Why Aren't RWAs a Trillion-Dollar Market Yet?

Transcript

I don't know. Let's make sure Hello everyone.

How are you? Uh

how How are you?

testing. Testing. All right, this thing's on. So, we're about to kick off the the next panel here in about a minute or so. So, if you have friends outside, tell them to come in and learn a whole bunch of stuff about RWA. So, we'll kick off in about a minute. like >> seems like it doesn't >> All right. What's going on everybody?

How are we feeling after lunch? Better. Good. Oh, come on. What are we doing? Round of applause at least. Thank you. Thank you. Let's go. Okay, so up next we have a panel about why RWAS aren't a trillion dollar market. We have Johan from Chainlink, Theo from Bailey Gford, Emmer, Emma, sorry, from JP Morgan, and Artum. Welcome. Hello everyone. Thank you for attending this panel. I feel like I could just ask this question and we could just yap about it for a few hours, but I had to come up with some questions for this panel. So before we get started, could

you guys please tell us a little bit what you do? Uh what's your role within your company and why you are here? >> Sure. I'll start. Test test test. Is it working? Okay. So I'm the CBO at um Chenlink. I've been there for the last I think roughly seven years now which makes me feel very old to be honest. Um and yeah I work on everything that's uh business related growing our work within the thr ecosystem. A was one of the very first partners we had. I think we integrated with them in uh 2019 back when it was called Eland. So yeah that's what I work on.

>> Hi everyone, Emma Landreo from JP Morgan. I lead the product JPMCoin which is our public chain deposit token and I'm part of the Kexus team at JPM. We are you know a team that is basically a blockchain business unit within the bank. We've been building in the space since the mid2010s uh and broadly build across digital payments assets and blockchain based information movement for our clients and and beyond. >> Hi uh I'm Theo Golden. Uh I am an investment manager and lead all kind of tokenization digital assets work at Bailey Gifford. Uh we're a $300 billion asset manager out of the UK. Um we uh kind of probably best known in the in the space for kind of um tokenizing the first fully native um uh onchain

tokenized fund within Europe. Um and kind of I lead all of the work thinking about new product integrations and helping DeFi teams scale into kind of more of an institutional and regulatory friendly lens. >> Yeah. And I guess if we start talking about RWAs, we are talking about trillions coming on chain. uh billions of different products coming in. So far, the RWA adoption has been quite slow, let's say, uh at least not at the pace that we expected it to be. And it's not really clear if it's the lack of demand or if it's thin liquidity or if it's because the blockchains were not made for these types of assets. So, what do you think is slowing this demand? Why do you think it's been gradual? And what do you think are the barrier that we have

to overcome in order to for it to become a trillion dollar asset? I'm happy to start. Um, look, I think this industry works when the systems around us stop working. So, a good example frankly is uh the whole DeFi space was born out of the COVID crisis in many ways, right? What happened during during the COVID crisis? Yields went to zero. People were looking for yield opportunities. G5 became a safe heaven for those. I think right now what we've been focusing on for the last few years is setting up the structure of what tokenization can look like. We've had a lot of pioneering projects. We've had a lot of different tokenized assets come up. One of the recent one was Amongji we

worked with last week. So we're setting up the foundations on how we can do it on a technical compliance regulatory side. The thing that's missing is a big demand event that's going to come up like it came up during the G5 summer COVID crisis era, right? I don't know what this event is going to look like. I think we're already seeing some traces of it a few weeks ago when the crisis in the Middle East started. Where did we get commodities trading? It was on chain. Why? Because during the weekend, the only place you could hedge your positions on oil, on gold, on silver, on fertilizer was on chain, right?

So when the world starts cracking down, our industry starts being starts succeeding. That's the way crypto works. It's our curse and our blessing. So I think we're going to have to see what this big event is for our space. But I think we're starting to see the outlines of it. Just before move on we move on just to be clear what you're think what you're saying is that we are lacking new entrance in the space that are actually willing to use these products and like own these products right we're lacking the big uh demand event yes >> but I think it's also it's not just like lacking new entrance but when we think about a lot of RWAs like they're not bearer instruments like stables or even

like other digital assets are they are you know papered funds Right. So there's like a KYC side to the this ecosystem where there's papering you know to get into the investment or you know these off-chain KYC asurances to bring parties to the ecosystem and it's similar on the cash side right JPMCoin is a permissioned asset we issue it for our clients but on public chain and I think that once you put those assets in the ecosystem in order to actually build a buy side and a sell side you need a lot of common clients.

So I also think it's like the distribution aspect will continue to grow but you need to start to kind of bring parties who have the discovery and the right distribution to know like how do I know Theo's on my approved list right like so that those types of constraints also exist but they're critical because if institutions come to the space and I'm sure we'll talk more about this but KYC assurance will be key right because they want the risk management of being comfortable of like what asset are they holding who are they holding it with from a custodian perspective, who are they interfacing with, where is the trace of funds coming from?

>> Yeah, completely. And we we'll talk more about kind of, you know, market infrastructure and and kind of standards that need to be evolved and you know, particularly banks, you know, as they bring their liquidity on chain, it's going to be very important that we have that kind of set in stone so everyone knows the kind of the rules of the game that we're playing to. I think there's a kind of a slightly more simple um kind of kind of high level view here which is is maybe helpful for this audience which is you know a lot of product has been created because asset managers see a demand profile um on of onchain allocators. So, a lot of players are just simply seeing this as a distribution opportunity. And what that means is they've cut a lot of corners in terms of like what good structuring look

like because they just want to tap that demand fast and they're willing to kind of basically they know that they have a captive audience and they'll throw you know fees on it which wouldn't be acceptable elsewhere in the financial system. the approach so that you know that's hopefully going to come away because that max extract bay behavior we just don't think is acceptable and you know any onchain client should be treated with the same respect that a vanguard or anyone else on our client books we how we treat them the second piece is around you know this big market demand element I think you know demand and supply are two forces that react to each other right and the real issue is that demand isn't going to come on chain from institutional investors banks etc until we have satisfied one really key point which is that the products on

chain are the same in terms of direct ownership recourse legal uh parameters compliance etc but they offer something better and so a really good example of this is like as a UK institution it's blooming difficult to go and buy an SPV out of the British Virgin Islands that's what most tokenized funds are today they have off-chain books and records counterparty risk coming through startups like a JP Morgan or a Bailey aren't going to buy those assets. We want you, you know, mutual funds, UK usets, UK uh lux usets. We want ETFs, things that we have direct recourse that fit the mandates of the multiple billions of assets that we run and also, you know, don't imply us taking on more counterparty risk. And so I think this

market demand that you know people are looking for from like you know the next 697 trillion of assets that will come on chain that will only come when we start building product that actually fulfills that criteria. We know what that but better element will look like its utility its efficiency its cost its scale etc. But we can't get there before we've decide defined same. And same is what we we're looking to really define. That's why we did an onchain books and records. We did a a regulated UK uset. All of these things we have to satisfy those things before someone like a JPM starts to deploy large amounts of capital on chain.

If we are looking at the RWA sector um one of the biggest RWA products is stable coins and we've kind of seen that we are at over 300 billion uh stable coins in circulation mostly USD. Uh we are at 99.5% of USD stable coins. uh then followed by euro and then some some other like CHF or or others. So this sector has kind of proven to be successful when you look at tether which is like the company that has the largest revenue per employee in the world by simply holding tub bills today. Um so for me it's kind of obvious that stable coin in the RWA sector will be the one that will lead us to the one

trillion most probably. So what are the things that you're seeing that with the current state of stable coins that still need to be addressed that need to be changed maybe or improved? >> Yeah. So speaking from like bringing institutional grade liquidity to the market, right? The name of the panel is why aren't RWAS a trillion dollar market? We obviously need to tap into the institutional side. Um we we also look at the space. We heard a lot from our clients of you know wanting the opportunity to invest in these natively issued RWAS whether it's you know private credit money market funds etc institutional grade assets that many issuers are bringing on chain but they didn't have necessarily the risk appetite to hold stables for a number of

reasons right one is like balance sheet certainty so what does this look like from a balance sheet perspective how do you report it how do you do capital management stress management you you know capital policy obligations around that for one. Um the second that we heard was that you know another big issue is around like how do we assure trace of funds right so compliance in the space how do I know it didn't come from a sanctioned entity or multiple parties and then how do we stop it or enforce it or report it when it does right because inevitably it might through the chain um and I think we also were seeing a clear hesitation of like fragmented liquidity which I think is a

really big part of what we need to do for the RWA market is that you know other than some of the most liquid stables who have direct relationships with those issuers actually getting your funds offchain are still T+1 T plus2 T plus3 timing. So we developed out JPMcoin to help in that problem statement when you think about it in context of RWAS where it could be you know just a commercial bank deposit right a demand deposit liability that you hold with JP Morgan the same way everybody in the audience holds demand deposits with whoever you bank with. So bringing that balance sheet certainty of just US dollar fiat but into what is an ERC20 with a few extra functions uh totally transferable token right so that

we could help bring a type of commercialrade money into the ecosystem and because it's a commercial bank deposit it means you know there can be native yield bearing it can be eligible for insurance schemes and it's integrated to JPM accounts and can go very quickly on and off ramp and I'm explaining this because I think then like the integration part is how we bring liquidity into the space. Because if you're going to bring hundreds of millions and billions of dollars of liquidity on chain, there are treasurers right behind that liquidity and they have to manage their positions across multiple institutions on a daily basis.

So what does that mean? End of day treasury operations are done out of accounts. They have notional pooling structures. They might lend excess liquidity on repo markets overnight. Those things won't change. So I think those like specific points are how we can help drive more liquidity that's institutional grade liquidity coming to the space and making sure it's not more fragmentation because I don't know one treasurer who's willing to have more liquidity fragmentation than we already do. Right. >> I I completely agree with everyone on a lot of side. I think there's just one extra lens on to add there which is when you think about stablecoin usage um a lot of it is thinking about kind of lots of the mental models are around um kind of just in time payment they've been about remittances crossber payments etc and that that is a market it's actually

a market that a lot of fintexs have really struggled to to kind of crack because you know they are having to take on you know intermediaries or counterparty risk in different jurisdictions they really struggle with offramps etc but I think um One of the things we think about in the institutional space is like we don't really work like that. We don't work just in time. You you hedge. You forward hedge because you know you you want to pay for that premium of assurances. If I'm a you know CFO and I've got a treasury and you know 60% of my uh revenue, my top line of my profits come from uh US dollar but I report in euros.

Well, I'm not going to take the the Euro dollar risk. Like dollar was down 10% in 2025. Like you're you're not going to take that risk. you're going to forward hedge and so I think for we're working with a lot of teams on that point um because the product market fit for stable coins is limited currently because it hasn't scaled beyond that and that's that utility element needs to be and that comes into market structure and kind of also the conversation between DeFi and and tradfi. So there's there's that first piece which is like we talk we often talk about the corporate treasury use case but we need to kind of actually go and define what corporate treasuries actually do and work out and map the product onto that which is you know an exercise which um you know particularly banks are are very well

placed to do um but involves kind of a bit more a kind of deeper thought. The second piece is around thinking about corporate treasuries again as a good example is that if you're sending stable flow around uh you know onchain etc moving it between parts you know from subsidiaries to parent codes whatever you've also got to remember that um it's not really a value ad to just have like a stable coin sandwich right so you just have the essentially the rail going through the payments piece going um through through onchain rails and then having to come off chain at the other side and so this is the element which is where the interaction with RWAS comes in is that you have to if you're going from A to B, you probably want something quite appetizing to hold your cash in at A and B rather than coming offchain to

do kind of the activities that you do as a as a treasurer. And the real issue with RWAS right now is you got money market funds which are great. You know, it's a risk-free asset. You wouldn't start defining economy until you defined a risk-free asset and a cash asset. Like that's what we're basically doing. But then everyone's just jumped to private credit which is like the most liquid asset that you can basically get your hands on. It's it's a black box. It's very hard to define. It's very hard to underwrite and it's a near dimminimous amount of most corporate balance sheets. And so we haven't got that bell curve. And that bell curve of assets is really important because you want treasures to be able to define what's your tier one assets, what's your tier two assets, your tier three and have a basil three

style balance sheet which is what we do. That's what you know real world CFOs do. You've seen even you know people like Sky formerly make a DAO adopting these style of approaches because yes it's regulatory mandator for us but it's also just quite a good way of doing things and so those things are you know these will these these components will be kind of interoperable and they will help each other grow and create that liquidity flywheel and we talk about being a vertically integrated stack starting with cash moving your way upwards and having kind of real use across the financial system >> because I think the point is like you still want composability, right? We are talking a lot about like what do you do offchain, but I think the whole view of being able to like build RWAs with token standards and even bring not just

stables but also commercial bank money into you know standard token formats is that we want these things to be atomic because that's the only way that you can actually not just reduce but remove counterparty risk. transactions execute both sides instantly and simultaneously. And being able to have, you know, smart contracts that have like netting models or obviously DVP contracts or other lending contracts, all of those things remain a way to reduce operational risk, right? >> Yeah. And so just to better understand maybe for the people who are listening here, is it up to the issuer of these assets to provide the infrastructure? Is it up to uh the chain itself to be able to I don't know have some centralized

part where you can like freeze assets or be compliant with whatever institutions need or is it up to the protocols that offer these services to basically cater to institutions who whose job is it to meet the demand and like like meet the demands and also respond to the needs you guys have highlighted before. Yeah, we we have a very kind of strong ethos on our team which is we call it build the tent grow the pie which is you know it's a bit like when the Chinese equity market opened up you know lots of the liquidity provisor uh market makers had to kind of work together to get the market to be efficient to the extent where instational institutional capital could come in it's a very s very similar model here there's no one entity that can define a market standard it's a bit like a swift a visa you have to come

together you have to define what your requirements it's it's painful it's a like I think Joe Luben said like Swift was the original DAO like it's a painful process like we've got to kind of work together and define the the good thing is I think what's changed from now versus two years ago is you've got people at the banks like Emma you've got people at asset managers you've got people at you know market participants like the more utility style like DCCC url etc who like understand onchain architecture but have a tradfi lens and so you now have the right people in the right seats to have those conversations they're not trying to fit a square into a circle. They are just defining the circle. And so I think it's going to be a kind of a multifaceted approach. I

think the one thing that we have to just remember is that no one entity is going to have the answers and we're going to have to also be very cognizant that the more people try and basically own more of the pie, the worse and the more fragmented outcome we're going to have. But I also think it's like not every use case needs to be on public chain, right? And like you're just going to look at your use case and choose the right protocols for it. You know, we have deposit accounts that we offer our clients. We offer them on an internal private permission network and it works as a subleddgering system and a payment system and we process significant value on those networks for corporate treasures who want to move money across our position and do real-time FX. And there's a really strong use case that

needed blockchain for the execution capabilities, 247 capabilities, ability to add programmability and actually start to create programmable treasury, but arguably didn't need to be on public chain. Right? Then I think when it comes to going to public, you know, with issuing an asset, which deposit tokens are currently live, JPMD is on base, right? I think at that point it was around how do you build the controls as an issuer in a way that you're comfortable with and then leverage you know the public chain or the protocols for what they do really well and we were talking before the panel like you know do you need to build do protocols need to be building specifically to institutions of course there are use cases and some who will and

infrastructures at one layer above the protocol I'm sure we'll start to continue to build services for institutions but I think part of the value is also like how Are public chains super resilient? Do you focus on having high TPS? Right? What does the disaster recovery posture look like? Do you have guarantee of execution, high availability, price predictability, right? Those things also matter. >> Yeah. Yeah, I completely agree. I think it's based on the use case and any asset that's actually going to interact to GFI is going to have to get to parity in terms of security with G5. So let me give you an example when it comes to stable coins. Stable coin today are the

liquidity layer of G5. Meaning any asset can be traded against a stable whether it's USDT, USDC. One of the big risks we have whenever we interact on chain is whichever transaction you do, you can never go back in time. Now the risk with RWAs and stable coins in particular, if you don't have standards around how these RWAs are being minted, you have a lot of security risks around over minting the asset. And if this asset is actually the liquidity layer of GI financial catastrophe here to the point where an asset could be overminted and drain out billions of dollars inside protocols in one go. We've had, by the way, this example last week when a

stable coin, not a very large one, but still a big one, >> was overminted to the tune of $50 million. We had an issuer a few months ago over mint a stable coin. I think it was $1 trillion. Okay. >> I think it was billions. Yeah. Yeah. Yeah. >> Exactly. There is going to needs to be and that's why at Chenlink we've been working on proof of reserve for the last five years. We need clear standards on how threadfi interacts with gi because in this dimension you have two security risks. You have the first one which is getting to the standard that ratfi is used to the very high standard there and then there is a very high standard of defi security where everything is composible any asset can be traded

against another asset and if you have a failure you can't go back in time to correct this failure. So whatever security you put whether it's data oracles with chain link whether it's proof of reserve it has to be iron cloud because in defi you have no room for a mistake basically yeah before we kind of running out of time it's going really fast so um there is one controversial question that I had so uh and I would like to hear your opinion on it and it's a discussion that I have sometimes with other institutions as well lots of institutions with oak research that we are talking to They are saying, "Hey, how can we benefit from DeFi? Like how can we deploy our own products on the chain and how can we

basically like get more inflows, get people interested in our products and maybe like get even some more recognition, etc., etc." And so from my point of view who is like a DeFi user and who has been here for several cycles, we were always expecting institutions to come on chain at some point. We were hoping they were going to buy our bags, but at this point they are selling us their bags. And so it seems like that the institutions are more interested in bringing in new products rather than using what we have built throughout the previous years. Do you believe that this is true? And from like your point of view, is it something that is was to be

expected as well? Yeah, it's like like I alluded to earlier, like a lot of managers have seen this as like a distribution opportunity to kind of extract value. So like fair value for a money market fund in Tradfi is eight basis points. Coming into the market and charging 50 is an interesting approach. Um so yes, you're right. There are a lot of there are a lot of play whenever there's a tech evolution as some form of innovation certain certain players certain individuals will come in and try and extract as much value from the the true people creating value. I hope that a lot of people won't feel that that's our institutions on this on this couch is not our approach. Um anything we we anything we do in try and find DeFi it costs the same. Um but I think there's

there's just one so there are some entities that are coming that they're trying to sell but there's also the element which is like lots of these institutions are also trying to bring um diversified product you know we're trying to bring things which add value to an existing portfolio you know so you know people who bought product uh private credit funds to market they are trying to hit kind of the product market fit that they've been hearing from people which is like we would like higher yield well there's only a certain certain avenues that they might have available to bring that high yield on the I guess the key thing here is is like again what I was saying earlier about that kind of same but better element which is like of the assets that exist on chain you know these large pools of capitals aren't you know it's

not just like the money that Bailey Gford runs isn't Bailey Gfords we are stewards of somebody else's capital we have very strongly defined risk management processes we have mandates that we have to work to we have prospectuses which are legally binding all of these things we can't just you know upsticks and decide to go and buy XY Z, you know, structured product and actually we'd probably be fired by our clients if we did. And so this is kind of like the merge between these entities, which is, you know, us bringing our product on chain is a way of essentially obviously like tokenized funds are a gateway drug. They're a gateway drug for institutions to essentially build the backend architecture to then more prolifically work with um onchain um assets. And and the other thing is also like you know a

lot of on on the other side is like a lot of onchain assets onchain protocols etc. they are um we want to use them for their utility. we want to be uh we want to you know so it's much more of like we're not going to you know just pump bags but like we we we want to like use the assets in a way where we're actually getting you know value for be it infrastructure be it scale be it efficiency and so um you know there's a real question I I say this to a lot of startups that we we we work with which is like you have to be really clear when you're working with innovation is the technology that you're working with the innovative force or are you as a company the innovative force force or a protocol, are you the the innovative

force? And if the the answer is the former, if the technology is the innovative force, it's very hard to disrupt incumbents because if they identify that soon enough, they will disrupt themselves. You've got one of the biggest US banks sat here, basically running a startup within their own business, disrupting their own business on chain. And so the the other thing to say is, you know, we want to use onchain product on, but it has to be, you know, has to be something that we couldn't just go do ourselves because it's open source architecture. we can just go build a lot of it and so it has to be a collaboration not just kind of a one way in either direction >> and maybe just to add I think on the same but better like point it's that like this is there is something really exciting with the RWA market right with

the traditional money market fund there is no secondary trading right like that's exciting in its own for all of you sitting in the audience who are investing in DeFi and in RWAS um but also for institutions who see these opportunities and of course the on-ramp has to the inst I wouldn't even say the on-ramp we will have to be holding institutional grade assets right with all of the asurances and external rating and KYC and the many things that theo mentioned regardless but I think it's also to your point about growing utility and the institutions who are just coming to maybe not the issuers but those who are holding who are just doing this for the first time they don't have the same level of like ecosystem effect or like e embed embedded being embedded in the

ecosystem I think is what I'm trying to say which is like you know if they're allocating a certain part of their balance sheet let's say in stables and then they're holding on that they want to earn yield they want to go to a lending protocol be and somebody else there's demand because they have to meet a margin at a crypto prime broker it's it's the ecosystem right and I think that's something that's still very very nent for most institutions because what we've seen is like issuances or parties just starting to come in and also just getting set up on the infrastructure right like now these institutions need to learn how do I hold crypto on my balance sheet even if it's a dimminimous amount to pay gas fees how do I set up custody what kind of wallet interfaces do I use explaining to your risk folks

what a hash is right like all of these things are part of that journey as well so I think it's like it's not that there won't be more usability and more convergence but it's also like there's time to getting embedded in the ecosystem and really exploiting like utility >> do you want to add something today is chain link. I feel like you're at the intersection between the onchain digence and like the trata in the institutional side as well. So I guess like your point of view could be quite interesting here. I think the main um the main missing part right now is we need to find what type of distribution do I get on chain?

What type of use cases can onchain open up? I think horizon is a great example on how you can actually start using the RWAS as collateral. How you can get utility? how you can get more yield on top of them. This distribution has been the main missing part because if you think of it um if you buy an RWA and you do nothing with it on chain then what's the point? You might as well buy it off chain. You have processes which have been worked on for decades on how to buy an RWA of chain in well how to buy a traditional asset chain. You don't need the chain if you're not going to do anything with it, right? So the chain needs to be opening up doors to the RWA.

That's what we've been working on at Chening. That's what we've been working on with partners like the A folks. You know, that's what I think the really big unlock is going to be for this whole industry. One thing just to very quickly add is um I think we need to also remember that um lots of institutions are coming into this space to to do two things. They're trying to create product for the onchain kind of customer base, be that kind of web two, web two and a half, three kind of fintex, etc. that choose your spread. Um, but they're also trying to create products for other institutions. So, I think the money market fund example is really good. Like a money market fund for like for example like RWA looping, it's kind of irrelevant. There's no spread. It doesn't really work. Like, what's the point? Um, but a money market

fund coming on chain for us as an institution to do FX collateral or cash settlement cycle. So I'm not having to sell something one day and buy it two days later because I've got an inflow out those sort of things. You know, for anyone who's interested in the nerdery there, just look up the UK guilt crisis in in under Liz Trust and you'll understand like how margin posting with a money market fund um might have been a really helpful way of stopping that sort of breakdown in the market. Um so just remember that lots of people as they start to bring to market like some market uh so some product they bring to market might not be just for the DeFi crowd. it might be wanting to cross-ell to their own counterparties and that's okay like that that's we're all kind of adding value in in a different function

>> I think it helps bring liquidity right is the point like JPMD is a great example it's not a retail or accredited institution or accredited investor rather product right it is specifically for the largest institutions who have you know those same obligations when it comes to what they're holding from their balance sheet perspectives but that can help bring liquidity it comes back to the name of the panel right like how do we actually bring this market we need that liquidity. >> So I have a blinking screen saying that we are out of time but just if you could finish up this panel by just saying what would one sentence for each one of you especially Theo one sentence uh what would you consider for RWA to be a success? Would it be like the market

cap going over a trillion dollars? Would it be seeing something that does not exist yet on chain? What would be the success for RWAS on chain? >> Uh both of our rather large institutions are running their front and off front and back office all onchain. That's that's how you win. Like we should not have any off-chain processes unless it's truly necessary for a risk and compliance process. >> Great. I would say quantified by market cap and adoption a growth of institutions coming into the space and I think net new products right like onchain structures that are actually structured products within existing regulatory reg regimes holding stables other types of

short-term debt HQLA's deposit tokens these types of things will start to like make this I think a successful market >> yeah I think the main power of our space is giving access and democratizing financial access to everyone in the world no matter where they are. So the main success of tokenization would be everyone wherever they are gets the same financial opportunities as someone living in the west today. That would be the ideal end goal here. >> Y perfect. Well, thank you Mar. Thank you very much. Please give it up for the speakers.