The Base Layer of Finance: Why Layer 1 Blockchains Matter for Banks

Transcript

Without further ado, it's my pleasure to call on stage. Um, I go left to right as we go. So, we'll have Paulo Bortalin for B Swiss, also a great supporter of CVA. Thank you, Paulo, for all your contributions in the last years and this time as well, also co-organizer of the symposium. Um, second, we have Sandro Kul from the Cardano Foundation located also here in the crypto valley. Next up, we have Philip Fonos. Likewise from the Crypto Valley, from the Salana Foundation, and last but definitely not least, we have Matthew Matusak representing Cosmos Labs. Please put your hands together for the four gentlemen.

>> Thank you very much. So, good afternoon everybody. I understand this is the last panel. So, thank you for staying here. It must be very hard after a long long day like this, but very interesting. I think I haven't seen some panels. So, very very interesting. Yeah, before to start and we will try to keep it very uh let's say unformal you know because here we have three very interesting speakers from three uh layer one blockchains and they have a lot of things to say but first of all I would like to thank the crypto valley association board know they have organized this I have co organized but thank you very much but even more important the team you know for the logistics you know Nikki is asking all the guys and girls from from

from the team organizing this because I I have some picture of yesterday evening they were here you know installing everything and so thank you very much to the team for organizing and letting us do a very interesting day today. Thank you very much. Maybe a big applause for them too right please. So let's start briefly on our panelists. So Sandro uh Matthew and and Philip please tell us something very short about you and the blockchain you work for. >> All right. Um thank you so much in this direction. Let me talk.

>> So thank you so much for having me >> in the importance but you know just >> and uh yeah I can also just as a testament over the last years we have seen such a great uh evolution uh of the event and the whole industry here in Switzerland and uh people from you joining from Europe and overseas. So it's I'm glad glad to be here again and uh see that we mature every year. So that's amazing. So my name is Sandro. Uh I'm leading uh market structure and strategic partnerships at the Cornana Foundation. Um my background is in capital markets where I was 20 years until 2021. And since then with the Cordono Foundation looking into infrastructure topics for us is really how can blockchain be used for institutional adoption. So this requires

a lot of uh compliance regulatory topics and we will go a bit deeper in a little after that. For those who don't know Cardano, we are so-called third generation blockchain protocol. We are headquartery in Switzerland as an independent nonfor-profit organization. Uh Philip Fonmo, CFO, Solana Foundation. Uh Solana found Solana blockchain as well known for being very fast. G PI throughput and we think that's a very good basis to what uh to build on top the the markets or the capital markets for it and in the end uh it's all on the internet moving value on the internet so it's bringing internet capital markets uh onchain >> and I am Matthew I also want to say

first and foremost thank you all uh also for your continued attention we know it's been a long day so we'll keep this very interesting interesting for you um I am the VP of operations at Cosmos Lab Cosmos is, no offense, Sandro and and Philip, the world's leading one uh layer 1 blockchain stack. And I say that in terms of also quantity of blockchains. Cosmos secures over 200 different blockchains in production and over 70 billion dollars of assets uh are used by are are deployed on Cosmos. It also inter there are no digital islands.

They're all interoperable and Cosmos processes millions of inter blockchain to blockchain and blockchain to offchain system transactions every month in the tone of billions of dollars of value. And so if you haven't heard of Cosmos, uh that's a little bit about it quickly. And again, no offense to that's what we're here for, right? Uh >> I mean, let's be clear, you know, the discussion is open. It's not a war. You don't have to compete. But I want you to give some insights of why you could be better than the other ones. We will reach this at the end of but let's let's talk a little bit we have here three important layer one blockchain I mean when you talk about bitcoin you know bitcoin is bitcoin I always say this sentence is perfect but then layer ones is really the infrastructure where we

can build everything so this uh these three blockchain have some different characteristics that's why you are on stage and I think that the very first question today I'm considering also the audience is you know why layer one blockchain mother for the banks Right. So I will start with a very simple question and then you start you know we do we go in order why not you know um should banks build on public layer ones or private permission DTS so please sand to start from Cardano. Yeah. Um point of view >> private private uh blockchains permission blockchains they serve quite a good foundation if you want to get familiar with blockchain if you want to

keep control. Uh it's a way how you can internalize certain things. Uh so there has been a good reason why some of the industry started with uh private permission blockchains but we have also witnessed that private permission blockchains do not really satisfy or solve the problem of assets control the ownership and the control of digital assets as we have them today. So what public commissioners blockchains as layer ones such as ours uh provide it's something new and that's neutrality. So how can you have a neutral ledger where you can put your data in a trusted environment to achieve this? There are a lot of different aspects we need to consider. But this is like the core

idea. If you want to onboard your partners, your clients, you know how it is today. If you onboard them in an isolated environment, you create fragmentation. If you go on an open permissionless chain as a base layer, you can create a neutral layer, people can trust, people can verify. And this is the key element. it needs to be verifiable for everyone and on this you can create the control mechanisms. Um >> what do you think Philip what about you? >> Yeah I think if you on a first principle basis if you can build if you can use a blockchain which one are you going to use permission the opposite of private means uh permissionless that means everybody with an internet access can can access it. So, why would you not

build on a on a on a system where you have access to uh 5 billion potential clients, five billion potential clients of your products? The reality is if you're a bank or somewhere else um regulated, you're you're operating in a framework that doesn't know that uh that you need to have a central point and then um yeah, I think it's more a reality for than these players to to build on a private uh chain. But um but with it I think comes the costs where you mentioned a few right like the the neutrality. So if corporate A uh launches a chain with competitor B is pretty sure that competitor C will likely not join this chain and then uh you're already back on two chains. And

why why does that matter? Um it's I think two main things. One is composability and the other one is uh liquidity. um sounds very very theoretic but uh one amazing thing about blockchain is that it's programmable money that you can program different transactions sequencing into each other being dependent on each other and when they live on different chains these uh this programmability breaks and the other one is liquidity um uh I think we've seen this over the last couple of years different banks building their own chains uh and then figuring out that they have to connect those because um the liquidity is fragmented and that is like anybody that runs a trading system

that is like the the one thing you don't want is to have fragmented liquidity you want to have it in one place uh as deep pools as possible as tight spreads as possible >> so interoperability is very important but now maybe Matthew you have something else to say since your ecosystem is quite different from the other two blockchains so >> yes >> tell us yes it could be um and so I I think I would start by reframing the question a little I actually don't think it's a question of public or or private. I think it's a question of what do you need the distributed ledger technology to do fundamentally what do you need it to do?

Uh and I think you need three things. You need control in some sense. Uh neutrality is is good but you also don't want to tell your board or your compliance team or your regulator, hey uh if somebody else has control of my decisions, right? So you need control. Uh the second thing that you need is you need You need the ability to determine your own commercials. Uh this is related to control, but you you want to be able to set your own fees and your own fee structures. And the third thing that you need uh and again this is why I say it's a false choice. The third thing you need is interoperability and connectivity. Um and we have built for the past nine years. Uh we've been in production for for six. We have built these at the

core of of everything we do. And so that's how we've approached the public versus private problem by reframing it. >> Yeah. You want to add something? >> Yeah. I think uh it's u very nice said when you speak about control and I think that uh what goes very well along what Philip said it's uh the programmability programmability right I think this is the key word here. So you have the neutrality that doesn't mean that you have to give up control. Uh it just makes it verifiable again and that's I think that's a key element. And when we speak about the interoperability, it's also about not only the interoperability between chains uh which I highly appreciate. We have it bridge uh between amongst each other but it's also how can we be interoperable with the system as it works today and then you see swift uh

you see others they are deploying solutions utilizing public missions blockchain and they act more as a coordinator on top of it. Uh and this then control versus neutrality to have a stable network. Yeah, I think layer is a a good concept because I think how how some actors got comfortable with it is that the the layer one the validator is uh um well is it 500 or thousand or 3,000 or 50,000 depending on blockchain but that it's like they got comfortable that they control it but like also nobody else controls it. But then for their um for their other operations where they want to be in control of fees etc that it's on a token level the permissions kick in where you have white listings um um of users uh on on a on a

token level and but in the end of the day it's going to be an economic questions uh and that's also one which is very um prominent on Salana right when you have what part of the that is being discussed what part of the margin should go to a validator what part should go to an app that runs on a validator what to the end to the end user and in the end it needs to uh be profitable for all of them because if there's no apps then there's nothing to process for the validators um and in the end there also needs to be a margin or a benefit for the end users otherwise there's no nobody uses it >> okay so now let's be honest you know layer one existence years now so what the real institutional use cases were live on your blockchain on your chain is

very important because I I think you know we are still lacking a lot of adoption in the world. I'm the happy issue of five digital bonds uh but still we don't have so many and why we don't adopt. So what are the institution use case? I will start from you Matthew this time. So being some really concrete cases that work. >> Yes >> and the numbers also if possible some numbers. Yeah. >> Okay we can do numbers. Um so there's I'm going to talk about three. I'm going to talk about one mortgage and uh and credit use case. I'm going to talk about one crossber settlements use case. And the third one that I want to talk about is tokenized securities and assets. Uh and then there's countless others which which unfortunately I'm not at the

liberty to talk about but happy to discuss use cases outside as well. Uh so the first one and and you wanted numbers Paulo. The first one is that figure uh which is the world's the sorry the the I I completely retract that statement the United States leading non-bank heliloc lender uh and figure has built and deployed a blockchain on the cosmos stack they've orig they've compressed the value chain so they've totally compressed the value chain and they have originated 17 billion dollars of loans on the platform they've driven 117 basis points of cost efficiencies uh which equates to about $200 million dollars of savings for their business and they've also driven speed efficiencies

of issuing and and settling loans three to eight times faster. And so that's that's one example. Um the second example I'd want to give is project PAX which is a consortium uh is also built with the Cosmos stack. It's a consortium of Japanese banks including uh Mitsuho uh MUFG and uh and one additional bank and they were aiming to improve uh crossber settlement efficiency as well as improve efficiencies across the settlement leg um and they've also built with with Cosmos and in addition to that there are tokenized securities and assets uh such as which has tokenized 2 billion dollars of assets which are totally interoperable as well as one of the US's

top five banks which is aiming to tokenize two trillion dollars of of deposits and so these are all built with with Cosmo stack as well as governments across the world and and more. >> So adoption is there a little bit but we still have to avoid a lot. So this is the message for all the banks and the traditional financial sector operators. So please adopt this please. Yeah, there's the two to 300 billion use case stable coins, right? Not all of it is institutionals, but clearly some or a lot of it is institutionals uh using it. Um when early days in crypto uh like Bitcoin as a peer-to-peer cash network, it was always the for years I were on conferences and saying well the the the

um the crossber money like the Western Unions of this world, they charge so much, the fees are so high, crypto can solve this. And now Western Union starts building on on crypto building on blockchains to move their assets cross border. So they they they themselves are going to use that technology. Um I think where where institutionals I think a lot of use cases are now like on the trading side. So for example a um a regulated uh an exchange in the US they do um for ETFs they buy the underlying bitcoins when there's for example when there's a subscription but they first have to deliver the bitcoin and only then they get the the dollars from the ETF. So to to bridge fund that

they go and borrow in a in a decentralized in a defi protocol and the the settlement process takes can be as short as like 90 minutes. So they need that preunding for 90 minutes. So to so you can go on chain and they basically borrow this and this is like high double digit low triple digit amounts. Uh borrow this use it for the settlement and then 90 minute minutes later they they they pay it back. And I think a big of the gain is on the is on that efficiency level where it's like uh you get a a loan on a on a on a on a collateral and you don't need to do that for for years or months. It can be it can literally be seconds that you that you take that loan.

>> What about Cardano Sandra? >> Yeah. Um first of all, I think we we have heard about like the use cases as which have been established with the stable coins, right? and then the the peer-to-peer with Bitcoin transactions when we look into it and to your question why we are here for many years right we we exist Cardano exists for eight years you never had any downtime and now you're asking why don't we see more institutional adoption uh one of the things is that for you here in the audience you are mainly with banks financial institutions so we talk about the RWAS the tokenizations the listings that's all nice and good uh that's uh the the nice part of the business But all of you know if you don't fix the post trade problem we don't get

anywhere. And what we have seen in the past we have seen tokenized products uh fancy products which are new and exciting but they one hand they don't serve uh a need in the market. They don't solve any problem but they create additional problem. You speak about ownership but comes with with fractionalized uh real estate. We have matured a lot but in the very beginning no one looked at this. they only looked into the tokenization part. So what we do is we solve these type of problems on the infrastructure layer. On an example, how can you transfer an asset on chain?

We ourselves put our financial statement on our blockchain which is nice. So now you can go and verify it but that's nice but doesn't really solve a problem. So what we did this year with our auditor Grant Foron. Grant Foron went did the performed their uh audit and our financial statement from 2024. They made an onchain attestation by comparing the transaction on chain with our ERP system. So now we added an additional layer of an onchain at theest station. And now the missing part here is how do you verify that the entity who did the attestation is eligible to do it? And therefore we utilized an identity layer.

We have an identity platform which leverages VLEIs. Uh for you I understand you all know what an LEI is. And by having a VLEI we now complete the value chain of financial reporting from issuing putting it on chain get it verifiable but then also have the credentials to prove that it's true. So these type of things solve a lot of problems. When you now start to think about what does it mean for NAV calculations in solveny cases when you can do this onchain verifiable and on a much higher velocity you're going to change the game but to get there you need to fix these uh things and that's what we have been working over the last

years and other things is also when I mentioned you need to solve a need or a problem. So who is interested to add a new asset class which already exists? Yeah, you can create the brational efficiency but then you need to have the infrastructure layer to be already there else it's not transferable. So what we did uh we issued an u an an reinsurance fund uh at the London stock exchange DMI and the beauty there is that usually a direct investment in a reinsurance vehicle you need to have very deep pockets so you need to have million plus uh ticket size and now suddenly what you can do is you can you can access such an investment vehicle with minimum ticket

size of 50k for qualified investors. So for your institutional clients, you suddenly open a new market they haven't had access to before. Additionally, it's a market which does not correlate with equities with anything else. And right now as we speak, if you would turn up the TV here, uh I haven't looked at the market today uh because I simply didn't want to know but we all know what is happening. And now giving you an access to a instrument which does not correlate and you haven't had access for that solves a problem for your client. So we have the buy side and the sell side starting to picking up and then we also speak about identities on AIS. We all use AIS but do we know who's accountable when I make a prompt and AI gives me a

solution? This becomes very difficult. So we partnered up with the German company and they have onboarded over 500 large enterprises in Europe which deploy AI agents and in the engine room on Cardano they have an identity verifiable credentials and the payment rate with stablecoin. So they can start to monetize it for the people are using it. They don't know that there's a blockchain on the line. And this is the crucial element. How can you embed blockchain in a way that it really solves problem adds value and its potential even visible uh to the broad mess.

>> So quite interesting use cases. We are not talking about hundreds of thousands in value. We are talking about hundreds of million billions in value and transactions. So I think adoption can be there but we have to convince a little bit more the audience to really adopt for everything. opinion. So what is really missing Matthew we start with you uh to really you know bring onchain all the bonds you know all the all the shares all the funds you know all the financial instrument what is really missing uh so I want to start my answer by saying that I don't want to be presumptuous so I'll I'll frame it that way I do think the capability is there we've seen SDX issue uh to some somewhere around the order of a billion uh francs of of tokenized assets. Um the

first monetary policy instrument in Switzerland was issued in June 2024. So I I think the capability is there. I've heard that you need two prongs. You need the settlement prong and you need the cash prong. and one without the other is not going to enable uh the world's liquidity and and cash to move through the rails that we've spent many many years building, hundreds of years building. Uh and so with that in mind, I think the thing that is missing is the network effect that's going to come. I know that the cash problem is being solved by project Nexus. I know that pontis uh I know that

there's kales here in in the market. I I think these are going to go a long way. Um and I would I would say that the network effect that follows on from that is going to be the missing piece. In addition before we we just think that's it. I think also external pressures are continuing to build and are continuing to we've heard from a lot of our customers that deposits are are leaving uh their customers are leaving because they want yield on on stable coins or elsewhere or they want to interact with something that blockchain enables and so that's another consideration as well external pressures and network effects.

>> Okay, Philip, what do you think? Yeah, I think one one very basic thing is still I mean we talk about tokenization of assets for many years on these panels around the world. Uh I think what changed over the years is that um now there's more. It's not there yet but there like the financial players like bank asset managers they have more infrastructure in place like custody staking just just the basics connecting that to their to their internal booking systems. uh all these are are big and long projects and that needs to be in place to come at scale and not in place as a as a P. uh and I think many many large firms small and large firms have

been building this out over the last two three years and much more infrastructure is is is there yet and then it's yeah I think it's really a network effect the liquidity uh thing so it's and liquidity begets liquidity so if there is a way where uh actors can get faster cheaper uh liquidity then this um then they will change to these rails and I mean now the the the token organized assets on Salana are now around I think two billion which is which is tiny right the growth the growth rates are are tripledigit uh triple digit growth rates they are they are insane but it's still it's it's still very small and I think it's like this yeah as network effects go they are they have an exponential curve so it's

like slow in the beginning but then when they are when there is more traction and more liquidity that attracts more liquidity um and that I think is a is a yeah a function of infrastructure but and liquidity coming in. >> Okay, Sandro. >> Yeah. Um, we we have heard a lot about this was staking as an example has has been dropped. I think we we have maybe to separate the the bridge of DeFi and traditional finance where we see big moves coming. We see staked ETPs uh and so on where in a regulatory environment you allow to actually have this bridge.

We as an example also have an impact staked ETP with the UNHCR which is super exciting from a CSR perspective. But then uh the question is what can you do with these type of assets when we mentioned the digital bonds right on SDX. So it's a way how you can increase efficiency but in my humble operion opinion uh this is the promise when you want to mobilize collateral and that goes back to liquidity as well a bit right it needs to be transferable amongst the industry and as long as we stay in this isolated silos it solves a little problem as soon as you can bridge into other CSDs uh and and and have this this type of assets working for you it starts create value

and I think This is what the SEC non action letter to the DTCC kind of lines out. Now you need to have what you said at the beginning programmability on a permissionless chain. So the SC non amongst others says that uh it needs the asset can only be moved between designated wallets. So it needs to have this programmability layer but it needs to involve the value chain of an assets and not just uh an isolated uh system like like here in Switzerland. We we need to be global. That's that's what the whole aspect is, right? We are in a global world. So, let's interact together.

>> Yeah. Well, let's put in this way. Uh let's meet in one year at the next web three banking symposium. I don't know where we will organize it and see if in this 12 months we really accelerated everything because when I say you know you guys exist in some years but it's still few years. If you think about you know in nine 10 years what we have done what has been realized all these use cases that you mentioned is just amazing to me we're talking about billions right so just move more there and see if in the next 12 months is really the period where you know we adopt this okay well uh we are leading to the end uh very short answer I will be a little bit provocative and and politically incorrect the next question is really if

you had to point out one structural weakness in another layer one represented here. What would you say? Because to ask you why a bank should choose your blockchain is too easy. But tell me why we should not use the other one of the other ones. So you want to start? >> Uh yeah. Um maybe rephrasing it a bit. Right. So I think that's >> no no the question is this. You cannot rephrase. >> All right. The problem is we we should use the opportunity we have with blockchain. But when you go back home into your office tomorrow, will your board ask you, "Hey, tell me who has the highest TPS?"

Most likely not. They will ask which technology is most resilient for us to deploy and provide a trust environment to our co to our shareholders and customers. This is the key question which is going to be asked. It's governance of the underlying protocol. Look into this. >> So you don't want to answer. Please feel it. It's kind of too political answer. Anyway, that just know it's a joke. >> Yeah, I think if you're um your board might decide something, but then you go out look for developers that can actually build something on your chain and that is a and then my your board might be happy, but your managers and your HR department might be very unhappy. Um, and then you

you launch a token or something, your first product, then you want to trade it and then you realize there's no buyers because there's no liquidity and nobody that has a stable coin in that on that change that could possibly buy your token against it. So, um, yeah, I think you need to be careful what you propose to your board. >> Yeah, I I guess it's I guess it's me. Uh, I feel it's a bit unfair because no one's pointed out any structural weaknesses yet about Cosmos. um which I I won't provide them. You're happy to do your own research. Um however, the one question I would like to ask you both and and leave with is if so I'm a bank. I have my blockchain built on uh I issued a token on Solano

or I issued a token on on Cardano. And the validators, a group of people that I have no idea who they are or what they're doing, they decide to stop doing stop validating the protocol. What happens to my business operation on chain? >> Be very short, please. >> Very short. Sorry, that was >> we are really run out of time. >> What happens what happens to my business operation? >> Well, you the you need to have dozens of hundreds of validators colluding to make that happen. And I think it's uh uh one way is you can make uh you can always like copy your the whole chain right and then run keep a subset of your own

validators and then keep keep uh keep that as a copy and keep validating your own chain with your own assets. >> Yeah, I I'll go quickly >> your own infrastructure and and I think that's >> but I mean thank you. This was a a very provocative questions just because I want you guys to go back and study all three blockchain maybe although the other layer ones because you have to understand the differences and try to find out the best way for you to adopt it. So to me there are no weaknesses there are some maybe critical point that you can solve you can develop there better but thank you very much for being here today. I hope you get you know a very nice panel and you learn something more about layer one.

>> Thank you so much. It's a great pleasure.