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Speaker A: So, obviously, like, individual stocks and bonds are going to be tokenized or issued for the first time on blockchains. From there. You know, obviously, every fund is going to, you know, have the ability, you know, 30 years from now to be running with an on chain component. Um, you know, we're not limited ju... |
Speaker B: Bankless nation. Robert Leshner on the podcast today, he's the creator of compound. I would say he's one of the forefathers of Defi, one of the original protocols, for sure. Now he is doing something in the traditional finance space, at least. It's a cross section of Defi and tradfi. He's trying to bring $30... |
Speaker A: Yeah. |
Speaker C: He ended the episode with a prediction of 10 trillion real world assets on chain by the end of this decade, in the next six years. Uh, so in this episode, you'll hear how he gets to that prediction. |
Speaker B: What are your thoughts going into this episode? |
Speaker C: I always really enjoy the real world tokenization conversations. This is actually the world I was in right before that. I left to start bankless. And one of the reasons why I left is because I thought it was super cool. It makes a ton of sense. There's all of this value that's not on chain, and let's take th... |
Speaker B: Leave that whole World bank of censors. When I first met David, he was in the business of tokenizing houses, like. |
Speaker C: Literal houses, actual real estate. |
Speaker B: Yeah. |
Speaker C: So I know a thing or two. So this is where I got my, like, my, sharpened my teeth in the security securities laws, which I know, like a little bit more than, than typical about. And it always kind of like, sparks joy with me just because, like, security's. |
Speaker B: Laws spark joy with you. |
Speaker C: There's like, lessons. And this is why when we remember we did our sparkly securities episode, God, that was a throwback. Um, it was really, really exciting just because there's like, lessons about decentralization and principal agent problems and a lot of things that we run into in the crypto space. Anyways... |
Speaker B: All right, well, let's go down the long tail with, uh, Robert and talk about tokenizing real world assets, securities, t bills and the like. But before we do, we want to thank the sponsors that made this possible. |
Speaker C: Bankless nation. Robert Leshner is the founder of compensation Compound Finance, one of the very first functional defi apps on Ethereum that also kick started Defi summer 2020. He's also a partner at Robot Ventures, where he invests in early stage crypto startups. And now, lately, Robert is reentering the ga... |
Speaker A: Glad to be back on bankless. |
Speaker C: So, Robert, the asset tokenization, the asset securitization world, was actually one of my first entrants into the world of crypto back in 2017 and 2018. The security token year that was 2018 and 2019 got me through the bear market, kept me going. But ultimately, that whole era of crypto flopped. Why I, why ... |
Speaker A: Yeah, so a lot of work has occurred over probably, I would say, the past six years, to bring off chain assets, which in my opinion, are just assets that are originally recorded, not on the blockchain. They're assets that are recorded in some other type of ledger, whether it's a spreadsheet or legal contracts... |
Speaker C: I think illustrating the properties of dollars and why dollars so easily became on chain assets, tokenized assets will actually do a very good job kind of defining the problem statement that all other assets will also have, like dollars, both on chain and in the real world, are highly fungible, right? The fo... |
Speaker A: Yeah, well, that's a great summary of the problem statement. Um, you know, in some ways, the approach right now for the problem statement hasn't been a problem. When you look at stable coins, like, it hasn't been a problem that there's separated liquidity between traditional markets, whether it's, you know, ... |
Speaker C: Mm hmm. I want to just dive a little bit more into the opening the door of the tokenization world. |
Speaker A: Why? |
Speaker C: We are ready now. You talked about improved infrastructure or improved custodians. I think there's like one part of this is just like kind of the background of crypto, which are some like basil level properties, as in, like there are just more users now. There's more liquidity now. There's more public accept... |
Speaker A: Yeah. So there's definitely, I would say the biggest change has been the amount of brainpower and people and talent and energy being devoted to making all this work. I think we're finally at a point where there's enough of our industry and of the builders in the space focused on this that we're going to be m... |
Speaker B: Okay, so I have maybe a different angle on the question, which is, at some level, it's cool that we've made a ton of progress on stablecoins in particular. What's like 130 billion? Something like this? Tether just crossed 100 billion. We actually had Paulo on the podcast not too long ago, the CEO of Tether, ... |
Speaker A: Yeah, well, there's two points here. So one is, when it comes to just simple currencies, I think there's competition between dollars and euros and yen for the mind share of the holders. And to Paolo's point, a lot of people around the world would rather hold a tokenized dollar than a tokenized euro. And the ... |
Speaker B: So it really is. The dollar is the apex predator. It just slaughterbots everything that tries to compete against it. |
Speaker C: Well, this is what happens when we take away all the borders from our financial systems, right, exactly. |
Speaker A: And it's a good thing there's massive liquidity for tokenized dollars. Massive liquidity. You can convert it into other assets like ether and bitcoin, with unbelievable liquidity in that world. There's going to be less liquidity for a tokenized euro no matter what. There's going to be less liquidity for a to... |
Speaker B: Okay, so let's talk about that for a minute. And like, why that. Again, I'm still with the question of why that hasn't happened yet. And what's really interesting about tether is like, so 6 billion a year or something like this, right? At $100 billion, which Tether just recently hit, I believe a couple of da... |
Speaker A: Yeah, well, the answer is, it's complicated. You touch on a couple of things. One is just from a purely mechanical and technology perspective, it's hard. An asset that doesn't change, that's completely fungible is a really simple asset. Tether or USDC are great tokens because they're so easy to hold. The acc... |
Speaker B: Okay, can we just pause on that for a minute and make sure people know you introduced the idea of a security here. Treasury is a security, but a stable coin is not. I hope. Fingers crossed. Like Gary Gensler, if you're listening, it shouldn't be a security because it's more like a. A currency. What makes som... |
Speaker A: Yeah. So in general, and this is like, I will disclose first and foremost that I'm not a securities lawyer or a lawyer of any kind. And so I would say, consult true experts in the space of which there's many a security is something in which there's an issuer, whether it's the us government or a corporation t... |
Speaker C: I think we're doing a pretty good job at illustrating some of those hurdles that I was talking about, that real world assets have to get over dollars. Dollars have the same kind of hurdle, but this much lower, right? Like all of a sudden, when we talk about securities, the hurdles to get becoming a token on ... |
Speaker A: I would say yes, but I think at a high level that's completely correct. I think there's a much larger space to design products. That being said, going all the way back to stablecoins. The design space for stablecoins for dollar based stablecoins is also extremely large. There's obviously one format that so f... |
Speaker B: The comment of a dollar in a box and a dollar comes out as an ERC 20. Or David, the comment you're describing this of just cash in a bank, is what backs this thing. One thing I've learned recently is I've looked into what composes a tether, or what composes the USDC, is that there's actually very little cash... |
Speaker C: They're already treasuries. |
Speaker B: Yeah. And then Paulo's comment was, the whole thing is actually over collateralized as well, because they put some of their profits back into backing this thing, but also has 2.9% bitcoin. That back one unit of Us DC, there's 3.6% of precious metals, of gold, but the bulk of it is actually treasuries. Right.... |
Speaker A: Yeah. I mean, to my earlier point, mechanically, it's not that simple. Right. They could create a new mechanism, like a staking mechanism of some kind. It starts to transform what the asset is. But at some point, yes, they could respond based on competitive pressures to turning it into a even more bank like,... |
Speaker B: Yeah. In fact, Paulo actually made the comment. That's part of the reason this is, according to him, that USDC got in trouble is we could add too much cash reserves in some of the banks that were on shaky ground. Silicon Valley bank. What's the other one? You guys know the crypto, Silvergate. Uh, and. Right,... |
Speaker A: Yeah, it's a great question. So, at Superstate, our first live product is, as you mentioned, the superstate short duration government securities fund. It's a t bill fund, and the t bill fund is tokenized. The way it interacts with securities regulation is that the fund is only offered to qualified purchasers... |
Speaker B: It's not individuals. Even if they can be individuals at. |
Speaker A: This point, I don't believe there's any individuals. The client base is institutional in nature, but it could be individuals at some point. For us, it's an opportunity to test a lot of technology that we're building. At Superstate, our goal is to create tokenized products that have the advantages that everyo... |
Speaker C: One of the best things that I think stablecoins has shown the world is that simply when you put dollars on chain, they become more useful, evidenced by the fact that there's like 140 billion of them on chain. Like, why would they be on chain if they simply weren't more useful over there? And with such a pure... |
Speaker A: Yeah, I feel like, you guessed, slash articulated the strategy, you know, quite succinctly. That's how we see the world, is that we're going to start with the most adjacent asset to stablecoins, which we know work. It's going to be a little bit slow to start because the number of people that can hold the tok... |
Speaker B: Okay, I just want to understand how this works a little bit. You guessed rightly, I think many of the people listening to the bank list are more familiar with buying a token than they would be buying a mutual fund or something like this. So when I see the potential for some sort of tokenized asset to give me... |
Speaker A: Yeah, it's a great question. And the bitter reality is that really, right now there's very few options, especially for us listeners, that are appealing. The process fundamentally is to navigate the legal and regulatory world. It's not as much on the technology side. The technology of making a token is relati... |
Speaker B: Robert, what's a comparable product? If I have a fidelity account or Charles Schwab account, I can buy something, some sort of ETF or fund asset in the tradfi world that gives me the 5.3% fed fund rate. I can buy that right now. Would that be some form of a money market? |
Speaker A: Yeah, you could buy a money market mutual fund. You could buy a short term, yield bearing ETF. You could buy any one of these products. |
Speaker B: Why can I buy that without being a qualified purchaser? But I can't right now. Buy this when it's tokenized? |
Speaker A: Yeah, that's a great question. Those assets have all gone through the securities registration process. Basically, you file a prospectus and you get approval by the SEC to go live with those assets. It's pretty off the shelf. If you want to launch a new mutual fund or launch a new ETF, it's a very well worn p... |
Speaker B: Why can't we take one of those things that have gone through the registration process, an existing money market, and just they've done through it, they're filing everything, they've got the SEC approval. Just take that and we'll tokenize that. Why don't the traditional finance companies just go do that? |
Speaker A: Some of them are doing that. There are examples of tradfi issuers making a quasi tokenized product right now. Both Franklin Templeton and Wisdom Tree have basically launched tokenized products, but it's tokenized in air quotes in that you can't actually take the token and hold it in your Ethereum wallet. The... |
Speaker B: So the regulatory side of things is the thing that's really slowing us down here. |
Speaker C: Surprise. |
Speaker B: What do you think of attempts to do this outside of the US banking system apparatus? We had a founder a few months ago on talking about tokenized treasuries from mountain protocol, and there are many such projects like this that's happening outside of the US. Do you have any takes on those? |
Speaker A: Well, outside the US, there's an extremely receptive set of regulators that are encouraging of tokenization of financial products. It should come as no surprise that the US is probably without question the most hostile regulatory environment on earth. For the most part, for crypto, a lot of, specifically for... |
Speaker B: So you're, Robert, you're taking the Brian Armstrong long game here where it's basically like, hey, at some point the US is going to wake up and support their hometown boys, but right now they're just not, for whatever reason. Reason. But you're going to play that long game in order to see that to fruition. |
Speaker A: That's right. And I think us investors are wanting and deserving of the best technologically created products that exist. It's disappointing that we don't see more of a market in the US yet. But I think that's going to change. I think history is on the side of builders in the US. You know, builders in the US... |
Speaker C: I think it's very appropriate, Robert, that I'm pretty sure I'm seeing Manhattan out of that window in the back. Seems like the right place to take that. Take Robert, what's on your wish list? So after treasury, I'm sure, I mean, Robert, I know you own a few crypto punks. Like you want to think larger than j... |
Speaker A: Yeah, well, a few decades into the future, I mean, obviously there's going to be, you know, really okay, there's a lot that's going to exist in a couple of decades that doesn't exist now. One is that, you know, individual financial assets like stocks and bonds will be originally issued on a blockchain, where... |
Speaker C: To get there, won't we need actual legislation or regulation innovation? Because if we want to have a public company go public via an on chain token, doesn't that need, that's just a complete revamping of our regulatory structure, correct? |
Speaker A: Well, this isn't, I mean, there's no easy answer because no one really knows. You get different opinions. The current SEC would say no, most legislators would say yes. Most builders and founders would say, I have no idea. The whole thing is a landmine. Theres no objectively correct answer here. Unfortunately... |
Speaker C: Is that something you can do at Superstate? Is that on your long term view, long term plan? |
Speaker A: It is. I mean, very transparently, yes. We would like to offer funds way beyond just a t bill fund over time. Right. It would be great to offer all of the above. Anything that Vanguard can host, we can over time have a token for as well. Every asset should and will be on chain. So funds are all going to come... |
Speaker B: Robert, when we first met on bankless, and this was, I think you came on in one of the original bankless episodes, you were pioneering Defi. I consider you sort of a, you know, like a, for, like a founding father of the original Defi protocols with, with compound, this lending and borrowing protocol. And it'... |
Speaker C: First he went west and then he went back east. |
Speaker B: I see you as an impact ambassador. I see you as kind of an evangelist, and you are somebody who is needed, I would say, and kind of like to wear the suit and to speak tradfi, but also to speak Defi. And you like, know how both worlds work. And maybe this is the next era for Robert Leshner and this is the era... |
Speaker A: Well, the honest answer is, I think that we're at a good starting point. And I think amongst everybody, whether it's people working for very traditional institutions, whether it's legislators, whether it's regulators, I think people are starting to come around to accept the fact that all of this stuff doesn'... |
Speaker C: Robert, we're at the very beginning of 2024. We've got six years left in this decade. Give us a prediction for 2030. Uh, excluding stable coins. So stablecoin market cap does not count how much value will come on chain by the end of this decade. New value. |
Speaker A: You know, I've messed up this. These, like, macro predictions so many times. You know, I like to say that, you know, when I, you know, first started working on compound in 2017, you know, I believed that by 2022, five years in, most assets would be on chain. And one of the reasons why I was so excited about ... |
Speaker C: 5 trillion on chain. Nice. Hell, yeah. In our $2 trillion market cap economy. |
Speaker B: Let'S be 2 trillion by that time. David, don't curse less. |
Speaker A: No, I mean, by that time, I think just the existing crypto assets will probably be 510 something trillion. |
Speaker C: Amazing. |
Speaker B: Robert, thank you so much. Good to see you on this new project. First you were out pioneering the west, and now you're going back east and go get us that 300 trillion. Man. Be an ambassador. We appreciate you coming on bank list and telling us about the project. Tokenized treasuries and real world assets has... |
Speaker A: Thanks, Ryan. Thanks, david. |
Speaker B: Bankless nation will include some links in the show notes to some of the materials we were talking around. Superstate as well. Gotta let you know, of course, crypto is risky. You could lose what you put in. But we are headed west. This is the frontier. It's not for everyone. But we're glad you're with us on ... |
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