#9: Tokenisation Unlocked: A Glimpse into the Future of Financial Markets

00:00:02: Hello and welcome to another episode of Fintech Stories, a tail-wessing podcast which explores the latest legal regulatory developments, trends and hot topics in the fintech sector from across the globe.

00:00:12: I'm Ursula George senior associate in our financial service regulatory practice And In today's episode we'll explore one Of the most consequential developments in the financial services industry nowadays Which promises to reshape the financial markets?

00:00:25: We know tokenization or financial assets.

00:00:28: I am very pleased to be joined today by Josh Peshko, global head of compliance and regulatory strategy at TALOS a US based institutional trading technology provider that delivers infrastructure for trading in managing digital assets.

00:00:42: Founded Brian Broker's OTC desks and exchanges with the broader crypto ecosystem through a single interface, covering pretty much everything from price discovery execution to portfolio management treasury settlement in post-rated analytics.

00:01:03: Josh welcome to our show.

00:01:05: tell us something about yourself and what you do?

00:01:08: Sure it is always great talking again my friend that�s Yeah, that's a great introduction of Talos.

00:01:15: You know we have offices all over the globe and being in digital asset space for eight years now We've seen a lot evolution.

00:01:23: The founders of this firm and majority are people who work here grew up in traditional finance And their jobs In those roles were to build the trading technology many large firms run on Now!

00:01:35: In past few year working with these firms To bring them into the digital side and really combining all the workflows.

00:01:43: You know, my job day-to-day is to chat with interesting people like yourself Miroslavl and try to understand the market and understand the problems that our customers have during this transition and really try to navigate the intersection of compliance in regulatory space to make sure everybody's doing the right thing.

00:02:01: we're building on a direction.

00:02:03: Yeah it definitely an interesting area.

00:02:08: Well, let's kick off.

00:02:10: I mean everyone who was following the financial services sector in recent years has almost certainly stumbled across a topic of tokenization or financial assets.

00:02:19: ever since the ICO bull market we know from back in twenty seventeen twenty eighteen The industry had been looking to explore the benefits that they use of DLT could bring through the financial market transactions primarily terms of efficiency improvement so for time over operational cost-efficiency.

00:02:35: obviously This comes against the backdrop that the existing financial markets run on a legacy financial market infrastructure, which were not designed few decades ago in way it would provide for instant clearing of settlement to begin with.

00:02:50: For this there are many different reasons so from regulatory to technical reason but we can come back later today The numbers when it comes to tokenization also seem support growing industry interest.

00:03:04: According to the latest reports from DCG and Ripple, The total market cap of tokenized financial assets could easily hit eighteen point nine trillion US dollars by twenty thirty three.

00:03:15: But Josh let's kick off with some basics.

00:03:17: for those who are not familiar With a topic.

00:03:20: when we talk about tokenization on financial assets what exactly do We mean?

00:03:24: By that

00:03:25: yeah Yeah What you know there the past six months especially.

00:03:30: You Know the term tokenization has been around for years.

00:03:34: But there wasn't a lot of meat to it, right?

00:03:36: The past six months the conversations that are having is no longer about the price.

00:03:56: The asset underneath of it doesn't change right?

00:04:00: so a tokenized treasury.

00:04:02: It's still a Treasury.

00:04:03: What changes?

00:04:04: is the plumbing?

00:04:05: Right, So the question Is you know why does this matter right?

00:04:08: so to stay tickets that back to frame it in the u.s.. There was an entity probably most people don't Don't even know or have heard of called seed and co Ciden.

00:04:18: Coe is the central nominee for the DTCC.

00:04:21: Seed holds the legal title for nearly all publicly traded securities in the US and over a hundred trillion dollars, right?

00:04:27: For one nominee.

00:04:28: All right So when you bought a share of Apple You actually own a beneficial interest in a share that seed holds for your broker who holds it for you.

00:04:37: Alright sometimes there can be like seven links in that chain It's organization collapses.

00:04:42: all of that Right.

00:04:43: if the chain is their record The trading layer and the ownership player become won.

00:04:47: alright There's nothing to reconcile overnight because nothing is sitting in multiple places.

00:04:52: And there's really kind of two models we can get into where how something gets tokenized, right?

00:04:57: There was an issuer-sponsored model Where a company Is going to issue with security natively on chain.

00:05:04: So instead of the public markets The traditional way they're gonna issue it token.

00:05:08: so the token is real thing that coming from the issuer Instead of stock Same sort underlying exposure.

00:05:13: but the issuers are one who do this.

00:05:17: The other side is a third-party sponsored model, right?

00:05:20: Where someone who's not the issuer is gonna hold the asset and they're going to issue a token giving you the exposure to it.

00:05:27: And that distinction is really a whole different risk picture in the first year relationship with the company Right!

00:05:33: In second there an extra entity in their middle.

00:05:37: You know its important to know what happens if something fails.

00:05:41: So these are two different models actively being discussed.

00:05:45: Yeah, that pretty much sums it up.

00:05:46: I mean just for folks on this side of the plan.

00:05:48: So in terms of central securities depositaries you mentioned so equivalent in DU For instance would be like your clear or clear stream Pretty much a central entity that registers all newly issued shares and pretty much serves as the main register for these securities.

00:06:05: now The big question...I mean There was a lot of promises when comes to tokenization a lot of noise, so to say.

00:06:16: But what are the actual advantages that tokenization brings to the table?

00:06:20: So now looking at these legacy infrastructures talking about CSDs both in the

00:06:25: U.S.,

00:06:25: across UKU you name it... What is the real value proposition Josh and your opinion?

00:06:31: Yeah I'll try to separate from kind of the marketing pitch from the mechanics right because i think there's this popular story You know, and I think this is pretty a pretty universal story around crypto as well.

00:06:43: Around the sort of like retail liberation.

00:06:45: you know twenty four seven trading fees are going to collapse And just got a wallet on your end.

00:06:51: But there's a real tell to that right?

00:06:53: Like US Retail Equity Commissions have been zero for years Right...you're not gonna compress A zero fee Alright.

00:06:59: so i think Why This Is Gaining So Much Momentum?

00:07:01: Is The Real Value Isn't In The Back Of That Trade?

00:07:04: So settlement goes from T plus one now to atomic, right?

00:07:08: To instant.

00:07:09: The cash in the asset will swap instantly.

00:07:11: Right.

00:07:12: a collateral gets really mobile and this is again an institutional context.

00:07:15: This is really important.

00:07:16: so today Settlement takes time.

00:07:19: because of that firms have to over-collateralize as a buffer.

00:07:23: There's been surveys From the industry That estimate around like seven percent Of a buffer that Is required for some These trades they're doing.

00:07:34: There's no yield to that, you're just posting for collateral.

00:07:38: So the biggest thing for dealers is freeing up.

00:07:41: it could be an estimate of hundreds a million dollars or some very large firms.

00:07:50: That's why institutions are now moving so fast and building toward this.

00:07:53: It's not because retail has asked right?

00:07:56: Because they see value in smoother back-of-the-trade aspect.

00:08:01: So, you know the honest pitch really is like tokenization is an institutional efficiency story.

00:08:07: That's kind of it right?

00:08:08: There are retail access side effects.

00:08:11: but the plumbing upgrade is really point to this whole thing.

00:08:14: Yeah its pretty much the main added value that we can see behind the scenes.

00:08:19: so there's plumbing getting more efficient, institutions get more breathing room when it comes to operation and in this instance called atomic settlement which could pretty much spark.

00:08:30: all but speaking about tokenization, I mean just in the media.

00:08:34: you know different institutions follow different paths.

00:08:36: But we see that in terms of different use cases so to say front end there are a lot of different argued that tokenization could be a tool, it can bring liquidity to traditionally illiquid assets.

00:08:56: Let's say like shares and private companies especially in recent years we have a lot of very valuable company staying private for longer I mean at least until the last week but still there are alot of them in this IPO pipeline And there was big question whether they're gonna go public or not.

00:09:18: tokenization is a tool that could potentially bring liquidity to private markets, but not only private markets.

00:09:24: But also some other corners of the financial service industry.

00:09:27: for instance you know tokenization of real-world assets sort of like enabling fractional ownership on some highly valued pieces of art or precious metals.

00:09:40: and so How do you see this?

00:09:42: I mean, obviously the main added value that focus everyone needs to have is on the back end.

00:09:49: But on the front-end speaking about different use cases what are your thoughts of

00:09:53: this?".

00:09:54: Yeah it's a great question!

00:09:57: You know viability... The answer is yes right for does tokenization unlock some of this stuff to some degree?

00:10:05: absolutely right?

00:10:05: Is this solved?

00:10:07: definitely not yet.

00:10:09: There's a number of reasons why something could be liquid for a lot of private assets.

00:10:14: Part of that is, it can be solved by tokenization, right?

00:10:18: Ownership records are chunky transfers or very slow like some of the bigger drivers and why this stuff takes awhile and why its illiquid?

00:10:28: if you put that cap table on chain Does it totally open up access like?

00:10:39: You know probably not the token may be permissionless, but there's still KYC requirements.

00:10:44: when you're dealing with private securities.

00:10:45: There is going to be accreditation checks that need to be done Reg S. You know as a big one in the US those walls are gonna stay intact right.

00:10:53: so, you know quote-unquote anyone can trade kind of quietly becomes like Anyone in The Right Jurisdiction where its legal who clears accreditation can trade Which is the same story that happens now.

00:11:05: So, the binding in trade isn't so much technology.

00:11:08: It's going to be legal wrapper which is same thing we're dealing with now right?

00:11:13: The chain solves the transfer problem but not as much.

00:11:16: who allowed hold this problem Now that determination of whose allow to trade could done quicker.

00:11:25: You can build on some controls very slow and manual into smart contract itself But I don't think we're there yet.

00:11:32: And I think companies are trying to figure that out, but the next step around this is going be building some of these stuff into a smart

00:11:39: contract.".

00:11:40: Yeah, it could agree more.

00:11:43: There was also one other area in the financial service industry where you see very strong push for tokenization and especially over the last like twelve months which has asset management From BlackRock's Biddle to some other similar products coming from big global fund managers, many incoming institutions appear to be betting big time on tokenized money market funds.

00:12:07: On the retail side at least in Europe I mean including UK we have a very poor money-market funded option rate among retail investors and this is an area where many see tokenized low interest savings accounts of retail investors.

00:12:27: I mean, just simply because a lot of retail investers are not even familiar with this concept further in the wholesale space and use tokenized money market funds could potentially also enable more efficient treasury management across these international groups easier collateral mobility.

00:12:43: on collateral management for corporates what are your thoughts?

00:12:49: Biddle is definitely the poster child right billions in tokenized money market fund exposure.

00:12:54: And most crucially, it's accepted as collateral on a lot of digital asset exchanges right?

00:12:59: So you hold yield bearing funds and post the same instrument is margined in real time one Sunday which something that can't do now with other traditional money-market funds.

00:13:10: those are going to be stuck more settlement cycle.

00:13:12: we talked about On the retail dead capital piece, I think you're right.

00:13:18: There's an obviously enormous pool of low yield accounts out there.

00:13:21: I know i have one...I'm sure many listeners do!

00:13:25: If there are instant ways to earn more yield on cash that is sitting here then everybody wants it without a settlement delay which is key between the cash and tokenized money market fund having a high interest savings account or anything else that you might be doing with your cash.

00:13:42: on the retail side, there is settlement issues.

00:13:45: You may get worried because it's not instant where you can bring back into checking accounts and actually use them.

00:13:52: So I think part of this is more maybe structural problem for banks who offer those and making process seamless to opt in a product that seems perfect for this, but I do think it's going to be an education challenge and effort from the banks of the world.

00:14:13: To make sure people understand these options out there and to make them as seamless as possible so they would really have no brainer to opt in your cash move into money market fund.

00:14:23: And you know tokenization is the solve for that?

00:14:27: This isn't something easy to do or not for traditional accounts right now But, you know I think we'll see how this evolves.

00:14:36: There's a lot of optimism but there hasn't been big adoption yet on the retail side.

00:14:43: and going back to my point is more an education aspect integration with systems themselves.

00:14:50: Yeah, it definitely takes time and then I mean It's an evolving space but in my view at least.

00:14:55: I mean as someone you know Coming also personally from the crypto industry The most fascinating part of the entire tokenized money market fund story is that we see some tokenized Money Market funds appear to be becoming true challengers To stablecoins don't they?

00:15:13: As a yield bearing collateral instruments That are not subject heavily criticized interest granting ban at the usual level that applies to stablecoin issuers.

00:15:23: So both in the US under Genius Act, but also Under the emerging UK regulatory framework and qualified stablecoins And obviously Mika in EU which pretty much started this entire ban What are your thoughts on this?

00:15:39: Have asset managers indeed found a very convenient so-to say like a backdoor To offer more appealing version of yield bearing?

00:15:46: tokenized assets could be used, I mean amongst other things as financial collateral.

00:15:52: Yeah the story is very different.

00:15:54: when you talk about institutions right where it's not so much education that... When your talking billions of dollars.. You're motivated and you are willing to put in work ummm.... To find a most optimal way to get yield with your cash Right?

00:16:08: The backdoor or the word Backdoor is fun one And i think mostly agree.

00:16:14: If you can get a token that holds value, it pays yield.

00:16:17: You could post this collateral... That's what you want while your stablecoin and if we can't get that then you're willing to do this through fund right?

00:16:27: Is at the back door.

00:16:28: nobody is really hiding anything like there was a prospectus or still issuing funds but definitely some key differences I think as well.

00:16:38: Funds are allowed to pay yield.

00:16:39: thats great its whole point of fun.

00:16:41: Oftentimes the money market funds in general they're not maybe made up of one thing now.

00:16:46: They're all different right and but There's rules around it, but around duration And things like that about what can be an a money-market fund?

00:16:54: But the devil can't be in the details.

00:16:55: sometimes there and you know In prior jobs I've had we people have spent a lot of time on their risk teams really looking into A variety of different money market Funds then you might think oh these are all the same.

00:17:05: they're gonna Be you know pegged at dollar and and there really could be big differences in terms of the risk profile that can still fit within a money market fund, especially in really volatile times.

00:17:15: They have NAVs.

00:17:16: they have redemption mechanisms that maybe behave differently under stress right?

00:17:20: So it's a real interesting space and the push-and-pull between regulators and industry around yield bearing stablecoins is fascinating.

00:17:28: so I think there are lot of ways to get yield on your cash and a tokenized money market funds seems to be most optimal now compared that isn't allowed to issue yield, but we'll see how the industry evolves.

00:17:45: Yeah indeed I mean talking about money market funds.

00:17:47: they've been you know subject to heavy regulatory constraints for years or decades both on this side of the pond and also in

00:17:55: U.S.,

00:17:56: it's a very mature industry.

00:17:59: as you correctly said underlying portfolio is sometimes much more complex than what i can.

00:18:06: So, yeah.

00:18:08: We're going to definitely be following this part of the tokenization story.

00:18:13: but moving on given that we are both very much involved in regulatory side I'm afraid despite a very interesting topic which went through so far Across the EU, UK and lately especially in US we see that regulators and policymakers are increasingly trying to keep pace with technological developments.

00:18:35: And appear to be hearing the industry voices and sort of trying to find ways to facilitate adoption of tokenized financial assets.

00:18:44: However policy makers across the EU UK and us appeared to be moving at different speeds when it comes to this.

00:18:51: Starting from this side of the pond the year rolled out its so-called DLT pilot regime back in March, which was pretty much the first sandbox like regulatory framework.

00:19:02: Which in a nutshell allowed existing financial institutions to use DLTE for securities trading purposes primarily as was addressed at secondary market rate.

00:19:12: The regime had say modest success especially because of very low thresholds that were set by the EU lawmakers back in a day.

00:19:23: And now we see, as of December last year when the EU Commission has published a legislative proposal that shall amend the original DLT pilot regulation there is some willingness to increase these thresholds and also expand the scope of this regime with.

00:19:41: In the UK, the FCA has also together with Bank of England taken somewhat different approach to EU but created digital security sandbox which went live in late twenty-twenty four and that will be operational until December twenty eight.

00:20:00: I like the EU regime.

00:20:01: DSS is built around so say gated structures so participants progress slowly through a series stages The level of permitted live activity is increased at each gate.

00:20:15: DSS is also not like the ulti-pallet regime open to any regulated and unregulated entity based in the UK, on the other hand we see that this sandboxes opened only pretty much to mythic firms And thresholds are considerably more generous.

00:20:31: Over last couple months we saw that DFCA has published a number consultation papers first under tokenization in the fund management space and then later also consultation paper on so pretty much it was called for input, but Josh despite these Obviously, very interesting developments on here in Europe and the UK.

00:20:59: I believe conscious of the depth the approach to tokenization that regulators and policymakers in the US have taken, have taken lately?

00:21:25: Yeah.

00:21:26: The U S went from hostility to silence.

00:21:32: really a deliberate sequence clearing of obstacles.

00:21:35: And the pace we're on right now is hard even if you are doing it full time with multiple clawed bots looking for things all Start with, you know the foundational principle that the SEC and CFC stated jointly this year I think is the best place.

00:21:50: Right?

00:21:51: A security as a security whether it's on paper in the database On-chain off same rules right.

00:21:58: That one sentence killed a lot of discussion for years really where oh This is different It's on chain like kind of hand waving.

00:22:05: All right.

00:22:05: So we're level set at And now was good first step At least so he can then start building all right.

00:22:11: Then these building blocks some of these I'm sure the listeners are familiar with.

00:22:15: The Genius Act gave stable coins a federal framework, all right?

00:22:18: The Clarity Act was passed in-the-house.

00:22:21: now Senate has a markup that's going to tackle a lot of those securities versus commodity questions.

00:22:25: really who handles this, the SEC or the CFDC?

00:22:30: We live here in our country where we're lucky to have two different regulators Who were powerful and well funded.

00:22:38: Not every country had that.

00:22:39: most countries have one financial regulator which makes things easier But the fact they're working together really is not normal and a very positive sign.

00:22:47: You know, things that have happened to CFTC has explicitly blessed tokenized treasuries in money market funds as collateral for futures and swaps right?

00:22:57: So taking the tokenize collateral from an experiment really too something that a regulator expects you to be able to handle and it's allowing you to handle.

00:23:05: The most striking thing I think really happened in the past few weeks with the SEC proposing to rescind rule of regulation reg NMS, which is the trades rule we're normally known through here.

00:23:20: So for listeners that might not be familiar right?

00:23:22: this a rule has been.

00:23:23: it's been a backbone of US equity trading I think since like two thousand and five so every trade has to respect best displayed price across all exchanges at the moment of execution.

00:23:35: It sounds sensible but its real structural barrier Like, you know an automated market maker in AMM.

00:23:44: The on-chain mechanism that prices a lot of these trades.

00:23:47: it just physically can't comply with this regulation right?

00:23:51: It's executing against price and curve at block speed And I just can't go check NASDAQs quote if the same microsecond and just halt itself.

00:23:59: So the rule and technology were just incompatible.

00:24:02: This is something that the crypto industry has been discussing was regulated for some time now alright.

00:24:07: so i think If You Watched The Sequencing In The US It's very deliberate, right?

00:24:12: They're proposing to remove rules that on-chain trading can't satisfy.

00:24:18: That's kind of step one.

00:24:18: so get rid of the stuff that might be holding crypto back or digital assets in terms tokenization.

00:24:26: Lean into your classic best execution requirements which is what the proposal has said.

00:24:32: these are principle based duties at the broker level you know, they're satisfied through a regular review.

00:24:37: I'm sure many listeners are aware of what BestEx is and in what it takes to achieve BestEx And a lot of compliance teams especially Are going be very aware that.

00:24:46: so remove the rules from the actual exchanges themselves.

00:24:49: put them on.

00:24:50: Put the onus on the brookers To achieve best execution.

00:24:53: improve That.

00:24:55: then handle The venue registration questions In different manner right?

00:24:59: So the SEC has signaled They're gonna do this Through some sort of innovation exemption.

00:25:05: we're still waiting, you know with baited breath on whatever this looks like.

00:25:09: You know it was weeks away a few months ago.

00:25:11: so any day hopefully something will come out and that'll be really interesting to see exactly how they are approaching us.

00:25:19: So take the step back.

00:25:21: clear the hardest obstacles first then handle the plumbing.

00:25:25: but I think the direction where were going is unmistakable here.

00:25:30: No, that's really interesting.

00:25:31: I mean these targeted deviations from standard securities regulations are pretty much paramount and the key precondition for the functioning of this DLT sandboxes which is The approach it was taken also by EU policy makers back in twenty-twenty to twenty three when DLTPive regime went live And also by FCN Bank of England in UK a bit more, so to say maneuver space in terms of identifying and then disapplying certain requirements under the UK financial regulation.

00:26:04: But I think your point on BestX is also something that's very interesting especially for EULA centers given that the ultipilot regime is now going through reform.

00:26:14: And one of the points US policymakers already have that on their agenda.

00:26:27: I mean, there are a lot of activities related to tokenized financial assets but i would just like to stick with one with you for a second which is custody of tokenized securities.

00:26:37: Custody of crypto assets in the one hand and custody of Tokenized Securities on the other hand despite pretty much sharing same infrastructure layer are regulated activities that are totally different in some jurisdictions, at least the EU and UK.

00:26:53: However we see that some policy makers or regulators for instance FCA in the UK is potentially thinking of applying rules on safeguarding of crypto assets under new emerging crypto asset regulatory framework to apply to safeguarding relevant specified investment crypto assets which was pretty much tokenized versions of let's say securities like equities or bonds.

00:27:18: So one practical question, so here we see clash of traditional regulatory frameworks with the new technical reality?

00:27:27: From your perspective what are you thoughts on use of co-mingled wallets and shared custody infrastructure that can be used for both free custody of traditional crypto assets such as altcoins?

00:27:43: Yeah,

00:27:45: technology and law really pulls in opposite directions here.

00:27:47: right like it.

00:27:48: engineers ask all the time.

00:27:50: Right.

00:27:50: You know why we do?

00:27:51: We need to run two separate custody stacks of the same tech.

00:27:54: It's an edit is duplicative inexpensive like from an engineering standpoint.

00:28:00: you Know you understand that why certain companies might be pushing for the commingling.

00:28:06: In reality asset types carry different rules And the wallet Tech might be identical.

00:28:11: But but the rule certainly are.

00:28:12: and those rules were there for a reason.

00:28:15: You know took a nice security drags along the security law obligations segregation customer protection specific record-keeping.

00:28:22: Now we just talked about some rules that are being unwound or thought about differently.

00:28:27: is there room?

00:28:27: There's probably some to take some stuff out, but you know There's different regime regimes.

00:28:34: when you start commingling.

00:28:36: You know in one container under two rule books and which I can't imagine forever totally exactly the same when something goes wrong, it's going to be really difficult.

00:28:47: To know instantly like which rules apply.

00:28:51: so aligning the rules makes sense.

00:28:52: you know fighting for a shared infrastructure I think just me personally might be you know losing battle.

00:28:59: um You know i think its mistake.

00:29:03: let operational convenience quietly erase some important distinctions and important rules that are there because that's really what protects clients when it comes to the default.

00:29:15: The business of custody in general, especially an institutional sense and certainly a retail sense is so critical right?

00:29:23: Making sure your assets are safe strong custody rules, and the commingling of assets really could muddle muddy waters a bit.

00:29:48: And allow maybe some players in that can build fasts that aren't as secure or put at real risk.

00:29:55: I think

00:30:07: underlying infrastructure and technology, like for instance it's the direction of travel that the FC appears to be heading into so pretty much aligning these rules with a new technological reality.

00:30:18: And the other is you know just opening the floodgates till I combing old wallets and pretty much storing in a crypto wallet anything one could come up With.

00:30:29: yeah So let's zoom out for a second.

00:30:31: maybe look at bigger picture Josh.

00:30:33: We see that many institutions are experimenting with DLT-based securities issues in trading across the board.

00:30:39: So let's say from small startups a couple of years ago, but also lately we've seen increasingly commercial banks and some large investments into international financial institutions like EBRDEA, World Bank

00:30:51: etc.,

00:30:51: entering this space.

00:31:01: this technology to pretty much allow exposure to UST bills and corporate bonds of some EV manufacturers in the EU with several issuances of tokenized fractured notes or fractured products.

00:31:14: There is no doubt that there was a big interest in tokenization, but we see that in some jurisdictions where they mature regulatory framework like in the U going beyond these primary market and primary issues as creating a true secondary market.

00:31:30: In your view, what's the current state of the market for tokenized securities and what are some structural issues that still remain?

00:31:38: And did you believe key jurisdictions need to address to unlock adoption at scale.

00:31:43: Yeah we like you noted there has been a lot of beautiful on-ramps set up in built right I think maybe forgotten motorway itself To build highway issuance is everywhere here.

00:31:56: These pilot programs are exciting.

00:31:58: The World Bank have done real tokenized bonds, there's a DTC pilot program around tokenizing treasuries that we're involved with here at Talos.

00:32:08: So can you issue a security on chain?

00:32:11: We've answered the question.

00:32:12: yes like...we prove in that you can.

00:32:15: The secondary market is where things are stalling right and I think we still need three things if those three reasons.

00:32:22: Fragmentation is a big problem.

00:32:25: So, you know tokenized assets scatter across all different blockchains.

00:32:28: they don't talk natively to each other.

00:32:31: so You really need that infrastructure.

00:32:33: just the move between the venues?

00:32:35: That hasn't been figured out yet.

00:32:38: Rules have not been written.

00:32:38: we've talked a little bit about this already.

00:32:40: We're still in pilot program land at least in the US The DTCC got no action letter even do their pilot program.

00:32:49: these are great It's a great step, but they're really narrow right.

00:32:53: so it we haven't unlocked the.

00:32:55: you know The full breath of liquidity that you would need to go beyond a pilot program.

00:33:00: But this these things are important to test out the pipes before You do jump in.

00:33:04: So there's some some thought behind that obviously and some logic To start smaller.

00:33:09: And then there's all the boring, you know back office stuff We've been alluding to here.

00:33:13: settlement funnality means different things on different rails tax reporting obligations.

00:33:19: these things just haven't been mapped out yet.

00:33:22: So, you know issuance I think is solved.

00:33:24: uh i think the technology itself.

00:33:26: clearly is there Just a life cycle around the whole thing?

00:33:29: Uh it's not hasn't been fully built Yet but people are working hard towards It.

00:33:34: and in the beginning we talked A little bit about who can issue These as well.

00:33:38: that's The other piece of it You Know.

00:33:41: Is it going to be on?

00:33:42: uh the owners On issuers themselves When your talking really In an equity space To Be the ones That Are issuing their their equities on chain and tokenizing your equities.

00:33:52: And how many issuers are willing to do that?

00:33:55: If we live in a land where third parties can just issue Apple stock without issues, Apple's permission certainly is.

00:34:02: lot of liquidity added there as big liquidity boom.

00:34:04: maybe thats what generates the secondary market to trade.

00:34:08: but you know theres certain downsides with voting rights.

00:34:12: There's a whole bunch of other questions that come out of that, and I think these are just conversations they're having in the market.

00:34:17: it is trying to figure

00:34:35: What are you guys at Talos doing to help them achieve this goal?

00:34:46: Yeah, listen.

00:34:46: I don't think the winners will be decided by who is the flashiest tokenization strategy.

00:34:53: It's going to be about who has fixed up their data and they're operating model first And it's working seamlessly.

00:34:59: The current way of doing business isn't gonna go away anytime soon.

00:35:03: That one itself is hard to maintain and people are working in the industry, obviously no.

00:35:08: There's a lot of really big companies that have a lot on people and a lot processes to maintain.

00:35:14: so you know your asking institutions to add second rail that runs twenty four seven settles instantly lives.

00:35:20: multiple chains running both worlds cleanly is really capability matters.

00:35:28: this exactly where Talos sits right?

00:35:30: So we're operating system For our clients, you know.

00:35:33: with our tools institutions can trade and manage and settle across venues And both rails through one interface Execution routing portfolio risk treasury settlement right.

00:35:43: the goal is to allow a traditional manager To manage it all across Both The current and digital operating model Without leaving their system every single day.

00:35:54: Everyone loves to talk about.

00:35:55: You Know the front end in the app In the token access.

00:35:57: The hard part Is really that the plumbing Right?

00:36:01: Plumbing is profoundly boring until it breaks, both in your personal life and then you're business.

00:36:08: And that's a difficult challenge.

00:36:09: so I think the biggest thing i would recommend to have conversations with players who are in digital asset space now working to solve this.

00:36:19: there's many amazing experts across different needs whether its compliance solutions or trading solution And it's gonna be a very difficult thing to build and maintain on your own.

00:36:35: There are just good companies out there that can help at least start, you're journeying down this path.

00:36:41: so start preparing because I think as we've discussed through here every indication from regulators ,from the largest companies in the world of financial space is what they were moving towards.

00:36:56: So I think everybody else needs to react in the same way.

00:37:01: Yeah,

00:37:03: I couldn't agree more with that.

00:37:06: we have unfortunately come to end of our today's episode.

00:37:09: Josh it has been a true pleasure speaking about this very interesting topic.

00:37:17: Thank you all for listening.

00:37:18: If you have enjoyed the episode, feel free to subscribe our channel and stay up-to-date with our upcoming episodes that will continue to explore latest legal and regulatory developments trends on hot topics in the fencing sector from across the globe.