Crypto, Just Another Asset Class? - TOKEN2049 London 2022

hello everyone my name is Duncan Tran home and I co-head the uh digital assets business at CPI cap today I'll be talking about and it's a question Chris crypto is it just another asset class so this is the view from a traditional Financial organization uh TPI cap on how we view crypto so a little bit about myself uh my background I studied physics originally and I joined icap which is an interdealer broker in 2008 so that was September 2008 actually which was the heart of the global financial crisis very interesting trying to join a traditional Financial firm some Eerie similarities to what's going on in crypto at the moment but I spent about 10 years at icap working on equity and Equity derivatives and then when we got bought by one of our competitors tell it pre-born we formed a new company the parent brand called TPI cap and for the last four years I've been working and leading our digital assets efforts so just to give a bit of background on what we've been doing in crypto this was the first time that we went public with anything back in 2019 we the our entry point was crypto derivatives uh facilitating trades on the CME Bitcoin Futures products so that's where we started a bit of background whilst today I'm not really going to be talking about TPI cap because I'm talking more about digital assets crypto and how we view that as an organization but just as some background to people who may not know we're the world's largest interdealer broker uh underneath the TPI cap group we have a variety of different brands the probably the world's most well known in the market are tullet pre-bond and icap but we also have a various different Market Brands including liquid net pvm which are asset class specific products as well as consultancy firm Burton Taylor and some data firms parameter Solutions so who are we what do we do we're a global company uh we operate in 27 different countries with over 60 different offices globally 5 300 employees across the across the world we run 15 regulated venues and that's across rates FX credit equities energy Commodities as well as now digital assets which means you know if there is a product that trades somewhere globally including things like weather derivatives that's something TPI cap facilitate across the globe and our client base in general primarily historically it's been the banks but we also have by side facing franchise we deal with asset managers hedge funds corporates market makers trading firms but a key point being we are not a retail facing organization at all so I just wanted to use this time a little just to set the scene with financial energy and commodity markets in general what do we mean by that because one of the things I've observed in the last 10 15 years working in traditional Finance there is a increasing level of specialization to an extent that sometimes maybe it's difficult to actually sit back and realize what it is with you know we're facilitating here so some pretty images taken from Google I mean the global financial markets they're about the exchange of risk and the facilitation of trade across a variety of different assets so we've got copper which is part of the metals area energy electricity global Shipping equities soft Commodities these are all things that are traded across financial markets now to boil it down in terms of what the financial markets energy and commodity markets are there for we've got five main points here in general but you know the first one that the oh that's worth discussing is capital allocation so really at its heart what we're doing is getting people with money to people who need money and that in itself you know a prime example of that is shares and equities right you're talking about the formation of capital around shared Ventures we're also connecting producers and consumers so in terms of people who generate products or assets or Commodities and getting those to people who use them you know that's something we see across our Commodities markets in terms of metals Productions Commodities Productions and then ending up in the hands of end users but we're also facilitating Commerce and trade we're enabling firms and organizations to to conduct global trade and to enact Commerce but also like we're talking about risk management so if you are a producer and you are producing some form of commodity you want to be able to manage your risk there's Market volatility you may not be producing on the same time scale you may want to hedge your price if you're producing and you know that you're going to be producing within the next six months or a year but you want to lock in a price now and that's where derivatives markets Grew From in terms of hedging future production and ultimately all of these things particularly in capitalist economies are about facilitating uh economic growth as a whole now financial markets uh have not been static and they have changed throughout history this is the uh Dutch East India Company uh often thought of as the first example of a joint stock company 1602 was when it was formed and out of that through the Amsterdam stock exchange in the Netherlands another picture taken off Google but this is the 1960s New York Stock Exchange where these types of financial products were exchanged by open outcry tickets people shouting bids and offers at each other and then a whole system of paper trail afterwards where trades were reconciled exchanged and we often did this over long settlement periods so tpus five t plus seven where we make sure that the books and records of what has been traded across financial markets match with what actually happened on the day now technology has played an important part in financial energy and commodity markets a scene from Wall Street the movie the Advent of computers and Technology coming into financial markets started to change the way that we manage prices displayed on a computer screen and the way we started to manage orders and process orders and this where a lot of financial markets trade now is ld5 the data center in Slough and there you have some of the world's biggest trading firms with their trading algorithms sat on in the data center as close as possible to where the matching engine is and where financial markets operate so the point the point of this is technology has always had an important role in financial markets and it's always changed the way that we operate as a as a global Marketplace however ultimately what's being traded is largely the stain we're still facilitating risk we're still getting products from producers to Consumers and we're still helping Capital to form around Endeavors like the formation of companies and then Along Comes crypto so when we're talking to our client base you know they see this as another asset it's something that they want to hold they want to be involved in and from that perspective it does look like another asset class that we as a financial energy and commodities Market should facilitate the same sort of exchange and trading as we do in other asset classes however this asset class has some unique and interesting properties that we don't see in some of our traditional asset classes so an example of this is a way is around Capital formation so one of the things we saw in 2017 around the Ico boom was potentially a new way facilitated by blockchain technology of capital formation anyone with a digital wallet and an internet connection could coordinate Capital around a project or an endeavor that wasn't possible before and it's very interesting as a property and a technology and potentially something that traditional financial markets can learn from likewise we've seen some Innovations in crypto around trading automated market makers ways to bring buyers and sellers together price Discovery and an enabling trade this is something again that we haven't traditionally seen in financial markets and it's properties of crypto and blockchain which potentially are very Innovative for the way financial markets operate likewise risk now risk is a very very topical at the moment considering the backdrop of what's going on at the moment but I talked earlier about settlement times one of the biggest risks that exist in traditional financial markets are around trade and settlement between that period you're exposed to counterparts you have credit risk historically this has shortened we started with t pass 70 plus 9 many major markets move to t plus two in recent years and there's talk about moving markets to t plus one crypto as we largely know has much shorter settlement Cycles in general it's much more immediate it can happen over the internet and these things happen in minutes hours depending on settlement finality how long you want to wait on number of block confirmations but at its heart this product and this technology operates on very short settlement cycles and that's very powerful from a risk perspective and certainly something that Financial organizations are looking at so what does this mean for traditional financial markets in general you have this new asset that our Global client base are starting to look at want to be involved in but it also carries these unique properties that potentially could be utilized across some of our traditional markets and I think the important thing here is the token right the token itself this is a primitive a new product that is abstracted away from ultimately whatever the underlying asset is it's a it's a structure that can be applied to multiple forms of value whether that be dematerialized Real World products like Commodities whether that be legal contracts around Equity ownership whether it be legal contracts around bond issuance but this token you know the Genies out of the box that it exists it's something that we now have available to us this slide credit to Arc invest who put it out in their big Ideas 2022 but the analogy here being the internet and how and originally when the internet came around people thought it was a different Channel alongside radio TV newspaper and what we found as the internet evolved was actually it's facilitating all of these channels you have online radio online TV online news but ultimately the internet is the backdrop below that the the distribution for each of these different things likewise public blockchains the way I think an emerging school of thought across finances that this is a new technology on which various different asset classes can sit we have crypto and that's its own new asset class but we also are seeing a lot of innovation from different traditional Financial firms technology firms looking at replacing the the the base layer technology on which our asset classes sit and potentially moving this onto public blockchains so potentially a way to finish this talk is rather than thinking about crypto is this just an asset class I think it's worth stating the potentially crypto is every asset class it's the technology that we can use to improve financial markets but just given the backdrop that we have currently I think it's also important to say that there are maybe some things and experiences we have in traditional financial markets that maybe potentially can improve crypto as well around corporate governance risk separation of roles and responsibilities and ultimately potentially the new Financial system will be built out of a mix of crypto and traditional Financial organizations working together thank you I love how you have a disclaimer I think that's the first disclaimer I've seen in a presentation typical traditional Finance highly regulated financial institutions of course hey I'm interested to know um you have a traditional business being icap um how do your clients look at crypto just traditional clients are they quite Savvy you know have they got on from basically buying and selling Bitcoin are they staking yielding you know how experienced does the traditional type client now with regards to crypto that you're seeing I would say knowledge weight knowledge wise yeah there's a huge amount of knowledge there um not many firms have been active historically but that doesn't mean they haven't been looking at the asset class educating themselves I would say depending on the profile of organization market makers hedge funds people with a bigger risk tolerance yeah they're in there they've been trading it and they're you know one the first step is Bitcoin ether's a less of a step and it becomes incrementally easier to move into other asset classes bigger organizations Banks asset managers they just have more uh change processes approvals regulatory hurdles to get there but they're coming they're coming yeah and that's what we see across the industry is a move into it it just happens on the time scale of years rather than months of course of course well thanks very much Duncan that was excellent presentation thank you very much