their assets can go into alternative Investments That is potential for cryptocurrencies and digital assets so again if you think about $800 trillion do of the world's assets we can look forward to potentially over time maybe somewhere between 80 and $150 trillion dollars of assets into this digital asset and cryptocurrency ecosystem now I think this is not just kind of a slam dunk this is not a winner this is not a everybody gets richer kind of Market this is a market that has selective winners and losers and the first thing is not everybody is even ready to participate in this market if you want access to institutional funding to institutional Capital flows you need to be inside and participating in a regulated environment today almost all the crypto trading that exists out there it's offshore it's in places like the SE shells and the Virgin Islands but 99% of the world's capital is onshore it's in regulated markets it's controlled by regulated Pion funds and regulated Pension funds and Sovereign wealth funds they don't buy crypto offshore they buy crypto onshore from regulated entities that they do do business with already who are selling them bonds and stocks and so on right everyone who left regulated markets during the crypto downturn they are turning around and trying to get back in and just to give you a sense like we we are facing at ey a stampede of clients who are basically asking the question how do I get into and regulated by the EU under the micro legislation the UK the US there's a huge priority on being regulated and approved and collecting all of these different licenses and it's not cheap right people are investing really really enormous sums of money to participate in this market but trust me I think that the payoff is absolutely worth it uh the second thing is that not everyone is going to benefit from all of this growth I really believe this is a win or take all Market the first winner that's the most important one is around cryptocurrencies right so uh I think crypto we can see crypto get to a market size roughly the same as what we get for for like Precious Metals today say roughly like 10 to 15 trillion dollars the real growth in assets is going to come in digital assets which is a tokenization of real world assets real estate art syndicated loans just to give you a few samples of what the potential in this market is now even within this it's not just like hey crypto can be 10 to 15 trillion doar it's probably just going to be Bitcoin and the analogy I want to give you is from the world of precious metals there are lots of different precious metals right there's all kinds of things you can bury in your backyard in anticipation of World War III right Gold Silver Platinum but the fact is that overwhelmingly when people think about getting a precious metal to secure against the risk of inflation or stability it's gold Bitcoin is like gold and what we will see I believe in the future is that in the same way that gold has a market cap 10 times larger than the next largest precious metal the same is true for Bitcoin and indeed if you look at the market caps today Bitcoin is in fact much more than 10 times larger than the next largest I'll call it true crypto asset which in this case is xrp right now what Bitcoin is to other pure cryptos ethereum is to Smart contract blockchains so if you look at the ethereum ecosystem it is when you collect it together depending on how you count it smart contract protocols you know other systems including the l2s between like eight and 12 times larger than the next largest ecosystem and it's much much larger than most of the others so ethereum is taking this spot ethereum is the dominant player for smart contracts and digital assets Bitcoin is absolutely becoming the dominant platform for cryptocurrency there's really not going to be I think anything else other than Bitcoin and the ethereum ecosystem now one thing that is really important to understand though is just because you are into Bitcoin or ethereum it's not going to protect you from Price competition in this space we saw this with the ETF right prices basically almost immediately collapsed from like premium pricing down to about the same as any other ETF that's going to be true everywhere you go there's only a small and temporary Advantage from just saying hey it's cool I do crypto all right let me talk a little bit about what is ey doing the space our goal very simply is to create the tools and services to help anybody get into this Market to do it in a regulated compliant and successful way at scale and specifically what we do are kind of three major things number one we build infrastructure so we have built an ethereum layer 2 Network it's called Nightfall and it is a privacy enabled Network and I I'll talk a bit more about that in a moment secondly we build business applications Supply Chain management uh product traceability vaccine traceability carbon traceability and blockchain analytics and blockchain security like for example we do what other people call Smart contract audits we actually do we call them smart contract reviews but it's the same thing and in fact I would say we we think we do it better and we do the things you'd expect us to do Consulting tax advice and of course financial statement audit so we are very heavily invested in this space for us the most important engineering investment that we've made is around privacy technology I have a hypothesis that as this Market grows the number one thing that's actually holding back Institutions and Enterprises from investing seriously in the blockchain ecosystem is a lack of privacy now it previously was kind of a scalability issue can we handle the transaction volume but today the biggest remaining issue other than sort of Regulatory Compliance is privacy you don't want to know your comp you do not want to give your trading strategy your portfolio your supply chain details to your competition and we've built two pieces of infrastructure that really support that uh privacy tools the first is our lay 2 Network it's called Nightfall and then secondly we have built a smart contract compiler called Starlight you're can actually use Starlight to take a traditional solidity smart contract and turn it into a zero knowledge circuit we have more than 80 banks in Brazil testing out Starlight as a privacy tool for the Brazilian Central Bank digital currency infrastructure both of these are public domain open- source contribu tion the crypto ecosystem they are both evm compatible you can deploy them on any evm compatible network we have been working on privacy since 2017 to give you a sense of our investment we have a sizable engineering team they are focused just on privacy technology they are based in the UK we've got every single one of them has a PHD in math or physics or cryptography this is very serious kind of progress to give you a sense we are we have improved over the last s years the performance of our privacy technology by more than 10,000 times right so what used to cost $100 for a transaction we can now do for under a penny uh we get great recognition in the marketplace so a lot of the major analysts say that ey is Head and Shoulders the leader when it comes to public blockchain technology and we are absolutely in kind of the leader quadrant in terms of like Enterprise blockchain services and the overall blockchain ecosystem we are very explicitly an ethereum aligned firm I wrote a book it's called ethereum for business not just blockchains for business and we I am and ey holds the chairmanship of the Enterprise ethereum Alliance so we really are very focused on the ethereum ecosystem uh we have a lot of clients we probably over the years done more than a thousand client projects we have implemented All Around the World in Europe in Asia uh we are all we provide all the analytics for Fidelity digital assets we are at the center of the Central Bank of Brazil's privacy technology we are used for product traceability for more than 5 million bottles of wine on the public ethereum blockchain so uh kind of closing thoughts in the last minute here if you want to be successful in this kind of Rapid high growth long-term ethereum ecosystem you really need to be in it for the long haul and I want to share with you one one of my favorite data points which is um uh the time required for investors to change their investing behavior in the 1950s almost nobody in the US spent even $1 on like stocks as a part of their port folio by the '90s that was the majority of their portfolios I think it's going to take roughly the same amount of time about 40 years for the world of investors to switch from a very traditional like uh stock-based portfolio to one where you have a whole mix of stocks and bonds and digital assets cryptocurrencies it's going to take that long right uh but the size of the investment output is going to mean that all along the way we're going to get 20 25% growth in this ecosystem over the next 40 years so if you're in your 20s you'll be able to ride this to retirement and lastly I have an nft for you if you'd like it what's the point of building a whole blockchain ecosystem if you can't offer people a free nft we call these proof of Paul so it just shows you've seen me in person we will mint you a token and send it to your wallet on the polygon proof of stake Network and I think we have exactly zero seconds left for questions so thank you very much