The Idle Trillion

Transcript

[applause] >> It's really good to see so many people here today. And so today we'll speak about um >> [clears throat] >> the L trillion and how the the industry is winning, but it becomes less and less visible for the end users. And I've been building in the space for already 10 years and uh I would say that the industry changed by a lot and it changed by a lot. I mean that when the whole industry started uh there was very few means to even on-ramp and off-ramp and it was kind of isolated from the rest of

the world. And we didn't have too much use cases in use cases in in the real world. Right now it's very different. It's already a lot of settlement happening on chain, lots of products getting tokenized. And we see lots of real world assets on chain. In the middle in the early 20s there was DeFi summer and it was basically something that kickstarted this process. So um let's look a bit at the numbers and right now we have more than 300 billion in stablecoins already on chain.

Uh projection by BCG it's more than 18 trillion by 20 33. And let's let's try to guess by the way from those 300 billion in stablecoins on chain let's think how much capital is um not idle. How much of capital is really working right now? Let's say raise your hands if you think that it's more than 50%. No hands.

Raise your hands if you think that it's probably around 20%. Few hands. Okay. Uh raise your hands if you think that it's close to 10%. More hands. Okay. And what do you think about 5%? Okay. So the the reality is that right now it's it's around 10% and more capital is starting working on chain. And there's a few reasons for that. It's two main reasons actually. The first main reason is that regulations are changing. We've all seen what was happening during this year.

And it's very important that those regulations, it's something that limits some of the asset classes and limits some use cases, but at the same time it enables banks and institutions to hold stable coins and different assets on their balance sheets. So in this case it's something that's already here and we'll see lots of inflows because of that in the very near future. Another thing is it's basically it's payments and settlement. And this is a very important part because we see this as a main driver right now for the use cases in

>> [clears throat] >> in our industry. Let's say lots of companies starting moving to on-chain settlement and there's very natural reasons for that. Those reasons it's uh settlement on chain is atomic, it's cross-border, and it's 24/7. And this is just natural reason to be [clears throat] on chain for settlement. Same thing for payments. This makes capital more efficient. This also helps to move capital between different jurisdictions. This helps companies to make business more effectively.

At the same time, this is actually the the quote from the real conversation with the one of CFOs and I think there will be more questions by CFOs about what should we do with stable coins in our treasuries on our balance sheets. And if the settlement is already on chain, then the next step is basically to put this capital to work. So it's two parts. One part first step is settlement. It's already solved. There's already custodians. There's stable coin settlements, bridging, all the infrastructure is ready.

And it's already live. Second part is management. It's something that's not fully live yet. It's something that's being built right now. And it consists of several parts. It's not just purely technological thing. It's also about business processes. It's about how strategies are built for managing the assets, which markets are getting involved. Compliance, NAV reporting, strategy isolation, things like that.

And it's also important how the landscape is changing with asset managers on chain because initially when the industry was starting and when DeFi summer happened, there was pretty few protocols on the market and the strategies were not sophisticated. People were managing their own assets. The size of capital was not that big. Right now it's completely different set of parameters. It's much more >> [clears throat] >> sophisticated protocols. It's more sophisticated strategies. The landscape of managers itself is changing and new players are coming into into [clears throat] the industry and they're coming from TradFi. They're coming from FinTechs. They're building more sophisticated strategies and risk management systems.

And that's why we need more guardrails. We need more >> [clears throat] >> tech stack pieces to manage the capital. And this is what's being built as the next step for for the industry. So, it's two pieces here. One piece is assets, another piece is distribution. Those pieces are also already solved. We already have stable coins, we have money market funds, we have commodities. On the other side, we have distribution, we have wallets, we have exchanges, brokers, issuer asset issuers, etc. etc. But at the same time, there's something in the middle. It's basically strategies and routing of capital. And this is something that's also being

built right now. And this is also something that connects >> [clears throat] >> connects assets and distribution. So, this is the way for assets to get to distribution channels because probably there will be really really few people or companies who will use stable coins or any other types of assets if there's no yield for those assets. Also, yield itself, it's >> [snorts] >> not just a number that you see on the screen. It's it's a liability. And for retail and for institutions, it's very very different in terms of characteristics. So, for retail, it's in many cases it's more about numbers

and more about higher APYs, but the risk is very different in this case. And there's no yield without risk. For institutions, it's always much more questions about the risk itself and the numbers for API, they're like it's it's the last question you're getting asked. So, it's about transparency, it's about risks, it's about how you how exactly you manage capital. And also, it's all about the structure of the asset structure of the funds structure of the technology. There's much more depth in due diligence in this case.

And the whole industry is going toward towards that direction right now. >> [snorts] >> Another topic which was pretty hot recently, it's agents. And for agents, it's basically the same stack that's being used. Because agents they they already can manage capital. But I would say probably there's really few people who would trust agents to manage capital. Because models they tend to hallucinate. There could be lots of issues with execution, etc. etc.

So we need the stack also for the agents to set guardrails for them and to provide institutional grade execution environment. This is another part about the yield stacks and about vault infrastructure on the market. The third part here is that um recently probably we've also seen that how products from D5 getting integrated and baked in into different products in inside fintechs, inside just normal companies, businesses. And there's already cases with deal, cases with

Stripe and other companies. And those products they're basically invisible for the end user. It's just a button within the application where someone can press it and deposit capital into some pools. He can use some other strategies. And this is how the industry right now is getting integrated into the broader set of services. Um Something that Uh, uh, we're doing in that direction It's It's basically the vault stack, uh, at Mellow.

That's, uh, helps to build those strategies and, uh, it helps to [clears throat] get them deployed on chain without, uh, putting any technical effort into that. It's, uh, something that helps to put the strategy on chain in few hours sometimes, sometimes couple days. And, uh, without any smart contract development. Another thing that is important is the risk management. Risk management is being enforced on chain. It's not the case where you have to just trust asset managers and that's something that's different about the, uh, our industry in general. I think people who've been within the industry for a few years, uh, >> [clears throat] >> already seen many, uh,

examples where all the risk management is being enforced on chain and, uh, you don't have to trust, uh, any asset managers or asset issuers, uh, to uh, to to manage your assets. You transparently see what's happening on chain. You see all the transactions. You see all the guardrails, multi-six, etc., etc. So, this is another important piece because this helps to, uh, work with due diligence. This also helps to, uh, get, uh, more transparency for the end user and it helps to get more trust for the product itself.

Uh, another part it's, uh, the speeds of, uh, updates for any uh, on chain financial products. Because as soon as, uh, we see >> [clears throat] >> more, uh, RWAs, more assets coming on chain, the industry is very, very dynamic. And, it's much more dynamic than, uh, people used to, uh, see the assets within traditional finance. That's why you need another pace for working with the strategy and with capital. In this case, uh, the on chain stack, uh, it's it also helps to, uh, move capital much faster, to update the strategies if something changes, if yield somewhere is better or the risk is lower, then you can almost instantly

allocate to new venues and pick up the the new strategy. So, just to sum up, the important thing is that the the whole industry right now is moving towards more distribution within TradFi. At the same time, TradFi is using on-chain rails for settlement. It uses on-chain rails for building strategies and basically to get more operational efficiency.

And I think that by next year, we'll already see much more capital moving on-chain. We'll see this convergence between DeFi and TradFi. Thank you. >> [applause]