BCG’s Christian Schmid on digital assets and the future of banking

What were banks getting wrong that you thought made it worth writing this report? This is a, a very complicated topic. That's probably the most interesting topic I have seen in my whole consulting career. Stable coins as a threat to banks. Overrated or underrated? That's definitely overrated. [gentle music] What is the widest gap between what banks are saying and what they are actually doing? By now, every CEO has this somehow on his radar, but there is a, a wide variety of how they go after this. Thirty seconds with a bank CEO who says, "Yeah, whatever, we will wait and see." What is your pitch?

My pitch is: waiting and seeing is not a strategy. Or m- it might be a deliberate strategy, but- Welcome to another episode of 51 Insights, today with Christian Schmid, Managing Director and Senior Partner at BCG. He leads global banking, he's Chairman of the Board at BCG Xpand, and he's the lead author of the latest BCG report, The Future of Digital Assets. Christian, welcome to the show. Well, thank you for having me. I'm looking forward to. Yeah, likewise, I'm really looking forward to this conversation because it's the first time we actually have someone from one of the consulting leaders on this show, and it's timely because you recently published your flagship digital asset report, the biggest digital asset report you ever published.

It's a beast, and I highly recommend everyone to listen and read to that. I will link it in the show notes. Chris, the first question I have for you is, there are new digital asset headlines every day. You chose to write that sixty-eight-page flagship report aimed at CEOs. What were banks getting wrong that you thought made it worth writing this report? Yeah. So I mean, I wouldn't say banks get anything wrong. So that was not, let's say, um, you know, the initiator of that report. The initiation was rather I realized that, like, uh, this is a big topic, right?

So I'm leading the global banking business, and that entails obviously kind of many topics, kind of we- where BCG is active. But I started to realize one year ago that, like, this is really becoming big, so I wanted to make it an effort. And then I also realized that, like, while many executives understand by now that, like, this is significant and kind of, you know, most banks want to do something, typically, you know, they don't fully understand it. And I also have to say, this is a, a very complicated topic. That's probably the most interesting topic I have seen in my whole consulting career, which is like, uh, twenty-seven years almost by now.

And it's, has many dimensions, right? So it has not only the technological dimension or the client needs or the product, but it also has such fundamental questions around what is our monetary system, and also geopolitics in all of that. And so it's really hard to understand. And so I thought, like, I gonna write almost like an educational report, which, like, uh, is geared towards, uh, board of directors, but also towards CEOs and executive boards and other executives that helps them beyond the headlines to understand kind of, you know, how to structure this topic. Kind of also what are the key themes and how to think about them.

Also giving some quantification. So that's, that was really the motivation for me to write this report. And it's really a beast of a report. I mean, at fifty-one, we've been tracking this space for years. We've been tracking these reports for years. We probably read every report that every consultancy and every big bank published so far, and this is one of the most comprehensive ones. Now, before we jump into the report, let's step back for a minute. You've been in consulting for twenty-seven years. You've been working with leadership, CEOs of big banks across the world for many, many years.

What has changed in the conversations that you have with these people over the last five years when it comes to digital assets? I have to admit that, like five years ago, I wasn't so deep into the topic as I'm now. It was like a, a small group at BCG, I'd say that, like, was deep in that topic, and that also corresponded to the banks. I think the banks, five years ago, they had this somewhere on their innovation agenda, so the innovation team somewhere kind of, you know, looked into this because, you know, it's not-- If you dive into it, it's not hard to understand kind of the potential this technology in the end has kind of for the whole financial system.

But, you know, people even went in some, you know, in some pilots also, for example, in trade finance, which weren't successful. So there was a little euphoria, I would say, like a few years ago, but then it died down, and it stayed in the innovation department. And it's only US administration, Genius Act, Clarity Act, that is getting, being discussed that, like, this really become, like, big on the agenda again. Mm-hmm. Yeah. I, I definitely agree with that. We've seen, uh, particularly in the US now in the last year, thanks to Genius Act, a lot of banks who entered the space and started doubling down on digital assets.

And you mentioned you've been twenty-seven years in the game, and you've seen a lot of these transformation already. When you compare digital assets or blockchain, uh, and what's happening now to previous transformations that you saw, how would you contextualize this? How important and how much bigger or smaller is what's happening now compared to maybe electronic trading or any other thing that you've seen? Well, electronic trading, to be humble, this was before I [chuckles] entered kind of the whole kind of space or consulting space, so this is kind of a while back, and I guess there was not many executives left that, like, would still be around at that time.

Uh, but still you can start it. I think, I mean, what I've seen in my time was, let's say, you know, the internet in general, kind of in the early 2000s, so these I experienced. And then the more broader, you know, topic of digitalization kind of in, after the financial crisis, so in the years like 2012, '13, where you had a lot of startups and neobanks also coming. So these were, you know, big topics that, like, uh, came around the corner at that time. I think- It is always a bit, let's say, the same. You overestimate the effect in the short term, and you underestimate it in the long term.

That's probably just like how the human brain works. And so that's also if you look at kind of the report and how the model plays out, that's also kind of, you know, in financial terms, not a lot happens in the next five years, but it's really after that, like, where, you know, the spread is opening between those banks that kind of, you know, uh, integrate this into their business and those that do not. And I think that's exactly, was exactly the same with, for example, the broader customer interface digitization, like with mobile banking and the whole neobank era, where, you know, I remember executives saying almost a bit laughing at Revolut at the time.

Although Revolut acquired a lot of clients, and so already the number of clients you could say, "Hey, this is significant," but they were producing losses for years after year after year, and executives in established banks were laughing at this model. And see now, like, uh, ten years later, they have a market capitalization or potential market capitalization, which is bigger than many of the biggest banks, right? And so I think that's also, let's say, what you see here or what I would expect about this technology. Albeit, I would say the technology can also be even more fundamental than just a neobank.

Can be more fundamental because it really changes the way the whole, not only the technological part of the system works, but also kind of the whole system, also even the monetary system, if you want to go very far. And so it's profound. It's very profound, but for profound changes, usually it also takes its time. Yeah. And that makes it also challenging because it touches a lot of areas within a bank. And zooming now into some of these claims or findings that you have in the report, one that stood out for me particularly is that you said that up to fifteen percent of revenues and thirty percent of profits are at risk by twenty thirty-five.

Uh, this is significant. And at the same time, you say that the asset management and trading opportunity is bigger than the threat to banks, so bigger than this threat of revenue and profit loss. Uh, can you unpack that for us a little bit? How do you explain these numbers to banks? How do they have to think about these numbers, fifteen and thirty percent? Yeah. I mean, first of all, this is like a number that comes out of our model, which w-- kind of we created, and this is like basically comparing a world without digital assets or a bit, let's say, take today's world, ceteris paribus, and compare it to a world where you would have a strong development kind of, of the whole space, especially driven by non-bank actors.

And then with regulation that follows, like consumers that start to adopt it. I mean, it's a bit like what you see at the moment with stablecoin on a small scale, of course, where regulation-- like clients are starting to using it, and so regulation needs to somehow bring this into the regulated parameter and catches up. And so if this type of world would continue, which also would go hand in hand with a very strong role of stablecoins, kind of then, of course, the traditional banking business gets under pressure. It gets, first and foremost, transaction banking gets under pressure, so what banks earn today with fees in transaction banking, but also the net interest margin with deposits that kind of flow away to stablecoins gets under pressure.

There are also many other parts, right? And so then you come up with these numbers on this, and maybe what I forgot to mention is also on top, they will face like additional costs because they need to build those dual rails, and they also need to maintain the dual rails, which increases the cost base for those banks. And so it's almost a bit of a double whammy. And so if you do the simulation, and it's also only a simulation, and it's as good as a simulation, right? So you come to these numbers of, uh, thirty percent of profits at risk in ten years from now and also fifteen percent of revenues.

Now, you know, I don't have a crystal ball, uh, kind of how this is exactly playing out, but it shows-- I only want to illustrate the potential significance to banks' businesses, right? Whether this number is completely correct or not is actually a bit irrelevant, I would say, but there is a threat. And to your second question about the opportunities, I mean, what is also clear, it's clear that there is a threat, how big we can debate, right? But what is also clear is that there is also lots of opportunities. And opportunities I specifically see in the area of asset management, um, without going into too much detail, but in asset management is like, as the word says, it's basically manage assets in a wrapper, right?

[chuckles] And so the question is like, how much of the assets out there can you bring in those wrapper where you actually can earn fees on it because you manage it. And so in a tokenized world, this is much easier. Our assumption is, uh, because of this reason, but also others that total, you know, kind of assets under management, the total volume is actually increasing. Also, distribution will be easier because by nature, y- with DLT, you have a global reach, and so asset managers will gain by, you know, by a significant extent. So that's what the model says.

And on trading, it's probably a bit less clear because there is positive effects and there is negative effects. There for sure will be much higher trading volumes, which you could see when ETFs were invented, also the trading volumes went down, but also fees came under pressure. So this might actually level it out in terms of kind of revenues you do with trading. But the more profound effect, and it's hard to understand it, you can read in the report, so there's lots of kind of components to that. But also there is an expectation that you're gonna need less capital and less liquidity to trade, and this would be beneficial for the return on equity because you need less equity for it, which can be very significant for large trading organizations.

So that's a bit, let's say, the headlines, it's assumptions, but it gives you a sense, I think, to have a strategic discussion. And in any case, like every bank needs to do this analysis on their own. Because every bank has a specific business profile in specific regions. And so this type of number is for the whole industry, but it might look quite different from bank to bank. What's interesting about this is that you describe this, obviously there-- every disruption brings threats, and every disruption brings opportunities, right? And you just described the big opportunity. What we've often hear in the crypto corner is crypto was invented to replace banks, and it's a fight between the traditional system and this new system.

And then you have other people who are saying, "No, this is not a fight, this is a joint effort." And more and more increasingly, it's becoming a joint effort because the big banks are just integrating that technology into their already existing business model. When you speak about, like, thirty percent of potential profit loss if you're not acting as a bank, do you think this is just a dent in the business model, or do you think this is actually technology who might disrupt the fundamental business model of a bank? Yeah. I mean, in all these things, you don't-- you cannot make the, the whole calculation without clients and also without regulators.

So first of all, clients are not, as some executives say, they are not banging at the door of banks, say, "Give us stable coins or give us tokenized deposits." So this is like clients, you know, must want this, and kind of that's one thing, and also, like, banks are very essential for clients because banks are trusted institutions. And when it's about money, I mean, it depends on your risk appetite [chuckles] but, like, I don't put all my money in my MetaMask wallet with a, you know, self-managed key, but I rather put it in a trusted bank which kind of manages the key for me and where I need to know where to go when something goes wrong, right?

So I think that's also basic human psychology. So to discard the banks, uh, in a very puristic kind of, you know, crypto native way, I think would be a bit naive. And also, secondly, you know, if things go wrong, we saw it in the financial crisis. I mean, where do people go to? They go to the state. They go to the ultimate lender. They go to the central bank, and they go to the regulator and very quickly say, "How could this happen? Why did you not foresee that? Why, you know, did regulation allow this?" That's also why I think, uh, we learned that lesson, hopefully, a very costly lesson during the great financial crisis, that regulatory system, central banks and regulators are very important as ca- you know, to safeguard the whole financial systems.

And so I think you need to go the way together with them. And also I-- you know, in my discussion with, for example, central banks and even regulators also, I see a lot of openness for new technology because regulators don't feel, you know, they're not guardians of a banking business. They're ultimately guardians of the consumers. And some-- a lot of what is going on here is good for consumers. So why would regulators and central banks be against, right? So they just don't want to have another big crisis. I definitely agree with that. We recently had Hester Peirce, the SEC commissioner, on this show as well.

And I mean, her work in this space has been extraordinary, and it definitely feels like they are trying to do the best for the consumers and for innovation. All right, so let's dive a bit deeper into the report. One of the things that you do is you split digital assets into three categories. For a CEO who still sees all of this as just crypto, how would you explain this to him or her, and how would you make that distinction between these different categories? I think it's very important to distinguish, right? So, for example, you know, the report of the US administration about making the US the crypto capital of the world is obviously like taking a broader kind of, you know, meaning of the word crypto.

So they want to describe digital assets, but I don't think it's very helpful because cryptocurrency per se is a very different thing because it's not backed with, you know, any value, and that's very different from digital money or digital real world assets, which, you know, is much closer to what we have today. So I think it is important to distinguish these three forms of digital assets. O-one is just like a security as we know it today, but in a tokenized form, in a new form. I think in twenty years from now, we're not gonna care about, right?

[chuckles] So whether this is actually tokenized or whether, like, it's the traditional way. The same thing for digital money. In digital money, it gets a bit, let's say, you know, this notion of stable coins, that's a new thing. Although it's also not a completely new invention. I mean, Tony Maclaughlin, you also had him on the podcast. I think he always makes this kind of quite good comparison to travel checks. Also, it was debated in the whole narrow banking kind of, you know, discussion after the great financial crisis. So it's not a complete new concept, but at least it's a concept that never got scale in that sense like we have it today, but it's still backed by high quality assets, or at least that's how it should be.

Like, it's money, right? And cryptocurrencies per se have this speculative nature, and you can be divided over, you know, is this really a value and how is this gonna grow? You see like our projection, actually, I think we even don't do a projection, which means [laughs] that we also believe it's like there is not a huge growth. I think it was about two percent or something like that. Something like that. But it's, like, important to say that in today's world, that's where the money is made, right? So that's, like, where people are trading with digital asset, where they use stablecoins.

So it's very significant for c- the current industry, but I think it will not be so significant going forward, right? Yeah. And I definitely agree with that, Chris. I, I just came back from Proof of Talk in Paris, and the conversations we had there also with investors, or the question of where does value actually encrypt though. And what I think we're seeing is that a lot of this value doesn't accrue in tokens anymore because the infrastructure build-out of these later on is mostly done, and they're very interchangeable in a way. It's very commoditized. Whereas you have an application layer now on top of that, whether it's DeFi application or whether it's, you know, international, uh, stablecoin transfer company that gets acquired by Mastercard for two billion dollars, or an infrastructure company that IPOs and accrues a lot of value.

I think that's where the value is gonna flow in the ecosystem, whereas tokens will... I don't know the future of tokens. They probably won't accrue most of the value like they've did in the last ten years. I f- agree with that thesis as well, and you also write that value migrates away from pure intermediation towards issuers and consumers. What does that mean for a bank? Where should a bank place its chips? That's an interesting one because, you know, in essence, DLT is a technology which, like, creates a lot of transparency and also creates peer-to-peer connections.

It's actually beautiful. I mean, for me, my Keplr wallet is, like, is in that sense is not very handy, but it's great in a sense, you know. I take a dollar, and I pay it to somebody, and I can transfer it immediately. So having such a thing digitally and with no visa, no acquiring bank, kind of, and the whole kind of thing is a beautiful idea, and maybe kind of, you know, we will get there in payments, let's see. So that's also why, you know, fundamentally there is less value of intermediaries because the network is open, and we can, can transfer.

At the same time, I think that's also not fully true because, like, if you're coming to my MetaMask example, MetaMask wallet is kind of somehow complicated. I mean, not that complicated, but still complicated if I think about managing all these keys myself for, you know, large amounts of value. That's, like, cumbersome, and that's where I think banks or also non-banks, right, come in. But I think the future battle will less be about, you know, do you have fiat money, or is it stablecoins, or is it, like, you know, tokenized deposits. The consumer is not interested in that.

I think the, the future, let's say, fight will be around the consumer interface, like, and whether you can kind of, you know, bring all this wonderful technology, like, in a very manageable and beautiful way to the client, what we have seen the, in the whole digital banking era. So I think that will be where the battleground is in that sense, like, if you use this military analogy [laughs] in business, which is always a bit difficult. That's a good way of putting it, and a good example for that is probably what Aave, uh, launched a couple of months ago.

Aave is one of the biggest DeFi protocols. They launched an app in the US where everyone, including my grandmother, can download that from the App Store, uh, put some fiat money on there, uh, change it into stablecoins, and generate a five to nine percent annual yield by using Aave protocol in the back end. But she doesn't need to know that. She just clicks a button and gets that yield. But in that case, Aave owns the user interface, and they also own the back end. So I think it will be interesting to see, like, how banks will react to that.

Well, that's also why you see-- That, that's exactly where, you know, the competition is. That's also why you see a lot of these kind of crypto companies, uh, also, uh, applying for bank licenses. So imagine Aave is very successful, then they want to extend their client services, and then they get into banking service. They will apply for banking licenses, and the same is true for banks, right? So the banks, I think one of the most imperative for banks is basically to realize, hey, there's lots of consumers out that own crypto, maybe now also new forms of digital asset like the Aave example you brought, and they have that, but they don't have that with me.

So, you know, I need to enable my apps and my technology kind of to, for clients to hold that. And so I think that will be the very big first step for any bank. Chris, you also looked at a lot of use cases in your report, and use cases are always the hottest topic in crypto because everyone is in search for them, and some of these use cases are, uh, really ca- use cases in search of a problem, and others are actually real. What do you think, which use cases are real right now? Well, really, on the two ends of the spec, the, on the retail end or also wealth management end, but, like, a private banking or personal banking end, is really crypto trading, so that's the use case which is big and live and which also needs stablecoins.

And more and more also, you know, you can trade other things, not just cryptocurrencies. And then on the other end of the spectrum with the institutional clients is really kind of, you know, what you see with Conexus, Broadridge, these type of applications where it's about collateral mobility, you know, repo financing and all these type of things where there's just lots of efficiency to be gained to do it in an atomic way. And so that's the two end of the spectrum. I-if I might add one, which is not, let's say, so prominent for us in the Western world, but it's like the store of value use case kind of in emerging markets and also kind of the cross-border tran- money transfer use case also to emerging markets.

I think that's probably also a significant one. If you say something which is more in search of a problem, still I'd say, for example, trade finance. You can beautifully imagine how this could be much more efficient, but it's just that's a bit more down the road, yeah. I-- Sorry, let me add something. It's just that also this use case discussion is also very prominent, and in the end it's also important because that's how we build business cases. But if I'm a board, and I don't have the time to go into every use case and also, like, I take a step back, I think it's important to realize the power of this technology, which is more a multipurpose technology, which can be, you know...

That's I think in some of the press releases we did around the report, I described it as the iPhone of money, which combines all the technologies in, in one thing through the programmability, through DLT, and I think that's also from a strategic point of view important to realize because you can build many use cases. And also while clients might not bang the door of banks right now yet, once you offer something like the example of Aave, and, and you can bring that to consumers and it takes off, it can be very big, right? And suddenly clients are starting to ask for this.

So that's just, I think, an important caveat if we think about this whole use case discussion. I agree with that, and I, I wanted to ask you, in those conversations that you have with these banks, what is the widest gap between what banks are saying and what you hear in these conversations and what they are actually doing? Because some of them are doing a lot of things already in digital assets, some of them are doing almost nothing. What's your personal experience here? Yeah, I'd say by now every CEO has this somehow on his radar, or his or her radar, but there is a, a, you know, a wide variety of how they go after this.

So some, like Standard Charter very publicly, of course JPMorgan with Kinesis, but in a more, let's say, closed loop system, and maybe some others are going after this very actively and also see like a real business case and real value and real money in this. And then there are others which see, "Yeah, yeah, this is important," but, you know, now taking the decision to invest a couple of hundred million into digital custody, digital wallets, and kind of new products, that's then another discussion, right? Which is like, uh... So there is a, is a great variety of banks who, uh, you know, made a strategy versus not made a strategy and just believe this is something important.

I think there is quite a variety, yeah. Do you see any other, like, competing topics right now with big banks, uh, that compete for mindshare and capital and, and resources? Totally, right. So all the time. And like, I mean, this is a, this is truly a crazy time. I mean, in my twenty seven years, I haven't seen that because, like many things come together. There is of course not only digital asset, there is also AI, and there is also, you know, private credit and the general shift to non-bank financial institutions you, you see in kind of specifically also in the CIB business.

This thing of non-banks, AI, digital assets is like a, a really big cocktail. I don't envy CEOs because, like, this all calls for money, all calls for trade-off. There needs to be a lot of investment, and that's next to kind of, you know, the, all, all the different problems that are out there. And so it's a very challenging time, and there are big trends in the industry than next to digital assets. What would you say is the biggest challenge today for a traditional bank? Just you mean, like, not just in digital asset, in general? Yeah, in general, yeah.

That I think I find it hard to say that because this is really individual. I can tell you what the themes are out there, especially in the CIB sector. On the one hand, like in CIB, you see a big growth trajectory. So like for many, many years, like CIB businesses have just been more or less stagnating. Also, return on capital of banks kind of was like, uh, low. Was basically below, like for a very long time after the great financial crisis, it was very low, and there is now, at the moment, there is a lot of growth out there.

There is lots of, uh, you know, growth to be captured, and that's just like, you know, just that's a growth problem. Like, you know, which clients to target, you know, how many-- how to drive the sales force, how to get to those revenues. So that's like, I think, a big theme in the industry of GSIPs, if you think about. Then the other, I would say next big theme is really AI. So how to-- I mean, what you can see what happens in AI is just like mind-boggling, right? So what you can do. But then the application of that in your bank in a cost-conscious way, also really getting the benefits out of this, that's a daunting task, right?

And so kind of, uh, it's easy to do announcement, but it's very hard kind of to really drive value through AI and through these use cases. So that's probably number two. I would say even bigger than digital assets is still kind of the whole kind of private credit and kind of, uh, you know, shift to non-bank financial institutions. And then certainly as an industry topic, kind of digital asset is top of mind and is kind of calls for strategy. So I would say probably in this order. And then for every individual bank, there will be other things that are also very important, right, because that's bank specific and the, and the, the market they operate in.

I mean, it's a, it's a big world there. Yeah, and speaking of AI, you wrote in May twenty twenty-five, "The AI reckoning is here." We move beyond pilots. We hear a similar message now in your report with digital assets. So it's pretty urgent, I would say, uh, reading your report for banks to act, but how urgent is it actually for them? What's your take here, and how do you define urgent? Yeah, I would say it's just topics you need to act on. It's like I come back to what I said in the beginning. It's like you tend to overestimate it in the short term and underestimate it in the long term.

So, you know, do your strategy, do a prioritization, focus, because essentially you cannot like, you know, do everything. So you need to have a certain focus and then execute with discipline. So that's, I, I would say like the recipe, uh, for success. I... You know, it doesn't help to have this great sense of urgency and the many priorities, in the end, you don't know what you do. So these are trends that are real, that are there, that need to be digested and that need a strategy. But just do that and then execute, right? So that's how I would say.

I don't want to ring a huge alarm bell, and I always hate these consultant reports which are kind of, you know, crying for a big problem and buy a project from the consultant, then you're fine. That's exactly not what I want to do with the digital asset report. I think the digital asset report is really geared towards, like, educating people about this so that they can make their strategy, um, if it makes sense, together with us. But, like, the-- just they make their strategy and get moving, right? And also get clarity in the whole clutter that is out there.

And you also describe the four scenarios for the end state of digital assets in your report, which you describe as privately led, institution led, fragmented, and partially constrained. Can you explain that for us? What does that mean, and which scenario is the market most underpricing? As like-- As always, like, you want to do scenarios that are a bit, uh, kind of, you know, distinguished or, you know, special because otherwise, like, if you create these scenarios that are almost the same, that [laughs] doesn't make sense. But they are a bit extremes, that's what I want to say.

So starting with the fourth scenario, that's basically almost the base case in a sense of like, that's a world without digital assets. So imagine there is a huge, you know, crypto crisis. Somebody, like, loses a lot of money and then suddenly regulators get very restricted about it and the whole thing develops much, much slower than we anticipated. So that's a bit of a almost like take today's world and just do it ceteris paribus, right? That's like a base-- That's also the case where we compare against, yeah. And then the other three scenarios is really like I try to distinguish kind of in a sense of who drives it.

So the first one is the private-led scenario. That's almost a bit like what you see now, where kind of there's lots of kind of, uh, fintechs and crypto natives doing stuff. Regulation follows. Like, you know, they're actually supported by the administration in the US who wants more innovation. And so this, like, creates consumer demand, but also almost like regulation catches up. Stablecoins will become very big, but also digital real world assets gonna become big. That's a bit, let's say, one scenarios which doesn't favor banks, I would say, especially regional banks, because they can almost not play in this field and catch up.

Scenario number three is almost, in a sense, like the same, that you also have a rapid development of kind of digital real world assets, but it's much more institution driven. So stablecoins you will see in niches, but, like, the dominant form of digital money is really tokenized deposits and kind of, you know, CBDCs. That's probably where Project Agora kind of, you know, is pushing towards. So basically a modernization of the current system. And where also, like, banks are gonna introduce digital real world asset, digital securities, but it's really driven by the institutions and the banks.

And then the middle scenario was a scenario where you would say, "Hey, there are regions in the world where it goes this way. There are other regions where it goes this way. There are regions where it's constrained." So it's a more fragmented world. I would almost say that's a bit what you see at the moment, the more fragmented world where also a lot of geopolitics come in, where you have different regulations or nuances of regulations, which makes it more difficult to actually do that on a global basis, which also creates, again, opportunities for arbitrage, for example.

But where you-- Under such a scenario, it's harder also to get liquidity and it's harder to justify the investment. So the whole development will be, uh, still significant, but small, like, uh, smaller than like in the other two cases, yeah. Do you have a personal view on how this fight between tokenized deposits and stablecoin is going to play out? That's [laughs]... That's-- Well, the first thing is to note that stablecoins will not grow, you know, limitless, right? So that's also a thing we say in our report. We basically give an upper boundary of fifteen percent of money supply too, which will be, if I'm not mistaken, around twelve trillion by, uh, twenty thirty-five.

So that's a maximum. And you know, we find that by comparing it to cash penetration in developed economies on the one hand side and then, uh, retail money market funds, uh, kind of on the other hand side. And so that's how we come to the fifteen percent. So a complete, you know, replacement of deposits through stablecoins with a complete narrow banking system, we don't think is even-- that's not plausible, you know, unless all the regulators would suddenly do a complete change of the monetary system and kind of accept this as legal tender and so on.

So I-- we don't think that, like, this is a scenario where the world will go in. There will be some self-regulating mechanisms playing here. Then it comes down to the use cases. So some of the use cases are just-- And also to speed, obviously, like to speed, because- Like tokenized deposits preserve the current monetary system, but they need an interoperability agenda. That's why you see Project Agora, or yesterday, or I think, yeah, it was yesterday evening, the announcement he did. For domestic payment, for example, kind of, we believe this is kind of the way it goes.

But for some other use cases, like into difficult-to-reach areas of the world, like cross-border. Also, we thought about derivative margining, which is a use case kind of, you know, for stablecoins where you don't need yield. So these are use cases where probably stablecoin will win. But also remember, I think an important element is also just, like, how fast the actors are. I think the fintechs at the moment are just fast, and they can build solutions which are then also a bit harder to replace by banks. And banks, because there is this interoperability agenda, it needs a lot of coordination effort, and coordination often also comes with time.

And so that's also where I see a bit, let's say, the race. So it's hard to say, but it's, stablecoins will be also limited by nature. That's what I would want to- And one of these coordination efforts is also happening in Europe right now with Hugh Wallace, the stablecoin initiatives with around 30 European banks. I hear you here. Uh, Chris, uh, closing on a, on a personal note before we jump into a short lightning round, you trained as an engineer at ETH, and you came up through IBM, not through a market desk. When you look at programmable money, what does the engineer in you see that bankers around the table miss?

[laughs] That's a tough one because, yes, I was an engineer, but this was a long time ago. Although I, even now, I use cloud code now to, to code some stuff. I even programmed the tokenization platform. I think it's programmability. So even the imagination of kind of, uh, that you can program money, I think that's a fascinating one, where even I, if I think about, you know, like, I think there are so many use cases you can do with that, and so partly management, I think that I would bring it down to that. All right, so almost at the end of the show here, a quick lightning round.

Those are, are short questions with short answers. Uh, the first one is, overrated or underrated, central bank digital currencies? Definitely overrated. Overrated or underrated, stablecoins as a threat to banks? That's definitely overrated. One word for what is actually slowing institutional tokenization, tech, regulation, demand or trust? All of them. Then public chains or private chains for institutional money, which ones will win? Both. Then thirty seconds with a bank CEO who says, "Yeah, whatever, we will wait and see." What is your pitch? My pitch is, waiting and seeing is not a strategy. Or may- it might be a deliberate strategy, but, like, it would be good that you really thought it through and came to that conclusion consciously that, like, you'll wait and see.

And the last one, something outside of crypto, a book, idea, or a conversation that shaped how you see the world, could be finance, could be anything else. The Bible. All right. That's a, a great ending. Chris, it was a pleasure to have you on the show. This was very interesting. Uh, where can people learn more about you, about BCG? Oh, well, just on our website or just write me. I mean, uh, I'm, you know, it's a big passion topic for me, the whole digital asset topic, so I, I will engage in the conversations, like, if you contact me, and yeah, it will be interesting to see what comes.

Yeah, that's great. And we'll link your, uh, LinkedIn profile in the show notes as well, Christian Schmid on LinkedIn. We'll also link the report, the show notes. Chris, thank you for joining. I wish you all the best and talk soon. Thank you for having me. It was a great pleasure. You obviously liked this video enough that you got to the end. Listen, do me a favor, hit that like and subscribe button because I think you'll like it. And if you want even more, with more I mean incredible alpha, research, and digital asset market updates, subscribe to our newsletter on fifty-one, that's the number five one, insights.xyz and get the most actionable insights on digital assets.

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