The $2T Question: How To Make Tokenized Assets Productive?

Transcript

All right. Hello everyone. Token 2049 second day. How are you feeling? Is there energy? Give me something. Hey, that's how we start the day. The first panel, I hope it's going to be an interesting one for you because we have a very interesting topic to talk about and fantastic guests. So, tokenized real-world assets have nearly tripled in a year to over $38 billion on chain. Treasuries and money market funds make up roughly 80% of that. But issuance was just step one, the easy one.

The real unlock is utility. Tokenized funds used as collateral in lending markets, margin for perpetuals such as hyperliquidator and building blocks for leverage yield strategies. The catch is liquidity. On-chain markets run 24/7 and settle instantly with fund redemptions still taking anywhere from T1 to 30 365 days. So, today I have three fantastic panelists that are going to talk about all those aspects, but maybe let's start with a round of intros. Vin, why don't you start? Tell us about yourself, what you do, and what's WisdomTree all about.

>> Absolutely. Thanks for that awesome intro. Hi everyone, my name is Vin Tran. I lead business development for WisdomTree on chain. We're a global asset manager. We have about 170 billion globally. On chain, we have 1.2 billion in tokenized funds. We have 15 products across eight public blockchains. And yeah, very excited to be here today. >> Brilliant. Kristine? >> Sure. Hi, I'm Kristine Mierswa, and I'm head of digital assets for FTSE Russell. We're a London Stock Exchange company. Our core business is running indices. We have millions of indices including indices that cover crypto assets, commodities, fixed income, equity, FX, anything that's out there, any asset class, we're indexing it.

>> Really, Alana? >> I'm Alana Podobleska. I'm the Chief Business Officer of Denari. We're a tokenization platform. Uh we pioneered what the SEC of the US now refers to as the custodial model of tokenization in which the token is the equivalent of the security. So, the idea is that all the rights, benefits, protections that you get of investing in securities is passed into the token. Uh we have an international business that spans 90 countries. We work primarily with regulated distributors like neo banks, fintechs, brokerages. Um and we just launched our US business a couple months ago.

>> Fantastic. And I'm Marcin Kazimierczak, co-founder of Redstone. We are premier infrastructure provider for digital assets, including free capabilities, blockchain oracles and price feeds, risk intelligence with Credora risk ratings, the largest ratings on-chain uh probability in the market, and on-chain settlement for tokenized funds via Redstone Settle. We work with BlackRock, Apollo, Securitize, Hamilton Lane, and all the panelists over here as well. So, as it's early in the morning, let's start with probably the youngest panelists over here, Ben. Uh let's go back to school again in the morning. You get the question. The liquidity mismatch. That's a big uh topic.

On-chain lending holds $50 billion in deposits, yet tokenized RWAs are a tiny share of the collateral. Is the blocker compliance, pricing, or the fact that the fund redeeming in days can't back a loan that liquidates in seconds? Tell us what are the blockers. >> Yeah, that's that's a really good question. Um the easy answer is that it's a mix of all of the above. Uh so, at Oasis Pro, we have regulated assets out of the SEC, all 15 products. So, compliance, I think, is a big feature in why this isn't readily available in D5. So, when we are talking with, you know, some of the largest D5 protocols like Ave, like Morpho, a lot of the assets that they have in their pools and vaults are

permissionless. So, when we're thinking about integrating with permission assets on chain, compliance becomes a key feature in preventing that, but something that we are actively trying to solve. Uh whether through on-chain on-chain attestations, whether through just better KYC flows, that's something that can make uh liquidity flow a lot better on chain. I think the second part of that uh answer and question is liquidity. And we can talk about this later, but uh right now there's a fragmentation of liquidity in the markets across blockchains, across assets, across protocols even. Uh so, that makes uh composability within these D5 pools much more difficult, especially uh when you're talking about regulated assets.

Uh We're working on solutions ourselves, but something that we can talk about later when it comes to instant uh liquidations. >> Brilliant. So, there are challenges, but the most important is that we keep on progress with all of them. Uh with RedStone, we work with partners to also solve for some of them, including the on-chain liquidity, which is a big topic for weekend markets. So, Anna, maybe then moving to you on the liquidation side. So, when real-world asset collateral falls below threshold at 3:00 a.m. on Saturday, who buys it? What's the price and how fast can it happen? What does a credible liquidation path look like for tokenized stocks in the week and over the weekend?

Tell us more. >> So, when you're looking at stocks in particular, obviously the traditional markets are running on a 24/5 basis. Uh we actually route most of our order flow into the traditional markets via a subsidiary broker-dealer. Um for the reason, which Vin you alluded to little bit that you want to route transactions to wherever the most liquidity exists, right? That's how you can help to provide better execution uh where you can, you know, have a wider variety of things to buy and sell. So, uh the weekends are really interesting challenge for this because there is no traditional side liquidity for stocks on weekends. Uh we partnered with Flow Traders to create essentially a hub for

liquidity across our many distribution partners and all the different blockchain networks that they function on. Uh with this idea that you need to kind of create this bridge liquidity between the traditional market and on-chain markets, which, you know, again, Vinnie, as you pointed out, there's a lot of liquidity fragmentation. And so, our thinking was, how do you defragment that, create some kind of a hub where it can uh where it can start from? Uh but that doesn't get really to the heart of your question, which is, you know, how do you handle a 3:00 a.m. liquidation? So, you need to have liquidity, you need to have uh the capability for someone to, you know, actually go through the whole transaction cycle in a pretty seamless way.

Uh I think the next step of that is going to be how our customers, who are not DeFi-native, going to react to it. So, having the technology and the the financial kind of operational capability to deal with it is one part. Uh one thing that I find really interesting about questions like this is if you're a normal Web2 customer, maybe you have access to products and services that were developed on chain and are now being brought to you in a traditional setting. Are you going to accept something that is going to liquidate you at 3:00 in the morning on a Saturday without any warning? And I mean, that's that's a very different behavior to how much of margin works, right, in the traditional side. And so, I think we're going to see

some interesting potentially some really interesting product innovations there as I mean, we already see this, right? Certain markets just close. Like lending uh are making it easier to close markets when they need to, but I'm curious what happens as we get more uh non-DeFi native users kind of using these things. >> Yeah, so everything is a double-edged sword. On one side, everyone is excited, yes, you can trade over the weekend, but on the other side, well, you want to sleep on Saturday without having a day off of work, right? Uh but then you go back to the same uh kind of like a schedule like a doctor. Maybe just the nature of a business in finance is going to change then. With Redstone uh settle, the product that I was describing, we connect liquidity providers on one side

like flow traders, Galaxy, and other with large books, and tokenize assets to allow this matchmaking platform for all of those assets so that people like uh companies like Dinari, WisdomTree, Ondo, Centrifuge don't have to do it themselves, but rather can have it in a one aggregated module. But when you are talking about 24/7, Christine, I'm uh extremely curious how is FTSE Russell and London Stock Exchange looking at bringing your indices to, for example, perpetual markets and on-chain uh venues, especially when it comes to weekend trading? Can you tell us a bit more about that?

>> Yeah, so right now most index providers calculate real-time indices during the market that that particular index is running in, so US market hours. Um and of course there's liquidity after hours. We know there's after-market trading, there's futures if they're um you know, connected to that same index. You've got that market going. And us as an index provider, of course, we want to prepare our entire suite and make sure that we have 24/7 um calculations on our indices going for products of the future, um meaning perpetuals and all of these tokenized products that are coming out. You're going to need a benchmark for it. It's really interesting to me that if you talk to different perp um providers,

they all have different models on how they're calculating real time. So, some of them do it themselves, some of them work with a third-party Oracle like a RedStone, and some of them are asking the actual index provider to do it. What we think is really important though is that you understand that methodology because of course auto liquidations happen depending on what that index value is. And right now I think that the perpetual market has just been accepting those calculations and not questioning them and wondering like, "Hey, if I was a fraction of a basis point different, would that have made a difference in terms of me being auto liquidated?" And I think we all understand in an institutional world a fraction of a

basis point really really matters. So, we we want to make sure that when there's a real-time calculation happening that's linked to our intellectual property, that that trans- it's very transparent the methodology on that. That's the most important thing. There's lots of ways to calculate something, so we're not saying like we have the answer and the correct way of doing it, but we're saying please you should understand what that is and make sure it's transparent and you're getting a fair price. >> That's really fascinating, especially that this is where the market is going. And as RedStone as mentioned, we support those kind of like 24/7 calculation and transformation to ensure that it's the closest to the market truth as it's as it's as it's expanding, delivering that

to hyper liquid like Robinhood and many many other venues. Um I would like to ask the audience and leave you out a little bit. Who is a holder of tokenized real-world assets today? Please raise your hand. Okay, I can see let's call it 15% of the audience is holding. I hope in a year it's going to be 60% or more. But for that to happen, instant redemptions and exit is something that have to be widespread because people expect that they can exit Bitcoin position immediately and they should have it the same for real world assets. So, Vin, how is WisdomTree thinking about enabling instant redemptions for money market funds and any of the other of your

products? And maybe can you tell us what it can bring to management of idle cash and payment flow and optimization? >> Yeah, absolutely. And thank you both for teeing up the 24/7 conversation. Uh we've we've done a lot [snorts] of innovative work working closely with the SEC on our money market fund. We have a tokenized product now issued out of the US and we're currently the only product with something called exemptive relief. Uh this allows the fund to be traded at the dollar NAV, so allowing us, WisdomTree, as a broker-dealer to step in and provide 24/7 near instant liquidity for the money market fund year-round. Uh and what this really enables is is use cases beyond just buy and hold. Uh a lot of the existing

clients that we have need cash management, need yield management. But to your point, Marcin, uh the idea of 24/7 enables flows and payments in remittances and all these niche use cases where you don't have to hold idle cash anymore. You can hold a yield-generating asset all year-round and not have to worry about weekend liquidity um to to Anna's point. Uh so, yeah, uh we've done a lot of work on that. We're really excited to start rolling that out. Um and hopefully um to your point, more RWAs holders will, you know, arise from uh this new set of on-chain tokenized funds.

>> And for those instant redemptions, isn't there is there a limit, like a specific amount that you can redeem or it's unlimited? >> So, unfortunately, there is a limit. Um right now that limit is set by us. We're we're pulling that with our own balance sheet. Uh but going back to the first question around DeFi pools and fragmented liquidity, I think what becomes exciting is once this innovation can be applied to other products, to other protocols, not only does WisdomTree have the ability to step in as a liquidity provider, any whitelisted holder can do so because this innovation is asset specific.

So, in this case, if we're ever out of liquidity, perhaps we can tap into a DeFi protocol like Aave to help support liquidity 24/7 for our clients. >> Brilliant. The reason I'm asking is because you're you've created a fantastic solution that is per asset and we want to replicate those kind of models with Settled to bring that cross like various types of tokenized money market funds, private credit, reinsurance to enable billions of dollars of liquidity and finally go into the trillions that we are all like expecting the tokenized RWA to expand to.

Maybe going back to tokenized stocks a little bit. This week on Tuesday, as RedStone, we published the most comprehensive tokenized stocks report covering Robinhood, Ondo, Dinari, Securitize, and many other tokenized stocks models. One of the big finding over there was that the biggest growth is seen in Asia markets actually. So, can you tell us a little bit more why people are actually tokenizing stocks from the US and what is the distribution play over here? Do you see in Dinari most of the actual traders and buyers coming from the US or offshore markets?

>> I think the So, we we see the largely the same in our own data in terms of regional kind of prowess, if you will, regional adoption. We do function on a little bit of a different premise because many of our end customers are not actually even aware that this is a tokenized product. It's a different type of infrastructure that a neo bank or again a fintech could provide to their users in order to access US capital markets. I think what we are seeing is an immense amount of pent-up demand for access to those markets. And you know, this is sort of chapter one of a book that I expect to be quite long, but I think the current story right now is access, right? So, you know, non-US

customers and in many places in the world it's still actually very complicated to set up a traditional brokerage account. It might take a really long time. It might be really expensive. So, there's, you know, this is kind of economic aspect to it, and then there's, you know, frankly, in some cases there's a regulatory arbitrage aspect to it. I think longer term you you will see growth in call it, you know, more mature markets or where it's easier to get a brokerage account in a traditional setting because of the things that you can do. Right? So, access is chapter one. I think chapter two starts to become uh bidirectional access, you know, if I'm sitting in the US, I have a very hard time accessing IPOs in other countries, uh or, you know, in some cases like the

stocks that I want from other countries. So, I think you're going to start to see more bidirectional access, and then you're going to start to see more interesting products. So, a lot of the DeFi native stuff that we see right now, borrow, lend, perps, um and so on, you know, people I think increasingly want that stuff. Robinhood's user base is a great example of this. Um you know, they release products that they know their customers are going to want, but there's a whole universe of customers besides those who are kind of more fluent in these technologies who I think are also going to be ready for them. Um and then you get to what I think is some of the most interesting stuff that's going to happen over like 3, 5, 8, 10 years, which is in the asset management sector. So, you know, this access piece is just

right now, but being able to create and scalably distribute uh direct index type products, uh multi-asset products, being able to uh hyper-personalize portfolios at scale. I mean, this is all enabled by this type of technology, and I think the sky is the limit for how much innovation we're going to see there. >> Sky is the limit. I think that's can be one of the key takes from the panel itself. Thank you very much, Anna. Christine, changing gears a bit towards institutions, as we chat with those financial players, naturally compliance and AML checks is like a big big topic.

We've been operating over 6 years as Redstone and we see that we went from DeFi Wild West in 2020-2022 to right now being properly institutionalized and bringing how it works in traditional finance. Can you tell us a bit more like how is FTSE looking at the AML checks and sanctions and what solutions you have to offer? >> Yeah, and I think this is an interesting panel because we've got an asset manager, a tokenization platform, an Oracle, and a data provider. And where we all cross paths is in terms of compliance, KYC, AML, sanction lists.

It's really important where, you know, we're trying to build an institutional ecosystem and that has to be regulated and you have to know your clients are. The London Stock Exchange has a property called World Check and they do identity, KYC, AML. And we've been approached by many people asking us, "Hey, we love your product. Is there a way you could tokenize those attestations so that then can use them, Denari can use them, we can match up with Redstone's sanction Oracle and bring all this data together so that you can start having, back to the original question, you can have a bit more liquidity with these tokenized assets because you guys have to be responsible for the KYC of anyone who's

buying your token, but if you have that attestation that's globally recognized and approved by everyone, that might make it a bit more portable for someone to move around your asset and really get that liquidity that we want to see. >> Brilliant. So, this is also the part we try to support on the sanction articles, which is a product that aggregates all of the sanction lists from all around the world. And before a transaction is executed with an institutional player, it is cross-checked whether a specific wallet is blacklisted. And if it is so, then the transaction is not executed, it's dodged. And the next step is bringing the second part of the market, integrating World Check and other um KYC verified institutional players to ensure

that those financial institutions are operating only within the realm that they're comfortable with. Now then hacks and exploits in crypto has been a big big topic over the past 18 months, including Bybit, Bitget, Kelp DAO. How should users look at tokenized real-world assets when it comes to any kind of exploits? Is it possible to, for example, steal your money market fund from a wallet? Like, how does it work in practice? >> It's It's not. Uh so, obviously, there's a lot of scares when it comes to DeFi. Uh at WisdomTree, we we've placed in we actually have brought back NFTs. Have you guys heard of that? I'm sure the crowd has, but we've brought them back as a KYC and compliance tool. Uh so, for us, when we onboard institutions, when

we onboard retail, they come to us with their own wallet infrastructure and we whitelist via NFT. And Christian, to your point, what this enables and what our work together with World Check and all these compliance tools enable is really broadening that reach. So, that we can onboard users uh instantly or near instant. I can't say instant, my compliance team wouldn't like that. Uh but near instantly to get access um to these identity tools so that um Anna, to your point, people can start transacting with each other without having to go back to the asset manager, which I think is a very powerful use case. Uh so, so going back to your question, that provides more access to the products, but it enables better liquidity. Um and at the same time,

because of these tools, you can't really hack an RWA that is permissioned in that way. Someone can't come in and take our tokenized money markets fund or a tokenized equity fund because you have to come in through the right systems, through the right identity frameworks, so that we can work with you. And and that's not going to change anytime soon. >> So, this is, I believe, one of the big value propositions of tokenized real world assets people don't talk about. When you deal with crypto, then naturally there's this risk of being hacked, being like exploited. But here, if you want to have like this assurance that even if something bad happens on chain, the actual institutions that are issuing those assets have the tooling to prevent that from going outside and being even exploited more. Uh, on the

Credora side, with the risk ratings, we also support users to decide which allocations they're are more comfortable with, giving a rating between D to A across money markets funds, private credit, and other uh, products that generate yield on chain. Now, let's maybe talk a little bit about the future, like where you see the market expanding. Uh, Anna, which part of tokenized uh, stocks and this whole industry of tokenized assets you believe is going to be the most prominent in the next year or so? >> So, I think in order to answer that, it's important to recognize that tokenized stocks is a very big category that really has a bunch of different

technologies behind it, right? So, this this category of tokenized stocks include synthetic tokens like Ondo X stocks. It includes custodial tokens like Denarius, and it includes what are called issuer sponsored tokens, um, which is, you know, what Securitize has done, for example. Uh, each of these fits into different places in the market. Uh, and they each have their own pros and cons, right? So, you know, when when we're looking at it from from where we're sitting, um, what I see as the real opportunity is on the infrastructure side. So, I talked a little bit about asset management. I think there's a lot of really interesting things that can happen there.

Um but I think where where going to end up is in a place where everybody that interacts with the stock market is going to in some way be interacting with a blockchain and not ever being aware of it. I mean, the example I always use is like I have no idea how my phone works, but I use it every day and I love it. Um but I think >> it breaks, right? Then you need to understand what's what's wrong there. >> But I think we I think we are getting to that point and I I do think the relative weights of these different types of products when it comes to tokenized stocks will shift because right now you have a very crypto-native audience for these things. Um that's going to change and it's it's our, you know, great effort to make sure that it changes.

>> Brilliant. And Christian, maybe also a bit more about indices. Like how you feel about stable coins globally? Do you have like any plans expanding on that front and how do you select the actual products that are going to be underpinning those indices products? >> Yeah, we're we're working on a couple projects right now that I think are really interesting. We've got clients outside the US that are looking for stable coin yield, like natively yielding stable coins. We've got about 95 in our universe. Um but what's interesting is if you were trying to build an index and pull that together, how do you weight it? You could just equal weight them. However, what we'd like to do is something a little bit more complicated where we'd look at that yield and do a risk um a

risk-adjusted weight depending on the yield and what would be that factor would be working with um someone who has a ratings project um like Credora. Um and you can actually rate stable coins looking at how are they collateralized, what what kind of risk are you taking on in that particular stable coin, but I think what's really interesting with what you guys are doing is that second layer and being able to actually look at the rapper and the blockchain layer and put a rating on that as well. But we're getting a lot of demand for those types of baskets because everybody's always looking for yield again outside the US.

So here in Asia and Latin America, it's they're seeing a lot of demand for that. >> Yeah, like even with the USDC deep peg that we've seen when Silver Silicon Valley Bank went down stable coins are not always stable. We have to remember about it. And with Credora on the indices part, we want to help select which ones should be included in the basket. As we are getting to the end of the panel, maybe some final thoughts and questions. Vin, which category of tokenized real world assets do you believe is going to grow the fastest in the next 18 months? Where is your bet?

>> Uh, I don't know if I can make a bet on stage, but I would love it to be WisdomTree's products. Um, I look, we've done tokenization and the reason we've gone down this path is really a continuation of our heritage. We're financial innovators when it came to ETFs and we see tokenization as a natural continuation of that. Building on-chain products for native crypto-native clients, but to everyone's point here, we're seeing more TradFi players come to market and we're going to keep building for that, right? Meeting clients where they are. Um, so hopefully with WisdomTree our product suite will grow. We have 15 products a day. We're always looking at expanding that suite uh to meet new uh asset allocation models, new strategies that can help uh provide

access to our clients directly on chain. Um, and to Anna's point, I think as we see a more abstracted view of crypto when we don't have to talk about this anymore, it just works. Um, you're going to be transacting WisdomTree funds and you won't even know. You're going to have payment processing flows that is empowered by WisdomTree and you won't know. And I think that's where it gets really exciting. >> Kristin, what excites you the most and maybe what you are the most afraid about in the next 18 months. >> I always say this, I think it's going to continue to be some of the more boring asset classes that are going to be tokenized, but um this this never comes up that the UK government is actually tokenizing gilts. So, that should be live next year and I think that's a really big deal that I think the UK has

been a little more conservative for all things crypto, but they're leaning into this and we should all take that as a big indicator that if the government wants to tokenize their treasuries, that that they know there's a real use case for it and demand. So, it's coming. I think it'll be very interesting. >> Anna, quick one. What's the market cap of tokenized real world assets by the end of 2027? So, in over a year. >> So, it would I would like to see it in the hundreds of billions. Um I think we can once once that adoption starts moving up very quickly, I think we're easily going to see it in the trillions. Maybe not at the end of next year, but girl can dream.

>> I'm a big believer next year we are going to hit the trillion dollars already and with that I'm going to finish that fantastic panel. Thank you very much for listening and give our panelists a round of applause.