Tokenizing Real World Assets

so obviously like individual stocks and bonds are going to be tokenized or issued for the first time on blockchains from there you know obviously every fund is going to you know have the ability

you know 30 years from now to be running with an onchain component um you know we're not limited just to t- funds Equity Funds like an S&P 500 fund or a

NASDAQ fund or you know a real estate you know re fund or commodity funds or any type of fund you know can and will be shoot on

CH bankless Nation Robert Lesner on the podcast today he is the creator of compound I would say he's one of the forefathers of of defi one of the original protocols for sure now he is

doing something in the traditional Finance space at least it's a a cross-section of Defi and trafi he's trying to bring $300 trillion in trafi

assets on chain uh not overnight not immediately but over uh some period of years to come he's he got a new company it's called superstate he's got a new

product tokenized T bills and he's in a brand new location so from Silicon Valley over to New York City so a lot of new things for Robert Lesner on the episode today yeah he ended the episode

with a prediction of 10 trillion real world assets on Chain by the end of this decade in the next six years uh so in this episode you'll hear how he gets to that prediction but first we have to

talk to our friends and sponsors over at cartei who's building the first modu execution layer that runs Linux is an ALT virtual machine in the modular

landscape for all the layer three app chains out there that want to boot a full operating system that goes on chain with you wow I did not even know that

that was possible nerdy of you Linux huh DAV super nerdy yeah so you can build apps that leverages like the Decades of traditional open source libraries and tooling around the Linux ecosystem but

now you can build your app chain all with that infrastructure cartez $1 million ecosystems grants initiative is now live with her first wave and there's a link in the show notes to apply for that grants program David the entire

world is built on Linux so why not blockchains huh we should that just makes too much sense what were your thoughts going into this episode I always uh really enjoy the real world

tokenization conversations uh this is actually the world I was in right before uh that I left to start bankless um and one of the reasons why I left is because

uh I thought it was super cool it like makes a ton of sense there's all of this value that's not on chain and let's take the value that's not on chain and put it on chain um but the crypto native move

fast rebellious nature in me was like oh wait this isn't really onchain Innovation this is legal lawyer system

Innovation I had talking to too many lawyers too many Regulators too often and I just want to go play on chain uh and so the onchain digital world

moves very very fast uh the real tokenization uh real world assets world moves very very slow because it's actually like onchain minimalism but like legal system maximalism yeah and

like personally not my vibe uh and so I had to come I had to go and leave that whole world Bank censers when I first met David he was in the business of tokenizing houses like literal houses

actual real estate yeah so I know a thing or two so this is where I got my um like my sharpened my my teeth in the security uh Securities laws which I know like a little bit more than than typical about

uh and it always kind of like Sparks Joy with me just because like security L spark Joy with you there's there's like lessons and and thing this is why when we remember we did our sparkly Securities episode God that was a

throwback um it was really really exciting just because there's like lessons about decentralization and principal agent problems and a lot of the things that we hon we run into in

the crypto space anyways uh we're getting off topic and Robert is taking this brand new world head on with his new project called superstate uh tokenized T bills is just the tip of the

iceberg it is the thing closest to Dollars which we know is a very successful onchain uh real world asset uh and then he plans on going down the longtail tokenizing more and more and

more things so we start with a little bit of History we we St we talked to him a little bit about like why now of all times we've tried this before many people have tried to do this um why Robert is going after right now and then

we get into some of the more fundamental conversations about like why is this inevitable all right well let's go down the long tail with robbert and talk about tokenizing real world assets Securities t- bills and the like but

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compensation simple at tok.com SL bankless bankless Nation Robert Lesner is the founder of compound Finance one of the very first functional defi apps on ethereum that also kickstarted defi

summer 2020 he's also a partner at robot Ventures where he invests in early stage crypto startups and now lately Robert is re-entering the game of being a startup founder this time in the arena of the

tokenization of real world assets many have tried few have succeeded but Robert thinks that he's got what it takes to bring offchain assets onchain Robert welcome back to bankless glad to be back

on bankless so Robert the asset tokenization the asset securitization world uh was actually one of my first entrance into the world of crypto back

in 2017 and 2018 um the security token year that was 2018 and 2019 got me through the bare Market it kept me kept me going uh but ultimately that whole

era of crypto flopped uh why why didn't we have what it takes to actually take real world assets and put it on chain back then what what didn't happen and then eventually we'll get into why you

think now is the time but but first like give us a little bit of history of like the offchain securitization tokenization of assets onchain yeah so you know a lot of work

has occurred over probably I would say the past six years um to bring offchain assets which in my opinion are just assets that are originally recorded not

on the blockchain they're assets that are recorded in some other type of Ledger whether it's a spreadsheet or legal contracts or you know pieces of

paper and the goal is to bring them onchain where they are in a superior function over the way they used to reside you know when assets are onchain

as you know most of the listers here know they're more useful you can move them around pretty much instantly you can see a huge level of transparency into who owns an asset what they're

doing with it how it works what the rules of the asset are and they're programmable so people can build new things with those assets and you know this began to capture people's attention

you know in my opinion probably going back to about 2017 or so when smart contracts on ethereum really began to take off um when people said oh it's easy enough to make a token you know there started to be lots of tokens you

know being um created around that era and people said well either this can be a token that's created on chain for the first time or maybe we can somehow make a token that represents

or takes its properties or value from an asset that's not held on the blockchain yet and we start to see lots of experiments going all the way back um you know many different teams were trying to either tokenize Securities or

tokenize real estate or tokenize Commodities none of them really came to fruition the one asset that got tokenized um incredibly successfully

were dollars um you know really starting in about 2018 we started to see the rise of stable coins and stable coins are the first you know whether you want to call them offchain assets or rwas or

tokenized assets stable coins are the first assets where there was an asset held offchain and through a process the value

of the asset was moved onchain so there's many different approaches to creating stable coins some are you know very different but usdc and tether I think are the best example of tokenized

assets where the asset is held a US dollar $1 is held in a bank account somewhere and somebody is able to Mint a token that captures or

represents the value of that dollar for those stable coins like usdc the value comes from the fact that the stable coin can be redeemed for the dollar in the bank account um and there's this

interaction where you can mint and burn the stable coin and there's a very true Association to the underlying value of the asset held off chain because of this ability to mintum redeem a token

associated with it stable coins as most most people are aware have had incredible product Market fit it is without a doubt one of the first true

killer use cases of blockchains um you know you can see it in the value of stable coins you know there's $140 billion of stable coins people want them

and they want them because the format the file format so to speak of that dollar is just better on a blockchain than it is in a bank account you know a dollar in a bank account really can't do anything besides sit in that bank

account until you spend it um the value of a dollar on a blockchain it's far more open um you can use it in

so many different applications you can you know program it you can you know send it around the world you know it's just so much different than a dollar that sits in a bank account and so you

know I view stable coins as the first really clear example of an offchain asset being tokenized correctly and that's sort of where the in a lot of ways the narrative stops um after stable

coins we really haven't seen any breakout success stories yet when it comes to tokenized assets but I think that's going to change and I think where we're now as a society is really at the

beginning part of the next chapter beyond the first stable coins and you know when you asked like why hasn't it worked yet well the world hasn't really been ready for it yet you know we're at a very early point of like

infrastructure existing on chain for assets we at a very early point of in investors you know wanting a upgraded file format for their assets were at a

very early point of support for these assets whether it comes from custodians or intermediaries and you know I think it hasn't happened yet because you know the world hasn't been ready for it yet

but really you know this is the beginning of what I see as the next chapter for digital assets I think illustrating the properties of dollars and why dollars so easily became onchain

assets token ized assets uh will actually do a very good job kind of um defining the problem statement that all other assets will also have like dollars

both on chain and in the real world are are highly fungible right the the form factor of a dollar it's liquid in the real world it's fungible in the real world it can move very fast in the real

world and that it matches its properties on chain as well especially the fundability part um as soon as we get Beyond dollars the less liquid assets

the less fungible assets like real estate definitely for example becomes and even bonds less less fungible less liquid than true dollars start to have some frictions when uh we are trying to

make a digital manifestation of them on chain uh and this is where some of the properties of tokenization starts to break down and why there's a lot more friction than just pure dollars uh

especially when we're talking about like we have two ledgers for example we have some sort of uh securitization in the real world we have some sort of asset that exists in the real world and we're trying to make a

mirror of that in the digital world in an onchain fashion but now there's two versions of the truth and squaring these two versions of the truth and making

them be like as onetoone compatible with each other is one of like the is the hurdle that U we are trying to get over and that's probably the hurdle that most real world assets have not gotten over

uh this is kind of how I will like Define the problem statement and could you like continue with that and just maybe even provide more clarity and color there yeah well that's a great summary of the problem statement um you

know in some ways the approach right now for the problem statement hasn't been a problem when you look at stable coins like it hasn't been a problem that there's seated liquidity between

traditional markets whether it's you know walking down the street to a deli or you know sending money to someone online and crypto markets you know crypto formed its own liquidity for

dollars incredibly quickly you know dollars on chain and dollars on exchanges are unbelievably liquid you know the ability to convert between dollars and another currency like

Bitcoin has more liquidity than the ability in a lot of ways to convert between dollars and Euros or dollars and Yen and so you know we have seen

alternate liquidity Beyond just the original markets form for this OG rwa um and I think a similar process will play out where you know a

tokenized you know bond fund will have its own liquidity over time that's different than the liquidity in traditional markets and if there's enough demand then eventually there will

be enough liquidity and I think the problem statement can be rephrased is like well what's there actually demand for what do people actually want to own in significant size in a upgraded file

format and if that's true then of course there's going to be incredibly robust markets for those assets and if that's not true then it's going to suffer from this problem of just because you tokenize it doesn't mean anyone wants it

you know if you take an extremely esoteric asset like a building in Alaska you know a multif family Residential Building in Alaska there's like 10 people that probably want to own that

specifically just because you put it on chain doesn't create liquidity for it you know if there's only 10 people that could want to own it very few people are going to be willing to trade it or to buy it or to hold it or to speculate on

it and so there's never going to be no matter how you you know structure much liquidity for a residential multi family building in Alaska no matter how well is tokenized how beautiful the

erc20 or token spec for it is ETC doesn't matter how many you know protocols exist that can interact with it you know an extremely esoteric asset

won't have liquidity and so the real challenge is finding the Assets in between dollars and esoteric assets and finding this sweet spot in there where

there's demand for tokenized assets that is significant and not just like going to suffer from this esoteric asset

problem I want to just dive a little bit more into like the opening the door of the uh tokenization world like why why we are ready now you talked about improved infrastructure improved custodians I think there's like one part

of this is just like kind of the background of crypto which are some like basil level properties as in like there are just more users now there's more liquidity now there's more public Acceptance Now of crypto all these are

kind of like the background properties of crypto that are definitely helping put Tailwinds behind the tokenization movement uh but is there any um way we can make this more specific and and more

narrow is like any specific like service providers or legal Innovations or anything like more um specific to the world of tokenization that uh is unique and new that has come in the last like

one or two years or so or something that is near-term in the future yeah so there's definitely you know I would say the biggest change has been the amount of brain power and

people and talent and energy being devoted to making all this work um I I think we're finally at a point where there's enough of our industry and of the builders in the space focused on this that like we're going to be making

breakthroughs there was very few people frankly that were focused on tokenization five years ago you know there was a couple but at this point you know it is a massive conversation inside

almost every institution in the space almost every business in crypto and of most of the founders that I interact with and so I think right now the sort

of like Zeitgeist around it is enough to will it into existence so to speak and it doesn't mean it's going to happen next week right it doesn't mean it's going to happen next month it doesn't mean it's going to happen next year that

we start to see you know significant you know Traction in critical mass around tokenized assets but you know we're at the point now where it looks completely different there's a huge amount of

energy and effort being put into this from so many different angles that I think we're going to see traction soon okay so I have a maybe a different angle on the question which is uh at some

level it's cool that we've made a ton of progress on uh stable coins in particular what it like 130 billion something like this tether just crossed 100 billion we actually had Paulo on the podcast not too long ago the the CEO of

tether he talked about one of the the main use cases for tether right now is actually not in on the institutional side though there some of that you know trading with exchanges that kind of

thing it's um for for people in emerging countries that just want access to the dollar because their local banking system sucks and their local fiat currency has failed them and so wow you

get a crypto wallet and you get a dollar maybe you have a custodial service this is a a zero to one moment uh for them so there's a lot of demand coming from from that angle so I I kind of have a

question like it's um not a surprise I guess given that context in terms of why uh stable coins have been successful in emerging countries and also they're certainly a lubricant they they're

certainly very successful for crypto Natives and in kind of the defi economy right uh aside from Crypt native assets which are volatile like Bitcoin and ether well you have the stable coin and like we use it in the real world and so

we just put on chain it's great for that there's a question in my mind though Robert is like why haven't we come further with respect to tokenization

right so we have uh dollars 130 billion um why don't we have euros why don't we have Yen why why aren't there other like currencies that's weird to me another thing that's weird is when

I hear about um the tether business model and Paulo is saying uh literally this fully transparent they made like $4

billion last year $5 billion what on the spread on the spread between a dollar and the yield for they buy um T bills they buy treasuries essentially they get

to keep the the the spread on the treasuries the 5% yield and you get the you know the stable coin essentially and so that's all of their their profit margin that's an insane profit margin $5

billion they have 80 people so I'm like well I you know what's better you know what's better than an erc20 version of a dollar an ERC 20 version of a dollar that gives me a 5% yield and has that

kind of baked in Paula's comment is like yeah but Emerging Markets don't care about that because 5% over a year like doesn't make any difference to them because they're comparing that to some

fiat currency that is like you know 80% 90% inflation right so um but anyway that's one perspective so I guess the general question here is uh cool that we have some tokenized assets but if

tokenized tokenization was really a thing why don't we have more already like what's stopping us from your Vantage Point yeah well there's two points here so one is when it comes to

just simple currencies I think there's competitition between dollars and euros and Yen for the Mind share of the holders and you know too's point a lot

of people around the world what would rather hold a tokenized dollar than a tokenized Euro and you know the existence of the tokenized dollar competes with the tokenized Euro for

liquidity for capital for adoption and support amongst intermediaries like exchanges and once there's like such a dominant critical mass of dollar tokenization it's really hard for other

currencies to make inroads into that so it really is the dollar is the apex predator it just like just slaughterbots everything that tries to compete against it well this is what happens when we take away all the borders from our

financial systems right exactly and like it's a good thing like there's massive liquidity for tokenized dollars like massive liquidity like you can convert it into other assets like ether and

Bitcoin with like unbelievable liquidity and so you know in that world there's going to be less liquidity for a tokenized Euro like no matter what there's going to be less liquidity for a

tokenized Yen no matter what and so even if you were equally willing to hold a dollar versus Euro versus a Yen if there's more liquidity from this like call it a first mover advantage in a lot

of ways of the tokenized dollar it's going to be a superior product to the tokenized Euro or the tokenized yet and so it's just so hard for new entrance to

make progress against it and you know if the first asset we had happened to be a tokenized Yen and like it gained critical mass I think eventually a tokenized dollar might have to battle

against it but like that's not how it played play out it played out where dollars were first they built up a huge liquidity advantage and now there's very little opportunity for a competitive

tokenized currency now I think to your other point there's a huge opportunity which is a tokenized currency that doesn't go up is worse than a tokenized

currency that does go up and if you can have a different format of dollars themselves that go up where instead of all of the value AC to Paulo and tether

the value acrs to the holders instead of it being 5.3% for him and 0% for you it's you know something closer to 2% for him and 5.1% for you or something like

that there's a huge opportunity for a different format of dollar-based assets and that's one of the major opportunities we see at superstate and that many other companies building in

the space also see is that that business model is the opportunity for new competitor to Market you know Jeff Bezos has a famous quote which is your margin is my opportunity and you know he used

to say this to retailers and manufacturers all the time they said oh we have a great business we have huge margins and Amazon has no margin and he said well that's what the long-term

Tailwind to Amazon successes is that you know you have a big margin and the fact that tether's margins are so unfathomably good it's great for tether

in the short term no question about that it's absolutely an unbelievable business one of the best that's ever been built but long term that's a disadvantage to them and it creates an opportunity for

better products to emerge in a way that you couldn't see a better product emerge versus a tokenized dollar originally a tokenized yen is not going to be better but a tokenized dollar-based financial asset is better and I think a lot of

people realize that and a lot of people are working towards introducing that on a global scale okay so let's talk about that for a minute and like why that again I'm still with the question of why that hasn't happened yet what what's

really interesting about tether is like so um you know 6 billion a year something like this right at 100 billion dollars which tether just recently hit I believe a couple of days ago um cross

the threshold of there's a hundred billion dollars worth of tether now issued imagine if that was a trillion that'd be 60 billion a year right and of course like um same amount of people you

don't have to add any staff probably um and and uh so that's a that's a massive margin so like in your mind how does this kind of work is it is it basically

there be some competitive pressure to um like require stable coin not require but competitive market pressure to to to push stable coin issuers to return some

of that yield back to holders in some form is that like so you could you could imagine if um you know the FED rates are 5% and you own like $1 worth of tether

then you're getting some portion of that 5% maybe getting a 3 or 4% something like that like that's one model at least conceptually in my head that seems like it could work again regulatory all of

the other things aside another model that feels like it could work um is you just have you just hold um t- bills you just hold treasuries in some way like if

I could hold just treasuries in my like wallet you know I I can hold physical cash I can hold a $100 bill I'd kind of rather have like a $100 worth of

Treasury because it gives me $100 plus that 5% boost I have to imagine um the fed and the treasury have kind of like thought about they they don't actually

want to issue that form of debt uh to be kind of like a fungible currency and so that that's the reason for dollars and and the reason why we can't just hold um t- bills uh in in some form or fashion

but that could be tokenized and that that to me would be like a a marvelous uh because it's an erc20 either way and so why don't we have that why can't we have that are there some impediments on

the regulatory side like this is again let's just remember and you know more of this than anyone I'm just reminding the bank list listeners that that this is a brand of the United States government

the dollar itself is a projection of the us Empire's power they get to make the rules okay we can do whatever we want with our own little eth you know unit of

account and we have a jur governance and jurisdiction there but like when it comes to the dollar The Regulators and the government is going to have something to say about it so um yeah how

can you imagine this actually working how do you take that 6 billion margin and and give that back to holders in some form yeah well the answer is it's complicated right so you touch on a

couple things one is you know just from a purely mechanical and Technology perspective it's hard you know an asset that doesn't change that's completely

fungible is a really simple asset tether or usdc are great tokens because they're so easy to hold the accounting of them is very simple it's always one if you

have 100 tokens in a year you have 100 tokens um you know to your first example if you had like an actually like tokenized t- Bill t- bills have maturities they expire right so all of

these like onchain operations get really complicated if you have a token that represents a t- bill and then it matures does it become a different token you know does it become a dollar token again

does it become a mature t- token if there's you know fundamentally there's thousands of actual pieces of debt issued by the US government they all have different matori are there 10,000

t- Bill tokens right so it just get mechanically very complex to represent an a financial asset that's more nuanced than just it's a dollar right if it's

it's a dollar Forever it's very simple and I think one of the reasons why you know we're at a point where tether and usdc have been so successful is because they're so simple so the first challenge

is technological um you touched on the second one which is the legal and Regulatory structure surrounding us every single country on Earth has

different approaches towards Securities um and you know a tokenized asset that goes up with the expectation that you're buying it because it goes up is very

different from an asset that does not go up and really can't go up okay can we can we just pause on that for a minute and make sure people know you you uh introduced the the idea of a security

here right so treasury is a security but a stable coin is not I hope fingers crossed right every like Gary enler if if you're listening like it shouldn't be a security cuz it's more like a c a

currency what what makes something a security in this world and why is it a t- bill treasury is security and why not a stable coin or or the dollar itself yeah so in general and this is like a

you know I'm I will disclose you know first and foremost that I'm not a Securities lawyer or a lawyer of any kind and so you know I would say consult you know true experts in the space of which there's many um a security is

something in which there's an issue or whether it's the US government or a corporation that issues an investment directly to a purchaser and you know that purchaser

either makes or loses money um and it's uncertain whether they're going to make or lose money and it comes down to you

know them making an investment um into some entity if you had take a stable coin you could basically you know take

the opinion that there's really not that relationship at all where it's a receipt so to speak for an asset held off chain and that it's not a security because

there's not really the prospect of it going up or down um there's obviously secondary markets for stable coins and you know there's secondary markets for all of these things but doesn't necessarily make them a security you

know usdc trades for above and below a dollar every day tether trades for above and below a dollar all the time right these things have markets for them just like there's markets for gold and

there's markets for corn and there's markets for all sorts of different currencies whether it's the Euro or the Yen or you know the dollar but there's not this relationship between hey

there's an issuer and the investor and so I I think it's highly likely that very few people view a stable coin uh like usdc or tether as a security just because it

doesn't really have the properties um of them and so it exists in a very unencumbered you know Regulatory and legal domain you know people view these as currencies you know there's obviously

regulations around currencies in the US there's a lot of rules around money transmission and running a business that exchanges money for you know customers

and there's lots of rules specific to a non-security that like you have to be aware of if you're a stable coin business of some kind but they're not Securities and so when you start to get

into the domain of assets that aren't flat that go up and down you know fundamentally based on some you know underlying you know investment then you

know you start to get into a very different legal and Regulatory domain than stable coins currently exist in and so you know you can have a similar asset that is viewed completely differently

you know you could make a stable coin instead of it being backed by Dollar backed by gold it would still probably not be considered a security it's still probably be a commodity of some kind but

if you have a stable coin stable coin I should say backed by n stock right suddenly that asset is going up and down based on you know a very different set

of conditions and it's highly likely that that asset itself the Nike stock token would be a security because Nike stock is very clearly a security issued

by the Nike Corporation right and so you just wind up having the asset treated and viewed differently with very different responsibilities um on the part of the issuers and so you know

that's what makes non dooll based assets that are tokenized just so much more complex I think we're doing a pretty good job at illustrating some of those hurdles that I was talking about um that

real world assets have to get over that dollars dollars have this same kind of hurdle but that's much lower right like I all of a sudden when we talk about Securities the hurdles to get becoming a

token on chain are much larger I I really think that crypto industry really needs to study the history of uh securitization and Securities Law uh a lot more than the the typical person has

it's really really interesting uh because there's um uh like lessons to be learned in like principal agent problems as well as concepts of centralization and decentralization one of the reasons

why Security's laws are so complex are why why they are uh is because there is information asymmetry between the issuer and the market uh the issuer can have

plans or intent intentions that the rest of the market do not know about uh and so this is why we have Securities laws to kind of regulate the Securities market and make sure that no one with

dubious intentions uh comes to create Securities uh and and so like when there Trends towards uh less of an information asymmetry between um the public market

and the Inception of a financial asset things tend to have less security like properties and then when there's more information asymmetry then these things tend to be highly highly regulated um

Robert this kind of gets into the question that I want to ask next we have currencies on chain tether uscc are the big ones and there's like a very simple

input output right dollars in Bank token on on ethereum token on Tron or whatever uh and as soon as we get into the world of uh yield bearing treasuries on one

side and then token on the other side Things become a lot more opinionated we have now entered the world of you know Securities Law uh and it's a lot but um

the question I have for you is like isn't there a lot more room for different types of constructions different types of uh opinions being built in the constructions and therefore

less kind of like credible neutrality or social scalability in the yield bearing tokenized treasury space um for people paying attention to bank's Arc in the

liquid reaking world it's the same kind of pattern between liquid reaking tokens around igen lay and lsts whereas you have complete Lio dominance because it's

so liquid it's so close to natively staked eth uh and then lrts are so much more opinionated uh and I kind of see that same pattern playing out in the

tokenized uh treasuries Market where it it you would have more reach more scale if you were just purely tokenized dollars than you would tokenize treasuries what would say what would you

say to this I would say yes but so the you know I I think at a high level that's completely correct I think there 's a much larger space to design

products that being said going all the way back to stable coins the design space for stable coins for dollar-based stable coins is also extremely large so you know there's obviously one format

that so far has won based on market cap alone which is the tether usdc model of there's an offchain Dollar in a box and we make a token that is redeemable for

it in some way but we cannot forget there was mult other many other approaches to designing dollar-based stable coins both collateralized stable coins maker is a great example and maker

has evolved significantly over the last couple years but it's fundamentally a system where you could manufacture a dollar-based stable coin that was backed

by a basket of crypto collateral um totally different approach from the one that has gotten the most market share there was algorithmic stable coins which were not backed by anything you know

obviously those guys got a bad rap yeah we don't talk about those anymore yeah we don't talk about those anymore but they were the least successful of the different approaches you know the

dollar-based stablecoin world had a huge spectrum of approaches and so while I agree with you that there's many different approaches to create like a

tokenized financial asset so far amongst the early experiments we're seeing far less Divergence of approaches than we saw with dollar-based stable coins you know a lot of the approaches so far look

pretty similar where it's like you have some type of legal structure and it holds an asset and IT issues a token they all look pretty much the same and I

think there's less difference than the world of like usdc versus D versus you know Terra us like that world had so much more Grand experimentation than

we're seeing right now in you know tokenized Financial products you know like that that that comment of a you know a dollar in a box and a dollar comes out as an erc20 or or you know

David the the comment you're describing this of just kind of like cash in a bank is what backs this thing uh one thing I've I've learned recently as I've looked into like what kind of composes a

tether or what composes a usdc is that there's actually very little cash in the bank like you know if if you go to the tether transparency page what you actually see is tether itself is about

um over 80% T bills essentially that's what it's composed of they're already treasuries yeah and then and then you PA Paulo's comment was the whole thing is actually over collateralized as well

because they you know put some of their profits back into um backing this thing but also has like 2.9% Bitcoin that back um one unit of usdc there's uh 3.6% of

precious metals of gold but the bulk of it is actually treasuries right in some form of another overnight reverse repos that's 10% uh you know 10% is Money

Market uh funds but then 76% uh is uh straight up treasuries I I guess I just want to ask the simple question um why doesn't if if tether was forced to I can see why they're just

keeping the the 5% right it's a great profit great business but um if they were through competitive pressures just you know forced if tether holders said we're no longer going to hold tether

because you're not giving us any of this yield would tether have the ability to just like you know send a few percent or create some sort of staking mechanism where if you you have tether and you have your Stak tether and if it's staked

or something then that's an erc20 and you're a recipient of a few percentage points of of yield or something like this or can they just like not do that Robert is that like against the law in

uh some kind of a a jurisdiction because it seems like mechanically it could be kind of simple yeah I mean you know to my earlier Point mechanically it's not that simple right they could create a

new mechanism like a staking mechanism of some kind um you know it starts to transform what the asset is but you know at some point yes they could resp respond you know based on competitive

pressures to turning it into a even more bank-like you know Shadow Bank like structure where it's you know oh keep your tethers with us and you you know

they go up based on some other process entirely it transforms the character of you know what is usdc or what is tether but we've seen similar experimentation

already so coinbase you know had a program where if you parked usdc at quinas I believe they still do um you get Rewards you know they call it rewards and not interest um but you get

usdc rewards at coinbase that are like 5% which they're doing that right now um to sort of transform you know the the nature of the stable coin itself um and

you're right like they all of them have gotten more complex over time they did start off very simple where it was a dollar in a bank account and over time have become portfolios of assets that

back them and they look less like you know a single dollar backing a single stable coin than they do a bunch of stuff worth more than a dollar backing $1 of a stable coin yeah in fact um

Paulo actually made the comment that um that's part of the reason this is according to him that usdc got in trouble is we could had too much cash reserves in uh some of the banks that

were uh on Shaky Ground Silicon Valley uh Bank you know um what's the other one uh you guys know the big the crypto with silvergate uh and right so that those

funds in in the bank account are FDIC insured you're you're at some level you're better off yeah it's more secure to kind of back this thing by some form of a treasury which is kind of a

security than actually cash in a bank account which is counterintuitive but like cash is more risky how weird is that anyway Robert tell us about what you are doing over at uh at Super saate

can can can you kind of give us the story of what you're building because I I know you've uh launched um what is it this is a a financial Trad sounding name a superstate short duration US

government securities fund has about uh $38 billion assets under management uh this is tokenized as an erc20 is this the you know the the tokenized t- bill

that we've been waiting for like what is this and what are you building over that superstate yeah it's a great question so at superstate our first live product is as you mentioned the superstate um short

duration government securities fund it's it's a t- bill fund and the t- bill fund is tokenized um you know the way it you know interacts with you know Securities regulation is

that you know the fund is only offered to qualified purchasers which really is a short way of saying institutions with lots of money and you know that's D that's due to the just the complexities

of building a tokenized not individuals even even if it can be individuals at this point I don't believe there's any individuals um you know the client base is you know

institutional um in nature but it could be individual ual at some point um and it's a for us it's an opportunity to test a lot of technology that we're

building at superstate you know our goal is to create tokenized products that have the advantages that everyone's used to in crypto that you can have assets

that interact with you know dii protocols or they're programmable or you know they're highly portable or they're you know extremely useful and we're

really excited about what tokens Can Do and we're really starting off in like a very sandbox type way where there's one very basic product and it's only offered to a very limited type of extremely you

know financially you know capable institution and we're using this as like the sandbox to test you know the technology that we're building and over time you know our goal is to build you

know tokenized products that anybody can hold that actually go through you know the regulatory registration process that you know get a perspective effect us and like are available for any investor to

be able to purchase um once we've like battle tested a lot of the technology and the processes around them and you know our goal is you know to have tokenized Securities that are useful and

you know really interesting you know Investments that people want to own because going all the way back to the beginning if there's no demand then you're not going to see any traction and so you have to create products that

people want to own and that's really our focus and the first product it's a t- fund it's offered to qualified purchasers it's designed to mimic the

federal funds rate so really you know t- bills you know that are extremely short duration in nature you know are pretty close to the fed target rate and you know we're not trying to innovate at the

fund level you know in terms of like what investments does it make it you know holds you know extremely short duration government debt um has you know by that nature very little credit risk

it's not meant to be an interesting financial asset it's it's meant to be interesting through the process of actually tokenizing it and again we're at a very early point there where you

know it's not even transferable yet but it's at like the jumping off point of like what is a tokenized product how does it work you know what can you do with it and we're going to use it as

really The Proven ground for a lot of the sort of technology that we want to build at superstate one of the best things that I think stable coins has

shown the world is that simply when you put on chain they become more useful uh evidenced by the fact that there's like 140 billion of them on chain like why

would they be on chain if they simply weren't more useful over there and in with such a pure experiment being played out like why are they useful oh smart contracts uh and so this is kind of how

I see uh superstate like leveraging uh itself it's just like hey we have assets that aren't on Smart contract rails but they could be and we're going to facilitate that uh and so like the value

of superstate is actually going to be like a pretty clear assd test as to the value of smart contracts if smart contracts and tokenization wasn't useful superstate wouldn't exist and so kind of

like what I see your strategy is you're taking the next most proximate uh real world asset to dollars because we already have tokenized dollars you're doing the next most proximate asset

you're tokenizing it and trying to give it life inside of uh inside of smart contracts inside of uh blockchain rails and then like as soon as this short-term

treasuries uh fund takes off Robert leser is feeling good and confident he's ready to be a little bit more more bold they'll go down into the further Frontier and start to be a little bit further away from dollars and more down

into like the long tail of non onchain assets and putting them on chain and the cool model with this is like where tether and USC are kind of like monoliths they do one thing and they just have a pretty high margins on that

one thing I see yours your strategy the super saate strategy is a more volume play where you're taking uh light smaller margins on what you're uh tokenizing and that's like your

opportunity right like tether Circle very high margins Robert lner's uh tokenized treasuries fund smaller margins but then you're trying to tokenize much more than just a few

things you're trying to like you know to name the meme tokenize the world and take a very small margin on on many many many things is that how is that how you see the future of super saate is that did I just kind of articulate the

strategy yeah I feel like you guested SL articulated the strategy you know quite succinctly um that that's how we see the world is that you know we're going to start with you know the most adjacent

asset to stable coins which we know work it's going to be a little bit slow to start because the number of people that can hold you know the tokenized um Securities is much smaller you know obviously there's other firms

out there that are willing to take a lot more risk in their approach but like we're taking like a very you know buttoned up approach to this and you

know over time as you know the usability of our tokens increases you know going into additional asset classes you know my hope is that you know over time

investors are able to hold every single asset they want on chain in the wallets that they like to use in the formats that they like to use that you don't need you know a brokerage account or you

don't need like trafy systems like if you want to you know hold all of your assets in one place you'll be able to do that whether it's a bond fund or a stock

f fund or you know ether or a token that's purely blockchain native and eventually all of these assets will be

on chain they'll all be programmable and composable and it'll they'll exist in a format that not all people will prefer you know mostly people listening to a

podcast like bankless will prefer you know I think most people listening are quite familiar with wallets they're quite familiar with using dii protocols there's a lot of the world that isn't

here yet that is only comfortable with you know their brokerage account eventually you know more and more people are going to migrate from the world of brokerage accounts to being comfortable with onchain wallets and tools and

systems and will prefer to have their Assets in this file format but right now you know it's a you know small but growing ecosystem so the vision really is bring all of the assets all of the

asset classes bring them all on chain in a way that the people who happen to be crypto native prefer and you know my expectation is the number of cryp Don native you know people is going to be increasing every single year for the

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this how this works a little bit um and uh so um you guess rightly I think many of the people listening to bank list are more familiar with like buying a token than they would be like buying a mutual

fund or something like this so when I see the potential for some sort of um you like tokenized asset to give me the yield that I want and the other place I can get kind of like this this yield is

Maybe by buying some sort of a a mutual fund or money market or something like this out in the real world um I really like this and so this um superstate

short duration US government securities uh fund I it is an erc20 I can see something on ether scan right but it is gated so I basically like if I'm a

qualified purchaser uh then that's probably an institution or somebody who's a you like a whale incredibly wealthy then right now I manually have to kind of reach out to superstate and

go purchase it and then I get issued this erc20 that represents basically the FED fund rate of right now the 7-Day yield is 5.36% you are taking or superstate is

taking a management fee of uh 0.15% which is a a much smaller margin spread than we're looking at from the the the stable coin examples of of

tetherin and usdc and is the Hope right now that this is for qualified um like purchasers and it's gated so you can't transfer you can't really do any Crypt native things the hope is that in the

future once you go through the like gauntlets of you like you mentioned uh you kind of like technology improvements it seems to me this is like legal technology this is just like you have to

get the right approvals in place in order to get to a place where what I'm trying to get to Robert is how do we get to a place where we can democratize this and how can it be such that any listener

to bank lists right can go purchase this in their wallet uh in a kind of like a a Crypton native way maybe there needs to be some identification AML kyc so maybe it's

kind of like a little hybrid but how do we democratize this what sort of things Gates do you have to step through to make that a possible world yeah it's a great question and like the bitter

reality is that you know really right now there's very few options especially for us listeners um that are appealing

um you know the process fundamentally is to navigate you know the legal and Regulatory world you know it's not as much on the technology side right the

technology of making a token is relatively straightforward the technology of making a token that you know handles you know kyc or composability with a di5 protocol with

kyc is more complex you know the technology of doing that with a system that has a lot of offchain mechanical interactions is a little bit more complex than that but the biggest burden

is not technology like we've at this point built the technology for tokenized products the biggest hurdle is the legal and Regulatory side and you know the

disappointing news is that you know superstate and other players in the market have to go through an incredibly cumbersome process before you know these products can be brought to the masses

and that process is not being done any favors so far you know I think legislation could you know accelerate you know the pathways for tokenized

products but right now you know it's a slow process to go through the regulatory steps and sot what's what's like a comparable product so if I have a Fidelity account or Charles Schwab

account right I can buy something some sort of uh ETF or fund uh you know asset you know in the Trad world that gives me the the 5.3% FED fund rate right I can buy that right now would that be some

form of a money market yeah you could buy a money market mutual fund you could buy you know a short-term yield bearing ETF you could buy any one of these products and so why can I buy

that without being a qualified purchaser but I can't right now buy this when it's tokenized yeah that's a great question so those assets you know have all gone through the Securities registration

process and you know basically you file you know a perspectus and you get approval by the SEC to you know go live with those assets it it's pretty off the

shelf if you want to launch a new mutual fund or launch a new ETF um it's a very well-worn path that a lot of people understand very well when it comes to

you know tokens going through that registration process it's a much murkier path and

it's much newer and even though you know all of it seems like pretty open and shut like okay it's the same thing but it's a token there's a lot more questions naturally on like how does it

work you know how how does the token function what are the risks you know and even for a similar product just the introduction of a blockchain complicates

that registration process why can't we why can't we take one of those uh things that have gone through the registration process like an existing money market and just like they've they've done through it they're filing everything they've got the SEC approval just take

that and we'll tokenize that why why don't the traditional like finance companies just go do that some of them are doing that so like there are

examples of you know trafi issuers making a quasi tokenized product right now so both Franklin Templeton and Wisdom Tree have basically launched you

know tokenized products but it's tokenized in air quotes in that you can't actually take the token and hold it in your ethereum wallet they hold the token for you and it's

basically you know a very traditional investment with very little token usability or functionality yet because once you start to introduce the

functionality it complicates the sort of like disclosure process of like how does it work and what are the risks and it complicates it enough that it makes the registration process longer because you

have to ask and answer all of those questions with a regulator and so so far you know you've seen tread fi ises start

that process but with very little new um it's mostly extremely traditional Investments that are starting to have a token component and so you know there's a lot of interest from a lot of

different Corners to do this you know we just don't exist in a market where there's been a lot of you know step function zero to one changes or success

in the registered product space so the regulatory side of things is the thing that's really slowing us down here surprise what what do you think of

attempts to do this kind of um you like outside of the US uh banking system apparatus we um had a Founder a few months ago on talking about um tokenized treasuries from like Mountain protocol

and there there are many such uh projects like this um that's happening outside of the US do you have any takes on those well outside the US there's an

extremely receptive set of regulators that are encouraging of tokenization of financial products um you know it should come as no surprise that the US is probably without question the most

hostile you know regulatory environment on Earth for the most part um for crypto specifically for crypto yes yes yes yes for crypto um a lot of teams are focused

on xus markets for good reason um because it's actually quite easy um and you know my view has always been that I

think you know the US is the largest market um you know just because there's not a welcoming regulatory environment today that's not always going to be the case

and I want to build you know products for the US market where you know I operate where I live where my friends are where you know I think us investors

want these products and so you know it' be trivial to just cut off the US and focus only on global markets a lot oft you're taking the Brian Armstrong long game here where it's basically like hey

at some point the us is going to W wake up and support their hometown boys but like right now they're just not for whatever reason you're going to play that long game in order to um you know

see that to fruition that's right and you know I think there's you know I think us investors are like wanting and deserving of you know the best

technologically created products that exist it's disappointing that we don't see more of a market in the US yet but I think that's going to change I think you

know history is on the side of builders in the US you know builders in the US that want to create high quality products that benefit from the advantages of blockchains obviously in

10 years this is going to exist and obviously people are going to come to their senses I think it's very appropriate Robert that I'm pretty sure I'm seeing Manhattan out of that window in the back seems like the right place

to to take that take um what Robert what's on your wish list so after treasuries I'm I'm sure I mean like Robert I know you own a few crypto punks like you want to think larger than just

treasuries like what's on your more exotic wish list of what you could to tokenize and put on chain like Daydream with us a little bit let's let's uh go a few decades into the future yeah well a

few decades into the future I mean obviously there's going to be you know really okay there's a lot that's going to exist in a couple decades that doesn't exist now one is that you know

individual Financial assets like stocks and bonds will be originally issued on a blockchain whereas right now they're not um so you might see you know a corporation of the future not like you

know one of the current S&P 500 but you know someone that's going to be in the S&P 500 in 30 years you know natively issues their stock as a token on chain

um you know in a 30-year time frame you know I don't think people are going to use these extremely technologically outdated recordkeeping and back office systems to issue the equity of their

companies that they found right I think in 30 years in order to get there won't we need actual like legislation or like regulation Innovation cuz if we want to

put if we want to like have a public company go public via an onchain token doesn't that need that's just a complete revamping of our regulatory structure correct well this isn't I mean there's

no easy answer because no one really knows you get different opinions like you know the current SEC would say no most legislators would say yes most you

know Builders and Founders would say I have no idea like the whole thing is a landmine and so you know there's no correct there's no objectively correct answer here unfortunately so 30 years

though all this will be solved and there will absolutely be you know Crypton native stock and bond issuance there's been trial Bond issuance on a number of blockchains by a number of different

issuers in the past like there's no question that in 30 years you know blockchains are used for natively issuing you know the equity of a company

why not like why it's so like obvious that it's just a better recordkeeping system and like of course you're going to use it instead of what I will tell you is a horrible back office mess that

things currently work on right so obviously like individual stocks and bonds are going to be tokenized or issued for the first time on blockchains from there you know obviously every fund

is going to you know have the ability you know 30 years from now to be running with an onchain component um you know we're not limited just to T funds Equity

Funds like an S&P 500 fund or a NASDAQ fund or you know a real estate you know re fund or commodity funds or any type of fund you know can and will be issued

on chain and then you get to is that something you can do at superstate is that on your like um long-term view long-term plan it is I mean you know very transparently yes like we would

like to offer funds Way Beyond just a t- fund over time right it would be great to offer all of the above um you know

anything that Vanguard can host you know we can over time have a token for as well like you know every asset should and will be on chain so funds are all going to come on chain and then the last

piece of like what's on chain is like things that are not you know a native issuance but like you know I think we're going to have a lot better tokenization of Commodities I think we're going to

have a lot better tokenization of you know offchain assets that the ownership of them will be onchain like I think most Comm will

be onchain I think you know eventually you know and so we're going to get to a point where you know we sort of look back and we're like why do we think this was like such a big Chasm there's no

reason why all of this couldn't be tracked managed and issued on a blockchain instead of on spreadsheets paper and contracts like spreadsheets

contracts and you know paper is just a old outdated file format that people know works and blockchains are a better file

format and most of us most of the people on this podcast know that it works right there's just a lot of skepticism from people that don't know that it works yet

and it sounds new and therefore scary Robert when uh we we first met on Bank list and this was I think you came on one of the original Bank list

episodes uh you were pioneering defi I consider you sort of a um you know like a um for like Founding Father of the original def5 protocols with with

compound this lending and borrowing uh protocol and it's interesting to me I uh yeah David's right I I do notice the the New York City buildings in kind of your background it's interesting to me that

you've gone from um Silicon Valley San Fran with with compound and now you're you're putting on the suit uh and you're in New York City now and you are first

he went West and then he went back East I see you as an ambassador I I see you kind of an evangelist and and and you are somebody who is uh needed uh I I would say and kind of like to wear the

suit and to speak trafi but also to speak Defi and and you like know how Both Worlds work and maybe this is the next era for Robert Lesner and and this

is the era of of superstate I I'm wondering if if you kind of zoom out um it feels like it's at some level the the technology problems are easier than like

the Regulatory and like the um I don't know uh the the getting traditional Finance to kind of understand although we are making progress there it it felt

to me like the approval of the Bitcoin ETF was just like a watershed moment I don't know if you feel like that but um a lot of pent up energy in the space now Black Rock Franklin Templeton like all

of these traditional Finance folks are are talking about this and they're all Larry think talking about tokenization can you imagine I that was a recent interview I I'm wondering from your

Vantage Point how are we doing on the trafi uh side of things so you are now defi Ambassador and kind of in enemy lands New York City here doing this like

hybrid type of uh apparatus how are we doing are we convincing enough uh folks in in trafi how long is this going to take well the honest answer is I think

that we're at a good starting point um and I think you know amongst everybody whether it's you know people working for very traditional institutions whether it's legislators

whether it's Regulators I think people are like starting to come around to accept the fact that all of this stuff is doesn't have to be scary like all of it has

advantages over the traditional system and that you know it can be used in business it can be used in finance it

can be used in the real world and that's exciting I mean I'd say the Skeptics still outnumber the Believers but over time Skeptics are being converted into

Believers right and it's kind of like a one directional mark March I I think it it can only improve over time and like you're right like this is in some ways

hostile territory you know where a lot of people are default skeptical and default like tied to you know what they

don't understand and I I think we're on the right side of History I think you know that's one of the things that motivates me is knowing that like you can build really cool stuff with a

blockchain that's just fundamentally better than the way it used to work you know pioneering D5 for me it was all about like how do we use this new technology to do things people have been

doing for 30 years but in a way that's more transparent it's more predictable it's more fair it's more open it's more composable it's just better fundamentally and like for me I've spent

the last almost seven years which it sounds crazy to even say that out loud seven years focused on what can this technology do that wasn't possible

before and and instead of trying to apply that to a defi protocol it's trying to apply it to Global Financial and capital markets at whole and you know the reason why I'm here in you know

somewhat High style territory is because this is where there's you know $300 trillion of assets that haven't made it onto a blockchain yet and it's a lot of

assets and there's a lot of people that have to you know hear from an evangelist that have to learn why blockchains are so exciting in the first place and like

why ethereum's awesome and like what you can do with a smart contract and you know I think as people learn they understand and they become enthusiastic and excited as well but you

know it takes you know a zero to one moment for most people to understand why tokens are great but Robert it's we're at the very beginning of 2024 we've got

six years left in this decade to give us a prediction for 2030 uh excluding stable coins so stablecoin market cap does not count how much value will come

on Chain by the end of this decade new value you know I've messed up this these like macro predictions so many times you know I like to say that you know when I you know first started working on

compound in 2017 you know I believed that by 2022 5 years in most assets would be on chain and like one of the reasons why I was so

excited about you know building it I was like well this is a tool that's going to start off you know being used for like ether and chain link token and in five years it's going to be used for stocks

and bonds I was like of course and five years later there was almost none of that um so I've gotten this prediction wrong before you know by being a little bit like you know um OV expectations of

like you know societal change so with that experience in mind I would say you know 6 years from now you know I would like it to be a mass migration of assets

on chain I think behavior is hard to change um so I think you know outside of the assets that exist today you know I would guess maybe you know five trillion

of assets five trillion on chain nice oh yeah in our2 trillion doll market cap economy let's go no it won't be two

trillion by that time David don't Cur us no I mean by that time I think you know just the existing crypto assets will probably be 510 something trillion you

know amazing Robert thank you so much uh good to see you on this new project uh first you were out uh pioneering the west and now you're you're going back east and uh go get us that 300 trillion

man um the Ambassador uh we appreciate you coming on Bank list and telling us about the project and tokenized treasuries and real world assets it's been great thanks Ryan thanks D bangas Nation will include some links in the

show notes to some of the materials we were talking around uh superstate as well got to let you know of course crypto is risky you could lose what you put in but we are headed west this is the frontier it's not for everyone but

we're glad you're with us on the bankless journey thanks a [Music] lot [Music]