Blockstream Talk #19 – Digital Securities Future

Welcome back to block stream talk today We're talking to Kyle Frye CEO at Digital Kyle and his team have been deep In the digital Securities trenches for a Number of years already and have built Out a network of Securities exchanges And alternative trading venues to Support digital security or security Token trading obviously given my day job There's a lot of overlap and Synergy With what Kyle and his team are doing And what we're doing at bitfinex Securities I think this was a great Conversation and it's good to get Kyle's Perspective on where they see the Digital security industry evolving why Liquid is a good choice for issuers and What the benefits of digital Securities Are for users and issuers what is Tokenization and what's the point if you Enjoyed this conversation don't forget To like subscribe and share Thank you Hey Kyle thanks for doing this it's good To see you good to see you Jesse to Start off do you want to kind of run us Through Um you know what your background is uh Who digital is and what was your path to Bitcoin and security tokens or digital Securities yeah sure so you know I've Been in the digital asset space for five Years now I left Credit Suisse I was Doing Tech M A for just over 10 years

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On Wall Street I spent time on payments And fintech and what's interesting is I Saw a blockchain it was blockchain not Bitcoin necessarily when I started Um as the this idea that it would it Would enhance how payment infrastructure Work just better cheaper faster less Intermediaries et cetera et cetera so I I went Full Tilt left Um joined a firm went really deep down The blockchain rabbit hole this was sort Of Um just beginnings of the Ico craze days Um and that's where I think you know the Word token or coin sort of got a Negative content station but about a Year in you know based on on my Experience and where I saw everything Going and all these unregistered Securities offerings I knew that the the Biggest impact and thing I wanted to Help solve for was on on the Capital Market side so although I saw the the Notion that uh blockchain was really Kind of built and originally came Through as sort of for payments and then All these different payment mechanisms Came out and turned into tokens and Unregistered Securities offerings I saw The idea over time that first year that Tokenization really disrupt Capital Markets Um in a big way so uh jumped into Digital Securities I'm CEO of digital

Um my co-founder and I James Wallace Have been working together for the Better part of about four years together We've spent millions of dollars Um and ultimately what we're trying to Solve is Um you know issuers and investors and Trying to use technology and services to Close that that Gap in a better cheaper Faster way which will allow issuers a Lower cost to Capital will allow Innovators to raise capital and make the World a better place and really to shift The focus to back to the investor the Powers the investor where you put your Money matters and allowing people to Really have a voice and a vote to where They put their money um and so we we Actually can launch our own products and Look to serve the community uh the Investing community so the sort of more Uh tagline view of what digital does is We collect we connect Global Investors To high quality assets and we connect Global issuers with global Capital at a Fraction of the cost and the way we do That as you know Jesse in the Conversations we have is uh through Stock exchanges digital security stock Exchanges because that ultimately to our In our view is going to allow the most The least amount of friction for Capital Markets activity okay so the one I know About is is merge do you want to talk a

Little bit about who merges and other or Any others as well you guys are working With yeah sure so merge is based in the Seychelles they've been a stock exchange Since 2012 so they have you know they've Been in operation for a very long time Um they've built a pretty unique Infrastructure over time Um a lot of you know there's sort of the The Exchange and then there's all the Post-trade stuff which is typically a Lot of the challenge we see in NASDAQ in The traditional Capital markets and what A lot of frankly ats's and mtfs lack is That post-trade element which we'll We'll talk about in a second but merge Has the exchange the CSD so who owns the Shares the registry as well as the Clearinghouse so that's the settlement Part so when you send somebody to Security Um the the funds settle as well at the Same time so the transaction happens Immediate it's immediate real-time gross Settlement one of the only exchanges in The world that is meant to be more Global it has 20 trading hours uh it's The first stock exchange the only Stock Exchange in the world that has crypto on Ramps Um they have a full integration with With circle for usdc Um and they've been you know in 2018 They've decided to move to this hybrid

Model of being able to facilitate Digital Securities trading so you know For us over the years Um and I'm sure you saw this too Jesse Back in the polymath days and icos it Was sort of this business model was like I promise you I'm going to tokenize it And I promise you it's going to be Better there's liquidity and all these Cool things that everyone reads about And the reality of it is if we don't get These things to trade compliantly Underscore bold compliantly then it Doesn't really work well that's the Whole value proposition yeah that's Right that's a big part of the value Proposition right is the secondary Markets and liquidity that's a big part Of what we're doing Yeah 100 and and so and there's probably One key line there that we went super Deep on was the most complex to solve But was this idea of retail investor Versus accredited and so or Institutional so at you know private Markets and and peer-to-peer how much Can that really do if it doesn't allow The average citizens in on a global Basis but obviously that's where all the Right that's where a lot of the Regulation comes in I wouldn't say all Of it but a significant amount of the Regulation so we saw merge as an Opportunity we actually went pretty deep

At the Gibraltar Stock Exchange we spent Millions of dollars took a board seat Um ultimately found out that the Regulator was not ready to give approval For the Securities to trade so they had An entire digital framework and allowed Us in and we were so excited Tokenization these things are going to Trade and then they were like but Um we're not giving approval for Equities to trade and so we basically Kind of left and went deep on merge um There's some others building I think What you know the ATS ATS is the United States I think are Going to continue to be a challenge you Know you've got Um our checks in the UK fuson and Malaysia Um you know uh bitfinex Securities and Kazakistan what you're doing Jesse I Think there are other venues and I don't Think this is by any means Winner Takes All I do think that because merge uh has The Legacy credentials as well World Federation of exchanges qualified Port Exchange there are pieces to it that Allow for it to bridge between sort of Legacy and digital infrastructure Particularly because we can facilitate The trading in both Legacy and digital Security as well we kind of move on Through this adoption so I'd say they're Probably quite a bit ahead but frankly

We are having other conversations with Other Um smaller exchanges that see digital as A good step change for their countries In a way to sort of bridge the gap on Financial structure so you know I do Think there's a head start there but Generally speaking I think there's some Others that are are looking to kind of Follow suit so merge is in Seychelles You know bitfinex Securities we're in Kazakhstan those are two regimes that I Think typically people don't think of as Like Global Financial Centers and you Mentioned that the US is a challenge I Think probably you know the a lot of the Big incumbent players in financial Markets those regulatory regimes are all Probably challenges so what do you say To people that are kind of surprised That you know that you're coming to them From the Seychelles or that we're coming From the AIC in Kazakhstan why what's Your explanation for why this Opportunity is in kind of these Economies and Regulatory regimes that People have typically thought of as more Peripheral yeah you know what's Interesting is I think one of the the Facts I think people forget about is you Know Caymans that's not a very big from A population perspective but if you Think about almost every single hedge Fund in the entire world has an office

There and so Um there's this idea of offshoring uh From a tax perspective as well as just Being more Global I think honestly I'm a US guy I live in the United States I Know the regulatory environment Extremely well but dealing with the United States regulatory environment Dealing with the irf there are issues Now there are protections on the U.S Side and one could argue but I think That it actually creates a lot of Innovation stifling and so if you look At a lot of the Innovative companies or Businesses in particularly in technology Even if you're a U.S person you tend to Try to start outside the United States So you can really build a business you Can test things you could build and then Over time when you're willing to spend The money in the legal and et cetera you You come in uh to to the United States You know Bermuda was pretty Progressive In the early days back in 2017 2018 with Their digital asset framework Um and you know that was where we took This company called tribal s and got the World's first federally approved digital Security where you know most regulars Don't approve a security we actually Took tribal West and got it approved by The Bermudian government under this new Digital framework and when you think About the the Bermudas and the

Kazakhstan's and Um Seychelles and Barbados uh Gibraltar Or some of these smaller jurisdictions Again I think what gives them this the Digital assets gives them an Opportunities to sort of bridge Immediately into the new Financial Infrastructure which to their benefit Will allow them to sort of increase Innovation and allow things to happen Both for their local country and for Them to kind of move up on on the world Stage um I think another sort of example Of how this works is in Africa the Infrastructure for just regular Banks Isn't there but when the internet and a Phone came out it was so much easier for Them to adopt banking on the phone Faster than most other places in Western Economies in the world just because you Needed that and this technology is there And you're adopting it faster and so I Think those sorts of ideas and the uh You know the progressiveness of these Different countries and what I'd really Love to see and the thing that one of The things we're actually trying to Stitch together is how can they work Closer together all these different Smaller countries towards this new Global digital Financial infrastructure And just how do we get all moving in the Same direction and that's for a lot of Things by the way is right something's

Way more powerful when you have people Aligned with the vision versus versus Kind of fighting each other on this yeah That was kind of my hope for the the Bitcoin Bond I'm you know I'm not Exactly sure where that's at at the Moment but if you can get one big win Like something really high profile like That I think there's a lot of Jurisdictions that you know you've got The push factor and then you'd also have The pull factor to start pulling people Into this Um you know upgrade to Capital markets And and uh on to your point about how It's difficult to interact with the US Um in some ways the U.S retail is like The next level up right so that was with The block stream mining note that was The number one the top two feedback I Got back on the blockchain mining note Was number one sir win us and number two Sir when yes s s e r number two uh when Retail right and one smaller ticket Sizes so those that was like the you Know the two biggest feedbacks I've got I got back on the Block stream mining Note well I was just gonna say there are I mean there are ways to get into the U.S market right I mean and honestly you Know there's two different sort of Things that people are concerned about Um on you know there's the 40 act Concerns if you're

Um thinking about you know wanting Needing to be uh registered as an Investment company and then there's just The Um the exemptions you know reg CF for Example is only us companies reg a is Both Canadian and us and you can Actually raise debt on a reggae so there Are ways to kind of go after the United States Um we're actually running a 504 right Now which is this much more esoteric Painful process where you actually have To file with every single state where There's a retail investor Um and so but depending on the Objectives and the time and complexity There is a way to approach the United States you just have to do it in a way That's that's extremely thoughtful in Terms of the approach yeah it's comp Implement complicated it's costly and The consequences are Significant if you get it wrong right Yeah so yeah moving on I wanted to talk About nomenclature because you and I had This discussion previously but I I like The term security token and and I know That you're not wild about that you Prefer digital Securities and and I Think you know for me the Ico boom was Also a massive proof of concept like There was a lot of things out of that That I liked I liked that retail

Investors could participate in these Investments that were previously Completely walled off you know I like That it was Global I like that people Could invest in really small sizes you Know in hindsight you do a lot wrong With it as well right so there was no There was no invest there was no issue Or obligations at all there was no Concept of investor protection some of These massive projects you know they Even went out and said hey you are Getting nothing in return for this token And then they go on to raise hundreds of Millions billions of dollars so but I Think we're talking about the same thing When we talk about security tokens and Digital security so what do you mean When you use that term digital security What what meets that definition to you Yeah so so step one we both have the Word security and that's probably the Most important term Um that we need to put around it so I'll Answer that by saying you know one of One of the things we talk about to Remind folks of you know sort of how This work has worked over time there's Paper Securities right more Bearer Instrument you have to share a Certificate in your hands and to sell it You have to sign it over to someone else And then there's the electronic Securities and that's really where we

Are today that's t plus two when you own A share do you really even own it until It's settled two days later on dtcc GameStop has proved that that's a big Issue and that's part of why you know The capital infrastructure has gotten Bloated over time with so many Intermediaries and roadblocks and I Think they were added for you know Compliance regulation conflicts of Interest and at the time perhaps made Sense to add a new thing but over time As the capital markets grew this Infrastructure and plumbing didn't grow With it in terms of uh the stakes the Size of the country the the the way that It is to manipulate Um even in these Capital markets and Then you got the so electronic Securities where we are today and then Digital Securities more back to kind of Paper but it's the digital form if you Own it you have it it's your keys Um and I think the important thing Actually will stop there is this idea of Uh you know not your keys not your Crypto and I think that's different I Think that's a bit of the the Silver Lining on the security side is because Whether we like it or not Um there are going to be Market rules And kyc and then there are exemptions And we have to follow the rules yeah Wait lists yeah of who owns the

Securities that's exactly right so paper Securities move to electronic Securities Which aren't real Securities it's a big Mess of a noise and digital Securities Move us back to the ethos of this so now Moving back where you know security Token was probably the most used term When I kind of you know after my first Year in going down the rabbit hole and It continues to be a well-known term That folks use I won't let it die okay Yeah no no problem neither of us Security token markets given their name Um so the security token you know the Word token to us and coin received super Negative connotation and I think that it Highlights something I think is not as Relevant I think the most relevant thing Is the word security and the second Thing is just that it's digital and so The fact that it's a token or coin I Think these terms again have got Negative connotations over time we've Just adopted digital Securities full on But I think you and I are talking about The exact same thing in terms of you Know the digitization of the new uh Global infrastructure yeah I think token Has negative connotations it also has Positive connotations right like super Low friction ease of use Um and when I think about my definition Of what a security token is is that you Know you had some of these exchanges

Over the last year or so that had Tokenized U.S equity And it's it's basically just an Excel Excel spreadsheet entry right you can't Withdraw it you can't do anything with It so my kind of definition of a Security token is obviously it's a Security but it also meets all of these Criteria things you can do like uh on Liquid with transfer restricted assets Where I could you know I could withdraw It I could self-custody it I could ping It back and forth to my friends Peer-to-peer Um you know move it to other exchanges And do Arbitrage and all of this stuff That's doable because it's in this Whitelisted ecosystem that makes it Permissible so it's not exactly a bearer Security I think like if you can imagine Doing Apple shares as an erc20 with like No restrictions like uh you know like a Stable coin or something I don't think That's possible anymore so that's you Know I don't I don't think Regulators Are particularly fond of you know a new Electronic way to do Bearer Securities I Don't think that's possible but all of Those things taking it off the exchange Self-custing it within a whitelisted Ecosystem that's kind of my definition Of a of a security token or digital Security awesome mine too I think that You know that is the dream you know the

Uh and we could we could get right into The benefits of of what we think about The digital infrastructure and being a Security token because I think This idea well first of all just better Cheaper faster lower cost lower risk More value creation for everyone and I Think that Um I think it's important to also Remember like you know this is a little Different than the payment side where It's again less intermitters because Peer-to-peer you own your money no Regulation that's your wealth like That's yours there should be no friction On Um you know the digital security side A lot of these intermediaries that exist Will continue to exist however they will Be in a much more different form they Won't have as much power they won't cost As much and so let's talk about the Blockchain for example it's meant liquid Network is meant to be the registry who Owns the shares how many shares are Outstanding you can't duplicate them et Cetera Etc now someone has to still be Accountable for the reporting and Ongoing obligations for who owns what Somebody needs to be accountable to The Regulators that's not going to go away So there's still a CSD but the CSD Doesn't have a whole back office moving Books around and then determining an

Excel spreadsheet now they can look at The blockchain so it just it takes that Role makes it more efficient less people Less cost Um but in terms of on the investor side I mean I'm I'm looking forward to so Many of the cool things that we're Always talking about and there are some Out there and we're building some in our Pipeline as well but an investor has a Token and they can receive distributions On chain and distributions both coupon Payments for interest on on debt or Dividends and equity and directly on Chain choose do you want Bitcoin do you Want a stable coin directly but being Able to do that on chain voting right We've seen voting proliferate in the Crypto space in terms of are we gonna Afford what are the changes we should do As a community and this idea of power Back to the people and this goes beyond Normal governance shareholder votes Where you have this shareholder meeting One time a year where most people don't Go they don't vote they get this 80 page Document of a prospectus and they're not Going to do anything with it they let Fidelity vote for them Um as their proxy but you know imagine Being able to click a button and vote For a certain board member or a certain Thing or eventually like hey what do you Guys want what does the community want

So for us even being able to issue Digital Securities and get more voting So again power back to the investor more Efficiencies and you alluded to it a bit Too how how can we get to this world Where you know in your green wallet You're also holding your digital Securities your security tokens and what Can you do with that it is an asset can You loan against it can you mortgage Against it can you borrow it to someone There's a whole financial infrastructure On top of that now we need to be careful Because I think the leverage and all These other things in Credit Now have a Bad negative connotation again there's a Very positive way to use these in a way That does make sense but I think Generally speaking Um this security token digital security Paradigm allows for so much more Innovation and flexibility with power to The issuer lower cost better cheaper Faster lower cost of capital and the Investor uh easier simpler better ways To interact with with an issuer it's Just it makes sense um for everyone it's Sort of a win-win-win all around and I Think the last one that's important that I think we've talked about before but I Don't think it's uh you know is sort of Um Under under mentioned is programmatic Compliance so when we talk about

Regulation in the context of capital Markets and securities I think you know And um I think people hear the word Regulation as a bad word I agree that Regulation has gotten a bad word because I think that it's typically combined With the idea that there's some group or Committee in power with who decides the Rules and I don't think that's what we Need to be thinking about we need to be Thinking about Market rules we need to Be thinking about code we need to be Thinking about this Oracle or idea that The community decides these fair and Equitable rules that we need to abide by You mentioned issue of protections Ongoing obligations Etc how can we embed That and move that process away from Humans making decisions and doing things Over to machines and code so that it can Be actually applied in a fair and Equitable basis so I think this idea of Programmatic compliance is absolutely Brilliant and I think that as Regulators Get more comfortable with the technology And how people use it they should be Excited about this idea because I think Most Securities laws are broken and Chased after in a in a um a reactive way Right this SCC comes in and it's like Let me see all your documents for the Last two years and you're like you're Years behind where the crime and all the Bad things are actually happening so how

Can we enforce good habits and good Problems into the actual Securities and That's super exciting and it should be For everyone yeah I like your idea about More granular voting rights I mean That's an interesting thing I thought a Lot about very granular you know coupon Payments and dividends where you can Instead of paying them quarterly or Annually you can start streaming this Like you know I talked about this with Matt Haywood on a pad podcast about Streaming them you know hourly or by the Minute or something like that I mean That this just becomes really really Interesting and the granular voting part Really changes it's a new kind of real Shift in terms of how how much Participation investors can have in Their Investments that's that's really Interesting well let's just say there's The there's two extra things that one is This idea where you could also Facilitate voting by investor versus by Share thereby allowing certain investors To have the same equivalent voice to Your largest shareholders for certain Things in the right context And just as you chop things up as you Start things things like Fractionalization and smaller things This idea where just more people can get Involved where maybe a dollar in the United States isn't a lot of money but a

Dollar somewhere else on the planet is a Lot of money and so being able to do That and making it more Equitable are Folks yeah the shifting gear slightly Towards how the market is developing I Think it's been you know maybe I'm kind Of in a bubble but I think it's been Kind of a consensus opinion that Traditional Capital markets will evolve In some way to look more sto-like in the Future that they'll leverage some of the Technology that we've developed in Digital asset markets you know maybe That's on a five or ten year time Horizon do you that's my view as well But do you think that's realistic Because on the other hand I also feel Like the Legacy system has influenced Digital asset markets much more than We've influenced them I think early on The kind of Hope was that we would be Able to influence how things are done And Regulators point of view and over Time I haven't seen that really happen At all I think very much it's been the Opposite so do you think that view that Eventually you know traditional Legacy Markets evolve into like a more digital Asset like format is realistic or not Yeah and actually I feel like we're a Little behind Um and I'll get why we're behind but I'm Sure you've seen the quote from the Former chairman of NASDAQ instead of you

Know all all stocks and bonds and Wall Streets can be tokenized and within five Years a hundred percent of the stocks And bonds on Wall Street will be Tokenized and I think that that that That Echoes the idea that the digital Infrastructure is better cheaper faster Lower cost of capital lower counterparty Risk it makes sense but there's so much In the way and I'd say one of the things In the way is honestly what's going on In crypto Um I think that we've Gotten sort of fat rich and lazy a bit a Bit too speculative a bit too gambling And I think that they're sort of Bitcoin Crypto And then digital Securities or security Tokens Um I think the crypto middle box has Created an entire ecosystem of financial Institutions what's my digital asset Strategy how are we going to custody of Stuff VC firms investing significant Capital I think all the angst on crypto Um has created this sort of like Um side parallel universe which has Taken us away from a lot of the goals of Facilitating Capital markets easier Better cheaper faster Um I think that's one thing I think the Other is just Um a lot of people in the US just say Look Capital markets seem fine to me you

Guys may be trying to solve a problem That I don't I don't have an issue with Uh so Um you know the the U.S capital markets A lot of people say work sufficiently I Think there's a lot of people that say That not there's a lot of manipulation There's a lot of Um but the folks that make money today And are in the power and have a lot of Money are happy the way it works until They can find a way it works in the new Financial infrastructure maybe even in a Hedge level I don't see a lot of them Moving as quickly now you and I are both Having lots of conversations with a lot Of big names looking at the space moving It so I think it's I think we're very Close to hitting an inflection point Um I do honestly probably say this each Year but I would say this next year 2023 In my view is the breakout year for Digital securities Because I think as people shift more Towards Bitcoin being the truth for both The digital gold as well as the new Money transfer uh or the payments Mechanism money and then uh the digital Securities and owning a real assets and Stocks and bonds how we know assets is The thing you should own and not a bunch Of speculative pre-mined crypto tokens Um that that will begin to shift us over To this new age and you know obviously

You and I are building Um marketplaces together you get like You said you get a few more big name Assets you get people to pay a bit more Attention and you get people to feel the Benefits of this new infrastructure Better cheaper faster more access Etc et Cetera I think it's going to shift so You know we're I think he the former Chairman said that quote maybe in 2019 Or 2018 so we're running behind that Clock for sure Um particularly in the United States There's more Innovation offshore but I Think that for sure five five more years We're going to be much further along and I do think that 2023 will be sort of That exponential growth curve inflection Point yeah no I think we've been talking About sto since like you know 2017 since Right around Ico started and you know The industry Still Remains kind of small And I think people often you know they Wonder why and for me I think of it as You know a puzzle with three main pieces Right you've got technology you've got Investable assets and then you've got Commercially viable regulatory oversight It's not just regulatory oversight it's Commercially viable like we can do this Business and we can make money and pay People and survive right like I think You need those three pieces that's kind Of how I framed it and we've struggled

For a while probably arguably like even Have the technology right so I think Transfer restricted assets on liquid is Relatively new right and the asset Management platform investable assets is Relatively new I think the Block Street Mining note was one of the first if not You know maybe the first Really you know investable and modelable Asset and and hopefully they'll be They'll be more behind and then that Third piece has been the big bottleneck Right like commercially viable Regulatory oversight is that kind of how You see it as well is that why you think It's taken as long to develop are those The three pieces or is there something I'm missing no that's dead on exactly How we think about it we just we call Them the value layers and for the top One is the business where it's the Issuer and the investors right it's the People looking for Capital and it's the People that have Capital those are one Of the most important players Um different asset classes Etc then There's the regulatory layer and I like The way you said it this commercially Viable regulatory layer and I actually Dropped the word regulatory in my value Layer framework and now call it Market Standards because regulation has gotten A negative connotation but this idea That there should be rules there should

Be investor protection there should be Uh Global Market standards which we Abide by and then there's a technology Piece exactly right I think technology To be clear stems Beyond Liquid Network In the blockchain I I think there's much More to be done with automated kyc Approval uh crypto account funding Um just there's increasing ways you know Like a lot of what we're able to do is Allow white labeling and API directly on Websites I think there's just more ways To interact with our phones in the Internet I do see liquid and the Blockchain is the core of it which Facilitates all of it and all the pieces Being built on top of it but I would say You know I think there's probably two I Would say it's two pieces I'd say the Technology is honestly there Um I think it will scale as it needs to I think as as more attention and Adoption it'll scale when it needs to Um just like lightning is but on I would Say on the the business layer the Issuers and the investors I think There's still an education and adoption Standpoint and an awareness I think Um you know some of the things we joke About is we have uh we're trying to Problem solve a problem that a lot of People don't know they have so you know Getting access getting access from Capital from people compliantly doing it

In a way allowing you know 24 hours a Day trading allowing investors to invest In more than Tesla and Twitter right Giving them actual options and I think That this kind of plays into adoption a Bit is If we can speak to people Beyond magic Internet money if the Thanksgiving table Orange pill conversation isn't working Guess the best way to talk to people It's assets it's saying hey by the way You can own a wallet you can hold your Stuff and by the way if you mess up and Lose it we will be able to burn and Re-issue so there's a safe way but You're slowly bringing people into this Wallet infrastructure and these other Elements that they'll need to gain in Order to hold and maintain their wealth And this custody Evolution so there's a Whole other attack Vector for people to Adopt digital by talking about Um by talking about assets yeah and I Think when you think about the Difference in technology and the way Markets operate in the Legacy system Versus you know the broader digital Asset system it's amazing that you've Got exchanges like you know bitfinex That regularly trades hundreds of Millions of dollars a day 99.99 uptime right we don't we don't Rest and all of that is done with like Real-time settlement 24 seven trading

You know you can self-custody put assets On and off it's such a massive Difference between a legacy system like I always highlight that you know most of My finance career was all of my finance Career was in Taiwan and our Equity Markets here are nine until 1 30. we Don't do weekends right you sell your Tsmc on Friday you don't get your cash Until next week Um don't do Chinese New Year's so it's Almost like you've got these two worlds Where you've got a horse and buggy and Then you've got a Tesla and you know the The horse and buggy is telling the Tesla How it should be running itself you know It's kind of like there's a better way To do things so to me that's part of the Pull factor is eventually people and Maybe there's a demographic thing to This as well where there's you know Um there's like 50 of the population in The US is Um you know I think gen Z Millennial and Post-millennial and so as these people Get maybe it's just Millennial and post Malone as they get older they're more Familiar with this technology and they Take more positions of responsibility And are just naturally more willing to Do it and and the older guys that have Been used to the Legacy system kind of You know Fall by the wayside a little Bit

Um you know when I started in in sales Trading we used to take orders on the Phone and then write down tickets and Then walk it over to a dealer who would Put the trade in that that's uh that's How it was when I started the good old Days The good old days exactly yeah on the on The generational thing that's absolutely A problem you know we're running a Global debt IPO right now and uh half of The the the investors or I'd say Probably somewhere you know 50 to 70 and Some of them don't want to give Social Security numbers online they're like is This the Cure how do I sign this I don't Want you to see my signature and we Literally had to have them call the Client do it all in the back end with us Never seeing a document but us having to Be able to put that on the uh the Registry of who owns the shares and so There's a massive adoption education Element to Um the older generation for sure I can't Believe Taiwan nine to one Thirty that's Really uh really short it's uh it's Pretty good so Um you're shifting gears again over over The course of the last six months we've Seen just like this unprecedented string Of blow-ups most most of the blow ups You know I think interestingly in the Previous cycle it was mostly hacks right

And the theme of this cycle is really Egregious risk management and Transparency issues and then you know Some degree of that triggering just Outright fraud so do you think that sdos Have a role to play in addressing some Of these issues and fixing some of these Problems Yeah 100 I think you know greed greed And ego is driving a lot of this stuff Too I think when people saw the ability To make money dump on retail 1000x 2000 Extra turns they'd work backwards and Figure out how can I get in early before Uh this thing hits the exchange or get Paid an entire business models were Built around this and then you layer on Top of that business models that have Leverage and loaning against things and Rehypothecation Um and just money moving around so fast So quick uh lack of controls and Infrastructure and proper growth and Processes Um security tokens will be able to help With some of it I would say not all of It and the piece I would say not all of It is I think there's just a human Nature element to a lot of the Excitement here I think that being able To guarantee ten thousand percent Returns in a week and yield of uh 80 Tokens that's just that's not real it Doesn't exist like you can't create

Value out of nothing and so there's this Whole notion of getting paid for risk Um I think a lot of the transparency Market standards Frameworks Um will help but we so so one we won't Change human nature of Lottery Speculation getting rich overnight I Think as as Humanity we've gotten very Short-sighted in terms of things that Bring us joy we've gotten away from Long-term thinking and I think is a Problem and the other thing is we're not A Panacea for bad humans like Bad actors I think that there will always be Criminals there will always be crime There will always be people taking Advantage of the system Um I think there's just Proof reputation I do think that Um you know regulated uh you know I Again I'll say Market standards will Help a lot of this and and again Jesse I Think this goes back to why we do stock Exchanges so if you if you look all the Way at the capital markets Infrastructure a stock exchange is the Apex of the capital markets okay stock Exchanges are sros sros are Self-regulated organizations meaning They are empowered by The Regulators to Define or to make the rules and be the Decision maker in the context of their Market rules Market rules there are Global standards iosco that's the

International Securities committee which Comes up with global standards that says Here's the information you need in a Document to allow someone to have enough Information to make a decisions risks Industry overview financials Etc there's a diligence element there's An ongoing obligations element There are Rules about what trading insider trading Closed person listen all of these things Are followed on a pretty frequent basis And so although manipulation and crime Still even happens on NASDAQ today with Um uh order leading right and just Ability to manipulate price it's going To happen but at some level Um you know in the digital security side And the global structure there will be Ways with Market standards and to ways To build in a lot more safety nets but This is why we went to straight stock Exchanges is because there's a bunch of Rules and Market standards already in Place that protect investors that Protect diligence if a company goes down By law you have a certain amount of Where you come out in the stack of when You're going to get paid out if you're a Creditor versus employee versus an Equity owner and I think there are just Tons of rules built around that can they Be better can they be given back to this Community-based Market approach a Hundred percent can they be more code

Based versus a group or committee that's Making decisions yes but today these Global standards already exist and so if People see that and start to adopt Security tokens and the current Securities framework we live in a lot of This harm goes away Um in terms of the things that people Are doing wash Trader and insider Trading is everywhere in the crypto Right can you tell me that a 10 a 1 Million market cap coin trades two Million dollars a day on one the 200th Exchange no like there's so much fake uh Fake volume here price manipulation and A lot of these things go away Immediately in the context of all that Um the other thing I'll say on on Digital security is that I think will Will protect a lot is this idea of just Multi-sig which is really cool in terms Of you could loan against it you could Have someone else hold on to your Security but them not allowing to sell It or do something else hypothecating it Without your other key again with Contracts and laws Allows for you to know exactly where You're after the sitting depending on Your risk tolerance and the type of Product you're getting in on but there's So many other cool ways we can use the Technologies that do exist and people Are using in the context of Securities

And loaning and all the cool flexible Stuff we want to provide to investors And again the idea of issuer obligations Like you know saying what you're going To do with use of funds and Reporting Standards and Reporting obligations I Think all of that adds another layer of Transparency to things that would um you Know be beneficial so you just came back From El Salvador recently for the Adopting Bitcoin conference what was That like do you have any takeaways from That event yeah first of all I loved it I ate some really good food a lot of Good smart people there I wish I could Have gotten around more it was sort of More work than play for sure I didn't Allow for much visiting time although I Did make it to uh Bitcoin Beach and I I For sure bought a hat with uh with my Lightning uh on the lightning Network Um but what you know it was generally a Lightning Network focused event I think We probably stood out in terms of the What we were talking about but I think One of the the two things that I heard Um just one how exciting lightning is Right like this idea of I can't buy a Starbucks coffee years ago I'm not going To wait 10 minutes for the next block to Roll on the Bitcoin Network expensive Slow Etc and things like what are being Done on layer 2 with lightning and Payments mechanism there's a lot of just

Excitement and building and development Work and people getting excited about The most decentralized secure network on The planet that no one could touch no Pre-mind coins just how it was born Um that that there was a lot of Excitement there and then this idea of No more regulation no more regulation no More regulation came up quite a bit Um and so which is why I talk about Regulation all the time and I think no Regulation for your money and your gold Your Bitcoin but Market standards for Capital markets and I think for what us What we tried to talk about down there Is hey guys I know we stand out talking About liquid Network this other building On Layer Two idea remember and it was Something I mentioned earlier Hyper bitcoinization is people using the Bitcoin Network and Bitcoin more how Else can we do that by also tokenizing Assets and bringing in more people Through the asset angle versus just the Bitcoin is money Bitcoin is gold angle So that was one important thing for People to understand that actually the Activity on liquid increases the Activity on bitcoin Network and Lightning and Bitcoin and lightning can Be used to fund the assets that you're Buying on liquid and so this whole Virtuous circle of increases the Activity

Um together and then just you know that If and I mentioned it earlier if the Orange pill at Thanksgiving dinner isn't Working where magic internet money is The Future Let's get people adopting the Digital infrastructure by investing in Real assets real estate carbon offsets Venture the block stream Mining Node and That should be easier for people to come In versus Dogecoin metamask you know Payments and and not your keys not your Crypto and so I think giving people Another way to talk about why this new Infrastructure is better and that may be An easier better way to bring them into Bitcoin to bring them into a better Monetary system is through digital Securities and security tokens so is That why you guys have been you know You've been pretty big supporters of Security tokens on liquid is it because Of the security aspect because you're Building off of Bitcoin yeah 100 I mean There's not there's no one else close so You know so if you say on bitcoin that's Number one number two is using Bitcoin As the actual transaction payment Mechanism you don't need another token That screens out almost everyone and Then if you get down to anyone else in Those levels then you start talking About okay how was Liquid born and who Backs it block stream one of the biggest Most important Bitcoin infrastructure

Companies in the world with the vision And Mission aligned with democratization Access and the reason sources and Wherewithal and reputation to create This thing years ago and know that it's Not block stream liquid it's a Federation that's going to decide the Governance and the rules it's the Community and so I think there's 65 plus Federation members 15 functionaries Again as adoption increases we want more Functionaries we want more Decentralization everyone incentivize is By decentralizing the network more but It was purpose built with box stream amp For Securities and so we are just like Bitcoin We're not it's not Bitcoin or liquid Network or die they are just by far the Best Technologies for what exists and What we need and the problem today in Terms of Um what needs to be used so if there's a Better solution that comes along we'll Take a look at it absolutely but liquid Network is by far the most Differentiated and best option from a Technology and a compliance and Regulatory perspective as well and we Will Um get it approved by a regulator at Some point in the near future and that's Just sort of the start yeah I think the Regulatory aspect is probably slightly

Underestimated like you look at what Happened with Solana recently and I Think there's a lot of concern about Assets issued on top of Solana and then You get you know concerns about the Regulatory Fallout from what happened at FTX and you know is there a possibility That Regulators will just take a really Hard line on this stuff and say Hey Listen you know cftc has said for a While that they thought Bitcoin and Ethereum were the only Assets in the Space that were sufficiently Decentralized and not being considered Unregistered security so you know is This the kind of event where they just Come out and take a hard line and say All of this stuff is unregistered Securities Um what do you think the follow will be From a regulatory perspective on on this On the FTX meltdown yeah that's that's a Super hard one I think there's a lot of People pushing for Um you know I do think there are there Is value in crypto uh digital assets Outside of Bitcoin I think it's I do Think it's more of an innovation lab or A Sandbox like zero knowledge through Fully Anonymous transactions I think There's definitely value add and a lot Of these things that are building Bitcoin flow to take these things on Which is why ethereum came out as sort

Of the smart contract where you could Settle online and it became sort of the Uh place to raise capital in an Unregistered Securities offering because Bitcoin didn't have these Technologies But I think ultimately everything proper Will be built on the most decentralized Network using the most sound money on The planet so they'll all move to Bitcoin and they should get that much Attention a Sandbox a lab but they get Way more attention because there's way More incentives and there's way more get Rich quick schemes I think Regulators I I think the US probably has the most to Gain and lose in a lot of contexts I Think being the leader uh the biggest Capital markets in the world is is hard I don't think they have to move as fast As other people which is why you always See Innovation happen offshore because They get to be Um you know fat and lazy and weight You're the incumbent you're the you're On top of the hill yeah exactly they're Exactly you're on top of the hill and so I I think that it's going to be a Challenge I think there's going to be a Huge blowback if they just come out and Say everything's an unregistered Security I think what would be probably Super helpful is how can we and I think A lot of these will go away right 20 000 Tokens 300 exchanges I think that if

They came out and said look we Understand what you guys wanted we Understand the desires here you've got To admit guys there's a lot of crazy Stuff going on here Lottery gambling Lack of investor Productions which our Job is to protect against but we don't Want to just blank it throw all of you In jail we want to give you a solution Of how to bridge you from an Unregistered Securities uh offering into A security if that's what you do and we Want to give you an easy on-ramp to do That we actually had a name for this at Some point calling it The Ico rehab uh Where we were going to help people Actually say look security is not a bad Word it's okay and there's people that Can help you through this and we're Trying to lower the cost both in mind Share and time to do that um but I think If they come out just fully guns blazing That everything but ethereum Bitcoin is An unregistered security we may have Like an actual Civil War on our hands I Don't know but I think they need to come Up with a solution because clearly the World is asking for a better way to Interact with each other but I do want To get rid of a lot of the nonsense you Know I kind of had this view before when Crypto regulation first came up I guess You know maybe maybe it was last year Six months ago or something like that

And you know Elizabeth Warren you know There's some senior U.S policy makers That were kind of pushing this forward And then they found out that there's This constituency within the U.S that's Like kind of independent of race gender Creed or party and they care about this Digital asset space a lot so it kind of Became you know a bit of a a bit of a Third rail if you touch that you know Then you have you could risk offending This really big political cohort but I Wonder if that's changed after FTX so I Wonder if that meltdown and so many People getting hurt it kind of pushes The other way where people are like Hey Listen help us you know we want Regulation so I I wonder if there's risk There yeah well I mean your guess is Good as mine I mean there's a lot of People spending a ton of time trying to Unravel the fpx thing I don't I I read Sort of like what gets put out there but I don't spend a ton of time time I think It was you know it's crazy like Sequoia One of the most well known Venture Capital firms in the world lost whatever 210 million dollars I think a lot of People did lack of diligence I think you Start seeing things like Elizabeth Holmes and thranos where it was sort of This like I'll believe you I trust the Fomo and I think that there's that that Existed everywhere from VC to sort of

Government to putting our name on an Arena everyone just sort of it was trust But trust there was nowhere by ever and I think that you know especially yeah I Don't know I I fall it's really Challenging here because I think it did Hurt a lot of people I mean we we Honestly just frankly had some funds on There as well we used on and off where We'd you know pay out of our FTX wallet We were doing some Integrations I think We've been talking to uh their shop About doing digital Securities right I Think um you know what's interesting is A 32 billion dollar company at the Height we noticed that you know how they Had the tokenized stocks if you read the Fine print in two different places one Place they said that tokenized share was Redeemable and another place that says It was not redeemable and they're doing It through a broker dealer which is not The proper way it means it's more of a Derivative not the actual underlying Share if you don't want the underlying Share you can't actually redeem it and Just so you know the Tesla shares the Twitter shares the microstrategy shares That trade on our platform today through Merge you actually own the share the Corporate actions pass through done by a Broker dealer that's a member firm on The NASDAQ you actually own the share Today so you know I think so we noticed

Some you know pinks in the armor now I Won't say I was out there calling shots I mean everyone thought that Um SPF was an absolute genius they Wanted to get involved with him he's Doing a lot of great things but the Reality of it was trust but trust and You know it's it's the Fallout here I Think it's going to be super I don't Know I think it's going to be super Challenging but hopefully it doesn't you Know I think a lot of crypto people are Saying it's going to move the industry Back for years and years I think from a Bitcoin perspective I Hope it gets people to realize that all That stuff is not Bitcoin you cannot put The two together and that what you guys Were doing investing in stuff you don't Understand where there may not be a use Case for is also partly on you and your Education and getting involved so you Know hopefully people are getting more To the truth and this is where I do Think that from a market perspective and Timing Bitcoin and security tokens are At the inflection point because I think This just shines a spotlight on doing it The right way versus doing it the get Rich quick way which I think is again Like Luna Terra has continued to cause Mass chaos across everyone on the entire Spectrum from clubs all the way up to Governments and institutions and so you

Know if people know there's a way that Exists that we're building today and It's going to get better uh using Securities Market standards and what Bitcoin's allowed to do I think it's Going to benefit everyone what about Issuers like from your conversations With issuers have these blow-ups of the Past couple of months impacted you know Their their sentiment No uh it goes to the other way I think What's really interesting is firms that Are big names some that have filed the SEC Um large banks in Europe Um have come to us and they've said We're ready to do this tokenization Thing we still want to learn and so We've come up with this sort of uh crawl Walk run framework in terms of going From something small to maybe one Investor and learning about wallets and Issuers and kyc white list the full-on Exchange trading peer-to-peer Self-custody that this is Um sort of the right way to do it so These Bank these people have come to us You know why but because Bitcoin Bitcoin Is the only one that is not considered a Security today Bitcoin is the only thing That's considered to be sort of this Thing that someone can't control and so Bitcoin has actually been the driving Reason while people that want to go this

New digital infrastructure come to us Because they're like liquid network is My way to bitcoin and in fact that's a Big conversation we're having is hey Guys using Avalanche or algorand or Ethereum how do you know the actual Money used in your transactions are not Unregistered Securities offering and if You're actually trying to do this thing Compliantly in a Securities manner why Would you not use the most risk-averse Blockchain protocol and money to Facilitate transactions in the world and So risk averse Capital issuers which are Most of them when money and stakes and Risks are in the game are moving to us To have conversations beat frankly Because of Bitcoin and so it's in fact Accelerated Beyond other things and I Think like I said this idea of people Getting access to cool things like the Block stream mining note that's just the Beginning right the volcano Bond we're Creating a product called el Sal is the Ticker which is going to allow us to buy On behalf of retail investors all the Different challenges of sovereign debt In El Salvador and make it available to Everyone so let's bring more cool Products and then let's get people into Bitcoin together and but Bitcoin has Really been a big driving gravitational Force to people accelerating their ideas In and around moving into the digital

Infrastructure so I'm seeing a massive Uptake in in fact in activity and Conversations that's great final Question what do you think the sto Industry looks like in in 10 years I Think that's where everyone's Comfortable on their phone holding their Own Assets in a wallet like green assets They're loaning against Um hopefully I'm thinking by then that Uh Regulatory and security standards in Terms of the friction how they're Allowed to move gets lowered it's sort Of like once you get kycam meld white Listed into a huge Global framework then You should be able to honestly send Things peer-to-peer like why wouldn't I Be able to send you uh without showing Accreditation status or anything a Blockchain might know or some sort of Security it's just another asset I think You know things like crowdfunding rules Um and the the massive secular Trends And around people investing on their own Um is just going to proliferate like so What we've built on the other side of The marketplace besides this Democratization or access to global Capital is we want hundreds if not Thousands if not eventually millions of Many IPOs because ultimately these People are raising capital from Global Communities and Global communities Coming in but we have to completely

Destroy the costs and the friction for That to get in but we just see a Substantially more frictionless society Around how Securities move with proper Market standards but I think a lot of This sort of like esoteric 34 act 33 Acts 40 Act Stuff that creates so much cost and Bloatedness is going to eventually move And we are seeing uh The Kinks in the Armor sort of move away from that as you Know the accredited investor rules the United States change and and sorry Talking so U.S Centric I think everyone Uses that as the framework at which Regulation moves but generally speaking Crowdfunding rules accreditation rules Are moving in the right direction They're just really really slow so you Know the Bill Gates quote right we we um We we underestimate Um what can happen in or overestimate What can happen in two years and Underestimate what can happen in 10 and So I think in 10 years it's going to Look much much different I think Capital Markets will be denominated in Bitcoin It'll be no more USD denominated in Bitcoin Um and it'll you know people will swap In and out but Bitcoin will be the Global Reserve currency of monetary Assets as well that's great I think we Could probably go for another two hours

But I agree and uh we'll we'll pause it Here and then we'll have to have you Back on and we'll uh you know update in A couple of months and revisit and um Yeah keep keep to keep the conversation Going I think yeah I appreciate it Jesse And uh look forward to picking up those Uh bitfinex Securities and digital Conversations again sounds good [Music]

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