The Asset Backed Currency Revolution - Jack Chong, James Glasscock, David Wachsman

welcome today we're going to be talking about the asset-backed currency Revolution my name is James Glascock I'm with Reserve protocol I'm the head of ecosystem our mission is to help people access stable currencies around the world um I've got a little prompt and then I'm going to ask you to meet my friend Jack here um uh and he can intro himself with the first question I was thinking about what we were going to talk about today and I wanted to kind of go a little deeper on um uh what the mission around this conversation is so I'll just read this apologies it's not memorized the current Global monetary system separates store value versus liquidity we use Fiat dollars because they are highly liquid but they haven't been backed by assets since the United States quit the gold standard this is having devastating effects all around the world in places like Venezuela Argentina Lebanon and Nigeria to name a few the basic idea of the asset-backed currency Revolution is to be able to transact directly with our store of value and for the first time thanks to the work of Satoshi vitalik and many of the people in this room and here in Denver we can do that in a stable transparent and digital form this is not just for people that want to make money or people that want to make change it's all of the above it's for the idealists the heroes and the capitalists so with that being said to build asset-backed currencies you need tokenized assets so excited to introduce my friend Jack for you to introduce yourself actually and to build these currencies we're going to need these assets can you walk us through the State of Affairs on tokenization progress and types sure yeah yeah hello yep sure so uh thanks for having me here James uh a bit intro about myself my name is Jack and uh I call myself a tokenization nerd uh I very fortunate to co-authored a viral paper called an unreal primer into real world assets which had roughly a million reach on Twitter and close to 10K reads on a DocuSign and also read by institutional asset managers the likes of fidelity Franklin Brevin Howard Etc uh and uh alongside for the past year I was building Frick responsible for the products and crypto side of things so a lot of the challenges a lot of the uh of our peers doing tokenization I've seen the challenges uh some of them are unresolved some of them are slightly mitigated so I'm really excited to be here to share with you all about some of the lessons learned and also some revisions to what I think about real world assets will look like um and now going back to your question James so what is a state of affairs for tokenization now if you go online if you go on Google Twitter Youtube Etc you will be bombarded by Leo once well thank god this is Denver not Solana Denver uh there's plenty of layer ones out there that have made traction and pilot projects onto organization but let's take a step back and see what qualifies as tokenization right so tokenization is nothing new there's nothing crypto exceptional it happened in web 2 fintech as well right but briefly it was called digitization so the digitization of asset classes right when it comes to Capital markets different forms of financing asset classes were estate it could be even getting your lunch in a queue over there do you pay with cash do you pay with digital cash do you pay with uh stable coins you pay Reserve currency um so tokenization what it really is is turning the representation and the ownership of the asset in a digital form and when it comes to real-world assets tokenization it means the underlying Ledger the underlying representation of the asset is on a blockchain But it includes permission blockchain the likes of no consensus Quorum quota uh provenance all the way it's larger spectrum of permissionness ethereum Solana Avalanche polygon Etc now to close up to close up my response to your question James uh there has been that plenty of Pilots recently particularly for uh financial institutions to tokenize different asset classes on their balance sheet so on a high level right we see Avalanche polygon provenance as of a few weeks ago I thought you might find this funny right so Celsius is actually doing a restructuring and they're tokenizing the debtors claim on provenance uh and by the way I'm not I'm not paid by Providence but if you work at provenance maybe pay me for some marketing hours uh but anyways I thought that's interesting right because now you can do something that's usually involves hours of lawyers back and forth and put in additional form so that's one uh but I would close it with a comment and say um we're making traction but most of the traction is from the sell side so people trying to sell the talk the assets in a tokenized form has there been Traction in people buying Assets in a tokenized form uh that remains to be seen and that's going to be something that you know I'll I'll come in further throughout this talk as well thank you thank you Jack that's a really interesting segue because as you were describing it I was imagining the gap between that sell side and what we're trying to do in utilizing these tokenized assets you know one of the challenges for building asset-backed currencies is you need assets to be tokenized uh you need sufficient liquidity uh what is sufficient liquidity it might be hundreds of millions of dollars it might be billions it might even be lower it could be 10 or 20 million it depends on what you're trying to do um how do I how do we bridge that gap between the sell side of different sort of marketers and tokenizing platforms to users of these assets what do you think is missing in that Gap sure so long story short I think most of tokenization attempts are focusing on we have a solution let's find a problem to solve it that's Force fit the solution and find some User Group AKA hey we can token as an asset that's tokenize where I say let's tokenize art let's tokenize wine without thinking who on the other hand are actually buying these and why would they prefer buying it via crypto rails compared to traditional rails that that is the problem statement in my in my opinion now to get there right which means we need to start from Pain points start from the right user segment so something I personally find interesting about Reserve is this organic usage in Latin right and you've built a community you've built Merchant users which is very rare for crypto um I actually don't know if the lunch uh restaurant over there if I can pay with UTC but it's very likely that the POS system doesn't accept my usdc right and that's a pain point of winning a crypto conference and they're not accepting my crypto payments um now conversely right so once you have that organic usage on the ground there's liquidity then you figure out right do they what kind of demand do they have are they do they prefer to buy U.S financial products today prefer tokenized gold right in certain you know for example in APAC uh in more like slightly older user they really like gold and um a large amount of wealth management products wmp in the traditional Finance World involves wrapping around precious metal as a savings vehicle and The Right Use uh if you figure out the right end user you can do it via crypto rails but just don't start with crypto rails and enforce fine and figure out some ways to uh to sell your to sell your product to one of the things uh I've been both excited by and frustrated by in this space is uh uh back in 2018 there was a prominent movement around security tokens it was kind of like the first wave cycle of this discussion uh and then it didn't really go very far um here we are kind of in a second wave conversation lots of trotfy folks are talking about it uh you know when I read your real world assets primer I was uh kind of Blown Away to see how many folks were active in the space um and then when the team started diving into how we might build uh currencies with very diverse baskets of these assets you know something that could be um stable over decades or centuries not years but a very long term stable currency that's kind of the north star of what we're working toward but then the frustration came in with real realizing wow there's uh you know maybe only about a total of three or four hundred million dollars of assets tokenized on Jane today uh and none of them specifically are sort of large chunks so I'm curious from your perspective paying attention to the space of what's being tokenized you know like what are you most excited about for this year um and next year what do you think might be the assets that gain the most Traction in this movement uh in the current time period sure yeah so uh two dichotomies two um distinction the first one is and I'll and I'll briefly mention this first and then I'll walk through it the first one is what I like to call tool versus exchange and the second one is own Chain versus of chain let's look at the first one tool versus exchange I think there's plenty of protocols out there that are trying to do the job of originating asset talking to borrowers giving them loans maybe even taking the risk and you know underrising that loan and then trying to package it sell it to um crypto users or sell it to or convince traditional Finance investors to use crypto rails to invest in this my personal opinion is that these protocols in the long run they're building a marketplace right and it's really tough like you can you know flick through bill gurley's learnings or marketplaces aggregated demand is King if you can aggregate demand aka the demand for the asset AKA Capital then you win then we go back to the um cycle go back to the question um where are the users why would they want to use crypto rails why would they want to buy you why would they want to buy the assets that you tokenized and I think the current state of affairs we're facing is um maybe an over emphasis on The Narrative of selling to Dao's an over emphasis of um efficient processes of tokenization which to be frank is actually not it's not efficient and this now comes to my second point which is the on-chain versus of chain if again you look at recent attempts at tokenization large part of it they just token as the ownership the token has the title of the asset if you think about the flow of funds what about the payments of Interest what about the payments of the principal how does it accrue interest how does it accrue yield how is it done it's still done manually via the issuer inputting a digit maybe you're in the smart contract and then they pay it it's automatic right so this relies the off-chain logic a true potential for tokenization is where you can build own chain representation for let's say fixed income asset derivatives that fully end to end from your pre-trade all the way to your post trade life cycle everything settles happens on chain and this is what you know if I'm talking in New York in Das and digital asset Summit the the folks they were saying oh this is something called the LT and you can replace uh Administration agent uh trustee and payment agents so that's something that I think we need to work on and uh which ties back to my first point right so rather than building exchange build tools build tools that more easily on board Capital into digital asset into crypto I think there's plenty of borrowers out there that want Capital um you know and it's um it's it's it's great that a lot of Emerging Market projects are being financed and I'm really passionate about those um but it's just in order to get like an evergreen adoption right which is you get how can you get a fund to deploy Time Mill how can we get like sticky user base similar to Robinhood but like a crypto version of Robinhood where people put money in or like interactive brokers right people put 100K 500k onto that app how can we get that in order to do so you need to you need a tool first and then just of the pain points and then you can slowly build up the exchange um and you know this idea doesn't come from me it comes from comes from the uh it's it's inspired with the um with the Andreessen fintech um space as well but I just think they put it in the fintech they didn't apply to real assets I think now it's ripe for the moment for us to apply this I want to talk a little bit about accessibility you know we're here in Denver um lots of us here might have access to all the good fintech Services um but in different parts of the world whether you're a user of the services or you're trying to access Capital markets it's much more challenging you know there's folks who don't have uh accounts with Merrill Lynch and Wells Fargo and and PayPal and venmo it's not very easy we take it a little bit for granted here but it's much more difficult uh in the developing world just as one example um I believe the elections in Nigeria were last week and um folks were protesting inside of the bank branches and in the streets it's very violent I was told do not visit anytime soon because it was so dangerous there people are very frustrated with the government uh printing money uh kind of changing out the paper money system um and then I I know what this conversation we're talking about asset-backed currency Revolution and it could sound very capitalist Centric but um you know when I originally connected with Jack he was working on a green Bond project for a hydropower plant in Rwanda yesterday uh I heard about a project that is interested in tokenizing Gold without digging it out of the ground and causing uh what is essentially a fairly chaotic natural disaster so I wonder Jack if you could just speak to how important this is and why for the developing world even though maybe in the United States it may be less important which is totally okay we're we're actually a minority here sure yeah so Ashley wrote a Twitter thread on this so for the past few weeks past few months you might have seen if you're active on crypto Twitter there's a way for protocols trying to tokenize treasury bills right treasuries and corporates and ETFs they have a limitation you have to be a qualified investor or you have to be a professional investor in whatever jurisdiction you're in think again if you're qualified if you're already professional investor why would you do it via crypto rails it's very likely that you have a great JPMorgan Chase personal banker catering to your needs right or even if you're Mass affluent if you've got more than 100K you can open up an intra broker's account in the US pretty easily now my observation is and this is something that I wrote in my thread as well crypto is missing the opportunity to build a killer app and one potential for this killer app is to go back to the origins go back to the promise of D5 which is open finance right what does open finance mean it means offering globally um disadvantaged or underprivileged users or how to access users assets to financial products and these Financial products can be from the US people from Europe can be from developed World um and what that would look like basically is hey look at you know let me show you let me share with you my personal story right so I'm from Hong Kong APAC you'd have thought Hong Kong is the first world city you know it's everything's so Advanced skyscrapers like New York copycat in Asia but if I and now recently Mr I recently moved to us I'm I'm banked in the U.S and if I want to put my cash into um into a treasury's ETFs I because I'm a Hong Kong resident right so I opened up a intra to broker's account you know oh that stop brokerage TBH um and how's that built their product it's built on 2008 2009 wet 1.5 stack where I have to submit a PDF of my proof of income proof of residency they don't even have they don't even integrate with persona for example which is a very famous uh it's a identity fintech spin out from Square where on your Neo Bank you can scan your ID take a take a selfie and you can you know do that kyc very easily they don't have that so there's a potential here right which is now we can because we because we have the web 2.5 stack and we even have web3 stack right for smart contract automation compost ability of products what we can build is rebuild this financial sack so to speak from your compliance identity settlement on of ram analytics even accounting rebuild this app and you can sell it you can get organic users in jurisdictions in areas where people are not uh they don't have access to and I think um an unfortunate truth is right something to bear in mind something that's very humbling for me is um we're speaking of us right us is the largest Capital markets on Earth but it's also quite saturated so as a builder or as an investor uh it might make sense on a risk adjuster reward basis to go after those but then again right are you building a consumer fintech app or are you going to the infra to to empower that that could be something that you know if if you guys are hacking in this hackathon you guys can play around and you will and you will get a gist you know it's difficult to get users but it's also difficult to get your B2B um info users um as well so I hope that's Alpha League yeah I want to dive back into kind of the technical aspects of what we're talking about you know one of the exciting things in the ethereum ecosystem is permissionlessness and um and I've noticed some of the projects that are coming to Market this year uh they're the the mindset of how they're coming to Market is very different than uh some of the conversations that were happening in 2017 and 2018 um they're using permissionless erc20 tokens for these assets and uh in some cases you'll find these assets trading in the secondary markets on dexes and so I'm just curious Jack from your perspective you know what do you think that could unlock this time around uh because there was a lot of High Hope and ambition in 2018 and then it just kind of went quiet uh maybe this time is different I'm curious uh what do you think permissionless could unlock for all these other parts of the world uh and different users sure so that's a very tricky question right so I've got a two-sided opinion on this on the one hand Securities regulation is not going to go away there is a reason why they are in place look I you know it's it's a there's a moral case there's a legal case there's a political case I'm not going to it but very unlikely that security tokens are not going to receive like they're gonna go Wildcat right back to Wildcat banking that's not gonna happen um but you know we are living in a different time compared to 2018 in 2018 all the infra isn't there right and what does it mean to be in front people talk about infra infra infra and this is going to be something I'm going to mention that's something I'm going to write on and my second primer coming soon which is really mapping up the different layers of the um institutional digital asset or slash D5 stack right back in 2018 think about honor frames damn so cool we're still in OTC right there's no usdc you you on-ramp to usdt if you have some dodgy tier 3 exchange offshore now you've used the C in our view now if you have uh usdp as well um that's one uh think about water infrastructure there's no NPC there's no account abstraction back in the days NPC is now largely in place fly blocks is pretty sticky um account abstraction is going soon right as of today the EIP passed so that's a new that's a new frontier for us so the infra is different but the regulation will still be in place and so I think what's interesting for us right now is to tackle The Right Use cases so personally what I'm building Sean for the permission is nature is pick the low hanging fruits so you know if you look at um private assets private Market assets uh what I used to build right so energy infrastructure um that are institutionally invested it's largely paperwork uh and I'm penetrated even the asset managers they don't have a 10-year software vendor contract with some web 1.

5 web 2 company that's ripe to disrupt if you want to do tokenized shares I think that's going to be difficult and I think there's a reason why like FTX if you look at the bankruptcy filing they actually never offer you tokenized stock they did a contract for different cfd so the acquisition of digital asset that was a psyop and that speaks to how difficult it is to actually get meaningful user if you're tackling something that's fairly well used in traditional Finance or in a conventional world so large storage long story short do something build a product that offers a 10x value proposition for your existing users um yeah I'm glad you mentioned FTX you know uh one of uh probably everyone in the room's frustrations of the last year were with FDX and Celsius and several other players in space is um lack of transparency lack of proof of reserves um and that is also one of the things that really keeps us going Keeps Us super excited um you know if we had only been ready a couple of years before maybe uh some type of parts of those situations could have been prevented uh I think this is really interesting we talk about tokenizing assets and putting them on chain and building asset-backed currencies that have proof of reserves on chain um where anyone can look at those reserves anytime and decide you know do I want to be a part of this or not it's a very different opportunity and conversation than what you're hearing from centralized institutions um Jack would you just talk a little bit about kind of from your perspective uh on the tokenization side how you see the world of proof of reserves playing out especially since a lot of the tokenization of real world assets is kind of going to be fragmented for a while some parts of it off chain some parts of it on chain um I'd love to hear your thoughts on that yeah sure so it depends on how you find Por and how you implement it how you execute it it's a via Oracle surface is it like something that what Sexes do with with the proof of Reserve um I'll I'll actually not answer that question because I to be frank I don't know I I don't I don't see much Catalyst driving that but I just want to make maybe one quick comment um so I'm actually I think assad-backed currency will face a regulatory Tailwind it will be difficult to get users um have you guys heard of bis Bank of international settlement there was a meme on crypto Twitter earlier there's like a fat tall guy saying oh crypto you've lost against uh Fiat right that's that's sign up but what's actually what he's actually saying there's a new project with cbdc and even scarier across border well not scary but ticket is a neutral way but um cross-border cbdc so China is a project there's a thing called project stable right uh where they're using M decoy mcbdc where they can settle from Chinese one into uh the largest trading partner could be um uh Dubai it could be with um a uae's um or could be Saudi Riyadh they can set to it without any dollar dominate uh dollar denomination so what it means is basically you can bypass Swift right so think about what if China gets sanctioned uh if it supports weapons to recraine look this is not a good political panel I'm not going to go into details but the point I'm trying to make is um we need to tell like in we need to Total Western Capital markets and financial Regulators that um a large part of crypto is the non-monitoring USD now there's an incumbent Challenger coming up that can uh reduce the hegemony of um of USD right and so there is a play there is an angle where uh sends large amounts of asset classes from private to public a still denominated in USD it makes sense if it put them on chain then you do some form of tokenized cash token as deposit right which is what JPM has with the Onyx um or stablecoin Circle uh pesos whatever that is or even provenance with a Consortium um and you you know increase adoption and then you get Venezuelan you get um Russian you get Ukrainian you get Iranian I mean the funny funny side point right like usdt on Tron is heavily used in that time and Iran and Russia and I think that's a reason and that's product Market fit of USD um I'm not a Bitcoin Max you know the USD Maxi but I just think the reality the truth is um that's a boat that's a wave that we can ride on let's just ride on it get as much trash in as we can um and then after that we think about should we do something like Rye right like free floating eat backed or something like what endgame is doing with uh make a Dao with free floating die that's it's called end game for a reason is at the end we've only got it started yeah I'm really glad you mentioned kind of different currency denominations you know when we talk about asset-backed currencies or stable coins people often just think we're talking about uh a peg dollar stablecoin and oftentimes since uh tether and usdc have about 90 market share folks think of centralized uh State stable coins like that but uh meanwhile uh now we have a number of uh stable coins that are pegged to ethereum uh you've got some that are pegged to the Consumer Price Index I think it's just a really interesting way to think you know um this this uh phenomena of the usdpag is of only a few hundred years old um it might go another few hundred maybe it'll go a thousand maybe not um but it's kind of a phenomena of kind of uh pre-digital era much less pre-crypto so I just think it's a really interesting way for people to think about asset-back currencies I know we're about to run out of time I'm gonna at the end I'm gonna show you guys what our work looks like like in Latin America but I want to give Jack kind of the last word uh what question do you wish I had have asked you that I that I didn't and go ahead I think I'll probably leave a few comments since I feel like I've been a bit too harsh on the crypto crowd uh uh I'm just that was Advocate right but uh to be optimistic things I'm really bullish on is I think D5 needs a killer app right and this killer app can be consumer facing it could be enterprise-facing working on board more institutions involved and these institutions they cannot be another Market maker no offense no more trading firm please I actually think about crypto think about blockchain as a cat as a software for Capital markets and I hope that this framing is a lot more generic and it opens up the solution space right um and I'm also bullish on um uh Builders trying out new things they do like on chain distribution of funds ZK so things like Renegade right ZK NPC um and uh in three in three to five years time institutions are going to pick up look at project guardian it took JP Morgan and owners and monetary authority of Singapore I think maybe three to three to four years to actually conduct a own chain uh transactions on the RV so um if we can do ZK now maybe they will do it in three years time and then when they do it in three years time maybe that's right for product Market fit but you know as Builders you've got to be early right you've got to build a pre-pmf so let's build awesome I'm going to show you guys uh what I think the bridge looks like um some work we've been doing in Latin America uh regular people using crypto to uh do very basic things like uh shop with Merchants um uh peer-to-peer payments remittances and many of which don't really know they're using stable coins but uh let's see if this works [Music] I think just maybe I don't know 20 30 seconds [Music] thank you foreign [Music] thank you everyone foreign