BNY Chief Innovation & Market Transformation Officer: Collateral Mobility Is Tokenization's First Real Use Case

Sy Taylor  0:10  
Welcome to Tokenized, the show focused on stablecoins and the institutional adoption of tokenized real-world assets. My name's Simon Taylor. I'm your host, head of market there at Tempo, and author at Brainfood.xyz, and I'm joined as always by Rand Goldstein, aka Goldie, aka the SVP of Payments and Network at Fireblocks. Goldie, how are you, my friend?

Ran Goldi  0:31  
I am amazing. Thank you for asking.

Sy Taylor  0:34  
Yes, you are.

Ran Goldi  0:35  
They they promoted recently to a chief payments officer. I don't know what to do with this because I got no extra pay. I'll ask Carolyn. She's been a chief for a long time in different places.

Sy Taylor  0:47  
Hey, we got to do it. But we are back for stablecoin stories, where we like to talk a little bit more about the stuff going on under the hood, the stories, the people that made stablecoins happen and that make tokenization happen. Because frankly, it's a big old transformation of everything in markets, and we have the perfect guest to really unpack this with. Joining us today is the fantastic Carolyn Weinberg, who is the Chief Innovation and Market Transformation Officer at BNY. How are you, Carolyn?

Carolyn Weinberg  1:16  
I'm doing great. How are you?

Sy Taylor  1:18  
I'm really good. Really excited to get into your background, but before we do that, I just need to remind viewers and listeners that views and opinions of our contributors today are their own and might not reflect those of companies they represent. And please don't take anything we say as tax, legal, or financial advice. And of course, a reminder that this series is made possible by Fireblocks and our friends at Visa.

Ran Goldi  1:40  
Amazing, and Carolyn, this is for us. This is a very exciting episode because you know it's it's not every day we get to talk to someone who's heading you know your title, market transformation is is already super interesting because you know BNY for those who don't know has been around for 242 years, right? Founded in 1784 by Alexander Hamilton. It's the world's largest bank in terms of you know assets under management. Has about 62 trillion dollars. It moves about 2.5 trillion dollars of payments a day, right? And has probably the largest liquidity pool of U.S. Treasuries. If someone is going to transform that. I wish them good luck. I hope you're very well paid. But tell us, let's break your title first. What does it mean?

Carolyn Weinberg  2:28  
So market transformation is about really reducing frictions in the market to enable faster and more programmable markets. Meaning, if I want to make a payment as a consumer or as an institution on a weekend, well, today that's pretty hard, and that's because the windows of operation close for banks. And at the same time, it would be really nice if I can make that payment, so I don't have to actually overfund my businesses around the world or whatever it might be. Similarly, when you think about financial markets, collateral moves during market hours. But that's a U.S. If it was U.S. collateral like Treasuries, that's U.S. market hours. But if I'm sitting in Asia, well, what about their morning or their evening and their daytime? That's not the same as ours. So when you start to think about it, when Europe starts the day. The U.S. market's not quite open yet. So, how do you think about 24/7? How do you think about this transformation of markets as worlds get more global and more connected? So, transformation is about enabling frictionless markets or reducing frictions from the simplicity of actually enabling the market to behave in a global way, just even from a time zone perspective,

Sy Taylor  3:42  
it's 24/7. It's like this big loaded term. We've seen Nasdaq make moves to 22 five, and we've seen London Stock Exchange Group look at 23 five, and you know the market itself is starting to transform to that in the traditional ways of books and records and record keeping, but then there's tokenization on this on this other side. So, how do you think about those like two types of transformation and BNY's role in both of those?

Carolyn Weinberg  4:12  
So, what's really cool is that right outside my office we have the original books and records of BNY. So, Alexander Hamilton wrote in these massive books, everyone's position, or maybe he didn't write it, but someone in the organization who wrote it could have been him. Beautiful handwriting and these massive pieces of paper.

Sy Taylor  4:29  
Isn't that wild?

Carolyn Weinberg  4:31  
I know it's amazing. You guys should come check it out. And actually, what's super cool is I didn't realize the word margin. By the way, comes from the fact that the margins of people's like from an investment perspective was on the side, and that's why when you have a piece of paper, it's called the margin because actually, it was the margin. I didn't realize that, but when you actually look at the books and records in these big pieces of paper, you realize clearly that's the margin. Like they're margining. Either which way, if we hadn't evolved, we would still be having very big pieces of paper and someone writing where we are. So the. Evolution of books and records and people's positioning had to go from handwritten on these beautiful books to actually something else, and books and records written in a way where you can actually access it more so than just turning the pages and changing it is really important. So as we evolve and we think about wow, wouldn't it be really nice not just to store and to save keep from a books and records perspective the asset or the position? How do we mobilize it, and how do you enable that? So books and records and tokenization go very closely together because tokenization enables that storage of that information to be accessible, to be able to be activated and moved, so storage for mobility is really that future state, as opposed to simply let's keep it in a book or let's store it in a computer that may not always be on. And it's as simple as that. It's no so complicated as how do we record so that we can actually mobilize.

Ran Goldi  6:01  
And you think about these things as BNY. And again, you know, I have to tell this really quick anecdote. We've been working on Fireblocks with with BNY for several years, and one of my first conversations with someone from BNY was about we wanted to launch. I think it was like a certain project together, and he told us, like, guys, I know that you're, you know, you're a startup, you're a fintech, or whatever you guys are, and you Fireblocks, you you want to run fast. He told me, B and Y, we run at our own pace. Now, you guys might think it's slow, but trust me, we've been here for 240 years. We know what we're doing. So obviously, I actually took that was a very humbling experience for me. Like, okay, you're right. Like, you do good. So when you do think about this, think about this new system about tokenization, about the new ledgering. Right, you have the true relic outside of your office and a new relic you can just log into with a block blockchain explorer. So, are those parallel systems? Would crypto stay a parallel system to the traditional finance, or do you think it becomes the foundation? Right, the next foundation, and maybe 100 years from now, someone will say, "Look, this is the original block that Carolyn wrote the first tokenization contract to."

Carolyn Weinberg  7:19  
So, the other thing right outside my office is our seat talk, actually, where you can see where trillions of dollars are settled every single day. So we make sure that around the world, all of the cleared when we clear and settle transactions, I buy something from you that has to take place, and then it's actually recorded. So the books and records get changed, money gets moved, securities are transferred. On a blockchain, that's amazing. That happens in a really wonderful way. Just in the treasury market alone, the amount of treasuries, so the debt of the U.S. government that clears or settles every day at BNY, is somewhere on average around 26 trillion dollars. So, and I can see tick, tick, tick, tick, tick. And if there's some something may not happen, we look at make sure we can solve that. No one really thinks about it. Nothing like what happens after the trade. We all think like what's exciting is price formation or this or that. Actually, trade happens, and there's a lot that happens underneath. No one ever talks about that because we B and Y are in the trust business, we're in the resilience business, and we make sure that the 26 trillion of treasuries clears every day, and no one talks about it, and that's really important. So when we think about transforming, of course we want to evolve. We're no longer in pieces of paper that sit outside, we're actually on these remarkable systems that actually are resilient, and they can settle remarkably 26 trillion plus. I mean, that's just on average. Therefore, the answer is actually going to be that our existing systems are resilient. We're going to continue to provide that trust in the market because our market is run on trust, and we provide that backbone of trust and resilience. And our systems work. At the same time, as we extend the hours and as we extend and evolve, we want to make sure that we're leveraging the greatest technologies and the combination of extending existing systems so that they can work longer hours. To your point on Nasdaq 22 five or whatever it might be, along with elements of blockchain and tokenization is really important. So for us, it's about both, but always with that concept of resilience and trust, and about thinking and moving forward while doing it in a controlled and managed way. So we're always evolving, but carefully.

Sy Taylor  9:43  
I think that existential risk of messing up 26 trillion of daily clearing is is kind of unheard of, and the fact that nobody worries about it is a is a real testament to the job being done well. Like if something's done really well, you shouldn't know it exists, and you should take it for granted. And that's kind of a real credit to the organization, but it's also an organization that lived through dematerialization in the 70s, where you know it took maybe a decade to shift from the default paper to default mainframes, and perhaps it could be another decade or several decades before we shift from default mainframes to default tokenization. But I'm curious about where the client demand comes into that picture, and where you're seeing those pockets of client demand, and what they're asking for today that you can serve with your existing technologies, and where tokenization might be a better answer.

Carolyn Weinberg  10:35  
So what we're finding is actually the combination of existing systems and tokenization that tends to solve client needs right now, but clients are very rarely coming to me and saying, "Ooh, can you please deliver me a tokenized this or that?" Actually, what they're saying is, "Gosh, I am a large financial institution, and I have an inter-affiliate funding challenge where, because of the closing of windows of time zones, I actually have to overfund my operations around the world. How is it possible to manage that? Can I reduce capital in the system if I can actually move capital more freely off hours? Because if you know the window is shut, you have to overfund because you may need it, or you have capital that can't be actually put to work because the market's closed, like a European morning, or you'd like to do a trade with Asia, but that takes longer because you've got Asia close time and then U.S. close time. So transacting a Japan JGB, their government bonds with a U.S. bond and actually just doing a transaction of transferring it may be much more friction-filled than if you actually use tokenization. So the fascinating thing is, very few clients are saying, "Please tokenize my treasuries" or "Please tokenize my JGBs." But what they're really saying is, it would be amazing if I can reduce settlement times, if I could have certainty of settlement, and if I could actually fund my affiliates more efficiently to reduce capital in the system, so that's what we're seeing, and the demands are actually exactly where we sit today. We are right now the largest collateral manager, obviously the largest treasury settler, the only treasury settler in some cases. As a result, we play this role where we need to evolve for our clients and transform the markets to help them do these things that they would like to do. And what's exciting is that when you look at the big problems in financial markets or where there's capital excess capital locked up or excess cash locked up, it comes from some of these very basic frictions. So we recently put out a paper where we talk about just the treasury market. And every day when the treasury market, in theory, closes and you're no longer supposed to move the market, move the treasuries, we have about 300 ish on average, or between 200 and 300 that haven't moved; that they're still pending settlement. That's a big number, but if the the window was wider or longer, you could just settle them. So capital is not small that is locked up because of some of these frictions.

Sy Taylor  13:10  
It's really not small capital, is it? And I think those frictions really add up when you're not when you're dealing with that kind of scale for those different client bases. I am so interested to dive into this a little bit more, but we just need to take a quick pause while we hear from our sponsors. And this podcast is, of course, sponsored by Fireblocks. Stablecoin operations usually mean a wallet from one vendor and on ramp from another, and then controls stitched together across all of them, Visa's stablecoin platform fixes this fundamentally. You can mint, move, and manage stablecoins across OpenUSD, and you remain your own custodian, all in one single environment. Then, stablecoin-linked cards let you spend balances anywhere Visa is accepted. That's Visa, the global leader in payments, and of course sponsor of this show. You can find out more at visa.com forward slash crypto. Tokenized is also sponsored by Fireblocks. Fireblocks is the stablecoin infrastructure of choice for global businesses, from Visa to WorldPay to Bridge to Revolut, with over $100 billion in monthly stablecoin volume, Fireblocks powers stablecoin strategies at scale with infrastructure that enables PSPs, fintechs, remitters, and banks to issue, move, hold, and manage stablecoins. It's all done securely at scale with secure built-in compliance with Fireblocks, you get complete control to build your own stablecoin orchestration layer, create payment accounts, manage liquidity, and access on and off ramps in over 60 currencies. Makes it easier for you to build and scale and expand your business globally. Learn more@fireblocks.com.

Ran Goldi  15:05  
I think that we're lucky that you joined our space. You know, we we sort of skipped a bit of your background because you you were obviously at BlackRock before this, but you were also at McKinsey and Morgan Stanley at Deutsche Bank and Citi. I hope I'm not skipping any banks that you've you've helped grow and and I think what what you bring to the space and again we're lucky to have you is actually a lot of credibility because you're one of the only people that I keep tabs on on the statement that people say and then what really happens and this is why I lose my hair constantly, but you you're in your job for about two years now, almost right. And you've made some very bold statements last year, right? When you guys released that white paper, in a way, that report, and you were talking about how BNY will do tokenized deposits. You're talking about how you'll do mint and burn on BNY custody. You were talking about how you're going to do the BSRXX stablecoin reserve funds, right? And I think all of those happened. There's more things I'm sure in the work, right? What I really want to before we get into more the nitty gritty, I just wonder how is it to mobilize BNY to do all these things because you know you're not a fintech. You are a bank that that probably 15 departments need to move. What type of alignment is needed to make this happen?

Carolyn Weinberg  16:33  
First, you need to have strategic vision, and you need to actually articulate a strategy of where we are going as an industry and where we are going as a firm and the role we play for our clients in that transition or in that strategy, and then you need to actually think through from an execution perspective: what are all of the things required? What are the capabilities we need to then deliver against building products? I differentiate between capabilities and products because when you have a vision, there are all sorts of things that you need that fit in that are not actually saleable things, or they're not actually no one really cares about them. But if we don't have those capabilities, like the ability to tokenize something or the ability to pay fees to print a transaction on Ethereum, well, that's like that's not very exciting on one hand, but if you don't have it, that's a problem. So, when you think about the strategic vision that we set forward of what the future state looks like and the role B and Y plays, and then all of the capabilities required, we set forth about 19 capabilities, and then the product that come from that. So, I'll take a step back. I really love Tolkien, and one of the really cool things about Tolkien and Lord of the Rings. So we often say like, you know, there's not one chain to rule them all. But in fairness, one of the cool things there was an exhibit at the Morgan Library that talked through how Tolkien came up with his the vision of Middle Earth, and he actually not only did the map of Middle Earth, which is of course in all of the Lord of the Rings series books, but he actually created the languages and the personalities, and the whole story was set. The vision of Middle Earth was set before the vision. The things were written, and this is no different from C.S. Lewis, and they were friends. They also talked about like Narnia. But if you think about that, and I'm not comparing sort of our financial system to Narnia or Middle Earth. At the same time, great writers or great thinkers have a map, and when you realize that, the question becomes: What is the map for the financial markets of the future, and what is the role B and Y plays in that, and how can we evolve for on behalf of our clients, the financial system, with the scale, the central position, and the trust that we have to drive that future state again with that resilience that we focus on and care about. And with that, you need to have this map, which is the strategic vision. You need to then say where you need the bridges, you need the languages, you need all of that thing that Tolkien had thought through. So we need our 19 capabilities. We need to make those work, and we need proof points along the way. And without tokenized deposits, it's very hard to make a payment. It's hard to actually transform markets. But in fairness, having tokenized deposits that are actually books and records on chain is different from a mirror token. And the reason why we did a mirror token first is because it's not very scary. It's like, don't worry, the world still looks like your deposit, and we have a mirror representation, so you can play with it and see what it looks like, and then you can have the actual books and records. And the reason why I say it that way is because there are capabilities and products, and then there's the ability to adopt and transform. So when we think about this evolution of financial markets, and again the role BNY plays, it's very much about setting that vision, setting forth all of those capabilities, building them, testing them, having the roadmap for scale, and then deploying them as versions of products. In a very thoughtful way, along with thought leadership, to help our clients and the market evolve along with us. So, you can have beautiful products that are not useful, that in theory would work, but actually will never work because you'll have no adoption.

Carolyn Weinberg  20:14  
So, the beauty and the real element of driving market transformation from the positions that we have and that we sit in with humility is that we have to learn and study how our clients behave, understand how financial markets work and how information and capital flows, and then enable that transformation through these capabilities and products, bringing our clients along. Now, when clients are coming along with us, it's much easier to drive a whole institution as well. So I have to say, like one of the reasons why we put this thought leadership out is not only for our clients, but also to mobilize the 47,000-ish people that we have here at BNY. And our responsibility is to really help everyone see that, just like actually we're all on this journey, if you will, with AI, and it's important for people to understand the importance of AI and how it can import, like, change their day-to-day behaviors, but also can transform markets as well. So it's a very similar concept. I have to say, when I first came to BNY, because I wanted to be really close where the assets were and everything, my whole career BNY was involved in everything. Whether or not I was at Citi doing derivatives, and of course, the SPV was you know at BNY or you know BNY was the cash agent or the trustee or whatever it was. BNY was always something, and or the custodian when I was you know when I was at other firms so it's sort of a facet BNY is always that infrastructure so if you need to move assets at speed you need to be where the infrastructure is but in fairness some people said oh you're going to BNY what's it like to be at a custodian bank and I was like well no we're not a custodian bank like we we are the largest custodian

Ran Goldi  21:59  
but we're way more,

Carolyn Weinberg  22:00  
far more than that. We're the largest in some of the most important elements of financial markets. It's just that many people don't think about all of the plumbing required to settle a trade. And what's super cool is that to mobilize the firm, you really need to think about what is the market again. That strategic positioning. What are we great at? This firm is really knowledgeable of all of those little pieces in the pie. All these little pieces for end to end. So I would say one of the cool things to think about in market transformation is that we can all think incrementally. Like, oh gosh, to go from A to B, I can do it faster or better, but to go from as I call like incremental innovation. But here at B and Y, we do a lot of the pieces. So then, how do we really think about inside of the firm? How do we really transform or think about what we have control over? But then, actually, when you start to do more and more of that and have some of the experiences that we have as management team, we start to realize actually there's a wholesale transformation taking place in the financial markets. It's not incremental. It's not a rewiring of B and Y, but it's a wholesale transformation of markets. And what role we have to bring and convene all of those players together is really significant. With again that central position and trust and resilience that we focus on, and therefore we have this amazing ability to to do that. So I would say it's not been as hard as you'd imagine to help mobilize, because there is deep pride and humility and expertise and a willingness to reimagine and really think. In fact, like over there is my my whiteboard. We covered it so that you guys don't see all the things.

Sy Taylor  23:41  
I love the idea that there would be a map of Middle Earth on there, and that that's some giant metaphor for market transformation. Look, you've been able to sort of build this infrastructure and foundation, and you obviously have to do that before you can do anything. There's a lot to reflect on in what you just said. That your sort of industry peers at J.P. Morgan talk about the difference between a tokenized deposit and a deposit token? I think it's worth reflecting on sort of what is the deposit and what is the mirror that's reflected on a public chain that sort of sits out there. But depending on where we go on both of those things, there's value in both. But certainly, it seems like you're making a start. You switched on tokenized deposits in January with Bailey Gifford, Circle, Citadel, Galaxy, Ripple, Investco, WisdomTree. Beyond this sort of switch on, what needs to happen now? Like, take me through just the very simple steps that we have to validate to get from tokenized cash being sort of pilots and small scale to every day for capital markets settlement. Like I think about you know what we do at Tempo is the cash leg chain. Like the cash leg is in it's the P and DVP. Like the cash generally moves somewhere. So how do we get from where we are to where we need to get to? What are those two or three most important steps we need to make?

Ran Goldi  25:00  
And please use the words Shire, Hobbit, Mordor, and Mount Doom.

Carolyn Weinberg  25:05  
Exactly. So what's important is that whenever we make payments, we don't all do it the same way, and any institution may use different methods, and that's an important thing. So tokenized deposits is one of the menu of many ways to move capital and make a payment. What's important is that you need a cash leg that is actually auditable. That's the books and records that actually exist, right? So the cash leg is the most important, or one of the most important elements of any transaction. But what's sort of funny to experience is that when you realize and you start to trace how money gets moved around. It's really about messaging. There's not like actually dollars flopping around as they like move around the world. It's messaging, and these messages have all sorts of elements to them. So when you think about this transformation, the question really becomes: Are messages the right way to move cash, or is it actually through a faster, better, cheaper way? Or there are some other ledger methods that there have been a whole host of initiatives underway to really think about other methods of using blockchain to simplify messaging and simplifying some of the complexity of moving money around the world. So I would say that you know blockchain overarching is a really interesting method to really map out how money moves, where are there improvements, and how do you do wholesale transformation?

Sy Taylor  26:27  
And I also think coming from Cybors last week, I was so interested in sort of a lot of the financial institutions talking about the difference between settlement and ISO messaging, and actually the settlement, the updating of the books and record via a token, like a tokenized deposit with the Swift ledger, or via what TCH is doing, or even via a stablecoin, should you wish to do it that way, is one piece of a bigger puzzle. I still need to know what this payment was for. Was it a securities transaction? What jurisdiction is it coming from? Who is the counterparty? There's a lot of information that lives in the ISO message that's still incredibly useful, even if I'm using a token for the actual settlement. And Fedwire still exists, and that's not tokens yet.

Carolyn Weinberg  27:08  
Yeah, that's totally right. So as a result, the question becomes less about like tokenized deposits per se, and more about how do you actually leverage the blockchain to enable that, but also make sure that you maintain these really important pieces of information that go alongside these payments, and the answer becomes really about that concept of like this wholesale transformation. Because when you really understand the system, and you realize how things work and why they work and who's doing what, you can start to actually decompose that, and that's what's really cool about the future of tokenized deposits is because that is one of many different ways that you can do it. And at the same time, to your point, as you're moving from one bank to another, tokenized deposits. How do you do that? You may need a TCH right now. TCH clears all of our checks. And by the way, people still write checks. A

Ran Goldi  28:00  
lot of businesses in the U.S. still write checks, unfortunately.

Carolyn Weinberg  28:03  
Still write checks, so we're thinking about you know quick, very fast movements of money around the world, and someone's you know taking a check and clearing it. So we we are still at adoption levels. At the same time, to be clear, I think that tokenized deposits and tokenized collateral more broadly, and I would say collateral includes treasuries and cash equivalents. The first real institutional use case is around the movement of collateral.

Ran Goldi  28:29  
I agree with you. I agree with you. But I want to ask you a question about that because, again, you hold already the reserves for a lot of big stablecoins, right? Like for USDC and RLUSD, USDO, and you're talking now about tokenized deposits, and we still don't have any interoperability. You were talking about a clearinghouse of sorts that would maybe help us do this, but with this new technology, do we need a clearinghouse per se, or maybe a bank like BNY could step in and play a role in this interoperability. Is that even possible?

Carolyn Weinberg  29:04  
Yeah. So we have a strong view that deposits or tokenized deposits can turn into a stablecoin and be sent to wherever they need to get sent. So that's why we've built the strong capability of stablecoin and burn enablement. So we enable our institutional clients who have, or any client of ours that has cash, to turn that cash into a stablecoin and store it here at BNY and send it out. There are going to be lots of ways to move money around in the future, and stablecoin is a core way that that's going to happen, and that it is a really nice way to create that interoperability. To your point, if I wanted to move money to another bank, I could, in theory, turn it from cash into a stablecoin and send it to the other bank. And in fairness to that point, the deposits or the treasuries of that stablecoin they do sit at BNY, which is really nice.

Ran Goldi  29:55  
And I say that's a point that not a lot of people, I think, appreciate. Like again. Most of these stablecoins that you all are using today, actually, the dollar actually sits at BNY, and you know earlier this year you had this settled basically a treasury trade right after hours, right? Fed wire after Fed wire is closed between Ripple and Dreyfus, right for for Open Eden, and and I think it begs the question, but maybe people don't understand this. It means that the reserve money that's sitting in B and Y also needs to be able to move 24/7, because otherwise those stable coins would be in a pickle, right? So, what does it take to make this 24/7 to make these trades happen?

Carolyn Weinberg  30:39  
In a very simplistic way, you can have stablecoin A and stablecoin B, and the reserves sitting at BNY. So in theory, you could imagine treasuries here and cash here. Theory, you could imagine there want someone wanted to go from this stablecoin to this stablecoin. There's a burn, there's a mint, and the cash moves from account A to account B. From internally, it's an account A to account B transfer. Now, in reality, it's a bit more tricky and complicated. When is legal finality? What's the price of the treasury off hours? Who determines that price? How is it validated? And making sure actually that the instruments are in a way that can be actually mobilized in that fashion. So, there are frameworks and controls that enable that, but we're super focused on it. And tokenized deposits is a nice way, actually, to enable that transfer, as are the ability to have treasuries that are 24/7, either traditional or tokenized. So the key is, if you're moving the treasury from one of the stablecoin providers to another, in theory, it's actually quite easy. On the on the other hand, there is a whole host of things that go with it, which is part of the reason why we are enabling the treasury market to be extended hours as well.

Sy Taylor  31:57  
Got it. So that you can have extended hours of pricing, so that you could know what the price is when it moves, etc., etc. So it's it's sort of always one step, then the other step, and then the other step, and you kind of meet on the way up, and you you de-risk it as you go because the demand for 24/7 is absolutely enormous, clearly, and and I think people have experienced it on the corporate end and on the consumer end with stablecoins. It's the illusion of 24/7. But then, once you reach a certain scale, you start to worry about issuer risk, and you start to worry about you know run on the issuer and their ability to redeem against all of those those treasuries and cash equivalents. And you want to know that that stablecoin is not moved against those underlying collateral too much. And sort of being able to give people that confidence is going to be really crucial.

Carolyn Weinberg  32:42  
So we spend a lot of time with our ecosystem partners on enabling that 24/7 trading and price formation of treasuries, and therefore then we can, with those prices, take the instructions and move them. What's also important is that because we clear so many of the treasuries, we actually have pricing of treasuries, actually closer to 22 by five inside the firm. Now we're not a price provider, so we work with others. But it's really important to understand all of the pieces that go with any of these components. Even if you're moving cash, what's a question becomes a little bit also on like, what time do you stop interest accrual or not? How does that work? But today, for example, we have book transfers are traditional accounts from a cash perspective, and we have real time payments. So, I just want to highlight that we at BNY are focused on the menu of opportunities for our clients, as opposed to singly like has to be tokenized deposits, has to be tokenized treasuries, or it has to be, you know, stable coin. It's actually how they all interoperate with each other, and we think of stable coins as very much treasuries in cash, and therefore they just go interoperable with each other. And the more you can make them interoperate with each other, and then enable the interoperable with the system, the easier it is actually to drive at institutional scale and adoption because they are substitutes with collateral in the traditional sense.

Ran Goldi  34:08  
And you're talking about scale, so look, I mean, we've been doing this. I would say like almost a decade that I've been trying to push people to use stable coins. Now, obviously, it's way easier because everyone wants to use them. But but you said again stablecoins, treasury, bonds, securities, funds. We're very lucky that we're not in the days of people were thinking about tokenizing wine bottles. But like from all these financial instruments, what really do you think will move on chain at scale, right? Like obviously we have stablecoins right now they're about I want to say you know more than $350 billion maybe I think that obviously we haven't reached out with treasuries and securities. What would reach a trillion fastest? I guess I

Carolyn Weinberg  34:55  
think the tokenized or the digital cash market is by far the largest. Most ripe for transformation. So I would say that tokenized deposits, real-time payment-related, whatever, tokenized treasuries, and money market funds actually, which are essentially a nav of one, a stable coin that happens to have yield, and stable coins, because actually all three of those become a stable coin, right? Because stable coins hold money market funds, treasuries, and cash. So I would say the that leg is the those three plus stable coin. So those four instruments together are going to be the most relevant. If you had to pick one, I would say either tokenized deposits or treasuries are more likely to hit a trillion first. Only because if I said to you, "Gosh, would you like to move your cash, your tokenized, your deposits that you have at BNY from account A to account B, or so that you can reduce having trapped cash in the system?" You know, if I if I can move it on a weekend, so you don't have to over fund on a Friday, would you like that? Most people would say yes. Similarly, if I said for from a collateral perspective, gosh, like when you do a trans a derivative transaction, I have to post to the clearinghouse because that transaction initial margin based upon the fact that there's weekends that don't have any movements. Gosh, would you like to have a 10 day of variance? Like assuming that over 10 days you're not able to move the money, or if I can move it, get rid of two weekends. Maybe I can make that half. Would you like your initial margin to be half? Something like this. Usually people would say sure, and they're not going to say like, how did you tokenize it? What was the chain? You know, did B and Y do it this way? The

Sy Taylor  36:38  
business case writes itself, and and ask Robin Hood about that as well. Who who experienced some stuff over a weekend with a very big margin call in 2021, which I'm sure you remember very very well. I'm so curious, Carolyn, to hear from you about where you think the role of public chains are. Because in your last answer, I sort of heard you alluding to the fact that all of the money in all of the world is in existing markets, so they have the benefit of scale. So if they've got a bit more tokenization, even if it's on a private internal ledger, they're going to hit a different scale because they are at a different scale. But what is the role of a public chain in that world where you know you're a design partner in the Swift ledger? There are many paths to the budder here, and not all of these things are adversarial, but what is the role of the public chain at the end of all of this? What is the role of that on-chain stuff versus the sort of arguably more incremental innovation that's happening in the financial services sector with tokenization?

Carolyn Weinberg  37:34  
So both need to play with each other, meaning private permissioned along with public chain. Super important to have multiple public chains that have performance. The interoperability capabilities that exist on a public chain are critical. So we are huge fans of public chains. We use them. We in fact have a digital transfer agent that uses public chain for sure for books and records. You need that. Like otherwise, how are you going to transfer to different parties? So there's so much that is required from a public chain. At the same time, it's not clear that there's one. We got like as a joke, as I was saying before, like not one chain to rule them all. There'll be lots of different methodologies to create interoperability in the system. You know, New York Stock Exchange, Nasdaq. You'd raise Nasdaq before London Stock Exchange. You'd raise them like we can trade every like all of them today. In theory, you can post transactions right at different exchanges. That's going to be similar on the blockchains. There'll be different blockchains for different things, and it works well today in traditional finance. It'll work well in the blockchain world, and all of this ultimately becomes interoperable Through technology,

Ran Goldi  38:42  
do you think that, by the way, that chain that maybe won't rule them all, but like be the chain for these financial assets we're talking about, from tokenized deposits to treasuries and stablecoins, was it already created and is it alive and is it cold tempo? No, I'm kidding. Or are we still learning, and we haven't seen it yet, and it will only come in like 510 years?

Carolyn Weinberg  39:09  
So I think it becomes about what ambitions we have for blockchain, and what are the real use cases that require or sort of demand that transformation. Meaning, why should I change my behavior? Why should I stop writing checks? Why should I start using the blockchain to make movements of cash or trading and so on and so forth? So, when you start to think about what are those incremental, from cash to funds to securities and the whole, you know, all of the payment elements that that you know Tempo is working through as well. Like there's so many amazing use cases. At the same time, some are easier than others to implement at scale. So when you think about what we do at BNY in terms of we talked about settling of 26 trillion of treasuries in a day, that's a big number. There is no chain today that could do that with finality. Will there be in the future? Possibly, and that will be great. But we're not going to use the blockchain for those things. Similarly, there's a lot of types of analyzes that are time series oriented. Time series and blockchain don't go as well together. That's that's very. It's hard to reconstruct a time series. So all the accruals of call it like a loan that changes over time with notional, that accrual accounting might be actually some kind of better option, some function that connects in. So as we start to decompose, what are the big activities that will happen, and how do these utilities almost or these functions connect into the chain 24/7? Then you'll start to see. But my view would be that the chains that win appreciate that they can't do everything.

Sy Taylor  40:54  
You cannot be all things to all people. You can be some of the things to some of the people some of the time. And and and I think that's so true. I think the first phase of blockchains definitely did try and be all things to all people, world computers and whatever else. And now there's a bit more of a commercial focus. I think across all of them, and trying to solve for privacy, and solve for speed, and solve for resilience in a way that an FMI and a and a regulated FI would demand and would need, but that can also recognize its limitations. Where hey, that should sit in the ISO message, and let's just plug into ISO messages. What a great idea! It turns out, you know, having worked in 20 years for financial services myself, there's some stuff that makes a lot of sense, and we probably shouldn't change, and we should just borrow. And then there's some stuff that we can materially make better. But it's, I think, the big message I'm getting from you, Carolyn, is where there's a client business case and where we can nail this to that, then it all starts to make a lot more sense and become a lot more concrete very, very quickly. So, zoom out and give me like a five-year view here across. I mean, a big part of your portfolio, no doubt, at the moment is AI, and we haven't got into that. We won't go down that rabbit hole too much, but sort of that plus all the things happening in digital assets tokenization, what changes in the infrastructure of how your clients and and how does that change how your clients will operate day to day? You know, there are going to be specific areas where the combination of those two is changing how your clients operate day to day. Do you think

Carolyn Weinberg  42:21  
each market is actually evolving slightly differently, but ultimately, when you think about the blockchain and AI combined together, you realize that you can accelerate the life cycle of an asset in a way that you couldn't before. So you're connecting the issuance to the settlement, to the financing, to the storage, to the mobility again and around and around, and that life cycle can be accelerated when you actually realize the connectivity between all of those pieces, and actually can move the asset and the cash alongside with it. So one of the sort of beautiful things of AI and digital assets is that it enables the concept of programmable and connected through blockchain gets accelerated with AI, with the reasoning and the understanding, and when you break down almost any financial instrument in a very simplistic way, it's ultimately terms and conditions and cash flows. So, one of the businesses that we're in is like in the trust business. So, what is the trust business? We take the pieces of paper of a bond or a loan, and we hold it in trust, and we then often do things with it. Now, those pieces of paper, everyone thinks that their loan is like unique and special, but actually, when you have AI, you can start extracting that information in a way that enables us to then help our clients make the payments that are required or transfer those asset the asset of the loan in the right way. But again, this is just this is our normal course business that we can combine AI and blockchain to enable to go faster, better, cheaper for our clients.

Ran Goldi  44:03  
I do want you to be careful because we don't want Anthropic to also come out with a blockchain. You know, they've they've been they've been killing every industry. We're safe for now.

Sy Taylor  44:15  
I don't know. Mark Benioff got there first. He he knows how to put somebody under their wing. I think BMY could have survived a lot of things. They'll survive that too. I think it's so interesting, though, that you've got this probabilistic, really capable intelligence, and then you've got this deterministic sort of settlement layer, which hasn't always been final. But I think the newer blockchains have a better understanding of finality, and there's, I think, a lot more legal clarity about legal finality now, and so if you have at worst a really good audit trail in a blockchain with some smart software around it, and then this probabilistic thing and the record, those two just feel at a high level really complementary. Caroline, well, there's one last question we ask all of our guests: 20 years from now, stay. Stablecoins are they just a story that people talked about, or are they still a fact of life and still a major part of market structure?

Carolyn Weinberg  45:07  
They're still a major part of market structure.

Sy Taylor  45:10  
That's a great place to leave it, Carolyn. Thank you so much for being on the show. Thanks everybody for watching and listening. If people want to find out more about you or the work BNY Mellon's doing, if they're in stablecoins or tokenization, how do how do they get hold of you?

Carolyn Weinberg  45:23  
So we have a website bny.com, and there are all sorts of ways people can find us on LinkedIn or looking for our papers. Actually, with the BNY Institute,

Sy Taylor  45:34  
phenomenal, Goldie. How about yourself?

Ran Goldi  45:36  
So I'm Ryan Goldie on X and Ryan Goldie on LinkedIn, and if you come look for me at the Shire, I'll be talking about settlement with checks over an entropic blockchain with Carolyn next week.

Sy Taylor  45:46  
The eye of Sauron will be upon you from Dario, I'm sure. Bad references aside, you'll find me at S Y Taylor on all of the socials, screaming into the void at Brain Food.xyz, and of course at Tempo.xyz, and you will find a lot more of this show if you are watching on YouTube and you hit like, you leave us a comment. If you're listening to the podcast, leave us a review, leave a comment. It really does help us, and we hope for this conversation you will share this show regularly. Carolyn, thank you very much for being on the show.