Fireside Chat: Wall Street Settlement for the Digital Asset Era with Johnna Powell and Daniela Barbosa

Transcript

[applause] All right, good morning everyone and a big thank you to Cararthik and the rest of the ETH comp and ETH global team for really supporting us and uh making sure that we're all in the room for this important conversation. Um I've had the pleasure of working with Janna for many years now and have also seen her career um really advance and very importantly make um such important moves in the institutions. Uh for those of you who do not know Linux Foundation Essentialized Trust uh for the last 10 years at the Linux Foundation, we've been the home for important blockchain uh uh cryptography interoperability projects and really have been educating and

bringing along the institutions and the enterprises along the way. Um so you know we have a couple of questions we want to have this kind of conversation with Janna because she really is at the center along with DTCC um where a lot of this work is happening and if you do not know DTCC um they are the center of the post trade infrastructure for obviously the world's largest capital markets here in the US um and they also collaborate globally as well with other FMIs as well. Um so for many uh people in the web 3 community settlement is always described or sometimes described as something new. Um but uh Wall Street and we're sitting here in New York has for decades uh really been you know having a

trusted infrastructure settlement infrastructure for decades. Um and this is kind of where Jonah and her rest of their team sits. So let's start with what's DTCC's role today. um and what really needs to evolve as markets become more digital, more programmable, and tokenized. >> Well, thank you so much, Daniela, for that uh generous introduction. And I think it's uh it's it's fitting that you and I are having is there a little bit of um let's see, can everyone hear me? Okay, there was a little bit of feedback, I think. Um it's fitting, I think, that you and I are having this conversation uh here today. So, I chair the LFDT governing board. Um I spent years at consensus before coming to DTCC and and settlement is something that

I've been you know thinking about from both sides of the fence. Um so I think so I'd like to talk about the significance of DTCC what needs to evolve and and you know how we're evolving. I think that's really important. Um so just simply put DTCC processes 4.7 quadrillion dollars worth of securities per year. Um so that is trillions of dollars per day. Uh it's hundreds of billions of dollars per hour. Um and so we provide custody also for over a hundred trillion dollars worth of assets in over 150 countries.

Um and so every single trading day we're you know compressing risk, we're netting exposures. Um we're freeing up capital at scale um that really no other entity centralized or decentralized can actually match right now. and >> that's not going away. Okay, thank you. >> Thank you. This will make it easier. >> See, >> okay, can everyone hear me? Thanks. Hopefully that makes it a little bit easier. >> Um that's not going away. Um but but absolutely it needs to evolve, right? So what we're hearing with from the market is um you know the markets want us to move faster. They want to move toward

247 um operability, collateral mobility, continuous trading, um you know, settlement finality. Uh they want programmability. There's a lot that the market is asking for and there's a lot that we're working toward. Um but you know, and so DTCC's role is not static. Um and it it you know, quite frankly never has been. So, we're actively building the bridge uh between the infrastructure that Wall Street already trusts and the digital infrastructure that, you know, everyone in this room is already creating. Um I think so we just got a no action letter um from the SEC in 2025 uh that states we're authorized to tokenize uh assets, real world assets

with the same investor protections that we offer in the Trady world. So, we're really excited about that. We're going to be soft launching a productionready solution in July and we're also going to be uh launching that fully in October. So we're really excited about that. I think the you know evolution isn't just about you know replacing trust with code. It's about you know making trusted infrastructure programmable and interoperable. >> It's solving real market needs as well. Um and those numbers are always very impressive. Um and I I don't think there's a whiteboard long enough to actually write all those zeros sometimes. I think some of you have numbered it out. Um, and you know what I think is really important is you know

when people talk about digital assets they often focus on trading insu uh insuence or custody especially in in the crypto world but settlement is where trust risk and finality really comes together right this is where the focus is. Why is settlement such a critical layer of market infrastructure? >> It's a great question. I've thought about that a lot. I think you know why why does settlement matter? It's it's actually where promises become a reality. Um you know a trade is just an agreement until it settles. And when you think about what a centralized uh clearing house actually does, you know, when two parties trade, uh DTC's uh NSC steps in as the central counterparty and we net those trades. So for every, you

know, $100 in gross obligations, firms are only having to put in, you know, fund a fraction of that. uh and that netting freed up hundreds of billions of dollars in capital um you know on a day-to-day basis and especially during the T+1 transition. So that's operations at a massive scale. Um and settlement I think is also where a lot of unglamorous activities happen. It's important though that's where corporate actions happen. That's where fails management happens. Funding reconciliation all of these you know critical problems that you know define market integrity. So I think you know if you get them wrong everything you know up the up the chain essentially fails as well.

>> Correct. Yeah. So what what do you find most people outside of post trade misunderstand the most about settlement? Like what are the things that maybe people in the room and the conversations that you have because it is very complicated. You know it's like kind of plumbing sometimes, right? Like what do most people misunderstand about it? I think I think what most people misunderstand is that it's actually solved, right? Um you know, you think DTCC it's this kind of boring uh company. It's been around 50 years. It's a fixed utility, but um you know, once you get inside, it's actually incredibly dynamic. Um we just moved the entire US market from T+2 to T+1 in 2024. That was a massive coordinated effort. Um Europe

is also moving toward T+1. um and we're already looking at how to support near continuous uh settlement. I think the other misconception is that decentralized systems have completely solved settlement. um you know just because transactions can confirm in seconds. But onchain finality is is not the same as institutional settlement where you know institutional settlement involves legal ownership transfer uh net funding, corporate action, entitlements, uh regulatory reporting, so many different things that um I think a lot of people haven't necessarily uh thought about especially when you know you have the uh heavy restrictions that a regulated institution has. Um so I think atomic settlement is very elegant in

concept but you know when you're operating a quadrillion dollar scale um with complex multi-asset portfolios you need robust netting you need fail management you need you know capital efficiency mechanisms >> and and you know it's always very impressive with DTCC anyone that we've talked to over the years about always being on the innovation forwardinking path right there's always like this is what we need to accomplish lish today so that the mark is actually run and continue to run effectively and efficiently. But then this is where we need to go because we know that digital assets and tokenization are has already disrupted our business and we need to continue to uh innovate on top of it as well. Um but it's I'm sure because I I

often see you Janna's on my board so we we talk all the time. Um and there's you know lots of things that need to get aligned together uh across the market. It's not just DTCC. It's your hundreds. How many customers are part of, you know, how many banks are part of the the um DTCC right now? >> Many. >> Hundreds. Hundreds. Right. So, coordinating all that. So, what are the biggest pain points in today's market in structure? >> I I would say two there's two really big pain points. One is collateral mobility and two is fragmentation. And those are ripe for disruption. Um collateral mobility without question. And I think most people who are looking at financial institution use cases would u also agree

with that. We're working on that uh very hard. So today when you look at you know how collateral moves across jurisdictions it's opaque, it's complex, it's expensive and you know firms have capital that's completely trapped because they can't mobilize it efficiently. Um that's why we're launching our collateral app chain um that's built on hyperledger basu as you know um within LFDT and that's to enable 24 by7 real near realtime collateral uh management and our research actually projects that intraday funding costs could be cut substantially and free up uh just a significant amount of capital uh at large dealer banks. So, so that's one I think it's a very obvious use

case. And the second one is fragmentation because you know you have multiple DT networks right now. We could you know choose among hundreds um but what we don't want to do is we don't want to cause you know a problem of just recreating silos. Um so interoperability um is going to be really paramount to to solve going forward. >> All right. So it's a multi-chain world is what I hear from you. Um and you do need to you know have interoperability or there will be continued fragmentation that doesn't solve any of the market issues as the markets continue to grow as well. Um so you know as assets let's you know talk specifically about you know how they are becoming more and more

digital right. Um and you know you mentioned this before you know DTCC for those of you who do not know um and I'll say I I'll tell a funny story. So, um, when you did get the SEC letter, uh, you November time frame, right? Um, I did have somebody ping me on LinkedIn and, uh, I'll call it my crypto, one of my crypto bros. I say that lovingly, of course, and I love them. Um, and one of the things that they said was, hey, you know, whoa, DTCC is now woke, right? They are like getting it. And I kind of laughed and I said, look, DTCC has been at the table for the last 10 years. Um, you DTCC has actually been on our governing board for the last 10 years.

and you've really thought about this moment that we are in in the markets and prepared yourself for it as well. So, as assets become more digital, what are the parts of the current system that should be preserved, right? And which ones are just ready for a redesign? >> Yeah, that's a great question. I'm I'm so glad you brought up the fact that we actually have been innovating uh for a long time and we were there at the founding meeting, right, for uh for Hyperledger Basu. Um, so I wasn't I wasn't at DTCC at the time, but um, you know, there's there's a great legacy there and we're really happy to be uh to be supporting LFDT. Um, so I think three things that should be preserved absolutely are legal certainty um of

ownership, risk management, uh, it's hugely important and operational resist uh resilience. So markets need accountability. um they they need somebody to stand behind the settlement guarantee. All right? Especially when you're uh in a highly regulated system. Who's the SEC going to, you know, talk to if a settlement fails? They're not going to talk to, you know, necessarily a decentralized system where there's no owner. Um so they need infrastructure that um performs through extreme market events as well. Um and we've, you know, invested deeply in that. Um what's ready for redesign? I think what's ready for redesign is the how and everyone you know in this room is probably very uh

passionate about that. How um long settlement takes, how assets move, um how collateral gets mobilized, um how corporate actions get processed, um how you know markets operate across time zones. I think that's um that's what needs to change and get redesigned. Tokenization obviously lets us reimagine those workflows and that's really, you know, inspiring. So instead of the old way of doing things like batchbased uh overnight processes, we can have like real time transfers. Um instead of assets that are locked in one network, they can be interoperable and we can have distribution across chains. Um instead of market hours constraining our operations, we could have 24 by7

operations. That's really exciting. Um we're actually expanding our clearing windows this month uh uh to support overnight trading uh 24 by5 and that's a direct response to market demand. Um but I think this this one point is is critical and that's that the redesign I think it it should complement the existing infrastructure not necessarily just completely rip it out. um because trillions of dollars are embedded in our existing infrastructure in today's system and so you know wholesale like replacement is probably not realistic and probably not responsible. So we need to really think carefully about how we you know surgically implement these systems. Um so tokenization adds another layer of flexibility you know

connectivity to public networks programmable assets um you know real-time collateral optimization and and I think firms can adopt it without necessarily completely rearchitecting everything about their operating systems >> right so taking certain steps that get you there as well without you changing everything at once right which I think a lot of people in the web 3 space and has have not understand that right that this these institutional infrastructure ructures uh you pull one thread and a lot you know many other things might fall apart. So um DTCC is always very thoughtful of that as well. So you're head of innovation and technology and research at DTCC. Um and I always think you know innovation sometimes adds complexity and sometimes innovation you

know obviously accelerates where you know a company and entity wants to get into. So how do you sep separate this kind of dilemma with innovation that just heads you know complexity across uh DTCC functionality? Yeah, it's a it's a good question, right? I think we we need to ask one question and that is does this solve a problem um or are we like tokenizing for novelty's sake. we don't want to tokenize just you know for the sake of uh tokenization and I think we've been very clear internally um that we apply tokenization where it actually is going to deliver measurable benefit and so you know some of the use cases I talked about before collateral mobility enormous value um 24 by7 settlement there's a a clear demand for uh for

liquid assets and 24 by7 settlement um faster crossber transfers there's obvious friction to reduce so you know we want to start with those use cases where it actually makes sense. The these are problems that people have been talking about since 2016 maybe. Um so you know they're not new but they're they're certainly known and there's a significant amount of impact to be had there. Um so every use case goes through you know pretty rigorous analysis around uh what the operational benefit is.

>> Do it. Yeah. So, you know, we're seeing more pilots and production activity around tokenized funds, collateral, which we talked about before, treasuries, private assets, really across all the board. Um, from your perspective, where is tokenization most likely to create the value first? >> Yeah, I think so. There are three areas um where you're going to see probably the most value and that's that's where you're really seeing the, you know, kind of move from pilot to production. Um, first the uh treasuries and highly liquid uh securities. So the SEC's no action letter actually authorized us to tokenize constituents of the Russell 1000 um ETFs uh tracking major indices

and also the US Treasury bills and bonds and notes. So these are the assets where we already have deep liquidity um at DTC. It already lives at DTC. So we're not creating new markets from scratch. We're just, you know, making the world's most liquid assets programmable and accessible. Um I think the second one is collateral. So research projects that you know have tokenized collateral could unlock billions in capital efficiency as we uh as we talked about right so digital forms of bonds and you know money market bonds and cash moving in near real time is just it's it's a gamecher and uh and I think I mentioned inday repo on digital rails we we've estimated that it could just materially lower funding costs and our great

collateral experiment if anyone was familiar with our great collateral experiment that we ran back in 2024. Um that really highlighted uh that concept and now the uh collateral app chain is going to be launching in Q4. Um I think the third one is crossborder and extended hour uh hours trading uh because you know obviously tokenization uh makes assets portable um and accessible. So you know when a treasury token can kind of exist on uh any network for permissioned workflows and on you know another network for public distribution you start breaking down all of these uh you know geographic and time zone barriers. All right. So, um if tokenization is primarily about faster

settlement, right, which is what the market is always asking for, uh better collateral mobility, right, which is critical to to be able to do this, broader access or new products like where do you think that, you know, it's it's best to be focused on on faster settlement, better collateral mobility, broader access, or new products? or are you tasked with them all? Donna, >> I think I mean I I think I I would say, you know, it's kind of all of the above. Um, you know, there's the immediate value of operational efficiency and and, you know, collateral mobility. Those those are, you know, kind of table stakes. They're the foundation. Um, so I think, you know, it's a matter of

sequencing. Um so new products um you know they they would come once the foundational infrastructure has actually like the foundational plumbing has actually been built and that would include you know um fractional ownership 24 by7 markets you know composable financial instruments and things like that but really you know the the the future financial markets digital rails have to be built and you have to have that financial infrastructure built >> right and regardless it needed to be modernized anyway right so that's what we're doing so we're here at ETHCOM you know and the Ethereum many in the audience are in Ethereum audience here and um you know they believe I think many people believe and some of us do that public networks will become important settlement infrastructure I

think we're already seeing that they don't believe it we're already starting to see that um and that the there also you know obviously I think I already spoke to a couple institutions in the room as well that want to kind of bridge those two worlds together are working towards that so how should the institutions that are here today to hear uh are the speakers at ETHCOM. Um, how should they be thinking about Ethereum um and other networks in relation to uh market infrastructure that DTCC and others, you know, FMIS globally are building? >> Yeah, it's a it's a great question. I mean, so, you know, I'll I'll just be direct. DTCC is pursuing a multi-chain strategy. Um, we are chain agnostic by design. We want to continue being chain agnostic by design. Uh, we've partnered

with uh, you know, publicly partnered with a few networks. Um, as some of you um are aware, so our tokenization service um has partnered with Canton. Um, we announced a connection to Stellar. Uh, for example, our collateral app chain is uh built on an EVM uh based hyperledger basu. Um, you know, and we're building to be interoperable across uh across networks, not locked to one. Um, you know, we're obviously very favorable to Ethereum. Most of our tools are EVM based. Um, and you know, we've had a lot of conversations as well with uh with multiple teams, Ethereum Foundation and so on. Um, so I think maybe what uh public networks should be thinking about is how um we evaluate chains. So we actually have a a pretty

robust um uh mechanism for evaluating chains. Um and that is based on a few criteria. We have exclusion criteria. We have um you know kind of business criteria and we have technical evaluation criteria. So you know the around business criteria we have client demand. If our clients want to build on a particular network then we will you know try our best to make to accommodate that but we're also looking at liquidity and adoption. We're also looking at cost to integrate and then of course it would have to pass our technical evaluation criteria. We have about nine technical evaluation criteria that we look uh look at uh in a pretty deep way. Um, some of those are performance, scalability, uh,

governance, privacy, proven deployments, interoperability, and and more. Um, and so I think, you know, different use cases may land on on different networks. Um, and so that's kind of the multi-chain thesis. Um but you know what what I'll say to the room specifically is you know especially as someone who has you know been at consensus for a number of years and who's working directly with you um as chair of the LFTT board I'm you know very passionate about public networks and certainly um favorable about Ethereum and I think um you know Ethereum's greatest strength is in its massive developer ecosystem um its composability and its track record of institutional adoption. I think you know the one um challenge is going to be

to show that it can also achieve the privacy and scalability that's going to be required of um uh institutions and I'm sure you know there's a ton of work going on um already in you know in that regard. Yeah, and I'll do a little plug for Beasu. You know, since 2019, Bezu has been, you know, the EVM um under LFDT, what's now known as LFDT, and it's really has become the technical standard for most institutional EVM implementations. Um, and, you know, the continued, you know, decision points around open standards that are openly developed and openly governed, um, is an important decision point for BESU. And then also on the enterprise side right

that it is enterprisegrade that you have multiple maintainers um and vendor neutrality really uh assigned with Beasu uh where the selection points are. So you know let's talk a little bit about the role of open standards and open source. How does DCTC and you specifically see um that uh as an important decision point for when you decide what to build with? >> Yeah. No, I think it's it's certainly important. Um, and of course, you know, in in my role and working with you, I think you would know that I believe deeply in this. Um, and and DTCC is also very favorable about this as well. So, open source alone isn't enough. I mean, code neutrality matters. Obviously, the ability for institutions to uh be able

to audit and evaluate and contribute to their code is really important. Um, but open standards are also very critical. So, we need common token standards, we need interoperability standards, common data uh standards and so on. So that's that's really going to be important and I think the builders in the room have an enormous role to play. Um you know when you think about the code that you write and the standards that you propose and you know the protocols that you develop think about you know just be aware that um institutions if if you're looking for institutional adoption they're going to be looking uh for auditability. They're going to be looking for resiliency.

They're going to be looking for interoperability. So that's you know something that drives institutional confidence. >> Right. And that's a very good clear message, right? The builders need to be involved in creating and I've seen DTCC in the room, engineers with maintainers and contributors doing exactly that, right? Giving your your requirements. So, uh, we have a 40 seconds to go. So, as we close up, you know, you already uh operate the settlement layer that Wall Street trusts. I mean, there's no doubt about that, right? So, um, as the market evolves, um, what is your message to the Ethereum ecosystem, um, and open source communities that continue to grow around that about building, um, the next, you know, generation of trusted financial infrastructure?

>> I think it's such a great question. Um, and especially coming from like both both sides of the world, um, I I fundamentally believe this. I think we we absolutely need each other. Um so you know DTCC can bring scale and risk management and regulatory relationships and you know trust built uh with Wall Street over the last 50 years. But the Ethereum community brings this openness and this passion um it brings composability um you know developer velocity and also this drive to make financial infrastructure uh much more accessible. Um and so I think you know we're not standing on opposite sides of a wall. We're building a bridge maybe from uh you know the opposite sides but

the faster we meet in the middle I think the better the markets are going to be for everyone. >> Yeah. Well you know I think market infrastructure and the web 3 ecosystem so lucky to have you Janna you are a complete you know leader in really driving the conversation in the right space. So I want to thank you personally for all the support that you do for us um but primarily for everything for everyone in this room as well. So thank you. I want to thank you so much too for your leadership and you're very generous. Thank you so much. >> Thank you. [applause]