Shifting Financial Rails into Web3: from Australia to the RoW
Recording and transcript from live event live event on 8th of June 2023 | 08.00 CET | 16.00 AEST. For this episode of Metaco Talks, we went Down Under, to Australia, as we were joined by Lisa Wade, CEO at DigitalX, a publicly-listed blockchain financial company innovating at the frontiers of Web3, providing digital asset funds management services for institutional investors and development of blockchain enabled products for capital markets applications.
– Real-world assets tokenized funds: the why and how
– Digital asset fund management services: Crypto-native vs. traditional institutions
– Learnings from big bank projects
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Lisa is the CEO of DigitalX. DigitalX is a publicly-listed blockchain financial company innovating at the frontiers of Web3.
Lisa brings nearly three decades of experience in the finance industry, managing international portfolios in both DeFi and TradFi assets. During her career Lisa has been a Director at Citigroup where she specialized in arbitrage and derivatives, Head of Digital Innovation and Sustainability at National Australia Bank and Head of Community Assets at Bendigo Bank among many other roles.
Seamus has extensive domain expertise in investment banking, wealth management, commodities and crypto markets that spans market structure, regulations and technology. He spent 20 years building and managing trading operations across all the global financial centres with JP Morgan, Deutsche Bank, Barclays and Bank of America Merrill Lynch.
*Disclaimer: The accuracy of this transcript is not guaranteed. This is not investment advice, and any opinions expressed here are the sole opinions of the individuals, not of the institutions they represent.
[00:00:09] Seamus: Welcome to the 38th episode of METACO Talks. For this episode we’re going down under, we’re in Australia, and we’re joined by Lisa Wade, CEO of DigitalX – a publicly listed blockchain financial company, innovating the frontiers of web3, providing digital asset funds management services for institutional investors, and development of blockchain enabled products for capital markets applications.
Lisa brings three decades of experience in the finance industry, managing international portfolios for both DeFi and Tradify assets. During her career, Lisa’s been director at Citigroup, where she specialized in arbitrage and dorus, and head of digital innovation and sustainability at NAB, National Australia Bank, among other roles. Lisa great to have you here, and welcome to METACO Talks.
[00:00:47] Lisa: Thanks for having me.
[00:00:50] Seamus: Great. Well, why don’t we just jump right into it? Given that very background, given you’ve covered Tradify and DeFi, what sparked your interest in digital assets? Where did the journey begin?
[00:01:11] Lisa: I think like all had friends, you can see my background was a bit of derivatives, trading. Back in the day, a few friends moved up to Byron and started trading Bitcoin. I didn’t really take it that seriously, to be honest. Then somewhere around 2011, we were building microgrid models with Bendigo Bank, and my passion for sustainable finance led me to building financial models around renewable energy. It was a fortuitous meeting with Macquarie Bank, MasterCard and American Express, where I made a flippant comment about Bitcoin not being very useful because there’s only 21 million Bitcoin ever going to be issued. The guy from Amex looked at me said, “You do realize that they’re infinitely divisible, don’t you?” Then I just had this epiphany about fractionalization and what that could do for community investment.
I skipped over Bendigo Bank on my CV, but I was there as head of community assets for some time. During that time we looked at how we could use these blockchain technologies to fractionalize, and let’s say democratize impact investing in community investment. I developed my passion there. Then I met National Australia Bank, and they were very interested in exploring different ideas around how to structure finance around those ideas.
There were a few moments inside of NAB which was the moments when I knew that that would be my whole career. One of them was working with a really great pioneering Australian company called Agri Digital. The head of trade finance wrote a paper on how to fund agri digital, and I had been inspired by the CEO Emma Western, and we’ve since become friends. Through the conversations I’d had with her, I read this trade finance paper and I said to the head of trade working capital, “I’m not really sure why you would fund agri digital this way, because they tokenized the agricultural commodity. Wouldn’t we do it this way? Please don’t get me fired.” He said, “I won’t get you fired. I really love the idea.”
Then about six weeks later I was walking home from work, and I just had this moment in time when I realized that that funding algorithm could sit against any tokenized asset. In my head I’d called it a digital security because it’s the funding algorithm that collateralize the asset, what we know a little bit today as DeFi. On the way home that day, I suddenly realized that I couldn’t think of any financial instrument or any commodity or anything that I couldn’t actually tokenize. From that moment, I have spent 24/7 working on financial models and use cases to bring this technology to life.
[00:03:56] Seamus: That’s a great journey. Definitely inspiring.
[00:03:59] Lisa: I missed out some of the tears, but.
[00:04:03] Seamus: Why don’t you tell us a bit then, what is the DigitalX and its work? How should we classify it? Is it a native company, are you a FinTech?
[00:04:11] Lisa: Absolutely. We are listed on the ASX. DigitalX is a company that truly inspired me when I learned about it. I couldn’t believe I hadn’t heard of it. We are one of the first companies in the world that are listed to mine Blockchain. We don’t mine blockchain anymore, that’s back in the day. We’re still one of the only, I think maybe the only Australian listed company to have Bitcoin on our balance sheet. DigitalX creates Web3 financial products and invests in Web3. We have a number of funds, we’re about to launch a new fund in my passion of asset reference tokens, or real world asset tokens as they’re probably more commonly known at the moment.
In the crypto funds, we invest in the thematic of crypto Web3 infrastructure rails and all of the associated themes. There’s a lot of AI in there, a lot of data plays, some really geeky things called ZedK rollups, which are the ability to keep data offline and then validate it on chain without giving away any of the data.
In the Bitcoin fund that we have, it’s really an access product for people who don’t have confidence to have their own wallets. We do all of the lifting for them. It’s really just to buy and hold of Bitcoin for people who want to own Bitcoin but really don’t want to have to worry about the wallets. We put the Bitcoin in cold storage; we have all the right insurances, we use an insured custodian. That’s an access product.
The new product we’ll be launching is an access product for investing in that algorithm that I spoke about, that sits around this funding efficiency for tokenizing assets. It’s a really efficient way of creating a shapeshift in the risk of investing in real world assets, by collateralizing the asset. That fund will invest in a diversified portfolio, effectively a mirror of real world assets that we tokenize and fund. I won’t get super geeky on that, but that’s a really exciting innovation, and we’re all very excited to launch that on the 30th of June.
[00:06:11] Seamus: That is exciting. What market segments are you serving? What type of investors and what are their objectives and needs when you go to market?
[00:06:19] Lisa: Right now we’re a wholesale investor. I think it’s pretty public that there’s a lot of tension in the market around regulation and you know how the industry regulates itself. In investment management business that we’re talking about today, we run off a wholesale license, so we run wholesale funds. That’s really until we have solid guardrails around the retail investment landscape. Traditionally that’s how different types of thematic funds have scaled over the years; is to start in wholesale and then move into retail. There’s more of a track record and more of an ability to get guidance on the regulation on how to run a retail fund with these thematics.
[00:07:08] Seamus: Can I step back for a second? You mentioned this new fund around this funding algorithm. Can you touch a bit about what the USPS of that are? Can you describe that at least high level?
[00:07:18] Lisa: Yeah, we nickname it ‘the playlist’. Basically we do use digital twins, however the real USP is the ability to ingest the data that forms the investment criteria. That allows us in an unlisted investment world to analyse that data much faster and use our unique algorithms to make portfolio selections. Within the IP that we create, we create what we call digital securities, which is the funding around the tokenized asset, and that allows for a different risk reward profile. Yes, there are risks around smart contracts and tokens, but there is this inherent shift in risk when you’re collateralizing an asset and funding over that collateralized asset. Really what we are is a validation firm. We validate that that asset exists, we validate that the payments from that asset are real, that they are made, then we fund around that different level of risk on a very high level.
[00:08:19] Seamus: Thank you, very interesting. The space is obviously pretty hot from the buy side, and we’ve heard announcements from BlackRock, Fidelity, and others announcing their move in digital asset space. How do you view that move, and will you remain differentiated in this space?
[00:08:37] Lisa: I’m really excited that they’re coming into the market. One of the things our fund can do is be a fund of funds, so we could work with other companies that are creating any type of digital asset. I see it as a super efficient channel, as well as a super efficient way of investing. I think we’ve got a long way to go before we truly are mainstream.
The fact that people like Fidelity, Templeton and BlackRock are joining the market is very encouraging to me. When I was inside of National Australia Bank there was already a big institutional take up in the work that’s been done in the space. Companies like DigitalX, we’re here to offer those investments in an accessible way to the people that we see as our market, which will be very different to the spaces that the Fidelitys Templetons and BlackRocks of the world play into.
[00:09:29] Seamus: Okay, good. You were driving a lot of innovation projects, as you mentioned, at NAB and other Australian banks. Were any of those blockchain digital asset related, crypto related?
[00:09:40] Lisa: Oh yeah. That was all I basically did, including the sustainability. I co-created with the Reserve Bank of Australia Consensus, Commonwealth Bank Perpetual, and also Project Atom, which was the first pilot of the Central Bank digital currency. I also was part of a project called Project Carbon, which was a carbon tokenization platform, which is now called Carbon Place. We worked on a big range of innovations from stablecoin to syndicated loans, which was the underlying of Project Atom.
This Project Atom was called Project Atom because if you settle an asset and the funding leg at the same time, we call that atomic settlement. That is the heart of what DigitalX will be doing, which is this atomic settlement, removing the risks in a settlement leg, but then also demystifying and giving more transparency around the financial structure of deals and the cash flows that are associated with them.
[00:10:47] Seamus: Are banks ready for atomic settlements?
[00:10:50] Lisa: Everybody’s experimenting and atomic settlement is happening in DeFi all day, every day, 24/7. It’s quite exciting when you watch what is happening in DeFi. We really are standing on the shoulders of giants, and it is quite awful to watch the SEC try and unpack and unravel some of the initiatives in the industry, because the innovation is just so amazing. Our banks as agile as that, no way. However, they are taking this seriously.
There’s so many parts to the journey in so many moments of realizations, but one of them, I wrote a paper for National Australia Bank around digital securities, which my definition of that is the funding algorithm that collateralize the digital asset or the token, when I did some research, because in a bank you get really pressed to where’s the background, what problem are you solving, what’s the burning platform? My boss used to say, what’s the burning platform? I’ll back you if you can tell me the burning platform. What it comes down to, I started doing the research and 86% of all exchanges around the world were already experimenting in this space. I know that we’ve had a bit of a bumpy ride in Australia with chess and that project, but there’s still exchanges like Deutsche Borse and Nasdaq who are really leading in this industry.
That was the clincher for me because what we’re creating and what we’re doing at DigitalX – and I don’t really know the specifics around what BlackRock will do – but this is the blurring of the lines between public and private markets. That’s why exchanges are taking it seriously.
Citigroup goes far as to call it a revolution in portfolio construction. I don’t what they’re doing specifically, but they’re also writing some great research reports about this space, and I wouldn’t be surprised if they did something big in the future.
[00:12:51] Seamus: It’s an exciting story. The banks should play a big role in this future, and you described writing research papers there. But given your experience there, what do you see as the big challenges for banks to productize and commercialize solutions in this space?
[00:13:05] Lisa: Innovating inside large organizations sounds like the dream job, but my hackles almost rise these days when you say the word innovation, because it’s not easy. You have to have a lot of resilience, you have to navigate large organizations. What we’re seeing right now is you have pockets of really passionate people inside these large organizations, who I absolutely respect. Probably all of us over the years have become friends. We’ve got a few little chats going on around the world.
Those people sometimes are called entrepreneurs, because you have to engage all the different levels internally. If I would create an analogy, it would be like a really nasty video game, because you get all the way up to one level and then you have to go all the way back down because you forgot to check a box with one person. For good reason, because the risks associated are very real and it has to be done properly.
Banks and financial institutions, I can joke about video games, but they’re regulated and they take risks seriously. As financial people, I often don’t present that way, but I’m a career portfolio manager, career trader. Risk is the first thing I look at in any transaction, and it’s absolutely the most important thing. I don’t think it’s our job to criticize how hard it is to innovate inside a financial institution. I think it’s our job to be grateful that this due diligence is happening, so that when things like the NAB stablecoin, the ANZ stablecoin, BNY Mellon moving into the wallet space, Standard Chartered moving into the wallet space – Carbon Place is 10 global banks all working together, that was like a miracle – when we start to see these projects come through, especially this SWIFT project that was announced yesterday and the evolution of that, you know that everything has been through the absolute ringer and you know that you can trust those systems.
That’s one of the things I’m most passionate about. I believe that trust is the currency of the future, and to make that real we absolutely have to be trustworthy. We have to create that trust and we need to create systems that are transparent, so people can actually do their own due diligence and make up their own minds about what they wanna trust and not trust.
The irony is that people would call blockchain trustless. I’ll just leave that one to everybody else. But I do believe that trust is the currency of the future, and that’s what all us financial institutions are building, standing on the shoulders of some very tall giants of some really great technologies.
[00:15:43] Seamus: You’ve nailed one of our key themes where we see there’s been so much innovation in the space. We have had a crisis of trust in the last year, year and a half, which happens in any industry where there’s big bubbles. But now there’s definitely a role to bring that trust, bring that regulated framework so people can engage here safely, with confidence.
[00:16:03] Lisa: I half joke around and I half don’t when I say that when there’s money involved, if you put three people in a room, you’ll have one person who’s really honest so they can’t see anything coming, you get one person who wants to rip everybody else off, and you’ll get another person who wants to leverage everything and then over-leverage it, and if they can get away with that, they’ll leverage it some more. That’s been the history of finance.
That’s what we’ve got here, is some remarkable technology, some really bright technologists, finance people, and then you always have that third element. Our industry needs to build safeguards. Regulation is really important. Because the more regulation, they’ll move on to the next thing, then we can get on with building the financial rails of the future.
A lot of what’s happened isn’t great. But someone said to me, and it was really interesting, the story I will tell is a commissioner from the CFTC spoke at Consensus 2023, and she said something very important. She said, “Everything is regulated because everything is a commodity. Any crypto and every crypto is a commodity. Don’t think you’re not regulated. You absolutely are regulated. The SEC then gets to decide what commodity is a security. Work out what the Howie test means for you and how they may interpret it, but you’re still regulated by us.”
Guess what? Co-mingling of assets. She just laughed and said, “You just don’t do it.” She shook her head and looked at the floor, “Just don’t do it. It’s just not done in finance. It doesn’t protect investors. It’s just the 101 escrow accounts for clients.”
Then fraud is fraud, and if you commit fraud you go to jail, and fraud is a crime. Fraud is not unique to crypto. Fraud is something that has been going on since the first person could write on paper.
[00:18:03] Seamus: It’s a nice way to put it, I 100% agree. I spent the week in Sydney here, we’ve met a lot of the banks, and there’s a lot of exciting projects. But I would say there’s also a lot of wide range of different projects. The banks are innovating on their own, how do you bring the banks together to innovate together? Because in the end, blockchain is a team sport. What do you think the first use cases the industry can come together on are?
[00:18:29] Lisa: Well, I’d use Carbon Place as a great example. I’d use the SWIFT project yesterday. I think JP Morgan have Iron, their collaboration.
But with Australian banks, if that’s what you’re specifically referring to, Carbon Place was successful because we had a global Strategic Innovation Alliance that was championed by the CEO. In my career, that was the first time I ever had a CEO endorsed project, by the way, because you have that backing and you have the support internally.
But the difficulty in Australia, and I can tell this story cause I’m no longer in banking, but we do try to collaborate more, Project Atom was ComBank and National Australia Bank, and ComBank was so easy to work with, they’re amazing. But then you get this dangerous ground that people have a different perception of what you’re doing working together, and it has to be absolutely all above board and documented. There’s antitrust considerations.
I was on a project that was to be a market collaboration, maybe or maybe not on a stablecoin, I’m not sure what I can and can’t say with NDAs and things like that. Let’s just take it as a hypothetical. When the lawyers read the disclaimer of the antitrust, they said if you mess up you can go to jail, and I said as a joke to everybody, “Are you prepared to go to jail for your career?” We all decided that we didn’t want to go to jail, but we’re prepared to take a bit of a chance to build something for Australia., i.e. a stable crime we all worked on. But it just becomes really time consuming and expensive, because you have to lawyer up with so many different layers of legal advice that it’s very difficult to collaborate.
I think that probably ASIC needs to play more of a role, and they do with the sandboxes and that’s wonderful. What I really think, and what I love, is ASIC is working in with the digital finance CRC. That is where I think all of us financial institutions will meet in the middle and collaborate together. I’m very honoured to be on the commercialization board for the DFCRC. Last Friday they had a showcase. That was wonderful, because everybody is collaborating. The Reserve Bank of Australia is sitting at the centre, ASIC is watching, Treasury is watching, everybody’s involved. The projects that were showcased, we did a little test with Canvas, which was amazing, on the EAUD. But all of the banks had great projects. If we can have the EAUD as a centrepiece, right now that’s really wonderful.
I think it’s okay to say because it’s my opinion, but ANZ had the best project, and I probably can’t say what it was. They had a number of projects. What it involved was engaging nearly each and every Australian, because their access point was something that was of service to Australian consumers, because it’s something that we all have, which I don’t want to go into their project. But then the possibility of that of wouldn’t even need to be ANZ, everybody could work together around the RBA of everybody having a wallet. That’s a game changer because we all need to be Web3 savvy. These are, without a doubt, the financial rails of the future. We need to build them. We are building them. One way or the other will all end up working together. I think that initiatives like the CRC will really hold us in good stead for the future.
[00:21:54] Seamus: That’s a great picture you’re painting. Given your global perspective, comments specifically on Australia, where’s Australia relative to other jurisdictions in terms of the engagement with regulators and the rules of the road?
[00:22:07] Lisa: I think there’s the chain analysis survey that put Australia outside of the top 20, and I’m sure we’re just inside of the top 40 globally of volumes in crypto and building of these Web3 financial rails. I guess I’m in a blind spot because I’m working where all the activity is happening.
It has always been a big challenge being in finance in Australia, because we are far away and tend to only see the world through our own lens. That’s why I do travel a little bit, because we’re a very proud Australian company running a global business.
America’s got its issues, but in the Middle East in particular with the VARA legislation and regulation, what’s happening in Europe with Mika, Hong Kong is starting to emerge, when I was at Consensus, Tokyo said they wanted to be the Asia Pacific hub. I’m really positive that that will filter into Australia.
I’m on also on the board of Blockchain Australia, and we play a very big role in making sure that Australia is communicating with the rest of the world and understanding. But what I will say is in my Citigroup days, we often innovated the financial products for Australia because we can be a microcosm of the broader financial markets.
It’s very hard for us to be in the top 10 because we’re not even in the top 10 for the Miscue World Index last time I checked. I could be wrong on that, apologies if I am. It’s been a while since I was an equities trader. But the thing is that we can innovate down here, and we are a great microcosm to test and iterate and create proof of concepts and minimal viable products, and really then take what we create here out to the world. I guess that’s DigitalX’s aspiration, to just stick to one and really do what we’re doing really well, to build it in Australia and then take it out into the world.
[00:24:09] Seamus: Thanks. That’s a very good explanation. We mentioned earlier there’s been some malfeasance that Fem was talking about the CFTC when you’re in consensus. That’s tainted the industry to a degree. How does DigitalX differentiate itself, separate itself from this? We talked about trust, how do you build trust with your clients and ecosystem with this backdrop of the last year and a half?
[00:24:34] Lisa: It’s really about doing the work for us. Inside of our funds business, we do intense due diligence. We are research first, we are risk first. We build models. We analyse each and every holding that we have. The way I would describe our team is a safe pair of hands, where we don’t invest in anything unless we’ve done the due diligence. That is the only way to differentiate ourselves. We just don’t make blankets sweeping investments. We’re risk first, and we analyse the risk.
We have a process we call the Universal Scoring Matrix, where we take all traditional finance risk metrics, adapt them for crypto. Not all crypto is created equal. Even our real-world assets we use the same process across an entire Universal Scoring Matrix. Nothing gets in any portfolio unless it passes all our risk reward requirements. We have what are called red flags, which are certain hot button issues or things that happen that we will not touch with a 10-foot pole, which has served us quite well.
I don’t want to play that down and I don’t want to tarnish other people, but we didn’t own Luna, we didn’t own FTX, because we red flagged them. That’s really important. I’ll go back to co-mingling of assets is just a red flag no matter what. Whether it’s an equity, a real-world asset token or a crypto or a whatever exchange, no co-mingling, don’t do it.
[00:26:15] Seamus: Absolutely. What we’ve heard in the last while is even some of the largest funds in the market that did no due diligence got caught up in the hype. It’s good to hear you’ve got a solid grounding in how you approach the market. Any broad industry developments that excite you that are going on right now, either Australia or globally, we should be looking at?
[00:26:33] Lisa: I think I’m a bit of a geek. The highlights at the moment are all around regulation. Last night I got a very lovely email on a draft of some payments regulations, that there’ll be submissions and there’ll be a consultation period. But I thought that regulation was really positive in terms of stablecoins. I think Australia needs some stablecoin because that’s the backbone of facilitating the flow.
I found what I’ve read to be really positive, really robust, double oversight from APP and ASIC, which is what we need. AFSL license is attached, which is what we want. If we can see more of that, I think that’ll be really positive if we can see more of it globally.
I want to be a little bit contrarian on the US moves, because it’s perceived as being very negative for our industry. However, I do think in the long term and the long run, that finding a middle ground in the US and nurturing that industry and understanding what a security is and getting that certainty, we going through the pain now, but I think the pain will result in gain. There’s just this little other contrarian part of me that thinks, the world went on a few really big things like renewable energy without the US getting on board early. China was the early adopter of renewable energy. We had to fight in Australia, look at some of the early work of the Clean Energy Finance Corporation, and all of that work. There’s a little part of me that thinks, maybe it’ll just make the rest of the world fight harder. I’m encouraged by that. I might be a little bit more worried if China hadn’t shifted over the last couple of weeks. I think the Hong Kong and China movement, if I had to pick a top three, that would be it for this week.
But again, I put on my LinkedIn last night, that SWIT announcement was hailed as the most in innovative thing in Web3 so far. I would absolutely agree that that might be an understatement in the future, because that’s huge.
[00:28:53] Seamus: Definitely something to watch, that is a big player finally embracing the space, right?
[00:28:57] Lisa: It’s mind-blowing.
[00:29:01] Seamus: You had an interesting comment before, that the small size of Australia enables you to innovate and experiment for the broader global financial system. The financial system here has actually been pretty innovative, with banks moving to cloud, bank legislation is quite advanced, challenger bank ecosystems et cetera allowed to develop. Will Australia punch above its weight in the digital asset economy? Can it be a leader in this space as well?
[00:29:28] Lisa: I absolutely, wholeheartedly believe we can be a leader. I think there’s lots of great innovation happening. We really need to get in front of sentiment and create our own narrative and write our own stories. We’ve got a very great venture capital ecosystem in Australia. We’ve got great minds, we’ve got really good collaboration.
I do believe that we can, I wouldn’t even say punch above our weight, I’d just say lead and show the world how innovative we are and prove this intersectionality. Everyone likes to talk about AI, but crypto space has been using that for a long time as well. What we’re building is innovative.
From my point of view, Citigroup in 2018 hit the nail on the head. The Web3 financial rails create a financial revolution at the investment management level. In Australia we have such a large superannuation industry that we really do have a lot of ways that we can support that financial revolution and lead it.
[00:30:36] Seamus: That’s a great summary. Lisa, we’re coming up on time. I really appreciate you being here. Where can people see you or meet with you next?
[00:30:44] Lisa: Well, I’m always on LinkedIn, hanging around on the internet. I’ll be waiting for the Web3 version of that to emerge. We’re based in 50 Bridge Street. But I’ll be at blockchain week, I’m hosting a panel in Sydney on the Monday and Melbourne on the Friday. Just hit me up and I’ll be around. I always love having coffees with people and meeting people in the industry. Thank you very much for having me on.
[00:31:08] Seamus: Lisa, it’s been absolute pleasure. Thanks for being a guest in the show and for sharing your insights, particularly our first in Australia. Thanks for joining us.
[00:31:17] Lisa: Well, that is a great honour. Thank you very much.
[00:31:19] Seamus: A great milestone for us as well.
[00:31:21] Lisa: And you called us down under, what more can we ask for?
[00:31:25] Seamus: Thanks again. Everybody that joined, thanks for joining. We’ll announce when the recording’s available, as usual through the usual channel, through our website and through your favourite podcast channels in the meantime, Thanks for joining. Please follow us on LinkedIn and Twitter and I’ll see you next time. Thanks again.
[00:31:32] Lisa: Thanks very much.