Traditional financial companies are aggressively moving to develop their digital-asset strategies, identifying the businesses and roles in which they can quickly establish a foothold in on-chain finance—or risk not being at the center of its future. As part of this, TradFi companies are making strategic investments in infrastructure to support the growth of tokenized assets. The increasing demand for institutional-grade custody, settlement and payment rails underscores why they are establishing an early-stage presence, and how they intend to build an infrastructure that ensures their position and growth within tokenized finance.
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Transcription:
Transcripts are generated using a combination of speech recognition software and human transcribers, and may contain errors. Please check the corresponding audio for the authoritative record.
Holly Sraeel (00:21):
Clearly things are taking shape quickly with tokenized finance. That's it for today. My thanks to Tiffany, will and Simon for sharing their thoughts. We'll see you soon for another leader's discussion. Welcome everyone. Company News on tokenization Abounds. Let's talk about it. Last week, UBS announced the world's first successful completion of an in production end-to-end tokenized fund workflow using chain links digital transfer agent. Last month, BlackRock announced that it was making tokenized exchange traded funds a strategic priority. Also, last month, Citi and Coinbase announced that they are collaborating to boost digital asset payments capabilities for global clients. And yesterday JPMorgan Chase introduced JPM coin a digital deposit token, which will allow institutional clients to move US dollars almost instantly on Coinbase based blockchain. So the question is, with all of this news flowing in, things are clearly accelerating, but what will the killer use case for tokenized assets be that enables tradify to scale investment? Let's dig in Will, how should executives think about tokenized asset custody and settlement as an operational efficiency play or as a fundamental reinvention of financial market infrastructure?
Will Peck (01:37):
Yeah, so at WisdomTree we're a global asset manager, traditionally an ETF sponsor, and I head up kind of our tokenization initiative. We're managing almost $700 million in tokenized assets today. And I don't think about it in terms of saving costs. It's already extremely cost competitive. Certainly in the asset management space, I think it more about enabling new distribution or a new user experience for financial services. So it's around serving clients in a way that they might not be able to be served with traditional rails, whether that's 24 7 constant uptime, the ability to make payments from your own wallets at different points in times, things like that. So I think it's new distribution, new enhanced user experience more than solving some cost problems on the backend.
Holly Sraeel (02:20):
Simon?
Simon McLoughlin (02:22):
I agree. I mean it is obviously about operational efficiency and cost, but that's dwarfed compared with the user benefits. So theoretically you've got global participation in certain asset classes that wasn't there before. And I think there's a really important generational thing, which is you've got these Gen Alpha and Gen Z folks coming up who are digital native and they expect money and financial assets to move us instantly and quickly and cheaply and without borders as a text message. And so I think there's a dawning realization among banks and financial institutions that in order to serve this new generation, they need fundamentally different infrastructure. And when you think about tokenization and blockchain, what does it really do? It's the missing layer of the internet that allows money and value to be exchanged between two people who've never met anywhere in the world without a central authority. The experiments we're seeing in this space at the moment though, they're kind of experiments, they're just institutional, they're on permission. Blockchains generally speaking, and a permission blockchain for me is nothing more than a bad database. The real exciting opportunity for tokenization is when we go on to permissionless blockchains and compliance and regulatory information is embedded in the token itself. Now we're quite a long way from that at the moment. And what we're seeing at the moment, I would argue just experiments.
Tiffany Patrick (03:53):
And I think to touch on each of those points, I think first and foremost to the generational expectations, it's a client experience. The next generation of those participating in finance want seamless instant as simple as like you said, having a text message. That's only going to happen one way, right? We've already sort of gone into the realm of instant payments, faster payments, we've done that. It's next, not just moving the payment, moving the instruction, moving the conditions, and really automating all of that. And yes, a lot of it is private permission at this point, especially in the tradify space, but that's where we're starting. We have to start, we're going to build that trust with institutional clients. We're going to expand that and then start to build on that. And I think that's sort of the next evolution. When we say killer use case, it's not only just tokenizing what your current clients have, it's enabling that tokenization in a borderless way.
Holly Sraeel (04:50):
This so because the financial industry is so large and because at present the largest tradify players are the ones that are jumping in. I wonder if for the rest of our audience we could talk a little bit about on chain finance and what it really will enable that traditional systems cannot at present.
Will Peck (05:09):
Well, I mean I think one, so we're doing stuff on permissionless blockchains. So WisdomTree has issued tokenized assets on seven public blockchains to date kind of a range of EV VM blockchains on top of main net and stellar as well. And I mean I think it's exactly some of these points around the ability to self custody or assets, hold them within your own wallet infrastructure and engage in peer-to-peer transfers, execute transfer function without relying on a central intermediary. And I think a lot of the innovation that comes comes from that basic functionality where you can build new types of settlement mechanisms, new types of financial products, kind of built off that basic idea that you can move value from one wallet to another effectively. And it's kind of a self, not self reconciling, but in a reconciled database. And so that allows, the target market we're serving today is really the crypto native community.
(06:00):
It's people who have value on chain. They're holding value in stable coins who for example, are looking for a yield bearing alternative where our tokenized money market fund is a great option for them to hold value and get yield on their idle cash as opposed to just sitting there. But that's just the start. There's certainly a lot of demand for yield in this community, but from there, I think there's going to be more and more people who are coming on chain businesses, small businesses, large businesses looking to do, whether it's cross-border payments or things like that, and they need products and services that fit within their infrastructure as well.
Simon McLoughlin (06:32):
Simon? Yeah, I mean I agree with all of that. Basically I think one thing that's overlooked about tokenization and blockchain more generally is the resilience aspect because you take away the central authority and there's no central party to be hacked or hijacked or interrupted because on a decentralized network there are multiple nodes. If one node goes down, there's inherent resilience in the system. And I do think that point in many parts of the world, uphold started in Latin America in many ways. We had a huge following in Latin America where people were buying Bitcoin to protect their wealth from devaluing local currencies. And the self custody aspect I think is incredibly important. The notion that you can hold your asset in your own custody and it's censorship resistant and nobody can take it away from you, I think that's an incredibly powerful part of the tokenization story.
Will Peck (07:35):
100%. I mean, I think what's true though is that Bitcoin's kind of its own kind of animal within that. It's truly decentralized in a way that obviously there's a spectrum from there. And when we're talking about tokenizing real world assets, there is a counterparty on the other side of that, right? And we're just honest about that you're trusting Wisdom Tree to be managing the money behind the scenes, and there's a lot of transparency with that and frankly, legal rights that can or can't come with that. In our case, it does come with it, but I think you've seen a lot of things that have tokenized stuff that are just IOUs saying, yeah, sure, here's some offshore entity that's saying you got this exposure. So there's a wide range of spectrums there, and the actual legal instruments matter a lot
Tiffany Patrick (08:13):
In that. And that's where you can see Tradify kind of come into this space. I mean, when we're talking about completely decentralized, a lot of responsibility, if you make the wrong decision, it's the same as you dropped a hundred dollars out of your pocket on the sidewalk, it's gone. And so when we're looking to enable this optionality with our clients and our institutional clients, it's sort of guiding them to enable, let's have something that I can transfer value to my merchants, to my counterparties across border, to seamlessly. We all agree what it means, and then really taking that to the next level, but having that infrastructure that they're comfortable with, that they know that they trust, and providing that connectivity because uplifting a lot of education to understand how it works globally on a continuous manner is a full-time job
Will Peck (09:00):
In
Tiffany Patrick (09:00):
And of itself.
Will Peck (09:01):
I completely, I think there needs to be, obviously there's going to be some people who are crypto native, whatever you want to call 'em, who are very comfortable managing their wallets, private public keys, all that stuff. And then there's going to be kind of a range of people beyond that who are going to want in a full custody solutions or people having more managed wallet services. So I completely agree.
Tiffany Patrick (09:19):
Yeah, absolutely. So we're trying to make sure that we're providing all that optionality across our network of networks. And for us, this is just the next evolution and we will evolve with those clients.
Holly Sraeel (09:29):
Okay, let's put some numbers to this. This is a large opportunity. How big of an opportunity do you think for Tradify?
Simon McLoughlin (09:40):
Completely transformational. I mean, it runs into the trillions of dollars. I mean, the current financial infrastructure's at least 70 years old and changes in financial infrastructure come along very, very rarely. And this transformation is overdue because there's been a lack of regulatory clarity for frankly perverse reasons. For a while. The technology's been around for what, 17 years more than that. But now's the moment where it's a really unusual moment in time because you've got the regulations, the participants and the technology all coming together at the same time. And I think this transformation will be way quicker than people think. I remember, I'm just old enough, I'm definitely the oldest person on this panel.
Holly Sraeel (10:30):
I was waiting for you to leave one of us out.
Simon McLoughlin (10:33):
I remember in the mid nineties when my company just had a little internet experiment in the corner and everybody laughed at it and it was a joke. And within two or three years, every company was an internet company. I genuinely believe within three to five years, every bank will have blockchain connectivity. I actually believe that most companies in the world will have blockchain connectivity because the application of the technology is so transformative.
Tiffany Patrick (11:06):
Absolutely. I mean, even in our city produced the Stable Coins 2030 report, whether it's bearish or bullish, it's still over a trillion
Holly Sraeel (11:13):
Either
Tiffany Patrick (11:14):
Way you look at it sometimes. I agree with everything that's been said. This is overdue. It's an expectation. There's no undoing it. It's only going to move forward.
Holly Sraeel (11:24):
But here's the interesting thing. I agree with you. There is no one undoing it, but my question is, once you get, let's use banking as an example. Once you get beneath the top 25 banks, how slow will the rest of the industry be in coming along? How slow or how fast? I mean, how do you see it?
Tiffany Patrick (11:46):
I think it's because
Holly Sraeel (11:47):
Remember, there's a huge drop off after the top 25.
Tiffany Patrick (11:49):
I think what this lend itself to, and I think we see it a lot of the news that you were reading off and the other headlines that drop almost every day, there's more collaboration and more partnerships that are going to have to happen. It's not everybody's going to build their own or they're going to jump in with their own projects. It's okay, I've got this and you've got that. Let's work together to serve this client base. So I think it's going to be faster than other adoptions in my opinion.
Will Peck (12:15):
I don't know to speak to the smaller banks throughout the country, I think it's probably a tough road ahead on some of this stuff. You want to find the right technology partners, and there's a lot of, frankly, startups and others that would love to serve the banks around there. Not even startups, but other just businesses. So I think that'll need to be part of it. I mean, to the big picture question, so coming at it from the asset manager lens, WisdomTree kind one of the original ETF pioneers launched our first ETFs 20 years ago when I think there was something like 200 billion, 300 billion worldwide in the ETF kind of structure. Today that number is north of $15 trillion. And you saw a true hockey stick growth where once it starts going, it really accelerates and flows move from mutual funds to ETFs. And that's an analogy we see a lot with tokenization, stable coins, where if you look at similar trends, you'd be like, wow, this could be like tens of trillions of dollars in the next few years. Now maybe it's not a perfect analogy, but that does seem to be the scale that we could be talking about.
Holly Sraeel (13:15):
I know Simon has an answer for this, so I'm going to throw this to him first. Why should tradify own a piece of on chain's future rather than just interact with it? I know you know what they bring to the table.
Simon McLoughlin (13:29):
I don't think they should own a piece of on chain. I don't think it's about ownership. I think it's more about understanding the benefits of on chain technology and blockchain adoption. I mean, our business is a platform that allows tradify companies to move on chain very quickly. We can get you to market in 90 days as opposed to, I dunno, two or three years if you try and build it yourself. And Robin O'Connell is in the audience here who runs that business. We've been pushing that business for eight years and it has been really hard work in the last 12 months completely transformed. We were at Money 2020 this year. We ran a summit for banks, brokers, traditional financial institutions thinking about moving on chain. We ended up with 1,373 leads from that event. So I think banks are waking up very, very quickly to the fact that they are facing a generational challenge in terms of expectations from future customer groups and the technology and the regulation are now at hand for the first time.
(14:32):
To your point about smaller banks, just one thing I'll point out is we are partnering with a federally chartered bank and we have harmonized our risk appetite and control framework with theirs That bank, vast bank is issuing a US dollar directly on the blockchain, not a stable coin. This is a real dollar on a blockchain with FDIC insurance, reg E protection counts as cash on corporate balance sheets. And that's a great example of where we are opening that architecture up. It's a scheme that any bank can join. So we are hoping that a lot of tier two banks will join that network and benefit from the hard work that's been done in harmonizing the control framework of a blockchain company like us with a federally chartered bank.
Holly Sraeel (15:23):
But clearly Will and Tiffany, clearly though the largest players across financial services do want to have a prominent presence. I mean maybe own a piece of it is the wrong terminology, but I can see the strengths with banks, for example, in risk management regulation and compliance, asset management, custody asset servicing. So when I say own, I mean that there are expertises that banks can bring to this industry so that everyone benefits. And I also agree about the collaboration and partnership. So let's move on. Where do early investments in tokenization infrastructure translate into defensible or competitive advantages? You and I talked about this.
Tiffany Patrick (16:11):
Yeah, absolutely. I mean I think it's must have, if you're investing it, this is just the next wave. What was the justification to invest in instant payments? What was the The argument to invest in any type of uplift of the architecture? This is just the next wave. So it's a must have. I don't think it would be hard to make it defensible at this point.
Holly Sraeel (16:34):
So cost reduction, speed, new product lines, client stickiness, all the above. All
Tiffany Patrick (16:38):
Of the above, especially when you're talking about client stickiness, product development, look at e-commerce, look at banking as a service. This is the next wave of that. Client base is asking for this already.
Will Peck (16:49):
What about where you sit will? So I mean, we started early in this from a traditional asset manager, and I think it's both. You need the technologist to build stuff, but also the business context, one without the other doesn't accomplish anything. And so putting that together was certainly an investment that WisdomTree made, allowed us to be early start really winning business here. So I don't know if that answers the questions. I think it's clearly everyone's talking about it, so it does seem to be like there is a, and so I think just it's competitive though, right? We're all in competition at some level with other firms or each other. And so you want to be building towards client outcomes at this point and getting to revenue. I think we're past the days of just throwing money into something that's not going to see revenue for the next 10, 15 years. Right.
Holly Sraeel (17:39):
Simon, do you agree with that? This is definitely a revenue play.
Simon McLoughlin (17:42):
Oh, definitely. Absolutely. I mean, it opens up the biggest land grab in history for financial institutions because theoretically you can service a global market on an infrastructure layer that collapses settlement clearing and other processes into one single layer. And the bit that excites me is obviously the move to truly permissionless chains and tokens that have embedded KYC and compliance information in them. And I think that allows, it's going to be fascinating. I think you can see subscale, particularly with the advent of ai. I think you can see subscale institutions stage a massive land grab and have a much larger addressable market than they've ever had before. And how far are we from that? I think for the next five years you'll see a war effectively between the permissioned model, which is the old mindset of a bank or a financial institution wanting to own a walled garden and a permissionless model for which the technology is not quite there yet because you think about what blockchain hasn't solved yet. Identity is the big one, it's just not solved. The second thing is an infrastructure layer that says if you send money to the wrong wallet, it's gone forever. Tatar, I don't think that works. I dunno what the solution is.
Will Peck (19:09):
Well, their solution, and I think you just do permissioning at a different layer. So we view the blockchains as public infrastructure and then you can write code that does permissioning at a different layer. So wisdom tree funds can not be transferred to a wallet that we just don't know. And then you can build, I agree that there's a lot more work to be done there, but this public infrastructure can be used, but still with permissioned kind of activities on it, we think that's the right way to approach it.
Tiffany Patrick (19:35):
Yeah, there's a balance between completely wild, wild west, permissionless and then completely bogged down. And with all the friction that your clients might be used to or someone might think a tradify would have, there's something in the middle, different permissioning, KYC in the protocol would be fantastic. But bringing that in and then supplying that connectivity, those layers, that network with that expertise and finding that balance. And then part of that goes back to the first question right before this is understanding what do your clients need? What's out there? Why are we doing it? Are you issuing a stable coin, you want to be popular? What are we solving for? And then bringing it together.
Holly Sraeel (20:13):
Okay. Let's talk about some lessons we can take from early movers. Well, wisdom Tree, JP Morgan City, BlackRock. Can we talk about some examples of what they've learned early, what you've learned early?
Will Peck (20:29):
I think we covered some of it just of you need the technologists and the business context and one without the other kind of doesn't get it done. And I think
Holly Sraeel (20:39):
Talk a little bit though about how much time in your world you spent on the business context as opposed to the technology.
Will Peck (20:47):
A lot. I mean, I'm not a technologist, right? I don't write code, but understanding the concepts of what, the concepts of what are happening. When somebody talks about a borrow end protocol, what does that actually mean and what's going on there and who's transferring what to who and what's a token? And I think understanding those building blocks and then having kind of the idea of like, well, this is what a good trading experience looks like in fund management or a good investor experience. That's how you kind of plummet together. So that's been my experience for it. So I think it was just making sure you're hiring the right people and people who are willing to learn and get into it and then that you're trying to set a north star of where you're trying to go. You're going to need to pivot along the way that everyone does. That's just business, especially when you start early, but hopefully you make good decisions within that and have the right skills. And then when you see things moving in a certain direction, you think that's the right one. You've got to go after that.
Holly Sraeel (21:48):
Simon and I have talked about the war for talent. You want to tell everybody your thoughts on the coming war for talent between tify and crypto companies?
Simon McLoughlin (21:58):
Sure. I mean, our biggest challenge at the moment is banks and traditional financial institutions want to hire our people. And that's a relatively new phenomenon, and I think that's going to intensify. What I would say at the risk of being slightly controversial is people who've gone to some of those banks from us, they find themselves in an environment where it's still incredibly risk averse and they're nodding towards technical innovation while trying to preserve existing models. And I do think that the permissioned experiments you're seeing in the institutional space by some of the largest players, they're experiments, they're open to very small participation. The much, much more exciting stuff for me is the kind of stuff that WisdomTree is doing, which is starting to open up participation in asset classes to brand new groups around the world. I'll give you one fascinating example. So we operate as an infrastructure provider to all kinds of projects, a particularly fascinating one, and funnily enough, it's being announced in Houston today.
(23:04):
A group of techs and oil companies, five of the largest oil companies in North America have come together. They've realized that at any one point in time, each company has like 50 to a hundred million dollars worth of oil in pipes above the ground that's not being monetized. So they're tokenizing all of that oil. It's a bit like Airbnb, right? You are tokenizing an asset that has a monetary value, but it's not being monetized. They're turning those into tokens that give commodities trade as exposure to spot oil price, which is a fascinating example of releasing economic value through tokenization.
Holly Sraeel (23:46):
Okay. Let's talk about how does tokenized custody and settlement, how do these models change risk management, capital efficiency and liquidity?
Tiffany Patrick (23:59):
Yeah, that's always a fun one, right? So a first, it's speed, it's transparency, it's complete auditability. And then with that, trying to maintain that while making sure that your risk profile, your risk tolerance, your protocols, you have to uplift your controls when you're uplifting the product. And that's something that every T fight has to remember is you can go out there and sell the most innovative product, but if you're coming back to the initial controls, you're going to hit more friction and that client offering is going to look different. So that's something that we really strive to do is uplift both at the same time. So when it comes to it's going to improve liquidity, but you have to innovate your controls the same way you've innovated your product.
Holly Sraeel (24:42):
Before we move on to get Will and Simon's input on this, do you, in trying to address the changes to the model and how it affects risk management and whatnot, are you running into NOS from the compliance department?
Tiffany Patrick (24:56):
No, and I don't think so because what we strive to do, especially on the product side, is take compliance along with us. So not when we fully got something baked and we say, okay, this is what we're doing. We're educating them along the way, and I think especially in large financial institutions, there's still a lot of education that's going on. You're educating your clients, but your education has to be just as intense internally with the understanding that it's not okay, I read the hundred articles and I've learned everything there is. That's not how it works. It's consistent, it's daily. So bringing compliance honest with that journey is really key to that. So for us, we've had a much more streamlined way about it.
Holly Sraeel (25:36):
So back to Will and Simon on the tokenized custody and settlement models and how they affect capital efficiency and risk and liquidity.
Will Peck (25:45):
I don't exactly know enough to say, I mean, I'm not a custodian going to work with custodians, but I guess what I'd say is with this new type of technology, just very helpful to be intentional about what risk you're trying to solve for and maybe you can solve for it in a different way. Maybe that's true across technology stacks probably is, but just since this works a little bit differently, you can certainly, if you have hot wallets and cold wallets, you can think about how you can segregate response where things sit and things like that. So I guess that would be how I'd think about it, but I don't know exactly enough to answer that question
Simon McLoughlin (26:21):
Enough. I guess for me, the fundamental benefit is the potential for instant or near instant settlement takes away counterparty risk. And how do institutions deal with counterparty risk today? They end up with funds, so a default fund, a CCP fund, and that locks up capital unnecessarily. And the other big benefit, I guess, is you move away from a world where you've got multiple ledgers that all have to be reconciled with a surprising degree of manual input, and that means that they're error prone, so you get rid of the operational risk to a large degree,
Holly Sraeel (27:08):
Most compelling day one use cases for tokenized settlement and what needs to be true for broader adoption?
Tiffany Patrick (27:16):
I think the biggest thing is going to be interoperability, and I think we've touched on that already when we talked about private permission, but what's going to be public, what's permissionless? I think experiments are happening, the initiatives are happening, some institutions move at a different pace, but it's all moving one direction and the interconnectivity of that to take that experience to the next level of a customer, doesn't matter who you're banking with, this is going to work and it's going to flow, and that's what we're trying to enable with our optionality. I think that's the next big thing is interoperability.
Holly Sraeel (27:53):
Do you think, Simon, do you think we're headed toward a parallel infrastructure? Can unchain settlement coexist with legacy rails?
Simon McLoughlin (28:02):
Yeah, I do.
Holly Sraeel (28:03):
Okay.
Simon McLoughlin (28:03):
I do. The idea that one is going to supplant, the other is I don't believe that for a second.
Holly Sraeel (28:09):
Could you say that again louder?
Simon McLoughlin (28:12):
I don't believe that one is going to replace the other for a second. Personally, I think the biggest thing we're going to see, everybody's talking about stable coins at the moment, but when you just stand back and you think, okay, why is it a FinTech? Why is a FinTech issuing a dollar on chain? That doesn't make any sense. A FinTech isn't the natural issuer of a dollar. The natural issuer of a dollar is a bank, not a central bank, incidentally, a commercial bank. And I think what we're going to see very quickly, and we're already working with a federally chartered bank that's doing this, you're going to see federally chartered US banks issuing dollars directly on the blockchain that come with FDIC insurance, reg E protection and so on. And that use case for traditional companies is way more palatable and acceptable than a stable coin.
(29:02):
For one thing, stable coins don't count as cash on corporate balance sheets currently. So the advent of a tokenized dollar means that you get all of the protections that come with a bank issued dollar, but that moves on blockchain rails with the convenience of blockchain, and that's programmable. I think that's going to be, again, I don't think it'll supplant stable coins, but I think it actually has an even larger use case than stable coins. And the letter, I mean the extraordinary moment this year, March the ninth, the OCC wrote to all us banks to say that there are certain crypto activities, there are four categories that count as novel banking activities, and we've worked very closely with Vast Bank. Vast bank have been given this extraordinary protection of no, you go ahead and innovate. You embed a blockchain at the core of your bank, and we're not going to put you through some tortuous permissioning process. We're actually going to just inspect you in a regular way on a quarterly basis because then now in the United States is this genuine desire to encourage innovation at banks. This is a relatively small bank that's embedding a blockchain at the heart of its ledger in order to issue a dollar on chain. That's such a big deal.
Holly Sraeel (30:27):
Well, thoughts on any of this?
Will Peck (30:28):
Yeah, I mean I think so it is interesting with tokenized deposits and stable coins, I think stable coins will be issued by not banks, but trust charters. That's what the Genius Act is requiring. So whether it's federally or state charter trust companies, I think it is a fair question to ask and that's kind of a regulatory arbitrage. That's just how it developed. It was, but there's been non-commercial bank forms of money before FinTech money exists, like Venmo, PayPal, those all exist. I do think for tokenized deposits, I mean the thing that I'm looking for with them is to solve kind of like we talk about pushing financial logistics on chain and the ability to have bank deposits be a part of that I think is going to be important. So I don't know if it's going to be consumers saying, Hey, I want my bank deposit.
(31:14):
I just don't think they think they're going to think it's a dollar. What's a dollar? That's how people think about it today. But I do think tokenized deposits could have a very valuable impact in terms of on chain financial logistics, whether it's loans, things like that, being able to make payments on chain in this way that works in a way that stable coins just can't get done because they work a little bit differently. There are these fully reserved things where money needs to move to one bank account to another to admit new tokens, and that might be limiting for some of these things going forward.
Holly Sraeel (31:43):
What perception do you think banks should, well, let me back up. From your perspective, what role should banks play in building or governing the new rails?
Tiffany Patrick (31:57):
From my perspective, they should be very active in this. I think there needs to be active participation, active innovation and active collaboration with this. It's one thing to adopt the new technology, it's another one to adopt it and just go off on your own and say that you've got the best solution. Citi has built several options, tokenized deposits, 24 7, liquidity, et cetera. But again, what are the clients looking for? What are those needs? And looking out there in the ecosystem to understand what's available, and then also bringing to the table all of the knowledge and all of the history that we have with regulators with financial or anti financianal crime controls and making that fit for purpose because the core principles of combating financial crime still exist, right? It's just manifesting itself differently. So bringing that to the table and not keeping it to ourselves is another key aspect of that.
Will Peck (32:52):
I think banks need to be involved. There's some things that only banks can do, right? Deposit, taking money creation, even stable coins, right? There's money sitting in a bank account or US treasury bond sitting in account somewhere, right? So I do think, yeah, I just think banks need to be important here. Now we've seen with lots of things like there's a lot of activity and financial services that happens outside of banks, and just because banks have such an important position and everything, doesn't mean that they can sit on their hands with this or that people won't try to take business from them. But I think banks need to play an important role.
Holly Sraeel (33:30):
People have been trying to take business away from banks for the past 25 or 30 years, and they have often, Simon and I had a long conversation about this, that they're often late to the party when something new emerges. But then once they get behind it and get their acts together, then they become dominant players. Let's talk a little bit about how does the industry ensure interoperability across multiple blockchain and settlement networks? I'm going to go to Simon first. We talked about this.
Simon McLoughlin (33:58):
I think that remains one of the biggest challenges actually. I mean, our view is there isn't going to be one chain to rule them all. There's going to be multiple chains. But let's take an example. So you often hear people talk about the real world tokenization of real estate. That's not going to happen. That's not going to happen anytime soon because the notion that the title to my house resides on one blockchain and that blockchain goes under the title to my house this way, and that's nuts, right? What's required in my opinion, is ISO standards that allow different tokens to work on different networks. That's absolutely crucial. And there's a bunch of work being done on that, but it's still fairly nascent. I mean, people forget that 40 years ago there were like 60 competing operating systems in computers, 60. Now there are basically three, four. I think interoperability is absolutely critical, but it's not here anytime soon.
Holly Sraeel (35:07):
I want to put a timeframe on it. Oh, come on. You're a betting guy. What about you will?
Will Peck (35:14):
No, I agree with what Simon said. I think it is. I have problems. It's funny, I was on another panel yesterday and that question, is fragmentation a necessary step to kind of convergence? Thought it was an interesting question. You probably see that across lots of different things where there are competing standards and it's hard to move everyone, like businesses that are competing to one set of thing early on, and it might just be some are going to get adoption and people are going to gravitate towards their standards. And I do think it needs to happen. I think one of the important characteristics of doing things on a public blockchain is just the common set of standards that you get a common ledger. And if you've got a bunch of different ledgers that don't talk to each other, and actually some of them are just entirely different coding languages, it just ends up not being that standards doesn't exist, but maybe this is just a necessary step to get to that.
Holly Sraeel (36:07):
What clarity still needs to emerge in terms of regulators and how they view tokenized asset custody and settlement frameworks?
Tiffany Patrick (36:17):
Yeah, I think we're looking for more clarity For us, especially when we're connected globally, there's a lot of regulatory arbitrage with different countries, having made progress at different times, making sure all of our vocabulary is the same on and off ramps and paying in and payouts are still very contentious when you talk about different definitions. So just making, we're looking for that clarity now that the US has progressed. We're also looking for that, of course, upfront considering here we are in CBNA, but that's really for us is because even if we get one country secured, we need the benefit of making sure we know and the client knows on the other side of that transaction there's no other regulatory surprises. So for us, it's global consistency, which is a tall ask.
Holly Sraeel (37:05):
Yeah, yeah, for sure. Thoughts Simon?
Simon McLoughlin (37:10):
I go back to the, I think the ISO global standards have a big role to play here. And we operating, I don't know, 140 countries. We're directly regulated in about 30, 40, 40. I'm astonished at the lack of consistency basically.
Holly Sraeel (37:33):
So who's going to set the operational and compliance standards that'll give institutions the confidence to scale?
Tiffany Patrick (37:40):
So in my opinion, I think with the experimentations that are happening with the private permission offerings that are there, that's sort of the place to figure that out because if you start to go outside of that experiment, the core principles are still going to remain. And so it's more of not just proving that the product works for your client, it's proving your controls work, it's providing real life examples, and it's giving that narrative and education also to the regulators, to the other players that, again, we're all coming up this curve of education. So that would be a benefit from those experiments. And then bringing those findings to the table and then scaling that out.
Holly Sraeel (38:20):
Okay. What's the role of trusted custodians in bridging regulated finance with decentralized infrastructure?
Will Peck (38:28):
It's consistent with some of the other topics. Very important. You're looking at models for stable coins where you've got a reserved fiat back. And like I said, that relies on having success of that relies on knowing that there's a custodian that's holding the T-bills and the cash, et cetera. So I think very important, we're moving towards more natively issued on chain instruments that are kind of native unchained by nature. But like we were saying earlier, as long as we're still kind of tokenizing things that exist in other ledgers, which is financial services generally, right? Then you do need to have a custodian that's sitting there holding those assets and having tokens issued against it.
Holly Sraeel (39:10):
Alright, this we're going to start with you Mr. Because this was your idea. What indicators will signal that on chain finance has crossed from experimentation to mainstream adoption? You think that there are transparent metrics right now that are readily
Will Peck (39:26):
Yeah, I mean, I think you can look at total tokenized asset, a UM total stable coin, a UM, which are just publicly available metrics. You can very transparent that you can see them. Websites like rwa XYZ is the one that I think does a great job with this. And you can just see the growth of those categories of assets. So on public blockchains. And I think that's what I look at. So I look at how much money's in stable coins today and if it's 300 billion up from 200 billion at the beginning of the year, that's a lot of growth in the past year. And we'll see if we're going to get to the trillions of dollars number. And I think it would show up in those numbers.
Simon McLoughlin (40:06):
Simon. I agree. I mean, I think we're still very early. I kind of divide the, we've been in experimental sandbox effectively from 2008 to, I would argue, I dunno, end of 2023, maybe mid 24. This is the very early stages of having clear regulation in the world's largest market. So I think it will be fascinating to see what happens over the next three years. I strongly believe that adoption will be way faster than people imagine, even in smaller banks. I just think the technology is so compelling and to the conversation earlier about regulatory frameworks, the technology has to fit the regulatory frameworks in my opinion. So I honestly think within five years there won't be a bank in the United States that's not connected to a blockchain
Holly Sraeel (41:09):
Because for the smaller institutions, they won't do it alone. They'll turn to partners and they'll turn to collaborators who will help them get there. I agree with you that it's going to go very fast. If were the three of you we're betting right now, when do you think we'll start to see critical mass in terms of the number of players who are actively engaged?
Tiffany Patrick (41:34):
Engaged? Let's see. We're doing prices, right? Rules? No. Yeah, I would say five to seven.
Will Peck (41:45):
I was going to say two years. I was going to say two years.
Holly Sraeel (41:49):
Not shocked from the, well, okay, Simon.
Simon McLoughlin (41:52):
I was going to say 2030? Yeah. Oh, 2030. Okay. That's
Will Peck (41:56):
Surprisingly bearish for you, Simon. I thought you were going to say in two months
Tiffany Patrick (42:01):
Under undercut you with a year and a half.
Holly Sraeel (42:04):
Okay. I have two questions. How should boards and C-suites evaluate and prioritize tokenization initiatives in 2026 and beyond? That's the issue. How do you prioritize? Because there's so much going on in the industry, everybody wants to place bets everywhere, but you have to bring some order to how you approach things. So Simon, I'll start with you on the end. Well,
Simon McLoughlin (42:26):
It's funny, I had a meeting yesterday, and I must not mention the name of the company, but I had a meeting with a very large Korean financial institution who are not in digital assets today, and they have 10 million active monthly accounts in all across Asia and various other countries. And their C-suite said to me, their chairman calls them every night saying, where are you in acquiring or partnering with a digital asset platform? It was their number one priority because, and why? It's the terror of being left behind in something that moves far quicker than anybody thinks. And there's a land grab to be had you acquire the customers. It's very hard to unstick the customers once they've been acquired. So that's an anecdotal example, but I thought it was very powerful.
Holly Sraeel (43:20):
So what you're saying is, or what we can expect then is that on all earnings calls, we're going to start to hear more about this. Where's the company? Where are the tradify companies headed? What's your plan for this? How much are you planning to invest in what areas? Yes,
Tiffany Patrick (43:37):
Absolutely. It's a top down leadership decision and I think looking at your customers, understanding who they are, what they need, and what this technology provides and what that solves is the catalyst for it. We at Citi are very pro with that. This is a strategic initiative with the news last month with the appearances that we've had so far. This is not going away. It's a priority and it's right sizing the use cases. It's understanding the technology, not just doing it to do it. You have to be intentional with it. So as far as prioritizing, it has to be a top priority.
Will Peck (44:15):
Yeah, I was going to say some similar, I mean in terms of what problem are you trying to solve and then focus on trying to solve that problem is probably the best way. And you learn by doing, and then I think you can expand from there. But I think that needs to be where it comes from is whether, depending on how big your firm is, different units, whatever it might be, what problem are they trying to solve and then you'll grow from there.
Holly Sraeel (44:38):
Last question. In five years, what does a fully unchanged financial institution look like?
Tiffany Patrick (44:46):
I, me first.
Holly Sraeel (44:49):
Okay, throwing it out to the panel. What does it look like? What does it look like fully on chain?
Tiffany Patrick (44:56):
Fully on chain? Obviously faster borderless, but it's still going to be a hybrid in the tify space, right? We're not going to overthrow other products. We're not going to have one overstep the other on purpose. It's going to be increased optionality, increased payment experiences better, and the client user experiences is better and more connected globally.
Will Peck (45:23):
I think it's no walled gardens, just like the basic idea that you can, you're not trapping your customers into something and then they have to pick the additional products and services that only you can bring them, but you're providing them some sort of better experience that they can only get through you. And that could be plugging in services from lots of different places. And I think that's the potential of this infrastructure. So I think that no walled gardens, north Star is probably a good one.
Simon McLoughlin (45:51):
Yeah, I agree. Inherently global, inherently borderless and far, far more open in the sense of not having to own everything, but rather just focusing on customers and services rather than owning infrastructure.
Holly Sraeel (46:13):
So based on our conversation today, tokenized finance is not a marathon, it's a sprint. Correct. And we're going to see lots of things over the next, you said two years will, you guys were a little more measure four for you. He's probably right. So I'd like to thank Tiffany Will and Simon today for our program. We'll see you on the Next Leaders Live.
