Tokenized Stocks: The Missing Infrastructure

Transcript

Hello everyone. Uh any of you here know what we do at Alpaca? Like have you ever heard of Alpaca in our roles? Okay, thank you. Uh about 70% of you know what we do here. But before that, I want to explain and introduce what Alpaca is. I want to firstly check if you know what Alpaca looks like. A or B? Please raise your hand if A is Alpaca. You think A is Alpaca. Okay. Okay, 50%.

How many people do you think B is Alpaca? Another 50%. The answer is A is Alpaca. The reason why I want to say this is that Alpaca is an animal that's very approachable, friendly, fluffy, funny. And in addition to this, we have been working uh with more than 300 financial institutions in 50 different countries. We have licenses in eight different markets and countries. What we do is self-clearing custody broker-dealer. We basically custody, clear bunch of the different securities including stocks, ETFs, options, global stocks, fixed income

in the United States in the DTCC self-clearing license. We've been the fast- fastest-growing custody firm in the world. We have been growing our assets under custody 3x year-over-year, and we're now custodying more than tens of billions of dollars uh on our platform. And we have so many innovating fintech apps working on top of us. But in addition to this, we had been extremely fortunate in the tokenized stock space.

We have more than 90% market share working with amazing partners. And then as you can see this picture, alpaca and then tokenization. So when the Kraken launched their FX stocks last year, we were the behind the scene. We do clearing custody of the underlying securities where FX stocks get minted and it becomes the tokenized stocks. So we are behind the scene of that. When the Binance launched B stocks, we did the same thing. We were the custodian provider for the underlying securities of the B stocks.

Same thing, DTCC. They did the DTCC pilot of the DDT stock. We are the one who converted between the TradFi stocks and the digital DDC stock tokenized stocks. Again, Coinbase, same thing. We provide a custody for the Coinbase tokenized stocks. We did the same thing for crypto.com. So this market is growing really fast. We see a 8X year-over-year growth. And then we have been custody of the underlying stocks of those tokenized stocks for 3.5 billion dollars. And we're working with more than 10 tokenization issuers.

So this number, I don't know if you think it's big or small. 3.5 billion dollars of the tokenized stocks. The reality is that it's very, very small. Global stock market is 160 trillion dollars of the value. So 3.5 billion dollars is less than one basis point of the whole stock market. It's a long way to go into where we should be. And in addition to this 160 trillion trillion of dollars, there's a more bigger numbers.

In total of 750 trillion dollars of the assets, including physical assets like data centers, real estate, and of course stocks like those financial assets, it's in process of getting tokenized. So, I think like, you know, people here are in this conference very excited about tokenization because in the market right now all we talk about is AI. If it's not AI, we're probably talking about tokenization, I think. So, this is the reason why I think everyone's very excited about this, and I hope you are. Last year, literally on this stage, we launched a product called instant tokenization network.

We were staged with you know, our friends from you know, Ondo as well. And what we do at the instant tokenization network, ITN, it does literally what it says. This product allows participants to tokenize securities instantly. What does it mean? You can actually do instant redemption of the tokenized stocks into underlying tradfi stocks. For example, if it's like Nvidia tokenized stocks, you can swap it into the real Nvidia stocks that's been traded in the New York Stock Exchange, Nasdaq, in those those actual tradfi market. Same thing, vice versa. If you have the tradfi stocks, you can convert that into the tokenized stocks

instantly. And our friends at Binance uses this feature to provide the end customers to be able to swap instantly between their B stocks and then tradfi stocks. So, this is what the ITN does. And so far, we saw 6 billion dollars of the transaction action volume just year-to-date. And this has been, of course, growing massively. Instant redemption and minting. I think in the social media probably last month, like Vlad of Robinhood, Brian of Coinbase were you know, tweeting about importance of the key feature of the instant redemption of the tokenized stocks because this allows the security,

legality, and the more trust into the tokenized stock market and the tokenization in general. And this is really happening. And the participants into this ITN is growing even more massively. $6 billion again. Is this big? I don't think so, right? I don't think you do. There's $850 billion of transaction volume in the US stock market alone every single day. This is very, very still small. And this is the point that I'm here talking about how exciting this is because we're still still early.

1970s until then, we have been using literally these kind of stock certificates to do the trading of the stocks, buy and sells. Behind the scene at the broker-dealer, this, you know, person with the red shirt is literally utilizing this paperwork, doing the settling, clearing, and custodying these papers into their uh yeah, storage, right? This is called middle office back office operation of the securities. This was 1970s. And then some people realized that we had to computerize it. And then, you know, computers came.

You know, we use now DTC and SCC. Those were born in 1970s because these manual operation of the paper certificates were getting almost impossible to handle. However, I think some institutions, as you know, still do a lot of manual work. Since 1970s to 2020s today, it's been more than 50 years. And this transition from paper to computer is still ongoing. This is how long, how big this paradigm shift when we are talking about moving assets on chain.

We are 2020s. We started talking about tokenization earlier in 2020. And I don't think that we should expect this to happen overnight. However, of course technology advanced. AI and agents allow us to build more stuff much much faster. So, I think it's going to move faster. However, we also have to embrace that. This is not overnight. This will take time. And then good thing is that the market is so big and we're still early. That's the reason why we have a lot of things that we still have to build.

Again, we are yet still less than 0.01% of the things that we have tokenized so far. And between today of where we are and where we will be, which is 100% of the real world assets and financial services assets, which is total 750 trillion dollars to be tokenized, there are a few things that we have to tackle as a problems immediately, at least that we know already. There are three things that we need to be working on.

One is capital efficiency. When we're dealing with the tokenized securities, everything is pre-funded. And this is not the case in the TradFi. US stocks, for example, is T plus one. It's a trade date and actual clearing and settlement is plus one business day. So, you don't have to pre-fund everything. In addition to that, there is a NSCC, which is a central clearing party that nets the transaction between party A, party B buying and selling, hence actual money movements between the parties become much much less because there is a central party on that.

Tokenized stocks and tokenized securities world, this does not exist. This is creating massive inefficiency of the capital usage of the participants of this market. Participants are, of course, market makers who are providing liquidity to tokenize stocks, of course, index stocks or on those stocks or B stocks or, you know, Robinhood stock. They all having the same problem. Same thing as issuers. Again, issuers of like Robinhood or, uh, you know, Binance, Coinbase, they all have the same problem. So, we have to solve this. And I don't think we have that specific solution yet. So, this is the first problem.

The second one is a financeability. So, now tokenize securities are getting to the DeFi protocol. You know, you can get more yield. However, in order to increase this financeability, to have this to be collateralized, to have more, uh, capital to be used, we need to improve legality of the tokenize stocks. Of course, as, uh, I'm sure like some of you may follow, there a lot of, uh, progress in the tokenize security in the US. Uh, Clarity Act didn't pass. However, SEC announced exemption and then clarify some of the rules, uh, in terms of the, uh, issuer sponsored tokens and then some of the, uh, security entitlement tokens. So, these progress continue to happen and we are still very much in progress of this. So,

this second one is a financeability. This needs to be improved. And the third is interoperability. Interoperability is somewhat happening because we, Alpaca, announced, uh, instant organization network last year. So, this is literally that, right? Interoperability between the tokenize stocks to the tokenize stocks, interoperability between the tokenize stocks and then traditional finance stocks. Basically, you know, instant redemption and the instant minting. So, these three things are immediate problems that we all have to think about how to solve because I think if you are here, you are believing that this tokenization market is massively

huge. And this is a one-time, like you know, one-time of lifetime of the huge, you know, opportunity of us being able to capture the opportunity because massive assets is moving to the different foundation of the system. This allows us to create so many businesses, so many opportunities, and we can make money, too. $750 trillion to be tokenized. We're still so early. Again, we are 99.99% to go. Four nines. We're still not doing anything yet.

And we have a clear problems that we have to solve. As we said, again, capital efficiency, we have to figure out, like you know, and learn from how the TradFi works. There is a central clearing central counterparty. There's a, you know, multi, you know, netting that has to be become more efficient. Financeability, we need to have more legal clarity. And then third, interoperability. So, these things are something I think we can think together and we can work on this together. And as Alpaca, you know, we are fortunate to work with most of the tokenization players globally. As we talked about, and then we continue to build a platform and the framework for all the developers and builders to be

able to build on top of. But if you want thing, if you can really take on and remember, Alpaca is this animal who look fluffy and funny. And Alpaca, please connect your brain to tokenization. So, Alpaca tokenization. If you remember this and take this one thing, I'll be really appreciated. So, thank you very much for your time.