DC Fintech Week 2026 at the Amazon HQ2

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Thank you so much everybody. Uh we had an incredibly uh busy first uh iteration of DC fintech week yesterday. Today will be even uh bigger uh with lots of um really important policym conversations. Just uh a quick 30 second uh introduction and welcome so that we can hear the person whom uh you're obviously here to uh listen to. Uh DC Fintech Week.

Uh believe it or not, this is our 10th DC Fintech week, but it's our ninth annual DC Fintech Week. We had to go to Claude to figure out is this officially our 10th or is this our ninth? And because Claude never gets anything wrong, it told us that it is our ninth, but you know, I thought, you know, good good good AI jokes. Anyway, uh uh but but but uh it is a a privilege and an honor to have you. um the amount of work that is that goes in from people uh like Olivia and and Zanab um uh and just really an army of people to make this event possible is is really because we want to make this investment of time worth it for you uh and for the DC community to hear from some of our um uh great policy leaders, from our great entrepreneurs, industrialists and thought leaders.

So with that uh welcome. I hope you guys have a great day today. And I want to uh welcome on stage my friend Travis Hill. He has been the chairman obviously of the uh of the FDIC but a friend to this conference, a friend to me. Um and I'm just looking forward to his comments.

So uh Travis, come on. [applause] Thank you so much. [applause] Okay. So, you've you've been busy. Uh and uh uh thank you so much, by the way, for for joining us as always.

Um okay, so there's this thing called the Genius Act. I think you've heard a little bit about it. Um and yeah, I know that you've gotten comments back now uh from the FDI. Uh you even asked the industry for, you know, a small batch of 144 additional uh questions uh to be answered. Um, when you look at the comments that you've received thus far, has has anything surprised you?

Is anything new and and kind of different that you may not have expected? Um, and and sort of closely aligned to it. Did you see anything that was particularly convincing or maybe even changed your original views as you were reading through the comments?

Sure. Well, appreciate the question and and thanks thanks everyone for having me. Um so uh so yeah as you said uh our our our Genius Act proposal asked a long list of questions. Um we got a lot of comments a lot of helpful feedback. We are working hard on a final rule now.

So going through all those comments and uh incorporating them into whatever will be the the final document. Um I would say there were there are a number of interesting questions that we're working through that we got helpful feedback on. Um to give a few examples, one is thinking about permissible activities. Um so so what what are ancillary activities that issuers can engage in beyond the most simple and straightforward of issuing stable coins and and uh and investing in reserve assets? How prescriptive should the rule be?

Um what what activities should be prohibited? How explicit should the rule be about that? Um, another set of questions is around stable coin issuers that issue multiple stable coins, multiple brands of stable coins. Um, should there be one pool of reserve assets for for each uh each different brand of stable coin or should the pools be isolated? And the sort of correlary to that is if one stable coin falls, can you know can one fail and the other ones continue or does the whole thing have to go down in aggregate?

Um, tokenized deposits is another area that we asked some questions about that we got a lot of feedback on. Um, I think we will have more work to do after this rulem no matter what in that respect because there's a lot of moving pieces there. Um, but those are those are a few examples of of some of the types of questions that we we got a lot of a lot of feedback on that that we're grappling with as we move to the final rule.

This is I apologize. It's a law professor question. So, so when you get these those comments back, is there anything about this process with Genius Act where you feel like as compared to your maybe let's say past notice and comment iterations where you know you're like, "Wow, there are all these extra things that you know um uh you know, we're going to have to figure out um to help to support the legislation to to to get it through." I mean do you feel like that ambit or spectrum of additional questions is it is it was it more or less as expected? Is it narrower?

Is it different from how it normally is in terms of the the the ambit of sort of technicalities that you have to think through?

I think it's I think it's within the general ballpark of what's typically expected. Um I think what's one thing that's a little bit unique here is the fact that there are a lot of different rulemakings that are all sort of happening in parallel. Um the the fact that the you know the OC went first with their rulemaking and so our rule was sort of built off of that but had uh had some deviations from it and so we've been continuing to coordinate closely with them and so seeing how they're thinking about things as they're moving to their final rule. I think kind of triangulating between all of that is one thing that's a little bit unique about this. Um, but I think otherwise for the most part, you know, we asked a lot of questions to try to open up the aperture and make sure we had logical outgrowth for different options.

Um, and so I think most of the feedback we got was sort of within the, you know, sort of the broader remit of of what we were thinking about.

Very cool. So again, you know, we we are at AWS. So, you know, there are certain kinds of themes that we'll be talking about today, including agent commerce. And, you know, you said something really kind of interesting uh recently, which was, you know, you're thinking about different kinds of worlds, not just, you know, how do you implement rules, but what what's the world of banking going to look like? And and one potential scenario was a world where AI agents sort of move customer deposits uh the moment a better rate appears.

Um, you know, what we've seen is in the past maybe runs, uh, you know, where humans with with telephones, uh, but but what does a run even look like when you have millions of software um, sort of optimizing uh, sort of different accounts at at once and how does this change the way in which you you think about insurance coverage?

Yeah. So, um, a a lot to unpack there. Um uh so you know I think I think just as a sort of a a threshold threshold matter for for just to put this all in perspective um I think it's worth noting that today you know for depositors that want to um achieve high yield on their bank deposits that's a very easy thing to do. Um, if you go on, if you go online, there are a lot of websites that will rank banks based on their based on the yield they offer on their deposits. There are a number of services today where you put your money with the service and they will move your money around to to different high yield accounts.

Um, there are a lot of customers that use those types of services and and options, but then there are many who don't for a variety of reasons. And part of that in a lot of cases is that there are other things that customers are looking for in their relationship with with uh with a bank. Um you know the the sort of um evolving nature of some of these new technologies and new tools. Um you know I it's something we're certainly watching very closely. Um, I think there's an open question about to what extent are um, people and businesses going to delegate the decision-making authority to these types of tools to be able to move their money around?

You know, that's something that may happen over time, but how quickly does that happen and how pervasive is it? I mean, I think those are really the the key questions. And it's worth also noting that there's a a significant portion of deposits across the system that are business accounts. And those businesses have a lot of reasons for why they choose the banking relationships that they choose. And again, the question is, are are those treasurers of those corporations going to rely on um these types of tools to to be moving their money around and and changing their banking relationships?

Yeah. you know, it's it's really interesting because you you think about, you know, agentic commerce and then, you know, I'll ask maybe, you know, uh, sort of sequentially like, uh, some questions obviously about onchain finance and and you've already mentioned tokenized deposits a little bit, but when you combine um, Agentic Commerce on uh, different kinds of rails, then, you know, it's it's fascinating because it's it's a it's an infrastructure question. um uh you know how much of it is is is legal or not I I find you know like is it a legal question is a regulatory question or is this just an infrastructure question clearly you have like Genius Act where you're thinking about tokenized um uh well stable coins uh you're you're obviously thinking about tokenized deposits but just a gentic commerce in and of itself outside of the rail question uh I suppose is just more of a safety and soundness question than it anything else like uh like I don't know does the bat signal go off in your head when you when you sort of see agenda commerce where there's a certain um you know uh opportunity or concern that's that's usually raised.

I mean I think from our perspective we're I mean we're focused on the banking system and so we're focused on safety and soundness of the banking system and kind of financial stability more broadly. um you know to the extent there are new tools that are um beneficial to individuals and sort of their daily lives and their ability to engage in daily transactions. I mean those are all good things and we generally want to promote um innovation that helps uh that helps the economy and and uh and consumers. Um but you know to the extent that that is impacting how uh how money moves through the banking system and how payments are made um obviously that has a big impact on on what we do.

Well you know I guess this gets to the bigger point that so much of banking is now moving uh you know outside of a traditional bank. you know, they're either maybe moving through um a fintech or you're moving through a wallet now. Um and you're not necessarily operationalizing the service, I should say, through through a a traditional bank branch. Um you know, a couple of of of weeks ago, um you had thought about and and the agency had thought about replacing the 2023 third party guidance, uh with more of a principles-based approach. Um could you um sort of provide us with a little bit of just sort of you know what do you think that the a principles based approach is going to uh get you and how does it respond specifically to that um uh development you know outside of your traditional bank branch and and you know obviously one of the first questions that that kind of arises in your head is you know how do you give banks the room to operate within any kind of structure, principles based or or otherwise where you have companies that don't necessarily have like 10 20 year uh track records.

Yeah. So, I think um I think kind of zooming out um a lot of these bank fintech partnerships present a tremendous amount of value. Um, there are a lot of fintexs that are that can be a lot more nimble and more innovative and satisfy consumer demand for what they want and what they're looking for in terms of engaging with the financial services provider. Um, and then having banks on the back end that can provide deposit services and and other types of other types of services. So, you know, we want a a regulatory framework that encourages and enables those types of partnerships.

Um, but we're also mindful of some of the challenges and risks that come along with that. Um, when it comes to the the third party risk management specifically, um, the the the the guidance that was issued in 2023 has has presented a number of challenges. Um, I think one of the big challenges is that it presents a fairly exhaustive list for banks to to to look at when it comes to partnerships and a lot of those partnerships. There are aspects of that that are not applicable. And so it it's it's been challenging for for institutions to understand how to apply that guidance in the context of the breadth of different types of relationships.

And so I think the proposal that we put out which would replace the 2023 guidance is intended to kind of raise it up a bit high to a bit of a higher level um and and emphasize the fact that whatever frameworks are in place need to be tailored to the to the specific relationships.

Uh I was about to ask you well what would be the primary principle and I guess you've just now answered that so you've preempted that that that particular question. I guess part of the the the issue is even when you move to to principal based um uh uh sort of formats and and frameworks. Uh ultimately the FDI has a job that that job has to do with uh resolution readiness. Um uh the sturdiness of the financial system. You spent a lot of time thinking about uh the issues of resolution readiness and congratulations.

you know, uh, in in 2026, doing a little bit of research, it looks like, uh, so far so far, uh, uh, with Nano Bank being the latest, everything was resolved, uh, over a weekend, uh, with depositors made whole on Monday. Great. uh but how much of that survives and your traditional playbook uh survives when deposits are tokenized and particularly where collateral is moving um on Saturday nights on on digital rails.

Yeah. So, uh this is another question where there's there's a lot to unpack and um something that we've certainly been thinking a lot about for several years. Um, you know, I think that there's sort of a a threshold question here, which is when it comes to the fact that um the activity level when it comes to money moving is dramatically lower on nights and weekends, how much of that is a product of the payment rails and how much of that is the fact that people are not working and businesses are closed and um people are sleeping and and and I think the answer is probably somewhere in in the middle but that is relevant to how we think about our resolution function. So in the in the typical resolution which which includes all the resolutions over the past couple years, the bank fails on a Friday after after after business hours and a transaction is announced immediately at the same time that the closure is announced and the acquiring institution immediately takes position takes possession of the failed institution over the weekend. They kind of do the initial conversions etc.

and then the bank reopens on Monday as part of the as part of the new institution. um in a world where money is moving over the weekends that that's really not going to have that big of an impact on sort of that traditional um that again the the most common uh the most common outcome when we have a a resolution um I think if if if money is moving 24 hours a day and there is no decline in the volume of transaction and so there's basically no end of the day on Friday. Um that would make things more challenging in terms of when you kind of uh shut the door on the on the institution. Um but again, you know, the fact that payment rails are only open certain hours I think is only one factor in when sort of activity slows down. Um because again most of the world still operates on on some sort of uh some sort of business hours where there is a slowdown uh at a certain time of the day.

There there are also exceptions. Um and you know I look at at the first republic failure is an example of that where um first republic failed on a or or first republic failed late in the evening on Sunday night. There was widespre widespread speculation on Friday going through the weekend that First Republic's failure was imminent. There was a very strong desire to put to announce the transaction and the failure before markets open on Monday morning. Um I think on the one hand that demonstrates that failing a bank the night before a business day is something that we can do that that that works.

Um but on the flip side, if you do have that sort of and again this was very rare that there was that degree of media attention on something that again is is is almost always not public and is you know we protect that confidentiality very carefully. Um but in that sort of scenario where there is this widespread speculation the fact that there is this weekend where you don't have um markets open and and 247 money movement in trading was was helpful. Um, so again, I think overall we're we're thinking a lot about a lot of these questions. There's a lot of secondary and tertiary considerations here, but at a very high level, those are a few thoughts on it.

Uh, I'll hold on a second. Being law professor, uh, uh, kids, there are seats open in the front. Uh, we have lots of you, uh, standing up. Feel free. It's it's he's not going to bite you usually.

Uh so you know it is fascinating because the the overall narrative you know that I hear is that there's um uh sort of an interest in figuring out you know I'm a securities lawyer by by training or um you know there's this question of how do we make trading 247? How do we make sure that our markets stay open 24/7? Um and and there's a little bit of a question is like is the friction for you know on the trading side you know how much you know you also hear about everything from preunding if you're a stable coin if you're you know how does it move in terms of the operation of the banking system you know how much pressure do you see banks andor or and by extension the FDIC ultimately feeling from the capital market side? Um I I think it's just an interesting question and I don't know if if if you've seen it yet or if you're just like well right now you know early innings we'll see how it

Well I I'll say first of all I mean I think as a general matter I mean innovation is going to happen and I think as a general matter that is all very positive and so I think the ability for people to be able to move money more easily to be able to get money where it needs to go faster. I mean those are those are very positive developments. Um it you know that that being said there are are always tradeoffs and there are certain benefits of having frictions in place whether it's in on trading or on sort of payment settlement. Um but again you know you have to balance the the the positives and the negatives and I think as a general matter the positives are going to significantly outweigh the negatives. Um I would say on on the on the more direct question about sort of the impact of of markets on banking I mean I would say that's not a huge consideration.

Um I I I think there are you know there are cases where um the sort of you know getting things in place before markets open is is um is important and especially when we're talking about potential large bank failures that uh that can have financial stability consequences. Um but I'd say that's one of a long list of things that that we're thinking about.

Interesting. Uh and we did have a conversation yesterday on like atomic settlement and you know what that does which is not exactly the same thing but certainly close enough uh that I'm sure it runs across your radar. Okay. So a couple of other questions um uh you you may have heard uh about like genai. Um so

I I think it's called super intelligence.

It's super intelligent. Sorry like see super intelligent. Uh we need a super intelligent moderator here. Um okay so uh obviously in April u there's a revisiting or rewriting of some of the um model risk guidance and uh you know agentic AI was or super intelligence or uh was sort of carved out um where exactly does that work go from here? We've already you know heard some indications from the White House.

What what exactly are are are you doing in this space?

Yeah. So um so another topic we're we're thinking a lot about I think super intelligence has the potential to be transformational in in many ways. It's something that um many people across society and the economy are are grappling with. Um as you noted we did carve it out of the model risk management. There was a general perception that um the model risk management guidance was not appropriate for um for this type of technology.

Um at this point we are considering a number of possible steps in in terms of where to go from here in terms of our supervisory program. Um this is obviously a very fastmoving area. Um and um and so I think at some point there will be some value in providing some additional clarity on how we're thinking about it from a supervisory perspective. Um but but we're we're still contemplating that just given the evolving and and fastmoving nature of it.

Yeah. Again, just kind of curious as to how how these things work inside of of of the agency. So, if you have something that is as sort of category defining as super intelligence, right? There are all kinds of ways in which it can affect a bank. Maybe it's your supervision, maybe it's your compliance, maybe it's uh you know accelerating uh as we said earlier, you know, maybe it's it's in the form of external pressures where a AI agents are are are super intelligent agents are taking money in and out of bank accounts looking for the for the uh best rate.

Um, regulatory, do you just sort of take the whole category at once or is it let's go pinpoint the biggest sort of pressures and then kind of work down to the to the you know more or less a kind of a triage approach or how exactly do you approach that?

Yeah, that's a good question. Um, I think it's uh I think at the moment it's more thinking about all the different use cases as is as one. Um, but um but yeah, but that's a good question. It's it's probably a there's probably a little bit of both.

I'm not smart enough. I need to be super intelligent to figure that one out. But, you know, because there are so many different kind of areas that kind of pop up and I'm always kind of curious as just sort of even how do you how do you tackle it? But um you know, look, you're you're looking at super intelligent agents. You're looking at um tokenized deposits.

You know, you obviously have your Genius Act and your stable coin implementation. You're getting comments by the hundreds every couple of weeks. Um as well as proposals. So you your your your vision uh on what's coming in and out is is is very unique. What what's the most interesting or underappreciated question that people should be asking um when it comes to bank regulation and banking more more generally?

Um yeah, that's a that's a that's a hard question to call to rank. Um you know, I don't know if this is underappreciated. it's probably appreciated. But uh I think one of the biggest and most interesting questions is just how fast will we see adoption of these new technologies? Um when it comes to tokenization, how quickly will we see commercial activity and economic activity moving on chain?

Um there's a lot of sub questions to that. Um, you know, my general perception is that's likely to be a gradual shift over time. Um, but but who knows? Uh, and and I think, you know, is is this months or, you know, months or years and and um, you know, what are the what are the use cases? What are the customers?

It's it's something where the the benefits are widely known. There's been tremendous investment from uh, financial institutions around the world. Um and and the sort of agentic side of that, you know, again, as we talked about before, how quickly do do to what extent do people delegate decision-making authority and how quickly does that happen and how does the financial system react to that and how does that migration occur? And so I think all of that all of those I think are are very interesting. Um I don't know if they're underappreciated, but at least interesting questions.

Ju just just one quick followup. Those are incredibly core questions. How do you feel about, you know, you've now been in the in in in the job for for for a while? Um, how do you feel about just the nimleness of agencies to respond to these kinds of fastmoving questions? I mean, they do you feel um more sort of changes of some sort are are are required given the velocity or given your comments here?

you know, maybe these things do take a while to kind of seep into the system, but

yeah, I mean, I think uh I think being nimble as a government agency is always challenging. Um, you know, the APA process um values deliberativeness rather than nimleness. Um, but there are there are still tools at our disposal. Um, you know, I think trying to make sure that we're continuing to be on top of um, innovation as it occurs is is important. I think there have certainly been times in recent years where um, regulators have kind of put their heads in the sands as as as things are moving.

And so I think we've tried hard to to to pivot from that approach. Um, but nonetheless, I mean, it's it's always a it's always a challenge. And then there's always a little bit of a a chicken and the egg dynamic where um you know we want to impact markets as they're developing to the extent that there's going to need to be regulatory considerations but at the same time we want to let things develop and blossom and don't want to you know don't want to move too quickly. And so I think there's always trade-offs to consider in terms of when is the right time to set rules of the road and and how clear versus um versus flexible should those rules be.

Well, our next panel was clearly will listening to your comments uh uh very closely. It's called pipes and plumbing um uh with uh uh folks from city managing director of of partnerships and the um uh New York department of financial services Caitlyn Astro Sarah Cohen onto finance all these great folks and they're in your office all day long. Um I I do want to thank you for coming to our office uh to talk to our audience. Uh this is DC Fintech week, but we'll we'll ask ourselves now what the New Yorkers think of your comments. And thank you so much again.

Everyone in the back as well, feel free to uh come up front as we get our next panel. Thank you. Thanks everyone. [applause] [music]

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Good morning and welcome. [snorts] I'm Sarah Weed, co-chair of the fintech and digital assets practice at Gibson and Dun. I want to start with a confession. I find infrastructure remarkably attractive. It's okay, laugh, but you're going to see soon why my position is absolutely correct.

Right now, the biggest names in Wall Street are making serious bets on what sits underneath finance. Tokenized funds, tokenized deposits, and new rails that run around the clock. Which brings us to our title, pipes or plumbing. We were talking backstage. They might sound the same, and that might have something to do with how handy we all are, but they aren't.

[snorts] Pipes are proprietary. You build on them. You own them. you decide who connects. Meanwhile, plumbing is shared.

It's a foundation on which many build. So the question that regulators and market participants are asking is this. When legacy institutions go on chain, are they are they laying shared plumbing or building private walled gardens with better technology? And so we have the right people here on stage to help us answer this question. And by the end, we will have answered it definitively.

there'll be no more conversation to be had. Totally kidding. But let's turn quickly to some introductions. Uh I'm Samara Cohen. I'm the global head of market development for Black Rockck, which is really just a fancy way of saying I am a career plumber of financial markets.

So imagine my excitement at being able to join this uh this conversation. Very uh happy to be here with you today.

Hi, good morning everyone. My name is Bis strategy. I'm the head of partnerships and innovation for our services division. Uh we're largely focused on new product development uh and new business development. And I'm Peter Curley.

I'm the head of regulatory affairs for Ando Finance and on this panel I am the public chain representative. I think we're actively tokenizing markets and bringing them on public chains as our core business model.

Good morning. Um I'm Caitlyn Azro. I've been serving as the acting superintendent of the New York State Department of Financial Services for the past year. Um, prior to that, I led the research and innovation division. Um, and we have been in the business of regulating virtual currency and looking at tokenization for a decade.

So, like I said, we have the right people on stage. So, as I as I said, our title poses a choice. So, let's kick it off with sort of the topline question. is onchain infrastructure building new pipes meaning parallel systems that might eventually overtake or replace um the old one or is it um better plumbing that's sort of happening inside what's sort of existing infrastructure

not all at once take

same order or yeah anyone okay you like um

the aspiration I think is creating better markets, which is neither and both of those things.

So, however, I think, you know, one of the reasons I'm excited to see everybody gathered here um and and to see some of the papers that were written is I'm not sure that better markets are necessarily the unmanaged outcome here. Um and so the ability to um take what is already highly functioning in global capital markets um and expand it using these novel technologies hopefully so that more investors can participate in more investments. To me that's the definition of better markets which is the aspiration but will require a lot of collaboration across different industry particip participants to to actually see happen.

So I think that is a nice way of sort of tying it together. Anybody else any other triggering thoughts? Yes s I would say uh from our perspective it's ultimately about the client uh and you know smart to your point whether it's a market client individual institutions this quality of service they're looking for below the hood it's for really for us to make sure we take the best of all technologies and make them all work together to give the client experience and that efficiency

what I I would observe is that there's a risk that it won't work together I think as Samar was kind of recognizing right now there's a lot of different offerings coming to market at the same time, not and they're competing along the lines that you're suggesting. Some want to be more proprietary. We're focused more on the on the open chains as a as a linking mechanism to uh bring the the markets together, but it's an open question and kind of a fight. Um and so certainly that's been part of what we've been emphasizing is both the need for the systems to work together. It's not a single choice that we're going to impose upon the markets.

We think people want the different models. why they're out there in the first place, but that um there is an important role for institutions like the SEC to make sure investors more uh interests are well served. Yeah, I can share, you know, from our perspective, you know, we have um an interesting vantage, right? Because we're regulating some of the the kind of digitally native early movers in the space and you know, some of our largest traditional institutions active in um capital markets and you know, so I think the answer like everyone is both. Um really we're seeing those digitally native companies um really imagine an entirely new infrastructure um an entirely new set of kind of trading and activity only on chain and then you know our traditional players really working on their own backend and thinking about um how they can modernize and you see that across you know from tokenized deposits to obviously tokenized securities and you know stable coins as as the original layer there.

Love it. All right so let's talk about what's real. This is I think something that's you know we're we're going to be talking about sort of where we are and where we're going. So what's real this as you know city token services just expanded into Japan um the UAE and is now live in seven markets which is you know quite a feat. Um what does a corporate treasurer get from tokenized deposits that 247 dollar clearing alone can't deliver?

So Sarah uh you know when we went live uh with uh City token services about a couple of years ago we'd been working on blockchain technology for 10 years before that uh it was really the decision to go live was really unlocking client needs both from the corporate side as well as the financial institution side that we found had kind of got to a tipping point where our clients you know most of them are global in nature whether they're asset managers whether they're multinational corporates needed to manage their liquidity on an always on basis. You know they had multiple legal entities all over the world subsidiaries uh or or the people that were you know transacting in global markets were trying to you know get the most optimal market liquidity and returns and so they had to move their capital at a much more faster rate. We saw things you know market moving changes like the lockdown created a much more push into digital commerce which you know as all of you know um you know you don't have markets that shut down you know on a Saturday you don't see a sign on your e-commerce marketplaces closed on the weekend come back Monday morning same thing we're seeing in the securities industry you know settlement cycles are moving from T plus2 to T+1 so it was very uh kind of important for us to meet those client needs And so that's the reason we led with city token services. Uh and we're seeing the adoption. We're seeing more and more use cases come from clients whether it's managing their liquidity to be available when they need it, where they need it rather than have to pre-plan and pre-forcast and move it.

And that's both from the payment side, from the liquidity side and from the uh settlement side behind securities. The other thing which we found was we had other ecosystems in the bank like 24/7 clearing uh but you had to go through you know legacy swift based uh technology which is also getting upgraded from their end but you had to go through complex handover from like one institution to the other and at the end if you're moving money from point A to point B all the parties in that chain had to have a 247 operating ecosystem and that's where uh I think um you know our vision is that As we create more 24/7 operating ecosystems, whether it's a blockchain, whether it's a non-blockchain, we need to start creating this interoperability. Otherwise, these things will stay in narrow corridors and be limited to individual institutions.

Yeah. And and just, you know, what can you tell us about sort of the choice to go with sort of permissioned um private versus I know Peter's going to talk some about sort of the flip the flip side.

So Sarah, we benefit at city from having one of the largest global footprints. uh we're in physically 90 plus countries. We have thousands of like uh wholesale and institutional accounts that you know bank with us. So we had the luxury of not having to build a network but you know our our focus was to take our existing network and make it 24/7. Um and that's where blockchain uh really helped.

I think from a perspective of risk, safety, soundness, our initial plan was always to go with a you know private permission market within the city ecosystem. But our plan and our strategy includes integrating with public networks because in the end you know our clients use cases whether it's on the capital market side or the corporate side will take our clients into markets which are serviced through public and open systems and I mean if you look at historically you know financial transactions happen over internet-based protocols those are open markets so we are familiar and comfortable with but I think we're also seeing a sign from the regulatory ecosystem around the maturity it needs to understand what it means to do business. So we are following our clients journey and we think in the very near future we will have to work on integrating into public uh blockchains as well.

Yeah and I will say in counseling sort of you know financial institutions that is not an uncommon story right where you start versus where you're going.

Sarah that has kind of you know defined our design choices. So even our own internal ecosystem is designed on on components and technology on the blockchain that is compatible with other public networks.

So Peter, you started in a different place in terms of you know skipping forward to sort of the the public instance. Can you um sort of talk a little bit about the fact that you know certainly is a you know public chain um you know you're providing that that sort of contrast to what Biz was talking about. um who's buying the tokenized share um and sort of what what's animating that from your perspective?

Yeah, almost in a way similar to what Biz is describing, we're also meeting customers where they are,

right?

This cohort of customers are uh cryptonative long crypto already looking for diversifying assets in traditional markets where they are comfortable trading which is onchain. So that's what we saw as over the last year we've grown the the um stocks TVL up to about a billion dollars early adoption was in very much like diversifying assets. So large ETFs uh gold even uh ETFs focused on fixed income um were some of the largest earlyphase uh take up of our products as we shifted and now we're up over 400 products uh on chain. Now we've seen them uh also looking at other single stock diversifying things, things not correlated with their onchain investments as well as ones that are um so like Micron or others that are focused in things that they understand. We're seeing people establishing long positions in those onchain because they like to trade on chain.

That's where their corpus is of activity and so we can meet them where they are. Um so that's a nice story we think in terms of expansion. The other little variation there just for uh like the more technocratic crowd here is it is relatively expensive for uh people to trade US stocks offshore. So a lot of almost all of our investors have many options. Many are high net worth individuals choosing to trade on chain.

What they tell us is that it's more expensive to trade on chain when you're in a Asian country because the inter intermediation chain is longer. And so we are both meeting them where they are and giving them a product that um gives them excellent execution but at a lower cost. So what's not to like is kind of what we're hearing from from folks there. They're looking for us to expand both the the types of products we offer and the range of services. And that's our next um uh kind of evolution in terms of expansion is expanding the way they can trade with us.

Yeah. So where where the market is may be absolutely contextual, right? And so I think comes back to like there's not that singular answer and so sort of room room to play. Um Samara, you already sort of touched on this this idea that um we we have this potential for coexistence, right? It may not be an eitheror.

It may be sort of a both situation. Um, I know you've given a lot of thought to this, but how do you think about um, you know, what it takes to build something coherent without sort of inadvertently creating silos?

Um, well, I really appreciate what Peter said at the beginning, which is that this is an open question and a bit of a fight because I think we should be eyes wide open that that is actually what's happening. We all love to wave our hands and say, you know, we can have an internet and an internet and both of them are really useful. I think that's an an analogy that's pretty helpful. However, at the end of the day, what is going to happen over the course of the next 6 to 12 months is we will likely have multiple tokenized models on the same underlying asset which will at best create investor confusion and at worst create real um market fragmentation, liquidity fragmentation and undermine price discovery. So, how do we settle that?

And I think some of the answer to that is that is the price of innovation and we can be willing to bear some of that for a certain period of time. And I really commend um what the SEC did with the innovation exemption to attempt to put guard rails around live production because this is not a technology we can paper trade into existence. But what I hope we learn at the end of the innovation exemption is how to create price coherence which really for me comes down to the conditions to affect arbitrage. Number one, valuation clarity. How do we ensure across all of these different tokens?

Um we know the attributes that will contribute to pricing. they probably should trade at different prices, particularly if they have different, you know, counterparty uh uh risks and exposures. Um market access. We need market participants to be able to trade both the permissioned city token and the you know permissionless ono token so that they can execute the arbitrage trade and of course they need certainty of execution that they can do these trades and both sides of them hold.

So a massive group project is what you're saying. I do think it's a massive group project. Yeah. [laughter]

Listen, if you shuddered, it's okay. Um, we're all doing this together. Um, so Caitlyn, um, DFS has been, you know, the leading tip of the spear with respect to supervising digitally native financial institutions for now a decade. Saying it out loud, you know, it's happened, right? um what have you learned in terms of you know the ways that the risks show up differently u where you're talking about sort of a blockchain native or um a blockchain compatible offering.

Yeah. I mean you know I read a lot of long memos about the group project uh on a daily basis. So you know we're obviously heavily thinking about this right now as you know we see that experimentation. You know, we have to think about what I tell my team is first, right? The traditional financial risks, the traditional risks that we see have to always be there as our base and then how are we using especially our um experience in the virtual currency space overseeing that and really our depth of knowledge on blockchain risks in particular and the unique aspects that that brings to the the trade and the the counterparties um to inform kind of our supervisory approach.

And then of course where these two things blend and where I see blockchain risks kind of enhancing traditional risks. Um so you know in the tokenization space we're thinking a lot about um obviously settlement finality and what that means across the different flavors of you know tokenization and and where it is actually existing in terms of the asset itself. Um how are we unwinding transactions? Kind of the the feature of blockchain is also the bug in a lot of cases and how are we managing that. Um, you know, we talked obviously about permissionless and permissioned.

Um, you know, that blockchain resiliency, where do we actually see independence of the nodes? Um, who has control? There are financial incentives across all of these chains. How do we think about that? Um, and we spent so much time obviously creating resilient kind of central infrastructure and now we have a different type of infrastructure with a lot of different um, incentives that we need to parse through.

in terms of traditional risks that I'm seeing kind of enhanced um you know we already spoke about it here that's um you know really consumer awareness and understanding about new types of tokens right synthetic tokens that we understand is you know just price exposure in the traditional markets now we have access to that across DeFi of you know traders who not who might not be as familiar with that so um how do we understand and and talk about that consumer piece and then thirdparty risk right we have new types of players who fundamentally again, you know, minting the tokens, creating that compliance layer, and we've spent so much time building that kind of central counterparty structure um that we know is protected. What does it mean to have these new third parties providing such an essential rail?

This is a whole extra panel and I think you're going to people are going to be clamoring to talk to you afterwards for sure. There's a lot there. Um Peter, you ran clearance and settlement um policy at the SEC. We've got this innovation exemption Um, how do you think about that? Is should we be thinking about as a sandbox?

Is it sort of designed to, you know, create I know sandbox here in the US can sometimes be a loaded term. Like how how should we be thinking about this moment?

So, I I'm a fan of the innovation exemption with qualifications as always with in these circumstances, but I think uh just really kudos to the SEC for getting that out the door. took a while and um we're we're happy it's here and I think our our core message is to them to keep going. So like it's not like we call it a beach head, not a sandbox or something else. I'll play with the metaphor, but it is really a beginning and we want them to keep going and they've said they want to keep going and expand on it. This is one lane in the highway, not the whole highway.

And we do expect more people to in the short run uh like use the innovation exemption. We've already seen a few examples of that coming on on online which is great and then um modify it. We think it is just the beginning of one that's one way to do it but um the uh the real need is to keep going. Um and uh so certainly in in our case um one of the other elements that we like about the exemption affirmatively we call attention to is their incorporation of public blockchains. Um, so that's one of the elements of of the uh exemption qualification uh together with permissioned assets and uh permissioned venues.

But the the fact that they're calling attention to the role of permissionless blockchains uh and putting it as an affirmative obligation, we think is a noteworthy new development in the regulatory space that other regulators can learn from and hopefully adapt themselves in their own ways. Um so uh so overall optimistic that this is the beginning of a really a good trend and one that you know over time will expand into areas that um you know the SEC will uh accommodate. Um then maybe one last thing which is that the um we also kind of say that uh while we love the the the public chain exception, we look forward to the day when it's not a requirement when people can freely choose and know the roles of public chains and private chains and can adopt them affirmatively. Right now, we think there's value in the SEC calling attention to it in the way they have if to really make people focus on the fact that it is a possibility and should be a live possibility in their planning. But over time, um we'd hope that they let the market decide.

So, Samar, we've got till 2031, which sounds like the way distant future, but it's it'll it'll come up on as fast. How do we use this time? like what do we want to know or understand by the time we find ourselves sort of on the other side of the exemption. So I think whether it's 2031 or 20 you know 36 10 years from now a fail is spending the next decade modernizing around the edges of the market where we have the opportunity to actually define and create a better market and even a year from now is not too soon to start to see measures of success uh incremental liquidity more investor participation um and those are the things we need to align around what is success look like um and then figure out where we work together to really start achieving it.

Yeah. So, we are running low on time in part because um this is a conversation that cannot be contained. Um it doesn't fit in a sandbox. It might be a beach head for conversations we have throughout um throughout the conference, but I hope you'll join me in thanking our esteemed panel for joining us this morning. [applause] next uh our next group.

Thanks [music] La [music] [music] one and welcome. My name is Brendan Peterson. I am a uh financial services reporter at Punch Bowl News here in Washington DC and welcome to this panel on tokenization and trustlessness and open versus permissionless and what it all means. Um we have a really stacked panel for you here today. I'm going to have everyone introduce themselves in a second, but uh this is going to be a conversation about you know the technicality of this space.

who want to get into um the the business frictions and you know you're talking to the folks who are really at the forefront of designing this space and we're going to talk about what it takes and what's going on. So um let's just have everyone go down the line and introduce yourselves, say what you do and how you're doing it.

Yeah. So um I'm Stephen Gardner with Zeroash. I'm the co-president of Zero Hash and and chief legal officer. And what we do is provide uh onchain solutions for existing financial institutions. And in the tokenization space, that really means interoperability between traditional assets, tokenized assets, and tokenized assets to other tokenized assets.

Um so, you know, for example, we support a stable coin flow for Black Rockck fund uh funding on chain.

You can't

Lindsay.

Hi, I'm Lindsay Hazwell. I'm the chief legal officer of Tempo Labs, which is a fairly new layer 1 blockchain focused on payments. We're the first layer 1 blockchain purpose-built for payments, specifically using stable coins. We were incubated by Stripe and Paradigm, the venture capital firm. Um although we are a separate company from both of them.

We started about a year and a half ago. Um unlike some of the other layer ones out there, not only are we purpose-built for payments, uh we accept all stable coins. We're stable coin agnostic. We don't have an enshrined stable coin and you can pay transaction fees or gas in any stable coin. Um, and our goal really is to bring enterprises that haven't been on chain, haven't used payments on chain before and introduce them to that world using the superconductors that we call stable coins.

Hi, my name is Jose Fernandez Aonte. I am the president and chief growth officer at the Stellar Development Foundation. SDF is the entity that steers the growth of the Stellar ecosystem. Stellar is a layer one blockchain. It's been around for about 12 years now.

Very very much built with payments and regulated finance. On chain we work with a lot of folks on the TRFI space from Frankie Templeton to Bank of New York to Amundi to others very active now both on payments and RWAS where we have about four billion dollars now that are deployed. there open source, permissionless, and purposeuilt for for finance. So, I want to get us started um with a little bit of level setting and and talking about what we're we're talking about. So, Jose, I'm going to start with you.

And as I'm asking these questions and as our first respondent finishes, everybody else should feel like they can jump in. Let's we'll keep the conversation going. We had a great conversation backstage and I wanted to keep that going. Um Jose, I I Let's talk just basic terms and definitions for a second. permissioned versus open for assets versus networks.

Where are the crucial distinctions in your mind in terms of how we're talking about this space and what those differences mean on a product level?

Yeah, thank you Brendan. I think that that's an exceedingly important distinction. We tend to throw the terms around on permission and and permissionless. Even inside the industry, there are people who disagree disagree vehemently about what permission or permissionless is. Erh, as Brendan was saying, at one level you need to to look at what is the blockchain itself in terms of being permission or permissionless.

In our case, permissionless means that everybody can spin up a node and start running transactions on Stellar. You download the software. There is no gatekeeping on who can set up a node. That's where the decentralization comes from and and the consensus gets built on a permission environment. you have some type of limitation on who's can be there and and validate transactions whether because you need to submit an application to run a validator or a number of other entities.

There are very good use cases for both permission and permissionless. On the stellar side, we are very much advocates of the permissionless side. We want to make sure that there is an open and public version of of the chain that people can can build on. That's on the blockchain side. on the assets.

The assets themselves might be permissionless, might be similar to a better instrument, but can also be permission and those things run in parallel. You can have a permission asset on a permissionless chain. For instance, Franken Templeton issues a money market fund on on a stellar. That money market fund itself, it is permission. You need to go through KYC with Franken Templeton.

There is a registry of of holders, but you can run that on a permissionless chain. So those are two very different layers and I think that sometimes they get they get confused.

Yeah. Lindsay, I want to talk to you a little bit about tempo um and and some of the choices you guys have made over there. You you have a policy registry that gives issuers the built-in tools to restrict uh transfers of of tokens. Why are you building that into the infrastructure itself versus just allowing issuers to implement it on their own? Yeah.

So, one thing we heard when we started Tempo and talking to our design partners, many of which are big enterprises like Door Dash, Airbnb, was very clear that they want compliance not to be an afterthought. They want it baked into the product and they also want it to be standardized. They don't want to have to create bespoke compliance programs and and policies for every single type of transaction or stable coin. And so, we created what's called TIP 403. It's a token standard that allows you to bake compliance into the token layer itself.

So the issuer at its simplest can basically decide which token travels along which policies and can dictate the send receive policies for those wallets or accounts which wallets is a very crypto native term but effectively it's an account. Um and tip 403 at its basic allows the token to dict to be travel along with these policies. Now the cool thing about it is that because it's programmed at the token layer, the issuer can basically decide how to apply those policies across a whole range of tokens and it it does travel separately. What it also means is that enterprises can count on the fact that every time that token moves in or out, it's being checked against that policy. And so we think this is a really elegant way of solving compliance on a blockchain and not making it so impossible for enterprises to on board into this new world.

Stephen, I want to come to you and talk a little bit about the the when stuff breaks moment. Um Zero Hash is very much on the back end. Uh when you guys are thinking about the risks of a hack or or a bug or if even one of the companies that you're working with goes under, how are you preparing for that moment? and uh what what's the message for consumers if they're worried about you know their money going away uh if one of those things goes wrong? Yeah, I mean I think um kind of starting as a regulated institution, you've built out risk and compliance programs.

Um and that's kind of just the the low bar, right, that you have to meet for lensure that's not doing enough. Uh because in tokenization you have multiple fourth and like even fifth sixth party risk that you need to moni monitor. uh onchain exploits um far downstream will create panic among users and want to ask you know if there's something wrong with the Salana chain there's something wrong with my stable coin on the Salana chain um so um making sure that you have kind of monitored all of those scenarios in real time with your risk teams and can communicate directly back to partners and consumers and regulators about your exposures. Um, but that just takes a really sophisticated risk engine that that has run books, BCDR programs, tabletop exercises. Um, there there's there's there's just a ton of practice that has to go into to the scenarios.

Um, but I think that's not unlike most financial institutions. Uh, what is unique is the type of risk that we're monitoring for and the type of counterparty risk that we're that we're looking at. um and maybe maybe some technical experience that you add um around the edges to ensure that you're that you're on top of it. Um and and then when things break um having the controls to to prevent loss um is also extraordinarily important and so you know not just monitoring and identifying but then stopping the bleeding. um you know even if it's not impacted your business, there may be uh a period of time where you need to you know ensure that your systems are going to work appropriately before permitting onchain transactions.

Jose, I'm going to start with you for this next question. You're all being very polite still. You can you can jump in. Don't don't hesitate. Um but let me ask you this, Jose.

Um let's talk about the last mile problem as you're creating these tokens and then rolling them out and trying to distribute them and get people to use them. Where are you and then we can bounce around, but where are you guys seeing the pain points with that distribution and talk about any lessons you've learned from your time at PayPal into Stellar and onto the future?

Yeah. So, as Brenda was saying, prior to Stellar, I was running the digital assets team at at PayPal. And a big part of of the value proposition there is can we put these digital assets in the hands of 400 million people around around the world. Over the last year and a half, I I I would say that have many many conversations with traditional financial institutions and especially on the asset management side. Uh the conversation a year ago was very much about can we put an asset on chain?

Can can we take a money market fund? Can we take a stock? Can we take a private credit fund and put it on chain? Does does it work? Um I think that we are largely past that stage.

Most of the institutions that I talk to these days, they say, "Hey, the technology is mature. We can do this. these assets can live on chain. The conversation very quickly has moved to distribution as you were saying Brendan. So how do we put this in hand in the hands of the investors?

Maybe at the beginning maybe one year ago there was a little bit of a uh starey notion that the blockchains themselves were going to be the distribution. Uh I think it has established that that is not the case. That is like you're pretending the internet to be your distribution channel or or your window windows to be your distribution channel. So most of the instit institutions that I that I talk to these days are trying to figure out how do we deploy this? Is this going to be through the traditional uh broker dealer channels, the traditional financial advisors, part of this is going to live in in DeFi, but DeFi has some restrictions on the type of assets that you can deploy.

Going back to permission versus permission, I don't think that the question is settled. I think that we will still see there's a ton of work that people like Zero Hash and and others are doing to make it easier. uh and there's going to be a we just had on the stage on on the prior panel. So what we saw in the payments space on stable coins and the combination of new payment companies and traditional payment companies still has to play out on real world assets uh distribution and how much of that is going to be the traditional erh channels for as we said wealth advisor, broker dealers, financial advisors and how much is going to be the next generation that is coming up that is more cryptonative. I think that's where where it's being played now.

Um, Lindsay, I want to go back to you. Um, because actually had some news this morning, I believe, um, about a new, uh, privacy tool that you guys have rolled out called zones. Um, can you talk a little bit about that and and why, you know, it's interesting.

It's a it's a big day for us. Um, love to share more about it. One of the other I mentioned compliance being the pain point for some of these enterprises not yet on chain. I'd say the second one right behind that is privacy. Those of you from finance know that I there's real benefits to having certain transactions just have to be private payroll global remittance.

You can't put those all on chain necessarily, but you still want the benefits of the publicly verifiable nature of a public blockchain. And so that was one of the other design principles around Tempo was how do we allow enterprises to do things on chain, be publicly verifiable, pro protect those transactions. So, we created this concept called zones. It allows independent operators to set up a zone. They can do private transactions in that zone.

Um, and many of you are now thinking, well, wait a bit, wait a minute, that sounds anonymous. No, our design principle is confidentiality, not anonymity. And the zone operator can actually decide who can see what those transactions are. If they want to have an a plug-in with a regulator, if they want to have certain certain parties in that zone, they can do so. It's fully programmable.

It's fully customizable. And so we announced this morning, Brendan, that our first zone partnership is live, which is Deal. Um, many of you know Deal, the global operator, uh, payroll operator. They said to us, "We'd love to do something with Tempo. We'd love to use stable coins, especially in the hundreds of countries in which they do payroll, but wow, we can't have payroll onchain.

How do we solve this?" And so they were a great design partner and we announced this morning that they now have payroll live in 86 countries as they operate at one of these zones on Tempo. One thing I if I may add Brendan to what L I I want to reemphasize something that Lindy said which I think is super important which is privacy with at the same time being verifiable. I think that's something that is incredibly important. Sometimes you will hear claims of chains saying we're doing this volume or that volume.

trust us because it's private which means that it's not verifiable. Those things are separate. You can be private and and verifiable. We have been doing our work on payments and confidential payments and privacy pools and stuff like that. Similar design principles saying hey there are there are auditor keys.

You you can engage with regulators. there is an oversight and with the ecosystem say hey look you can verify that this transaction really happened because if not anyone can claim that whatever volume or whatever payment amount

without sacrificing compliance yeah

um and without antagonizing regulators but protecting privacy of payments

yeah all right Lindsay mentioned the regulators and I promised Chris Bummer that this would not be a policy conversation that this be more technical I'm a policy reporter but you mentioned the regulators so Stephen I'm gonna come back to you now let's talk about um your federal charter application. Um you guys just resubmitted um a second go at it. Talk a little bit about um lessons you learned from the first goound, but also just higher level. What what do the regulators want to know about your federal trust charter?

Yeah, I mean I think this lesson we learned was keep it simple. Um I think Zerash has a very broad business. uh we do tokenization uh issuance uh payments wealth management um custody operations and so I think um kind of simplifying that um in in our second application was important um but I mean there's no surprises in any of the questions that are coming in I mean they want to know about governance um how you're working with third parties and affiliates how people are dual hated um the you know the you talk about distribution how you manage wallets, working with uh self-hosted wallets and things, how your compliance program is built, if you're going to facilitate kind of movements like that. Um the yeah, I mean they're looking at your your your organizers and officers. Um so nothing I think would be surprising to anybody in the room.

Um and and I think the um you know what's important is this is just one charter, one license and in a host of them in the US that are available right now. Um without um federal legislation, there's going to continue to be this state federal pushpull on on who regulates, you know, 49 states have money transmitter license that apply to or jurisdictions that apply to these activities. Um, a lot of it businesses have decided to go the state non-depository trust route. So, uh, Zero Hash has one of those in North Carolina. Um, and and then you have the SEC and CFTC making great strides and guidance and rulemaking that's going to end up placing this technology within a whole host of federal regulated institutions.

So, um, I think there's a big story about the OC right now. Um, and that's mainly because they're filling a a void in the federal landscape, particularly for custodians. Um but uh it's what's going to be more interesting I think to us moving through 26 and 27 is the additional kind of federal licenses that are available now um and how those will interplay um depending on the type of assets that you're supporting. I mean tokenizations moving into securities and securities issuance. We've already talked about money market funds um you know perpetuals on the price movement of digital assets is another element that that is being monitored.

So I think um you know the fundamentals that you'll hear from folks like them to to my left is that this is a technology that's going to be applied broadly to every asset and to every asset class. And so that's going to naturally bring in, you know, dozens of regulators.

Okay. I want to start opening it up a little bit in our last five minutes or so here. Um and starting with Jose, let's talk a little bit about AI. Um, and my question is, is there anywhere in this tokenization discussion where AI technology fits in particularly well or that like we just shouldn't be letting it touch right now? Where where do you see the technology playing a role in in the implementation here?

Yeah, Bren, no, AI is absolutely relevant for crypto. There's nothing to see there. Uh no there there are obviously there are there are many many implications and I think that we we can look at it at least in in very in a couple of different levels. One of them is the transaction side of things and then the other one is obviously the cyber security and and attacks and and exploits. Um as you look at the overlap between blockchains and AI, one of the things that might get enabled and which is been the holy grail of of the industry for a lot of time is aantic payments and microp payments especially I spent the last best part of the last 10 years in rooms where people are asking why do we need the stable coins for payments if we have X and we live in the best of possible worlds and we can do micro payments via app stores and we can do tokenized deposits to Hey, and we can do a bunch of things.

Uh, which are valid questions that the industry has been addressing in several ways. Part of the use cases were well, you don't know some of these cases that are going to show up. I think that the traditional payment rails are not very good for doing payment transactions. Obviously, you cannot give a credit card to an AI agent and send them on their on their merry way, but you can allocate a crypto wallet with value in it and you can do machine to-achine payments. There's uh I would not claim by any means that we have sorted that out.

That's why there is there are bodies out there like the X42 Foundation where we are members with many other colleagues in the industry. We're trying to figure out what is the right stack for AI payments. There is another derivative of that which will go which I don't think we're there yet to the real world asset and the trading and how does the world work in a in an environment where you can have tokenized stocks that are traded by uh AI AI bots. The other aspect of it which has been very relevant in the in the first half of this year is the speed of attacks. I don't think that that is happening only in the on the crypto space.

uh we are seeing that in a number of other uh infrastructure but the speed of attacks has increased vastly I am an optimist I think that AI favors defense in in the sense and think that people will work but there is a value of scale and it's a value of being a stress test and and battle harden against that so I think that it will favor consolidation of volumes and assets on chains that have been around for a long time and are tried and tested and protocols and applications that have been around so I think that we'll see an advantage of scale given the the cyber threats.

Lindsay, Stephen, any thoughts you wanted to add on that?

Um, yeah, I I just want to say I think stable coins are the most perfect medium. It's a perfect marriage for agent commerce. Um, at at its core, stable coins are programmable money. Um, you don't want to give an agent a credit card or a bank account with open-ended limit with no limits on it. stable coins.

You can set up a prefunded wallet on Tempo using our machine payments protocol. You can tell the agent exactly what it's allowed to do, what it's not allowed to do, and when it runs out of money or it doesn't follow those exact specifications, the transaction stops. I actually think it's a marriage made in heaven. I think it's going to be really interesting. There's lots of legal issues that we haven't yet explored, but like Jose, I'm a I'm an optimist and I think you're going to see this programmable money agent uh marriage take off.

Yeah, absolutely. I mean, I can't agree more. Um but um I think we what we're building and focused on is agent identity and being able to pass through credentials and those transactions because they're still you know beneficiaries at the end of the agent. Um these are people they're not just machines. Um and so uh making sure that you're authorizing appropriately and that you you know if you need a closed loop system that you know that you're within your closed loop.

Um and um I mean stable coins have been already kind of beneficial in this space. Uh but I think the tokenization in general just kind of on the theme is um the interoperability moving from stable coins to any other asset um will be in the hands of agents and they need that interoperability to make it all work as well.

Folks that is all the time we have. Please give our panelists a big hand. Thank you for joining us. [applause]

Thank you.

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la. [music] La. [music]

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Check, check, check. All right, good morning everyone and welcome to our panel this morning on agentic money. We have a great panel of experts for you. Uh, first of all, let me introduce myself. My name is Benjamin Guggenheim.

I write the AI and tech brief for Washington Post Intelligence, which is a new professional briefing service for policy and business professionals. Uh, welcome. It's really good to see you all today. Uh, let me introduce our guests on stage. Uh from left to right uh we have uh Nema Elme, vice president of strategy and policy at Circle where she leads the company's regulator regulatory strategy across Europe, Middle East and Africa.

Uh next off we have Tom Mutton, executive director of fintech and payments innovation at the Bank of England where he leads the bank strategy on Frontier Technologies. Next we have Nlesh Dusain, the global head of institutional payments at Amazon Web Services, where he leads global initiatives that harness cloud data and a AI to monitor modernize our financial systems. And lastly, we have Jack McDonald, the senior vice president of stable coins at Ripple, where he helps lead the company's stable coin team. [snorts] So today we are looking at what happens when an init when an agent can initiate a payment on our behalf. There are all sorts of complicated things that go into that process but also different questions not only of how agents make transactions, make investments for us, but how businesses can leverage agents internally for treasury liquidity issues.

There are all sorts of cases that I wasn't aware of before I I talked later last week uh with all these great experts. So I first wanted to start off with Nlesh. Um let's zoom out for a moment. Besides, you know, the use case that gets most talked about which is agents making transactions on our behalf, what other use cases are you currently seeing for agents in financial services?

Sure. Sure. So um at AWS we uh we are in a very fortunate situation where we get to work with uh customers all over the world both on the commercial side uh with some of the largest financial institutions in the world as well as uh with some of our customers in the public sector and u what we are seeing is um you know if you think about payments there are many components to aside from the obvious which is moving money there are many things that need to happen uh to facilitate a payment. uh it could be uh KYC or in this case know your agents. Uh you still need to do sanction screening depending on the uh type of payment.

You still need to do your risk management, fraud checks and things like that. So what we've seen um our customers start using agents for is a lot of uh what we call as two categories of use cases. One is um internal use cases when it comes to things that happen or should happen around the movement of money. So we have a lot of customers who use agents to uh do fraud checks in close to real time because as you know uh when agents are involved in moving money the risk management processes that anybody who is a payment processor needs to make uh they need to happen in close to real time as much as quickly as possible. Uh we are also seeing customers who are using u uh agents to interact with their financial services providers.

So uh you know corporate customers are using agents to interact with some of their financial institutions and others. And then there is obviously the uh use case that we have all heard about is in the context of agent e-commerce where agents can you know do things on your behalf such as you know uh make a hotel reservation or think like things like that. So uh you know we are seeing agents being used across the board um in different categories depending on which part of that payment process a financial institution or a payment processor is playing in and uh it's happening uh you know all over the all over the payments value chain.

Great Tom I was hoping uh you could speak from the central bank perspective here. what what changes for payment systems when a software doesn't just carry out a person's instruction, it actually decides to move money on its own.

So it's a it's a very big and and very profound uh question. Um so clearly this will only work if people trust it and feel that it's a system where they have appropriate frankly to use the word agency human agency in the system. Um that means having appropriate fraud uh protections, consumer protections. Clearly agents are going to need to be identified. There may be a time when they need to have some form of uh regulatory status or authorization.

Not to say that time is anytime soon but that question will arrive. [snorts] Clearly there's going to be a question about consent but also withdrawal of consent uh for agents particularly if they're working autonomously and then clearly people being able to set appropriate parameters which give them control of the transactions. Beyond that then I think if you look into a sort of wider financial stability lens clearly there is a whole question around autonomy and velocity and you know I don't expect to see autonomous actors um immediately but they will arrive at some point in my view and we should prepare for that. This question of autonomy and velocity clearly there is a old as the hills interest in deposit switching that that's been around and people have been talking about deposit switching pretty much since internet banking arrived. But I do think the presence of agents in finance and commerce could lead to deposits or stable coins or whatever form of money you want being switched much more frequently will be good for consumers in business as usual but potentially could amplify stress.

But then I think you get this wider question around do you get other forms of agentic financial services. So what about if you have aentic lending? Um you know in the UK peer-to-peer lending kind of was a thing and now it's not so big. But actually you could well imagine that agents at some point might uh say well look there's new forms of digital money over here um and actually there's a need to recycle some of these balances so we'll offer people agentic lending pools. And what does that do to the resilience of credit creation and other things?

So I think the long story is consumer protection really important but there's some longer questions about what does this mean for the structure of the financial system that we need to get ahead of so we can enable the the big opportunities which uh which this presents.

Jack to Tom Tom just touched on stable coins. What what are institutions asking you to do with stable coins and is are is that already agent driven or are we still working on getting there?

Well, you think about stable coins as programmable money. So, it's logical that stable coins would be the center point, I think, of the agent commerce uh conversation. At Ripple, I feel like we've got a front row seat as to what's happening here, both from an infrastructure standpoint, having a stable coin that's being used and also uh we work very closely with the XRP ledger, which was built in 2012 for payments. And you think about the infrastructure that's required to instruct an agent to move money. agents started obviously by um you know focusing more on information and as that shift uh migrates to value you need infrastructure that has governance layers in it that has trust embedded in it that has regulation around it and our stable coin uh certainly meets that given the regulatory um structure that we have the XRP ledger is critical uh being built for payments and we're starting to see a serious uh uptake in terms of a gentic payments I think there were 13 million transactions since the end of April and 8 million alone in the last 30 days.

So, we're seeing a very quick uptake in terms of the velocity. From a user standpoint, we acquired a company a year ago called G Treasury now called Ripple Treasury that has roughly 11 or,200 corporate treasures, CFOs that operate in 130 countries. And that customer base is starting to think about how they can move their money more efficiently. $13 trillion worth of transactions processed by that customer base last year, zero onchain. So the logic, part of the logic behind the acquisition was to bring that customer base on chain and take advantage of stable coins, payment rails, uh, and aentic commerce, frankly.

And so uh that that division or business has built some tools around uh making it easier for that customer base to start to use agents while still maintaining the governance layer and the control uh that you would want. The last thing I would say is on the XRP ledger, there's an SDK uh that's been pushed out around aentic payments. And so we're seeing the adoption through through multiple lenses at Ripple.

Awesome. And then Nema, I wanted to turn to you. Um could you just explain kind of in playing it in English um you know what does an agent need beyond AI to make that payment where does circle fit in and what what do stable coins really enable that a an existing bank card doesn't?

That's a really good question. Um good morning everybody. I think if we break this down I would segment it into three. First what does the agent actually need? Uh Tom raised a point around delegated authority.

I think for us we developed agent wallets which is our uh way of ensuring that agents are operating within a clear set of policies um when they are transacting in USDC and that is very much driven by the owner of that agent the corporate uh or the legal person behind um that agent and I think that's really really important. Then as you think about the second segment which is um what are they transacting in what what's the what's the value ad here actually this is um uh the reality that when you take uh sleep and family time and socializing off the table you can operate on a 247 basis. So if you are a retailer and you've had a shipment of goods that have arrived overnight and you have already got a set of agents that are able to process that shipments, do the inventory uh ensure that that is validated against what you've ordered, designate another to then um check the customer base and what needs to happen next and then execute that through nano payments. Um we have uh circles agent wallets which enable that and marketplace. So there's a price sensitivity there to see which is the best agent to to to carry out that transaction and all of that is done.

So by the time that you wake up uh you would have had all of this process done and where you have enabled that agent to execute and and and follow through and make the payment up to a certain amount. They have also done that and that has saved you time. that has taken what would ordinarily be quite a monotonous human-driven uh process off the table. And then the last segment I would say is um thinking differently about uh the way we view time and money. At the mo at the moment value is an exchange of your time for money.

Um this thing enables us to think about the uh more of a per task type of economic activity and that's really really fundamental for all of the reasons that the others have said right the velocity of money thinking about nano payments and most importantly thinking about conditional payments. We we touched a little bit on risk and and that's really really crucial here because ultimately we want to ensure that there are guard rails and that ability to have programmable money that is conditioned on if when and you know but is really really important for ensuring that we mitigate against risks and um and we're certainly very much excited by by these developments. Yeah, I wanted to make this a bit concrete for our audience because I feel like it can be hard to wrap your head around this stuff. I mean, for me personally, if you're not in the industry, but it seems like, you know, what happens across a transaction, right? need a mechanism for understanding who gives permission.

What keeps an agent within bounds, what happens when things go wrong, the agent buys something that was a product that was no good or pays the wrong seller or pays a fraudulent seller. And then what what happens when the scales across the financial system? So, let's use a simple example. A business tasks an agent to buy data for some report and spend no more than $100. Neba, what what gives that agent authority to spend and and how does the provider check an agent's authority to spend?

Well, you're checking first the authority of the organization and what parameters that they have provided. You then have your own wallet wallet policies, right, in terms of um what they are allowed to do. You've also done presumably to some degree checks around identity uh checks around um the the type of network that they are going to be using and if that's validated against what the company has approved and for us enables us to ensure that we have oversight to a certain degree as to um how that transaction is is rooted. Now what circle and other providers will not do is validate um that this the the end performance is delivered. Um and I think this is the question perhaps um Tom was touching on around the kind of parameters of liability and we will also um think about in that flow if the agent does things that are out of bounds is that because of a failure of the wallet infrastructure the blockchain or because the parameters given by the uh authority the owner of that agent were not clear uh and cause that ambiguity.

Jack is you know an agent is assigned to spend up to $100 to collect this data from your perspective as a provider. What is there anything you need to know about what the agent is doing besides the fact that it has up to $100 to spend? Do you need to know what its purpose is? Uh its expiration date? I mean, what what do you what do you look for?

Well, I I think we're still in the early days on this first of all, but I always think about there's always has to be a throat to choke and ultimately human beings cannot completely abdicate any accountability or responsibility for that. So, I think to NeA's point in part it stems back to what sort of governance you depending upon who you are as a provider and what role you play in the ecosystem. You know, from our standpoint, we've got heavily regulated businesses that are all institutional in nature that go through a rigorous kind of regulatory framework in terms of what you're doing, whether it's a stable coin issuance or or a ripple treasury business, but ultimately there's a human being behind that who sets it up. And so, you can trace back uh what went wrong, you know, the unhappy path. And the end of the day, I think there's there's a human being that's that's standing there that ultimately is going to be accountable for that.

M so you said we're still very much in the early days. Could you just give us a sense of where we are in terms of making those transactions something that are that's normal and common place?

Oh, I think we're first inning in terms of where this can go. I think you know a lot of what is probably in all of our minds is the discomfort you have with completely turning over your money or your finances to a bot of some sort and and letting it go. And so, similar to that friction that existed in the early days of banking online or your first Venmo payment or zel payment, you know, you do a dollar first before you do $10 before you do $1,000. And I think that's still where we are. The numbers are significant and I think that the TAM is is really bewildering in terms of how big it's going to be.

But I I believe we're still early days there. M and anyone on the panel, what what happens if an agent stays below the $100 limit but you know pays a fraudulent seller? What what happens? What what resource can the person who assigned the agent take? Is there a mechanism for making that person whole or not really?

Do that. Well, I think um it's clear that whatever liability framework, consumer protection framework, dispute resolution framework is is settled on, at least speaking from a UK perspective, it will have to be something that everybody can understand and is applied consistently. Where exactly that sits, I think, is something which would be for the Financial Conduct Authority in the UK in the first instance, not for the Bank of England. What seems important to me though is that these are two-sided markets where there needs to be an appropriate amount of information and validation. So, and and the agent is the pivot in that two-sided market.

So, the user has to know what has been executed and why to an appropriate level of detail. The merchant has to know that the instruction that was given was valid and within bounds and by a legitimate agent. And the agent I think has to know the identity of the parties involved on both sides and that they are who they claim to be. And crucially, and I think this is one of the key things, they have to be able to look at the market and understand the products and services which are available in a way that allows them to actually process them. And that will involve some level of products and services being standardized in terms of catalog and inventory.

And I think that's going to be pretty important. So I think that role of the agent as a pivot in a two-sided market is really important and around information and validation.

So on these standards with regard to these two markets is this who do you think could you just explain to us who would make those standards or who needs to make those standards? Is this would would this be national regulation or would it be determined more um based on that institutional institutional level policy? So at least from a UK vantage point, the way that this works best and I think this is true internationally as well is if you have industry developed standards for operational commercial matters that includes things like how you're going to process failed payments, how you're going to deal with disputes etc. That's typically carried in schemes and other sorts of arrangements. Those are industry developed standards and those will be both technology and operational.

then I think you can bolster those and buttress those with regulation but only where you need to. So what you shouldn't do is try and drive standardization through regulation. It's not designed to do that in my view but clearly you do need some form of regulatory underpinning for egregious conduct fraud um and to set the norms around consumer protection but the heavy lifting has to be done by industry developed operational commercial standards. I would just also add, you know, an example to Tom's point of of industry groups working. You can look at what Mastercard is doing.

We've started working with them on an agentic commerce task force essentially, uh, where they've got different ecosystem partners, v Visa is doing something similar. And so I think you will see these super user groups start to develop standards that the industry ultimately adopts. And to Tom's point, there will be this intersection with regulation when when when appropriate. M

and if I may add just quickly sorry

I was just going to add very quickly just to Tom's point I think

what's really really front of mind here is when you intervene because it is not lost on anybody in this room that when we're talking about agents using programmable money those transactions are happening in seconds minutes and it is in a credit card that you can charge back right the delay has been taken out so I think industry is already thinking about when those kind of circuit breakers should be uh put in place, right? How robust should the policies be? And it has to happen when you are developing um the the policies around your wallets, the instructions at the outset and most fundamentally the conditional if when structure and I think that's going to be really really crucial to go forward before we even think about legislation at a at a market a jurisdiction level. Elash did you have something to add?

Yeah, I mean so just wanted to make a couple of points. So number one is um what we are seeing in the industry is this is not u so agentic money movement or agentic payments is being considered and being used both for the stable coin type um you know transactions as well as for fiat transactions. That's point number one. So it's it's they're going to be interoperable today as well as going forward in the future. And that's the nature of the industry industry we are in which is which is pretty cool.

But if you even take a step back um you know from a from a payment standpoint we talked a lot about uh setting rules and governance and things like that. Um at every single point in time over the last 40, 50, 60 years when a new technology comes up uh in the context of moving money, the rules are first agreed at a bilateral level between two institutions or two companies who are facilitating those th those those uh movement of funds. Then a consortium forms you know and then a group of uh financial processes or uh financial institutions come together and they agree to follow certain rules with of course at the right time the the regulations uh come in and you know the industry kind of uh looks at that and then figures out okay how do we continue to scale these um these payment methods. So from a agentic standpoint we're in a similar stage where uh at this moment there are many institutions who are doing different things both internally and for their customers and if to the extent agents are being used for moving money uh outside their organization then they agree on certain rules on a bilateral basis there are institutions like or situations like Jack said where a consortium has come together and they're trying to come up with rules and then the regulator regulations will come in at the right time uh to figure out okay how how this uh new way of initiating money movement can u interoperate or work with uh the industry in general at scale I think that's where we are at right now

really quick because we're out of time but rapid fire what what is the single thing all of you think needs to happen for agentic payments and financial systems to operate at scale uh Nemo we can start with you

I think clarity around the standards uh to govern when agents are being used, where the risk liability is and maybe to thinking about risk insurance in in a different way for the agentic commerce world.

Tom, industry develop standards that promote harmonization, avoid fragmentation, and help merchants not have to have myriad integrations into different agents. Yeah, I'll go with um coming up with ways to establish trust in this new way of initiating money, moving money and uh to the extent we can uh anchor these transactions with specific use cases that solve customers problems uh without causing a whole lot of friction. I think that'll uh lead to trust and then ultimately scale uh aentic money movement

and I'd say global harmonization at the regulatory level. So, it's not just the industry standards, but I think there's got to be some some global regulation there.

Awesome. Well, thank you all for a great discussion. Uh, we're out of time now, unfortunately, but we'll hop off for our next presentation. Thank you all very much.

Thank you.

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So I wanted to uh come in uh as before we go to our next uh big speaker to make a little bit of an announcement. The fintech foundation which organizes uh this event uh has made uh a little bit of progress in uh helping uh to further its core mission. Rulem is hard. It requires expertise that you've been hearing about on these stages but it touches everyone and while it is global it tends to be kind of developed in in silos uh with experts with many of you in the room to be consumers. So today we're unveiling a new project with 50 experts from central banks from regulatory agencies from industry uh as well as lawyers to develop fintech standards.

It's the first international initiative where central bankers have actually devised standards alongside policy makers, academics and others. And we've developed an index and we want you to participate in this process. Ultimately, just like coders can develop code for different codes, the public for the first time will be able to in essence fork and to create international standards for consumption that ultimately even jurisdictions will be judged against. So to give you a quick overview as to how this process works and to kind of unveil it here and um again this has been devised with everyone from Usuzbekiststan to the Wyoming stable coin commission uh from Brazil uh to Singapore. I want to get our chief engineer on the project on the stage to just give you an introduction to the regex or the regulatory futures index.

All right. Is he We can start the demo, please. Yeah.

Hi, I'm Christian Tahada. I am the engineer behind the Redex, the Fintech Regulatory Futures Index. And today, we're very excited to show you what we've built. Let me show you how it works. This is the index five pillars of fintech regulation.

Think of it as GitHub for financial regulation. Anyone can read the standard and anyone can propose a better one in public with their name on it.

Here's the official cannon. Five pillars. rules, clarity, consumer protection, innovation, market access, and resilience. Each one is written and owned by a working group of regulators and experts. Open any pillar and you get the full text, what it covers, what its boundaries are, how it's scored, and more.

This is the canon. It only changes when a working group says so. Say you disagree with something. This is consumer protection for example. The definition says the pillars measures enforcability.

But enforceable how? So I highlight that sentence and I open and edit right on the page. Green is what I'm adding. A rule only counts as enforceable if the supervisor has actually used it. Red is what it replaces.

It's a diff. exactly how us engineers review code. Then I give it a title and I give it my reasoning. Submit. Okay.

Before it goes anywhere, I review it. Nothing is hidden and nothing is ever deleted. If it's adopted, the old text is archived at a permanent address. So every citation keeps working. The exact change side by side with the original and my reason.

Submit. It's number 42 in the working queue. Waiting for the working group. But sometimes the problem is bigger than just a sentence. Sometimes a whole topic is missing.

So instead of editing something that already exists, you propose an entirely new pillar. It starts as an empty card waiting for an idea. Climate and transition risk. As I type, the card builds itself. The name and the question the pillar would answer.

you see exactly what you're proposing. Then I make the case for why it should exist. None of the five pillars covers climate risk and supervisors are already writing rules for it. One last check and it goes to the working groups. This isn't a comment box.

It's an amendment to the framework. And it's in same queue, same working groups, same public record.

I know, but like do

this is the world's first regulatory gift. Contributors earn points and the leaderboard shows who's shaping the standard. Every proposal is public. Here's one. Switching to American spelling.

Small, but it gets the same review. Anyone can read the change in context, comment and endorse it or challenge it. Here's everyone who's contributed so far. Every proposal is signed, attributed, and permanent. Disagreement isn't a problem here.

It's the entire point. Each contributor gets their own profile with their points, their participation, and their record. The argument is public, and so is the credit. And that's exactly what keeps people coming back. This rethinks what notice and comment can look like, and Chris will say more about that.

For me, it's bringing how engineers collaborate into financial regulation. It's live today at regggdex.org. Come and argue with it. Thank you very much.

Now back [applause] to Chris. Thank you. Thank you. So yes, it's it's it's a way in which you know I for I've been around for almost 20 years. How is it that the public can cooperate in new ways?

There are two very new sort of foundational pillars of this project. Number one, private sector and public sector. I've never seen a project ever before where central bankers and industry and regulators craft standards much less for fintech. And you've probably saw that the categories like rules, clarity, and comprehensiveness aren't always the categories that are traditionally understood even though you'll see some some familiar ones like resilience, consumer protection, and invest uh innovation enablement. The other thing that makes it interesting is that and we've already heard from governments all over the world asking about uh the project and about their assessments is that it's gives the public whether or not you're a lobbyist or a law school student the opportunity to contribute to the canon.

And even if your uh suggestions are not accepted and there's even gamifying it with likes, dislikes and other features, uh we will be inviting our top contributors every year to the conference to talk about what seemed to have hit a nerve or hit a curve um uh a note of confidence uh for this very global conference. So every year the conference likes to do new things. Uh we'll be using this as a platform. Again, uh there are central banks from every major uh jurisdiction in the world who are already uh you know have sent people to coordinate with us. We have folks in the United States and now it's a very unusual project where you have the world's experts in fintex in fintech regulation asking you to criticize us.

We we literally want people to tell us what we got wrong and to propose better ideas as to what fintech regulation should look like. It is not inconsequential. Uh and this will be a global standard. So we'll be spending a year listening to people and updating the cannon as to the proposals that are coming in. And then in a second phase it will be released.

We're working with our friends over at GFTN. So Singapore Fintech Festival, major events in Africa, major events in Brazil, obviously little event here in Washington called DC Fintech Week uh to create the standard to create an index and to provide an opportunity for everyone to have their voice and their say in fintech and fintech regulation. Uh now you know when you think about just how difficult fintech regulation is, one of the foundational challenges is what do you do when you have uh uh the fundamental rethinking of markets uh that is necess uh necessitated uh fundamental rethinking of how do they operate and whether they can deliver directly or indirectly to stakeholders which obviously brings us to our next guest. Um, Khi hardly needs any uh introduction these days and and neither does um uh its co-founder Tar Mansour, but I will say uh how happy I am that he is here for his first time over at DC Fintech Week and and I've enjoyed our conversation. So, please en uh really uh uh join me in welcoming TK uh onto the stage as we talk about prediction markets.

T. [applause] Thanks, buddy. Okay. Well, it is a pleasure to have you here. Welcome.

Welcome to DC. Welcome to Washington.

Thanks for having me.

All right. Cool. All right. Uh I guess uh you've had [clears throat] the joy of becoming a better uh derivatives lawyer probably than I have uh given the amount of time that you've spent here in the States. So, congratulations.

Uh but le let's just sort of step away from the law, from legal regulation and the like for for just a second. Um maybe you can just talk a little bit about what a prediction market is. Um how it uh uh differs in your opinion from other kinds of market activities including gambling and why do you think why do you think Cali has been successful? You know, I was I was thinking about u uh you know, recently I've been thinking a lot about sort of distinction with gambling because you know, obviously uh people have been calling Cali gambling um often and you know, I found this two weeks ago and this is sort of an opinion from one of the courts and you know

I love that you're a law professor that you're using the opinion from the court. That's

the law is important. You know,

every once in a while

uh we have all we all have opinions but the law is the law you know.

So this is an opinion from one of the courts. I mean we are clearly of opinion that dealing in these types of markets uh is voided by the common law for among other reasons is contrary contrary to public policy is not only contrary to public policy but is a crime a crime against the state a crime against the general welfare inhabitants of the people a crime against religion morality and a crime against all legitimate trade and business. The species of gambling has become emphatically and preeminently the national sin and its proportionate extent it is immeasurable and it pernitious and ruinous consequences. It is simply appalling. It goes on and on and on about how terrible this is.

This is not from this year and it's not about sports prediction markets. It's from 1888 and it's about grain futures. Appalling crime against the state, crime against humanity. This gambling this like gambling is happening on the Chicago Board of Trade. Oh my god, it is horrible.

And and and the point is, I mean, you know what's interesting about the history of these markets, the history of the commodities markets is it's always had this flirtatious and complicated relationship with gambling. It it has. It's always had it. You know, onions are banned because, you know, at some point two two guys cornered the the onion market and, you know, Congress decided that, you know, onions are the problem, not humans. I mean, so so so what where are we?

I mean, so why is this whole energy has been sort of oscillating and and and sort of uh dancing around prediction market? Speculation is looks and feels like gambling. It it quarks like a duck and looks like a dog. And so how do we draw the line? Like what is sort of some sensible line that is to be drawn?

And the draw the law line has been pretty consistently drawn on like does does around the business model. It's like because if speculation if the act of staking some money to make more money on something you don't control is the way we're going to defi define gambling then you know well everything we're talking about here is gambling. Um so the line has been drawn around the business model. Are you a bucket shop or are you a sports book or are you a casino where you're setting the lines in a way that's generally adverse to your customers? And the purpose of that whole activity, the whole sole purpose is, you know, for a transfer of wealth from people to the casino and you're, you know, if you're a smart user, if you're doing research and you're acquiring knowledge and so on and so forth, if you're a card counter, you got kicked out of the casino.

Um, and if you're someone who loses money over time, you know, you figure out how to kind of bring you back and and make you lose more. That's what the bucket shops used to do at the time when when the court cases were saying, "Well, what's the difference between the Chicago Board of Trade and the bucket shops?" They're both letting farmers speculate on the price of grain. Well, the difference is the Chicago Border Trade functions as an open competitive marketplace where the prices are set by their participants in an in a transparent place. And and and I think the the thing that's important here is markets what they do reward they do reward the card counters.

They want we want efficient prices. We want efficient market. We want accurate prices. and that those charts that you see around from Koshi and prediction markets often about you know what's going to happen in different things they would not exist if we didn't have sophisticated trading that was basically was happening over time um and the interesting thing about you know how this whole thing evolved and the way that when the commodities exchange act came around it actually came around to preempt two forms of laws state insurance laws and then state gaming laws to enable this idea of like okay if something is traded on national exchange and it promotes price discovery it makes us smarter about some some sort of thing. Um, uh, we're going to create this uniform set of rules across all 50 states, uh, that, you know, enable participants from New York to trade against California and California against Kansas.

And we foster kind of a global liquidity pool for these markets to exist. Um, so it's a very complicated way to get to the answer of, you know, why prediction markets are not gambling. Well, I mean certainly the subject matter um and the kinds of uh uh positions people are making on your markets is you know it's expanding. Um obviously sports um is is one feature on on Kouchi. Uh but you know you guys were the first regulated um uh uh exchange to list perpetual futures.

I mean you've gone beyond crypto, you've gone um uh beyond gold and silver. I don't know if you're into onions yet. Um,

well, that's illegal.

That's Well, okay. So, I guess

after the sports fight, I've been saying I want to go repeal the Onion Act. So, you know, if anyone is interesting, ping me about that. But

we should I mean, we should be able to trade onion derivatives. This is ridiculous.

Well, this is this this Yeah, I I will not take a controversial position on onions right now, sir. [laughter] Uh, but uh you know,

the onion farmers I don't I don't know what they stand on this. I'm curious. I don't know. I'm actually going to bring this up now as somewhere at another very good opportunity. But okay, but you also have like your compute futures to like hedge against AI, you know, training and and and usage costs.

Okay. Given just the very ambit of things that are on Kawi, what are the things that um uh you're sort of most excited about? Uh uh and I guess sort of in that is uh do you expect those things to take uh a larger um to be more important to to to Ky in the future or is it just you're excited about them because of uh what the kind of data that they're able to generate and you think that the the the implications not just for Ky not just for the people who are on the exchange but you know for for third parties. uh we're going to have later a conversation on on prediction markets it's infrastructure so the the utility of the data like what exactly excites you the most um and which products seem to excite you the most

so so to me the the business we're in and and really I think that's true for any exchange whether prediction markets or stock market or exchanges in general I mean in some ways you could think of the stock market as like a special case like a a special subset of prediction markets

because the thing that these markets do is price discovery that that's the core, you know, you're trying to figure out the fair value of something. What is this stock worth? What is this bond worth? What is this, you know, a a a form of metal or type of metal worth? In our case, it's like what is this event worth?

Like what is this risk priced at right now? You know, whether it's 10% chance of a hurricane somewhere or, you know, the [clears throat] the probability of the Democrats taking over the Senate, right? And all these markets, the the core foundational purpose is price discovery. And what what really is price discovery? It's a sort of you know adjustment continuous real-time adjustment uh of the crowds to new and incoming information and you know you think something is a little bit overpriced you you sell it and it's something is a little bit underpriced you you buy it and that sort of constant competitive dynamic uh trading you know gives us a public good which is the price of something and so to me when you ask the question I always think about what are the things we should price like what are the things that are questions are important um or or assets that we haven't really quite predicted where it's going and where you know and so to me AI is in inevitable right now.

I think a lot about that you know could be sort of start establishing markets on you know compute is a is a great example there's a lot of issues in that market but I think figuring out where the think of a little bit like a yield curve or like or or or a forward curve for compute over time of of where it's going to be over the next few years. I think that's going to be extremely consequential uh for the AI economy. Uh the challenges in that industry I mean right now is like which is a little bit interesting. It's not new either. I mean really when you look at a commodity market everything kind of repeats itself is what is compute we don't have a unit yet which is the same with grain you know when grain futures came around at the beginning the problem was you know you had like a sack of grain from this farm and a sack of grain from the other we hadn't there was so no uniformity but I think it's a matter of time till that happens

you know I think it's also kind of helpful for this audience I mean how do you come up with a new product I mean you know uh compute for example you know you have to sort of think about it obviously your own customers will make suggestions as to what kinds of event contracts But what's your process when you think of you know where you want to go? Um uh how do you how do you come up with you know you were talking about election markets? Uh okay very interesting data you know will the Democrats win? Will the Republicans win? But you have to really think through what the contract looks like.

How do you know when you call a race for example is a kind of important question like how do you know um you know uh whether or not any particular uh contract carries that public good quality that you're just stating like so what's what's your ideation process like when it comes to your management and leadership of Koshi

I mean you know I a lot of the ideas come from our team but but really most of them come from customers I mean it's very c I mean it's part of in some ways the way to think about it like historically I think the market generation was like a push it's like you know you have a a team of strategists at some of the legacy in common exchanges that sit in a room and they come up with the genius idea and you know this is the product that's coin to work. They go out market it for 18 months and they launch it and it usually tanks and and you can look at the data like out of you know you could look at this on CME and see what like if you look at the kind of number of products that are launched over time and what percentage of them end up actually being successful it's a very small percentage which tells me that maybe the strategists are not very good at their job

right and I'm not a strategist I'm not better to be clear like I'm not claiming that I'm I'm probably not certainly not um but the thing thing that we tried to do at Kali and really I think the value of what we built is we built a mechanism that is more general purpose. It is something that you can ask a question whether it's like you know will the election go one way or the other or will it rain tomorrow or you know where's the price of something going like a traditional financial market and we have built the technology the operations reggg infrastructure to be able to price these things very quickly we have a now hive mind where we can trade on any question fast but maybe just to like the point is we want to move it to a pool where like the customers are the ones that are driving their innovation in the markets and we're kind of following where the customer demand is over time and what are the And right now the pull from AI is quite strong and that's where we're being sort of driven into.

Yeah. And again the purpose was just I think it's useful to know as a company you respond to demand and clearly you're seeing a a kind of a demand in this particular instance you know compute uh for that certain um uh uh set of of customers and and and that's you know uh leading you to you know release uh new new products to to serve that demand. Now, it it's all falling within a regulatory uh perimeter. I love the fact that you're already citing parts of the CA. I love the fact that you're already identifying what items are not in the very long list of things that count as falling under the CE.

Um but yeah, you you've made a lot of a push to to be regulated by the CFTC. Yeah.

Um

uh you know, polit there are different kinds of political cycles. There are different kinds of regulatory cycles. There are different kinds of personalities that tend to be in charge of some of these regulatory agencies. um by by pushing for CFTC oversight. Um how comfortable do you feel over the long run, you know, being subject to a primary regulator, you know, to you know, with strong preeemption rights?

I mean, sometimes uh you know, folks kind of come and go uh uh but by pushing to be under the CFTC, who do you know, you know, the person who's in charge today may or may not be the same person tomorrow? Um, does that ever sort of cross your mind in terms of the the push uh for the CFTC oversight?

You know, the surprising answer is not really. I mean, like it's a little bit like, you know, asking NASDAQ like, you know, how do you feel about, you know, the SEC chairmanship changing every four years? I mean, I I don't know. I don't know what Adina would say, but like what is the alternative? I mean, you know, what is the alternative?

We sell the New York Stock Exchange so that you can only buy stock, Apple stock in DC from other people in DC. That wouldn't make much sense. I mean that's the reason we have uniform set of rule across all 50 states because otherwise exchanges like multilateral execution facilities could not foster like that you could not move because you weren't have enough liquidity for anything. I don't know. I mean I think when we started the company like you know the first principle we defined so we you know we we went to to Y Combinator the Starbucks in in Silicon Valley that was in 2018 at the end of 2018 and and then you know at the time like you know the the the consensus the the the Paul Graham do like all the startup 101 way of doing things is like move fast and break things like push regulation as far as like as far away as possible.

That's how Meta got big. Uber, Airbnb. I mean that is the playbook. Just get super big and then figure out how to get regulated. But like move move it build products people want and then things will take care of themselves.

I didn't really like that. Like I I you know bunch of things in my background that may be a little bit paranoid in my in nature. I I was born I grew up in Lebanon and you know Lebanon was like a show of a country but like it's an amazing country. You should visit it maybe after the show calms down. But like the uh I'll take you there if you want to go but after after the show calms down.

But but it's you know I've seen how things go wrong in many ways and like grew up a single mom that sort of stuff that sort of anxiety never leaves you and the first principle we sort of define the company is regatory first like it's like we are going to do it our own way and we're going to just actually start with the regulatory piece and that's why you see as a CEO like I'm super intimately familiar with commodity exchange act with the laws the rules because I I spent the first four years of the company just doing reggg and when I looked at it really clearly like where does this fit it really elegantly fit fit under definition of a commodity it The commodities exchange act is a is a truly beautiful statute and the more I like talk to people about it I realize most people haven't actually read it. All the lawyers are you know punditing on Twitter and LinkedIn about our laws law like whatever the cases and the the all the litigations happening they have no idea what they're talking about. They haven't even read the statute. I don't even think they're reading the opinions like but if you read the statute I encourage you you know go read five section 565C and how was it was really elegantly written. It's a statute that has sort of left itself and there's a bunch of stuff that's complete mess like the onions and stuff like that but like you know the usual but but there the way I view it is like it left room for innovation to to kind of mold itself with the economy as it evolves.

We were in an agriculture based economy. So we had agricultural based futures and we moved to metals and oil then intangibles like interest rate swaps etc which would have never thought about in the 90s or or sorry 1890s. Um and and now we're sort of in this sort of economy where everything you know we're exposed to geopolitics to what like all these different events and and but it has guard rails that sort of translate across different assets like market manipulation. How do you define it? Well, the definition of the two dudes that manipulated the onion markets, they could do the same thing on our political markets today.

And the way you handle it is actually very similar,

you know, and and and so maybe all this is to say is like this the federal structure that was enacted for these actually fits quite neatly for prediction markets. It doesn't mean we don't need to evolve it. I think there's some things we need to do on customer protection, the bans on insider trading that we've been advocating for in DC and so on and so forth. Um, but I don't see any other way. It's not a choice of like state versus federal.

I think it's a choice of whether prediction markets exist in the US or they go offshore. They go back to being offshore really. So you mentioned the the insider trading uh question. You know, obviously uh one of the major criticisms is that when you can uh make a market out of anything, uh it's it's pretty hard to predict uh to prevent insider trading on everything, you know, is is is a standard oneliner. Um how do you build an insider trading or anti- insider trading uh apparatus from a compliance standpoint?

Um uh how do you think insider trading compares uh in a predictions market environment as compared to say uh stocks uh traditional futures? Um is it a what makes it different? What makes it the same? How do you approach it?

It's a great question. I mean I I think that there's a lot of similarities. It's actually pretty similar. Um I would say I'd say there's some pros and cons of prediction markets. The pro of prediction markets is the surface area.

there's just more events, more topics. So there's in some ways more surface area for material nonpublic information. Um but the flip side of it is actually it's more direct. So it's much easier to bring a case. It it just tends to look very blatant when it happens on a prediction market.

So I'll give you a simple example. So you know if someone in the crowd right now you have a cousin that works at Tesla and and that cousin sort of gives you the exact number in the next quarterly earning on how many deliveries Tesla is going to have in their next sort of earnings report. You have two options. Either you buy some options, some call options on Tesla, or you literally just go to Kali and buy the exact numbers on the quarterly earnings like on how many deliveries are going to. The second one looks much more suspicious.

It is it is very blatant in its nature, right? And if you hit the number more cleanly generally, it's much easier to for us to establish a fact pattern that there was some insider trading here. Whereas the option, you could always say, well, I don't know like Elon looked cool today, so I decided to, you know, rip a bunch of call options. uh there could be many different reasons for why you did it that is not specifically that piece of insight information that you got. And I think that's very important because I think what's it's kind of a blessing and a curse for prediction markets.

It's like because of all of our activity is super transparent. You can always see all the trades and all of that. When someone commits fraud, everybody sees it. So the press is going to, you know, love reporting on it. But that's also a blessing because everybody sees it.

So you're committing crime in broad daylight. And that makes it so much easier to kind of police that sort of activity. And I, I mean, I'll talk a little about the layers. So first, customer verification. This is where I defer with some of the comparison space like I think the everything with these things needs to start with proper KYC.

You have to know who the customers are. You know what they come from. You have to check where they work. All these different things. Then I think you have comprehensive uh like surveillance regime.

Some of it is really mimic after NASDAQ. We actually do use NASDAQ for some of it but suspicious patterns. Usually when people commit fraud there's something suspicious. It's like something is trading at 10% all of a sudden an account is now buying in bulk that never really buy it at that size. What's going on these transaction?

It raises flags and then you you know you can you investigate and you can impose fines all the way to criminal prosecution. The last thing that's very important about our model is that everything is very transparent. So the users often send us whistleblower complaints because they're in the markets. They usually see the suspicious pattern. So when George Santos you know he got out jail jail decided the first thing he wants to do is commit crime again.

He like you know decided to to insider trade on Khi within a few minutes we had a 100 whistleblower complaint being like something is weird here. You know we caught it. That's helps a lot. But I think there's going to be maturity like more maturing of the infrastructure around there which is very exciting. There's a lot of vendors now that are being built and more collaboration with the agencies.

So I'm very very excited about the sort of direction of travel.

I mean is does it require a significant infrastructure rebuild given the nature of the markets or is it to your point I mean like you know you can leverage existing solutions um in order to be proactive when you see the suspicious trading. Um yeah,

I think

is this time really different or just kind of

I think fraud is an adversarial game, right? Like the the fraudsters get better at like navigating your like like you know like sort of going around your systems and your systems have to get better at catching them, right? It's a bit like cyber with AI like are we ever going to be done? No. It's like the AI capabilities are getting better.

They're going to be able to attack our systems. So we have to like increase like improve our abilities to flag what the AI are doing. And there's this constant sort of tug of war, you know, they get better, we have to get better. So I don't think and this true for the stock market too. I mean I

I don't think this will ever end,

you know. Um Frosters gets smarter, we have to get smarter and keeps going.

So one of the uh uh uh sort of criticisms that had come out that was kind of interesting particularly even from a derivatives law standpoint was the the volumes question, the trading volumes question about notional

on purpose.

Yes. Um, you know, I wonder if you had any any any any

I mean, it's I mean, it's completely stupid and some some crypto I mean, truly.

So, I mean, I thought the

Well, notional value is also very standard in in most deriv contracts and futures contracts. But I I was

totally I mean I I just think people I mean I look I I think

but again I just didn't know if you had something special

as you'd expect there's a lot of crazy on Twitter. I mean it's just

Okay. Yeah.

Uh I mean truly it's like you know the the you know and I just got I mean I used to get upset about it. Now I'm like okay, you know, we'll just go with it. I mean, but but there's really I mean I encourage everyone to go look at the fact I mean there's really no no claim whatsoever. There's any I mean the the claim was basically you know often times when you like work with market makers there's certain liquidity conditions. So there's some whether it's official lot size or unofficial lot size you end up having you know a form of lot size in your market because you know if the minimum liquidity condition for market maker let's say is like 10,000 contracts and they're like always 10,000 up the number like 10,000 is going to appear more in your trade logs than any other numbers.

And if you look at spy which one of one of the most liquid markets on the planet it's not a uniform distribution across trade sizes. It's very spiky actually. And so you know Twitter went like oh my god there's a spike so it must be what you know it must be like inflation of volume or anything like that. None of it is true. Um, so yeah.

All right. Well, let's

but but maybe the broader point about this is like how much people misunderstand markets, which has always been part of why there's this tug of war exists with markets is because they're just complicated. They're not easy to understand. It's not like explaining, okay, you know, I have a new app where you can like look at pictures of your friends. Just isn't right. It's it's way more complicated.

It's a you know, it's a new app. You have to explain price discovery, the concept of hedging and risk transfer, the concept of like, you know, how does order book work? All these and that's just the average person doesn't get these things. And one of the things I'm most proud of is I think we're bringing more people to understand markets over time which I think is a good thing.

So when you look into the future I mean you know you mentioned some of the cases so you have sort of split decisions um particularly with sort of where the regulatory perimeter sits um uh uh when it comes to sports in particular uh number one uh it's certainly a core part of your business. Now what are the other fast growing parts of the business to the extent to which you do run across some turbulence from the chords? You know how um uh you know by the time it gets you know I I I try to tell people always look to you know where things will be as opposed to where where things are now. um but what are the fastest parts of the business and as people grapple with where sports gambling lies in terms of how it's regulated and who it's regulated by um you know uh how important to your core business are those decisions visav and related to what else is growing and where your other faster lines of businesses are are are are developing. I mean right now our fastest growing category is like you know politics, crypto and commodities probably soon like some of the stuff that we're going to launch around the stock market.

Yeah.

Um and so yeah I mean you know like 96% of our volume was sports like you know 9 months ago now it's like 65 to 70%. And that number is going down but but it's not even like I don't even think that's very important because the way to think about it is like it's an incredible sort of onboarder of people like you know people think of these things as static. I agree with you. It's like tends to be very dynamic. It's like you need to beach head and then that's like okay if we were to sit sort of in a vacuum here and like how to make prediction markets mainstream in the in the US and globally.

Well, first you have to get a critical mass of customers. Well, sports clearly is you know sports election then sports were a very good way to get a critical mass of customers. And now I have this sort of massive hive mind that I can point to any of these questions. I mean a few a month ago or a month and a half ago there's like you know some of you may have seen the story of like the goat herder in California who wanted to like price the risk of some legislation increasing goat hurting wages. I mean it's one of the most esoteric specific things could think about and and we could price it in an hour or two.

It's amazing right? You know over time you can really this hive mind can now price any type of risk and so it's all about getting the critical mass and like these things are going to evolve. I think sports going to go down over time and then other things are going to scale more and uh our economic suffering is getting more diversified you know specifically I mean the the the core question I mean I mean people love you know sort of think about because you know core cases are exciting it's like there's a lot of conflict and so on so forth. I mean to me look I I think that the line is sup kind of when someone reads the law and sits with it a little bit the line is pretty clear is it on an unexchanged market and is it not and the notion that sports doesn't have any type of economic consequence and we may disagree on the margins you may say like okay maybe this sort of prop is not enough economic consequence and maybe but that's the rule of the agency that's why we have an agency that decides how to draw these lines but the notion that sports has no economic consequence is is ludicrous like you know where the World Cup is going to be uh uh or was going to be. I mean, you could see the impact of the World Cup on a different sort of cities in America.

I mean, there's many examples that sort of invalidate this. Um, so yeah, I mean, we feel pretty good about where we stand overall.

So, you're in Washington DC. I don't know if you know this, but we're a kind of a political city. So, when you think

I know uh when when you think about like the elections and you know, you had mentioned like politics, you know, obviously featuring uh being a a fast growing um a part of the business. any interesting insights data analytics that you know you know

the most interesting one is like you know I realize like the our election markets will always be partisan you know the parties that that is up in the prediction market will like them and the party that's not up in the prediction markets will will say that they're being manipulated and you know and I think that's going to be always like and I you know at first I was like well maybe this party likes them more and now I'm like no no actually it is completely correlated with whether the prediction markets are saying one party or the other is going to win um and it's interesting because you People like things that align with their beliefs.

I mean CNN is plugged into you like like literally when you look at some of the Yeah. CNN.

Oh yeah. CNN we have CNN Fox.

Yeah. But but I mean like so you know number one and this is going to go over time but but but seriously like okay clearly the data um has um salience. There are people who are looking at that data as a kind of a public good. Um again cur kind of always curious to see like what kind of insights but but do you think that you know to what extent do those insights do your data

impact then political events you know uh I guess

I'm not sure I mean it's it's like the same question as like you know should we stop polls because polls can influence public perception I mean

right

and and certainly polls are biased I mean I don't think anyone here I mean some of them some of them are like you know but like you know like a politician is not doing so well they commission a poll to say that they're doing much better than expected right I mean that that's literally that's what I mean the next few weeks are going to you're going to see hundreds of polls that surface from both sides saying exactly contradictory things, right? And and but I actually think so one of the interesting statistics on Ky is like 75% of our customers that are active daily, they don't trade. They actually use it for information and pretty much whether they say it publicly or not pretty much all campaigns now use Cali pretty religiously when it comes to and because you know there was a paper from the Fed in February cash and the rise of macro markets where they compared the Wall Street estimates for uh inflation fed interest rates uh uh jobs and unemployment and to cashiy which you know think of it as main street's estimate and they found a few things one it's more accurate it calibrates better over time it's real time so immediately when a some policy decision gets made, you see the change shift in real time and it's distributional. You get the full distribution and you can apply that to politics and we did a study recently on two million of our markets. We saw the calibration is near perfect.

It actually works. Like when you say something has 10% chance of happening, it happens one in 10 times. Now, obviously a lot of people when it does happen, they freak out. They say, "Well, the prediction markets are wrong, but that's the wrong way to look at it." Um, so it's just a matter of time.

It's a matter of education. It's a matter of just like getting people used to the idea that you know it actually works and you know it's a probabistic model and people don't have an intuitive understanding of probability. You know they they a lot of people still think that this is a poll. You always have to educate people that like when we say that something has 55% chance of happening that is slightly biased coin flip. It's not when you say someone is pulling 55% they've won the election right so it's a big difference.

Well uh I am probably sure that this interview is now over. I will also say I uh uh certainly

from time to time I I I also uh happen to to uh look at the data as a third party. Thank you so much Tar for joining us. I really appreciate it. Thanks a lot.

I'm going to have you teach my

derivatives law class. Love it. [applause]

Thanks guys.

Okay.

So uh underneath it all we also have these questions of agentic economies and we'll be back shortly.

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but hearing people think.

Good morning.

Welcome back to HQ2. Amazon has hosted Fintech Week here for years and it's great to have this amazing group of innovators back in the building. My team in Amazon helps our government and regulated market customers across the globe adopt new and the latest AWS technology. In the years past, we've showed you demos of what was coming. This year, I want to do something a little different.

I want to share a story of what we've learned in the last year from our customers who are building Agentic solutions. the practice, what works, what breaks, and how to deliver faster inside a regulated institution. My name is Chris Not. I lead federal financial solution architecture. Let's get into it.

First, let's talk about high judgment work where expertise is scarce, takes years to build, and the stakes are high. The analysis behind each judgment call is tedious. In financial supervision, that means findings, exam comments, remediation items. One institution can be sitting on hundreds of matters requiring attention or more across dozens of exam teams, thousands of pages, years of history. Here's what customers tell us.

The hard part was never finding the issues. Subject matter experts like examiners are exceptional at that. The hard part is knowing which one is the one, which finding buried among hundreds is the warning before the earthquake. You can't solve this simply by adding people. Every new person adds capacity, but also a coordination cost while the volume keeps compounding.

This is where agents are changing the landscape and the equation. Not by replacing the expert, but by extending them. This summer, our team was asked to join and help a team of experts build. In 14 hours, using public information, synthetic data, we built a working agentic solution for this exact problem. The team calls it exam signal.

Let me walk you through it. This is the pile. 200 findings across 20 institutions. The question is simple. Which one should a person open first?

Here is one finding at one bank. It scores 100 out of 100. That's material. Here's how it got there. We didn't build one single agent.

We split that job across three agents. The first agent reads the record. It's routine work. So a small fast model is used. The second agent studies the bank health.

The judgment it uses a large model for that complex reasoning. Its determination. The bank is in serious trouble. That third agent does not guess. It takes both of those handoffs and calls the scoring rules as a tool.

Every point traces back to evidence. 100 well over the line. And the last step is not an agent, it's a person. In this scenario, same process, different finding. So we're using the same agents, same kind of finding.

This the difference is this is a healthy bank. Same process. The first agent hands off almost the same facts, but the second agent's news is good. So, the points come to zero. Overall, 32.

That's not material. So, at the end of that, same rules, same agents, different evidence, different answer. Even in a close call, 46, two points under the line. It's too close to trust, so we mark it as low confidence. As always, it goes to a human to review.

In this case, the examiner overrides it to a material risk and writes down the reasoning behind that change. The re the recommendation and the decision sit side by side. Every action then lands in an audit log that can be discovered later. Each of those agents is built from the same four parts. Let's talk about what an agent actually is.

An agent is software that can reason, plan, and act to accomplish a goal. At its core, it starts here. A model doing the reasoning. It takes a goal, loops through options, and decides what to do next. But the point is not a model.

It's making sure you're using the right model for the right job. Different tasks need different models and that mix can shift over time. A core architecture principle in the genai world, keep the freedom to choose and swap models. A model alone is smart and blind to be useful. An agent needs context.

That's simply what is happening, what it knows, what it remembers. This is where we are seeing customers make leaps since we got together last year. Managing context is what lets agents reason about your business, not just the world in general. But then it has to act. Tools let the agent do something.

Calling an API, updating a record, starting a workflow, reasoning plus context plus tools. That's what turns a chatbot into something that actually gets work done. And notice the complexity is building. In production, you don't have a single agent. You have many agents calling many tools, touching lots of data all at once.

Building one agent is a weekend. Running a fleet of them safely in production. That is where customers are learning the fastest. Everything I just described, the models, the context, the tools, a fleet of agents together, you cannot manage this and operate it peacemeal. If you wire it by hand, every layer becomes its own project.

The hard parts, security, isolation, coordination, they don't simply show up in a demo like that, but they decide whether or not you can actually move that solution into production. That's why we're seeing the rise in agentic platforms. At the left, you bring the reasoning, any model, any agent framework or harness. To the right of that, the context, the memory and the data that ground the agent. Then tools, one governing gateway to your systems.

Lastly, visibility. This is the area we all need to invest to have observability of every decision and every action performed by that agent. Underneath secured execution, the runtime, the identities and the policies that decide what agent can touch what data and perform what function. The platform is what let a small team stand on top of all that machinery instead of building it. And this is the clearest lesson from last year.

The teams that I'm seeing reach production faster start on a platform that reduces heavy undifferiated lifting. The platform gave us somewhere safe to build and run exam signal, but the team still had to build it in days, not months. How does a twoperson team do that? They used agents to build. The team set the direction and they drove the agents.

The agents did the work though. That changes what development is. Three shifts. First, autonomy. Agents reason and solve problems.

So, we hand them a whole technology task, not just a single prompt. Not write me this function, but build me this capability and come back when it holds together. that frees our people for these higher judgment calls and activities. The second collaboration. This is the part people underestimate.

An agent is a true collaborator. Not an assistant that waits for your next keystroke, but a colleague that takes the intent, carries that work forward, and comes back with something to review. We set the direction, the agent does the build, and we step in where judgment matters. Third, higher quality agents take on the work. Teams run out of time for documentation, test coverage, security fixes.

The quality of these releases go up as technical debt comes down over time. That is a monumentous shift. Not just faster typing, but a whole new way of building. And if the agent is the collaborator, the question is how do you direct it? You give it a spec.

Exam Signal is one solution that encompasses many agents. But the bigger shift is how do we build now with these new concepts. We start with a spec, a clear statement of what we want, including the security guard rails that reflect how we develop. From there, the agents handle the development life cycle, but people will stay in control. A human reviews the requirements, approves the design, and signs off before anything ships.

This is specdriven development. The human sets the spec and the agent holds the code to it. AI DLC. This is a pattern and not a one-off. It's a repeatable way of building and running collaborating agent.

So when we think about the AIdriven development life cycle, we think about traditional software and the five phases it moves through. Requirements, design, development, deployment, support. AI DLC collapses those five into three. Inception, construction, operation. In inception, requirements and design happen together.

In construction, agents build in short iterations. Think hours or days, not weeks. In operation, it runs in production. Through all three, the same pattern emerges. The AI proposes, a human reviews, the AI executes, the human validates.

Teams see 30 to 50% less time from idea to production with fewer defects using the AI DLC framework. AIdriven software development is how two people ship this solution in three days. I opened the conversation with a challenge. The signals are there but we can't surface them in real time. The problem is not a lack of expertise.

It's that human judgment cannot keep up with the volume we receive. We can extend our best people instead of burying them by embracing these new principles. We can catch the early warning before the earthquake. Everyone in this room has a high judgment problem worth solving today. So the question is not whether to adopt agents, it's what would you point them out first?

Find out what these tools can build in the hands of your experts. Really appreciate the time today. Thank you so much. [applause] [music]

So, one of the one of the fun things is to be able to talk to people who use apps that everybody or who create and run companies with apps that are in almost everyone's phone. Zel is obviously one of them. I am extraordinarily happy to have Cameron Fowler join me in payments, commerce, and identity. Pick three uh for our next session. Cameron, thanks and welcome to the stage.

Thank you.

All right. So that was truly interesting. um uh particularly when we talk about agentic commerce when we think about new applications both from a supervisory standpoint but also an innovative standpoint for you as CEO of early warning given all of the different things uh uh and with zel just being one of them uh when you see a new technology or a new application um obviously you think on scales of millions of people and not just thousands of people um and and how they can interact with those uh either agents or new technology um safely and reliably. Uh but but how do you evaluate new technologies as a generic matter? Whether or not it be agentic, whether or not it be blockchain based, like what is from your perch, how do you go about evaluating new technologies and new tools?

Yeah, thank you. Uh I agree an amazing presentation and I was we'll come back to this topic I suspect Chris just the role of a human in that conversation. Yeah,

for us utter early warning um the parent company Fzelle and Pays the Wallet and Sertos the data company the evaluation of you know what's what's scalable what's it all about is um a pretty straightforward question um innovation is in all of what we're talking about here but fundamentally we find ourselves firmly in the shoes of the consumer on this one which is where where are they coming from what's the state of mind the consumer today as we read it is um facing you know, an extraordinary set of circumstances. In some ways, the outside world is uncertain. Um, uh, from a political, geopolitical, economic, technology, climate pick it, it is uncertain. Uh, and that's not where consumers want to be. That's not where we want consumers to be.

So, in the main, we we we use those insights and we focus on something that we internally call the real real economy. And and this may seem like a big stretch away from an agentic conversation, but hear me out. In zel, where we have 160 million customers and 5 billion transactions moving a trillion a half dollars, we see what people are doing on a daily basis. And we're obsessed with the way in which people are actually using their money. actually using their money in a month in that in that hierarchy of needs which you know starts with groceries into child care into you know micro business payments um and and and onward from there.

So that real economy lens which is not GDP or inflation or employment rates or any of these things. It's what's actually happening with money is the guide. In the case of zel it's like okay we understand how this money is moving. What are the things that we can do to make money move more quickly for more people with less friction safer? But the fundamental test is does it build confidence and trust?

Yes.

Same with the pays wallet. How do we use our bank wallet to pay for things at checkout where confidence is high and risk is low? Why? Because we're looking to build confidence and trust. Certos, the the the identity business where we we have 3,000 banks um who turn to us for the opening of almost 90% of the accounts in the industry to say, do we have the identity right?

Is this safe? How can we keep the good guys in and the bad guys out? So, it's it's really can we do two things at the same time? Fix a problem, build trust and and and confidence in consumers. I know this is a very unusual question, but as you say, it's particularly by introducing this concept of of the human being, not just human in the loop, but the human as a as a as a customer, right?

And you're you're at the heart of financial services. I know it's

what does trust mean to you?

It's it's a big one, but I think fundamentally trust is the the the the primary source of of truth, right? This is do you believe do you believe what in the financial services do you believe that um my transaction will happen in a way that is fast free safe reliable um in a world where trust is is down relative to where it has been in the past in public institutions in various aspects of life the hierarchy of trust matters a lot what's interesting to note is consumers trust their bank. They trust their bank. They trust some technology. Of course, they do.

We all do. Innovation is important and they trust, you know, AI at this stage less than some of the larger tech and some of their banks. That's an understandable place to be right now. And the job for all of us is to raise all boats through focus on that confidence and trust in the delivery.

Well, well, how exactly do you do that? Okay. If you know in a world when we do see more automation, more speed, trust as a human factor, you know, we are wired in a certain way in terms of however we create those trustful relationships like how can you then onboard um uh you know automated financial services uh in a way that preserves trust.

Yeah, maybe I think this is like the question of the day. It it deals with our segment here. It will probably deal with much of the day. It certainly deals with the last segment which is there needs to be a tether a relationship between the speed of innovation and the level of trust. When they are out of sync, scale cannot happen because the consumer is not protected.

So in topics like the one that I deal ones I deal in day out with you for example the there's a reason that over eight or nine years the transactions have moved from zero to 5 billion. The reason is that 99.98% of those transactions go through without any issue associated with fraud, scam, breakdown, technology, whatever. It works. People love it because it works.

simple concept on the topic of AI and specifically Agentic, we should apply some of those same principles, the reliability point, right, which has so much to do with recognizing the promise of the technology, which we all must. We're all using these agents in some way to make our life a little bit better. But before we aspire to I think the scale and the potential of the thing, there's some real consumer protections that need to be understood. I think it was referred to a little bit in the last one, but topics such as intent. Do we really know the intent?

You know, what's the deal with respect to authorization? What's the deal with respect to data access? Who can have it? Who said? What's the deal with respect to controls and risk?

who's looking after consumer education, maybe the most important thing, and liability. All of these things, the guard rails we call them, need elevation in time to ensure that some of these technologies meet their full potential. If the consumer doesn't understand the risk they're taking, then we shouldn't be proceeding at speed.

Well, right now, early warning, you know, uh sits across um you know, you have payments with zel as you'd mentioned. Uh there's identity uh with with Certos um commerce um obviously with with pays and wallet uh are these in your mind uh separate businesses or either due to gent commerce or just the way in which big um uh infrastructures is now moving are they now are we moving to a world where you really can't solve one of those without solving for the other

yeah I think it's the latter I see it as mesh you an integrated set of capabilities. We have industry-leading data capabilities in the Certos business where we block three4 billion dollars worth of fraud in a year and protect the identity of um hundreds of millions of Americans. Upon that sits a container, a wallet that we call pays. It has the ability, it has two things in it right now. It has 200 million credit cards for people to pay at online checking.

It also has Zel USD the stable coin that we are in the process of rolling out in that on top of that container right now then you have the most known product which is zel but the power of zel isn't zel it's the data that makes it safe to use and through time it's integration in the container such that you can be selecting a card or a stable coin or or indeed zel as a form of commerce payment uh which which by the way as an intellectual matter I find really interesting because there was a point in time where I felt that fintech financial technology was always sort of decomposing different uh work streams but what you're really seeing in some instances is a recomposition of an entire workstream right where you where you think I have to figure out the wallet the identity the payment structure all in order to really you know uh achieve a certain kind of uh service and and and trust uh infrastructure

I think I think That's I think that's an amazing point and I think the reason is identity is the tie that binds and

as we drive towards more AI and more agentic the identity and the authorization becomes more important which brings us back to the start doesn't it?

Yeah. Yeah. would just, you know, hang around long enough and the and the conversation kind of

I ran a thing that would be today called a fintech in 2000 and and and was arguing at the time this was a a workflowbased compiled C++. This is my first coding experience, you know, basically automating volume inbound customer complaints and concerns for banks. And uh we thought we were on to something and maybe we were but but but in the end the conversation was we're going to have to somehow do this together those inside and those outside and I don't think the conversation has changed too much.

So as infrastructure as we sometimes get back to first and and basic principles uh yesterday over the World Bank we had a conversation about fintech and whether it reaches a the the excluded um particularly uh folks who have not always had sort of first tier um access to uh payment services. How do you even go about thinking through and determining sort of what is actually achieving the participation rate and then what is you because there are different features. There's economic participation and there's economic opportunity like are you helping people to build businesses um uh livelihoods um core financial services like how do you go about sort of measuring that?

Yeah.

So let's start with point number one access you know who who's who's participating. We we really believe in our organization that it is, you know, fundamental that we focus on prosperity. And by prosperity, we don't mean the traditional sense like have a fancy car in your driveway. That's not what we mean. We mean that this is the most, you know, important uh powerful economy in the world in many ways.

Okay. But not everyone participates in it equally. How do you solve that? That is not an acceptable set of circumstances first of all. But how do you how do you solve that?

Well, the approach we have taken with respect to zel is to work very hard to get as many of the 5,000 banks, credit unions, and NDIs in the country on the platform. Not because it will grow our numbers. They're not going to make a difference to our numbers. We we we have we have 2500 banks on the platform and probably have 75% of the DDAS, the accounts in the country covered. The important thing is that everybody has access so that what?

So that they can move money in a way that is free, fast, safe without writing a check. And this this this link between prosperity, participation in money movement is a straight line from our perspective, but only if it's safe and and and and regulated. You made a question about access versus, you know, participation. Yeah,

here's a an amazing point. One of the most powerful things that has emerged and it has emerged organically on zel is zel as an important tool for small business and by small business we mean properly small micro businesses 1 2 3 four people like that it is uh approx approximately 9 million small businesses now on the zel platform uh it's growing twice as fast as the peto bit of the of the um of the of the program but the need is the need is the most straightforward need that you can ever imagine. It's cash flow. It's immediate payment, immediate receipt so that we can deal with the single biggest challenge uh that we have. I've been trying to support small businesses for 25 years now.

Cash flow, cash flow, cash flow. This is the point. And knowing that it is free, fast, safe movement of money, whether it's $10 or 2,000 in the minute is the most important driver of that work. So, um it isn't a fancy agentic idea. It's a real real economy idea and the more we can bring these two thoughts together

the more powerful it will be for whom for the consumer. So you guys are like really interesting you know you're like oh okay because you know part one of the reasons okay so you have zel you know I at the same time you have these sort of foundational core questions right okay how can we move money between banks micro businesses we'll use our payment channels we'll use identity layers we're seeing the importance of identity as a kind of a both enabler as well as top of funnel and then there's you know but you guys are still you guys still do new stuff too you know I saw the the stable coin um announcement which is which is just conceptually interesting like like so how I mean you can

don't tell anyone at fintech week that bankowned assets innovate

no no but it's it's it's it's kind of interesting you're like okay um so so uh yeah so so maybe you can talk a little bit about that because you connect banks of all of all things and you know you're you're there's also now you know a a stable coin solution um uh that that you guys are introducing. So maybe can you give us a little bit of perspective like why how it relates and just you know

big picture sort of theory of the space.

This is a this is a good one to illustrate the point you've been making about together and that um there's no one in in my organization or ownership group who believes in inventing technology for technology sake and that applies to stablecoin as well. Okay. So the question is what's the what's the solution required? What is the consumer demand? In our case, it's the $700 billion in remittances that are happening from the US to other corridors each year.

Nothing more than that. I we are not we are not looking to advance or not at least not in the near term stable coin as a form of commerce settlement in the United States. No one is asking for that. What people are asking for is free, fast, safe ways to move money to people that they know, love and trust in other countries. So that is customer just as we talked about Enzel and just as we talked about with Aentic that is a a customer problem where we look to solve it with what like a reliable solution not a technology.

We will be launching um Zel International so you can remit money in uh the first quarter of the new year starting with India. That's not a stable coin solution. That's a remittance solution.

Oh, that's

um which will be like a very important one. Uh the demand is extremely high. Um but in some cases as we open new corridors through the course of next year and beyond, we'll settle it in traditional bank ways or in in stable coin ways depending on the thing that is safest and most efficient for the consumer sending and receiving. But that's again it's a very good example. It isn't really about zusd.

It's how we can use it to crack a problem.

So you said you know the b- word of banks and uh you know it's kind of interesting. So you know we've been doing this conference now for a long time uh time um disruption right like you know when you think about like the the term disruption and financial disruption sometimes uh uh you know when when when uh fintechers made up that word think about disruption and you think about what a legacy institution is typically you think about banks, exchanges um I mean you We get really into securities law. You get into like transfer agents and the like. But when you think about the concept of a bank, you know, people do trust their banks, right? And and but banks are squarely within the regulatory perimeter and disruption is not necessarily the word that that that people would even want to use.

Uh uh uh and it's not just because of how they're regulated, but I'm going to guess getting back to our first question like that trust feature in terms of how people deal with their banks.

Yeah.

Yeah. So so I mean maybe you can talk about like like what does disruption look like? I mean are are you the face of disruption? Is zel the face of No. Is early war the face of dis of disruption?

Like what does disruption look like when you get into payments and and banking?

Yeah. you'll you'll you'll speak to you'll hear from I think um those that fashion themselves as disruptors through the course of this event and and onward maybe more so than we do where we are but the question is what do you mean by the word I think disruption I said earlier innovation isn't an end in itself and I don't think disruption is either people would I think be surprised one of the reasons that I think people do appreciate their financial institution is the level of innovation change that has happened over 30 years, maybe even more within the regulated framework. I don't think there should be a competition between who disrupts or innovates more between those outside the regulatory framework and those inside. I think the question is actually where is the consumer best protected. I I I really think that and that's why I think that this better together is so important because the agentic promise can never be brought to life in a way that changes the lives of Americans who are trying to participate in the economy until the guard rails are in place.

We have seen it before. It will not work. I always like to ask uh uh folks who are moving and building infrastructure uh if there's anything that you were to ask Washington in terms of regulatory policy, something that you think either needs um attention or an upgrade, something you think just you would like to see. You get one wish. What is it?

I believe in a world of of transparent, consistent, long-term, straight upthe-middle, consumer focused regulation. Let's do that. No whiplash. Let's keep it consistent over time. And as it relates to the topic of the day, which is um you know, a aentic AI, [snorts] let's start there.

Let's have a conversation between industry, congressional leaders, regulators, and talk about what the guard rails might be to unlock the potential of this thing starting with consumer lens.

Let's do it.

Let's do it.

All right, guys.

Thank you.

So, you'll [applause] be your free kids go to lunch. We'll be back to talk to other disruptors uh uh in prediction markets. See you at 1 Sharp.

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Hello everyone. If you can make your way to your seats in Merlin Large, the program will be resuming shortly. [music] La. [music] [music] Hey. [music] Hey.

La [music] [music] back to part two of an action-packed DC fintech week. Um we already had our conversation with Tar about prediction markets and uh uh prediction markets are perhaps one of the hottest topics in uh the news nowadays. It is a great pleasure to broaden the conversation and to talk about prediction markets not just in terms of the regulation but as infrastructure. This is a conversation that I started actually with one of uh the panelists a while back because I'm interested in that public goods question. What kinds of data can actually be generated from prediction markets, good or bad?

What is the utility of that information? And what happens when Wall Street, when uh critical infrastructure, banks, financial agencies, and others use data and prediction market data for their operations. So with this, we have an allstar panel from Robin Hood, Kalshi, uh, uh, Vanderbilt as well as trade web. And I'd like to welcome them to the stage. Thank you.

[applause]

So, hi everyone. Uh, my name is Gabe Rosenberg. I'm a partner in the financial institutions group at Davis Pulk. And as Chris said, we're gonna talk about prediction markets from a little bit of a different angle is uh the promise of prediction markets, Tar was talking about this a little bit earlier today, lies in part in the data collecting, the the herd, the information all coming together. And as these prediction markets mature, the question is who's going to use that data?

What will it be useful for? Um and to talk about that, we have, as Chris mentioned, an all-star panel. Let me let them just each briefly uh introduce themselves and then we'll get started.

Great. Uh good afternoon everyone. Thank you so much to the Fintech Foundation, to Chris, to the crew for bringing this all together. Uh my name is Yeshi Yadv. I'm professor of law and associate dean at Vanderbut Law School and a board member here at the Fintech Foundation.

Uh good afternoon. My name is Brian Quinten. I was a former commissioner of the Commodity Futures Trading Commission and am a board member of the Koshi Exchange.

Good afternoon. Doug Freriedman from Trade Web and I'm our chief legal officer.

Hello everyone. Thanks a lot for spending your time with us today. I'm CJ. I'm the CEO and co-founder at a company called Limitless Labs. Um we're also standing up a US regulated exchange called Limitless Markets US.

Thank you.

Good afternoon everybody. I'm JB McKenzie. I'm the general manager of the futures and predictions offering at Robin Hood um where we started offering this product a little over uh two and a half years ago. Great. So, Doug, Brian, let's start with you.

Um, can you set the stage a little bit? I mentioned the use of data from prediction markets. What are banks, insurers, asset managers? What are people really doing with event contract data right now as we speak?

You I I'll start. [laughter] Um, thank you uh for the question, Gabe, and great to be here. and uh trade web and KSI actually um did a partnership and we did an investment in February that we announced and we went live with the Cali data on our platform in June. And what we have found is that the particular with prediction markets and the event contracts that it is a a signal and an important data source for our institutional clients. And what they're doing is they're laying that against what they already have for macro environment information.

Um, and they're managing making investments decisions and managing risk associated with those event details. And what we w up doing was taking about 10,000 of the Cali contracts and about a third of them are relevant for our markets really, you know, rates and credit and not sports. Um but we have found that our uh our clients have uh really loved having access to this data side by side with their um with the pricing and market data that we have on our system. And we've had an incredible response uh from our clients to as they factor that in to make their investments decisions and manage risk. And uh so it's been it's been a terrific partnership and we think it's become a real uh data point for our investment uh group.

Yeah, I I appreciate that. I I think you know there there are a couple of interesting aspects um that have just started to emerge and grow with um uh how much Khi has evolved over the last year. I think the two primary things are that uh institutions are now moving away from just watching these markets to participating in them to looking at them for price discovery and actually hedging risk or helping their clients to hedge risk. The second is that liquidity is no longer a problem in markets. Liquidity is the biggest issue and now that we have a critical mass of market participants, we are accepting um suggested markets that can meet a discrete end users need.

And because of how many market participants there are on the platform, now they can actively contribute defining price discovery around that discrete event, helping someone price it, and then allowing someone the liquidity to hedge it. And an example of that, there are a number of examples across the board, but there was a um a movie theater chain that wanted to hedge how many wide wide released movies would be offered in Q4. That's a pretty discreet marketplace for what we would think of as a derivatives offering. Yet, Khi took that suggestion, offered that market, got participants to price it, and allowed that movie theater chain to hedge that risk. Right?

There are small businesses now that are hedging their weather related risk. There's an ice cream store that's hedging how hot or cool the weather will be. If you think of an ice cream store, they probably make 70 to 80% of their their money during the summer months. Most of that's probably on the weekends. If you have a cool spell over a weekend, that could mean a big difference to a small business's bottom line.

You have a bike tour company in New York and a different one in California that are hedging whether or not it's going to rain because they know that their sales are going to go down. You have um uh people exposed to energy rates hedging how hot or cool it will get in certain cities. Um we have Caner, Clear Street, Marex that are now building out institutional pipes and we have city that has transition from looking at this data to making sure that these probabilities are placed directly in front of their adviserss. So in my view it's the mainstream.

Yeah, I'll tell you I I love the goat herder story. Um because to me that's something that just can't be hedged otherwise. A lot of these can't be hedged otherwise, but just to think about people can have relative

[clears throat]

idiosyncratic risks and they can be done and priced and people can hedge uh that way.

Well, we didn't even talk about I mean the reinsurance aspect of this is huge. And you think about what insurance is used for. It's used for a lot of these different discrete prices and people don't think of that as the same way they think of this market activity that they're struggling to identify or put into a box. But insurance companies are now hedging um insurance products they're offering to sports teams using Koshi's marketplace as a reinsurance vehicle. I mean this is this is uh new and very fascinating territory that's um uh uh widening the aperture for risk management tools for institutions.

So Ya, let's let's turn to you. Um, I know you've thought a lot about these markets, what people need to know about how they work in order to be comfortable in their use. You know, there are probably very few industries more regulated than the banking industry. You know, you spend a lot of time on. If a bank were to use this information, let's say, to inform the reserves it holds, um, to inform its business,

what do they really need to think about in terms of what they'd be comfortable with? What, you know, who might not want to touch this at all? Yeah, great question, Gabe. And you know, I think it's worth prefacing this question with just how consequential these markets are likely to be for the mainstream financial system as Brian and you know, as just outlined. So for that to work, the mainstream financial system, our banking industries, our regulators need to be ultra confident in the quality of the information as well as in the production process that that information has been generated against.

So looking at this, you know, Gabe and I know you do a bunch of this work. There are three characteristics to me at least that really stand out as being super important. Now first and foremost is this question of liquidity. Now Brian mentioned it that these markets are becoming incredibly liquid here. Now we've seen for example uh Cali did I think reportedly like$22 billion dollar worth of contracts just in a single week alone.

A record-breaking week, right? So huge amounts of volume coming up. The question is is this liquidity going to be super resilient right in the event of certain stressful events? Will the market makers that are engaged in providing markets to this uh to this uh into this space will they remain on this market? Right?

So this liquidity has to be deep across the contracts that the banks, the insurers and other funds are going to look at. In addition, is it going to be super resilient when it comes to the crunch and liquidity providers are not going to disappear just when that pricing process needs to be ultra robust. Now, this is not unique to prediction markets. This is this is something that exists across the board, but given how important these markets are becoming and the case they're making for themselves, this liquidity production has to be ultra important. Number two, I think one of the most essential things is resolution integrity.

What does that mean? that every single time we have a contract that that contract resolves against a trusted event that the people who say look I think this event's been triggered that we can trust those people that might be an oracle so you need the oracle to be super trusty um that might be some kind of adjudication committee you need that committee to be robust and if if banks insurance funds and others are going to outsource their risk management to this information source that adjudication process has to be ultra credible. Last thing, and I know we'll talk about it, is resistance to manipulation, right? That is going to be across the board. You need the pricing process to be super resistant to manipulation.

Now, in futures markets, that tends to be relatively okay. As Brian and others know in this room, underlying for oil, for gold is pretty large relative to any single participant. But when you have a contract where it could be for example a single person that might be able to decide in some cases um that is a that is a more problematic design. So we really need to think hard about about these following three features liquidity resolution integrity and making sure that manipulation and governance is on point.

You know it's interesting. I mean we've seen this resolution integrity um come up a number of times. I would say probably less consequential than than you're worried about, but you know, will someone perform in the Super Bowl, right? All these questions about you want to make sure that the contract is very very well specified and that the resolution coming in is equally well specified and perfectly matched to those particular contracts. I I I think that's really critical as institutions get more and more into the space and start using the information.

Um JB, let's go to you. uh talking about that information and and how it's generated. So I think we're used to in trad for lack of a better term thinking about information and informed trading coming from institutions right and we were talking about this before generally retail trading in stocks is seen as not necessarily uh related to fundamentals of stocks really retail trading all over the place and in fact that's why a lot of uh institutions like trading with with retail participants This is different, right? Prediction markets are different because it's in fact the wisdom of the crowd, the wisdom of retail participants and others that's creating this data and informing um this data. So, how do you think about that?

Right? Like is this retail flow providing information that's critical here? Is it information that can be trusted? How how do you think about this really I think very fundamental difference in where the information is generated from? So I think part of what's evolved over time is the retail participant.

So going back to when I started trading, which was a very very long time ago, it was 20 years plus. The data that you had to make a decision usually came off of, you know, an email or maybe a news story. What has happened is technology has completely altered that. And what technology has done is it's put real-time information into our hands. You know, my the Robin Hood app is probably as powerful as Bloomberg's terminal when it comes to the ability to both access and distribute data.

I think what prediction markets have done is accelerate that even further.

And what you're seeing, and we started to see this actually during the pandemic with some of the meme stocks such as um the Carnival Cruise Lines, the airlines where the institutions were pushing that market down, but retail was coming underneath and and and lifting it back up. And so you had this first sort of time where institutions and retail were fighting against each other. And I think what's happened with with prediction markets is you started to see the power of retail participation. People are incredibly wellinformed. There are decisions that they're making to enter into the market and I think prediction markets continue to help evolve that.

And just look at the different types of products that are out there. Um you know before it started off in the presidential election and that called into questions the accuracy of the polls because why? polls are snapshots. Prediction markets are real time. But even as you continue to watch the evolution into other products, sports or even more importantly, I'll say the financial sector going into this the Fed rate cut here or the question in September, we saw a tremendous amount of of of uh participation from our retail traders because they had an opinion based upon all of the information they consumed and they were very early to the market.

And I think what you're seeing more and more is retail is now pushing the change where institutions were the ones before. So if as a trader you want to have information from your institutional information, you want to see your market information, but now you have retail information and that gives you something that you never had before, which is a power of information to make a great decision whatever that investment has been. I think what you've seen from a lot of the um prediction market participants is it's not just people trading, it's also looking at the data. I know a lot of people who actually just look at the data on our website or on our app to see the direction of where it's going and they may trade a different product, but it's an input [clears throat] for them. So, I do think that what you're seeing more and more is that that retail data and and power of that information coming to the market is making it to Brian's point where now institutions need to plug in.

um it's almost a disservice to their traders if they're not doing that. And I think that's only going to continue to grow globally.

Yeah. And I'll tell you, I mean, so I'm in the practice of law. Um I can't trade on Cali. I'm not allowed. Uh but I go all the time and look at the probabilities and you know, help my clients understand things based on those probabilities.

A big thing that was happening a couple months ago was the potential promise of crypto market structure legislation. and I'd watch it on a daily basis and I'd talk to clients about it and why things were going up and things were going down. It just adds another level, I think, of um deep analysis into to what we're talking about here. Um CJ, let's let's turn to you for a second. So, you at Limitless, you run short duration markets.

You resolve against an oracle. Ya was talking about oracles and their role before. Um you filed and I think you mentioned this as a to become a regulated exchange in the United States. te tell us a bit about that application, what the regulated status give you, why why are you going through that process?

Sure. Um, that's a great question. I think that people look at what we do outside of the US and they immediately assume that's what we're going to do in the United States. That's actually not the case at all. Um, we pioneered short duration prices contracts for various different assets, whether we're talking about cryptocurrencies or commodities or uh even equities in the US or or or in Asia.

uh on our onchain exchange. Um and we you know we launched these markets before even poly market and kalshi and they kind of became uh a really kind of cornerstone of the prediction market industry and represent a lot of the revenue today. But how we approach building and how we approach the market is never a finished product. It's always assumptions based. We try to spend as much time with the customer as we can and understand what their needs are.

And we understood that when people were trading the what price is Bitcoin going to be at 4 p.m. on Friday. Yeah.

We understood that they wanted their money back faster. Uh they wanted to trade more and so the duration came, you know, shorter and shorter. 15 minutes is probably the the optimal duration for these kind of markets. And we actually see that they're bringing more valuable price signals to the market than perpetuals or options, which is super exciting. And there's a lot of data to spot that.

However, when we come to the US, we look at the market, we see everyone is fighting for sports. It's the only thing people care about today. It looks like they only care about sports.

The institutional risk transfer and hedging opportunity for prediction markets is 10 times larger than sports and there is no incumbent. Y

because everybody is is pushed and pulled in every single direction. The risk transfer market is something that hasn't evolved in decades, frankly, right? You have interest rate swaps, you have credit default swaps. You know, in two Fed meetings ago, the prediction market was pricing the probability of a cut 15% cheaper than the implied probability of an interest rate swap. Like, excuse like I can't knock on my microphone, but excuse me.

Like, where is this spread coming from? You know, why are you selling institutions such a large spread? prediction markets are better, the price discovery is better, the information is valuable. Um, but not only that, if we're talking about credit default swap, there's no credit default swap for private companies. Just imagine anthropic, open AAI, no credit default swap.

Trillions of dollars in assets under management. You cannot buy a credit default swap on a private company. And so we're approaching from first principles. How do we use prediction markets and other kinds of structured financial products to bring risk transfer into the fintech generation into the the the modern world and how do we solve problems for our customers for institutions and for enterprises so they can cover really important and critical tail risks in their portfolio. Does anyone have a reaction to that?

Because I I think it's a very important point that and we'll talk about this in a second. You know, there's a lot of focus on sports. I think it was a tar earlier who said, well, sports may have been 90% a couple of months ago of the revenue, but now it's 60%. And I think that's a direction we're going to continue to see regardless of what happens with litigation. Um, how are people thinking about that?

Where where will the data be most useful? People have mentioned uh interest rates. People have mentioned polling. Let me ask it this way. Is there an area that people are not focusing on enough where prediction market data can really be useful?

Let me let me take a first stab at that. Yeah, that's all right. I mean, I think you know, we heard TK this morning talk about kind of the hive mind and how that's adding efficiencies to risk that people haven't or institutions haven't thought much about. Um, I think to CJ's point, one of the one of the amazing things about event contracts and prediction markets is that they are really a blank canvas to be able to build risk management products on top of that have gone outside of the box of what has been traditionally offered by large institutions. And I think there's a there is a chicken in the egg.

I think you know what one of the things I was hearing TK saying was that you know the push into some new markets has really brought in more liquidity more traders more market makers to make some of these other markets or these other kinds of products more liquid and I mean there's been a product on Khi for the last you know year that I was following really closely to CJ's point around uh you know the Fed about how many interest rate cuts there would be this year and at the beginning of the year zero interest rate cuts was trading at 6%. And now I think it's trading at 90%. And all of us to some degree, maybe to a large degree, are exposed to interest rate price movements either for different mortgages or debt that we have. Right? Imagine if you had a large purchase that was going to be debtfunded and you wanted to hedge the um the lack of an interest rate cut this year.

By getting into that contract, you would very simply have been able to take a position that resulted in a 12 or 13x

uh payoff in nine months, right? Otherwise, you'd have to go and use some very complicated, you know, option strategy through a Wall Street firm. who knows even what you get paid out at, right? So, the landscape is fantastic. The more liquidity that comes in through a variety of markets, I think the better off a lot of the other markets will be and it's just an exciting time for these kinds of products.

So, I wanted to just pick up on that a little bit, which is to say that these markets have enormous potential for leveraging the three things that we're seeing here, which is one, enormous amount of retail attention. speaking to JB's point um being able to then bring that into helping financial institutions and others hedge their risks and number three hopefully providing a public good in the form of information. Now there's one area in which I think that can really be leveraged and that's in relation to climate science and climate change and having markets prediction markets that are able to think about forecasting some of those outcomes. Now at Vanderbilt I can just you know pitch a little bit. We tried to build a climate change prediction market right like which was designed specifically to get the public engaged.

Everyone here has an opinion. Everyone here you know can absorb that information. Everyone can think about what can be a probability and helping institutions hedge their risk using some of that information to be able to capture some of the climate change risk in the products in the lending products and some of their supply chain dynamics and others that they're trying to think about. And finally, ultimately this is a public good, right? Being able to use information as a way to inform, as a way to help people, you know, think about what's coming ahead of them.

That is the ultimate good that these markets had the promise to provide and have done since the 60s, which is create an information ecosystem that everyone can use in a productive way.

So Gabe, I guess just to add a little bit here, I think what's interesting about it is people forget this is a 24-month old

uh marketplace. Like when we first started, we were doing election contracts and we were talking about how could this actually transform anywhere and then it moved into sports and then it moved into financial products moved into price volatility. What you actually are seeing is sort of this unique phenomenon in my mind where it's an evolution and a revolution occurring simultaneously. So I think as you ask you know why are sports there? I think that was one of the first markets that were clearly inefficient.

Yep. right? Elections and politics and polling, inefficient marketplace. Now, all of a sudden, you're starting to see it develop out closer and closer. And I think, you know, just as you talk about some of these financial products, just just think about the jobs report, the non-farm payroll, right?

Occurs basically first Friday of every month. If you are a trader, I don't care if you are a retail trader, a fund trader, an institutional trader that's out there. How do you hedge your portfolio? You basically have to go out and either buy uh you have to put together an options contract, you have to do a futures contract. You basically are creating what I call as a correlated trade.

Prediction markets actually allow you to take your risk down to the lowest level. I think it's going to be there. It'll be a beat by 10,000, 50,000, 100, whatever it may be. It actually allows you to really zero in your risk and be so precise that that becomes something that we haven't had before. So I think the minute you are able to take that precision and put it out to the general marketplace, that's what actually I think is scary about it is because people haven't seen this before and that's why I say there's this revolution and evolution that's occurring.

So sports was the first, now we're working into financials and I think you'll continue to see that evolve uh over the near future. Dr.

I do think though it's important to note and I think JB made this point. This this all sort of started with retail and now we obviously see the institutional uh marketplace using the data. I think for the institutional marketplace to start trading and to build liquidity it that doesn't happen overnight and as much as the this market has has obviously transformed quite quickly. One of the things that we obviously spent a lot of time with given our institutional marketplace and with interest rate swaps and rates products is how can you build liquidity for the institutional marketplace from the what is started as a retail base and that doesn't happen overnight. You need you need clarity on rules.

You need clarity on market structure. Um and you also need balance sheet being applied to these whether they're binary contracts or you know as opposed to a specific prediction market trade. And those are the types of things that we're very focused on because we think that there's there's a lot to do there. Um but we have enough experience to know that that just doesn't happen at the flip of switch. And so you have to build the trust the and the liquidity over time.

And I I think that that's not going to be an overnight thing.

So, it's not a prediction market panel without talking about the ongoing uh litigation and and circuit splits and the like. So, let's assume this is going to go to the Supreme Court and let's assume we're not going to have a resolution on it for people would know better than I am, you know, at least a couple months, probably a year. How does that affect the use of this data? Right? So if you have a stream of data and that data may or may not be used in a continuous basis may not be able to be and maybe the answer is you just you know sports is a different thing.

How do you think about building out systems to use that data with the lack of clarity around what will happen later on? So maybe I'll just get started because I have a bit of a doomer perspective on all of this right now because you know the the the I mean I the probability of the Supreme Court taking it I think we don't need a prediction market contract on that is 100% like it really feels like this is going to happen but even if the Supreme Court let's say you know for argument sake sides with the prediction market platforms and says that the swaps are in fact fed you know that the contracts are in fact federal that doesn't change anything right now right because one can have now agency regulation that can get overturned by administrations following Loperbrite decisions, Trump versus Slaughter and others. And so one really needs to have congressional action at some stage in order to be able to develop some kind of resilient ecosystem around it from the legislative standpoint. And given what we saw with clarity, that is extremely hard, if not near impossible to get. So when it comes to creating all of this incredible infrastructure that we're discussing here for financial institutions and others, what they need to see is not just regulatory clarity, but the ability for this ecosystem to grow in a sophisticated way based on a legislative and regulatory sense of permanence and that even if the Supreme Court says, "Hey, the platforms win," that's not clear even then that it's going to happen.

Yeah. Can I I just pick up on that? I think it's a very interesting point um about the the Supreme Court aside or if the status quo stays the way it is, the potential for a future agency to overturn what the status quo is right now. Um I I take the other side of that. I think the

onion market you'll take the other side.

I would I would take Yeah, I take the other side here. Yeah, I would because and I I tried to spend a lot of time with this and I think this is what actually what led Khi to successfully challenge the CFTC's determination that elections contracts were contrary to the public interest because they said elections have no economic, financial or commercial consequence and they said it's gambling. Both of those things are wrong. Elections have huge financial, commercial, economic consequence and elections are not games. They are elections regardless of whether or not you want them to be banned.

The law does not allow them to be banned. And I think the law is written in a way in my view in a very positive way to limit the value judgments that regulators or any regulator or any person can make around the quote unquote appropriateness or economic sufficiency or utility of any given contract because it recognizes that events are discreet do pose risks which means a valuable and viable legal derivative can be listed upon those. So, is there flexibility a future CFTC might try to find in the statute to make value judgments? Sure. But in my mind, that's just going to lead to more litigation that will ultimately go against the agency.

Okay, 20 seconds. So, let's do a really quick wrap. You want to talk about a fire round? Um, one sentence. It's 10 years from now, 2036.

We're on this stage. What do you want to see prediction markets having done over the last 10 years? What do you not want to see in the prediction market space over the last 10 years? Maybe

um I would love to see it the conversation be less about sports and more about the evolution and of financial products and how it's been expanded out to customers both domestically and globally. The thing I don't want to see is the continued differences in regulatory oversight and discussion and clarity. It has to get cleared up or you're going to turn into crypto 2.0 you know, where people are going to be going in million different directions with no real lead of where we should end up.

CJ,

well, I I mean, I think in 10 years we might have prediction markets running on quantum computers generating the the future

or two years from now.

Yeah. However, um I I hope that the regulatory climate in the US will continue to be friendly towards innovation in the derivatives and financial sector because I do believe that markets um accelerate a lot of good in the world. Um and I also hope that other regulators globally will follow suit. Um, and I would certainly love more thoughtful kind of conversation around what is hedging in sports because is NFL Sunday really something that you need to hedge or is more like a directional index product better suited for the annual performance of a team for example?

Doug, your turn. I think we'll see an institutional marketplace and I hope it has uh both deep liquidity with integrity and proper market structure and and clear lines clear rules of engagement. Brian,

yeah, I I couldn't agree more with that. What I just hope is that um prediction market probabilities are embedded directly in news stories on all kinds of topics so that readers and consumers of information can judge what they are reading from an author matches or doesn't match what the market is saying about the importance or outcome of a particular event. What I don't want to see are jurisdictions continuing to take an approach of banning things in the name of customer protection as opposed to actually protecting customers.

Ya, last word.

I'll be super quick. Um, awesome governance, access to folks. And what I don't want to see is people feeling like it's rigged against them. The end.

So, with that, thank you to the panelists. Thank you everyone. And I'll turn it back over to Chris. Awesome.

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My mic Okay, my mic is working. It's very rarely that I'm asked to be louder. Uh so it is a great great great pleasure uh to have Jeff down here to talk about Hyperlid. You know we decided to have a sniffy title of a uh perpetual future. But you know I I thought it was interesting even uh chatting um uh beforehand.

Uh we are in this great room at AWS um an iconic company in its in its own right. And it was kind of interesting because, you know, you're pretty successful guy, very interesting company, and and you said that AWS was a little bit of a of an inspiration for you and and and that it kind of set you on your own course. Um maybe that's a a nice little uh entry point here like like what what is AWS, Amazon, its experience and adventure, its journey? um has that been a model uh for how you've you've you've thought about hyperlink?

Yeah, it's a great question and I guess I just want to echo that. I'm you know very honored to be here. It's it's been uh yeah, you know, thank you for hosting and um yeah, I think AWS has has really been kind of an iconic company and I think many people respect it a lot. for us, you know, at Hyperlquid Labs building a a protocol, uh, it I think it really kind of this the same core ideas are are in the DNA of what we're trying to build as well. Um, and we'll get into the details later about, you know, even what Hyperlid is, but at a high level, it's the the vision is, you know, how all of finance and what does that mean?

I think it really it it's not what people think. It's not that everything needs to be built in one proverbial house. It's rather that there should be a single global neutral infrastructure layer that allows everyone in the existing financial system to build a top a single global state. And we can talk about all the benefits that follow from that. But the vision is very much the same as how when Amazon launched retail way back in the day and had to basically keep digging deeper and building more and more of the tech stack um building what ultimately became AWS.

I think that story is in many ways analogous. uh obviously hyperlquid is much smaller and it's an aspirational goal but I think the there are parallels and how um an onchain you know best-in-class derivatives exchange has kind of grown into a vision that's much larger which is that uh it's a yeah it's a kind of a neutral technology layer for people to build on top of

which is which is really interesting how you're saying digging in building the new layers uh with one of the earlier CEOs there There's a comment about how for a while in fintech we were talking about decomposing different layers and now people are sort of recomposing them and trying to figure out what's the best stack to to really uh make worldclass uh solutions and you know uh uh you had mentioned it first so I am a law professor we always like sort of definitions um you know perpetual futures you know what what exactly are they for our class and then um secondly uh Why did you find them interesting in the first place?

Yeah. So, I come from a quantitative finance background. So, before uh before building Hyperlid, I was working at Hudson River Trading. And so, looking at a lot of interesting ways that markets can have inefficiencies and can be improved. And so, Perpetuals definitely spoke to me when I first saw them, as it did to many people.

Um, and it's really cool to see them kind of cross that threshold of acceptance into traditional finance as just like a superior solution in many regards. Uh, I'm sure we'll talk about why they're not perfect and they're still obviously they don't solve all problems, but I think by and large they solve the problem of price discovery when people want to express opinions about a specific number. So, a lot of finance kind of boils down to knowing a single number very well. Like if you can do that, actually a lot of great things follow from it. Um, the most famous example probably is like the S&P 500 index, right?

Like if you can know that number with very good liquidity on both sides for anyone to be able to express an opinion on that number, then you kind of have like the macro factor uh with which to compare and price many other things. And so, you know, the the kind of I guess the the official kind of S&P 500 licensed per actually trades on Hyperlid deployed by Trade XYZ. So, uh, that's kind of like a really cool example of just how far we've come, um, from just the early ideas of, you know, what is a perpetual, uh, which I realized I forgot to define. So, a perpetual is basically, um, if you all know what futures contracts are, it's basically where you kind of don't trade an underlying asset, uh, but rather you trade a contract that ultimately settles either in cash or in delivery. So you may like literally deliver the underlying on some future date.

But the important thing is that the trading happens without the underlying asset changing hands. Uh and futures are great. They were really important uh financial innovation for capital markets but they have some problems. For example, they they expire and so at any moment in time there may be several contracts you want to trade. And if you're holding a contract, you want and you want to hold it even though it is going to expire, you need to kind of what's called roll that contract to the next one.

Um, perpetuals get rid of all of this. So there's only one contract. So if there's an underlying number that's important, there will always be exactly one market tracking that number. It will never expire. And therefore, there's this kind of it's a shelling point as we say.

So the kind of buyers and sellers who want the most liquid markets for price discovery will naturally converge on this non-expiring perpetual uh if you will kind of like perpetual instantiation of this idea.

All right. So and and and by by effectively disintermating or getting rid of that rollover like that that innovation uh creates what efficiency in the in the market when you're uh just now just to make to make clear for our our audience.

Yeah. The efficiency is that there's no fragmentation. So there's a single market that can be the place where people come and most efficiently trade. So uh yeah. Is that Yes.

Yes. You get an A. Thank you. Okay. So uh you know I I I find uh uh you know this this this kind of a product you know particularly uh uh interesting precisely because you do sort of attack um that um uh if sort of challenge in terms of a market structure um uh but just sort of taking a step back because I I like the like you know you know we're aspiring for AWS one day but we're you know we're just we're just some some guys in a lab and and the like uh you guys are small you know and and and yet um ultimately our you know infrastructure for I guess crypto's most successful certainly in the crypto space like the most successful uh uh product um but yet even you personally you still spend a lot of time coding which I find interesting and and uh uh uh That's not always common for a founder and and CEO to continue to be so involved in sort of the building blocks of the market structure itself.

Um what makes you like coding so much and I mean do you find that your participation in that is is is necessary or is it just something that you like? I I I I find it an unusual sort of uh feature in your in your story.

Yeah. Uh I do like it, but I kind of think that's irrelevant. I think when you're building something, it's not about really doing what you like. You don't have the luxury necessarily. You kind of just got to do what you got to do.

Who cares about I really like this kind of

Yeah. Yeah. Exactly. May maybe you know there are there are kind of retirement things you can do where you know optimize around what you like to do but uh when the when there's like a very clear mission it's about kind of doing what matters and I think coding is just one aspect of it I I think the the reason that I'm still very involved in the code uh you know whether it's coding itself or I think in this day it's a lot more about like reading and understanding and sort of uh gatekeeping the quality which is in some sense actually harder. I think producing code is actually very easy.

Um the reason that I'm still deeply personally involved in it is because it is you it's quite unique what um what we're building at Hyperlquid Labs at least. Uh it's the you know you say the team is small but that is kind of a mischaracterization. And I would I actually view the team the definition of the team as this um not one specific company but rather a constellation of different teams, companies etc. building a top this protocol and the layer at which we at labs are building uh we view much more akin to something like the internet rather than sort of a maybe a full stack fintech company. And so when you think about it that way it makes a lot of sense, right?

like the value proposition is not uh going and kind of building 10 products and kind of going to market and marketing them and like figuring out which ones are good and kind of like like there's some of that but I think that is at this point not the core value ad that we at Hyper Hyperloo Labs can offer and it's this kind of like you know people building on the internet they're going to do a lot of great things but the internet better work and it better be like very precise and like it hasn't in this specific case it hasn't quite been well defined yet nor has it been built to production scale and so that's why they're like that level is so important

super interesting um just then let's then take a step back to to perpetuals um where then uh do you feel then that that that they are complimentary to your traditional options uh is a competition of of sorts to say this is an upgrade from sort of traditional products that are offered in uh um uh when it comes to to options, futures and other kinds of products sort of where do you see the marketplace and the and and the demand and and ultimately the categorization of of of perks?

Yeah. So we definitely view them complimentary uh in a complimentary way. Hyperlid the protocol actually has no bias here. It's most well known for perpetuals because that's what does a lot of volume. It's the most liquid, you know, Bitcoin perpetuals in the world's most liquid um of many sort of 24/7 variants of real world assets being traded.

So, a lot of very important markets happen to be perpetuals. Uh but, you know, there's plenty of other activity and I think it's all very complimentary. So, there's spot trading like you said, there's options kind of like dated contracts, convex contracts. I think these are all they they all serve different purposes and the perpetual I would say is like the backbone of price discovery and liquidity. So um one of the uh you know major conversations yesterday we had a conversation on atomic settlement.

Today we had a conversation um with uh Tar on sort of 2747 markets even with the chairman of the FDIC as as well u that feature of the 247 market when it arrives how it arrives it's you know people have different kinds of perspectives um uh uh do you uh consider yourself and I can guess what the answer is a 247 market uh do you uh what do you view as both the the opportunity in 247 markets and but but also the risks and and how do you sort of manage that either when you're coding or also just thinking about the company?

Yeah. Well, I kind of view 247 as just one instantiation of this idea of just increasing accessibility. And it's kind of like it's one dimension on which accessibility can can be improved. When you go from trading during business hours or even like as a subset of business hours to trading 24/7, you're kind of temporally in increasing accessibility, right? like if if you live in Europe or Asia, you don't and you want to trade something which is primarily liquid during US hours, you don't need to wake up at 5 a.

m. It's like the markets are 24/7. So that that's kind of the vision, but I I actually view it as kind of a a minor point in the whole thing. Like like of course markets are 24/7. Like blockchains don't uh don't take, you know, they don't they don't close, they don't take breaks, right?

It's they're there to serve the global economy, not some not like a specific segment. And so um I think what's much more interesting is like how can we increase accessibility like in general. So I think it's really cool that traditional markets are um are going towards 24/7. I think that's like a great a great direction that maybe primarily crypto companies have pushed. I think that's really cool.

Um I think there's also like accessibility in many other ways like you know just like more people being access to these things. I think actually like a lot more important and happy to talk more about that too.

Yeah I mean please do. I mean like and and also please you know like you guys have been very successful I mean and there's a lot of demand and interest and just getting more people on board like is there a magic sauce for that and also again you know from those liquidity drivers um where do you see you know the sourcing of that liquidity is it because of the 247 uh availability and the access um curious to get your view

yes so I guess in terms of I I do think this is kind of part of the secret sauce is that when you build something that people genuinely want uh and there is just demand to buy or to sell then the other side appears and then you can kind of solve the cold start problem um and kind of create those network effects and um I do think this is a big part of it is like building something you know like take take these like IPOs for example I think they're they're very topical right like they're happening at trillion dollar valuations and above I think if you look uh on on a log scale or like on a return scale like almost all the returns have been made, right? Um and they have been made in a way that is not accessible to the vast majority of the world's population or even like the United States population like like it's it's just it just h it's a byproduct of how markets are right now. I don't think there's any intention behind it and I don't think there's a reason it needs to stay that way. And so that kind of accessibility which is bringing the same opportunity set democratizing that for everyone uh that is kind of a secret sauce. It's it's kind of like an a I think a valiant thing to for the industry to try to do but also like when that happens even to a small degree for example being able to trade um something a month before it IPOs and kind of like kind of creating that marketplace a little bit earlier.

I think um that's just one baby step but I think that's already such a driver of demand that it kind of yeah creates these like very nice network effects liquidity etc. So you know when your first uh sort of responses you you're predicting uh uh perpetually uh the questions in this uh particular uh conversation was um sort of the the the you know what what perpetual futures can do, what they can't do, what are you know what can they achieve, what are their limitations. Maybe you can you can walk us through that.

Um sorry like the limitations of

Yeah. Yeah. Yeah. No, no, I just I I heard like like like um so they're market efficiency enhancing sort of sort of sort of techniques. Um you know um certainly you can get lots of data from them.

You know it's all all the data is sort of on chain. There's a lot of uh researching data that you can access. Um you know are there any kinds of uh you know what are the new sources of data that you can source? Um what kinds of things you think uh you know new directions you would like to move into? Um uh and just yeah maybe give us a little bit of a of an introduction to sort of uh what the blockchain onchain infrastructure means uh uh for the project itself and for the underlying uh efficiency that you're that you're achieving.

Mhm. Yeah. I think the directions these days are around just making sure that everyone can build what they need to build on this layer. So it really is not focused in any way exclusively on perpetuals. So I think there's um we the the exercise is basically like look at the financial system how you know what are the important features of it and how could these features benefit from uh a single global neutral infrastructure layer

and and and do you how do you how do you think nerdy academics, market participants and others can can even use any of the data that that you guys generate? like is there a sort of a public good feature of it where you think hey you know this this kind of data can enlighten certain aspects of markets and market activity um uh what should we uh sort of users of data think about when we when we when we think about hyperlooping

yeah yeah so I mean on the academic front actually I've seen some really cool papers written I unfortunately don't have as much time to like go deep into papers but people share them with me and I saw a really cool one a couple months ago about precisely what you're saying using this data that is only available um at scale on Hyperlid you can see all the orders like all the addresses behind them and you know a constant point of debate has been well is this kind of is this transparency actually bad for the user because you're kind of whatever like your your actual qual your execution quality will get worse because of like insert hypothesis here or whatever and like I've always said oh like this that that kind of doesn't make any sense if you just think from first principles like efficient markets do better when there's more data. Like the more you know the moment that trading became electronic uh and anyone can see anyone else's orders instead of like shouting at each other in a pit markets became you know spreads basically decreased by an order of magnitude liquidity increased by an order of magnitude. There's no debate about that and so why stop there? That's always been an argument, but see these academic papers which like take the empirical data to back it up and say like there this specific paper I'm thinking of I I wish I remembered the authors so I could cite them. Um but the um clearly not an academic just yes I will find that

I'll find that out but very very cool paper. Um they they studied um T-Ws which are time weighted average price orders. basically like you kind of indiscriminately want to buy if you want to buy over some time to limit your market impact. These actually do better when trade traded on hyperlquid in a transparent manner compared to uh executed in the traditional way which is like uh I don't know like some proprietary execution algorithm and the the intuition here you know they have the data to back it up but the intuition is like well when you kind of broadcast your intention to do something the market can actually price your action better and provide liquidity into it. It's a bit counterintuitive but like this is why ETFs like leverage ETFs uh choose to rebalance on the closing auction because everyone sees the perspectus they know exactly what the algorithm is like you know market they go from like you know they look at they look at the kind of like price move and say okay we want to maintain this leverage ratio so if it goes up we buy more if it goes down we sell and then they just executed one batch on the closing auction and that empirically gives them the best execution because everyone can compete to provide liquidity to this non-toxic flow and So just like another instantiation of that idea, but like only you can only really do that empirical study on hyperlquid.

That is very cool. I'm actually going to find that author and also tweet out. Um

they're very well established. I feel very bad for not remembering.

Uh a quick quick question. I mean you you've made a couple of analogies to to sort of the internet that you build on top of the internet. Um the hyperlquid is is is like an internet in so far as other companies can go just like with AWS in the cloud. You can go and build on the cloud. The idea is you can build on hyperlquid.

Um could you kind of walk through how that happens, how it's supposed to work um and and what's your ultimate vision in terms of what do you think will be built on hyperl?

Yeah. So how it works is going back to the AWS analogies because it's so apt and we're sitting here in this room and uh before AWS you know people who wanted to start a company needed to rent their servers and like figure out electricity and you know sort of like being collocating their their edge servers close to their users and all this stuff and basically you realize that you're not really run that part of it is not unique to your company you're kind of reinventing the wheel and you're probably not doing it as well as Amazon is and so it's just a win-win like there's kind no controversy around it now and I think um if Hyperlid achieves its vision I think it will be as obvious for finance. So the analogy here is like if you want to run an exchange right now, no matter where you are in the world, you need to figure out a lot of things that are very difficult. Like you maybe use the cloud because that's a given. But you're probably sourcing multiple vendors, order books, clearing houses, uh bank accounts.

You have to figure out um you know how to convert the user deposits into whatever you need. You need to figure out clearing probably crossber settlement. Like the list just goes on and on. And if you really go down this list, none of this is unique to what you're doing. and you're probably wasting a ton of resources doing it.

And the vision is that if you had a global liquidity layer that also has distribution globally and has a technology that is kind of like shared in the standard and kind of just works for the world's most liquid markets in many other asset classes. You can just take that and kind of inherit it still still interface with your users directly. build the product kind of do the part that's unique to you and fun to you and like your actual competitive edge and yeah that is the vision

well very good so uh sort of last question I mean you've said you know as part of that vision you want to house all of finance uh uh which which is which is a little bit ambitious uh you know we have lots of policy makers policy wonks banking regulators etc in the audience what does that what does that mean to house finance

yeah so how is certainly does not mean displace. I think this is like uh is is in fact the opposite I think. So how's uh is in in the sense of like you know going back to AWS basically like there should be a layer a technology layer that people can use to upgrade their stack and it you know won't happen all at once and probably people want to dip their toes in before really kind of adopting the technology and I think that's fine and I think it makes a lot of sense to be conservative right these are like really important financial systems they are important to many many people's livelihoods it makes sense to be conservative but I think the the vision is that once this technology is battle tested in the same way that the as we talked about the idea of the perpetual future is kind of has crossed that threshold of kind of um you know worth worth exploring worth worth embracing um we hope that all these builders can just adopt this technology in a way that makes sense to them. So in the same way that people went from pit trading to electronic trading only a couple decades ago that was just a change that was for the better for the end user for all these institutions building top the new stack. I think that kind of mindset shift is basically what we're trying to build towards.

It's not saying that these companies will cease to exist. It's not saying that oh there'll be one super company that like you know is a is a killer app and like you won't need your banks anymore. or like maybe some people are building that but like that's very much not our approach. We welcome all kind of builders, traditional builders, fintech builders, crypto builders, whatever like all just like with open arms and we want we want to we're basically just trying to build technology that's useful for everyone.

Love it. Okay, thank you so much Jeeoff. I know you came such a long way. I really appreciate it. Let's give a hand to Jeff.

[applause] We now have enough. Well, I guess we have another [music] [music]

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la. [music] [music] [music] La [music] [music] [music] money. Maybe

hear me.

Tell us.

All right. So, um, thanks again, uh, for coming out to FinTech. Um, my name is Jerome Johnson, uh, director for professional services for the US Federal and Defense and Aerospace, um, uh, business within Amazon. And uh the title, nothing in that title says anything about quantum computing and why we're here. Uh and so I'll give a little quick background on myself.

So I've been at Amazon for about 13 years. Um I for the first 12 years I was a part of the solutions architecture team where I built out um a team probably around 2018 that focused specifically on artificial intelligence and quantum computing. And then um they gave me a task in 2020 they meaning uh my uh organization to focus on quantum uh computing and even at that time I was like why like why why why have me do quantum computing when there wasn't necessarily any traction that was happening at that point but that year we actually had this innovation which we'll get into um around um really just more around the networking side of the house um and it was called quantum repeaters. quum Peters got this several innovations within that and then later that year we had the dawn of chat GPT and then everybody started focusing on AI and so we're trying to talk about quantum computing for a couple of different reasons um which we'll get into here um specifically around the pace at which I do think this is going to develop and where we're actually going to start to see quantum computing not just be the scientific pro project but something that will be applied. So, first and foremost, just to get into more of the basics of what a quantum computer is or computing is, and hopefully you all have time.

It's over, it's like 2:00, so everybody's food's digested and and people people are ready to go through some it's a little bit scientific kind of theory here around this, but so quantum computing is based off of quantum physics. And you could think of uh you know, quantum physics is really anything that gets down to more of the molecular atom kind of uh um level. And if we were to look at CPUs, right, um computer processing units, um they basically are based off of this theory of a zero and a one. So it's very binary, right? And that's what typically everything that you use now, even what AI is based off of is zeros and ones.

And we've done a very good job in terms of using that to get to some level of computation. What a cubit does is really now instead of having uh these two like very binary states, you have multiple states. And you could way that you think about it is if you flip a a coin in the air and you're trying to figure out what side it's going to land on while that coin's in the air, it can have, you know, has def like different types of states within that. And that's kind of like what a cubit is. Cubit can actually hold multiple values at one time.

Right? Now, some people may say that is that does that mean it's faster than a laptop or faster than a computer? I would say in certain instances, in certain cases, and that's kind of like what we want to talk about here. It's not this like you're going to have a quantum um uh computer on your wrist like we do now with Apple watches and things of that nature. I think what you'll probably see is a combination of a CPU and a CQIT being combined together.

You'll probably be leveraging or accessing that remotely, very similar to what you have now. Um but because of the multiple states that you can get into and how um those things work, you can get into solving some of the um I would say classifications or business class uh scenarios that it takes a computer very very very very long to actually process. So if you look at this, this is a a problem size over uh time, right? So uh even a fastest computer at some point whether it's solving and we're going to kind of talk about this now like say for instance decryption right it may take right now our algorithms that are in place now we feel like those are secure from the perspective that it could take millions of years sometimes infinite amount of time for you to actually be able to encrypt that or decrypt that. um with a quantum computer there's a um a algorithm called the shores algorithm you can actually if done correctly be able to decrypt that could be within hours to days right so that's kind of like what we're starting to see in this space and if you were to think about how um these things work across different types of uh applications right we have more of the physics and chemistry I really do think um and I'll tell a quick story here I remember taking my daughter to uh she's 15 took her to um uh to a quantum computing conference and I was like I'm I'm going to take you here.

I want you to listen to your dad. And you know, she was just like, "Dad, you you do nothing. Why why not?" And I'm like, "I'm going to show you why, right?" And I talked about uh quantum computing.

And at the end, she was like, "Dad, big Marvel um person." She was like, "Dad, so you you tell me the movies around Marvel and some of the things that happened there. Do you think that could happen with quantum computing?" And I said that combined with AI and one of the innovations that can happen in terms of leveraging AI to then go and solve some of the most hard like difficult problems is actually solving math problems now you could right and she's like well I want to be a quantum engineer and uh there isn't such thing as a quantum engineer but maybe she'll she'll create that right uh but in physics and chemistry you could think about some of the um like new innovation that comes from that right materials and science again this is talking about like new materials that we haven't necessarily been able to to do now and that's a case of um a classification case specifically for quantum computing. We're going to talk uh in depth in cryp uh cryptography.

I'll be up here in the panel in a few minutes with a couple of my folks and then optimization which I do think applies specifically to the financial space when you start talking about portfolio optimization derivatives even prediction markets right and how some of these things actually can be applied and leveraged. So quickly I'll talk about where we are today, right? So we have this triangle. The bottom two is kind of like where we are, right? And uh the analogy we're going to use is a hammer.

So right now we're kind of building the hammer, meaning that you know we're trying to characterize the hardware that um these things are developed on and then trying to close the gap on capabilities um and requirements. And what we mean by the hardware which is the hardest part to this um so the multiple states that we were talking about in a cubit um because of the fragility of that because again we're down to the manicular level like this needs to be at like zero Kelvin in order for you to be able to maintain these states right some of these machines which I've seen one up close and personal within Amazon we actually have a a a facility out uh in California with a university um these are like you know $5 million systems that are being built So very fragile. So we're still trying to figure that out. And actually we're getting I think very close now. We used to talk about physical cubits.

Now we're getting into logical cubits and there's fault tolerant cubits. You hear about all these things but it's really around the fragility of the cubit. If we can get that down to where we have we can trust the state and again a guaranteed value or accuracy level of accuracy there then we can actually start to do some of the things that you see in this chart in terms of moving up to now try to drive like new scientific discovery that I was talking about earlier and then um uh more of the broadscale adoption right so I do think put there yeah I do think you're going to see this green it looks green to me maybe teal to you all blue whatever you want to call that line move up probably I would say right now you know some people would probably tell you if you even googled it or chat GBT it'll probably tell you 20 early to mid 2030s I I think in the next year or two that probably could change right I I I do think we'll probably start to see more of that this is just me saying that this is not and don't quote Jerome but just based off of what I'm seeing happening I I would not be surprised if we get to and I'm not saying it's going to solve everything but we start to see more like valuable uh like outputs and outcomes specifically on quantum computing. So with that like how do you get started on an from an R&D journey perspective right and I would look at this is it very similar to what we're seeing with AI when AI first came out right identifying a use case specifically around this right and then um coming up research um benchmarks and for these algorithms and there's things that are out there today Amazon uses bracket which is very similar to folks are familiar with B bedrock actually bedrock is based off of bracket bracket came out before bedrock did where it actually exposes multiple um quantum computing um hardware out to a user. You're able to select that and then run tests on those um algorithms to actually see what what kind of values you get as you move forward.

So with that then you start to try to push the boundaries which you know tools like bracket will be able to allow you to do right you can spin up um your environment test some things and then from there start to lay some of the groundwork for future production workloads and I would say when we start talking about uh this on the panel when it gets into postquantum encryption this is definitely a framework that you want to start to use and as I close and um bring up the panel here I think the main key here is that at the end of the day there will be this new form new form term of um computing, quantum computing, there will be a lot of innovation that happens that I definitely think um this industry can benefit from. But there are other things that we also need to make sure that we do to prepare and upskill our folks to to be able to do that. And then also which uh is I think it's really more something that could be done now. Um we'll be talking about us on the panel in terms of um industry and regulation around quantum um postquantum encryption, right? and what that really means from that perspective.

And with that, I will welcome our panelists on the stage here as uh we start to talk about postquam encryption. [applause]

There you go.

You're going to the end.

I'm going in.

Thanks.

How's it going, sir? Thanks, sir. Thank you.

[music]

Can you hear me?

All right, that was great, Jerome. Thank you so much. So, you are safe from introducing yourself. So, you got a pretty good intro.

That's right. You working me hard.

We are in for a treat. I believe this is the first time at DC FinTech week we are talking about quantum computing. So, that's a pretty big deal. And you're going to realize very soon why it's a very big deal. Katie is already dancing.

Um, I'm going to ask each of the panelists, the remaining three to quickly introduce themselves very quickly because we have less than 30 minutes for this conversation and then why you're here and why you're part of this conversation. Okay.

Hi everyone. My name is Ryan McKenna. I'm the director of government relations and general counsel of compliance at a company called Quantinuum. We're a quantum computing spinout from Honeywell. Uh, and I'm here I'm also a lawyer by trade.

And so I'm here to talk about both industry state-of-the-art for where quantum is actually at as well as some of the regulatory implications of PQC.

Great. I'm Bob Karma, a partner at Barnes and Thornberg Law Firm. I co-chair our quantum technology industry group. Uh also is the lead architect, lawyer, architect on a document called the uh quantum law navigator published by the Chicago Quantum Exchange uh late last year.

Hi, I'm Katie Arrington. I am not a lawyer. Yay me. Um I am I work for a company called Ionq. I'm a quantum evangelist.

Um I we are the first well not the first but publicly traded quantum company full stack. So I own everything from my semiconductors to the optical terminals all the way down. Um I have a very different background. I was the CIO of the department of war and the chief information security officer for DO. I came to this company because of quantum and what it was what it's going to mean to you out in the audience.

So that's why I'm an evangelist and not a lawyer.

I'm Kabir. I'm with Flourish Ventures. We are global fintech fund. You already heard from Jerome earlier and we've been having a great conversation in the green room. I mean I mean a phenomenal conversation.

You're going to only get a little flavor of it in 30 minutes. So you have to find Katie and her team later on as a start to get to the bottom of this. So I'm going to start with you Katie and with you Ryan. Qday there's a lot of noise about it. What should financial institutions and regulators, how should they assess the movement to QA?

What should they be doing today to think about what's happening with Qday in the future?

Do you want me to go first?

Go ahead.

So, Quantum for years has been thought about this voodoo down the road. Um there's it's not if, it's when Qday happens. And I'm going to tell you Qday is going to happen faster than you think with the advancement of AI. There are some people that say early 30s. I say closer to 27 28 but

Q day is

the world changes. So when Q day happens and it's not the end of the world it's a different world. It means that basic encryption that most people use will be broken and the most nonattributional attacks to the most I would say weakened or open environments networks will have adversarial influence and do bad things. It is a certainty that it is happening. So that's what I think the thing here is and the executive orders that came out over the past summer, two of them talking about postquantum encryption keys, every financial institution should be working their roadmap to getting PQC right now because waiting two years will be two years too late.

By the way, everyone on the panel certainty it's going to happen. Is that can we raise our hands and

scientifically?

Scientific what about in the audience?

How many people believe certainty? Okay. So, there you go. You got a flavor of

we're the believers.

Ryan, what's your take on this?

Yeah, I think this is this is difficult because quantum like AI, there is a lot of hype. Uh there's a lot of hype in the positive direction of what quantum can do to help drug discovery, uh material science, creating new new materials themselves, changing the semiconductor processes. Um, and there's a lot of hype on the other side, the cyber security side, the scary piece. uh there is too much hype in the industry uh generally I think when you look or what we need to look out for regulators for the business community for the fintech community it's not what is a thousand cubits what is a million cubits what does that mean uh that is not a great benchmark there's what's called logical cubits which Jerome mentioned earlier uh there's time to solution and I think most importantly the way in which artificial intelligence is coming together with quantum

is speeding up the timelines both for the positive things that quantum will do as well as the negative things quantum will do. So Katie mentioned some potential dates. Uh this is an area where I spend a lot of my time on Capitol Hill talking about quantum to policy makers. This is one where I lean into the scary piece because Qday will be here at some point within the next decade. I think we would all have a different answer in terms of specific timeline.

The most important thing is we don't know. There will be no time when Wolf Blitzer comes on CNN and says, "It's Q day, folks." That will not happen because the adversary who has access to a quantum computer that can run what's called Shores algorithm and potentially break encryption for banks, for the Fed, for Swift, would have zero incentive to tell the world that they've done so. They're going to try to capture as much of that valuable data. They're going to try to capture as much of those valuable Bitcoin wallets as possible.

So we don't know when that day is coming. It's not like Y2K in that way. But we know it is well within the time horizon for how to do encryption updates. And that is the biggest takeaway today is that it is reasonable now to start this transition process. So there's this question about Qday.

It's on the horizon. We don't know when.

It's real. It's happening.

It's real. It's happening.

Prepare. But even if we even if you're looking at it you know you know in the long term even today right now there are risks and challenges with this notion of harvest now and decrypt later. So you could steal sensitive information then decrypt it later with quantum computing. So the risks are present today you know so to Jerome and Robert how should institutions be thinking about that? What should be the regulators be thinking about it?

You know do you have perspectives on how this transition would happen from your point of view? Yeah, I think just to start, lawyers like to define things. So we have we've heard things about this is happening and so forth. So it gets to, you know, when does a a reasonably foreseeable technological risk become something that creates is always a matter of legal obligation today. That's really what from a lawyer's perspective we're talking about here.

So things that we've already said on stage, you know, I think scientifically uh we've proven that it's coming, right? Uh we understand, we can identify what this risk is, something's going to be decrypted. Um what is out there already does it need to remain protected and safe? Um, so even without a quantum computer today, there's there's there's risk because there's transmission of data that needs to remain encrypted for a long period of time. So harvest and harvest now and decrypt later is something that you're going to hear about.

Um, and perhaps maybe you can elaborate, but right now there is no legal mandate uh that fintech companies would do something specific related to quantum. However, I'll back into what the current regulations are that govern from each of the different government bodies and agencies uh that you have to do what's reasonable under the circumstances. So, now that you have knowledge of something, what do you do?

Right. Um and I want to kind of um circle back to what Katie said in terms of like we're already seeing EO um you know orders coming out now specific on that from the the government which means ultimately and we kind of talked about some in the in the green room it's going to come to industry right and so there are these uh capabilities that you can leverage now to actually be able to do that

before you go there just on EO for everybody executive order so this June an executive order really lays out what uh government agencies uh and others and you can speak to this much more.

So it basically said the national security systems need to have a PQC strategy by the end of 2027. So postquantum cryptography most of the the security systems I'm speaking from my time in the department of defense department of war have you know cryptography is something that is old but new right and it's expensive back in the day it got less expensive further but there's a lot of things that we didn't encrypt and there are a lot of things that are at risk so the the president put out the executive orders and said national security systems you must well how does that translate to you in the audience well how Many of you are providers to a national security system, a critical infrastructure provider, a telco, a a AWS. We're saying to them, you need to have PQ strategy. Well, what does that mean? Right?

So, you postquantum cryptography. There are two algorithms by NSA that you can basically use. Will those remain? That is something that the AI question along with quantum is a very interesting question because things that we didn't think were possible a year ago are possible today because of the advancement of AI. And when you pull AI and quantum together, that's why I say Qday.

They'll be your life before Qday and your life after QA. And Ryan, you said something that's uh a friend of mine wrote a paper. There is no second place in quantum. And what you said is exactly spoton. If China breaks Qday before we do, they're not going to go on the news and tell everyone.

They're just gonna see things starting to go wrong or things not working.

Yeah, we all planned up Jerome to keep you from talking more since you've already had Exactly.

That's right. I was going to ask you talk for like 10 minutes. Exactly.

But but one but a couple more things. This executive order and Ryan maybe it has some actual dates though by which PQC needs to be implemented.

2027.

2020. get money, you give the dates 2027, but by 2035 every everything that's currently regulated or or identified under the executive order, but that's not applicable outside of what you just described to everybody there. So these dates are important because they predict when would a a computer uh be able to break it. So

the dates are important and then there is this requirement of trying to figure out PQAC and have these strategies in place. Jerham, you are actually advising different entities on what that strategy looks like in practice from your perspective, AWS's perspective. What are the recommendations you're giving? What are those con conversations actually entail in terms of the specifics around data migration, data handling, and all of those pieces?

Yeah. Um, and you know, I was privy to the process that we use within Amazon. Again, we started uh really working on this in 2019. um where we actually um went through and uh what we could consider quantum safe our um our network right and with that I think the the main takeaway here is really establishing the rigor to be able to operationalize this change right so like even if you were to say that you use the new ciphers that are out right now uh what makes you say that those when and we call it cipher drift meaning like it's always going to change like you have a change management process in place to be able to do that so a couple things to kind think about is one taking an inventory of um and this is probably the most daunting task of all of the encryption and connections that you have currently within your your system identifying um like solution providers that may be able to um solve that. So this case in this case of being on AWS there are services that already we use that are what we call quantum uh safe or have what's called a hybrid quantum uh encryption um like uh key management service and things of that nature.

But then there's always going to be some of the things that you own, right? And then figuring out how you want to um be able to solve that. And there's several different ways to look at that. There's frameworks out there now. Amazon has one around um quantum um migration and how um we we've done it and basically made that more of a best practice, a white paper that you can actually access online.

Um you can use uh I I I the way I would look at it is you want to very similar to what I I still say this is very applicable to like AI. It's a new emerging technology. what is the rigor that you're going to put in place in this case to continue to keep inventory of your of your systems um and where those encryption points are and creating the change management mechanism to keep up with the innovation that's happening within that space. I think the other thing too is to start to prioritize what are the most critical assets that you have right so you're going to hear something around like uh basically uh looking for the most exposed data that has the longest um encryption timeline right like if this needs to be encrypted for 20 years someone can capture now wait for 20 years probably earlier like we're saying to actually be able to decrypt that data so those are the those are kind of like where I would prioritize and start from and then kind of work your way backwards from there

so that's at the institutional level I There's a question on everyone's mind here is that who has the greater quantum exposure? Is it traditional rails like Swift or is it crypto rails? Is it Bitcoin, Ethereum networks? And Ryan, you have a perspective on that and what that might look like.

Yeah. So the the high level takeaway is that everyone's cryptography is at risk. There's RSA, there's elliptic curve cryptography at the base for all of this. So every financial institution uh has data that's at risk and if it's data that will be valuable

risk that it would be decrypted very easily okay

quantum vulnerable we'll call it uh that when a quantum computer with the requisite number of logical cubits exists that can run the shores algorithm there would be real risk um it's very different between traditional rails um fed wire chips swift and crypto cryptocurrencies not crypto crypto cryptography get a lot of discussion here of you'll see headlines even in very you know top-notch Wall Street Journal quantum will break Bitcoin and that is is true it will not break the blockchain that underlies it but the wallets that are protected by cryptography in Ethereum in Bitcoin and the like are very much quantum vulnerable so what is the difference then between a traditional rail and cryptocurrency, a traditional rail. Obviously, there's more surface area that could go wrong. Trillions of dollars of damages potentially if Swift was hacked by a quantum computer. The hard part is that huge surface area for risk. It could take potentially between four and seven years to upgrade the cryptography.

This is not an easy on oroff switch. Just because these PQC algorithms from NIST exist, that does not mean all of a sudden we can sit snap our fingers and say it's fine. we're quantum safe. This is a long process one to figure out what is quantum vulnerable and to actually institute the algorithms. So the good thing for the traditional rails is that there's a very central way to upgrade cryptography and it can be done.

It's very difficult. It will probably take three, four, five years, but it can be done in a centralized fashion once there's this acknowledgement of the risk and a willingness to do it. Uh you're already seeing that from uh Swift. Now I want to get my dates right. Swift Net will be PQC enabled next year in 2027.

So this is being discussed. This will be rolled out over the coming years. That's a positive. The mirror to that unfortunately is that cryptocurrencies, Bitcoin and Ethereum particularly are very much uh at risk. And the very nature of cryptocurrencies is to not have a centralized figure driving changes in things like cryptography.

And so what makes Bitcoin attractive to folks also makes it very very difficult to upgrade. So Bitcoin there are 7 million Bitcoin wallets that are quantum vulnerable. That's about a third of what's in supply. That's today about $600 billion. That also includes about a million wallets from the Satoshi era.

So this very kind of difficult question of do we freeze, burn or leave exposed wallets becomes very much a difficult governance issue. much, you know, not to mention the fact that you've basically got to do at least a soft fork to upgrade Bitcoin. Really, really hard governance issue. We know what the solution is. It's PQC migration, but hard to get the community on board and to start this process.

Ethereum, this last thing and I'll hand it to Katie. Ethereum has done a lot more than Bitcoin on this just as a as a baseline. The research foundation has really invested a lot of time, money. There's a clear plan. Ethereum is very much on the ball to do this, but it's a governance problem and Bitcoin has got a lot of work to do for this migration.

So, I'm just going to add another layer to it. Right. So, our China, our EU partners have moved to something years ago called quantum key distribution, which is quantum proof. It's a way different. It's not a mathematical, it's photons, it's light.

And they have moved that way. They're actually their banking institutions are had they

as a way to mitigate this quantum exposure. Yeah. So it's starting earlier to respond.

They hedged the bet and said you know what we're not even going to bother with these algorithms. We're just going to do quantum key distribution and we're kind of fighting one arm behind our back because NSA here in America does not like QKD.

Yes. That does not mean that the financial sector should not be looking at and using QKD as a way to protect the most I I would say the holy grail. If you were to look at your artery, right, you need to get some QKD quantum key distribution in there because to your point on Bitcoin wallets, you pro most our adversaries are protecting their wallets with QKD. So, we've got to take a stance and not wait for the government to come out and say you must because by the time the government tells you, it's going to be too late. This is a a time in our lives where the government is trying its fastest to get to where it needs to be.

Um, my company was just awarded this past week DARPA, the quantum um benchmark initiative as one of the companies, IBM. But imagine out of all the quantinium, all of us doing quantum, three companies got awarded. government cannot keep pace with this.

Yeah.

And I would just

just to build on that there are already existing requirements and frameworks that in your clients institutions are facing. Do we need new requirements? Do we need more mandates?

So so I think we can work within our current framework. However, with the QKD discussion, everyone in this room has an obligation to do what's reasonable as a reasonable organization. when there is a for when you accept there's a foreseeable known risk. So when this when we work in a global environment, you just said China

and everyone other than the United States, at some point in the future, in hindsight's always 2020, we'll look back and there'll be a plaintiff spar or somebody who says it would have been reasonable for you to take these actions at that time with regard to this information. And if the UK, the EU, China, and other countries are employing QKD today, why didn't you?

Right. Right. And I think one thing to note here too because it's like you know we're talking about all these different you know uh acronyms like QKD quantum key distribution and there's also um postquantum encryption right I think the key here is for each of the organizations very similar to how that they have an uh you know someone that's single threaded leader for AI you need someone for quantum specifically to start to figure these things out because really QKD junction right exactly right with that so it's really trying to explore what technologies out there now and again there are technologies ies that you can leverage now. But to me, I still go back to like creating the rigor within your organization to start to really

you were 2018 you were appointed.

Oh yes. Yeah. I told him in the back uh yeah in a green they call me the quantum zar for worldwide public sector.

So everybody could put somebody on your team on point to be watching this. That's a start.

And I think the first thing you know you're the cryptozar. I was crypto queen. That's right. There you go. Everybody in the department of law would call me the crypto queen.

Bob, what are you?

We're the quick crypto brother. [laughter]

You should do with reasonable inquiry right now today is truly dedicate someone to look at your cryptographic library. It was in that executive order that you need to understand what you have in order to protect it and you need to be able to prioritize because this is not as Ryan stated a flip on and off switch. This has to be a quantum strategy and your road map needs to be out there. Your seuite needs to be aware of it. You need to start planning towards it.

Somebody in charge inventory it. And by the way, how long did it take Swift if they're going to have it by next year? They started

years ago.

Years ago.

Katie, just build on that a bit more. How how do we know we are on track in responding to this at especially in the banking sector? How do we know at the institutional level at the sectoral level we are on track? So I first of all the sisos are critically important inside every institution and they should be the I would say the belly button I if you were in every organization to look at and they should say okay where are we on our cryptographic journey

what are the systems that don't have any encryption or minimal encryption or RSA you know and there's others right AES I think we'll have a better shot maybe last a couple of years longer

we're talking all out acronyms but it's much like cyber security was five years ago. Nobody really talked about it until it was a thing and now it's a thing. You have to start the journey. So go back ask your CISO ask your seauite your CFO should know what is going to be the strategy and if not the like I said the white

the white paper that Jerome mentioned that Amazon has companies like ion quantinium we all have things out there to look at but the easiest thing to do is you're holding ask GPT I will tell you that super intelligence not AI the super intelligence actually has a lot more data in there. I mean, we were in the green room and I said, you know, just asked when did China implement QKD? 2008. Yeah. And they put their critical infrastructure, their financial institutions in 28 2008.

Um, the EU did the banking systems in 2021.

Yep.

And where are we? So, I mean, it's easy to get out there, start talking about it. Um, and the the one thing I will say is it's a big word and it's been around for a minute is quantum. Don't be afraid to say I don't know. I I think that's the one thing I would walk away is when we started this journey, you're both lawyers.

Where are you a lawyer?

I am not. No, we are not.

But I I mean the first time I heard quantum I was like is that like the the TV show? I I like I said I said why why why are we doing

what is it and

we're not gonna rename that to

ask [laughter] the questions find me out in the audience ask us questions that this is stuff that we need to discuss openly and and have conversations about because our national security is our economic security they are too co- coalesed and I don't want to have to be forced to order Mandarin in Mandarin okay

how strongly do you feel about the difference between the day before Q day and the day after Q day.

It's it's night and day. So, everybody asked me CIO of the Department of War, what what was the thing that would keep you up at night? I live downtown DC. If I could hear the birds in the morning, that's a bad day because that means everything else has stopped.

Stop.

That's Q day. And if China breaks it first, they're not going to call CNN or what do they call they see no MSNBC change. They're not going to call. They're going to find the most vulnerable systems and it's not going to be massive and that's the difference. I the harvest now decrypt later I think they're going to f focus on a secondary banking system maybe like Houston in Houston, right?

And the credit unions there that day don't work, right? And then they make a run on the market and the FDIC only has so much. That's where the adversary is to cause distrust in enough for you to lean on them more than you lean on us. I I I fail at my job as a moderator, as an investor because all we've done is talk about risks and all I want to talk about is the opportunities that

huge opportunity of investment.

So Ryan, what's your take on the opportunity landscape that's in front of us? It

it's huge and that that is where this is a difficult conversation is quantum will in the long run change cyber security for the better and it will change all of our lives for the better particularly around drug discovery um and material science. these what I call quantum for good issues. Quantum computers will be able to solve problems that no classical computer can solve uh and will make our lives better. It will also bring Qday. It will also break encryption.

It will lead to I was a cyber security attorney before I came to quantum. It will lead to cyber attacks the likes of which we've never seen. And you have to hold both of those things in your mind at the same time. And that's difficult. um for this room for fintex and for the banking sector quantum will have huge positive use cases around portfolio optimization running Monte Carlos simulations doing AML and KYC alongside AI the financial industry has by far the most to gain from quantum uh when we think about pricing derivatives and we think about those the positives it also has the most to lose and so to Katie's last point it's not going to be the big banks who will likely get hacked by a quantum computer it's going to be a small community bank.

It's going to be somebody's vendor. It's going to be a much smaller institution that has uh

connections to the larger bank.

Your point being they have to invest in a response that potential risk.

The systemic risk is huge.

No, no one company or country can can deal this with this alone. So I think we'll get to the point in your questions like should there be regulation around this? I think attacking this today or dealing with this today are are our current laws and regulations that apply to fintech organizations kind of mandate you to be reasonable and to start taking action and doing things. However, to get the whole system the whole ecosystem on track may require more poignant and and uh direct uh laws and regulations with uh specific deadlines.

Okay, last question. I as I I warned you that we will barely scratch the surface. [laughter] You have to find these guys and chat with them. Okay. So the single most important thing an organization in the financial sector you decide where in the ecosystem should do over the next 12 months.

Single most important thing what would it be open to all of you? Maybe Katie you look like you're ready with an answer so you go first. No, I mean I think the first things first is you know you got to know what you're dealing with and you got to get to your cryptographic libraries and you that is first things first and then the secondary thing is prioritization versus you know resourcing right because nothing is for free. So you need to look at what are the most the Achilles heel. Um and the way I can liken it in a way that I speak um the NC3 mission, the nuclear command and control for the department of war is one of those big arteries that I would make sure is locked down day one in your in how your data is transmitted outside of a data center.

Look there first, right? That's where big data is moving. That's where the adversary would look to gain some some time. So focus in on those arteries, prioritize, and then honestly do your research. Go out, look at Gartner.

I mean, I I I'm I'm always one to get I'm a Gartner. Some days good, some days bad, but they've done a lot of work in this area. And look at the providers at who can offer PQC. A lot of the cloud providers are providing PQC in in their capabilities.

So basically work with Jerome is what? Well, you don't have to you can work with but know that there there are people out there any vendor that you're working with. Do you have a strategy to get to PQC? What does it look like? These are conversations that you need to start having now.

Don't delay. Don't put this off.

Bob,

um I would just piggyback on what's been said and that is if you don't know in your organization who's paying attention to this, then you have a problem. So get somebody and when you refer to Jerome, it's someone like Jerome in your organization. it's your chief technology officer. You need to be having an ongoing discussion about this. That's why we're here today.

Ryan, this is a board level risk. It should be addressed as such. And two, put a PTC migration clause in your vendor and custodian contracts. You inherit their cryptography. You inherit their legacy systems.

Don't let that be the back door that a potential quantum hack could go through.

Jerome, you have the final word.

Uh, just two final things. I mean, I think we've kind of talked about it. have a single threaded leader specifically focused on quantum. And again, I know we've talked about all of the the risk around that. I think that's a part of that risk to your mission and business, but also the benefits.

Yes.

And where those apply and and having someone looking forward to that because it's going to be innovation just like artificial intelligence. And it will be a be able to differentiate your mission and your business.

Thank you so much, guys. Join me in thanking our panelists. We

on time.

Yeah, we did. [applause]

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We have been having conversations all day about uh the financial infrastructure, financial institutions, the flow of money around the world. Uh and there are few institutions uh that embody what that means at an everyday level than city and there are very few people who see it firsthand like my friend uh Brent Mintosh who has served in a number of roles which I'll get into but most important is early adopter of DC fintech week

first year um

yeah been coming forever

you've been coming forever which has been uh just just just a privilege. So, so thank you again for for for for really providing us with a unique p perspective and one reason why you've come back so many different times is because I've enjoyed hearing your different perspectives. You've been general counsel of the Treasury Department. You've led Treasury's international affairs. You are now the lawyer for one of the most important international banks in the world.

So you know uh I maybe I'll start off this this iteration of our dialogue of our journey uh by by by really getting into like what is how does financial regulation look does it look differently and how does it look differently from say uh uh obviously uh being inside of a of a global uh bank versus uh being inside of the uh wheels and engine of uh the national government. Well, first of all, thanks for having me. It's a delight to be with you. Uh, always great to be back at Fintech Week. I love this week.

Um, let me let me start with what's not different, and that's the commitment to a financial system that is fundamentally safe and sound, that protects consumers, that uh is one that has fundamental integrity from fraud and moneyaundering and sanctions violations. That's sort of table stakes. That's what we all sort of agree on. But where it is different is if you think about as a government regulator, if you're a government regulator of a particular part of that system, you see your portion of that system. It might be AML, it might be consumer protection, it might be macrocredential uh considerations around safety and soundness.

You see that across the entire ecosystem of financial institutions or whatever portion that are within your particular part of the regulator regulatory perimeter. When you're in a regulated institution, you see it quite differently. You see all of the stripes of regulation and how they interact cumulatively across your institution. You may not have exactly the same experience as somebody in another bank whether it's a another GIB like ours or a community financial institution or a financial institution that's not a bank but you do feel the the accumulation of regulation and how they interact together. So you end up understanding sort of how they all interplay together and what the cumulative burden of them is.

And then you see I mean we're not just regulated we're supervised right? So we have um supervisors on site and different banks have different experiences with their supervisors, different priorities. Sometimes there are things in supervision that are inherently subjective and so you might get a different interpretation from another bank. Um and so you have that feeling as well. Um, which is why I think, you know, to to where we are in the current regulatory moment, there has been in Washington at least a pivot toward a focus on material risk.

Um, and I think you you've heard some of the regulators say that when everything is a priority, nothing is a priority. Um, which is a, you know, old saying, but fundamentally true. And so we're seeing an increased prioritization of risks that really matter to the system. Um, and that I think is a a very beneficial thing. I mean, I was in I was in Europe a couple weeks ago at at a conference with a bunch of European regulators and they're talking about the same the same thing simplification of their system.

You know, some people around here have been talking about deregulation of the financial system. If we have been deregulated, nobody told me. Um, but uh it's definitely there definitely has been a refocusing on material risk which I think is a solutary development for the system,

you know. So first of all, super interesting observation which I never really thought about. So if you obviously if you're over at city group, if you're over bank, you you're you're getting regulated by lots of different regulators. So it's it's not just a question of the typical well, you know, like we feel the regulations in a different way obviously than if you're the the government. It's it's not just that.

It's just that you you feel it across the board from the the sort of the cumulative um weight of what those rules rules can be which is which is quite frankly an interesting thing that I never never quite uh uh thought about. Uh but but you know when you think about those material risks when you think about just how many vectors you have tokenized deposits you have you have stable coins onchain settlement 247 payment rails uh and you are the lawyer. So you are you are the gatekeeper in many regards for for the company. So, uh, from a from a lawyer standpoint, again, across that very large gambit of of issues, which issues do you think are have turned out to be, for lack of a better word, the easier hard questions, and which ones have tended to be the harder hard questions?

Um, so there are, uh, I would to defend my profession, there are no easy questions. If there were, there'd be many fewer of us. Um, but there are easier questions. Um and I think that if you look at the um where I think there's been convergence for example there's been convergence and the need for regulatory certainty and some extent regulatory harmonization or frankly kind of regulatory interoperability across borders. Uh and there have been some of the easy some of the legal questions we faced that have been um I think easier to solve than others.

So for example the idea that a tokenized deposit is in fact a deposit. Um, okay. That's uh that's something we all would agree on. Wasn't obvious in uh uh beforehand that we would agree on it, but we do agree on it. But then there's a question there are places where there are divergence, some of it intentional and some of it unintentional and where there are questions outstanding.

So if you think about um a lot of the the best use cases of these new technologies, these new instruments are crossber uses. So you really do if you're going to do that you need some amount of regulatory harmonization or regulatory interoperability. Um and I think there we have seen less of that than we would like. Um part of that is because I think the US for a long time was rightly seen as lagging in explaining what the rules were going to be. Uh I think that that has uh it's a welcome development that that has changed over the past few years and we've decided we're going to tell people what the rules are.

Um and so now we're moving forward with with um with greater regulatory certainty which I think as we do that it bridges what is an artificial divide between between traditional finance and digital finance. I mean that divide was largely driven by regulatory uncertainty and by in in some cases regulatory hostility to the digital asset space and so that divide which I think fundamentally as I said is an artificial one is being bridged but there still is a need for the US and the EU and the UK and a bunch of very important Asian jurisdictions to be working together so that when these things are used on a crossber basis we understand there are set of sort of mundane legal questions that we need to have the same or similar answers on um and so we need to get there and that's those have been the hard places and there is I think hard work to be done in a whole bunch of international bodies starting with the financial stability board but also a bunch of other places on those questions

I love this guy I hope that my students because there are a couple of them in the board you know hear when they hear financial stability board oh why does professor mig learn this know it's kind of interesting even like you know general councils of city like actually use these words but but you know there is like an international No, serious like like there there you know international standard setting is an interesting business you know uh you you've you've been there and you've been in those rooms. I do you when you think about frontier technologies like is this time different like is is is it do you think that is are the problems inherently uh trickier than than before in the past um just in terms of the crossber element or you just think look it it's we always have to go through the same fundamental work it just hasn't been done we need to do it or is it again it's a little tricky a little little little little different

yeah it's a little bit of both and the way I'd say that is we have had all sorts of um all sorts of revolutions in the financial system which fundamentally go they many of them are does you're fundamentally answering the same question which is sort of one person entrusts another person with their money what are the obligations of the second person to the first

that's sort of the that's the fundamental question of financial regulation

um and so we've gone through that we've had that question time and again whether it was the joint stock company whether it was uh whether it was uh mutual funds we've done this time and again and we've learned a set of lessons around what those obligations should be one person to another. Um, so we've done this math before, right? We've we've figured this calculus through. It's not easy, but it's the questions. Many of the legal and regulatory questions are the same.

What's not the same this time is the pace of change. We're at a time when um the pace of change with digital assets is dramatically faster than for example the pace of change with many prior financial instruments. But then you layer on AI um and then this prior panel about quantum which if if if you weren't afraid before that panel you probably are now. Um, but when you layer on things like AI, the speed of change, I mean, just think about where we were a year ago on AI, whether it was cyber security or agentic commerce. We're in a very different place in just a year.

And so if the question is not the substantive legal and regulatory challenges we face, it's the pace at which we need to solve them. And so as we innovate the innovate innovation creates a lot of opportunities, a lot of uh great benefits to people around the world, a lot of chance to serve the unserved or the underserved. Um a lot of ability to make things that used to be costly less costly. On the other hand, it creates a massive amount of risk, massive amount of risk on fraud, money laundering, sanctions, consumer protection, and frankly, safety and soundness of the system. And so, as we accelerate the innovation and the opportunities and we accelerate the risks, we also need to be accelerating the pace at which we uh in the financial system and our regulators grapple with those risks and address them because otherwise we risk being in a place I say risk again.

We there's a threat that we will be in a place where we do not have a regulatory system that is suited to the current environment. And so that that pace of change is pretty dramatic.

So it's it's pretty interesting. So when uh when Travis Hill was up early um at 9:00 in the morning, the last question that I asked him was sort of in that space, which was how, you know, how nimble is is is is government? Like how how nimble can it be, you know, given given that that that pace of of of change? Um you you had mentioned uh digital assets and um uh uh you know certainly uh there's something called a stable coin. Uh you know stable coins are out there and you look at stable coin frameworks moving from legislation to implementation again harkening back to a conversation that we had earlier uh this morning with Chair Hill.

Um what do you in that process uh where do you see the most constructive role for for for banks you know as as as issuers uh custodians uh uh settlement providers uh something else uh what do you what what do you think

I I I have to when I think about this question I have to think about what our clients are asking us to do right in this space because you know back to the my point about there being an artificial divide between uh traditional banks and digital assets fundamentally our clients want um payment solutions that are of bank quality safety, uh bank quality security, but they're look, they're looking for, you know, 247 always on um they're looking for all the sorts of um characteristics that the digital assets ecosystem provides. For some of them, that's a tokenized deposit. For some of them, it may be a stable coin. And so when I think about what the role of banks here is, I think it's sort of an all of the above to the extent a client wants that done. Um, you know, clients tend to be deeply integrated with their banks because of the things we do for them around the world, especially institutional clients.

But um, we're going to need to be uh infrastructure for this. So that's on and off ramps. Uh, that's custodying uh reserves. We're gonna need to be I think um uh we're going to need to be an issuer and I think so we and uh 20 other large financial institutions are talking about uh issuing a bank grade stable coin uh first dollar denominated but then potentially moving to the euro as well. But uh and then we're going to you know we're going to be uh a service provider for the digital asset economy.

So, we're doing a lot of work with Coinbase right now on their virtual wallet so that you can do seamless fiat to stable coin settlement when you go into your coffee shop and want to want to pay with stable coins. How

totally random. How much of your time like when you think about frontier technologies, all the different stuff like how much how much time do you have to I mean you're a busy person. I mean how much of your time do you have to just think about these these issues? it it's um it's a very important part of my day and I will say um the more the more rapidly AI changes this system the more time in my day I spend [clears throat] on it because the the advent of AI and the the cyber security threats it poses the consumer protection threats but also the things it can do um that benefit the financial system whether that's you know the the speeding up the introduction to new products that are beneficial to our clients. Whether it's taking operations that we use uh behind the scenes and making them much more efficient.

Whether it's rooting out fraud, whether it's just making the lives of our employees better and taking out some of the more routinized or manual work that they do and letting them more focus on the things that are uniquely human, the judgment calls they need to make. Well, well, I mean, speaking about AI, I mean there's there's AI, there's AI for for compliance, AI for supervision, there's legal AI. Yeah. Uh, you know, uh, how is when you think about the the your job,

legal department, the, you know, critical brain cells within a large global bank, you know, how how does AI impact your the the legal department at city?

Yeah. So uh I have the benefit of getting to see it both from the legal side and I also oversee our compliance function and it's amazing what AI is able to do for us in this space. So for example in legal you know one of the things we do is we we draft contracts and negotiate them with counterparties and the ability to do that using AI so that we know sort of what are the terms we've agreed to what are the sort of best practices around certain contracts in you know whatever jurisdiction we're operating in what has our counterparty agreed to in the past that sort of contract management makes our people who are negotiating contracts much more effective and then you look at the compliance side if you think about the massive compliance operations we have at all these institutions to make sure we're complying with both sort of the banking regulations but also the the um the financial crimes regulations. If you think about the the life of someone who's doing who's actioning AML alerts we're m we're taking taking manual steps out of that process and having the human focus on the judgment calls not the data calling and the comparisons to other situations. Do so, so you know the human in the human in the loop uh concept.

Uh you know, sounds like it's not going anywhere. U do do you need I don't know like do you need a better human? That sounds like such a horrible question. I mean like [laughter] do you need a better human? you know what do you think the the role I mean is there anything about one could imagine you know the the even the young lawyer you know who's who may be in the loop you know in terms of responsibilities obligations what the you know the the the new kid coming up on the block is going to have to know like how how does that change uh that job

so I think there's fundamentally a role for humans in this so

[laughter]

Um

sorry cyborg people in the audience.

So uh there is fundamentally a role but I I think of it as um enabling people to do their jobs much more effectively and taking the parts of their jobs they don't enjoy out of those jobs. Nobody enjoys when you have to pull a whole bunch of data from a whole bunch of systems having to run a bunch of prompts to pull the data. The AI should be able to do that for you and it all appears in a dashboard. On the other hand, there are questions and interactions with other human beings that humans are fundamentally that is is in the nature of our sort of human spark that we are better at than the AI is. And I think there will continue to be a role for humans in the exercise of judgment.

So I see this fundamentally about empowering our workforce to do more uh during their day than they're doing today. And so I think it will create a situation where for our people it is going to be a more fulfilling day-to-day experience than it than it was preai.

All right. All right. Quick quick uh last couple of thoughts here. Okay. Uh over the course today we have heard about uh generative AI, super intelligence, big data, quantum um of the many frontier technologies, challenges, risk uh we've even had a question of prediction market.

uh which of those do you think has implications that will be the hardest to predict? So um I think after that last panel I should say quantum but I don't know enough to be I don't know enough to say it inform I think like not to be flippant but we're far enough away from quantum that I think we can make certain predictions about how it's going to go but I there's a lot of a lot of time between here and there but agentic um agentic use of AI both on commerce and on cyber security is here now and and it's a massive question. I mean if you look at the cyber security threats that we have seen just in the past six months they are a step change from where we were six months ago. But if you look at our ability to fight those threats the cyber the sophistication of our cyber security defenses also a step change in in that. And so that to me the um quantum is often the future.

I'm glad people are focused on it. We're focused on it, but Agentic is here right now.

All right. Well, you are also here right now. Thank you so so so very much as always. Great conversation. I always learned a ton.

It's a pleasure to be with you, Chris.

All right. Thank you. [applause]

So, uh, we we had asked and we continue, uh, to have another great long-term supporter, which is, uh, Maxine Waters. Uh, the great representative, uh, Maxine Waters. uh uh who has for many iterations of DC Fintech Week been someone to offer her unvarnished views on fintech and we'll be hearing about that right now. Uh she couldn't come uh for this and so she's delivered and I have no earthly idea of what she's about to say. Uh her views on what she thinks the next Congress will look like.

She just delivered them and so I will tell our team to bring up the video and see what she has to say. Hello everyone and thank you to Professor Chris Broomer for inviting me to join you and congratulations on your ninth annual gathering. You brought together regulators, policy makers, academics, consumer advocates and leaders from all across the financial and technology sectors at a most important time. Technology is changing nearly every part of our financial system from how people pay their bills and access credit to how businesses raise capital and how regulators oversee our markets. So, as a top Democrat on the House Financial Services Committee, I've long believed that innovation can create tremendous opportunity.

But as technology moves forward, our laws, our regulators, and our commitment to protecting people have to also keep pace looking ahead to the next Congress, there is a real opportunity to shape where financial innovation goes from here. And much of that much of that work can be viewed through the three principles at the heart of this conference. integrity, innovation, and inclusion. My fight for strong consumer protections. First, innovation depends on trust.

Consumers and investors should know that there are clear rules, strong regulators, and real accountability. Recent developments have only reinforced why that matters. We've seen serious conflicts of interest involving President Trump and his family's countest ventures into crypto, AI, fintech, and more. While his administration shapes policy affecting all of these industries, we've seen AI agents target federal government websites, including the SEC, raising serious questions about the security of the institutions our financial system depends on. And criminals are increasingly using crypto, AI, deep banks, and other emerging technologies to defraud Americans.

These threats continue to grow following the Trump administration's sweeping deregulation, including the elimination of critical AI safeguards and weakened oversight in the crypto industry. That is why Congress, we must close gaps in our crypto and AI laws, strengthen ethics and conflict of interest standards, reign in fraud and money laundering, and help victims recover what was stolen. Our regulators must have the authority, resources, and the technology to keep bad actors from exploiting innovation and be held accountable to doing their work. That brings me to artificial intelligence, which will be one of the most important areas for the committee and Congress for that matter to consider. AI is already being used in lending, housing, financial markets, customer service, fraud detection, and many other areas.

My committee needs to examine where existing authorities already apply, where former enforcement and stronger enforcement is necessary, and what additional protections are necessary. In particular, I'm concerned about data privacy, discrimination, transparency, and accountability. And Congress must understand what AI means for American workers and for the stability of our financial system. Finally, financial innovation must be available to everyone, especially those who have been left out of our financial system. Fentech companies have promised to expand access, lower costs, and make financial services work better for underserved communities.

Those are important goals. But I want to see the receipts. I want to see better information all about who is using fintech products, how much it costs, and how it is affecting Americans financial health. Products such as buy now, pay later, and earned wage access deserve serious examination where they provide consumers with useful and affordable options that is worth understanding where they create excessive costs or leave families deeper in debt. Policy makers need to understand that too.

So in the next Congress, we have a real opportunity to get a thoughtful course for the future of financial innovation. That means understanding emerging technologies before crisis occur. It means enforcing the laws on the books and legislating when genuine gaps exist. And above all, it means remembering who our financial system is supposed to serve. Innovation should make finance safer, more affordable, more accessible, and more useful to working families and small businesses.

If we keep those principles at the center of our work, we can build trust people have in our financial system. That is the approach I look forward to seeing on the financial services committee in the next Congress. Thank you so very much. We've had uh uh over the course of of this conference we have many many many uh perspectives. Uh obviously uh uh my fellow Aransen uh French Hill honorable Maxine Waters.

uh in this next panel with uh our we're going to go over some of these comments as well as what rulemaking means. You kept hearing this from uh uh Brent Macintosh. Well, we're going to talk to the point person in the European Commission who's involved with rulemaking. We'll be talking to uh one of the major stewards over at Visa. um uh Yeshi will will be back and then we'll be winding off the conference with the DTCC and the major source of uh onchain innovation arguably for for Wall Street uh uh in the years ahead.

So, we're going to switch up the chairs and jump right into the conversation. Thank you. [music]

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All right. [music] So, I am absolutely delighted to have an all-star panel. On the one hand, we have uh Jean Bumont who is leading uh as executive secretary of the Eggmont group. When you think about an organization like FATF, the financial action uh uh uh uh activity uh task force, thank you very much. And for any moneyaundering and AMLKYC issues, there are financial intelligence units who support these operations globally.

And this gentleman here is the boy person. We have next to him, Peter Kirsten's, who is not to mention one of my very good friends, so I want to make fun of him, but in a serious capacity, an adviser to the uh European Commission and is uh one of the most senior uh officials in the European Commission when it comes to really all areas of uh digital asset policy and innovation. We have Yeshua making uh uh she knows everything due to me over over at Vanderbilt and a very close colleague to offer her insights again. And then we have Todd Fox. Uh T Todd is the president of Visa Economic Empowerment Institute.

Uh and both Yisha and uh Todd uh sit on the board of the Fintech Foundation which is bringing to you DCF Fintech week today. So thank you to you both. Okay, first of all, you know, there was a very interesting again, I had not heard any of these comments. Um, but but the initial comment about the agentic almost sort of agentic waged sort of attacks against regulatory agencies and other sort of public infrastructure found that to be kind of interesting. I had I had not I'm not familiar with any of that.

Uh uh Mr. persons I mean has this crossing of your radar like what is the scope of concern for um you sort of what's called agentic malpractice and also sort of state directed agentic um I don't want to say warfare but but agentic harms that can be inflicted against regulatory agencies has this ever popped up on on your radar

it hasn't popped up for us as far as I know towards us but I don't know all the attacks that happen on us in these times of super intelligence because that's what they're what it's all about now. Um but we are seeing super intelligencebased motivated attacks on financial infrastructure and that is causing a lot of concern and harm because it puts artificial intelligence, super intelligence, whatever you want to call it into the bad light. But what we already see is that in order to defend against that, you'll also need artificial intelligence, super intelligence attack. So yes, this agentic behavior supported by um artificial intelligence um super intelligence is really changing the ball game for regulators but also for financial institutions and also for the regulation itself. Because if you look at legislation and regulation, it usually is addressed towards people and entities, legal persons, they have to comply with the law.

What does it mean if an agent starts operating? People say, well, someone will control the agent. From what I can see is that well, sometimes some no one seems to be controlling anything. So, what do you do then? So um I'm going to sort of jump although I I see eyebrows from Todd Fox and sometimes his his eye I I can't I can't read the eyebrows uh correctly but certainly you know Visa's uh at the forefront of lots of agentic commerce but you know in terms of this kind of um you know uh we'll be over at FINRA we'll be talking about agent agentic fraud uh frankly uh but but are are any of the concerns there including uh this idea of showing the receipt I thought was an interesting uh comment sort of in the next Congress.

Uh you know, do do you see any kinds of threats in your world that sound familiar? Uh and and and and what what what kind?

Well, Chris, thank you for the question and uh yeah, I thought that uh uh what Chair Waters said in the panel immediately before is is very important. I think everyone that interacts with Agentic AI goes through a version of the same stages. First, it's it's this amazing magical technology that can go out and do things for me, but it's it's it's largely kind of packaging information, giving you answers instead of directing you to a place where you have to find it yourself. Then you start to realize, wait a second, if the bad guys have this technology, then that could be weaponized against my data. And suddenly there's a there's a there's a there's a moment where you start to realize, oh no, I'm going to have to actually shrink the attack surface and harden my defenses.

Last year at DC Fintech Week, I sat on this stage and talked a little bit about how Visa was building something called the trusted agent protocol because there were so many merchants in the world that needed to figure out how to tell the difference between an agent that is actually their new customer and an agent that is sent there to to wreak havoc on their on their e-commerce environment and breach their data. Uh so where are we now? I think the fact is we have seen some progress in the adoption of aentic AI for commerce and for payments but not as much as I might have predicted a year ago and the reason why trust is still the big unsolved problem if you look at surveys that we've conducted we ask people you know do you trust an agent to execute a payment on your behalf around 20% of people say Yes. Which means the vast majority of people still really don't trust what we would describe as almost fully autonomous agentic payments. But if you ask if it's a Visa transaction, well then the numbers go up pretty considerably.

It's it's over 60% for the general uh population and it's over 70% for people that are active uh users of generative AI. So trust is the big unsolved problem. It's an arms race. You need to have the make sure that the good people with the AI are innovating fast enough to stay ahead of the of the malicious actors. And this will continue to be the big defining uh story in cyber security and payment security and fraud for years to come.

Can I just add to that

please?

Um so as Todd mentioned like this is hard for the marketplace to get its arms around. It's also super hard as you mentioned Chris for the law. So there are a couple of really interesting problems as Peter alluded to as well that really stand out here, right? Firstly, there's no real legal category for these agents, right? Like they don't have a specific legal personality that we can build a legal system around and say, "Hey, you're responsible for that."

So even if we want to build sort of agentic protocols and standards, we have to figure out a new category of legal personality that can attach to it. The other part of this is that oftentimes tracking even though we have data can be super hard. Some of these wallets, they are phantom wallets, meaning that they come and they disappear, right? So they make a transaction or they do a deed and they just kind of disappear. How do you track that?

How do you follow that? It makes it harder for regulators to deal with. And the third part is that liability loss allocation. When these things don't have a legal personality, when they're kind of acting and doing interesting things, when they can potentially disappear, just come and go, then who's going to bear the risk of the loss? Is it going to be the folks we can identify like the visas and the banks and others?

We've worked super hard to create real rules of the road for liability, but now they're going to be really tested because no one wants to take on the open-ended potential liability that might arise in this case. So, the law is going to struggle here in the short term. So, so I would I would I would ask like Jerome about these questions, but I'm always afraid that like, you know, it's like ask the wrong questions, you know, I tell you and I have to kill you only kind of sort of. So you know instead of getting into the the specifics although if you do have sort of agentic sort of ideas in terms of you know what that means for the FIUS I want to sort of move a little bit with where Yisha was was taking us um when it comes to the international standard setting over at the fintech foundation with a lot of work with so many people including Yacea as as our co-chair and and and with uh Todd um you know we we've launched sort of our own initiative uh really working around the and with and with Peter Kersonen's as well. Peter, you you also contributed to that to that to that effort.

um uh you know and when you think about creating categories say for agents when you think about standard setting at at a general matter how how do those kinds of things um you know when you have a a kind of a public private sector initiative with a with a kind of a global scope but kind of operating um in a way that's that's quite literally begging for criticism um publicly it kind of differentiates itself from how you know you're the the official sector works with its international standard setting. What Brent Macintosh is bringing up the FSB and the others do these pro how does the official sector the process of making standards in the official sector for things like agentic threats? Is that up to snuff? Like how does it operate when some of it is private, some of it is public? Should more be private in order to make things move faster?

Should there be more transparency because you need more brains and minds involved? Just what kind of diagnosis, what kind of vision do you see after your years at the Eggmont? Um, you're sort of looking at uh standard setting internationally.

All right. It's a long question. I could have just said what do you think about like these folks attacking the states by that appropriate I'll try to be in my in my answer um having been attending FATF plenaries for like 15 years what I noticed is some years ago basically the uh delegations the members of of FATF would be designing uh the international standards on their own and uh and with very little say uh for the private sector. So heads of delegations and their delegations mainly treasury uh sometimes central banks uh and and ministries of finance would would basically design those international standards. Uh more recently uh interestingly uh FATF has been opening up a lot to public consultations.

So give you an example uh this year uh and the deadline is uh was August. So all through the s from spring to summer uh there was a public consultation on recommendation 16 which is uh payment transparency travel rule uh where uh there was a public consultation and and the the private sector uh was heavily uh invited to contribute. Last year it was on financial inclusion. Uh the previous years on uh the to combat the abuse of uh NPOS for example. So I see more and more an opening uh when it comes to standard setting an opening to uh to the um to the private sector or or to the public more broadly.

So I think it's a it's a good development. Uh it brings some challenges obviously. Uh first uh the more you are around a table to draft something uh messier it is uh it takes more time. Uh this is one. Second uh there is a an issue of confidentiality to a certain extent since some bad actors uh actually would love to be involved in in the design of those recommendations to to for their own benefit.

So it comes with there are opportunities and challenges but I I I really see a a a shift or at least a curve in in the way uh um international standards especially fatf standards are are being designed

so Peter you are at an international or regional organization that operates in an international system when you look at again and I'll ask a sort of an iteration of the question that I asked Brent I mean you think think quantum think agentic Um uh you know we we have privacy issues that have have of long been of of of of you know uh importance in the European Union. Uh international standard setting is it going to be fragile or fragile enough? Oh that was slip. Is it going to be engaging enough flexible enough innovative enough to move at if not machine speed at least a practical speed when you look at all these new opportunities but also threats? Well, I think the short answer is no.

Um, it's completely ill adapted to the developments that we currently see both national standard setting, regional standard setting and international standing setting. And of course, we can consult industry and we consult industry all the time, the private sector. And our most recent experience is that we basically consulted AI because of our mega consultation which we just concluded. Most of the replies I read were generated by AI and large language models. um we then use AI to analyze it.

Sort of the AI is analyzing itself. You don't get any wiser. What you do get is you get more commonality slop AI slop text. Um but when consultation works and private sector input is solid, you get also more opinions and strong held views. And I I'm acutely aware that I'm surrounded here.

Well, actually the majority on this panel are law professors because you're a law professor. You're a law professor. I'm a fake law professor. So that's three. And law professors seem to want to categorize everything.

Let's have a definition. The problem needs a definition. And once you've defined the problem, you have a solution. Well, the laws think they have a solution. But no, that's just the beginning of solving the problem with agentic behavior.

is that or with quantum whatever it's very much a moving target and I think it is very dangerous to try to define now what we don't know how it will develop because the definitions which will come up now will describe the realities as they are now and with a bit of effort we might be able to predict what's going to happen next year in two years time but further ahead I wouldn't venture that but if we set definitions now we're going to be stuck with them for a long time just like old definitions of what is a legal entity, what's a legal person and that worked for a while until it no longer worked. So I think it's extremely difficult to set standards and therefore maybe we shouldn't

well you know was part of the tongue and cheek of the project in general with with with with the reggex which is to really instead of a perpetual future you have a perpetual standard right so at any point in time you can basically you know someone has a better idea okay great you know people are voting it up and you know kind of a crowdsource version a kind of um you know c adding a certain velocity if one will to the international standards process which which is which is which is kind of um uh new and and interesting uh just even getting to the project. But I will say as soon as you mentioned to categorize the agent I looked at Peter I was like Peter's not gonna agree like you know as as soon as you said that you know it's you know how principles basically um and so feel free to to to respond but you know just just looking at that challenge and even the experience of sitting around in the working group with all these people some of them in Australia up at 1:00 in the morning some like poor Todd Fox up at 6 o'clock in the morning five five o'clock in the morning once on these on these groups. there was a lot of effort put into the cannon. Um, you know, like like how how do you move uh international standard setting?

I'm asking you Ya, but so so yeah, so you can respond to, you know, Peter disagreeing with you.

So I I have a so this is why I love the Red Dex project because it forces accountability on the international community to do something. We've really lacked standard setting around fintech and around all of these great dynamics that are coming up in finance like AI prop you know quantum etc. And now finally we have like some global experts that are saying hey look we've come up with a methodology you can't ignore it now let's react to it. Now one thing that I was super worried about before the red decks kind of came up was that even though we might have produced international standards on like banking and derivatives in the past we lost incentive to do it on tech because all of us are competing on tech. We heard that in the quantum piece, right?

China and EU and US, we're all kind of kind of fighting for what feels like a zero- sum game. But at this point, we also know, as Todd said, we need to do something. We can't look away. This is happening whether we like it or not. And so, that is why Redex is so powerful.

Here's something. If you don't like it, have at it. And so, let's kind of move on and come up with something. And that's why I'm like super passionate about this thing. I would just add to that and say there is far more interest in good faith dialogue between and among the different participants in building the future of finance than is typically reported in the press.

I think the consensus narrative is that we're in this very fractured and fragmented world where no one trusts anyone else and it's all geopolitics. The fact is the very existence of this panel shows that we actually are in a moment when there is a genuine desire to exchange views between the smart people from the official sector, the builders in the private sector and the academic community. And what you have built with this uh the fintech regulatory futures index and with DC fintech week overall is the venue where we can all come in in good faith and and check our bias at the door and say look you know we can't make this work unless we're all working together from first principles. And so while I agree with Peter to get 200 countries and territories to agree on like a new standard, uh we do have to have some place where we can talk about interoperability because the tendency of all these new technologies is toward global interconnectivity. If the technology is connecting us, but the policy environment is not interoperable, then we're just going to enlarge that attack surface and set ourselves up for more of the problems that we're trying to avoid.

Uh the bad guys love a fractured and siloed world. So, we need to have some kind of interop to to make it all work together.

All right. Well, it was a Peter.

No, no, no.

If I can say one quick thing, which is thank you, Chris,

for an amazing day

and for bringing us all together for a fabulous set of conversations. So, thank you for that and surviving up until

it's not done. We [applause] have Well, thank you very much. Uh, and thank you to the panel. We now have our finale. When you think about the backbone of Wall Street and finance, you think about the DTCC.

So, we have an appropriately last uh session called the final settlement. It also sounds like a great drink, but we will have that and uh I'll usher our our guests off stage for our final for our finale. [applause]

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All right, we are here for the final settlement. You know, when when you get to the stage, I thought it would be very fun. What what else is better than to tag team on uh you know two against one uh two moderators against one panelist? uh you know we were thinking about the seating here and you know should we put Joe sort of in the middle of us so he has to sort of look left and right um for an attack but uh I am I am absolutely uh uh really uh delighted to have Joe Spiro who is um helping to to really lead all the digital assets um uh work over at the DTCC and Darwatch from Bloomberg uh to really sort of dig in a little bit. I mean, we hear so much about um infrastructure.

We hear so much about Wall Street. We we we started off our day talking about, you know, plumbing and piping and the like that it would just be a a terrific way to to to to really get get started. D, are you ready?

I'm absolutely ready. Chris, uh look, I mean, I wanted to just u thank Joe for being here and Chris, thank you for the opportunity. Um wanted to actually take you back, you know, 50 years in the late 60s. So, kind of a history lesson, but when stock certificates changed hands and there was a paper crisis and between I think I remember my dates correctly, June and December of ' 68, uh the stock exchanges had to be shut down every Wednesday to catch up to stock certificates and then an organization called the Depository Trust Commission Company, I'm sorry, that uh Joe is going to talk more about, you know, dematerialized stock certificates. Fast forward 50 years later, we're now putting stocks on chain and DDCC is a leading player in that space.

So now a lot of you might be saying that looks listen, we've been hearing about tokenization, you know, tokenization is coming. It's been coming for the last 10 years, but finally over the last couple of months, the SEC and CFTC are behind it. NASDAQ, New York Stock Exchange, DTCC, central infrastructure players are fully supporting us. This is happening. So let me start off Joe asking you in that context about we dematerize stock certificates 50 years ago.

Is this the next leg and what does this leg mean

for trading stocks?

I think it is and you kind of framed it really well. Um back in the 60s and 70s the settlement cycle was T plus five. Five business days. That means that you would trade a stock for example. It takes that long to agree on ownership and for everyone's books and records to align.

Um, you know, we got that down to T+ 3, then to T+2, then to T+1 where it sits today. The the next iteration is how about T plus a few seconds. And that's the promise of what blockchain can do. So um what we're doing at um DTCC is we're implementing um a tokenization service which has enable us to tokenize these assets that have been traded in the market for a very long time um but now be able to mobilize them on the blockchain and use all of the benefits of the blockchain all the efficiencies that you get from the blockchain without giving up all of the investor protections and rights um that the market has come to trust for a long time. And that's really the key.

And you you also framed it well that tokenization has been coming for a long time. It's coming. Everything is coming, right? Um what what's different now? Well, now we have um a favorable regulatory environment.

We got a no action letter from the SEC in December of last year, which sort of gives us the guide rails that we can operate the service on. And I think the focus has changed a little bit. It's not, you know, everybody's afraid of crypto. Okay. Um, by the way, I'm I'm I'm a crypto proponent.

I like crypto. The the tokenization service that DTCC is putting forth is not crypto. It's a very uniquely different value proposition. It involves building the tokenization into the existing infrastructure as opposed to around it. And that's a very very different thing which I think is giving the large institutions uh more trust and confidence that this is the future that they can actually build on.

I I love that framing you know building it you know into it and around it. Can could you just walk us through um you know we have an audience people who are familiar with tokenization well familiar with some quantum some people prediction markets so a very broad set maybe when we talk about specifically from the DTCC's perspective when we talk about tokenizing a stock tokenizing a treasury maybe can you just walk us through what that means and sort of the process?

Yep. So for anybody I I'll start with this for anybody who's not familiar with um DTC. We custody the vast majority of the essentially almost the entirety of the US equity market and a good percentage of the fixed income market as well. We custody about 114 trillion in assets. Um we're responsible for settling transactions around a little bit more than four quadrillion annually.

Wow.

Um there's 15 zeros in a quadrillion.

I was about to ask like I don't even know. the logical next question. [cough]

Um, so for anybody who hasn't heard of DTCC, which if you know I'm a guy who's been in the financial industry for a long time, so I've heard of DTCC. There's a lot of people who haven't. For those people, it's probably the most important company that you've never heard of.

It's it's really the underlying backbone of the US um financial system. So um what what are we doing now? We're tokenizing the same assets that have been in our custody for a long time, a subset of them. Of course, when a DTC participant, who is usually a large banker or a broker dealer, has assets in their DTC account, they can issue what's called a conversion order. And that's an order for us to convert, let's just say, shares of stock, for example, from traditional form to tokenized form.

What happens is those shares are taken out of their traditional participant account and moved into a digital omnibus account where they're now locked down and simultaneously we mint the token that represents the same security entitlement into their wallet on chain. So all of the shares that are held in that wallet and can now move at the speed of the blockchain are backed one one for one for the real asset. It's the same asset. It's just a different way of keeping track of it. People say, "Well, does it have a different QIP?"

No, it's the same asset. It's the same investor protections, the same rights, the same security entitlement as it was before. It's just now we can keep track of it on a blockchain as opposed to on a private ledger.

If I may, Chris,

please.

Joe, how is what tell us how what you guys are doing different than let's say we hear about Robin Hood and Kraken that are tokenizing stocks and making them available to non- US investors. So, how is what you're doing different than that?

I mean, without without characterizing any other offerings, what I would say is, you know, any token of any type, no matter what it is, is really as valuable as what backs it. And so, as I just described, if you have a stock in your broker account right now, people have complete confidence in the value of that asset according to the value that it holds in the in the market. A token that DTC has minted represents the exact same asset. It's backed by the same asset. It it it is the same asset.

It's just now we're using the blockchain as an extension of our books and records. So there's no um derivatives involved or anything else. It's a one forone backing. And I think that that can give people full confidence that there's no additional um legal structures necessary. It's the same rights and protections that you have now.

Got it. is is as such as the representation. You know people well you know not to be too much of a philosopher but becomes an onlogical question like so you know is is is the is the is the holder of the token right uh then if it's is it if it's the thing do you then possess the rights because you're obviously using the word entitlement which is an important sort of legal concept. um it's not just a a term of art per se but there are certain kinds of expectations that and you're with this word sort of entitlement. So so what happens uh what does that what does entitlement mean number one and then number two uh the significance for the actual uh sort of holder of the token itself.

Yeah it's similar to the way D was framing it before. um when you buy a stock, they don't mail the stock certificate to your house, right? It's not a bearer instrument. What happens um in the traditional world is you buy a stock, it's represented, it settles at DTC, it's custody to DTC and um the end investor has the security entitlement to that asset, right? And that's the way it has worked in the traditional market for for decades.

The token gives you the same security entitlement. And that's why when I say it's the same asset, it really is. It's just we've found a novel and more efficient way of keeping track of it, mobilizing it, settling it, right? It can settle instantly, transparently. Um it can be programmable um 247.

All of these benefits that we couldn't get before, but the the token represents the same asset, the same you get the same voting rights, you get the same dividends, you get the same protections, investor protections from the SEC. Everything is the same.

Joe, take 30 seconds. You said programmable. tell us about what that means. What does a programmable security mean?

So, one of the one of the cool benefits of blockchain is that you can deploy smart contracts that can use um tokens. So, we've we've all seen this um particularly in the crypto world, but it doesn't it doesn't have to be in the crypto world. Um, you can deploy, for example, a smart contract that can define eligible collateral and what the haircuts are on those eligible collaterals and what the optimal allocation of that collateral is and it can actually move those assets um substitute them as necessary. cover deficits, recall for excesses um programmatically so that it can be done efficiently um not in a batch, not necessarily once a day as needed throughout the day um and again on a 247 um basis.

I mean that sounds a lot like it's it's great for back office efficiency. We can get that but to a retail investor, what does that how does that really help? Well, I mean the the example is collateral which is often you know a large institution uh back office function. That being said, when you have increased efficiency in your collateral uh you reduce the margin period of risk that can reduce haircuts and initial margins that can um increase value in the the price uh given to end investors. So it there is you know the the financial system as we all know is a continuum.

Um so everything has a knock-on effect.

Got it. This is great. So, um, and by the way, A+ on like clarity of explanation for the audience. [laughter] It's very, it's good. It's like, you know, just wait for it.

Wait for it. All right. So, you know, yours is a very, um, you know, uh, you're a regulated entity and institution. Kudos, by the way, to the paperwork crisis. I tell people about this all the time.

They're like, "Yeah, yeah. People use paper. Really? What's that?" Um, but when you look at your current structure, uh, it is a permission environment.

uh uh you sort of help define, you know, the wallet, you know, what what kind of shares can be tokenized at all. Um uh really uh the processes um uh involved with, you know, where a token can move and all. C can you can you tell us about what goes on uh in in sort of determining where those lines are are drawn, you know? Um uh certainly um you're utilizing the efficiency of the blockchain. Um but you're doing so in a way that is cognizable to both the SEC and to Wall Street.

It is different um you know uh from uh public blockchains. So maybe you can you can sort of tell us a little bit about like how the permissioning works and just what goes into the the mindset and the process of the decision making.

Yeah. Um it's it's different than I would say crypto. Not necessarily different than public blockchains because a DTC token can exist on a public blockchain.

Fair enough.

Um we've we've announced um public blockchains already and and more more to come as we go along. um the the guide the guide rails by which we're able to launch the service were defined in the SEC no action letter but within those guide rails the um features and the um the priority is defined by the market. So we have an industry working group with well over a 100 firms all of the big names that you would know that have given uh input um and feedback that can help to inform the the product. Um but to your point, there is some level of permissioning. Um that's a feature, not a bug.

That's one of the things that enables a large institution to be able to transact with these assets, whereas uh from a regulatory perspective and frankly from a risk perspective, they probably couldn't if these permissions and controls were not in place. So for example, you have to register the wallet with DTCC in order for it to hold the tokens. So all of the big banks and broker dealers, all of which are our members, can register wallets, any number that they want for themselves internally or for their clients. Once it's registered, it goes through, you know, an OFAC process. Um, and then it can it can be eligible to hold a DTC token.

Um, you can't just move it into some random no-name token that, you know, no one knows. That's one of the things the the benefits of the blockchain are you know speed efficiency um 247 you know that type of thing where we have seen um some of the issues have been in sort of the anonymity um the lack of recourse when something goes wrong we're we're solving for that if you know your um wallet is uh not quantum compliant as we all saw and it gets hacked we can get it back. Um, if you know, you don't want a situation where 3% of the entire issuance of IBM stock goes missing forever because someone forgot their keys. Okay, if that happens, we can get it back. Um, so those controls, those compliance aware controls that are built right into the token enable us to roll this service out and give the industry the full faith and confidence that there is that recourse and that level of control the same as it exists today.

you get the benefit without necessarily the drawback that we've seen in some of the blockchain transformations.

So fair to say that we've taken this this magical thing called the blockchain and sort of inoculated traditional equities from the problems we've seen with using blockchain in the crypto world. So it's basically taking all the goodness of it and inoculating us from a lot of the bad stuff.

That's right. Um you know which do you want? Do you want the efficiency and the transparency and the 247 nature of a blockchain or do you want the safe and sound and securess of the traditional financial system?

You want all of the above?

Yeah.

Right. And it's, you know, do you want do you want to be on chain

or do you want to take part in the deep liquidity that's in the traditional financial system? Which is it?

Well, it's all the above.

Yeah,

we have through the tokenization service. I mentioned the conversion order ch trans transfers it from traditional form to digital form. The same conversion order can just as easily transform it back again.

So you can use that token in any digital application that you want, but you don't have the opportunity cost of giving up the entire traditional financial system. You can move it back,

right? Do you want to be on blockchain A or blockchain B or blockchain C? The answer is all the above.

Yeah,

our service is multi-chain. So, we're going live uh on two chains uh when the service launches in two weeks. We've announced two more chains on top of that and then more coming in the very near future um as we vet the chains for you know all the the standards that we that we need. Um more and more will be coming on as as demand um indicates from from our client base. But it's a very interoperable it's meant to be interoperable on a blockchain basis and also interoperable on a traditional to digital format basis.

So Joe, give us a sense of like what can we expect? You you guys had a pilot in the summertime going live, you know, later this month. So tell us what we can expect over the next six to 12 months. What's what's the product roadmap?

So yeah, we did have a production event in July. Um a single day event which was uh to demonstrate readiness to demonstrate that in a live production environment, these assets work and there are use cases that the market is ready to use to get real value. I think you started off by saying we tokenization has been coming for a long time. We've seen lots of pilots. We've seen lots of experiments.

Experiments are great. Um but there comes a point where you need to actually go into production.

Yeah.

And that point is in two weeks. The service launches in two weeks. My god, I can't even believe it. But this is happening. Um and that's that's what we're looking forward to in the in the short term.

in the longer term. Um, you know, I imagine a world where you have a lot of things on chain, the assets, yes, but other things that drive sort of the the underbelly of the financial system like derivatives, for example. Imagine if you have der derivatives on chain in the current environment. You know, a margin call is basically um a a race against cutoffs, right? You identify the asset and then you try to settle it within some settlement window and then once that settlement window closes it's locked and it's basically trapped there.

Yeah.

No efficiency. Um imagine if those settlement windows were open and you can move the asset as the underlying asset like a like a swap as the value changes you can move those things instantaneously programmatically 247. The risk mitigation would be fantastic. So uh uh about 90 seconds as you know that the overarching arc in the crypto conversation was disintermediation of institutions

of the man you know uh you know the DTC is is you know one of the stalwarts of Wall Street um and is a is core infrastructure. What do you think um when you look at that conversation, the the the the crypto uh native conversation if one will what do you think that they got right in their critique of the man of the system? uh you know and and what do you think um what you're doing uh does to provide if one will lessons what what what lessons is is are or is the DTC bringing to the table in that very long journey

yeah what I would say and just a reminder that I'm a crypto proponent just for the record um and and and what you know the you know blockchain was invented by crypto

and what everybody got right, was the need for everything that blockchain brings to the table. We've said it several times, right? The the speed, the efficiency, the pro programmability, 247 nature, the transparency, etc. That's what that's what was gotten right. I think if I could characterize something that was gotten wrong was the notion that large institutions would give up trust and certainty, legal certainty and ownership and recourse in order to get those things.

Yeah. So it goes back to the same question. Which one do you want?

And the answer is all of the above.

Yeah.

So that that's what we're trying to deliver.

Well, with that, what a fitting day uh and way to end day two of DC Fintech week. Thank you, Joe. Thank you, D. Excellent. I have to do this co-odderating thing.

I can just, you know, just get get a beer next time and just have like my co-odderator do everything. Everyone, we will now, Speaking of beers, we will have our happy hour which is beginning uh right now. Thank you so much. I I I can't say it enough after 10 years of this event. We don't do this without you.

Big big big huge uh applause um to Mariana and Zanab. Many of you have been receiving emails from them. [applause] They they are the heart and soul of this event. Uh many thanks to AWS, Olivia, and and all. I hope you've had a great time.

Uh see you and get some drinks. All right. Bye. [applause] All right.

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