This Is The Biggest Unlock In Finance Yet

Transcript

Could we hit a place where tokenized assets are larger than traditional assets and we flip the switch and we use onchain for every it could be. >> Welcome back to the rollup guys. Hit the like button. Hit the subscribe. It's the easiest way to support our channel. We interview some of the best minds in finance every single day. Enjoy today's show. >> Rob, love the jacket. Thanks for being here. >> Thanks. I wanted to be nice and bright this morning. Thanks for having me. >> Yeah, the uh interesting. I will actually correct you though. $380 billion a day now repo and we expect that'll be close to a trillion dollars by the end of the calendar year. So, a lot of momentum and movement on that area.

>> What's going to drive that? You know, >> I we're just bringing on more and more banks to the ecosystem that are seeing the value and kind of going from overnight to intraday. >> Um, and so, and there's a huge amount of efficiencies that can be realized through that process, which is great. >> I also will say kind of your other question about like different chains. We're completely agnostic. So, we'll be we announced our DLX solution a few weeks ago, which is an expansion of what we do in repo and we could support 18 different blockchains already. So Rob, can you give us a little bit of inside baseball because I think our audience understands kind of the tokenization supply chain as it relates to commodities and equities. These things get held and then they get tokenized.

And I think we're relatively familiar with that, but the repo market is pretty specialized. Can you help us understand how the repo market currently exists today and what the tokenization supply chain looks like for a repo? So, so really the repo market is if you think about it, it's it's overnight loans that banks give each other to make sure they have enough capital on hand to continue operations. And what we do with repo is we take what is an overnight loan and we can break it down to much smaller pieces. So the actual loan can be in a much smaller number of hours versus >> hours versus hours but versus overnight less interest to pay more efficient use of capital and the ability to do that.

And so as we think about the tokenization of other types of assets, right? So repo really is based upon treasuries, right? Tokenization will make that an easier process. The cash leg of transactions will move from fiat to stable coins, deposit tokens and money markets. But really any type of tokenized asset can be used as collateral, right? That's what we've seen kind of in the crypto space. And then bringing that to real world assets, whether it's equities, whether it's bonds, whether it's going to be real estate or other types of products, allows those assets to work for you even when you're not using them. There's one feature of stable coins and tokenized assets that I'm I'm curious how much of a benefit it is. It's a couple different ways to explain this, but words like programmability,

>> right? How how important is the programmability as you're looking to upgrade from the repo market as it exists today to a tokenized one. We also hear about idle capital and and so how much more efficient how much money can you save by making this repo market atomic or programmable? What is the right way to think about this? >> I I think there's a few things. I think programmability, you know, one of the ways I often go to when I think about programmability is how are you going to ensure proper regulatory rules and obligations in a decentralized market and it's going to be through smart contracts. It's going to be how do we actually program these into the assets so that no matter where they trade, certain obligations or information needs to be insured before

an actual trade can happen and that'll provide massive efficiencies. today. Think about all the people at institutions that are responsible for that whether it's KYC AML, OFFAC, other things embedding that into the actual contract in the asset itself. Very very efficient. I think the other the other side of this is how the asset can work for you and defining that programmability into the asset as far as how it can be lent, who it can be lent to, where it can be lent, for what periods of time. And it's not just around lending for collateralization, it's also what what can you do with it. So, Broadidge, you know, one of our largest businesses is our governance business where we help with things like proxy voting and corporate action distributions. Okay. And think about how that can be codified into a smart contract and could potentially, you

know, you can move and that actually a value proposition that could be sold independently and distributed independently, which is pretty exciting to think. >> Yeah, Robert. I mean, it just gets me so excited to hear you so in the know and just bold up on this technology because we've been here for 10 years and everyone starts, you know, you get trading, you get some Bitcoin, you but in our era, we were reading books about the Bitcoin standard. We were reading books about this technology. We were understanding the nooks and crannies of how smart contracts work, why this technology is so powerful. >> And we kind of have lost that a bit in this new era of trading and memes and speculation. But it's coming back and ironically it's coming back from institutional allocators who just get it. And so I just want to say I

appreciate it. On the note of kind of what Robbiey's saying here, what we heard yesterday at the Canon Summit was composability, but specifically across separate ledgers, let's say ledger composability, and we're talking, you know, banks into a brokerage into the DTCC into blockchains into the settlement into the Broaderidge internal ledger. We're talking about the composability of all this as this big breakthrough. What is this like what's happening here? Like what does this mean?

>> I think you know one of the challenges and I just talked about it. I was just on stage in the other room. One of the challenges that I think the DeFi community needs to understand about the Trifi community is simply just turning something on is really complicated. >> First of all, there are regulations. Just because an asset is tokenized doesn't mean it doesn't actually have to comply with regulations. And so how do we bring those things on? And it's not just it's not just one ecosystem. There's different things that need to happen. I'll give a really interesting example. Think about books and records in an institution, right? So Broadidge on our infrastructure, we have about 300 million accounts in North America that basically run in our post trade infrastructure, right? So settlement, clearing, books and records and reporting. If you think about onchain

activity, a lot of that stuff is transparent because it's onchain, right? There's obviously permission versus permissionless blockchains and what you can see, but you can see a lot of information and a lot of data. The thought that tomorrow every single firm is going to rebuild all the downstream services that walk off of that, work off of that, it's just not feasible. So, what for example, what we're doing is we're saying to our clients that run our infrastructure. We're going to make this really easy. Here's a turnkey solution. You're going to have connectivity into all the new trading venues. We're going to provide wallet and custody infrastructure. Either you can choose a qualified custodian or you could custody the assets yourself.

And we're going to take all of that data and information and we're going to integrate it into the existing books and records. Wow. >> Now, the reason that that's so important is if you don't do that, you essentially have two different institutions operating at the same time by consolidating that information, statements confirms tax regulatory reporting, all the other things that have to happen are now automatically integrated into the system. And we'll see. Listen, long term, could we hit a place where tokenized assets are larger than traditional assets and we flip the switch and we use onchain for every it could be. But I think, you know, let's not strive for the perfect.

>> Let's try to get it out there and get it running >> 1%. You know what I mean? >> And that's where we are. Like this year, I've been calling 2027. This is the year of the unlock. And what I mean by that is globally there is not a broker dealer that is not thinking about how do you roll out Walt and custody infrastructure and then the other pieces that go with that. That's what everyone needs to make this happen. Whether you're a public company, a private company, an asset manager, everyone's interested in tokenizing assets because the value proposition. But if the only people who can buy it, I don't mean to dismiss the only are the 750 million people globally that are active in crypto.

>> Sure. >> That would be a shame, right? By turning on the brokerage industry in the banking industry, now you're unlocking this for billions of people around the world, likely through an experience that they may not even know that they're actually dealing with tokens. It's just going to be an extension of what their bank, what their broker already does. There'll be more products available. It'll be seamless, which is what I think everyone wants. >> Yeah. >> Yeah. Um, you mentioned that the repo market, uh, at its core is this overnight lending between banks in order to facilitate, you know, capital needs. And so what I hear you suggesting is that the banks themselves don't need to upgrade their infrastructure for tokenization. You can do that on their behalf. Is that correct? That for the banks that are on our infrastructure, absolutely. Even for the banks that are

not, we're trying to make it easy for them by providing a solution. We announced our our wealth solutions for example in the US and Canada. And essentially what that does, it provides wallet and custody capabilities either through us or a partner. It um provides for connectivity for trading and for liquidity. and it provides consolidated reporting and then handles all the governance activities we already do for these institutions whether it's proxy helping to facilitate corporate actions disclosure around prospectuses and other types of materials as well. >> Got it. And so between these banks and these infrastructure providers such as Broadidge, how does the value flow?

Because as we talked about and we heard from the summit yesterday, this is a $13 trillion daily industry. As far as I understand, you guys are doing $380 billion of repo every day already. How and that's sort of the size of the market but how much in in fees and gener you know revenue is generated based on that you know somewhere between 380 billion and 13 trillion what is the scale because I take it that as we add different types of tokenized assets that can be lent out between these banks >> I mean this is a massive opportunity to create value as we add forms of collateral so maybe you could just paint the picture of the before and the after how much in revenue is generated from that $13 trillion ion dollar in the

industry today and where do you think this can get to for the infrastructure providers such as broad >> so I don't have a good answer on the actual revenue that's generated um I'm actually not even sure um but I can think about it this way so that 13 trillion becomes 100 trillion becomes 150 trillion I don't know what the number is as you have more and more assets that can be used from a collateral perspective one of the areas that we're starting is US dollarbased repo is probably the most common that you see in the world we've extended that to the G7 where we can actually use different underlying treasuries to facilitate this activity. But there's already conversations around can you basically do this on top of money markets? Can you do this on top of tokenized equities or tokenized funds?

The answer is yes, >> right? And so, you know, I think the combination of of kind of traditional approaches like that, you know, there's Morpho, there's Vaults, there's other things that are coming online where we're going to see this kind of the ability to collateralize assets that are sitting still even for a very small period of time to generate yield. That's what this is all about. And one of the things I talk a lot to our clients and you know, a lot of the traditional financial service industry may not understand all the pieces of this. And so one of the examples I often use just in the stable coin versus money markets area is I think about a stable coin as your checking account. Think about the money market as your savings account. But then think about being able to move information back and forth real

time, right? So when you're not using your cash, you're generating yield. >> When you need to use the cash, you instantaneously convert it back and you facilitate a payment. Like >> it's kind of like a no-brainer, but >> it is a no-brainer. And it's not the case right now. It's not easy. It's not the case today. >> And then add in foreign exchange and all the other things that goes with that. Um I think later today, right, Circle's announcing ARC, right? That's a really interesting capability where you can seamlessly move between potentially different stable coins and different countries. >> Very exciting stuff. >> Yeah. So Rob, I again I just love how educated and passionate you are here.

When you think about like the end, not the end state, but the 2030 vision of Broadidge, you know, obviously you're not calling all the shots there, but you're calling some of the shots here, right? >> What does that look like? like what is Broadidge's what is the difference from today versus in 2030 about what you guys are doing onchain specifically and what does that vision kind of look like? So I'll start with this. One of the questions we often get is okay what percentage of adoption do you see in equities in the next few years? I'm like that's that's a trick question. I'm not answering that. The joke is one of our executives says it's somewhere between 1 and 99%. I'm not going to tell you what it is. What I can tell you this is that for a foreseeable future over the next four or five years

these two systems are going to need to work together and what I can see is the introduction is how do you take this kind of new capability of digital assets and feed it into the old traditional assets. I do expect by 2030 that'll start to shift a little bit where the traditional infrastructure may actually start to be be replaced by the onchain infrastructure and I think the benefit of that is going to be efficiencies right like you know inside operationally if you can provide efficiencies that equates to cost savings and that what it's that's really the back and the middle office what gets people excited if you think about the front office what gets people excited it's yield well it's yield and it's access to more products and so one of the areas I get most excited about are private and alts. If you think about the way we invest in

these products today, it's complicated. You have to fill out applications. You have to go to the appropriate wealth firm or go directly to the underlying alternative investment manager. >> If we think about the tokenization of those assets, they start to trade almost like a like an equity security, right? Right. Much easier to participate. The other thing is we can take the entry point where think about who invests in a a PE fund or a VC fund today, right? They're writing a check for a million dollars that they can leave there for seven years. Even if we just stick with accredited investors, those in that million to $15 million range, they're not writing a million dollar check that's going to sit on the sidelines for 7 years.

>> Yeah. >> So, if we can reduce that entry point down to a few thousand where they can get that exposure% >> huge opportunity. And then I think where it's going to be really intriguing is both on the asset manager and the wealth side as they develop strategies for clients, those strategies can now actually be a lot more personalized to the specific needs of the uninvestor and it can include asset types that they never be able to include before. >> Love it. Yeah. >> You know, like like Andy said, we we've been at this for just about a decade and we've found that the conversations that we're having have shifted from the technological ones to more the finance ones. Ultimately, this is fintech, but we've shifted from technology more to finance. And I think that's because finance has become the limiting factor.

And so just to kind of reframe the last question, what do you think are the limiting factors? Because it no longer feels like the technology is the limiting factor. Is it regulatory? You're saying if we can, you know, kind of bring down these barriers and increase access. What is what do we need to solve to accomplish those things? So I you know, it's interesting. Big financial firms are moved by usually one of two things, right? one is um related to a new startup that's entered the space that does something completely differently. And I I'm going to age myself now. I think back to the '90s when trading went online and we went from $150 trades to $10 trades and every single bank and broker created an online division which eventually became the

brokerage division. So that's kind of one thing. The other is really around regulatory change. And I do think there are certain firms that were hoping for the clarity act to be passed yesterday as a driver to facilitate this. I think absent of that though there's certain activities that we see the DTCC na and NASDAQ embracing this in the US and London Stock Exchange and Deutsche Boris and other exchanges around the world. There's a FOMO that's now building where people are scared they're going to be left behind. And so where that starts becomes what do I need to do to be able to participate in the ecosystem for me and for my customers. And if you think about it, it starts with wallets and custody. Right? Today you cannot hold digital assets in an account. So you

need a wallet and custody solution. And I think as that starts to come then firms can start offering these products to their clients across all different areas of their business. Right? So we think about, you know, we're really focused on capital markets, kind of the the securities market side of things, but think about the banking side of things, right? Tomorrow, when my bank enables me to hold assets via wallet, I can send money to relatives overseas instantaneously at almost no cost, right? I can generate yield on those particular assets that are sitting in my checking account in a ways that I've never been able to do before. That's all coming, but it starts with this big unlock, right? Yeah.

>> And I think the good news is the traditional financial services community is not just they're not just I would they're not scared anymore. They're like how do we embrace this and how do we recognize the efficiencies of ourselves? Yeah, that's what I was going to get to rap because this question was great and great answer because it's just kind of like >> getting us to who's going to win and who's going to lose here or like what is the outcome going to look like and we we asked this question a lot and I'm really curious your take is if this tokenization thesis is correct right we you know broads gets to a billion a day in repo then five billion you know you're doing trillion sorry sorry trillion I didn't say that >> yeah a little bit of a different number there uh five trillion a day right you

know tokenized equities get to hundreds of billions right, etc., etc. Stable coins and the trillions, >> who wins? And then by default, who doesn't necessarily win as much? >> Listen, there's no doubt that there's going to be intermediaries that are evaluating and have an existential crisis on their hand of thinking about how do they position themselves going forward. You know, in in my head, you either innovate and disrupt or you be disrupted. And I think a lot of firms are starting to recognize that. I I do where if you think about where efficiencies are going to come from, it's going to be through automation in the way back office services operate.

And so that market's going to evolve and it's going to change. I think who wins out of this. It's going to be the consumer. >> It's also going to be institutional investors, but at the end of the day, the consumer is going to be able to do things they've never been able to do before. And I'll just give you two examples. As a US resident, you guys are US. Okay. >> It's really hard to invest in foreign companies, right? There's a few ADRs that are listed there. I got really excited the other day when I heard that Lseg is going to actually make the top 100 companies available in a tokenized form which means we can buy them. And so I think the ability to kind of get that exposure globally really really exciting. I think what may be even more exciting though is the unlocking of

emerging markets. Right. I I spoke at a conference a few months back um is in DC was around kind of it was a trade conference and I joke that perhaps the biggest trading event that has ever occurred for the United States is the introduction of US backed stable coins in tokenized US treasuries right people that you know in emerging markets I I I I did a project with this group in Cornell and one of the students was from uh Nigeria and he talked about how they get locally they get paid in Nigerians currency and they really can't do anything with that money. So they need to convert it to US dollars and they either go to the guy down the street who can do it instantly and give them 20% of their money or they go to the bank and it takes 30 days and they take 10% of

their money. And so he like came up with a model, why don't we just pay everyone in US dollar back stable coins and we'll give some of that money to the federal government. >> We'll build in the the essentially the bribes, but that's like really valuable like the ability to kind of seriously change people lives in these emerging markets. I think we're going to start to see that come true um as this starts. >> I love it. Rob, thank you for your time. Thank you for the answers. Thank you for the energy, for the just being here, >> the education and the insight into this repo market. It feels like we're on the precipice of this tokenization super cycle and the repo is one asset class that I think is right for tokenization.

So, thank you so much for uh man. Enjoy the rest of the conference. Cheers. Cheers, man. Cheers. Night.