METACO TALKS EP. 33

Embedded Custody: The Shift from Digitization to Tokenization w/ Nitin GAUR

📅 Friday, 29th of July 2022 | 3PM CEST | 2PM GMT | 9AM EST 

🦸‍♂️ Hosted by Seamus Donoghue (Chief Growth Officer, METACO)

METACO TALKS
State Street

For this  METACO TALKS episode, we were joined by Nitin Gaur, Managing Director at State Street Digital, a division of State Street Bank focusing on digital assets and technologies including cryptocurrencies, central bank digital currency, blockchain, and tokenization. Nitin leads the digital asset and technology design, with aspirations to transition part of the company’s financial market infrastructure and its clients to the new digital economy.

In a previous role, Nitin, served as the founder and director of IBM Digital Asset Labs — committed to devising industry standards, use cases and working toward making blockchain for enterprise a reality. In parallel, Nitin also served as chief technology officer of IBM World Wire — a cross-border payment solution utilizing digital assets. Nitin also founded IBM Blockchain Labs and led the effort in establishing blockchain practice for the enterprise.

 

Topics covered

  1. The current state and pre-requisites to tokenization

  2. Overcoming the regulatory and compliance issues in the recent market events

  3. The current state of the market, its (un)structure and the history of the promise of crypto

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Full transcript

[00:00:00] Seamus: Welcome to the 33rd episode at METACO Talks. Today, we’re speaking with the one and only Nitin Gaur, Managing Director at State Street Digital, where he leads digital asset and technology design with aspirations transition part of the company’s financial market infrastructure, and its clients to the new digital economy. In his previous role, Nitin served as the Founder and Director of IBM Digital Asset Labs, committed to devising industry standards, use cases and working towards making blockchain for enterprise a reality. In parallel, Nitin has served as a CTO of IBM World Wire, a cross-border payment solution utilizing digital assets. Nitin also founded IBM Blockchain Labs, and led the effort in establishing blockchain practice with enterprise. An impressive resume. Nitin, welcome to METACO Talks.

 

[00:00:48] Nitin: Hey, Seamus. Thanks again for the invitation. Really glad to be here. Again, I’m humbled by the introduction. Thank you again for that.

 

[00:00:56] Seamus: Thank great having you. Why don’t we just dive right in? We touched a little bit on the background, but tell us about your background in digital assets at IBM and now State Street.

 

[00:01:05] Nitin: Absolutely. I think the last decade has been interesting. While founding the blockchain labs and digital asset labs, as you mentioned, I’ve strived to maintain a balance between market trends, the readiness for the enterprise, organizational aspirations and a sound product market fit. I think as you can understand, we’ve done a number of POCs. They have enormous amount of potential, but they don’t go anywhere, while the organizations may want to take a leap. I’ve tried to attempt to achieve that balance with one, a grander perspective, and balance that with enormous amount of research and technology acumen. At the end of the day, I’ve always said that technology is the product, product is the technology.

 

I will say this and I wear this as a badge of honor, that I’ve failed in some pursuits and succeeded in some. I think the learning has been immense in the past decade. We’ve built this business and industry, and I think we’ve come a long way since 2012, 2013, which is when I got into it. I’m still learning and the industry has a long way to go, which we’ll discuss some of it on this call. Also, I recently joined State Street, as you mentioned, and one of the objectives that I’m trying to do with leading the digital last asset and technology design is transition the part of our industry’s financial market infrastructure and our clients into new digital economy. We’ll discuss what that means in a few. Really glad to be here; I’d love to share some of that perspectives on this podcast.

 

[00:02:31] Seamus: Oh, absolutely. Before we get into that, that transition is super interesting going from one of the leading tech firms in the market. It’s been around for a hundred plus years, and you’re moving into another firm in a financial space that have been around a similar period. Given you a different perspective on the industry?

 

[00:02:46] Nitin: I do. I think it’s interesting because IBM, again tech heavyweight, 115 plus years in the industry, has seen the transformation of the existing financial system that we built. If you look at all the messaging systems, all the payment systems, all the mainframes, which is core banking and core accounting systems, that comes from our legacy, which is IBM’s legacy. What’s interesting is as we transform that, I see myself in the middle of the fact that I spent the large part of the first 15, 20 years with IBM in solving issues of digitization of those platforms, and now we are looking into tokenization of those platforms. You are sort of in the crossfires of that ecosystem, having being witness to say what problems we are solving, to suddenly now you throw a wrench to say we have blockchain coming in now. How do those two systems coexist, which I think has been super interesting.

 

That was my messaging to IBM when I was there, is that it’s our legacy and we got to preserve it from technology perspective. Coming into State Street to me is a breadth of fresh air in terms of the leadership division, but also a focus, a pragmatic focus on what the shift from digitization, tokenization and what does it mean for the industry. Because at the end of the day, we are a back office and middle office crossing function for the entire industry. I think there’s a massive opportunity, but it has to be sprinkled with pragmatism and grounded perspective, as I mentioned before.

 

[00:04:09] Seamus: I think that’d probably give you great insights on where do you think we are in that? You mentioned the path to digitization now swinging over to the path to tokenization. Are we there yet? What do you think the prerequisites are to get that in place, open banking, open API, et cetera?

 

[00:04:25] Nitin: I think that the industry has already been on the path. In the past, I would say seven to eight years we’ve been on this path of massive digitization to digitize the modern aging financial system. Again, the things that were spreadsheet driven, the rent to open banking, PSD 2, SCA, all these initiatives led to ensure that digitalization is smooth. There’s minimal disruption because at the end of the day, the idea was to bring the financial systems and move the asset and payment systems that has existed for quite some time, that as an IBM we help build, in traditional era and keep up with digital commerce and digital delivery of services. Again, dot com, the digital commerce and certainly mobile commerce. It has been a massive velocity, and expectations have changed from the industry.

 

The question that I often ask myself is, how does a financial institutions manage these two drastically different models in tandem? They have a challenge in saying, I need to modernize my existing complex system that I have and transform that with a disruptive twist. For one hand, the digitalization effort, which by the way, was still based on the traditional ledger based model where you still had the code banking system, and suddenly now we had to bring all these middleware systems and we had to bring all this verification of these mobile application as a front end of this. Certainly now with the advent of DLT and blockchain and tokenization, the token based model challenges and negates the current digitization efforts. The whole element is the fact that you’re suddenly flattening the processing and the ledgering infrastructure from a transaction processing perspective, which today is a batch relay system that go into how we design the system.

 

The question that I have asked myself is how do financial institutions manage the delicate balance in which the two worlds can coexist, and provide a seamless and singular experience, which is enormously hard? How does a financial institution manage the delicate balance and maintain that single experience? It is a complicated one. Adequate thought needs to be given to the operational structure that in my opinion, I think encompasses a complexity of existing structures, existing systems, encapsulate the growth within industry’s heading in through the digitalized ecosystem.

 

I will say this, Seamus, that I think it presents both a monumental operational challenge and a massive opportunity of landscape that allows an enterprise like ours to embark on this new business model. Again, simple things like the fact that things may take a day or two. For reconciliation, for example, things may take a day or two to resolve a problem, whether it’s a dispute, which in digital assents it’s eternity. Things can change a lot in two days. How do we deal with the elements of transaction finality and removing some of the element? That is to me, the path going forward and figuring out the coexistence and how do we maintain that without risking the existing system, because the world is running on those existing systems.

 

[00:07:35] Seamus: Well, it’s great context because I think we often talk about the market going through certain phases, how we’ve been through this FinTech. There’s been so much innovation in the digital asset space in the last dozen years, and it’s moved at a lightning space. Now we’ve obviously had a lot of events in the last few months. At the same time, we’ve seen the banks emerge in this space and it presents potentially a huge opportunity for incumbents for probably precisely the reasons you’re talking about, the sound approach.

 

You had a great article in Coin Telegraph, where you talk about the issues of digital asset market, the market infrastructure. You specifically touched on governance, internal controls, risk management principles, which seem to have been a little bit lacking in some of the headlines we’ve seen in the last few months. I would put that in context.

 

[00:08:22] Nitin: Yeah. It’s funny, Seamus, I’ve labeled that as the recent failures and ripple effect as contingent of incompetence, in this centralized entities with opaque, I might add, ill government projects claiming to write the decentralized and transparent market ethos of blockchain and DLT. It’s interesting. We have talked about this in my articles and in the entire crypto sphere, where the stable coin becomes a primary element of liquidity into the system. The impact of global macro and overall quantitative tightening that we have seen in the past, basically boils down to liquidity are lack of. Over-leveraged pools, circular trading that actually happen between the actors and that ecosystem had a domino effect on the connected parties. Which prompted me to look deeper into crypto market structure, or lack of it, essentially. In the spirit of any crisis, not going raised, I see this as opportunity to learn from failures and build upon successes.

 

While these projects are failing, innovation continues. I think if you look at some of the projects in the space in terms of decentralized exchanges and lending protocols, we’re sound and adhere to their protocols. They were not aware of the bankruptcy protection, let’s say what Celsius went through and any exogenous impact, which I thought was brilliant. If you recall, in the recent some of these projects were prioritizing paying down the protocol because they could unlock the assets that were locked into it, which to me that’s a hope. That’s a type of structure we can look into, which provides some element of not just efficiency, but also resiliency. I think just like our existing financial system that has evolved over time, like dot Frank and every regulation that’s come forth, has been a result of some crisis and some fault that we’ve seen in the system. I just hope that we focus on efficiency and resiliency, and not overregulated, because innovation and regulation can go hand in hand, but oftentimes we have to let that entity grow and fail. Exactly what we say about our teenage kids; we have to let them fail to learn from it. If I were to draw an analogy, I think the crypto industry is still in adolescent. I focus on market structure, which is an important part, because I think it’s up to the industry to find its market structure and not mimic the existing structure, because then all we have done is digitized it. We haven’t really disrupted that industry per se.

 

[00:10:53] Seamus: Maybe go a bit deeper on some of the comments you made about that market structure. You talked about how traditional finance markets only really work when there’s adequate supply and demand for capital and the information between participants. Do you want to unpack that a little bit?

 

[00:11:08] Nitin: That’s a great question. I’ve pondered and written about this. In fact, I’m spending more of my time as a technologist less on technology but more on the structures and how does money move. If you look at our existing modern financial market structure, essentially it’s a chain of interconnected market participants that does two fundamental things. You accumulate capital or you form capital, and then you’re finding investment resources. In between that you have liquidity, which is moving money for point A to point B. There’s a utilitarian element of capital in the system, which lets the economy grow, which lets project grow, which lets use of capital to harness talent, harness resources.

 

These market participants that have a specific function. for example, I work for State Street now, there’s an asset custody involvement, there’s central bookkeeping, there’s liquidity provisioning, there’s clearing and settlement and all these functions. Each of these functions imply that you have a structure or you have a relay of, I mentioned this earlier, batch relay system, which in includes some element of capital constraints, some elements of regulation, which these entities are not by design vertically integrated, which again, to avoid concentration risk, but also to avoid collusion and unilateral investment decisions which could harm the markets in general. Each of these participants have a function, and they maintain ledger, which boils down to the technology element. How do we maintain assets? How do we keep the record of what we have on the books?

 

When I say a batch related system, the transfer asset takes from ledger reconciliation and information transfer between this different entity. When I’m moving, let’s say a security, and waiting for payments, this is BVP between multiple entities, it’s a function of how information moves and how each of these entities reconcile. We have designed the system, I’ve been involved in designing the systems in the past; each participant has to balance the books or else they are penalized either by market forces or regulators that you have to have the right liquidity, which is where Vassal 3, Vassal 4 comes into play of what assets you have on hand, what risk you take. This balancing act creates at some level opacity of information as the information goes from those different market participants for a period of time. However short that may be, which leads to inefficiency in terms, in my opinion, of liquidity the enterprise must maintain to factor in the delay, which has all kinds of implication costs both in terms of opportunity, costs of capital, fees associated with it.

 

With digital assets, some of these issues are resolved. If you take digital assets, it’s near time settlement. It’s an ability for us to lock these assets into smart contracts and provide some governance around. It not only addresses efficiency in transaction processing, but also resilient financial market infrastructure with transparency that the foundational technology, which is DLT and blockchain, offer.

 

I want to unpack this whole structure to say, what does this structure mean? Because our existing market structure has evolved over time and we are digitally connected. But if we were to flatten the entire set of market participants to one single layer, it certainly implies disintermediation to a certain extent. But we also have to realize what the implication of near real time processing implies for things like liquidity, for things like recording of assets, and what can we benefit from it? I’ll pause here to see if that makes sense.

 

[00:14:32] Seamus: I think it makes perfect sense. Again, the question of unpacking, some of these questions when you do flatten that system, the issues of capital potentially are much reduced if you have instant transfer of assets, because a lot of this is about trust for two days or whatever the period is. The processes are about definition inefficient. It’d be great if you describe the problem that you think crypto is solving in this space, versus the premise and how that intersects very much what you described, how that intersects with the current state of the market.

 

[00:15:05] Nitin: Not to be the guy, I have to remind myself oftentimes most blockchain people are blockchain people with the hammer and everything is a nail that can be solved by blockchain. I don’t want to be that guy. But if you were to rethink our existing financial system and technology that powers it, and try to craft a system that is able to systematically address the complexity that has evolved over time, after all the current financial system has served us well. Yes, it has its lapse, it has its gaps, and it’s gone through its own share of upgrades. We’ve gone through a series of events in terms of how we modernize the payment systems, financial systems. The global financial systems are now more interconnected than ever. I think that the pace at which the digital economy is growing, it demands a different scale, which is where I think is that disconnect. The alternative system will challenge the inefficiency of the existing system with scale, speed, inefficiency, and in form of fees, cost and fraud, which is rampant, right? You can have all the measures around it, but the fact is that the digital infrastructure that is designed was really designed for a moment of information. We have used that moment of information to update our ledgers, essentially what the batch relay system was. I think we had to think about this differently, because if we did what we did we’ll always get what we got. All the stuff that we’re doing is Band-Aid around the system. At some point, as the populations around the world, 8 billion plus people who are getting highly digitized, and want to partake in our financial systems and digital economy, we have to think about this a bit differently.

 

I think as a tokenization, it is essential not only for powering the next generation digital economy, but also paving the way for new business models, which is built upon instant economy. It is the ability for us to be able to fractionize asset. For that to happen, we have to build a trust network, which allows for example a farmer in Uganda, or a middle class in India, to participate in the same economic system that me and you in the Western world have access to. The only way to achieve that is to have single set of rules. If you look at the thesis and the vision of Bitcoin and Ethereum, projects that came about, it’s financial inclusion and egalitarian systems. But today, if you have Ether, no matter where you’re in the world, you can participate with the same rules, as long as you have access to the network and you have connectivity. The same rules, same markets, nothing changes no matter if you’re in Vietnam, India, or United States. That is a profound function.

 

But for that to happen in the world that we live in, which is regulated and ensuring that we are adhering to regulatory elements, all the things that we deal with, it’s ensuring that we have the travel rules and we have some of the elements of ensuring that there’s no nefarious happening in this ecosystem. I think it’s widely accepted now after almost 13, 14 years, that blockchain technology lays the foundation of a trusted digital transaction network. As a disintermediated platform, it fuels the growth of marketplaces. Blockchain is not just a transaction system, it also enables co-creation with different participants in the network. Certainly now you can join a network, and yes, it could be permissioned network that you can do all the due diligence and you can participate with the rules of engagement defined by the network. But it also fuels the growth of secondary markets in many businesses that don’t exist today. It’s a value exchange mechanism that we are creating. Blockchain itself provides, at least in my opinion, the technology construct to facilitate exchange ownership and trust network. It’s the digitization of value elements, which is where asset optimization comes. That plays a vital role. For that you need few fundamental elements. You need to keep the asset safe, which is where custody comes into play. You need to take existing assets and tokenize them, which is where asset optimization projects come into play. You need a transaction layer, which is where blockchain come into play.

 

These are table stakes for any entity that wants to get into the space. Building upon that would be these various ecosystems that need to evolve. This is where we can coexist with existing financial system and eventually figure out a way to tokenize existing real world assets and move them onto this newer one asset class at a time, by not changing the market structure initially, but having the same players do their same function, which will flatten the curve, so to speak. I’ll pause here to see if that makes sense.

 

[00:19:24] Seamus: That’s great.  I think what you described is probably what motivated a lot of us to get into the blockchain space or the crypto space. Having a bank account on your mobile phone for anybody from, as you said, from the Bangladeshi farmer to someone in a developed country.

 

In that context, you’re talking about the flat and everything, enabling the trustless exchange, but at the same time you have trusted participants potentially delivering what they do currently. What do you see as the role of, let’s say a large custodian? State Street as a good example in that ecosystem.

 

[00:19:55] Nitin: I think there are two things. One is trust is a currency, and we have to respect it. Second thing is, if you look at the ecosystem today, and this is one of the reasons why I take pride in working for State Street, the vision around what we’re trying to build, you have this massive 470 plus trillion-dollar worth of existing asset classes. These are the traditional asset classes that still exist and trapped in various ledgers around the world. I think there’s a massive herculean effort that the industry could partake, whether let’s say we tokenize commodities, we tokenize ETFs, corporate bonds. There’s a whole effort that we can do to modernize the financial system, while the crypto industry is still evolving and it’s finding its path and finding its economic system.

 

I see them as parallel paths, where the crypto industry is defining its ecosystem, its own market structures as it moves forward. Someone like a custodian, both in terms of technology is product, product is technology, is with technology first approach, understand those elements and build a common infrastructure that if we are embarking on a path where we are tokenizing real world assets, what is the infrastructure needed for that? What services can we provide in being the mid office and back office for the industry, which is such a critical function that powers the entire industry from the front? What can we do to provide some of those services, which will not only modernize, but change the way industry functions and have a truly global perspective? Which most global financial institutions like us do anyway. Of course, there are challenges both in terms of talent technology gaps and massive regulatory elements.

 

Taking the trust currency that we have is modernizing that, having a forward looking perspective, and focusing on what I call middle tier. I use the word middle tier because you have the far left, which is crypto, changing the world as we know it. It may be a fifth asset class, which we’ve been discussing this already, that it may have its own value structures. It may be completely revolutionized the way people consume both in terms of it as a currency, but also it as an asset class. I will not muddy the water more with bringing in MetaWares and NFT, which has its own stream that we can talk about.

 

Then you have business as usual, which is serving these new industries, which is the newer hedge funds, the newer market participants, the newer ETFs, which are relying upon this fifth asset class to provide the exposure through traditional offerings. This is again the Bitcoin ETFs and the futures and everything else, which provide not just the institutional investors, but the common folks who understand the space, who understand finance from what we know today.

 

Then you have the middle of the ground. You have far left, far right; traditional business, crypto. Middle, I think is a swim lane that is attractive, that we should commit our time. eventually the idea is that if we deal with this, not only are you creating the right modernized infrastructure, but you’re also building larger markets because now you have the ability enabling the various other market participants to fractionalize the asset and create larger market pools, create larger liquidity, and have some level of accountability and mobility of these assets globally with a regulated mindset, with a lens that ensures that we are following the regulation, both endpoints between the corridors that we operate in. I think that’s the path that we should look into, which will, I think, exponentially progress the industry. It may take a decade only because of the complexity and a lot of accountability and a lot of things that we have to change. But the vision is there. We just ensure that we have to execute and understand the technical imperatives to get to that stage, again within the confines of regulation, within the confines of ensuring we are doing the right things by the book.

 

[00:23:41] Seamus: You’re describing a very exciting future. It is more than just an efficiency process. It’s not just about technology to reduce costs. You’re unlocking potentially something much larger.  The way we’ve electrified, immobilized securities, created a much larger security market electrification, same thing. You see that clearly there’s another stage of explosive growth, potentially.

 

You touched a bit about the required infrastructure. Where is State Street in that journey? The infrastructure for the old world is not necessarily the same as this infrastructure in the new world. You’ve been deeply involved in infrastructure for IBM days, what is the environments in that space?

 

[00:24:19] Nitin: I’ve tried this in, in many of my pursuits in the past. One way is it’s a humongous industry, and there’s so many narratives that are going on and I have to simplify this. I went down the path of simplification of this to say, I characterize this industry by three I’s. One is the infrastructure, which is all the bare bonds we need; DLT for transaction platforms, whether we connect to one or create one for quasi open ecosystem or closed ecosystems. You need asset tokenization, which is inability for us to convert the existing asset classes in some form of fashion, whether it’s paper driven assets or dematerialized assets into tokenized assets. Then you need to safeguard these assets for custody purposes, which is digital asset custody. The everything are surrounding it, whether it’s audit functions, whether it’s market data functions, which is the traditional function that the industry has provided. You need all that as infrastructure, including hosting notes to connect to the crypto, which is the fifth asset class.

 

All that is part of the infrastructure. We need to have our perspective around the various technologies to safeguard these things, because crypto is such an integral part of the entire space. Things like HSMs, NBCs, what we need to do for keeping the keys safe. What do we need to do ensuring that we have the right processing infrastructure in meeting the SLAs for transaction processing perspective?

 

Then you have the instruments, which is an interesting part. I’ve always focused on this; that a token is a token is a token. But a token can represent a real estate asset or a token can represent a gold. A gold instrument token can represent a mortgage backed security, and the account continues with various different assets classes. How do we ensure that while we build the infrastructure, we have defined swim lanes to address these different instruments in a regulated and compliant manner? Because each have different regulatory focus, they have different reporting requirements, they have different characteristics of how these assets behave, who are the market participants for that asset.

 

That the focus that you bring in terms of, that is the business. That instrument brings that focus back into saying, how do we utilize the infrastructure that’s pertinent to that instrument, both in terms of regulatory and compliance, but also an operational framework needed to service that instrument?

 

And the third I is insights, which to me drives everything, which is data. How do we exploit the data, not just for business purposes, but to gain competitive advantage? Which is what exactly now the market data providers in the field, and we are partnering with some of them, are doing. It is not only providing market data for us to be able to make the decisions around risk and opportunities, but also you need enough data to drive insights in terms of the patterns that the industry is morphing towards. I think that becomes a challenge, because as you tokenize the asset, as the transaction patterns move towards a more real time model, again you’re not getting data from five different forces because the ledger is strapped. You’re suddenly going after a much more flat infrastructure. The veracity and velocity of data exponentially increases. What compute framework do we have, do we need to compute the data and apply the AI machine learning models to make sense of it?

 

These are, to me, opportunities and challenges from what I think any financial enterprise need to build. That’s the perspective I’m bringing to the industry, if that makes sense.

 

[00:27:41] Seamus: It makes total sense. It’s a great explanation of the complexity of, the full circle of technology needs to support this. You’ve also talked about State Streets, the trust it brings, because if you’re going to bridge the traditional assets in this new world, bridging that trust is a key element, which I think you’re very well positioned to do. Tokenization, you’ve talked about before the supply and demand of capital. It’s very much a chicken and egg tokenization. You need second liquid, secondary markets, quality issuers. Where do you start to bootstrap this?  Are there asset classes that are low hanging fruit? Are there particular ways to do that, that the tokenization becomes a reality?

 

[00:28:25] Nitin: Yeah. I find a lot of white space in the area as I’m learning and as I’m engaging in these areas. We had done this matrix analysis in terms of breaking down the entire capital market structure, finding different roles, different participants, different asset classes. The things that have process complexity become enormously hard to tokenize. We are not changing the market structure; we are going towards modernization of the market infrastructure. Two different things. If you don’t change the market structure, process complexity implies now you need to have the same processing for tokenized assets, as well as the digitalized assets that we discussed, the differentiation between two. I think that areas like private markets and cap reformation are right. One, it’s a lot of white space. Now that if I want to open a company, I want to have key offerings and I don’t want to go through the expensive IPO process, I can go into any of these areas to issue my securities and my cap table, with the transfer agent, go to an ATS. This is the smaller markets. I think some of those are ripe for the industry. As I evaluate and look at this, private markets are growing exponentially, much faster than in many cases the traditional securities and equities world that we operate in. But also I think it’s forex for my last research and count. I think those are ripe areas for us to engage in. it has a fairly fluid structure in terms of who the players are and you have new players coming in leaving.

 

But I think in many cases it’s right because every time you have a cap formation, you have new entities coming. As the industry goes towards creating new entrepreneurs, creating new ideas, creating new products, there’s a constant flow of entities coming in for cap reformation requirements. I think some of those are ripe. I think payments is ripe. In many cases, cross border movement of money has always been a challenge. I can tell you this, that there are thousands of companies. You can drop a stone in a pot, there’ll be a payment company trying to solve that problem for you in the entire spectrum of payment.

 

Some of these are quite ripe, that’s why I think the emergence of stablecoin for payments, many companies trying to address the cap reformation area have emerged because they seem to be the fact that we can address that problem. Eventually, as everything else, success breeds success. You have successful markets, next thing you know, you begin to replicate those. I think that’s when exactly what had happened with internet; it took almost 8 or 10 years for it to evolve. Next thing you know, we were buying tickets, we were going to airlines. Because you closed the information gap. We had the protocols to ensure you have some semblance of security, which I think now we know that is not the case, but back in the day it was; that you could do banking, you could do all these different areas. We need to shift that mindset from an information based protocols to an asset based protocol that DLT brings forward.

 

[00:31:23] Seamus: That’s very good. One last question, because we’re almost running out of time. You’ve talked about not changing structure, but modernizing infrastructure. How do you look at the impact of DeFi? Do you see a role for things like embedded custody there? Is that a new structure or is that just again a changing infrastructure?

 

[00:31:44] Nitin: That’s a super interesting question, Seamus. I’ve been thinking about this a lot. My thinking, and this is the worldview of Nitin, I should I should clarify this is my opinion and not of my employer, my vision is eventually if you tokenize all the asset classes, the ability for me to take my ETF, collateralize on a lending protocol, borrow stablecoin or borrow Bitcoins, I think is where we would find the true bridging of the existing world and the new world, and that becomes super interesting. DeFi by design are meant to change market structures. DeFi by design are meant to be open. Decentralized financing also has in my last count six categories, you have AMMS, automate market makers, you have liquid providers, you have lending pools. You have different categories, which to me is forming its own market. You can borrow from one pool, you can lend from another pool, you can get a stablecoin. You can do all kinds of interesting things in that space.

 

The democratization of DeFi is also implied. Because if you have an Ether, no matter where you’re in the world you can go to these pools and collateralize these assets, and borrow against these, and all the financial primitives that go with traditional asset classes already exist.

 

The way I’m viewing this is that DeFi protocols are interesting. That market structure is evolving, and that market structure sits on the DLT infrastructure. That has to spend some more time in terms of digital identity, that needs to be addressed. Security protocols need to be addressed, privacy protection needs to be addressed. You still need to have those layers for them to truly flourish and become part of mainstream. I think a lot of protocols, a lot of projects, are working on that front. To me, that’s really exciting. I wish that 10 years from now when me and you are sipping a beer or having this follow up in METACO Talks 3033, I think we should be able to have this conversation. Hey, I took my ETF and I was able to collateral this on, let’s say an AVO protocol, and borrow against it. I think it’ll be a fantastic story.

 

[00:33:43] Seamus: There’s a lot of exciting experimentation in the bank. Hopefully that’s before the episode 3000. But we’ll have you on before that, I’m sure. Nitin, it’s been super to have you here. A lot of really exciting insights, thanks for your time. We will have you on again.

 

[00:34:02] Nitin: Thanks for the invitation.

 

[00:34:05] Seamus: To everybody, thanks for joining us. We hope you enjoyed the episode. Until next time, don’t forget, we’ll upload the recording and script to today’s episode at www.metaco.com/talks, and also available on all your favorite podcast channels.

 

Thanks again. Great weekend everybody.

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