DTCC and BCG on tokenization and the next financial market infrastructure

DTCC tokenizes 50 plus trillion of its assets before 2030. Yes or no? My hope is that we tokenize everything we're allowed to tokenize. So I would say sort of yes. Your team is also talking to, uh, a lot of banking leaders. When you're talking to these people, do you feel that they see this as an opportunity or as a threat? It is clear is there are threats and there is also opportunities, you know. For you to understand in your specific business where is the threat and where is the opportunity, and then to come up with a plan.

How do you think about that multi-chain world and not building walled gardens? The future is not one chain that controls all of the assets. The future will be a multi-chain ecosystem. How do you think smaller regional banks will adopt to this large incoming change? If you're a very small regional bank, in our mind, it doesn't make any sense to issue your own stablecoin. I would look at- Welcome to this webinar, highly anticipated with very, very interesting guests today. Guests from companies at the center of what's happening right now in digital assets. Uh, one of them is DTCC, which settles about $10 trillion a day and custodies more of $100 trillion in assets.

And the other company is BCG, the people who advise these companies that actually do that. So DTCC last month named 50 firms, BlackRock, JP Morgan, Goldman, State Street, to start tokenizing these assets with live trades starting in July and, uh, launch in October. The same week, BCG released their biggest, most comprehensive digital asset report yet and told CEOs it's no longer an experiment, but an infrastructure transition with up to 30% of profits at stake by 2033. So today we talk with the woman rebuilding the plumbing and the people advising banks that will plug into it.

Nadine Chakkar from DTCC, Christian Schmid, and Roy Choudhuri from BCG. Welcome to the show. Thank you for having us, Marc. Thank you. It's great to have all of you here today, and, uh, before we jump in, for the people who are joining on whatever channel, you can ask questions. We'll have a Q&A at the end. Just comment under whatever stream you're on, and we'll see that, and we'll answer that at the end. All right. So I'd like to ask each one of you, starting with you, Nadine, to quickly introduce yourself before we get started. Again, Marc, thank you.

My name is Nadine Chakkar. I run the global strategy for DTCC, so I'm global head of to- uh, digital assets for DTCC. And what that means is really partnering with the entire DTCC organization as well as with our participants, uh, to bring new settlement layers, new token, new rails if you will, to the marketplace. I know you called us plumbing, Marc. I think we're a little bit more than plumbing. We do-- Hopefully, we're building the rails, uh, that the rest of the market will be able to operate on in the US market. Thank you. And, uh, you, Chris?

My name is, uh, Chris Schmid from BCG. I'm basically leading BCG's global banking business and also CIB business, and I, uh, you know, pushed this report very heavily together with Roy and Inteprit, who is not on this call, kind of, you know, to create, uh, a bit, let's say, a foundation for a discussion of executives around the topics. Good to see everyone. Uh, Roy Choudhuri. I'm a New York-based senior partner at BCG. I lead our capital markets practice in North America. Also lead a lot of our digital works and, uh, digital assets work in the US.

I've also had the pleasure of working with CFTC on some of the policy momentum in the US, so very happy to be here. Thank you, Roy, as well. And I'm Marc, founder and CEO of Fifty One, a market research and market intelligence company. All right, so let's jump into this discussion. Uh, I'm very much looking forward, and first question for you, Nadine. This is what I mentioned in the introduction. You put a timeline on your DTC tokenization services, and you named 50 firms to tokenize assets inside your $114 trillion depository. What did you actually commit to, and what do banks need to know that aren't part of this yet?

Let me just start at the higher level. So DTCC is actually owned and governed by its participants. Um, so the 50 names are really, it's not exclusive to these 50 names. Our efforts are open to everybody. So mainly our participants that can tokenize their assets, and we're also working with a whole slew of other, uh, partners and, uh, uh, vendors across the ecosystem. So at a f- you know, there's, there's not a press release that's long enough to be able to name all the people we're working with. What we've committed to is based on the no action letter that we were granted by the SEC back in December, is we're moving forward, and we're gonna start, uh, tokenizing the assets that we have in, in custody.

So we're moving forward with that, but in order to do so, we've spent a fair amount of time, uh, building the rails to ensure that we can, we can prov-provide the market with a scalable, safe, and liquid solution as we move forward. We also have got to, uh, remember we are the depository in the United States, and we also appreciate the fact that not everything's gonna convert at the same speed. So we've spent a fair amount of time ensuring that we can, uh, tokenize whatever assets our participants would like to tokenize, but at the same time, we also need to make sure that the traditional assets are also, um, compatible, if you will, with that setup.

So clients are gonna have access to their traditional assets, to their, um, d-digital assets, and our job has been to ensure that we bring them all together. So that's what we're committing to, but it's really the main infrastructure that's required, uh, to be able to, to, uh, advance tokenization in the US markets and hopefully globally. Yeah, and I would say this time it's really happening. For the people who think this is just another DTCC pilot, what would you tell them? It's really not a pilot. I mean, if you look and, and clearly the report that Roy and Chris will, will, will discuss shortly, you look at a lot of the news that's come out this week as well.

You're starting to see the convergence of the Holy Trinity, right? Like you've got infrastructure, got players like DTCC, Nasdaq, and New York Stock Exchange moving into the fray. We're seeing a lot more on d-digital cash, whether they're stablecoins or, uh, tokenized deposits. We do need cash on rail to be able to move forward. The third component is you need regulatory clarity, which we have been blessed to receive. So what you're starting to see is institutional investors starting to move off sideways and moving into the sidelines and moving right into, r-right into it. So when we tokenize on July for- fifteenth, it is not an experiment.

These are real trades, uh, real shares, real cash moving, and, um, hopefully that would be the beginning of a long and wonderful, uh, tokenized, uh, environment in the US market. So we are done with POCs. We're done with experiments. This is about real world assets moving on real rails to make a real difference. World where everything is tokenized. Chris, in your report, you call that an infrastructure transition, not an innovation theme. Can you explain us- What is happening right now? Well, I mean, it is really an infrastructure transition because, like, it's very technological and, like, it, there is...

it's a different technology, right, which also brings kind of new technology or new functionality, I wanted to say. And I think, I mean, what you see with DTCC is like, uh, I mean, that, that's obviously, that's the core of the core of, you know, our securities infrastructure in the US. So if they move, like you see that there is an infrastructure transition. I think the, the big question is like, you know, how fast and how, you know, long it will take. And there are some analogies to other industries, like the telecommunications industry when it's, you know, switched from circuit switch to packet switch, kind of the telecommunications, uh, technology.

Or also even if you think about 2G, 3G, 4G technology, 5G technology, which always, like, is an infrastructure transition and which usually takes, like, uh, many years to complete. In the case of telecommunications, like it's 20-plus years. And so I think that's what we're gonna see. The big question is like, uh, you know, how quick and also who is gonna pay in the end, right [chuckles]? So I think that's, uh, that's the question. But that there is-- that we are starting to see an infrastructure transition is very clear. And Chris, y-you've been advising banks for the past 27 years, and you've seen a lot of these transition happening in the past years, uh, while advising these banks.

What are some similar or comparable things that you saw in the past with what is happening now? Not at this stage. I mean, this is so profound. I think, I mean, what we have seen, I have seen two waves, right? So I mean, the last of this profoundness was probably like the move to electronic trading, which I haven't experienced myself, right? So I'm even, I'm already [chuckles] like 57 years old, but like, uh, that's not old enough to have seen that, like, uh, real life yourself. Uh, what I have seen is the emergence of the internet, um, you know, in-including the dot-com bubble, but then also really the emergence of digital business model, uh, kind of after the great financial crisis with neobanks arriving.

So these were smaller transitions, I would say, but still profound, and they always had this no-notion of, you know, we, uh, overestimate them in the short term, but we underestimate them in the long term. Um, I think that's the theme. So there is, you know, no, no reason to get very nervous right now, but really reason to do strategy and to think hard kind of where to invest. And your team is also talking to, uh, a lot of banking leaders around the world of the world's biggest banks. When you're talking to these people, do you feel that they see this as an opportunity or as a threat?

Because one of the big numbers that you mentioned in your report is that, uh, almost 35% of profit is under scrutiny until 2035. What's your feedback from these conversations? I mean, that's really kind of a model. So if you try to model kind of, you know, the impact of this technology on the certain assumptions, you can come up with that number. How it exactly is gonna play out, we're gonna see. What it is clear is there are threats and there is also opportunities, right? And so, um, I think, you know, the discussion we're having kind of is exactly around that.

It's about, you know, for you to understand in your specific business where is the threat and where is the opportunity, and then to come up with a plan, right, how to, how to act. So I think we, we, we have many discussions with, with boards, um, kind of around this, and we always look at both sides. I don't know. I, I'm sure that Roy can also add to this because he also talks to many boards. It's a really good question. So Mark, firstly, I would say that there has been a evolution of the conversation in the last sort of 18 months, right?

So if I look at 18 to 24 months back, I think many of the board members and even senior management would conflate crypto and distributed ledger technology and tokenization. So I think that conflation was not helpful, I think, for the momentum, uh, of this. And I think now there is a clear distinction between the two. I think whether you decide to participate in the crypto trading ecosystem or not, I think that's a choice. But there is no confusion that this is quite a different, uh, use case, different technology, and has significant transformation potential. So I would say that is a very positive momentum.

I would say there is broad consensus that, uh, led by the US and globally, there is a significant amount of policy clarity and reg momentum on this topic. There is maturity of the technology for really to be, um, taken seriously as an institutional-grade technology with all of the bells and whistles that you would expect of a core market infrastructure like data privacy, cybersecurity. So there is a acknowledgement that there has been a significant maturity of the technology, and I think Nadine and some of the use cases she's leading has really been very helpful to change that perception.

I think the part that is still, I think, early stages is really client adoption. And I think to drive client adoption, I think the industry together needs to make a stronger case on what is the value proposition for issuers, investors, uh, corporate treasurers in, in adopting tokenization and digital assets, right? I think, so the financial services industry, I think needs to do, uh, continue to do a good job in really articulating the value case, uh, for this. Uh, as I think we mentioned in our report, this is a fundamental shift in the market infrastructure. It's going to take a while.

The legacy and the new market ins- infrastructure will sort of coexist. But I think many are starting to appreciate that there are really two high-level reasons to do this. One is a significant amount of operational efficiency on how financial services work, and the second is there is a significant amount of financial resource efficiency. I think some of the work that Nadine is leading around collateral really go to the heart of it. There is a lot of locked financial resources- ... suboptimally used across the ecosystem, and this technology can unlock both the financial resource and the operational efficiency associated with it.

Roy is absolutely right. It, it's, it's-- Right now, we're at a stage where we need more adoption, right? So, and it's with more adoption that we're gonna be able to finally transition from a world of proof of concepts to proof statements, uh, where we could quantify these benefits, whether they're, uh, capital savings, cost savings, or additional new revenues, as they both highlighted in their report. So this is-- and this is what we're-- You know, when you asked me earlier, that is exactly what we're trying to facilitate, right? Like, getting more people on board, being able to prove all these hypotheses and turn them into reality.

And that's why it's so exciting, um, as we rush through the next couple of week before we go live, at least live on a unlimited basis. Yeah. Nadine, speaking of adoption and being at the forefront of building these technologies, you've been doing this for a while. Previously, you built State Street Digital. You led State Street Global Markets. You've been in the capital market industry for almost thirty years. How have these conversation changed over the past years for you as a builder on the ground and pushing that adoption compared to, yeah, let's say, four or five years ago?

The environment is different, Marc, and but we, we, we had a lot of trials and tribulations, uh, some success, a lot of failure. Uh, but, you know, the, the most important thing is you gotta get up and, and keep trying. And eventually, as I said earlier, uh, in late '24, what we did see is, is a change. And the final unlock that we needed was the regulatory support, uh, which has been coming in drove, um, and that's what's helped us break through. So that '25 no action letter for DTCC was honestly a watershed moment, uh, that's allowed us to move forward.

But all these setbacks and all these trials and tribulations and POC and all the things that I've complained about publicly that we've, we've just been in experimentation mode forever has, have really led us to this moment. So it is all the work that I've done in TradFi, and it's not just me. It's, it takes a village. Uh, the partnerships that we've had with BCG, other banks, other financial institutions have all led us to this moment, right? So we do know there's goodness in this technology. We do know, uh, we know technology works, right? We do know that it could live up to its hype and promise.

But what we do need is more people to have that conviction and to start, and start moving forward. And, um, and we hope with the work that we're doing on really building the infrastructure of the future. And again, this is not just a DTCC initiative. This is an initiative that we've got loads of partners, and our participants are working really hard to move in that direction. And we will prove that we can future-proof, uh, the, the rails, uh, of, uh, of capital markets, and that's really exciting moment for all of us. So you're right. We've been working decades to, to, to get us to this moment, and we're just starting our journey.

And Marc, if I'll just complement with one more thing that Nadine said is, I think we're starting to see the flywheel of digital assets sort of come together. I think a lot of momentum around real world assets, as Nadine was highlighting, but also a complementary progress around tokenized form of money, whether those are synthetic CBDCs, stable coins, or CBDCs. So you're having sort of two of these come together, the cash leg and the security leg, to really unlock the value for market participants. Roy, in your report, you also talk about different types of digital assets, and for those who aren't in the digital asset ecosystem, they still see cryptocurrency as cryptocurrency, but there are actually many different forms of cryptocurrency.

Can you break this down a bit? What types of digital assets described in your report and do you see in the market? Happy to do that. So I think the way we see the ecosystem, so at one end of the spectrum, obviously, is cryptocurrencies. Let's leave that aside, uh, for the moment. But as you move away from cryptocurrency, the next high-level bucket that we see are a tokenized form of money. So if you think of the cash leg of a transaction, and the tokenized form of money comes in a few forms. It could be tokenization of existing commercial bank deposits, which is tokenized deposits.

It could be stable coins. Um, there's a lot of momentum in the US and globally around stable coins. It could be central bank digital currency, which is progressing in some markets, maybe not so much in the US. And there are, uh, synthetic forms of CBDCs, like the work that Finality is doing. It could be called a synthetic CBDC. And then there is tokenized money market fund, which is an interesting instrument where it could straddle between real world assets and also play a role of tokenized money, right? So the next bucket I think that we describe is really tokenized money.

And then you have tokenized real world assets, which are your traditional asset classes like equities, fixed income, uh, commodities, real estate, private capital. We're seeing a lot of interest and momentum around private capital. So that's sort of the second bucket around, uh, tokenized real world assets, and you have a range of sub-asset classes. Then I think you have a couple of cross-asset class lenses that you need to take, like securities financing and the momentum around repo market really cut across asset classes. And then you have derivatives margin as another space that sort of cuts across.

So we see those maybe a little bit more transversal financial plumbing, uh, across this ecosystem, right? So that's how we think of it. Crypto, tokenized money, tokenized real-world asset, and then there are sub-asset classes within each of them, and different stages of adoption, momentum, and value case, right? I think equities and fixed income are two good examples where we see different levels of momentum, I think in, in both of these spaces, so. I think just for me, it- a simple insight, but like to see the, th- you know, the size of those groups, right? So like cryptocurrency is like or was three trillion, let's say, at the end of last year.

Now it's a bit lower, but still it's in the trillions. Tokenized money is like three hundred billion. That's more or less the stable coin, uh, market cap, and then tokenized real-world assets is at thirty-- only thirty-three zero billion, right? So you have always a factor of ten in between. Of course, the s- the smallest grows the fastest, and also cryptocurrency doesn't grow so fast, especially in the current environment. But I think it's important to keep this in mind. So like if you talk about tokenized real-world assets, we are still very small, you know, against the pool of like three hundred trillion or so of, uh, real-world assets.

We're-- So we're really at the beginning of this transition, yeah. Beginning of this transition and also big opportunities despite that profit and revenue impact that you describe in your report. And you're saying probably the biggest opportunity is asset management and trading. Can you unpack that for us? Why did you reach that conclusion? Yeah. I mean, I can quickly, you know, start with that and then, like, Roy, you should also say something about trading. So the two, you know, banking businesses stand out simply because in asset management, kind of the, the pool of assets that can be managed increases, right?

So today, a lot of, you know, assets are not managed. They s- sit in some custody account or somewhere, but they're not like under asset management per se. And so tokenization, we believe, like will increase that universe of like assets that can be brought into kind of managed wrappers, if you want to say so. So that's a good news for asset managers. Also, you know, um, kind of real-world assets that weren't available so much. So it's much easier to create tokenized real estate, for example, kind of tokens or, you know, for example, also certain commodities or like private credit or so, which you can put into tokenized form and which can be distributed more easily.

Of course, there's an also suitability question, et cetera, so not all the issues will go away. But overall, let's say the asset universe that can be managed is gonna increase, and which is why we believe it's a good story for asset managers. I think in trading, it's like, uh, probably trading frequency will increase, but probably also trading margins will come under pressure, so probably that will be a bit like even each, each other out. But the big thing is about, you know, capital that is being used and also liquidity that is being used for trading.

So there might be a big jump in return on equity in trading because simply you need less equity and less liquidity to actually operate those businesses. So that's, let's say, the hypothesis. Roy, you have anything to add? I think one of the benefits of, uh, digital assets and tokenization will be to increase the velocity of money and optimization of resources. I think the work that's being done in the collateral space by Nadine and team is a great example of that, right? I think you can drive intraday liquidity around securities financing markets. So th- that obviously increases the velocity and the number of transactions and trading.

So we think it'll be helpful in that case to unlock financial resources. There are some markets where, uh, liquidity, uh, is a challenge. I think there are pockets of fixed income market and private capital space where, uh, tokenization can really create significant amount of market liquidity, which will be, uh, incredibly helpful for investors and price discovery, but will also drive, I think, opportunities around trading for, uh, many of the, many of the asset classes. And on asset management, I think it's a very competitive industry. Margins are constantly under pressure in asset management, and tokenization can drive significant efficiencies in the whole fund management life cycle, as well as provide clear traceability and lineage from the fund to the underlying asset for the investor.

So it'll be very helpful in improving transparency and lineage, but also drive operational efficiency within the fund management space, which is going to be important for the competitiveness of that investment. We definitely see that the biggest super app right now, uh, for, uh, for tokenization is around collateral. So the ability of moving money at the speed of the network to be able to, uh, pretty much mark to market in real time, that reduces a lot of capital, the cost of capital. Um, it makes, um, financing a little bit more affordable. I would also say on the fund management side, fully echo what they both, both Chris and Roy said, and, uh, the, the beauty here is, um, the-- it also opens up new distribution channels for these fund families and, and fund management firms.

We usually look at one side of the equation. I think the cost benefit will be a bit slower, uh, to, to come across because what we're gonna realize too is a full retooling of the front, middle, and the back office as this, uh, proceeds. But the most immediate impact for the, the, the firms that have the courage, if you will, to rethink, uh, their distribution model, their commercial and operating model, you'll see an uptick, um, a lot, a lot faster. So there's a lot of promise to this technology, but we've gotta get going, and, uh, I know I sound like a broken record.

We ne- we do need people to jump in, try it out, understand how it impacts them. Um, like to your point earlier, time for talking is over. Let's, let's move. Um, and listen, if it works, awesome. If there's things that we need to fix, we can fix it and move forward, but we truly believe that this will give us a b- much better future. Nadine, you're saying we need to get going. What is the biggest hurdle right now for you to get people into the boat and actually trying these things? We've gotten, uh, like if any of your audience is a cook, we've got the mirepoix there, right?

Like we've got, we've got, as I said earlier, the infrastructure, we've got the regulation, and we've got the digital cash. Now the infrastructure is, uh, the, the issue now right now is the overall s- uh, state of readiness, um, of these, of these firms to start to move forward. And, and Mark, for ten years, right, uh, we have expressed a lot of frustration that we've been spending money and time and energy, yet nothing is moving. And if you look up why that was, is we sort of fragmented a market that's really had a lot of, uh, consolidation in the past, right?

Like DTCC is the sole pulse trade provider in the US, but digital over time sort of Fragmented that landscape because we had a lot of different firms setting up their own infrastructure. So that's hopefully, uh, coming, uh, to a point where DTCC, through our work, will hopefully act as an aggregator of data and an aggregator of liquidity and move forward. But what we did find out, though, is a lot of, a lot of innovation has been done via press release over these years, and now that we're ready, uh, to move forward, I think a lot of firms are taking a step back and going, "Are we truly ready?

Do we have the right infrastructure for wallet management? Do we have the right infrastructure for trading risk management?" So it's not the same. A lot of people felt, uh, and Roy hin-hinted, hinted to that in his earlier comments. There are new novel risks that will emerge from doing what we're doing, and firms have a responsibility. We, we, we are fiduciaries. We're not mon- we're not managing our own money. We're managing it on behalf of others. So our risk management must be super clear. Our compliance capabilities must be super clear. Holding these wallets safe, uh, is gonna be...

And that's what we're seeing. So that's why we broke our go-to-market approach in two. The first phase we're doing in July is really to allow the industry to, uh, test the waters, make sure that they're ready, um, during the summer. We'll allow them to jump into the pool and really test out, uh, all the things that they need to do, hopefully with, with the f- uh, with the big launch in October. So that, in my opinion, right now, is really, uh, where we stand. But a lot of the things that Roy and Chris outlined in the report, like when I read it, um, it's spot on.

Like, it's, it's not a hedge anymore. Like, it's time to move forward. There's gotta be no regrets, uh, spending and, uh, investments, um, as we move forward. And a lot of firms also just... Financial institutions are very cautious by nature, as they should, and you want them to be. Well, you talk to a lot of them, they're like, "Ah, we'll be, we'll be a close follower." But this is moving so fast that there's gonna be a gap between the people that start, um, and that close follower that could be, could be a bit tough to, to, to catch up.

So our job, uh, the beauty of what I do is I don't compete with any of these firms. Uh, what we're truly trying to do is bring, uh, a new... And this is important, too. For the first time ever in our collective history, we will have shared digital market infrastructure with an emphasis on shared, uh, which is critical. And as we move forward, uh, uh, we'll, we'll hopefully see more adoption. But, um, talk to me on, uh, you know, early November, and we can give you a good sense on how, on, on how that goes.

Or maybe I-- Everything Nadine said, she, she articulated it very well. I mean, if I just distill it into two things that I think will be needed to continue to drive momentum, uh, one is education, and this is where our reports, uh, try to contribute a little bit. I think there is still a lot of work to be done in educating boards and senior management team at banks on the benefits, but also more importantly, what are the novel risks and how are those risks going to be managed? I think we are still in very early stages on that education journey.

If I see the awareness and the education that has happened at the senior-most level on AI, um, in a very accelerated fashion, I think we need the same for digital assets. That is sort of one, I would say. And I think the industry continuing to articulate, uh, how this will unlock value for issuers, investors, and corporates, I think is going to be important so that it doesn't come across that a solution looking for a problem. But there are real problems that this will help us solve. So that value proposition, like if the industry is talking to a corporate treasurer or an investor or an asset manager, how is this going to help you unlock value?

Uh, I think that will be equally important to continue to communicate. And there's a little bit of digital fatigue as well, right? It's been on 10 years, and we've yet to be able to deploy something that's tangible and, uh, um, so hopefully that's being addressed. There's, um, ano-another point I wanted to make is this technology, at least at the outset, is not replacing what we have. So the numbers you s- you-- and I hope, too, to your audience, the numbers are staggering, right? Just in the US market alone, there's $150 trillion in assets, and we settle $4 quadrillion worth of securities a year, right?

They're, they're humongous numbers. Like, I've had to Google how many zeros are in a quadrillion, uh, in order to wrap my head around that. So what's really important is we cannot, uh, just rip all the old stuff and replace it by the new stuff, um, and that's why it's really important to get the conversation going in, in tactical terms. The purpose of our working groups, um, so the, the 50 that we named and, and a lot, a lot of others that we didn't name that are all part of this process, is to also there's fundamental issues in our markets that really work well.

Like, I can't tell you how many people come up to me and go like, "I can't believe you're not supporting atomic settlement," right? The fact of the matter is we are so efficient that we net 98% of our trades. So there's not enough money on the planet that would allow us to take all that money and settle it in real-term gross, uh, settlement, right? So there are very fundamental questions like netting, like settlement, like clearing, that we as an industry need to come together and solve. So I just wanna also manage your expectations with, with the group that we're not ripping the old and putting in the new.

The new will supplement and enhance the old, and maybe someday, you know, it will all work on digital. But that's-- It took us 55 years to get to where we are today. We just need the people to be a bit patient with us as we, we, we move forward, um, and enhance it. It's really like driving on the Autobahn and changing the wheels at the same time, so it, it requires a lot of caution as we, as we move forward as well. So it's not because we're slow. It's not because we don't know. Uh, we, we've got pretty good ideas on how to do that, but we've just gotta be careful with the s-stability and soundness of the capital markets.

I definitely agree with you, Nadine, and Chris and I had this discussion before the webinar started. That there's definitely a, a mindset shift also in the crypto digital asset community, where a couple of years ago it was more of crypto versus banks, and, and now it's more of banks and crypto is actually something that needs to function together, and it's becoming almost one industry, and people are starting to, uh, jointly work on building this, right? I wanna- Take up something that you mentioned, Roy, when you talk to your clients and banking leaders and you said there's a lot of education needed.

What are the competing topics that you are discussing with them? I know AI is a big topic. Chris, you also mentioned private credit. How do these banks handle these e-emerging, also very important topics, and do they recognize that digital asset is something important to them, or do you hear that differently? I think they do, but I would de-average it a little bit. So if you are a $50 billion regional small bank in the US, is this topic on your top five list of the management team? Probably not, right? And, and it shouldn't be because you have other competing priorities around the survival of your business.

But if you are a global GSIB with significant role in financial markets, uh, is this topic on your top 10 priority then? Absolutely, right. So I would say we need to look at the different market participants, uh, the role that they play in the ecosystem, and it is a important topic for many, but maybe not all. A $50 billion small bank in the US absolutely should be a follower rather than a leader, uh, in, in this. In terms of competing priorities, so I think the good news is that this is a top 10 priority for every major financial institution around the world.

This is a topic for discussion at the board. This is a topic for discussion at the management team level. Um, so I think that has changed in the last 24 months. If you had taken a poll of, uh, all of the CEOs and said, "Hey, does digital assets make your top 10 cut?" two years back, the answer would probably not have been a yes. And I think that has changed, and we should not under, sort of, play how a massive shift, uh, that has been, right. If you look at other competing topics, I think, uh, you mentioned a few.

I mean, AI is top of the list. I would say that is a higher priority because of the immediacy and, uh, the, the magnitude of change, um, as well as the much compressed time horizon that this will play out in. Uh, so AI is definitely one of them. I think private credit is another. I think cost is top of mind, I think, for many players. Growth is another one. Uh, I would say with the, um, with the consolidation in the banking industry, we are starting to see, I think M&A and partnerships are top of mind for many of CEOs.

So I would say this is a top 10 topic, but this is not the only topic. And I think what, uh, firms are trying to figure out is the question is not whether they should have a role and whether they should do something. The question they're trying to figure out is what are the no regret moves, investments, partnership, use cases that I should focus on now. Uh, what are the, uh, tipping points in the market that I need to monitor? As an example, for many, uh, stablecoins initially may be a defensive move, and they're engaging in stablecoins as a defensive move.

But if they see a significant adoption in agentic commerce or with one of the large, uh, e-commerce players, then their perspective could change quite rapidly. So I think it's good to have a very clear view on the North Star, like five to 10 years from now, what do we want to be known as in the digital assets and tokenization ecosystem, and do we have a platform strategy? I think having clear vision on that and aligning the board and management team on that vision I think is important. What are the no regret moves I should make today, whether those are investments, vendor engagements, partnership, consortiums, what are those no regret moves I should make today?

As I think about my North Star, what are the core foundational components of my tech stack that I need to start thinking about, and whether those are built by partner, I think having that view. And then a very clear view on the key tipping points that I should very systematically monitor so that I know when the market adoption is shifting, I can really go into gear and accelerate my investments, is what we are recommending to the, uh, to the most senior management at, at Arktos. And if anything, you know, the report is really a bit of a, let's say, a call for action to do this type of thinking.

It's not a call to action like, uh, you know, the world will be completely different in five years from now, but it's a call to action to really think it through and make up your strategy versus just say, you know, stand at the side and, and look what happens. Chris, question for you. One of the most important numbers in your report is that $88 trillion that is gonna be tokenized, uh, in digital RWAs. As I told you, we've been following the space for many, many years now. We look at every report of big consultancies. We look at every report of every bank, and that's probably the most bullish number we've seen, 88 trillion.

How did you arrive at that number? It's indeed, like also Citi just came up, although most of them don't do 10 years projection. Um, I'd say, look, it's big and it's not big. Like the, the key assumption was like it's 16% of all the real world assets are tokenized by in 10 years from now, right? And then you have kind of a bit of a exponential growth to get there. Um, and the 16% is also very differentiated. So for example, in equities, we don't see the immediate kind of, you know, uh, tokenized equity, like a native tokenized equity.

But for example, in commodities or also kind of, uh, bonds, you can see kind of, you know, higher numbers, and that's basically how we came up with this estimate. Now, you can truly debate whether this should be 16 in 10 years from now or whether it's like 8%. I think, you know, this remains a debate. Um, so we don't have a crystal ball in that sense, right? Um, but it also, you know, is the base for a scenario. What would happen if it's 16% and what kind of impact does that then have on kind of your trading operations, your asset management businesses, also kind of your, um, net interest margin and kind of, uh, transaction banking.

Um, and so, you know, if we do strategy, we come up with a bespoke, uh, estimate and also what then that me-means for your specific business and company. So I would take it with a grain of salt. It's not the absolute truth, but it's simply, you know, sixteen percent, it's not unthinkable. You know, if it's the eighty trillion they're projecting or I think Citi has done, what is it, Chris, seven trillion by twenty thirty, they're still big numbers, and you need that flywheel, you need that momentum. Listen, I'd, I'd be happy with a trillion in the next cou-couple of years.

[chuckles] Uh, we, we-- and, and again, it's I think momentum will drive momentum, and that's gonna allow us to finally, you know, put, put real numbers and really show that the hypothesis that we've all been carrying around, uh, will do. So I think sixty percent could be very modest if we can demonstrate, uh, that all the things we've been talking about are true. Right now, they're on reports. They're me running around talking. It's Chris and Roy and yourself, Marc, uh, preaching the gospel. So I, uh, it-- that's why it, it is super important that, you know, as we, we, we get momentum, we'll move stablecoins, tokenized deposits.

I mean, all those will help in pushing the numbers, but it's really not about the number per se. It's really about the momentum and proving that we can add value, and I think that's gonna be of critical importance. So if it's seven, it's eighty, it's a hundred, it really doesn't matter. As Chris said, we don't really have a crystal ball. I'll, I'll also maybe add that maybe what seems a bit of a stretch of imagination in the first instance maybe is not so. So if you just take a very simple example, there are trillions of dollars of derivative margin that are exchanged every day amongst market participants.

The US Treasury repo market is about a trillion, uh, and more. And these are markets where a few counterparties coming together can make a significant amount of difference, right? So there is no reason why not in the near term, if the core market participants come together and agree to, uh, drive momentum, you couldn't see those markets transition very, very quickly, right? So I think many of them are pretty concentrated markets where fifteen to twenty counterparties drive a huge amount of volume. The business case and the value proposition is very compelling, so you could see these markets transition at a much quicker speed as the flywheel of adoption sort of gets going.

And Nadine, something you mentioned, uh, at the beginning is what we have to do is we have to set a standard across the industry, and you also said you're not building walled gardens. One of these standards that we need to set is if on what chain do these assets settle on, but every chain wants to be the standard. And, and I know that you, uh, started working with Canton. You also started, uh, working with Stellar. I think you have your own chain that's, uh, partly built on the EVM standard from Ethereum. How do you think about that multi-chain world and not building walled gardens?

We're clearly not building wall-walled gardens, right? We truly believe in the power of interoperability, um, and we believe in an open ecosystem. And what you're gonna see, and when Roy was talking about the challenges of different, different financial institutions on different sides, it may not be-- digital technology may not be, uh, right, right front and center of what they're worried about. But you're also seeing, uh, the world becoming a lot more interconnected in this space, and we're moving away from vertical, you know, ecosystems into more network-driven organizations. So yes, everybody wants to be the standard of the chain of choice.

We personally don't believe, and I, I rambled off the numbers that we're dealing with. There's nothing out there that can handle, uh, the speed, the scalability, uh, that we need. Uh, so we, we are working with, with the market, and, um, actually we've, we've done a fair amount of work with, uh, BCG and the two other large ICSDs in the marketplace to start to think through what are, what standards we, we can put in place. So I'm less concerned about how many chains we're operating on, as long as we've got good interoperability standards, good data standards, uh, good, good risk standards, if you will, that we can overlay, um, o-over that.

So that is what's driving Marc, our, uh, multi-chain strategy. Canton and Stellar are, and Baseu are among the first. I promise you they will not be the last, and you'll see more. But we d-- we have to do a lot of work behind the scenes to get comfortable that a chain, uh, first of all, uh, satisfies client requirements. So there, there, that's the first request. The second one is liquidity and then a lot of technical terms there. So we are building the harmonization layer that sits on top of it to ensure that you can move assets very, uh, easily among the various chains.

The most important challenge we have is every single chain treats data differently, so what we're trying to do is harmonize that data. 'Cause think about this, Marc, we have to process corporate actions. We process the dividends that everybody, uh, gets paid on, the interest payments and all that. And if you've got a s- Apple stock that's trading on multiple chains, there's a fair amount of work to like harmonize that data so we can pay people what, what they're owed, deposit it in their wallets, um, uh, in a, in a timely and accurate manner. So that's why we, we don't b-- like we-- It's not our job to pick winners and losers, and we will not do that.

We will follow where our clients wanna go. There's clearly technical requirements and other things that we need to look at, um, and that's how we will build the ecosystem. Maybe over time. I mean, I can't tell you. I get an email a day from somebody going, "Hey, we've just built the most amazing blockchain on the planet." I get one of those a day, if not more. Um, and we wanna-- we will look at all of them, and if there is something in there that would make the markets more safer, more scalable, then by all means, we will engage.

So no walled gardens, no experimentation. Uh, this is an open infrastructure. We're building shared infrastructure. We want people to connect into it so we can avoid any fragmentation of liquidity, any fragmentation of data, right? Because everybody can tokenize. And how do you know that if you started with a thousand shares of something, after all this, uh, uh, iteration, you still have a thousand shares, right? So you need a good control location is what we do. You need to make sure the liquidity doesn't get fragmented, and that's why the digital shares and the traditional sh-shares share one CUSIP, and that was done on purpose by design.

Um, and we-- listen, we will continue to work, uh, with fintech, big tech. Um, it will take a village to get us to where we need to be. So, um We're, we're open to everybody and anybody that has a great idea. Uh, we may not adopt it immediately, uh, but we will work with people to make sure that we're, uh, operating towards the common good. You see a very important theme here, right? Which is, like, the ability to orchestrate all of that. I think at the moment we have many technical discussions, even the discussions around is it stablecoin, is it tokenized deposit, is it CBDC?

I mean, the clients don't care. So in the end, those institutions that can shield all this complexity from clients will actually win. Yeah, Chris, I think-- I don't-- I can't remember one of these reports... I'm sorry, Roy. But you're, you're spot on, Chris. One of these report talks about, like, the emergence of the new structural orchestrators. Um, and it's something that actually I've got a little sticky on my, on my screen because that, that really spoke to me, and this is what we're trying to do, right? We don't trade, we don't, we don't service client accounts, right?

What we do is ensure the s- that the smooth, uh, the smooth movements of markets. And all the things that I just talked about are not the sexy stuff, right? Nobody wants to worry about data. Nobody wants to worry about finality of settlement. Nobody wants to worry about corporate actions processing, and this is why DTCC is really extending its role as the record keeper of the market into this digital age. But I love that word structural orchestrator, and that is, that is what we're striving to be, like digital financial market infrastructure over time. I have to double down on one other point that he mentioned because I think it's so important to understanding.

I think the target state of this ecosystem is not sort of one overarching chain that conquers it all, right? I think the future will be a multi-chain ecosystem. But, I mean, there will absolutely be some consolidation in the, in the industry, but the future is not one chain that controls all of the assets, but it's really a multi-chain state of the world. But you have a very strong set of standards and interoperability for movement of data, which is going to be the main, I think, difference to the financial market infrastructure today. So a reduced need for reconciliations, et cetera.

And I think that's a role that DTCC, um, will, will critically play, right? I think you need someone that can orchestrate but also set sort of common standards for many of these chains as they, uh, operate on the same assets. Roy, before we jump into our Q&A, one last question for you. Uh, also a big topic and a big change for banks is how risk moves across the organization, and I know you have a big chapter, uh, on risk in your report, and you say AML transfer limits freeze authority become code. What does actually change in the risk model of banks?

So firstly, I think we have to acknowledge that, um, this is a different technology. The way you approach this technology is different, uh, and there will be some risks that are not changing. So if you look at any asset class, there are some common risks. But this technology and the adoption and the change will create some new risks. Like, for example, you need to think about cyber differently, or you may need to think about quantum risk differently, right? So there are some novel risks that you need to think about as you, as you embrace the technology.

Uh, and I think the work that we did with DTCC Euroclear on sort of starting a risk taxonomy on how to think about this was, I think, the first time, uh, this was articulated as a, as a very structured sort of risk ID process, right? So I think that's sort of one. What we mean by that is, given the programmability and smart contract features, a lot of the risk processes that are done offline today can now be integrated within code. So as an example, when you're thinking about tokenized money and how to address for, uh, transfers to unauthorized wallets, that can be done through a whitelisting or a blacklisting.

That sort of logic can be integrated within the smart contract code itself. So I think that'll drive a lot of efficiencies where you have risk and compliance integrated in the code rather than this being a post-transaction sort of, uh, risk process that is being done with a lot of manual overload. So you could have risk by design integrated within the code of some of these, um, some of these infrastructures that are being built. But we do need to think about what are the novel risks, what are the mitigants against those novel risks, and how can we, um, integrate that within the design of the infrastructure and in code right at inception.

Maybe just like taking the meta level, right? A lot of it's like technology actually makes risk management much, much stricter. You can enforce it much stricter because you put it into code. But this is also a change, right? So far, risk management also had some discretion and, you know, some, um, some thinking, uh, before you move into action. And I think this, like, is gonna change risk management, um, in quite a way, especially in, in situations of crisis, right? Where you need to have discretion and, like, uh, you need to think about what you do.

Here, it's put in code, and I think that's something which is not completely solved yet, yeah. How are you gonna do this? But one can also argue that it, it enhances risk management to the point where if, if a big event occurs over the weekend and, you know, you can cover your exposure and move things around because you can now trade twenty four seven, which is really important, and you've got venues. Uh, so but you're right. I mean, I think we're a long way, Chris, where code becomes law. Uh, but y- we in, in, uh, the DTCC tokens are what we call compliance-aware tokens.

So you actually can embed, um, you know, uh, your own risk management, your own smart contracts, and make these tokens smart tokens that can operate, um, in those, in those circumstances. But, um, yeah You're, you're right, but I think it also enhances risk management, at least from an investment perspective. It creates other, uh, headaches for risk managers, don't get me wrong, around smart contracts and cyber and all that good stuff. But at least from a risk management exposure, I think there's some benefits there that hopefully as more people get on, on, online and on chain, we'll, we'll-- they'll, they'll be able to flush that out.

Thank you, Nadine. We're almost at the end of the show. Before we jump into a quick lightning round, questions from the audience. One of the questions I found here, uh, to be interesting, I see, Chris, you already mentioned it partially in one of your answers, is about small banks. How do you think smaller regional banks will adapt to this large incoming change, especially on the payments, stablecoin, tokenized clearing, tokenized deposits and settlement space, which are critical for these smaller banks? No, I gave my answer in the chat, but Roy, what's your view? Yeah, happy to take that.

I think for smaller banks, I would really look at it from the revenue pools that I have today, identify the right industry initiatives that are going on. So as an example, if you're a very small regional bank, it... in our mind, it doesn't make any sense to issue your own stablecoin. I would look at what industry consortiums are active that are looking to solve the problem and maybe join that, uh, both as a learning experience but also to mutualize the cost of adoption. So really not going on your own, but finding the right partners, consortiums to really join.

And then the pace of your, uh, investment and adoption should be driven by your client base, right? So if you have predominantly domestic clients, uh, that are not moving money cross-border and don't have a lot of cross, um, uh, bank flows, then I would question, I think, the need for a, a tokenized deposit investment, right? Whereas if you do have a client base that is international, is moving money cross-border, uh, then, uh, it would absolutely make sense. So also thinking about where your clients are in their adoption journey and the value pool for the client and making sort of selected investments yourselves or more effective might be joining the right partnerships and consortiums to drive that investment forward.

Marc, if I may, I just wanted to add a, a few points to Chris's, uh, entry into the chat and, and, and Roy. I think it's also-- I wa- I wanna double down on the concept that these are shared in blockchain infrastructures, so they don't really need, uh, to be able to build, uh, from scratch. Uh, I think you saw this morning in Wall Street Journal, we've seen a coalition of banks right now, uh, launching, um, a, a, a tokenized deposit platform. Uh, there's also reported news that the likes of Visa, Mastercard and Stripe are doing the same on stablecoins.

So these ramps are being built, um, if... And Roy's absolutely right. I mean, they've gotta have the right business case, [chuckles] uh, to be able to do that, not just FOMO. Um, and I take a lot of calls from a lot of small banks going, "We wanna do this and that and the other thing." When you ask why, you can never get a right reason, with the exception like JPMorgan is doing that or BlackRock is doing this. But the beauty of this technology, it does open it up, right? Uh, and it does create the shared infrastructure.

So there are on-ramps and off-ramps to doing so, and depending if your business is global, uh, then stablecoins may be where you wanna go. If your business is more local, tokenized deposits may be what you wanna do. Uh, but the beauty of this is there's shared infrastructure today that can help even the smallest bank participate, um, in this digital revolution should, should they decide to do so, and that's really important. Uh, this technology sort of, uh, lowers the barriers of entry for everybody, uh, to go in and participate, um, in this financial, uh, you know, financial infrastructure and financial, uh, services, which is really cool.

I agree. Yeah. Thank you, Nadine. Uh, another question we had from V is thoughts on the CLARITY Act. If stablecoins become the settlement layer for tokenized assets, who ultimately owns the ALM problem: the issuer, the banks, or the market? So firstly, maybe I'm not sure the question is ALM problem or AML problem, so, uh, it could be one or the other, I don't know if it's, uh, it's a typo. But if it is an ALM problem, then I think maybe the question is around interest rate risk management. So I think obviously the stablecoin issuer will own the interest rate risk management on the reserves, uh, and will manage that.

If I interpret the question as an AML problem, which could also [chuckles] be one, one maybe option, then I think it's a slightly more complex option, right? I think there are multiple layers of responsibility. I think there will be responsibility at the end of banks and other distribution partners that are enabling this coin or stablecoin access to their clients. I think they will have some AML obligations. The issuer will have AML obligations as it is written in the Genius and CLARITY Act. So I think it'll be a, um... it'll be both the banks, distribution partners, uh, and the issuer that will have specific AML responsibilities.

Banks, for example, may need to do AML, KYC checks as part of client onboarding when they provide wallet access, but the issuer may also have some responsibility in understanding where-- which wallets their coins end up in and, uh, doing travel rule and other sort of checks. So I think it'll be common responsibility across the table. Yeah, I think the simplest answer is all of the above it's, if it's AML. Like, everybody's gotta continue to play their role. We can answer questions after the show as well in the comments of our streams. Before we end though, I wanna do a quick lightning round with you.

Those are very short questions with short answers. And the first one is one for Roy. What scales first, collateral, repo, or fund distribution? Well, I think Na- Nadine is already on her way to, uh, scale collateral and repo. So my, my bet would be collateral repo is a really attractive use case. There's a lot of value to be unlocked in that ecosystem. There are a small number of market participants, and with Nadine's leadership, uh, I would, I would bet on collateral repo. [laughs] And then one, one for you, Nadine. Uh, DTCC tokenizes fifty plus trillion of its assets before twenty thirty.

Yes or no? Twenty thirty is three years. I mean, again, we're limited by no- our no action letter, Marc, so it is that universe that we're authorized. But my, my hope is that we up- we tokenize everything we're allowed to tokenize. So I would say sort of yes. All right. And for you, Chris, build, buy or partner, what would you advise global banks? Well, certainly like to start, partner. In the long run, probably build. But it depends on the component. Thank you, Chris. Uh, thank you, Nadine. Thank you, Roy, for, uh, joining this webinar. We would have had a lot of more questions, but we're at the end of time here.

It was a pleasure to have you on. Thank you for these insights, and thank you everyone for joining on our stream. Thank you, Marc. Thank you. Thank you for having us. Roy and Chris, it was good to see you guys. Yeah, good to see you. 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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