The Missing Pieces for Institutional Adoption

Transcript

I'm here to talk to you guys a little bit about something that everyone's been talking about for the last couple of years now when it comes to crypto, but I'm here to talk about a little bit more of the reality of what's going on as opposed to what we've been seeing sort of in the headlines. And that is what are the missing pieces when it comes to institutional adoption. And a little bit about me, though she was very gracious enough to hype me up. I am one of the co-founders of MyDinh. I've been a consultant with the UNICEF crypto fund. I contribute with Forbes Crypto. I write with CoinDesk. All of this to say, I've been doing this for a very very long time.

And I've been fortunate to be able to speak to a lot of the best people in this industry, be invested in by some of the best people, and get insights that are really nice to be able to share. So, what is MyDinh? MyDinh is a next-generation ZK blockchain. We raised $25 million last year from a16z crypto, 1KX, Hack, and many others. And the idea is basically that to date, we've primarily seen blockchains are either fully public or fully private. And we see that there are issues with both of those. One creates a world where there is a dystopian

financial surveillance. And then the other one creates a situation where it's actually quite easy for illicit things to happen, and that's not a good thing. And what we've primarily seen when it comes to solving for this is the idea of creating permissioned chains. And while I don't think the average person cares about decentralization. They do care about the idea of counterparty risk. And so, we've been looking at having a blockchain that solves for how do you give privacy and compliance to individuals and institutions at the same time? And we've been mainly focused at what does it look like to onboard these institutions?

So, why does institutional adoption even matter, right? And the reality is that the scale and credibility it brings is going to actually bring the mainstream adoption we've been looking for. The The billion people won't come from a billion people getting on and playing with meme coins. It's going to come with a billion people who have access to real money sitting in financial institutions going on chain. And what we've seen is exactly that actually from from TradFi is that the 2024 bull run was very much so started by BlackRock starting their ETF.

The reality though is the current state of things is that we're for the most part in pilots. We're not really in full deployment yet. So, this is me on stage last week on the left, yes, with the head of digital assets at Invesco, their two and a half trillion-dollar fund. And then on the right with Amy Oldenburg who leads digital asset strategy at Morgan Stanley, another two and a half trillion-dollar company. And in putting some of these thoughts together, I've been fortunate enough essentially to speak with some of the largest and best individuals and institutions that are around.

So, I bucket this sort of into three things, the institutional perspective, right? One is risk, compliance, and predictability. The other is liquidity, interoperability, operational clarity. And then finally, one of the ones we hear very often about is regulatory clarity. And why has adoption stalled? And so, despite real Despite what you could call real progress, there's actually been actual lags in a lot of this. Many of the pilots don't scale to production. You know, if you think about the the fiat assets that are sitting with a lot of these institutions versus the things that we're hearing about when it comes to what they have on crypto, it's a very different. And so, what it is is that there's a very big difference

between what we're hearing about in the headlines and what's actually going on behind closed doors in the boardroom. And the four obstacles in solving this sort of fall into these buckets of technical regulatory compliance operational and governance, and then cultural and organizational. First of these in terms of technical barrier is compliant privacy, which is what we're looking to solve for. These institutions need to be able to abide by laws that they just must. And to date, we haven't really had the ability to do that. Uh there're challenges with interoperability. When you look at the different chains and fragmentation in liquidity across them, and what does it look like to try to bridge them? And I mean, never mind all of the hacks these

days. What goes on with liquidity pools? The average person doesn't even know what that means. There's real delays in settlements when you're trying to do things. Financial institutions need to clear things at the end of a day, and you could really think of most of them as really inefficient tons of databases that have reconciliation processes, but they've been able to figure that out over the last 100 plus years. There's not nearly enough custody providers. We need more redundancy in that. There's honestly still not enough stablecoin providers. There's huge issues when it comes to risk tooling.

There's nothing at least from the institutional-grade perspective. And then liquidity depth. If you're one of these large organizations thinking about the amount of capital that it is that you're looking to deploy, you're going to destroy the price charts. And so, are you really able to actually deploy in a real way and turn this into something or is this just like a fun toy for retail to be able to play with? And these have been some of the real questions that have come up when I've had conversations with these folks. Next comes regulatory and compliance barriers. Now, the regulatory uncertainty around token classifications, tax rules, like these have been very real things even as a founder myself. We have not created an onshore United States entity because my

lawyers told me that it was entirely plausible that we could have the SEC decide that we were having issues and they would be able to freeze our bank accounts and we would not be able to actually make payroll. Now, if you told me that I was starting any other kind of company in the US and you told me, "Hey, you're not doing anything illegal, but I'm just letting you know that the government may come after you. They may seize your assets. They may try to arrest you." You would say that's absolutely crazy. But, that's the reality that we live in. And even though genius has passed and we're hopefully getting towards clarity, this is something that these institutions care a lot about.

Auditing and reporting. These are things that are very boring, but extremely important and we don't have comprehensive things that have actually been created to be able to do this. Insurance shortages, right? Insurance is a very real thing that needs to be done for these institutions and just think about the hacks that we've seen in the last 3 months alone and what that would look like if there were actual like imagine if there was bank hacks and they had to deal with this kind of stuff and we just sort of laugh it off and see this as but for these institutions, this is a very real thing. And then tax complex tax complexity and you know, when you're thinking about sending money across borders, like who does that sit with? And it goes back to the

regulations of like if your money crosses three borders, where do the tax laws on that sit? And then reputational risk, right? I mean, imagine that, you know, I had spoken to the New York Knicks a a years back when we were I was at a different company and we were talking about the idea of a logo on their jersey and they said that they had completely closed off the idea of talking to crypto companies because they were in the final stages of closing a deal with FTX before it blew up. And these are real things. Operations and governance barriers, counterparty risk. There's I had to learn what a service level agreement is, but these are very common things that are instituted across institutions that that don't really exist and that creates operational risk.

Governance transparency. I mean, anyone who's worked in I don't know, let's talk about DAOs. Like there's there's just decentralization theater. There's usually whales behind closed doors who have the control of everything. There's been people complaining today or yesterday about the way that the DAO for Morpheus worked when it came to being able to sell tokens for their most fun for their most recent fundraise. Lock-in fears for vendors, economic incentives. I mean, I don't think that there's been almost a single token model that's been created to date that has actually been something that we could argue really works. I mean, like giving away a bunch of free money and creating sell pressure through airdrops is not how you actually create demand for anything that you're doing, but these are the things that are being touted as

like best in industry standard. Cultural and organizational. Quarterly earnings pressure was one of the things that I had not thought about. But around this time last year, I remember speaking with one of the large financial institutions and I asked them, what was it that made things so difficult? And she said, if you think about the balance sheet that we have in fiat and the fact that every quarter we have earnings reports going out that the people who really run the company very quickly say, we need to care about making sure that this goes well when it comes to the quarterly earnings report because that affects the stock price. And there's just not nearly enough crypto on the balance sheet to actually give it priority when those things come about. A talent shortages. I mean, if you think

about most of us are sort of custom to it, but I you know, you can't hire someone with the JPEG of like a pickle or a monkey and who doesn't want to give you their name as someone who's supposed to be your like best developer. Um risk-averse culture as well, right? Like these are people who've been doing stuff the same exact way for decades and decades and decades. The idea of bringing on new tech that's scary with all of these things is very difficult for them. And so, because of that, reputationally, they're extremely conservative. And then, internal knowledge gaps. This has absolutely been one of the biggest things that I've seen is that the people who are evangelists behind closed doors for crypto are

usually not the ones who are the final decision-makers. And in the last few months, maybe half a year, I've been seeing that's changing more and more where leadership is deciding that this really needs to actually matter. Part of that has been because, you know, in the past year, if you look at Robinhood's quarterly earning reports, you'll see that over 50% of what they were earning was coming from crypto, but the reality has been to date that like the people who inside are evangelists for getting digital assets, they're not the ones who can actually make the decision. They have to then go and convince a bunch of other people. When When I was on stage with Kathleen last week from Invesco, one of the things she said to me that was super surprising was she said that whenever they launch a new product, 50 different teams need to sign off. That

means even once you've come to an agreement, you need to get 50 different teams to say yes to something. I mapped this out real quick. If you think about, you know, technical, non-technical, internal, and external, sort of like what those buckets end up looking like. And where is the industry making progress? Not to leave this on a gloomy note. Privacy tech is doing excellent. I'm biased in believing that, of course, but it's been one that's been making real headway. Stablecoin regulations with MiCA and GeNES. Hopefully clarity passes. We've seen a bunch of institutional DeFi pilots. I think the idea of DeFi as a word is going to die soon and we're just going to call it on-chain finance. I really hope that comes sooner.

But there's been a ton of things going on, a ton of hiring going on, and the institutions realize this actually matters, which is ironic at the same time because everyone in crypto thinks we're in this like terrible bear. What's it going to take to cross the chasm? So, in my opinion, it means collaborating with regulators, builders, and institutions all coming together to figure out how to solve these problems. We need to look at trust, compliance, and for the love of God, usability. And then long-term vision over short-term hype. This entire industry has been built on every 6 months there's a couple new projects that are the biggest and most important things ever, and then they launch token, and then the

token does well for maybe a month, and all of the TVL that they bought goes away, and then the incentives go away, and then everyone is just waiting for us to be able to get to the next project. We need to be able to really move away from that and as an as an industry, not just as individuals, so that we can actually focus on what makes sense over 3, 5, and 10 years, so that we can be taken more seriously. So, yeah. Thank you very much.