The Breakdown - The State of Institutional Adoption of DeFi, Feat. Circle’s Jeremy Allaire

Episode Date: July 6, 2021

This conversation was originally released as a sponsored content webinar from Circle and CoinDesk. NLW decided to release it on his podcast of his own volition and was not paid to do so. The conversation covers why institutions are becoming interested in DeFi, which institutions are starting to participate and what barriers remain.  -- Enjoying this content?   SUBSCRIBE to the Podcast Apple:  https://podcasts.apple.com/podcast/id1438693620?at=1000lSDb Spotify: https://open.spotify.com/show/538vuul1PuorUDwgkC8JWF?si=ddSvD-HST2e_E7wgxcjtfQ Google: https://podcasts.google.com/feed/aHR0cHM6Ly9ubHdjcnlwdG8ubGlic3luLmNvbS9yc3M=   Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW   The Breakdown is sponsored by NYDIG and produced and distributed by CoinDesk.com

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by Nidig and produced and distributed by CoinDesk. What's going on, guys? It is Monday, July 5th. Now, technically, this is when the July 4th holiday is recognized. So CoinDesk is out. And at first, I was thinking maybe I would just have to not have a show. But a couple of weeks ago, I hosted a webinar with Circle for CoinDesk.

The conversation was about institutions coming to Defi. I've said before, and I'll say it again, that ultimately for me, the breakdown is a show about power. And the reason that I focus more on Bitcoin than other parts of the crypto markets is that I think Bitcoin has undeniably taken a seat at the Power Shift table. I've been watching, however, to see if Defi in particular starts to take on a similar role. at least in narratives and discussions. Part of that is about how the government looks at it, and this week clearly we saw more focus

from a regulatory perspective on defy. But part of it is also how institutions these big traditional financial behemoths are looking at the space. I think the verdict is still out. I think it's still early. But I think that this conversation with Jeremy, if you're interested in such questions,

is a really good primer and a really good snapshot of this moment in time. Now, one thing I want to be clear about is that this was a paid partnership between Circle and CoinDesk. This is not editorial content, it's sponsored content. But I also want to be clear that in no way was I obligated to put this on the show. Circle didn't expect or pay for this to be a part of the breakdown. That's a type of sponsorship I've never been comfortable with.

It was entirely my decision instead to play this for this holiday episode because I was just genuinely enthusiastic about how the conversation turned out. If you have any more questions about that, feel free. to hit me up on Twitter at NLW, and I'm glad to answer them. But for now, if you are interested in the state of institutions coming into Defi and the questions that remain, I hope you enjoy this conversation with Jeremy Aller. Today we are talking about bringing defy to institutions. I'm joined by Jeremy Aller from Circle, and I'm so excited to have you here. Jeremy, how's it going? Hey, it's good. I'm super excited for this topic. The Bull Run that we

are either in a pause of or at the end of or wherever you think the market cycle is, was so shaped by from a narrative and a real perspective, the introduction of institutions into the space. It was something that we've been talking about for years, and then it actually started to really happen. Institutions, meaning a whole bunch of different things, which I think is part of what we're going to unpack here. But I think it is this big question about what happens next. As institutions dig deeper into the space, what do they explore? Do they stay solely interested in Bitcoin and what might be built there? Is it just a kind of treasury reserve asset for them? Or is there a broader change that crypto markets might signal and shift? So that's what we're

going to talk about today. And maybe to kick off, let's talk about what we mean when we say institutions. Yeah, this is a great topic, something we're thinking a ton about and really timely. you know, I think when people talk about institutions in the context of crypto, they're almost always trying to make reference to sort of institutional investors, right? So it's sort of when do asset managers and pension funds and endowments and all these, when do they come in and buy crypto assets? That's sort of been the overall meaning of institutions when the institutions get involved. And that has been part of the theme here, which is, you know, a few notable corporations putting Bitcoin in their balance sheet or bigger and bigger financial institutions enabling trading of different crypto derivatives or whatever that institute, those institutional indicators are.

And that's one view, which is institutional investing in the, you know, blue chip cryptos like Bitcoin and Ethereum, right? And if you actually look at what institutions are doing, that's a lot of it. Now, to me, institutions, and I think we'll talk about this in the context of defy, but to me, the institutions is something much, much, much larger than that. And it's essentially the question of, will every corporation in the world, every organization in the world connect to digital currency infrastructure? Will they connect to it and use it and use it as a part of the way

that they store value, move value, et cetera. And will they use it as a capital market? At the end of the day, capital markets, what we think of, whether it's stocks and bonds and debt and all this sort of stuff that floats around, you know, corporate debt, companies borrowing capital to fund building a plant or whatever you're doing and so on. That's the real world, like businesses interacting

with the financial system, which accounts for a enormous amount of it. That's institutions. And so to me, the question is, when does that happen? When do businesses writ large, institutions writ large, actually begin to integrate to this and rely on this as part of their overall treasury and part of how they operate. So to me, there's two big things. There's institutional investors, and that's basically people who are essentially

just long-term holders, speculators, traders, whatever that would be in terms of that. And then there's institutional adoption of crypto financial market infrastructure, or crypto treasury infrastructure, crypto payments infrastructure for the actual business and business, so to speak. So within that framework, where I want to go next is who's looking for what and how Defi offers that. But I think before that, I'd love to just get a sense of where your perception is of where people are on the adoption cycle.

Are they allocating? Are they building? Are they on the edge looking in? Are they way far away? But they've got one ear tuned in this direction. And maybe if there's different types of these actors that fit kind of different parts of that profile, just give us a landscape as we go into kind of more precise questions about what they're interested in. Yeah, I mean, I think right now the interest from businesses and institutions is fairly broad and it's fairly nascent.

Let's sort of speak realistically here. Like there's been some high profile public companies that put Bitcoin on their balance sheets, but it's pretty limited, right? there are more and more asset management firms that have some kind of strategy around this, but it's still relatively nascent. And when we talk about defy specifically, institutional participation in defy, I think is extremely limited right now. Like getting an institution comfortable with the idea that you could go to a regulated

exchange, purchase a digital commodity that's very clearly been sort of said is a legitimate, form of commodity by U.S. regulators and owning it and having it put with some bank like custodian and that kind of thing. That's sort of where the comfort level is, but, you know, actively allocating capital into yield farming of like long-tail crypto tokens. There aren't a lot of institutions doing that, whether on the investment institutional investor side of things or certainly on the corporate side of things. I think corporations, if I'm a corporate treasurer and I'm looking at this today, I may personally have bought some Bitcoin, but I'm curious about this. I'm hearing a lot about it, but I'm extremely intimidated

about what this is. It just feels dangerous and risky and like kind of nuts. It's kind of science fiction. And so to that world, it's there. However, one of the things that we've been seeing and it's really interesting to see is for many corporate treasurers, and that includes like the treasurer of the bank's balance sheet, for example, they're having a hard time getting their head wrapped around allocating some of their balance sheet into something like Bitcoin. But they're seeing yield markets that have emerged where there's dollar denominated, dollar supplied and dollar delivered yield, stablecoin yield, that is really attractive. whether in a defy market protocol or through C-Fi.

And so all of a sudden you have businesses, they're saying, well, okay, I don't want to necessarily buy Bitcoin, but I'm happy to have some form of indexed exposure to it that gives me a four or five percent, six percent APY, and I'm just shifting dollars away from a money market and into a stable coin yield product. That actually feels a lot more comfortable to an institution in many senses than taking principal risk directly in a cryptocurrency. We're seeing that in terms of the, just in terms of like the inbound institutional interest in this for the first time, we're seeing, you know, people who are, you know, CFOs or treasurers of regular way corporations saying, I'm interested in and looking at

these stable coin denominated yields that are happening. So it's super interesting. I mean, we're going to get more into this, but I think there's an obvious technological barrier to entry that I mean, it feels insurmountable for individuals in many cases, not just corporations and institutions. But it sounds like in some cases, there may actually be a motivational, philosophical, less of a barrier to entry than certain sort of like spot buying of assets, which is more like at least an assessment of the macro landscape and an attempt to do something different versus just kind of doing the normal thing that businesses do, which is go out and hunt for yield. So I guess that's a perfect segue maybe into the question of, you know, given that as you've articulated, this is still very nascent, what do you believe the uses that, you know, those people that are starting to sniff around this area are most interested in? How much is it looking for yield? You know, that pure, simple thing. How much of it is speculating on future value? How much of it is lowering costs,

cutting out intermediaries, trying to speed things up, you know, like where are the different dimensions falling as you're sitting in conversations. Yeah, I mean, again, there's not like a uniform, a uniform view on this because businesses that are getting involved in this, it's fascinating to see because Circle sits on both the kind of payment infrastructure side of this and we sit on the kind of treasury infrastructure side and the yield side and that. So we kind of see a lot of different angles on this. And so on the one hand, we're seeing more and more, you know,

small and medium enterprises who have figured out that stable coins as a settlement medium are really efficient and who are saying, I want to get set up with this because people want to pay me with this or I want to accept payments with this. And maybe these are business owners and entrepreneurs and startups and others who themselves are actively active in the crypto markets. And so they're all of a sudden saying, wow, this is really powerful. We should just use this in our business, you're starting to see big companies that have big complex global supply chains that deal with suppliers in emerging markets all around the world who are saying, dollar stable coins actually look like an attractive way to distribute payments around the

world. And then, you know, it leads into these conversations where the businesses are saying, talk to me about these yields, the 3%, 4%, 5%, 6%, or whatever those yields are, talk to me about those yields. What is that? What's the risk of that? What's involved with that? How do I do that?

So you're absolutely seeing more businesses who are kind of looking at this from those two sides. Like how do I get utility value out of this? And what's the business benefit of parking capital here? you know, that's emerging. And then clearly you have businesses and institutions who are entirely about just chasing the money, so to speak. They're just entirely about, you know, this is an investment, right? How do I treat this as an investment? I've got a thesis on the investment. I'm either taking a long position on an asset or I'm, or I want to actively trade an asset or I want

indexed exposure to an asset class. And so that's a whole category as well. But it's a pretty, it's a pretty broad spectrum of what's kind of bringing people to it. And I think our thesis is that over time, as in particular as defy infrastructure matures, it can just be a very, very efficient form of capital market that every business can tap into in the same way that they do today indirectly through banks and commercial banks that then intermediate capital markets on their behalf. I think that more and more it'll be about businesses, perhaps working through financial technology firms that are intermediating defy on their behalf, but where they're more direct market participants in the capital markets themselves, which is ultimately, I think, the promise of defy is that market

participants can face each other in a much more efficient direct way without the traditional kind of rent seeking. That was a very eloquent and like clear-eyed way to say all of the above in terms of what people are interested in which I think makes sense. I think in a lot of ways it sounds like what the key question is less like what is the door that they walk through but how it helps them journey down this path of understanding all of these different pieces and how the sort of the whole is greater than the sum of the parts. Yeah. I mean, I think so. And, you know, I, for, for many businesses and business owners and institutions, like, it's the blind man with the elephant, it's like, wow, there's this over here and there's this over here. And I'm, I'm just getting my head wrapped around it. We all in crypto land, you know, talk about going down the rabbit hole. And rabbit holes are big and complex and endless and confusing and everything else. And, you know, so being down the rabbit hole is, it's, there's a lot, there's a lot to discover. And I think there's this process.

of discovery is certainly going on for more and more businesses that are trying to get involved in this now. The breakdown is sponsored by NIDIG, the institutional-grade platform for Bitcoin. As longtime listeners know, NIDIG is a major force in the Bitcoin space, and they're now making it possible for thousands of banks who have trusted relationships with hundreds of millions of customers to offer Bitcoin. That mainstream access is critical for all of us, and you can learn more about it at NIDIG.com slash nLW. That's nydig.com forward slash nLW.

We're coming up on a year now of the anniversary of DFI summer, which was obviously a seminal moment in terms of expansion of kind of the infrastructure in this space, the assets, the things you can do, the, I mean, the value, you know, it's crazy to think that a year ago at this time, or I guess at the beginning of this month, there's sort of less than a billion locked in these protocols. Yeah. to see where we are now. I guess what over that year, in the context of these institutions,

has been the most significant in terms of the infrastructure buildout? I mean, I think in many ways, we've seen the major protocols, right? So if you go back to like 2018, when a lot of these protocol projects were just getting started, 2017 even, but 2018 in particular, You know, these were pretty simple. And what we've seen over the last year is, you know, multiple significant infrastructure upgrades to defy market infrastructure, both exchange infrastructure and then more and more like variability in terms of encapsulation on top of those.

You've seen huge infrastructure improvements in the way in which these are run and operated and governed. I mean, that's been one of the extraordinary stories is that this is community owned and operated, if you will, market infrastructure. You know, it's like the traditional exchanges where you have a seat at the exchange governing the New York Stock Exchange or the CME or whatever. But this is like totally democratized and you've got governance models and you've got successful risk management upgrades, protocol upgrades, you know, really.

really, really extraordinary. And now, you know, I think that the next big thing is we're now really starting to see at an infrastructure level, you know, the scalability upgrades, right? So I think during the crypto bull market, we had these periods of enormous expense and gas fees. And it's sort of like, why would I ever try and save $100 into compound protocol if it cost me $100 to put my $100 in, right? Or these kinds of like, this is absurd. And so, So, you know, that's been the latest cycle has been, you know, watching protocol after protocol after protocol deploy on level two's completely, you know, clean room ecosystems be built up on new third generation chains, like the whole serum ecosystem built up on Solana and

high performance dexes that can execute central limit order books in the same way that a centralized exchange can. So we've seen like fundamental infrastructure improvements. we've seen protocol improvements, we've seen governance improvements, and just like a constant set of iteration in terms of higher level protocols that encapsulate all of this. I just feel like it's been, it's kind of been like relentless improvement going on. And now that the treasuries on these projects are quite robust. And the, you know, I think huge numbers of firms kind of around this, you know, firms like Circle, but dozens and dozens and dozens of other firms.

around this that are very well capitalized, the build out from here I think is super exciting. I mean, it's super exciting. And I think a lot of people are now going from, okay, we've sort of created this infrastructure for crypto tokens as a broad asset class. How do we expand this into other things? How do we take this infrastructure and apply it to the rest of the world and make capital markets that are, you know, dramatically larger capital markets than are served with the legacy exchange market infrastructure. Yeah, defy eating other aspects and other assets is something I want to come back to. But I guess I'd love to bring it back a little bit more temporal to where we are now, right?

So obviously you're looking at this from an extremely long duration point of view in terms of the implications, in terms of the types of actors that you think are going to come in. let's talk, I guess, about what's happening right now from a price market cycle perspective. Were you surprised that there wasn't a defy phase to this bull after Bitcoin hit all time highs and then Ethereum hit all time highs? Has it impacted the enthusiasm that you're seeing or the interest coming in from outside? Just kind of like how does where we are now, one, what's your assessment of it? And two, does it impact any of this or is it just kind of a short-term part of the growth. Well, I mean, I think there has been a massive defy phase to this. I know that if you look at

media coverage and attention, obviously, it's all about the price of Bitcoin or the price of ether and things like this. But obviously, you know, there was a giant alt season. And beyond that, defy, you know, governance tokens have, you know, have grown dramatically. I mean, if you, if they didn't even exist a little over a year. ago. There were no DeFi governance tokens. And so now, whether it's Uni or Comp or, you know, Wi-Fi, like go down the list, right, defy protocol tokens are, are, have grown to a very, very significant scale market cap. And you could argue that many of the next generation blockchain infrastructures like Solana or PolkaDot, just giving a couple of examples, are fundamentally kind of,

defy, right? They're fundamentally people who are investing in it because they believe that so much of defy can get built on these as well. And so I feel like there has been a huge amount there. The fact that major crypto brokerage is now enable average investors to to invest in these, too, is significant. So I do feel like there's been a lot there over this period. But it's still amongst the broader population of people who think about this space, like if you're, you go meet with your average person who's maybe bought some Bitcoin or whatever, all this stuff is like still kind of Greek to them. And so it certainly doesn't have quite the same, you know, awareness and adoption. So you mentioned Solana, Pocod, Ethereum, sort of a, you know, a slew of

different ecosystems in which DFI is growing up in parallel. How much do you think the DFI, sort of, or the institutional move into defy will be cross-chain, care about that, you know, what are the trade-offs that you think people will ultimately care about in terms of decentralization, efficiency, speed? I mean, you know, how does this all shake out? I mean, it's kind of a larger question about how you see the evolution of the space as a whole,

but I think particularly through the lens of what might matter to this set of actors. I mean, a given business or institutional market participant or whatever, like at the end of the day, they don't actually really care what the specific infrastructure is, right? They care about what it does. And I think a fundamental premise of what makes some of these infrastructure is really successful is the programmable money, i.e. composable, you know, Lego money bricks, whatever metaphor

you want to use, but basically the composability of all these different protocols and smart contracts and the like. And so certainly businesses care about like what's the ecosystem I'm basically plugging into and therefore that has higher market value, utility value, whatever that might be. So that's something they certainly care about. But then it comes down to, you know, the people who are building this set of market infrastructure, the people who are building these innovations, what do they care about? Well, they do care about performance, scalability, cost efficiency.

and I think this is what the whole industry is up against right now. And this is a huge, huge thing, which is the move from centralization to decentralization and doing that at Internet scale. And if you listen to Sam Bankman-Fried, talk about this, and think about this is what is it going to take to have an infrastructure that can do a million transactions per second,

that can do web scale, kind of compute and information transmission and transaction throughput. That's what we're up against because if we really want this to be something that a billion people are using or two billion people are using, we have to get there. And so all of Defi and Web 3 is up against that set of physics limitations, if you will. And I think for this to really be, you know, let's say this video. of these, you know, extraordinarily diverse long-tail capital markets that can serve every

asset in the world and that every individual and every institution can plug into and it's this beautiful machinery that people are out interacting with to do that at scale. We're just nowhere close right now. And so I think, you know, in the past market cycles, it was sort of like we had a market cycle. There's a lot of aspiration. There were a lot of new projects started and then reality set in and then there's a lot of building right and I think you know this time around there's the reality is much firmer it's much greater but but the building is continuing and so I really think what institutions are looking for is scale capital efficiency and usability um those are huge huge things and frankly the ability to interact with this infrastructure in a trusted way and the

ability to interact with this infrastructure in a legally compliant way. And I know a lot of people in DeCentral Defi don't want to hear about the legally compliant issues, but if you want this to be used by every day, every way businesses around the world, you have to figure that out. You have to figure out a way to connect real world identity, real world entities to face each other in these markets in some way as well. So let's talk about that because that feels like a transition that could fundamentally change the shape of what we call defy. It could splinter defy into the defy that's KYC'd and the defy that's for an ons with OPSEC.

How does that transition play out? And I guess maybe let's broaden that question to ask what your sense of the regulatory landscape is, because we're dealing with a type of infrastructure that is, I mean, it runs in parallel to a totally different set of rail. that have history, that have clarity, you know, how do you see regulators interacting with that? And then, you know, what are the risks in that sort of bringing regulators up to speed with it? Well, first of all, it's like, it's absolutely critical that regulators be brought up to speed. It's never a winning game to just sort of go off and hide and hope that no one finds you.

Because that's not going to work. And the scale of this, just today, the scale of this is significant enough that major national governments are reacting in different ways. And so, you know, you have to go and educate. And what's interesting is that what's happening with the technology, what's happening with these market structures are so, so far ahead of where regulators are, that that in and of itself is a risk, because you can get, you know, if something truly bad happens, you could get an overreaction. That's always one of the concerns that one has. Right now, a lot of the regulatory focus is on identity compliance, financial crime risk, tax evasion, money laundering, terrorist financing,

all this sort of stuff. And the answer is not to say, well, that's happening in the real world financial system. So, you know, we've got blockchain analytics. It's all fine. That's not a, that's not a reasonable answer, which sometimes is the answer that you hear from various participants. I think the concept of a capital market that is for borrowing and lending, trading in exchange, liquidity of various financial instruments, the concept of all of these capital market functions existing on the public internet as autonomous software that just runs in the public domain, that hurts a regulator's head. It really hurts a regulator's head.

They're like, what are you talking about? There's no company. This is just literally open source software that's literally just running on the public internet. So it hurts their head. And the knee-jerk reaction is that's insane. That can't be allowed to go on. Like, we need to shut this down.

Right. Now, if you spend time with regulators and you kind of walk through it and explain it and say, this is a world where the efficiencies and the transparency and the risk management of this open blockchain system is going to improve the financial system. It's going to provide greater access around the world and actually greater transparency, greater audibility, greater understanding of risks, and allow entities, whether they be people or businesses,

is to directly participate and face each other through that, and that's going to improve the resilience of the economy. People go, oh, that sounds good. That sounds like really exciting. But then it comes down to we need to know that people who are interacting through this are not breaking the law. I mean, at the end of the day. And that the underlying kind of infrastructure is resilient.

And we have a way of sort of knowing that it's resilient infrastructure. And that's where I think a lot of the questions are. And that's why simultaneously one of the biggest challenges is one of the biggest opportunities, which is if you can create a way for individuals and institutions to kind of verify themselves and then flow capital in and out of these markets and know that they're dealing with and interacting with other verified individuals, then that will make this safer. and it will make it something that a radically larger number of institutions will want to participate in. And that's how you go from what sounds like a really big market today to something that eats into the

$350 trillion global equity and debt markets. So we have to make that progress. And that's what regulators are caring about. And I think that's ultimately critical thing that the industry needs to solve broadly. So you got into this a little bit, but I just want to. to see if we can get it even more crisp, because I feel like this is a conversation that you're having a lot already

and you're going to have a lot more going forward. But let's say, let's hold aside solving for the no crime thing, right? Which is a meaningful thing, but let's hold aside. Let's say that that's solved. Because that's sort of just like a, how does this exist in a way that doesn't screw up other things, kind of an argument? What's the cleanest, simplest argument for why this should be allowed to exist?

What is the benefit to the economy for this to be allowed to continue to grow and reach maturity. Yeah, I think like this is where you have to kind of step back. And it's very easy to get kind of caught up in this stuff as just like, wow, all these people making money with all these tokens and all this speculation and so on. And like that's very easy. But it's also kind of not the point of it, right? I mean, it is the point of it for some people for sure.

But like the financial system, the markets for capital are designed to support growth in the economy. They're designed to help societies raise prosperity. How do they do that? Well, they create ways to allocate capital. They enable, you know, people who have capital to provide capital to people who need capital. They create very flexible ways for businesses and households to generate value by investing it and lending it. Like capital markets are there to serve society. They're there to serve growth in businesses and in household wealth. And there's a whole structure for how they do that today. And if you look at equity, which is a way for companies to enable people to own the future cash flows of their companies in the form of dividends and having

a voice in those businesses through voting, like that's a model that works, the joint stock corporation, the evolution of that. That's a model that works. And there are capital markets for that that are today fairly narrow, right? It's only the largest businesses in the world that can participate in them. I like to use the example of in the early days of the internet. If you wanted to like reach a global audience with an advertisement, you needed to like spend like $100 million on a whole bunch of stuff that reached these big broadcast channels. And then long tail ad longtail advertising markets places emerge where like anyone could reach anyone with a directed advertisement super efficiently with incredible cost efficiency.

And that was transformative for commerce. And I think that that's the kind of change I would like to see and that we think is possible in capital markets. And what that should mean is that businesses and households can more efficiently deliver capital and borrow capital and do that more directly with fewer intermediaries and lower cost and better risk management that ultimately delivers, you know, growth into the economy, right? That's what you're looking for from this. And so it is sort of saying the public internet and this public infrastructure and this, this resilient global decentralized infrastructure can do it better. It can do it better than the infrastructure that we have today. And I think the internet has proven that over and over and over

and over again, that it can do it way better, you know, 10x, 100x, whatever you want to use as your metaphor. So I think it can do it way, way better. Long way to go still. So, I mean, basically that's a broadening in some ways of, you know, Mark Cuban in his open letter a couple weeks ago. He wrote that this could be the next great American growth engine. It sounds like that's, that's basically what you're pointing to. Well, I mean, I look at this as public blockchain infrastructure and all the things being created on top of that, everything from the digital commodity assets that fuel it to stable coin assets to tokens more broadly

that can be used for a variety of things. I look at all of this as basically building a new global economic infrastructure from the ground up natively on the internet and envisioning a global economic system that is actually operated entirely in that, quote unquote, digitally native form and mediated. by software on the internet on these open networks. And that is, I think, where the destiny of the world,

and I think that's what's happening here. And we're in whatever stage of that you want to call it, just like the world of information and data and communications has been completely subsumed by the internet and computing. This is just the natural evolution of that to gobble up a really important set of information systems, which happened to be markets. Let's zoom out now, I guess, or let's zoom forward to the next 12 to 18 months or whatever the right period is.

You kind of mentioned one of the key things that needs to happen is figuring out how the traditional financial landscape, particularly as it relates to identity and compliance, can plug in with the infrastructure that's being built. So that's obviously one thing. We can go more into that if you want. But what are other important catalysts you see over the next period? What are things that you either think you see coming down the pipeline or that you see coming down the pipeline or that you, you think should be, should be kind of have emphasis on them. It's a great question. We touched a little bit on some of this earlier in that generally scaling infrastructure is just a huge one.

And that's basically third generation blockchain technology in the form of layer ones and layer twos that are designed for, you know, being able to run an actual capital market on it, being able to run consumer scale payments throughput, that kind of thing. So that's, that's big, that's happening. That's going to be a story. of the next 12 to 18 months is like I proverbially use they're going from dial up to broadband. If you remember that transition from dial up internet to broadband, there were multiple stages along the way. There was something called ISDN, which was still using your copper wires and your house from your phone to deliver higher speed. But it was kind of like 10 times faster than your dial-up modem.

That's kind of what second generation chains are like. And now we're going way higher throughput. So that's a big thing. That's like just a general core kind of almost like, CAP-X expansion, like building out this infrastructure. So that's huge and important. The second piece, which is something that you raise and we had touched on, which is solving the problem of how kind of real-world entities, individuals, firms can disclose themselves safely in a privacy-preserving manner to these protocols, to these markets, and for the protocols in the markets themselves, to be able to know a real world identity versus an anonymized identity and enable markets and liquidity pools and other things to support that in a native way. That has to happen.

That really is critical to truly opening this up to all businesses in the world and all households in the world and so on. And I think there's a path there, which, which we're really excited about. The next piece is part of introducing identity is also about introducing reputation. We have reputation in the financial system today in the form of credit scores. In FinTech, you have AI-based reputation,

AI signals that are making underwriting decisions and so on, connecting all of that into defy, enabling lending, for example, to happen, not just for people who have a bunch of Bitcoin that are going to over collateralize and borrow on margin, but actually enable a market to price risk on an unsecured loan and have that be delivered through these markets. That kind of thing, I think it's really important.

And then maybe the third thing is beginning the process of bridging between other quote unquote real world assets and digital assets. And so enabling equity or property, to be tokenized and be made available to transact in these decentralized markets. I think that represents ultimately an enormous, enormous opportunity for how big this kind of infrastructure can be. I mean, I guess that's maybe a good question to just think as we zoom kind of as far out as possible.

Right now, these rails are being built largely to facilitate interesting types of exchange yield generation around a specific new type of digital asset that has emerged over the last few years. To what extent in the long run is the real destiny of defy to be about a reimagining of basically markets infrastructure through which any types of assets that can be represented digitally get pushed through? I mean, that's where it has to go. That's where I think it's going. And that's where I think it has incredible impact. Right now, the, the, the, the, the universe of tradable instruments are the universe of tokens. And the universe of tokens are mostly tokens of crypto-native protocols or projects

and stable coins and crypto commodity assets like a Bitcoin and so on. Like that's the universe, right? But the universe of theoretical tradable financial instruments is nearly infinite. And I look at innovations like what a uniswap or a sushi swap and all these types of dexes have done is they've solved something that has not been solved in classical markets, which is how can you create a way for an instrument that is a very illiquid instrument to actually have price discovery and have an incentive system for liquidity around something that is smaller in scale.

And so this is, you know, these new tokens get launched and there's a liquidity pool and there's AMMs and there's incentive. And actually, you can get price discovery and liquidity on that in these dexes. That's a breakthrough from my perspective, because if you think about, you know, today, just take equity, right. The vast majority of equity in companies is not tradable. It's not even close. The vast majority of equity is in private corporations. It's in the vast numbers of small and medium enterprises, startups, et cetera.

And what if you could enable a slice of that private equity in startups, in growth companies, and all these things to be tokenized and have liquidity pools and automated market makers and find liquidity and distribution in a capital market like that. That's extraordinarily powerful. And I think it's that democratization of financial market infrastructure that this represents. And it's application to many, many, many other types of assets beyond just, native crypto tokens as we think of them today. So I want to hang on that word democratization as we close out, just a couple minutes left. How do we ensure, if this is really a reimagining of the

financial plumbing that allows for this sort of, you know, a new growth engine, a new wealth, you know, kind of creation opportunities, how do we make sure that those benefits aren't just captured by, you know, the sort of limited few or the people who are already in positions of power in capital markets now? Is that the destiny of it to just kind of port one set, you know, power structure over to a new? I mean, I certainly hope not. I mean, I think, you know, the internet has democratized a lot of things. And we can argue about whether it's created super platforms, centralized, super powerful platforms like Google and Facebook and the like. But what I would say is, it has enabled dramatically more voices to be able to communicate,

dramatically more creators of content to distribute it. It's created a world where a small creator of a small product that's in some distant land can find a buyer in Cincinnati and it's an efficient market, it's a global market. It's done that, and that is democratizing. That is democratizing of information and communications and of media and of artistry and being an artist and of being a creator of products. it's been just totally democratizing. And so I just inherently believe that these internet-based platforms,

in particular this form of decentralized financial market infrastructure, is going to be as democratizing to capital as the rest of the internet has been to these other things. Super exciting, Jeremy. It is a really, really fun topic, really fun conversation. Any last thoughts before we wrap? No, I'm good. always a pleasure. Exciting, exciting times right now. Yeah, excited to check back in on this in a few months, too, and see where we are now. All right, Jeremy, thank you so much for your time. And to everyone

watching, really appreciate you hanging out. We'll catch you soon.