J.P. Morgan’s Aave Trade Explained | Matthew Blumberg, Byron Gilliam

Transcript

if institutional Defy is just for institutions um like why does it have to be on a public blockchain why not just have a permission you know if the pools are permissioned why not just have it all on a permissioned private blockchain [Music] all right everyone welcome back to another episode of Empire uh today santi's sitting this one out uh we are joined by Byron uh the block Works uh daily newsletter writer and extraordinaire the Matt Levine of crypto uh and we are joined by Matt Bloomberg as well who is on polygons institutional team but does not represent polygons views here so Matt Byron welcome to the show guys thanks thanks Jason yeah first time uh caller long time listener again we'd love to hear that

um I I want to focus this conversation really on the JPMorgan news I'm Matt we want you to break it down for us here's my understanding so basically this week JPMorgan announced that they have executed their first live trade on the public blockchain um the details are that they uh they I think alongside DBS bank and SBI executed a trade that involved a tokenized JP tokenized Yen JPY and then SGD which is Singapore dollar deposits the trade was carried out on a modified Fork of Ave Arc uh on on polygon uh so that the interest rates and then they they basically modified the fork of uh they forked Ave Arc so that the interest rates and the FX rates could be manually

set and then they use polygon uh so that was a bit cheaper um there are also a bunch of other firsts here right um uh the the transaction involved like VCS verifiable credentials which allowed the actual users to prevent the kind of kyc uh to have like the necessary compliance information for the third party verifiers um I think they're a bunch of first here but Matt can you just break down this whole transaction this whole trade for us yeah um so so this is really part of an initiative that was set out by the Singaporean governments like Financial arm uh which is the monetary authority of Singapore it's like their SEC and cftc and like everything like rolled into one

um and so a while ago they came out with this initiative called project guardian which is meant to explore the potential benefits of of asset organization and so you know one relatively straightforward use case is like foreign exchange right um like we're all here for cryptocurrencies right um and uh uh the way the way that it worked was you know when you have like large financial institutions or really most uh most kinds of tokenization are going to involve some sort of kyc um whether that's like a testing that you're like a US resident or like uh you know an Institutional Investor or a qualified buyer or a financial you know counterparty or whatever um you know the the kyc elements of this

actually wind up being like where a lot of the Innovation and like Tech happens um and so you know firstly I guess we should talk about like Ave Arc so this is like ave's like permissioned uh product where it allows permission parties to participate in Ave like borrow Latin markets um and so it it introduces this notion of like a permission pool where you can only take part in this pool if like you meet certain credentials um and then the the Innovative part that you were talking about a minute ago is is this notion of like on-chain verifiable credentials so you know this could be as simple as like having a list of addresses that are allowed to interact with whatever contract um but it can also get like much more

complicated right you can imagine like financial institutions of a certain jurisdiction can touch one product but not another uh maybe you know One financial institution is allowed to interact with a set of counterparties but not another set of counterparties even if they fall into like the same broad categorizations um and so you wind up with like relatively complex logic and that that's where this like verifiable credential thing happens um and and the The Innovation here is really that the verification is happening on chain using um like using criteria that are set out on chain as like directly exposable on-chain elements uh almost like uh Soul bound nfts right

um where that way you can write up your own contracts without having to like get directly in touch with whatever third parties and you can you can use this sort of like third-party like kyc like you know uh accreditation library of of credentials and then you can reference it for like whatever you need to right um so in this case there it was pretty simple there were like three Banks involved it was like uh DBS SBI and JPMorgan um so it was like relatively straightforward but going forward you can imagine like you know uh maybe a pension fund wants to buy something that's you know off some product that's offered by one of these Banks right uh they might have to reach like whatever set of credentials and you can bake that logic into either like the contract or

the marketplace or the borrow and Market uh where it's going to take place um so that that's that's a little bit on just like the credential side um in terms of the transaction itself there's actually like a great tweet thread we should link it in the show notes um from from a guy Ty lopen who works at uh at jpmorgan's Onyx Group which is there like crypto I thought this group totally got spun down in like 2018 I'm like I did too I remember uh I remember when Amber ball day was leading the group and then uh obviously Christine Moy had a big impact over JP Morgan but I remember Amber was working on blocked uh uh Quorum if you remember Quorum the the fourth of ethereum back in like 2015 2016 2017 consensus came around and I guess kind of bought Quorum

so yeah there's a there's a long history obviously of JP Morgan and blockchain here yeah and then I think Quorum may have even like passed hands over to um over to Microsoft uh I guess their Azure blockchain product lives on as like Quorum now um which is like totally wild um but uh anyway yeah uh you know obviously kind of ironic given Jamie diamonds like wild tirades on Twitter um but uh JP Morgan's like done a fair amount of building and Innovation here right so um so so this like specific trade you can you can go into like you can actually see it on polygon scan which I absolutely love um I I always love to check the chain right um and so if you dig in you can see that

there was like a permission pool uh like a slightly modified version of Ave Arc right so Ave you know the pools they have um they have parameters like um uh like whether you know whether a liquidation should occur at whatever Point like what the FX rate should be considered should it be using an oracle should it be like some kind of fixed rate what should the interest rates be right um and so uh so you know they deployed this like modified version where they could set those parameters and I think the idea is you know it's a proof of concept right so they're you know maybe really not trying to like get liquidated on um on this like version of permissioned Ave that has two assets and three parties right

um but uh uh they set up this pool um and then they effectively tokenized uh Japanese Yen and Singaporean dollars uh and then uh it looks like it was kind of structured more as like a like a bilateral like borrow lend thing um where one party deposits like tokenized SGD and other party deposits like tokenized JPY they borrow against each other um using that like fixed like on-chain FX rate um and then like whatever you know whatever terms they use for for interest rates as well so you can imagine like if you're a bank like maybe you you know you need like some number of Singaporean dollars for some reason for like a day

uh or for like a week or whatever um and you know historically you've done this over the counter you would call up the FX guy at the counterparty bank um and they would tell you hey like here's my here's my pricing here's my interest rate and with this you can do it all in chain uh which is pretty cool um it makes like the transfer in custody and all that like way simpler but it's it's just a trip to see like these token names right you have like JPM SGD and then you have like the Ave you know a JPM SGD uh it's just something you're not really used to seeing right um so that that's broadly speaking how it works so it's used Ave for a couple things right there's the like they sort of talked on their uh verifiable

credentials to the Ave permission pool like construct and then they also use that as the as the borrow End Market for for executing this transaction got it let me let me do a little recap of that and just make sure that I have everything correct so basically so Singapore's got this initiative right to get deeper and deeper into crypto the Singaporean government's been very interested in crypto um for many years now they came to JPMorgan what JP Morgan actually did is they basically tokenized these deposits right so they tokenized uh SJ sjd or SGD and JPY they built an Ave pool basically um they use I think it was uh worldwide what is it worldwide webs like verifiable they built verifiable credentials using World Wide Web to

provide this like compliant access to Ave Arc which is the kind of like permission D5 side of Ave um and they allowed them to basically swap the SGD the sjd or SGD SGD for JPY using the permission to of Arc pool is that am I following that correctly yeah it looks like the construct was a little bit more of a of a borrow like you know alone rather than a swap but yeah pretty much um yeah and you know the idea is like today we're using this W3 like verified credential but like tomorrow we could use something more composable like you know zero knowledge proofs right where like it preserves that that privacy because not every Bank wants to have

their outstanding like loan book directly visible on chain right right and I think Ty actually said that in the Tweet thread he said that we designed this in a way that ensures verifiable credential based compliance checks can be used by uh can be used with any D5 protocol without the protocols needing to know about the verifiable credentials which is really cool right because it kind of frees the D5 front ends from needing to do these kyc checks um but also he said we think he said we can think that they're on chain that are on chain VC verification is another first the design isn't perfect and then and he actually said in the future we want to use zero knowledge proofs so it's pretty interesting um but Byron I'd love to get your take as someone who's just worked inside of some of these large institutions for a

number of years like what's your take on this are you is this exciting to see is this like a little bit of skeptic skepticism you don't really know what to think about this you just have more questions from Matt what do you what's your take on this that's that's I think it's super interesting um and I'm very curious about it but like I've I've read the uh I guess there was a white paper um and some tweet threads and things and I I can't say that I totally understand what they're going for um so yeah mostly I just have a bunch of questions I think my first question would just be um you know if this is if institutional Defy is just for institutions um like why does it have to be on a public blockchain why not just have a

permission you know if the pools are permissioned why not just have it all on a permissioned private blockchain uh it's a good question I I think there's a couple of reasons right so the first is like you can have a much more trustless system if you have like you know incredibly neutral validator sets right um and so you know there's a question of like where do you draw the line on like who's institutional right like if you're like a high net worth person who's trying to trade uh a JPEG or send some a fair amount of like you know money to someone than like having you know like yeah you can do it through a bank and it's effectively a private blockchain right but you might feel more comfortable knowing that like all the Logics being executed as intended being

able to like read through that contract and then being able to to see that it actually makes it like onto a chain it makes it a little bit more like permanent I guess so it helps like the trust assumptions a little bit relative to like the you know we've all we've all heard like a lot of talk around like oh like what if all the banks just rent their own blockchains like a ripple model right um but you know having this like credibly neutral set of validators makes it uh and you know we can get it's a weird time to be saying the words credibly neutral validators but um you know hopefully that's the vision right um and and then you know the other thing is really from a regulatory perspective um a lot of financial institutions don't really or can't really get into the game

of operating what looks like an exchange um and so being able to like Outsource course the the liab the the legal liability is is somewhat valuable to you right so so you mentioned High net worth individuals um do you imagine that uh retail customers of the banks will be able to interact with the banks on these blockchains I was kind of working on the assumption that it was going to be just you know uh uh Banks versus Banks um I so I think like for asset tokenization broadly right um there's uh there's like a spectrum of like what people can and can't do right so you know I don't think like individuals are going to be like

providing liquidity to like the JP Morgan Singapore dollar JP Morgan JPY pool anytime soon um but you know you can imagine if you're like if you're raising a fund right like so and something that you would typically sell to say financial advisors right um like a you know like a VC fund or a private Equity Fund um and then you need those like financial advisors to like distribute your product there's a middle person there um but you could potentially go direct to direct to customer right like if if all you need is that that assurance that the customer is legally allowed to buy and sell your product and so you know you can imagine a world where like we have tokenized XYZ products and the users go through

um an app or like like a you know fintech front end uh that executes those trades on their behalf because the front end really their primary value in this in this world would be that they actually execute the kyc too and they they hold track of the database of like who's allowed to touch what um but you know like asset tokenization is a weird one right because there's so many different kinds of assets and so many different kinds of permissions you have to have um but but you know I I'm broadly bullish that like we get to a place where it's not just like three Banks interacting with each other like trading FX it feels like a toy now right yeah I'm I'm kind of assuming that it's uh it's mostly about uh you know kind of cost cutting on

interbank transactions uh but it sounds like but you're that was kind of my impression from reading the white paper um but it sounds like you think it's it could be a lot more than that yeah totally um I mean you know you always have to ask yourself like how much cost do you really cut right like when did the gas fees pay for themselves and like when did the smart contract developers pay for themselves what is the Smart contract risk like become like underwritable uh relative to like employing three people you know one at each bank that are gonna like call each other over the phone and like execute those settlements um but the way I understand it is that like a lot of assets when they get uh when they get passed from one institution to another it actually does incur a fair amount of cost on the back

end there are like companies that um that provide those like asset transfer services that tend to take a reasonably sized chunk um so you know yeah it's one it's one part car cost it's one part just like assurances that like that third party is not gonna like mess with you um and then one part like broader Financial access for you know albeit like in a not fully permissionless way it's still broader I think a lot of the cost cutting would also um just be in the atomic settlement right so then that would remove the need for every single participant having like large deposits sitting around um yeah do you think there will ever be touch points between institutional defy

and the rest of defy are these going to be just completely different parallel systems I mean now we're getting philosophical but I would hope not um because I think it's really important for defy to exist in uh in a format that looks like what it does today in a permissionless like you know just the con just you the contract and the rest of the world being able to interact with it as you please as like individuals and then I think institutional defy should should exist in its own in its own little bubble and you know my fear is that like as you you know in a world where those touch institutional devices like like severely overwhelms it and we lose a little bit of like the

permissionlessness that makes this important I have a feeling that um yeah so sorry I I just like one one thought on that Byron is I I don't know if you guys listen to the Eric Voorhees Sam bankman freed podcast on Bank list but if anyone's listening to this and hasn't listened to that I'd really recommend it it's a really interesting conversation but I think you could see a world not that I I hope that this isn't the world that we see but I think you could see a world where um D5 like permissionless D5 is like the playground right like right right now if you want to go build Financial products it takes years to go build Financial products in D5 you can build a financial product in days or weeks right so you could have D5 as this like playground of financial activity and then one

something feels like it's getting big enough or one something you almost want to like take it mainstream it goes into that like that I I like hate to say this but the permission to defy world and again I really hope this isn't the world that that we end up living in um because I do think all this stuff should be permissionless but I don't know I'm just reading Ty's tweet here it's like tweet number four tweet number five he said sidebar as a heavily regulated Bank we cannot enable money laundering and must undertake kyc using verifiable credentials and allow list was crucial for us for enabling us to use D5 pools with certainty on these points institutional defy exclamation mark and that just tells me it's like I don't know I even saw the folks who are uh participating in Ave Arc

um from the get-go is like GSR ribbit qcp wintermute coin chairs like these are pretty crypto native funds and it's like I think even that even these crypto native funds want to participate in this kyc aml'd part of D5 so yeah it's a it's a it's a weird state that we live in right where like if you're like a winter mute or a GSR like on one hand you want to encourage like permissionless Innovation as much as you can but on the other hand if you have like a profitable opportunity to take in the permission part of the world then like you gotta you gotta take it right yeah Byron what else I got you off before um

yes and like do you do you think this is going to be something that gets a lot of attention in the D5 Community or is it going to be like sort of like JP Morgan coin like uh you know that's nice but it has nothing to do with this really um I mean it's uh It's Tricky right because there's two sides of the defy community and the one that makes the noise is like the speculative side um I think like you could probably say this about like a lot of crypto applications right um and so like where's the speculation in like JPM coin that like I can't participate in as a user doesn't really land uh but then I like when I first read about all of this stuff I read about it from a place of

like pessimism and negativity and and doubt because we've had so many years of so many announcements of things that quote happened on chain and like never had like the transaction hash never actually had you could never check the chain and verify that any of it happened I think the ECB like tokenized like Euro bonds like a year and a half ago but like which which blockchain they didn't tell us right like uh you know like how did the how did the bonds work are they working no no real info right um so you know it's it's a little interesting to see something that actually legitimately happened you know to a degree there's a lot of trust right like does JP Morgan actually hold the SGD to like back up these liabilities but when when like institutions are

actually like pressing the button to like send transactions on chain that's a big step and you know I don't think we've seen anything at a similar level of like real actual participation from traditional like Banks right um so I don't think it's going to make waves despite it being like a kind of a big deal like the fact that these guys have wallets right the fact that they have private keys and they're figuring out how to like what the best practices are for like custodying and all of that that's that's pretty meaningful um but yeah I I don't know I don't see it Making Waves in the D5 space or really in the institutional space um I I don't know I I think that this use case is really small is the other

issue right like if you think about like okay Singaporean dollar Japanese Yen some kind of like loan it's it's not you know it's not like meaningful to your average person working at an institution who does really have to deal with like overnight FX rates right uh like it's you know it's a little bit like neither here nor there but you know maybe the next one is a lot bigger maybe it's like a you know a money market fund or like commercial paper or like you know like slowly we'll start getting bigger and bigger things um and you know now that sort of these companies have like the mindset and Tech in place to actually execute stuff on chain you know you can imagine it getting like snowballing really quickly like it feels a little bit like the hard

part in the infrastructure is there and we've seen like signals at least that there is institutional Comfort um you know it's not hard to imagine like you know it's a little bit like the iPhone right like the hardware is there the App Store is there you know building the application is is just software obviously building software is hard but you know it is just software when like you already have like the full supply chain in place do you think there's a risk that um Regulators will look at this and say oh yeah we like that we're totally comfortable with that that's allowed and that's the only kind of D5 lab so now we're just gonna just ban all the rest of all the rest of D5 if you don't have these uh verified chain kyc things then

you can't do D5 well that would be brutal yeah it feels like there's a risk of that right I don't know what do you what do you all think I think that's a possibility I would take the other side of what you just said before though Matt about um you're like that that this isn't that big of a deal and that people don't care about it that much I I think this use case is incredibly small obviously but the interesting thing from the most interesting thing from this in my mind was that uh was just seeing ties public thread and seeing how how you can just read between the lines and see how knowledgeable he is and how inherently how knowledgeable that team must be when they're talking about when you're when you have JP Morgan talking about zero knowledge proofs uh on chain verifiable

credential verification um I like interesting links to polygon scan right like polygon scan yeah exactly like these are not folks who are you know messing around on like you know just opening up like a an Anchorage or like a coinbase account like throwing some Ethan there and maybe even like getting crazy and staking it like they are changing things on chain and and that's and that's really interesting to me and and what that actually does is I think it tells The Regulators that they need to catch up so I think there's the possibility that Byron's right and they The Regulators say oh this this is a really nice version of D5 like we can get comfortable with this there's

another thing that happens though where a regulator looks at this and says okay zkp what the hell does that mean oh zero knowledge proof oh this is actually oh zero oh okay then now I'm going to try to actually understand what's going on with some of this stuff so I think it's just what they're doing here pushes everyone else to just speed up their uh the amount of information and and knowledge that that they need to have about what's going on yeah I I think to that in fact like Singapore is doing the world a huge service right by being so crypto native or crypto forward right um like you know uh when I was talking to people in the UK they were like yeah like our financial Authority is like issuing like you know licenses to people to like run crypto funds right you don't

see as much of that in the US or like you know it the the whole thing feels like much clunkier and you don't have access to the same opportunities uh and having JPMorgan you know participate in this experiment is like whoa hang on you know maybe now everyone every regular needs to think a little bit harder about how they're actually going to engage with this stuff yeah man I want to uh ask you a couple questions here one is why do you think that they chose Ave Arc instead of compound um I I don't know I think you know when when it comes to Ave right like you know we have the PayPal Mafia in web 2 like I I really think the Ave Mafia is going to be the web 3 version of that they're just like engaging a lot harder on a lot

of different fronts like lens protocol on one end right and then you have like avegachi right and then you have um you have Ave Arc I think Ave Arc was actually like a big deal maybe you know I don't know if the product really has much tvl or usage or or like good opportunities there um but as a press release it made a huge impact right now it's like every institution is familiar with lave Arc right um it is like the you know the optimal like way for if you're a traditional like Finance shop that's the you know you know you know about Firebox and you know about Ave Arc um that's my take I have another question here which is uh when will so so Paulie I feel like

polygons had a huge week right there's there's other big news that we could talk about which is Instagram rolled out minting for nfts um polygon is like the blockchain they chose from that when and again I and I know you're biased here because you work at polygon um so I don't know how much you can say about this but I'll just reinforce the fact that you do not represent polygons belief uh represent polygons beliefs here when do you think polygon declares independence from ethereum and becomes its own L1 in order to capture more value for Matic holders options could be next couple of years five years never what do you think about that

uh if you look at the polygon product suite and like everything that's getting built right now um it doesn't look like that's the plan right like you know polygon effectively launched this this layer one on its own with the full knowledge that like or you know got a side chain commit chain whatever and I'm gonna get for not calling it a layer two but it isn't it is a layer one right um and uh and you know that was like the stepping stone right like there's a reason why we raised all this money and are syncing it heavily into zero knowledge technology right because we do want to build uh the zkvm which just wanted to test that a few weeks ago right which is our like ZK uh roll up um I think ethereum it's already like I

was having a conversation with someone the other day like why does Bitcoin have value and it's like immediately apparent to to us if like if Bitcoin was one of the key ways that you got into the space obviously Bitcoin has value right that's just like a no-brainer uh but for someone that's entering not through Bitcoin it's a much more confusing space and you don't understand why Bitcoin is at number one in terms of market cap um I think ethereum has reached a similar level of like Lindy effect where it's here it's here forever right um and it and it is gonna like serve as that global settlement layer um and there's advantages to that you need your staking token to be like as you know high value as possible to have maximum security on the network and so there's there's an advantage to like having everything sort of like uh

converge on ethereum as the settlement layer um and if you look at like polygons Tech like basically where we're investing our time and money and effort is in you know ways to scale ethereum rather than like serve as an alternative um I mean you can even see it like sandeep's tweet about Instagram he was like we're bringing ethereum to the world right uh it's it's just like very aligned and and you know that's been advantageous for polygon from the crypto native side because if you're a crypto native Builder and you would have built on ethereum three years ago but then you saw what happened at gas prices this last cycle and you know now you're now you have to rethink things if you're you know your natural first step is likely polygon and then if you start thinking

about another evm compatible chain like Avalanche and Phantom and Harmony like it reopens your world now you have to near right you have to rethink a whole lot of things um versus like polygon it feels like scalable ethereum it's like it's the best way to tagline they could have I'm just thinking though like how much of that last sentence I think is one of the most important sentences I'm trying to think about how much of this is marketing because um so so you remember so last year last summer uh polygon introduced a veil which was like their I think they called it like the robust general purpose scalable data availability buzzword buzzword like basically they're building their own uh data availability layer right and once that's live I don't know what stage it's at right now but like

once their data availability layer is live it makes me think like what do you need the ethereum L1 for in my mind what you need the ethereum L1 for is having the whole Community continue to love you because once you move off of that and once you settle back to your data availability layer now you're now you're kind of in the bucket of like Avalanche and salon and things like that or the eth crowd doesn't like you but right now did that when you're when your Roll-Ups are settling back to ethereum the youth crowd likes you do you know what I'm saying yeah I I do um and I'm like admittedly not as educated on data availability as as uh I should be um but I think the uh I think it's really about security at that point

right like your datability layer still has validators right it still has it's like its own blockchain of blockchains right um it's a little bit more verifiable because you can take like sub sampling or something and have like more like you have like clients like more directly participate in validating the chain um but you still have to have some kind of staked token or something or you know a similar model it's you know probably on Avail is like still very much in r d phases but you know you still you still need some security right um and you know I think the reason we haven't seen more talk around separating out the data availability layer is that like the rest of the world isn't quite in a place where we necessarily want that yet

um and you know you could even think of like the beacon chain as its own data availability layer right but it's like the highest Security One um where like once we get charting and we get like you know more slots and all that uh it's you know it becomes like a place that blockchains post data like the shards of blockchains Plus data or whatever um yeah it's uh it's a good it's a good question how much is marketing I I think everything in crypto is primarily marketing at this point well son I mean we're discussing a press release right well son uh Byron any other thoughts or questions on the on the JP Morgan side of things or or on polygon really

anything else that's on your mind right now um I don't know I guess I guess one question I had was about the scalability so uh I guess one of the selling points or talking points was that um this solves the scalability problem of stable coins and I wasn't sure exactly what they were referring to I think that was in the Tweet thread that Jason mentioned um before do you know do you know what they're referring to them boy I got to tell you it feels like the opposite right because this is like a stable coin that like two parties get to interact with like I completely I I know exactly what you're talking about it was like the second thread it's like look you know we have JPMorgan SGD uh which

solves the problem of like deploying stable tokens with and without incurring the scalability issues of stable coins like what um you know I I do think scalability in terms of gas is important though because if you think about these like on-chain verifiable credentials this stuff gets really complicated really quickly if you're like an asset manager and you're trying to like tokenize some Financial product like you know you might have like today you have like pages and pages of legal documents specifying exactly what needs to happen in order for someone to be able to buy it right um so you know being able to like have this like arbitrary like verifiable credential it's not really possible directly on the L1 because what you don't want is you don't want

institutions coming in being like yeah yeah I'll trade you some you know JPY for SGD uh okay great like and then they go on chain they're like oh my God the gas fees right or like you know they're someone's trying to deploy a contract and like maybe it hits the gas limit right um so I I think going to polygon is basically for for that reason here so the we're going to polygon is for the reason that it's uh it's physically the cheaper gas like you know what you're getting right yeah um like you're not gonna hit a point where like you have some workflow where you settle some things on chain today and then you try and do it tomorrow and like all of a sudden gas fees are eight times more expensive because like art gobblers are going wild but there's I mean there must be a security element

too like how did uh how did polygon convince JP Morgan that they that their security was was you know sufficient for for institutional sized banking um I think when it comes to security of like any like proof of stake system it's about like the staked assets right um you know what what trust assumptions do you have to make Etc uh I'd expect a lot more of this institutional stuff to go to ZK Roll-Ups in the future to be honest like this one obviously launched on the existing like layer one because you know people wanted to press ahead and get things done and like you know that's that's a core part of the the industry right uh but yeah I think this stuff's gonna live on like you know gas efficiency K Roll-Ups in the future could it be on multiple teams that I

feel like like the way I conceptualize it is that it's all these Banks agreeing to share a database basically like the the essential problem is that they all keep their they all keep their individual databases and then when they trade with each other they all update their individual databases then they have to hope that they updated them the same way so my assumption is that like the the benefit of institutional defies that they'd all be sharing one big database but then if it's on multiple chains that would kind of defeat the purpose right so is it um you know is institutional D5 just is it going to be just on one chain do you think yeah I I think so and I think you're seeing like

a pretty big marketing push from both Avalanche and polygon on that end right like avalanche's mission in life is to you know tokenize the world's assets right um and you know to a degree like you can see in their marketing right like Avalanche was buying out like subway cars in New York City which was absolutely wild um and then they bought like the train cars that went between New York and Connecticut right um like uh you know they've made a pretty heavy push in the institutional's face I think polygon um at least you know from what I've seen is is attempting to to play in a similar space um and it's going to come down to business development okay and he said they I he said they're tokenizing assets but

that's that reminds me of my other question which is that uh JPMorgan said they've uh tokenized liabilities of the bank which I don't totally understand like in what sense are these liabilities in the bank like if I if I have a uh bank account with JPMorgan uh that is liability of the bank because I can go to an ATM machine and get cash and they you know they have to give me cash um but I don't really understand how that like how that works in the context of a blockchain like I can't go to the blockchain and get cash and I can't go to like uh I can't take their tokenized JPY and send it to some other bank I don't think so um do you have a sense of uh in in what

sense these are tokenized liabilities the way I read it is it's basically like a stable coin that's represented by a you know by like a Singaporean dollar in a bank account somewhere similar to like Circle right like each usdc is like a liability of circle uh and they can be like redeemed for a US dollar right so that's but they I guess I guess I understand the Redemption mechanism at Circle but I'm not sure what the mechanism would be in institutional defy I guess that's kind of my question uh yeah I mean in this example you know there's there's three parties and they go to they go to each other at the end of the day and they say nice job on the tokenization experiment guys can I get my can I get my Singaporean dollars please um you know who knows right like it's

that there's a whole bunch of trust assumptions there too right come on about anything else this is like it was the most fun I've I've ever had talking about institutionally about it give me both my friend uh Matt anything else from this week that just really stood out to you it was a surprisingly active week just in the for the bear market like uh everything going on with Instagram and their nfts there's actually a lot going on with nfts right now Instagram and their nfts Twitters uh rolling out the ability to buy and sell uh nfts directly from tweets uh art gobblers also had an interesting week anything that's just top of mind for you as we as you think about wrapping up the week uh you know like the social stuff is so interesting right

um like because you've got it coming from two ends here you've got like the lens protocol like I'm going to directly have a crypto native platform where my users are going to understand what they're doing when they submit a tweet or when they you know send a photo to the chain uh or like something or collect it or whatever then you have the um the web 2 side of it which is you know you can link up your metamask you can link up your Phantom wallet you know you can you can directly admit a tweet from the chain um it reminds me of that one Tweet someone collected the first tweet for like millions of dollars back in back in the day this is like the biggest cringe story now it's now it's like can't get sold for five bucks um like uh anyway I think it's so

interesting that we have these two sort of competing on-ramps for users right like are people going to be onboarded to web3 social through web3 or through social um and when you're onboarding through social like you have to really worry about the user experience right so for example like there's no cost to the user to Mint an nft on polygon on Instagram right and that's like clearly subsidized I don't know by who right uh but like are people gonna keep doing that when they have to sign a transaction like what's going on with like you know like you still have to link I think a crypto wallet in order to do these nft activities on Instagram so you know to what degree is like the the population

using these things really that different um I I just think that like um we need like better private Key Management Solutions for for web3 social um to to work like when I try to check like you know I made the mistake of minting my lens profile to like a wallet that's like linked to my like Ledger right and I'm like I'm sure I can transfer the profile but like I I don't actually know if there's a good tool for me to do that and I don't feel like you know going to polygon scan to do it um it's like now I have to get my ledger out every time I want to check like you know Leinster or lens friends or whatever um uh I don't know I I personally Super Bowl up on social as a way to um to directly like demonstrate how a

lot of the like great qualities that we love about crypto the censorship resistance the composability um that sort of like you know like you were saying fire in like that that one database where everyone comes together and agrees on things right um so it's just it's really interesting to see the big web tube I feel like it's been a week of just like big companies that like weren't touching crypto before taking some big steps into into crypto in general yeah agreed I mean I don't know if you listen to that episode we did on Empire earlier this week with arbitrum but it was interested uh our arbitrim's team came on the podcast with Santiago and who's just interesting hearing them talk about how the whole Reddit deal went down so that was not that's not a new thing like they

put out a call like an RFP actually I think a year and a half or two years ago saying we want to launch this like uh uh putting some data basically on a blockchain and I think like 15 different companies or organizations competed on that and arbitrum actually won it and they've been building that for like 15 months and so now it's finally live so I think there's a lot of stuff and even with this JP Morgan thing I mean people say institutions move slowly this is one trade 10 years in the making right yeah I mean and you know you fast forward 10 years right and it's like you know today you have a big enough core group of people within JP Morgan to get them to participate in something like this but in 10 more years you know half of the employees at JP Morgan have a lens

profile and have interacted with the chain in some way and you know you hit this Tipping Point really quickly where suddenly it's like you know like it can come through like larger you know like like a coup like an Elon Musk you know take over or Twitter uh or it can come like slowly from within but but you hit this like core density really you know really suddenly um and you know it's gonna be pretty cool to see how that plays out occupy JP Morgan occupied JP Morgan guys this is a great chat Matt thanks for coming on so last minute I appreciate it Byron this is awesome as always go subscribe to black horse's daily newsletter if you're not subscribed already we'll put a link in the show notes see you guys next time

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