Why Ignoring Regulated Finance Costs You Credit Markets First ft. Marcos Viriato | High Stakes Ep. 34

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There will be multiple stablecoins issued by banks and financial institutions in U.S.
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most of the banks will be the big ones, like the gold and those of the world.
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Even J.P.
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Morgan will start offering crypto trading capabilities, including custody, including prime brokerage.
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We will see the start for collateral mobility of some tokenized that's being used to cover margin to collateralized loans and so on.
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I think this is we will see in the coming 18 months.
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That's Marcos very Otto, CEO of paraffin, which processes over $1 billion a month for regulated banks.
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He believes the next 18 months will bring a major shift in how traditional financial institutions use digital assets.
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Big banks could begin issuing their own stablecoins, offering crypto trading and custody services and using tokenized assets as collateral.
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Collateral mobility could create a very powerful way of people to leverage on those collateral assets and to move the collateral freely in between institutions.
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Currently, if you have an account and you hold stocks in a certain broker dealer, ask then I want to move to the other one.
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Is that nightmare?
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It's impossible if those stocks are tokenized and both supported.
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You say, I want to get my assets from here.
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Just stand there and borrow money against it.
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In this episode, you will learn why tokenized assets could make moving collateral between financial institutions faster and easier, how investors may be able to borrow against those assets without transferring them through traditional systems, and how collateral mobility could transform lending, margin coverage and asset management.
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I am Alex Nuka and this is high stakes.
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Marcos, you and I share a very similar background, but I always think it's really useful to have the audience get a sense of your bona fides and sort of where your experience comes from.
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So maybe talk to the audience a little bit about your experience in traditional finance at BTG and how it led you to found paraffin.
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Yeah, well, I started my career at 25 years ago in finance, in a in a bank.
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Then I moved to a hedge fund, later, but, which ended up getting a position at BTG Pactual, which is the largest investment bank in Latin America.
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I ran, global operations and technology, supporting all the the duties of the bank.
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I was, you know, was very intense.
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We expanded to whole Latin America, to U.S., to Europe.
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And when we set up the commodities decision, was pretty much global.
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So with that, I had a lot of experience, in banking globally and, and, financial markets.
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But at the same time, with this kind of heart of technology at Central Point, I was the CTO for the bank.
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I found out about crypto blockchain.
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I bought my first bitcoins back in 2014.
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That made me understand and understand the technology and see the opportunities and the potential.
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So, when I left the bank in 19, I decided to do something in the space.
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And here we are.
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And I'm curious, having worked inside of, a very large investment bank and specifically in Latin America, was there something about that experience that taught you something about financial services, infrastructure that frankly, most other digital asset or crypto founders don't necessarily get?
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Yeah.
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Well, on the first BTG is, is a school of entrepreneurship.
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Even being a bank, partners are pushed to, because it is a partnership bank.
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So partners are pushed to generate results, generate PNL and which is, fantastic with that, you know, you always trying to think, you know, ways to, to leverage, you know, the bank, existing infrastructure.
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So, I give an example where, when we wrote that bank, we said, oh, we need to build the infrastructure for our retail division.
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Why not offering it to fintechs?
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And that created the concept of bank as a service within the bank.
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So offering services to all their even banks.
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And, that's the kind of the spirit of partnership and, that we see, which excites, a lot.
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With that in mind that we, we said, okay, we can build something on the crypto space that kind of mirroring our experience, with financial services and try to leverage this, this experience on the as a crypto infrastructure place.
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So that's how we end up building parfait again and again.
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I think this conversion, obviously, on the crypto side, people are saying, oh, you know, the more anarchist one that, the more pure, you know, crypto players.
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Hey, I'll forget about banks, you know, no worry about as it's, let's build something parallel.
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I think, and, even the, the DeFi protocols now, everyone is saying, oh, there's a massive opportunity with financial markets on start, tokenized stocks, tokenized bonds, tokenized funds, stablecoins, etc.
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so they're leveraging their existing technology to fit into this more controlled way.
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So I think the convergence is getting, you know, is getting there.
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That's great.
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And and maybe just to set the stage for folks that are in the audience who may not be familiar, with, parfum and or rails, maybe just a quick synopsis of, of what paraffin does and also the relationship with, with rails.
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Yeah.
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So we a few years ago we started building this digital assets infrastructure to allow banks, financial institutions, investment platforms to offer crypto, to their, to their clients, again, using our technology and infrastructure that will be called crypto as a service.
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So we end up, you know, fuckers, especially in Brazil because, the regulatory framework was we close with like massive banks.
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For fuel, financial institutions.
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And that was very good.
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Then, few years later, we realized that, you know, developing countries use a lot stablecoins to process cross-border payments.
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And we said, well, let's set up, you know, a solution for that on top of the platform.
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So we created what we call the stablecoin as a service, which provides an on off ramp across orchestration, liquidity swapping.
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And that was where we are, where we're seeing a lot of huge volumes today.
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So we processed over $1 billion a month, supporting banks, financial institutions for that purpose.
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And then lately, you know, like two years ago, some of those banks that we're using are saying, oh, I want to start tokenize assets on some, okay, we can do it for you.
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But they said, oh, we want to do privately.
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We don't want to use public blockchains.
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We want to expose our assets now.
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So we created the initial version of Brave's permission chain.
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And that's how rails started.
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And oh, okay.
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From this perfect platform that supports crypto as a service and a stablecoin as a service, you know, we created the The Rails, which is a blockchain designed for banks, started with the permission and chains, which will have fuing production.
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They're up and running.
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And then recently we launched the public chain, and the combination of the two gives the, the banks the ability to when they want to tokenize assets privately, they use the permission chain.
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And when they want to distribute, they use the public chain and there will be more services coming.
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So that's how rails end up, coming.
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So but everything started with our kind of, crypto as a service to stablecoin as a service.
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And now we have the tokenization as a service, as you call it.
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I want to pull on a couple threads there. One one is, I think very much some of the initial, you know, sort of story here with, paraffin is, is the fact that it's, you know, has focused a little bit on the Brazilian market and sort of the unique sort of components of that.
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I'm curious if you could articulate for the audience what makes Brazil, and maybe broadly Latin America, a different market and sort of region relative to what you've seen elsewhere in sort of the digital assets space, both in terms of maybe regulatory posture, readiness, other things around crypto.
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Yeah, I think Brazil has it's kind of an especially financial institution.
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There's they have a huge, you know, fear of missing out.
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So if, one of then, leads the path, the others will need to because it's very client centric and Brazilians in general are very tech driven.
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Everyone has a mobile.
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It is the most bank at 230 million people.
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Everyone is able to have a bank, either a bank or a payment account and a car.
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So it's very tech driven and that creates a perfect atmosphere, you know, for, for innovation.
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So within financial markets, you know, few banks.
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Nubank is a famous fintech offered crypto like five years ago, then BTG, itself and so on.
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So all the other banks, they say I, we need to do that.
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And then we found the perfect spot from our regulatory perspective, it was not prohibited to offer crypto and there is no clear rules.
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So which is not prohibit and there's no clear rule you can do effectively without you know, and then some banks they created sister company to offer through their clients.
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So there are some alternatives there.
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But at the end, you know, that was allowed.
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And the central bank start following the market and being close to it, similarly to the Securities Commission of Brazil.
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On the tokenization of assets, whereby in 2022, there is a sandbox that allowed companies to issue corporate bonds and tokenized stocks.
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That was not a pilot.
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It was it was a real production that went live within the same box remit.
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And some of them went to production, and we supported the first ever, broker dealer to issue a corporate bond for a client.
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And it was a tokenized corporate bond was live in 2022.
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And that created the perfect environment.
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People seeing the benefits of that same start using it and credit forwarding.
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Last year the regulation came in finally.
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And then, there was an acceleration of the process, let's call it everyone.
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That was doing, and it was, you know, piloting.
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Now they're saying we have to go full speed.
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And then when they say full speed, we have to all for crypto.
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We have to have tokenized deposit.
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We have to have the capability to process payments using stablecoins.
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We can issue our own stablecoin.
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We need to start tokenizing assets, funds, etc..
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So unlocking the like, all this, possibilities, you know, and that's that's how we see, you know, on developing countries, the, the strategy and, in a certain extent, you know, if one was un, it's quiet that comes in your ass.
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We will see, hopefully a lot of those banks moving faster, than there used to be.
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And you have probably some of the most frequent touch points, with what I would call leadership or CEOs of, you know, regulated banks and financial institutions on a global basis.
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I'm curious.
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How those conversations have evolved from, let's call it, 2 to 3 years ago till today, where, you know, generally speaking, my sense is that, again, there's much more of an eagerness now to go and implement these types of capabilities, get into the digital asset space specifically.
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But maybe if you could draw a contrast between what types of conversations were being had at the senior executive level, maybe let's call 2 or 3 years ago and what those comprise of today, just to give the audience a sense of where we are at the present moment in terms of institutional adoption, not only readiness, but eagerness.
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Yeah, funnily enough, I just had, a meeting today, an important call with the CEO of, one of the largest regional banks in us, with the all city, you know, license, etc.
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this is a substantial, you know, payment processor, etc.
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and, you know, he's being, stuck in a space very focused on not getting their, their legacy business compromised by the, the new commerce.
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And, the particular element, you know, there's this Augustus also see, you know, project that promised to be, the bank of the banks for stablecoin clearing new asset.
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And he was saying, oh, my God, you know, we need to move fast, and we need to, to adapt.
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So three years ago, three years ago, we approached the US markets talking to banks, it and the big ones, you know, I used to have a good relationships with all the big, big US banks.
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And we approached the heads of digital assets and it was about, you know, we're doing a pilot to here.
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We're we're testing this technology.
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We're understanding how it works, etc..
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There are very few that had like, digital assets as a, core PNL area, not the cost center, you know?
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So now it's completely different.
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The sea level is involved.
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You know, after the call today, they said, well, I need to get my CTO, Marshall, we need to we need to move and before you used to talk to someone that was a part of the generally the technology, you know, innovation department or the, you know, partnership strategy to try to understand.
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And that's what changed.
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Since I think since pretty much genius that last year.
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And, and again, this is interesting because, you know, most likely, you know, the total stablecoin, is around $300 billion, right?
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This is funds moving outside banks and the bank.
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Look at it.
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I say, if I don't reissue my stablecoin, funds will be moving to stablecoins for payment purposes.
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So, you know, it's at some point.
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So I give you an analogy.
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A few years ago, back in the 90s, asset managers did start creating the famous money market funds that drove a huge amount of funds from banks, funding from banks to money market funds that were breaking the money because most banks back there were not, remain rating the the money of the clients in the bank accounts and then, you know, clients here.
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I had money at a bank.
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Why not buying this money market funds.
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And you see the BlackRock's up there?
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Well, Franklin Templeton, they grew a lot in assets under management through money market funds, which to me is a kind of money machine.
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You charge to manage your money, you know, it's like, and we take, you know, a part of the interest, the interest.
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So it's I think banks fear now that with this.
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So they were not able to do.
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Now whilst there is clarity on the stablecoin issuance, there's quite the on how to to handle digital assets.
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I think they said we need to do because otherwise money will keep flowing out of our hands, you know.
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And what do you think about your view of what the financial services landscape looks like in three years as it relates to digital assets?
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What does that world look like in terms of, you know, either aggregate a number of assets that are effectively digital assets as a percentage of maybe global assets or just what things will be possible, or what types of products will banks be offering that will be commonplace that today don't exist?
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And then my other question related to this is how do you see paraffin playing in that?
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Yeah, a role in that.
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Yeah. Well, yeah, definitely.
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In 5 to 10 years you have stocks tokenized.
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You have bonds, you have, other types of assets that currently either, are not possible and they will be like clothes or credit assets and, that will allow something unique, which is collateral mobility.
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And that could create, a very powerful way of people to leverage on those collateral assets and to move the collateral freely in between.
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You know, institutions which will give you, you know, not not the disintermediation, but will allow more competitiveness to the landscape.
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Let's see, you know, currently, if you have an account and you hold stocks in a certain, you know, broker dealer, ask then I want to move to the other one, which I just open.
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An account is a nightmare. It's impossible.
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If you're if those stocks are tokenized and both supports it, you say, oh man, simple is the you know, I want to get my assets from here.
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Just stand there and borrow money against it or, you know, again, I'm talking about stocks, funds, etc.
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that would create a huge opportunity.
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So I see the collateral mobility and asset backed tokenized collateral, growing a lot on the credit markets as well.
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We'll probably see a lot of opportunities on the credit markets and the beauty and again on effects markets.
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Same thing.
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You know, stablecoin, non-U.S.
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dollar stablecoin being seamless, converted to stable, dollar stablecoin and vice versa.
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Currently you have to it's funny because you have to deposit, a money exchange and then you receive the the other currency with stablecoins, you just simply is going to have an automated market maker.
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You deposit DVP, you receive the coin instantaneously.
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So I think those type of services, we will see more and more.
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As a matter of fact, there was an, some news about Uniswap launching, Uniswap, you kind of, KYC version to allow stocks to be swapped into Uniswap.
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So I think those are the kind of things that we will see coming, in the, in trad fi space, leveraging the existing technology and innovation from the DeFi space.
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And that's, that's how that answers your second question.
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That's how our thing fits in.
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Because we've done we've done this on Web3 with DeFi protocols.
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Now we're bringing those in.
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Do a more kind of regulated environment, allowing banks to to effectively do it.
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We're working with a bank where we're tokenizing the deposit internally for internal settlement.
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And now the bank is creating a Armaan where, to convert the BRL tokenized depositing to Usdc.
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Aditi, you know, seamlessly.
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And the first effects bank of the bank is providing the, the the liquidity on the amp.
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So the fact is that on chain effects and and that's the that's the way I think the market will move forward.
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And obviously some banks more advanced has been others.
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But you know I think this there's going to be a clear, opportunity.
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And so with rails, you've built a network, you know, really from scratch, based on institutional demand from your clientele.
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I'm curious what that experience was like.
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In terms of what were the biggest challenges?
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What were the, you know, maybe biggest, like, surprises and going through that process for you?
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Yeah.
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That started, I think for us four years ago, the concept of rails.
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So the client said, I want to tokenize, you know, certificate of deposits, which is a bank kind of bank note.
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And we said the great, let's do it.
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It's easy.
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And the bank said, but I want to do privately there's something called Hyperledger Basil. Let's see.
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Is it always fine? Said fine.
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We use our digital assets custody and frame treasury management.
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We connected, Basil there and we start tokenizing.
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But the bank issued 60 plus million customers.
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They issue 1.2 1.3 million certificates of deposit.
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They then Basel was processing 400 transactions per second.
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And it was like, oh my God is not being you know, you can't process this amount.
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You know, it was low.
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And we were saying, oh my God, we built this bank.
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And the performance is not good.
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For, for this enterprise purpose.
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Right.
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And and that was okay.
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Let's do something around it.
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That's was an let's let's get the Ethereum client and, I guess that that, that let's fork it and let's do something powerful.
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And we truly believed that even would be the, the, the way to go.
00:20:46.040 --> 00:20:49.250
So we, we in has said this a lot.
00:20:49.250 --> 00:20:57.625
That's, you know, we created the rails private private node which we reach like 15,000 transactions per second.
00:20:57.958 --> 00:21:06.790
And then within minutes you would process this 1.2 million transactions instead of hours with the previous, version.
00:21:07.165 --> 00:21:11.000
And then the bank said, oh, now the technology fits to my requirements.
00:21:11.000 --> 00:21:15.833
You know, I can't process this amount of of tokens and I can do other things with it.
00:21:16.208 --> 00:21:30.125
So that's how, rails is started, within the the permission Rob and our but some, some, critics from the Web3 say but this is not blockchain you're installing internally.
00:21:30.415 --> 00:21:50.125
And everyone now is saying, oh, there will be every single bank will have their own internal blockchain because they want to tokenize assets, they want to do things, improve their their internal systems, and they want to have this seamless interoperability with public chains or even other permissioned chains.
00:21:50.250 --> 00:22:02.875
So once you are on the blockchain rails, and especially if it even would be easy for you to transfer or tokenize assets from your chain to a public chain or inadvisable or to another permissioned chain.
00:22:03.000 --> 00:22:05.125
And that's the way we will see in the future.
00:22:05.125 --> 00:22:11.708
And rails was designed, you know, for that to to allow banks to have a full control over their internal tokenization.
00:22:11.958 --> 00:22:25.333
As a matter of fact, you know, take JPMorgan one day for creating Onyx and now can access they said, how we use this initiative for internal settlement tool to create a framework where I can settle assets.
00:22:25.333 --> 00:22:31.415
And then they brought the repo in and they are now doing payments and, and, and I think that's how we start.
00:22:31.415 --> 00:22:34.250
And they are now testing, the integration.
00:22:34.250 --> 00:22:43.833
There was a news the other day that they've, moved the tokenized deposits from, from gain access to base for the purpose of settling a transaction.
00:22:43.915 --> 00:22:46.165
So again, that's happening.
00:22:46.165 --> 00:23:01.915
That's how we we envision, you know, providing rails, permission chains to banks so they can have their own lives and they will eat or operate with either public chains, alternate days as they wish, as they control, because soon, in some case they will not, you know, and.
00:23:01.915 --> 00:23:14.000
This was something I was going to speak to you about or ask you about, which is this this age old debate within the crypto space of private blockchains versus public blockchains, and how that is likely the wrong conversation.
00:23:14.000 --> 00:23:16.583
And it's more about interoperability.
00:23:16.583 --> 00:23:24.208
I'm curious how you would frame, you know, sort of that debate of what things make sense in those two frameworks.
00:23:24.208 --> 00:23:28.375
And is it really about interoperability as you just sort of articulated?
00:23:28.375 --> 00:23:32.125
And if so, how will we see that play out over the next?
00:23:32.125 --> 00:23:33.875
Let's call it 2 to 3 years.
00:23:33.875 --> 00:23:41.458
I think the use of public blockchains by banks in financial institutions will be much, much more, in my view, about, distribution.
00:23:42.583 --> 00:23:53.875
And I give you some examples, you know, Blackrock created, built, Franklin Temple to create bank money market, tokenized money market funds.
00:23:53.958 --> 00:23:57.708
Why they are, listening to public blockchains.
00:23:58.290 --> 00:24:00.040
Because they want to distribute these.
00:24:00.040 --> 00:24:07.458
And if other banks wants to distribute, they connect their custody, they send the tokens of built there.
00:24:07.458 --> 00:24:09.540
And it can be easily done.
00:24:09.540 --> 00:24:20.625
Obviously, if it's a private network, that that was created, for instance, by Blackrock, for instance, banks would need to connect to those private networks.
00:24:20.625 --> 00:24:23.665
And then, you know, it creates a little bit more friction.
00:24:23.665 --> 00:24:36.458
It can be done, you know, and probably in the future we will see some specific purpose blockchains which all the banks will join, maybe for stocks trading, maybe for whatever, because we'll be more controlled.
00:24:36.625 --> 00:24:50.165
But, you know, public chains now are being used by banks and financials, much more on, on a distribution from a distribution perspective other than, and that's, that's already an even interoperability.
00:24:51.833 --> 00:25:00.375
But, you know, you see, the DCC just mentioned, a few weeks ago to say, we are multi day chain.
00:25:00.750 --> 00:25:05.375
The use case for building repo settlement cannot stick to one single chain.
00:25:06.208 --> 00:25:11.083
They, they have their download chain that, you know, probably is much more control.
00:25:11.208 --> 00:25:25.708
And for some specific cases, especially collateral mobility, they will say, okay, if you know, let's say for purposes of collateral mobility, some assets will be at Stellar or Canton or Rails or whatever.
00:25:25.750 --> 00:25:29.165
They the assets will be there and they will move seamlessly.
00:25:29.250 --> 00:25:47.375
So that's we will probably be going through multi chain world where, the use of those chains will be driven by, distribution, trust and by liquidity as well.
00:25:47.375 --> 00:25:51.958
Because again, it's a kind of a, is a network effect.
00:25:52.458 --> 00:25:55.500
Oh, I'm distributing banking in Italy.
00:25:55.708 --> 00:25:58.250
And then, the other bank also will use it.
00:25:58.250 --> 00:26:00.708
You know, the other institutional model, everyone uses zero.
00:26:00.708 --> 00:26:03.625
And then you have a lot of liquidity of banks.
00:26:03.625 --> 00:26:13.500
You need to write, similarly to what's happened to some stablecoins, despite of even multi-chain to operability.
00:26:14.458 --> 00:26:20.665
You take, you as the De, for instance, there's a huge liquidity in Tron, and people use a lot.
00:26:20.915 --> 00:26:31.750
So, you know, if you want to ramp, there are a lot of off friend providers that you you take USD d and Tron is singles converted to to defeat payment and vice versa.
00:26:32.250 --> 00:26:37.665
Whereas if you are using USD team to arbitrage might not be that efficient.
00:26:37.958 --> 00:26:45.208
So that's why I'm saying I think the on the financial markets, that kind of environment will will be replicated.
00:26:45.208 --> 00:26:49.583
And with rails you went public main net launch end of April.
00:26:50.333 --> 00:26:53.333
So congratulations on one getting to main net launch.
00:26:53.333 --> 00:26:56.165
It's obviously a lot of work that I assume went into it.
00:26:56.165 --> 00:26:59.165
We had validation cloud are very proud to be partnered with you all.
00:26:59.250 --> 00:27:01.040
From an infrastructure perspective.
00:27:01.040 --> 00:27:05.375
Again, we're big believers in sort of the intersection of institutional and digital assets.
00:27:05.750 --> 00:27:18.665
I'm curious if you could give the audience, Marcos, a bit of an update since making that launch, like what's been accomplished and what sort of KPIs or metrics you look at for monitoring the success of rails in terms of achieving its goals?
00:27:18.958 --> 00:27:26.790
And again, if people wants to follow, go to rails.com and there is a a link transparent, transparency portal.
00:27:26.958 --> 00:27:37.000
We have the metrics there on transparency portal where you can see maps from the private networks that we have implemented, which even generate revenue.
00:27:37.000 --> 00:27:38.915
It's a revenue generating chain.
00:27:38.915 --> 00:27:44.750
And now we're, establishing the metrics for the public chain, which comes with TVL, comes with transactions.
00:27:44.750 --> 00:27:45.833
ET cetera.
00:27:45.833 --> 00:27:49.500
And we've been working with some banks and financiers.
00:27:49.915 --> 00:27:51.500
One is the nuclear.
00:27:51.500 --> 00:27:55.290
The Brazilian SEC was announced few weeks ago, a few months ago.
00:27:55.708 --> 00:27:57.458
They are launching their bill.
00:27:58.458 --> 00:28:02.250
Market infrastructure stablecoin the largest preeminent.
00:28:02.250 --> 00:28:03.540
And it will being rails.
00:28:03.540 --> 00:28:13.458
So that will be transact there they run so and I think this is where we see, big opportunities, coming.
00:28:13.790 --> 00:28:26.000
There is a, we were launching a yield bearing vault, that is, backed by, imports and exports, trade finance receivables in commodities.
00:28:26.208 --> 00:28:35.333
Brazil is dominant in commodities over 1.2 to 1.23, $1.3 trillion in exports a year.
00:28:36.415 --> 00:28:39.165
And that's the potential to be tokenized.
00:28:39.165 --> 00:28:41.290
And we're starting with the first one.
00:28:41.290 --> 00:28:50.875
We're tokenizing a credit instrument with a bank that will be it starts on their private network, but they are distributed to other banks and that will be on the public chain.
00:28:50.875 --> 00:28:58.500
So, I think that's that's the activity that we will see, you know, coming to Rio's public.
00:28:58.500 --> 00:29:09.625
There are some transactions happening there with partners, but, you know, after like two and a half months after launch, I think there are some big, big, projects coming.
00:29:09.625 --> 00:29:11.165
We're very excited.
00:29:11.165 --> 00:29:22.540
You know, we are counting days for some of them, to go live, but, you know, that's the difference because it takes time, you know, for a bank to issue a tokenized assets into, public chain and distribute, it takes time.
00:29:22.540 --> 00:29:26.583
And, that's how we, we're seeing this.
00:29:26.583 --> 00:29:44.540
But is that very complementary to the other business that we do at passing? So, and again, one comes another, the for instance, at par, seeing stablecoin as a service where processing over$1 billion in stablecoin wrapped in other chains, we're planning to bring parts of it to Ramos public chain.
00:29:45.125 --> 00:29:48.833
And it's on the roadmap now, there's some work to be done.
00:29:49.790 --> 00:29:56.125
But, you know, that's how we, we envision, the chain to be to generate more liquidity, more usage.
00:29:56.290 --> 00:29:56.625
And so I.
00:29:56.625 --> 00:30:09.040
Saw a recent, Nexus report by JPMorgan, using their epic benchmark that ranked rails first out of all the solutions that it evaluated as it relates to privacy.
00:30:10.083 --> 00:30:16.415
And so I think there's something in that that, I'm curious about, which is, you know, I think very obvious to you.
00:30:16.415 --> 00:30:27.415
And I why institutions would want privacy and put that as like a significant sort of like requirement as part of their thinking around blockchain specifically and what they use.
00:30:27.540 --> 00:30:41.208
But I'm curious if there was any additional insight that you all have had from just your engagement with so many institutions on how to enact privacy or implement privacy in a way that might be different from how others think about it, can you maybe talk a bit more about that?
00:30:41.833 --> 00:30:44.083
Yeah, that's, good question.
00:30:44.083 --> 00:30:51.208
And I think going back a little bit in 2022, we started working with the central Bank of Brazil on the central bank digital currency.
00:30:52.165 --> 00:30:57.333
And their requirements were full privacy for scalability, for composability.
00:30:57.665 --> 00:31:03.750
And we start building rails Enigma, which is our privacy, a zero knowledge privacy preserving protocol.
00:31:03.750 --> 00:31:09.125
But it was not only at the smart contract level that we were implementing privacy.
00:31:09.125 --> 00:31:28.833
We used to use the private networks to guarantee privacy by product, by our architecture, segregation and and then the combination of the two on chain zero knowledge proof privacy and segregation by, by architectural design, was something, you know, back there forward thinking.
00:31:28.833 --> 00:31:31.125
Now everyone's talking about it.
00:31:31.125 --> 00:31:33.958
Can't talk about it like, let's talk about it.
00:31:33.958 --> 00:31:54.375
But the good part is that that's why when we work with Genexus a year ago and as AP report, we're very advanced because we implemented 13 cases under the Cbdc project, which were very sophisticated privacy auction, smart contracts, DVT, all silence of the different cases.
00:31:54.375 --> 00:32:01.250
And that made us, you know, when we work with JP Morgan, on that big it was a proof of concept.
00:32:01.583 --> 00:32:06.708
We're mature in terms of we were getting metric tons of technology in terms of usage.
00:32:06.958 --> 00:32:09.625
And now a year after we were even more mature.
00:32:09.625 --> 00:32:13.708
And what matures the technologies, the usage, we have some clients using it.
00:32:14.125 --> 00:32:18.165
And that made, you know, you had no option is in production.
00:32:18.540 --> 00:32:20.375
It needs to work. You need to gain scale.
00:32:20.375 --> 00:32:22.040
You need to to be operational.
00:32:22.040 --> 00:32:24.790
Otherwise you don't, you know, use it.
00:32:24.790 --> 00:32:40.790
And I think that's was the difference that from working like, for, for two years with the central bank on a pilot stress in cases that never went to production, then evolving some of those case to production made us forced us to get a better product.
00:32:40.875 --> 00:32:43.875
And, and I think that's, what it was a learning curve.
00:32:44.000 --> 00:32:54.125
So after four years now the product is mature and and now everyone is talking about privacy and, and we're saying, oh, we need to, to be, had we need to improve.
00:32:54.458 --> 00:32:58.500
So, that's why I think, you know, it's a journey.
00:32:58.790 --> 00:33:02.708
Maybe the technology four years ago or not was not mature enough.
00:33:03.000 --> 00:33:05.958
There's two will still cost it to generate proofs.
00:33:05.958 --> 00:33:06.875
Now we improved.
00:33:06.875 --> 00:33:09.625
Did the the algorithm it's to generate proofs.
00:33:09.625 --> 00:33:16.708
So there's there's a lot of things happening in the space and and I think will be good for then for a mass adoption.
00:33:16.833 --> 00:33:17.540
Right.
00:33:17.540 --> 00:33:21.083
And there would be no on privacy solution that fits all.
00:33:21.415 --> 00:33:23.000
Probably there would be 2 or 3.
00:33:23.000 --> 00:33:39.083
There would be homomorphic encryption being used like there's there's other players that I think, you know, for all the cases that needs to be implemented, I think there will be like the blockchain is like this is saying, well, we're going to use multiple blockchains.
00:33:39.375 --> 00:33:42.958
There would be multiple privacy solutions depending on the case.
00:33:42.958 --> 00:33:45.458
And and we're fighting for some of those cases.
00:33:45.458 --> 00:33:51.290
And and I think we're, we're well positioned where we're because the market now is open for that before was just pilot.
00:33:51.290 --> 00:33:54.500
Now people are saying, oh, you have this in production, show me the case.
00:33:54.500 --> 00:33:55.833
I want to use it. You know.
00:33:55.833 --> 00:34:13.708
And I think with any, you know, server evolution of time and sort of maturity of a technology, the bottleneck of how quickly it gets adopted and, and sort of builds into the commercial promise moves, to different parts of the organizations or different parts of the industry as you see it today.
00:34:13.708 --> 00:34:18.958
What do you see the biggest bottleneck to sort of broad based adoption?
00:34:20.291 --> 00:34:24.833
At the institutional level, is it sort of internal risk?
00:34:24.833 --> 00:34:33.458
Is it, you know, sort of the broader sort of regulatory framework outside of, you know, maybe Latin America and even Europe and specifically calling out the US?
00:34:33.958 --> 00:34:40.500
Well, what do you see as sort of the biggest bottleneck and maybe how that might also change and shift over the next, let's call it 2 to 3 years.
00:34:40.500 --> 00:34:45.083
First, everyone knows it is regulatory because it's, it's it's it's you can't do it.
00:34:45.083 --> 00:34:46.166
They will not touch it.
00:34:46.166 --> 00:34:47.916
They can even pilot and test.
00:34:47.916 --> 00:34:56.041
But you know, really offering is as a service, you know, I don't think they would be without a clear, regulatory framework.
00:34:56.125 --> 00:35:02.916
So once the regulations there, I think there will be the bottlenecks will be do I have internal resources to do that?
00:35:03.416 --> 00:35:05.000
Do I have the knowledge?
00:35:05.000 --> 00:35:22.250
Because again, if you are building a traditional payment system either in Java dot net, whatever is the programing language, it sees you, you hired developers, you hire the outsource company, you build it and you manage the the, the, SQL database.
00:35:22.250 --> 00:35:24.750
And it's you can deploy on Amazon.
00:35:24.750 --> 00:35:28.458
When it comes to tokenize assets, you need to handle private keys.
00:35:29.041 --> 00:35:30.916
Okay. And then it comes to custody.
00:35:30.916 --> 00:35:35.666
And then you need to have to monitor on chain data and on chain kit.
00:35:36.291 --> 00:35:41.541
You have to deal with, you know, you know, the attacks, wallets.
00:35:41.541 --> 00:35:46.875
And you have to, you know, deal with, you know, solidity.
00:35:46.875 --> 00:35:53.375
If it's EVM for smart contracts, how to build it, and you have to audit security, audit the smart contracts that will be public.
00:35:53.625 --> 00:35:53.916
You have.
00:35:53.916 --> 00:36:05.750
So there's a huge, you know, new tech stack that needs to be learned by banks and financial institutions, which are complete opposite to what they have today.
00:36:05.916 --> 00:36:17.916
And I think that's where, you know, you know, the, that's where the bottlenecks will be, you know, and and on top of that, you know, ask, developer, a solidity developer to work for a bank.
00:36:18.041 --> 00:36:20.500
You could say, oh, I don't want to. Europe.
00:36:20.500 --> 00:36:33.000
So there are lack of resources, as well, you know, in this space, because, people want to work for a DeFi protocol, wants to work for, like, a, a blockchain, like a company like us.
00:36:33.333 --> 00:36:33.791
Well, I'm.
00:36:33.791 --> 00:36:36.333
Curious, is a former CTO at a bank.
00:36:36.333 --> 00:36:38.250
What what items do you think?
00:36:38.250 --> 00:36:41.250
Or portions of the stack do you think it makes sense for?
00:36:41.333 --> 00:36:49.291
Let's just call it a reasonably resource bank to own themselves, right, versus working externally with experts in the digital asset space?
00:36:49.291 --> 00:36:56.291
The answer just might be like everything external, because of just the uniqueness of the asset class and how it operates.
00:36:56.541 --> 00:37:04.916
But I'm curious, as you think about maybe longer term, are there certain elements that you just think a bank should own as part of the stack and have internal?
00:37:05.000 --> 00:37:12.750
Yeah, I think again, banks have the GDPR responsibility to take care of the client's money, client assets.
00:37:12.750 --> 00:37:19.250
And when it comes to digital asset, that means that they need to take the the custody infrastructure of the private keys.
00:37:19.333 --> 00:37:21.583
Okay. So that's a piece of wire.
00:37:21.583 --> 00:37:29.208
And the bank can use a tech custody provider can build their own, but they will need to have this capability under their control.
00:37:29.333 --> 00:37:41.833
And again, coming to to the the running nodes of the blockchain, they can rely on, on, you know, complex like you because it's much easier.
00:37:41.833 --> 00:37:43.500
You don't need to they don't need to do that.
00:37:43.500 --> 00:37:45.625
Right? B right.
00:37:45.625 --> 00:37:53.125
So it's like, well, do I need to run a broadband network to pay for my services?
00:37:53.125 --> 00:38:05.666
No, there will be someone providing that blockchain rails and the nodes that are run will be probably the broadband and where banks will be connected to the trusted ones, and they might have redundancy, etc..
00:38:06.041 --> 00:38:16.125
And then the second piece, you know, I think the application layer, which is very business centric in terms of business rules, controls, etc., that will be built by by banks.
00:38:16.125 --> 00:38:29.875
I, you know, the DApps on top when it comes to, you know, servicing that that like the vaults up the road arms, they will either fork the open source ones from like this.
00:38:30.041 --> 00:38:34.583
Uniswap or, or they will partner with them to, to deploy a version for that.
00:38:34.625 --> 00:38:38.166
You know, and I think that's that's how you see Aave launch.
00:38:38.166 --> 00:38:42.916
It adds horizontal which is on more institutional version of Aave.
00:38:42.916 --> 00:38:45.958
Uniswap now is saying, oh, I will have an institutional version.
00:38:46.250 --> 00:39:12.375
And you seeing all this DeFi protocols creating their institutional versions so they can partner with banks and financial institutions more for has one you know like a similar so I think will be a combination of some parts of the stack that will be owned and controlled by the bank, others will be outsourced. And, and I think that's how it is, that is will be an interesting puzzle to, to have there, you know.
00:39:12.500 --> 00:39:13.166
Absolutely.
00:39:13.166 --> 00:39:33.041
And I guess one question I have for you is, is do you think the end consumer of, you know, a bank ever really like sees like blockchain per se, or do you think there will be certain products that maybe are digital asset products that they engage with, that they understand our digital asset products specifically.
00:39:33.166 --> 00:39:41.333
But then in terms of, you know, maybe more of the, you know, the back end sort of components, do you think most of that will be somewhat offices created from them?
00:39:41.333 --> 00:39:48.291
And they won't know that, you know, they're shares of Johnson and Johnson were moved using a blockchain.
00:39:48.291 --> 00:39:48.541
Real.
00:39:48.541 --> 00:39:55.041
They just get maybe the benefit of that being done faster and cheaper than it would be under the traditional infrastructure.
00:39:55.041 --> 00:39:56.125
You know, sort of paradigm.
00:39:56.125 --> 00:40:08.916
I think it would be obfuscated, of course, but in some certain cases, especially for collateral mobility, the user will be required to understand how how they transfer the assets.
00:40:08.916 --> 00:40:11.541
Let's, let's see similarly to a payment.
00:40:11.541 --> 00:40:12.083
Right.
00:40:12.083 --> 00:40:18.375
You have to pay, someone outside of AWS, you need to get the Swift account.
00:40:18.375 --> 00:40:22.333
So therefore you can't pay or I have to pay someone in Europe.
00:40:22.333 --> 00:40:25.333
They will provide you a separate account number.
00:40:25.750 --> 00:40:28.125
And so on.
00:40:28.125 --> 00:40:40.458
So, similarly, I have my asset, into, into, into the bank, and I want to transfer my asset to the other bank.
00:40:40.458 --> 00:40:43.916
No other bank will say, oh, this is your Ethereum address.
00:40:43.916 --> 00:40:45.833
Oh, this is your stellar address.
00:40:45.833 --> 00:40:57.750
And then he come to the bank and say, oh, I'm providing my stellar address or my zero address to the other bank to to a certain extent, they will need to know that there was, a chain behind it.
00:40:58.041 --> 00:41:06.833
They will not interact with it, but if they want to move assets, they will need to inform, know the addresses in which the assets will will be transferred to.
00:41:06.833 --> 00:41:09.833
I think that's the extent in which they will touch blockchain.
00:41:09.833 --> 00:41:21.833
You know, obviously some more savvy users will see, oh, there is this lending protocol which is paying 12% API on Apple tokenized stocks.
00:41:21.833 --> 00:41:40.625
When I move my stocks there, you know, and then the guy will need to interact, will need to, you know, in some cases banks will say, oh, now I have I need duration with this, lending stock lending pool and what allow my clients to touch without moving the assets outside of the bank.
00:41:40.958 --> 00:41:42.166
And I think this has been moved.
00:41:42.166 --> 00:41:45.541
We will see some bank to be more conservative if it.
00:41:45.625 --> 00:41:49.833
I don't touch this, landing, ball into this protocol.
00:41:50.333 --> 00:41:57.083
Some will say no, I will allow my client to, to, to allocate, tokenized assets there.
00:41:57.125 --> 00:42:00.250
Because I, I trust the protocol, whatever it is, you know, and.
00:42:00.250 --> 00:42:03.291
That's something that we've thought a lot about with our data and AI solution.
00:42:03.291 --> 00:42:06.291
Maverick is just a discoverability of those opportunities.
00:42:06.541 --> 00:42:13.625
So thinking about that example of, you know, the ability to generate yield on maybe, you know, a tokenized version of Apple stock.
00:42:14.083 --> 00:42:18.625
How do you identify that as a, you know, a lay person or an institution?
00:42:18.625 --> 00:42:21.791
Like where does that exist in sort of the on chain economy?
00:42:21.791 --> 00:42:26.458
And so being able to discover that, but you also think is going to be, sort of a key unlock.
00:42:26.458 --> 00:42:36.833
You know, Marcos, I wanted to ask you sort of the topic de jure, everybody's talking about AI and sort of the implications of AI in a variety of different, you know, arenas, including institutional finance.
00:42:37.083 --> 00:42:46.833
I'm actually most curious where you see if at all AI's intersection with blockchain, and where it has resonance, in your view, in the institutional context, if at all.
00:42:47.041 --> 00:42:47.250
Yeah.
00:42:47.250 --> 00:42:52.125
No, we already embedded in some AI agents into our, products.
00:42:53.250 --> 00:43:04.833
Like, for instance, on the stablecoin on our front, we're always having the challenge to root the stablecoin payments to the best, easiest, easiest route and less expensive.
00:43:04.833 --> 00:43:05.958
Give an example.
00:43:05.958 --> 00:43:15.375
Let's say the client has a, you know, $1 million in material and, Usdc, and he needs to be Usdc in Tron.
00:43:15.625 --> 00:43:40.958
So on the backend, you could say, okay, I move the Usdc from their wallet to, OTC provider converting to Usdc to get it back in trauma and send back to the Pin or I, you know, see, I convert the Usdc in to USD 22, and then I use the interoperability protocol of Usdc to convert to Tron.
00:43:41.875 --> 00:43:42.916
There are two routes.
00:43:42.916 --> 00:43:43.833
That's the case.
00:43:43.833 --> 00:43:45.583
So what's the most efficient?
00:43:45.583 --> 00:43:48.625
Efficient now, considering the existence of the network?
00:43:48.958 --> 00:43:55.375
Did it, did the charged crossing the timing of the payment. So again we have mapped those routes.
00:43:55.375 --> 00:43:57.583
We have been doing this a lot.
00:43:57.583 --> 00:44:05.916
So you say agent what's the fastest route now what this this is the real execute.
00:44:05.916 --> 00:44:09.083
So that's the kind of thing the conversion that we will see.
00:44:10.083 --> 00:44:12.166
I would see this in the future. Let's see.
00:44:12.166 --> 00:44:20.541
All I, I have, stocks, tokenized stocks of Apple, and there are three lending pools that I could have access to.
00:44:20.666 --> 00:44:23.041
Well, please recommend me.
00:44:23.041 --> 00:44:24.666
Which one is they? More yield.
00:44:24.666 --> 00:44:27.375
That's something with a certain type of risk.
00:44:27.375 --> 00:44:31.916
So I think there will be uses, usage for you to, in the future.
00:44:32.791 --> 00:44:35.083
But again, first thing first.
00:44:35.083 --> 00:44:36.833
First you have.
00:44:36.833 --> 00:44:41.458
Oh, I'm comfortable to allocate my Apple stocks to this lending pool and borrow money against it.
00:44:42.708 --> 00:44:45.791
If you are comfortable and you've been doing this for a while.
00:44:46.250 --> 00:45:02.541
Now I want to allocate I want to use AI to to do this for me now and more broadly way, you know, and and I even move back and you know, withdrawal and send to another one if there's a better API, you know, so that's the kind of things that we will see, in the future.
00:45:02.750 --> 00:45:03.500
Absolutely.
00:45:03.500 --> 00:45:09.416
And maybe the other sort of big topic within our space has been, the theme of tokenization.
00:45:09.416 --> 00:45:22.500
And I, I'd be curious, I think, generally speaking, the, the, the point of view of the market is that we'll see a rapid amount of tokenization over the next 5 to 10 years, in a variety of different asset classes, equities, fixed income and so forth.
00:45:22.916 --> 00:45:31.583
I'm curious, your more nuanced view of which assets get tokenized sooner versus later, and why?
00:45:32.291 --> 00:45:34.208
Just curious if you have a point of view on that.
00:45:34.208 --> 00:45:34.458
Yeah.
00:45:34.458 --> 00:45:52.500
I think, you know, again, that then there's the ongoing going back to the regulatory framework, if you are able to natively tokenize assets, meaning while this assets will only exist on the blockchain, there's no shadow, is not there a synthetic version of it?
00:45:53.000 --> 00:45:57.958
That's one thing that will boost the tokenization stocks bonds, etc..
00:45:58.041 --> 00:46:01.333
Currently what we're seeing, it's a lot of synthetics.
00:46:01.750 --> 00:46:17.750
I have an Apple stock I lock this into, you know, broker dealer custody and I tokenize it, and then you move within a certain, you know, closed loop, you know, hopping hood is doing this and few others, tokenized treasuries, same thing.
00:46:17.750 --> 00:46:28.708
You have a tokenized treasury in a kind of fed account somewhere, and then you create the synthetic and it moves you know, freely.
00:46:28.708 --> 00:46:30.000
I want to see the U.S.
00:46:30.000 --> 00:46:33.333
Treasury to issue a native, you know, U.S.
00:46:33.333 --> 00:46:35.166
Treasury five years bill.
00:46:35.166 --> 00:46:36.166
And then we will see.
00:46:36.166 --> 00:46:41.125
Then we say, oh, that we're talking that has existence into blockchain.
00:46:41.125 --> 00:46:47.000
And, and so so I think we will leave with this kind of hybrid world for the time being.
00:46:47.000 --> 00:46:50.000
And the regulatory framework will play an important role.
00:46:51.125 --> 00:47:00.541
In terms of the end user, again, if it's a synthetic or not, you know, it doesn't matter because you trust the party that is using the service.
00:47:01.208 --> 00:47:30.625
But, you know, the more kind of fun, kind of anarchists say, oh, no, if it's not natively issue, which means that even if I have the token, I don't have the ownership because the assets still there on the on the traditional, you know, the custody account of the, of the broker dealer, you know, again, you own the token, but you don't know the asset that's affecting what's going to happen if the assets are natively issued, then you have the token.
00:47:30.625 --> 00:47:34.041
You have the asset that's actually, you know, but we'll see.
00:47:34.041 --> 00:47:37.791
We'll see the development, the regulation, which will allow this kind of things.
00:47:37.958 --> 00:48:12.416
You see, I was talking to, to the Swiss, you know, player and in Switzerland they have the DLT license, which means that if you reissue, according to the DLT license, the regulation, the stock or the bond is natively on chain and that the ownership, the title of that token is, is, you know, the liability and everything related to the rights of the token is yours, you know, so, which is which again, where we think we will move forward globally in the coming years.
00:48:12.666 --> 00:48:24.833
So, Marcos, the last question we ask all of our guests is for their high stakes hot take, which is their boldest prediction, for either their category or the digital asset space overall over the next 12 to 18 months.
00:48:25.083 --> 00:48:26.875
So what? What's yours?
00:48:26.875 --> 00:48:31.166
There will be multiple stablecoins issued by banks and financial institutions in U.S.
00:48:32.250 --> 00:48:36.416
Most of the banks will be, the big ones like the gold and those of the world.
00:48:36.416 --> 00:48:43.291
Even JP Morgan will start offering crypto trading capabilities including custody, including and prime brokerage.
00:48:44.125 --> 00:48:58.500
And now we will see they start this the starting off of collateral mobility, some tokenized that's being used to, to cover margin to, to to collateralized loans and so on.
00:48:59.583 --> 00:49:02.583
I think this is as we will see in the coming months.
00:49:02.666 --> 00:49:04.875
Well, we'll have to park it there. We're out of time.
00:49:04.875 --> 00:49:05.458
Marcos.
00:49:05.458 --> 00:49:07.291
Very. Otto, thank you for joining us.
00:49:07.291 --> 00:49:08.458
CEO of paraffin.
00:49:08.458 --> 00:49:09.375
Thank you, Alex.
00:49:09.375 --> 00:49:12.833
And, I hope your audience likes it and more than welcome.
00:49:12.875 --> 00:49:14.250
Feel free to reach me out.
00:49:14.250 --> 00:49:17.958
And, you know, on either LinkedIn or, or X.
00:49:18.583 --> 00:49:20.958
Absolutely. Any time.
00:49:18.583 --> 00:49:20.958
Thanks again. Marcos.
00:49:20.958 --> 00:49:24.541
That's a wrap on High Stakes, the podcast where Web3 meets the real World.
00:49:25.041 --> 00:49:34.208
For more insight into how blockchain and I are reshaping institutions, head to Validation Cloud IO and follow at Validation Cloud across all socials.
00:49:34.875 --> 00:49:38.125
Stay tuned for more conversations from the frontlines of innovation.
00:49:38.666 --> 00:49:40.791
I'm Alex Nauka. See you next time.