Why The Next Wave Is Bigger Than Digital Assets Itself

Transcript

Essentially today, when you go to a broker dealer in the US and you buy Apple shares, you're not getting the share. You're getting an entitlement. You always have the right to claim the share, but you're not getting just like the streets of Manhattan. I'm going to keep this quick. Over 70% of our viewers are not [music] subscribers. Yes, you. Every week, we interview some of the best entrepreneurs and [music] investors in the financial industry. The easiest way to support our channel is to hit the [music] like and smash the subscribe button. Now, sit back, relax, and enjoy today's show. >> [music] >> What kind of controversy we're going to get into today? [laughter] >> Whichever one you want, Carlos. No, I don't know. You come up with one. Well, >> catch us up, man. You were just in DC yesterday talking to SEC obviously as I

go there as soon as they come. I think it's it's very refreshing to talk to this administration. Uh Paul Atkins and the team are are great and we had really good meetings there. with the you know uncertainty what was going to happen with Friday or not which we didn't know yesterday but I think irrespective of that I think we're looking at a very bright future for the industry. >> Yeah. Yeah. I mean I think the industry was somewhat disappointed. Um but you know as you saw we had gotten you know kind of tipped [laughter] off about this tokenization exemption uh possibility for transfer agents to >> you know more than me. Well, [laughter] we also we also had Carlos, we had Taylor Lynman, the chief counsel of the crypto task force on the show. He told us about right crypto,

>> you know, he told us about some exemptions, whether it be innovation or tokenization exemptions, you know, uh, fundraising as well as 24/7 markets that New York Stock Exchange, NASDAQ are working towards. And then he talked to us about, you know, the modernization of the rules specifically around transfer agents, >> which is great, by the way. And and so maybe you can help us understand like where we're at today in terms of what is real and what is not real because I think the rumor mill gets a little bit blurry around the edges. So maybe you could just help us clarify any sort of misconceptions that are out there.

>> I mean the the the things that are real for sure is the modernization of transfer agents. The the the proposal from the SEC is already out there is open for comments. I think the comments closed in November. We'll we'll be for sure uh commenting on those because obviously we're very opinionated company when it comes to that. It's something that you know at the tail end of the Jake Clayton era they tried to do it. It never happened at that time. Then Gensler I think as I posted I actually pitched that to to him and he didn't think it was important. Commissioner Pers was very supportive back then and she's now uh you know in a more you know leadership position at the SEC today and I think it's great to see that this is moving forward. We'll see what end ups coming out. Obviously, there is some

controversial aspects of of things there. Uh but but nevertheless, it's actually a very positive. So, that's real. It's going to happen. >> Yep. >> Recrypto is also out there again open for comments for people to comment. It's actually I like the way they've done it because it kind of mirrors uh the crowdfunding rules. Rex CF and regga plus where they have 5 million tier, 75 million tier depending how much you raise, you have to have more disclosures, etc. which is is very it's very similar to how crowdfunding industry work on the job side that was done in 2014 I believe so that is also real but again it's open for comments now the innovation exemption for tokenized securities is not real yet [laughter] it's something that I know the wants to do and they've been working on it for a

long time is a controversial one >> more controversial I would say than the other two uh because obviously it's going to allow we don't know exactly what's coming out. But >> it seems that the path will be that it will allow you to do certain things with you know decentralized infrastructure that will not require licenses. So obviously the the more trusty companies in the space they you know are pushing back saying why do we need to be regulated and these guys are using a different technology and they have a lighter regul regulatory framework. I believe it will be somehow limited at the beginning which is maybe the right thing to do to kind of be able to experiment without blowing anything up.

Um, and hopefully now that Clarity unfortunately died, that opens up a door for the SC to go and do something on that front. So, I'm hopeful that we're going to see it coming out in the in in a short period of time. >> Yeah, I agree. And I think honestly, Carlos, it should be a bit more nuanced and have a bit more depth to it than the breadth that Clarity had, if you will, which, you know, we'll see what happens. We'll see what comes out. But I think the context here that we've kind of glazed over that we need to address is Robin Hood stock tokens. Because if we're being honest, Vlad going on TV saying tokenization is the future of finance is driving a lot of the conversation, >> which I agree. He's great. He's he's the one of the best spokespersons for the

industry. So >> yeah, and I agree. I think he's doing everybody in the industry a service. However, what I do not necessarily think is the best is that we're conflating different types of tokenized assets as one concept when they are not. And we don't need to do a whole education power hour on on different types, but I think it is important to hear your perspective on stock tokens and on this kind of un like on this breakthrough that they've had on Robin Hood chain. What is happening there from the securityiz perspective? What do you think has worked well and what do you think is a cause for potential concern?

>> I I think I I wrote an article on Monday this week. Um there's kind of like three models, right? You can tokenize a share and the token is the same share, the same rights, the same you table, you're the rightful owner is completely legal in the US and uh worldwide etc. That's what we did with our equity when we put it on chain when we got listed in the New York Stock Exchange. You can tokenize an entitlement which means the share itself is held at custody somewhere and the token is basically um a full securities entitlement that allows you to actually reinvest the the share and the full security entitlement are regulated uh under code a UCCc and they are precisely regulated to make sure that they

represent the same instrument you always have a claim to wars etc. And essentially today when you go to a broker dealer in the US and you buy Apple shares, you're not getting the share. You're getting an entitlement. You always have the right to claim the share, but you're not getting it. And then the third one, which is what Robin Hood, many other people claiming that their my model is better than your model. I mean, they're all in my opinion derivatives one way or another. Some of them more regulated than others. Some of them fully unregulated, some of them regulated by offshore jurisdictions, etc. And in those models, you're basically creating a derivative and a derivative that is basically what what the token gives you access to a derivative. You're not tokenizing the share. So I think it's very misleading

to call these stock tokens. In the case of Robin Hood, they're dead securities. So maybe it should be called dead tokens or something like that. And I think that's part of where where the confusion comes, right? You know what what is that you're actually marketing and and buying and then what problem is that solving, right? Because a lot of the activity that happens in Robin chain is just because the tokens are permissionless. So people can do anything they want with them and they create all these trading pairs with memecoins and stuff like that which obviously if you you do full you know regulated instrument you will not be able to do those things but you know at the same time regulations are there for a reason right to protect insider trading AML you know take that terrorists don't get hands of US

securities and stuff like that. I I I think one of the key takeaways here is that these are different products >> 100% >> for different target customers. Meaning the target customer for a a debt security or a stock token that Robin Hood calls it, the target customer for that is a retail investor, someone who may enjoy pairing their stock token debt instrument with a memecoin. Whereas the model that you're describing, securitizes taken, I think has a it's a different product and it I think has a different target customer. Who is the target customer?

>> I disagree. I disagree. Look, Robin Hood is a phenomenal company that I use every single day since 2020 that has built an extraordinary business by serving retail customers, >> right? >> And and that doesn't necessarily mean that, you know, you need to not be fully US regulated. They have 30 million customers or whatever. I think what you're serving there is not retail. It's the crypto DJ >> which is subset of [laughter] retail. >> It is correct. Subset of retail. A lot of retail people want to make sure they have buy fully regulated products that they know what they're buying that they have protections that you know that the things are not going to blow up that they trade at the price they need to trade that they have all the rights etc.

So I think that that's not just retail versus institutional. This is all a very extreme part of a retail. >> And so you would say that the product market fit that Robin Hood's debt instruments have found is primarily with crypto dgens and that's not indicative of the product market fit that you think tokenized equities in general could arrive at. >> I think I think we've we've all been long enough in crypto to understand that the crypto DJ crowd it's a limited amount of people. The majority of the people want to make sure that they buy things that are safe, that are sound, uh that are regulated, that they they give you what they promised to give you, etc.

So, Crypto DJ is great and it's a lot of fun and today is, you know, Robin Hood stock tokens, but before it was NFTs and uh and before that it was uh you know, memecoin, you know, after that memecoins, etc. So, there's always going to be something new for the for the more crypto digent thinker. That's great. Um I think that's a a very limited uh audience if you want to build products that are scalable that go across jurisdictions that you know have proper retail adoption um institutional support from a you know market making perspective and stuff like that then you need to build products that are more fully regulated. Okay. And getting getting into some of the nitty-gritty around the regulation here for tokenization. Again, we had Taylor Lim on the show and he's leading the charge

on a lot of these things. And one of the things that he's looking for is feedback. You mentioned that you're going to be doing a comment during the open comment period that they put out on the proposal. I mean, he was like, "Hey, the reason that the SEC is going on all of these podcasts is so that they engage their audience and they get as much feedback as possible." And I think it's really bullish because they're actually listening. Whereas Gary Gendler was not listening at all. This SEC regime is actually listening. They're looking for people to tell them what to do. And we have a very limited time frame in which we can actually instruct the SEC on what should be done and they'll actually listen. And so what maybe you can just give us some insight into what your comment is going to consist of. What

will you be instructing the SEC? What should they be doing here? So, so first we've always been commenting to the SEC and the discover letter that we send which is actually public publicly available. You can go it's not the the the beauty is not that only that they're listening but also you can actually see what everybody's commenting because there is there's a full website where you can see the letters from everybody and by the way you can also see the conundrum that the is going through because the same thing that they will get you know positive feedback from somebody like me they also get not very positive feedback from some other people on the other side of the spectrum which are not necessarily people in favor of tokenization or in favor of of crypto.

So it's kind of interesting to see the the different points of view of people and uh and and where the SEC sits that at the end of the day is serving both markets, right? So you can't just like do something that is extremely favorable for crypto organization that then negatively impacts where traditional markets are today, right? So I think that's the that's their challenge in in terms of comments like look the the the transfer agent modernization rules is a very lengthy complex thing. So, so you know, we obviously, you know, without going into the nitty-gritty details of what we're going to say, but we want to push for as much as possible digitization of the process. We want to make sure that we eliminate everything that it's legacy dealing with papers, dealing with physical addresses, uh,

dealing with mailing proxy v. I think that's a a legacy, you know, legacy rules that are, you know, there that today in in a fully digital world. And especially if we move into a fully tokenized world, you should be able to interact with your investors in a fully digital way through the wallets etc. And I think that's ultimately the goal and and the the nature of our comments will be pushing towards that direction that digital transfer agents like us should be able to operate fully digitally without having to deal with any legacy processes. So >> because I mean it shows that where we're headed is this transition or this transformation and obviously we're very early right? We're we're talking ten of a percent, half a percent, 1% of, you

know, the equities market or the repo market or the money market coming on chain over the next couple years. But it's a massive notional dollar amount of of of size. And it's interesting to hear that that you, you know, understand that there's push back to this, right, from banks or from other folks because, well, not everyone sees the vision, right, Carlos? And I think part of you guys going public is allowing yourself to beef up the war chest, beef up the treasury, do some acquisitions that I'm sure you guys have your eyes on, spread the word, and really try to grow this to something, you know, you've been doing this for 10 plus years now. You know, let's go big, right? And so just talk to us a bit about what going public was like, that process, ringing that bell. I saw the photos. It was awesome. I I'm so

happy for you. And then what now, right? Acquisitions, is it growth? Is it team? Is it marketing? What now? >> So, um it was a very lengthy process till we we finally went public which it took a lot longer than I was expecting. Um it it was complex dealing with bankers with lawyers with auditors etc. uh and it just felt like an uncurmountable amount of work which by the way this is something that you know I think this current SEC is very aware of that you know they should kind of simplify the process of going public because I think it's good for for more companies to go public and then the amount of publicly traded companies in the US has been as shrinking over time which makes no sense and companies wait you know too long to go public so I

think for me it was something that I've always wanted to do I didn't think I was going to be able to do it but eventually it happened it felt a bit surreal to be there to be honest with you ringing the bell with all the people there and you know be overwhelming and then the day after the reality hit now we're publicly traded and you know we have to deal with quarterly earnings and uh do as you know make sure we track uh results in a better way that we communicate what we do in a way that investors understanding because otherwise that you you get overreactions you I have to deal with all the people on on X uh the day we go up 10% I'm a hero and the day we go down 10% I'm the worst person in humanity and you know deal with all things and it's

part of it comes with the job. But the the the good news is that we raise a lot of money. We have you know after we pay all all the fees and all the costs etc more than $250 million uh of cash in the company for first time in 9 years I don't have to worry the company's going out of business and trust me you know it's it's a much better place to be than than you know uh the situation we had before. So that's very exciting because now I have the peace of mind that I can actually build for the long-term future. Um we're definitely been been very vocal about it. I think acquisitions are are on on the radar. Um that is something we we actively are are pursuing and hopefully we get things done uh in the coming uh in the coming months. But also

overall continue investing on this. This industry is still very nent, very small, very immature and you I think you guys are doing a good job putting the the communication out there. There's still a lot of confusion about tokenization, the different models, the you know the advantages depending of the asset class. So I think you know being publicly literated help us put the the word and the narrative out there for investors which ultimately are the ones that need to be buying these products and understand more about the advantages of what we do. >> Very cool. And so a as we get into what this tokenization super cycle is ultimately going to manifest itself in which is trillions of dollars of assets coming on chain. We expect those assets will start to flow into the protocols that make them composable and give those

tokenized assets utility and turn idle capital into productive assets. I'm just curious as far as the things that you're most looking forward to because it seems like we're getting progress on the regulatory front. We're getting progress on the technology and we're getting progress from industry partners at large that are leading the charge such as yourself. And so just as we come to a close, I'm curious, what are you most looking forward to as we embark on what people are calling a new cycle? >> I think that the the the supply side of things, it's there. Um, you know, all the asset managers are excited about it.

They all are working on tokenization. Some of them are already working with us. Some of them are coming live in the coming months. So I think that's very exciting. the infrastructure for the most part is there like you know people don't remember when I started the company stable coins were not a thing like USDC actually launched a year after I launched the company so so so that there's a lot of things that did not exist back then that exists today I think the user experience of using blockchains is improving but we still have progress to to make there I think what most excited about is is uh seeing how the demand outside of the crypto DJ community But the the broad you know traditional people that are investing in financial products are going to start

you know using uh tokenized products and I think that's what you know is really the step change that the industry needs which is you know move for billions of dollars to trillions of dollars but that's not going to happen only with crypto people consuming tokenized assets that we have to make have to make sure that you know my grandmother buys a tokenized asset and that's the moment that you you've made it out of of this uh community into the broader traditional financial system consuming tokenized products and that's when you get to the trillions of dollars. >> Thank you so much Carlos and uh again didn't mean to rate on your parade there. I really appreciate all of your work and thanks for >> appreciate you coming on and thanks for coming out to our audience.

>> Thanks Carlos. Yeah.