SEC Unlocked Tokenized Stocks

[0:03] Speed is going to be everything here because things are moving much faster than they ever have done. And the kind of compliance frameworks, the risk frameworks that exist today for securing things, protecting things, [music] we can see already they're not fit for purpose. Imagine a golden source record of every transaction, an auditor in the sky and [music] you can make change and it's a golden source so it updates every single time [music] but there isn't a single point of failure. If I was to describe that technology to you and say [music] it was a blue blue, you would
[0:35] tell me that you want it. But because I say it's a blockchain, you go I'm not so sure about that thing. Money is just the beginning of what is uh trust, right? like so you have other trust like primitives that can be built that can be proved and crypto have all the primitives to do that. So I am very excited to move away from like this tumor AI sort of narrative to a world in which like we harden our systems and we utilize like what is the best of crypto to do that. When I think about DeFi and just how wild west it has been for so
[1:05] long where there's some smart contract bug, oops, all the money's gone. >> That doesn't work in traditional capital markets. Like that's not an acceptable outcome [music] that like some engineer made a mistake, all the money's gone. Uh, and so it's like you have to kind of rebuild this trust stack. Welcome to Tokenized, the show focused on stable coins and the institutional [music] adoption of tokenized real world assets. I'm Simon Taylor, your host, head of market dev at Tempo and author of Fintch Brain [music] Food. And joining me again is Kai Sheffield, head of crypto at Visa
[1:35] and also congratulations man, father of two. How you doing, my friend? Thank you. I am in in the trenches in in the baby trenches just trying to trying to get by but having a great time. It's good to be back on the show after a few weeks. There's so much happening. We've got some awesome guests. You know, some announcements to to cover. Let's get into it. >> Yeah. Well, let's do that. But we got to welcome our guests first. Uh returning to the show is Nikil Chandok who's chief product and technology officer at Circle. How you doing, Nikil? >> Good. How are you?
[2:05] >> Uh really good, man. You've got some news this week that we'll get to. Um, but I've also got to welcome uh long overdue debut for uh Simone Mayi who is CEO at Elliptic. Simone, how are you doing? >> I'm great, Simon. Yeah, it's great to be here finally. So, thanks for having me. >> Uh, long long long overdue. Really happy to have you. Um, before we jump into the news, I got to remind viewers and listeners that views and opinions of our contributors today are their own and might not reflect those of companies they represent. Please don't take anything we say as tax, legal, or
[2:36] financial advice. And of course, this podcast is sponsored by Modern Treasury. This episode is sponsored by Modern Treasury. Stable coins are here and so are checks and a not going away. RTP and Fed Now and new types of payments rails are emerging all the time. The challenge now is integrating all of these without slowing down. Modern Treasury offers one single API for fiat and stable coins,
[3:06] helping teams launch payments products in days, enter new markets, and serve more customers. Trusted by companies like Procore and Navan and Morse, and backed by over $600 billion in payments history. Learn how to adapt to changing payments rails with scale and confidence at modernreasury.com. First story this week, the SEC has granted a 5year exemption for tokenized US stock trading 2 days after the Clarity Act failed to advance in the
[3:36] Senate. This is a temporary conditional relief allowing certain onchain venues to offer trading and tokenized US listed stocks using automated market makers and liquidity pools aka DeFi. Anyone? There are two exemptions. one from the legal definition of an exchange and another for the definition of dealer. Both last for 5 years. Uh this is going to be really interesting. Tokenized shares must give holders the same rights as the
[4:07] equivalent conventional shares. Hello Robin Hood. Um and trading access must be permissioned even though the smart contracts run on a public permissionless blockchain. So, I'm actually going to start with Kai on this one. Um, since you're coming back into it, uh, and you've not had much sleep, I'm just going to, uh, ruin your week. Uh, but we've been talking about this theme on recent shows quite a bit about tokenized stocks. Uh, there's obviously, you know, some disappointment around clarity, but this is next best thing for tokenized US
[4:37] stocks. Yeah, I I think first it feels like we should just expect you know news and releases from SEC like every week like going forward that there's just you know now that we know clarity isn't going to happen. I would imagine that there are a lot of things that you know they're kind of taking into their own hands saying we're going to give you know the the market you know guidance on on how we want you know this balance between innovation and experimentation with having some clear guard rules in place. And so like, you know, this this could be there's going to be a lot of news for this show to cover of just all
[5:09] the releases that the SEC you puts out. The the thing that that stood out to me here is again just in the past few weeks, it feels like we've seen like tokenized stocks move into much more of a more mainstream kind of retail, you know, type of market given what Robin Hood has has started to do. Now, you know, we've talked about the different types of tokenized stocks and how, you know, those don't actually give you the same rights as uh, you know, the actual share that that's issued on chain, but the concept of a tokenized stock seems
[5:40] to be taking off. There's a lot more momentum. There's a lot more developers building around it. And then you have DeFi infrastructure like Uniswap that is now being used to trade tokenized stocks. And so it feels like just the volume of AMMs, these automated market makers trading tokenized stocks is going up and to the right, but the rules around what does it mean for an AMM to trade tokenized stocks, you know, that doesn't seem like that's been clear. And so my understanding here is this is the actual share that's issued on chain
[6:10] version, not the synthetic version that this is covering. And this is a permissioned AMM where you could have unis [clears throat] swap with something like their with the v4 hooks uh where you could permission who the liquidity providers are to enable that as market infrastructure which is very different than the entire permissionless DeFi ecosystem emerging around some of the Robin Hood uh tokenized stocks. And so I don't know how this is going to play out but it's just great to see more guidance uh and this balance of innovation you
[6:40] know with with some rules around it. And Simony, I think given what your business has done for a long time around, you know, sort of the the crypto market, interested in your perspective of, you know, what this might mean for you, your business and and sort of risk in this ecosystem. >> Yeah, for sure. So, look, I completely agree with Kai. We should expect to see a lot more of this. Like very unsurprised to see Chair Atkins coming out with this today. I think also the CFTC, I'm This is all pretty live, but I think the CFTC have put something out
[7:10] today as well. Also, I think this is just going to be a bit of a fire hose where they're going to really be looking to bridge the gap now between clarity failing and providing as much of that clarity and and um guard rails as as they can. The hope is obviously that this encourages a lot of those institutions that were waiting for clarity to start participating nonetheless. And you know the in many ways this is um not at all different from where we've been for the last you know seven eight years or so. We're
[7:41] going to see rule making proposals. You know I think that the chair has said today that they want this actually to be a permanent thing but they're going to put this out for solicitation um and input from the industry. So you know it' be great to see a lot of participation a lot of experimentation there. It seems like and again this is all quite new but it seems like this is being positioned as a st a sandbox when it comes to the risk question really what they're saying is you know within these guard rails come and you know have a go come and
[8:11] test the the boundaries and give us feedback. Um for us that means partnering with these financial institutions just as we have been all the way through their digital asset journey to get even more sort of a little bit more kind of on the on the riskier end of things for them. there's a huge upside to how much they're going to be able to see on chain now um but also a big burden of um having to to look at that activity in real time. >> Nico, I know um the sort of clarity act
[8:43] and working with institutions was something that circle's been following closely for a long time. um you your read of kind of where the institutional mood is following the last couple of days on on some of this stuff and and more broadly zooming out to the general trend of institutions and tokenized stocks. I think everybody is trying to figure out like how it's going to work, right? I think uh everybody understands that this is how you would want to settle things. This is how you you would want to uh have your markets operate
[9:14] 24/7. Um but I think the core infrastructure to sort of like bring that up is just coming online right now. So I don't know about this uh today's SEC ruling I haven't kept up like I said earlier. Um but uh from my perspective we should see more just as the core financial infrastructure of like the US stock markets is going to get like upgraded in the next 2 to 3 years right like it's going to be on on chain it's going to be there's going to be new sort
[9:44] of like models of like managing risk uh all of that is is is in front of us so like that's where we've been focused like I think we announced uh uh ARC yesterday and like some of our partners on ARC are like focused on that broadly on clarity itself like I think um clarity solved a different problem than tokenized stocks. Uh clarity was around like uh capital formation, creation of tokens uh more generally. I think tokenized stocks is the right thing to do. Uh anyway, I think like having uh
[10:14] these instruments on chain, having settlement on chain, having some of these newer forms of like market structures, taking advantage of like what is one of the best sort of assets in the world. Uh it works both ways. these assets can take advantage of these new market structures and these market structures can take advantage of these new assets. So, um, so yeah, I'm excited to see what happens. >> Yeah. Simon, do do you have a view on like one thing I still struggle with is like it feels like AMMs, these like automated market makers are like one of
[10:44] the biggest kind of innovations that has come out of like the crypto trading ecosystem. And you know all of these longtail you know tokens you know that have emerged like the way people buy them is you through some type of AMM whether unis swap or you know some of the the other exchanges. Are AMMs going to have a big product market fit inside of traditional capital markets? Like are there use cases where AMMs make sense? Is it just like longtail liquidity or it's it's actually less efficient? And so it's it hasn't
[11:16] been clear to me is the reason the AMMs aren't adopted in traditional capital markets is it that the regulatory clarity isn't there uh or is it that they're just different they don't solve the same types of problems that crypto kind of needs this very longtail liquidity approach that you know Tradfi doesn't need. So do do you have a take on that? Yeah, it's a very different type of buyer, isn't it? In in traditional markets, um you might have uh 20 Wall Street firms that represent 95% of the retail and uh institutional
[11:48] market. And those 20 firms, if one of them moves a position, you can kind of figure out who moved that position on an AMM pretty quickly. Um and and so uh you don't want that. you want more privacy and you definitely want uh SLAs's and you want uptime guarantees and you want a whole bunch of uh different requirements for how custody works and you're probably regulated yourself. You want to know who your counterparties are. You probably have a bilateral deal with them and so I think it's more
[12:18] interesting to watch what Robin Hood and Coinbase are doing here. Um, as soon as this news came out, Coinbase was out on um, the mainstream business news talking about we don't do synthetic stocks. You know, it's all about tokenizing the real equities themselves. Then you've got to consider the DTCC is coming into this space. to me um that space is probably breathing the biggest sigh of like ah [sighs and gasps] finally we got some rules versus the AMMs themselves who maybe help spread uh tokenized stocks
[12:50] into uh geographies outside the US especially into long-term markets as you sort of alluded to but for the domestic audience their requirement set is so different the capital markets are so deep so liquid so mature and the requirements are so mature that that I really think It's different. I mean, does that resonate with UniL? Like I heard you say agree. >> Yeah. Most of what I have seen in these uh capital market use cases are is very similar to what you're describing like these. You have these dark liquidity pools. You have RFQ based systems. You
[13:20] have very strict uh requirements around like um uh quotes and uh and guarantees around like how your data is treated. All of that doesn't carry over into an AMM. AMM works well when you have like a long tail of like you know you have a million tokens you got to figure out like how somebody's got to provide liquidity against them there's got to be a place to discover that liquidity and you got to price it out and like and these are smaller orders to like for these large orders like AMMs just don't work but I am not an expert on AMMs uh and I haven't really um uh but they came
[13:53] about in the crypto ecosystem for a reason is my take and I don't know how much they carry carry over directly um to replace like what is already there as far as like US capital markets go if the AMMs are about like increasing access to US uh stock I I don't know how this ruling affects that uh uh so but broadly I think we should believe that more people in the world are going to be interested in participating in US cap in
[14:23] US capital markets uh it is probably a great way it's a great thing for the US it's a great thing for these people around the world and so I see this as a step towards that right like so let's let's just keep marching on that road and like every sort of win we can get along that road is a good thing for us >> and I see it as a trade-off right so perhaps the long tail gets the advantage one of going into more markets but also two um permissionless innovation so I can combine that tokenized stock with something else a debt instrument with
[14:54] blah blah blah blah with some earn instrument which you're already seeing happening in the Robin Hood ecosystem and I can do securities lending and that sort of thing. And so this this petetrodish for innovation stays stays really really interesting and that is exciting. I think that's the sort of like capital efficiency that smart contracts like unlock the 24/7 settlement unlocks. So >> I think that's where the innovation is. You're right. Yeah. >> I'm just going to briefly move us to the next story, Nikil while while I've got you because um you've had quite a busy week. Um, Circle launched ARC, uh, a
[15:26] mainet with USDC used for its transaction fees, uh, onchain lending and trading, and a founding validator group including Black Rockck, Visa, and Mastercard. Uh, why don't you tell us about this, Nikil? Who's Arc for? What's it doing, and how's it been? >> Yeah, uh, like, uh, we had a launch event yesterday here in New York. I think it's a fulfillment of our vision of uh uh what comes next for uh chains and and we're and when we're saying we're launching a new chain, we're launching a whole platform, right? Like
[15:56] so we're not just launching the L1 chain. The L1 chain is does include uh a set of like known validators. Uh but outside of that it is a permissionless chain. Uh and so in that way it is more like a traditional chain uh than not outside of the validator set. Uh on top of that we have a bunch of u bunch of functionality that we're launching like or interop stack that is cttp and such carries over to carries over to arc we have uh new SDKs uh like we're calling
[16:27] it uh arc uh app kits uh that launch along with that and then we have something called arc studio which allows you to uh use a coding agent to deploy contracts on arc uh and arc portal which is a fun way for people to discover what's possible on ARC. So in many ways we've taken what is traditionally done when you launch a new phone or uh or like a new device uh and you sort of think through not just like what goes onto uh the chipset but all the way to the user experience right like you want
[16:58] to make sure that every part of the stack works really well and and so we have built every part of the stack each part of the stack is individually composable with other parts of like the crypto ecosystem. Um so it is it doesn't create lockin uh for developers and users. Uh but you know we want to compete on functionality and that functionality is like uh USDCS gas which has its own benefits. Uh I think most people of your show will understand that uh it has uh sub-second finality. Uh so you can you know our day one data
[17:29] suggesting that we're finalizing uh blocks in half a second. Uh and those blocks are final. They don't get reorganized. uh we have privacy uh as an opt-in feature so you don't have to spend a ton of money to get privacy or like go through a mixer uh which was sort of like you know traditionally how privacy was done and so we have new so new ways of doing that um I already talked about speed I already talked about gas we have whole agent stack that we're launching on ARC that allows for agents to get discovered on ARC we have new agent
[18:01] wallet features nano payments uh uh and and gateway that are coming forward onto Arc as well. And then and we we also launched another thing which we're calling agent VM uh which is uh a new thing we're excited about which is uh a way for uh your agent to get like uh trustworthy computing done on ARC. So your agent comes in and says like hey I have this encrypted data I want to make sure it's executed by a machine that has these characteristics. Uh can you do that for me? And we demoed something
[18:32] we're excited about like going and exploring that space. So I think it is a it is a platform it is a chain it's a set of known validators it sort of brings our experience operating USDC and all this interup uh infrastructure uh to this uh to this new ecosystem and so and the customers we have 100 plus like customers going live on our today I saw it yesterday uh I'm still living in yesterday uh and and so yeah I'm excited
[19:02] about it like you know we've had zero downtime we are uh up and running um and serving real traffic and uh real customers. So >> congratulations number one. Um and number two um really interested in Simone's view cuz you are somebody who's seen a lot of chains and a lot of challenges but there's some trend at the moment towards more institutional validators towards trying to sol what's your what's your view on ARC and and things of that nature kind of evolving?
[19:32] >> Yeah, sure Simon. So, look, we're good uh long-standing partners of Circle. So, for us, seeing the mainet go live was really exciting. We've been um working with them through the test net phase from a compliance monitoring and coverage perspective. One of the things NIL obviously covered that's really interesting to us is um the privacy features and that being an unlock to a lot of institutional interest and and folks just generally
[20:02] getting much more comfortable with their activity being on chain. That's uh an interesting challenge for us that we've been working on both when it comes to ARC but other um other chains that are out there that have more of these privacy features now built in right from the start. as as Nicole said, you know, not having to kind of go towards the mixing route in order to to to look for that privacy, but actually having a way for there to be, you know, view keys as it is on ARC for the right participants
[20:33] to be able to actually see what's um what's recorded on chain without that being universally public. So, um that's the next iteration for us when it comes to developing our blockchain coverage. How do we make sure that we are um able to to just develop our coverage in a way that um means that we can still confidently understand um who's who on train where those movements are going between. That's one evolution in a in a
[21:03] a long you know history of evolutions. You know when we we started for a long time it was just Bitcoin. It was just Ethereum for us um or Bitcoin and Ethereum you know like chains. Then there was an explosion of chains and that was a huge effort for us. We stood up an entire kind of part of our engineering team that just focused on how do we keep up with the fire hose of requests from um customers around chain coverage, token coverage. I think we are definitely seen a slowdown in just the proliferation of that, but we're now
[21:33] seeing these new features um coming in. So our goal is always to make sure that we can provide, you know, as much coverage as we possibly can. Um and so yeah, now big spike that we're doing is on, you know, how do we address this this privacy angle while still giving regulators the comfort they need to be able to know what's happening. >> Yeah. Can congrats. And like it seems like it's just it's an enormous lift, you know, to try and, you know, get a chain and ecosystem, you know, off the
[22:04] ground. Um but I think there are you it's been great to be a design partner. There are a number of advantages that that Circle has, you know, with the demand for USDC. One of the things I was most excited about was just trying to build more of a onchain FX ecosystem and seeing stable coin issuers, you know, outside of Circle representing many different currencies across the world that have, you know, participated and and been part of kind of the early um, you know, pilot of uh, at least even before mainet. So, how how do you think
[22:35] about that as a a use case? And then like the other big news around you Tazipe like you've had circle payment network now you have arc can you help like unpack of how do those pieces you know start to to fit together you on the the payment money movement side? Yeah, I mean look there are 16 stable coins on uh on on arc like and they are not all issued by circle like circle issues like USDC and uh EURC and then there's a bunch of other stable coins for other
[23:06] countries like if we squint and look into the future like 3 years from now 5 years from now there should be less of less of an exception and more of the norm that like these stable coins exist on chains and the and and there are stable like essentially FX markets that are created for these stable coins on chain. We also launched uh a stable FX protocol that allows which is a RFQ protocol that allows for uh you know if you want to make a swap between say USDC
[23:37] and and international currency. You're able to put your port out on chain. You're able to escrow your funds and you're able to get the funds uh without any risk uh to your capital. Um and so I am very excited to see where that goes. Like obviously like these stable coins internationally have some time to adopt in terms of uh them getting embedded in the economies uh around the world but it's a start and and so and I don't think there's another well I don't know
[24:07] 100% but I think like we we probably have the most number of stable coins match and like the deepest liquidity pools uh for these stable coins right now. And then how does it connect to CPN and Tazipe? Like I think in many ways uh you can imagine a future in which uh uh the swaps on CPN are done in like local stable coins like you know if I'm going to let's just pick on the Philippines and use a Filipino peso stable coin and I want to swap into it. Um and then the final fulfillment is in the local bank
[24:38] account and that's where Tazipe helps us is like the last like last mile fiat rails. Uh they have all of that. They also have a ton of stable coin volume today. Like I think they started out being a fiat fulfillment uh uh sort of PSP that serves primarily financial institutions, right? Like so they don't go and acquire merchants. They go and acquire uh financial institutions. So there's high overlap between them and our customers. Uh we are also in the business of serving financial institutions and giving them
[25:08] infrastructure. And so there is a v there is a vision of the future which says like hey all of this like uh international transfer of money and um uh settles in stable coins and local stable coins and and the end user or the deepest markets are in stable coins and the end user may still want like uh fiat for some for some portion of the world or some set of users in some portion of the world and we need that capability and I think like taza is there to like help us draw uh draw on that. They're
[25:38] also growing really fast on the back of their stable coin volume. They're growing 100% year-over-year. Uh we want to make sure that uh we are able to accelerate that growth. So we saw a possibility of like increasing that growth rate like uh and like by working together. Uh so I'm excited for what comes next. Yeah. like in terms of uh using CPN, USDC and ARC together to do everything from uh crossber payments, payment settlement uh to like you know
[26:09] actual novel smart contracts that are generative that are driven by agents that may or may not have like a fat settlement uh uh part uh part to it. So so yeah, so it's it's a pretty wide like uh landscape of things we can do now. And and so as a product person, it's just exciting to have like so many things to work with. Uh like you're like, "All right, like I can it doesn't matter what the customer wants. They want fiat, they want stables, they want like they want instant settlement, uh they want uh competitive rates. We and
[26:40] we're able to like sort of compose all of that. Uh and at a speed that is that has surprised even me uh because you know everything moves fast faster these days, but like it is truly moving really really fast. >> It's incredible. Uh, congrats again. Um, I'm sure we're going to hear a lot more about all of these products in in the near future. I think stable coin volume is in hyperrowth mode across uh across the ecosystem, but unfortunately I've got to uh pause us here while we take a quick break and hear from our sponsors.
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[27:41] hyperrowth, as our good friend Kai likes to say. That is Visa, of course, the global leader in payments and of course sponsor of this show. You can find out more at visa.com/crypto. If your finance team is interested in stable coins but doesn't know where to start, then Tempo has a stable coin advisory team. Uh this is like payments nerds just like me, including me some of the time. Uh to work alongside your team, figure out the right use case and actually build it all the way to
[28:13] production. You can talk to an adviser by getting in touch at tempo.xyz/advisory. Thank you very much to our sponsors for making the show possible. And the next story this week is about S&P Global agreeing to acquire Open Zeppelin. This is expanding its risk assessment capabilities into the security of onchain finance. So for those of you who don't know, Open Zeppelin provides widely used open-sourced um smart contract components alongside security
[28:44] reviews, developer services for anybody who's kind of building on chain. Uh according to the announcement, its contracts underpinned more than $37 trillion in value transferred and the company's completed more than $900 uh security engagements. Uh Open Zeppelin will keep its name and operate as its own business unit. Um and the agreement is subject to closing discussions. We didn't get a price. So so interested in the security ecosystem, Simone. like
[29:16] this uh is the other side of the coin, I guess, to what you you do, but what do you think about somebody like S&P moving into this space? What does what does that mean um for for the for the ecosystem? >> Yeah. So, those guys have been making some moves, right? They invested in Kao as well earlier this week, I think, and now this announced acquisition of Open Zeppelin. We're really starting to see this trend, though, and just to throw in an elliptic one, you know, NASDAQ invested on our round earlier this year. we're seeing lots more of these traditional uh players really start to
[29:48] place their bets now. Um so maybe Open Zeppelin wasn't the most obvious place for S&P to go, but when you really start unpacking it, you can start understanding uh how these things start coming together. this looks like a a a big strategic play from them putting together understanding what's going on uh and and kind of validating that smart contract inside the wrapper of the overall ratings that they're they're doing. Um we can kind of tie this back to the first topic that we talked about
[30:19] about the SEC's innovation exemption and the importance the role that the smart contracts are going to play there. you know, S&P having a piece of that and being being right in the middle of that by by sitting over the Open Zeppelin um brand that that are going to play a very important role in validating those is um yeah, when you think about it, it's not that surprising that they're they're making a a play like this. >> It sounds illogical, but you make a good point. It it sort of gets more logical the more you think about it. And uh I I
[30:49] wrote this down earlier and it was in my show notes and I just realized, oh yeah, that that that does actually compute. Um, when you buy a tokenized fund today, you need somebody to underwrite the risk of that fund. Like that's kind of something you're looking to an S&P to do. >> Yeah. >> Do you not actually want them to assess the risk of the smart contract at the same time? That makes sense. Sorry, Kai, I stepped on you there. You were about to >> I was just going to say it's it's really interesting to think about what is the the future of smart contract auditing look like as more and more assets come on chain. And you know, we've engaged
[31:20] with Open Zeppelin. I think it's an amazing team. and they they've been a leader in the space, but it feels like the the typical smart contract audit. It's it's almost like a consulting business of you a cryptonative team builds something, they take it, they get it audited, and then they, you know, put on their website, oh, these contracts have been audited. and open Zeppelin has has become a brand in the crypto space of you know there are some you know DeFi uh users who might look and say okay I'm more comfortable you know pro providing liquidity here because I see that it has
[31:50] been audited from open zeppelin but it's been this like very very cryptonative kind of technical uh piece where it's mostly like early adopters it it feels like that that brand could continue to grow and you know S&P with with what they do of providing ratings and and trust like being able to trust that you know someone has you know done a full review of the smart contract and underwriting that I I think is going to be really important and then what does this mean for insurance of you know what
[32:20] happens if something does go wrong of you know if you have been audited by a leading auditing firm can you then go and get insurance policies and it's just all these when I when I think about DeFi and just how wild west it has been for so long where there's some smart contract bug oops all the money's gone it's just like that that doesn't work in traditional capital markets. Like that's just that that's not an acceptable outcome that like some engineer made a mistake, all the money's gone. Uh and so it's like you have to kind of rebuild this trust stack. Uh and I think Open
[32:51] Zeppelin, you know, has a a big role to play and I I love this this move from SA SAP and like SNP, you know, to be able to leverage kind of their brand, their distribution, you know, as as a part of it. >> Yeah. Because they're they're basically all about trust, authority, right? like that's that's how everyone thinks about them um in in the traditional space. And as you say, this is not going to stay as a very cryptospecific thing anymore. They're putting that S&P wrapper around this. Uh it it is just another form of due diligence, discrete due diligence
[33:21] that S&P are going to fold in um to the overall ratings. It's going to sit in the ratings business. Um and I wouldn't be surprised if we see see more of this. >> Mikuel, your thoughts? And I'm interested as well with the the sub story here. um they bought they invested in Kaiko which does a bunch of digital asset indices which feels very core to what S&P has always done. >> Yeah. I mean like look on the open zeppelin piece I mean having a repository of like open source contracts like is valuable. Um having a team that
[33:51] understands how to audit contracts is valuable. I also agree with you Kai like you can't have like an oopsie I fat finger deleted like a billion dollars happen. Um, and so like you know as these AI models get more sophisticated like you know as all of these things like uh like I think every responsible form at this point is like using AI to sort of manage uh the risk on on their side. And so I think we're just seeing like a desire to sort of like uh build more trust in the ecosystem. And so I
[34:22] see this as just a progression on that. Like it's sort of like it's like hey they have the assets now to go do that. They're going to utilize the humans and the AI together uh with those assets to go build more trust in the ecosystem. We have like more AI like this is one of the things we did in ARC studio. You can come and deploy contracts with us because it's hard to deploy a contract like you don't know how to like construct one and um and verifiability of contracts is still a hard problem. uh Vitalik wrote about it yesterday right
[34:52] like and so I think this is all in that space and it's exciting uh because I think we're going to move from like these um few thousand contracts a few tens of thousands of contracts to like tens of millions of contracts because all contracts can be generative now uh you and I your agent and my agent can have a generative contract for a custom exchange of value so like how how do we operate in that world so that's a whole new set of problems that are uh that are coming. Um so yeah, I I don't know like
[35:23] this whole space is it's just day one. Like I think like is this contract safe is a weird question to ask. Um like maybe it is maybe it is like you know we're looking at these big funds and like trying to make sure that these big funds or like whatever else like S&P is underwriting have well audited contracts, but we're going to be in the millions and millions of contracts world very very soon. So every Venmo arrangement is a unique contract in my mind. you and I are going to Tahoe together, let's make sure we split up groceries and rooms and that's a unique contract. And so like how is that all
[35:54] going to come about? Like it's all smart contract to me. Uh and it today it is all designed as like oh like if I have my agent and your agent and they both live within the same database uh then we can make this work. But like as soon as they escape their databases, it's my agent is on one system and your agent is in another system. We're going to probably come up with a new way of like interacting with each other. It's going to be on chain. It's going to be it's going to need some automated like auditing of the contract. So, it's just super exciting. Maybe a future business opportunity for Simone as well uh as she
[36:25] thinks of uh uh expanding. Yeah. >> Sim Simone, how how do you think about the future role of of regulators of I'm really interested in like how how do regulators you adopt new technology to do their jobs better and in a more efficient way. And it it feels like onchain, you know, compliance has been one of the first areas where regulators have, you know, adopted tools like Elliptic, you know, to be able to to monitor elicit activity. You know, do you see regulators adopting, you know,
[36:56] tools monitoring smart contracts and smart contract risk and and getting kind of more knowledgeable there? Like what what does a regulator look like in 2030, you know, for this world where more and more assets move on chain? I would love it to look like extremely like tech enabled you know and and I think we are quite far away from that now. I think that there is definitely a desire to be there but uh the existing frameworks the examinations
[37:26] you know all of that operates for a kind of compliance and risk infrastructure that was built 20 years ago even further back than that. And you know, Nikil was talking about um agents transacting with agents. Like we have no uh rules, regulations, oversight frameworks really that can do that today. And speed is going to be everything here because things are moving much faster than they ever have done. and the the the kind of compliance frameworks, the risk
[37:57] frameworks that exist today for for securing things, protecting things are just not going to be that we can see already they're not fit for purpose, right? like just the the volume of AI enabled attacks whether it's sanctions, evasion, money laundering, um smart contract hacking, like the the scale, the velocity, the complexity is is just on a on a different level at this point. You know, one of the things that we're trying to do at Elliptic is establish
[38:27] what should those guardrails be when it comes to building um risk management agents cuz that's what we're building right now. What we know is that we cannot wait for the regulators to write those rules for us otherwise we'll be waiting another 10 years. So, so we're essentially working with with the industry and we're partnering with Circle. they're in our agentic design program right now um co-building agents with us to help make sure that their compliance infrastructure can scale with
[38:58] the volumes that they're going to see coming out you know circle and and many others and um I think that's a reality that that compliance teams and regulators really need to quickly wake up to because it's happening right now. Yeah, I've spoken to a lot of former regulators lately who are trying to work with their uh former colleagues to adopt some of this stuff because uh you know, you sort of uh you go out into the wide world and outside the regulator, you get yourself your first uh Mac and you see your eyes are open to what's possible all of a sudden when you're not trapped
[39:28] inside of government systems. And honestly, you're better off in a compliance team at the moment because you got better team tools. you can use uh AI and agents and all of that sort of stuff to try and do your job and uh do it more effectively. Uh but you can't necessarily do that if you're inside the regulators. So it's a different challenge for those guys. Yeah, I think that the desire is there largely speaking. You know, from all the conversations that I've been having, it's really there, but there are so many constraints uh around what what they do,
[39:58] what they use, how they work. Um that uh there is a lot I think there will become a lot of frustration as you say a lot of folks that are leaving now see you know what is possible. Um but I think that it is also incumbent on us as an industry to to say this is the direction of travel. this is how we're going to make sure it's safe and auditable and explainable and all of those important things and there's a human in the loop and and so on. Um, but we cannot wait otherwise compliance infrastructure
[40:28] isn't going to scale with the volume and complexity of of what the threats look like. Well, well, one of the good things about like blockchain infrastructure and true for arc as well is you have audit trails like you have all of this stuff like you know and uh you can build automated systems to like to essentially observe for these behaviors which I'm guessing Simone you guys are doing right like so it's actually better on blockchain systems than it was on other systems. Yes, volumes are going to go up tremendously and are going up tremendously. number of actors are going
[40:58] up tremendously. But you can do things like you can give provenence to the actors, you can give work histories to the actors, you can say like well uh I can harden my infrastructure because every time a new actor comes and tries to interact with me, I will have them prove like you know a lot many more things than if they were they have already done a bunch of work before that I can like go verify on like an arc chain or something else, right? Like so there's all of this like new primitive available all of this uh all of these
[41:30] new actors coming online at the same time but they like one of the advantages for the crypto ecosystem that I think we underestimate is that for this AI transformation we have all the right primitives to enable a sound uh transformation of all the software that has already been written so far. Okay we have we have crypto we have cryptographic proofs to prove who you are. We have cryptographic proofs to prove your work history. Uh we can we can create like escalating defense mechanisms to depending on like you know the quality of proofs you're presenting,
[42:00] the quality of provenence that you're sharing with us. So we haven't even started like I think like sort of crypto's been on the other side of like this AI revolution being like oh maybe like you know u it's it's not exciting as a technology anymore. The first place where crypto interacts with AI is that we are hard money and and so to like if you want to interact with money you uh you have to sort of like you know embrace the systems that we're building and then beyond that like it is all like money is just the beginning of what is uh trust right like so you have other
[42:31] trust like primitives that can be built that can be proved and crypto have all the primitives to do that so I am very excited to move away from like this like doomer AI sort of narrative to a world in which like we harden our systems and we utilize like what is the best of crypto to do that and I'd love to do it like you know more broadly with other partners like Simone uh because we're like that's the opportunity in front of us like we were waiting for this moment like we have like this incredible uh chains with like incredible TPS and here
[43:01] come the actors and we can now start building systems uh that remove risk and create like more capital efficiency. Uh big picture wise, we're in this interesting time where AI is probabilistic and people worry about hallucination or um doomsday scenarios. And what do you have is this phenomenal deterministic state machine that uses cryptography to uh transition state uh that is a giant auditor in the sky. uh blockchains.
[43:32] The way I used to describe this to people in 20145 when they were new to blockchains is like imagine a golden source record of every transaction an auditor in the sky and you can make change and it's a golden source so it updates every single time but there isn't a single point of failure. If I was to describe that technology to you and say it was a blue blah blah, you would tell me that you want it. But because I say it's a blockchain, you go, "Oh, I'm not so sure about that thing because it comes with this like crypto
[44:02] baggage." And that was how I um blockchain pulled a whole bunch of people in the mid 2015s back when I worked at a bank. But it seems now I don't have to do that because our next story um Black Rockck has won approval for a tokenized Hong Kong dollar money market fund with subscriptions and redemption using standard charters backed HKDAP. Um so this uh regulatory approval came out on the 10th of September for the HKD liquidity fund uh its first tokenized
[44:32] money market fund in Asia-Pacific. It's going to invest in short-term Hong Kong dollar instruments, including government bills and deposits. Eligible investors will be able to subscribe and redeem using conventional money. Number one, tokenized deposits or regulated stable coins including HD, HKDAP issued by Standard Charted. So, so interested in this because Standard Charted are going to act as custodian, fund administrator, and trustee. And this is approval ahead
[45:03] of launch and Hong Kong is just fascinating to me right now because it's so well strategically placed. Standard Charted again fascinating. Nikil, um I think they directly mint USDC if I'm not mistaken as well. Uh your thoughts on this and sort of some of the big names coming into this space and the the 24/7 money movement side. >> Yeah, I think it's exciting. Like look, there's going to be more instruments like this. We talked about like S&P buying like open Zeppelin like there's a
[45:33] whole set of uh instruments that are going to get created like that do this like we have one in the US it's called uh sorry for ex US customers it's called USYC and and I'm guessing I don't know the details of the story but I'm guessing this is something like that uh and for most customers the value in USYC is like the liquidity that you can get against USDC like you can go 20% liquidity against USDC uh and where USDC becomes uh a stable coin like a payment token and then USYC
[46:05] becomes like a yield betting asset. It performs like a money market fund. Um it's good to see this innovation sort of moving to other currencies other parts of the world. Um uh and and yeah, I mean like Black Rockck are huge actors like they they don't get into a space unless they see real possibility of success and and and so uh and they are um you know they're investors in circle, they're partners of circle. So like eventually I'm hoping they'll bring this to work as well although I don't know the status of this one. So
[46:35] >> yeah, Hong Kong is such an interesting place. uh Simone uh your your thought on like other types of money coming on chain and uh kind of the the arrival of these institutional actors. >> Well, look, I think that's what's so exciting about this, right? If we just keep zooming out and reminding ourselves that it's pretty extraordinary that Black Rockck partnering with Standard Chartered to bring this on chain, like this is not something that was a given until very recently. I think >> in Hong Kong. >> Well, in Hong Kong, exactly. I was going
[47:05] to say if you then kind of think about what someone you know a country being very clear about this is the regulatory framework we want and getting that done and creating that environment where where the likes of those guys can come out and say we're going to do this. Um it's it's really a huge milestone when we kind of add all of this together and look back on um things that were were really transformative for the space. So I think that alone is is obviously super
[47:35] exciting and very much hope that they'll they'll be bringing that to to other markets. Um you know how much this is coming from Standard Trust's client base for example saying you know we want to be able to have our money at move rather than so much you know at rest. You know a lot of this demand is really coming bottom up now and it's it's impossible for the institutions to ignore. Yeah, it's it's interesting that if you just trace like Black Rockck's history in in the space, I mean when they launched
[48:05] Biddle, I think it was March 2024, like that was a major turning point and it was one of the first tokenized money market funds from like a major major brand. Uh I think that that was one of the biggest kind of news of the year that you know I I remember that was the time when we didn't know if institutions would be able you to build on top of public permissionless chains and so the fact that Biddle was you know sure it was gated at the smart contract you know for you had to be KYC KYB but you could still access it on Ethereum that was a
[48:36] huge deal and then now what they launched two additional funds in August you know now one in September uh and so you've got you know the the potential of these money market funds being used as you know reserves for stable coin issuers. I think that's a super interesting use case. Like man, Nikil, I don't know how you feel about this, but when you think about what stable coins will look like in the 2030s, shouldn't the entire reserve management just be on chain and just be able to
[49:06] have money market funds, tokenized deposits, and be able to move much more efficiently, you know, between the stablecoin kind of digital cash with the underlying assets that are backing it. And so I wonder for this Hong Kong use case with all of the activity and innovation around tokenized deposits and stable coins that are starting to to to kind of emerge in Hong Kong, will this product be one of those reserve assets and to do this? And I don't think it gives the details of how much liquidity, how the 247 mint and redemption would
[49:37] work, you know, between stable coins you and the money market fund, but I feel like that there's just going to be so much interaction between those those two products. Yeah, look uh we do it today between USYC and USDC and not everything is on chain. So we there are like there are challenges to liquidity management like we want to make sure that like we we sort of like when you come in uh redeem USYC for USDC we want to make sure we have enough USDC to give it to you and and and when you come in and
[50:07] subscribe to USYC using US USDC we can also like make that like uh seamless. I don't know what the architecture is in 2030, Kai. Like I am just finishing the work to catch up to genius. Uh which I don't fully comprehend if it if it like sort of like contemplates the scenario that you're describing uh like in in terms of uh uh all everything being tokenized deposits and everything being on uh on chain. Uh I don't know the answer to that question, but like I'm excited about
[50:38] Genius. Like it's 4 months away. uh we'll have real stable coin money uh OCC supervised uh in the US and and so and we're we're going to be ready for that like you know and then like from there if there is a move to like evolve genius into like having stuff like that is everything is on chain and like you know everything is fully visible at all times I I look forward to that future because it is a more transparent future uh than we are at right now but yeah it's hard
[51:08] for me to speculate so hard because Yeah. >> You got to appreciate my position because I'm like, man, we just we're just getting to genius. We're just [laughter] >> Don't make me do the next thing. Just Just let me have >> just Can I just do the thing? Yeah. Can I just like can I have a moment like please uh on like Jan 18th uh 2027 when Genius goes into effect. I don't hold me to that date, but I think like that's what I'm working towards. And once I have it, uh, then I I would like to take a week and then I'm coming back to this
[51:38] question. >> All right, deal. We'll come back to you with the sort of >> we can come back. Let me just get through genius. Let me make sure like, you know, we're fully Genius compliant. Like we're out in the market. We're supervised by the OC. Uh, we've had we figured out how to like, you know, solve all for the all the exams that the OC is going to give us. Uh, and and then and and then Yeah. And then what I want to happen what I want to happen is like for the rest of the world to sort of like come along uh with genius because like
[52:08] the a lot a lot of the world looks to the US uh to like in terms of like what is good and what is not. >> Well sitting in the UK I can certainly say um I'd like some movement Simone. I'm sure that's something you share as well. Um but it very quickly on this story I mean just um I if you want to save it for February we can. But my perspective on this is uh you know as you say the redemption side of USYC is where it is because a money market fund is ultimately buying treasuries and it has those aren't 24/7 whereas in the UK
[52:39] what they're looking at with digit um uh with HSBC and Lseg is the direct issuance of guilts on chain and that is to my mind going to be that would be enormous because now you have endtoend 247 capability all the way up through kind of the the the kind of the government itself and with the Bank of England, you have something that next generation RTGS is is trying to get as close to 24/7 as possible or at least enable um money systems that are to
[53:10] transact with that digital guilt. So, uh the the UK may be uh sort of the the tortoise in the hair situation here. It's it's like annoyingly slow and then uh maybe maybe come next year. Uh but maybe that's the persistent optimism in me. Maybe I've been waiting too long. Um, that unfortunately brings us to all the time we had for this week. Couple of stories we didn't have time to cover. Uh, Deutsche Bank is preparing to launch custody for Bitcoin, Ether, and stable coins for European corporate and institutional clients this show. Hey,
[53:40] every bank's getting in on that act now. And of course, just announced Tempo passed 2 billion in 30-day TPV. So, yay. Good go team Tempo. All right. Thank you very much everybody for listening and watching. Uh Kai, if people want to find out more about you, where do they go to do that? >> On X at Kai Sheffield and visa.com/crypto. >> Uh Nico, >> uh I'm on X at Chanduk Ch. >> And Simone, >> best place to find me is on LinkedIn. >> All right. And you'll find me sailor on
[54:11] all of the socials, screaming into the void at fintechbrainfood.com, and of course at tempo.xyz. And you'll find a lot more of this podcast if you hit that subscribe button. Please do it right now. Don't wait another second. Uh, if you're watching on YouTube, please like, subscribe, and spam everyone you know to do the same comment reviews. All of that kind of stuff helps. That will help you find a lot more of this show in the future, and we hope you will. Bye for now. [music]
[54:44] >> [music]