Welcome to RWA Summer

Transcript

to him yes great hello everybody so before I start my talk I want to start with a little story it actually happened sort of sort of on the way here um I have to make a confession small one um I like when I'm really like exhausted especially on on planes traveling I like to watch really cheesy rom-coms it just helps me to shut off um so I travel a lot I go through a lot of them obviously um but most more recently actually randomly as usual on these planes I click one of the first movies that come

up and it was called Bank of Dave and it's a British movie about this self-made millionaire that works lives in a small town started out trying to give his customers that were buying delivery lands from him loans and it started growing and growing and the re and what he realized was that Banks were serving this community very poorly because it was just too small it was hard to underwrite these loans but he knew everyone in the community so he knew who he could give money to without taking any any unnecessary risk and he knew how helpful it is for the community so long story short he tries to start a

bank couldn't get the license approved fought with the British Regulators have to go through all this paperwork almost got pulled into court like a very and then and then of course the rom-com comes in and his lawyer falls in love with his niece and and and uh that's the end of the story but the thing that really excited me or the thing that is like oh yeah like this is well I'm not uh playing living out the plot of of some weird rom-com I do definitely identify with the uh motivation that uh Dave has which is trying to actually build Financial products that help the people we think we need to help and that's also my motivation of why I got into uh crypto into ethereum like six years ago

so if you're ever on a plane and you need to turn off your brain for a while uh go go watch uh uh the bank of Dave um so yeah I want to talk about real world assets today and why I think that it's going to be the next big summer we'll have in D5 and why it delivers on building for real world impact um so maybe super quick introduction about myself I worked in web 2 for about 10 years before going into crypto in 2017. I love to code I love to build stuff started in e-commerce and had kind of like a career throughout

various different areas of uh social media and then ultimately SAS and then fintech and in fintech working for a San Francisco startup we worked with some of the largest companies in the world Airbus Toyota Coca-Cola and their suppliers who actually helped Coca-Cola Finance their supply chain and one thing that became very clear to me is it's kind of obvious but you don't really think about it when you're just an engineer trying to build software is that if you have a treasury Department with a few hundred people that just make sure you have the best access to money always at the best prices right it's much easier to build and run your

business than if you're a small small business trying to get a twenty thousand dollar loan here a hundred thousand dollar loan there right so what does this mean actually in in exact numbers Fortune 500 companies Global 2000 companies they borrow money at the rate of like risk-free plus 50 80 maybe at most 100 basis points that's today five and a half six percent as a small business in the US you pay between 12 and 20 percent uh for your for your working capital so think of that difference now if you wanna if you're building something and you're not

Toyota you're a startup trying to build something in the automotive industry you already have like a huge disadvantage just because your cost of capital is so much higher so this is why we wanted to use the blockchain to make this more efficient make this better right so fast forward now about seven years out of my last job and six years into crypto I think we're finally starting to see what this could actually look like um I'm talking here to a group of people most of you have probably already heard about the idea of real world assets or the fact that there are now assets that exist on chain that actually represent a claim against some off-chain asset like

uh car loan or a piece of real estate or a commodity or just equities right here it is so basically real old acids it's just a very broadly the idea that we can use all this Tech these D5 money Legos that we've built to leverage them to bring traditional assets on and serve to users um much more efficiently using that technology using the transparent blockchain the trans the automated smart contracts that we know are kind of trustless and and we everyone understands how they work right and so let's talk about how actually real world assets work what I think are some of the

opportunities and where maybe you guys can start uh building on them so a bit about centrifuge um I think we I can safely say that we were a bit of a Pioneer in this as you can see we we started actually the first test transaction we did in 2019 then um 21 we actually minted the first die with maker it was about it was a 5 million uh yeah it was a 5 or 15 million dollar debt ceiling for new silver new silver uh is a Fix and Flip mortgage company so they finance real estate entrepreneurs

that are buying rundown houses renovating them and then want to sell them so new silver in the last couple of years has financed over 100 loans they've originated I think um sorry over 300 loans originated almost 100 million dollars in loans and from there it's been kind of like growing very slowly to at some point like obviously been been growing started to grow much much faster and I think as more and more people understood actually that we can tokenize these as we can make them compatible with D5 I think we've we're starting to go back to a to maybe for a lot of people that got into crypto in the early days is maybe a more uh more true to what we actually

wanted to build right we built like Bitcoin white paper the a lot of the ideas around early crypto is not to like create an alternative virtual world but to fix the problems that people have today and with real world assets we're starting to do that um at the same time like if you look at D5 today like we have a bit of a problem because while the FED funds rate so risk-free rate or whatever you want to call it um has been going up like defy collateralized lending has gone up a little bit but not much right so effectively what that means like on-chain opportunities are actually pretty small versus the off-chain opportunities that have been growing

quite a bit and obviously if we actually manage to bring often opportunities into this then we can kind of level the playing field at the same time just about every Bank every consulting company they started having positions on tokenizations on how much of assets traditional assets come online right and this is just one of them is actually kind of a middle of the field Boston Consulting Group estimates it to be about 16 trillion by 2030 right so just to put that into perspective we're measuring D5 tvl still in the billions so their estimate puts that at a

thousand several thousand X now of course in the in the real world it's actually quite normal to measure asset classes in the trillions um JP Morgan I think has 25 trillion assets under management right so if we think of like scaling defy like this is a massive opportunity um on the other side when we I talked about the borrowers getting access to Capital which they obviously all need but we also have the lender said want yield uh if you're in Europe your high net worth individual you can go to your

investment bank and you can say okay I'd like to buy treasuries I'd like to buy some private credits some Venture Capital some stocks and maybe all of this other stuff as well if you are not then you can be happy that a Robin Hood will allow you to buy some stocks and maybe you can get an A coinbase account to buy some crypto but a lot of opportunities to actually get yield or closed off to you because you're not in the uh not connected to the private private credit Market you don't have like access to these products you can't just say oh I'd like to invest five thousand dollars into a VC fund for example um so Wall Street really managed to wall off Main Street and so to speak like the S1 process right of like going public

registering a fund like it's it's incredibly laborious and so for most opportunities people just don't do it so that creates like a system where today we have uh kind of like this Insider system and then we have like retail and I think that's just wrong like in the end what that results in is there's a bunch of intermediaries that make sure that when someone borrows as much money gets accrued to Wall Street and then like retail investors can go in Pension funds Etc but in the end a lot of a lot of value gets lost right um at the same time Finance is really eating our world this is actually a conservative estimate and it's also already uh 15 years old but I I couldn't find a more recent graph

quickly but uh current numbers estimate um percentage share of GDP of the financial industry to today be at around between 12 to 20 percent of global GDP so if you think about it when you buy your Starbucks Coffee your five dollars 50 50 cents of that goes to the people that run the financing infrastructure like credit card terminals like uh the Investment Bank that listed Starbucks stock the um the finances that Finance your supply chain right so like you could say what you want but I do think it's a bit too much and it

definitely should not continue growing like that I mean it was great to go into into Wall Street 80 years ago and I think it's as good of a time to go into defy today because this is a massive opportunity to remove a lot of craft that has accumulated over the last couple of decades so oh the animation doesn't work too bad um well you can imagine what will happen so how good of a job are we doing um really at delivering on this vision of actually fixing Finance I could say absolutely terrible um but I could say actually also really good

of a collateral publicly 24 7 available you have maker which has been now live with the stable coin for almost six years it went live um I think November December 2017 and it's gone through massive massive turbulence in the market also people are starting to understand it like when you used to talk to Wall Street um you you would look at bit they would ask about Bitcoin as an executive asset class today they're asking questions about how it actually changes how they're working and what they're doing so we've been chugging along D5 is now a

couple years old how do we get it to really grow it's still a massive field of opportunities right it's users measured in the trailer in the in the hundreds of millions and billions its assets measured in the trillions it's waiting for it to be disrupted uh it's it's using infrastructure today that I you would be I could talk here for an hour and tell you stories about how funds are trying to look for fifty dollar discrepancies in their in their balance sheets that come from like a couple hundred million dollars in trades and they just spend a week looking through different spreadsheets talking to everybody and

you realize that like this uh this meme of like Finance being powered by a bunch of Excel spreadsheets actually is true um and if you accidentally delete a row in the spreadsheet you're going to spend a lot of time trying to figure out who deleted it why it got deleted and how you undo it so this is how Finance does work today right and it's definitely not how how D5 works today so I think right like when when looking at opportunities of how to fix uh chat fire with with um with defined reward assets like look at the transparency you can get versus FDX or really any other bankruptcy that is a massive mess where no one knows what's what is where and who who owns what and we've probably spent already

at least 100 million I think in in the bankruptcy of FDX right and it's only going to get worse and this FDX is maybe a particularly messy example but try to wind down any um any large like financial institution the same thing will happen I can talk about Silicon Valley Bank that like very cleverly hid a huge amount of losses until everyone freaked out and ran um wouldn't happen in uh an on-chain money market um two percent credit card fee processing fees is still normal and when you think about that small retailers right like the coffee shop around the corner they have a profit margin of about five percent so if you can cut out the two and a half

percent credit card processing fee you're not cutting out two and a half percent you're actually increasing their profit by 50 right so the scale of some of these things is actually quite massive um another use case Global like global global settlement of transactions like remittances cost on average 6.25 so imagine the poorest people in in the in the in the world relying on payments from their workers across the U.S for example right there's there's hundreds of millions of people sending money back to to their families and they're all paying like 6.25 on average for what you got to wonder for what and

you we already know actually ethereum today makes us look cheap right so uh the idea that we can just use a stable coin to settle something 24 7 immediately um is quite the shift so and of course we can compete on lending costs I think this is still kind of like quite staggering so I'll try to explain this graphic a bit um this is from the international monetary fund they looked at kind of structures of of different lenders so you have non-bank emergent markets you have Banks Emerging Markets uh non-bank America Europe Bank America Europe and then D5 platforms what you can see is the yellow is is kind of the the funding

cost right that's the cost of what your borrowers pay and that in in theory in an efficient market it shouldn't be that different um between D5 and the real world but then everything to the right of it right the labor costs the operating cost the margin that's all stuff that really shouldn't exist and you can see that like a D5 money market is already orders of magnitude better in basically providing a very simple Lending Service over a bank or non-bank uh lender right um so this is what we focus on which is well maybe a bit of an over complicated slide but we focus on basically connecting investors and borrowers which

is there's actually two parts it's the making sure we can securitize assets so bringing them on chain and then figuring out where how we can allow them to unlock liquidity pools right so IT addresses a few of those things it addresses the fund management Administration going from [Music] um going from like spreadsheets to having everything on chain and having a ledger that actually allows you to track it to figuring out how to actually connect this to D5 protocols like Ave maker Etc so I wanted to highlight a few things that we can do and I also wanted to um highlight maybe some of the learnings so when I got into crypto I didn't

couldn't care less about finance and I didn't know a thing about it probably I hardly understood what actually was at the root of the financial crisis in 2008 even though I definitely very vividly remember and so this is Maybe one thing that I I can say now probably I would have been ashamed of myself uh 15 years ago to say that but I'm I'm I would say I'm a finance person um not just a coder anymore and I realize how important it is I also realized that uh we need to take some of the learnings because not everything in finance is completely wrong right so diversify so we need to remove correlation D5 real world asses can do that we need to emphasize sound financial policies yield does not grow

in trees and there and everything else is kind of like asking mostly retail users to take unnecessary risks I.E anchor Luna yield farming whatever and we need to try to solve real problems because if we solve real problems we'll get support from the government from Banks from users and that's ultimately how we will make this Successful by actually building something that people want and that people can identify with and they can see so this is kind of my ask and I think my my message to everyone that thinks about defy and how we get get to the next bull market which is in my opinion really focusing on on these real applications for D5 so I wanted to invite you to kind of think of this field of opportunities and

go think about some of the numbers I mentioned do some research read a bit more talk to people that work in finance and have them explain to you how some of this stuff works and you'll see a lot of stuff that you can look at and you can fix and there's a lot of stuff that we're at centerfuge spending every day on to fix so I hope I was able to motivate you a bit and share my vision of D5 um Hope come join me [Applause] do we have a minute for questions or not okay so we have some opportunities for questions so if anyone has questions

please feel free to raise your hand thank you thanks a lot for your talk I guess the main question was about like two parts of your presentation where like one message was that Finance is behind the wall of Wall Street and not just Wall Street like governance Banks they're like dragons sitting on their treasuries and then on the other hand your message was to you know go out there for real like application to go to the real world and try to integrate with those systems so how do we Bridge it thank you we Bridge it by bringing those

assets into D5 right by taking uh loans that exist today and and tokenizing them and then figuring out how D5 protocols can be used which is what we've been doing right we've been um now for two years uh working with maker to bring uh real world assets to them and they now have actually a majority of their collateral is real world assets there's legal work behind the technical work et cetera Etc so that's that's where I would start because I'm a big fan you guys have been building for a long time right yes and recently uh we've seen treasury bills pick up quite a bit of volume in Hondo and some of these other things and Robert Lesner was on Laura's podcast

saying uh that you know demand has been the key issue right so when you essentially tokenize uh the property in Texas no one really wants it in Dubai there is very little demand for that sort of stuff or you know exotic assets whereas with US dollars or tables I think we've seen an acceleration of demand these assets are already liquid and the theory that tokenization will bring liquidity hasn't really quite played out whereas liquid assets seem to have a lot of fun chain demand so what does that mean for uh you know your future strategy and what's what are you building in the coming months or the next year or so that I should be excited about so so my

my take on treasuries is that it's an important part of it but it's not the only the only up up asset class the the reason my treasuries today make so much sense is because even in in the traditional in tratt-fi treasuries make sense because certainly the yield on Treasury is so much higher but like the other asset classes haven't like caught on so relative to everything else treasury yield is just much more interesting that create and relative to defy yield right treasure yield is actually higher which is why people are um are actually interested in it otherwise they wouldn't be um and that was different um even even a year ago right I think with with treasuries the good thing is it's very easy the bad thing is it's very easy the the yields you can

generate is is great but then the technology behind it I think in the in the long run like if comes on chain with a token there's no really no way you can differentiate yourself from a backrock ETF token and tokenized form if you're trying to build in this and which is why I think the long-term Focus has to be on assets that you can actually provide a benefit to like a BlackRock ETF it doesn't have any additional utility on chain like I can buy it in my Robinhood account like the user experience is probably for a long time going to be better if you look at illiquid assets that you make liquid you fundamentally change the game because if you now um have these assets and you can trade them right that means you your whole

calculation of of of this asset class is going to change because instead of having to hold it until whenever you get the money back you now know that you can sell it at any time right the same way that you can sell treasuries at any time or Corp or large corporate bonds and so I think that is like what we focus on nevertheless like I mean in the end Center if you're just pretty agnostic and we have we have some interesting stuff also with with treasuries that um I think will we're going to start talking about um soon but I can't I can't go too much into that today yeah Quick One A lot has been talked about when it comes to rwa even since a couple Cycles ago right uh and uh let's just be honest it's been going really

slow right when RW on D5 right what do you think are the key challenges we need to overcome for it to really to you know have acceptable Financial account so I like recently I I thought a lot about well like I've been doing this for five years six years and I need to make sure I have the energy to do it for another five years I probably will be doing it for another five years um it's slow I agree and it and I think one thing in crypto is everyone's very optimistic and so everyone thinks it's gonna go much faster um I I think it's actually been going pretty quickly compared to how the speed that Finance is moving on moving in general

and there is a lot of complexity like a lot of real world impact it's not just launching a social media app and like getting 100 million users overnight it is requiring like being very diligent with money right like if you want to get professional investors into this they're they're managing other people's money and if they lose that money that's the end of their of their career right so it's they have to be extremely careful and and I think that's it's slowly changing I think maker Dow has just has the Lindy effect a lot of the stuff in D5 doesn't have it yet where like people are still kind of okay I need to see maybe another couple of years until I'm actually willing to jump in so it'll definitely be a hockey stick but it'll

it this is on a time scale of 50 years right not on a time scale of the next five years but yeah I think this was the last question unfortunately but um hit me up on telegram if you have any any other questions thank you [Applause] [Music]