Bitcoin Capital #1 with Adam Back, CEO @Blockstream, & Paolo Ardoino, CTO @BitfinexSecurities

Where we live stream discussions about The transformative role of Bitcoin and Its impact on the institutional Landscape so our goal here is to bridge Uh the worlds of Academia technology and Finance and exploring how Bitcoin is Reshaping the foundations of financial Systems my name is Jesse canuteson I'm Head of operations at bitfinex Securities and we're very lucky today to Have two of the most distinguished Figures in our industry uh Dr Adam back The CEO and co-founder of blockstream a Pioneer in Bitcoin layer 2 Tech and Bitcoin infrastructure and of course Alongside him we have Paulo Ardo the CTO Of bitfinex Securities the CEO of tether Who has played a crucial role I think in Financial Innovation kind of broadly and Also in bringing cryptocurrency more uh Into the traditional Financial framework Um today the topic of discussion is Tokenize Securities and how that fits Into institutional Bitcoin adoption um Throughout the convers we'll be Collecting questions from the audience I Think simultaneously from LinkedIn YouTube and Twitter um so see how that Works and so be be sure also to submit Your questions at the end of the Conversation we're going to have a Q&A Section where we'll have Adam and Paulo Address the co the questions that are Brought up during the conversation so

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Adam Paulo thank you very much for Joining the first episode of of Bitcoin Capital thank you for having us of Course um maybe starting with Adam we Could address some of the terms in Security tokenization First some of the Definitions so there there's a trend of Dematerialization in Securities it's Been playing out for several decades Already the transition from physical to Electronic Securities and now virtually All all Securities globally are are Digital so how would you define Tokenized Securities and do you make a Distinction between tokenized and Digital Securities yeah well I mean as as you Said most sh certificates are electronic And you don't generally see them but you Know if You uh had some shares on a on a Brokerage and you you know signed up for A new brokerage and you wanted to um Transfer them you would do that and There would be a digital transfer these Days uh going back some years you could Actually get they would send you paper Certificates and things like that right So it's definitely digital um but it's Still There's a lot of counterparties involved It's you know t plus2 or something which Means you know they don't really settle Until a couple days later and there's a

Committee of people that have to kind of Decide the edge cases when something Goes wrong and things do go wrong and of Course all those all those companies and Intermediaries um all adding fees so it Gets it gets a little expensive right um And So you you can see that kind of go wrong I guess with GameStop if people were Paying attention to that where you know There are a lot of retail Traders trying To trade and they basically got frozen Out from Trading because the brokerage They were using ran out of kind of Capital and they had to have some kind Of capital coverage for the for the Trading and it's just reflecting the Fact that it's not real time and it's You know it's got to be sold later and Something could go wrong so then uh Tokenized is more kind of Bitcoin like Approach where you have an Actual kind of cryptocurrency token Except in this case it represents a Share and other examples of tokens would Be stable coins like tether so you can Have something like that and then Typically there will be some mechanism To deal with the fact that a Security has regulations around it and So it's not you know it's not as Permissionless as uh transferring a Bitcoin for example even a stable Coin yeah Paulo how do you describe

Tokenized Securities and and and how do You kind of gauge their importance and Potential so first I find tokenized Securities as the actual Natural Evolution of you know blockchain usage Um you know uh apart from Bitcoin I Think that uh you know there might be Some few other interesting projects uh Um that were developed through um the in The blockchain industry but um Unfortunately as we all know in the last Many Years uh too many tokens were born too Many useless tokens were born and um um The actual importance of this new Transport layer for information and for Representation of wealth has been Um you know Kept under in a cage almost uh because People focus more on creating yet Another token yet another Financial Opportunity yet another speculation Opportunity so the reason why I real Love um tokenized uh Securities in Digital assets is that it really changed The game and and the Updates in uh in almost one single go The entire technological stack that was Almost Frozen for 40 years you know for 40 years Um Finance trading has been relying on Um the very same uh transport layer for For information same same settlement Layer for for um for Securities and uh

So so many banks are still using cobal So many banks are still using you know Really you know clunky Rubber and band Kept together um Infrastructures and so I think that the Beauty of Blockchain in a sense is is help is Going to complete the erase that Technical Dept and bring it to Fruition what should have been something That the financial Bo would should have Researched so many years ago as soon as Bitcoin came to light and uh you know That's why you know we are also big Supporters of blockchains liquid Network Because it's actually the The the most advanced transport layer For digital assets and tokenized Security is because offer privacy as you Would expect from um from Any sale of Apple stocks right so you Would expect in a certain uh Precondition prerequisites and that I Think with the development of of block Stream in in that area I think we can Say that it's the most modern uh Solution to bring a digital assets to Can SEC tokenized bonds stocks funds Shares of funds into 2024 yeah and for this this Technological upgrade you're describing For Global Capital markets what do you Think are the main advant advantages for Issuers of Securities of tokenized

Securities so first of all the ability Of using or speaking one single language So the the ability of providing Transparency the ability of doing faster Settlements right the problem is that With Um not Only financial institutions used a Technological layer outdated of so many Decades but also everyone speaks a Different language right so you have Everyone has different type of databases Everyone has different type of apis and So you don't and um you have to do a lot Of paperwork in order to move still Manual paperwork to move something from Or a representation of a security Because security is already digital Right so is is um but they are living on Centralized databases that are all Different databases speaking you know Different languages different apis Different you know Technologies and so Every time you have to move from one Datab base to another there is a lot of Balance checks and lot of errors that Can happen um between the different Institutions So if you instead are starting to use a Common distribution layer a common set Layer that is cryptographically sound That have the proving that you cannot Double spend Apple Apple shares and you Know should ring a bell right these are

All problems solved by by Bitcoin then You suddenly get um an infinite boost in The ability of trading faster um Uh stocks moving much faster and Reducing the cost of settlement for for Institutions making it more transparent Resilient and that is you get all the Benefits of Bitcoin but for everything Else and I think it should be super Exciting for financial Institutions yeah Adam what do you think Of the advantages are for issuers for Tokenized Securities versus issuing Traditional Securities well I mean it's uh I think The traditional Finance rails are you as I said have a lot of intermediaries but They can also be quite expensive to do Certain types of issuances right so and That is because there are sort of Moes Large financial Institutions that have uh high cost base And you know um a sort of stream of Intermediaries that are all taking a Piece of the the fees to set it up and So that can potentially put Fundraising make it impractical for Smaller or mediumsized companies so I Think one of the promises of Tokenization now you know there's still Regulatory work and and it would conform To regulations in some you know some Jurisdiction and that jurisdiction's Securities laws will be accessible

Outside of that then um you know at that Point you have a kind of longer taale And more access to Capital so you know I Guess people who who trade Bitcoin are You know maybe that's the first thing They've traded right they haven't traded Stocks but in sort of economic theory And the you know the current current Wealth and productivity of the world is Significantly influenced by Capital Formation so actually the ability for Companies of different sizes to raise Capital uh to share the risk with their Investors and to give investors investor Rights is a quite important part of the Of the modern world and you know what What enables us to buy all the products We can buy at you know competitive Prices and have those products Developed so that's kind of like the the Advantages for issuers and maybe for you Know at the systemic level for the Economy what do you think the the Advantages are for um for the actual Investors into token Securities because I think there's quite a few advantages There as well yeah I mean I think uh one Thing is you've got a sort of real time Transfer and so you don't have a Delay the the actual mechanism for Traditional finance and Pao dropped a Hint about this is that effectively all The Brokers can sell you know naked sell Right it's not it's not there's no

Centralized system there's no mechanism To check if you actually have the Security you're trying to sell in the Conventional world right whereas uh in Inheriting from bitcoin's technology Base you know Layer Two like Liquid it uh won't let you sell Something that you don't have and so Also with a blockchain you have the Possibility for smart contracts or Simple things so in liquid you have the Ability to do um a trustless limit order That can be executed by it could be OTC Or it could be on an order book but it's Non-custodial and it can be sort of a Pre signed by a hardware wallet so these These kinds of things are really a game Cher and you know once people are signed Up and legible to you know trade in or Receive a given type of security it Starts to feel more permissionless right You could send somebody you know one 100th of a share to pay for lunch or in Cash in person um you can do these Trustless limit orders and the the other Point is of interoperability between Systems so you know there are different Systems that work with this so if you're Trading you know let's say some BMN Security token on the bitfinex Securities platform and you want to you Know take it off and put it into your Wallet you can do that and then you can Sort of trade that on Sid swap or

Deposit it onto merge so it gives you a Kind of interoperable self-service Standard where you can take sort of you Know in wallet custody or you can Transfer between platforms and that's You know that's something borne from the Bitcoin Innovation right that people Expect to be able to take Bitcoin out of One exchange deposit in another and of Course you can do that with traditional Securities but it probably take a week Or two and fill in some paper forms and You know it it's quite complicated and Slow whereas here it's you know a matter Of minutes basically which uh changes Changes a lot of things and and even Like with the BMN to trade Securities in A telegram chat or per to appear and Within a compliant wh listed ecosystem I Think is something that makes Wall Street people's head spin you know that That's revolutionary on its own I think It gives people a lot more control of Their Assets um Paulo from an Institutional Investor perspective what do you think What are some of the benefits do you Think bitfix Securities has brought to Institutional investors through Tokenized Securities So I think the the the the most Important uh part of um uh of The investors when it comes to um

Investing in security is the fact that First of all usually you don't have Access to um it's really hard to have Access to um newborn uh opportunities Usually Banks and other intermediaries Have first access to the those also Having full transparency of the process Right there are so again there are so Many intermediaries usually when it Comes to if you're a company you have to Raise Capital you have to go through so Many different intermediaries you have To go you you have you need a Distribution Network you need um and by The way all these intermediaries are Adding to the to the cost of the issuer To um to you know to to just uh perform The issurance and so Instead of costing you know few basis Points or few t a few um you know maybe Half of percent might cost four or five% To the issuer even if not more to issue Debt or to anyway tokenize stocks and And so on so there's always a cost an Enormous cost for the issuer in um in in U in trying to apply to um you know go a Public in a way in both raising debt to You know um you know listing their Shares and so on so I think adding um or Tokenizing shares is uh a new way of um And is basically bringing the Bitcoin Philosophy in a way to to also Traditional Finance you would remove Intermediaries because in the end it's

Just the issuer is the regulator and is The platform that would be bitf Securities and of course the blockchain Like transport layer that would be bitf Um sorry blockstream liquid so you have A really transparent set of players Again you have four so yourself as an Iser you have the um the the transport Layer so the technological layer so the Blockchain and then the the platform so And then basically you have um the Regulator so everything is really well Speced out now now um as an investor you Could you can easily start to understand How um the inssurance the prospectus is Being released you can see the process On the review of the you can you know You can understand really easily the Process of review of the prospect Because it's just one step between the Issuer and the regulator and the and the The the listing platforms so between Securities So um and as an investor you can you Have get more transparency you get more Um you you have uh full visibility on All the issu tokens because you know They are represented on on a Technological layer that is being battle Tested with the billions of dollars uh In it and and billions and billions of Dollars in volume in in in in Transactions um you can also uh know That eventually uh you will have access

To to incredible liquidity right for for Small companies it's always hard to find Good liquidity in secondary markets so Instead if you are on a more open Transparent uh platform like bitf Securities you will have access to Enormous user base that can vary from Other institutions and also retail user Base that can also participate to the Sale or or you know purchase of the Tokenized assets so again if you look at Usual the usual markets in um in Traditional markets for small cap Companies that they barely trade and we Are seeing similar struggles really Openly on on at the beginning with the Bitf Securities but we I believe that Is you know The the the future is extremely bright Because now more now that we open also El salador as um as a new jurisdiction We are getting more and more interest And more and more excitement Unfortunately we are still at the stage Where people are that trade or look at Crypto exchanges are still a little bit Bound to oh where I can I I will find There the next dog coin but the reality Is that more and more people are asking Are registering to these new type of Offerings because they are exciting There are new thing there are something That is related to the real World and um that there is no I don't

Believe there is any future in in dog Coins and and stuff like that and more And more um investors that also made a Fortune in in Bitcoin and they are you Know the classic usual whales on Bitfinex are looking more and more at Offerings on bitfinex Securities just Because it's um it it's basically it's a Paradig shift for both the Cryptocurrency world and for the Traditional Financial Board yeah I think those are some really Good points there especially on on the Liquidity I mean one thing I would point Out on the liquidity on bitf Securities At the moment is our two offerings that We have it's early days for the platform The two offerings that we have are Accredited only you know so naturally There's there's a bit skinny thinner Liquidity there but I think that's part Of the reason why everyone's SOC for El Salvador and to see what happens when we Can get kind of a broader range of Investors to participate in some of These issuances so can you talk about You know the the the the issuances that We have on the platform right now I Think maybe we can leave the blockstream Mining note for Adam to go through but Can you talk about alt 2612 I think one Of the first truly tokenized Bonds in You know in the market globally and then Maybe talk about some of the uh interest

We've seen in El Salvador in the Pipeline just maybe generally in terms Of asset classes like across debt and Equity and and and the types of things That people are looking to Tokenize So I think it's Um the the micro Capital offering is Quite interesting for multiple reasons As you said is uh probably the first uh Tokenized Bond of its Kind um second it's Um it's an important it has an important Social impact Because it actually um does microl Lending and so we know in how how Important is microl landing emerging and Markets and developing Countries and also allows the the usage Of stable coins in those areas and also Empowers people in borrowing Landing Through uh stable coins so that is uh Not only of course stable coins so both Traditional uh Fiat money and stable Coins and I think the the beauty is that It it tries to really in the micr Landing space that is a huge hugely um Drawing and a space both for importance And for for for um significance for you Know for for the market and but also for Society we be I I really believe that is Um is is one of the most interesting Offerings that we could have at the Beginning

And um um the team I know that our team Has worked really really hard with their Team to to ensure that there were um Adequate disclosures with with the Regulator I think was a great test for Um for the issuer for us as a platform For um for the technological layers Transport layers so so uh liquid so I I Think I welcome on bitex security is More of these issues and more of these Projects because again I I don't want to On bitf secur is well you know I Everything is fine right so we is Important that all the different uh um You know that the offerings are diverse But um I think I find much more Interesting to see uh offerings that are That have social impact in the real World could be you know on the Agricultural side on the industrial side On on um you know companies that are Seeking Capital to expand their Operations maybe in elvor or in in Central and South America so those are Things that in my opinion are going to Take a lot of Traction um in the next months and years And um you know I I I think this is much More exciting to me at least as a person Rather than uh raising a bond for Financing the next Blockchain yeah yeah definitely Adam Maybe the same question to you can you Talk about some of blockstream's key

Offerings I think the the blockstream Mining note was really the flagship Product in this in the in in this space Right I think it's one of the first Truly tokenized Securities and was able To you know do an issuance in size Almost $50 million raised over eight Tranches um and and and you've gone into Some other offerings as well I know the Basic note can you talk about some of The stuff that you've issued and um and What you're looking to issue in the Future and what's kind of in your Pipeline and what you're thinking About yeah so the the uh BMN the block Stre mining notes is uh a threeyear ter Product that Started uh like two and a half years ago Roughly Um yeah so it's coming up for maturity This summer basically and each unit is Um two Peta hash and it it mins Bitcoin For the holder minus uh you know some Administrative expenses audit accounting That kind of thing right um and for People interested in security mechanics The top level structure is a Luxembourg Securitization vehicle which is a very Popular kind of uh sort Of financial product interface in in the In the traditional Finance World um it Has some advantages which you'd need to Talk to a more kind of Finance lawyer to Understand but but basically it's

Extremely widely used and I think it Gives a lot of flexibility and Insurances to the to the investor Um and this this is sort of you know It's it's a security in the sense that That's what it's defined as but it's not Shares in a company right it's it's a Defined hash rate so it's Something uh interesting to bitcoiners Who might want to participate in mining And because it's securitized they can Then you know buy and sell it whereas Most uh hash rate contracts are you know A fixed term or you you buy a machine And you find a hosting situation and you Can't typically resell it where these Are sort of standardized so even though They were issued in a tranches all the Units are interchangeable and uh Interesting a side of how we managed to Make that work which is that you know so Try one that was actually launched 3 Months before it started mining right The first trench and then after it Started mining there was another trench And then another trench and so you know Let's look at a tranch that starts six Months into the mining and then the Existing units have got you know some Number of Bitcoin that they've already Mined and so what we would do is we'd Match you know a new investor would get You know a two and a half year contract Instead of a three-year contract and

Then from their purchase price we would Buy the right amount of Bitcoin to sort Of fill in the Bitcoin they would have Minded if they've been there from the Beginning and as a result it's you know It's not dilutive or anti-dilutive and They're interchangeable even though People bought them for different prices And starting at different times it's Kind of got an effect like a zero coupon Bond where you can have sort of Interchangeable things that are issued At different times um and yeah I think That that U because of Some sort of uh side effects of uh Securities regulations the the unit is Quite large like it's two or 300,000 Euro kind of uh lump but after it was Issued in a in a primary then people Could trade it down to 0.01 so 100 so You know a few thousand dollars or euros And of course that goes lower when You're on a bitfinex Securities platform Because you know on the secur platform You've got people doing Arbitrage and They need to be able to buy you know a Few dollars Tech sizes or something for That to be efficient so that's what Happens there um so it's it's pretty Nice and uh you know there's there's Interest from the users to you know have Another trench I mean to see another Series Um and I think one one thing that

Surprised us about that one is we were Expecting people who were not already in Bitcoin to see it as a way to accumulate A Bitcoin position with some kind of Discounted dollar cost average and I Guess because of the reach of the Companies involved actually most people Bought it with Bitcoin uh but Nevertheless it seems to have worked out Pretty well and uh you know seven of the Eight tranches are uh in profit in Bitcoin terms uh with its you know Current trading price the other the Other thing we saw is that Bitcoin Investors are holders so some people Were trading it but a lot of people were Holding for Maturity um yeah yeah we have some more Products like the basic you mentioned is Kind of uh a sort of an opportunistic Situation to buy excess mining inventory Say A6 or miners new inbox shrink Wrapped from the manufacturer there's a Lot of excess at the moment U because of The market conditions the last couple of Years people Bought with long lead times the miners Arrived And they didn't have anywhere to power Them up and so for various reasons the Manufacturers have excess inventory some Lenders ended up with excess inventory Some prop miners end up a success Inventory and so the price of those is I

Think considered to be below the build Cost of you know the manufacturing cost Of more units and so there's a kind of Opportunity to buy those which provides Liquidity to people that you know need To sell them to fund operations or so on And sell them back into the Market when That excess inventory is absorbed and You know if you look at the history of Um Bitcoin ASC price versus bitcoin Price actually there's a a bigger swing In ASC price so there's a potential for A kind of Bitcoin basis upside so that's Another you know as I mentioned with the BMN we found that it was Bitcoin as we Bought it so this one is actually Designed for bitcoiners so the it has a Kind of hedge fund carry formula but It's using Bitcoin basis so in other Words you if you put a Bitcoin in and it It it doesn't do so well and it returns A Bitcoin out there'll be no fee but you Know if you put a Bitcoin in and you Know you get two Bitcoin out that's a a Stellar result if it achieves that then You know there's there's a carry on that So a percentage of that and the fees so That one there's there's one tranch of That uh released and there's another one In sort of primary at the the moment Where people can go to stalker which is The which is a startup on liquid that Does Securities regulation and manages Luxembourg securitization vehicles and

Things like that Um and then there are some other ones Which are kind of US dollar basis return So a bit like the micr lending but with A different use of capital so kind of More so there's a fund called Aquarius Which is actually issued and managed by Stalker as well and in that case they're The issuer and that you know seeks to Return a US dollar basis Return uh using secured lending and Margin lending and things like That great yeah in terms I was going to Ask you about jurisdictions but I think You covered it on on on why you like Luxembourg um so for Paulo bitfinex Securities is licensed in the aifc which Is a financial center like Dubai like The DC um estan International Financial Center in Kazakhstan and also Els Salvador and I think sometimes when I'm Speaking to investors or issuers those Two jurisdictions kind of people raise An eyebrow you know it's it's not Exactly the first jurisdictions that Most people think of when they think of Global Capital markets what do you think Is the appeal of these two locations for Bitfinex Securities versus more Traditional Financial Centers like London New York Tokyo well Um so I'm trying to find a way to be Polite um so

So the the here's the thing right so El Salador and kazakstan Are investing a lot to uh front run this Huge interest the huge interest that Inevitably there will be in um in Tokenized assets I mean there there is Really no doubt right you can you see Big companies like City also thinking About have building token tzing um uh Frameworks and tokenizing technological Tokenizing stock So when you look at El sador for example That is an agile country that is that Was the first one to adopt Bitcoin as a Legal tender is one that from the Political side have made huge steps to Ensure the security of the country has Made many many different reforms when it Comes to their licensing regimes uh to Modernize their um their financial Industry all those M and so he's in a great great Direction Unfortunately when I look at London and Uh you know maybe Frankfurt or uh other Jurisdictions around the world they are In a declining trajectory right they Were great in the 80s 90s First 2000 Then you know something happened with 2008 and um they won't you know they um They they did it right so you know so That is one of the reasons why they They're in a declining trajectory and so Honestly I think that um when we look at The best jurisdictions where to um to to

Start Dev voting resources both from um The licensing point of view but also Focusing on tokenization we as Um the Bitcoin industry we should Recognize the jurisdictions that have That are doing more for for and they are Believing more in this industry in the Bitcoin industry and they have the Highest chances also to Le the way in When it comes to the digital assets uh And tokenized equities um it's it's Obvious that small countries are more Agile uh um you know kazakstan had has This Ashana um uh Financial area that um You have um um Hub that allows you to Get a license you have um you are in an Incubation phase at the beginning and so It's an extremely serious process you Know I unfortunately there is some there There are some people in the traditional Financial industry that are a little bit Of noxious and when they are looking at A some countries that cannot point on The map you know they get scared but you Know that is basic geography and um it Doesn't you know take out anything from The seriousness from from the efforts And the the importance that um of what Both El Salvador and kazakstan are doing To be at the Forefront of this Innovation shifting gears a little bit To talk about um liquid the liquid Network um Adam what are some of the Practices and technologies that block

Stream has developed um specifically Around the liquid Network to issue Assets in a compliant way and also you Know to adhere to different regulatory Regimes in different in different Locations right so uh we developed this Kind of standard which is it's not Technically part of the blockchain it's A kind of high level feature um which is Called blockstream amp and what that Does is it allows Issuers uh to sort of Whit list Participants as authorized or you know Having having signed up to be able to Trade a given Uh security and may maybe all securities Issued by a given issuer in a Jurisdiction will be you know Whit Listed at the same time it really Depends right and now how that's Reflected in the blockchain is is very Efficient and simple which is that two The liquid blockchain which is you know An extension to the Bitcoin blockchain It's a side chain it looks like a uh Multisig so that means there is no kind Of in chain State reflecting the wh less St is there's no you know identity Information in the blockchain Blockchain's about you know Financial Settlement and it's all using the Bitcoin utxo model right so you know you There's no kind of account based thing Going on and that's that's how

Blockchains I would say are designed or Should be designed um and so what Happens in the background is that you Know if if you if you sign up there's a Kind of uh wallet ID that gets linked And then when you when you transact There's a server that looks to see if You're Whit listed and cosiness if That's the case so it's extremely simple And it has some flexibility because the People writing you know this kind of Backend server can customize it to you Know make more sophisticated rules if Necessary you know sometimes there are Restrictions on the percentage ownership Of a share by one entity or things you Know it's fancy things like that right But generally it's just that you're Whit Listed once you are Whit listed it's It's interesting because you can Transact it in the same ways you can Transact Bitcoin to somebody who's also White did and it enables a kind of open Innovation which is very interesting so It's a fascinating combination of you Know things which are not really quite Permissionless because there are Restrictions on you know which Jurisdictions they could be traded in Potentially the investor qualification Sometimes it's an accredited investor And but once you're set up you know a Third party software developer can Implement some new innovation and that's

Exactly what happened with sides swap You know they came out of nowhere we we Didn't know anything about it until we Saw the first release and it's it's a Way to you know trustless Le OTC trade And actually to participate in an order Book with no custody for you know Bitcoin versus teller but also you know Bitcoin versus BMN or any any other uh Security in in a liquid Format okay I've got a bunch more Questions but as usual it looks like we Don't have enough time so I'm going to Skip to the last one because this is an Interesting one so everybody's been Talking about the Bitcoin ETF it's Obviously having a massive impact on Price Everyone likes to see the number Go up do you think there's any downside And and it seems like we're entering This new institutional phase of interest In Bitcoin and you know I think probably More broadly bitcoin-based Capital Markets and and tokenized securities is There so there and these ETFs are adding A ton of Bitcoin every day I think in Total they hold X gbtc something like 300,000 they've bought like 6 billion in 21 trading days I think that equals out To something close to 10,000 Bitcoin a Day so at that PO at that pace somewhere Around the second half black rock and Fidelity and the others are going to Manage more Bitcoin than Satoshi is is

There a risk to Wall Street holding so Much Bitcoin do you think Adam um I mean it's something that People concerned about and a kind of Preview of where that could become Relevant is the uh the forks that Appeared in the market you know the the Different Bitcoin forks I ran a kind of Hard Fork debate a few years ago and at That time different exchanges tried to Grapple with you know how should they Define it because if if that happened The Traders on their platform would sort Of get stock split right you know they They'd get the original Bitcoin and they Get some spin-off coin and there's There's a kind of definitional question Well which if if it splits into two Which one is the Bitcoin which is Bitcoin which is the new thing right and So they sort of grappled with it some Exchangers wrote some policy about you Know hash Ray or their discretion or What have you no I think I think the you Know the ecosystem learned quite a lot From that you know preview of that Happening so I think it's uh it' be much Tidier this time but the the uh ETFs Have you know tried to say something About how they would handle a fork if if Another one was to happen in the future And so I think people's worry is that um If if a very large amount of Bitcoin Ends up in

ETFs and the ETF fund manager you know Has a view or feels he's obliged to take A certain view that may conflict with What you know Bitcoin investors want and So that would become a kind of economic Force in the network now I mean Ultimately I think those Forks were Resolved by the market so maybe that That comes to the same thing and you Know I think the positive aspect of the ETFs is It's um it improves accessibility to a Different audience so people who want to Want I mean I certainly have you know Some extended contacts over the years Who've bugged me like year on year you Know how do I buy Bitcoin my broker Can't do it yet right and as like it's Probably a decade since the first of Those conversations and of course now he Can now now this fellow can actually Call this broker and he did right you Know he put some Bitcoin into his uh Retirement savings plan or something so Um I think the accessibility is quite Valuable and it and it's of course it Does it does a number of things right it Simplifies tax reporting reporting taxes For Bitcoin trading is quite complicated Because it's it's not automated whereas The Securities in a brokerage account You get an automated thing report right So you have to spend money on Accountants figure out just the basics

Like what happened right uh they do it For you and then you've also got the Inheritance planning right so for some People managing private Keys is you know It's complicated and a barrier to entry So I think you know there's there's Always a possibility for people to Graduate as well right to to buy some in This form then do some more research and Buy some in physical form as Well great all right maybe we should Jump into the audience um questions I See there's one here for Paulo that kind Of lines up as a nice segue I think from What Adam was just talking about um the Question is from nextbridge and they Said they ask how do you foresee Traditional Finance adapting to Incorporate Bitcoin and other cryptos Into their portfolios what challenges do You anticipate um for this institutional Adoption so that's um definitely good Question So we are going to um see um for sure And Need a wide range of hedge funds and I Think Pension funds That will start to add Bitcoin to their Uh portfolio now that the Bitcoin ATF is Is out there is no doubt that uh um that Is something I mean is something that we Are hearing a lot right there is you Know throughout all our channels we know More and more uh fund managers

Interested in in starting to add you Know one two three to up to 5% of their Portfolio into Bitcoin But ultimately I Think one of the most interesting things Is Companies more and more will start Keeping part of their unused balance Sheet and maybe the cash balance that They were keeping all in t bills now That the interest rates are so high they Are thinking to keep a part of it in Bitcoin right because now with the DTF They had the the legitimization that They needed right before was really hard To go to the their accountant or to you Know their auditor and um you know tell Them look I want I want really to keep a Little bit of Bitcoin in my balance Sheet can I do that and the auditor Would say well but maybe it's not it's Too is too early is to to difficult but Now there are no not excuses anymore now Every company can can start add in just A little bit right of of Bitcoin to Their balance sheet and I think that is That will grow our time because after You know after the first year you will See that um it was great you know of Course there was volatility but then More and more companies will realize That Bitcoin is the perfect Edge against All the craziness that can happen in the World the point of companies compared to You know tokens um is that companies

Have real life problems and need to Survive to all the difficulties is of Our world right there is companies are Not living in the metaverse so since I Believe that many are seeing that there Is a lot of unrest in the world um you Know from you know political unrest uh Um social arrest and so on um it will Make more and more sense for companies To get exposure to bitcoin just for you Know what if right what if something Happens yeah It might just make sense to get some Right um I think that was Kathy Wood's Thesis too for her Bitcoin Target price In in the last cycle 2020 or 2021 she Said you know what if publicly listed Companies you know if there's more micro Capitals and they put like 5% of balance Sheet into Bitcoin and she had the $500,000 Target price which I think was Calculated on the back of that um Adam Next questions for you I know this is Something that you've discussed for Years Bitcoin mortgages this is from Malva digital Bitcoin mortgages will we See them Soon um well I hope so it's Uh it's you know I think there Are if anybody's tried to get a mortgage Who is has something non-traditional About their kind of employment situation You know like they're they're a digital Nomad or they're a consultant or they

Work remotes it's extremely difficult to Get a mortgage actually because mortgage Mortgage companies are very very Conservative and Formulaic and you know they typically Only lend in their home country because The rules are different and so you know For people who are you know don't have Uh a pce lip and a history of employment In the last 12 months or something they They basically a person a non- grter and They can't they can't get a mortgage Effectively and so you know one one Formula that could improve that now you Know the the simple thing that people Think about is oh like they could they Could borrow borrow some money against Bitcoin but I would say that that is Like it's a form of Leverage and it's potentially quite high Risk right because of the volatility but An alternative is that you know you you Buy the property and the property is Itself is the primary collateral and Then the Bitcoin is just there to sort Of supplement or Potentially um um be the sort of payment Guarantee so what what the mortgage Company wants to know is that you're Going to pay the interest payments right And so one way to assure that is to Um you know put some Bitcoin in its grow That you know won't be touched unless You somehow stop paying interest

Payments so that's an interesting Formula and people have also talked About you know kind of equity release Things or you know buying some Bitcoin As part of the purchase even right now Many years ago in the UK they used to Have you know 90% mortgages and even 110% mortgages and 110 was you know Here's here's some extra money above the Purchased you know above the value of The house so it's immediately underwater So that you could do some Renovations or You know buy buy something right which In today's world that's considered crazy Risky but you know if the thing that you Bought where the extra Capital was Bitcoin and it went into the collateral Pool Plus the the house as they kind of Standby collateral it might allow an Individual to do something a bit like What micro strategy does which is to Have you know a long-term lowrisk Loan that isn't you know that is a form Of Leverage but is not liquidable and That that's a kind of superpower in a Way right if you have some low Leverage uh on Bitcoin in a way that Can't get liquidated and doesn't you Know doesn't put the house at risk Either right generally generally Mortgage companies don't want to Repossess houses because then they have To sell them and that could realize a Loss for them so generally speaking as

Long as people keep paying the mortgage Payments they're happy to let it ride um So that's that's a kind of Feature um great so we've got a couple Questions here from different people I Think asking about total addressable Market so what one of the questions is Do you have an estimate of how much Capital can flow in from Institution Um and another question is what is the Total address market for tokenized rwa On the liquid protocol which I think Means you know what is the total Tokenized market for stos real world Assets and then you know what is liquid Protocols position within that so I Think both of them are talking about how Big are is this opportunity for Tokenized Securities and how much money Do you think we could see come in from Institutional institutional Investors well hard to put a number on It a lot Yeah yeah I mean we we saw one I mean You have the Uh uh micr lending which is which is an Interesting form of capital formation Right and in in in the liquid Network There's a company called myi who yeah Provided promisory notes lending to Individuals and small businesses in Mexico now the natural Capital we can't Disclose the backers but they're large US financial institutions Public Market

Companies and that has placed hundreds Of millions into the Mexican market um I've got the data off hand but know the Average loan size maybe in the order of $50,000 or something um but it's placed A lot of money and it's sort of solving A demand right which is it it improved a Kind of workflow situation because a Promisory know is effectively a business Loan which is You know assured by some paperwork and Potentially resellable you know somebody Could transfer the loan and previous to Know the introduction of this liquid Workflow it it was a paperwork nightmare Basically right so they kind of skipped To the digital world and had Securitized um paramet notes so quite an Interesting development and uh puts puts Money in Market what do you think Paul you want To put try and put any numbers on those The market or the inflows from sorry Somebody just me some Alo just messaged Me who who was the business development Lead that you know worked with M at Blockstream and he says it's crossed a Billion dollars deployed now right yeah It was originally 200 but it's grown Pretty quickly it's very popular you Know the people are providing the Capital have a lot of capital and There's a demand for small businesses And this is a more efficient process

Well tell them to get their act together And do an issuance on bitfinex Securities we've been waiting for them Yeah So from my point of view is um Definitely hard to to put um a number on It But the this new wave of tokenized Securities In This Moment have access to A new type of customer that usually Traditional Financial uh industry didn't Have access to or at least was um not That uh that easy or not that Straightforward yeah that would be The cryptocurrency crowd right so now on Bitfinex Securities you Can have access to a type of Trader that Not necessarily was investing in bonds Or or equities through their bank Accounts or in a traditional manner so Now the Bitcoin surpass1 trillion dollar In in market cap and if you s the entire Crypto industry is around two trillion Or Something um and so that is a new market That is wealth that has been ACR and That could in part be directed to the Tokenized Securities market and so this Is just short term because eventually More and more this industry will Grow the interesting aspect that I think About bitfinex Securities and what bitex Securities created is an example that That people will start

Expecting a a more streamline access to To Securities compared to what they have Now in the banking industry a nicer Interface a better interface an Interface that is more user friendly Right now if you go on many banks the Interface interface looks like still Being in the late 90s and so the more That that will happen the more this Intermediation there will be and the More Capital will flow in in the small And midsize tokenized Securities so I Think what we're are doing today is just Opening the path you know ping The Way Paving the way to an enormous growth That that is in the trillions of dollars In Size yeah I agree the opportunity is Just is is massive um when you add up Global public Equity private Equity Real Estate everything it's just such a Massive number um maybe to wrap things Up the last question question um about Governments and policy makers how should World governments and policy makers see The the the crypto sector which I think Includes tokenized Securities now that It's transforming the nature of Traditional money and I think Traditional markets as well so how do You think um the attitude from policy Makers and Regulators is going to change Over the next five or 10 Years I think in general will be um a

Catch up thing because as soon as they Will start seeing seen that countries Like elevador and kazakstan are going to Start attracting a lot of wealth the The Regulators eventually will have to catch Up it's exactly like the Bitcoin ETF Story first you know they were mocking Anyone that was talking about even the Remote possibility of a Bitcoin ETF but Eventually when it came reality suddenly Everyone wanted to jump on the Bitcoin Band wagon and start to launch an ETF So Eventually this will happen also for for The uh for countries that will see Capital flowing outside of their Jurisdiction and so in order to try to Prevent that or protect the the capital Pro protect also the the banks that hold That are customing that such Capital They have to do something about it and They have to they they will be forced to Innovate and to follow the Innovation that that's great yeah I Think that's so true that the the Consensus view is finally starting to Come in our Direction which I think is Is a great thing so I I think that's all The time we have today I really Appreciate um both Adam and Paulo Joining us today for this conversation And I do want to say that this is the Beginning of a series so we'll be doing More conversations like this going Forward if you're interested in these

Topics um please follow us on Twitter at Blockstream U follow bitfinex Securities At bfx Securities and be sure to sign up For bitfinex Securities we have a lot of Exciting things coming in the pipeline That we'll be announcing over the next Couple of weeks and Months so thank you very much Paulo and And for doing this Tonight thank you thanks guys thank you Everyone

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