Permissioned vs permissionless: which rails win for institutional adoption? | EBC12

I want to start. Hello everyone. I understand that this topic is a bit more interesting, particularly because I and a few other people here have been in this field for about 7 years, and the whole topic that blockchain started with was about permissionless activity and autonomy, privacy, and a not-quite- regulated world. Uh, back then, in 2017, regulation was boring, but now it's actually quite attractive. Isn't that right?

So, the market is definitely changing, and the implementation of this process itself is changing significantly. I'll start with a little introduction to you, uh, guys. You can talk about what you do for 5-10 seconds, and then we can start with the introduction to the topic introduction to the topic . Greetings. Uh, I'm Gabe Nevada.

I run an RWA business for digital assets. On a global scale, we are the company behind the Canton Network. So, yes, we are building institutional rails and somewhere on the spectrum between permission and permissionlessness. Greetings. Warm greetings from me.

My name is Martin Muller. Today I have two roles here. I am the chairman of the regulated level one initiative. We are the only open, neutral, compliance-optimized European membership network, and we were just founded in July, but we have, you know, a long history, and I'll come back to it later. And in my second job, I am a member of the board of directors of DekaBank for capital markets.

My name is David Walch My name is David Walch . I am one of the co-founders of Ethereum Institutional. We are also relatively new to this field in terms of creating organizations. So, we were, um, founded in July with the support of Bitmain, Chainlink, and Joe Lubin. Additionally, there are about 100 different organizations in the Ethereum space that support this mission.

For example, Ave, Chainlink, Robinhood and many others. The organization's goal is to help institutions evaluate networks on Ethereum, the Ethereum mainnet, Besu, and assist in the overall institutional adoption of Ethereum. My name is Yasha Sodian . I am a . I am a founding partner of Greenfield Capital.

Greenfield is a venture capital and blockchain asset management company. We have been investing in this asset class since 2018, using a variety of strategies: from early-stage venture investments to actively managed token token asset strategies, yield strategies, as well as infrastructure provisioning. Is your microphone working? It's just one microphone. Good.

I will try to speak as little as possible and have the panelists speak as much as possible, because there is only one microphone. We will make it work. My experience is in Somalia finance, which was very permissionless, and algorithmic trading on D5, which became a big part of the beta part of the beta team. And now we're working with Glacis Labs, a stablecoin clearinghouse and RWA with investments from Securitize and, uh, Franklin Templeton, Coinbase, and a lot of other people. So, we are creating a multilateral netting system.

Um, I'd like to start with a few questions about the topics we're talking about? L1 is obviously one of the topics about permission and without it, but at the same time we are talking about many assets that are permission and without it, particularly related to RWA ( related to RWA ( receivables under control). There are two sections that are dedicated to RWA, which is regulated equities, which is securitization of the world, working on regulated as part of the world, and there are also pooled assets regarding the X world equities that we want to talk about. So I'd love to hear your thoughts on some of these topics and see where we come from in terms of defining permission and permissionless. What topics do we cover?

Yes, I will start. So, you know, this topic has been discussed for years, it will never end, and I thought we had already overcome it, because this issue was resolved. But that's not quite the case, and I think the question is also a bit nuanced, right? People tend to see this as a dichotomy, don't they? Is it without permission or with permission.

Although I think of it as if there are different levels, and those levels have different properties, right? There is an infrastructure required to make transactions on a particular chain. Our thesis is that this should be a permissionless level in terms of access. So, access. So, anyone can make transactions because the permission is actually valid and up-to-date at the application level.

So, to your point, there are assets that don't require permissions in the sense of a stablecoin, anyone can hold it, anyone can get it. There are assets that are clearly permitted, like DTCC Treasuries, that would never be permissionless, right? Unless you wrap them in some kind of shell or something. But the actual security will always be protected by the actual, you know, legal permission to store them. So I think it's kind of different levels where, in our opinion, if you can give applications the necessary ringfencing and access control that they need from a regulatory perspective, that actually meets most institutional requirements, whereas the actual access to the chain should be allowed to anyone.

And there are some interesting questions, obviously, about this, you know, DORA and other regulations that we need to answer, but yeah, then we can come back to that later. Yes, you would like to hear the perspective of the Ethereum Foundation and the Ethereum blockchain, because I think you guys have been very supportive of a permissionless system from the beginning permissionless system from the beginning , but obviously with your initiatives on the institution itself, there is obviously a demand for a more permissionless system permissionless system . Hmm, yeah, so the Ethereum Foundation's position is always to be as permissionless and open as possible, obviously. And I think the separation that George mentioned is true. So it's just a separation.

Is the chain completely permissionless, and what applications are on top of it? So, from my perspective, a permissionless chain is where anyone can run a validator, anyone permissionless, without asking anyone, uh, run transactions or deploy code, essentially. And our view, both at Ethereum Institutional and the Ethereum Foundation, is that the base layer should always be as permissionless as possible. Anything built on that allows you to enforce compliance, regulatory requirements, whatever else, uh, at the token level, but also at the application level. And I think you can...

This story has already been played out, hasn't it? There have been millions of panels on this topic, and we've already seen the world move from the internet in the 1990s to the internet today. And 99% of all use cases on the internet are in a public, open system without permissions, but every program at that level has different that level has different , uh, I don't know. And whitelisting, uh, KYC requirements, everything else. So, yes, that's our position.

I'd like to hear your... Well, I represent something like the old economy on this side. And excuse me, I'm probably one of the oldest people here in this room. This is a philosophical discussion about permission and non-permission. Finally, I would like to draw your attention to the question your attention to the question , what does this mean?

Accountability is really what we're talking about. So I don't look at whether it's completely without permission or with permission. I look at whether it is accountable? And any network that is built network that is built must be accountable. And if I look, and I look completely at the institutional side, and I have a personal strong opinion on DeFi and, you know, is it worth it.

But if we look at it from the perspective of an institution like ours, you know, we have 500 billion in assets under management, we are the 10th largest bank in Germany, and so on. So, we need a network that answers a few very simple questions. One of them is: if you have doors and other regulatory rules, who controls the network? Who is in charge? The Siemens treasurer always says, “Give me your phone number.

"I want to call someone if something gets out of control gets out of control ." And excuse the language, a lot of the networks that exist simply don't follow this. Therefore, I will never be able to buy the asset or deploy an asset on it. That's why we believe that networks should play a different role. And so I'm not so much talking about permission or non-permission, I would rather talk about the institutional network.

And let's face it , there's the world of Bitcoin and currency, and there's another world of securities. And with securities, it still remains true that current financial institutions have confidence in the system. If they want to promote this in the future, they need to have a common network. That's why we established a regulated first layer, something like Swift 2.0 for DLT.

It's a cooperative, one member, one a cooperative, one member, one vote, it, uh, meets the requirements, it's non-discriminatory, and it works at cost. Because, frankly, if I'm joining a network as a financial institution, I want it to be useful. I want it to be the cheapest service possible because I want to compete, as you said. There are various other levels if you consider the IMF as a model. That's where, in our opinion, competition should take place , but not at the network level.

And that's why we at the regulated first tier, along with 10-12 other banks, believe that this is the way forward, not something to say, "Okay, I have to decide between one or the other." But to also be very clear, the adjustable level will be compatible. There won't be one, but we say we're based in Europe, like Swift, but we're open to the world we're open to the world , and we'll see how it goes . Uh, I have a follow-up on this . So, there are examples in cryptocurrency today where people have issued securities that are securitized as number one, right?

For example, there are clearly regulated securities that are issued directly on the blockchain. They maintain a ledger off the blockchain and then can replicate assets associated with a KYC person directly to them on any possible chain, right? For example, there is the infrastructure that Ethereum talks about. At the same time, uh, it's obvious that infrastructure must be dependent when the Internet is always reliable, for example, right? The idea is that Ethereum has never fallen since its rise.

That's the point, isn't it? We want to be able to build a truly sustainable network. When you have a really small number of people running validators running validators , we found that it's unreliable compared to a larger network. That's a point of view, isn't it? We would like to hear your perspective on this matter.

I understand your point , but obviously we start with six, we have 10, we have 15, we have 19 validators. That's good. We know various institutions like Templeton, they won't connect to any network until they are validators. We are absolutely happy absolutely happy if you follow the rules and regulations, we are happy to have as many additional validators as possible. So, we're not excluding anyone, but we're not saying that DeFi, something like permissionless access, is the only solution.

I understand your point, and obviously if we're not resilient enough and if we can't guarantee 99.9, it's not going to be reliable. But at the same time, we asked the rating agencies to consider this issue. They have researched this issue very thoroughly and said that any issue on this regulated first level gets the same rating as in the so- called old-fashioned world. And, obviously, this is the beginning.

Let's face the truth face the truth . So, I think, uh, maybe if I can, I can add to that, because obviously we have, we have, maybe a slightly different view on, uh, that the permissionless nature of the network in terms of network access–it’s network access–it’s ultimately about unlocking scalability, right? If you have any access control, it will always limit the speed of network growth and development. I think we are at a certain stage in the development of the industry where, I think, we will have to answer the question: “How does a decentralized network, a permissionless network, how does it serve some of the properties that, for example, the regulator cares about the regulator cares about ?” So, what I mentioned earlier, mentioned earlier, like the Dora Dora rules, they're very much geared towards traditional supplier relationships, right?

If you access and depend on a network that doesn't have a relationship with suppliers, how do you answer these questions? And I firmly believe that you can answer these questions because ultimately, running the network in a decentralized way like BFT is more sustainable than relying on relying on any central organization to operate it, right? So it's more of a question of, you know, learning and forming these rules and then finding the right answers to some of these questions that maybe are geared towards, you know, supplier relationships that you can scrutinize and where you have, so to speak, a throat to strangle; to think of these networks more as a utility that you depend on, but you are not responsible for its configuration, and such security measures and so on. So, similar to how we think about electricity today, right? No one is asking people to necessarily have a backup electricity provider, right?

They still, you know, banks use their diesel generators for their security, but you can also do that with a grid without permits. You can use a security system, right? So, I think it's this : we're evolving in terms of how people perceive it. And I think it's important to break it down into the features that you want in a technology like this, and not necessarily whether those features are provided through a centralized organization that you can turn to, or whether they can be provided in a decentralized way through a consortium. Sorry, Tess.

I will also briefly answer this. Ultimately, I like the electricity example. And I think the infrastructure, the regulated level, should be a utility , period. This is my thesis because I think that at this level, competition makes no sense. The question is, obviously, and if we look at it from a regulatory perspective, and we can only say that we will look at it from a European perspective, we have the European Central Bank (ECB Central Bank (ECB ), which is very active right now , and which has a certain timetable on how to proceed with Pontus and EPI.

And they are very clear that eventually, probably in 2029, we will either see the ECB build its own network, its own infrastructure, so when fiat money, when assets have to go to fiat money, or we will have a market solution so that the ECB's decision on the allocation becomes enforceable, meaning fiat money goes to the network. This is the key question, at least for Europe, how will this work? And that answer will not be simply without permission, which may be more sustainable from a regulatory perspective, and that is the structure that we will have to deal with. This will be different. And privacy goes with it, right?

Like governments that run regulated networks. Definitely. Maybe I can add a little bit of a nuanced perspective to this, because ultimately we're venture capitalists, and as venture capitalists, I think the biggest mistake you can make you can make is to get too fixated on one version of the future and ignore alternative versions alternative versions . So we, I think, are constantly guaranteeing different varieties and versions of the future, and I think if you go back to our history over the last 8 years, we've obviously invested in permissionless DeFi protocols , we've invested in institutional infrastructure like blockchain on Ethereum, we've invested in transactional privacy solutions and ZK-based identity attestation solutions. We're kind of in between all these different views and trying to position ourselves from a portfolio perspective in a more likely way.

I think the other thing you can also draw on is that history obviously, you know, there's a saying that history doesn't repeat itself, but it often rhymes. And if I go back to your point, maybe earlier, if I go back to the history of the Internet, when the Internet was introduced, I think it presented us with a structurally very similar decision or decision-making challenge. Do we want to allow it to be what it should be and what it is today? A permissionless network that anyone can join at a basic level. Hmm, it's censorship-resistant, 24/7 cross-border, and so on.

Hmm, and allows companies to move their business to it and create and establish application-level controls. And ultimately, if you look at the structure of the Internet, that's exactly how it has become today. So, I'm not saying it's a one-to- one comparison, but I think we're at a somewhat similar inflection point where, again, you know, we're sitting on both sides of the negotiating table. Hmm, but we think that in terms of trust assumptions and safeguards, there are many advantages to keeping the base level permissionless. Hmm, and in a way, if you go back, it might be a little far-fetched, but even if you look at the recent regulation, um, the Clarity Act, um, yes.

For example, structurally, what it did, what it implemented was this ethos or thought process of, um, controlling or restricting the application restricting the application , and, you know, with stablecoins it did, probably the most important application of cryptocurrency today, by imposing anti- money laundering and sanctions obligations on the issuer, that is, at the application level, and allowing stablecoins to circulate within the basic levels without permissions. So I think again, I, you know, obviously, again , the reality and also the future is more nuanced than that, and there are different stakeholders, categories of users that have different requirements, and, you know, it would be a mistake to ignore them, but again, if we take from history, um, we think there are a lot of benefits in trying to achieve from a technological perspective to build in and implement control at the application level. So, um, a few things that remind me. Uh, one of the things that someone made a really good comparison that I really appreciate is that there's cash and there's a credit card, right? For example, there are things that you pay for with a credit card, and if there's a legal record of that, and there are things that happen in cash, and cash is largely untraceable, uh, in our modern society.

So, things are happening without permission. At the same time without permission. At the same time , there are things that are allowed, right? So, there are, there, there , there, levels, um, uh , there, levels, um, uh , we wouldn't be at the level, uh, that blockchain is at today without the permission today without the permission , uh, ability to actually innovate, working in an environment: DeFi things, which have actually allowed us to test all the algorithms, and whether they work or not, have smart contracts been tested with a lot of money, etc. Right?

That is, there is value in allowing access to without permission until such time as there are certain assets that are clearly permitted, and they should be permitted and closed. Right? So, I think we, um, I have a question for you, actually, from an investment perspective, do you view protected assets the same way as protected RWAs that don't require permits? One of the fastest growing segments in the industry is currently a hot topic of discussion. There are two schools of thought on this issue.

I mean, ultimately we need to look at what exactly we're putting into the chain. And I mean, you're an expert on permissioned environments, so please correct me if I'm wrong. But, as I understand it, the vast majority of activity that happens on permissioned networks today, and that's a lot. For example, if you look at some of the look at some of the , you know, the volumes on Canton are in the trillions. Um, so, you know, there's no such thing as a proven, commercial, sustainable demand, but I think the vast majority of the activity majority of the activity that we're putting on blockchain today for permission systems is transactions between known counterparties with, you know, pre- agreed terms that are just being put on blockchain for efficiency and, you know, cost reasons, right?

Because institutions seem to like the fact that blockchain settlements are carried out 24/7. Um, and I think that's a very valid use case. So I think we need to look at what exactly we're putting into the blockchain, and then we'll again accept accept , you know, we're not biased towards any version of the future. We are venture capitalists. We need to guarantee multiple versions of it.

We are open to both of these versions of the future coexisting, and I think that ultimately, that's how we look at it . Uh, I'll just add to that that I like the analogy with the internet, and we use it a lot, because that's one example where the permissionless nature of the underlying protocol really helped or even just enabled this type of growth, and the ubiquitous nature of that network today. But you have both. Again, access to the Internet protocol is permissionless by nature. But you definitely have pockets of permissions, right?

You go to chase.com, a public website, I can access without permissions in a sense. But to get into your account and do something, it's a permission perimeter. So I think those two, uh, work pretty well together. And maybe there's a point about wrapped assets, because that's been discussed a lot, and also, uh, you know, in Canton we're working with DDCC to move the actual securities onto the chain.

This is a completely different thing than, you know, Kraken tokenized shares, which mostly use an SPV structure. But there is a point in both, right? I mean, on the one hand, you have the institutional investor who cares about voting rights and actual ownership of the securities and the rights that come with that . And then you have, I don't know, the Asian mass market, where people are mostly looking for economic impact on something and they're not concerned with, you know, voluntary corporate actions that they have to take. They just want to, you know, own the stock or be interested in the economic development of the stock, and there the wrapper is quite normal, you know, and; and I wouldn't even say and I wouldn't even say that it's dangerous in any way , you know.

The SPV structure, if you run it seriously, uh, it's perfectly normal, and if it just doesn't blow up, you know, for some reason, you know, if it's run seriously. So run seriously. So , I think there's a reason for both of these aspects to exist, and we certainly don't think one is more viable than the other. Uh, from an R1 perspective, is RWA one of the main areas for you guys or what? I know you mentioned that there are a lot of assets under management that you guys want to put on blockchain.

What's the idea? Will it be just one? How do you interact with other permissionless blockchains and how does it work? Thank you. Um, well, obviously we're open to any digital assets, you know, and, uh, banks and all sorts of regulated institutions regulated institutions that join as members will determine where to go.

Whether it's tokenized deposits or collateral management, and we clearly believe that on the collateral side, uh, we're going to see some, uh we're going to see some, uh , a step forward in the business. I mean, Europe hasn't come that far yet. We believe that this will change. And obviously, uh, the whole question of the initial public offering, what are we missing? Well, there is a release, and we will have problems with the benchmarks.

There is obviously a lack of compliance with ECB requirements. We see momentum. We see that this is changing. And once you obviously have a primary market issuance, when you have the first issuance of 3 billion digital bonds by KfW and others, you will see secondary markets actually start operating, and then you will get liquidity. Because, let's face it , liquidity is a key issue for any institutional organization, you know, otherwise we wouldn't get them to buy, and they'd still say, "Well, okay, if you have digital bonds, what's the benefit?"

So ultimately, we see as traditional players, a clear advantage, whether it's 24/7, whether it's , you know, no counterparty risk, whether it's, you know, intraday liquidity, for example, that's an obvious issue where a large share, but the members will actually determine, not the RL1 itself. The difference is that we have active members, not an institution that says, "I want to implement this idea and it will be successful." Yes, that makes sense. I think one of the things think one of the things that always comes to mind is that comes to mind is that without permission you get access, that is, there are people all over the world who are looking for the yield on U.S.

Treasury bonds. As long as US Treasury bonds are at 4.5%, there will be buyers around the world looking for it. At the same time, there is no access to stocks that are available in many emerging markets, in South America, India, Thailand and the entire Asian market. So there's certainly a lot of opportunity for that part of the world where they're going to have to go through a bunch of checks and the rates are really terrible for a lot of people who have access to Tesla stock or any Google stock or any other stock.

So, of course, that's true. I don't really know if Ethereum has any kind of permission initiative, so to speak. It is mostly a combination of institutions It is mostly a combination of institutions , but there is no specific initiative for assets with permits. So it's not just the main network, right ? There is an L2 where you can have full permission control, and you can have a private L2 if you want.

There is also a base-level ecosystem that fully integrates EVM, right? So, I think right? So, I think from my perspective, there's a natural flow to what's happening. And a good example is JP Morgan. So, they launched Onyx, a fork of Ethereum that was renamed Connextus, and which today processes several billion dollars a day.

And this creates an entire organization. I think they have 700 people on their digital assets team who are familiar with EVM, and then when they launch products on public permissionless Ethereum, they usually tend to look to the mainnet or the basenet. So if you look at JLTXX or money, which are two tokenized money market funds, or if you look at the underlying depository token , that's like a pathway for them to eventually move into permissionless activity. So I think our perspective is that , you know, it's a whole ecosystem. This is not just a basic network.

There is L2, there is a base. Obviously this is a big win with Robinhood, as well as a bunch of other people joining the ETH mainnet as well. We also work on the Ethereum hyperledger because that's obviously where most of the development and innovation happens. All of this volume goes to Tron. It's Binance's fault.

Well, that's actually a good point, and I think it just reinforces the fact that permissionless nature just allows for scaling and growth in a way that's otherwise not possible, right? When it comes to packaged products packaged products , they are primarily a way of access, to make them affordable. Um, and you know, I would, I would venture to argue that, um, the success story of stablecoins is largely due to their permissionless nature, right? And not so much because people were necessarily interested in, say, the possibility of instant payments or something like that. The thing is, I don't need to collaborate with anyone, I can just keep everything under control.

This is for a significant portion of people who may not even have access to a system that would otherwise perhaps even support real- time payments, right? There are many real- time payment systems, you know, crypto exchanges could integrate with Revolut. They didn't do it They didn't do it . They use stablecoins because of their scale and the access they provide. Right.

So Western Union, all the other MoneyGrams, all the other people are definitely using stablecoins. What are the best use cases I think we've come up with in the last 7 years? Well, I'm not entirely sure I'm not entirely sure if we're done. Yes? Good.

Good. So, I want to close by just saying that obviously we have opinions on both sides. There's obviously room for innovation on the permissionless side and accessibility around the world, but at the same time, there are obviously closed assets that we like to keep permission for and work with, uh, the rest of the regulation. Good. Thanks, guys.