Accelerating DeFi Innovation: A Single Platform for Smart Contract Development

Transcript

[Music] Hi everyone. Good morning. Uh thanks for joining me. Good to see many of you again. Uh this is one of my favorite events and uh the Ethereum community is kind of where chain link started out. the first chain we provided data and other key services to. So, I'm really thrilled to be to be back here with you.

I think we all agree that our industry growing is a great thing and that the thing that we all need for our industry to grow is the inflow of capital. And so, our focus and my focus right now is how do you get more capital into the blockchain industry, into the Ethereum community, into DeFi. That's what my uh my talk today will be about. I think everyone is starting to realize that the amount of things that can be tokenized and put into decentralized finance protocols such as a for lending purposes is very very far beyond where we are now. Right now we are in my opinion at sub 1% levels of everything

that can be tokenized. And the transition we're really going towards in the world, in our industry, is actually all of this being tokenized. So this huge amount of assets becoming tokenized is really what this is about. When that happens, the cryptocurrency or blockchain or digital asset industry, depending on who you are, will be about these tokenized things. Our industry is fundamentally defined by the highest value thing that it represents right now. That's cryptocurrencies.

But even if cryptocurrencies triple or even if they frankly 10x and Bitcoin goes to a million dollars and Ethereum goes to, you know, whatever it goes to, you still have a huge gap between that market size and the market size of everything that can be tokenized. And so what you're what you're really going to end up in in this industry if it reach reaches even a third of its full potential and mainstream adoption is the tokenization of of the real world. Whether that's fiat currency and stable coins, whether that's the asset management industry through funds, whether that's real estate, whether that's per uh and derivatives. Uh that's where we're all going. That's the that

in my opinion is is the reality of what's next for this industry. And so I think that the Ethereum community and all the people building infrastructure and applications should be building towards this reality because in my experience reality is uh in an inescapable truth, right? It's going to happen whether you're a part of it or not and it's much much better to be part of it. Chainlink currently uh powers the majority of DeFi. It's powered the majority of DeFi since its inception. It's done that by providing lots of critical onchain inputs, messages, data, cross-chain connectivity, and other key capabilities that make D5 what it is today. So the chain link uh ecosystem

and the chain link standard have been adopted as the reliable secure method of proving things to DeFi, proving things to financial applications on chain and making sure that they're reliable enough to accept users money. Before chain link, DeFi was at sub 100 million and after chain link it grew to over 200 billion and you know has now surpassed that recently again. The thing that I've realized and I think the chain community has realized is that you have a lot of nuanced problems when seeking to solve this and the value that you get from solving these problems continues to grow in proportion to the amount of the these problems that you

can solve. So so far chain link has enabled uh over 22 trillion dollars worth of transaction value that is uh primarily in defi but now we are seeing a shift of that being in defi and in tradi. My view is that tradfi and institutional capital is is what is going to feed the next stage of growth of our industry. the retail uh adoption of our industry can go from three and a half trillion to 7 trillion to 10 trillion. I'm not really sure it's able to go beyond that.

And that's just based on the fundamental math of where all the money is. And where all the money is is inside of institutions, pension funds, family offices, sovereign wealth funds, and their related asset managers and banking partners. So if our industry wants to grow and go mainstream in terms of the actual numbers that that matter and how the world actually works, it needs to interface with the blockchain uh world together with the trady world. In this example, we have something that we released last year with UBS and SBI on two EVM powered chains. One is Ethereum mainet, the

other one is Arbitum. This is for fund tokenization. And what I'd like to call your attention to is just how many things are going on here. So you have the writing of data in to a transfer agency contract. You have crosschain connectivity across two chains. You have synchronization back to UBS's systems. This doesn't even show the stable coin payments flow that was involved here. And uh future versions of this will have a dimension of identity. So the amount of complexity that needs to be solved for this institutional capital to flow into the Ethereum ecosystem into the blockchain industry is much higher than the complexity that needs to be solved for um a basic DeFi blockchain transaction where I send you three cat

coins, you send me five coins, the Bitcoin price goes up and we're all very happy. It's it's a bit of a different situation where nothing here can happen without three or four critical dependencies where you you have to prove identity, you have to prove market data, you have to connect to chains uh across chains in a very compliant way where you can prove security. Here is another example that we released recently uh in a report with Visa. This is uh A&Z Bank uh the largest bank in New Zealand, second largest uh I think in Australia basically converting their stable coin into something called EHKD. EHKD is the blockchain based CBDC of Hong Kong. Then

moving that blockchain based CBDC across to another chain, in this case an Ethereum test net for Fidelity International to then generate a tokenized fund, which once again requires data, and send that tokenized fund back over to the the bank. uh basically allowing their client to purchase a tokenized fund, starting out in one stable coin, ending up in another stable coin, going across chains, relying on critical data to value the fund, and then sending the fund back over to the to the client at the banking institution where they bought it from.

And this is also a crossborder uh transaction. And I think you all know that the globalized nature of our industry is what makes it very powerful. it's that you have access to global capital markets, not local capital markets. That's a very fundamental advantage that when you when you launch a high quality uh financial product on chain, you are accessing a global market and a grow global pool of liquidity. Whereas when you launch something in the trady world, you're usually accessing only a very local market, which is a kind of indisputably very large advantage and why sometimes asset prices in our industry kind of outstrip reality.

Now in order to do all this in a compliant way, what I showed you on the previous diagram, we actually uh have now released at this conference a new compliance standard. That compliance standard enables onchain identity with something called CCID. CCID is able to take in off-chain credentials and put them onchain in a portable cross-chain identity that can be appended to tokens, transactions, assets, and allow them to be frictionously frictionlessly moved and transacted against. In that previous example, it wasn't just about crosschain and it wasn't just about data. There was also a dimension of compliance where identity information had to go

crosschain. This is really the final building block in unlocking all this capital and enabling huge amounts of uh institutional capital to flow into our industry. And it's just important for all of us to understand, I think, that if you want to work with this institutional capital, you have to meet their requirements. It's not going to be optional. There isn't going to be a meeting where you get to not do compliance or you get not to connect into their systems in a way that they found to be secure or that their regulator approves. And so what what's going to happen now is is pretty simple is that the the the volume and size of that capital will be such a huge advantage to those that get it that everybody that wants to remain

competitive will have to get it. And to get it, you will have to meet certain requirements. I'm kind of here telling you this for some of you very obvious and logical and comfortable truth for some of you this maybe uncomfortable truth but it's the truth and if you want to get ahead my advice to you is to prepare to deal with institutions in an efficient way that allows that capital to flow towards your protocol, your project, your system. And we are very happy to help enable that because once again we are super interested in the growth of our industry and this is where the growth will come from.

There's another dimension to the compliance standard which is policy management. It's that standard that allows you to not only have identity but to meet certain conditions policy conditions of the bank. You will have certain policy conditions that their transactions have to meet with you and they will have certain policies and conditions that their your transactions have to meet with them. And this is where you can define it. It'll it has an off-chain execution component. It has an onchain execution component. It you it needs a source of identity. So we made the crosschain identity standard and it's compatible with CCIP for cross-chain sending of the compliance with the policy as well as the related identity data because these transactions

will be crosschain. The two I just showed you were were crosschain. This basically makes the chain link automated compliance engine which is a collection of standards around identity management of policies both your policies towards them and their policies towards you. data management which is related to prices, NAV for fund uh tokenization and so on as well as alerting and reporting back into your systems and back into their systems. It's all compatible with the standard digital assets uh like ERC20, ERC 3643 who are actually a launch partner for this compliance engine together with Apex and uh the LEI the legal entity identifier who will we we will hear

within a from a few minutes their CEO Alex who will describe you know how this works. The LEI is the largest source of organizational identity in the capital markets. it's actually legally required in order to conduct transactions in in in regulated capital markets. And so if if if our industry is going to get that regulated capital markets uh institutional capital inflow, which believe me, whether you want it now or not, you're going to want it. It's going to it's going to be like Black Rockck all over again. Just a thousandx, right?

A month before Black Rockck makes Bitcoin more successful, everyone is like, "Oh my god, Black Rockck not so good." a month after, oh my god, they're the saving angel of life. So, just get ready for much more of that. And I my my advice is once again, get set up to benefit from that dynamic. Um, I wouldn't ignore it. Now, what this ends up doing is it ends up making the institutional uh world and the DeFi world compatible. It it it breaks down the barriers that are there for institutions and DeFi protocols such as a to do transactions because all the building blocks are now there. You have the data building blocks

to prove things about the assets such as the price or the proof of reserves or the net asset value or a number of others. You have the cross-chain connectivity to actually conduct the transaction between chains. And now you have an identity standard together with a compliance uh engine together with connectivity back into the systems that need to be connected to for compliance to work. So this is the final problem. Compliance is related to this problem that we all hear about which is the legal limits of of our industry or uh the regulation. Uh this is how regulation is made useful or whatever the regulation is. This is how it becomes useful to you in that it is able to properly execute transactions with

you and institutions and so proper regulation will actually be a very good thing because it'll unlock this capital and once it unlocks this capital the question will be well how do I interact with it and then when when you ask that question the the answer will be oh my god there's all these conditions I have to meet like identity conditions and security conditions and other kind of requirements they're actually imposed not by the bank but by the regulator on the bank and on therefore onto you as well and then the sheer size of the capital will be so unbelievably attractive that you know you will you will do it if you want to be competitive.

So that's what we're here to help you do. We're here to help uh the community, the blockchain industry uh solve the problems that they need to solve in order to grow and be successful. And I'm uh I'm thrilled that we have uh the opportunity here to work with with some of the great partners like Apex 364 the 36 3643 Foundation and the LEI. Now I'd like to call Alex the CEO of the Alon chain and he can tell you from a trady perspective you know how this looks and how it works. Hi Alex.

Great. Thanks for joining me in these very interesting chairs. Um, so Alex, you you've worked in capital markets now for many years. You worked at uh six, the the largest exchange in Switzerland and and uh doing some of the most exciting things in in Europe. Uh now you're the CEO of the uh global legal entity identifier foundation. Got it right. I got it right. Absolutely. which is provi providing the largest identity standard in the capital markets. Could could you explain you know to me and to the the larger larger Ethereum community why is identity such a hard requirement in in the capital

markets and why complying with identity and automating compliance around it is going to be useful for for for this group. Sure. So compliance is the reason right so regulated financial institutions cannot act without knowing who they dealing with and what they're dealing with. So the who is the counterparties they have their clients they need to absolutely be able to identify them in a verifiable way and what it's the instrument they buying. They need to understand who is the issuer behind a specific instrument who is in charge of that fund for example who is the asset manager the transfer agent. So all that ecosystem needs to know each other to trust each other. And

when you uh when you move that onchain, you're kind of losing that visibility of who and what you're dealing with and that's why identity and what you're doing uh with us is so important. Yeah. Yeah. In in my experience talking to many of the largest institutions and I think some of you might have seen our implementations with some of those institutions, many of which are now on production um and not just in PC pilot stage. I've I found that compliance is a very powerful group and it's a legally required condition that if you don't fulfill as a managing director or whoever you you won't have a job like the people who mess around with compliance don't have a job for long.

This is just something that the DeFi community doesn't deal with, doesn't have to deal with, hasn't had to deal with. But once again, I I am here to help you folks in our industry in our industry and our community is here to help you deal with the new sometimes difficult realities that our industry has to deal with. But those of us who can deal with those complex new problems will be much more successful as a result in my opinion. Um because Alex, what what have you seen? Have you seen that you know you you have a lot of institutions that you work with your your organization is actually overseen by 70 regulators including the SEC and a number of others so all the world's regulators basically oversee your institution and therefore all the

world's institutions you know come to you and and talk about their plans do do you see an increase in the amount of institutional capital that wants to move towards you know the blockchain industry and the DeFi community yes clearly and and you can see that by the fact that now you have regulation in place to do to enable uh that move from of capital from traditional to new finance as I call it and their challenge remains um scalable compliance and and that's really the main uh uh blocker in my view in terms of moving assets from where they are today to to blockchain. Um they there've been attempts you know like um whitelisting of wallets for example to

ensure that you're not delivering assets to the wrong wallets um platform based KYC but locked into a specific platform and doesn't work elsewhere. So all they they they are interested but they still very very very worried about how compliance can be made efficiently on that type of technology. And I think uh again uh one way of doing that is ensuring that the identity system they already know and use in traditional finance can be reused uh on blockchain and on uh infrastructures like uh the ones that these guys are building uh with you and and with other partners.

Yeah. Yeah. So I've I've I've seen the same. There are already uh extremely high quality standards. The LEI in most uh developed capital markets economies governed by those 70 regulators. The LEI is actually legally required by law. You have to get an LEI in order to transact. So I think there are already really high quality identity standards. Um, your identity standard has taken it a bit further with something called VLEI, verifiable LEI, which is what we integrate with. And that integration, I think, proves that these standards can be made compatible.

Putting these compatible standards onto the blockchain is actually, I think, a double benefit to our industry. One benefit is that it allows compliance to happen and allows transactions to work. uh initially, but I actually think that if the policy manager that we've released, if CCID is is built properly and integrated into into the right systems, then we can actually make compliance a feature of our industry, which is a kind of counterintuitive idea now, but if you were to understand the cost and complexity of what it takes to do compliance in the

traditional finance industry and how unbelievable painful costly. It is like literally to a user takes months into an institution with many many like with five people involved. And what this can do is it can take the onboarding process from months to instant because it can it can allow instant verification. And that's going to be a really big feature if our industry can build and implement it the right way. and we're really excited to to help with that. So, if you want to work with institutions, if you want to integrate with the great LEI system, if you want to uh get prepared to deal with institutional

capital, please contact uh folks at, you know, the chain link ecosystem, please look into the CCID standard and the automated compliance engine. We are here to help you, the people building the future, build it into the next stage of our industry's growth with you and our industry becoming more successful. So thank you so much for your feedback on this Alex and the great partnership. Thank you. Thank you. And we've released two paper if you're interested. One with you to explain what we just explained but also one with Cardano and Keystate Capital on verifiable smart contract. So how we make smart contract verifiable exactly applying the same method. So have a look and and uh implement. Thank you. Thank you. Thank you very much.

[Applause] [Music]