Watch the full video of this panel discussion on Gamma Prime’s YouTube channel
Panel Discussion with Adam Wozney (Head of Community, Overclock Labs, creators of Akash Network), Harrison Frye (Chief Growth Officer, Acquire.Fi), Cooper Emmons (CEO at Injective Labs), and Mark Richardson (Project Lead at Bancor)
The panel discussion explores the transformative potential of Web3 technologies on traditional capital markets. Panelists delve into topics such as decentralization, democratization of investments, compliance, and real-world asset tokenization. They debate whether Web3 signifies a complete disruption or an evolution of existing systems, highlighting the importance of regulatory clarity and the innovative impact of technologies like stablecoins and automated on-chain KYC systems. While acknowledging the challenges ahead, the panelists emphasize the positive, value-adding potential of Web3 in bridging global finance accessibility gaps.
Adam (Overclock Labs)
I’m going to be your moderator for today’s conversation. My name is Adam Lozny. I head up Community Ecosystem for the Akasha Network.
Very briefly, if you’re not familiar with the Akasha Network, it’s an open marketplace for cloud compute. You need access to GPUs for AI inference training or other workloads, and you’re looking for something that’s open source, permissionless, decentralized — check out Akasha. I’ll be walking around if you want to learn more about that.
But that’s not what we’re here. I want to thank you guys for joining today’s Web3 Opportunities Panel. We’re going to be talking about DeFi, TradFi, tokenization of real world assets, cross-chain interoperability, compliance. I don’t know how we’re going to get to this in 29 minutes, but we can try. Right, guys?
Before we get into that, I want to introduce our panelists. First up, we have Harrison Fry. Harrison is the co-founder and chief growth officer of AcquireFi. And I read that you speak four languages. Is that true?
Harrison (AcquireFI)
I do, I do. Yes, we’re only going to use one here. But anyone wants to quiz me after?
Adam
I was going to ask you some in Espanol.
No, I don’t speak Spanish. Maybe we’ll do some translations.
But cool. Next up, we have Cooper Emmons, business at Injective Labs. We were chatting earlier, I know you live in New York now, but you’re a University of Miami Hurricanes alumni. Is there a big crypto kind of community at the university down there?
Cooper (Injective Labs)
Hurricanes, yeah. I think the last bull cycle up your region that I am where I am today was the huge explosion of crypto within the city of Miami back in 2021. And most commonly led kind of within the Salon ecosystem where I started things.
So I pay a lot of tribute to the city of Miami and the crypto hub that it is. But I think that New York is evolving into kind of the crypto capital of the world more and more every day.
Adam
Totally agree with that. And next up, we have Mark B. Richardson. B is the middle name, yes. What’s your middle name, actually?
Mark (Bancor)
Bentley
Adam
Sick name, man. Do you get like a discount on Bentleys with that?
Mark
It’s my mother’s maiden name, but no relation to the company.
Adam
And you’re from Australia, yes? You live in Australia?
Mark
Yes.
Adam
I’ve never been. I don’t know if anyone else has been. What’s the vibe, crypto vibe in Australia? Is it like pretty open or?
Mark
When you go to the Australian cryptocurrency conferences, you’ll find that there’s like an enormous amount of infrastructure leaning businesses there. So there’s a huge mining community in Australia, which I guess is, you know, just the digitization of its actual economy and mining.
But yeah, it’s a lot more on the blockchain infrastructure side, a lot less on sort of speculation on tokens and that kind of thing.
Adam
Very cool. Cool.
So we have a handful of questions to get into today. I want to kick things off with, I’m considering a big question. How do you feel or how do you think Web3 is really going to change the game for traditional capital markets? Are we talking evolution here or full-on disruption? We’ll kick it off, maybe to Harrison.
Harrison
I mean, I think it’s gonna, if we look forward into the next 100 years, I think it’s full-on disruption. I mean, just looking at CBDC and what the vision is for what that is, what that will be for fiat currencies. And then, you know, starting down from there, every part of markets should be affected by blockchain and cryptocurrencies.
Cooper
Yeah, I would totally agree. I think right now we’re seeing people finally wake up to the concept of this whole new liquidity profile that is crypto. You know, let’s say tether issuance, right? And I’m sure it’s growing by the second as all of our backs collapse. But I think $130 billion is kind of the number that it floats around.
That’s real capital and that’s real liquidity. And to have that flow into new types of alternatives is something that’s very interesting. So I do believe that crypto rails are what will bring specifically global accessibility to a lot of the more traditional capital markets, whether that be in the US or across APAC or wherever that may be.
I think that people are starting to finally take this thing seriously. And I’m excited to see where it goes from here.
Mark
I’m not sure that disrupt is the word that I would prefer to use to describe how cryptocurrency is affecting capital markets, because the tone on that is suggesting that the capital markets are in some way going to be, you know, interrupted, right? Or destroyed partly and a new capital market arises where the corpse of the other one lies.
But that’s not really the case. Like, I think that when the technologies emerge to service these things, capital markets just either embrace them or they don’t. And so I think that capital markets are already embracing this and they will continue to do so, will continue to see that trend.
But I don’t necessarily think it’s disruption, right? I think that it’s actually facilitating, you know, and that’s why people in capital markets should be excited for it, because it’s not, you know, chaos, right? It’s not interrupting what they’re doing on the business side of things. It’s actually making things a little bit more streamlined.
So yeah, I think, you know, disruption is a word we throw around because it’s exciting, you know, it makes headlines and that sort of thing. But I don’t think that with respect to capital markets, cryptocurrency is disruptive. You know, I think it’s actually, you know, a positive effect.
Harrison
Yeah, I’d say like disrupt, evolve. Because I mean, you see like, you know, all these old, you know, old guys in suits that like have to now adjust their way of thinking and how they’re, you know, it’s kind of like a survive or die situation, whether, you know, you’re going to adopt, you know, these new cryptocurrencies or, you know, continue on with, and not just cryptocurrencies, but everything come with real assets as well.
Cooper
Yeah, speaking on that kind of directly, I think that what has been most interesting to me, I’ve been working in the DeFi space for over five years, is that all of these are like really very interesting, innovative kind of systems, whether that be, you know, the exchanges that are being built, the AMMs that are being built, the lending marketplaces that are being built, etc.
However, like we’re using all these digital assets that are just purely built on speculation. I think once you have these well-oiled machines and you plug these quote-unquote real assets into them, I think that’s where we’ll see real kind of innovation occur.
And that’s what we’re excited about on the objective side of things is having these primitives that are already built and now going out to the issuers that finally feel comfortable entering the crypto space for these things like new access to liquidity.
I mean, like transparently, a lot of the big names that you see entering today are just entering for large checks from crypto foundations. You have 500 million to a billion dollars in cash in the bank, right? There’s no real product that exists on the street that’s value additive to those issuers outside of new capital inflows.
So I think that once you have them kind of break the ice and understand, OK, there’s a new liquidity profile that we could bring into the fund and into our kind of capital markets, but now we can get things like pricing for alternatives that a lot of these different instruments take 30 days to look at a year, quarterly liquidity or yearly liquidity, and be able to price those with risk premiums and use a lot of the things that we’ve built for things like meme tokens and et cetera.
I think that’s what I’m excited about. So we have some cool stuff going on that I can kind of get into a bit more here. But I think that’s kind of I think I would agree with Mark here that I think this adds value to capital markets as opposed to disrupting them.
Mark
Just a quick follow on from something that Harrison said. And I think like I don’t want my answer to be misconstrued. The incumbents in the old system are going to face issues. Right. But that doesn’t mean the capital markets suffer.
It may be that the people who have become complacent in the old system, like the old guard, you know, maybe looking at retirement a little bit sooner than they might have liked. And the people that are more adaptive, more able to traverse that learning curve are going to sort of inherit those systems.
The capital markets themselves are going to be fine. But the people that cannot adapt to them, that’s fine. You know, they can excuse themselves from the marketplace. But other people will, you know, will rise to the occasion.
Adam
I just have a quick dissenting opinion on what you guys were talking about. You mentioned old guys in suits. I think a nice suit is nice. Okay. Let’s just squash that right now.
I see a guy wearing a suit right there. Yeah. I’m talking to you, sir. You look good. You look good. So I just want to call that out.
So one of the big promises of Web3, and you guys are just talking about this, is democratizing access to investments. Do you think there’s things holding us back? Is it like a tech problem, regulatory thing, or is it just old habits dying hard?
Cooper
I’m happy to tap into that because I spent a lot of time on this.
So right now, you have a lot of issuers. We’re a blockchain. We’re working with issuers to facilitate the issuance of these assets.
And the regulatory landscape has been incredibly unclear. What I mean by that is, okay, obviously everyone who holds any form of security has to be KYC, KYB, AML. However, is that on a platform level? Is that on an issuance level? What we’ve seen a lot of different folks do and kind of think the big names in RWA is that have allowed for permissionless assets. They’ve said, okay, anybody who wants to redeem essentially for cash through my platform obviously has to be KYC, KYB.
However, if you take these tokens and stake them, let’s say in a smart contract, which we’ve seen a couple of people do, or “bridge” them, and now they are a wrapped token representation, now they can kind of run freely throughout the world of DeFi. And I think that that’s kind of the aggressive approach. If you speak to a lot of different legal teams that know this space well, they would say that, hey, I’m not sure how crucial that is.
However, once we get clarity on the exact needs for KYC and AML for these assets to work in a more permissionless nature, we’ll then enter a world where we’ll see these things really be embraced by the issuers. Because if you think about it from the issuer—let’s say you’re some big traditional finance fund, let’s call yourselves Apollo, right? They’re huge.
The last thing they want to do is, they have $700 billion in assets under management, maybe they can get a billion dollars from the crypto world in the next 12 months. The last thing they want to do is put their entire business in jeopardy based off that billion dollars and see a million lawsuits from the SEC. So I think that getting those types of issuers, one, to understand that there is innovation they can access and a new liquidity profile they can access, but then two, that there are guardrails and there are rules of the road for them to issue assets that can now be globally accessible within some confines or within some kind of rule book, is super important.
Mark
With respect to democratizing access to different investments and different investment vehicles, I don’t agree with some of the US policy, for example, regarding what is an accredited or qualified investor and that that should gatekeep who has access to these different vehicles. Because I find that, as a libertarian at heart, I think it is the antithesis of what I want. But having said that, I also recognize the motivation for that kind of policy.
One of the things that DeFi struggles with, maybe more than conventional finance, is that it does a very bad job of explicitly articulating what the financial instrument that underlies a protocol is, in abstraction. And it certainly doesn’t care about whether or not people understand those financial instruments before they buy them.
AMMs in particular are a very good example of this. If you actually ask someone why they contributed tokens to a decentralized exchange, they’ll tell you things like, “I’m earning fees” or “I’m earning liquidity mining rewards.” But if you ask them to describe the short straddle that they’re in or the short gamma option that they bought, they can’t describe it to you. And there’s nothing in the documentation. That’s much more aligned with marketing objectives than education objectives.
What I’m trying to point out is that the road goes both ways. If you want to democratize access to these financial instruments, fine. That’s something that I do agree with. But then as the person who is democratizing that, you need to shoulder some of the responsibility to make sure the people that are buying it understand what they’re buying. And that’s something that DeFi does very poorly today, and something that I would like to see change.
Harrison
But is the traditional market doing any better? If you go on Fidelity.com and buy a stock, are you understanding what happens?
Mark
Maybe not now, but you had to prove to me that you had the qualifications to understand this instrument before you bought it.
Harrison
Not only for an accredited investor, yeah. But I mean, if you’re just going to buy Apple stock.
Mark
Yeah, of course. I’m just saying that there are some financial instruments that people have categorized as being overly complicated. And you need to have a minimum intellect or at least demonstrate a minimum intellect before you’re allowed to participate in it. And often the instruments in DeFi are even more complicated than those.
And we will let any 16 year old with a ledger participate. And, well, again, I don’t think that there’s necessarily a problem with it, assuming that the information they have provided is honest in its presentation, and it actually does describe what the protocol does. And often that’s just not true.
Adam
So you actually were kind of front running a question I was about to ask around accessibility because that kind of goes right from democratization. And I think Web3 has an opportunity to make things more accessible. So how can we make these opportunities more approachable for investors from TradFi or even family offices new to the space?
Mark
I think another thing that DeFi has done well in the beginning, from a marketing perspective, and now it’s kind of in the hangover phase, is that it invented its own vocabulary to describe things that were already perfectly well-described in traditional FinTech and financial markets.
A lot of that was done for a bunch of reasons. The cryptocurrency community had already decided on the vocabulary it would like to use. And so it was using those. And now there’s this need for a universal translator for people coming over from traditional finance.
Star Trek reference. Or a Hitchhiker’s Guide to the Galaxy, you know, the fish thing sticking in your head. But you kind of need that. I’ve written documents before like, “In DeFi, we call this, and its literal translation in financial markets is this.” And people are like, oh, okay, that’s fine.
And that’s more of a language issue than anything else. But you shouldn’t underestimate how insurmountable some of the words we use are, even something like “stake.” We throw that word around all the time. But when you speak to someone who’s not familiar with cryptocurrency, it’s like, “What’s at stake? What do you mean by that? Are you betting on something happening or not happening?”
It does require attention. We’re very bad at including others in the discourse because the vocabulary we’ve developed is exclusive—efficient, but exclusive.
Harrison
Yeah, I totally agree with that. It takes a long time to really understand the industry, especially in DeFi and understand a lot of nuances. And there’s hundreds of teams out there. There’s hundreds of DeFi methods out there and strategies and things. And to build on what you’re saying about accredited investor, there’s like two sides to that, and this is also about access.
Do we protect the retail investor by gating access, by proving, do you have a million dollars in assets or maybe $200,000 the last two years in the US—that’s the rules—or do we give you access to all these investment opportunities and potentially you have risk? And I think it can be viewed both ways: the SEC or the government governing body is protecting us, or they’re protecting the rich and limiting the poor.
Cooper
Totally.
Harrison
And that’s the big allure of DeFi, right? For a lot of people, it’s this kind of access of, you know, I can now invest in anything and also have money on chain that is less seen if you choose so.
Cooper
There’s one thing that I definitely want to double tap on here in global accessibility. And I think that the only thing that I have seen take a massive step over the past 12 months, one of the few things that should take a massive step, is the stablecoin game.
I’m World Air One, we’re working with many of the leading issuers. And obviously those processes take six, 12, 18 months. However, the amount of Web2 names that have not come out yet, announced that they’re building a stablecoin, is absolutely incredible.
I think liquidity fragmentation is a huge thing to keep in account. How do all these things work and the liquidity? If there’s not just USDC or USDT, there’s talk right now that Twitter or X will do their own stablecoin, right? That’s kind of the new hottest buzz. In addition to all the names from Stripe to Revolut to you name it.
So with that being the case, I think really the most interesting thing for global accessibility from my perspective has been the yield-bearing stablecoin. We just did a big partnership with Nick VanEck and the team at Agora. They’re essentially taking the approach of: we are going to work in this rent-seeking model such that we will pass any platform that uses our stablecoin as their form of collateral—or their primary asset that they use in stablecoin form—and we will pass them 80% of the revenue that we make in our T-bills.
Then they can use it to acquire users or pass it directly to their users or whatever the case may be. And I think there’s a lot of other examples or teams that we’ve partnered with, such as Mountain Protocol. Mountain Protocol is a rebasing token that directly passes the treasury bill on to the user, effectively airdropping it to them.
Global accessibility: a lot of people 12 months ago, 24 months ago, didn’t even think about treasury bills because yields were so low. But now for the first time, I think we’ll continue to see a rise of interest in the T-bill markets. So long as rate cuts—who knows, but likely rates will stay where they are or a bit higher—people will continue to want this risk-free rate. And in the case they do, having that accessibility in emerging markets is very important. And through these different types of stablecoin issuers, it will be very important as well.
So understanding where the stablecoin environment is today and being able to partner with the right partner to give your users access, or to get access to that yield, is a big piece. And it’s something that USDC and USDT have monopolized for a really long time.
Mark
To buttress that, I agree with you. The stablecoin situation has always been pretty exciting, if occasionally steeped in chaos and FUD. Stablecoins are implicitly useful, and things like access to treasury bills from an investment perspective—super useful. But one of the things that doesn’t get enough attention is the payments that work.
You can run exclusively on stablecoins at a relatively competitive pace compared to traditional payment networks like MasterCard and Visa. This was a long-term goal when Vitalik was talking about how blockchains are going to affect the world back in 2016. And today, the stablecoin thing is really approaching that turning point.
One of the blockchains that I think is really leading the charge on this and should be getting a little bit more attention is the Celo blockchain. It now has several different stablecoin issuers representing things like the Brazilian real, the West African franc, the Kenyan shilling—a very large number of stablecoins pegged to their fiat currencies.
That is now one of the most compelling use cases for that blockchain. People are receiving their salary remittance in it and buying goods and services with it.
So when people say, “When is mass adoption going to happen? When are we going to see any actual use cases, not just investing in stuff?” It turns out that actually is happening behind the scenes. It’s a little quiet right now, but this idea that all of the world’s fiat can be turned into stablecoins and used for exactly what we use it for today—I think it’s a really compelling narrative, but I’m not sure why it’s not getting more attention.
Adam
So there’s a lot to unpack there. See if I can distill it down into: democratization and accessibility good, democratization and accessibility without guardrails bad. Would you guys agree with that?
Mark
I don’t want to—you should never… Only Siths think in absolutes. Guardrails are never a bad thing, implicitly. I think it’s how guardrails are used, who put them there, and what they’re designed to achieve.
A government saying, “Look, some of this stuff is dangerous. We’re going to put some safety measures up and have some minimal compliance”—that shouldn’t be too controversial. But when you detect that there is an agenda, either designed to exclude people from a system or to protect the rich against making bad investments or bail them out—that’s dangerous.
Harrison
We’ve seen that in DC in the past four years, eight years, and historically. Gary Gensler. I mean, the guardrails that were put up by the SEC have severely impacted the growth of the United States as an entire economy, specifically when looking at Web3 integration and how much it has been attenuated. And I’m truly hopeful—say what you want about the new administration, but I’m truly hopeful from a Web3 perspective—and what guardrails are hopefully being let down and removed—specifically by that guy.
Cooper
Yeah, I think it’s all about the new administration. The old SEC specifically, they were kind of like: “We’re not going to make any rules. We’re not going to tell anybody anything. We’re just going to show up in the middle of the night at the biggest guy’s house, make them pay a $50 million fine, and shut them down.”
I think actually, and I’ve had a lot of conversations with a lot of great founders about this, if we finally get the rules that we’ve wanted to see for 15 years, we’re going to see a lot of great protocols succeed. Regulation is absolutely fantastic. It will allow us to be accepted by more of the traditional finance crowd, it will allow real assets to flow into this asset class.
But also let it be known that rules are not going to be favorable to everyone involved. They’re very important. So that’s the piece: the old regime versus the new regime, and where we’re heading.
Adam
Cool. So I want to switch gears here and talk about some other things. One of those things is real world asset tokenization. It’s been very hot right now. Very trendy. Would you guys agree with that?
Harrison
Sure.
Adam
Of course. I remember my days back at ConsenSys in 2018, there was a project called Meridia. They were tokenizing real estate. You can see there are issues with tokenization of real assets right now—it’s still early days. But there are some exciting use cases out there. Are there any that come to mind for you?
Mark
One of the ones I got really excited for, and I haven’t paid attention to it for a while, was a project called U308 that was tokenizing uranium yellowcake.
The reason this might make sense is because the rate at which uranium ore is being extracted is diminishing, while the consumption of it for nuclear reactors, nuclear weapons, and other things is relatively constant and increasing.
But uranium isn’t traded like other commodities—for obvious reasons. You can’t just go to a broker and accept delivery of uranium to your house. Most of the market for uranium operates exclusively OTC, where you can’t really see what the prices were.
Some consumers of yellowcake have various nebulous futures options with uranium mining companies, and those companies often lose money because they don’t just take their products to an open market.
So what this project wanted to do was buy a huge amount of uranium, warehouse it, and let people speculate on the price. If you want delivery, you can redeem these tokens, they’ll check who you are, and make sure you’re qualified to receive it.
For the first time in history, this opened up an actual spot market on uranium. People were learning the real-time price of uranium for the first time ever. A really interesting use case.
Adam
Not to derail, but do you think they call uranium yellowcake because uranium has a bad connotation and people were like, “yellow cake”? Why is it called yellowcake?
Mark
It looks like yellow sponge cake. The uranium salt that you get from the earth looks like a very spongy yellow material.
Adam
Not edible, though?
Harrison
Not supposed to eat it.
Adam
Oh, okay, good to know for next time I’m ordering it on Amazon. Please continue.
Harrison
Something we’re doing at AcquireFi is working with communities and DAOs to help bring businesses on chain, both from a management and finance perspective, so that everything can be run on chain. What we do is help with mergers and acquisitions—consolidating the space in general. We talked about lots of chains, lots of stablecoins, lots of different projects, lots of protocols. We’re kind of a centralized marketplace that helps introduce and broker deals in the space.
And one of those conversations we have is with DAOs and communities, even bringing Web2 assets—like a media agency, a marketing agency, or an e-commerce store—on chain. That way both the revenue can come back to the users and the real-world asset can exist in an on-chain manner, with management as well.
Cooper
Yeah, that’s awesome. And I really want to double tap on what Mark just chatted about with the uranium and the oil cake. That is literally kind of the exact concept. And honestly, you just educated me a little bit. I didn’t know that that was really the first time that there was a uranium spot market.
At Injective, we are a blockchain built for finance. And what that means is that we offer a module set to different forms of prospective issuers. So let’s take in the case of something that I think we’re going to announce in like the next week. We work with a guy named Avtar. I’m sure he’s in Denver somewhere. He’s the founder of Libre and they’re a real world asset, essentially issuer. And they have on their platform a Laser Digital Carry Fund.
The Laser Digital Carry Fund is about, I think, 16% annualized. And they also have either permission stablecoins or a BlackRock money market fund, which has daily liquidity. And for the first time, he’s going to be able to use Injective’s on-chain exchange module to create a BlackRock money market into a Laser Digital Carry Fund spot market with an opportunistic liquidity provider who is assessing a risk premium at all times that will allow for a user to swap from this Laser Digital Carry Fund into this BlackRock money market fund, which has instant liquidity.
Why is this innovative? This is innovative because most investors, specifically most accredited investors that I’m familiar with, have a lot of liquidity constraints when thinking about where they want to park their cash. And if they can park their cash in the S&P 500 and get 10 to 11% a year, which has been returning, or even 7% a year, that was like a benchmark. And now they can park their asset in the Laser Digital Carry Fund, but they have to lock it up for 12 months or whatever the case may be. They may shy away from those types of opportunities.
However, if they can access a truly liquid asset for the first time, that’s kind of revolutionary from my perspective. And I think that same concept being applied to several different asset classes, which we’re working behind the scenes on very closely with a lot of these teams—whether that be venture, private equity, real estate, or any of those cases—I think it brings a spot price to assets that have historically been incredibly illiquid.
And I think that that is really what—we’re a central limit order book. There’s a lot of capital efficiency in that. I think that if anything is going to be done at scale, it has to be done in a central limit order book. And all that essentially means is that you don’t have to park a bunch of idle capital.
I also think AMMs are very revolutionary for this exact concept. And that’s because they can price very illiquid things that are very long tail. While they’re very capital inefficient, they also have a great pro in that they can find that price discovery.
So I think that a lot of what we built on the DeFi side has yet to be used in the world of traditional finance at scale. A perfect example: I was talking to the head of MOS Asset Management recently, I was explaining to him what everybody uses in crypto is a perpetual future that never expires. And he was like, huh, I trade perpetuals every day, but they all have expiry. So I think that there’s a lot of these concepts that have not really been brought over into that world.
Once we use what we’re currently using—this DeFi-oriented, now we’re using it for a Dogecoin—if we use it for access to a real capital marketing type of instrument, it gets quite interesting.
Harrison
To build on that, we run a secondaries marketplace as well. So we deal with a lot of SAPs, SAFEs, and equities that are being sold or bought by one party to another. A lot of them have locks and a lot of them are bound to a single contract or a single address. And being able to forward, there’s several different methods to be able to forward a locked token or locked issuance to a buying party. And we’re innovating to bring more and more methods on chain that are permissionless and trustless. And that’s another really great innovation on real assets and a whole nother asset class to be able to basically trade e-liquid secondaries.
Cooper
Totally. And I want to add one more piece there. I’ve been working with a lot of different of the great names in this space. And I think that if there’s any lawyers in the room, the only fertile that I think is continually being run through, which you just mentioned, is the transferability piece.
So let’s talk about, I’m an investor in Anthropic at $100 million, but now it’s trading at $61 billion. I want to get liquidity for my asset. I now can offer Anthropic to a whole group of folks who never had access to it that are interested because they want access to AI for whatever the reason may be. It’s a win-win for both parties.
What we’ve seen historically is that the transferability that they put into a lot of the contracts with their investors often kind of open up different types of legal potential actions. I think that if that transferability piece gets fixed and understood at scale, it’ll really unlock secondaries trading.
Harrison
Right, and a lot of times they have to be approved by the foundation, right? So being able to bridge that is something that’s been using on blockchain has been really something innovative that has been working for us very well.
Adam
So I think this conversation transitions nicely into maybe our final kind of bigger topic of our conversation here today, which is around compliance. And one of the, I would say, unknown knowns in Web3 right now is regulatory compliance, how it actually creates opportunity.
How are automated on-chain KYC or AML systems and other compliance tools actually enabling innovation rather than hindering it?
Mark
There isn’t a lot in the way of, I would say, properly adopted KYC, AML systems in use on blockchains. There are systems that exist and there are some very good approximations for what a fully compliant DeFi might look like.
So for example, from the last market cycle, you might remember Aave Arc, which was their sort of institutional client lending-based service that you needed to have specific credentials to access. And I think that model sort of showed—it wasn’t a very good model. And that’s not a criticism of Aave necessarily, which is that this idea that you need to fork your entire protocol and have a compliant version of it, like have KYC at the protocol perspective, I don’t think will ever work very well.
There are alternative viewpoints. For example, I had a friend who created a company that would take your token and you could wrap it into a compliant version of itself. And then the permissions are then at the token level rather than the protocol level.
The advantage here is that it means that the compliance is now at the atomicity of what you’re doing in DeFi. And then the compliance infrastructure moves around the token to whatever protocol that it’s interacting with.
I haven’t seen—even though I think that that’s a more compelling way for KYC, AML and other compliance (travel rule, for example, is one of the most priorities)—even though I think that that has a very reasonable path towards realizing compliance, at least from the European and Swiss perspective, we haven’t seen people really get super excited to use it.
And maybe for good reason. If people sort of came to the… Compliance is fun. Right. Compliance is a good thing.
But we spent so long telling people that no, this is, we’re anarchists. And this is an anti-establishment movement. And to participate in KYC is to kind of give up the fight. Like that’s really what people were told when they arrived in cryptocurrency in 2019, 2020.
And so to now tell them, oh, now we’ve actually got compliance and KYC, AML, ATF infrastructure. And you can use it. It’s like native to the technologies you’re using. I feel like they are like, that’s a jarring message now.
And again, I think this is a problem that DeFi has within itself. It promotes people as being its opinion leaders that say these kinds of things and then have to make that awkward about face and try and get people excited for compliance again.
Harrison
So what’s the top level of categorization like in DeFi? Like, at the categorization tree, compliant or not compliant. And then you could stem down from there for like any protocol, any strategy, anything there. But I don’t see a massive use, like advantage to having compliance on chain besides privacy. Specifically, I mean, of course, having your KYC specifically, having that stored in a server somewhere isn’t great. But I mean, everyone’s kind of docs at this point. You know, every time you walk to an airport, the government’s got your picture. So I don’t let you delete those pictures. That’s what I would say. I believe them.
Cooper
So totally to double tap on that. And I work on business development side of things. So I have to deal with this. There are quite a few very large financial institutions, whether that be on the trading firm. You just saw Citadel making announcement yesterday that they’re getting into crypto and providing liquidity.
I work with a lot of those different types of shops. They are not willing to enter the space, come on to a decentralized exchange, get mashed with someone in North Korea and have OFAC end their business. That is the reality of the situation.
So there have to be compliant solutions that can offer an alternative for these people to enter the space in a permissible way.
So last January, we built an objective, something that we’ve seen a lot of different other foundations from folks like Solana who built token extensions or many others also built. We built our permissions module, which allows for assets, as Mark just mentioned, as well as markets to be permissioned by an off-chain KYC or KYB allow list.
So I think that that’s where we’ll see compliance go—either on the token standard, the market standard, or more importantly, the inclusion for folks like Chainalysis, TRM, or Elliptic to really monitor these more permissionless blockchains.
Adam
Cool. Well, I think that’s all the time we have. Can we have a big round of applause for Harrison, Cooper, and Mark.
Thank you, Gamma Prime. And see you in the metaverse.
