Crypto and Decentralized Finance: Distributed Ledger Technology ( DLT)/ Decentralized Finance (DeFi) Transforming Digital Lending

Combining the power of DLT which provides cost efficiencies in a distributed model of banking and lending AND Crypto/CBDC – to essentially expand the customer base for the bank and explore new horizons in lending. DLT makes the experience even better with smart contracts and at the same time CBDCs help secure the transaction without the need for managing risks of circulation of paper currency. Hear how the industry is adopting them and ways of combining them for more powerful solutions.

Transcription:

Matthew Wood: (00:07)
All right. Hello everyone. How are you? I'm glad you're with this with us this afternoon. You know, 3.30 is the time where I wanna take a nap. So hopefully you're not like me. I'm Matthew Wood. I'm from Tavant. I'll be speaking for the first few minutes of this session. We kind of have three parts to it today. For a little bit on my background, our company focuses across a wide spectrum of FinTech. I'm the head of bank tech for our company. Right now where we stand is, we are looking at how do you take just the human effort out of the routine tasks? That's gonna show up quite a bit, I think, in today's conversation around, what we can do with crypto technologies. So I was talking to the conference organizers and they wanted to have a speaker, you know, who is very skilled at bridging the gap between kind of new ways of running a business. So gratefully, we have Trevor Marshall, who'll be joining us LA later. Thank you, Trevor.

Matthew Wood: (01:12)
Then we needed a great conversationalist with some insight into what really matters, and so thank you, Penny Crossman for joining us today and then kind of thinking even further, like, okay, who can tell us about cross border payments, who has actual experience doing so Bella is gonna be here with us, followed by, Bridget Abraham. So now the upshot is for this first little bit, you're just stuck with me. So welcome! So here is what I want to think before we dive in. First of all, I just wanna acknowledge kind of, the many sources for this conversation today. You know, when you dive into crypto tech, you can look at sources like coin desk, all the crypto journalist community, kind of from the presidential working group, all the way to the laboratory for innovation sciences at Harvard.

Matthew Wood: (02:01)
So I just acknowledge and appreciate, how my remarks are really built on the work of many, many others. Okay. For this session, I want you to consider three things and we're gonna touch on them one at a time. I want us to consider how to gauge the current kind of moment and meaning of crypto technologies and their profound advance. That's number one, number two. I want us to walk away with an approach to discern your firm's value creation and this capabilities in the context of blockchain and crypto tech. Then lastly, if we're successful, you'll have in hand a model to identify blockchain's practical and transformative applications relevant to your specific firm, your specific circumstance and your effective strategy.

Matthew Wood: (02:47)
Let's first start with a thought exercise. Okay. So everyone just take a deep breath, do it. Okay. Take another. All right. Close your eyes if you want. I want you to think back in your experience about a technology that transformed your life, just think about it. Okay. Does everyone have kind of an image? All right. Next slide. Oh, next slide. I got it. If it'll work, this thing destroyed my life. If you don't know what it is, it's a baby monitor. If you haven't experienced it yet, you probably will. At some point in the future, either yourself or through your friends, this is the worst thing that ever happened to me to have my lovely child. Noah would cry in my ear for six months. Now, for some reason, every marketer made you feel like you had to have one of these, but this is an example of the world's most simple technology changing your life forever and all for the bad, this thing has left me scarred. Now I think you guys are normal people, so you probably thought of something like this.

Matthew Wood: (03:55)
So consider how did the smartphone change your life? How did it? What was before and what was after? Think about it for a second. So online 1.0 webpages were basically brochures. That's why they're called web pages. eCommerce was basically a digital facsimile of a catalog that's as far as we got for the most part. Communities were mostly bulletin boards, some community work going on in the background, there was this great community called hot or not. I never used it. did you? That's where you submit a picture of yourself and people rate you and it was fantastically popular. Then we also had saw the beginning of like Salon.com, web van, side note. One of my favorite stories about Tavant our dishes in our original office were web van dishes. We bought it at their auction. Then lastly, Arriba of all those companies, salon.com and Arriba still persist in some way, shape or form Arriba was the one that thought, "Hey, this actually can change the way we do things in supply chain management."

Matthew Wood: (05:06)
Okay. After what happened, there was this moment where the smartphone is introduced and it actually changed the way that we interact with each other. It made digital possible. For many of it, not, if not most of us. Most people access the internet and the web and information through their smartphones. We had this notion of first, we heard of user first mobile, everything first, which really was an expression of digital priority. The moment after smartphones led us to understand that something had to be prioritized in order for it to really matter. Then of course it was our device. We watch things on it. It's our facilitator. We pay things through it, think Venmo, and it's a medium think TikTok. TikTok is so much fun because it doesn't exist without the mobile device and the mobile device doesn't exist without TikTok.

Matthew Wood: (05:56)
The two are wet at the hip. It's the way of doing things. And then lastly, just to touch on phone is token. How many of you have two factor on your phone? You get a code, you gotta enter it in. Right? this morning I wanted to check something on my credit card and I had to put my credit card on top of the mobile device for it to be read. That's another way of coming, using phone as token. we're gonna touch on this because identity is a real interesting way that digital trust is gonna increase over time through these crypto technologies.

Matthew Wood: (06:32)
Okay. What is this telling us? Think about it. This is real data. It's mostly from CV insights. I collaborated it with Deloitte and PWC data. So in one year went from 3 billion in funding globally to 25 billion in funding. Okay. So what is gonna be inside that? It's pretty incredible, when you think about it, we're gonna come back to that very question of this 700% jump. Can now consider this, do you guys remember Coinbase? Do you remember Coinbase's launch yeah? 86 billion valuation on day one. Now, interestingly enough, that was on like April 16th. If you fast forward all the way into November, they still held at 352 a share, what are they at right now?

Matthew Wood: (07:22)
A lot less. They're about 60, you know, a couple days ago, but how much money do they make in Q1? 1.5 billion. That's a lot of money to make. How much did they lose? What was their operational loss? Very good. Thank you, 480. We have the so smarty pants in the front row, but, what does this tell us? What else is this going on? So think of that same analogy as looking at smartphones before and after in the moment we're in, let's consider it. Okay. So our current state Bitcoin passes a trillion. We see a lot of regulatory agencies, chiming in and trying to really figure out and establish their role in themselves in the CRI the cryptocurrency space and also in the crypto tech space at large, interesting, interesting things coming out from all of them, right.

Matthew Wood: (08:18)
yet not fully baked. And there is some contention of who gets to be in charge of what, just look at the CFPB stuff coming out and how it's kind at logger heads with other agencies, Bitcoin and Ethere they're upgrading they're major upgrades this year. for both of those, that tells us that there is maturation and there is significant growth from a technical point of view, in this industry and in this corner rug poles. All right. Remember that big, giant graph. So a rug pole is I start a business. I get like this half of the room to invest. You give me your money. And I say, thank you and I walk away. That's a lot of money, 2.8 billion of value taken out of the system, just through sheer fraud. These are companies that started up with the intent of taking and then rapid growth in the smart contracts.

Matthew Wood: (09:08)
Couple of really good companies coming to the front avalanche and salon. These companies tell us that smart contracts can be real, as opposed to a thought as they were before. And then defi itself, we're gonna hear more on this from Trevor and he'll be able to speak to it, with much more precision. but defi itself, you know, total value locked is about exceeding 200 billion right now. So what is the after look like for your company? Now? We are all from banks. we're all concerned with digital banking. So in the after view, when you look at the material reality of your company, what kind of after matters to you, this is where the analogy becomes real and becomes materially grounded. Why does this matter? So we know there's gonna be, we know there's gonna be winners and losers. We know that there's gonna be companies that fail and consolidate. We also know that there's probably gonna be some ascendancy of the private digital ledgers.

Matthew Wood: (10:07)
So these DLTs, that are kind of private or through a consortium or group, we're gonna see those gain traction and become more meaningful. If I were a smaller institution, I'd be keeping my eye on those, coz those that could become, very strong vehicles of collaboration, because they're solving some of the more difficult realities of the crypto tech space, which is who do you play with and how do you play with them? Not everything is gonna be on a purely trustless platform like Bitcoin. As we're seeing now, the after picture in this moment is we're seeing transformational, experiments becoming reality.

Matthew Wood: (10:47)
So what do we do as a company? The first point that I was making was simply this understand where you are and how you're grounded, right? Understand the moment that you are in from a material perspective. Now, when you consider, these past two slides and you consider with where we want to go, what I want you to think of in terms of, the second reality to talk to link yourself up with, which is simply an apprehension of what technologies out in the wide world will connect to the technologies you want to use in the crypto space? So just really quick, let's walk through this. So GPT, we're now at GPT3, it's a natural language program. It is the most compute intensive and longest running and it can write English.

Matthew Wood: (11:42)
For the most part it writes just like a human. We have AI ML, deep learning. Of course, we hear a lot about that. ubiquitous and quantum computing, the speed at which we compute where things can be computed is spreading out across the globe, especially through our pockets and our smartphones, remote connected and smart everything. So devices everywhere, the internet of things is now things are everywhere that talk to each other, Automated digital trust, this one's pretty important. When I looked through the sources of kind of tell me the most important technologies today, you know, you got these lists that ranged from three to 50 to even more. and so what I did is I went back through kind of MIT's work in this space where every year they published their critique of the most important technologies. And that's kind of how I compiled this list.

Matthew Wood: (12:33)
One of the things that stood out to me is automated digital trust. Digital trust is, how do you establish the fact that let's say my phone, the most simpler sample, my phone wants to talk to your phone. How do we know that these two should be talking to each other? And why, how do we have the internet of things that are scattered throughout this building? Talking to the building furnace downstairs, and how those are all trusted networks. Right now, we're at the very beginning of this, but now let's take it out a little wider, a little bit more complex. Now we have multiple blockchains that are running for very specific purposes. How do they interact with each other? How is trust established? This is where digital trust becomes very, very important. And as we automate it through the crypto technologies, it's gonna make it much easier to collaborate right now collaboration's a little bit clunky because we're not quite there.

Matthew Wood: (13:26)
Of course you gotta talk about, you know, the metaverse, I'm sorry. Extended, augmented and immersive, and mirrored realities. Those are all forms of virtual reality that are coming into play and they're actually being made real. So here's my second question to you guys. what matters when you look at the list on the left and the list on the right, how do you connect the dots? Which ones would you draw, draw lines between which one matters the most to you? So to me, if you were to ask me, it's gonna be AI draw in across to multiple, points on the crypto, crypto tech scale over there. I believe personally that AI is in the right position, in the right place right now to start connecting and making powerful collaborations across, you know, say for example, AI and blockchain and DTL and cryptography, etc, down the row as we go.

Matthew Wood: (14:24)
So, one thing to mention here is that, you know, from PWC, there's an expectation that blockchain itself is gonna boost the global GDP by about 1.8 trillion, which is about 1.4% of global GDP. So we think a GDP and how it moves in small percentages. This really matters. When you look at Deloitte survey, just last year of businesses and institutions and actors of who intends to do something with blockchain, 83% said, we are that we actually are in the motion of doing things with blockchain. So this conversation that we're having, and as we drill down into the more sophisticated, I would say, conversations we'll be having in the next two sessions, that'll be more specific and targeted. These are no longer ideas, you know, cuz if you're like me, you've been hearing and going to blockchain conversations for quite a while. and there's been a lot of repeat in the conversations.

Matthew Wood: (15:23)
I think now is the time and now is the day and time that we're gonna see that repeat stop and we're gonna start finding there's some unique implementations. So what do we need? I think, you know, when it comes to applying these technologies to be candid, maybe your instinct is like mine. I think it might just because of how I grew up in technology, but my personal instinct is to look for the incremental change, like look for the next step and then take the next step and then repeat and repeat and repeat. That's kind of typically my handle over understanding blockchain and blockchain technologies. What I'm finding though, the more I research the space, the more I learn about this space, that's actually a little bit wrongheaded, and a little bit impoverished as a means to understanding how these technologies are gonna influence your firms.

Matthew Wood: (16:15)
What I mean by that is, it's very important that we look at this, an alternative to just incremental change it's in when we connect the powerful forces to the crypto tech that's relevant to us. That we start to get a more holistic and a much more powerful, systematic or convergent approach. Kind of my watch words for this mentally are when I think of, you know, let's just name them blockchain, DLT, cryptographic tech, cryptographic techniques, trustless systems, trustful systems, cryptocurrencies, stable coins, smart contracts, DeFi, DAOs, DApps, ICOs and more. When you think of that big, long list that will continue and alternative ways to identify the points of convergence, convergence between the crypto tech in that you are seeking in your firm and what's available, out there in the great wild wander, between these larger forces of technology.

Matthew Wood: (17:14)
So just a quick reminder, my first recommendation is to gain a grounded appreciation of the material moment your firm is in, demystify the present. We've been here before both literally and anecdotally, consider kind of where your firm stands and what's before and after. And this is a real conversation to be had inside the boardrooms and the offices of your companies. It's not a thought exercise. It's what is actually happening in our company right now. Then my second recommendation is just regard crypto tech in the context and convergence of other strong technical forces look across the intersecting systems of technology composing your firm, blockchain and other strong forces can combine to provide great benefit or great confusion. It just depends on how well we pick. Now, there are many opinions regarding high impact technologies and one of the questions that we have to ourselves is how do we pick them and how do we go forward?

Matthew Wood: (18:17)
So in my mind, the takeaway is kind of rather direct, in terms of the material realities of your firm, you look backwards and forwards. There will obviously be incremental moves to make. But if you look through the lens of convergence, there are apparent intersections of AI, across many aspects of these numerous future enabling technologies. So let's look at a couple of them. So when I just started looking at what's happening with AI+ Blockchain, around the world, what are some things that we're seeing? To be honest, not every single one of these examples as you folks take a picture are pristine, some of them are actually a little bit sloppy, but I think they're good examples in understanding how AI is connecting with possibilities that are relevant to this audience today.

Matthew Wood: (19:06)
So let's look at them you have a company that's combining AI and blockchain, they're called AI coin, but really what they're concerned with is they're concerned with liquidity and risk management. They're a company that issues a token, the token represents an investment that's been made in multiple AI and blockchain related firms behind the scenes. Using that token, they're able to provide liquidity to DeFi institutions, kind of being that glue that connects the decentralized, to the trade. You look at the next one, this one's kind of interesting. This one's coming out of India. They really aspire truly deeply aspire to be, compute power, behind the scenes. when they look at AI, they see one of the impediments of AI is that it's expensive. You have to centralize its computing. You gotta pay for it. It's not cheap for many companies. It's not accessible for other companies because of that. So what do you do about it? So they're taking the same notion of decentralization and applying it to how you approach computing power across the board, for companies that want to run AI.

Matthew Wood: (20:07)
Other one blockchain plus Botchain, which is kind of a fun play on words, but these guys are interested in kind of, you guys are probably familiar with RPA to some degree, right? So think if you combine RPA, blockchain and AI together, and what do you get? So you get autonomous bots that can do more on their own and collaborate together with less human intervention to keep the bots running, to keep the bots defined. So they've started in a very kind of conservative edge of the market. They're starting with things like employee onboarding, taking that fully automated AI, as opposed to either doing it through RPA or doing it through just, sheer brute force of personnel. This last, one's very interesting in the sense that AI and Blockchain and Distributed Autonomous Organization, Singularity net, what they're trying to do is they're trying to take these traditional silos that AI tends to live in. They're typically trying to break those down, just as you would in a DAO organization and then connect them through blockchain interactions. So as the data moves, it can move seamlessly and, at high speed between autonomous organizations.

Matthew Wood: (21:25)
So just one quick last look, let's talk about smart truck contracts just for a couple minutes. I think smart contracts can really change our, on the ground, business practices. Yet, they're actually kind of troublesome, arguably the first, the first smart contract for a distributor, autonomous organization was in 2016 and it collapsed under the weight of a hack. They used the automated nature of the smart contract to move money out into their own accounts and they walked away with it. But, when you look at the need for defined parameters, the need for data to be applied to and acted upon within those per defined parameters, it's not conceptually a bridged too far, to understand how a smart contract can make sense to all of us. So when you consider the current state of FinTech, it, you know, FinTech is quite specialized, quite centralized around certain actors and certain transaction makers. That's kind of our current state of the art. When you think of FinTech itself, I think when my personal belief is, I couldn't say this more loudly or more repeatedly if I tried is, when blockchain and AI are combined with the promises of speed and transparency, and security, security itself can improve. I think that as decentralized finance takes hold, AI will meet be the means of a rapid growth in data set intelligence, actionability, and governance. So how do you chart the path forward?

Matthew Wood: (23:01)
So this simple model is actually not too recent. This comes from the Harvard lab I mentioned. But I think it's a very useful heuristic. So let's say you guys go home and you're like, okay, I heard all this stuff about blockchain, I wanna do something. Okay, what should we do? This is a really great means to filtering, and asking yourselves, okay, what could we do? What should we do? Single use is typically out of the gate, what we look for, you call it low hanging fruit, you call it low risk. You call it attainable, use whatever adjective you like, but typically that's, our impulse is to look for single use. So that's like, you know, accepting a crypto payment, you know, letting someone pay XYZ bill at the bank with a cryptocurrency, substitution much when you look at like, one of my specialties is we call touchless lending where we're taking parts of the lending value chain and replacing them with intelligence.

Matthew Wood: (23:59)
Essentially those, that is an act of substitution I'm taking what is today and replacing it for something tomorrow, but it's still essentially same position in the value chain itself. Right? Localization is a really good one. I put kind of settlement in that bucket. So you know, you think of the current, T1 settlement initiative to go from three days to one and then you look at what, these technologies can do to take it from one to instant. It's a really good example of a localized group of individuals and actors that are high and high agreement anyway, agreeing to the technologies, agreeing to the rules of the road, the rules of validity, and then moving forward and benefiting from it. Transformation is always the most difficult. What we're gonna hear later today is we're gonna hear some, some actually real world examples of how transformation can take hold.

Matthew Wood: (24:56)
So I just wanna close on a personal note. Forgive me for being a little bit modeling. This is my mom oh, I back, sorry. It just bumped. That's my mom. And I love this picture coz her hair is messed up. She's wearing her favorite fishing vest and there's a mountain lake in the background. So when I was a boy, my mom lost her husband to an automobile accident. So she was 40 and had seven kids I'm number six. And as you would imagine, our household finances were in ruin, just absolute ruined. She had never worked out of the home. My dad was a scientist, he was in the mid of his career and it all came to an end. So I believe in banks, I believe in the potential virtue of financial services. And here's why, so whenever my mom was in a real pinch, she was able to go to, I come from a smallish town in Utah, she's able to go to a strong community bank with a good bank president.

Matthew Wood: (26:06)
She asked them for a loan. Now by any sort of rational underwriting criteria, we did not meet them but she was given a reasonable amount of credit, always just enough, not more at a very reasonable cost at a sustainable payment. And so the simple reality of access to financial services was the reason why I grew up in a house. We were able to make our housing payments and our payer utilities every month because when needed the shocks that everyone goes through a broken water heater, a broken car, you name it was able to be met through this very kind but wise bank president.

Matthew Wood: (26:49)
Now, I actually believe that when we think about these technologies, they can make a material difference in our lives. Not only are they going to remove friction from the banking system and our financial services systems, which will benefit all, I do believe that when you combine artificial intelligence with these types of technologies, we will be able to offer a different kind of financial service to a group of people, which typically are underbanked. And so that is why I'm here talking about these things that are typically esoteric and typically technical. And I truly believe in them. So thank you.