ERC-3643 Regulation

Transcript

Okay. Are we ready to start? Okay. One one minute. Okay. All right. Good to go. Hi everybody. How's it going? Uh, very nice to be here with you today. Um, this is a hello. Hello. Hi. Um, I think we're have a nice fireside chat. Um, very special guest with me uh today. Uh, Luke Flamton uh

CEO of uh Tokeny. Uh, and most importantly, we are the two uh co-founders, directors, and presidents of the ERC 3643 Association. Um, Luke, would you want to introduce yourself real quick? Sure. Hi everyone. So I'm a bit on the spot. Yes. But it's fine. I know the topic. So hopefully it will be interesting for you. Um so my name is Luke indeed and for nine years I'm in the tokenization space. Um I founded token token.com which is one of the largest uh white label tokenization platform and uh step by step we created this street of smart contracts for compliance uh tokenization and it became ERC2643 when we open sourced it uh and

created this um nonprofit association with with Dunis to make sure that this standard can be adopted by by everyone and especially by financial institutions. Um now my company has been acquired by Apex which is a large uh financial group. So now we also have all the services to tokenize assets and the the rich uh because now we can really target very large players and uh and tokenize the world finally because for 10 years we're trying and now finally it's coming. >> And you you have some news right? I'm not sure if the audience is aware but we just had some a big announcement Apex.

>> Yeah. uh last uh week actually um Apex so this large function group um so it's like a big um fund manager um they administrate $3.5 trillion of assets which is approximatively the size of the crypto market today and last week they committed to tokenize uh 100 billion dollars of assets by June 2027 so in a bit than a year uh with ERC3643 of course so we um we will on board all of their clients in this uh standardized framework to make sure that everything is tokenized in a proper way, in a compliant way, proven, audited, and standardized. And it's really the the key starting point. If we have a good

catalog of tokenized assets, of real assets with real investors and real value, we can start building the the DeFi uh protocols and ecosystem around it. And uh it's exactly what you're doing now. >> Yeah. And um just by a show of hands, who's heard of ERC 3643 before? Oh, a major. Wow, we've done our job. Wow, that's pretty good. That's pretty good. Well, thank you. >> We'll prefer the T-Rex protocol name. >> Yeah, we we we nickname it T-Rex in case 3643 is too hard to say, Luke. You know, it's kind of, you know, um 3643 is a monster now. I mean, when we started three years ago, the association, our view was, you know, it was a complex topic. We want to engage different regulators around the world. Um, and I

think some stats that you guys have heard and we have some new stats for you is we have over 140 institutional members. We have uh the largest depository in the world and two of the largest fund admins in the world. Uh we have o almost a dozen uh um investment banks and institutional providers. some major financial infrastructure providers, law firms, um, seven different blockchains, eight different blockchains. Um, so it's a quite diverse ecosystem both of DeFi and TRDFI. Um, we are regulated, which when I say regulated means, you know, we've gone to the regulator, we've gotten approval implicitly, explicitly in 25 jurisdictions around the world. Um, and

um, you know, the 3643 team is small, but we're really well dispersed. I think we almost have global coverage. Um I think the only countries we're not explicitly in now is was it Japan, Korea Australia Indonesia India Canada and not many others. >> Actually, Australia, India, um we have some clients, there are some players who used it. We use the protocol already. Um Japan and South Korea, it's a bit more. >> Yeah, we have to go to Japan. That's this year. Um and then of course you know we um we really had a lot of success in the US last year um with uh the Securities and Exchange Commission uh which you were uh part of with me there. So um you know we actually

presented to chairman Gensler um in 2024 and at that time we had 80 members and not a single member wanted to join that call. Uh in fact I got some pretty harsh emails from lawyers saying please don't [ __ ] mention our blockchain. Thank you very much. I wonder why. Um, and I think I I mentioned that because I think it colors correctly the animosity towards regulation. Regulation is almost like a four-letter word and it, you know, elicits nashing of teeth and growling. And I think that's totally right. Actually, I think it's completely fair. I think for the ecosystem that we have, it's a spectrum, right? So, you have some cipher punks here who are like, "Oh, regulation, I'm scared." And then you have us uh who are like the

most tradey suitwearing people you can you can imagine and are stupid enough to go to the SEC and uh stupidity prevailed I would say because um we had the opportunity last year to present to the SEC crypto task force and they didn't bite actually um and I think this is part of the overall shift that we're seeing on the ground and I I think also um you know the work you've done with EWPG in Germany and Luxembourg um is quite profound. Um so um but I see a lot of crap on crypto Twitter. I see a lot of crap out there and you know there's what I read and then there's the reality on the ground and the reality on the ground is changing very violently. Um in

terms of this um I think it's also important to say like well what what do we say when when we talk to regulators? So you know Luke and Dennis we talked to 25 regulators around the world. What are we saying? you know what are are we saying oh you know let's screw Ethereum let's not do it absolutely not um we consult and work with all the foundations that we represent you know the two biggest being the Linux foundation the centralized trust that we do a lot of work with um as well as the Ethereum foundation as well um and we are uh extremely sensitive about keeping with what I call core Ethereum values you know which got recently memorialized into crops um And we don't believe in gatekeeping. What we believe is in in

getting clarity. Now where we live in the spectrum is we we uh try to build technology on chain that meets the regulation as much as much as possible and and you guys had a maybe you want to talk about real quick about uh your work with EWPG and also with Spain and ISO on that. >> Yeah. Yeah. So when we started long time ago, it was really the beginning of of blockchains for for governments for regulators and actually we've built this framework under the European MIDI regulations mostly working with the Luxmbborg regulator, the CSSF. Um and Luxmbbo was one of the first country to issue new blockchain laws thanks to that actually. Um what was great to be in Luxmbborg because it's a small country

where everybody speaks finance. So it was quite easy to influence to explain and to get some concrete results. Uh and of course everything we've done there was um we we could say passportable let's say to to all the meid uh rules in Europe. And once you get the European regulation which is less clear ever uh it's quite easy to to export it. Um in the US for example rules for securities are tough but super clear. Um so of course when you put crypto nothing looks clear anymore but in comparison of European regulations it's uh it's really clear. Um so we we came up with this standard we explain how we can enforce compliance control even on public blockchains and very quickly it uh it

got adopted and now I'm very happy because we see large financial institutions using the the protocol without even contacting us. Yeah, that's BNP Parabus uh used a standard. Um and then obviously a lot of our work with uh with DTCC as well. Um we were honored to be featured in um the groundbreaking no action letter for the SEC. In fact, we were the only name token standard in that no action letter. Um and um it's actually one of the few no action letters to be written by the SEC uh on digital securities in general, which is a huge honor for us. And maybe what's interesting for you it's what's coming next because yes you can use the smart contracts. So basically 643 it's ERC20

on steroid. So it's it's a token plus other smart contracts to enforce compliance. It's quite modular. You can uh add other modules as you as you want depending of what you try to do and what you try to tokenize. Um we also have a factory. So in one blockchain transaction you can deploy the full suite of smart contracts. So it's quite easy to use but it's not well known yet and part of this protocol you have the onchain identities you have the asset identities you have a lot of different things like this uh so now we are uh coming out with a with the next step which is actually uh a layer 2 the TRX network which will act as a crosschain compliance ledger and also as an app

store. So by default in this app store you will find all the applications and service providers which are compatible with the protocol and compliant with with securityurities regulations. So for example you will get DAPs to manage onchain identities or to deploy tokens or uh or to do DeFi. >> Yeah absolutely and uh one of our key DAPs that Luke and I are developing is um actually let me ask you a question first. Everyone knows ERC3643. How many of you actually either have deployed or worked with the 3643 directly?

>> One. So this is this is the vision. So so Luke and I um you know we talk a lot with the members and with the ecosystem and what we always said was for every one large BMP parabus there were dozens of regular cryptocunks or whatever DAP developers. They're like hey how do I touch something that's in institutional world and bring it in? Um, and Luke and I really identified, I think, two key areas for the future of ERC3643. Uh, which one is T-Rex, uh, which will be our definitive reference chain, uh, going forward, which we just announced.

And, um, we anticipate overall the use of ERC3643 to be north of $200 billion by next year. And that's not even counting some of our even larger pipelines. we may be well over a several trillion by 2028 and I I say that with like direct knowledge of people pushing things through. Um the second area obviously is 3643 being segregated through the rest of the ecosystems. Uh so because we do all the hard work on uh developing compliance tech and identity and all this stuff to meet securities regulation um the cost that comes out of it is um it's very hard for us to directly interact with D5

protocols. In fact um Apex and A produced a really great report that I invite everyone to check out on institutional DeFi. Um but actually Luke and I are thinking about this in in two major ways. one creating a a reference home for 3643 and then number two getting digital securities and assets into DeFi in a permissionless capacity. Um and that is our second initiative that we're calling Ascend. Um we're building it with some of the best uh developers in the world. One of them are here uh with Open Zeppelin Chain Link um and um with with the 3643 team uh which is exciting. So we have the best in in class building and conceptualizing this.

Uh and the idea is very simple. You have a a 3643 token. We put into a facility. We make sure it's compartmentalized and then you can choose either uh st your favorite stable coin or digital twin and then take that value and go into um into DeFi and get utility or liquidity. So now bridging the two realities of all this institutional stuff into define into the T-Rex ecosystem along with um you know Ascend is one of the flagship apps but there's going to be a whole ecosystem of apps on T-Rex built utilizing 3643 and so that everyone here who have previously learned about the standard but really hasn't like had their hands on it or whatever can get their hands on it and actually uh get

building. And um the point is that ERC343 is compatible with ERC20 and it embeds compliance. So it's compatible with most of the D5 protocols already, right? And wallets and dexes etc. Um but usually the tokens represent securities and securities are kind of special. You you don't have a live price like you cannot uh like with crypto where you check 10 different exchanges and the chain link give you a price and everybody agrees at the price. with securities is different. Sometimes you have the the NAV just once once per quarter or once a year uh and you have way less liquidity on most of these assets. So this D5 protocols needs to be a little bit adapted uh to make things

work properly. So it's not really about uh about the protocol itself is about the underlying assets and for example if you collateralized um security tokens just for as an example normally you you are still the owner. So if you transfer your token to a smart contracts, you have less visibility on chain about who is the owner, right? So so you need to do some uh some adaptations like this. You can for example freeze the tokens in the the wallet of the of the owner and not transfer them to the vault. So just an example, very simple, but um this D5 protocols will need some adaptation to make sure that they are suitable for for for the big money.

>> Yeah, absolutely. Well said. We just have a few minutes uh for for questions, but uh you know Luke and I look at what we've done with securities with 3643 um and now we're looking at vaults and and Claron, and that's not easy. Um we have we have time for questions, so let's get some questions from our awesome audience. Uh gentlemen right there, please go ahead. >> Hi, great talk. Thank you. I I have one question. you guys that have met a lot of regulators. Uh what is your take on more the side of for example central banks, you know, are they they they have a link with all of that or you for example talking to the SEC which is something really uh outside of of that circuit, you know, how this landscape

and and maybe the end of my question is also private versus public blockchains infrastructure especially in Europe. >> Yeah, great questions. you you know I'll go first and then maybe um so um they're very different characters uh central banks and securities regulators uh I think for securities regulators it's actually a much easier conversation because the nature of what 3643 is and and how many you know lawyer like James at uh Ethereum Foundation asked me on X the other day like hey how many lawyers have looked at this like the answer is thousands of lawyers so you benefit from that central banks is a little more difficult because a lot of people don't like CBDC or central bank deposit there's also a lot of misin information and then also a lot of correct information. Retail CBDC's is extremely dangerous. It's a major privacy

violation. But CBDC is used from an institution to institutional levels. You know, Fed, who cares, right? That's not really an advantage. Um, but you have to understand like the conversations we have in US or Europe or in APEC are vastly different with central banks because they have vastly different needs. You know, some of them are, you know, national security, you know, heavily mandated. Everything they do like the Fed or ECB is huge. And then you have other central banks like central bank of um UAE or central bank of Saudi or central bank of uh Ukraine that we've done where it's a it's a totally different set of requirements.

So they wide vary. I think one of the great works that um you're doing is on um permission stable coins uh which also uh check that box. Um >> maybe a quick word about this private chain versus public chain which is the internal debate of course uh we've done both. So you can use the assist for on both as long as it is EVM compatible because smart contract sign solidity. Um but it is actually why now we are launching this this L2. Uh because we we all failed as an industry we are supposed to have one blockchain one shared IT infrastructure for everybody and now we have 1,000. Uh so when you are a financial institution it's super complicated because blockchains are

becoming distribution channels kind of uh some are EVM some not some are private some not. Um so for for a player like Apex which is mostly a transfer agent. How do you do this? You cannot tokenize on 20 different blockchain and try to reconcile everything. So you need basically a reference ledger where you synchronize everything to this ledger and you enforce your compliance rules at this level. So this is actually the TX ledger we are launching very soon. Um so it's not supposed to be just another blockchain and where we try to attract the TVL or anything like this. It's just a compliance engine a crosschain compliance to make sure that you can actually uh tokenize in in one EVM blockchain and then interconnect many

subdures. Um, hi I'm from a German asset manager um from your investment and I I had a question. We're talking about simple security tokens but we're we're having complicated security tokens like funds like we have underlyings and stuff like this and you're talking about um uh security about identity about compliance and everything and fund business is more regulated than security business. So, how's your protocol complying with funds and German uh crypto law? So, it will be I mean it's probably your layer you have

over ERC20. Um it it's good for us but I still didn't take a look into it. I would like to have a discussion maybe afterwards with you more deeply but if you >> make a quick comment on this please. I'll try to make it quick but uh Apex is mostly managing fonts. So actually this $100 billion they will bring is mostly fonts open-ended phones or close-ended phones. Of course they work quite differently but in terms of compliance uh it's same concept. Uh and within ERC 3643 you have the ERC20 tokens plus compliance and control. So you can give the controls to your uh fund admin basically trying to make it super simple. uh in terms of compliance rules

you can identify any every stakeholder especially investors to enforce uh transfer rules etc. So everything is there built in uh at the token level directly and then we have uh many partners including token uh to provide the softwares to operate this uh in an easy way >> right for EW for EWPG it's it's public I I know the announcement is public but uh I'm not sure if the actual particulars are but that might be relevant for you how are we on questions we're done >> all right well thank you guys very very much for coming we really appreciate it for supporting