00:00Along with prediction markets, it seems like tokenization here is all the rage.
00:05It's all the rage.
00:05It is all the rage.
00:06Are you certain that that is like the ultimate?
00:10It's clear that a lot of people think we're moving in that direction,
00:12but is that the ultimate place where these exchanges end up?
00:17I mean, NASDAQ announced something yesterday.
00:19That's right.
00:20Is that where we end up?
00:21Well, tokenization is a means to getting us to a more efficient, more democratized financial system,
00:31a more modern financial system.
00:32So tokenization is a means to getting us there.
00:35So it is all the rage to your point.
00:37It is definitely happening.
00:39We hope to bring some of our inventory online towards the second half of this year.
00:45So that's the plan.
00:46And by doing so, that will enable pretty much all our participants,
00:50which are the largest financial institutions in the U.S.,
00:54and other players to really start to bring assets on board
00:57and start to reuse the digital reels more efficiently with purpose.
01:02That's the most important thing, with purpose.
01:05Because tokenizing for the sake of tokenizing doesn't get you much.
01:09It's the ability now to be able to execute on your investment strategies, whatever they may be.
01:15So if people aren't completely sold on this idea,
01:18give them an idea of demand that you're seeing,
01:20where the demand is coming from, and what you're hearing from participants.
01:23I mean, if you're in the conference, it's over 2,000 people.
01:27So I think the idea of tokenizing is widely accepted now.
01:31And the use cases, there are many, but I'll tell you probably two main use cases
01:35that we're seeing a lot of demand for, stable coins, right?
01:39So it's programmable money.
01:40They're tokens.
01:41The other one is the ability of using your assets more efficiently as collateral.
01:46In a tokenized environment, collateral now moves at the speed of the network.
01:50You can use any type of asset.
01:53Traditionally, for example, you can only use U.S. treasuries when U.S. markets are open.
01:57In a tokenized environment, if the treasuries are tokenized in your wallet,
02:02you can use it to execute a trade in Japan when we're still closed.
02:06So there's lots of flexibility.
02:09The fact that it's real-time, it moves very quickly,
02:13also provides a lot of capital efficiency, removes friction from the system.
02:17So the benefits are there.
02:19The use cases are there.
02:21And now we just need, and DTCC plays a fundamental role here,
02:25is to unlock that inventory and making it accessible to all.
02:29Is there a tension with people who value decentralization and tokenization?
02:34So that is, if tokenized securities on exchanges still require AML and KYC-compliant wallets,
02:41and then they settle through existing infrastructure, how is that different than today's system?
02:47They're not mutually.
02:48Well, it is the ability of programming that token, right, through smart contracts,
02:53removing a lot of AML, KYC, OFAC screening, all that stuff remains.
02:57And it doesn't matter whether you're in a decentralized or a centralized environment.
03:02So if you look at the setup that DTCC is pursuing, we will still KYC AML the tokens at a
03:10participant level.
03:11We will continue to do OFAC screening.
03:14But that doesn't preclude our participants now to take advantage of the goodness these technologies provide.
03:20So we can still leverage decentralized environments,
03:24but yet be safe and compliant with the rules and regulations that govern the U.S. financial markets.
03:30So what about what that looks like on the front end, the consumer-facing side?
03:34Will tokenized stocks and regularly listed stocks, will they be traded in tandem?
03:40Will they be traded together?
03:41Will the people in institutions even know that they're trading something that's tokenized or not?
03:48They may or may not, right, because at least for the tokens that we're issuing, so they're digital twins,
03:55and we are using the same QSIP for both the traditional and the digital, and there's benefits in doing that,
04:02right?
04:02So at the end of the day, the investor, whether it's the end client, the retail client or the participant,
04:07right,
04:07you want to go where liquidity is, and if the liquidity is on the traditional markets,
04:12you can flip your token and take advantage of that, or vice versa.
04:15There could be a trade on a DeFi network somewhere that you'd want to take advantage of,
04:21and then you could tokenize that in doing so.
04:23Also, again, tokenizing it for stablecoin purposes, for collateral purposes.
04:28So it's introducing a lot of choice, a lot of flexibility,
04:31and the way that we're doing it within DTCC still allows us to do it in a very compliant manner
04:37to ensure the safety and soundness of the U.S. markets.
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