Blockchain's Threat to Banking

Unknown Speaker  0:00  

Simon,

Sy Taylor  0:10  

welcome to tokenized. The show focused on stable coins and the institutional adoption of tokenized real world assets. My name is Simon Taylor. I'm your host, author of FinTech, brain food and at a market, over at tempo. And joining me, as always, is my colleague, my friend, sometimes my hero. Kai Sheffield, how the heck are you, sir?

Cuy Sheffield  0:29  

I'm fantastic. There's, there's a lot going on. It's exciting time. We've got great guests. Let's jump in.

Sy Taylor  0:34  

Let's jump right in. Making a debut. Is Prabhakar Reddy, the CEO and founder of open FX. How you doing? Proper cast? Doing very well. Lovely to be lovely to have you. You've got some news that we're going to talk about this week. We'll get to that in a second. But also making a debut is Thomas Cowan, who's the head of tokenization at galaxy. How you doing? Thomas? Doing well. Thanks for having me. Thanks for working hard to be here. We appreciate all the effort that went into dealing with firewalls and goodness knows what else. So before we jump in with the first news story, of course, I've got to remind everybody that views and opinions of our contributors today may be their own and might not reflect those of companies that represent and as always, please don't take anything we say is tax, legal or financial advice. Always do you on research and stay safe, folks? All right. First story, well, we covered this a little bit last week, but now that we have Prabhakar on open FX, did raise $94 million in a Series A and I love the story here, seeing queues outside Western Union branches in Dubai and digging into cross border supplement. Do you want to tell the story of your journey from Falcon X to seeing cues outside of Western Union?

Speaker 1  1:48  

Sure, context is everything here. So let me just lay that out. I actually grew up in Dubai. So 80s, 90s, grew up lower middle class, if anything, we were sending money. Why Western Union back home several times. So for decades, I saw lines and lines outside, you know, all of these western unions and remittance houses. And then I spent a decade in the Bay Area, and I came back to Dubai in 2022 and I was seeing the same thing. I was seeing lines and lines of people waiting outside, you know, all these remittance shops paying five to 7% sending money back home. Meanwhile, I was seeing parallelly on TechCrunch and everywhere else, that cross border payments is solved, and I was seeing about a billion to $2 billion of fringe capital, money raised across various FinTech companies who are claiming the same thing. I was like, there's a disconnect here, and what is the reality? So I started actually peeling various layers of the onion to understand who are the big companies. So I actually called up a friend who is now my Chief of Staff, who's working at Y Combinator there. Combinator then. So they give me a list of all the companies that are actually doing something in space and a legit so you made a list of what 4344 different companies I called all of them actually spend time with the founders, understanding exactly what they do. How do they do it? Realized that across every stack of the entire chain there's various different problems. So stable coins actually were being used by 2022 23 companies as just means to an end. They're saying, you know, we will move money from country to country B, but then you should go, for example, in Mexico to bitso, or in Philippines to coins.ph and offer end up stable coins there. The next level of companies are saying, we'll actually integrate with those exchanges and help you do it. So the problem we noticed, and the founders themselves were voicing it was, you know, up to $100,000 maybe up to a million dollars. It's very easy to get liquidity on these exchanges, but when we actually start hitting scale, when we actually go to $10 million in volume, $100 million in volume, there's not enough liquidity on these exchanges. So I realized, okay, this is not a stable coin problem. This is actually an FX problem. So actually started peeling various layers of that onion. I actually started spending time with the largest FinTech companies in the FX space. You know, currency, cloud, air wallets, neem tunes, trying to understand, okay, how do they work? Spend time with some of the founders of these companies. Spend time at their offices. Actually, I realized that most of these legacy FinTech companies are built as wrappers around JP, Morgan, Barclays, HSBC, some of the top nine banks in the world. They've just API fight some of that infrastructure, and they've done a fantastic job of basically bringing everybody onto the FinTech landscape. But fundamentally, what you realize is all of these nine banks, or image, most of the banks in the world, banks are in the business of holding money, not moving money. And so after 4pm money doesn't move. On weekends, money doesn't move. And, you know, national holidays, money doesn't move. So when you actually try to build infrastructure top of these banks, and you try to say, you know, you're going to create a real time infrastructure, it doesn't happen at all. So realized, okay, there's so much complexity in this. If you actually have to change everything about this, you have to build a company that's actually looking at everything ground up. And that's how open FX is born.

Cuy Sheffield  4:45  

It's an amazing story, and congrats on the raise it. It feels like there's so much discussion around the role of stable coins in cross border payments. And I love this realization, and I think the market is kind of getting there, that it's actually an FX. Story, and it's an FX problem, like the rails themselves work well enough. Now the bottleneck is, how can you actually convert between stable coins and local Fiat and do that at scale, at a good rate, with liquidity? And so it feels like our like rough framework for this is that the first era, it was just retail crypto exchanges that was the only way that you could sell a stable coin and get local currency. Now we're kind of in the second era, which are specialized payment FX companies that are built to be stable coin native, like yourselves. And then I think that the third era, which you know we're spending a bunch of time on, is like, how do you bring banks into the space themselves and, like, give them the infrastructure that they need, and help them adopt the role that they play in global FX markets right now, and be able to do it with stable coins. But as we know it, that takes a long time to do. It's most banks aren't ready for that, and so I think that there's a big opportunity in the second phase of kind of purpose built FX platforms that are stable coin native, that really understand the problem and have solutions built to solve

Speaker 1  6:01  

That's exactly right. Guy, we realized that after actually speaking to several of these banks, actually spent, I'm not going to name the bank, but one of the top 10 banks actually spent a few weeks at their offices, unpacking with their FX infrastructure team. How do they move money? What actually happens behind the scenes? Right? Realize that they're acting the business of netting out. They don't want to actually send money out as quickly as possible, because this covers incentives. Here, each bank actually makes money buy from the float that sits with them for as long as they can, right? So they actually add friction intentionally, saying, hey, how do we make sure that we actually have money for an extra day or an extra even six hours? Because they can actually net that out with some other float that's coming in. So again, if you actually try to create a world where money moves near instantly. It's not in the right incentive. So the banks that exist to actually get there,

Sy Taylor  6:45  

and I think people miss that so often, probably don't they that like I loved it. I actually punched the air when you said, banks don't move money. They hold on to it. And I deal with a lot of bankers who are very scared of stable coins, and they see them competing with deposits. And I see them as fundamentally different things, because stable coins are not deposits. Stable coins are money that moves. And so they're two distinct categories of financial asset, and the FX liquidity bottleneck that you talk about is especially important, I think, in the non g20 currencies, where that FX bottleneck really shows up. And so a lot of large organizations, like an airwallex or a wise will have a really good relationship with a JP Morgan the city, who do offer you 24/7 instant settlement between the bank themselves, because it's still a deposit to them. They're still collecting it. But once you try and go outside that, once you try and go open loop, then suddenly it gets a lot more different. Thomas, I'm interested in your reflections on open FX in particular. I know Galaxy's been in the space for a long time, deals with a lot of institutions and a lot of banking. What are your thoughts and reflections?

Speaker 2  7:55  

Yeah, I mean, I think, for starters, it's really exciting, and it's indicative of how far the market has come, right? We're no longer talking about solving problems relating to the technology. Now we're solving operational and distribution problems relating to stable coins. And it's exciting to see, not only for that set of problems when you solve for for Fiat, but here at galaxy, we look at stable coins as the first of the additional wave of tokenized assets that are is now really coming to fruition. And so from this perspective, it's just exciting to see the sets of problems we're solving, and how much money is now going towards solving those sets of problems and just fixing the ability to move money globally. It sounds simple, but on the back end, it is wildly complex.

Cuy Sheffield  8:36  

It's interesting to me that it feels like the story. It also speaks to like, who are the builders in the types of people who are now, like, at the forefront, pushing the space to the next level. And I feel like a year ago, two years ago, it was much more technologists and people who, like, really understood blockchains and stable coins and wallets and key management, and like they were kind of building that bare metal base layer infrastructure to just make stable coins work. And then now we're entering into this phase where it's more of like ex bankers and people who've run Treasury operations, people who know what netting is like, the number of people I've talked to in crypto that think netting is a bug and not a feature, and that, like, expect that, like, every flow is gonna actually move. And then you're like, Have you ever talked to anyone who's run a treasury that's moved like, billions of dollars? Like, netting is an amazing thing. Like, if you could do it, you should do it, but how do you do it with stable coins? And so I think that Venn Diagram of people who deeply understand, like, real Treasury sophistication and how to move money and do FX at scale with people who understand how to manage an on chain wallet and a smart contract. Like, it's a pretty small Venn diagram. And so I really encourage, like, we need more people who could speak both of those languages, and I think that's really what it's going to take to get to the next level. Woman space, that's right.

Sy Taylor  10:01  

And Prabhakar, I'm interested in your prognosis of like, where the efficiency really starts to scale right. Because I think now the efficiency in FX for stable coins is some corridors, some of the time, stable coins are objectively the better economic way of moving value. But for a lot of corridors, a lot of the time, they're objectively not if I have institutional scale, but if I'm an SMB, or I'm retail, I'm still getting my face ripped off. And there's some value there in getting around that. But talk to me about like, do you see this? You know the business you're in, and stable coins more broadly, one day, being more competitive in the G 10 currency space and solving more problems beyond it, or is this sort of a long tail market story?

Speaker 1  10:47  

Very good question. So let's talk about both G 10 and emerging countries. For G 10, the FX spreads are very efficient. But if you actually look at settlement times, and if you specifically talk about settlement times across borders, because in 2026 money within a country can actually in most countries. Outside of us can actually move 24/7 near instantly, because we are actually in the RTP 2.0 versioned in most of these geographies. So money can actually move within those countries. 24/7 when you actually have to cross borders, tax return, you actually have roadblocks, even for dollar pound, dollar, euro, because a lot of the banks actually do once a day settlement, or maybe twice a day settlement. If you go to JP Morgan and say, I want to settle once every 10 minutes, they're going to put you out. They actually do one settlement a day. That's it. You try to do twice, and you're blacklisted by that. So that's exactly the way infrastructure works. So yes, spreads are very low. There are probably 100 lines with the service, but not the average SMB, not the institution that actually is a FinTech that was backed by an axel or Sequoia, you know, five years ago. So that's not their target segment. So that's on the G Tai. Now you go to emerging countries and you have a whole plethora of problems. Let's start about the stock with the banks. First, most of the banks don't even have APIs. And also, in fact, for open effects to actually settle within 60 minutes, we realized we actually have to create RPA systems which mimic, you know, human beings, so that the banks don't actually boot us out. Because we can actually just throw people at this problem. You have to automate end to end everything, so that money actually moves in 60 minutes. Yeah, and lot of these banks actually have, still have portals. We have to go log in. They have to do face Via de gaition. We have to do OTP, and then

Sy Taylor  12:25  

you've reverse engineered plaid at the last mile in order to just make a payment

Speaker 1  12:30  

exactly because at the end of the day, you actually have to pay in those regions from those last mile banks. I can actually send from JP Morgan us to a bank in Philippines, and expect that will reach in real time. That's not going to happen because going to happen because you have no robust relationships between them. So actually have to move money across borders, you know, using stable coins, then off ramp back into dollars, dollars back into, say, PHP. And that PHP needs to be sent from that last mile bank to the local bank that you need to send. And all of that to happen programmatically. And every geography in every corridor in real time. It gets very complex, and that's basically what we built in the last two years.

Sy Taylor  13:05  

Love it, Thomas, you were about to jump in before I mentioned that to Prabhakar. Any other thoughts here? Yeah, of course.

Speaker 2  13:11  

I think one thing that I find fascinating here is we're seeing that some of these stable coins do have more liquidity, do have more utility, and are more widely available and are being used in different ways, and it kind of comes back to the question of, what is currency, right? Traditionally, we think of it as a unit of account, store value means a payment. But I think what we're going to see more and more is as the leading currencies, the G 10 currencies are more widely available and more liquid and even more transformative as as products. It's going to change the nature of how we view these and how we use them, and create the FX marketplace, and make it even, even more competitive. And I think we're going to end up in this world where, in some ways, because money will have more clear utility depending on how these tables are designed, it can actually change the way it's used. And I'm excited to see that kind of unfold over the next coming years, now that we're moving from the initial tech build to the adoption phase of this wave.

Sy Taylor  14:06  

Yeah, it's so fascinating to me that the money has more functionality than it used to. So right now, just getting to real time supplement is amazing. But like, what else could we start to do with it? So Prabhakar, what should we be looking forward to from open FX now your funding announcements out there, what are you focused on? What's the team focused on?

Speaker 1  14:27  

Yeah, fundamentally Look, before starting open FX, I had one lens of what should open FX do, which is, there's two ways to touch 8 billion lives, get 8 billion retail customers, or probably go after 1000 companies that actually touch 8 billion lives. So what Open Effects is trying to become a platform for other platforms to build up. You want to be the underlying AWS rails and an entire lifecycle of a payment, from collections to banking to effects to payouts, you've only been doing one thing, which is just FX. Now, you know what we're going to be doing is from the 15 currencies out of 150 that we're live in, we're going to expand about 50. By the end of this year, so more currencies getting added and actually go a little bit more tangential, so that we can actually go full stack for our customers, become modular enough that anybody can basically take any product offering of open effects and start either collections, banking effects or payouts and launch it to however they need to.

Sy Taylor  15:16  

That's really, really neat and complete unintentional rhyming there. But I like the prognosis for that, and I like solving the liquidity gap, and I like the idea that it all came from that personal experience. So Barbara cow, many congratulations. Again. I am going to take a quick pause here while we hear from some of our sponsors, and then move us to the next story. This episode, if it's not obvious, is brought to you by our friends at visa, a global leader in payments. Visa's tokenized assets platform vtap uses smart contracts and cryptography to help banks bring fiat currencies on chain. Vtap allows financial institutions to issue Fiat backed tokens, improving financial efficiency and enabling programmable finance. You can check out the links in this episode's description to express your interest in vtap. This episode is sponsored by stripe. Stable coins are the building block for borderless financial services, making money move around the world as easily as data. With stripe, you can use stable coins and crypto to reach untapped customers, reduce cross border fees and settle payments in minutes instead of days. Best of all, it works the same way other stripe products do by API or right inside the stripe dashboard, meaning you don't have to worry about the intricacies of which blockchain or what wallet to use, from Shopify to vercel, global businesses trust stripes, complete crypto solutions to unlock new markets and reach more customers. Borderless finance built on stripe. Learn more@stripe.com forward slash crypto. This episode is sponsored by mzero. Stable coins are becoming global financial infrastructure. It's time for that infrastructure to mature. If you're a brand, you should have your own stable coin set to the behavior of financial flows moving through your product. If you're an issuer, you want to be the stable coin partner for the most valuable brands. Mzero is the only platform where issuers and brands get together to build digital money products for the world, m zero. Make your own money. Get started on M zero.org. All right, the next story was actually Jamie Diamond's annual letter. I don't know about you, but I study this thing every single year. Jamie is the goat for a reason. CEO, of course, of JP Morgan, famously somebody who's been outspoken as being anti Bitcoin and anti crypto historically, but this letter said something quite different. And in addition to naming some large FinTech companies like Stripe and a few others as their primary competitors outside of the banks. He said a whole new set of competitors is emerging based on quote, Blockchain, which includes stable coins, smart contracts and other forms of tokenization. End quote. He had a quote, we need to roll out our own blockchain technology. End Quote, In the same week, several Argentinian banks have tested jpm coin, the jpm deposit token. Thomas, your thoughts on this story of the arc of Jamie Dimon and his thoughts on this space and is stable coins a real threat to him?

Speaker 2  18:35  

Yeah. I mean, I think this is kind of the we're at the crux of a lot of intersections here when it comes to the nature of stable coins and the movement and storage of value as we shift more and more asset classes on chain, stable coins are kind of the first inning of this broader wave. I think really what, what a lot of the banks are realizing more and more, is this technology. You can separate tokenization from Bitcoin, Ethereum, Solana, and just look at this as better, faster way to move in store value. It's just, at the end of the day, it's plumbing. And so I think he's seeing this competition, and in some ways it will be competitive. In other ways it will be, you know, if they embrace it, can be transformative to parts of their business, where they can actually cut a lot of the costs that they have on the back end and be able to offer new revenue opportunities to their clients and better products, all because this technology is just that much better. And one example, I think, through a lot of the time, we recently announced the structuring and placement of a tokenized clo and we saw with that that you can get instant settlement, you can get full transparency, you can get better secondary liquidity, you can get higher collateral mobility, all of these use cases that are challenged because of today's plumbing are all vastly improved, and it's not upending the system. It's simply upgrading it. And I think that level of competition is going to be something that JP Morgan and others will really, really think through as this technological wave happens.

Cuy Sheffield  19:55  

Yeah, I think Thomas is spot on here, and I've been having. A bunch of these discussions with banks lately around like, what do stable coins and blockchains mean from a competitive standpoint? Like, how should they view them? Where are they actually competing? And I think that there are really two ways to think about the competition. And the first, which is what I think most people in crypto start with is stable coins and blockchains can enable new products and functionality that some consumers and businesses want that banks aren't offering today. And I think that that's what we're seeing with self custodial wallets and stable coin Neo banks that are kind of embedded inside existing apps. They're scaling globally. They're providing dollar access all over the world, and so I think that's the most visible. And it's just very clear that there are companies building in this way that are gaining product market fit and traction and generating revenue. Now, I think the challenge with that is, when you talk to a lot of US banks, they don't really care that much, because many of them are like, yeah, that's not our business. We're not trying to serve customers in Argentina. So it's like, yeah, cool, but that's just that's not gonna hurt our core business here in the US. But then I think there's the second way, which is really, as Thomas said, thinking about this as plumbing, and saying blockchains and stable coins could change the cost structure of financial services entirely on the back end. And so even if the products look and feel identical to what exists right now. If you think about the cost of offering financial services like the three biggest costs, it's people. Banks employ a lot of people. It's manual processes. There are a lot of spreadsheets passed around inside banks, and legacy vendors and core ledgers aren't cheap. And so if you have this new form of plumbing that you have some set of banks that are leaning into and adopting that enable smart contracts, that are automating processes that are much, much cheaper than legacy vendors, that gives them a pretty big advantage. And so I think here it's less about banks competing with non bank, self custodial wallets. It's more about the banks that lean into this plumbing and adopt it are going to beat the banks that don't, because they're going to have a much better cost structure. And so I tell banks is like, you got to look at blockchains almost how you look at AI. It's like a new, disruptive technology that could radically change the cost structure of your business. And so it's like, if you aren't thinking seriously about that, your competitors are, and then they're gonna offer the same product at a lower cost. And like, that's gonna

Sy Taylor  22:29  

be hard to compete. And I think you don't necessarily have to own that infrastructure. Kai, like, you could own that infrastructure. And in some cases you should, right with AI, there's a whole bunch of companies now that are taking open source and open weight models and customizing them to a use case. So if I'm a bank, maybe I don't want to have my next foundation model for lending built by one of the frontier labs. I'd quite like to keep that as IP, and I'd quite like to build that on the open weight open source models. And we were speaking to Nvidia on the agentic commerce podcast about that just a couple of days ago on tokenized. And that's like a thing that you should do. And I think about JP Morgan, Connexus is like, sometimes the proprietary thing, where you own the infrastructure is the right model, but sometimes it's not. And just like AI and just like Cloud, there are going to be plenty of cases where you not owning it is also a really valid outcome, not owning the infrastructure. And just like banking today, like JP Morgan, is a competitor to partner of and customer of just about every big FinTech company, and vice versa, depending on which part of JP Morgan you speak to, they see the biggest FinTech companies as their best customer or biggest threat, and there are many different P and L's, once you've reached that certain scale and scope. So there's a bit of posturing going on here, and there's a bit of like waking up to, I always see when Jamie Diamond's woken up to a threat of something, that it's like it's arrived, and it's mature enough to be at that level, and that, to me, is a is a real signal to the market that the banks now take this seriously. But to Kai's point, the opportunities and the business cases, there's two levers. Are you going to launch new products, or are you going to take advantage of the technology? I think there's a third level, which is, and how are you going to partner with all of this ecosystem of new companies to generate new Win, win business outcomes? So your real, real mixed bag of opportunities. Prabhakar, you were about to jump in. Yeah, a

Speaker 1  24:32  

couple of things here. Let's talk about JP Morgan. First, as you said, JP Morgan moves roughly what $10 trillion a day to put things into numbers, right? Relatively, Stripe moves 2 trillion a year, and crypto, or stable coins overall move 2 trillion a month. Maybe so JP Morgan start a whole different class. So yes, it's threatening to them, but in the long run, right? They kind of, as you said, they compete with everyone. Also partner with everyone, but one. Importantly to what Kai was saying earlier, international banks actually are going to face the pressure more so than us. Banks, because the world is getting more volatile. The last few weeks have shown this to us again. To quantify things into numbers. Filipino peso, for example, got devalued by about 5% in the last week. So if it actually takes five days for you to reach and receive your money, and the money you actually sent out a million dollars, and you got 5% less, that institution actually is going to get hurt a lot more, and they're going to switch to alternate rails, like what open FX is providing, or any other bank that actually jumps onto the stablecoin bandwagon. So the pressure is a lot more intense on the longer tailcair regions than more so in the US?

Sy Taylor  25:41  

Yeah, I think that sort of there's a business case here, and there's going to be, once that price competition's in the market, then people are going to start making that choice. Thomas, are you seeing this as well up on the institutional end? I know JP Morgan has jpmd, but it also has the M o, n, y, the money market fund. It's been doing a lot around institutional settlement on Connexus, and sees that as a settlement rail. But you know, every time I speak to some of the big institutional capital markets players, they're thinking about stable coins for settlement, because outside of cut off times, can this give them 24/7 markets now are extremely dynamic with, you know, hyper liquid is very active on Sundays, and most of the US markets are closed when there are conflicts and geopolitical issues. So the demand for 24/7 is there? Stable coins can sort of produce it, and everybody's just trying to figure out how, more than if,

Speaker 2  26:39  

yeah, I think a lot of this additional demand and interest. You're right. It's very much starting overseas, because the pain point is so much clearer than many of the US banks, and we've seen that. We launched a stable coin called all unity with Deutsche Bank and flow traders to really demonstrate it's based in Europe. For that reason, because we saw that there's an opportunity to really push the Euro market and help it grow. And now, most recently, in December, we actually announced the issuance of US commercial paper on Solana with with JP Morgan on using Connexus and and that, to me, shows how far the banking system in the US has come. That a few years ago, we were talking about a public chain versus a private chain. And most people were still talking about private chains, and now that conversation is almost totally gone, and people are really shifting towards a public chain, with the additional white listing and permissions and controls to make sure you're adequately addressing KYC and AML protections, but still on a public chain, and in terms of the conversations that we're having because of Galaxy's DNA, having, you know, the DNA of Trad five with expertise of crypto, it means that we're inundated with more and more Trad five firms coming to us and saying, Look, we very much see this as completely separated from the price of Bitcoin, and we're now doubling down on this as an infrastructure play. And where do we begin? What does this timeline look like? And how do we start with maybe a tokenized money market fund to then go farther out the risk curve, launch a stable coin. Think about all these different use cases. So you know, it feels like we're in the second or third inning here, and now that we finally have increased regulatory clarity and technological maturity of the underlying blockchains, we're really excited to see this next wave of adoption across different parts of the financial ecosystem. We had

Sy Taylor  28:21  

Amy Oldenburg, the head of digital assets at Morgan Stanley, on the live show and on a podcast episode that released just this past Thursday. As you're listening to this and you're a great interview and really clear that a lot of financial institutions are meaningfully moving groups of 1020, 30 operational people towards this. And generally, when you sit in the room with financial institutions like that, you find that the people around the table are the heads of the various divisions and it and cyber security this. This is not sort of like the innovation team running off and doing something. This is like the real machinery of the organization taking it seriously. And I think that Kai that story's playing out in lots of different organizations, tokenization is here, and it's now at the point where people don't think it's going to go away with the next price drop. In fact, prices are kind of terrible at the moment. They're just dwindling along. And yet, tokenization has never been hotter.

Cuy Sheffield  29:20  

Yeah, I don't remember the last time that someone referenced the price of Bitcoin or any asset, like in a conversation, like they just, they just don't care. Like, it's, it doesn't really matter at all. And it felt like last bear market that was, like, the first thing it was, oh, bitcoins going down. This is just like the conversation was anchored around price. And I think it's so refreshing now that conversations are anchored around use cases. And even more so than just use cases, like detailed in the weeds, how do you actually execute this use case? Which is actually the hardest part, and I think that that's what it takes, is a group of the. Right people who often are, like, the most experienced people inside of a bank or one of these companies who know it in and out, that are sitting around the table trying to figure out, how do you blend these existing systems with these new systems? And, like, do it in the right way? And I think that is like the final stage before you get to real production launches. And we still just haven't really seen production launches at scale from many banks at all. And you know, jpm, Citi, they've kind of done some things, but most banks have still never touched a blockchain with any commercial value, and so just like, we have to anchor it out of like, I think you could count on one hand the number of banks that have touched a public blockchain, and so it's like there's so much distance to go between, like, where we are today, and banks

Sy Taylor  30:49  

actually blockchain to those live products that you can use consistently, like they touched a blockchain that one time with that one transaction. There's like, pretty much all of them have done that, but to the point you know, there's a lot of hard questions that the industry and the infrastructure providers are going to have to answer to be institutional grade. It's one thing to say, serve the crypto natives, but if you're a custodian and you don't have sort of role based access control and approval flows that are highly configurable, you're not going to get through the third party risk management of a G SIB. And the G sibs all have this just like long tail of incredibly hard things that you have to be able to do. And so it's going to be interesting to watch the the infrastructure companies kind of react to to that, sort of like, highest level, that high bar of serving this segment. It's going to be fascinating times. All right. Story number three, a company called Galaxy Thomas, you might have heard of them. Have tapped Broadridge for on chain, GL X, Y, shareholder boots in May. Galaxy had previously worked with super state to issue its stock on chain directly. And you're gonna use broad riches platform for the AGM and shareholder vote in May. So tell us more about this one fascinating story. Yeah, we're really

Speaker 2  32:09  

excited about this because I think I don't know about you all, but a year and a half ago, I would not have expected that equity tokenization would have taken off as quickly as it has, and so we were really excited to partner with our portfolio company, super state, in September of last year to tokenize our stock. And that's a direct tokenization. So there's no SPV here. And so the token that I have in my Phantom wallet on my phone is Galaxy class, a common stock, and that is kind of the books and records that super state is holding for the TA sees that directly. And so really, what we're working through here is how to leverage the tokenized version of the stock to demonstrate and add utility, given the fact that it's on chain. And so one of the first opportunities was given that we have a shareholder vote coming up as a public company in May. The question is, how do you leverage this tech to make the experience even better than than today's proxy experience, and so we work directly with with Broadridge to be able to improve that, and just to kind of bring you into the weeds of the structure of what it looks like really, what this means is it allows galaxy as the issuer to have a more direct relationship with our investors and have a much more transparent overview of who's holding our stock, and it's less dependent on the quarterly 13 F filings that traditional firms might be reliant on. And so for this vote, specifically, right before the vote, a snapshot is taken of kind of the holders of stock on chain. And then if you do hold tokenized stock, you're given a link, and that link you verify using some web three auth like Solana wallet adopter, and then you sign in via your private key. You vote using your wallet, and that is then stored both off chain in the traditional sense, through Broadridge, and then also on chain, on avalanche. Of course, this is private for obvious reasons, but what it does is it just significantly increases transparency and drastically cuts out a lot of the inefficiency that is happening today. So it's a long way of saying we see this as one of the additional steps in demonstrating what a tokenized equity really can do for the average investor and for the company itself.

Cuy Sheffield  34:21  

This is space that I'm I'm not super close to, but like from first principles, it just makes sense that companies should have better communication channels with every investor that holds that equity, and not just a handful of large fund managers. And so being able to one know who your investors are, like that would be great, which sounds like from my understanding most public companies, if you ask them, like, who's holding your stock, like they actually don't know, down to the end individual and the end retail investor they know, like the large funds, and then the participation with shareholder voting, which makes sense that like that should be. A more modern, easier way to participate. I don't know if I've personally ever participated in a shareholder vote. Like, I get letters in the mail sometimes, but like, I don't even really know what to do, and it's just like, I, anytime I get a letter, it just makes me upset that I'm like, why are you bailing this to me? Like, you find some other makes me angry. Yeah, it's like, I don't want a letter. I don't want to open a letter, I've got a stack of letters or something. I'm like, I don't want to do this. And so having a way that you can have a modern method of participation, shareholder voting. And then I also love the idea. I've always liked the idea of shareholder loyalty, of why can't you get additional products and services and benefits if you're a shareholder in a company, shouldn't you want your large shareholders to be able to get discounts and be your largest customers? And this overlap between like, I think it's great for consumers to be in a habit of own equity in the companies that you love and that you use every day. I think that's one of the best investment advice. Is just buy things that you use so that you like because if you like it, maybe other people like it, and then being able to have some benefit from that. So I know there have been experiments. I think AMC movie theaters did something where, if you're a shareholder, you got, like, a free movie ticket, but they've always been so hard to actually implement that, if you have modern infrastructure, Ledger's wallets, like, can you implement that better? And so I'm excited to see it just as a shareholder general, but it would be interesting how long it takes for this to play out. I think it

Speaker 2  36:25  

also really highlights the benefits of tokenization, where previously, the information associated with value and the value itself was separated. But of course, the beauty of tokenization is you're taking those two things and putting them together. And this is a perfect example of the additional information layer you can add to the value that is, in this case, the equity itself. I saw a couple

Sy Taylor  36:45  

of weeks ago that JP Morgan is moving away from the proxy voting companies. I think there's like two companies that manages voting by proxy on behalf of everybody, and so they're basically the two companies that vote on board remuneration and CEO remuneration and company policies and positions and a lot of this stuff that actually really matters to society, and holding boards to account is done by these two companies. So we forget that the power that we have as individual investors. But of course, our stocks that we hold in our brokerage account are actually held at the DTCC, we don't have, like, the physical piece of paper. We have a claim, an ownership claim, over that piece of paper. And so the DTCC is tokenizing that ownership claim to make it available. But it's quite different to what Galaxy's done with super state. And I think what figure's done it is the direct issuance. And again, very different, as you say, two SPVs that are ownership in a fund that owns the stock, though it might or might not do what you ask it to do. So there's there's different risk vectors there starting to emerge. But I wonder how many stocks are going to be issued, like galaxy and like figure, and how many are going to need to be backwardly compatible, like, I'd love to vote in the two stocks that are currently available as tokens, but there's also all of the other stocks in the universe. How do you see that evolving?

Speaker 2  38:10  

So that's the fun. Part of where we are in the adoption cycle is, frankly, no one structure has won yet, and all these different competitors throughout the space are kind of tinkering and thinking through we think it could be this structure or that. And so when I look at the market, I see three main categories. The first one is tokenization happening at the incumbent level, to your point earlier, through DTCC or NASDAQ or Nisi. The second is at the equity level, as we did directly with super state. And then the third is through the wrapper structure, as as you mentioned earlier, and all three of those have different use cases and different benefits for different investor classes, whether that be overseas or or someone who's very crypto native or a large institution. And so I think what we're going to see is, once we get regulatory clarity, that kind of helps give the rules of the road for what makes the most sense, and we see more material adoption and use. We'll see the market kind of coalesce around one structure, and it'll take off, similar to the growth of the BTCC, you know, in the second half of the 20th century, where, hey, it makes sense for us to have a centralized, agreed upon structure. But that's the fun. Part of the next year or so, or two years, is as people kind of battle it out and think through what makes the most sense for the different clients and intermediate intermediaries today that the entire system

Sy Taylor  39:24  

operates on. So you just made me think of an anecdote. I think we're in one of those phases where, when we're all retired, we'll see the young folks coming up and go, Oh well, we were there when all of this tokenization stuff was kind of telling war stories. But you know, like it really does feel like the last time this happened was the 1970s with dematerialization and the beginning of the DTCC. We're living through one of those moments, and nobody knows how it's going to play out. And that's that's an interesting time. Sorry, Thomas, I cut you off.

Speaker 2  39:52  

I was just going to say I completely agree. And I think the organizations and the people that will really see the most success here will be the. Ones that understand the incentives of the incumbents, the concerns and safety priorities of regulators, and then a deeper understanding of the technology and what it's capable of. And you put those three things together, and we're really going to see the success happen over over the next two or three years. But you're right. It's It's still early, and people are very much using this technology in different ways and and one parallel that I like to make is the first wave of this adoption was a little bit like when the iPhone first came out and they said it was, hey, this is a faster way to to make a call or or listen to music. And then when the App Store came out, we stopped talking about the tech and started talking about the use cases to your point earlier, Kai and that, I think, is where we are now, where people are just talking about the use of what this technology can do. So we're really excited to see kind of what happens in this next wave of adoption.

Sy Taylor  40:49  

It's going to be fascinating. Shira Prabhakar, any thoughts on the story?

Speaker 1  40:53  

Yeah, from a first principle lens, when I look at tokenized deposits in its maturity phase, I think what the impact it's going to have is very similar to what stable coins have done to the dollar. Sorry for bringing it back to stable coins, but you know what stable coins have done internationally is they've given international consumers access to the US dollar in a much more easy manner. So that has actually maximized the TAM of the dollar itself and has strengthened the US Dollar as a global reserve currency. Now bring that to equity markets, and what that does is it allows easy access for anyone internationally to the US equity market, which should indirectly amplify the dam of the US equity market, because now anybody can actually buy, hold and worry they want to the US equities, which is feasible today, but it's very complex, right? If I'm in India, if I'm in Philippines, we go through a lot of hoopla to basically just access US equity markets, but it becomes a lot easier with this. So I think that's gonna be the impact of it, and actually quite excited to see that future.

Sy Taylor  41:51  

It would be a great future indeed. All right, it was a bunch of stories we didn't have time to cover this week. I'm just gonna blast through some of them quite quickly. UBS, signum, post finance and several Swiss banks got together in a Swiss franc stablecoin sandbox. Course, Swiss market does have a few fintechs, but is much smaller and very different, and they have some interesting regulation around that. So don't write that one off. It could be interesting. Coinbase received their conditional OCC approval for a National Trust charter Q the Oprah meme. Japan is going to explore domestic inter bank settlement using stable coins. Again, don't discount Japan here. They seem to be getting their mojo back in lots of ways. Polygon is in talks to raise $100 million for a payments business. Everybody's pivoting from tokens to payments because they hired John Egan, who was at stripe, and they have a lot of potential to build something out there. And then chi nevermind have integrated with Visa's intelligent commerce. Do you want to just say a couple of lines about

Cuy Sheffield  42:53  

that one? Yeah, we're really excited to work with nevermind. And I think the general vision here is we want to make cards work in every surface area and format where genetic commerce is happening. And so we announced a few weeks ago the work we're doing together on MPP with the MPP card spec, we announced we're also joining the x4 two Foundation, and now we're working to make cards work with an x4 two. And so anytime you have an agent that wants to pay over one of these new protocols, we believe there's a huge opportunity to give that agent a card, and then we can enable stable coins on the back end. So I think that's gonna be more and more of a theme of cards and stable coins coming together, enabling some of these new agentic flows. I think people

Sy Taylor  43:33  

are starting to get that now, that stable coins are for settlement, cards are for authorization, and those are two fundamentally different functions, and we will be the curmudgeonial people in the corner saying that, until it's fully understood, I think I will listen. I want to thank everybody for watching and listening. This was just a killer show. I love the level of depth our guests get into and Thomas, if people do want to find out more about you and everything you're up to at galaxy, where do they go to

Speaker 2  43:59  

do that? Yeah, I think LinkedIn or Twitter is probably easiest.

Sy Taylor  44:02  

Prabhakara, how about you and open FX?

Speaker 1  44:05  

So openfx.com you can read everything about what's coming up for open FX. Personally, I'm on Prabhakar to ready on LinkedIn, as well as Twitter

Sy Taylor  44:13  

and Kai on exit

Cuy Sheffield  44:15  

Tai Sheffield and visa.com/crypto

Sy Taylor  44:17  

you'll find me at sy Tai will on all of the social screaming into the void, at FinTech, brain food.com, and, of course, at tempo dot XYZ, trying to make a better chain every day. Also, you'll find more of this show if you tell all of your friends to find it too. No, that doesn't make sense, you'll actually find more of this show if you subscribe to it. But you should also tell your friends to find it too. Hit those like buttons. Hit Subscribe buttons, leave us reviews, leave us comments. Every host tells you to do this because it really does help us and help us out a little bit today. Thank you so much, and we'll catch you next time.