1 00:00:00,760 --> 00:00:03,920 Speaker 1: Since you're a subscriber to this Bloomberg podcast, we thought 2 00:00:03,920 --> 00:00:07,600 Speaker 1: you'd be interested in a sponsored podcast called Evolving Money, 3 00:00:08,160 --> 00:00:12,399 Speaker 1: produced by Coinbase and Bloomberg Media Studios. It explains how 4 00:00:12,440 --> 00:00:17,520 Speaker 1: institutional investors are adopting the world's newest asset class, crypto. 5 00:00:18,360 --> 00:00:19,760 Speaker 1: Here's a recent episode. 6 00:00:21,680 --> 00:00:24,040 Speaker 2: There's been a lot of frustration in the crypto community 7 00:00:24,079 --> 00:00:26,880 Speaker 2: over the past fifteen years because the Wall Street and 8 00:00:26,920 --> 00:00:30,880 Speaker 2: financial services industries have ignored crypto or outright been opposed 9 00:00:31,160 --> 00:00:31,560 Speaker 2: to it. 10 00:00:32,320 --> 00:00:36,640 Speaker 3: That's Rick Edelman, a longtime financial advisor and podcaster in 11 00:00:36,680 --> 00:00:40,280 Speaker 3: the financial world, and the perfect guest to kick off 12 00:00:40,320 --> 00:00:42,360 Speaker 3: this episode of Evolving Money. 13 00:00:42,960 --> 00:00:47,760 Speaker 2: The reason that there has been such antipathy about crypto 14 00:00:48,000 --> 00:00:51,360 Speaker 2: in its early years is because it didn't get invented 15 00:00:51,400 --> 00:00:53,400 Speaker 2: by Wall Street, and Wall Street doesn't like what it 16 00:00:53,440 --> 00:00:56,360 Speaker 2: doesn't control and own, so better to quash it if 17 00:00:56,400 --> 00:00:59,000 Speaker 2: you can, ignore it if you can't, and they did 18 00:00:59,000 --> 00:01:02,320 Speaker 2: that pretty successfully or ten years. But eventually they began 19 00:01:02,400 --> 00:01:05,080 Speaker 2: to realize it's here to stay, and oh, by the way, 20 00:01:05,480 --> 00:01:07,520 Speaker 2: the technology is in fact pretty cool. 21 00:01:09,440 --> 00:01:11,039 Speaker 3: Welcome to Evolving Money. 22 00:01:11,120 --> 00:01:11,800 Speaker 4: I'm your host. 23 00:01:11,840 --> 00:01:15,160 Speaker 3: Angie low I spent decades as a journalist covering the 24 00:01:15,200 --> 00:01:19,360 Speaker 3: financial industry and weal this is the biggest story yet. 25 00:01:19,880 --> 00:01:22,160 Speaker 3: This show is co produced by Coinbase, one of the 26 00:01:22,240 --> 00:01:26,839 Speaker 3: largest cryptocurrency platforms in the world, and Bloomberg Media Studios. 27 00:01:27,360 --> 00:01:31,000 Speaker 3: In this series, we are exploring how crypto is being 28 00:01:31,080 --> 00:01:36,120 Speaker 3: adopted by traditional financial institutions as the next logical evolution 29 00:01:36,440 --> 00:01:41,720 Speaker 3: of the monetary system. This episode is about tokenization. That's 30 00:01:41,760 --> 00:01:45,600 Speaker 3: the process of representing a real world asset or financial 31 00:01:45,640 --> 00:01:49,040 Speaker 3: instrument on blockchain. Now, in less than three years, the 32 00:01:49,080 --> 00:01:53,160 Speaker 3: amount of tokenized assets has grown eightfold to more than 33 00:01:53,280 --> 00:01:58,040 Speaker 3: thirty billion US dollars across equities, fixed income, private assets, 34 00:01:58,360 --> 00:02:01,800 Speaker 3: real estate, and a whole lot more. And the tokenization 35 00:02:02,120 --> 00:02:06,360 Speaker 3: revolution is still in its early stages. Now, recently we've 36 00:02:06,360 --> 00:02:10,520 Speaker 3: seen some of the largest traditional asset management companies embrace 37 00:02:10,600 --> 00:02:13,799 Speaker 3: it in a big way. This is what I'm talking about. 38 00:02:16,160 --> 00:02:19,799 Speaker 3: Blackrock they've launched what they call the Biddle Fund on Ethereum. 39 00:02:20,280 --> 00:02:23,640 Speaker 3: It's a tokenized money market fund they've made available to 40 00:02:23,760 --> 00:02:27,320 Speaker 3: qualified investors. The total value of those tokens all around 41 00:02:27,320 --> 00:02:31,160 Speaker 3: two point eight billion dollars. And then we've got Fidelity. 42 00:02:31,240 --> 00:02:34,480 Speaker 3: They've rolled out their own tokenized money market fund, currently 43 00:02:34,560 --> 00:02:38,880 Speaker 3: valued at over two hundred million dollars. JP Morgan and 44 00:02:38,960 --> 00:02:43,240 Speaker 3: Goldman Sachs. They've also made their tokenized assets available to 45 00:02:43,360 --> 00:02:47,040 Speaker 3: their investors in various ways. But why are they doing 46 00:02:47,080 --> 00:02:50,840 Speaker 3: it Well, there are three main drivers. We've got liquidity, 47 00:02:51,440 --> 00:02:56,920 Speaker 3: broader access, and operational efficiency. We're going to touch on 48 00:02:57,000 --> 00:02:59,920 Speaker 3: all three of those topics with our next two guests. 49 00:03:01,760 --> 00:03:04,960 Speaker 3: Rick Edelman, who you've already heard from. He launched the 50 00:03:05,040 --> 00:03:10,280 Speaker 3: Digital Assets Council of Financial Professionals, the first educational platform 51 00:03:10,520 --> 00:03:16,440 Speaker 3: helping financial advisors responsibly navigate crypto, blockchain and tokenized assets. 52 00:03:16,880 --> 00:03:20,400 Speaker 3: He's uber bullish on the opportunities tokenization is bringing to 53 00:03:20,480 --> 00:03:24,160 Speaker 3: the market. And Scott lucas Head of Markets Digital Assets 54 00:03:24,160 --> 00:03:30,000 Speaker 3: with JP Morgan. He's actively integrating tokenization and blockchain technology 55 00:03:30,440 --> 00:03:34,800 Speaker 3: into JP Morgan's operations, but he isn't in as much 56 00:03:34,800 --> 00:03:36,920 Speaker 3: of a hurry as Rick is, and I think it's 57 00:03:36,960 --> 00:03:39,440 Speaker 3: important to give them both a place to explain their 58 00:03:39,480 --> 00:03:41,840 Speaker 3: approaches for you. We'll start with Rick. 59 00:03:45,480 --> 00:03:45,680 Speaker 2: Now. 60 00:03:45,800 --> 00:03:48,320 Speaker 3: Just a few months ago, Rick, you said that by 61 00:03:48,360 --> 00:03:52,559 Speaker 3: the end of the decade, tokenization will be the dominant 62 00:03:52,880 --> 00:03:58,360 Speaker 3: investment platform in the industry, far eclipsing ETFs, ETFs as 63 00:03:58,400 --> 00:04:01,840 Speaker 3: we know them, today really won't exist in five years. 64 00:04:02,000 --> 00:04:05,920 Speaker 3: That is quite the prediction. Rick, Why do you see that? 65 00:04:06,440 --> 00:04:09,960 Speaker 2: Yeah, it does sound momentous, but it really isn't. It's iterative. 66 00:04:10,320 --> 00:04:14,760 Speaker 2: It's just the next logical step in technological generation of 67 00:04:14,880 --> 00:04:19,400 Speaker 2: money management. Remember that ets have come on the marketplace 68 00:04:19,440 --> 00:04:22,360 Speaker 2: of the last twenty twenty five years, replacing mutual funds, 69 00:04:22,560 --> 00:04:26,040 Speaker 2: which were themselves the dominant investment vehicle for Americans for 70 00:04:26,120 --> 00:04:27,160 Speaker 2: decades and decades. 71 00:04:27,839 --> 00:04:31,279 Speaker 3: Okay, but mutual funds still hold I think about twenty 72 00:04:31,320 --> 00:04:34,920 Speaker 3: trillion dollars here. That's a huge piece of the investment world. 73 00:04:35,320 --> 00:04:38,760 Speaker 3: So why do you see ETFs and eventually tokenized products 74 00:04:38,839 --> 00:04:39,880 Speaker 3: actually eating into that. 75 00:04:40,520 --> 00:04:45,520 Speaker 2: They're simply technologically superior. ETFs trade throughout the day. Mutual 76 00:04:45,520 --> 00:04:49,400 Speaker 2: funds are only priced once when the market closes. ETFs 77 00:04:49,400 --> 00:04:53,400 Speaker 2: have better disclosure. ETFs are lower in taxation, they're lower 78 00:04:53,440 --> 00:04:56,440 Speaker 2: in cost, they're higher in liquidity, So naturally people love 79 00:04:56,520 --> 00:04:59,400 Speaker 2: ETFs over mutual funds. The same thing's going to happen 80 00:04:59,440 --> 00:05:02,440 Speaker 2: with token is We're going to take those ETF shares 81 00:05:02,920 --> 00:05:06,680 Speaker 2: and turn them into tokens, which will trade on blockchains. 82 00:05:07,120 --> 00:05:11,280 Speaker 2: This will further reduce the costs further increase the liquidity, 83 00:05:11,600 --> 00:05:16,800 Speaker 2: further increase the broad array of assets available for you 84 00:05:16,880 --> 00:05:20,719 Speaker 2: to invest in, improving your diversification. So what's not to love. 85 00:05:20,839 --> 00:05:23,920 Speaker 2: So just as everybody graduated from mutual funds to ETFs, 86 00:05:24,360 --> 00:05:26,680 Speaker 2: next we're going to go from ETFs to tokens. 87 00:05:26,960 --> 00:05:30,240 Speaker 3: Do customers want it? Do they understand it? Because at 88 00:05:30,240 --> 00:05:33,560 Speaker 3: the end of the day, if the customer doesn't want it, 89 00:05:33,560 --> 00:05:36,120 Speaker 3: the bank is not going to create the product. 90 00:05:36,520 --> 00:05:39,640 Speaker 2: Well, we all remember Steve Jobs who famously said he 91 00:05:39,720 --> 00:05:43,400 Speaker 2: never engaged in focus group testing because nobody understood the 92 00:05:43,400 --> 00:05:45,440 Speaker 2: products he was inventing, so how could they have a 93 00:05:45,520 --> 00:05:49,640 Speaker 2: valid opinion. And it's the same thing with blockchain technology. 94 00:05:50,200 --> 00:05:53,120 Speaker 2: People don't understand it and so how can they like it? 95 00:05:53,400 --> 00:05:55,760 Speaker 2: In other words, all we're going to do is develop 96 00:05:55,839 --> 00:06:00,960 Speaker 2: the technology, introduce the products on that platform, and consumers 97 00:06:01,000 --> 00:06:06,159 Speaker 2: will quickly discover it's faster, cheaper, safer, with greater transparency 98 00:06:06,200 --> 00:06:09,960 Speaker 2: and inclusion. So they will move and adopt to this 99 00:06:10,560 --> 00:06:14,080 Speaker 2: because it's simply going to offer them tremendous benefits that 100 00:06:14,120 --> 00:06:17,560 Speaker 2: they currently lack. Right now, we can only trade stocks 101 00:06:17,640 --> 00:06:21,880 Speaker 2: Monday through Friday, excluding holidays and weekends, from nine point 102 00:06:21,880 --> 00:06:25,559 Speaker 2: thirty to four in the afternoon. That's silly. Why aren't 103 00:06:25,560 --> 00:06:27,840 Speaker 2: we able to do this twenty four to seven, three 104 00:06:27,960 --> 00:06:30,960 Speaker 2: sixty five? Why aren't we able to do it instantaneously? 105 00:06:31,120 --> 00:06:33,520 Speaker 2: Like when you go to a supermarket to buyolo for bread, 106 00:06:33,720 --> 00:06:35,640 Speaker 2: you walk out with the bread as soon as you 107 00:06:35,680 --> 00:06:37,720 Speaker 2: pay for it. Why can't we do that with chairs 108 00:06:37,760 --> 00:06:38,279 Speaker 2: of IBM. 109 00:06:39,080 --> 00:06:42,599 Speaker 3: You remember back in twenty nineteen, we were both in 110 00:06:42,600 --> 00:06:45,559 Speaker 3: the space then, but one of the world's first real 111 00:06:45,680 --> 00:06:50,200 Speaker 3: estate tokenization ideas came to light and it was an aspen. 112 00:06:50,400 --> 00:06:55,680 Speaker 3: It was Saint Regis. They were fractionalizing the sale of 113 00:06:56,200 --> 00:06:59,120 Speaker 3: their big resort and I think a fifth of it 114 00:06:59,160 --> 00:07:01,960 Speaker 3: went for I think was it eighteen million rick, do 115 00:07:02,000 --> 00:07:02,440 Speaker 3: you remember? 116 00:07:02,600 --> 00:07:02,800 Speaker 5: Yeah? 117 00:07:02,800 --> 00:07:04,920 Speaker 2: And there were ten there were ten bucks apiece, Yeah, 118 00:07:04,960 --> 00:07:07,960 Speaker 2: each of the tokens. And that was actually the second transaction. 119 00:07:08,040 --> 00:07:10,320 Speaker 2: The first one was a year earlier, a condo building 120 00:07:10,360 --> 00:07:14,840 Speaker 2: in Manhattan tokenized. And just think about the wonder of this. See. 121 00:07:14,840 --> 00:07:16,880 Speaker 2: The big problem with real estate, as we all know, 122 00:07:17,120 --> 00:07:20,560 Speaker 2: is that it's very expensive to buy and it's highly liquid. 123 00:07:20,800 --> 00:07:22,240 Speaker 2: I mean, we all know how hard it is to 124 00:07:22,320 --> 00:07:24,960 Speaker 2: buy and sell a house compared to buying and selling 125 00:07:25,080 --> 00:07:30,280 Speaker 2: shares of Nvidia So along comes the tokenization process, where 126 00:07:30,280 --> 00:07:34,160 Speaker 2: they could take this multimillion dollar asset and split it 127 00:07:34,200 --> 00:07:37,520 Speaker 2: into tokens of ten dollars apiece. All of a sudden, 128 00:07:37,680 --> 00:07:41,360 Speaker 2: people who never were able to buy commercial or investable 129 00:07:41,480 --> 00:07:45,040 Speaker 2: real estate now can because the price of the token 130 00:07:45,160 --> 00:07:49,040 Speaker 2: is cheap and it trades with great liquidity. This opens 131 00:07:49,120 --> 00:07:52,520 Speaker 2: up the commercial real estate sector to retail investors in 132 00:07:52,560 --> 00:07:55,280 Speaker 2: a scale never before seen. This is a big deal 133 00:07:55,520 --> 00:07:59,440 Speaker 2: because the real estate market globally is three times bigger 134 00:07:59,480 --> 00:08:00,840 Speaker 2: than the globe stock market. 135 00:08:05,240 --> 00:08:09,520 Speaker 3: So rick I get it that tokenization makes transactions more straightforward, 136 00:08:09,560 --> 00:08:12,240 Speaker 3: it makes them quicker, it reduces overhead all of that, 137 00:08:12,720 --> 00:08:16,680 Speaker 3: but realistically, I mean, actually, how much money will using 138 00:08:16,720 --> 00:08:18,760 Speaker 3: crypto rails save the banks and overhead? 139 00:08:20,000 --> 00:08:24,000 Speaker 2: So you look at Kinesis, which is a blockchain created 140 00:08:24,040 --> 00:08:27,680 Speaker 2: by JP Morgan that does two billion dollars a day 141 00:08:27,720 --> 00:08:31,440 Speaker 2: in cross border transmittals. They've moved over four trillion dollars 142 00:08:31,480 --> 00:08:35,080 Speaker 2: worldwide since it was conceived four years ago because they 143 00:08:35,120 --> 00:08:38,840 Speaker 2: recognize they can move money for their institutional clients faster, cheaper, 144 00:08:39,120 --> 00:08:43,080 Speaker 2: and easier than they can using the federal systems that 145 00:08:43,120 --> 00:08:45,440 Speaker 2: we use in money management, such as the Swift system. 146 00:08:45,840 --> 00:08:51,360 Speaker 2: So everybody's beginning to recognize that this is better technology 147 00:08:51,400 --> 00:08:54,000 Speaker 2: than the technology we've been using to date. It offers 148 00:08:54,320 --> 00:08:58,880 Speaker 2: big business benefits, saving lots of money. JP Morgan says 149 00:08:58,960 --> 00:09:02,520 Speaker 2: that blockchainels Bank's one hundred and twenty billion dollars a year. 150 00:09:02,840 --> 00:09:05,760 Speaker 2: So you're now at the stage where nine out of 151 00:09:05,800 --> 00:09:11,000 Speaker 2: ten banks are developing blockchain technology, two out of three 152 00:09:11,880 --> 00:09:15,720 Speaker 2: Fortune five hundred companies are developing the technology, and over 153 00:09:15,760 --> 00:09:17,880 Speaker 2: the next twelve to twenty four months, you're going to 154 00:09:17,920 --> 00:09:20,720 Speaker 2: see all of them begin to deploy, and it's going 155 00:09:20,800 --> 00:09:24,080 Speaker 2: to be an exponential growth curve that traditional hockey stick, 156 00:09:24,600 --> 00:09:26,960 Speaker 2: and people are going to be shocked at the speed 157 00:09:27,240 --> 00:09:31,440 Speaker 2: of adoption and implementation in the marketplace. It's going to 158 00:09:31,559 --> 00:09:33,800 Speaker 2: appear to have come out of nowhere, but it's going 159 00:09:33,840 --> 00:09:36,360 Speaker 2: to be like the Beatles where they spent six years 160 00:09:36,400 --> 00:09:38,040 Speaker 2: becoming an overnight success. 161 00:09:38,400 --> 00:09:42,280 Speaker 3: Rick, what's next. We have the institutionals coming in, We 162 00:09:42,400 --> 00:09:47,440 Speaker 3: have the Black Rock, the Franklin, Templeton, JPM, all of 163 00:09:47,480 --> 00:09:51,200 Speaker 3: these folks are coming into this space. How will this 164 00:09:51,400 --> 00:09:53,040 Speaker 3: look in five years? 165 00:09:53,320 --> 00:09:57,199 Speaker 2: Well, everything's going to be tokenized, not just financial assets 166 00:09:57,280 --> 00:10:01,080 Speaker 2: such as stocks, bonds, real estate, and and other but 167 00:10:01,320 --> 00:10:04,640 Speaker 2: everything is going to be tokenized. For example, your driver's 168 00:10:04,640 --> 00:10:07,600 Speaker 2: license and passport. Why are we carrying a piece of 169 00:10:07,640 --> 00:10:12,600 Speaker 2: plastic in our wallet or purse. That's ridiculous. Your employment records, 170 00:10:12,600 --> 00:10:16,200 Speaker 2: your academic records, your health records will all be tokens, 171 00:10:16,520 --> 00:10:19,920 Speaker 2: making it easier for you to deal with the medical industry. 172 00:10:20,040 --> 00:10:22,200 Speaker 2: Or when you're applying for a job or trying to 173 00:10:22,240 --> 00:10:26,080 Speaker 2: rent an apartment. You're going to be able to tokenize 174 00:10:26,120 --> 00:10:28,280 Speaker 2: your home. We all know that homes are the number 175 00:10:28,320 --> 00:10:30,640 Speaker 2: one asset for most Americans, but they don't want to 176 00:10:30,679 --> 00:10:33,160 Speaker 2: sell their house when they're retired to generate income. They 177 00:10:33,160 --> 00:10:36,040 Speaker 2: want to keep living there. So by tokenizing your house, 178 00:10:36,120 --> 00:10:39,200 Speaker 2: you can take that million dollar home, create one million 179 00:10:39,280 --> 00:10:41,200 Speaker 2: tokens of a dollar each, and now you can sell 180 00:10:41,200 --> 00:10:43,280 Speaker 2: them off one at a time as you wish to 181 00:10:43,360 --> 00:10:46,079 Speaker 2: generate income for yourself. Investors will want to buy it 182 00:10:46,120 --> 00:10:47,520 Speaker 2: because they're going to want to own a piece of 183 00:10:47,520 --> 00:10:49,360 Speaker 2: your home because you live in a great community without 184 00:10:49,360 --> 00:10:53,040 Speaker 2: an appreciating asset. So we're also going to tokenize salaries. 185 00:10:53,480 --> 00:10:58,240 Speaker 2: For example, you can already buy into a token that 186 00:10:58,480 --> 00:11:02,520 Speaker 2: is a contract of a professional athlete, your favorite quarterback 187 00:11:02,920 --> 00:11:06,640 Speaker 2: or your favorite Hollywood celebrity or your favorite recording artist, 188 00:11:07,400 --> 00:11:10,760 Speaker 2: you can buy a token of their music catalog. So 189 00:11:10,840 --> 00:11:13,160 Speaker 2: instead of being a fan of Taylor Swift, you'll be 190 00:11:13,160 --> 00:11:15,679 Speaker 2: able to be an owner of her music along with her, 191 00:11:16,000 --> 00:11:20,280 Speaker 2: so that you're earning money by enjoying your favorite radio 192 00:11:20,360 --> 00:11:25,480 Speaker 2: show or Hollywood movie or Broadway play. This is going 193 00:11:25,520 --> 00:11:27,760 Speaker 2: to be the tokenization of everything. We're gonna be able 194 00:11:27,760 --> 00:11:31,000 Speaker 2: to take all these real world assets and create digital 195 00:11:31,120 --> 00:11:34,360 Speaker 2: representations of them that you'll be able to own and 196 00:11:34,559 --> 00:11:36,719 Speaker 2: trade and enjoy. 197 00:11:36,360 --> 00:11:37,000 Speaker 5: As a hobby. 198 00:11:40,520 --> 00:11:43,400 Speaker 3: That's Rick Edelman, and what he sees makes him highly 199 00:11:43,480 --> 00:11:48,320 Speaker 3: enthusiastic about the potential of tokenization. My next guest, however, 200 00:11:48,360 --> 00:11:52,719 Speaker 3: has a more measured perspective. Scott Lucas is the head 201 00:11:52,760 --> 00:11:56,160 Speaker 3: of Markets digital Assets for JP Morgan, the world's largest 202 00:11:56,200 --> 00:11:59,679 Speaker 3: bank and a leader in blockchain usage amongst trade five firms. 203 00:12:00,080 --> 00:12:02,800 Speaker 3: Scott is an expert and a leader in this space, 204 00:12:02,840 --> 00:12:06,600 Speaker 3: and he recently oversaw a very large transaction that. 205 00:12:06,520 --> 00:12:07,280 Speaker 4: Caught my attention. 206 00:12:09,320 --> 00:12:12,520 Speaker 3: In late twenty twenty five, JP Morgan served as an 207 00:12:12,640 --> 00:12:16,880 Speaker 3: arranger for fifty million US dollar commercial paper issuance on 208 00:12:16,960 --> 00:12:22,400 Speaker 3: Solana's public blockchain, Galaxy Digital, which is a global cryptofocused 209 00:12:22,400 --> 00:12:27,480 Speaker 3: financial services and infrastructure firm issued the tokenized commercial papers. 210 00:12:27,960 --> 00:12:32,320 Speaker 3: Those tokens were purchased by coinbase and Franklin Templeton, with 211 00:12:32,440 --> 00:12:36,400 Speaker 3: settlement occurring in stable coin. Now, this was a short 212 00:12:36,520 --> 00:12:39,880 Speaker 3: term corporate debt deal done in a traditional finance structure, 213 00:12:40,280 --> 00:12:44,479 Speaker 3: but issued, traded, and settled directly on a public blockchain 214 00:12:45,000 --> 00:12:48,439 Speaker 3: instead of through legacy banking rails. No doubt it was 215 00:12:48,480 --> 00:12:51,839 Speaker 3: a landmark deal, But my question is why did JP 216 00:12:51,920 --> 00:12:52,640 Speaker 3: Morgan do it? 217 00:12:55,480 --> 00:12:58,640 Speaker 4: I guess the key thing Roust is really trying to 218 00:12:58,679 --> 00:13:01,120 Speaker 4: understand what the MAKO option years. There's a lot of 219 00:13:01,160 --> 00:13:03,840 Speaker 4: talk about doing things on Popper blockchain. There's a lot 220 00:13:03,880 --> 00:13:05,920 Speaker 4: of talk about the potential, there's a lot of talk 221 00:13:05,960 --> 00:13:10,079 Speaker 4: about the appetite, and I feel actually the only way 222 00:13:10,120 --> 00:13:12,400 Speaker 4: that we can really pressure test that and prove it 223 00:13:12,520 --> 00:13:14,520 Speaker 4: and adjust the thesis to kind of where the market 224 00:13:14,520 --> 00:13:15,000 Speaker 4: needs to go. 225 00:13:15,080 --> 00:13:15,840 Speaker 5: Is to do something. 226 00:13:16,280 --> 00:13:19,000 Speaker 3: But Scott, now that you are using both blockchain and 227 00:13:19,120 --> 00:13:22,120 Speaker 3: legacy rails for transactions, have you chosen a winner a 228 00:13:22,240 --> 00:13:23,520 Speaker 3: preferred way forward. 229 00:13:24,280 --> 00:13:28,840 Speaker 4: Quite often in the blockchain space, it gets really emotional, 230 00:13:29,240 --> 00:13:34,360 Speaker 4: really quickly about what technology you use. It's either this 231 00:13:34,679 --> 00:13:36,679 Speaker 4: or it's that you can do it this way or 232 00:13:36,720 --> 00:13:38,720 Speaker 4: you can do it that way. And really a market's 233 00:13:40,000 --> 00:13:44,400 Speaker 4: an efficient market does end. So there'll be a whole 234 00:13:44,400 --> 00:13:47,040 Speaker 4: bunch of products that stay as they work today in 235 00:13:47,080 --> 00:13:50,079 Speaker 4: a very deep in liquid capital markets footprint in the 236 00:13:50,120 --> 00:13:52,439 Speaker 4: United States, and there'll be some stuff that we add 237 00:13:52,520 --> 00:13:55,800 Speaker 4: to that market, whether it be similar products or new 238 00:13:55,840 --> 00:13:58,280 Speaker 4: products that work on blockchain, and at some point the 239 00:13:58,360 --> 00:14:02,000 Speaker 4: market will just side whether blockchain is a better answer 240 00:14:02,080 --> 00:14:04,920 Speaker 4: or not, you know, and whether it becomes an all 241 00:14:04,920 --> 00:14:09,080 Speaker 4: blockchain or a no blockchain or a regular technology and 242 00:14:09,120 --> 00:14:11,959 Speaker 4: blockchain upcome. And to be honest, like that's not our 243 00:14:11,960 --> 00:14:15,080 Speaker 4: decision as jup and Morgan, I think that's the market's decision. 244 00:14:15,480 --> 00:14:17,200 Speaker 5: I mean, that's the journey we're on. 245 00:14:17,240 --> 00:14:20,880 Speaker 4: And I think it's reasonable to say that there's a 246 00:14:20,880 --> 00:14:23,800 Speaker 4: good thesis to suggest that blockchain is a better technology 247 00:14:23,840 --> 00:14:26,280 Speaker 4: for a bunch of different instruments in the market. There's 248 00:14:26,280 --> 00:14:28,960 Speaker 4: no evidence yet, So let's build that body of evidence 249 00:14:29,400 --> 00:14:31,880 Speaker 4: and make sure that our thesis is correct and if 250 00:14:31,920 --> 00:14:34,400 Speaker 4: it if it's not quite correct in one way, can 251 00:14:34,440 --> 00:14:37,280 Speaker 4: it go another way and perhaps answer the question separately. 252 00:14:37,320 --> 00:14:39,280 Speaker 4: So that's really the point of this exercise. 253 00:14:39,960 --> 00:14:42,120 Speaker 3: If we were to take a ten thousand foot view, 254 00:14:42,120 --> 00:14:44,360 Speaker 3: and I'm going to ask you to take that pilot's view, 255 00:14:44,400 --> 00:14:48,280 Speaker 3: if you will, Scott, the amount of money being moved 256 00:14:48,360 --> 00:14:52,600 Speaker 3: in traditional market channels really dwarfs what's moving on chain. 257 00:14:52,760 --> 00:14:57,160 Speaker 3: If that ratio changes, could those massive amounts of capital 258 00:14:57,280 --> 00:15:02,280 Speaker 3: be tokenized and handled unblockchain? 259 00:15:02,360 --> 00:15:05,160 Speaker 4: I think we need to figure out for what purpose 260 00:15:05,600 --> 00:15:08,600 Speaker 4: those changes would happen. United States already has the most 261 00:15:08,640 --> 00:15:11,120 Speaker 4: deep and liquid couple of markets on the planet. To 262 00:15:11,160 --> 00:15:13,400 Speaker 4: make those more efficient, you need to kind of say, well, 263 00:15:13,680 --> 00:15:15,920 Speaker 4: first of all, where are the inefficiencies that we think 264 00:15:15,960 --> 00:15:18,680 Speaker 4: could be addressed, and second of all, how do those 265 00:15:18,680 --> 00:15:21,520 Speaker 4: inefficiencies positively impact the market in a way that's worth 266 00:15:21,520 --> 00:15:23,840 Speaker 4: making the investment to get there. There has been a 267 00:15:23,840 --> 00:15:27,600 Speaker 4: lot of supply and experimentation with tokenized securities over a 268 00:15:27,680 --> 00:15:29,840 Speaker 4: range of years. There hasn't been a lot of success 269 00:15:29,840 --> 00:15:34,400 Speaker 4: in bringing sort of broader market products into production because 270 00:15:34,440 --> 00:15:38,840 Speaker 4: there hasn't been a broad set of usable cash sources. 271 00:15:39,600 --> 00:15:42,120 Speaker 5: And when it is as much. 272 00:15:41,960 --> 00:15:44,320 Speaker 4: As stable coins are growing, the opportunity exists for stable 273 00:15:44,320 --> 00:15:47,560 Speaker 4: points to continue to grow, there still aren't an enormous 274 00:15:47,560 --> 00:15:52,280 Speaker 4: set of scalable cash sources, and so tomorrow maybe there's cash, 275 00:15:52,400 --> 00:15:55,120 Speaker 4: maybe there's stable coins, maybe there's tourkenized deposits, maybe there's 276 00:15:55,160 --> 00:15:57,920 Speaker 4: central bank digital currencies in some jurisdictions, maybe there's other 277 00:15:58,000 --> 00:16:01,360 Speaker 4: means of settling that transaction. And so I think that 278 00:16:02,240 --> 00:16:04,440 Speaker 4: the question really is, like how can you match those 279 00:16:04,480 --> 00:16:07,360 Speaker 4: up if you've got a sophisticated methodology of choosing the 280 00:16:08,160 --> 00:16:12,880 Speaker 4: security on a particular platform and they've got multiple choices 281 00:16:12,880 --> 00:16:16,280 Speaker 4: of the settlement mechanism for that, Like how does that 282 00:16:16,320 --> 00:16:19,080 Speaker 4: then get built and how does that work? And again 283 00:16:19,400 --> 00:16:24,080 Speaker 4: that's very much a client driven conversation, you know, it's 284 00:16:24,400 --> 00:16:25,840 Speaker 4: what do the clients want to do where they want 285 00:16:25,840 --> 00:16:26,240 Speaker 4: to operate? 286 00:16:27,080 --> 00:16:28,680 Speaker 5: Do we think we can help them with that? 287 00:16:29,080 --> 00:16:30,840 Speaker 4: And if we can help them with that, like what's 288 00:16:30,880 --> 00:16:33,560 Speaker 4: our risk footprint work are there to take in that 289 00:16:33,640 --> 00:16:35,680 Speaker 4: sort of in that area? And that's the same as 290 00:16:35,720 --> 00:16:38,800 Speaker 4: every other product, the facts on blockchain and not almost 291 00:16:38,800 --> 00:16:42,080 Speaker 4: doesn't matter, Like we asked ourselves the same questions every time, 292 00:16:42,320 --> 00:16:45,000 Speaker 4: how do you support clients? How do we think about 293 00:16:45,000 --> 00:16:47,480 Speaker 4: our risk footprint? Are we prepared to operate in that space? 294 00:16:47,560 --> 00:16:49,240 Speaker 4: What are the resources we're going to put against that? 295 00:16:49,720 --> 00:16:51,680 Speaker 4: I think there is a fair bit to learn there, 296 00:16:51,880 --> 00:16:54,680 Speaker 4: and I think the potential exists, but you know, we 297 00:16:54,960 --> 00:16:58,560 Speaker 4: still need to prove the thesis in the market and 298 00:16:58,600 --> 00:17:01,360 Speaker 4: then you see whether we are takes us and I 299 00:17:01,400 --> 00:17:02,920 Speaker 4: think that horizon's pretty open. 300 00:17:09,200 --> 00:17:12,399 Speaker 3: Scott, the commercial paper transaction we talked about off at 301 00:17:12,400 --> 00:17:15,000 Speaker 3: the top, that was a really great proof of concept 302 00:17:15,000 --> 00:17:19,080 Speaker 3: in that specific domain. What other opportunities do you see 303 00:17:19,119 --> 00:17:23,120 Speaker 3: tokenization bringing to other asset classes besides money markets. 304 00:17:23,720 --> 00:17:27,399 Speaker 5: If you put something on a distributed ledger with a 305 00:17:27,440 --> 00:17:32,520 Speaker 5: single record that entitled users can see, it's impossible to disagree, 306 00:17:33,720 --> 00:17:36,920 Speaker 5: and it's if impossible to disagree that yours mind becomes 307 00:17:37,040 --> 00:17:41,159 Speaker 5: ours and there's our record of that instrument. Then the 308 00:17:41,200 --> 00:17:41,600 Speaker 5: way that. 309 00:17:41,600 --> 00:17:43,760 Speaker 4: You think about and we often talk about this from 310 00:17:43,760 --> 00:17:46,040 Speaker 4: a sort of a fixed income standpoint, maybe you think 311 00:17:46,080 --> 00:17:50,120 Speaker 4: about coupon, is there's one record. Well, if there's only 312 00:17:50,160 --> 00:17:53,280 Speaker 4: one record today, we pay coupon on a six monthly 313 00:17:53,400 --> 00:17:55,879 Speaker 4: or annual basis, because there's a lot of overhead around 314 00:17:56,000 --> 00:17:59,080 Speaker 4: managing that process and checking that process at scale. Well, 315 00:17:59,119 --> 00:18:01,280 Speaker 4: is there any one recordd why wouldn't you calculate coupon 316 00:18:01,359 --> 00:18:04,360 Speaker 4: to the millisecond? And then when you trade that instrument 317 00:18:04,600 --> 00:18:07,760 Speaker 4: that clean and dirty price associated with the trade at 318 00:18:07,760 --> 00:18:09,919 Speaker 4: that particular moment is very very clear, even if you 319 00:18:09,920 --> 00:18:12,640 Speaker 4: settle it later, like that's the rule set and there's 320 00:18:12,640 --> 00:18:15,480 Speaker 4: no debate around what that looks like. You can change 321 00:18:15,480 --> 00:18:18,879 Speaker 4: the frequency of the coupon payment. You could pay daily, weekly, monthly. 322 00:18:18,920 --> 00:18:23,320 Speaker 4: You could provide optionality around whether you wanted to keep 323 00:18:23,359 --> 00:18:25,960 Speaker 4: all of the coupon at the same frequency or you 324 00:18:26,000 --> 00:18:28,040 Speaker 4: wanted a different frequency, and that could be at the 325 00:18:28,040 --> 00:18:30,639 Speaker 4: best of the investor. If they want a different credit 326 00:18:30,720 --> 00:18:33,520 Speaker 4: risks profile, you could be the best of the issue. 327 00:18:33,600 --> 00:18:37,200 Speaker 4: If they want a different liquidity profile. You could embed 328 00:18:37,240 --> 00:18:39,600 Speaker 4: a smart contract in to manage the interust rate swap, 329 00:18:39,640 --> 00:18:42,440 Speaker 4: so the issuer steps out of the equation and now 330 00:18:42,520 --> 00:18:45,440 Speaker 4: you've got like the bank managing the cash flows directly 331 00:18:45,480 --> 00:18:48,159 Speaker 4: to the investor or who was managing that that swap. 332 00:18:48,760 --> 00:18:52,280 Speaker 4: And then you don't need a very sophisticated finance department 333 00:18:52,960 --> 00:18:55,600 Speaker 4: who can manage the swap on your behalf because you 334 00:18:55,640 --> 00:18:58,880 Speaker 4: don't have all the accounting rules and processing etc. 335 00:18:59,240 --> 00:18:59,960 Speaker 5: Around those cases. 336 00:19:00,440 --> 00:19:03,480 Speaker 4: Like if that's the case, then companies that are as 337 00:19:03,480 --> 00:19:05,720 Speaker 4: mature Arna's Big, et cetera. Might be able to access 338 00:19:06,600 --> 00:19:08,680 Speaker 4: get capital markets in the way they can't access today. 339 00:19:09,840 --> 00:19:12,919 Speaker 4: And so when you really think about what tokenization can do, 340 00:19:13,040 --> 00:19:15,640 Speaker 4: it's not just about faster mobilization and bring more clateral 341 00:19:15,680 --> 00:19:19,119 Speaker 4: to the table. It's also about like changing the potential 342 00:19:19,200 --> 00:19:23,400 Speaker 4: for the instruments themselves in a way that enables more 343 00:19:23,520 --> 00:19:26,879 Speaker 4: utility and enables capital markets to do what capital markets 344 00:19:26,880 --> 00:19:30,080 Speaker 4: should do, which is get themselves wider and deeper a 345 00:19:30,119 --> 00:19:32,560 Speaker 4: service the wider economy and economic growth. 346 00:19:32,600 --> 00:19:34,000 Speaker 5: Like that's the point. 347 00:19:33,880 --> 00:19:37,280 Speaker 3: We had a conversation with Rick Edelman. He said the 348 00:19:37,320 --> 00:19:41,440 Speaker 3: tokenization will revolutionize the entire industry. He said that within 349 00:19:41,560 --> 00:19:46,480 Speaker 3: ten years everything will be tokenized and traded on chain. 350 00:19:47,040 --> 00:19:48,800 Speaker 5: Do you agree? Possible? 351 00:19:48,800 --> 00:19:51,840 Speaker 4: But improbable, And that doesn't mean it shouldn't. It's not 352 00:19:51,880 --> 00:19:53,720 Speaker 4: a view on whether it's the right choice or not. 353 00:19:54,200 --> 00:19:57,320 Speaker 4: But I don't think this changes as easy as everyone thinks. 354 00:19:57,320 --> 00:20:03,120 Speaker 4: There's a big difference between technological readiness, legal readiness, regulatory understanding, 355 00:20:03,840 --> 00:20:08,199 Speaker 4: then taking risk, then upgrading internal systems. So that just 356 00:20:08,320 --> 00:20:10,400 Speaker 4: takes a while. And I don't care if it takes 357 00:20:10,440 --> 00:20:13,120 Speaker 4: three years, five years, ten years, fifteen years. I don't 358 00:20:13,160 --> 00:20:14,840 Speaker 4: mind if the whole market changes or some of the 359 00:20:14,840 --> 00:20:17,920 Speaker 4: market changes. But what we do believe in is there 360 00:20:17,960 --> 00:20:21,680 Speaker 4: is absolute value in deploying this technology into specific areas 361 00:20:21,680 --> 00:20:24,080 Speaker 4: of the market. We do believe that there will be 362 00:20:24,520 --> 00:20:28,360 Speaker 4: scalable market change over time, but to be deterministic around 363 00:20:30,520 --> 00:20:33,120 Speaker 4: how long that takes or how long that should take, 364 00:20:33,720 --> 00:20:36,240 Speaker 4: I don't think that's our job. I think that's the 365 00:20:36,320 --> 00:20:37,800 Speaker 4: market to figure that out, and. 366 00:20:38,280 --> 00:20:40,719 Speaker 5: Will hopefully help figure that out with the market. 367 00:20:45,400 --> 00:20:49,119 Speaker 3: Both our guests today agree that tokenized assets are emerging 368 00:20:49,200 --> 00:20:53,359 Speaker 3: as a powerful tool for investors and investment companies, but 369 00:20:53,480 --> 00:20:56,720 Speaker 3: where they differ is in the timeline. Rick talks about 370 00:20:56,720 --> 00:20:59,960 Speaker 3: tokenization taking over within five to ten years, while Scott 371 00:21:00,200 --> 00:21:03,600 Speaker 3: is monitoring client demand and letting that dictate the pace 372 00:21:03,640 --> 00:21:06,840 Speaker 3: of adoption. So I want to wrap this episode by 373 00:21:06,840 --> 00:21:09,159 Speaker 3: going back to Rick Edelman to get his opinion of 374 00:21:09,480 --> 00:21:12,560 Speaker 3: what it will take to accelerate the rate of institutional 375 00:21:12,560 --> 00:21:15,840 Speaker 3: adoption and make his bullish prediction come true. 376 00:21:17,119 --> 00:21:20,080 Speaker 2: A big impediment to adoption has been the lack of 377 00:21:20,119 --> 00:21:22,920 Speaker 2: clarity by Congress. We don't know what the rules are, 378 00:21:23,119 --> 00:21:25,480 Speaker 2: we don't know how to engage, we don't have rules 379 00:21:25,480 --> 00:21:28,320 Speaker 2: for custody. We don't know what taxation is going to 380 00:21:28,359 --> 00:21:32,120 Speaker 2: be yet, so we're waiting for Congress to create the laws. 381 00:21:32,320 --> 00:21:34,520 Speaker 2: Once we have the rules of the road and the 382 00:21:34,560 --> 00:21:38,320 Speaker 2: brokerage industry, the banking industry, the insurance industry all know 383 00:21:38,800 --> 00:21:41,840 Speaker 2: how they're allowed to engage, you'll begin to see the 384 00:21:41,880 --> 00:21:43,040 Speaker 2: massive levels of adoption. 385 00:21:50,720 --> 00:21:53,720 Speaker 3: I'm Aji Lao and this is Evolving Money, a co 386 00:21:53,840 --> 00:21:58,080 Speaker 3: production between Pinbase and Bloomberg Media Studios. Thanks for listening. 387 00:21:58,240 --> 00:22:00,240 Speaker 3: Be sure to follow the show on your app voice 388 00:22:00,520 --> 00:22:02,600 Speaker 3: so you'll always be in the loop when we post 389 00:22:02,640 --> 00:22:04,800 Speaker 3: a new episode.