RWAs Done Right: Utility, Liquidity, and DeFi Values

Transcript

Hello, testing, testing. I don't think I'm on. All right, I am on. Hello, everybody. Clap if you can hear us. How about a good morning? There we go. Come on, everybody. It's CC. Let's go. Perfect timing this year. Everyone's a little more dressed and a little less sweaty. That's right. >> Good time of year. Super focused. How are you doing? Doing great. Good to be here. Flew all the way from New York City, landed this morning. Slept not a wink, but we are here and pumped and ready to go. We are talking real world assets tokenization, demystifying and how to do it right, or at least how we're trying to do it right.

>> trying to do it right. So, we wanted to represent two sides of the audience. You can't do it right without DeFi and TradFi represented. So, we want to ensure that we can share our experience, our learnings, the history, where we're at now, and then how we're thinking about the future. Uh Boji, CEO of Centrifuge. So, [snorts] Centrifuge has been around since 2017, one of the first to focus on tokenization. For us, that started as how do we explore use cases for different types of assets. So, early days was proving this hypothesis of bringing hard-to-access assets on chain to make them more broadly accessible to a global audience. So, that was music

royalties, that was IP, that was carbon credit, and that was making these assets accessible. Second big hypothesis we were solving was how do we create net new products on chain, and how do we bring transparency into these more structured products? We did a private credit fund, uh the first securitization on chain with BlockTower, and that was tokenizing the individual asset level, representing all of the data on chain, and then creating those structured products on chain from day one.

Now, we're really focused on institutional product development, working with great partners like Apollo, with Janus Henderson, with New York Life, and being their counterpart and thought partner on how do you tokenize your existing funds, how do you manage those funds on chain, and how do you integrate them and distribute them with on chain audiences and DeFi more broadly. So, we've always been focused on this intersection of trying to do RWAs right, which from our perspective, uh the the last keynote talked on a lot of, of course, the technical, the operational, the structural components, uh which I feel like we've, for the most part, solved and gotten to a really good place

around. What we've been focused on more so in the last year is what happens after tokenization. How do you integrate these products into DeFi, create liquidity, create utility for them? So, Centrifuge has been exploring this area since the beginning, worked really closely with MakerDAO back in 2021, and actually minted the first Dai stablecoin backed by a real world asset, worked with Aave uh to create the first lending market using real world assets, and now focused on really scaling and driving that distribution in a more programmatic way. So, that's some of the area I'll focus on from the DeFi perspective

today. Um but before we get deeper into that, Christine, uh share a little bit about not just your experience at Apollo, but what has tokenization looked like for you throughout your career? Yeah, sure. Um so, you know, introduction to myself, I'm a partner at Apollo. Apollo is a $900 billion asset manager uh focused on investing, just uh investing in private companies either in equities or in credit. Uh we also have a significant retirement services business. Our, you know, I would say mission in life is to help retirees retire better, and to help businesses become stronger by, you know, in and

through our investments, by essentially generating alpha through the investments that we make. Uh we have a 35-year track record, um and, you know, have have had a lot of experience there. Um and so, I lead digital assets there. Previously, joined about 4 years ago, previously I was at JP Morgan, and I built and led JP Morgan's blockchain program. And so, you know, essentially have done like pretty much like every TradFi use case on blockchain we can imagine. Um but, you know, my proudest achievements are, you know, basically took the first Ethereum implementation live at a bank.

Uh you know, so we actually had a permissioned version of Ethereum that we built. It was, you know, maybe referred to as Onyx, now referred to as Conexus. Uh invented JP Morgan Coin, which was intended to be JP Morgan's first bank-issued stablecoin in 2018, but we were just too early, and you know, even then we we realized that stablecoin business model actually doesn't match a bank's business model exa- exactly. So, it got bastardized and turned into something called tokenized deposits. Um and then created intraday repo, which allowed the ability to do collateralized borrowing and lending settled instantaneously, counted in minutes as opposed to days, which was the first

ever in TradFi. In retrospect, um you know, I guess what we did was build TradFi borrow lend, but just like, you know, kind of like a a very bank-flavored version of it. Um but all on Ethereum, actually. Uh and actually did a lot of early experimentation to try to bring privacy uh using Ethereum as well. Quorum was an early implementation, and also um did like a prototype of anonymous ether, which we tried to productionize, but we had like single-person risk on like the one person who understood how like the zero-knowledge proofs work, so it couldn't take it to production um early.

But anyway, so this is all to say, like it's been my life's purpose to try to figure out how to put traditional finance on blockchain, and to essentially challenge the status quo, and make a better financial system for all of us. Well, thank you. You just casually dropped when we were walking out that you have a trade you have the first trademark for tokenization. Oh, first patent. First patent. >> Yeah, first patent for tokenization. >> about that. Uh yeah, I usually talk about it, but now that now that we're here, uh So, when you're at a large organization, um when you're building something, uh you know, you often want to protect your intellectual property. Not to block anyone else from doing anything, but to

make sure that others don't try to block you from something that you're building. And so, we actually filed like a number of patents um at the time uh at the JP Morgan blockchain program. They're all public, but the first one that we did was on tokenization. And this is when tokenization was not yet a really defined term. And, you know, for us, we actually, you know, were thinking about the concept of taking assets that were sitting off chain, and how to represent them properly on chain. So, uh we actually called them uh digital receipts. So, you know, if you look up a patent on digital receipts, that's actually the first patent on tokenization that I know about. I think we filed it in couple years later

to JP Morgan. I don't have it myself. And we're not blocking anyone from doing tokenization. Just making sure other people didn't block us. There you go. Very early. Um okay, so when we talk about real world assets done right, we have a lot of conversations around with investors, with partners, with institutional managers of where are we in this cycle, and what's the point? So, we like to think of it in three primary buckets. So, up to now, for the most part, it's been how do you take off-chain products and raise capital for those products from on chain audiences.

So, taking on chain capital and bringing it off chain. The next evolution in this journey, and where we are now, what we're really focused on, is how are you making these products that are on chain better than their off-chain equivalent, so that you can take off-chain capital and bring it on chain. And then the third major time horizon is how are we bringing off-chain capital on chain for net new products that are being developed and built on chain. And that can look like on chain originations, or that can look like uh just blockchain running in the back as the technology that makes these systems and this process much better.

Um I'll spend a couple minutes talking about the first two categories, where we are, how we're thinking about those, and then want to pass to Christine to talk more about that third category, which is blockchain making systems better, and and using that to really bring new capital on chain. So, the first one is how we're taking on chain capital, and how we're taking off-chain products and bringing them on chain. Um everyone knows, you know, T-bills and how T-bills have become this in-demand asset, where we really started to see product market fit for real world assets. Where I think it gets much more interesting is when you start to think about RWAs as integrated on chain. So, the primary categories we're seeing for

the buy side are further uh integration and growth of yield-bearing stablecoins. So, of course, Sky is a major buyer and has been an early pioneer in thinking about real world assets as part of their reserve management, their treasury strategy. Um there's still huge growth for yield bearing stable coins and how they want to bring T-bills and bring AAA CLOs and some of these highly liquid fixed income products into their strategy. Where we're starting to see more um demand for products like our Apollo product, ACREDX, is how are you using these types of products in lending markets and how can LPs and liquid funds um deposit uh those assets as

collateral, borrow against them, drive these looping strategies, and start to have this um spread between real world assets and the borrow rate and start to have a um more uh balanced RWA looping strategy alongside the other typical um on-chain strategies. And then the third main category is starting to look at thinking of um RWAs as a uh floor yield product. So, as DeFi rates are fluctuating, how can you atomically swap into a T-bill product so that yields never go below 4%? Or how can you think of these types of products as liquidity buffers or part of your structured um portfolio that you're providing back to your end users

through earn programs or through um broader RWA and and structured yield products on chain. So, starting to think more holistically around not just buying and holding these assets, but integrating these assets across the apps and the products that um are growing so successfully in DeFi. And then the third the second major category is uh an extension of that, but it's thinking about uh I'll use the Apollo ACREDX product for example. Um, we have a representation of that product on chain to answer the question from uh the earlier session, if you're a if you're uh an investor in the fund, you you are actually a shareholder, so

you have direct recourse to the underlying and you have full investor protections. So then we think about how could we target an off-chain investor to access a product that they they have access to in their traditional off-chain channels? And the answer to that is by making it better. So, with this ACREDX product for instance, we um are able to integrate it on chain and able to add liquidity to it. So, the the traditional product is quarterly redemptions. We have a number of liquidity facilities and partners, many of which are here, that offer inter-quarter redemptions. So, a simple click-through UI where you can actually get out of that position inter-quarter.

Um, and then you take that product, now that it has that liquidity mechanism around it, and it can become a collateral asset on Morpho, and you can use it um to borrow against it to drive looping strategies. So, something like that is possible in traditional channels. However, it's tons of paperwork, it's tons of back and forth, there's tons of infrastructure that really makes it prohibitive to streamline these processes, and that's something that we've now cracked and we can now provide that solution for on chain. Um, so I know you we we did a demo of that specific use case, you presented it to the your internal teams. How's the feedback and reception from the folks you talked to within the Apollo halls?

Yeah, I mean you know, the feedback has been great. Um, you know, as Baji said, uh you know, I think what's really interesting is that by putting assets on chain, uh it's a lot easier to give it superpowers that it doesn't have off chain, which is the secondary liquidity part and [snorts] the ability to add leverage uh to basically get use it as collateral for financing. You know, when you actually play the demo, I actually played a video of uh the, you know, walk-through of how to lever ACREDX on Morpho, and what's interesting is that from end to end, from actually posting it as collateral

and getting stable coins in your wallet, it's like less than 30 seconds. So, to be honest, like the experience was so seamless and, you know, fast that it like, you know, like wait, say that again? Yeah, like what what what's happening? Like, what that's it? Like, you know, that's, you know, I don't think anyone really has that instantaneous of um you know, kind of value settlement really, uh or at least like not not in actuality. Uh maybe it's simulated in some way through the interface, but, you know, I think that that was very powerful. But, you know, I feel very fortunate because I work uh in an organization and with leadership that really embraces change. Like our CEO, Mark Rowan, like has always said that,

you know, we live in a world of change and essentially like how Apollo has been successful in the past few decades is absolutely not how we will be successful in the next few decades. And so, it's really encouraging and inspiring to work with leaders that, you know, actually see this and are leaned into this as as change. And so, you know, I mean, in terms of, you know, what comes next like after giving some of these assets superpowers, you know, I'm talking about in the context of private assets, but like, you know, certainly there's all this work ongoing in public equities and ETFs, etc. Um, you know, we're seeing the evolution in treasuries and of course stablecoin. The

absolute killer use case for blockchain, in my opinion, is the convergence of all of these different asset types and what you can do next. And I think this is like kind of hard for people to see because, you know, sort of the different asset classes are at different levels of maturity, so it's hard to see everything all laid out. But, having spent the past decade working on this in a few different ways, like I can definitely say that it will soon emerge that the killer use case is the fact that you we now have the technological primitives to have like automatically rebalancing multi-asset portfolios,

right? And it's like, okay, we have dollars, we have treasuries, money markets, public equities, ETFs, we're going to bring credit and different types of private markets, other people will bring fixed income, and then there's everything in between. What does that mean? Why does it matter? Like, what it means or what it ma- like how like it actually manifests is like, you know, every, you know, pay period, like, you know, I have a corporate job, like every pay period Apollo pays me like twice a month, and that usually just goes into my bank account and nothing much happens to it unless I actually, you know, take action and decide to do something with it.

But, in a future world, I can have a model portfolio designed just for me that has like the optimal balance of treasuries, equities, credit, and crypto, and every time I get paid, it gets automatically rebalanced into that perfect pie chart that's designed just for my, let's say, savings and retirement goals, and gives me perfect capital efficiency from the moment that I earn that penny to the moment that I spend it with my, you know, wallet connected uh credit card as an example. How far away is that future?

I mean, all the technology pieces exist today and actually there are a number of ecosystem players that have already started building it or actually have it in some sort of implementation. Um, you know, I think where we really get to scale and mass adoption is, you know, the user experience. Um, you know, I think in general for on-chain activities can be improved. You know, I know that we don't really like talking about this, but like compliance, like the user experience of compliance, that sounds like a total like oxymoron, but like, you know, there is absolutely a magic in a delight in permissionless systems that we have to preserve. But,

it's just that when we're talking about real world assets that are regulated, that are securities, like then then there are, you know, rules that we have to abide by, but, you know, it's incumbent upon, you know, some of us here in this ecosystem to try to build that experience to stay on the right side of compliance, but to preserve the magic and the frictionlessness of permissionless systems. Um, so, you know, we kind of we we need that. Um, and then, you know, I think what we're starting to see now, which has been, you know, kind of significantly different from what I've seen in the past 10 years, is like [snorts] now we're actually starting to see commercial use cases.

Um, you know, like since I've been working in this since like 2016, 2017, every 2 years or so there's always this like, the institutions are here and it's going to happen, and usually like I'm heads down and I'm like, we are? Like, is it really going to happen? It feels really far away. It's been taking a long time, but, you know, we persist because this is like my life's work. Um, but I finally feel like we're at an inflection point where it does feel different. And I've never said I've never said, other people have said it, but I've never really said it before, but I feel like at this point like we are kind of at this inflection point where I'm starting to see people care less about like, hey, let's try to do this prototype and experiment and

then like, you know, ship this press release to let people know how innovative we are. Like the whole like innovation theater has sort of moved on and hopefully it's like moved to like AI, right? So like anyone who's still building on blockchain right now, anyone who's still doing anything with tokenization or stablecoin, it's not about the theater, it's actually like, wait, how do we build durable scalable businesses that matter? And, you know, once those commercial more commercial use cases, not like what if we could, but actually like we should do this because it makes sense commercially.

Once we you know, have those use cases more of those use cases on chain, more capital, more adoption, and then the flywheel begins. I think our time's up, but you heard it here guys. This time is different. >> [laughter] >> The commercial use cases are here, the institutions are here, and we're building for the long term. >> Otherwise, we'll like you know, keep working on CU in the next decade. Well, that too probably. Thank you. >> thank you.