WEBVTT - Evolving Money: The Tokenization Tipping Point (Sponsored Content) 0:00:00.760 --> 0:00:03.920 Since you're a subscriber to this Bloomberg podcast, we thought 0:00:03.920 --> 0:00:07.600 you'd be interested in a sponsored podcast called Evolving Money, 0:00:08.160 --> 0:00:12.399 produced by Coinbase and Bloomberg Media Studios. It explains how 0:00:12.440 --> 0:00:17.520 institutional investors are adopting the world's newest asset class, crypto. 0:00:18.360 --> 0:00:19.760 Here's a recent episode. 0:00:21.680 --> 0:00:24.040 There's been a lot of frustration in the crypto community 0:00:24.079 --> 0:00:26.880 over the past fifteen years because the Wall Street and 0:00:26.920 --> 0:00:30.880 financial services industries have ignored crypto or outright been opposed 0:00:31.160 --> 0:00:31.560 to it. 0:00:32.320 --> 0:00:36.640 That's Rick Edelman, a longtime financial advisor and podcaster in 0:00:36.680 --> 0:00:40.280 the financial world, and the perfect guest to kick off 0:00:40.320 --> 0:00:42.360 this episode of Evolving Money. 0:00:42.960 --> 0:00:47.760 The reason that there has been such antipathy about crypto 0:00:48.000 --> 0:00:51.360 in its early years is because it didn't get invented 0:00:51.400 --> 0:00:53.400 by Wall Street, and Wall Street doesn't like what it 0:00:53.440 --> 0:00:56.360 doesn't control and own, so better to quash it if 0:00:56.400 --> 0:00:59.000 you can, ignore it if you can't, and they did 0:00:59.000 --> 0:01:02.320 that pretty successfully or ten years. But eventually they began 0:01:02.400 --> 0:01:05.080 to realize it's here to stay, and oh, by the way, 0:01:05.480 --> 0:01:07.520 the technology is in fact pretty cool. 0:01:09.440 --> 0:01:11.039 Welcome to Evolving Money. 0:01:11.120 --> 0:01:11.800 I'm your host. 0:01:11.840 --> 0:01:15.160 Angie low I spent decades as a journalist covering the 0:01:15.200 --> 0:01:19.360 financial industry and weal this is the biggest story yet. 0:01:19.880 --> 0:01:22.160 This show is co produced by Coinbase, one of the 0:01:22.240 --> 0:01:26.839 largest cryptocurrency platforms in the world, and Bloomberg Media Studios. 0:01:27.360 --> 0:01:31.000 In this series, we are exploring how crypto is being 0:01:31.080 --> 0:01:36.120 adopted by traditional financial institutions as the next logical evolution 0:01:36.440 --> 0:01:41.720 of the monetary system. This episode is about tokenization. That's 0:01:41.760 --> 0:01:45.600 the process of representing a real world asset or financial 0:01:45.640 --> 0:01:49.040 instrument on blockchain. Now, in less than three years, the 0:01:49.080 --> 0:01:53.160 amount of tokenized assets has grown eightfold to more than 0:01:53.280 --> 0:01:58.040 thirty billion US dollars across equities, fixed income, private assets, 0:01:58.360 --> 0:02:01.800 real estate, and a whole lot more. And the tokenization 0:02:02.120 --> 0:02:06.360 revolution is still in its early stages. Now, recently we've 0:02:06.360 --> 0:02:10.520 seen some of the largest traditional asset management companies embrace 0:02:10.600 --> 0:02:13.799 it in a big way. This is what I'm talking about. 0:02:16.160 --> 0:02:19.799 Blackrock they've launched what they call the Biddle Fund on Ethereum. 0:02:20.280 --> 0:02:23.640 It's a tokenized money market fund they've made available to 0:02:23.760 --> 0:02:27.320 qualified investors. The total value of those tokens all around 0:02:27.320 --> 0:02:31.160 two point eight billion dollars. And then we've got Fidelity. 0:02:31.240 --> 0:02:34.480 They've rolled out their own tokenized money market fund, currently 0:02:34.560 --> 0:02:38.880 valued at over two hundred million dollars. JP Morgan and 0:02:38.960 --> 0:02:43.240 Goldman Sachs. They've also made their tokenized assets available to 0:02:43.360 --> 0:02:47.040 their investors in various ways. But why are they doing 0:02:47.080 --> 0:02:50.840 it Well, there are three main drivers. We've got liquidity, 0:02:51.440 --> 0:02:56.920 broader access, and operational efficiency. We're going to touch on 0:02:57.000 --> 0:02:59.920 all three of those topics with our next two guests. 0:03:01.760 --> 0:03:04.960 Rick Edelman, who you've already heard from. He launched the 0:03:05.040 --> 0:03:10.280 Digital Assets Council of Financial Professionals, the first educational platform 0:03:10.520 --> 0:03:16.440 helping financial advisors responsibly navigate crypto, blockchain and tokenized assets. 0:03:16.880 --> 0:03:20.400 He's uber bullish on the opportunities tokenization is bringing to 0:03:20.480 --> 0:03:24.160 the market. And Scott lucas Head of Markets Digital Assets 0:03:24.160 --> 0:03:30.000 with JP Morgan. He's actively integrating tokenization and blockchain technology 0:03:30.440 --> 0:03:34.800 into JP Morgan's operations, but he isn't in as much 0:03:34.800 --> 0:03:36.920 of a hurry as Rick is, and I think it's 0:03:36.960 --> 0:03:39.440 important to give them both a place to explain their 0:03:39.480 --> 0:03:41.840 approaches for you. We'll start with Rick. 0:03:45.480 --> 0:03:45.680 Now. 0:03:45.800 --> 0:03:48.320 Just a few months ago, Rick, you said that by 0:03:48.360 --> 0:03:52.559 the end of the decade, tokenization will be the dominant 0:03:52.880 --> 0:03:58.360 investment platform in the industry, far eclipsing ETFs, ETFs as 0:03:58.400 --> 0:04:01.840 we know them, today really won't exist in five years. 0:04:02.000 --> 0:04:05.920 That is quite the prediction. Rick, Why do you see that? 0:04:06.440 --> 0:04:09.960 Yeah, it does sound momentous, but it really isn't. It's iterative. 0:04:10.320 --> 0:04:14.760 It's just the next logical step in technological generation of 0:04:14.880 --> 0:04:19.400 money management. Remember that ets have come on the marketplace 0:04:19.440 --> 0:04:22.360 of the last twenty twenty five years, replacing mutual funds, 0:04:22.560 --> 0:04:26.040 which were themselves the dominant investment vehicle for Americans for 0:04:26.120 --> 0:04:27.160 decades and decades. 0:04:27.839 --> 0:04:31.279 Okay, but mutual funds still hold I think about twenty 0:04:31.320 --> 0:04:34.920 trillion dollars here. That's a huge piece of the investment world. 0:04:35.320 --> 0:04:38.760 So why do you see ETFs and eventually tokenized products 0:04:38.839 --> 0:04:39.880 actually eating into that. 0:04:40.520 --> 0:04:45.520 They're simply technologically superior. ETFs trade throughout the day. Mutual 0:04:45.520 --> 0:04:49.400 funds are only priced once when the market closes. ETFs 0:04:49.400 --> 0:04:53.400 have better disclosure. ETFs are lower in taxation, they're lower 0:04:53.440 --> 0:04:56.440 in cost, they're higher in liquidity, So naturally people love 0:04:56.520 --> 0:04:59.400 ETFs over mutual funds. The same thing's going to happen 0:04:59.440 --> 0:05:02.440 with token is We're going to take those ETF shares 0:05:02.920 --> 0:05:06.680 and turn them into tokens, which will trade on blockchains. 0:05:07.120 --> 0:05:11.280 This will further reduce the costs further increase the liquidity, 0:05:11.600 --> 0:05:16.800 further increase the broad array of assets available for you 0:05:16.880 --> 0:05:20.719 to invest in, improving your diversification. So what's not to love. 0:05:20.839 --> 0:05:23.920 So just as everybody graduated from mutual funds to ETFs, 0:05:24.360 --> 0:05:26.680 next we're going to go from ETFs to tokens. 0:05:26.960 --> 0:05:30.240 Do customers want it? Do they understand it? Because at 0:05:30.240 --> 0:05:33.560 the end of the day, if the customer doesn't want it, 0:05:33.560 --> 0:05:36.120 the bank is not going to create the product. 0:05:36.520 --> 0:05:39.640 Well, we all remember Steve Jobs who famously said he 0:05:39.720 --> 0:05:43.400 never engaged in focus group testing because nobody understood the 0:05:43.400 --> 0:05:45.440 products he was inventing, so how could they have a 0:05:45.520 --> 0:05:49.640 valid opinion. And it's the same thing with blockchain technology. 0:05:50.200 --> 0:05:53.120 People don't understand it and so how can they like it? 0:05:53.400 --> 0:05:55.760 In other words, all we're going to do is develop 0:05:55.839 --> 0:06:00.960 the technology, introduce the products on that platform, and consumers 0:06:01.000 --> 0:06:06.159 will quickly discover it's faster, cheaper, safer, with greater transparency 0:06:06.200 --> 0:06:09.960 and inclusion. So they will move and adopt to this 0:06:10.560 --> 0:06:14.080 because it's simply going to offer them tremendous benefits that 0:06:14.120 --> 0:06:17.560 they currently lack. Right now, we can only trade stocks 0:06:17.640 --> 0:06:21.880 Monday through Friday, excluding holidays and weekends, from nine point 0:06:21.880 --> 0:06:25.559 thirty to four in the afternoon. That's silly. Why aren't 0:06:25.560 --> 0:06:27.840 we able to do this twenty four to seven, three 0:06:27.960 --> 0:06:30.960 sixty five? Why aren't we able to do it instantaneously? 0:06:31.120 --> 0:06:33.520 Like when you go to a supermarket to buyolo for bread, 0:06:33.720 --> 0:06:35.640 you walk out with the bread as soon as you 0:06:35.680 --> 0:06:37.720 pay for it. Why can't we do that with chairs 0:06:37.760 --> 0:06:38.279 of IBM. 0:06:39.080 --> 0:06:42.599 You remember back in twenty nineteen, we were both in 0:06:42.600 --> 0:06:45.559 the space then, but one of the world's first real 0:06:45.680 --> 0:06:50.200 estate tokenization ideas came to light and it was an aspen. 0:06:50.400 --> 0:06:55.680 It was Saint Regis. They were fractionalizing the sale of 0:06:56.200 --> 0:06:59.120 their big resort and I think a fifth of it 0:06:59.160 --> 0:07:01.960 went for I think was it eighteen million rick, do 0:07:02.000 --> 0:07:02.440 you remember? 0:07:02.600 --> 0:07:02.800 Yeah? 0:07:02.800 --> 0:07:04.920 And there were ten there were ten bucks apiece, Yeah, 0:07:04.960 --> 0:07:07.960 each of the tokens. And that was actually the second transaction. 0:07:08.040 --> 0:07:10.320 The first one was a year earlier, a condo building 0:07:10.360 --> 0:07:14.840 in Manhattan tokenized. And just think about the wonder of this. See. 0:07:14.840 --> 0:07:16.880 The big problem with real estate, as we all know, 0:07:17.120 --> 0:07:20.560 is that it's very expensive to buy and it's highly liquid. 0:07:20.800 --> 0:07:22.240 I mean, we all know how hard it is to 0:07:22.320 --> 0:07:24.960 buy and sell a house compared to buying and selling 0:07:25.080 --> 0:07:30.280 shares of Nvidia So along comes the tokenization process, where 0:07:30.280 --> 0:07:34.160 they could take this multimillion dollar asset and split it 0:07:34.200 --> 0:07:37.520 into tokens of ten dollars apiece. All of a sudden, 0:07:37.680 --> 0:07:41.360 people who never were able to buy commercial or investable 0:07:41.480 --> 0:07:45.040 real estate now can because the price of the token 0:07:45.160 --> 0:07:49.040 is cheap and it trades with great liquidity. This opens 0:07:49.120 --> 0:07:52.520 up the commercial real estate sector to retail investors in 0:07:52.560 --> 0:07:55.280 a scale never before seen. This is a big deal 0:07:55.520 --> 0:07:59.440 because the real estate market globally is three times bigger 0:07:59.480 --> 0:08:00.840 than the globe stock market. 0:08:05.240 --> 0:08:09.520 So rick I get it that tokenization makes transactions more straightforward, 0:08:09.560 --> 0:08:12.240 it makes them quicker, it reduces overhead all of that, 0:08:12.720 --> 0:08:16.680 but realistically, I mean, actually, how much money will using 0:08:16.720 --> 0:08:18.760 crypto rails save the banks and overhead? 0:08:20.000 --> 0:08:24.000 So you look at Kinesis, which is a blockchain created 0:08:24.040 --> 0:08:27.680 by JP Morgan that does two billion dollars a day 0:08:27.720 --> 0:08:31.440 in cross border transmittals. They've moved over four trillion dollars 0:08:31.480 --> 0:08:35.080 worldwide since it was conceived four years ago because they 0:08:35.120 --> 0:08:38.840 recognize they can move money for their institutional clients faster, cheaper, 0:08:39.120 --> 0:08:43.080 and easier than they can using the federal systems that 0:08:43.120 --> 0:08:45.440 we use in money management, such as the Swift system. 0:08:45.840 --> 0:08:51.360 So everybody's beginning to recognize that this is better technology 0:08:51.400 --> 0:08:54.000 than the technology we've been using to date. It offers 0:08:54.320 --> 0:08:58.880 big business benefits, saving lots of money. JP Morgan says 0:08:58.960 --> 0:09:02.520 that blockchainels Bank's one hundred and twenty billion dollars a year. 0:09:02.840 --> 0:09:05.760 So you're now at the stage where nine out of 0:09:05.800 --> 0:09:11.000 ten banks are developing blockchain technology, two out of three 0:09:11.880 --> 0:09:15.720 Fortune five hundred companies are developing the technology, and over 0:09:15.760 --> 0:09:17.880 the next twelve to twenty four months, you're going to 0:09:17.920 --> 0:09:20.720 see all of them begin to deploy, and it's going 0:09:20.800 --> 0:09:24.080 to be an exponential growth curve that traditional hockey stick, 0:09:24.600 --> 0:09:26.960 and people are going to be shocked at the speed 0:09:27.240 --> 0:09:31.440 of adoption and implementation in the marketplace. It's going to 0:09:31.559 --> 0:09:33.800 appear to have come out of nowhere, but it's going 0:09:33.840 --> 0:09:36.360 to be like the Beatles where they spent six years 0:09:36.400 --> 0:09:38.040 becoming an overnight success. 0:09:38.400 --> 0:09:42.280 Rick, what's next. We have the institutionals coming in, We 0:09:42.400 --> 0:09:47.440 have the Black Rock, the Franklin, Templeton, JPM, all of 0:09:47.480 --> 0:09:51.200 these folks are coming into this space. How will this 0:09:51.400 --> 0:09:53.040 look in five years? 0:09:53.320 --> 0:09:57.199 Well, everything's going to be tokenized, not just financial assets 0:09:57.280 --> 0:10:01.080 such as stocks, bonds, real estate, and and other but 0:10:01.320 --> 0:10:04.640 everything is going to be tokenized. For example, your driver's 0:10:04.640 --> 0:10:07.600 license and passport. Why are we carrying a piece of 0:10:07.640 --> 0:10:12.600 plastic in our wallet or purse. That's ridiculous. Your employment records, 0:10:12.600 --> 0:10:16.200 your academic records, your health records will all be tokens, 0:10:16.520 --> 0:10:19.920 making it easier for you to deal with the medical industry. 0:10:20.040 --> 0:10:22.200 Or when you're applying for a job or trying to 0:10:22.240 --> 0:10:26.080 rent an apartment. You're going to be able to tokenize 0:10:26.120 --> 0:10:28.280 your home. We all know that homes are the number 0:10:28.320 --> 0:10:30.640 one asset for most Americans, but they don't want to 0:10:30.679 --> 0:10:33.160 sell their house when they're retired to generate income. They 0:10:33.160 --> 0:10:36.040 want to keep living there. So by tokenizing your house, 0:10:36.120 --> 0:10:39.200 you can take that million dollar home, create one million 0:10:39.280 --> 0:10:41.200 tokens of a dollar each, and now you can sell 0:10:41.200 --> 0:10:43.280 them off one at a time as you wish to 0:10:43.360 --> 0:10:46.079 generate income for yourself. Investors will want to buy it 0:10:46.120 --> 0:10:47.520 because they're going to want to own a piece of 0:10:47.520 --> 0:10:49.360 your home because you live in a great community without 0:10:49.360 --> 0:10:53.040 an appreciating asset. So we're also going to tokenize salaries. 0:10:53.480 --> 0:10:58.240 For example, you can already buy into a token that 0:10:58.480 --> 0:11:02.520 is a contract of a professional athlete, your favorite quarterback 0:11:02.920 --> 0:11:06.640 or your favorite Hollywood celebrity or your favorite recording artist, 0:11:07.400 --> 0:11:10.760 you can buy a token of their music catalog. So 0:11:10.840 --> 0:11:13.160 instead of being a fan of Taylor Swift, you'll be 0:11:13.160 --> 0:11:15.679 able to be an owner of her music along with her, 0:11:16.000 --> 0:11:20.280 so that you're earning money by enjoying your favorite radio 0:11:20.360 --> 0:11:25.480 show or Hollywood movie or Broadway play. This is going 0:11:25.520 --> 0:11:27.760 to be the tokenization of everything. We're gonna be able 0:11:27.760 --> 0:11:31.000 to take all these real world assets and create digital 0:11:31.120 --> 0:11:34.360 representations of them that you'll be able to own and 0:11:34.559 --> 0:11:36.719 trade and enjoy. 0:11:36.360 --> 0:11:37.000 As a hobby. 0:11:40.520 --> 0:11:43.400 That's Rick Edelman, and what he sees makes him highly 0:11:43.480 --> 0:11:48.320 enthusiastic about the potential of tokenization. My next guest, however, 0:11:48.360 --> 0:11:52.719 has a more measured perspective. Scott Lucas is the head 0:11:52.760 --> 0:11:56.160 of Markets digital Assets for JP Morgan, the world's largest 0:11:56.200 --> 0:11:59.679 bank and a leader in blockchain usage amongst trade five firms. 0:12:00.080 --> 0:12:02.800 Scott is an expert and a leader in this space, 0:12:02.840 --> 0:12:06.600 and he recently oversaw a very large transaction that. 0:12:06.520 --> 0:12:07.280 Caught my attention. 0:12:09.320 --> 0:12:12.520 In late twenty twenty five, JP Morgan served as an 0:12:12.640 --> 0:12:16.880 arranger for fifty million US dollar commercial paper issuance on 0:12:16.960 --> 0:12:22.400 Solana's public blockchain, Galaxy Digital, which is a global cryptofocused 0:12:22.400 --> 0:12:27.480 financial services and infrastructure firm issued the tokenized commercial papers. 0:12:27.960 --> 0:12:32.320 Those tokens were purchased by coinbase and Franklin Templeton, with 0:12:32.440 --> 0:12:36.400 settlement occurring in stable coin. Now, this was a short 0:12:36.520 --> 0:12:39.880 term corporate debt deal done in a traditional finance structure, 0:12:40.280 --> 0:12:44.479 but issued, traded, and settled directly on a public blockchain 0:12:45.000 --> 0:12:48.439 instead of through legacy banking rails. No doubt it was 0:12:48.480 --> 0:12:51.839 a landmark deal, But my question is why did JP 0:12:51.920 --> 0:12:52.640 Morgan do it? 0:12:55.480 --> 0:12:58.640 I guess the key thing Roust is really trying to 0:12:58.679 --> 0:13:01.120 understand what the MAKO option years. There's a lot of 0:13:01.160 --> 0:13:03.840 talk about doing things on Popper blockchain. There's a lot 0:13:03.880 --> 0:13:05.920 of talk about the potential, there's a lot of talk 0:13:05.960 --> 0:13:10.079 about the appetite, and I feel actually the only way 0:13:10.120 --> 0:13:12.400 that we can really pressure test that and prove it 0:13:12.520 --> 0:13:14.520 and adjust the thesis to kind of where the market 0:13:14.520 --> 0:13:15.000 needs to go. 0:13:15.080 --> 0:13:15.840 Is to do something. 0:13:16.280 --> 0:13:19.000 But Scott, now that you are using both blockchain and 0:13:19.120 --> 0:13:22.120 legacy rails for transactions, have you chosen a winner a 0:13:22.240 --> 0:13:23.520 preferred way forward. 0:13:24.280 --> 0:13:28.840 Quite often in the blockchain space, it gets really emotional, 0:13:29.240 --> 0:13:34.360 really quickly about what technology you use. It's either this 0:13:34.679 --> 0:13:36.679 or it's that you can do it this way or 0:13:36.720 --> 0:13:38.720 you can do it that way. And really a market's 0:13:40.000 --> 0:13:44.400 an efficient market does end. So there'll be a whole 0:13:44.400 --> 0:13:47.040 bunch of products that stay as they work today in 0:13:47.080 --> 0:13:50.079 a very deep in liquid capital markets footprint in the 0:13:50.120 --> 0:13:52.439 United States, and there'll be some stuff that we add 0:13:52.520 --> 0:13:55.800 to that market, whether it be similar products or new 0:13:55.840 --> 0:13:58.280 products that work on blockchain, and at some point the 0:13:58.360 --> 0:14:02.000 market will just side whether blockchain is a better answer 0:14:02.080 --> 0:14:04.920 or not, you know, and whether it becomes an all 0:14:04.920 --> 0:14:09.080 blockchain or a no blockchain or a regular technology and 0:14:09.120 --> 0:14:11.959 blockchain upcome. And to be honest, like that's not our 0:14:11.960 --> 0:14:15.080 decision as jup and Morgan, I think that's the market's decision. 0:14:15.480 --> 0:14:17.200 I mean, that's the journey we're on. 0:14:17.240 --> 0:14:20.880 And I think it's reasonable to say that there's a 0:14:20.880 --> 0:14:23.800 good thesis to suggest that blockchain is a better technology 0:14:23.840 --> 0:14:26.280 for a bunch of different instruments in the market. There's 0:14:26.280 --> 0:14:28.960 no evidence yet, So let's build that body of evidence 0:14:29.400 --> 0:14:31.880 and make sure that our thesis is correct and if 0:14:31.920 --> 0:14:34.400 it if it's not quite correct in one way, can 0:14:34.440 --> 0:14:37.280 it go another way and perhaps answer the question separately. 0:14:37.320 --> 0:14:39.280 So that's really the point of this exercise. 0:14:39.960 --> 0:14:42.120 If we were to take a ten thousand foot view, 0:14:42.120 --> 0:14:44.360 and I'm going to ask you to take that pilot's view, 0:14:44.400 --> 0:14:48.280 if you will, Scott, the amount of money being moved 0:14:48.360 --> 0:14:52.600 in traditional market channels really dwarfs what's moving on chain. 0:14:52.760 --> 0:14:57.160 If that ratio changes, could those massive amounts of capital 0:14:57.280 --> 0:15:02.280 be tokenized and handled unblockchain? 0:15:02.360 --> 0:15:05.160 I think we need to figure out for what purpose 0:15:05.600 --> 0:15:08.600 those changes would happen. United States already has the most 0:15:08.640 --> 0:15:11.120 deep and liquid couple of markets on the planet. To 0:15:11.160 --> 0:15:13.400 make those more efficient, you need to kind of say, well, 0:15:13.680 --> 0:15:15.920 first of all, where are the inefficiencies that we think 0:15:15.960 --> 0:15:18.680 could be addressed, and second of all, how do those 0:15:18.680 --> 0:15:21.520 inefficiencies positively impact the market in a way that's worth 0:15:21.520 --> 0:15:23.840 making the investment to get there. There has been a 0:15:23.840 --> 0:15:27.600 lot of supply and experimentation with tokenized securities over a 0:15:27.680 --> 0:15:29.840 range of years. There hasn't been a lot of success 0:15:29.840 --> 0:15:34.400 in bringing sort of broader market products into production because 0:15:34.440 --> 0:15:38.840 there hasn't been a broad set of usable cash sources. 0:15:39.600 --> 0:15:42.120 And when it is as much. 0:15:41.960 --> 0:15:44.320 As stable coins are growing, the opportunity exists for stable 0:15:44.320 --> 0:15:47.560 points to continue to grow, there still aren't an enormous 0:15:47.560 --> 0:15:52.280 set of scalable cash sources, and so tomorrow maybe there's cash, 0:15:52.400 --> 0:15:55.120 maybe there's stable coins, maybe there's tourkenized deposits, maybe there's 0:15:55.160 --> 0:15:57.920 central bank digital currencies in some jurisdictions, maybe there's other 0:15:58.000 --> 0:16:01.360 means of settling that transaction. And so I think that 0:16:02.240 --> 0:16:04.440 the question really is, like how can you match those 0:16:04.480 --> 0:16:07.360 up if you've got a sophisticated methodology of choosing the 0:16:08.160 --> 0:16:12.880 security on a particular platform and they've got multiple choices 0:16:12.880 --> 0:16:16.280 of the settlement mechanism for that, Like how does that 0:16:16.320 --> 0:16:19.080 then get built and how does that work? And again 0:16:19.400 --> 0:16:24.080 that's very much a client driven conversation, you know, it's 0:16:24.400 --> 0:16:25.840 what do the clients want to do where they want 0:16:25.840 --> 0:16:26.240 to operate? 0:16:27.080 --> 0:16:28.680 Do we think we can help them with that? 0:16:29.080 --> 0:16:30.840 And if we can help them with that, like what's 0:16:30.880 --> 0:16:33.560 our risk footprint work are there to take in that 0:16:33.640 --> 0:16:35.680 sort of in that area? And that's the same as 0:16:35.720 --> 0:16:38.800 every other product, the facts on blockchain and not almost 0:16:38.800 --> 0:16:42.080 doesn't matter, Like we asked ourselves the same questions every time, 0:16:42.320 --> 0:16:45.000 how do you support clients? How do we think about 0:16:45.000 --> 0:16:47.480 our risk footprint? Are we prepared to operate in that space? 0:16:47.560 --> 0:16:49.240 What are the resources we're going to put against that? 0:16:49.720 --> 0:16:51.680 I think there is a fair bit to learn there, 0:16:51.880 --> 0:16:54.680 and I think the potential exists, but you know, we 0:16:54.960 --> 0:16:58.560 still need to prove the thesis in the market and 0:16:58.600 --> 0:17:01.360 then you see whether we are takes us and I 0:17:01.400 --> 0:17:02.920 think that horizon's pretty open. 0:17:09.200 --> 0:17:12.399 Scott, the commercial paper transaction we talked about off at 0:17:12.400 --> 0:17:15.000 the top, that was a really great proof of concept 0:17:15.000 --> 0:17:19.080 in that specific domain. What other opportunities do you see 0:17:19.119 --> 0:17:23.120 tokenization bringing to other asset classes besides money markets. 0:17:23.720 --> 0:17:27.399 If you put something on a distributed ledger with a 0:17:27.440 --> 0:17:32.520 single record that entitled users can see, it's impossible to disagree, 0:17:33.720 --> 0:17:36.920 and it's if impossible to disagree that yours mind becomes 0:17:37.040 --> 0:17:41.159 ours and there's our record of that instrument. Then the 0:17:41.200 --> 0:17:41.600 way that. 0:17:41.600 --> 0:17:43.760 You think about and we often talk about this from 0:17:43.760 --> 0:17:46.040 a sort of a fixed income standpoint, maybe you think 0:17:46.080 --> 0:17:50.120 about coupon, is there's one record. Well, if there's only 0:17:50.160 --> 0:17:53.280 one record today, we pay coupon on a six monthly 0:17:53.400 --> 0:17:55.879 or annual basis, because there's a lot of overhead around 0:17:56.000 --> 0:17:59.080 managing that process and checking that process at scale. Well, 0:17:59.119 --> 0:18:01.280 is there any one recordd why wouldn't you calculate coupon 0:18:01.359 --> 0:18:04.360 to the millisecond? And then when you trade that instrument 0:18:04.600 --> 0:18:07.760 that clean and dirty price associated with the trade at 0:18:07.760 --> 0:18:09.919 that particular moment is very very clear, even if you 0:18:09.920 --> 0:18:12.640 settle it later, like that's the rule set and there's 0:18:12.640 --> 0:18:15.480 no debate around what that looks like. You can change 0:18:15.480 --> 0:18:18.879 the frequency of the coupon payment. You could pay daily, weekly, monthly. 0:18:18.920 --> 0:18:23.320 You could provide optionality around whether you wanted to keep 0:18:23.359 --> 0:18:25.960 all of the coupon at the same frequency or you 0:18:26.000 --> 0:18:28.040 wanted a different frequency, and that could be at the 0:18:28.040 --> 0:18:30.639 best of the investor. If they want a different credit 0:18:30.720 --> 0:18:33.520 risks profile, you could be the best of the issue. 0:18:33.600 --> 0:18:37.200 If they want a different liquidity profile. You could embed 0:18:37.240 --> 0:18:39.600 a smart contract in to manage the interust rate swap, 0:18:39.640 --> 0:18:42.440 so the issuer steps out of the equation and now 0:18:42.520 --> 0:18:45.440 you've got like the bank managing the cash flows directly 0:18:45.480 --> 0:18:48.159 to the investor or who was managing that that swap. 0:18:48.760 --> 0:18:52.280 And then you don't need a very sophisticated finance department 0:18:52.960 --> 0:18:55.600 who can manage the swap on your behalf because you 0:18:55.640 --> 0:18:58.880 don't have all the accounting rules and processing etc. 0:18:59.240 --> 0:18:59.960 Around those cases. 0:19:00.440 --> 0:19:03.480 Like if that's the case, then companies that are as 0:19:03.480 --> 0:19:05.720 mature Arna's Big, et cetera. Might be able to access 0:19:06.600 --> 0:19:08.680 get capital markets in the way they can't access today. 0:19:09.840 --> 0:19:12.919 And so when you really think about what tokenization can do, 0:19:13.040 --> 0:19:15.640 it's not just about faster mobilization and bring more clateral 0:19:15.680 --> 0:19:19.119 to the table. It's also about like changing the potential 0:19:19.200 --> 0:19:23.400 for the instruments themselves in a way that enables more 0:19:23.520 --> 0:19:26.879 utility and enables capital markets to do what capital markets 0:19:26.880 --> 0:19:30.080 should do, which is get themselves wider and deeper a 0:19:30.119 --> 0:19:32.560 service the wider economy and economic growth. 0:19:32.600 --> 0:19:34.000 Like that's the point. 0:19:33.880 --> 0:19:37.280 We had a conversation with Rick Edelman. He said the 0:19:37.320 --> 0:19:41.440 tokenization will revolutionize the entire industry. He said that within 0:19:41.560 --> 0:19:46.480 ten years everything will be tokenized and traded on chain. 0:19:47.040 --> 0:19:48.800 Do you agree? Possible? 0:19:48.800 --> 0:19:51.840 But improbable, And that doesn't mean it shouldn't. It's not 0:19:51.880 --> 0:19:53.720 a view on whether it's the right choice or not. 0:19:54.200 --> 0:19:57.320 But I don't think this changes as easy as everyone thinks. 0:19:57.320 --> 0:20:03.120 There's a big difference between technological readiness, legal readiness, regulatory understanding, 0:20:03.840 --> 0:20:08.199 then taking risk, then upgrading internal systems. So that just 0:20:08.320 --> 0:20:10.400 takes a while. And I don't care if it takes 0:20:10.440 --> 0:20:13.120 three years, five years, ten years, fifteen years. I don't 0:20:13.160 --> 0:20:14.840 mind if the whole market changes or some of the 0:20:14.840 --> 0:20:17.920 market changes. But what we do believe in is there 0:20:17.960 --> 0:20:21.680 is absolute value in deploying this technology into specific areas 0:20:21.680 --> 0:20:24.080 of the market. We do believe that there will be 0:20:24.520 --> 0:20:28.360 scalable market change over time, but to be deterministic around 0:20:30.520 --> 0:20:33.120 how long that takes or how long that should take, 0:20:33.720 --> 0:20:36.240 I don't think that's our job. I think that's the 0:20:36.320 --> 0:20:37.800 market to figure that out, and. 0:20:38.280 --> 0:20:40.719 Will hopefully help figure that out with the market. 0:20:45.400 --> 0:20:49.119 Both our guests today agree that tokenized assets are emerging 0:20:49.200 --> 0:20:53.359 as a powerful tool for investors and investment companies, but 0:20:53.480 --> 0:20:56.720 where they differ is in the timeline. Rick talks about 0:20:56.720 --> 0:20:59.960 tokenization taking over within five to ten years, while Scott 0:21:00.200 --> 0:21:03.600 is monitoring client demand and letting that dictate the pace 0:21:03.640 --> 0:21:06.840 of adoption. So I want to wrap this episode by 0:21:06.840 --> 0:21:09.159 going back to Rick Edelman to get his opinion of 0:21:09.480 --> 0:21:12.560 what it will take to accelerate the rate of institutional 0:21:12.560 --> 0:21:15.840 adoption and make his bullish prediction come true. 0:21:17.119 --> 0:21:20.080 A big impediment to adoption has been the lack of 0:21:20.119 --> 0:21:22.920 clarity by Congress. We don't know what the rules are, 0:21:23.119 --> 0:21:25.480 we don't know how to engage, we don't have rules 0:21:25.480 --> 0:21:28.320 for custody. We don't know what taxation is going to 0:21:28.359 --> 0:21:32.120 be yet, so we're waiting for Congress to create the laws. 0:21:32.320 --> 0:21:34.520 Once we have the rules of the road and the 0:21:34.560 --> 0:21:38.320 brokerage industry, the banking industry, the insurance industry all know 0:21:38.800 --> 0:21:41.840 how they're allowed to engage, you'll begin to see the 0:21:41.880 --> 0:21:43.040 massive levels of adoption. 0:21:50.720 --> 0:21:53.720 I'm Aji Lao and this is Evolving Money, a co 0:21:53.840 --> 0:21:58.080 production between Pinbase and Bloomberg Media Studios. Thanks for listening. 0:21:58.240 --> 0:22:00.240 Be sure to follow the show on your app voice 0:22:00.520 --> 0:22:02.600 so you'll always be in the loop when we post 0:22:02.640 --> 0:22:04.800 a new episode.